<PAGE> 1
PARKSTONE
FUNDS
INVESTOR A and INVESTOR B SHARES
SEPTEMBER 17, 1999
PROSPECTUS
The Securities and Exchange Commission has not
approved or disapproved these securities or passed
upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C> <C>
RISK/RETURN SUMMARY
[LOGO]
4 International Discovery Fund
5 Small Capitalization Fund
6 Mid Capitalization Fund
8 Large Capitalization Fund
10 Fund Expenses -- Growth Funds
12 Equity Income Fund
14 Balanced Allocation Fund
16 Fund Expenses -- Growth and Income Funds
18 Bond Fund
20 Intermediate Government Obligations Fund
22 U.S. Government Income Fund
24 Limited Maturity Bond Fund
26 Fund Expenses -- Income Funds
28 Michigan Municipal Bond Fund
30 National Tax Exempt Bond Fund
32 Fund Expenses -- Tax-Free Income Funds
34 Tax-Free Fund
35 Prime Obligations Fund
36 U.S. Government Obligations Fund
37 Treasury Fund
38 Fund Expenses -- Money Market Funds
DESCRIPTION OF THE FUNDS
[LOGO]
40 Description of the Funds
Investment Objectives, Strategies and Risks
51 Additional Risk Considerations
MANAGEMENT OF THE FUNDS
[LOGO]
52 The Investment Adviser
53 Portfolio Management Team
53 The Distributor and Administrator
53 Year 2000
PURCHASE AND SALE OF SHARES
[LOGO]
55 How NAV is Calculated
56 Purchasing and Adding to Your Shares
59 Selling Your Shares
62 Distribution Arrangements/Sales Charges
67 Exchanging Your Shares
DIVIDENDS, DISTRIBUTIONS AND TAXES
[LOGO]
69 Dividends and Distributions
69 Federal Taxes
70 State and Local Taxes
FINANCIAL HIGHLIGHTS
[LOGO]
71
</TABLE>
2
<PAGE> 3
[LOGO]
RISK/RETURN SUMMARY
- -
The following is a summary of certain key information about the Funds. You
will find additional information about the Funds, including a detailed
description of the risks of an investment in a Fund, after this summary.
In this summary, we will describe certain kinds of risks that apply to one or
more of the Funds. The summary also describes specific risks that may apply
to one Fund. These risks are:
- MARKET RISK This is the risk that the value of a Fund's investments will
fluctuate as the stock or bond markets fluctuate and that prices overall
will decline over short or longer-term periods.
- INTEREST RATE RISK This is the risk that changes in interest rates will
affect the value of a Fund's investments in income-producing or
fixed-income or debt securities. Increases in interest rates may cause the
value of a Fund's investments to decline.
- CREDIT RISK This is the risk that the issuer of a security will be unable
or unwilling to make timely payments of interest or principal, or to
otherwise honor its obligations.
- FOREIGN RISK This is the risk of investments in issuers located in foreign
countries, which may have greater price volatility and less liquidity.
Investments in foreign securities also are subject to political,
regulatory, and diplomatic risks. Foreign risk includes currency risk,
which may occur due to fluctuations in the exchange rates between the U.S.
dollar and foreign currencies. This risk could negatively affect the value
of a Fund's investments.
- MANAGEMENT RISK This is the risk that investments selected by a Fund's
manager may not perform well and that the Fund will not perform as well as
a result.
Other important things for you to note:
- You may lose money by investing in a Fund.
- An investment in a Fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
For convenience of reference, the Funds are sometimes referred to as part of
a general grouping as described below:
- GROWTH FUNDS (International Discovery Fund, Small Capitalization Fund, Mid
Capitalization Fund and Large Capitalization Fund) The Growth Funds offer
investors seeking growth of capital a range of alternative approaches to
investing according to risk tolerance.
- GROWTH AND INCOME FUNDS (Equity Income Fund and Balanced Allocation Fund)
The Growth and Income Funds offer investors seeking current income with
preservation of capital a range of alternative approaches to investing.
- INCOME FUNDS (Bond Fund, Intermediate Government Obligations Fund, U.S.
Government Income Fund and Limited Maturity Bond Fund) The Income Funds
offer investors seeking current income with preservation of capital a range
of alternative approaches to investing.
- TAX-FREE INCOME FUNDS (Michigan Municipal Bond Fund and National Tax Exempt
Bond Fund (formerly Municipal Bond Fund)) The Tax-Free Income Funds offer
investors seeking income exempt from federal income tax as well as
preservation of capital a range of alternative approaches to investing.
- MONEY MARKET FUNDS (Tax-Free Fund, Prime Obligations Fund, U.S. Government
Obligations Fund and Treasury Fund) The Money Market Funds offer investors
seeking current income as well as preservation of capital a range of
alternative approaches to investing. An investment in one of the Money
Market Funds is not a deposit of any bank and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government
agency. Although each of the Money Market Funds seeks to preserve the value
of your investment at $1.00 per share, it is possible to lose money by
investing in one of the Money Market Funds.
Each Fund's investment objective may be changed without shareholder approval,
except as otherwise stated.
3
<PAGE> 4
[LOGO]
RISK/RETURN SUMMARY INTERNATIONAL DISCOVERY FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide capital
appreciation by investing in equity securities of foreign issuers.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 80% of
its total assets in equity securities of at least three foreign issuers.
The Fund's assets normally will be invested in the securities of issuers
located in at least three foreign countries. Foreign investments also may
include debt obligations issued or guaranteed by foreign governments or
their agencies, authorities, instrumentalities or political subdivisions,
including a foreign state, province or municipality. The Fund does not
presently intend to invest in common stock of domestic companies.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are market risk, foreign risk, and management risk. Because the Fund
invests in foreign securities, the Fund's returns will be more volatile and
differ, sometimes significantly, from U.S. stock returns generally.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- Are seeking increased diversification and new investment opportunities.
- Can stay invested for a minimum of three to five years.
- Are willing to accept short-term price fluctuations and higher than
average risk.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
PERFORMANCE SUMMARY
The chart and table on this
page show how the
International Discovery Fund
has performed and how its
performance has varied from
year to year. The bar chart
gives an indication of risk by
showing changes in the Fund's
yearly performance over six
years to demonstrate that the
Fund has gained or lost value
at different times. The table
below compares the Fund's
average annual returns for 1
and 5 year periods and since
inception to those of the
Morgan Stanley Capital
International Europe,
Australasia and Far East
(EAFE) Index, which represents
the performance of the major
stock markets in those
regions. Past performance does
not indicate how the Fund will
perform in the future.
The returns for Investor B
Shares will differ from the
Investor A returns shown in
the bar chart because of
differences in expenses of
each class. The table below
assumes that Investor B
shareholders redeem all their
fund shares at the end of the
period indicated.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INVESTOR A SHARES(1)
<TABLE>
<CAPTION>
<S> <C>
1993 33.26%
94 -6.87%
95 7.85%
96 16.31%
97 1.61%
98 12.35%
</TABLE>
The bar chart above does not reflect the impact
of any applicable sales charges or account fees
which would reduce returns.
During the period shown in the bar chart, the
Fund's:
Best Quarter was 18.17% 4th quarter 1998
Worst Quarter was -15.63% 3rd quarter 1998
PERFORMANCE TABLE
Average Annual Total Returns
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
FUND OR CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Investor A Shares
(with 5.50% sales charge) 12/29/92 6.17% 4.74% N/A 9.02%
Investor B Shares
(with applicable Contingent Deferred Sales
Charge) 2/4/94 6.51% N/A N/A 3.58%
Morgan Stanley Capital International EAFE Index 12/29/92 20.33% 9.50% N/A 13.10%
</TABLE>
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
4
<PAGE> 5
[LOGO]
RISK/RETURN SUMMARY SMALL CAPITALIZATION FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide capital
appreciation with a diversified portfolio of publicly traded smaller cap
equity securities.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 80% of
its total assets in equity securities of companies with small stock market
capitalization. The Fund considers a "small capitalization" company to be
one that has the same market capitalization as the companies in the Russell
2000 Growth Index. The Fund may invest up to 25% of its total assets in
foreign securities.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are market risk and management risk. The Fund's risks also include
capitalization risk, which is the risk of investing in securities of small
companies. Prices of these companies' securities tend to be more volatile
than those of large companies' securities. In addition, small-
capitalization companies may have more risk because they often have
less-seasoned management and more limited product lines, markets, or
financial resources. To the extent the Fund invests in foreign securities,
your investment may have foreign risk.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- Wish to take advantage of the growth potential of small company stocks.
- Can remain invested for a minimum of three to five years.
- Are willing to accept higher than average volatility and risk.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
PERFORMANCE SUMMARY
The chart and table on this
page show how the Small
Capitalization Fund has
performed and how its
performance has varied from
year to year. The bar chart
gives an indication of risk by
showing changes in the Fund's
yearly performance over ten
years to demonstrate that the
Fund has gained or lost value
at different times. The table
below compares the Fund's
average annual returns for 1,
5 and 10 year periods and
since inception to those of
the Russell 2000 Growth Index,
which is comprised of
securities in the Russell 2000
Stock Index with a greater
than average growth
orientation. Past performance
does not indicate how the Fund
will perform in the future.
The returns for Investor B
Shares will differ from the
Investor A returns shown in
the bar chart because of
differences in expenses of
each class. The table below
assumes that Investor B
shareholders redeem all their
fund shares at the end of the
period indicated.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INVESTOR A SHARES(1)
<TABLE>
<CAPTION>
<S> <C>
1989 32.39%
90 -1.37%
91 43.94%
92 19.15%
93 21.48%
94 4.97%
95 35.67%
96 27.59%
97 -6.29%
98 -5.51%
</TABLE>
The bar chart above does not reflect the impact of any applicable sales charges
or account fees which would reduce returns.
During the period shown in the bar chart, the Fund's:
Best Quarter was 31.41% 4th quarter 1992
Worst Quarter was -26.96% 3rd quarter 1998
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ending December 31, 1998)
<TABLE>
<CAPTION>
FUND OR CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Investor A Shares
(with 5.50% sales charge) 10/31/88 -10.69% 8.74% 15.26% 14.99%
Investor B Shares
(with applicable Contingent Deferred Sales Charge) 2/4/94 -10.34% N/A N/A 10.13%
Russell 2000 Growth Index 10/31/88 1.23% 10.22% 11.54% 11.43%
</TABLE>
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
5
<PAGE> 6
[LOGO]
RISK/RETURN SUMMARY MID CAPITALIZATION FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide capital
appreciation with a diversified portfolio of publicly traded mid cap equity
securities.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 80% of
its total assets in securities of companies with mid stock market
capitalization. The Fund considers a "mid capitalization" company to be one
that has the same market capitalization as the companies in the Russell Mid
Cap Growth Index. The Fund may invest up to 25% of its total assets in
foreign securities.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are market risk and management risk. The Fund's risks also include
capitalization risk, which is the risk of investing in the securities of
mid-capitalization companies. Prices of mid-capitalization companies'
securities tend to be more volatile than those of large companies'
securities. In addition, mid-capitalization companies may have more risk
because they often have less-seasoned management and more limited product
lines, markets, or financial resources. To the extent the Fund invests in
foreign securities, your investment may have foreign risk.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- Want to take advantage of the long-term growth potential historically
provided by stock investments.
- Can remain invested for a minimum of three to five years.
- Are willing to accept short-term price fluctuations and higher than
average risk in return for potential above-average long-term growth.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
6
<PAGE> 7
RISK/RETURN SUMMARY MID CAPITALIZATION FUND
PERFORMANCE SUMMARY
The chart and table on this
page show how the Mid
Capitalization Fund has
performed and how its
performance has varied from
year to year. The bar chart
gives an indication of risk by
showing changes in the Fund's
yearly performance over ten
years to demonstrate that the
Fund has gained or lost value
at different times. The table
below compares the Fund's
average annual returns for 1,
5 and 10 year periods and
since inception to those of
the Russell Mid-Cap Growth
Index, an unmanaged index
which focuses on the
mid-capitalization sector of
the U.S. stock market. Past
performance does not indicate
how the Fund will perform in
the future.
The returns for Investor B
Shares will differ from the
Investor A returns shown in
the bar chart because of
differences in expenses of
each class. The table below
assumes that Investor B
shareholders redeem all their
fund shares at the end of the
period indicated.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INVESTOR A SHARES(1)
<TABLE>
<CAPTION>
<S> <C>
1989 35.53%
90 -3.31%
91 27.60%
92 15.22%
93 12.89%
94 -5.43%
95 29.58%
96 18.53%
97 11.60%
98 11.04%
</TABLE>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
During the period shown in the bar chart,
the Fund's:
Best Quarter was 21.94% 4th quarter 1998
Worst Quarter was -19.28% 3rd quarter 1998
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
FUND OR CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Investor A Shares
(with 5.50% sales charge) 10/31/88 4.96% 11.21% 13.98% 13.73%
Investor B Shares
(with applicable Contingent Deferred Sales Charge) 2/4/94 5.41% N/A N/A 12.00%
Russell Mid-Cap Growth Index 10/31/88 17.86% 17.34% 17.30% 17.13%
</TABLE>
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
7
<PAGE> 8
[LOGO]
RISK/RETURN SUMMARY LARGE CAPITALIZATION FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide capital
appreciation with a diversified portfolio of publicly traded larger cap
equity securities.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 80% of
its total assets in a diversified portfolio of common stocks and securities
convertible into common stocks of companies with large stock market
capitalization. The Fund considers a "large capitalization" company to be
one that has the same market capitalization as the companies in the S&P
Barra Growth Index. The Fund may also invest up to 25% of its total assets
in foreign securities.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are market risk and management risk. To the extent the Fund invests in
foreign securities, your investment may have foreign risk.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- Want to take advantage of the long-term growth potential historically
provided by stock investments.
- Wish to invest in large companies whose names or products/services are
well known.
- Can remain invested for a minimum of three to five years.
- Are willing to accept short-term price fluctuations and higher than
average risk in return for potential above-average long-term growth.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
8
<PAGE> 9
RISK/RETURN SUMMARY LARGE CAPITALIZATION FUND
PERFORMANCE SUMMARY
The chart and table on this
page show how the Large
Capitalization Fund has
performed and how its
performance has varied from
year to year. The bar chart
gives an indication of risk by
showing changes in the Fund's
yearly performance over two
years to demonstrate that the
Fund has gained or lost value
at different times. The table
below compares the Fund's
average annual returns for a
one year period and since
inception to those of the S&P
Barra Growth Index, which is
comprised of securities in the
Standard & Poor's 500 Stock
Index that have a higher than
average price-to-book ratio.
Past performance does not
indicate how the Fund will
perform in the future.
The returns for Investor B
Shares will differ from the
Investor A returns shown in
the bar chart because of
differences in expenses of
each class. The table below
assumes that Investor B
shareholders redeem all their
fund shares at the end of the
period indicated.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INVESTOR A SHARES(1)
<TABLE>
<CAPTION>
<S> <C>
1997 28.76%
98 42.37%
</TABLE>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
During the period shown in the bar chart,
the Fund's:
Best Quarter was 25.48% 4th quarter 1998
Worst Quarter was -9.17% 3rd quarter 1998
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
FUND OR CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Investor A Shares
(with 5.50% sales charge) 2/1/96 34.57% N/A N/A 28.23%
Investor B Shares
(with applicable Contingent Deferred Sales Charge) 2/1/96 36.30% N/A N/A 28.99%
S&P Barra Growth Index 2/1/96 42.16% N/A N/A 33.31%
</TABLE>
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
9
<PAGE> 10
[LOGO]
RISK/RETURN SUMMARY FUND EXPENSES
FEES AND EXPENSES -- GROWTH FUNDS
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD A OR B SHARES OF THE FUNDS.
Annual Fund operating expenses are paid out of Fund assets and are reflected
in the share price. The fees and expenses for each Fund and Class are based
upon current contractual investment advisory fees (as of October 1, 1999) and
the other actual operating expenses of that Fund and Class for the fiscal
year ended May 31, 1999.
FEE TABLE
<TABLE>
<CAPTION>
INTERNATIONAL SMALL
DISCOVERY FUND CAPITALIZATION FUND(6)
INVESTOR A INVESTOR B INVESTOR A INVESTOR B
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load)(1) Imposed on Purchases (as a
percentage of offering price) 5.50% None 5.50% None
Maximum Deferred Sales Charge (Load)(2)
(as a percentage of offering price or sale price,
whichever is less) None 5.00% None 5.00%
Redemption Fee(3) None None None None
Exchange Fee(4) None None None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees 1.15% 1.15% 1.00% 1.00%
Distribution and Service (12b-1) Fees(5) 0.25% 1.00% 0.25% 1.00%
Other Expenses 0.41% 0.41% 0.45% 0.45%
Total Annual Fund Operating Expenses 1.81% 2.56% 1.70% 2.45%
</TABLE>
<TABLE>
<CAPTION>
MID LARGE
CAPITALIZATION FUND CAPITALIZATION FUND
INVESTOR A INVESTOR B INVESTOR A INVESTOR B
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load)(1) Imposed on Purchases (as a
percentage of offering price) 5.50% None 5.50% None
Maximum Deferred Sales Charge (Load)(2)
(as a percentage of offering price or sale price,
whichever is less) None 5.00% None 5.00%
Redemption Fee(3) None None None None
Exchange Fee(4) None None None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees 1.00% 1.00% 0.75% 0.75%
Distribution and Service (12b-1) Fees(5) 0.25% 1.00% 0.25% 1.00%
Other Expenses 0.32% 0.32% 0.31% 0.31%
Total Annual Fund Operating Expenses 1.57% 2.32% 1.31% 2.06%
</TABLE>
10
<PAGE> 11
RISK/RETURN SUMMARY FUND EXPENSES
- -
FEES AND EXPENSES (CONTINUED)
(1) The sales charge may be reduced or eliminated under certain
circumstances. See "Distribution Arrangements/Sales Charges."
(2) The CDSC on Investor B Shares declines over five years starting with year
one and ending in year six from: 5.00%, 5.00%, 4.00%, 3.00%, 2.00%.
Investor B Shares which were purchased prior to January 1, 1997, are
subject to a CDSC which declines over four years ending in year five
from: 4.00%, 4.00%, 3.00%, 2.00%.
(3) If you invest $1,000,000 or more in Investor A Shares of the Funds, your
shares 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,
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.
(4) Exchanges into the Funds from a Money Market Fund will be normally
subject to a sales charge.
(5) Shareholders should be aware that due to the distribution fees, a
long-term shareholder in a Fund may pay over time more than the economic
equivalent of the maximum front-end sales charge permitted under the
rules of the National Association of Securities Dealers, Inc.
(6) The fees and expenses for the Small Capitalization Fund are based upon
current fees.
EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
INTERNATIONAL DISCOVERY FUND
INVESTOR A SHARES $724 $1,088 $1,476 $2,560
INVESTOR B SHARES
ASSUMING REDEMPTION $759 $1,196 $1,560 $2,626
ASSUMING NO REDEMPTION $259 $ 796 $1,360 $2,626
SMALL CAPITALIZATION FUND
INVESTOR A SHARES $713 $1,056 $1,422 $2,448
INVESTOR B SHARES
ASSUMING REDEMPTION $748 $1,164 $1,506 $2,514
ASSUMING NO REDEMPTION $248 $ 764 $1,306 $2,514
MID CAPITALIZATION FUND
INVESTOR A SHARES $701 $1,018 $1,358 $2,315
INVESTOR B SHARES
ASSUMING REDEMPTION $735 $1,124 $1,440 $2,381
ASSUMING NO REDEMPTION $235 $ 724 $1,240 $2,381
LARGE CAPITALIZATION FUND
INVESTOR A SHARES $676 $ 942 $1,229 $2,042
INVESTOR B SHARES
ASSUMING REDEMPTION $709 $1,046 $1,308 $2,104
ASSUMING NO REDEMPTION $209 $ 646 $1,108 $2,104
</TABLE>
This Example is intended to help
you compare the cost of
investing in the Funds with
the cost of investing in
other mutual funds.
The Example assumes that you
invest $10,000 in the Funds
for the time periods
indicated and then redeem all
of your shares at the end of
those periods. The Example
also assumes that your
investment has a 5% return
each year and that each
Fund's operating expenses
remain the same. Although
your actual costs may be
higher or lower, based on
these assumptions your costs
would be:
11
<PAGE> 12
[LOGO]
RISK/RETURN SUMMARY EQUITY INCOME FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide capital
appreciation with a diversified portfolio of publicly traded larger cap
equity securities which, in the aggregate, provide an above-average current
yield.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund invests at least 80% of the value
of its total assets in income producing, large cap common stocks and
securities convertible into common stocks. The Fund considers a "large
capitalization" company to be one that has the same market capitalization
as the companies in the S&P Barra Value Index. The Fund expects that its
core holdings will consist of securities with a high dividend yield,
although it may balance these holdings with lower yielding but
higher-growth oriented securities.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are market risk, interest rate risk, credit risk and management risk. To
the extent the Fund invests in foreign securities, your investment has
foreign securities risk.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- Would like to invest in the stock market but wish to do so in a way that
helps reduce some of the risks associated with other types of stock
funds.
- Want a dependable source of monthly income.
- Can stay invested for a minimum of three to five years.
- Are willing to accept some short-term price fluctuations in return for
potential above-average, long-term returns.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
12
<PAGE> 13
RISK/RETURN SUMMARY EQUITY INCOME FUND
- -
PERFORMANCE SUMMARY
The chart and table on this
page show how the Equity
Income Fund has performed and
how its performance has varied
from year to year. The bar
chart gives an indication of
risk by showing changes in the
Fund's yearly performance over
ten years to demonstrate that
the Fund has gained or lost
value at different times. The
table below compares the
Fund's average annual returns
for 1, 5 and 10 year periods
and since inception to those
of the S&P Barra Value Index,
which is comprised of
securities in the Standard &
Poor's 500 Stock Index that
have a lower than average
price-to-book ratio. Past
performance does not indicate
how the Fund will perform in
the future.
The returns for Investor B
Shares will differ from the
Investor A returns shown in
the bar chart because of
differences in expenses of
each class. The table below
that Investor B shareholders
redeem all their fund shares
at the end of the period
indicated.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INVESTOR A SHARES(1)
<TABLE>
<CAPTION>
<S> <C>
1989 28.13%
90 0.13%
91 24.96%
92 9.40%
93 12.50%
94 -8.34%
95 27.39%
96 17.32%
97 25.13%
98 10.76%
</TABLE>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
During the period shown in the bar chart,
the Fund's:
Best Quarter was 13.52% 4th quarter 1998
Worst Quarter was -10.78% 3rd quarter 1998
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
FUND OR CLASS PAST PAST 5 PAST 10 SINCE
INCEPTION YEAR YEARS YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Investor A Shares
(with 5.50% sales charge) 10/31/88 4.65% 12.40% 13.48% 13.50%
Investor B Shares
(with applicable Contingent Deferred Sales Charge) 2/4/94 5.04% N/A N/A 12.57%
S&P Barra Value Index 10/31/88 14.67% 19.87% 16.67% 16.39%
</TABLE>
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
13
<PAGE> 14
[LOGO]
RISK/RETURN SUMMARY BALANCED ALLOCATION FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide long
term capital appreciation and current income.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund invests in a broad range of
securities including common stocks, convertible securities and fixed-income
securities. Normally, the Fund expects to invest 50% to 70% of its net
assets in common stocks and convertible securities and 25% to 55% of its
net assets in fixed-income securities. The Fund also may invest up to 30%
of its net assets in cash and cash-equivalent securities, which include
highly liquid securities with a maturity of less than three months. The
Fund may invest up to 20% of its net assets in foreign securities.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are market risk, interest rate risk, credit risk and management risk. In
addition, the Fund has the risk that the allocation of its investments
between equity and fixed-income securities could have a negative effect on
the Fund's net asset value when one of these asset classes is not
performing as well as the other. To the extent the Fund invests in foreign
securities, your investment has foreign risk.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- Want exposure to stocks, bonds, and cash equivalents in a single fund.
- Wish to rely on professional fund managers to increase or decrease
exposure to different investment categories as market conditions change.
- Can stay invested for a minimum of three to five years.
- Are willing to accept some short-term price fluctuations in return for
potential above-average long-term returns.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
14
<PAGE> 15
RISK/RETURN SUMMARY BALANCED ALLOCATION FUND
PERFORMANCE SUMMARY
The chart and table on this
page show how the Balanced
Allocation Fund has performed
and how its performance has
varied from year to year. The
bar chart gives an indication
of risk by showing changes in
the Fund's yearly performance
over six years to demonstrate
that the Fund has gained or
lost value at different times.
The table below compares the
Fund's average annual returns
for 1 and 5 year periods and
since inception to those of
the Standard & Poor's 500
Stock Index ("S&P 500 Index"),
a widely recognized, unmanaged
index of common stocks
generally representative of
the U.S. stock market as a
whole and the Lehman Brothers
Aggregate Bond Index, an
unmanaged, fixed income,
market value-weighted index
that includes treasury issues,
agency issues, corporate bond
issues and mortgage backed
securities. Past performance
does not indicate how the Fund
will perform in the future.
The returns for Investor B
Shares will differ from the
Investor A returns shown in
the bar chart because of
differences in expenses of
each class. The table below
assumes that Investor B
shareholders redeem all their
fund shares at the end of the
period indicated.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INVESTOR A SHARES(1)
<TABLE>
<CAPTION>
<S> <C>
1993 11.34%
94 -2.93%
95 22.65%
96 12.93%
97 11.38%
98 12.74%
</TABLE>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
During the period shown in the bar chart,
the Fund's:
Best Quarter was 10.11% 4th quarter 1998
Worst Quarter was -6.85% 3rd quarter 1998
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
FUND OR CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Investor A Shares
(with 4.75% sales charge) 1/31/92 7.40% 9.96% N/A 10.45%
Investor B Shares
(with applicable Contingent Deferred Sales Charge) 2/4/94 6.94% N/A N/A 10.24%
S&P 500 Stock Index 1/31/92 28.58% 24.06% N/A 20.08%
Lehman Brothers Aggregate Bond Index 1/31/92 8.67% 7.27% N/A 7.95%
</TABLE>
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
15
<PAGE> 16
[LOGO]
RISK/RETURN SUMMARY FUND EXPENSES
- -
FEES AND EXPENSES -- GROWTH AND INCOME FUNDS
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD A OR B SHARES OF THE FUNDS.
Annual Fund operating expenses are paid out of Fund assets and are reflected
in the share price. The fees and expenses for each Fund and Class are based
upon current contractual investment advisory fees (as of October 1, 1999) and
the other actual operating expenses of that Fund and Class for the fiscal
year ended May 31, 1999.
FEE TABLE
<TABLE>
<CAPTION>
EQUITY INCOME FUND BALANCED ALLOCATION FUND
INVESTOR A INVESTOR B INVESTOR A INVESTOR B
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load)(1) Imposed on Purchases (as a
percentage of offering price) 5.50% None 4.75% None
Maximum Deferred Sales Charge (Load)(2)
(as a percentage of offering price or sale price,
whichever is less) None 5.00% None 5.00%
Redemption Fee(3) None None None None
Exchange Fee(4) None None None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees 0.75% 0.75% 0.75% 0.75%
Distribution and Service (12b-1) Fees(5) 0.25% 1.00% 0.25% 1.00%
Other Expenses 0.34% 0.34% 0.36% 0.36%
Total Annual Fund Operating Expenses 1.34% 2.09% 1.36% 2.11%
</TABLE>
(1) The sales charge may be reduced or eliminated under certain
circumstances. See "Distribution Arrangements/Sales Charges."
(2) The CDSC on Investor B Shares declines over five years starting with year
one and ending in year six from: 5.00%, 5.00%, 4.00%, 3.00%, 2.00%.
Investor B Shares which were purchased prior to January 1, 1997, are
subject to a CDSC which declines over four years ending in year five
from: 4.00%, 4.00%, 3.00%, 2.00%.
(3) If you invest $1,000,000 or more in Investor A Shares of the Funds, your
shares 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,
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.
(4) Exchanges into the Funds from a Money Market Fund will be normally
subject to a sales charge.
(5) Shareholders should be aware that due to the distribution fees, a
long-term shareholder in a Fund may pay over time more than the economic
equivalent of the maximum front-end sales charge permitted under the
rules of the National Association of Securities Dealers, Inc.
16
<PAGE> 17
RISK/RETURN SUMMARY FUND EXPENSES
- -
FEES AND EXPENSES (CONTINUED)
<TABLE>
EXAMPLE
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
EQUITY INCOME FUND
INVESTOR A SHARES $679 $ 951 $1,244 $2,074
INVESTOR B SHARES
ASSUMING REDEMPTION $712 $1,055 $1,324 $2,139
ASSUMING NO REDEMPTION $212 $ 655 $1,124 $2,139
BALANCED ALLOCATION FUND
INVESTOR A SHARES $607 $ 885 $1,184 $2,032
INVESTOR B SHARES
ASSUMING REDEMPTION $714 $1,061 $1,334 $2,160
ASSUMING NO REDEMPTION $214 $ 661 $1,134 $2,160
</TABLE>
This Example is intended to help
you compare the cost of
investing in the Funds with
the cost of investing in
other mutual funds.
The Example assumes that you
invest $10,000 in the Funds
for the time periods
indicated and then redeem all
of your shares at the end of
those periods. The Example
also assumes that your
investment has a 5% return
each year and that each
Fund's operating expenses
remain the same. Although
your actual costs may be
higher or lower, based on
these assumptions your costs
would be:
17
<PAGE> 18
[LOGO]
RISK/RETURN SUMMARY BOND FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide current
income as well as preservation of capital by investing in a portfolio of
high- and medium-grade fixed-income securities.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund invests at least 80% of its total
assets in investment grade securities of all types. Such securities will be
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 Adviser deems are of comparable
quality. The Fund expects to maintain a dollar-weighted average portfolio
maturity of 4 to 12 years.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are interest rate risk, credit risk and management risk. Increases in
interest rates may cause the value of the Fund's investments to decline and
the decrease in value may not be offset by higher interest income. Because
the Fund may invest in mortgage-related or asset-backed securities, it is
subject to the risk that mortgages or other assets may be prepaid when
interest rates decline, forcing the Fund to invest in securities with lower
interest rates. For this and other reasons, mortgage-related and
asset-backed securities may have significantly greater price and yield
volatility than traditional fixed-income securities.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- Wish to preserve and protect your assets while potentially staying ahead
of inflation.
- Want a dependable source of monthly income.
- Need additional diversification in your portfolio to reduce volatility.
- Can keep your money invested for a minimum of two to three years.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
18
<PAGE> 19
RISK/RETURN SUMMARY BOND FUND
- -
PERFORMANCE SUMMARY
The chart and table on this
page show how the Bond Fund
has performed and how its
performance has varied from
year to year. The bar chart
gives an indication of risk by
showing changes in the Fund's
yearly performance over ten
years to demonstrate that the
Fund has gained or lost value
at different times. The table
below compares the Fund's
average annual returns for 1,
5 and 10 year periods and
since inception to those of
the Lehman Brothers Aggregate
Bond Index. Past performance
does not indicate how the Fund
will perform in the future.
The returns for Investor B
Shares will differ from the
Investor A returns shown in
the bar chart because of
differences in expenses of
each class. The table below
assumes that Investor B
shareholders redeem all their
fund shares at the end of the
period indicated.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INVESTOR A SHARES(1)
<TABLE>
<CAPTION>
<S> <C>
1989 11.91%
90 8.12%
91 15.03%
92 6.24%
93 9.89%
94 -3.64%
95 17.08%
96 3.13%
97 9.06%
98 7.28%
</TABLE>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
During the period shown in the bar chart,
the Fund's:
Best Quarter was 6.89% 2nd quarter 1989
Worst Quarter was -2.62% 1st quarter 1994
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
FUND OR CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Investor A Shares
(with 4.75% sales charge) 10/31/88 2.13% 5.32% 7.73% 7.49%
Investor B Shares
(with applicable Contingent Deferred Sales Charge) 2/4/94 1.47% N/A N/A 5.33%
Lehman Brothers Aggregate Bond Index 10/31/88 8.67% 7.27% 9.26% 8.98%
</TABLE>
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
19
<PAGE> 20
[LOGO]
RISK/RETURN SUMMARY INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide current
income as well as preservation of capital by investing primarily in U.S.
government securities.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 80% of
its total assets in obligations issued or guaranteed by the U.S. government
or its agencies or instrumentalities. The Fund expects to maintain a
dollar-weighted average portfolio maturity of three to ten years. The Fund
normally invests in U.S. Treasury bills, notes or bonds and other U.S.
government securities. The Fund also may invest in mortgage-related
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are interest rate risk, credit risk and management risk. Increases in
interest rates may cause the value of the Fund's investments to decline and
a decrease in value may not be offset by higher interest income. Because
the Fund may invest in mortgage-related securities, it is subject to the
risk that mortgages may be prepaid when interest rates decline, forcing the
Fund to invest in securities with lower interest rates. For this and other
reasons, mortgage-related securities may have significantly greater price
and yield volatility than traditional debt securities.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- Wish to preserve and protect your assets while potentially staying ahead
of inflation.
- Want a dependable source of monthly income.
- Need additional diversification in your portfolio to reduce volatility.
- Can keep your money invested for a minimum of two to three years.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
20
<PAGE> 21
RISK/RETURN SUMMARY INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
- -
PERFORMANCE SUMMARY
The chart and table on this
page show how the Intermediate
Government Obligations Fund
has performed and how its
performance has varied from
year to year. The bar chart
gives an indication of risk by
showing changes in the Fund's
yearly performance over ten
years to demonstrate that the
Fund has gained or lost value
at different times. The table
below compares the Fund's
average annual returns for 1,
5 and 10 year periods and
since inception to those of
the Lehman Brothers
Intermediate Government Index.
Past performance does not
indicate how the Fund will
perform in the future.
The returns for Investor B
Shares will differ from the
Investor A returns shown in
the bar chart because of
differences in expenses of
each class. The table below
assumes that Investor B
shareholders redeem all their
fund shares at the end of the
period indicated.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INVESTOR A SHARES(1)
<TABLE>
<CAPTION>
<S> <C>
1989 10.05%
90 8.81%
91 13.77%
92 5.33%
93 7.37%
94 -2.45%
95 13.20%
96 2.88%
97 6.62%
98 7.35%
</TABLE>
The bar chart above does not reflect the impact
of any applicable sales charges or account fees
which would reduce returns.
During the period shown in the bar chart, the
Fund's:
Best Quarter was 5.23% 2nd quarter 1989
Worst Quarter was -1.88% 1st quarter 1994
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
FUND OR CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Investor A Shares
(with 4.75% sales charge) 10/31/88 2.26% 4.36% 6.67% 6.44%
Investor B Shares
(with applicable Contingent Deferred Sales Charge) 2/4/94 1.50% N/A N/A 4.28%
Lehman Brothers Intermediate Government Index 10/31/88 8.47% 6.45% 8.34% 8.11%
</TABLE>
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
21
<PAGE> 22
[LOGO]
RISK/RETURN SUMMARY U.S. GOVERNMENT INCOME FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide current
income as well as preservation of capital by investing primarily in U.S.
government securities.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 80% of
its total assets in obligations issued or guaranteed by the U.S. government
or its agencies or instrumentalities. The Fund also may invest up to 20% of
its total assets in mortgage-related securities and short-term obligations.
The Fund expects to maintain a dollar-weighted average portfolio maturity
of three to ten years.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are interest rate risk, credit risk and management risk. Increases in
interest rates may cause the value of the Fund's investments to decline and
the decrease in value may not be offset by higher interest income. Because
the Fund invests primarily in mortgage-related securities, it is subject to
the risk that mortgages may be prepaid when interest rates decline, forcing
the Fund to invest in securities with lower interest rates. For this and
other reasons, mortgage-related securities may have significantly greater
price and yield volatility than traditional debt securities.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- Want a high level of monthly income without a high degree of risk.
- Wish to diversify your investment portfolio to reduce volatility.
- Can keep your money invested for a minimum of two to three years.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
22
<PAGE> 23
RISK/RETURN SUMMARY U.S. GOVERNMENT INCOME FUND
- -
PERFORMANCE SUMMARY
The chart and table on this
page show how the U.S.
Government Income Fund has
performed and how its
performance has varied from
year to year. The bar chart
gives an indication of risk by
showing changes in the Fund's
yearly performance over six
years to demonstrate that the
Fund has gained or lost value
at different times. The table
below compares the Fund's
average annual returns for 1
and 5 year periods and since
inception to those of the
Lehman Brothers Mortgage-
Backed Securities Index which
covers all fixed-rate
securities backed by mortgage
pools of the Government
National Mortgage Association
(GNMA), Federal Home Loan
Mortgage Corporation (FHLMC)
and Federal National Mortgage
Association (FNMA). Past
performance does not indicate
how the Fund will perform in
the future.
The returns for Investor B
Shares will differ from the
Investor A returns shown in
the bar chart because of
differences in expenses of
each class. The table below
assumes that Investor B
shareholders redeem all their
fund shares at the end of the
period indicated.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INVESTOR A SHARES(1)
<TABLE>
<CAPTION>
<S> <C>
1993 7.41%
94 -0.70%
95 13.50%
96 4.54%
97 7.84%
98 6.80%
</TABLE>
The bar chart above does not reflect the impact
of any applicable sales charges or account fees
which would reduce returns.
During the period shown in the bar chart, the
Fund's:
Best Quarter was 3.88% 2nd quarter 1995
Worst Quarter was -1.13% 1st quarter 1994
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
FUND OR CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Investor A Shares
(with 4.75% sales charge) 11/12/92 1.75% 5.27% N/A 5.56%
Investor B Shares
(with applicable Contingent
Deferred Sales Charge) 2/4/94 1.12% N/A N/A 5.22%
Lehman Brothers Mortgage-Backed
Securities Index 11/12/92 6.97% 7.23% N/A 7.24%
</TABLE>
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
23
<PAGE> 24
[LOGO]
RISK/RETURN SUMMARY LIMITED MATURITY BOND FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide current
income as well as preservation of capital by investing in a portfolio of
high- and medium-grade fixed-income securities.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 80% of
its total assets in investment grade debt securities of all types. The Fund
invests primarily in corporate bonds, U.S. government obligations, and
mortgage-related and asset-backed securities. Such securities will be 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 Adviser deems are of comparable quality. The Fund
expects to maintain a dollar-weighted average portfolio maturity of one to
five years.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are interest rate risk and credit risk. Increases in interest rates may
cause the value of the Fund's investments to decline and the decrease in
value may not be offset by higher interest income. Because the Fund may
invest in mortgage-related or asset-backed securities, it is subject to the
risk that mortgages or other assets may be prepaid when interest rates
decline, forcing the Fund to invest in securities with lower interest
rates. For this and other reasons, mortgage-related and asset-backed
securities may have significantly greater price and yield volatility than
traditional debt securities.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- Wish to preserve and protect your assets while potentially staying ahead
of inflation.
- Want a dependable source of monthly income.
- Need additional diversification in your portfolio to reduce volatility.
- Can keep your money invested for a minimum of two to three years.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
24
<PAGE> 25
RISK/RETURN SUMMARY LIMITED MATURITY BOND FUND
- -
PERFORMANCE SUMMARY
The chart and table on this
page show how the Limited
Maturity Bond Fund has
performed and how its
performance has varied from
year to year. The bar chart
gives an indication of risk by
showing changes in the Fund's
yearly performance over ten
years to demonstrate that the
Fund has gained or lost value
at different times. The table
below compares the Fund's
average annual returns for 1,
5 and 10 year periods and
since inception to those of
the Merrill Lynch 1-3 Year
Government/Corporate Index,
which represents the total
returns of short-term
government and corporate
bonds. Past performance does
not indicate how the Fund will
perform in the future.
The returns for Investor B
Shares will differ from the
Investor A returns shown in
the bar chart because of
differences in expenses of
each class. The table below
assumes that Investor B
shareholders redeem all their
fund shares at the end of the
period indicated.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INVESTOR A SHARES(1)
<TABLE>
<CAPTION>
<S> <C>
1989 9.55%
90 7.83%
91 12.23%
92 5.76%
93 6.88%
94 -0.97%
95 10.96%
96 3.86%
97 5.66%
98 6.13%
</TABLE>
The bar chart above does not reflect the impact
of any applicable sales charges or account fees
which would reduce returns.
During the period shown in the bar chart, the
Fund's:
Best Quarter was 4.82% 2nd quarter 1989
Worst Quarter was -1.25% 1st quarter 1994
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
FUND OR CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Investor A Shares
(with 2.75% sales charge) 10/31/88 3.20% 4.48% 6.43% 6.34%
Investor B Shares
(with applicable Contingent Deferred Sales Charge) 2/4/94 0.36% N/A N/A 3.97%
Merrill Lynch 1-3 Year Government/Corporate Index 10/31/88 7.01% 6.04% 7.45% 7.33%
</TABLE>
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
25
<PAGE> 26
[LOGO]
RISK/RETURN SUMMARY FUND EXPENSES
FEES AND EXPENSES -- INCOME FUNDS
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD A OR B SHARES OF THE FUNDS.
Annual Fund operating expenses are paid out of Fund assets and are reflected
in the share price. The fees and expenses for each Fund and Class are based
upon current contractual investment advisory fees (as of October 1, 1999) and
the other actual operating expenses of that Fund and Class for the fiscal
year ended May 31, 1999.
FEE TABLE
<TABLE>
<CAPTION>
INTERMEDIATE
GOVERNMENT U.S. GOVERNMENT
SHAREHOLDER FEES (FEES PAID BOND FUND OBLIGATIONS FUND INCOME FUND
DIRECTLY FROM YOUR INVESTMENT) INVESTOR A INVESTOR B INVESTOR A INVESTOR B INVESTOR A INVESTOR B
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge (Load)(1)
Imposed on Purchases (as a
percentage of offering price) 4.75% None 4.75% None 4.75% None
Maximum Deferred Sales Charge
(Load)(2) (as a percentage of
offering price or sale price,
whichever is less) None 5.00% None 5.00% None 5.00%
Redemption Fee(3) None None None None None None
Exchange Fee(4) None None None None None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM
FUND ASSETS)
Management Fees 0.55% 0.55% 0.55% 0.55% 0.55% 0.55%
Distribution and Service (12b-1)
Fees(5) 0.25% 1.00% 0.25% 1.00% 0.25% 1.00%
Other Expenses 0.29% 0.29% 0.34% 0.34% 0.35% 0.35%
Total Annual Fund Operating
Expenses 1.09% 1.84% 1.14% 1.89% 1.15% 1.90%
Fee Waivers/Reimbursements(6) 0.05% 0.05% 0.05% 0.05% 0.05% 0.05%
Net Annual Fund Operating Expenses 1.04% 1.79% 1.09% 1.84% 1.10% 1.85%
<CAPTION>
LIMITED MATURITY
SHAREHOLDER FEES (FEES PAID BOND FUND
DIRECTLY FROM YOUR INVESTMENT) INVESTOR A INVESTOR B
<S> <C> <C>
Maximum Sales Charge (Load)(1)
Imposed on Purchases (as a
percentage of offering price) 2.75% None
Maximum Deferred Sales Charge
(Load)(2) (as a percentage of
offering price or sale price,
whichever is less) None 5.00%
Redemption Fee(3) None None
Exchange Fee(4) None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM
FUND ASSETS)
Management Fees 0.45% 0.45%
Distribution and Service (12b-1)
Fees(5) 0.25% 1.00%
Other Expenses 0.33% 0.33%
Total Annual Fund Operating
Expenses 1.03% 1.78%
Fee Waivers/Reimbursements(6) 0.05% 0.05%
Net Annual Fund Operating Expenses 0.98% 1.73%
</TABLE>
(1) The sales charge may be reduced or eliminated under certain
circumstances. See "Distribution Arrangements/Sales Charges"
(2) The CDSC on Investor B Shares declines over five years starting with year
one and ending in year six from: 5.00%, 5.00%, 4.00%, 3.00%, 2.00%.
Investor B Shares which were purchased prior to January 1, 1997, are
subject to a CDSC which declines over four years ending in year five
from: 4.00%, 4.00%, 3.00%, 2.00%.
(3) If you invest $1,000,000 or more in Investor A Shares of the Funds, your
shares will be subject to a redemption fee of 1.00% (and 0.25% for the
Limited Maturity Bond Fund) for redemptions of such shares made within
one year of the date of purchase. In addition, 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.
(4) Exchanges into the Funds from a Money Market Fund will be normally
subject to a sales charge.
(5) Shareholders should be aware that due to the distribution fees, a
long-term shareholder in a Fund may pay over time more than the economic
equivalent of the maximum front-end sales charge permitted under the
rules of the National Association of Securities Dealers, Inc.
(6) The Administrator is currently waiving a portion of its fees for the
current fiscal year. The Administrator may revise or cancel this expense
limitation at any time and will notify you of any material change.
26
<PAGE> 27
RISK/RETURN SUMMARY FUND EXPENSES
- -
FEES AND EXPENSES (CONTINUED)
EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
BOND FUND
INVESTOR A SHARES $581 $ 805 $1,047 $1,741
INVESTOR B SHARES
ASSUMING REDEMPTION $687 $ 979 $1,195 $1,870
ASSUMING NO REDEMPTION $187 $ 579 $ 995 $1,870
INTERMEDIATE GOVERNMENT
OBLIGATIONS FUND
INVESTOR A SHARES $586 $ 820 $1,073 $1,795
INVESTOR B SHARES
ASSUMING REDEMPTION $692 $ 994 $1,221 $1,924
ASSUMING NO REDEMPTION $192 $ 594 $1,021 $1,924
U.S. GOVERNMENT INCOME FUND
INVESTOR A SHARES $587 $ 823 $1,078 $1,806
INVESTOR B SHARES
ASSUMING REDEMPTION $693 $ 997 $1,226 $1,935
ASSUMING NO REDEMPTION $193 $ 597 $1,026 $1,935
LIMITED MATURITY BOND FUND
INVESTOR A SHARES $377 $ 594 $ 828 $1,500
INVESTOR B SHARES
ASSUMING REDEMPTION $681 $ 960 $1,164 $1,804
ASSUMING NO REDEMPTION $181 $ 560 $ 964 $1,804
</TABLE>
This Example is intended to help
you compare the cost of
investing in the Funds with
the cost of investing in
other mutual funds.
The Example assumes that you
invest $10,000 in the Funds
for the time periods
indicated and then redeem all
of your shares at the end of
those periods. The Example
also assumes that your
investment has a 5% return
each year and that each
Fund's operating expenses
remain the same. Although
your actual costs may be
higher or lower, based on
these assumptions your costs
would be:
27
<PAGE> 28
[LOGO]
RISK/RETURN SUMMARY MICHIGAN MUNICIPAL BOND FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide current
income exempt from federal income taxes and, to the extent possible, from
Michigan personal income taxes, as is consistent with conservation of
capital.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 80% of
its net assets in Michigan municipal securities 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 intangible taxes,
although such income may be subject to the federal alternative minimum tax
when received by certain shareholders. The Fund expects to maintain a
dollar-weighted average portfolio maturity of three to ten years.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are interest rate risk and credit risk. The Fund's investments in Michigan
municipal income securities may also include exposure to special factors
that may adversely affect the value of municipal securities and have a
significant effect on the value of the Fund's investments. These factors
include political or legislative changes, uncertainties related to the tax
status of municipal securities or the rights of investors in these
securities.
Due to the level of investment in municipal obligations issued by the State
of Michigan and its political subdivisions, the performance of the Fund
will be closely tied to the economic and political conditions in the State
of Michigan, and, therefore, an investment in the Fund may be riskier than
an investment in other types of municipal bond funds. The State's economy
is principally dependent upon manufacturing (particularly automobiles,
office equipment and other durable goods), tourism and agriculture and
historically has been highly cyclical. When a Fund's assets are
concentrated in obligations from revenues of similar projects issued by
issuers located in the same state or in industrial development bonds, the
Fund will be subject to the particular risks (including legal and economic
conditions) related to such securities to a greater extent than if its
assets were not so concentrated.
In addition, the Fund is not "diversified," meaning that it can invest a
greater percentage of its assets in a particular issuer. Factors affecting
these issuers could have a more significant adverse effect on the Fund's
net asset value.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- Wish to earn investment income that is exempt from federal income tax.
- Live in Michigan and wish to earn investment income that is also exempt
from state income tax.
- Want to support Michigan municipalities by purchasing their debt
securities.
- Seek to reduce volatility in your portfolio through increased
diversification.
- Can keep your money invested for a minimum of one to two years.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
28
<PAGE> 29
RISK/RETURN SUMMARY MICHIGAN MUNICIPAL BOND FUND
- -
PERFORMANCE SUMMARY
The chart and table on this
page show how the Michigan
Municipal Bond Fund has
performed and how its
performance has varied from
year to year. The bar chart
gives an indication of risk by
showing changes in the Fund's
yearly performance over eight
years to demonstrate that the
Fund has gained or lost value
at different times. The table
below compares the Fund's
average annual returns for 1
and 5 year periods and since
inception to those of the
Lehman Brothers 7 Year
Municipal Bond Index. Past
performance does not indicate
how the Fund will perform in
the future.
The table measures performance
in terms of total return.
However, this Fund is managed
for yield and not total
return.
The returns for Investor B
Shares will differ from the
Investor A returns shown in
the bar chart because of
differences in expenses of
each class. The table assumes
that Investor B shareholders
redeem all their fund shares
at the end of the period
indicated.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INVESTOR A SHARES(1)
<TABLE>
<CAPTION>
<S> <C>
1991 9.78%
92 6.98%
93 9.67%
94 -3.00%
95 13.24%
96 2.84%
97 6.91%
98 4.75%
</TABLE>
The bar chart above does not reflect the impact of any applicable sales charges
or account fees which would reduce returns.
During the period shown in the bar chart, the Fund's:
Best Quarter was 5.19% 1st quarter 1995
Worst Quarter was -3.27% 1st quarter 1994
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ending December 31, 1998)
<TABLE>
<CAPTION>
FUND OR CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Investor A Shares
(with 4.75% sales charge) 7/02/90 -0.20% 3.80% N/A 5.70%
Investor B Shares
(with applicable Contingent Deferred Sales Charge) 2/04/94 -1.00% N/A N/A 3.65%
Lehman Brothers 7 Year Municipal Bond Index 6/30/90 6.23% 5.80% N/A 7.55%
</TABLE>
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
29
<PAGE> 30
[LOGO]
RISK/RETURN SUMMARY NATIONAL TAX EXEMPT BOND FUND
FORMERLY MUNICIPAL BOND FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide current
income exempt from federal income taxes as is consistent with conservation
of capital.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 80% of
its net assets in a diversified portfolio of municipal securities 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. Interest income from certain types of municipal
securities may be subject to federal alternative minimum tax. These
securities are not treated as tax-exempt obligations for purposes of
measuring compliance with the 80% limitation. The Fund expects to maintain
a dollar-weighted average portfolio maturity of three to ten years.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are interest rate risk and credit risk. The Fund's investments in municipal
securities may also have exposure to special factors that may adversely
affect the value of these securities, and have a significant effect on the
value of the Fund's investments. These factors include political or
legislative changes, uncertainties related to the tax status of municipal
securities or the rights of investors in these securities.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- Wish to earn investment income that is exempt from federal income tax.
- Want to support U.S. cities and states by purchasing their debt
securities.
- Seek to reduce volatility in your portfolio through increased
diversification.
- Can keep your money invested for a minimum of one to two years.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
30
<PAGE> 31
RISK/RETURN SUMMARY NATIONAL TAX EXEMPT BOND FUND
- -
PERFORMANCE SUMMARY
The chart and table on this
page show how the National Tax
Exempt Bond Fund has performed
and how its performance has
varied from year to year. The
bar chart gives an indication
of risk by showing changes in
the Fund's yearly performance
over ten years to demonstrate
that the Fund has gained or
lost value at different times.
The table below compares the
Fund's average annual returns
for 1, 5 and 10 year periods
and since inception to those
of the Lehman Brothers
Municipal Bond Index. Past
performance does not indicate
how the Fund will perform in
the future.
This table measures
performance in terms of total
return. However, this Fund is
managed for yield and not
total return.
The returns for Investor B
Shares will differ from the
Investor A returns shown in
the bar chart because of
differences in expenses of
each class. The table assumes
that Investor B shareholders
redeem all their fund shares
at the end of the period
indicated.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INVESTOR A SHARES(1)
<TABLE>
<CAPTION>
<S> <C>
1989 7.57%
90 6.01%
91 9.16%
92 7.46%
93 9.01%
94 -3.30%
95 13.29%
96 2.63%
97 6.22%
98 4.73%
</TABLE>
The bar chart above does not reflect the impact of any applicable sales charges
or account fees which would reduce returns.
During the period shown in the bar chart, the Fund's:
Best Quarter was 5.62% 1st quarter 1995
Worst Quarter was -3.24% 1st quarter 1994
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
FUND OR CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Investor A Shares
(with 4.75% sales charge) 10/31/88 -0.27% 3.56% 5.67% 5.63%
Investor B Shares
(with applicable Contingent Deferred Sales Charge) 2/4/94 -1.09% N/A N/A 3.38%
Lehman Brothers Municipal Bond Index 10/31/88 6.48% 6.23% 8.22% 8.09%
</TABLE>
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
31
<PAGE> 32
[LOGO]
RISK/RETURN SUMMARY FUND EXPENSES
- -
FEES AND EXPENSES -- TAX-FREE INCOME FUNDS
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD A OR B SHARES OF THE FUNDS.
Annual Fund operating expenses are paid out of Fund assets and are reflected
in the share price. The fees and expenses for each Fund and Class are based
upon current contractual investment advisory fees (as of October 1, 1999) and
the other actual operating expenses of that Fund and Class for the fiscal
year ended May 31, 1999.
FEE TABLE
<TABLE>
<CAPTION>
MICHIGAN MUNICIPAL BOND FUND NATIONAL TAX EXEMPT BOND FUND(7)
INVESTOR A INVESTOR B INVESTOR A INVESTOR B
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load)(1) Imposed on
Purchases (as a percentage of offering price) 4.75% None 4.75% None
Maximum Deferred Sales Charge (Load)(2)
(as a percentage of offering price or sale
price whichever is less) None 5.00% None 5.00%
Redemption Fee(3) None None None None
Exchange Fee(4) None None None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Fees 0.55% 0.55% 0.55% 0.55%
Distribution and Service (12b-1) Fees(5) 0.25% 1.00% 0.25% 1.00%
Other Expenses 0.31% 0.31% 0.41% 0.40%
Total Annual Fund Operating Expenses 1.11% 1.86% 1.21% 1.95%
Fee Waivers/Reimbursements(6) 0.10% 0.10% 0.10% 0.10%
Net Annual Fund Operating Expenses 1.01% 1.76% 1.11% 1.85%
</TABLE>
(1) The sales charge may be eliminated under certain circumstances. See
"Distribution Arrangements/Sales Charges."
(2) The CDSC on Investor B Shares declines over five years starting with year
one and ending in year six from: 5.00%, 5.00%, 4.00%, 3.00%, 2.00%.
Investor B Shares which were purchased prior to January 1, 1997, are
subject to a CDSC which declines over four years ending in year five
from: 4.00%, 4.00%, 3.00%, 2.00%.
(3) If you invest $1,000,000 or more in Investor A Shares of the Funds, your
shares 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,
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.
(4) Exchanges into the Funds from a Money Market Fund will be normally
subject to a sales charge.
(5) Shareholders should be aware that due to the distribution fees, a
long-term shareholder in a Fund may pay over time more than the economic
equivalent of the maximum front-end sales charge permitted under the
rules of the National Association of Securities Dealers, Inc.
(6) The Administrator is currently waiving a portion of its fees for the
current fiscal year. The Administrator may revise or cancel this expense
limitation at any time and will notify you of any material change.
(7) The fees and expenses for the National Tax Exempt Bond Fund are based
upon current fees.
32
<PAGE> 33
RISK/RETURN SUMMARY FUND EXPENSES
- -
FEES AND EXPENSES (CONTINUED)
EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
MICHIGAN MUNICIPAL BOND FUND
INVESTOR A SHARES $583 $ 811 $1,058 $1,762
INVESTOR B SHARES
ASSUMING REDEMPTION $689 $ 985 $1,206 $1,892
ASSUMING NO REDEMPTION $189 $ 585 $1,006 $1,892
NATIONAL TAX EXEMPT BOND FUND
INVESTOR A SHARES $592 $ 841 $1,108 $1,871
INVESTOR B SHARES
ASSUMING REDEMPTION $698 $1,012 $1,252 $1,993
ASSUMING NO REDEMPTION $198 $ 612 $1,052 $1,993
</TABLE>
This Example is intended to help
you compare the cost of
investing in the Funds with
the cost of investing in
other mutual funds.
The Example assumes that you
invest $10,000 in the Funds
for the time periods
indicated and then redeem all
of your shares at the end of
those periods. The Example
also assumes that your
investment has a 5% return
each year and that each
Fund's operating expenses
remain the same. Although
your actual costs may be
higher or lower, based on
these assumptions your costs
would be:
33
<PAGE> 34
[LOGO]
RISK/RETURN SUMMARY TAX-FREE FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide as high
a level of current interest income free from federal income taxes,
consistent with the preservation of capital and relative stability of
principal.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund is a money market fund that seeks
to maintain a stable net asset value of $1.00 per share, although there is
no guarantee that the net asset value will not vary. The Fund normally
invests at least 80% of its total assets in municipal obligations the
interest on which is exempt from federal income tax and not subject to the
federal alternative minimum tax. These securities will have short-term debt
ratings in the two highest rating categories of at least two nationally
recognized statistical rating organizations, or will be unrated securities
of comparable quality. The Fund's dollar-weighted average portfolio
maturity will not exceed 90 days. The Fund will not purchase any security
which matures in more than 397 days.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are interest rate risk, credit risk and management risk. The Fund's
investments in municipal securities may also have exposure to special
factors that may adversely affect the value of municipal securities, and
have a significant effect on the value of the Fund's investments. These
factors include political or legislative changes, uncertainties related to
the tax status of municipal securities or the rights of investors in these
securities.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
- An investor in a high tax bracket.
- Seeking liquidity.
- Seeking current income exempt from federal income taxes.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
PERFORMANCE SUMMARY
The chart and table on this
page show how the Tax-Free
Fund has performed and how its
performance has varied from
year to year. The bar chart
gives an indication of risk by
showing changes in the Fund's
yearly performance over ten
years to demonstrate that the
Fund's return has varied at
different times. The Fund does
not offer Investor B Shares.
Past performance does not
indicate how the Fund will
perform in the future.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INVESTOR A SHARES(1)
<TABLE>
<CAPTION>
<S> <C>
1989 6.08%
90 5.46%
91 3.96%
92 2.53%
93 1.81%
94 2.24%
95 3.16%
96 2.69%
97 2.97%
98 2.75%
</TABLE>
During the period shown in the bar chart, the
Fund's:
Best Quarter was 1.58% 4th quarter 1989
Worst Quarter was 0.41% 1st quarter 1994
PERFORMANCE TABLE
Average Annual Total Returns
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
INCEPTION PAST PAST PAST SINCE
DATE YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Investor A Shares 7/30/87 2.75% 2.76% 3.36% 3.52%
</TABLE>
For current yield information on the Fund, call 1-800-451-8377. The Tax-Free
Fund's yield appears in The Wall Street Journal each Thursday.
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
34
<PAGE> 35
[LOGO]
RISK/RETURN SUMMARY PRIME OBLIGATIONS FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide current
income with liquidity and stability of principal.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund is a money market fund that seeks
to maintain a stable net asset value of $1.00 per share, although there is
no guarantee that the net asset value per share will not vary. The 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. These securities will have short-term
debt ratings in the two highest rating categories of at least two
nationally recognized statistical rating organizations, or will be unrated
securities of comparable quality. The Fund's dollar-weighted average
portfolio maturity will not exceed 90 days. The Fund will not purchase any
security which matures in more than 397 days.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are interest rate risk, credit risk and management risk.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
- Seeking current income through a liquid investment.
- Looking for a conservative investment to balance out more aggressive
investments.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
PERFORMANCE SUMMARY
The chart and table on this
page show how the Prime
Obligations Fund has performed
and how its performance has
varied from year to year. The
bar chart gives an indication
of risk by showing changes in
the Fund's yearly performance
over ten years to demonstrate
that the Fund's return has
varied at different times.
Past performance does not
indicate how the Fund will
perform in the future.
The returns for Investor B
Shares will differ from the
Investor A returns shown in
the bar chart because of
differences in expenses of
each class. The table assumes
that Investor B shareholders
redeem all their fund shares
at the end of the period
indicated.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INVESTOR A SHARES(1)
<TABLE>
<CAPTION>
<S> <C>
1989 8.98%
90 7.90%
91 5.96%
92 3.56%
93 2.61%
94 3.62%
95 5.32%
96 4.46%
97 5.01%
98 4.94%
</TABLE>
During the period shown in the bar chart,
the Fund's:
<TABLE>
<S> <C> <C> <C>
Best Quarter was 2.31% 2nd quarter 1989
Worst Quarter was 0.63% 2nd quarter 1993
</TABLE>
PERFORMANCE TABLE
Average Annual Total Returns
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Investor A Shares 8/24/87 4.94% 4.67% 5.22% 5.45%
Investor B Shares*
(with applicable Contingent Deferred Sales Charge) 9/30/97 4.00% N/A N/A 4.04%
</TABLE>
For current yield information on the Fund, call 1-800-451-8377. The Prime
Obligations Fund's yield appears in The Wall Street Journal each Thursday.
* The table above reflects the impact of any contingent deferred sales
charges that apply to Investor B Shares of the Prime Obligations Fund.
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
35
<PAGE> 36
[LOGO]
RISK/RETURN SUMMARY U.S. GOVERNMENT OBLIGATIONS FUND
- -
- - INVESTMENT OBJECTIVE. The Fund's investment objective is to provide current
income with liquidity and stability of principal.
- - PRINCIPAL INVESTMENT STRATEGIES. The Fund is a money market fund that seeks
to maintain a stable net asset value of $1.00 per share, although there is
no guarantee that the net asset value per share will not vary. The Fund
normally invests at least 65% 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. Other securities
purchased by the Fund will be high quality money market instruments and
comparable investments. These securities will have short-term debt ratings
in the two highest rating categories of at least two nationally recognized
statistical rating organizations or will be unrated securities of
comparable quality. The Fund's dollar-weighted average portfolio maturity
will not exceed 90 days. The Fund will not purchase any security which
matures in more than 397 days.
- - PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are interest rate risk, credit risk and management risk.
- - WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
- - Seeking current income through a liquid investment.
- Seeking current income.
- Looking for a conservative investment to balance out more aggressive
investments.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
PERFORMANCE SUMMARY
The chart and table on this
page show how the U.S.
Government Obligations Fund
has performed and how its
performance has varied from
year to year. The bar chart
gives an indication of risk by
showing changes in the Fund's
yearly performance over ten
years to demonstrate that the
Fund's return has varied at
different times. The Fund does
not offer Investor B Shares.
Past performance does not
indicate how the Fund will
perform in the future.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INVESTOR A SHARES(1)
<TABLE>
<CAPTION>
<S> <C>
1989 8.66%
90 7.69%
91 5.62%
92 3.72%
93 2.54%
94 3.56%
95 5.28%
96 4.76%
97 4.88%
98 4.83%
</TABLE>
During the period shown in the bar chart,
the Fund's:
<TABLE>
<S> <C> <C> <C>
Best Quarter was 2.23% 2nd quarter 1989
Worst Quarter was 0.61% 3rd quarter 1993
</TABLE>
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Investor A Shares 8/24/87 4.83% 4.66% 5.14% 5.35%
</TABLE>
For current yield information on the Fund, call 1-800-451-8377. The U.S.
Government Obligations Fund's yield appears in The Wall Street Journal each
Thursday.
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
36
<PAGE> 37
[LOGO]
RISK/RETURN SUMMARY TREASURY FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide current
income with liquidity and stability of principal.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund is a money market fund that seeks
to maintain a stable net asset value of $1.00 per share. The Fund normally
invests exclusively in obligations issued or guaranteed by the U.S.
Treasury, its agencies or instrumentalities and repurchase agreements
related to these securities. Other securities purchased by the Fund will be
high quality money market instruments and other comparable investments.
These securities will have short-term debt ratings in the two highest
rating categories of at least two nationally recognized statistical rating
organizations, or will be unrated securities of comparable quality. The
Fund's dollar-weighted average portfolio maturity will not exceed 90 days.
The Fund will not purchase any security which matures in more than 397
days.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are interest rate risk and management risk.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
- Seeking current income through a liquid investment.
- Looking for a conservative investment to balance out more aggressive
investments.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
PERFORMANCE SUMMARY
The chart and table on this
page show how the Treasury
Fund has performed and how its
performance has varied from
year to year. The bar chart
gives an indication of risk by
showing changes in the Fund's
yearly performance over five
years to demonstrate that the
Fund's return has varied at
different times. The Fund does
not offer Investor B Shares.
Past performance does not
indicate how the Fund will
perform in the future.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INVESTOR A SHARES(1)
<TABLE>
<CAPTION>
<S> <C>
1994 3.60%
95 5.32%
96 4.79%
97 4.96%
98 4.86%
</TABLE>
During the period shown in the bar chart,
the Fund's:
<TABLE>
<S> <C> <C> <C>
Best Quarter was 1.34% 2nd quarter 1995
Worst Quarter was 0.63% 1st quarter 1994
</TABLE>
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
PAST
CLASS PAST 5 PAST SINCE
INCEPTION YEAR YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Investor A Shares 12/1/93 4.86% 4.70% N/A 4.67%
</TABLE>
For current yield information on the Fund, call 1-800-451-8377. The Treasury
Fund's yield appears in The Wall Street Journal each Thursday.
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
37
<PAGE> 38
[LOGO]
RISK/RETURN SUMMARY FUND EXPENSES
- -
FEES AND EXPENSES -- MONEY MARKET FUNDS
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD A OR B SHARES OF THE FUNDS.
Annual Fund operating expenses are paid out of Fund assets and are reflected
in the share price. The fees and expenses for each Fund and Class are based
upon current contractual investment advisory fees (as of October 1, 1999) and
the other actual operating expenses of that Fund and Class for the fiscal
year ended May 31, 1999.
FEE TABLE
<TABLE>
<CAPTION>
U.S.
GOVERNMENT
TAX-FREE Obligations
FUND PRIME OBLIGATIONS FUND Fund(5)
INVESTOR A INVESTOR A INVESTOR B INVESTOR A
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None None None None
Maximum Deferred Sales Charge (Load) (as a percentage of
offering price or sale price, whichever is less) None None 5.00%(1) None
Redemption Fee(2) None None None None
Exchange Fee None None None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees 0.35% 0.35% 0.35% 0.35%
Distribution and Service (12b-1) Fees(3) 0.25% 0.25% 1.00% 0.25%
Other Expenses 0.29% 0.28% 0.27% 0.36%
Total Annual Fund Operating Expenses 0.89% 0.88% 1.62% 0.96%
Fee Waivers/Reimbursements(3,4) 0.17% 0.17% 0.01% 0.17%
Net Annual Fund Operating Expenses 0.72% 0.71% 1.61% 0.79%
<CAPTION>
Treasury
Fund
INVESTOR A
<S> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
offering price or sale price, whichever is less) None
Redemption Fee(2) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees 0.30%
Distribution and Service (12b-1) Fees(3) 0.25%
Other Expenses 0.26%
Total Annual Fund Operating Expenses 0.81%
Fee Waivers/Reimbursements(3,4) 0.24%
Net Annual Fund Operating Expenses 0.57%
</TABLE>
(1) The CDSC on Investor B Shares declines over five years starting with year
one and ending in year six from: 5.00%, 5.00%, 4.00%, 3.00%, 2.00%.
(2) If you invest $1,000,000 or more in Investor A Shares of the Funds, your
shares 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,
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) The Distributor is currently limiting the 12b-1 fees for Investor A
Shares to 0.10%. Shareholders should be aware that due to the
distribution fees, a long-term shareholder in a Fund may pay over time
more than the economic equivalent of the maximum front-end sales charge
permitted under the rules of the National Association of Securities
Dealers, Inc.
(4) The Administrator is currently waiving a portion of its fees for the
current fiscal year. The Administrator may revise or cancel this expense
limitation at any time and will notify you of any material change.
(5) The fees and expenses for the U.S. Government Obligations Fund are based
upon current fees.
38
<PAGE> 39
RISK/RETURN SUMMARY FUND EXPENSES
- -
FEES AND EXPENSES (CONTINUED)
EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
TAX-FREE FUND
INVESTOR A SHARES $ 91 $284 $ 493 $1,096
PRIME OBLIGATIONS FUND
INVESTOR A SHARES $ 90 $281 $ 488 $1,084
INVESTOR B SHARES
ASSUMING REDEMPTION $665 $911 $1,081 $1,631
ASSUMING NO REDEMPTION $165 $511 $ 881 $1,631
U.S. GOVERNMENT OBLIGATIONS FUND
INVESTOR A SHARES $ 98 $306 $ 531 $1,178
TREASURY FUND
INVESTOR A SHARES $ 83 $259 $ 450 $1,002
</TABLE>
This Example is intended to
help you compare the cost of
investing in the Funds with
the cost of investing in
other mutual funds.
The Example assumes that you
invest $10,000 in the Funds
for the time periods
indicated and then redeem all
of your shares at the end of
those periods. The Example
also assumes that your
investment has a 5% return
each year and that each
Fund's operating expenses
remain the same. Although
your actual costs may be
higher or lower, based on
these assumptions your costs
would be:
39
<PAGE> 40
[LOGO]
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
DESCRIPTION OF THE FUNDS
- -
This section of the Prospectus provides a more complete description of the
Funds' principal investment objectives strategies and risks. Of course, there
can be no assurance that the Funds will achieve their investment objectives.
Additional descriptions of the Funds' risks, strategies, and investments, as
well as other strategies and investments not described below may be found in
the Funds' Statement of Additional Information or SAI.
This section describes risks that affect the Funds' portfolios as a whole.
Certain of these risks may apply to one or more of the Funds. These risks
are:
- MARKET RISK. This is the risk that market influences will affect
expected returns of all equities and bonds in ways that were not
anticipated.
- INTEREST RATE RISK. This is the risk that returns will be better or
worse than expected because of changes in the level of interest rates.
- CREDIT RISK. This is the risk associated with the ability of the firm or
institution that issues securities to meet its obligations on those
securities.
- MANAGEMENT RISK. This risk is the possibility that investments selected
by the Funds' managers may not perform well and that the Funds will not
perform as well as a result.
THIS SECTION ALSO DESCRIBES SPECIFIC RISKS THAT MAY AFFECT A PARTICULAR
FUND'S PORTFOLIO.
- -
PARKSTONE INTERNATIONAL DISCOVERY FUND
TICKER SYMBOL: INVESTOR A SHARES PIDAX INVESTOR B SHARES PIDBX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide capital appreciation by
investing in equity securities of foreign issuers. The Fund normally invests
at least 80% of its total assets in equity securities of foreign issuers. The
Fund's assets normally will be invested in the securities of issuers located
in at least three foreign countries. Foreign investments also may include
debt obligations issued or guaranteed by foreign governments or their
agencies, authorities, instrumentalities or political subdivisions, including
a foreign state, province or municipality. The Fund does not presently intend
to invest in common stock of domestic companies.
The Fund will invest primarily in equity securities, including common and
preferred stocks, rights, warrants, securities convertible into common stocks
and American Depository Receipts ("ADRs") of companies included in the Morgan
Stanley Capital International Europe, Australasia and Far East ("EAFE")
Index, a broadly diversified international index consisting of more than
1,000 equity securities of companies located in Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, the
Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, and
the United Kingdom. The Fund, however, will not be an "index" fund, and is
neither sponsored by nor affiliated with Morgan Stanley Capital
International. The Fund will not presently make investments in markets where,
in the judgment of the Adviser, property rights are not defined and supported
by adequate legal infrastructure. More than 25% of the Fund's assets may be
invested in the securities or issuers located in the same country. Criteria
for determining the appropriate distribution of investments among countries
may include relative valuation, growth prospects and fiscal, monetary and
regulatory governmental policies. The Fund emphasizes country selection.
Although not currently anticipated, the Fund may invest up to 35% of its
assets in U.S. companies. The Fund may temporarily invest cash in short-term
debt instruments of U.S. and foreign issuers for cash management purposes or
pending investment.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
40
<PAGE> 41
DESCRIPTION OF THE FUNDS INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
PARKSTONE SMALL CAPITALIZATION FUND
TICKER SYMBOL: INVESTOR A SHARES PKSAX INVESTOR B SHARES PKSBX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide capital appreciation with a
diversified portfolio of publicly traded smaller cap equity securities. The
Fund normally invests at least 80% of its total assets in equity securities
of companies with small stock market capitalization. The Fund considers a
"small capitalization" company as one that has the same market capitalization
as the companies in the Russell 2000 Growth Index.
The Fund's Adviser assesses a company's growth potential by evaluating the
management team, examining products and services, analyzing financial
statements, reviewing earnings models with Wall Street analysts, and studying
company fundamentals. 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 the market niche or have developed the unique products or
technologies that are expected to produce superior growth in revenues and
earnings. The Fund's Adviser constantly reviews the Fund's securities
holdings and sells stocks when there is a breakdown in company or industry
group fundamentals or when a company's market capitalization exceeds that of
companies represented in the Russell 2000 Growth Index.
The Fund also may invest:
- up to 25% of its net assets in foreign securities either directly or
through the purchase of American Depository Receipts ("ADRs") and
European Depository Receipts ("EDRs");
- 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;
- securities of other investment companies and depository or custodial
receipts representing beneficial interests in any of the foregoing
securities; and
- in securities issued by foreign branches of U.S. banks and foreign banks,
Canadian Commercial Paper ("CCP"), which is commercial paper issued by a
Canadian corporation or counterpart of a U.S. corporation, and in U.S.
dollar-denominated commercial paper of a foreign issuer.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
- -
PARKSTONE MID CAPITALIZATION FUND
TICKER SYMBOL: INVESTOR A SHARES PKEAX INVESTOR B SHARES PQIBX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide capital appreciation with a
diversified portfolio of publicly traded mid cap equity securities. The Fund
normally invests at least 80% of its total assets in securities of companies
with mid stock market capitalization. The Fund considers a "mid
capitalization" company as one that has the same market capitalization as the
companies in the Russell Mid Cap Growth Index. The Fund normally invests 80%
of its total assets in common stocks and convertible securities.
The Fund's Adviser assesses a company's growth potential by evaluating the
management team, examining products and services, analyzing financial
statements, reviewing earnings models with Wall Street analysts, and studying
company fundamentals. The Fund invests in companies that typically have
exhibited consistent, above-average growth in revenues and earnings, strong
management, and sound and improving financial fundamentals. Often, these
- -
41
<PAGE> 42
DESCRIPTION OF THE FUNDS INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
companies are market or industry leaders, have excellent products and/or
services, and exhibit the potential for growth. The Fund's core holdings are
companies that participate in long-term growth industries, although the Fund
also may invest in companies in non-growth industries that exhibit the
desired characteristics. The Fund's Adviser constantly reviews the Fund's
securities holdings and sells stocks when there is a breakdown in company or
industry group fundamentals or when a company's market capitalization exceeds
that of companies represented in the Russell MidCap Growth Index.
The Fund also may invest:
- up to 25% of its net assets in foreign securities either directly or
through the purchase of ADRs or EDRs;
- 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;
- securities of other investment companies and depository or custodial
receipts representing beneficial interests in any of the foregoing
securities; and
- 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.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
- -
PARKSTONE LARGE CAPITALIZATION FUND
TICKER SYMBOL: INVESTOR A SHARES PLCAX INVESTOR B SHARES PKLCX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide capital appreciation with a
diversified portfolio of publicly traded larger cap equity securities. The
Fund normally invests at least 80% of its total assets in a diversified
portfolio of common stocks and securities convertible into common stocks of
companies with large stock market capitalization. The Fund considers a "large
capitalization" company as one that has the same market capitalization as the
companies in the S&P Barra Growth Index.
The Fund invests in companies that typically have 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. The Fund's core holdings are companies that participate
in long-term growth industries, although the Fund also may invest in
companies in non-growth industries that exhibit the desired characteristics.
The Fund also may invest:
- up to 25% of its net assets in foreign securities either directly or
through the purchase of ADRs or EDRs; and
- 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;
- securities of other investment companies and depository or custodial
receipts representing beneficial interests in any of the foregoing
securities; and
- 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.
- -
42
<PAGE> 43
DESCRIPTION OF THE FUNDS INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
RISK FACTORS FOR THE GROWTH FUNDS
The principal risks of the Growth Funds are market risk and management risk.
To the extent that the Funds may invest in small- to mid-capitalization
companies, they may have capitalization risk. These investments tend to be
more volatile than investments in large-cap companies. In addition, small-cap
companies may have more risk because they often have limited product lines,
markets, or financial resources. To the extent that the Funds may invest in
foreign securities, they may have foreign risk. This is the risk of
investments in issuers located in foreign countries, which may have greater
price volatility and less liquidity. Investments in foreign securities also
are subject to political, regulatory, and diplomatic risks. Foreign risk
includes currency risk, which may occur due to fluctuations in the exchange
rates between the U.S. dollar and foreign currencies. This risk could
negatively affect the value of a Fund's investments.
- -
PARKSTONE EQUITY INCOME FUND
TICKER SYMBOL: INVESTOR A SHARES PKHAX INVESTOR B SHARES PKHBX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide capital appreciation with a
diversified portfolio of publicly traded larger cap equity securities which,
in the aggregate, provide an above-average current yield. The Fund invests at
least 80% of the value of its total assets in income-producing large cap
common stocks and securities convertible into common stocks. The Fund
considers a "large capitalization" company as one that has the same market
capitalization as the companies in the Standard & Poor's Barra Value Index.
The Fund expects that its core holdings will consist of securities with a
high dividend yield, although it may balance these holdings with lower
yielding but higher-growth oriented securities.
The Fund also may invest:
- up to 20% of its total assets in preferred stocks, corporate bonds or
notes;
- in 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;
- in securities of other investment companies and depository or custodial
receipts representing beneficial interests in any of the foregoing
securities; and
- up to 25% of its net assets in foreign securities either directly or
through the purchase of ADRs, securities issued by foreign branches of
U.S. banks and foreign banks, in CCP, and in Europaper.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
- -
PARKSTONE BALANCED ALLOCATION FUND
TICKER SYMBOL: INVESTOR A SHARES PKBFX INVESTOR B SHARES PKBBX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide long-term capital appreciation
and current income. The Fund invests in a broad range of securities including
common stocks, convertible securities and fixed-income securities. Normally,
the Fund expects to invest 50% to 70% of its net assets in common stocks and
convertible securities and 25% to 55% of
- -
43
<PAGE> 44
DESCRIPTION OF THE FUNDS INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
its net assets in fixed-income securities. The Fund also may invest up to 30%
of its net assets in cash and cash-equivalent securities, which include
highly liquid securities with a maturity of less than three months. The Fund
may invest up to 20% of its total assets in foreign securities.
The Fund's investments in common stocks, debt securities, and cash
equivalents may vary from time to time depending on the Adviser's assessment
of business, economic, and market conditions, including potential advantages
of price shifts between the stock and bond markets. The Fund invests in
stocks for growth and in debt securities for stability. The Fund's Adviser
adjusts the mix of stocks, bonds, and cash equivalents periodically to take
advantage of rising markets or decrease exposure to declining markets.
The Fund holds common stocks 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
Fund invests primarily in those companies that are growth-oriented and have
exhibited consistent, above-average growth in revenues and earnings.
The fixed-income portion of the Fund's portfolio consists 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 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 Fund invests may have warrants or options
attached. The Fund may also invest in repurchase agreements.
The Fund expects to invest in a variety of U.S. Treasury obligations,
differing in their interest rates, maturities, and time of issuance, as well
as "stripped" U.S. 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.
The 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 Adviser deems present attractive opportunities and
are of comparable quality.
The Fund also may invest in:
- 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 Fund may also invest in securities of other
investment companies; and
- 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 Fund's
investments in foreign securities may be made either directly or through
the purchase of ADRs and the Fund may also invest in securities issued by
foreign branches of U.S. banks and foreign banks, in CCP, and in
Europaper;
- short-term securities in whatever proportion deemed desirable for
temporary defensive periods during adverse market conditions as
determined by the Adviser.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
RISK FACTORS FOR THE GROWTH AND INCOME FUNDS
The principal risks of the Growth and Income Funds are market risk, interest
rate risk, credit risk and management risk. The Balanced Allocation Fund has
the risk that the allocation of its investments between equity and debt
securities may have a more significant effect on the Fund's net asset value
when one of these asset classes is
- -
44
<PAGE> 45
DESCRIPTION OF THE FUNDS INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
performing more poorly than the other. To the extent that the Funds may
invest in foreign securities, they may have foreign risk. This is the risk of
investments in issuers located in foreign countries, which may have greater
price volatility and less liquidity. Investments in foreign securities also
are subject to political, regulatory, and diplomatic risks. Foreign risk
includes currency risk, which may occur due to fluctuations in the exchange
rates between the U.S. dollar and foreign currencies. This risk could
negatively affect the value of a Fund's investments.
- -
PARKSTONE BOND FUND
TICKER SYMBOL: INVESTOR A SHARES PBOAX INVESTOR B SHARES PKBIX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide current income with
preservation of capital by investing in high- and medium-grade fixed-income
securities. The Fund invests at least 80% of its total assets in investment
grade debt securities of all types. The Fund expects to maintain a
dollar-weighted average portfolio maturity of 4 to 12 years. The Fund also
expects to invest in U.S. Treasury obligations with different interest rates
and maturities, as well as "stripped" U.S. Treasury obligations and other
U.S. government obligations.
Fixed-income securities include 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 Fund will invest in state and municipal securities when, in the opinion
of the Adviser, their yields are competitive with comparable taxable debt
obligations.
In making investment decisions for the Fund, the 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.
The Fund will invest only in corporate debt 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, of comparable quality.
The Fund also may invest:
- up to 20% of its assets in preferred stocks and notes with remaining
maturities at the time or 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. Some of the securities
in which the Fund invests may have warrants or options attached;
- up to 25% of its net assets in foreign securities either directly or
through the purchase of ADRs and securities issued by foreign branches of
U.S. banks and foreign banks, in CCP, and in Europaper;
- in Stripped Treasury Obligations, and other obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities;
- 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 Adviser deems present attractive opportunities and are
of comparable quality; and
- 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.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
- -
45
<PAGE> 46
DESCRIPTION OF THE FUNDS INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
PARKSTONE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
TICKER SYMBOL: INVESTOR A SHARES PKIAX INVESTOR B SHARES PIOGX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide current income as well as
preservation of capital by investing primarily in U.S. government securities.
The Fund normally invests at least 80% of it total assets in U.S. government
debt securities. The Fund expects to maintain a dollar-weighted average
portfolio maturity of three to ten years.
The Fund normally invests in U.S. Treasury bills, notes or bonds and other
U.S. government securities. The Fund also may invest in mortgage-related
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities. The Fund may invest up to 20% of its total assets in debt
securities, preferred stocks and other investments without regard to
maturity.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
- -
PARKSTONE U.S. GOVERNMENT INCOME FUND
TICKER SYMBOL: INVESTOR A SHARES PKGAX INVESTOR B SHARES PKGBX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide current income as well as
preservation of capital by investing primarily in U.S. government securities.
The Fund normally invests at least 80% of its total assets in obligations
that are issued or guaranteed by the U.S. government or its agencies or
instrumentalities. The Fund also may invest up to 20% of its total assets in
mortgage-related securities, debt securities and preferred stock of
non-governmental entities. The Fund expects to maintain a dollar-weighted
average portfolio maturity of three to ten years. Normally, the Fund invests
in a variety of U.S. government obligations, including mortgage-related
securities, U.S. Treasury bills, notes and bonds, "stripped" U.S. Treasury
obligations and other U.S. government securities.
The Fund also may invest in:
- 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 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; and
- 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 Adviser deems present attractive opportunities and are of
comparable quality.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
- -
46
<PAGE> 47
DESCRIPTION OF THE FUNDS INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
PARKSTONE LIMITED MATURITY BOND FUND
TICKER SYMBOL: INVESTOR A SHARES PLMAX INVESTOR B SHARES PLMBX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide current income as well as
preservation of capital by investing in a portfolio of high- and medium-grade
fixed-income securities. The Fund normally invests at least 80% of its total
assets in investment grade debt securities of all types. The Fund invests
primarily in corporate bonds, U.S. government obligations, and
mortgage-related securities. The Fund expects to maintain a dollar- weighted
average portfolio maturity of one to five years. The Fund also expects to
invest in U.S. Treasury obligations with different interest rates and
maturities, as well as "stripped" U.S. Treasury obligations and other U.S.
government obligations.
Fixed-income securities consist of 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.
In making investment decisions for the Fund, the Adviser considers many
factors other than current yield, including the preservation of capital,
maturity, and yield to maturity. By doing so, the Fund attempts to minimize
the fluctuation in its shares' net asset value relative to those funds which
invest in longer-term obligations. The Fund may invest in state and municipal
securities when, in the opinion of the Adviser, their yields are competitive
with comparable taxable debt obligations. The Fund will invest only in
corporate debt securities that are rated at the time of purchase within the
four highest rating groups or, if unrated, of comparable quality.
The Fund also may invest:
- up to 20% of its total assets in debt securities without regard to
maturity, preferred stocks and 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;
- up to 25% of its net assets in foreign securities either directly or
through the purchase of ADRs and securities issued by foreign branches of
U.S. banks and foreign banks, in CCP, and in Europaper;
- in Stripped Treasury Obligations, and other obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities;
- 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 Adviser deems present attractive opportunities and are
of comparable quality; and
- 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.
Some of the securities listed above may have options or warrants attached.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
RISK FACTORS FOR THE INCOME FUNDS
The principal risks of the Income Funds are market risk, interest rate risk,
credit risk and management risk. Changes in interest rates may significantly
affect the Funds. Increases in interest rates will cause a decline in the
value of your investment.
The Income Funds may invest a significant portion of their assets in
mortgage-related securities. These securities have sensitivities to changes
in interest rates that are different from many other types of debt
securities. When interest rates rise, the maturities of these types of
securities tend to lengthen and the value of the securities decreases more
significantly. In addition, these types of securities are subject to
prepayment when interest rates fall, which generally results in lower returns
because the Funds must reinvest their assets in debt securities with lower
interest rates.
- -
47
<PAGE> 48
DESCRIPTION OF THE FUNDS INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
PARKSTONE MICHIGAN MUNICIPAL BOND FUND
TICKER SYMBOL: INVESTOR A SHARES PMMAX INVESTOR B SHARES PMMBX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide current income exempt from
federal income taxes and, to the extent possible, from Michigan personal
income taxes, as is consistent with conservation of capital. The Fund
normally invests at least 80% of its net assets in a portfolio of Michigan
municipal securities. The Fund's primary consideration in selecting Michigan
municipal securities is quality.
The Fund normally invests in Michigan municipal securities and expects to
maintain a dollar-weighted average portfolio maturity of three to ten years.
However, the Fund may invest in Michigan municipal securities of any maturity
and the 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 the
Fund's portfolio may vary depending upon the availability of suitable
municipal securities or other relevant market factors.
The Fund invests in Michigan municipal securities that 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 by an NRSRO. The
Fund also may purchase Michigan municipal securities which are unrated at the
time of purchase but are determined to be of comparable quality by the
Adviser pursuant to guidelines approved by the Board of Trustees.
Interest income from certain types of municipal securities may be subject to
federal alternative minimum tax. The Fund will not treat these bonds as
municipal securities for purposes of measuring compliance with the 80% test
described above.
Investments of the Fund 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 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 Fund's quality standards for tax-exempt
commercial paper (as described above), and such taxable obligations as may be
subject to repurchase agreements.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
- -
PARKSTONE NATIONAL TAX EXEMPT BOND FUND
TICKER SYMBOL: INVESTOR A SHARES PMUAX INVESTOR B SHARES PKBMX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide current income exempt from
federal income taxes as is consistent with conservation of capital. The Fund
normally invests at least 80% of its assets in a diversified portfolio of
municipal securities the interest on which is both exempt from federal income
taxes and not treated as a preference item for individuals for the purpose of
the federal alternative minimum tax.
The Fund normally invests in long-term municipal securities and expects to
maintain a dollar-weighted average portfolio maturity of three to ten years.
The Fund intends, under normal market conditions, to maintain an average
weighted credit rating of Aa/AA. The average weighted rating of the Fund's
portfolio may vary depending upon the availability of suitable municipal
securities or other relevant market factors. Although it does not intend to
do so on a regular basis, the Fund may invest more than 25% of its net assets
in (i) municipal securities whose issuers are in the same state and (ii)
municipal securities the interest on which is paid solely from revenues of
similar projects.
- -
48
<PAGE> 49
DESCRIPTION OF THE FUNDS INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The Fund may invest up to 20% of its total assets in private activity bonds
which may be treated as a specific tax preference item under the federal
alternative minimum tax.
Interest income from certain types of municipal securities may be subject to
federal alternative minimum tax. The Fund will not treat these bonds as
municipal securities for purposes of measuring compliance with the 80% test
described above.
Investments of the Fund 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 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 Fund's quality standards for tax-exempt
commercial paper (as described above), and such taxable obligations as may be
subject to repurchase agreements.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
RISK FACTORS FOR THE TAX-FREE INCOME FUNDS
The Tax-Free Income Funds have interest rate risk and credit risk. In
addition the Funds have municipal market risk. This is the risk that special
factors may adversely affect the value of municipal securities and have a
significant adverse effect on the value of the Funds' investments. These
factors include political or legislative changes, uncertainties related to
the tax status of municipal securities, or the rights of investors in these
securities. The Michigan Municipal Bond Fund is not "diversified," meaning
that it can invest in a relatively small number of issuers. Factors affecting
these issuers could have a more significant adverse effect on this Fund's net
asset value.
MONEY MARKET FUNDS
All of the Money Market Funds seek to maintain a stable net asset value of
$1.00 per share and invest exclusively in United States dollar-denominated
instruments that the Board of Trustees and the 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
Adviser deems to be of comparable quality. There is no assurance, however,
that they will be able to maintain the $1.00 net asset value per share on a
continuous basis. Each Fund pursues its strategy by maintaining a portfolio
of high-quality money market investments. As money market funds, the Funds
must meet the requirements of SEC Rule 2a-7. The Rule imposes strict
requirements on the investment quality, maturity and diversification of the
Funds' investments. Under Rule 2a-7, the Funds' investments must each have a
remaining maturity of no more than 397 days and each Money Market Fund must
maintain a dollar-weighted average portfolio maturity that does not exceed 90
days.
- -
PARKSTONE TAX-FREE FUND
TICKER SYMBOL: INVESTOR A SHARES PFAXX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide as high a level of current
interest income free from federal income taxes, consistent with the
preservation of capital and relative stability of principal. The Fund
normally invests at least 80% of its total assets in municipal securities.
The 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. The Fund
invests exclusively in high quality instruments with a remaining maturity of
no more than 397 days.
The Fund also may:
- invest in commercial paper (subject to the quality standards for
tax-exempt commercial paper).
If the Adviser deems it appropriate for temporary defensive purposes, the
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
- -
49
<PAGE> 50
DESCRIPTION OF THE FUNDS INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
(some of which may be subject to repurchase agreements), certificates of
deposit and bankers' acceptances of selected banks, and commercial paper
meeting the Fund's quality standards for tax-exempt commercial paper.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
- -
PARKSTONE PRIME OBLIGATIONS FUND
TICKER SYMBOL: INVESTOR A SHARES POAXX INVESTOR B SHARES TICKER NOT YET
AVAILABLE
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide current income with liquidity
and stability of principal. The Fund invests in high-quality money market
instruments, including municipal securities and other instruments of
comparable high quality. The Fund also may invest in commercial paper, 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 Adviser deems to be of
comparable quality bankers' acceptances, CCP, Europaper, certificates of
deposit and time deposits.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
- -
PARKSTONE U.S. GOVERNMENT OBLIGATIONS FUND
TICKER SYMBOL: INVESTOR A SHARES PGAXX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide current income with liquidity
and stability of principal. The Fund normally invests at least 65% of its
total assets in short-term U.S. Treasury bills, notes, and other government
obligations and agency securities. The Fund invests exclusively in high
quality instruments with a remaining maturity of no more than 397 days. The
Fund may invest up to 35% 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.
The Fund also 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 Adviser deems to be of comparable quality.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
- -
50
<PAGE> 51
DESCRIPTION OF THE FUNDS INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
- -
PARKSTONE TREASURY FUND
TICKER SYMBOL: INVESTOR A SHARES PTUXX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide current income with liquidity
and stability of principal. The Fund normally invests exclusively in U.S.
government obligations and in repurchase agreements backed by these
securities. The Fund invests exclusively in high quality instruments with a
remaining maturity of no more than 397 days.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
- -
ADDITIONAL RISK CONSIDERATIONS
RISK FACTORS FOR THE MONEY MARKET FUNDS
The Money Market Funds are subject to management risk. In addition, specific
risks of the Funds' portfolios include:
INTEREST RATE RISK. Because the Funds invest in short-term securities, a
decline in interest rates will affect the Funds' yields as these securities
mature or are sold and the Funds purchase new short-term securities with
lower yields. Generally, an increase in interest rates causes the value of a
debt instrument to decrease. The change in value for shorter-term securities
is usually smaller than for securities with longer maturities. Because the
Funds invest in securities with short maturities and seek to maintain a
stable net asset value of $1.00 per share, it is possible, though very
unlikely, that an increase in interest rates would change the value of your
investment.
CREDIT RISK. This is the risk that a security's credit rating will be
downgraded or that the issuer of a security will default (fail to make
scheduled interest and principal payments).
MUNICIPAL MARKET RISK. The Tax-Free Fund faces the risk that special factors
may adversely affect the value of municipal securities and have a significant
effect on the value of the Fund's investments. These factors include
political or legislative changes, uncertainties related to the tax status of
municipal securities, or the rights of investors in these securities.
Investments in certain municipal securities with principal or interest
payments that are made from a specific project or facility, and not from
general tax revenues, may have increased risks. Factors affecting the project
or facility, such as local or economic conditions, could have significant
effect on the project's ability to make payments of principal and interest on
these securities.
The most recent information about each of the Fund's portfolio holdings can
be found in its annual or semi-annual report. For information about receiving
this report, see the back cover.
51
<PAGE> 52
[LOGO]
MANAGEMENT OF THE FUNDS
- -
INVESTMENT ADVISER
National City Investment Management Company, ("IMC" or the "Adviser"), 1900
East Ninth Street, Cleveland, Ohio 44114 is the adviser for the Funds. IMC a
wholly-owned subsidiary of National City Corporation and an affiliate of
National City Bank, was founded in 1998. IMC manages more than $23.7 billion
in assets, including $4.3 billion in the Parkstone Group of Funds. Through
its portfolio management teams, IMC makes the day-to-day investment decisions
and continuously reviews, supervises and administers the Funds' investment
programs.
For these advisory services, the Funds paid as follows during their fiscal
year ended May 31, 1999:
<TABLE>
<CAPTION>
PERCENTAGE OF
AVERAGE NET ASSETS
<S> <C>
------------------------------
Parkstone International Discovery Fund 1.16%*
------------------------------
Parkstone Small Capitalization Fund 1.00%
------------------------------
Parkstone Mid Capitalization Fund 1.00%
------------------------------
Parkstone Large Capitalization Fund 0.80%
------------------------------
Parkstone Equity Income Fund 1.00%
------------------------------
Parkstone Balanced Allocation Fund 0.75%**
------------------------------
Parkstone Bond Fund 0.70%**
------------------------------
Parkstone Intermediate Government Obligations Fund 0.70%**
------------------------------
Parkstone U.S. Government Income Fund 0.45%**
------------------------------
Parkstone Limited Maturity Bond Fund 0.55%**
------------------------------
Parkstone Michigan Municipal Bond Fund 0.55%**
------------------------------
Parkstone National Tax Exempt Bond Fund 0.55%**
------------------------------
Parkstone Tax-Free Fund 0.40%
------------------------------
Parkstone Prime Obligations Fund 0.40%
------------------------------
Parkstone U.S. Government Obligations Fund 0.40%
------------------------------
Parkstone Treasury Fund 0.40%
------------------------------------------------------------ ------------------------------
</TABLE>
* 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.
** IMC waived a portion of its contractual fees with the Funds for the most
recent fiscal year. Contractual fees (without waivers) were: Balanced
Allocation Fund, 1.00%; Bond Fund, 0.74%; Limited Maturity Bond Fund,
0.74%; Intermediate Government Obligations Fund, 0.74%; U.S. Government
Income Fund, 0.74%; National Tax Exempt Bond Fund, 0.74%; Michigan
Municipal Bond Fund, 0.74%.
52
<PAGE> 53
MANAGEMENT OF THE FUNDS
- -
PORTFOLIO MANAGEMENT TEAM
IMC utilizes a team approach for management of the funds. No one person is
primarily responsible for making investment recommendations to the team. The
table below shows the IMC management team responsible for each fund:
<TABLE>
<S> <C>
PORTFOLIO PORTFOLIO MANAGEMENT TEAM
---------------------------------------------
Parkstone International Discovery Fund International Equity Team
---------------------------------------------
Parkstone Small Capitalization Fund Equity Growth Team
---------------------------------------------
Parkstone Mid Capitalization Fund Equity Growth Team
---------------------------------------------
Parkstone Large Capitalization Fund Equity Growth Team
---------------------------------------------
Parkstone Equity Income Fund Equity Value Team
---------------------------------------------
Parkstone Balanced Allocation Fund Equity and Fixed Income Teams
---------------------------------------------
Parkstone Bond Fund Taxable Fixed-Income Team
---------------------------------------------
Parkstone Intermediate Government Obligations Fund Taxable Fixed-Income Team
---------------------------------------------
Parkstone U.S. Government Income Fund Taxable Fixed-Income Team
---------------------------------------------
Parkstone Limited Maturity Bond Fund Taxable Fixed-Income Team
---------------------------------------------
Parkstone Michigan Municipal Bond Fund Tax Exempt Fixed Income Team
---------------------------------------------
Parkstone National Tax Exempt Bond Fund Tax Exempt Fixed Income Team
---------------------------------------------
Parkstone Tax-Free Fund Tax Exempt Money Market Team
---------------------------------------------
Parkstone Prime Obligations Fund Taxable Money Market Team
---------------------------------------------
Parkstone U.S. Government Obligations Fund Taxable Money Market Team
---------------------------------------------
Parkstone Treasury Fund Taxable Money Market Team
------------------------------------------------------------ ---------------------------------------------
</TABLE>
- -
THE DISTRIBUTOR AND ADMINISTRATOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned
subsidiary of SEI Investments, distributes the shares of the Parkstone Group
of Funds (the "Trust"). The Trust reserves the right to reject a purchase
order when the Trust determines that it is not in the best interest of the
Trust to accept such order.
With respect to the Trust, the Distributor may, from time to time and at its
own expense, provide promotional incentives, in the form of cash or other
compensation, to financial institutions whose representatives have sold or
are expected to sell significant amounts of these Funds.
BISYS Fund Services ("BISYS"), whose address is 3435 Stelzer Road, Columbus,
Ohio 43219-3035, serves as the Funds' administrator.
The Statement of Additional Information has more detailed information about
the Investment Adviser and other service providers.
- -
YEAR 2000
Like other funds and business organizations around the world, the Funds could
be adversely affected if the computer systems used by the Adviser and the
Funds' other service providers do not properly process and calculate
date-related information for the year 2000 and beyond. In addition, Year 2000
issues may adversely affect companies in which the Funds invest where, for
example, such companies incur substantial costs to address Year 2000 issues
or suffer losses caused by the failure to adequately or timely do so.
The Funds have been assured that the Adviser and the Funds' other service
providers (i.e., Administrator, Transfer Agent, Fund Accounting Agent,
Custodian and Distributor) have developed and are implementing
clearly-defined and documented plans intended to minimize risks to services
critical to the Funds' operations associated with Year 2000 issues. Internal
efforts include a commitment to dedicate adequate staff and funding to
identify and remedy Year 2000
- -
53
<PAGE> 54
MANAGEMENT OF THE FUNDS
- -
issues, and specific actions such as inventorying software systems,
determining inventory items that may not function properly after December 31,
1999, reprogramming or replacing such systems, and retesting for Year 2000
readiness. The Funds' Adviser and service providers are likewise seeking
assurances from their respective vendors and suppliers that such entities are
addressing any Year 2000 issues, and each provider intends to engage, where
appropriate, in private and/or industry interface testing of systems for Year
2000 readiness.
In the event that any systems upon which the Funds are dependent are not Year
2000 ready by December 31, 1999, administrative errors and account
maintenance failures may occur. While the ultimate costs or consequences of
incomplete or untimely resolution of Year 2000 issues by the Adviser or the
Funds' service providers cannot be accurately assessed at this time, the
Funds currently have no reason to believe that the Year 2000 plans of the
Adviser and the Funds' service providers will not be completed by December
31, 1999, or that the anticipated costs associated with full implementation
of their plans will have a material adverse impact on either their business
operations or financial condition or those of the Funds. The Funds and the
Adviser will continue to closely monitor developments relating to this issue,
and the Adviser and the Funds' service providers are developing contingency
plans for providing back-up computer services in the event of a systems
failure or the inability of any provider to achieve Year 2000 readiness.
Separately, the Adviser will monitor potential investment risk related to
Year 2000 issues.
54
<PAGE> 55
[LOGO]
PURCHASE AND SALE OF SHARES
HOW NAV IS CALCULATED
Each of the Money Market Funds
seeks to maintain a net asset
value, or NAV, of $1.00 per share
by valuing the obligations in
accordance with SEC regulations.
Amortized cost will normally
approximate market value.
NAV =
Total Assets - Liabilities
----------------------------------
Number of Shares
Outstanding
----------------------------------
The NAV is calculated by adding the total value of a Fund's investments and
other assets, subtracting its liabilities and then dividing that figure by the
number of outstanding shares of the Fund:
You can find most Funds' NAV daily in The Wall Street Journal and other
newspapers. NAV is calculated separately for each class of shares.
MONEY MARKET FUNDS
The NAV of the Treasury and Tax-Free Funds is determined and the shares are
priced as of 1:00 p.m. Eastern time and as of the close of trading on the New
York Stock Exchange ("NYSE"), normally at 4 p.m. Eastern time on each
business day. The NAV of the Prime Obligations and U.S. Government
Obligations Funds is determined and the shares are priced as of 3:00 p.m.
Eastern time and as of the close of trading on the NYSE on each business day.
The Money Market Funds value their securities at their amortized cost. The
amortized cost method involves valuing a portfolio security initially at its
cost on the date of the purchase and thereafter assuming a constant
amortization to maturity of the difference between the principal amount due
at maturity and initial cost.
OTHER FUNDS
The per share NAV for each non-Money Market Fund is determined and its shares
are priced at the close of regular trading on the New York Stock Exchange,
normally at 4:00 p.m. Eastern time on each business day.
Your order for purchase of shares is priced at the next NAV calculated after
your order is received by the Distributor. Your order for redemption of
shares is priced at the next NAV calculated after shares are properly
tendered for redemption.
The Funds' securities are generally valued at current market prices. If
market quotations are not available, prices will be based on fair value as
determined by a method which the Funds' 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.
Some of the Funds have portfolio securities that are primarily listed on
foreign exchanges that trade on weekends or other days when these Funds do
not price their shares. As a result, the net asset value of a Fund's shares
may change on days when shareholders will not be able to purchase or redeem
the Fund's shares.
BUSINESS DAYS DEFINED
A business day for the Funds is generally a day that the New York Stock
Exchange is open for business. The Funds 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,
Columbus Day (Money Market Funds only), Veterans Day (Money Market Funds
only), Thanksgiving and Christmas Day.
55
<PAGE> 56
PURCHASE AND SALE OF SHARES
- -
PURCHASING AND ADDING TO YOUR SHARES
You may purchase Funds through the
Funds' Distributor or through banks,
brokers and other investment
representatives, which may charge
additional fees and may require higher
minimum investments or impose other
limitations on buying and selling
shares. If you purchase shares through
an investment representative, the
investment representative is
responsible for transmitting orders by
close of business and may have an
earlier cut-off time for purchase and
sale requests. Your investment
representative is responsible for
transmitting all subscription and
redemption requests, investment
information, documentation and money to
the Funds on time.
Certain investment representatives have
agreements with the Funds that allow
them to enter confirmed purchase or
redemption orders on behalf of clients
and customers. Under this arrangement,
the investment representative must send
your payment to the Funds by the time
they price their shares on the
following day. If your investment
representative fails to do so, it may
be responsible for any resulting fees
or losses. Consult your investment
representative or institution for
specific information.
A Fund may waive its minimum purchase
requirement and the Distributor may
reject a purchase order if it considers
it in the best interest of a Fund and
its shareholders.
Investor A Shares and Investor B Shares
of the Michigan Municipal Bond Fund may
only be sold in those states where the
Fund has filed the required
notification documents, at the time of
filing this prospectus only Colorado,
District of Columbia, Florida, Georgia,
Hawaii, Illinois, Indiana, Michigan,
Mississippi, New Jersey, Ohio, and
Virginia.
The Trust reserves the right to reject
all or part of any order for the
purchase of Investor A Shares or
Investor B Shares.
<TABLE>
<CAPTION>
MINIMUM MINIMUM
INITIAL SUBSEQUENT
ACCOUNT TYPE INVESTMENT INVESTMENT
<S> <C> <C>
INVESTOR A OR B SHARES
Regular (non-retirement) $500 None
----------------------------------------------------
Retirement (IRA) $500 None
----------------------------------------------------
Automatic Investment Plan $ 50 $50/mo.
</TABLE>
- - All purchases must be in U.S. dollars.
- - A fee may be charged for any checks that do not clear.
- - Third-party checks are not accepted.
--------------------------------------------------------------
AVOID 31% TAX WITHHOLDING
Each Fund is required to withhold 31% of taxable dividends,
capital gains distributions and redemptions paid to
shareholders who have not provided the Fund with their
certified taxpayer identification number in compliance with
IRS rules. To avoid this, make sure you provide your correct
Tax Identification Number (Social Security Number for most
investors) as well as your signature on your account
application.
--------------------------------------------------------------
56
<PAGE> 57
PURCHASE AND SALE OF SHARES
INSTRUCTIONS FOR OPENING OR
ADDING TO AN ACCOUNT
BY REGULAR MAIL
If purchasing through your financial advisor or brokerage account, simply
tell your advisor or broker that you wish to purchase shares of the Funds and
he or she will take care of the necessary documentation. For all other
purchases, follow the instructions below.
Initial Investment:
1. Carefully read and complete an account application. Establishing your
account privileges now saves you the inconvenience of having to add them
later.
2. Make check, bank draft or money order payable to "The Parkstone Group of
Funds" and include the name of the appropriate Fund(s) on the check.
3. Mail to: The Parkstone Group of Funds, P.O. Box 8590, Boston, MA
02266-8590
Subsequent Investment:
1. Use the investment slip attached to your account
statement, or
2. Include the following information on a piece of
paper:
- Fund name
- Share class
- Amount invested
- Account name
- Account number
Include your account number on your check.
3. Mail to: The Parkstone Group of Funds, P.O. Box
8590, Boston, MA 02266-8590.
Note: If you pay by check, the transaction will not be processed until the
check is received by the Trust's Transfer Agent. If a check received to
purchase Investor A Shares or Investor B Shares does not clear, the purchase
will be cancelled. You could be liable for any new fees or losses incurred.
BY OVERNIGHT SERVICE
See instructions 1-2 above for subsequent investments and Send to: The
Parkstone Group of Funds c/o Boston Financial, 66 Brooks Drive, Braintree, MA
02184
ELECTRONIC PURCHASES
Your bank must participate in the Automated Clearing House (ACH) and must be
a U. S. bank. Your bank or broker may be charged for this service.
Establish the electronic purchase option on your account application or call
1-800-451-8377. Your account can generally be set up for electronic purchases
within 15 days.
Call 1-800-451-8377 to arrange a transfer from your bank account.
ELECTRONIC VS. WIRE TRANSFER
Wire transfers allow financial institutions to send funds to each other, almost
instantaneously. With an electronic purchase or sale, the transaction is made
through the Automated Clearing House (ACH) and may take up to eight days to
clear.
57
<PAGE> 58
PURCHASE AND SALE OF SHARES
- -
BY WIRE TRANSFER
Note: Your bank may charge a wire transfer fee.
Once your account has been established and you have an account number follow
the instructions below:
For initial and subsequent investments:
Instruct your bank to wire transfer your investment to:
State Street Bank and Trust Company ABA #0110-0002-8
DDA#99053811
Include:
Your name
Your account number
Name of Fund and Class
After instructing your bank to wire the funds, call 800-451-8377 to advise us
of the amount being transferred and the name of your bank.
Note: If the wire transfer is not received by the Fund's Transfer Agent
within three business days of the transaction, the purchase will be cancelled
and you could be liable for fees incurred.
--------------------------------------------------------------
You can add to your account by using the convenient options
described below. The Fund reserves the right to change or
eliminate these privileges at any time with 60 days notice.
--------------------------------------------------------------
AUTO INVEST PLAN
You can make automatic investments in the Funds from your bank
account. Your Auto Invest Plan can be started with a minimum initial
investment of $50.
To invest regularly from your bank account:
Complete the appropriate portion on your Account Application or call
the Funds at 1-800-451-8377. Make sure you note:
- Your bank name, address and account number
- The amount you wish to invest automatically (minimum $50)
- How often you want to invest (monthly, bi-monthly or
quarterly)
Attach a voided personal check or deposit slip.
DIRECTED DIVIDEND OPTION
--------------------------------------------------------------
By selecting the appropriate box in the Account Application,
you can elect to receive your distributions in cash (check) or
have distributions (capital gains and dividends) reinvested in
the Fund you are currently invested in or another Parkstone
Fund without a sales charge. You must maintain the minimum
balance in each Fund into which you plan to reinvest dividends
or the reinvestment will be suspended and your dividends paid
to you. The Fund may modify or terminate this reinvestment
option without notice. You can change or terminate your
participation in the reinvestment option at any time by
writing the Distributor.
--------------------------------------------------------------
58
<PAGE> 59
PURCHASE AND SALE OF SHARES
- -
SELLING YOUR SHARES
You may sell your shares at any
time. Your sales price will be
the next NAV after your sell
order is received in good order
by the Fund, its transfer agent,
or your investment
representative. Good order means
that your request includes
complete information on your
purchase, exchange or redemption
and that the Fund has received
the appropriate assets. Normally
you will receive your proceeds
within a week after your request
is received.
WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
As a mutual fund shareholder, you are
technically selling shares when you
request a withdrawal in cash. This is
also known as redeeming shares or a
redemption of shares.
CONTINGENT DEFERRED SALES CHARGE
When you sell Investor B Shares, you will be charged a fee for any shares
that have not been held for a sufficient length of time. These fees will be
deducted from the money paid to you. See the section on "Distribution
Arrangements/Sales Charges" below for details.
INSTRUCTIONS FOR SELLING SHARES
If selling your shares through your financial adviser or broker, ask him or
her for redemption procedures. Your adviser and/or broker may have
transaction minimums and/or transaction times which will affect your
redemption. For all other sales transactions, follow the instructions below.
BY TELEPHONE (unless you have declined telephone sales privileges)
Call 1-800-451-8377 with instructions as to how you wish to receive your
funds (mail, wire, electronic transfer). (See "General Policies on Selling
Shares -- Verifying Telephone Redemptions" below)
BY MAIL
1. Call 1-800-451-8377 to request redemption forms or write a letter of
instruction indicating:
- your Fund and account number
- amount you wish to redeem
- address where your check should be sent
- account owner signature or signature of eligible guarantor institution
2. Mail to: State Street Bank and Trust Company, c/o The Parkstone Group of
Funds, P.O. Box 8590, Boston, MA 02266-8590
BY OVERNIGHT SERVICE
(See "General Policies on Selling Shares -- Redemptions in Writing Required"
below)
See instruction 1 above.
2. Send to: The Parkstone Group of Funds, c/o Boston Financial, 66 Brooks
Drive, Braintree, MA 02184
59
<PAGE> 60
PURCHASE AND SALE OF SHARES
- -
WIRE TRANSFER
You must indicate this option on your application.
Call 1-800-451-8377 to request a wire transfer.
If you call by 4 p.m. Eastern time, your payment will normally be wired to
your bank on the next business day.
The Fund may charge a wire transfer fee.
Note: Your financial institution may charge a wire transfer fee.
ELECTRONIC REDEMPTIONS
Call 1-800-451-8377 to request an electronic redemption.
Your bank must participate in the Automated Clearing House (ACH) and must be
a U.S. bank.
If you call by 4 p.m. Eastern time, the NAV of your shares will normally be
determined on the same day and the proceeds credited within 8 days.
Your bank may charge for this service.
AUTO WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly or
quarterly basis. The minimum withdrawal is $100. There will be no contingent
deferred sales charge on Investor B Shares so long as the amounts withdrawn
do not exceed 10% annually of the account at the time the shareholder elects
to participate in the plan. To activate this feature:
- Call 1-800-451-8377.
- Your account must have a value of $500 or more to start withdrawals.
- If the value of your account falls below $500, you may be asked to add
sufficient funds to bring the account back to $500, or the Fund may close
your account and mail the proceeds to you.
REDEMPTION BY CHECK WRITING -- THE MONEY MARKET FUNDS (INVESTOR A SHARES)
You may write checks in amounts of $100 or more on your account in the Money
Market Funds. To obtain checks, complete the signature card section of the
Account Application or contact the Fund to obtain a signature card. Dividends
and distributions will continue to be paid up to the day the check is
presented for payment. The check writing feature may be modified or
terminated upon 30-days' written notice. You must maintain the minimum
required account balance of $500. You may not close a Money Market Fund
account by writing a check.
- -
GENERAL POLICIES ON SELLING SHARES
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing in the following situations:
1. Redemptions from Individual Retirement Accounts ("IRAs").
2. Redemption requests requiring a signature guarantee, which include each of
the following:
- Your account registration or the name(s) in your account has changed
within the last 15 days.
- The check is not being mailed to the address on your account.
- The check is not being made payable to the owner of the account.
- The redemption proceeds are being transferred to another fund account
with a different registration.
- Your redemption is in the amount of $10,000 or more.
A signature guarantee can be obtained from a financial institution, such as
a bank, broker-dealer, or credit union, or from members of the STAMP
(Securities Transfer Agents Medallion Program), MSP (New York Stock
Exchange Medallion Signature Program) or SEMP (Stock Exchanges Medallion
Program). Members are subject to dollar limitations which must be
considered when requesting their guarantee. The Transfer Agent may reject
any signature guarantee if it believes the transaction would otherwise be
improper.
- -
60
<PAGE> 61
PURCHASE AND SALE OF SHARES
- -
VERIFYING TELEPHONE REDEMPTIONS
The Trust makes every effort to insure that telephone redemptions are only
made by authorized shareholders. All telephone calls are recorded for your
protection and you will be asked for information to verify your identity.
Given these precautions, unless you have specifically indicated on your
application that you do not want the telephone redemption feature, you may be
responsible for any fraudulent telephone orders.
REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT
When you have made your initial investment by check, the proceeds of your
redemption may be held up to 15 calendar days until the Transfer Agent is
satisfied that the check has cleared. You can avoid this delay by purchasing
shares by federal funds, bank wire, certified or cashier's check.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the Securities and Exchange Commission in order to protect
remaining shareholders.
REDEMPTION IN KIND
Each Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund
operations. If the Fund deems it advisable for the benefit of all
shareholders, redemption in kind will consist of securities equal in market
value to your shares. When you convert these securities to cash, you will pay
brokerage charges.
CLOSING OF SMALL ACCOUNTS
If your account falls below $500, a Fund may ask you to increase your
balance. If it is still below $500 after 60 days, the Fund may close your
account and send you the proceeds at the current NAV.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash: If
distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that
remain uncashed for six months will be canceled and the money reinvested in
the appropriate Fund.
MONEY MARKET FUNDS
To the extent possible, requests for same day payments upon redemption of
Investor A Shares and Investor B Shares of the Money Market Funds will be
honored if the request for redemption is received by the Transfer Agent
before 1:00 p.m. Eastern time, for the Tax-Free and Treasury Funds or 3:00
p.m. Eastern time for the Prime Obligations and U.S. Government Obligations
Funds on a business day. If the request for a redemption is received after
1:00 p.m. or 3:00 p.m. Eastern time respectively, payments will be made on
the next business day to the extent possible.
NON-MONEY MARKET FUNDS
Payment to shareholders redeeming shares will be made within seven days after
the Transfer Agent receives the request for redemption in good order. To the
extent possible, payments upon redemption of shares will be made the
following business day. If received after 4:00 p.m. (Eastern Time), payments
will be made within two business days to the extent possible.
61
<PAGE> 62
PURCHASE AND SALE OF SHARES
- -
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
This section describes the sales charges and fees you will pay as an investor
in different share classes offered by the Funds and ways to qualify for
reduced sales charges.
<TABLE>
<S> <C> <C>
INVESTOR A SHARES INVESTOR B SHARES
Sales Charge (Load) Front-end sales charge (not No front-end sales charge. A
applicable to money market funds); Contingent Deferred Sales Charge
reduced sales charges available. (CDSC) may be imposed on shares
redeemed within five or six years
after purchase (depending on the
date purchased); shares
automatically convert to Investor
A Shares after 8 years. Maximum
investment is $250,000.
Distribution and Service (12b-1) Subject to annual distribution and Subject to annual distribution and
Fee shareholder servicing fees of up shareholder servicing fees of up
to 0.25% of the average daily net to 1.00% of the average daily net
assets of each Fund's Investor A assets of each Fund's Investor B
Shares. Shares.
Fund Expenses Lower annual expenses than Higher annual expenses than
Investor B Shares. Investor A Shares.
</TABLE>
Certain qualified institutional buyers are eligible to purchase Institutional
Shares of the Funds. Institutional Shares are offered by another prospectus
which is available by calling (800) 451-8377.
CALCULATION OF SALES CHARGES
INVESTOR A SHARES
Investor A Shares are sold at their public offering price. This price
includes the initial sales charge. Therefore, part of the money you invest
will be used to pay the sales charge. The remainder is invested in Fund
shares. The sales charge decreases with larger purchases. There is no sales
charge on reinvested dividends and distributions.
The current sales charge rates are as follows:
GROWTH FUNDS
EQUITY INCOME FUND
<TABLE>
<S> <C> <C> <C>
SALES CHARGE SALES CHARGE DEALERS' REALLOWANCE
AS A % OF AS A % OF AS A % OF
IF YOUR INVESTMENT IS OFFERING PRICE NET AMOUNT INVESTED OFFERING PRICE PER SHARE
Less than $25,000 5.50% 5.80% 5.25%
$25,000 but less than $50,000 5.25% 5.50% 5.00%
$50,000 but less than $100,000 4.75% 5.00% 4.50%
$100,000 but less than $250,000 3.75% 3.90% 3.50%
$250,000 but less than $500,000 3.00% 3.10% 2.75%
$500,000 but less than $1,000,000 2.00% 2.00% 1.75%
$1,000,000 or more(1) 0.00% 0.00% 0.00%
</TABLE>
62
<PAGE> 63
PURCHASE AND SALE OF SHARES
- -
BALANCED ALLOCATION FUND
INCOME FUNDS (EXCEPT LIMITED MATURITY BOND FUND)
TAX-FREE INCOME FUNDS
<TABLE>
<S> <C> <C> <C>
SALES CHARGE SALES CHARGE DEALERS' REALLOWANCE
AS A % OF AS A % OF AS A % OF
IF YOUR INVESTMENT IS OFFERING PRICE NET AMOUNT INVESTED OFFERING PRICE PER SHARE
Less than $50,000 4.75% 5.00% 4.50%
$50,000 but less than $100,000 4.00% 4.20% 3.75%
$100,000 but less than $250,000 3.75% 3.90% 3.50%
$250,000 but less than $500,000 2.50% 2.80% 2.25%
$500,000 but less than $1,000,000 2.00% 2.00% 1.75%
$1,000,000 or more(1) 0.00% 0.00% 0.00%
</TABLE>
LIMITED MATURITY BOND FUND
<TABLE>
<S> <C> <C> <C>
SALES CHARGE SALES CHARGE DEALERS' REALLOWANCE
AS A % OF AS A % OF AS A % OF
IF YOUR INVESTMENT IS OFFERING PRICE NET AMOUNT INVESTED OFFERING PRICE PER SHARE
Less than $100,000 2.75% 2.83% 2.50%
$100,000 but less than $250,000 1.75% 1.78% 1.50%
$250,000 but less than $500,000 1.00% 1.01% 0.75%
$500,000 but less than $1,000,000 0.50% 0.50% 0.25%
$1,000,000 or more(1) 0.00% 0.00% 0.00%
</TABLE>
(1) A Fund will assess a 1.00% redemption fee (0.25% in the case of the
Limited Maturity Bond Fund) against a shareholder's fund account if its
value falls below $1,000,000 due to a redemption by the shareholder
within the first year following the initial investment of $1,000,000 or
more. With respect to purchases of $1,000,000 or more of a Fund, the
Adviser may pay from its own funds a fee of 1.00% (0.25% in case of the
Limited Maturity Bond Fund) of the amount invested to the financial
institution placing the purchase order.
63
<PAGE> 64
PURCHASE AND SALE OF SHARES
- -
INVESTOR B SHARES
Investor B Shares are offered at NAV, without any up-front sales charge.
Therefore, all the money you invest is used to purchase Fund shares. However,
if you sell your Investor B Shares of a Fund before the fifth anniversary of
purchase (or the fourth anniversary if purchased prior to January 1, 1997),
you will have to pay a contingent deferred sales charge (CDSC) at the time of
redemption. The CDSC will be based upon the lower of the NAV at the time of
purchase or the NAV at the time of redemption according to the schedule
below. There is no CDSC imposed on reinvested dividends or distributions.
INVESTOR B SHARES PURCHASED AFTER JANUARY 1, 1997
<TABLE>
<S> <C>
CDSC AS A %
YEARS SINCE PURCHASE OF DOLLAR AMOUNT
SUBJECT TO CHARGE
0-1 5.00%
1-2 5.00%
2-3 4.00%
3-4 3.00%
4-5 2.00%
more than 5 None
</TABLE>
INVESTOR B SHARES PURCHASED PRIOR TO JANUARY 1, 1997
<TABLE>
<S> <C>
CDSC AS A %
YEARS SINCE PURCHASE OF DOLLAR AMOUNT
SUBJECT TO CHARGE
0-1 4.00%
1-2 4.00%
2-3 3.00%
3-4 2.00%
more than 4 None
</TABLE>
If you sell some but not all of your Investor B Shares, certain shares not
subject to the CDSC (i.e., shares purchased with reinvested dividends) will
be redeemed first, followed by shares subject to the lowest CDSC (typically
shares held for the longest time).
CONVERSION FEATURE
INVESTOR B SHARES
- Investor B Shares automatically convert to Investor A Shares of the same
Fund after eight years from the end of the month of purchase. The dollar
value of Investor A Shares you receive will equal the dollar value of the
Investor B Shares converted although the number of shares you receive may
differ.
- After conversion, your shares will be subject to the lower distribution
and shareholder servicing fees charged on Investor A Shares which will
increase your investment return compared to the Investor B Shares.
- You will not pay any sales charge or fees when your shares convert, nor
will the transaction be subject to any tax.
- If you purchased Investor B Shares of one Parkstone Fund which you
exchanged for Investor B Shares of another Parkstone Fund, your holding
period will be calculated from the time of your original purchase of
Investor B Shares.
64
<PAGE> 65
PURCHASE AND SALE OF SHARES
- -
SALES CHARGE REDUCTIONS
INVESTOR A SHARES
You may qualify for reduced sales charges under the following circumstances.
- Letter of Intent. You may purchase Investor A Shares at the sales charge
rate applicable to the total amount of the purchases you intend to make
over a 13-month period. In other words, a Letter of Intent allows you to
purchase Investor A Shares of a Fund over a 13-month period and receive
the same sales charge as if you had purchased all the shares at the same
time. The Fund will only consider the value of Investor A Shares sold
subject to a sales charge. As a result, Investor A Shares purchased with
dividends or distributions will not be included in the calculation. To be
entitled to a reduced sales charge based on shares you intend to purchase
over the 13-month period, you must send the Fund a Letter of Intent. In
calculating the total amount of purchases you may include in your letter
purchases made up to 90 days before the date of the Letter. The 13-month
period begins on the date of the first purchase, including those
purchases made in the 90-day period before the date of the Letter. Please
note that the purchase price of these prior purchases will not be
adjusted.
If you do not purchase the amount of shares indicated in the Letter, the
Letter authorizes the Fund to hold in escrow 4% of the total amount you
intend to purchase. If you do not complete the total intended purchase at
the end of the 13-month period or you redeem the entire amount within the
year from the time of fulfillment, the Fund's transfer agent will redeem
the necessary portion of the escrowed shares to make up the difference
between the reduced rate sales charge (based on the amount you intend to
purchase) and the sales charge that would normally apply (based on the
actual amount you purchased).
- Right of Accumulation. When the value of shares you already own plus the
amount you intend to invest reaches the amount needed to qualify for
reduced sales charges, your added investment will qualify for the reduced
sales charge.
- Combination Privilege. Combine concurrent purchases of Investor A Shares
of one Fund and of one or more of the other Funds of the Trust and of
Armada Funds, a group of funds from the same family of funds, that are
sold with a sales charge.
- Concurrent Purchases. Accounts of multiple Funds or accounts of immediate
family household members (spouse and children under 21) and the
purchaser's retirement plan account to achieve reduced sales charges. To
qualify for this privilege, the purchaser must, at the time of purchase,
give the Transfer Agent or Distributor sufficient information to permit
confirmation of qualification.
SALES CHARGE WAIVERS
INVESTOR A SHARES
The following may qualify for waivers of sales charges:
- Certain orders placed by investment representatives through fee-based
investment products or accounts.
- Proceeds from redemptions from a Parkstone or Armada fund within 180 days
after redemption, if you paid a sales load or commission for those
shares. Notification must be given to the transfer agent regarding this
repurchase by calling 1-800-451-8377.
- Reinvestment of distributions from a deferred compensation plan, agency,
trust, or custody account that was maintained by the Adviser or its
affiliates or invested in any Parkstone Fund.
- Shares purchased for trust or other advisory accounts established with
the Adviser or its affiliates.
- Shares purchased by (1) trustees and retired trustees of the Trust, (2)
officers of the Trust; (3) directors, retired directors, employees and
retired employees of the Adviser and its affiliates; and (4) family
members (spouse, parents, siblings, children and grandchildren) of (1),
(2) and (3).
- Purchases by certain qualified employee benefit plans.
- Investors who place trades for their own accounts and are clients of
qualified broker-dealers, investment advisers or financial planners who
charge a management fee for these services.
- Investors purchasing Fund shares through payroll deduction plan.
- Investors purchasing Fund shares through "one-stop" mutual fund networks.
65
<PAGE> 66
PURCHASE AND SALE OF SHARES
- -
SALES CHARGE WAIVERS
INVESTOR B SHARES
The CDSC may be waived under certain circumstances, including the following:
- Distributions from retirement plans if the distributions are made
following the death or disability of shareholders or plan participants.
- Certain minimum required distributions from retirement accounts or
retirement plans where such redemptions are necessary to make
distributions to plan participants.
- Redemptions from accounts other than retirement accounts following the
death or disability of the shareholder and/or joint shareholders.
- Returns of excess contributions to retirement plans.
- Distributions of less than 10% of the annual account value under an
Automatic Withdrawal Plan.
- Shares issued in a plan of reorganization sponsored by the Adviser, or
shares redeemed involuntarily in a similar situation.
- Redemptions by participants in a qualified plan for retirement loans,
financial hardship, termination and certain participant expenses.
- Purchases by certain qualified employee benefit plans.
DISTRIBUTION AND SERVICE (12b-1) FEES
The Funds have adopted plans under Rule 12b-1 that allow the Funds to pay
distribution fees for the sale and distribution of Fund shares. 12b-1 fees
compensate the Distributor and other dealers and investment representatives
for services and expenses relating to the sale and distribution of the Fund's
shares and/or for providing shareholder services. 12b-1 fees are paid from
Fund assets on an ongoing basis, and will increase the cost of your
investment.
- The 12b-1 fees vary by share class as follows:
- Investor A Shares pay a 12b-1 fee of up to 0.25% of the average daily
net assets of a Fund.
- Investor B Shares pay a 12b-1 fee of up to 1.00% of the average daily
net assets of the applicable Fund. This will cause expenses for
Investor B Shares to be higher and dividends to be lower than for
Investor A Shares.
- The higher 12b-1 fee on Investor B Shares, together with the CDSC, help
the Distributor sell Investor B Shares without an "up-front" sales
charge. In particular, these fees help to defray the Distributor's costs
of advancing brokerage commissions to investment representatives.
- The Distributor may use up to 0.25% of the 12b-1 fee for Investor B
Shares for shareholder servicing and up to 0.75% for distribution.
Over time, shareholders may pay more than the equivalent of the maximum
permitted front-end sales charge because 12b-1 distribution and service fees
are paid out of a Fund's assets on an on-going basis.
66
<PAGE> 67
PURCHASE AND SALE OF SHARES
- -
EXCHANGING YOUR SHARES
INVESTOR A SHARES
If you own Investor A Shares,
you may acquire in an exchange
Investor A Shares that are
offered by another Fund of the
Trust or fund of Armada with a
different investment objective.
The exchange must occur on the
same Business Day.
To Exchange a Money Market Fund
for another Money Market Fund.
If you own Investor A Shares of
any of the Trust's Money Market
Funds or a money market fund of
Armada you may exchange those
Investor A Shares at net asset
value without any sales charge
for Investor A Shares offered by
any of the Trust's other Money
Market Funds or an Armada Money
Market Fund. The amount to be
exchanged must meet the
applicable minimum investment
requirements and the exchange
must be made in states where it
is legally authorized.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written
request to The Parkstone Group of
Funds, P.O. Box 8590, Boston, MA
02266-8590, or by calling
1-800-451-8377. Please provide the
following information:
- Your name and telephone number
- The exact name on your account and account number
- Taxpayer identification number (usually your Social Security number)
- Dollar value or number of shares to be exchanged
- The name of the Fund from which the exchange is to be made
- The name of the Fund into which the exchange is being made.
- The registration and tax identification numbers of the two accounts involved
in the exchange must be identical.
See "Selling your Shares" for important information about telephone
transactions.
To Exchange a Non-Money Market Fund for another Non-Money Market Fund. If you
own Investor A Shares of any of the Trust's non-Money Market Funds or any
fund of Armada which is not an Armada Money Market Fund you may exchange
those Investor A Shares at net asset value without any sales charge for
Investor A Shares offered by any Fund of the Trust and any fund of Armada. If
you paid a sales charge on the Investor A Shares that you are to exchange
that is less than the sales charge applicable to the Investor A Shares you
would like to acquire, you must pay a sales charge on the exchange equal to
the difference between the two sales charges.
To Exchange a Money Market Fund for a Non-Money Market Fund. If you own
Investor A Shares of a Parkstone or Armada Money Market Fund, you may
exchange those Investor A Shares for Investor A Shares of a Parkstone or
Armada non-Money Market Fund, but a sales load will be charged on the
exchange.
INVESTOR B SHARES
If you own Investor B Shares, you may acquire in an exchange Investor B
Shares that are offered by another Fund of the Trust or A Shares of a Fund of
Armada Funds. The exchange must occur on the same business day.
If you own Investor B Shares of one Fund of the Trust, you may exchange your
Investor B Shares for A Shares of a Fund of Armada at net asset value. These
exchanges will be executed only if they meet the applicable minimum
investment requirements within states where the exchanges are authorized.
The exchange privilege is a convenient way to respond to changes in
investment goals or in market conditions. This privilege is not designed for
market-timing -- switching money into investments in anticipation of rising
prices or taking money out in anticipation of the market falling. As money is
shifted in and out, a fund incurs expenses for buying and selling securities.
These costs are borne by all fund shareholders, including the long-term
investors who do not generate the costs. Therefore, the Fund discourages
short-term trading by, among other things, limiting the number of exchanges
to one exchange every two months during a given 12-month period beginning
upon the date of the first exchange transaction. Management of the Trust
reserves the right to limit, amend, impose charges upon, terminate or
otherwise modify the exchange privilege. You will be notified before any
action is taken.
The Trust does not charge an exchange fee. If you would like to exchange your
shares you may contact the Funds at (800) 451-8377 or write to the Transfer
Agent. You should obtain and review the current Prospectus of the Fund of the
Trust or the fund of Armada in which you wish to invest before making the
exchange. To obtain an Armada Prospectus please call 1-800-622-FUND (3863).
- -
67
<PAGE> 68
PURCHASE AND SALE OF SHARES
- -
SYSTEMATIC EXCHANGE PROGRAM
The Systematic Exchange Program enables you to purchase Investor A Shares or
Investor B Shares through automatic monthly or quarterly deductions from any
account invested in one of the Parkstone Money Market Funds. If you invest
directly in Investor B Shares of the Prime Obligations Fund, as opposed to
obtaining shares through an exchange, you will be asked to participate in the
Systematic Exchange Program and to establish the time and amount of your
systematic exchanges so that all of the shares of the Prime Obligations Fund
purchased initially will be exchanged for shares of Investor B Shares of
other non-Money Market Funds within two years of purchase. Under the program,
you will enter into an agreement to purchase shares of one or more specified
Funds over a specified period of time. The program requires you to:
- Initially purchase shares of one of the Money Market Funds in an amount
equal to the total amount of your investment.
- Specify an amount to be deducted on a monthly or quarterly basis from
your Money Market Fund and exchanged for shares of specified funds you
have chosen.
An investment program, in which a fixed dollar amount is invested at regular
intervals over time has the effect of reducing the average cost per share of
the Funds. Because Investor A Shares are subject to an initial sales charge,
it may be beneficial for you to execute a Letter of Intent indicating an
intent to purchase Investor A Shares in connection with the Systematic
Exchange Program. In order to participate in the Systematic Exchange Program
contact your financial representative or call 1-800-451-8377.
68
<PAGE> 69
[LOGO]
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -
DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions will be automatically reinvested unless you
request otherwise. There are no sales charges for reinvested distributions.
Dividends are higher for Investor A Shares than for Investor B Shares,
because Investor A Shares have lower distribution expenses. Capital gains, if
any, are distributed at least annually.
DISTRIBUTIONS ARE MADE ON A PER SHARE BASIS REGARDLESS OF HOW LONG YOU'VE
OWNED YOUR SHARES. THEREFORE, IF YOU INVEST SHORTLY BEFORE THE DISTRIBUTION
DATE, SOME OF YOUR INVESTMENT WILL BE RETURNED TO YOU IN THE FORM OF A
DISTRIBUTION.
FEDERAL TAXES
Each Fund contemplates declaring as dividends each year all or substantially
all of its taxable income, including its net capital gain (the excess of
long-term capital gain over short-term capital loss). Distributions
attributable to the net capital gain of a Fund will be taxable to you as
long-term capital gain, regardless of how long you have held your shares.
Other Fund distributions (other than exempt-interest dividends, discussed
below) will generally be taxable as ordinary income. You will be subject to
income tax on Fund distributions regardless of whether they are paid in cash
or reinvested in additional shares. You will be notified annually of the tax
status of distributions to you.
In the case of any fund other than a Money Market Fund, you should note that
if you purchase shares just before a distribution, the purchase price will
reflect the amount of the upcoming distribution, but you will be taxed on the
entire amount of the distribution received, even though, as an economic
matter, the distribution simply constitutes a return of capital. This is
known as "buying into a dividend."
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the shares and the amount you receive
for them. (To aid in computing your tax basis, you generally should retain
your account statements for the periods during which you held shares.)
Any loss realized on shares held for six months or less will be treated as a
long-term capital loss to the extent of any capital gain dividends that were
received on the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable.
It is expected that the Parkstone International Discovery Fund will be
subject to foreign withholding taxes with respect to dividends or interest
received from sources in foreign countries. The Parkstone International
Discovery Fund may make an election to treat a proportionate amount of such
taxes as constituting a distribution to each shareholder, which would allow
each shareholder either (1) to credit such proportionate amount of taxes
against U.S. federal income tax liability or (2) to take such amount as an
itemized deduction.
The Parkstone National Tax Exempt Bond Fund, Parkstone Michigan Municipal
Bond Fund and Parkstone Tax-Free Fund (the "Exempt Funds") anticipate that
substantially all of their income dividends will be "exempt interest
dividends," which are exempt from federal income taxes. However, some
dividends will be taxable, such as dividends that are derived from occasional
taxable investments, and in the case of other than the Parkstone Tax-Free
Fund, distributions of short and long-term capital gains.
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.
You should note that a portion of the exempt-interest dividends paid by the
Exempt Funds may constitute an item of tax preference for purposes of
determining federal alternative minimum tax liability. Exempt-interest
dividends will also be considered along with other adjusted gross income in
determining whether any Social Security or railroad retirement payments
received by you are subject to federal income taxes.
69
<PAGE> 70
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -
If you receive an exempt-interest dividend with respect to any share and the
share is held by you for six months or less, any loss on the sale or exchange
of the share will be disallowed to the extent of such dividend amount.
The Parkstone Michigan Municipal Bond Fund intends to distribute income that
is exempt from Michigan income taxes.
The foregoing is only a summary of certain tax considerations under current
law, which may be subject to change in the future. Shareholders who are
nonresident aliens, foreign trusts or estates, or foreign corporations or
partnerships, may be subject to different United States federal income tax
treatment. You should consult your tax adviser for further information
regarding federal, state, local and/or foreign tax consequences relevant to
your specific situation.
- -
STATE AND LOCAL TAXES
Shareowners may also be subject to state and local taxes on distributions and
redemptions. State income taxes may not apply however, to the portions of
each Fund's distributions, if any, that are attributable to interest on
federal securities or interest on securities of the particular state or
localities within the state. Shareowners should consult their tax advisers
regarding the tax status of distributions in their state and locality.
70
<PAGE> 71
[LOGO]
FINANCIAL HIGHLIGHTS
- -
The financial highlights table is intended to help you understand the Funds'
financial performance for the past five years or, if shorter, the period of
the Funds' operations. Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that an
investor would have earned or lost on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Funds'
financial statements, are included in the annual report, which is available
upon request.
71
<PAGE> 72
FINANCIAL HIGHLIGHTS
- -
INTERNATIONAL DISCOVERY FUND
<TABLE>
<CAPTION>
INVESTOR A
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.51 $ 16.25 $ 14.01 $ 12.23 $ 13.18
---------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) (0.15) (0.09) (0.07) (0.02) 0.03
Net Realized and Unrealized Gains (Losses)
from Investments and Foreign Currencies (0.68) 0.86 2.31 1.81 (0.36)
---------------------------------------------------------------------------------------------------------------------
Total from Investment Activities (0.83) 0.77 2.24 1.79 (0.33)
---------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income -- -- -- -- --
Net Realized Gains (0.87) (0.51) -- (0.01) (0.62)
---------------------------------------------------------------------------------------------------------------------
Total Distributions (0.87) (0.51) -- (0.01) (0.62)
---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 14.81 $ 16.51 $ 16.25 $ 14.01 $ 12.23
---------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) (5.20)% 5.17%(a) 15.99% 14.65% (2.19)%
---------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $24,914 $43,268 $48,557 $39,575 $34,228
Ratio of Expenses to Average Net Assets 1.82% 1.82%(b) 1.80% 1.80% 1.78%
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.45)% (0.75)%(b) (0.54)% (0.11)% 0.08%
Ratio of Expenses to Average Net Assets* (d) (d) (d) 1.88% 1.91%
Portfolio Turnover (c) 84.66% 34.15% 45.18% 54.47% 104.39%
<CAPTION>
INVESTOR A
YEAR ENDED
JUNE 30,
1994
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.50
----------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) (0.02)
Net Realized and Unrealized Gains (Losses)
from Investments and Foreign Currencies 1.74
----------------------------------------------------------------------
Total from Investment Activities 1.72
----------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.02)
Net Realized Gains (0.02)
----------------------------------------------------------------------
Total Distributions (0.04)
----------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.18
----------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 14.99%
----------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $36,297
Ratio of Expenses to Average Net Assets 1.63%
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.29)%
Ratio of Expenses to Average Net Assets* 1.84%
Portfolio Turnover (c) 37.23%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(d) No fees were waived during this period.
72
<PAGE> 73
FINANCIAL HIGHLIGHTS
- -
INTERNATIONAL DISCOVERY FUND
<TABLE>
<CAPTION>
INVESTOR B
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997 1996 1995 1994(a)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $15.98 $ 15.85 $ 13.77 $12.15 $13.21 $14.12
------------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) (0.27) (0.19) (0.16) (0.08) (0.04) (0.01)
Net Realized and Unrealized Gains (Losses)
from Investments and Foreign Currencies (0.64) 0.83 2.24 1.70 (0.40) (0.90)
------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities (0.91) 0.64 2.08 1.62 (0.44) (0.91)
------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income -- -- -- -- -- --
Net Realized Gains (0.87) (0.51) -- -- (0.62) --
------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.87) (0.51) -- -- (0.62) --
------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.20 $ 15.98 $ 15.85 $13.77 $12.15 $13.21
------------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) (5.89)% 4.47%(b) 15.11% 13.33% (3.03)% (6.44)%(b)
------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $7,604 $12,840 $13,516 $9,489 $5,469 $2,680
Ratio of Expenses to Average Net Assets 2.57% 2.56%(c) 2.55% 2.55% 2.57% 2.56%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets (1.21)% (1.49)%(c) (1.29)% (0.86)% (0.49)% (0.22)%(c)
Ratio of Expenses to Average Net Assets* (e) (e) (e) 2.63% 2.92% 2.61%(c)
Portfolio Turnover (d) 84.66% 34.15% 45.18% 54.47% 104.39% 37.23%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from February 4, 1994 (commencement of offering of Investor B
shares) to June 30, 1994.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(e) No fees were waived during this period.
73
<PAGE> 74
FINANCIAL HIGHLIGHTS
- -
SMALL CAPITALIZATION FUND
<TABLE>
<CAPTION>
INVESTOR A
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 25.72 $ 27.55 $ 34.17 $ 25.88 $ 19.75 $ 20.31
-----------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) (0.34) (0.35) (0.29) (0.23) (0.18) (0.15)
Net Realized and Unrealized Gains (Losses)
from Investments (4.36) (0.18) (1.08) 12.17 8.46 0.09
-----------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities (4.70) (0.53) (1.37) 11.94 8.28 (0.06)
-----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Realized Gains (2.53) (1.30) (5.25) (3.65) (2.15) (0.50)
-----------------------------------------------------------------------------------------------------------------------------
Total Distributions (2.53) (1.30) (5.25) (3.65) (2.15) (0.50)
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 18.49 $ 25.72 $ 27.55 $ 34.17 $ 25.88 $ 19.75
-----------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) (18.92)% (1.90)%(a) (4.53)% 49.93% 44.88% (0.55)%
-----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $57,813 $163,178 $188,645 $187,016 $71,894 $42,791
Ratio of Expenses to Average Net Assets 1.61% 1.60%(b) 1.57% 1.54% 1.55% 1.40%
Ratio of Net Investment Income (Loss) to
Average Net Assets (1.07)% (1.23)%(b) (1.19)% (1.18)% (1.27)% (1.24)%
Ratio of Expenses to Average Net Assets* (d) (d) (d) (d) 1.58% 1.55%
Portfolio Turnover (c) 99.86% 46.17% 48.45% 67.22% 50.53% 72.64%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(d) No fees were waived during this period.
74
<PAGE> 75
FINANCIAL HIGHLIGHTS
- -
SMALL CAPITALIZATION FUND
<TABLE>
<CAPTION>
INVESTOR B
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997 1996 1995 1994(a)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 25.02 $ 26.99 $ 33.78 $ 25.79 $19.83 $22.71
-----------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) (0.50) (0.53) (0.41) (0.39) (0.19) (0.09)
Net Realized and Unrealized Gains (Losses)
from Investments (4.21) (0.14) (1.13) 12.03 8.30 (2.79)
-----------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities (4.71) (0.67) (1.54) 11.64 8.11 (2.88)
-----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Realized Gains (2.53) (1.30) (5.25) (3.65) (2.15) --
-----------------------------------------------------------------------------------------------------------------------------
Total Distributions (2.53) (1.30) (5.25) (3.65) (2.15) --
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 17.78 $ 25.02 $ 26.99 $ 33.78 $25.79 $19.83
-----------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) (19.52)% (2.47)%(b) (5.13)% 48.87% 43.78% (12.68)%(b)
-----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $18,736 $41,399 $46,895 $30,310 $9,990 $2,130
Ratio of Expenses to Average Net Assets 2.37% 2.35%(c) 2.32% 2.29% 2.32% 2.35%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets (1.82)% (1.99)%(c) (1.94)% (1.93)% (2.03)% (2.19)%(c)
Ratio of Expenses to Average Net Assets* (e) (e) (e) (e) 2.55% 2.61%(c)
Portfolio Turnover (d) 99.86% 46.17% 48.45% 67.22% 50.53% 72.64%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from February 4, 1994 (commencement of offering of Investor B
shares) to June 30, 1994.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(e) No fees were waived during this period.
75
<PAGE> 76
FINANCIAL HIGHLIGHTS
- -
MID CAPITALIZATION FUND
<TABLE>
<CAPTION>
INVESTOR A
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.98 $ 15.72 $ 20.71 $ 16.56
-------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) (0.19) (0.14) (0.16) (0.16)
Net Realized and Unrealized Gains (Losses)
from Investments 1.15 2.51 1.30 4.97
-------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.96 2.37 1.14 4.81
-------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Realized Gains (1.84) (3.11) (6.13) (0.66)
In Excess of Net Realized Gains -- -- -- --
-------------------------------------------------------------------------------------------------------------------
Total Distributions (1.84) (3.11) (6.13) (0.66)
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 14.10 $ 14.98 $ 15.72 $ 20.71
-------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 8.08% 16.84%(a) 5.78% 29.57%
-------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $50,605 $90,183 $80,634 $66,260
Ratio of Expenses to Average Net Assets 1.57% 1.55%(b) 1.56% 1.54%
Ratio of Expenses to Average Net Assets* (d) (d) (d) (d)
Ratio of Net Investment Income (Loss) to
Average Net Assets (1.00)% (1.02)%(b) (1.05)% (0.94)%
Ratio of Net Investment Income (Loss) to
Average Net Assets* (d) (d) (d) (d)
Portfolio Turnover (c) 100.19% 38.41% 38.47% 49.27%
<CAPTION>
INVESTOR A
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1995 1994
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.69 $ 15.11
-------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) (0.12) (0.10)
Net Realized and Unrealized Gains (Losses)
from Investments 3.46 (0.28)
-------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 3.34 (0.38)
-------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Realized Gains (0.48) (0.04)
In Excess of Net Realized Gains (0.99) --
-------------------------------------------------------------------------------------------------------------------
Total Distributions (1.47) (0.04)
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 16.56 $ 14.69
-------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 24.85% (2.57)%
-------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $43,803 $36,108
Ratio of Expenses to Average Net Assets 1.51% 1.38%
Ratio of Expenses to Average Net Assets* 1.54% 1.53%
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.87)% (0.75)%
Ratio of Net Investment Income (Loss) to
Average Net Assets* (0.90)% (0.90)%
Portfolio Turnover (c) 46.39% 70.87%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(d) No fees were waived during this period.
76
<PAGE> 77
FINANCIAL HIGHLIGHTS
- -
MID CAPITALIZATION FUND
<TABLE>
<CAPTION>
INVESTOR B
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.20 $ 15.12 $ 20.28 $ 16.35
-------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) (0.28) (0.23) (0.24) (0.23)
Net Realized and Unrealized Gains (Losses)
from Investments 1.06 2.42 1.21 4.82
-------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.78 2.19 0.97 4.59
-------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Realized Gains (1.84) (3.11) (6.13) (0.66)
In Excess of Net Realized Gains -- -- -- --
-------------------------------------------------------------------------------------------------------------------
Total Distributions (1.84) (3.11) (6.13) (0.66)
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.14 $ 14.20 $ 15.12 $ 20.28
-------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 7.19% 16.27%(b) 4.94% 28.59%
-------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $16,629 $23,780 $21,994 $15,840
Ratio of Expenses to Average Net Assets 2.32% 2.30%(c) 2.31% 2.29%
Ratio of Expenses to Average Net Assets* (e) (e) (e) (e)
Ratio of Net Investment Income (Loss) to
Average Net Assets (1.75)% (1.77)%(c) (1.80)% (1.70)%
Ratio of Net Investment Income (Loss) to
Average Net Assets* (e) (e) (e) (e)
Portfolio Turnover (c) 100.19% 38.41% 38.47% 49.27%
<CAPTION>
INVESTOR B
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1995 1994(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.63 $16.66
--------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) (0.11) (0.05)
Net Realized and Unrealized Gains (Losses)
from Investments 3.30 (1.98)
--------------------------------------------------------------------------------------
Total from Investment Activities 3.19 (2.03)
--------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Realized Gains (0.48) --
In Excess of Net Realized Gains (0.99) --
--------------------------------------------------------------------------------------
Total Distributions (1.47) --
--------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $16.35 $14.63
--------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 23.88% (12.18)%(b)
--------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $6,073 $1,616
Ratio of Expenses to Average Net Assets 2.29% 2.30%(c)
Ratio of Expenses to Average Net Assets* 2.54% 2.56%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets (1.61)% (1.57)%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets* (1.87)% (1.83)%(c)
Portfolio Turnover (c) 46.39% 70.87%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from February 4, 1994 (commencement of offering of Investor B
shares) to June 30, 1994.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(e) No fees were waived during this period.
77
<PAGE> 78
FINANCIAL HIGHLIGHTS
- -
LARGE CAPITALIZATION FUND
<TABLE>
<CAPTION>
INVESTOR A
ELEVEN MONTHS DECEMBER 28,
YEAR ENDED ENDED YEAR ENDED 1995 TO
MAY 31, MAY 31, JUNE 30, JUNE 30,
1999 1998 1997 1996(a)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.19 $ 14.44 $ 11.23 $10.00
--------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) (0.11) (0.06) -- 0.03
Net Realized and Unrealized Gains (Losses)
from Investments 3.89 3.51 3.30 1.23
--------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 3.78 3.45 3.30 1.26
--------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income -- -- (0.01) (0.03)
Net Realized Gains (0.30) (1.67) (0.08) --
Tax Return of Capital -- (0.03) -- --
--------------------------------------------------------------------------------------------------------------------
Total Distributions (0.30) (1.70) (0.09) (0.03)
--------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 19.67 $ 16.19 $ 14.44 $11.23
--------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 23.42% 25.95%(b) 29.52% 8.99%(b)
--------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $24,513 $21,628 $12,260 $1,657
Ratio of Expenses to Average Net Assets 1.35% 1.35%(c) 1.37% 1.40%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.59)% (0.45)%(c) (0.14)% 0.31%(c)
Ratio of Expenses to Average Net Assets* (d) (d) (d) 2.62%(c)
Portfolio Turnover (e) 50.51% 24.74% 48.44% 0.86%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) No fees were waived during this period.
(e) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
78
<PAGE> 79
FINANCIAL HIGHLIGHTS
- -
LARGE CAPITALIZATION FUND
<TABLE>
<CAPTION>
INVESTOR B
ELEVEN MONTHS DECEMBER 28,
YEAR ENDED ENDED YEAR ENDED 1995 TO
MAY 31, MAY 31, JUNE 30, JUNE 30,
1999 1998 1997 1996(a)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.95 $ 14.34 $11.22 $10.00
--------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) (0.23) (0.12) (0.05) 0.01
Net Realized and Unrealized Gains (Losses)
from Investments 3.79 3.43 3.25 1.23
--------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 3.56 3.31 3.20 1.24
--------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income -- -- -- (0.02)
Net Realized Gains (0.30) (1.67) (0.08) --
Tax Return of Capital -- (0.03) -- --
--------------------------------------------------------------------------------------------------------------------
Total Distributions (0.30) (1.70) (0.08) (0.02)
--------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 19.21 $ 15.95 $14.34 $11.22
--------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 22.38% 25.12%(b) 28.62% 8.77%(b)
--------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $14,128 $10,169 $4,130 $ 832
Ratio of Expenses to Average Net Assets 2.11% 2.09%(c) 2.12% 1.78%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets (1.34)% (1.21)%(c) (0.88)% (0.32)%(c)
Ratio of Expenses to Average Net Assets* (d) (d) (d) 4.07%(c)
Portfolio Turnover (e) 50.51% 24.74% 48.44% 0.86%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) No fees were waived during this period.
(e) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
79
<PAGE> 80
FINANCIAL HIGHLIGHTS
- -
EQUITY INCOME FUND
<TABLE>
<CAPTION>
INVESTOR A
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.78 $ 19.20 $ 17.31 $ 14.49
------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.22 0.25 0.29 0.30
Net Realized and Unrealized Gains (Losses)
from Investments 1.76 2.72 3.57 3.27
------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 1.98 2.97 3.86 3.57
------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.22) (0.21) (0.28) (0.30)
In Excess of Net Investment Income -- -- -- --
Net Realized Gains (2.24) (3.18) (1.69) (0.45)
In Excess of Net Realized Gains -- -- -- --
------------------------------------------------------------------------------------------------------------------
Total Distributions (2.46) (3.39) (1.97) (0.75)
------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 18.30 $ 18.78 $ 19.20 $ 17.31
------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 12.06% 17.08%(a) 23.81% 25.05%
------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $82,733 $104,503 $99,423 $82,396
Ratio of Expenses to Average Net Assets 1.59% 1.58%(b) 1.58% 1.57%
Ratio of Net Investment Income (Loss) to
Average Net Assets 1.23% 1.39%(b) 1.62% 1.86%
Ratio of Expenses to Average Net Assets* (d) (d) (d) (d)
Portfolio Turnover (c) 51.09% 18.62% 20.14% 40.75%
<CAPTION>
INVESTOR A
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1995 1994
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.50 $ 14.69
------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.36 0.37
Net Realized and Unrealized Gains (Losses)
from Investments 1.00 (0.56)
------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 1.36 (0.19)
------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.36) (0.37)
In Excess of Net Investment Income (0.01) --
Net Realized Gains -- (0.24)
In Excess of Net Realized Gains -- (0.39)
------------------------------------------------------------------------------------------------------------------
Total Distributions (0.37) (1.00)
------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 14.49 $ 13.50
------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 10.32% (1.63)%
------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $71,063 $76,108
Ratio of Expenses to Average Net Assets 1.54% 1.40%
Ratio of Net Investment Income (Loss) to
Average Net Assets 2.65% 2.56%
Ratio of Expenses to Average Net Assets* 1.57% 1.55%
Portfolio Turnover (c) 77.70% 69.35%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(d) No fees were waived during this period.
80
<PAGE> 81
FINANCIAL HIGHLIGHTS
- -
EQUITY INCOME FUND
<TABLE>
<CAPTION>
INVESTOR B
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.68 $ 19.14 $ 17.27 $ 14.47
------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.09 0.11 0.16 0.19
Net Realized and Unrealized Gains (Losses)
from Investments 1.75 2.71 3.57 3.25
------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 1.84 2.82 3.73 3.44
------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.13) (0.10) (0.17) (0.19)
In Excess of Net Investment Income -- -- -- --
Net Realized Gains (2.24) (3.18) (1.69) (0.45)
In Excess of Net Realized Gains -- -- -- --
------------------------------------------------------------------------------------------------------------------
Total Distributions (2.37) (3.28) (1.86) (0.64)
------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 18.15 $ 18.68 $ 19.14 $ 17.27
------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 11.22% 16.28%(b) 22.96% 24.11%
------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $22,456 $27,767 $21,038 $12,590
Ratio of Expenses to Average Net Assets 2.34% 2.33%(c) 2.33% 2.32%
Ratio of Net Investment Income (Loss) to
Average Net Assets 0.48% 0.64%(c) 0.88% 1.11%
Ratio of Expenses to Average Net Assets* (e) (e) (e) (e)
Portfolio Turnover (d) 51.09% 18.62% 20.14% 40.75%
<CAPTION>
INVESTOR B
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1995 1994(a)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.49 $14.92
------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.26 0.13
Net Realized and Unrealized Gains (Losses)
from Investments 0.99 (1.43)
------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 1.25 (1.30)
------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.26) (0.13)
In Excess of Net Investment Income (0.01) --
Net Realized Gains -- --
In Excess of Net Realized Gains -- --
------------------------------------------------------------------------------------------------------------------
Total Distributions (0.27) (0.13)
------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.47 $13.49
------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 9.41% (8.76)%(b)
------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $7,131 $3,836
Ratio of Expenses to Average Net Assets 2.32% 2.33%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets 1.86% 1.87%(c)
Ratio of Expenses to Average Net Assets* 2.57% 2.59%(c)
Portfolio Turnover (d) 77.70% 69.35%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from February 4, 1994 (commencement of offering of Investor B
shares) to June 30, 1994.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(e) No fees were waived during this period.
81
<PAGE> 82
FINANCIAL HIGHLIGHTS
- -
BALANCED ALLOCATION FUND
<TABLE>
<CAPTION>
INVESTOR A
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.82 $ 13.00 $ 13.37 $ 12.19 $ 10.67 $ 11.09
-----------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.27 0.29 0.32 0.32 0.28 0.26
Net Realized and Unrealized Gains (Losses)
from Investments and Foreign Currencies 0.07 1.21 1.12 1.74 1.69 (0.43)
-----------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.34 1.50 1.44 2.06 1.97 (0.17)
-----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.27) (0.32) (0.33) (0.31) (0.29) (0.25)
Net Realized Gains (0.37) (0.36) (1.48) (0.57) (0.01) --
In Excess of Net Realized Gains -- -- -- -- (0.15) --
-----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.64) (0.68) (1.81) (0.88) (0.45) (0.25)
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.52 $ 13.82 $ 13.00 $ 13.37 $ 12.19 $ 10.67
-----------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 2.47% 11.87%(a) 11.61% 17.51% 18.96% (1.63)%
-----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $15,760 $19,404 $18,826 $17,097 $12,849 $11,901
Ratio of Expenses to Average Net Assets 1.36% 1.36%(b) 1.36% 1.41% 1.47% 1.18%
Ratio of Net Investment Income (Loss) to
Average Net Assets 2.05% 2.32%(b) 2.47% 2.37% 2.54% 2.38%
Ratio of Expenses to Average Net Assets* 1.61% 1.62%(b) 1.61% 1.66% 1.78% 1.63%
Portfolio Turnover (c) 158.56% 117.80% 425.05% 437.90% 250.66% 192.39%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
82
<PAGE> 83
FINANCIAL HIGHLIGHTS
- -
BALANCED ALLOCATION FUND
<TABLE>
<CAPTION>
INVESTOR B
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997 1996 1995 1994(a)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.81 $13.00 $13.36 $12.18 $10.67 $11.71
-----------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.18 0.19 0.21 0.23 0.20 0.10
Net Realized and Unrealized Gains (Losses)
from Investments and Foreign Currencies 0.07 1.21 1.13 1.74 1.67 (1.05)
-----------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.25 1.40 1.34 1.97 1.87 (0.95)
-----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.17) (0.23) (0.22) (0.22) (0.20) (0.09)
Net Realized Gains (0.37) (0.36) (1.48) (0.57) (0.06) --
In Excess of Net Realized Gains -- -- -- -- (0.10) --
-----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.54) (0.59) (1.70) (0.79) (0.36) (0.09)
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $13.52 $13.81 $13.00 $13.36 $12.18 $10.67
-----------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 1.72% 11.05%(b) 10.82% 16.71% 17.96% (8.16)%(b)
-----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $5,723 $7,988 $6,299 $4,278 $1,291 $ 744
Ratio of Expenses to Average Net Assets 2.11% 2.11%(c) 2.11% 2.16% 2.25% 2.05%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets 1.30% 1.57%(c) 1.73% 1.64% 1.74% 1.94%(c)
Ratio of Expenses to Average Net Assets* 2.36% 2.37%(c) 2.36% 2.45% 2.77% 2.61%(c)
Portfolio Turnover (d) 158.56% 117.80% 425.05% 437.90% 250.66% 192.39%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from February 4, 1994 (commencement of offering of Investor B
shares) to June 30, 1994.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
83
<PAGE> 84
FINANCIAL HIGHLIGHTS
- -
BOND FUND
<TABLE>
<CAPTION>
INVESTOR A
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.99 $ 9.68 $ 9.51 $ 9.67 $ 9.30 $ 10.54
-----------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.52 0.52 0.56 0.57 0.58 0.59
Net Realized and Unrealized Gains (Losses)
from Investments (0.28) 0.32 0.17 (0.16) 0.38 (0.72)
-----------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.24 0.84 0.73 0.41 0.96 (0.13)
-----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.53) (0.53) (0.56) (0.57) (0.58) (0.57)
Net Realized Gains (0.02) -- -- -- -- --
In Excess of Net Realized Gains -- -- -- -- (0.01) (0.54)
-----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.55) (0.53) (0.56) (0.57) (0.59) (1.11)
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.68 $ 9.99 $ 9.68 $ 9.51 $ 9.67 $ 9.30
-----------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 2.55% 8.83%(a) 7.92% 4.27% 10.85% (1.62)%
-----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $11,916 $16,669 $19,760 $ 20,175 $ 17,572 $18,391
Ratio of Expenses to Average Net Assets 1.19% 1.19%(b) 1.19% 1.19% 1.24% 0.98%
Ratio of Net Investment Income (Loss) to
Average Net Assets 5.29% 5.81%(b) 5.88% 5.71% 6.32% 5.86%
Ratio of Expenses to Average Net Assets* 1.28% 1.28%(b) 1.28% 1.28% 1.39% 1.27%
Portfolio Turnover (c) 268.66% 545.68% 827.00% 1,189.27% 1,010.64% 893.27%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
84
<PAGE> 85
FINANCIAL HIGHLIGHTS
- -
BOND FUND
<TABLE>
<CAPTION>
INVESTOR B
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997 1996 1995 1994(a)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $ 9.69 $ 9.51 $ 9.68 $ 9.26 $ 9.95
-----------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.46 0.46 0.50 0.50 0.52 0.22
Net Realized and Unrealized Gains (Losses)
from Investments (0.29) 0.32 0.16 (0.17) 0.42 (0.70)
-----------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.17 0.78 0.66 0.33 0.94 (0.48)
-----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.46) (0.47) (0.48) (0.50) (0.52) (0.21)
Net Realized Gains (0.02) -- -- -- -- --
In Excess of Net Realized Gains -- -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.48) (0.47) (0.48) (0.50) (0.52) (0.21)
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.69 $10.00 $ 9.69 $ 9.51 $ 9.68 $ 9.26
-----------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 1.66% 8.18%(b) 7.09% 3.46% 10.62% (4.84)%(b)
-----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $4,548 $6,423 $5,967 $ 4,426 $ 1,330 $ 485
Ratio of Expenses to Average Net Assets 1.94% 1.94%(c) 1.94% 1.94% 2.03% 1.89%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets 4.53% 5.07%(c) 5.15% 4.97% 5.54% 5.34%(c)
Ratio of Expenses to Average Net Assets* 2.03% 2.03%(c) 2.03% 2.03% 2.39% 2.29%(c)
Portfolio Turnover (d) 268.66% 545.68% 827.00% 1,189.27% 1,010.64% 893.27%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from February 4, 1994 (commencement of offering of Investor B
shares) to June 30, 1994.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
85
<PAGE> 86
FINANCIAL HIGHLIGHTS
- -
INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
<TABLE>
<CAPTION>
INVESTOR A
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.88 $ 9.73 $ 9.70 $ 9.93 $ 9.62 $ 10.53
-----------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.48 0.49 0.52 0.60 0.50 0.59
Net Realized and Unrealized Gains (Losses)
from Investments (0.11) 0.16 0.04 (0.25) 0.31 (0.66)
-----------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.37 0.65 0.56 0.35 0.81 (0.07)
-----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.48) (0.49) (0.53) (0.58) (0.50) (0.59)
Tax Return of Capital -- (0.01) -- -- -- --
In Excess of Net Realized Gains -- -- -- -- -- (0.25)
-----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.48) (0.50) (0.53) (0.58) (0.50) (0.84)
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.77 $ 9.88 $ 9.73 $ 9.70 $ 9.93 $ 9.62
-----------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 3.83% 6.78%(a) 5.91% 3.69% 8.69% (0.90)%
-----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $10,244 $14,461 $ 18,552 $22,954 $27,521 $36,106
Ratio of Expenses to Average Net Assets 1.24% 1.22%(b) 1.23% 1.21% 1.25% 1.00%
Ratio of Net Investment Income (Loss) to
Average Net Assets 4.81% 5.42%(b) 5.41% 5.51% 5.22% 5.80%
Ratio of Expenses to Average Net Assets* 1.33% 1.31%(b) 1.32% 1.30% 1.41% 1.29%
Portfolio Turnover (c) 53.07% 774.28% 1,516.78% 916.39% 549.13% 546.06%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
86
<PAGE> 87
FINANCIAL HIGHLIGHTS
- -
INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
<TABLE>
<CAPTION>
INVESTOR B
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997 1996 1995 1994(a)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.85 $ 9.71 $ 9.67 $ 9.89 $ 9.60 $ 10.14
-----------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.40 0.43 0.45 0.53 0.43 0.21
Net Realized and Unrealized Gains (Losses)
from Investments (0.11) 0.15 0.03 (0.24) 0.30 (0.54)
-----------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.29 0.58 0.48 0.29 0.73 (0.33)
-----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.40) (0.43) (0.44) (0.51) (0.44) (0.21)
Tax Return of Capital -- (0.01) -- -- -- --
In Excess of Net Realized Gains -- -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.40) (0.44) (0.44) (0.51) (0.44) (0.21)
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.74 $ 9.85 $ 9.71 $ 9.67 $ 9.89 $ 9.60
-----------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 2.96% 6.07%(b) 5.09% 2.93% 7.84% (3.31)%(b)
-----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $1,255 $1,852 $ 1,972 $1,843 $ 977 $ 531
Ratio of Expenses to Average Net Assets 1.99% 1.97%(c) 1.98% 1.96% 2.06% 1.92%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets 4.05% 4.67%(c) 4.67% 4.78% 4.41% 4.80%(c)
Ratio of Expenses to Average Net Assets* 2.08% 2.06%(c) 2.07% 2.05% 2.42% 2.32%(c)
Portfolio Turnover (d) 53.07% 774.28% 1,516.78% 916.39% 549.13% 546.06%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from February 4, 1994 (commencement of offering of Investor B
shares) to June 30, 1994.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
87
<PAGE> 88
FINANCIAL HIGHLIGHTS
- -
U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
INVESTOR A
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.27 $ 9.15 $ 9.25 $ 9.42 $ 9.41 $ 10.04
-----------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.55 0.61 0.70 0.73 0.75 0.74
Net Realized and Unrealized Gains (Losses)
from Investments (0.14) 0.08 (0.10) (0.17) -- (0.64)
-----------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.41 0.69 0.60 0.56 0.75 0.10
-----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.55) (0.53) (0.59) (0.65) (0.66) (0.72)
Tax Return of Capital -- (0.04) (0.11) (0.08) (0.08) (0.01)
-----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.55) (0.57) (0.70) (0.73) (0.74) (0.73)
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.13 $ 9.27 $ 9.15 $ 9.25 $ 9.42 $ 9.41
-----------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 4.46% 7.80%(a) 6.86% 5.97% 8.46% 0.94%
-----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $38,190 $54,710 $58,589 $52,250 $50,931 $54,027
Ratio of Expenses to Average Net Assets 1.00% 1.00%(b) 1.02% 1.01% 1.04% 0.82%
Ratio of Net Investment Income (Loss) to
Average Net Assets 5.92% 7.20%(b) 7.64% 7.70% 8.03% 7.42%
Ratio of Expenses to Average Net Assets* 1.34% 1.34%(b) 1.36% 1.35% 1.44% 1.36
Portfolio Turnover (c) 52.60% 278.94% 499.53% 348.01% 114.71% 102.24%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
88
<PAGE> 89
FINANCIAL HIGHLIGHTS
- -
U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
INVESTOR B
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997 1996 1995 1994(a)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.24 $ 9.13 $ 9.21 $ 9.39 $ 9.38 $ 9.88
-----------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.47 0.55 0.63 0.66 0.68 0.28
Net Realized and Unrealized Gains (Losses)
from Investments (0.13) 0.07 (0.09) (0.18) 0.01 (0.50)
-----------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.34 0.62 0.54 0.48 0.69 (0.22)
-----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.47) (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 (0.47) (0.51) (0.62) (0.66) (0.68) (0.28)
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.11 $ 9.24 $ 9.13 $ 9.21 $ 9.39 $ 9.38
-----------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales And
Redemption Charges) 3.76% 6.98%(b) 6.06% 5.22% 7.71% (2.26)%(b)
-----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $16,373 $23,739 $23,448 $19,556 $ 8,478 $ 2,787
Ratio of Expenses to Average Net Assets 1.75% 1.75%(c) 1.77% 1.76% 1.83% 1.77%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets 5.15% 6.45%(c) 6.89% 6.92% 7.28% 6.72%(c)
Ratio of Expenses to Average Net Assets* 2.09% 2.09%(c) 2.11% 2.10% 2.44% 2.42%(c)
Portfolio Turnover (d) 52.60% 278.94% 499.53% 348.01% 114.71% 102.24%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from February 4, 1994 (commencement of offering of Investor B
shares) to June 30, 1994.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
89
<PAGE> 90
FINANCIAL HIGHLIGHTS
- -
LIMITED MATURITY BOND FUND
<TABLE>
<CAPTION>
INVESTOR A
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.50 $ 9.49 $ 9.48 $ 9.71 $ 9.57 $ 10.18
-----------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.53 0.47 0.55 0.62 0.56 0.62
Net Realized and Unrealized Gains (Losses)
from Investments (0.08) 0.01 0.01 (0.21) 0.13 (0.58)
-----------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.45 0.48 0.56 0.41 0.69 0.04
-----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.53) (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 -- -- -- (0.01) -- --
-----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.53) (0.47) (0.55) (0.64) (0.55) (0.65)
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.42 $ 9.50 $ 9.49 $ 9.48 $ 9.71 $ 9.57
-----------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 4.84% 5.23%(a) 6.11% 4.37% 7.53% 0.32%
-----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $24,246 $41,571 $27,381 $14,390 $18,930 $24,907
Ratio of Expenses to Average Net Assets 1.08% 1.07%(b) 1.11% 1.09% 1.05% 0.86%
Ratio of Net Investment Income (Loss) to
Average Net Assets 5.55% 5.37%(a) 5.76% 6.09% 5.89% 6.22%
Ratio of Expenses to Average Net Assets* 1.32% 1.31%(a) 1.35% 1.33% 1.36% 1.30%
Portfolio Turnover (c) 126.98% 225.88% 607.84% 618.60% 397.97% 353.28%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
90
<PAGE> 91
FINANCIAL HIGHLIGHTS
- -
LIMITED MATURITY BOND FUND
<TABLE>
<CAPTION>
INVESTOR B
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997 1996 1995 1994(a)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.50 $ 9.49 $ 9.46 $ 9.70 $ 9.56 $ 9.99
-----------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.46 0.40 0.48 0.55 0.49 0.23
Net Realized and Unrealized Gains (Losses)
from Investments (0.08) 0.02 0.02 (0.22) 0.12 (0.44)
-----------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.38 0.42 0.50 0.33 0.61 (0.21)
-----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.46) (0.41) (0.47) (0.55) (0.47) (0.22)
Net Realized Gains -- -- -- -- -- --
In Excess of Net Realized Gains -- -- -- -- -- --
Tax Return of Capital -- -- -- (0.02) -- --
-----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.46) (0.41) (0.47) (0.57) (0.47) (0.22)
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.42 $ 9.50 $ 9.49 $ 9.46 $ 9.70 $ 9.56
-----------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales And
Redemption Charges) 4.03% 4.50%(b) 5.39% 3.43% 6.68% (2.09)%(b)
-----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $ 826 $ 1,553 $ 1,492 $ 1,547 $ 892 $ 629
Ratio of Expenses to Average Net Assets 1.83% 1.82%(c) 1.86% 1.84% 1.85% 1.78%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets 4.81% 4.63%(c) 5.02% 5.35% 5.14% 5.36%(c)
Ratio of Expenses to Average Net Assets* 2.07% 2.06%(c) 2.10% 2.08% 2.36% 2.33%(c)
Portfolio Turnover (d) 126.98% 225.88% 607.84% 618.60% 397.97% 353.28%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from February 4, 1994 (commencement of offering of Investor B
shares) to June 30, 1994.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
91
<PAGE> 92
FINANCIAL HIGHLIGHTS
- -
MICHIGAN MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
INVESTOR A
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.06 $ 10.89 $ 10.76 $ 10.75 $ 10.53 $ 10.97
-----------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.44 0.42 0.49 0.47 0.48 0.47
Net Realized and Unrealized Gains (Losses)
from Investments (0.08) 0.23 0.14 0.04 0.23 (0.36)
-----------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.36 0.65 0.63 0.51 0.71 0.11
-----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.44) (0.45) (0.46) (0.47) (0.48) (0.45)
Net Realized Gains (0.07) (0.03) (0.04) (0.03) (0.01) (0.01)
In Excess of Net Realized Gains -- -- -- -- -- (0.09)
-----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.51) (0.48) (0.50) (0.50) (0.49) (0.55)
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.91 $ 11.06 $ 10.89 $ 10.76 $ 10.75 $ 10.53
-----------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 3.38% 5.96%(a) 5.89% 4.87% 6.99% 0.92%
-----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $28,305 $38,536 $38,302 $36,681 $37,874 $42,204
Ratio of Expenses to Average Net Assets 1.01% 0.99%(b) 1.01% 1.02% 1.00% 0.85%
Ratio of Net Investment Income (Loss) to
Average Net Assets 3.96% 4.09%(b) 4.48% 4.32% 4.57% 4.25%
Ratio of Expenses to Average Net Assets* 1.29% 1.28%(b) 1.30% 1.31% 1.32% 1.29%
Portfolio Turnover (c) 6.52% 26.24% 28.48% 27.66% 26.06% 6.69%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
92
<PAGE> 93
FINANCIAL HIGHLIGHTS
- -
MICHIGAN MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
INVESTOR B
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997 1996 1995 1994(a)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.07 $10.90 $10.76 $10.75 $10.52 $11.09
-----------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.36 0.34 0.41 0.40 0.40 0.16
Net Realized and Unrealized Gains (Losses)
from Investments (0.08) 0.23 0.13 0.04 0.24 (0.57)
-----------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.28 0.57 0.54 0.44 0.64 (0.41)
-----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.36) (0.37) (0.36) (0.40) (0.40) (0.16)
Net Realized Gains (0.07) (0.03) (0.04) (0.03) (0.01) --
In Excess of Net Realized Gains -- -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.43) (0.40) (0.40) (0.43) (0.41) (0.16)
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.92 $11.07 $10.90 $10.76 $10.75 $10.52
-----------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 2.52% 5.32%(b) 5.05% 4.13% 6.28% (3.69)%(b)
-----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $3,217 $3,983 $3,503 $3,565 $2,270 $1,302
Ratio of Expenses to Average Net Assets 1.76% 1.74%(c) 1.76% 1.77% 1.78% 1.77%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets 3.21% 3.34%(c) 3.73% 3.57% 3.80% 3.51%(c)
Ratio of Expenses to Average Net Assets* 2.05% 2.03%(c) 2.05% 2.06% 2.32% 2.32%(c)
Portfolio Turnover (d) 6.52% 26.24% 28.48% 27.66% 26.06% 6.69%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from February 4, 1994 (commencement of offering of Investor B
shares) to June 30, 1994.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
93
<PAGE> 94
FINANCIAL HIGHLIGHTS
- -
NATIONAL TAX EXEMPT BOND FUND (FORMERLY MUNICIPAL BOND FUND)
<TABLE>
<CAPTION>
INVESTOR A
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.53 $10.53 $10.43 $10.39 $ 10.29 $ 10.92
-----------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.37 0.35 0.44 0.41 0.41 0.40
Net Realized and Unrealized Gains (Losses)
from Investments (0.03) 0.22 0.12 0.03 0.27 (0.31)
-----------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.34 0.57 0.56 0.44 0.68 0.09
-----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.37) (0.39) (0.41) (0.40) (0.41) (0.39)
Net Realized Gains (0.12) (0.18) (0.05) -- -- (0.21)
In Excess of Net Realized Gains -- -- -- -- (0.17) (0.12)
-----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.49) (0.57) (0.46) (0.40) (0.58) (0.72)
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.38 $10.53 $10.53 $10.43 $ 10.39 $ 10.29
-----------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 3.29% 5.46%(a) 5.47% 4.29% 7.02% 0.71%
-----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $6,886 $9,502 $9,601 $7,835 $11,378 $13,123
Ratio of Expenses to Average Net Assets 1.02% 1.02%(b) 1.06% 1.05% 1.02% 0.87%
Ratio of Net Investment Income (Loss) to
Average Net Assets 3.51% 3.64%(b) 4.19% 3.85% 4.00% 3.72%
Ratio of Expenses to Average Net Assets* 1.31% 1.31%(b) 1.35% 1.34% 1.33% 1.32%
Portfolio Turnover (c) 6.67% 85.56% 48.83% 47.46% 35.15% 44.39%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
94
<PAGE> 95
FINANCIAL HIGHLIGHTS
- -
NATIONAL TAX EXEMPT BOND FUND (FORMERLY MUNICIPAL BOND FUND)
<TABLE>
<CAPTION>
INVESTOR B
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997 1996 1995 1994(a)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.50 $10.51 $10.39 $10.36 $10.26 $10.76
-----------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.29 0.28 0.36 0.33 0.33 0.13
Net Realized and Unrealized Gains (Losses)
from Investments (0.02) 0.21 0.13 0.03 0.27 (0.50)
-----------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.27 0.49 0.49 0.36 0.60 (0.37)
-----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.29) (0.32) (0.32) (0.33) (0.33) (0.13)
Net Realized Gains (0.12) (0.18) (0.05) -- -- --
In Excess of Net Realized Gains -- -- -- -- (0.17) --
-----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.41) (0.50) (0.37) (0.33) (0.50) (0.13)
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.36 $10.50 $10.51 $10.39 $10.36 $10.26
-----------------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 2.53% 4.75%(b) 4.81% 3.48% 6.17% (3.41)%(b)
-----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $ 491 $ 706 $ 993 $ 735 $ 447 $ 359
Ratio of Expenses to Average Net Assets 1.77% 1.77%(c) 1.81% 1.80% 1.80% 1.80%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets 2.76% 2.89%(c) 3.43% 3.11% 3.22% 2.88%(c)
Ratio of Expenses to Average Net Assets* 2.06% 2.06%(c) 2.10% 2.09% 2.33% 2.37%(c)
Portfolio Turnover (d) 6.67% 85.56% 48.83% 47.46% 35.15% 44.39%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from February 4, 1994 (commencement of offering of Investor B
shares) to June 30, 1994.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
95
<PAGE> 96
FINANCIAL HIGHLIGHTS
- -
TAX-FREE FUND
<TABLE>
<CAPTION>
INVESTOR A
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997 1996 1995 1994
<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 0.025 0.026 0.028 0.029 0.029 0.018
DISTRIBUTIONS:
Net Investment Income (0.025) (0.026) (0.028) (0.029) (0.029) (0.018)
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-----------------------------------------------------------------------------------------------------------------------------
Total Return 2.56% 2.66%(a) 2.83% 2.91% 2.90% 1.81%
-----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $ 621 $55,106 $47,466 $41,713 $45,102 $48,256
Ratio of Expenses to Average Net Assets 0.77% 0.76%(b) 0.78% 0.76% 0.74% 0.68%
Ratio of Net Investment Income to Average
Net Assets 2.71% 2.86%(b) 2.82% 2.89% 2.88% 1.81%
Ratio of Expenses to Average Net Assets* 0.94% 0.93%(b) 0.95% 0.93% 0.95% 0.93%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
(a) Not annualized.
(b) Annualized.
96
<PAGE> 97
FINANCIAL HIGHLIGHTS
- -
PRIME OBLIGATIONS FUND
<TABLE>
<CAPTION>
YEAR ENDED ELEVEN MONTHS YEAR ENDED YEAR ENDED
MAY 31, 1999 ENDED MAY 31, 1998 JUNE 30, 1997 JUNE 30, 1996
----------------------- -------------------------- ------------- -------------
INVESTOR A INVESTOR B INVESTOR A INVESTOR B(a) INVESTOR A INVESTOR A
---------- ---------- ---------- ------------- ------------- -------------
<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 0.037 0.045 0.027 0.048 0.050
DISTRIBUTIONS:
Net Investment Income (0.046) (0.037) (0.045) (0.027) (0.048) (0.050)
---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $1.000 $ 1.000 $1.000 $ 1.000 $ 1.000
---------------------------------------------------------------------------------------------------------------------
Total Return 4.66% 3.73% 4.63%(b) 2.75%(b) 4.91% 5.07%
---------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period
(000) $14,924 $ 764 $217,934 $ 387 $195,046 $147,478
Ratio of Expenses to Average
Net Assets 0.76% 1.66% 0.76%(c) 1.66%(c) 0.73% 0.74%
Ratio of Net Investment
Income to Average Net
Assets 4.76% 3.59% 4.93%(c) 4.01%(c) 4.80% 4.93%
Ratio of Expenses to Average
Net Assets* 0.93% 1.67% 0.93%(c) 1.68%(c) 0.90% 0.91%
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1995 JUNE 30, 1994
------------- -------------
INVESTOR A INVESTOR A
------------- -------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 1.000 $ 1.000
---------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income 0.047 0.027
DISTRIBUTIONS:
Net Investment Income (0.047) (0.027)
---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000
---------------------------------------------------------------------------------------------------------------------
Total Return 4.81% 2.75%
---------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period
(000) $108,565 $105,611
Ratio of Expenses to Average
Net Assets 0.75% 0.74%
Ratio of Net Investment
Income to Average Net
Assets 4.71% 2.71%
Ratio of Expenses to Average
Net Assets* 0.92% 0.91%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
(a) For the period September 30, 1997 (commencement of offering Investor B
shares) to May 31, 1998.
(b) Not annualized.
(c) Annualized.
97
<PAGE> 98
FINANCIAL HIGHLIGHTS
- -
U.S. GOVERNMENT OBLIGATIONS FUND
<TABLE>
<CAPTION>
INVESTOR A
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997 1996 1995 1994
<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 0.044 0.047 0.049 0.047 0.027
DISTRIBUTIONS:
Net Investment Income (0.044) (0.044) (0.047) (0.049) (0.047) (0.027)
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-----------------------------------------------------------------------------------------------------------------------------
Total Return 4.53% 4.53%(a) 4.79% 4.99% 4.76% 2.69%
-----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $2,032 $169,210 $212,082 $186,944 $169,179 $172,482
Ratio of Expenses to Average Net Assets 0.75% 0.76%(b) 0.74% 0.74% 0.77% 0.77%
Ratio of Net Investment Income to Average Net
Assets 4.75% 4.83%(b) 4.69% 4.88% 4.62% 2.64%
Ratio of Expenses to Average Net Assets* 0.92% 0.93%(b) 0.91% 0.91% 0.94% 0.94%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
(a) Not annualized.
(b) Annualized.
98
<PAGE> 99
FINANCIAL HIGHLIGHTS
- -
TREASURY FUND
<TABLE>
<CAPTION>
INVESTOR A
ELEVEN MONTHS DECEMBER 1,
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1993 TO
MAY 31, MAY 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997 1996 1995 1994(a)
<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 0.045 0.047 0.049 0.047 0.016
DISTRIBUTIONS:
Net Investment Income (0.044) (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 $ 1.000
-------------------------------------------------------------------------------------------------------------------------------
Total Return 4.51% 4.61%(b) 4.82% 5.04% 4.81% 1.66%(b)
-------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $9,161 $240,208 $176,006 $158,723 $105,391 $56,535
Ratio of Expenses to Average Net Assets 0.67% 0.67%(c) 0.67% 0.70% 0.75% 0.64%(c)
Ratio of Net Investment Income to Average
Net Assets 4.77% 4.90%(c) 4.72% 4.87% 4.82% 2.84%(c)
Ratio of Expenses to Average Net Assets* 0.91% 0.92%(c) 0.92% 0.95% 1.04% 0.99%(c)
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
99
<PAGE> 100
PARKSTONE FUNDS
Board of Trustees
ROBERT D. NEARY
Chairman
Retired Co-Chairman, Ernst & Young
Director:
Cold Metal Products, Inc.
Strategic Distribution, Inc.
HERBERT R. MARTENS, JR.
President
Executive Vice President,
National City Corporation
Chairman, President and
Chief Executive
Officer, NatCity
Investments, Inc.
LEIGH CARTER
Retired President and
Chief Operating Officer,
B.F. Goodrich Company
Director:
Kirtland Capital Corporation
Morrison Products
TruSeal Technologies
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
RICHARD W. FURST, DEAN
Garvice D. Kincaid 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
<PAGE> 101
For more information about the Funds, the following documents are available free
upon request:
ANNUAL/SEMI-ANNUAL REPORTS (REPORTS):
The Funds' annual and semi-annual reports to shareholders contain additional
information on the Funds' investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected a Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Funds, including their
operations and investment policies. It is incorporated by reference and is
legally considered a part of this prospectus.
You can get free copies of Annual/Semi-Annual Reports and the SAI, of the
Parkstone Group of Funds, or request other information and discuss your
questions about the Funds by contacting a Broker or Bank that sells the
Funds, or contact the Fund at:
The Parkstone Group of Funds
P.O. Box 8590
Boston, Massachusetts 02266-8590
Telephone: 1-800-451-8377
You can review information about the Funds and SAI at the Public Reference Room
of the Securities and Exchange Commission in Washington D.C. You can get copies:
o For a duplicating fee, by writing the Public Reference Section of the
Securities and Exchange Commission in Washington, D.C. 20549-6009 or
calling 1-800-SEC-0330.
o Free from the Commission's Website at http://www.sec.gov
Investment Company Act file no. 811-5105.
PARKSTONE
FUNDS
PAR-F-009-0100 9/99
<PAGE> 102
PARKSTONE
FUNDS
INSTITUTIONAL SHARES
SEPTEMBER 17, 1999
PROSPECTUS
The Securities and Exchange Commission has not
approved or disapproved these securities or passed
upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
<PAGE> 103
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
RISK/RETURN SUMMARY
[LOGO]
4 International Discovery Fund
5 Small Capitalization Fund
6 Mid Capitalization Fund
7 Large Capitalization Fund
8 Fund Expenses -- Growth Funds
9 Equity Income Fund
10 Balanced Allocation Fund
11 Fund Expenses -- Growth and Income Funds
12 Bond Fund
13 Intermediate Government Obligations Fund
14 U.S. Government Income Fund
15 Limited Maturity Bond Fund
16 Fund Expenses -- Income Funds
17 Michigan Municipal Bond Fund
19 National Tax Exempt Bond Fund
20 Fund Expenses -- Tax-Free Income Funds
21 Tax-Free Fund
22 Prime Obligations Fund
23 U.S. Government Obligations Fund
24 Treasury Fund
25 Fund Expenses -- Money Market Funds
DESCRIPTION OF THE FUNDS
[LOGO]
[LOGO]
26 Description of the Funds
Investment Objectives, Strategies and Risks
37 Additional Risk Considerations
MANAGEMENT OF THE FUNDS
[LOGO]
[LOGO]
38 Investment Adviser
39 Portfolio Management Team
39 Distributor and Administrator
40 Year 2000
PURCHASE AND SALE OF SHARES
[LOGO]
41 How NAV is Calculated
42 Purchasing and Adding to Your Shares
43 Selling Your Shares
DIVIDENDS, DISTRIBUTIONS AND TAXES
[LOGO]
44 Dividends and Distributions
44 Federal Taxes
45 State and Local Taxes
FINANCIAL HIGHLIGHTS
[LOGO]
46
</TABLE>
2
<PAGE> 104
[LOGO]
RISK/RETURN SUMMARY
- -
The following is a summary of certain key information about the Funds. You
will find additional information about the Funds, including a detailed
description of the risks of an investment in a Fund, after this summary.
In this summary, we will describe certain kinds of risks that apply to one or
more of the Funds. The summary also describes specific risks that may apply
to one Fund. These risks are:
- MARKET RISK This is the risk that the value of a Fund's investments will
fluctuate as the stock or bond markets fluctuate and that prices overall
will decline over short or longer-term periods.
- INTEREST RATE RISK This is the risk that changes in interest rates will
affect the value of a Fund's investments in income-producing or
fixed-income or debt securities. Increases in interest rates may cause the
value of a Fund's investments to decline.
- CREDIT RISK This is the risk that the issuer of a security will be unable
or unwilling to make timely payments of interest or principal, or to
otherwise honor its obligations.
- FOREIGN RISK This is the risk of investments in issuers located in foreign
countries, which may have greater price volatility and less liquidity.
Investments in foreign securities also are subject to political,
regulatory, and diplomatic risks. Foreign risk includes currency risk,
which may occur due to fluctuations in the exchange rates between the U.S.
dollar and foreign currencies. This risk could negatively affect the value
of a Fund's investments.
- MANAGEMENT RISK This is the risk that investments selected by a Fund's
manager may not perform well and that the Fund will not perform as well as
a result.
Other important things for you to note:
- You may lose money by investing in a Fund.
- An investment in a Fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
For convenience of reference, the Funds are sometimes referred to as part of
a general grouping as described below:
- GROWTH FUNDS (International Discovery Fund, Small Capitalization Fund, Mid
Capitalization Fund and Large Capitalization Fund) The Growth Funds offer
investors seeking growth of capital a range of alternative approaches to
investing according to risk tolerance.
- GROWTH AND INCOME FUNDS (Equity Income Fund and Balanced Allocation Fund)
The Growth and Income Funds offer investors seeking current income with
preservation of capital a range of alternative approaches to investing.
- INCOME FUNDS (Bond Fund, Intermediate Government Obligations Fund, U.S.
Government Income Fund and Limited Maturity Bond Fund) The Income Funds
offer investors seeking current income with preservation of capital a range
of alternative approaches to investing.
- TAX-FREE INCOME FUNDS (Michigan Municipal Bond Fund and National Tax Exempt
Bond Fund (formerly Municipal Bond Fund)) The Tax-Free Income Funds offer
investors seeking income exempt from federal income tax as well as
preservation of capital a range of alternative approaches to investing.
- MONEY MARKET FUNDS (Tax-Free Fund, Prime Obligations Fund, U.S. Government
Obligations Fund and Treasury Fund) The Money Market Funds offer investors
seeking current income as well as preservation of capital a range of
alternative approaches to investing. An investment in one of the Money
Market Funds is not a deposit of any bank and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government
agency. Although each of the Money Market Funds seeks to preserve the value
of your investment at $1.00 per share, it is possible to lose money by
investing in one of the Money Market Funds.
Each Fund's investment objective may be changed without shareholder approval,
except as otherwise stated.
3
<PAGE> 105
[SCALE ICON]
RISK/RETURN SUMMARY INTERNATIONAL DISCOVERY FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide capital
appreciation by investing in equity securities of foreign issuers.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 80% of
its total assets in equity securities of at least three foreign issuers.
The Fund's assets normally will be invested in the securities of issuers
located in at least three foreign countries. Foreign investments also may
include debt obligations issued or guaranteed by foreign governments or
their agencies, authorities, instrumentalities or political subdivisions,
including a foreign state, province or municipality. The Fund does not
presently intend to invest in common stock of domestic companies.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are market risk, foreign risk, and management risk. Because the Fund
invests in foreign securities, the Fund's returns will be more volatile and
differ, sometimes significantly, from U.S. stock returns generally.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- Are seeking increased diversification and new investment opportunities.
- Can stay invested for a minimum of three to five years.
- Are willing to accept short-term price fluctuations and higher than
average risk.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
PERFORMANCE SUMMARY
The chart and table on this
page show how the
International Discovery Fund
has performed and how its
performance has varied from
year to year. The bar chart
gives an indication of risk by
showing changes in the Fund's
yearly performance over six
years to demonstrate that the
Fund has gained or lost value
at different times. The table
below compares the Fund's
average annual returns for 1
and 5 year periods and since
inception to those of the
Morgan Stanley Capital
International Europe,
Australasia and Far East
(EAFE) Index, which represents
the performance of the major
stock markets in those
regions. Past performance does
not indicate how the Fund will
perform in the future.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INSTITUTIONAL SHARES(1)
<TABLE>
<CAPTION>
INTERNATIONAL DISCOVERY FUND
----------------------------
<S> <C>
1993 33.88%
94 -6.68%
95 8.01%
96 16.56%
97 1.80%
98 12.66%
</TABLE>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
During the period shown in the bar chart,
the Fund's:
Best Quarter was 18.24% 4th quarter 1998
Worst Quarter was -15.56% 3rd quarter 1998
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
FUND OR CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
International Discovery Fund Institutional Shares 12/29/92 12.66% 6.14% N/A 10.32%
Morgan Stanley Capital International EAFE Index 12/29/92 20.33% 9.50% N/A 13.10%
</TABLE>
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
4
<PAGE> 106
[SCALE ICON]
RISK/RETURN SUMMARY SMALL CAPITALIZATION FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide capital
appreciation with a diversified portfolio of publicly traded smaller cap
equity securities.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 80% of
its total assets in equity securities of companies with small stock market
capitalization. The Fund considers a "small capitalization" company to be
one that has the same market capitalization as the companies in the Russell
2000 Growth Index. The Fund may invest up to 25% of its total assets in
foreign securities.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are market risk and management risk. The Fund's risks also include
capitalization risk, which is the risk of investing in securities of small
companies. Prices of these companies' securities tend to be more volatile
than those of large companies' securities. In addition, small-
capitalization companies may have more risk because they often have
less-seasoned management and more limited product lines, markets, or
financial resources. To the extent the Fund invests in foreign securities,
your investment may have foreign risk.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- Wish to take advantage of the growth potential of small company stocks.
- Can remain invested for a minimum of three to five years.
- Are willing to accept higher than average volatility and risk.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
PERFORMANCE SUMMARY
The chart and table on this
page show how the Small
Capitalization Fund has
performed and how its
performance has varied from
year to year. The bar chart
gives an indication of risk by
showing changes in the Fund's
yearly performance over ten
years to demonstrate that the
Fund has gained or lost value
at different times. The table
below compares the Fund's
average annual returns for 1,
5 and 10 year periods and
since inception to those of
the Russell 2000 Growth Index,
which is comprised of
securities in the Russell 2000
Stock Index with a greater
than average growth
orientation. Past performance
does not indicate how the Fund
will perform in the future.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INSTITUTIONAL SHARES(1)
[PERFORMANCE BAR CHART]
<TABLE>
<CAPTION>
SMALL CAPITALIZATION FUND
-------------------------
<S> <C>
1989 32.39%
90 -1.37%
91 43.94%
92 19.15%
93 21.93%
94 5.17%
95 35.86%
96 27.70%
97 -5.97%
98 -5.31%
</TABLE>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
During the period shown in the bar chart,
the Fund's:
Best Quarter was 31.41% 4th quarter 1992
Worst Quarter was -26.91% 3rd quarter 1998
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ending December 31, 1998)
<TABLE>
<CAPTION>
FUND OR CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Small Capitalization Fund Institutional Shares 10/31/88 -5.31% 10.19% 16.07% 15.78%
Russell 2000 Growth Index 10/31/88 1.23% 10.22% 11.54% 11.43%
</TABLE>
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
5
<PAGE> 107
[SCALE ICON]
RISK/RETURN SUMMARY MID CAPITALIZATION FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide capital
appreciation with a diversified portfolio of publicly traded mid cap equity
securities.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 80% of
its total assets in securities of companies with mid stock market
capitalization. The Fund considers a "mid capitalization' company to be one
that has the same market capitalization as the companies in the Russell Mid
Cap Growth Index. The Fund may invest up to 25% of its total assets in
foreign securities.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are market risk and management risk. The Fund's risks also include
capitalization risk, which is the risk of investing in the securities of
mid-capitalization companies. Prices of mid-capitalization companies'
securities tend to be more volatile than those of large companies'
securities. In addition, mid-capitalization companies may have more risk
because they often have less-seasoned management and more limited product
lines, markets, or financial resources. To the extent the Fund invests in
foreign securities, your investment may have foreign risk.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- Want to take advantage of the long-term growth potential historically
provided by stock investments.
- Can remain invested for a minimum of three to five years.
- Are willing to accept short-term price fluctuations and higher than
average risk in return for potential above-average long-term growth.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
PERFORMANCE SUMMARY
The chart and table on this
page show how the Mid
Capitalization Fund has
performed and how its
performance has varied from
year to year. The bar chart
gives an indication of risk by
showing changes in the Fund's
yearly performance over ten
years to demonstrate that the
Fund has gained or lost value
at different times. The table
below compares the Fund's
average annual returns for 1,
5 and 10 year periods and
since inception to those of
the Russell Mid-Cap Growth
Index, an unmanaged index
which focuses on the
mid-capitalization sector of
the U.S. stock market. Past
performance does not indicate
how the Fund will perform in
the future.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INSTITUTIONAL SHARES(1)
<TABLE>
<CAPTION>
MID CAPITALIZATION FUND
-----------------------
<S> <C>
1989 35.54%
90 -3.30%
91 27.60%
92 15.22%
93 12.97%
94 -5.30%
95 29.86%
96 18.32%
97 11.70%
98 11.31%
</TABLE>
The bar chart above does not reflect the impact of
any applicable sales charges or account fees which
would reduce returns.
During the period shown in the bar chart, the
Fund's:
Best Quarter was 21.95% 4th quarter 1998
Worst Quarter was -19.22% 3rd quarter 1998
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
FUND OR CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Mid Capitalization Fund Institutional Shares 10/31/88 11.31% 12.59% 14.69% 14.43%
Russell Mid-Cap Growth Index 10/31/88 17.86% 17.34% 17.30% 17.13%
</TABLE>
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
6
<PAGE> 108
[SCALE ICON]
RISK/RETURN SUMMARY LARGE CAPITALIZATION FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide capital
appreciation with a diversified portfolio of publicly traded larger cap
equity securities.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 80% of
its total assets in a diversified portfolio of common stocks and securities
convertible into common stocks of companies with large stock market
capitalization. The Fund considers a "large capitalization" company to be
one that has the same market capitalization as the companies in the S&P
Barra Growth Index. The Fund may also invest up to 25% of its total assets
in foreign securities.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are market risk and management risk. To the extent the Fund invests in
foreign securities, your investment may have foreign risk.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- Want to take advantage of the long-term growth potential historically
provided by stock investments.
- Wish to invest in large companies whose names or products/services are
well known.
- Can remain invested for a minimum of three to five years.
- Are willing to accept short-term price fluctuations and higher than
average risk in return for potential above-average long-term growth.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
PERFORMANCE SUMMARY
The chart and table on this
page show how the Large
Capitalization Fund has
performed and how its
performance has varied from
year to year. The bar chart
gives an indication of risk by
showing changes in the Fund's
yearly performance over three
years to demonstrate that the
Fund has gained or lost value
at different times. The table
below compares the Fund's
average annual returns for a
one year period and since
inception to those of the S&P
Barra Growth Index, which is
comprised of securities in the
Standard & Poor's 500 Stock
Index that have a higher than
average price-to-book ratio.
Past performance does not
indicate how the Fund will
perform in the future.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INSTITUTIONAL SHARES(1)
<TABLE>
<CAPTION>
LARGE CAPITALIZATION FUND
-------------------------
<S> <C>
1996 23.23%
97 29.08%
98 42.62%
</TABLE>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
During the period shown in the bar chart,
the Fund's:
Best Quarter was 25.53% 4th quarter 1998
Worst Quarter was -9.12% 3rd quarter 1998
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
FUND OR CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Large Capitalization Fund Institutional Shares 12/28/95 42.62% N/A N/A 31.39%
S&P Barra Growth Index 12/28/95 42.16% N/A N/A 33.99%
</TABLE>
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
7
<PAGE> 109
[LOGO]
[SCALE ICON]
RISK/RETURN SUMMARY FUND EXPENSES
- -
FEES AND EXPENSES -- GROWTH FUNDS
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD INSTITUTIONAL SHARES OF THE FUNDS.
Annual Fund operating expenses are paid out of Fund assets and are reflected
in the share price. The fees and expenses for each Fund are based upon
current contractual advisory fees (as of October 1, 1999) and the other
actual operating expenses of that Fund for the fiscal year ended May 31,
1999.
FEE TABLE
<TABLE>
<CAPTION>
INTERNATIONAL SMALL MID LARGE
DISCOVERY CAPITALIZATION CAPITALIZATION CAPITALIZATION
FUND FUND(3) FUND FUND
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None None None None
Maximum Deferred Sales Charge (Load) (as a
percentage of offering price or sale price,
whichever is less) None None None None
Redemption Fee(1) None None None None
Exchange Fee None None None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT
ARE DEDUCTED FROM FUND ASSETS)
Management Fees 1.15% 1.00% 1.00% 0.75%
Distribution and Service (12b-1) Fees 0.00% 0.00% 0.00% 0.00%
Other Expenses 0.41% 0.45% 0.32% 0.30%
Total Annual Fund Operating Expenses(2) 1.56% 1.45% 1.32% 1.05%
</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.
(2) Certain purchases of the Funds through financial institutions may be
subject to fees for additional services provided to investors.
(3) The fees and expenses for the Small Capitalization Fund are based upon
current fees.
EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
INTERNATIONAL DISCOVERY FUND
INSTITUTIONAL SHARES $159 $493 $850 $1,856
SMALL CAPITALIZATION FUND
INSTITUTIONAL SHARES $148 $459 $792 $1,735
MID CAPITALIZATION FUND
INSTITUTIONAL SHARES $134 $418 $723 $1,590
LARGE CAPITALIZATION FUND
INSTITUTIONAL SHARES $107 $334 $579 $1,283
</TABLE>
This Example is intended to help
you compare the cost of
investing in the Funds with
the cost of investing in
other mutual funds.
The Example assumes that you
invest $10,000 in the Funds
for the time periods
indicated and then redeem all
of your shares at the end of
those periods. The Example
also assumes that your
investment has a 5% return
each year and that each
Fund's operating expenses
remain the same. Although
your actual costs may be
higher or lower, based on
these assumptions your costs
would be:
8
<PAGE> 110
[SCALE ICON]
RISK/RETURN SUMMARY EQUITY INCOME FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide capital
appreciation by investing in a diversified portfolio of publicly traded
larger cap equity securities which, in the aggregate, provide an
above-average current yield.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund invests at least 80% of the value
of its total assets in income-producing, large cap common stocks and
securities convertible into common stocks. The Fund considers a "large
capitalization" company to be one that has the same market capitalization
as the companies in the S&P Barra Value Index. The Fund expects that its
core holdings will consist of securities with a high dividend yield,
although it may balance these holdings with lower yielding but
higher-growth oriented securities.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are market risk, interest rate risk, credit risk and management risk. To
the extent the Fund invests in foreign securities, your investment has
foreign securities risk.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- Would like to invest in the stock market but wish to do so in a way that
helps reduce some of the risks associated with other types of stock
funds.
- Want a dependable source of monthly income.
- Can stay invested for a minimum of three to five years.
- Are willing to accept some short-term price fluctuations in return for
potential above-average long-term returns.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
PERFORMANCE SUMMARY
The chart and table on this
page show how the Equity
Income Fund has performed and
how its performance has varied
from year to year. The bar
chart gives an indication of
risk by showing changes in the
Fund's yearly performance over
ten years to demonstrate that
the Fund has gained or lost
value at different times. The
table below compares the
Fund's average annual returns
for 1, 5 and 10 year periods
and since inception to those
of the S&P Barra Value Index,
which is comprised of
securities in the Standard &
Poor's 500 Stock Index that
have a lower than average
price-to-book ratio. Past
performance does not indicate
how the Fund will perform in
the future.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INSTITUTIONAL SHARES(1)
<TABLE>
<CAPTION>
EQUITY INCOME FUND
------------------
<S> <C>
1989 28.13%
90 0.13%
91 24.96%
92 9.40%
93 12.65%
94 -8.26%
95 27.71%
96 17.17%
97 25.48%
98 10.95%
</TABLE>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
During the period shown in the bar chart, the
Fund's:
Best Quarter was 13.54% 4th quarter 1998
Worst Quarter was -10.73% 3rd quarter 1998
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
FUND OR CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Equity Income Fund Institutional Shares 10/31/88 10.95% 13.83% 14.21% 14.22%
S&P Barra Value Index 10/31/88 14.67% 19.87% 16.67% 16.39%
</TABLE>
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
9
<PAGE> 111
[SCALE ICON]
RISK/RETURN SUMMARY BALANCED ALLOCATION FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide
long-term capital appreciation and current income.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund invests in a broad range of
securities including common stocks, convertible securities and fixed-income
securities. Normally, the Fund expects to invest 50% to 70% of its net
assets in common stocks and convertible securities and 25% to 55% of its
net assets in fixed-income securities. The Fund also may invest up to 30%
of it net assets in cash and cash-equivalent securities, which include
highly liquid securities with a maturity of less than three months. The
Fund may invest up to 20% of its net assets in foreign securities.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are market risk, interest rate risk, credit risk and management risk. In
addition, the Fund has the risk that the allocation of its investments
between equity and fixed-income securities could have a negative effect on
the Fund's net asset value when one of these asset classes is not
performing as well as the other. To the extent the Fund invests in foreign
securities, your investment has foreign risk.
- WHO MAY WANT TO INVEST. Consider investing in the Fund if you:
- Want exposure to stocks, bonds, and cash equivalents in a single fund.
- Wish to rely on professional fund managers to increase or decrease
exposure to different investment categories as market conditions change.
- Can stay invested for a minimum of three to five years.
- Are willing to accept some short-term price fluctuations in return for
potential above-average long-term returns.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
PERFORMANCE SUMMARY
The chart and table on this
page show how the Balanced
Allocation Fund has performed
and how its performance has
varied from year to year. The
bar chart gives an indication
of risk by showing changes in
the Fund's yearly performance
over six years to demonstrate
that the Fund has gained or
lost value at different times.
The table below compares the
Fund's average annual returns
for 1 and 5 year periods and
since inception to those of
the Standard & Poor's 500
Stock Index ("S&P 500 Index"),
a widely recognized, unmanaged
index of common stocks
generally representative of
the U.S. stock market as a
whole and the Lehman Brothers
Aggregate Bond Index, an
unmanaged, fixed income,
market value-weighted index
that includes treasury issues,
agency issues, corporate bond
issues and mortgage backed
securities. Past performance
does not indicate how the Fund
will perform in the future.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INSTITUTIONAL SHARES(1)
<TABLE>
<CAPTION>
BALANCED ALLOCATION FUND
------------------------
<S> <C>
1993 11.42%
94 -2.77%
95 22.96%
96 13.10%
97 11.67%
98 13.04%
</TABLE>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
During the period shown in the bar chart,
the Fund's:
<TABLE>
<S> <C> <C> <C>
Best Quarter was 10.21% 4th quarter 1998
Worst Quarter was -6.87% 3rd quarter 1998
</TABLE>
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
FUND OR CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Balanced Allocation Fund Institutional Shares 1/31/92 13.04% 11.29% N/A 11.42%
S&P 500 Index 1/31/92 28.58% 24.06% N/A 20.08%
Lehman Brothers Aggregate Bond Index 1/31/92 8.67% 7.27% N/A 7.95%
</TABLE>
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
10
<PAGE> 112
[LOGO]
[SCALE ICON]
RISK/RETURN SUMMARY FUND EXPENSES
- -
FEES AND EXPENSES -- GROWTH AND INCOME FUNDS
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD INSTITUTIONAL SHARES OF THE FUNDS.
Annual Fund operating expenses are paid out of Fund assets, and are reflected
in the share price. The fees and expenses for each Fund are based upon
current contractual advisory fees (as of October 1, 1999) and the other
actual operating expenses of that Fund for the fiscal year ended May 31,
1999.
FEE TABLE
<TABLE>
<CAPTION>
EQUITY INCOME BALANCED ALLOCATION
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) FUND FUND
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None None
Maximum Deferred Sales Charge (Load) (as a percentage of
offering or sale price, whichever is less) None None
Redemption Fee(1) None None
Exchange Fee None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees 0.75% 0.75%
Distribution and Service (12b-1) Fees 0.00% 0.00%
Other Expenses 0.34% 0.36%
Total Annual Fund Operating Expenses(2) 1.09% 1.11%
</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.
(2) Certain purchases of the Funds through financial institutions may be
subject to fees for additional services provided to investors.
EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
EQUITY INCOME FUND
INSTITUTIONAL SHARES $111 $347 $601 $1,329
BALANCED ALLOCATION FUND
INSTITUTIONAL SHARES $113 $353 $612 $1,352
</TABLE>
This Example is intended to help
you compare the cost of investing
in the Funds with the cost of
investing in other mutual funds.
The Example assumes that you
invest $10,000 in the Funds for
the time periods indicated and
then redeem all of your shares
at the end of those periods. The
Example also assumes that your
investment has a 5% return each
year and that each Fund's
operating expenses remain the
same. Although your actual costs
may be higher or lower, based on
these assumptions you costs
would be:
11
<PAGE> 113
[SCALE ICON]
RISK/RETURN SUMMARY BOND FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide current
income as well as preservation of capital by investing in high- and
medium-grade fixed-income securities.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund invests at least 80% of its total
assets in investment grade debt securities of all types. Such securities
will be 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 Adviser deems are of
comparable quality. The Fund expects to maintain a dollar-weighted average
portfolio maturity of 4 to 12 years.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are interest rate risk, credit risk and management risk. Increases in
interest rates may cause the value of the Fund's investments to decline and
the decrease in value may not be offset by higher interest income. Because
the Fund may invest in mortgage-related or asset-backed securities, it is
subject to the risk that mortgages or other assets may be prepaid when
interest rates decline, forcing the Fund to invest in securities with lower
interest rates. For this and other reasons, mortgage-related and
asset-backed securities may have significantly greater price and yield
volatility than traditional fixed-income securities.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- Wish to preserve and protect your assets while potentially staying ahead
of inflation.
- Want a dependable source of monthly income
- Need additional diversification in your portfolio to reduce volatility.
- Can keep your money invested for a minimum of two to three years.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
PERFORMANCE SUMMARY
The chart and table on this
page show how the Bond Fund
has performed and how its
performance has varied from
year to year. The bar chart
gives an indication of risk by
showing changes in the Fund's
yearly performance over ten
years to demonstrate that the
Fund has gained or lost value
at different times. The table
below compares the Fund's
average annual returns for 1,
5 and 10 year periods and
since inception to those of
the Lehman Brothers Aggregate
Bond Index. Past performance
does not indicate how the Fund
will perform in the future.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INSTITUTIONAL SHARES(1)
[PERFORMANCE BAR CHART]
<TABLE>
<CAPTION>
INCOME FUNDS
------------
<S> <C>
1989 11.91%
90 8.12%
91 15.04%
92 6.23%
93 9.83%
94 -3.50%
95 18.05%
96 3.41%
97 9.28%
98 7.50%
</TABLE>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
During the period shown in the bar chart,
the Fund's:
<TABLE>
<S> <C> <C> <C>
Best Quarter was 6.89% 2nd quarter 1989
Worst Quarter was -2.67% 1st quarter 1994
</TABLE>
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
FUND OR CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Bond Fund Institutional Shares 10/31/88 7.50% 6.72% 8.44% 8.18%
Lehman Brothers Aggregate Bond Index 10/31/88 8.67% 7.27% 9.26% 8.98%
</TABLE>
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
12
<PAGE> 114
[SCALE ICON]
RISK/RETURN SUMMARY INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide current
income as well as preservation of capital by investing primarily in U.S.
government securities.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 80% of
its total assets in obligations issued or guaranteed by the U.S. government
or its agencies or instrumentalities. The Fund expects to maintain a
dollar-weighted average portfolio maturity of three to ten years. The Fund
normally invests in U.S. Treasury bills, notes or bonds and other U.S.
government securities. The Fund also may invest in mortgage-related
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are interest rate risk, credit risk and management risk. Increases in
interest rates may cause the value of the Fund's investments to decline and
a decrease in value may not be offset by higher interest income. Because
the Fund may invest in mortgage-related securities, it is subject to the
risk that mortgages may be prepaid when interest rates decline, forcing the
Fund to invest in securities with lower interest rates. For this and other
reasons, mortgage-related securities may have significantly greater price
and yield volatility than traditional debt securities.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- Wish to preserve and protect your assets while potentially staying ahead
of inflation.
- Want a dependable source of monthly income.
- Need additional diversification in your portfolio to reduce volatility.
- Can keep your money invested for a minimum of two to three years.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
PERFORMANCE SUMMARY
The chart and table on this
page show how the Intermediate
Government Obligations Fund
has performed and how its
performance has varied from
year to year. The bar chart
gives an indication of risk by
showing changes in the Fund's
yearly performance over ten
years to demonstrate that the
Fund has gained or lost value
at different times. The table
below compares the Fund's
average annual returns for 1,
5 and 10 year periods and
since inception to those of
the Lehman Brothers
Intermediate Government Index.
Past performance does not
indicate how the Fund will
perform in the future.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INSTITUTIONAL SHARES(1)
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
----------------------------------------
<S> <C>
1989 10.05%
90 8.81%
91 13.77%
92 5.33%
93 7.44%
94 -2.33%
95 13.49%
96 3.17%
97 6.88%
98 7.62%
</TABLE>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
During the period shown in the bar chart,
the Fund's:
<TABLE>
<S> <C> <C> <C>
Best Quarter was 5.23% 2nd quarter 1989
Worst Quarter was -1.91% 1st quarter 1994
</TABLE>
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
FUND OR CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Intermediate Government Obligations Institutional Shares 10/31/88 7.62% 5.64% 7.33% 7.09%
Lehman Brothers Intermediate Government Index 10/31/88 8.47% 6.45% 8.34% 8.11%
</TABLE>
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
13
<PAGE> 115
[SCALE ICON]
RISK/RETURN SUMMARY U.S. GOVERNMENT INCOME FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide current
income as well as preservation of capital by investing primarily in U.S.
government securities.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 80% of
its total assets in obligations issued or guaranteed by the U.S. government
or its agencies or instrumentalities. The Fund also may invest up to 20% of
its total assets in other mortgage-related securities and short-term
obligations. The Fund expects to maintain a dollar-weighted average
portfolio maturity of three to ten years.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are interest rate risk, credit risk and management risk. Increases in
interest rates may cause the value of the Fund's investments to decline and
the decrease in value may not be offset by higher interest income. Because
the Fund invests primarily in mortgage-related securities, it is subject to
the risk that mortgages may be prepaid when interest rates decline, forcing
the Fund to invest in securities with lower interest rates. For this and
other reasons, mortgage-related securities may have significantly greater
price and yield volatility than traditional debt securities.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- Want a high level of monthly income without a high degree of risk.
- Wish to diversify your investment portfolio to reduce volatility.
- Can keep your money invested for a minimum of two to three years.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
PERFORMANCE SUMMARY
The chart and table on this
page show how the U.S.
Government Income Fund has
performed and how its
performance has varied from
year to year. The bar chart
gives an indication of risk by
showing changes in the Fund's
yearly performance over six
years to demonstrate that the
Fund has gained or lost value
at different times. The table
below compares the Fund's
average annual returns for 1
and 5 year periods and since
inception to those of the
Lehman Brothers Mortgage-
Backed Securities Index which
covers all fixed-rate
securities backed by mortgage
pools of the Government
National Mortgage Association
(GNMA), Federal Home Loan
Mortgage Corporation (FHLMC),
and Federal National Mortgage
Association (FNMA). Past
performance does not indicate
how the Fund will perform in
the future.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INSTITUTIONAL SHARES(1)
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND
---------------------------
<S> <C>
1993 7.48%
94 -0.55%
95 13.78%
96 4.70%
97 8.10%
98 7.08%
</TABLE>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
During the period shown in the bar chart,
the Fund's:
<TABLE>
<S> <C> <C> <C>
Best Quarter was 3.94% 2nd quarter 1995
Worst Quarter was -1.06% 1st quarter 1994
</TABLE>
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
FUND OR CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
U.S. Government Income Fund Institutional Shares 11/12/92 7.08% 6.52% N/A 6.60%
Lehman Brothers Mortgage-Backed Securities Index 11/12/92 6.97% 7.23% N/A 7.24%
</TABLE>
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
14
<PAGE> 116
[SCALE ICON]
RISK/RETURN SUMMARY LIMITED MATURITY BOND FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide current
income as well as preservation of capital by investing in a portfolio of
high- and medium-grade fixed income securities.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 80% of
its total assets in investment grade debt securities of all types. The Fund
invests primarily in corporate bonds, U.S. government obligations, and
mortgage-related and asset-backed securities. Such securities will be 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 Adviser deems are of comparable quality. The Fund
expects to maintain a dollar-weighted average portfolio maturity of one to
five years.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are interest rate risk and credit risk. Increases in interest rates may
cause the value of the Fund's investments to decline and the decrease in
value may not be offset by higher interest income. Because the Fund may
invest in mortgage-related or asset-backed securities, it is subject to the
risk that mortgages or other assets may be prepaid when interest rates
decline, forcing the Fund to invest in securities with lower interest
rates. For this and other reasons, mortgage-related and asset-backed
securities may have significantly greater price and yield volatility than
traditional debt securities.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- Wish to preserve and protect your assets while potentially staying ahead
of inflation.
- Want a dependable source of monthly income.
- Need additional diversification in your portfolio to reduce volatility.
- Can keep your money invested for a minimum of two to three years.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
PERFORMANCE SUMMARY
The chart and table on this
page show how the Limited
Maturity Bond Fund has
performed and how its
performance has varied from
year to year. The bar chart
gives an indication of risk by
showing changes in the Fund's
yearly performance over ten
years to demonstrate that the
Fund has gained or lost value
at different times. The table
below compares the Fund's
average annual returns for 1,
5 and 10 year periods and
since inception to those of
the Merrill Lynch 1-3 Year
Government/Corporate Index,
which represents the total
returns of short-term
government and corporate
bonds. Past performance does
not indicate how the Fund will
perform in the future.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INSTITUTIONAL SHARES(1)
<TABLE>
<CAPTION>
LIMITED MATURITY BOND FUND
--------------------------
<S> <C>
1989 9.54%
90 7.83%
91 12.24%
92 5.76%
93 6.85%
94 -0.72%
95 11.27%
96 4.16%
97 5.80%
98 6.51%
</TABLE>
The bar chart above does not reflect the impact of any applicable sales charges
or account fees which would reduce returns.
During the period shown in the bar chart, the Fund's:
<TABLE>
<S> <C> <C> <C>
Best Quarter was 4.82% 2nd quarter 1989
Worst Quarter was -1.08% 1st quarter 1994
</TABLE>
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
FUND OR CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Limited Maturity Bond Fund Institutional Shares 10/31/88 6.51% 5.34% 6.87% 6.76%
Merrill Lynch 1-3 Year Government/Corporate Index 10/31/88 7.01% 6.04% 7.45% 7.33%
</TABLE>
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
15
<PAGE> 117
[LOGO]
[SCALE ICON]
RISK/RETURN SUMMARY FUND EXPENSES
- -
FEES AND EXPENSES -- INCOME FUNDS
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD INSTITUTIONAL SHARES OF THE FUNDS.
Annual Fund operating expenses are paid out of Fund assets, and are reflected
in the share price. The fees and expenses for each Fund are based upon
current contractual advisory fees (as of October 1, 1999) and the other
actual operating expenses of that Fund for the fiscal year ended May 31,
1999.
FEE TABLE
<TABLE>
<CAPTION>
SHAREHOLDER FEES INTERMEDIATE GOVERNMENT U.S. GOVERNMENT
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) BOND FUND OBLIGATIONS FUND INCOME FUND
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None None None
Maximum Deferred Sales Charge (Load) (as a
percentage of offering price or sale price,
whichever is less) None None None
Redemption Fee(1) None None None
Exchange Fee None None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Fees 0.55% 0.55% 0.55%
Distribution and Service (12b-1) Fees 0.00% 0.00% 0.00%
Other Expenses 0.29% 0.34% 0.35%
Total Annual Fund Operating Expenses(2) 0.84% 0.89% 0.90%
Fee Waivers/Reimbursements(3) 0.05% 0.05% 0.05%
Net Annual Fund Operating Expenses 0.79% 0.84% 0.85%
<CAPTION>
SHAREHOLDER FEES LIMITED MATURITY
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) BOND FUND
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a
percentage of offering price or sale price,
whichever is less) None
Redemption Fee(1) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Fees 0.45%
Distribution and Service (12b-1) Fees 0.00%
Other Expenses 0.33%
Total Annual Fund Operating Expenses(2) 0.78%
Fee Waivers/Reimbursements(3) 0.05%
Net Annual Fund Operating Expenses 0.73%
</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.
(2) Certain purchases of the Funds through financial institutions may be
subject to fees for additional services provided to investors.
(3) The Administrator is currently waiving a portion of its fees for the
current fiscal year. The Administrator may revise or cancel this expense
limitation at any time and will notify you of any material change.
EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
BOND FUND
INSTITUTIONAL SHARES $86 $268 $466 $1,037
INTERMEDIATE GOVERNMENT
OBLIGATIONS FUND
INSTITUTIONAL SHARES $91 $284 $493 $1,096
U.S. GOVERNMENT INCOME FUND
INSTITUTIONAL SHARES $92 $287 $498 $1,108
LIMITED MATURITY BOND FUND
INSTITUTIONAL SHARES $80 $249 $433 $ 966
</TABLE>
This Example is intended to help
you compare the cost of
investing in the Funds with
the cost of investing in
other mutual funds.
The Example assumes that you
invest $10,000 in the Funds
for the time periods
indicated and then redeem all
of your shares at the end of
those periods. The Example
also assumes that your
investment has a 5% return
each year and that each
Fund's operating expenses
remain the same. Although
your actual costs may be
higher or lower, based on
these assumptions you costs
would be:
16
<PAGE> 118
[LOGO]
RISK/RETURN SUMMARY MICHIGAN MUNICIPAL BOND FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide current
income exempt from federal income taxes and, to the extent possible, from
Michigan personal income taxes, as is consistent with conservation of
capital.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 80% of
its net assets in Michigan municipal securities 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 intangible taxes,
although such income may be subject to the federal alternative minimum tax
when received by certain shareholders. The Fund expects to maintain a
dollar-weighted average portfolio maturity of three to ten years.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are interest rate risk and credit risk. The Fund's investments in Michigan
municipal income securities may also include exposure to special factors
that may adversely affect the value of municipal securities and have a
significant effect on the value of the Fund's investments. These factors
include political or legislative changes, uncertainties related to the tax
status of municipal securities or the rights of investors in these
securities.
Due to the level of investment in municipal obligations issued by the State
of Michigan and its political subdivisions, the performance of the Fund
will be closely tied to the economic and political conditions in the State
of Michigan, and, therefore, an investment in the Fund may be riskier than
an investment in other types of municipal bond funds. The State's economy
is principally dependent upon manufacturing (particularly automobiles,
office equipment and other durable goods), tourism and agriculture and
historically has been highly cyclical. When a Fund's assets are
concentrated in obligations from revenues of similar projects issued by
issuers located in the same state or in industrial development bonds, the
Fund will be subject to the particular risks (including legal and economic
conditions) related to such securities to a greater extent than if its
assets were not so concentrated.
In addition, the Fund is not "diversified," meaning that it can invest a
greater percentage of its assets in a particular issuer. Factors affecting
these issuers could have a more significant adverse effect on the Fund's
net asset value.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- Wish to earn investment income that is exempt from federal income tax
- Live in Michigan and wish to earn investment income that is also exempt
from state income tax
- Want to support Michigan municipalities by purchasing their debt
securities
- Seek to reduce volatility in your portfolio through increased
diversification
- Can keep your money invested for a minimum of one to two years
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
17
<PAGE> 119
RISK/RETURN SUMMARY MICHIGAN MUNICIPAL BOND FUND
- -
PERFORMANCE SUMMARY
The chart and table on this
page show how the Michigan
Municipal Bond Fund has
performed and how its
performance has varied from
year to year. The bar chart
gives an indication of risk by
showing changes in the Fund's
yearly performance over eight
years to demonstrate that the
Fund has gained or lost value
at different times. The table
below compares the Fund's
average annual returns for 1
and 5 year periods and since
inception to those of the
Lehman Brothers 7 Year
Municipal Bond Index. Past
performance does not indicate
how the Fund will perform in
the future.
The table measures performance
in terms of total return.
However, this Fund is managed
for yield and not total
return.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INSTITUTIONAL SHARES(1)
<TABLE>
<CAPTION>
MICHIGAN MUNICIPAL BOND FUND
----------------------------
<S> <C>
1991 9.78%
92 6.98%
93 9.74%
94 -2.86%
95 13.63%
96 3.03%
97 7.18%
98 5.00%
</TABLE>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
During the period shown in the bar chart,
the Fund's:
Best Quarter was 5.25% 1st quarter 1995
Worst Quarter was -3.28% 1st quarter 1994
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
FUND OR CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Michigan Municipal Bond Fund Institutional Shares 7/02/90 5.00% 5.06% N/A 6.46%
Lehman Brothers 7 Year Municipal Bond Index 6/30/90 6.23% 5.80% N/A 7.55%
</TABLE>
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
18
<PAGE> 120
[SCALE ICON]
RISK/RETURN SUMMARY NATIONAL TAX EXEMPT BOND FUND
FORMERLY MUNICIPAL BOND FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide current
income exempt from federal income taxes as is consistent with conservation
of capital.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund normally invests at least 80% of
its net assets in a diversified portfolio of municipal securities 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. Interest income from certain types of municipal
securities may be subject to federal alternative minimum tax. These
securities are not treated as tax-exempt obligations for purposes of
measuring compliance with the 80% limitation. The Fund expects to maintain
a dollar-weighted average portfolio maturity of three to ten years.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are interest rate risk and credit risk. The Fund's investments in municipal
securities may also have exposure to special factors that may adversely
affect the value of these securities, and have a significant effect on the
value of the Fund's investments. These factors include political or
legislative changes, uncertainties related to the tax status of municipal
securities or the rights of investors in these securities.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- Wish to earn investment income that is exempt from federal income tax.
- Want to support U.S. cities and states by purchasing their debt
securities.
- Seek to reduce volatility in your portfolio through increased
diversification.
- Can keep your money invested for a minimum of one to two years.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
PERFORMANCE SUMMARY
The chart and table on this
page show how the National Tax
Exempt Bond Fund has performed
and how its performance has
varied from year to year. The
bar chart gives an indication
of risk by showing changes in
the Fund's yearly performance
over ten years to demonstrate
that the Fund has gained or
lost value at different times.
The table below compares the
Fund's average annual returns
for 1, 5 and 10 year periods
and since inception to those
of the Lehman Brothers
Municipal Bond Index. Past
performance does not indicate
how the Fund will perform in
the future.
This table measures
performance in terms of total
return. However, this Fund is
managed for yield and not
total return.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INSTITUTIONAL SHARES(1)
<TABLE>
<CAPTION>
NATIONAL TAX EXEMPT BOND FUND
-----------------------------
<S> <C>
1989 7.57%
90 6.01%
91 9.16%
92 7.46%
93 9.18%
94 -3.25%
95 13.57%
96 2.92%
97 6.52%
98 4.98%
</TABLE>
The bar chart above does not reflect the impact of any applicable sales charges
or account fees which would reduce returns.
During the period shown in the bar chart, the Fund's:
Best Quarter was 5.69% 1st quarter 1995
Worst Quarter was -3.27% 1st quarter 1994
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
FUND OR CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
National Tax Exempt Bond Fund Institutional Shares 10/31/88 4.98% 4.80% 6.32% 6.27%
Lehman Brothers Municipal Bond Index 10/31/88 6.48% 6.23% 8.22% 8.09%
</TABLE>
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
19
<PAGE> 121
[LOGO]
[SCALE ICON]
RISK/RETURN SUMMARY FUND EXPENSES
- -
FEES AND EXPENSES -- TAX-FREE INCOME FUNDS
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD INSTITUTIONAL SHARES OF THE FUNDS.
Annual Fund operating expenses are paid out of Fund assets, and are reflected
in the share price. The fees and expenses for each Fund are based upon
current contractual advisory fees (as of October 1, 1999) and the other
actual operating expenses of that Fund for the fiscal year ended May 31,
1999.
FEE TABLE
<TABLE>
<CAPTION>
MICHIGAN MUNICIPAL NATIONAL TAX EXEMPT
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) BOND FUND BOND FUND(4)
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None None
Maximum Deferred Sales Charge (Load) (as a percentage of
offering or sale price, whichever is less) None None
Redemption Fee(1) None None
Exchange Fee None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees 0.55% 0.55%
Distribution and Service (12b-1) Fees 0.00% 0.00%
Other Expenses 0.31% 0.41%
Total Annual Fund Operating Expenses(2) 0.86% 0.96%
Fee Waivers/Reimbursements(3) 0.10% 0.10%
Net Annual Fund Operating Expenses 0.76% 0.86%
</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.
(2) Certain purchases of the Funds through financial institutions may be
subject to fees for additional services provided to investors.
(3) The Administrator is currently waiving a portion of its fees for the
current fiscal year. The Administrator may revise or cancel this expense
limitation at any time and will notify you of any material change.
(4) The fees and expenses for the National Tax Exempt Bond Fund are based
upon current fees.
EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
MICHIGAN MUNICIPAL BOND FUND
INSTITUTIONAL SHARES $88 $274 $477 $1,061
NATIONAL TAX EXEMPT BOND FUND
INSTITUTIONAL SHARES $98 $306 $531 $1,178
</TABLE>
This Example is intended to help
you compare the costs of
investing in the Funds with
the costs of investing in
other mutual funds.
The Example assumes that you
invest $10,000 in the Funds
for the time periods
indicated and then redeem all
of your shares at the end of
those periods. The Example
also assumes that your
investment has a 5% return
each year and that each
Fund's operating expenses
remain the same. Although
your actual costs may be
higher or lower, based on
these assumptions you costs
would be:
20
<PAGE> 122
[SCALE ICON]
RISK/RETURN SUMMARY TAX-FREE FUND
- -
- INVESTMENT OBJECTIVE The Fund's investment objective is to provide as high
a level of current interest income free from federal income taxes,
consistent with the preservation of capital and relative stability of
principal.
- PRINCIPAL INVESTMENT STRATEGIES The Fund is a money market fund that seeks,
to maintain a stable net asset value of $1.00 per share, although there is
no guarantee that the net asset value will not vary. The Fund normally
invests at least 80% of its total assets in municipal obligations the
interest on which is exempt from federal income tax and not subject to the
federal alternative minimum tax. These securities will have short-term debt
ratings in the two highest rating categories of at least two nationally
recognized statistical rating organizations, or will be unrated securities
of comparable quality. The Fund's dollar-weighted average portfolio
maturity will not exceed 90 days. The Fund will not purchase any security
which matures in more than 397 days.
- PRINCIPAL INVESTMENT RISKS The principal risks of investing in the Fund are
interest rate risk, credit risk and management risk. The Fund's investments
in municipal securities may also have exposure to special factors that may
adversely affect the value of municipal securities, and have a significant
effect on the value of the Fund's investments. These factors include
political or legislative changes, uncertainties related to the tax status
of municipal securities or the rights of investors in these securities.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
- An investor in a high tax bracket.
- Seeking liquidity.
- Seeking current income exempt from federal income taxes.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
PERFORMANCE SUMMARY
The chart and table on this page
show how the Tax-Free Fund has
performed and how its
performance has varied from year
to year. The bar chart gives an
indication of risk by showing
changes in the Fund's yearly
performance over ten years to
demonstrate that the Fund's
return has varied at different
times. Past performance does not
indicate how the Fund will
perform in the future.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INSTITUTIONAL SHARES(1)
<TABLE>
<CAPTION>
TAX-FREE FUND
-------------
<S> <C>
1989 6.08%
90 5.46%
91 3.96%
92 2.53%
93 1.88%
94 2.34%
95 3.26%
96 2.79%
97 3.08%
98 2.86%
</TABLE>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
During the period shown in the bar chart,
the Fund's:
<TABLE>
<S> <C> <C> <C>
Best Quarter was 1.58% 4th quarter 1989
Worst Quarter was 0.43% 1st quarter 1994
</TABLE>
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ending December 31, 1998)
<TABLE>
<CAPTION>
INCEPTION PAST PAST PAST SINCE
DATE YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Tax-Free Fund Institutional Shares 7/30/87 2.86% 2.87% 3.42% 3.57%
</TABLE>
For current yield information on the Fund, call 1-800-451-8377. The Tax-Free
Fund's yield appears in the Wall Street Journal each Thursday.
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
21
<PAGE> 123
[SCALE ICON]
RISK/RETURN SUMMARY PRIME OBLIGATIONS FUND
- -
- INVESTMENT OBJECTIVE The Fund's investment objective is to provide current
income with liquidity and stability of principal.
- PRINCIPAL INVESTMENT STRATEGIES The Fund is a money market fund that seeks
to maintain a stable net asset value of $1.00 per share, although there is
no guarantee that the net asset value per share will not vary. The 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. These securities will have short-term
debt ratings in the two highest rating categories of at least two
nationally recognized statistical rating organizations, or will be unrated
securities of comparable quality. The Fund's dollar-weighted average
portfolio maturity will not exceed 90 days. The Fund will not purchase any
security which matures in more than 397 days.
- PRINCIPAL INVESTMENT RISKS The principal risks of investing in the Fund are
interest rate risk, credit risk and management risk.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
- Seeking current income through a liquid investment.
- Looking for a conservative investment to balance out more aggressive
investments.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
PERFORMANCE SUMMARY
The chart and table on this
page show how the Prime
Obligations Fund has performed
and how its performance has
varied from year to year. The
bar chart gives indication of
risk by showing changes in the
Fund's yearly performance over
ten years to demonstrate that
the Fund's return has varied
at different times. Past
performance does not indicate
how the Fund will perform in
the future.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INSTITUTIONAL SHARES(1)
<TABLE>
<CAPTION>
PRIME OBLIGATIONS FUND
----------------------
<S> <C>
1989 8.98%
90 7.90%
91 5.96%
92 3.56%
93 2.68%
94 3.72%
95 5.42%
96 4.99%
97 5.11%
98 5.04%
</TABLE>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
During the period shown in the bar chart,
the Fund's:
<TABLE>
<S> <C> <C> <C>
Best Quarter was 2.31% 2nd quarter 1989
Worst Quarter was 0.65% 2nd quarter 1993
</TABLE>
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ending December 31, 1998)
<TABLE>
<CAPTION>
INCEPTION PAST PAST PAST SINCE
DATE YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Prime Obligations Fund Institutional
Shares 8/24/87 5.04% 4.86% 5.32% 5.54%
</TABLE>
For current yield information on the Fund, call 1-800-451-8377. The Prime
Obligations Fund's yield appears in The Wall Street Journal each Thursday.
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
22
<PAGE> 124
[SCALE ICON]
RISK/RETURN SUMMARY U.S. GOVERNMENT OBLIGATIONS FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide current
income with liquidity and stability of principal.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund is a money market fund that seeks
to maintain a stable net asset value of $1.00 per share, although there is
no guarantee that the net asset value per share will not vary. The Fund
normally invests at least 65% 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. Other securities
purchased by the Fund will be high quality money market instruments and
comparable investments. These securities will have short-term debt ratings
in the two highest rating categories of at least two nationally recognized
statistical rating organizations or will be unrated securities of
comparable quality. The Fund's dollar-weighted average portfolio maturity
will not exceed 90 days. The Fund will not purchase any security which
matures in more than 397 days.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are interest rate risk, credit risk and management risk.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
- Seeking current income through a liquid investment.
- Seeking current income.
- Looking for a conservative investment to balance out more aggressive
investments.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
PERFORMANCE SUMMARY
The chart and table on this
page show how the U.S.
Government Obligations Fund
has performed and how its
performance has varied from
year to year. The bar chart
gives an indication of risk by
showing changes in the Fund's
yearly performance over ten
years to demonstrate that the
Fund's return has varied at
different times. Past
performance does not indicate
how the Fund will perform in
the future.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INSTITUTIONAL SHARES(1)
<TABLE>
<CAPTION>
U.S. GOVERNMENT OBLIGATIONS FUND
--------------------------------
<S> <C>
1989 8.66%
90 7.69%
91 5.62%
92 3.72%
93 2.62%
94 3.66%
95 5.39%
96 4.86%
97 4.98%
98 4.94%
</TABLE>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
During the period shown in the bar chart,
the Fund's:
<TABLE>
<S> <C> <C> <C>
Best Quarter was 2.23% 2nd quarter 1989
Worst Quarter was 0.64% 3rd quarter 1993
</TABLE>
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
INCEPTION PAST PAST PAST SINCE
DATE YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
U.S. Government Obligations Fund Institutional
Shares 8/24/87 4.94% 4.77% 5.20% 5.40%
</TABLE>
For current yield information on the Fund, call 1-800-451-8377. The U.S.
Government Obligations Fund's yield appears in The Wall Street Journal each
Thursday.
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
23
<PAGE> 125
[LOGO]
[SCALE ICON]
RISK/RETURN SUMMARY TREASURY FUND
- -
- INVESTMENT OBJECTIVE. The Fund's investment objective is to provide current
income with liquidity and stability of principal.
- PRINCIPAL INVESTMENT STRATEGIES. The Fund is a money market fund that seeks
to maintain a stable net asset value of $1.00 per share. The Fund normally
invests exclusively in obligations issued or guaranteed by the U.S.
Treasury, its agencies or instrumentalities and repurchase agreements
related to these securities. Other securities purchased by the Fund will be
high quality money market instruments and other comparable investments.
These securities will have short-term debt ratings in the two highest
rating categories of at least two nationally recognized statistical rating
organizations, or will be unrated securities of comparable quality. The
Fund's dollar-weighted average portfolio maturity will not exceed 90 days.
The Fund will not purchase any security which matures in more than 397
days.
- PRINCIPAL INVESTMENT RISKS. The principal risks of investing in the Fund
are interest rate risk and management risk.
- WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
- Seeking current income through a liquid investment.
- Looking for a conservative investment to balance out more aggressive
investments.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR
INSTITUTIONAL SHARES(1)
<TABLE>
<CAPTION>
TREASURY FUND
-------------
<S> <C>
1994 3.71%
95 5.42%
96 4.89%
97 5.06%
98 4.96%
</TABLE>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns.
During the period shown in the bar chart,
the Fund's:
<TABLE>
<S> <C> <C> <C>
Best Quarter was 1.36% 2nd quarter 1995
Worst Quarter was 0.65% 1st quarter 1994
</TABLE>
PERFORMANCE SUMMARY
The chart and table on this
page show how the Treasury
Fund has performed and how its
performance has varied from
year to year. The bar chart
gives an indication of risk by
showing changes in the Fund's
yearly performance over five
years to demonstrate that the
Fund's return has varied at
different times. Past
performance does not indicate
how the Fund will perform in
the future.
PERFORMANCE TABLE
Average Annual Total Returns(1)
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
INCEPTION PAST PAST PAST SINCE
DATE YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
Treasury Fund Institutional Shares 12/1/93 4.96% 4.81% N/A 4.77%
</TABLE>
For current yield information on the Fund, call 1-800-451-8377. The Treasury
Fund's yield appears in The Wall Street Journal each Thursday.
(1) Both the chart and the table assume reinvestment of dividends and
distributions.
24
<PAGE> 126
[LOGO]
[SCALE ICON]
RISK/RETURN SUMMARY FUND EXPENSES
- -
FEES AND EXPENSES -- MONEY MARKET FUNDS
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD INSTITUTIONAL SHARES OF THE FUNDS.
Annual Fund operating expenses are paid out of Fund assets and are reflected
in the share price. The fees and expenses for each Fund are based upon
current contractual advisory fees (as of October 1, 1999) and the other
actual operating expenses of that Fund for the fiscal year ended May 31,
1999.
The Fund's Administrator has voluntarily agreed to waive a portion of its fee
with respect to certain Funds. The voluntary fee waiver will cause a Fund's
return to be higher than it would otherwise be without the fee waiver. (See
the footnotes to the Fee Table below.)
FEE TABLE
<TABLE>
<CAPTION>
PRIME U.S. GOVERNMENT
TAX-FREE OBLIGATIONS OBLIGATIONS TREASURY
FUND FUND FUND(4) FUND
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None None None None
Maximum Deferred Sales Charge (Load) (as a
percentage of offering price or sale price,
whichever is less) None None None None
Redemption Fee(1) None None None None
Exchange Fee None None None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT
ARE DEDUCTED FROM FUND ASSETS)
Management Fees 0.35% 0.35% 0.35% 0.30%
Distribution and Service (12b-1) Fees 0.00% 0.00% 0.00% 0.00%
Other Expenses 0.30% 0.27% 0.36% 0.28%
Total Annual Fund Operating Expenses(2) 0.65% 0.62% 0.71% 0.58%
Fee Waivers/Reimbursements(3) 0.02% 0.02% 0.02% 0.10%
Net Annual Fund Operating Expenses 0.63% 0.60% 0.69% 0.48%
</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.
(2) Certain purchases of the Funds through financial institutions may be
subject to fees for additional services provided to investors.
(3) The Administrator is currently waiving a portion of its fees for the
current fiscal year. The Administrator may revise or cancel this expense
limitation at any time and will notify you of any material change.
(4) The fees and expenses for the U.S. Government Obligations Fund are based
upon current fees.
EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
TAX-FREE FUND
INSTITUTIONAL SHARES $66 $208 $362 $810
PRIME OBLIGATIONS FUND INSTITUTIONAL
SHARES $63 $199 $346 $774
U.S. GOVERNMENT OBLIGATIONS FUND
INSTITUTIONAL SHARES $73 $227 $395 $883
TREASURY FUND INSTITUTIONAL SHARES $59 $186 $324 $726
</TABLE>
This Example is intended to help
you compare the cost of
investing in the Funds with
the cost of investing in
other mutual funds.
The Example assumes that you
invest $10,000 in the Funds
for the time periods
indicated and then redeem all
of your shares at the end of
those periods. The Example
also assumes that your
investment has a 5% return
each year and that each
Fund's operating expenses
remain the same. Although
your actual costs may be
higher or lower, based on
these assumptions you costs
would be:
- -
25
<PAGE> 127
[MAGNIFYING GLASS
ICON]
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
DESCRIPTION OF THE FUNDS
- -
This section of the Prospectus provides a more complete description of the
Funds' principal investment objectives, strategies and risks. Of course,
there can be no assurance that the Funds will achieve their investment
objectives. Additional descriptions of the Funds' risks, strategies, and
investments, as well as other strategies and investments not described below
may be found in the Funds' Statement of Additional Information or SAI.
This section describes risks that affect the Funds' portfolios as a whole.
Certain of these risks may apply to one or more of the Funds. These risks
are:
- MARKET RISK. This is the risk that market influences will affect
expected returns of all equities and bonds in ways that were not
anticipated.
- INTEREST RATE RISK. This is the risk that returns will be better or
worse than expected because of changes in the level of interest rates.
- CREDIT RISK. This is the risk associated with the ability of the firm or
institution that issues securities to meet its obligations on those
securities.
- MANAGEMENT RISK. This risk is the possibility that investments selected
by the Funds' managers may not perform well and that the Funds will not
perform as well as a result.
THIS SECTION ALSO DESCRIBES SPECIFIC RISKS THAT MAY AFFECT A PARTICULAR
FUND'S PORTFOLIO.
- -
PARKSTONE INTERNATIONAL DISCOVERY FUND
TICKER SYMBOL: INSTITUTIONAL SHARES PKIDX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide capital appreciation by
investing in equity securities of foreign issuers. The Fund normally invests
at least 80% of its total assets in equity securities of foreign issuers. The
Fund's assets normally will be invested in the securities of issuers located
in at least three foreign countries. Foreign investments also may include
debt obligations issued or guaranteed by foreign governments or their
agencies, authorities, instrumentalities or political subdivisions, including
a foreign state, province or municipality. The Fund does not presently intend
to invest in common stock of domestic companies.
The Fund will invest primarily in equity securities, including common and
preferred stocks, rights, warrants, securities convertible into common stocks
and American Depository Receipts ("ADRs") of companies included in the Morgan
Stanley Capital International Europe, Australasia, Far East ("EAFE") Index, a
broadly diversified international index consisting of more than 1,000 equity
securities of companies located in Australia, Austria, Belgium, Denmark,
Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia, the
Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, and
the United Kingdom. The Fund, however, will not be an "index" fund, and is
neither sponsored by nor affiliated with Morgan Stanley Capital
International. The Fund will not presently make investments in markets where,
in the judgement of the Adviser, property rights are not defined and
supported by adequate legal infrastructure. More than 25% of the Fund's
assets may be invested in the securities or issuers located in the same
country. Criteria for determining the appropriate distribution of investments
among countries may include relative valuation, growth prospects and fiscal,
monetary and regulatory governmental policies. The Fund emphasizes country
selection.
Although not currently anticipated, the Fund may invest up to 35% of its
assets in U.S. companies. The Fund may temporarily invest cash in short-term
debt instruments of U.S. and foreign issuers for cash management purposes or
pending investment.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
26
<PAGE> 128
DESCRIPTION OF THE FUNDS INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
- -
PARKSTONE SMALL CAPITALIZATION FUND
TICKER SYMBOL: INSTITUTIONAL SHARES PKSCX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide capital appreciation with a
diversified portfolio of publicly traded smaller cap equity securities. The
Fund normally invests at least 80% of its total assets in equity securities
of companies with small stock market capitalization. The Fund considers a
"small capitalization" company as one that has the same market capitalization
as the companies in the Russell 2000 Growth Index.
The Fund's Adviser assesses a company's growth potential by evaluating the
management team, examining products and services, analyzing financial
statements, reviewing earnings models with Wall Street analysts, and studying
company fundamentals. 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 the market niche or have developed the unique products or
technologies that are expected to produce superior growth in revenues and
earnings. The Fund's Adviser constantly reviews the Fund's securities
holdings and sells stocks when there is a breakdown in company or industry
group fundamentals or when a company's market capitalization exceeds that of
companies represented in the Russell 2000 Growth Index.
The Fund also may invest:
- up to 25% of its net assets in foreign securities either directly or
through the purchase of American Depository Receipts ("ADRs") and
European Depository Receipts ("EDRs");
- 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;
- securities of other investment companies and depository or custodial
receipts representing beneficial interests in any of the foregoing
securities; and
- in securities issued by foreign branches of U.S. banks and foreign banks,
Canadian Commercial Paper ("CCP"), which is commercial paper issued by a
Canadian corporation or counterpart of a U.S. Corporation and in U.S.
dollar-denominated commercial paper of a foreign issuer.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
- -
PARKSTONE MID CAPITALIZATION FUND
TICKER SYMBOL: INSTITUTIONAL SHARES PKEQX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide capital appreciation with a
diversified portfolio of publicly traded mid cap equity securities. The Fund
normally invests at least 80% of its total assets in securities of companies
with mid stock market capitalization. The Fund considers a "mid
capitalization" company as one that has the same market capitalization as the
companies in the Russell Mid Cap Growth Index. The Fund normally invests 80%
of its total assets in common stocks and convertible securities.
The Fund's Adviser assesses a company's growth potential by evaluating the
management team, examining products and services, analyzing financial
statements, reviewing earnings models with Wall Street analysts, and studying
company fundamentals. The Fund invests in companies that typically have
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. The Fund's core holdings are
companies that participate in long-term growth industries, although the Fund
also may
27
<PAGE> 129
DESCRIPTION OF THE FUNDS INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
- -
invest in companies in non-growth industries that exhibit the desired
characteristics. The Fund's Adviser constantly reviews the Fund's securities
holdings and sells stocks when there is a breakdown in company or industry
group fundamentals or when a company's market capitalization exceeds that of
companies represented in the Russell MidCap Growth Index.
The Fund also may invest:
- up to 25% of its net assets in foreign securities either directly or
through the purchase of ADRs or EDRs;
- 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;
- securities of other investment companies and depository or custodial
receipts representing beneficial interests in any of the foregoing
securities; and
- 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.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
- -
PARKSTONE LARGE CAPITALIZATION FUND
TICKER SYMBOL: INSTITUTIONAL SHARES PLCIX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide capital appreciation with a
diversified portfolio of publicly traded larger cap equity securities. The
Fund normally invests at least 80% of its total assets in a diversified
portfolio of common stocks and securities convertible into common stocks of
companies with large stock market capitalization. The Fund considers a "large
capitalization" company as one that has the same market capitalization as the
companies in the S&P Barra Growth Index.
The Fund invests in companies that typically have 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. The Fund's core holdings are companies that participate
in long-term growth industries, although the Fund also may invest in
companies in non-growth industries that exhibit the desired characteristics.
The Fund also may invest:
- up to 25% of its net assets in foreign securities either directly or
through the purchase of ADRs or EDRs; and
- 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;
- securities of other investment companies and depository or custodial
receipts representing beneficial interests in any of the foregoing
securities; and
- 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.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
28
<PAGE> 130
DESCRIPTION OF THE FUNDS INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
- -
RISK FACTORS FOR THE GROWTH FUNDS
The principal risks of the Growth Funds are market risk and management risk.
To the extent that the Funds may invest in small- to mid-capitalization
companies, they may have capitalization risk. These investments tend to be
more volatile than investments in large-cap companies. In addition, small-cap
companies may have more risk because they often have limited product lines,
markets, or financial resources. To the extent that the Funds may invest in
foreign securities, they may have foreign risk. This is the risk of
investments in issuers located in foreign countries, which may have greater
price volatility and less liquidity. Investments in foreign securities also
are subject to political, regulatory, and diplomatic risks. Foreign risk
includes currency risk, which may occur due to fluctuations in the exchange
rates between the U.S. dollar and foreign currencies. This risk could
negatively affect the value of a Fund's investments.
- -
PARKSTONE EQUITY INCOME FUND
TICKER SYMBOL: INSTITUTIONAL SHARES PKHEX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide capital appreciation by
investing in a diversified portfolio of publicly traded larger cap equity
securities which, in the aggregate, provide an above-average current yield.
The Fund invests at least 80% of the value of its total assets in
income-producing, large cap common stocks and securities convertible into
common stocks. The Fund considers a "large capitalization" company as one
that has the same market capitalization as the companies in the Standard &
Poor's Barra Value Index. The Fund expects that its core holdings will
consist of securities with a high dividend yield, although it may balance
these holdings with lower yielding but higher-growth oriented securities.
The Fund also may invest:
- up to 20% of its total assets in preferred stocks, corporate bonds or
notes;
- in 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;
- in securities of other investment companies and depository or custodial
receipts representing beneficial interests in any of the foregoing
securities; and
- up to 25% of its net assets in foreign securities either directly or
through the purchase of ADRs, securities issued by foreign branches of
U.S. banks and foreign banks, in CCP, and in Europaper.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
- -
PARKSTONE BALANCED ALLOCATION FUND
TICKER SYMBOL: INSTITUTIONAL SHARES PKBAX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide long-term capital appreciation
and current income. The Fund invests in a broad range of securities including
common stocks, convertible securities and fixed-income securities. Normally,
the Fund expects to invest 50% to 70% of its net assets in common stocks and
convertible securities and 25% to 55% of its net assets in fixed-income
securities. The Fund also may invest up to 30% of it net assets in cash and
cash-equivalent securities, which include highly liquid securities with a
maturity of less than three months. The Fund may invest up to 20% of its
total assets in foreign securities.
The Fund's investments in common stocks, debt securities, and cash
equivalents may vary from time to time depending on the Adviser's assessment
of business, economic, and market conditions, including potential advantages
of price shifts between the stock and bond markets. The Fund invests in
stocks for growth and in debt securities for
29
<PAGE> 131
DESCRIPTION OF THE FUNDS INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
- -
stability. The Fund's Adviser adjusts the mix of stocks, bonds, and cash
equivalents periodically to take advantage of rising markets or decrease
exposure to declining markets.
The Fund holds common stocks 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
Fund invests primarily in those companies that are growth-oriented and have
exhibited consistent, above-average growth in revenues and earnings.
The fixed-income portion of the Fund's portfolio consists 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 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 Fund invests may have warrants or options
attached. The Fund may also invest in repurchase agreements.
The Fund expects to invest in a variety of U.S. Treasury obligations,
differing in their interest rates, maturities, and time of issuance, as well
as "stripped" U.S. 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.
The 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 Adviser deems present attractive opportunities and
are of comparable quality.
The Fund also may invest in:
- 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 Fund may also invest in securities
of other investment companies;
- 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 Fund's
investments in foreign securities may be made either directly or through
the purchase of ADRs and the Fund may also invest in securities issued by
foreign branches of U.S. banks and foreign banks, in CCP, and in
Europaper; and
- short-term securities in whatever proportion deemed desirable for
temporary defensive periods during adverse market conditions as
determined by the Adviser.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
RISK FACTORS FOR THE GROWTH AND INCOME FUNDS
The principal risks of the Growth and Income Funds are market risk, interest
rate risk, credit risk and management risk. The Balanced Allocation Fund has
the risk that the allocation of its investments between equity and debt
securities may have a more significant effect on the Fund's net asset value
when one of these asset classes is performing more poorly than the other. To
the extent that the Funds may invest in foreign securities, they may have
foreign risk. This is the risk of investments in issuers located in foreign
countries, which may have greater price volatility and less liquidity.
Investments in foreign securities also are subject to political, regulatory,
and diplomatic risks. Foreign risk includes currency risk, which may occur
due to fluctuations in the exchange rates between the U.S. dollar and foreign
currencies. This risk could negatively affect the value of a Fund's
investments.
30
<PAGE> 132
DESCRIPTION OF THE FUNDS INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
- -
PARKSTONE BOND FUND
TICKER SYMBOL: INSTITUTIONAL SHARES PKBDX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide current income with
preservation of capital by investing in high- and medium-grade fixed-income
securities. The Fund invests at least 80% of its total assets in investment
grade debt securities of all types. The Fund expects to maintain a
dollar-weighted average portfolio maturity of 4 to 12 years. The Fund also
expects to invest in U.S. Treasury obligations with different interest rates
and maturities, as well as "stripped" U.S. Treasury obligations and other
U.S. government obligations.
Fixed-income securities include 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 Fund will invest in state and municipal securities when, in the opinion
of the Adviser, their yields are competitive with comparable taxable debt
obligations.
In making investment decisions for the Fund, the 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.
The Fund will invest only in corporate debt 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, of comparable quality.
The Fund also may invest:
- up to 20% of its assets in preferred stocks and notes with remaining
maturities at the time or 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. Some of the securities
in which the Fund invests may have warrants or options attached;
- up to 25% of its net assets in foreign securities either directly or
through the purchase of ADRs and securities issued by foreign branches of
U.S. banks and foreign banks, in CCP, and in Europaper;
- in Stripped Treasury Obligations, and other obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities;
- 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 Adviser deems present attractive opportunities and are
of comparable quality;
- 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; and
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
31
<PAGE> 133
DESCRIPTION OF THE FUNDS INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
- -
PARKSTONE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
TICKER SYMBOL: INSTITUTIONAL SHARES PKIEX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide current income as well as
preservation of capital by investing primarily in U.S. government securities.
The Fund normally invests at least 80% of it total assets in U.S. government
debt securities. The Fund expects to maintain a dollar-weighted average
portfolio maturity of three to ten years.
The Fund normally invests in U.S. Treasury bills, notes or bonds and other
U.S. government securities. The Fund also may invest in mortgage-related
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities. The Fund may invest up to 20% of its total assets in debt
securities, preferred stocks and other investments without regard to
maturity.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
- -
PARKSTONE U.S. GOVERNMENT INCOME FUND
TICKER SYMBOL: INSTITUTIONAL SHARES PKGIX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide current income as well as
preservation of capital by investing primarily in U.S. government securities.
The Fund normally invests at least 80% of its total assets in obligations
that are issued or guaranteed by the U.S. government or its agencies or
instrumentalities. The Fund also may invest up to 20% of its total assets in
mortgage-related securities, debt securities and preferred stock of
non-governmental entities. The Fund expects to maintain a dollar-weighted
average portfolio maturity of three to ten years. Normally, the Fund invests
in a variety of U.S. government obligations, including mortgage-related
securities, U.S. Treasury bills, notes and bonds, "stripped" U.S. Treasury
obligations and other U.S. government securities.
The Fund also may invest in:
- 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 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; and
- 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 Adviser deems present attractive opportunities and are of
comparable quality.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
32
<PAGE> 134
DESCRIPTION OF THE FUNDS INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
- -
PARKSTONE LIMITED MATURITY BOND FUND
TICKER SYMBOL: INSTITUTIONAL SHARES PKLMX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide current income as well as
preservation of capital by investing in a portfolio of high- and medium-grade
fixed-income securities. The Fund normally invests at least 80% of its total
assets in investment grade debt securities of all types. The Fund invests
primarily in corporate bonds, U.S. government obligations, and
mortgage-related and asset-backed securities. The Fund expects to maintain a
dollar- weighted average portfolio maturity of one to five years. The Fund
also expects to invest in U.S. Treasury obligations with different interest
rates and maturities, as well as "stripped" U.S. Treasury obligations and
other U.S. government obligations.
Fixed-income securities consist of 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.
In making investment decisions for the Fund, the Adviser considers many
factors other than current yield, including the preservation of capital,
maturity, and yield to maturity. By doing so, the Fund attempts to minimize
the fluctuation in its shares' net asset value relative to those funds which
invest in longer-term obligations. The Fund may invest in state and municipal
securities when, in the opinion of the Adviser, their yields are competitive
with comparable taxable debt obligations. The Fund will invest only in
corporate debt securities that are rated at the time of purchase within the
four highest rating groups or, if unrated, of comparable quality.
The Fund also may invest:
- up to 20% of its total assets in debt securities without regard to
maturity, preferred stocks and 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;
- up to 25% of its net assets in foreign securities either directly or
through the purchase of ADRs and securities issued by foreign branches of
U.S. banks and foreign banks, in CCP, and in Europaper;
- in Stripped Treasury Obligations, and other obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities;
- 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 Adviser deems present attractive opportunities and are
of comparable quality; and
- 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.
Some of the securities listed above may have options or warrants attached.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
RISK FACTORS FOR THE INCOME FUNDS
The principal risks of the Income Funds are market risk, interest rate risk,
credit risk and management risk. Changes in interest rates may significantly
affect the Funds. Increases in interest rates will cause a decline in the
value of your investment.
The Income Funds may invest a significant portion of their assets in
mortgage-related securities. These securities have sensitivities to changes
in interest rates that are different from many other types of debt
securities. When interest rates rise, the maturities of these types of
securities tend to lengthen and the value of the securities decreases more
significantly. In addition, these types of securities are subject to
prepayment when interest rates fall, which generally results in lower returns
because the Funds must reinvest their assets in debt securities with lower
interest rates.
33
<PAGE> 135
DESCRIPTION OF THE FUNDS INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
- -
PARKSTONE MICHIGAN MUNICIPAL BOND FUND
TICKER SYMBOL: INSTITUTIONAL SHARES PKMIX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide current income exempt from
federal income taxes and, to the extent possible, from Michigan personal
income taxes, as is consistent with conservation of capital. The Fund
normally invests at least 80% of its net assets in a portfolio of Michigan
municipal securities. The Fund's primary consideration in selecting Michigan
municipal securities is quality.
The Fund normally invests in Michigan municipal securities and expects to
maintain a dollar-weighted average portfolio maturity of three to ten years.
However, the Fund may invest in Michigan municipal securities of any maturity
and the 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 the
Fund's portfolio may vary depending upon the availability of suitable
municipal securities or other relevant market factors.
The Fund invests in Michigan municipal securities that 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 by an NRSRO. The
Fund also may purchase Michigan municipal securities which are unrated at the
time of purchase but are determined to be of comparable quality by the
Adviser pursuant to guidelines approved by the Board of Trustees.
Interest income from certain types of municipal securities may be subject to
federal alternative minimum tax. The Fund will not treat these bonds as
municipal securities for purposes of measuring compliance with the 80% test
described above.
Investments of the Fund 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 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 Fund's quality standards for tax-exempt
commercial paper (as described above), and such taxable obligations as may be
subject to repurchase agreements.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
- -
PARKSTONE NATIONAL TAX EXEMPT BOND FUND
TICKER SYMBOL: INSTITUTIONAL SHARES PKMBX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide current income exempt from
federal income taxes as is consistent with conservation of capital. The Fund
normally invests at least 80% of its assets in a diversified portfolio of
municipal securities the interest on which is both exempt from federal income
taxes and not treated as a preference item for individuals for the purpose of
the federal alternative minimum tax.
The Fund normally invests in long-term municipal securities and expects to
maintain a dollar-weighted average portfolio maturity of three to ten years.
The Fund intends, under normal market conditions, to maintain an average
weighted credit rating of Aa/AA. The average weighted rating of the Fund's
portfolio may vary depending upon the availability of suitable municipal
securities or other relevant market factors. Although it does not intend to
do so an a regular basis, the Fund may invest more than 25% of its net assets
in (i) municipal securities whose issuers are in the same state and (ii)
municipal securities the interest on which is paid solely from revenues of
similar projects.
34
<PAGE> 136
DESCRIPTION OF THE FUNDS INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
- -
The Fund may invest up to 20% of its total assets in private activity bonds
which may be treated as a specific tax preference item under the federal
alternative minimum tax.
Interest income from certain types of municipal securities may be subject to
federal alternative minimum tax. The Fund will not treat these bonds as
municipal securities for purposes of measuring compliance with the 80% tests
described above.
Investments of the Fund 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 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 Fund's quality standards for tax-exempt
commercial paper (as described above), and such taxable obligations as may be
subject to repurchase agreements.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
RISK FACTORS FOR THE TAX-FREE INCOME FUNDS
The Tax-Free Income Funds have interest rate risk and credit risk. In
addition the Funds have municipal market risk. This is the risk that special
factors may adversely affect the value of municipal securities and have a
significant adverse effect on the value of the Funds' investments. These
factors include political or legislative changes, uncertainties related to
the tax status of municipal securities, or the rights of investors in these
securities. The Michigan Municipal Bond Fund is not "diversified," meaning
that it can invest in a relatively small number of issuers. Factors affecting
these issuers could have a more significant adverse effect on this Fund's net
asset value.
MONEY MARKET FUNDS
All of the Money Market Funds seek to maintain a stable net asset value of
$1.00 per share and invest exclusively in United States dollar-denominated
instruments that the Board of Trustees and the 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
Adviser deems to be of comparable quality. There is no assurance, however,
that they will be able to maintain the $1.00 net asset value per share on a
continuous basis. Each Fund pursues its strategy by maintaining a portfolio
of high-quality money market investments. As money market funds, the Funds
must meet the requirements of SEC Rule 2a-7. The Rule imposes strict
requirements on the investment quality, maturity and diversification of the
Funds' investments. Under Rule 2a-7, the Funds' investments must each have a
remaining maturity of no more than 397 days and each Money Market Fund must
maintain a dollar-weighted average portfolio maturity that does not exceed 90
days.
- -
PARKSTONE TAX-FREE FUND
TICKER SYMBOL: INSTITUTIONAL SHARES PKTXX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide as high a level of current
interest income free from federal income taxes, consistent with the
preservation of capital and relative stability of principal. The Fund
normally invests at least 80% of its total assets in municipal securities.
The 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. The Fund
invests exclusively in high quality instruments with a remaining maturity of
no more than 397 days.
The Fund also may:
- invest in commercial paper (subject to the quality standards for
tax-exempt commercial paper).
35
<PAGE> 137
DESCRIPTION OF THE FUNDS INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
- -
If the Adviser deems it appropriate for temporary defensive purposes, the
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 Fund's quality standards
for tax-exempt commercial paper.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
- -
PARKSTONE PRIME OBLIGATIONS FUND
TICKER SYMBOL: INSTITUTIONAL SHARES PKPXX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide current income with liquidity
and stability of principal. The Fund invests in high-quality money market
instruments, including municipal securities and other instruments of
comparable high quality. The Fund also may invest in commercial paper, 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 Adviser deems to be of
comparable quality, bankers' acceptances, CCP, Europaper, certificates of
deposit and time deposits.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
- -
PARKSTONE U.S. GOVERNMENT OBLIGATIONS FUND
TICKER SYMBOL: INSTITUTIONAL SHARES PKGXX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide current income with liquidity
and stability of principal. The Fund normally invests at least 65% of its
total assets in short-term U.S. Treasury bills, notes, and other government
obligations and agency securities. The Fund invests exclusively in high
quality instruments with a remaining maturity of no more than 397 days. The
Fund may invest up to 35% 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.
The Fund also 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 Adviser deems to be of comparable quality.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
36
<PAGE> 138
DESCRIPTION OF THE FUNDS INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
- -
PARKSTONE TREASURY FUND
TICKER SYMBOL: INSTITUTIONAL SHARES PSCXX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to provide current income with liquidity
and stability of principal. The Fund normally invests exclusively in U.S.
government obligations and in repurchase agreements backed by these
securities. The Fund invests exclusively in high quality instruments with a
remaining maturity of 397 days.
During temporary defensive periods as determined by the Adviser, the Fund may
hold up to 100% of its total assets in short-term obligations including
domestic bank certificates of deposit, bankers' acceptances and repurchase
agreements secured by bank instruments. However, to the extent that the Fund
is so invested, its investment objective may not be achieved during that
time. Uninvested cash reserves will not earn income.
- -
ADDITIONAL RISK CONSIDERATIONS
RISK FACTORS FOR THE MONEY MARKET FUNDS
The Money Market Funds are subject to management risk. In addition, specific
risks of the Funds' portfolios include:
INTEREST RATE RISK. Because the Funds invest in short-term securities, a
decline in interest rates will affect the Funds' yields as these securities
mature or are sold and the Funds purchase new short-term securities with
lower yields. Generally, an increase in interest rates causes the value of a
debt instrument to decrease. The change in value for shorter-term securities
is usually smaller than for securities with longer maturities. Because the
Funds invest in securities with short maturities and seek to maintain a
stable net asset value of $1.00 per share, it is possible, though very
unlikely, that an increase in interest rates would change the value of your
investment.
CREDIT RISK. This is the risk that a security's credit rating will be
downgraded or that the issuer of a security will default (fail to make
scheduled interest and principal payments).
MUNICIPAL MARKET RISK. The Tax-Free Fund faces the risk that special factors
may adversely affect the value of municipal securities and have a significant
effect on the value of the Fund's investments. These factors include
political or legislative changes, uncertainties related to the tax status of
municipal securities, or the rights of investors in these securities.
Investments in certain municipal securities with principal or interest
payments that are made from a specific project or facility, and not from
general tax revenues, may have increased risks. Factors affecting the project
or facility, such as local or economic conditions, could have significant
effect on the project's ability to make payments of principal and interest on
these securities.
The most recent information about each of the Fund's portfolio holdings can
be found in its annual or semi-annual report. For information about receiving
this report, see the back cover.
37
<PAGE> 139
[LOGO]
MANAGEMENT OF THE FUNDS
- -
INVESTMENT ADVISER
National City Investment Management Company, ("IMC" or the "Adviser"), 1900
East Ninth Street, Cleveland, Ohio 44114 is the adviser for the Funds. IMC, a
wholly-owned subsidiary of National City Corporation and an affiliate of
National City Bank, was founded in 1998. IMC manages more than $23.7 billion
in assets including $4.3 billion in the Parkstone Group of Funds. Through its
portfolio management teams, IMC makes the day-to-day investment decisions and
continuously reviews, supervises and administers the Funds' investment
programs.
For these advisory services, the Funds paid as follows during their fiscal
year ended May 31, 1999:
<TABLE>
<CAPTION>
PERCENTAGE OF
AVERAGE NET ASSETS
<S> <C>
------------------------------
Parkstone International Discovery Fund 1.16%*
------------------------------
Parkstone Small Capitalization Fund 1.00%
------------------------------
Parkstone Mid Capitalization Fund 1.00%
------------------------------
Parkstone Large Capitalization Fund 0.80%
------------------------------
Parkstone Equity Income Fund 1.00%
------------------------------
Parkstone Balanced Allocation Fund 0.75%**
------------------------------
Parkstone Bond Fund 0.70%**
------------------------------
Parkstone Intermediate Government Obligations Fund 0.70%**
------------------------------
Parkstone U.S. Government Income Fund 0.45%**
------------------------------
Parkstone Limited Maturity Bond Fund 0.55%**
------------------------------
Parkstone Michigan Municipal Bond Fund 0.55%**
------------------------------
Parkstone National Tax Exempt Bond Fund 0.55%**
------------------------------
Parkstone Tax-Free Fund 0.40%
------------------------------
Parkstone Prime Obligations Fund 0.40%
------------------------------
Parkstone U.S. Government Obligations Fund 0.40%
------------------------------
Parkstone Treasury Fund 0.40%
------------------------------------------------------------ ------------------------------
</TABLE>
* 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.
** IMC waived a portion of its contractual fees with the Funds for the most
recent fiscal year. Contractual fees (without waivers) were: Balanced
Allocation Fund, 1.00%; Bond Fund, 0.74%; Limited Maturity Bond Fund,
0.74%; Intermediate Government Obligations Fund, 0.74%; U.S. Government
Income Fund, 0.74%; National Tax Exempt Bond Fund, 0.74%; Michigan
Municipal Bond Fund, 0.74%.
38
<PAGE> 140
MANAGEMENT OF THE FUNDS
- -
PORTFOLIO MANAGEMENT TEAM
IMC utilizes a team approach for management of the funds. No one person is
primarily responsible for making investment recommendations to the team. The
table below shows the IMC management team responsible for each fund:
<TABLE>
<S> <C>
PORTFOLIO PORTFOLIO MANAGEMENT TEAM
---------------------------------------------
Parkstone International Discovery Fund International Equity Team
---------------------------------------------
Parkstone Small Capitalization Fund Equity Growth Team
---------------------------------------------
Parkstone Mid Capitalization Fund Equity Growth Team
---------------------------------------------
Parkstone Large Capitalization Fund Equity Growth Team
---------------------------------------------
Parkstone Equity Income Fund Equity Value Team
---------------------------------------------
Parkstone Balanced Allocation Fund Equity and Fixed Income Teams
---------------------------------------------
Parkstone Bond Fund Taxable Fixed Income Team
---------------------------------------------
Parkstone Intermediate Government Obligations Fund Taxable Fixed Income Team
---------------------------------------------
Parkstone U.S. Government Income Fund Taxable Fixed Income Team
---------------------------------------------
Parkstone Limited Maturity Bond Fund Taxable Fixed Income Team
---------------------------------------------
Parkstone Michigan Municipal Bond Fund Tax Exempt Fixed Income Team
---------------------------------------------
Parkstone National Tax Exempt Bond Fund Tax Exempt Fixed Income Team
---------------------------------------------
Parkstone Tax-Free Fund Tax Exempt Money Market Team
---------------------------------------------
Parkstone Prime Obligations Fund Taxable Money Market Team
---------------------------------------------
Parkstone U.S. Government Obligations Fund Taxable Money Market Team
---------------------------------------------
Parkstone Treasury Fund Taxable Money Market Team
------------------------------------------------------------ ---------------------------------------------
</TABLE>
THE DISTRIBUTOR AND ADMINISTRATOR
SEI Investments Distribution Company (the "Distributor"), a wholly-owned
subsidiary of SEI Investments, distributes the shares of the Parkstone Group
of Funds (the "Trust").
The Trust reserves the right to reject a purchase order when the Trust
determines that it is not in the best interest of the Trust to accept such
order.
With respect to the Trust, the Distributor may, from time to time and at its
own expense, provide promotional incentives, in the form of cash or other
compensation, to financial institutions whose representatives have sold or
are expected to sell significant amounts of these Funds.
BISYS Fund Services ("BISYS"), whose address is 3435 Stelzer Road, Columbus,
Ohio 43219-3035, serves as the Funds' administrator.
The Statement of Additional Information has more detailed information about
the Investment Adviser and other service providers.
39
<PAGE> 141
MANAGEMENT OF THE FUNDS
- -
YEAR 2000
Like other funds and business organizations around the world, the Funds could
be adversely affected if the computer systems used by the Adviser and the
Funds' other service providers do not properly process and calculate
date-related information for the year 2000 and beyond. In addition, Year 2000
issues may adversely affect companies in which the Funds invest where, for
example, such companies incur substantial costs to address Year 2000 issues
or suffer losses caused by the failure to adequately or timely do so.
The Funds have been assured that the Adviser and the Funds' other service
providers (i.e., Administrator, Transfer Agent, Fund Accounting Agent,
Custodian and Distributor) have developed and are implementing
clearly-defined and documented plans intended to minimize risks to services
critical to the Funds' operations associated with Year 2000 issues. Internal
efforts include a commitment to dedicate adequate staff and funding to
identify and remedy Year 2000 issues, and specific actions such as
inventorying software systems, determining inventory items that may not
function properly after December 31, 1999, reprogramming or replacing such
systems, and retesting for Year 2000 readiness. The Funds' Adviser and
service providers are likewise seeking assurances from their respective
vendors and suppliers that such entities are addressing any Year 2000 issues,
and each provider intends to engage, where appropriate, in private and/or
industry interface testing of systems for Year 2000 readiness.
In the event that any systems upon which the Funds are dependent are not Year
2000 ready by December 31, 1999, administrative errors and account
maintenance failures may occur. While the ultimate costs or consequences of
incomplete or untimely resolution of Year 2000 issues by the Adviser or the
Funds' service providers cannot be accurately assessed at this time, the
Funds currently have no reason to believe that the Year 2000 plans of the
Adviser and the Funds' service providers will not be completed by December
31, 1999, or that the anticipated costs associated with full implementation
of their plans will have a material adverse impact on either their business
operations or financial condition or those of the Funds. The Funds and the
Adviser will continue to closely monitor developments relating to this issue,
and the Adviser and the Funds' service providers are developing contingency
plans for providing back-up computer services in the event of a systems
failure or the inability of any provider to achieve Year 2000 readiness.
Separately, the Adviser will monitor potential investment risk related to
Year 2000 issues.
40
<PAGE> 142
PURCHASE AND SALE OF SHARES
- -
HOW NAV IS CALCULATED
Each of the Money Market Funds
seeks to maintain a net asset
value, or NAV, of $1.00 per share
by valuing the obligations in
accordance with SEC regulations.
Amortized cost will normally
approximate market value.
NAV =
Total Assets - Liabilities
----------------------------------
Number of Shares
Outstanding
----------------------------------
The NAV is calculated by adding the total value of a Fund's investments and
other assets, subtracting its liabilities
and then dividing that figure by the
number of outstanding shares of the Fund:
You can find most Funds' NAV daily in The Wall Street Journal and other
newspapers. NAV is calculated separately
for each class of shares.
MONEY MARKET FUNDS
The NAV of the Treasury and Tax-Free Funds is determined and the shares are
priced as of 1:00 p.m. Eastern time and as of the close of trading on the New
York Stock Exchange ("NYSE"), normally at 4 p.m. Eastern time each business
day. The NAV of the Prime Obligations and U.S. Government Obligations Funds
is determined and the shares are priced as of 3:00 p.m. Eastern time and as
of the close of trading on the NYSE on each business day. The Money Market
Funds value their securities at their amortized cost. The amortized cost
method involves valuing a portfolio security initially at its cost on the
date of the purchase and thereafter assuming a constant amortization to
maturity of the difference between the principal amount due at maturity and
initial cost.
OTHER FUNDS
The per share NAV for each non-Money Market Fund is determined and its shares
are priced at the close of regular trading on the New York Stock Exchange,
normally at 4:00 p.m. Eastern time on each business day.
Your order for purchase of shares is priced at the next NAV calculated after
your order is received by the Distributor. Your order for redemption of
shares is priced at the next NAV calculated after shares are properly
tendered for redemption.
The Funds' securities are generally valued at current market prices. If
market quotations are not available, prices will be based on fair value as
determined by a method which the Funds' Trustees believe 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.
Some of the Funds have portfolio securities that are primarily listed on
foreign exchanges that trade on weekends or other days when these Funds do
not price its shares. As a result, the net asset value of a Fund's share may
change on days when shareholders will not by able to purchase or redeem the
Fund's shares.
BUSINESS DAYS DEFINED
A business day for the Funds is generally a day that the New York Stock
Exchange is open for business. The Funds 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,
Columbus Day (Money Market Funds only), Veterans Day (Money Market Funds
only), Thanksgiving and Christmas Day.
41
<PAGE> 143
PURCHASE AND SALE OF SHARES
- -
PURCHASING AND ADDING TO YOUR SHARES
Institutional Shares may be purchased through procedures established by the
Distributor in connection with the requirement 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 at least 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 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. 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 will
be recorded by the financial institution and reflected in the account
statement 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.
- There is no sales charge imposed in connection with the purchase of
Institutional Shares.
- Depending upon the terms of your particular Customer Account, a financial
institution may charge you fees for automatic investment and other cash
management services provided in connection with your investment.
- Information concerning these services and any charges may be obtained
from the financial institution.
This Prospectus should be read in conjunction with any information received
from your financial institution.
FOR INFORMATION ON PURCHASING INSTITUTIONAL SHARES OF THE FUNDS CALL
1-800-451-8377.
- All purchases must be in U.S. dollars.
- A fee will be charged for any checks that do not clear.
- Third-party checks are not accepted.
- The Distributor may reject a purchase order if it considers it in the
best interest of a Fund and its shareholders.
--------------------------------------------------------------
AVOID 31% TAX WITHHOLDING
Each Fund is required to withhold 31% of taxable dividends,
capital gains distributions and redemptions paid to
shareholders who have not provided the Fund with their
certified taxpayer identification number in compliance with
IRS rules. To avoid this, make sure you provide your correct
Tax Identification Number (Social Security Number for most
investors) on your account application.
--------------------------------------------------------------
42
<PAGE> 144
PURCHASE AND SALE OF SHARES
- -
SELLING YOUR SHARES
You may sell your shares at any
time. Your sales price will be
the next NAV after your sell
order is received in good order
by a Fund, its transfer agent, or
your investment representative.
Good order means that your
request includes complete
information on your purchase,
exchange or redemption and that
the Fund has received the
appropriate assets. Normally you
will receive your proceeds within
a week after your request is
received.
WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
As a mutual fund shareholder, you are technically selling shares when you
request a withdrawal in cash. This is
also known as redeeming shares or a
redemption of shares.
INSTRUCTIONS FOR SELLING SHARES
When selling shares, you should contact your trust administrator or other
financial consultant responsible for your Customer Account.
OTHER INFORMATION REGARDING REDEMPTION OF SHARES
All or part of your Institutional Shares may be redeemed in accordance with
instructions and limitations pertaining to your Customer Account with your
financial institution. For example, if you have agreed with a bank to
maintain a minimum balance in your account with the bank, and the balance in
that account falls below that minimum, your Institutional Shares may be
redeemed to the extent necessary to maintain the required minimum balance.
MONEY MARKET FUNDS
To the greatest extent possible, requests for same day 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 1:00
p.m. Eastern time, for the Tax-Free and Treasury Funds or 3:00 p.m. Eastern
time for the Prime Obligations and U.S. Government Obligations Funds on a
business day or, if received after 1:00 p.m. or 3:00 p.m. Eastern time
respectively, on the next business day, unless it would be disadvantageous to
the Funds or the shareholders of a Fund to sell or liquidate portfolio
securities in an amount sufficient to satisfy requests for payments in that
manner. You should contact your trust administrator or other financial
consultant responsible for the account to determine the financial
institution's requirements for effectuating redemptions.
43
<PAGE> 145
[LINE GRAPH ICON]
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -
DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions will be automatically reinvested unless you
request otherwise. Capital gains, if any, are distributed at least annually.
DISTRIBUTIONS ARE MADE ON A PER SHARE BASIS REGARDLESS OF HOW LONG YOU'VE
OWNED YOUR SHARES. THEREFORE, IF YOU INVEST SHORTLY BEFORE THE DISTRIBUTION
DATE, SOME OF YOUR INVESTMENT WILL BE RETURNED TO YOU IN THE FORM OF A
DISTRIBUTION.
- -
FEDERAL TAXES
Each Fund contemplates declaring as dividends each year all or substantially
all of its taxable income, including its net capital gain (the excess of
long-term capital gain over short-term capital loss). Distributions
attributable to the net capital gain of a Fund will be taxable to you as
long-term capital gain, regardless of how long you have held your shares.
Other Fund distributions (other than exempt-interest dividends, discussed
below) will generally be taxable as ordinary income. You will be subject to
income tax on Fund distributions regardless of whether they are paid in cash
or reinvested in additional shares. You will be notified annually of the tax
status of distributions to you.
In the case of any fund other than a Money Market Fund, you should note that
if you purchase shares just before a distribution, the purchase price will
reflect the amount of the upcoming distribution, but you will be taxed on the
entire amount of the distribution received, even though, as an economic
matter, the distribution simply constitutes a return of capital. This is
known as "buying into a dividend."
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the shares and the amount you receive
for them. (To aid in computing your tax basis, you generally should retain
your account statements for the periods during which you held shares.)
Any loss realized on shares held for six months or less will be treated as a
long-term capital loss to the extent of any capital gain dividends that were
received on the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable.
It is expected that the Parkstone International Discovery Fund will be
subject to foreign withholding taxes with respect to dividends or interest
received from sources in foreign countries. The Parkstone International
Discovery Fund may make an election to treat a proportionate amount of such
taxes as constituting a distribution to each shareholder, which would allow
each shareholder either (1) to credit such proportionate amount of taxes
against U.S. federal income tax liability or (2) to take such amount as an
itemized deduction.
The Parkstone National Tax Exempt Bond Fund, Parkstone Michigan Municipal
Bond Fund and Parkstone Tax-Free Fund (the "Exempt Funds") anticipate that
substantially all of their income dividends will be "exempt interest
dividends," which are exempt from federal income taxes. However, some
dividends will be taxable, such as dividends that are derived from occasional
taxable investments, and in the case of other than the Parkstone Tax-Free
Fund, distributions of short and long-term capital gains.
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.
You should note that a portion of the exempt-interest dividends paid by the
Exempt Funds may constitute an item of tax preference for purposes of
determining federal alternative minimum tax liability. Exempt-interest
dividends will also be considered along with other adjusted gross income in
determining whether any Social Security or railroad retirement payments
received by you are subject to federal income taxes.
If you receive an exempt-interest dividend with respect to any share and the
share is held by you for six months or less, any loss on the sale or exchange
of the share will be disallowed to the extent of such dividend amount.
44
<PAGE> 146
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -
The Parkstone Michigan Municipal Bond Fund intends to distribute income that
is exempt from Michigan income taxes.
The foregoing is only a summary of certain tax considerations under current
law, which may be subject to change in the future. Shareholders who are
nonresident aliens, foreign trusts or estates, or foreign corporations or
partnerships, may be subject to different United States federal income tax
treatment. You should consult your tax adviser for further information
regarding federal, state, local and/or foreign tax consequences relevant to
your specific situation.
- -
STATE AND LOCAL TAXES
Shareowners may also be subject to state and local taxes on distributions and
redemptions. State income taxes may not apply, however, to the portions of
each Fund's distributions, if any, that are attributable to interest on
federal securities or interest on securities of the particular state or
localities within the state. Shareowners should consult their tax advisers
regarding the tax status of distributions in their state and locality.
45
<PAGE> 147
[MONEY IN HAND
ICON]
FINANCIAL HIGHLIGHTS
- -
The financial highlights table is intended to help you understand the Funds'
financial performance for the past 5 years [or, if shorter, the period of the
Funds' operations]. Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that an
investor would have earned [or lost] on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Funds'
financial statements, are included in the annual report, which is available
upon request.
46
<PAGE> 148
FINANCIAL HIGHLIGHTS
- -
INTERNATIONAL DISCOVERY FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.70 $ 16.41 $ 14.11 $ 12.33
----------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) (0.10) (0.04) (0.05) 0.02
Net Realized and Unrealized Gains (Losses)
from Investments and Foreign Currencies (0.70) 0.84 2.35 1.80
----------------------------------------------------------------------------------------------------------------------
Total from Investment Activities (0.80) 0.80 2.30 1.82
----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income -- -- -- (0.02)
Net Realized Gains (0.87) (0.51) -- (0.02)
----------------------------------------------------------------------------------------------------------------------
Total Distributions (0.87) (0.51) -- (0.04)
----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 15.03 $ 16.70 $ 16.41 $ 14.11
----------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) (4.94)% 5.31%(a) 16.34% 14.76%
----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $267,764 $427,922 $426,111 $364,095
Ratio of Expenses to Average Net Assets 1.57% 1.56%(b) 1.55% 1.55%
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.20)% (0.47)%(b) (0.29)% 0.12%
Ratio of Expenses to Average Net Assets* (d) (d) (d) 1.55%
Portfolio Turnover (c) 84.66% 34.15% 45.18% 54.47%
<CAPTION>
INSTITUTIONAL
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1995 1994
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.24 $ 11.54
-----------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.04 (0.01)
Net Realized and Unrealized Gains (Losses)
from Investments and Foreign Currencies (0.33) 1.75
------------------------------------------------------------------------------------------------------
Total from Investment Activities (0.29) 1.74
-------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income -- (0.02)
Net Realized Gains (0.62) (0.02)
----------------------------------------------------------------------------------------------------------------------
Total Distributions (0.62) (0.04)
----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.33 $ 13.24
----------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) (1.86)% 15.12%
----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $264,759 $261,798
Ratio of Expenses to Average Net Assets 1.56% 1.52%
Ratio of Net Investment Income (Loss) to
Average Net Assets 0.31% (0.30)%
Ratio of Expenses to Average Net Assets* 1.59% 1.57%
Portfolio Turnover (c) 104.39% 37.23%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(d) No fees were waived during this period.
47
<PAGE> 149
FINANCIAL HIGHLIGHTS
- -
SMALL CAPITALIZATION FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 26.15 $ 27.91 $ 34.50 $ 26.08
----------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) (0.23) (0.27) (0.22) (0.27)
Net Realized and Unrealized Gains (Losses)
from Investments (4.50) (0.19) (1.12) 12.34
----------------------------------------------------------------------------------------------------------------------
Total from Investment Activities (4.73) (0.46) (1.34) 12.07
----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Realized Gains (2.53) (1.30) (5.25) (3.65)
----------------------------------------------------------------------------------------------------------------------
Total Distributions (2.53) (1.30) (5.25) (3.65)
----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 18.89 $ 26.15 $ 27.91 $ 34.50
----------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) (18.71)% (1.62)%(a) (4.39)% 50.03%
----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $226,139 $527,805 $602,787 $528,866
Ratio of Expenses to Average Net Assets 1.36% 1.35%(b) 1.32% 1.29%
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.82)% (0.99)%(b) (0.94)% (0.93)%
Ratio of Expenses to Average Net Assets* (d) (d) (d) (d)
Portfolio Turnover (c) 99.86% 46.17% 48.45% 67.22%
<CAPTION>
INSTITUTIONAL
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1995 1994
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 19.83 $ 20.31
----------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) (0.25) (0.28)
Net Realized and Unrealized Gains (Losses)
from Investments 8.65 0.30
----------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 8.40 0.02
----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Realized Gains (2.15) (0.50)
----------------------------------------------------------------------------------------------------------------------
Total Distributions (2.15) (0.50)
----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 26.08 $ 19.83
----------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 45.32% (0.15)%
----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $354,825 $271,425
Ratio of Expenses to Average Net Assets 1.33% 1.30%
Ratio of Net Investment Income (Loss) to
Average Net Assets 1.06% (1.14)%
Ratio of Expenses to Average Net Assets* 1.33% 1.30%
Portfolio Turnover (c) 50.53% 72.64%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(d) No fees were waived during this period.
48
<PAGE> 150
FINANCIAL HIGHLIGHTS
- -
MID CAPITALIZATION FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.12 $ 15.82 $ 20.83 $ 16.62
----------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) (0.14) (0.11) (0.13) (0.16)
Net Realized and Unrealized Gains (Losses)
from Investments 1.13 2.52 1.25 5.03
----------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.99 2.41 1.12 4.87
----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Realized Gains (1.84) (3.11) (6.13) (0.66)
In Excess of Net Realized Gains -- -- -- --
----------------------------------------------------------------------------------------------------------------------
Total Distributions (1.84) (3.11) (6.13) (0.66)
----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 14.27 $ 15.12 $ 15.82 $ 20.83
----------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 8.20% 16.98%(a) 5.58% 29.83%
----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $319,733 $518,080 $544,082 $650,495
Ratio of Expenses to Average Net Assets 1.32% 1.30%(b) 1.31% 1.29%
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.75)% (0.77%)(b) (0.80)% (0.68)%
Ratio of Expenses to Average Net Assets* (d) (d) (d) (d)
Ratio of Net Investment Income (Loss) to
Average Net Assets* (d) (d) (d) (d)
Portfolio Turnover (c) 100.19% 38.41% 38.47% 49.27%
<CAPTION>
INSTITUTIONAL
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1995 1994
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.70 $ 15.10
----------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) (0.08) (0.11)
Net Realized and Unrealized Gains (Losses)
from Investments 3.47 (0.25)
----------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 3.39 (0.36)
----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Realized Gains (0.49) (0.04)
In Excess of Net Realized Gains (0.98) --
----------------------------------------------------------------------------------------------------------------------
Total Distributions (1.47) (0.04)
----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 16.62 $ 14.70
----------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 25.20% (2.44)%
----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $683,320 $533,260
Ratio of Expenses to Average Net Assets 1.29% 1.28%
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.64)% (0.65)%
Ratio of Expenses to Average Net Assets* 1.29% 1.28%
Ratio of Net Investment Income (Loss) to
Average Net Assets* (0.65)% (0.65)%
Portfolio Turnover (c) 46.39% 70.87%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(d) No fees were waived during this period.
49
<PAGE> 151
FINANCIAL HIGHLIGHTS
- -
LARGE CAPITALIZATION FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
ELEVEN MONTHS DECEMBER 28,
YEAR ENDED ENDED YEAR ENDED 1995 TO
MAY 31, MAY 31, JUNE 30, JUNE 30,
1999 1998 1997 1996(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.27 $ 14.48 $ 11.25 $ 10.00
-----------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) (0.06) (0.03) 0.03 0.03
Net Realized and Unrealized Gains (Losses)
from Investments 3.90 3.52 3.31 1.25
-----------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 3.84 3.49 3.34 1.28
-----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income -- -- (0.03) (0.03)
Net Realized Gains (0.30) (1.67) (0.08) --
Tax Return of Capital -- (0.03) -- --
-----------------------------------------------------------------------------------------------------------------------
Total Distributions (0.30) (1.70) (0.11) (0.03)
-----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 19.81 $ 16.27 $ 14.48 $ 11.25
-----------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 23.67% 26.18%(b) 29.81% 12.86%(b)
-----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $409,107 $358,221 $338,388 $274,150
Ratio of Expenses to Average Net Assets 1.10% 1.10%(c) 1.12% 2.19%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.33)% (0.19)%(c) 0.19% 1.26%(c)
Ratio of Expenses to Average Net Assets* (d) (d) (d) 2.26%(c)
Portfolio Turnover (e) 50.51% 24.74% 48.44% 0.86%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Annualized.
(d) No fees were waived during this period.
(e) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
50
<PAGE> 152
FINANCIAL HIGHLIGHTS
- -
EQUITY INCOME FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.69 $ 19.13 $ 17.30 $ 14.49
----------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.27 0.29 0.34 0.34
Net Realized and Unrealized Gains (Losses)
from Investments 1.75 2.70 3.51 3.26
----------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 2.02 2.99 3.85 3.60
----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.27) (0.25) (0.33) (0.34)
In Excess of Net Investment Income -- -- -- --
Net Realized Gains (2.24) (3.18) (1.69) (0.45)
In Excess of Net Realized Gains -- -- -- --
----------------------------------------------------------------------------------------------------------------------
Total Distributions (2.51) (3.43) (2.02) (0.79)
----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 18.20 $ 18.69 $ 19.13 $ 17.30
----------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 12.40% 17.31%(a) 23.80% 25.30%
----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $221,399 $281,395 $315,878 $337,318
Ratio of Expenses to Average Net Assets 1.34% 1.33%(b) 1.33% 1.32%
Ratio of Net Investment Income (Loss) to
Average Net Assets 1.49% 1.65%(b) 1.89% 2.11%
Ratio of Expenses to Average Net Assets* (d) (d) (d) (d)
Portfolio Turnover (c) 51.09% 18.62% 20.14% 40.75%
<CAPTION>
INSTITUTIONAL
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1995 1994
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.50 $ 14.69
-----------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.39 0.39
Net Realized and Unrealized Gains (Losses)
from Investments 1.00 (0.56)
------------------------------------------------------------------------------------------------------
Total from Investment Activities 1.39 (0.17)
-------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.39) (0.39)
In Excess of Net Investment Income (0.01) --
Net Realized Gains -- (0.24)
In Excess of Net Realized Gains -- (0.39)
----------------------------------------------------------------------------------------------------------------------
Total Distributions (0.40) (1.02)
----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 14.49 $ 13.50
----------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 10.55% (1.53)%
----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $346,164 $355,538
Ratio of Expenses to Average Net Assets 1.32% 1.30%
Ratio of Net Investment Income (Loss) to
Average Net Assets 2.86% 2.64%
Ratio of Expenses to Average Net Assets* 1.32% 1.30%
Portfolio Turnover (c) 77.70% 69.35%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(d) No fees were waived during this period.
51
<PAGE> 153
FINANCIAL HIGHLIGHTS
- -
BALANCED ALLOCATION FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.80 $ 12.99 $ 13.37 $ 12.19
-------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.31 0.32 0.35 0.36
Net Realized and Unrealized Gains (Losses)
from Investments and Foreign Currencies 0.07 1.20 1.12 1.74
-------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.38 1.52 1.47 2.10
-------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.31) (0.35) (0.37) (0.35)
Net Realized Gains (0.37) (0.36) (1.48) (0.57)
In Excess of Net Realized Gains -- -- -- --
-------------------------------------------------------------------------------------------------------
Total Distributions (0.68) (0.71) (1.85) (0.92)
-------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.50 $ 13.80 $ 12.99 $ 13.37
-------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 2.73% 12.06%(a) 11.86% 17.81%
-------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $177,203 $262,533 $245,347 $113,493
Ratio of Expenses to Average Net Assets 1.11% 1.12%(b) 1.10% 1.16%
Ratio of Net Investment Income (Loss) to
Average Net Assets 2.31% 2.57%(b) 2.77% 2.62%
Ratio of Expenses to Average Net Assets* 1.36% 1.37%(b) 1.36% 1.41%
Portfolio Turnover (c) 158.56% 117.80% 425.05% 437.90%
<CAPTION>
INSTITUTIONAL
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1995 1994
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.67 $ 11.08
-------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.31 0.27
Net Realized and Unrealized Gains (Losses)
from Investments and Foreign Currencies 1.68 (0.41)
-------------------------------------------------------------------------------------------------------
Total from Investment Activities 1.99 (0.14)
-------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.31) (0.27)
Net Realized Gains (0.03) --
In Excess of Net Realized Gains (0.13) --
-------------------------------------------------------------------------------------------------------
Total Distributions (0.47) (0.27)
-------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.19 $ 10.67
-------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 19.22% (1.44)%
-------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $ 89,294 $ 71,427
Ratio of Expenses to Average Net Assets 1.25% 1.09%
Ratio of Net Investment Income (Loss) to
Average Net Assets 2.75% 2.49%
Ratio of Expenses to Average Net Assets* 1.52% 1.39%
Portfolio Turnover (c) 250.66% 192.39%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
52
<PAGE> 154
FINANCIAL HIGHLIGHTS
- -
BOND FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.04 $ 9.73 $ 9.56 $ 9.72
-------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.56 0.56 0.59 0.59
Net Realized and Unrealized Gains (Losses)
from Investments (0.29) 0.31 0.17 (0.16)
-------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.27 0.87 0.76 0.43
-------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.56) (0.56) (0.59) (0.59)
Net Realized Gains (0.02) -- -- --
In Excess of Net Realized Gains -- -- -- --
-------------------------------------------------------------------------------------------------------
Total Distributions (0.58) (0.56) (0.59) (0.59)
-------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.73 $ 10.04 $ 9.73 $ 9.56
-------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 2.70% 9.15%(a) 8.20% 4.49%
-------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $366,230 $481,998 $492,102 $549,336
Ratio of Expenses to Average Net Assets 0.94% 0.94%(b) 0.94% 0.94%
Ratio of Net Investment Income (Loss) to
Average Net Assets 5.53% 6.06%(b) 6.13% 5.96%
Ratio of Expenses to Average Net Assets* 1.03% 1.04%(b) 1.03% 1.03%
Portfolio Turnover (c) 268.66% 545.68% 827.00% 1,189.27%
<CAPTION>
INSTITUTIONAL
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1995 1994
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.29 $ 10.53
-------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.61 0.60
Net Realized and Unrealized Gains (Losses)
from Investments 0.43 (0.72)
-------------------------------------------------------------------------------------------------------
Total from Investment Activities 1.04 (0.12)
-------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.61) (0.58)
Net Realized Gains -- --
In Excess of Net Realized Gains -- (0.54)
-------------------------------------------------------------------------------------------------------
Total Distributions (0.61) (1.12)
-------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.72 $ 9.29
-------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 11.78% (1.52)%
-------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $509,189 $469,903
Ratio of Expenses to Average Net Assets 1.02% 0.88%
Ratio of Net Investment Income (Loss) to
Average Net Assets 6.54% 5.97%
Ratio of Expenses to Average Net Assets* 1.14% 1.02%
Portfolio Turnover (c) 1,010.64% 893.27%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
53
<PAGE> 155
FINANCIAL HIGHLIGHTS
- -
INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.88 $ 9.73 $ 9.71 $ 9.93
-------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.50 0.52 0.55 0.62
Net Realized and Unrealized Gains (Losses)
from Investments (0.12) 0.16 0.03 (0.24)
-------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.38 0.68 0.58 0.38
-------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.50) (0.52) (0.56) (0.60)
Tax Return of Capital -- (0.01) -- --
In Excess of Net Realized Gains -- -- -- --
-------------------------------------------------------------------------------------------------------
Total Distributions (0.50) (0.53) (0.56) (0.60)
-------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.76 $ 9.88 $ 9.73 $ 9.71
-------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 4.01% 7.03%(a) 6.11% 3.95%
-------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $133,678 $171,481 $187,856 $225,313
Ratio of Expenses to Average Net Assets 0.99% 0.97%(b) 0.98% 0.96%
Ratio of Net Investment Income (Loss) to
Average Net Assets 5.06% 5.67%(b) 5.66% 5.76%
Ratio of Expenses to Average Net Assets* 1.08% 1.06%(b) 1.07% 1.05%
Portfolio Turnover (c) 53.07% 774.28% 1,516.78% 916.39%
<CAPTION>
INSTITUTIONAL
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1995 1994
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.62 $ 10.53
-------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.52 0.60
Net Realized and Unrealized Gains (Losses)
from Investments 0.31 (0.66)
-------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.83 (0.06)
-------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.52) (0.60)
Tax Return of Capital -- --
In Excess of Net Realized Gains -- (0.25)
-------------------------------------------------------------------------------------------------------
Total Distributions (0.52) (0.85)
-------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.93 $ 9.62
-------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 9.02% (0.80)%
-------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $249,169 $281,232
Ratio of Expenses to Average Net Assets 1.04% 0.90%
Ratio of Net Investment Income (Loss) to
Average Net Assets 5.43% 5.90%
Ratio of Expenses to Average Net Assets* 1.16% 1.04%
Portfolio Turnover (c) 549.13% 546.06%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
54
<PAGE> 156
FINANCIAL HIGHLIGHTS
- -
U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.27 $ 9.15 $ 9.25 $ 9.42
----------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.57 0.63 0.72 0.75
Net Realized and Unrealized Gains (Losses)
from Investments (0.14) 0.08 (0.10) (0.17)
----------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.43 0.71 0.62 0.58
----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.57) (0.55) (0.61) (0.67)
Tax Return of Capital -- (0.04) (0.11) (0.08)
----------------------------------------------------------------------------------------------------------------------
Total Distributions (0.57) (0.59) (0.72) (0.75)
----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.13 $ 9.27 $ 9.15 $ 9.25
----------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 4.73% 8.04%(a) 6.91% 6.34%
----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $150,113 $161,567 $148,854 $130,615
Ratio of Expenses to Average Net Assets 0.75% 0.75%(b) 0.77% 0.76%
Ratio of Net Investment Income (Loss) to
Average Net Assets 6.15% 7.44%(b) 7.90% 7.94%
Ratio of Expenses to Average Net Assets* 1.09% 1.09%(b) 1.11% 1.10%
Portfolio Turnover (c) 52.60% 278.94% 499.53% 348.01%
<CAPTION>
INSTITUTIONAL
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1995 1994
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.41 $ 10.04
----------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.76 0.74
Net Realized and Unrealized Gains (Losses)
from Investments 0.01 (0.63)
----------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.77 0.11
----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.68) (0.73)
Tax Return of Capital (0.08) (0.01)
----------------------------------------------------------------------------------------------------------------------
Total Distributions (0.76) (0.74)
----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.42 $ 9.41
----------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 8.70% 1.04%
----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $110,190 $101,506
Ratio of Expenses to Average Net Assets 0.83% 0.72%
Ratio of Net Investment Income (Loss) to
Average Net Assets 8.25% 7.51%
Ratio of Expenses to Average Net Assets* 1.19% 1.11%
Portfolio Turnover (c) 114.71% 102.24%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
55
<PAGE> 157
FINANCIAL HIGHLIGHTS
- -
LIMITED MATURITY BOND FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.50 $ 9.49 $ 9.48 $ 9.71
----------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.56 0.50 0.57 0.65
Net Realized and Unrealized Gains (Losses)
from Investments (0.08) 0.01 0.02 (0.21)
----------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.48 0.51 0.59 0.44
----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.56) (0.50) (0.58) (0.65)
Net Realized Gains -- -- -- (0.01)
In Excess of Net Realized Gains -- -- -- --
Tax Return of Capital -- -- -- (0.01)
----------------------------------------------------------------------------------------------------------------------
Total Distributions (0.56) (0.50) (0.58) (0.67)
----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.42 $ 9.50 $ 9.49 $ 9.48
----------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 5.12% 5.46%(a) 6.42% 4.65%
----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $123,137 $150,510 $136,126 $136,681
Ratio of Expenses to Average Net Assets 0.84% 0.82%(b) 0.85% 0.84%
Ratio of Net Investment Income (Loss) to
Average Net Assets 5.83% 5.63%(b) 6.03% 6.32%
Ratio of Expenses to Average Net Assets* 1.07% 1.06%(b) 1.10% 1.08%
Portfolio Turnover (c) 126.98% 225.88% 607.84% 618.60%
<CAPTION>
INSTITUTIONAL
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1995 1994
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.57 $ 10.18
----------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.58 0.64
Net Realized and Unrealized Gains (Losses)
from Investments 0.13 (0.59)
----------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.71 0.05
----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.57) (0.62)
Net Realized Gains -- --
In Excess of Net Realized Gains -- (0.04)
Tax Return of Capital -- --
----------------------------------------------------------------------------------------------------------------------
Total Distributions (0.57) (0.66)
----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.71 $ 9.57
----------------------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 7.76% 0.43%
----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $141,781 $156,678
Ratio of Expenses to Average Net Assets 0.84% 0.76%
Ratio of Net Investment Income (Loss) to
Average Net Assets 6.11% 6.32%
Ratio of Expenses to Average Net Assets* 1.11% 1.05%
Portfolio Turnover (c) 397.97% 353.28%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
56
<PAGE> 158
FINANCIAL HIGHLIGHTS
- -
MICHIGAN MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.06 $ 10.89 $ 10.77 $ 10.76
-------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.47 0.44 0.51 0.50
Net Realized and Unrealized Gains (Losses)
from Investments (0.08) 0.23 0.14 0.04
-------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.39 0.67 0.65 0.54
-------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.47) (0.47) (0.49) (0.50)
Net Realized Gains (0.07) (0.03) (0.04) (0.03)
In Excess of Net Realized Gains -- -- -- --
-------------------------------------------------------------------------------------------------------
Total Distributions (0.54) (0.50) (0.53) (0.53)
-------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.91 $ 11.06 $ 10.89 $ 10.77
-------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 3.54% 6.30%(a) 6.11% 5.12%
-------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $192,536 $206,246 $194,950 $185,191
Ratio of Expenses to Average Net Assets 0.76% 0.74%(b) 0.76% 0.77%
Ratio of Net Investment Income (Loss) to
Average Net Assets 4.21% 4.34%(b) 4.73% 4.57%
Ratio of Expenses to Average Net Assets* 1.05% 1.03%(b) 1.05% 1.06%
Portfolio Turnover (c) 6.52% 26.24% 28.48% 27.66%
<CAPTION>
INSTITUTIONAL
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1995 1994
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.53 $ 10.97
-------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.50 0.48
Net Realized and Unrealized Gains (Losses)
from Investments 0.25 (0.36)
-------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.75 0.12
-------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.50) (0.46)
Net Realized Gains (0.02) (0.01)
In Excess of Net Realized Gains -- (0.09)
-------------------------------------------------------------------------------------------------------
Total Distributions (0.52) (0.56)
-------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.76 $ 10.53
-------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 7.33% 1.02%
-------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $176,068 $181,051
Ratio of Expenses to Average Net Assets 0.78% 0.75%
Ratio of Net Investment Income (Loss) to
Average Net Assets 4.79% 4.35%
Ratio of Expenses to Average Net Assets* 1.07% 1.04%
Portfolio Turnover (c) 26.06% 6.69%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
57
<PAGE> 159
FINANCIAL HIGHLIGHTS
- -
NATIONAL TAX-EXEMPT BOND FUND (FORMERLY MUNICIPAL BOND FUND)
<TABLE>
<CAPTION>
INSTITUTIONAL
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.53 $ 10.54 $ 10.43 $ 10.39
-------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.40 0.37 0.46 0.43
Net Realized and Unrealized Gains (Losses)
from Investments (0.02) 0.21 0.14 0.04
-------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.38 0.58 0.60 0.47
-------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.40) (0.41) (0.44) (0.43)
Net Realized Gains (0.12) (0.18) (0.05) --
In Excess of Net Realized Gains -- -- -- --
-------------------------------------------------------------------------------------------------------
Total Distributions (0.52) (0.59) (0.49) (0.43)
-------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.39 $ 10.53 $ 10.54 $ 10.43
-------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 3.56% 5.71%(a) 5.89% 4.55%
-------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $ 96,946 $123,856 $134,579 $132,527
Ratio of Expenses to Average Net Assets 0.77% 0.77%(b) 0.81% 0.80%
Ratio of Net Investment Income (Loss) to
Average Net Assets 3.76% 3.89%(b) 4.41% 4.10%
Ratio of Expenses to Average Net Assets* 1.06% 1.07%(b) 1.10% 1.09%
Portfolio Turnover (c) 6.67% 85.56% 48.83% 47.46%
<CAPTION>
INSTITUTIONAL
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1995 1994
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.29 $ 10.92
-------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) 0.46 0.41
Net Realized and Unrealized Gains (Losses)
from Investments 0.27 (0.31)
-------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.73 0.10
-------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (0.46) (0.40)
Net Realized Gains -- (0.21)
In Excess of Net Realized Gains (0.17) (0.12)
-------------------------------------------------------------------------------------------------------
Total Distributions (0.63) (0.73)
-------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.39 $ 10.29
-------------------------------------------------------------------------------------------------------
Total Return (Excludes Sales and
Redemption Charges) 7.25% 0.81%
-------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $134,784 $147,687
Ratio of Expenses to Average Net Assets 0.80% 0.77%
Ratio of Net Investment Income (Loss) to
Average Net Assets 4.21% 3.83%
Ratio of Expenses to Average Net Assets* 1.08% 1.06%
Portfolio Turnover (c) 35.15% 44.39%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
58
<PAGE> 160
FINANCIAL HIGHLIGHTS
- -
TAX-FREE FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income 0.026 0.027 0.029 0.030
DISTRIBUTIONS:
Net Investment Income (0.026) (0.027) (0.029) (0.030)
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------------------------------------------------------------------------------------------------------
Total Return 2.66% 2.75%(a) 2.94% 3.02%
-------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $110,136 $104,062 $108,884 $106,154
Ratio of Expenses to Average Net Assets 0.68% 0.66%(b) 0.68% 0.66%
Ratio of Net Investment Income to Average
Net Assets 2.62% 2.96%(b) 2.90% 2.97%
Ratio of Expenses to Average Net Assets* 0.70% 0.68%(b) 0.70% 0.68%
<CAPTION>
INSTITUTIONAL
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1995 1994
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000
-------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income 0.030 0.019
DISTRIBUTIONS:
Net Investment Income (0.030) (0.019)
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000
-------------------------------------------------------------------------------------------------------
Total Return 3.00% 1.92%
-------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $98,489 $84,465
Ratio of Expenses to Average Net Assets 0.64% 0.58%
Ratio of Net Investment Income to Average
Net Assets 2.97% 1.90%
Ratio of Expenses to Average Net Assets* 0.70% 0.68%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
(a) Not annualized.
(b) Annualized.
59
<PAGE> 161
FINANCIAL HIGHLIGHTS
- -
PRIME OBLIGATIONS FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income 0.047 0.046 0.049 0.051
DISTRIBUTIONS:
Net Investment Income (0.047) (0.046) (0.049) (0.051)
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------------------------------------------------------------------------------------------------------
Total Return 4.76% 4.73%(a) 5.01% 5.17%
-------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $628,553 $690,947 $677,324 $596,075
Ratio of Expenses to Average Net Assets 0.65% 0.66%(b) 0.63% 0.64%
Ratio of Net Investment Income to Average
Net Assets 4.67% 5.04%(b) 4.90% 5.05%
Ratio of Expenses to Average Net Assets* 0.67% 0.68%(b) 0.65% 0.66%
<CAPTION>
INSTITUTIONAL
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1995 1994
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000
-------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income 0.048 0.028
DISTRIBUTIONS:
Net Investment Income (0.048) (0.028
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000
-------------------------------------------------------------------------------------------------------
Total Return 4.91% 2.85%
-------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $640,380 $561,697
Ratio of Expenses to Average Net Assets 0.65% 0.64%
Ratio of Net Investment Income to Average
Net Assets 4.83% 2.84%
Ratio of Expenses to Average Net Assets* 0.67% 0.66%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
(a) Not annualized.
(b) Annualized.
60
<PAGE> 162
FINANCIAL HIGHLIGHTS
- -
U.S. GOVERNMENT OBLIGATIONS FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income 0.045 0.045 0.048 0.050
DISTRIBUTIONS:
Net Investment Income (0.045) (0.045) (0.048) (0.050)
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------------------------------------------------------------------------------------------------------
Total Return 4.64% 4.62%(a) 4.89% 5.10%
-------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $121,475 $185,384 $210,162 $207,451
Ratio of Expenses to Average Net Assets 0.67% 0.66%(b) 0.64% 0.64%
Ratio of Net Investment Income to Average
Net Assets 4.57% 4.93%(b) 4.79% 4.99%
Ratio of Expenses to Average Net Assets* 0.69% 0.68%(b) 0.66% 0.66%
<CAPTION>
INSTITUTIONAL
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1995 1994
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000
-------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income 0.048 0.028
DISTRIBUTIONS:
Net Investment Income (0.048) (0.028)
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000
-------------------------------------------------------------------------------------------------------
Total Return 4.87% 2.79%
-------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $227,565 $192,612
Ratio of Expenses to Average Net Assets 0.67% 0.67%
Ratio of Net Investment Income to Average
Net Assets 4.76% 2.74%
Ratio of Expenses to Average Net Assets* 0.69% 0.69%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
(a) Not annualized.
(b) Annualized.
61
<PAGE> 163
FINANCIAL HIGHLIGHTS
- -
TREASURY FUND
<TABLE>
<CAPTION>
INSTITUTIONAL
ELEVEN MONTHS YEAR
YEAR ENDED ENDED ENDED YEAR ENDED
MAY 31, MAY 31, JUNE 30, JUNE 30,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income 0.045 0.046 0.048 0.050
DISTRIBUTIONS:
Net Investment Income (0.045) (0.046) (0.048) (0.050)
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------------------------------------------------------------------------------------------------------
Total Return 4.61% 4.70%(b) 4.93% 5.14%
-------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $269,534 $321,584 $324,377 $223,416
Ratio of Expenses to Average Net Assets 0.58% 0.57%(c) 0.57% 0.60%
Ratio of Net Investment Income to Average
Net Assets 4.52% 5.00%(c) 4.83% 4.98%
Ratio of Expenses to Average Net Assets* 0.68% 0.67%(c) 0.67% 0.70%
<CAPTION>
INSTITUTIONAL
1993
YEAR ENDED TO
JUNE 30, JUNE 30,
1995 1994(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000
-------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income 0.048 0.017
DISTRIBUTIONS:
Net Investment Income (0.048) (0.017)
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000
-------------------------------------------------------------------------------------------------------
Total Return 4.91% 1.72%(b)
-------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) $192,232 $ 76,035
Ratio of Expenses to Average Net Assets 0.64% 0.54%(c)
Ratio of Net Investment Income to Average
Net Assets 4.95% 3.15%(c)
Ratio of Expenses to Average Net Assets* 0.78% 0.74%(c)
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
62
<PAGE> 164
PARKSTONE FUNDS
Board of Trustees
ROBERT D. NEARY
Chairman
Retired Co-Chairman, Ernst & Young
Director:
Cold Metal Products, Inc.
Strategic Distribution, Inc.
HERBERT R. MARTENS, JR.
President
Executive Vice President,
National City Corporation
Chairman, President and
Chief Executive
Officer, NatCity
Investments, Inc.
LEIGH CARTER
Retired President and
Chief Operating Officer,
B.F. Goodrich Company
Director:
Kirtland Capital Corporation
Morrison Products
TruSeal Technologies
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
RICHARD W. FURST, DEAN
Garvice D. Kincaid 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
<PAGE> 165
For more information about the Funds, the following documents are available free
upon request:
ANNUAL/SEMI-ANNUAL REPORTS (REPORTS):
The Funds' annual and semi-annual reports to shareholders contain additional
information on the Funds' investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected a Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Funds, including its
operations and investment policies. It is incorporated by reference and is
legally considered a part of this prospectus.
You can get free copies of Annual/Semi-Annual Reports and the SAI, of the
Parkstone Group of Funds, or request other information and discuss your
questions about the Funds by contacting a Broker or Bank that sells the
Funds, or contact the Fund at:
The Parkstone Group of Funds
P.O. Box 8590
Boston, Massachusetts 02266-8590
Telephone: 1-800-451-8377
You can review information about the Fund and SAI at the Public Reference Room
of the Securities and Exchange Commission in Washington D.C. You can get copies:
o For a duplicating fee, by writing the Public Reference Section of the
Securities and Exchange Commission in Washington, D.C. 20549-6009 or
calling 1-800-SEC-0330.
o Free from the Commission's Website at http://www.sec.gov
Investment Company Act file no. 811-5105.
PARKSTONE
FUNDS
PAR-F-008-0100 9/99
<PAGE> 166
THE PARKSTONE GROUP OF FUNDS
Statement of Additional Information
September 17, 1999
GROWTH FUNDS
Parkstone International Discovery Fund
Parkstone Small Capitalization Fund
Parkstone Mid Capitalization Fund
Parkstone Large Capitalization Fund
GROWTH AND INCOME FUNDS
Parkstone Equity Income Fund
Parkstone Balanced Allocation Fund
INCOME FUNDS
Parkstone Bond Fund
Parkstone Intermediate Government Obligations Fund
Parkstone U.S. Government Income Fund
Parkstone Limited Maturity Bond Fund
TAX-FREE INCOME FUNDS
Parkstone National Tax Exempt Bond Fund
Parkstone Michigan Municipal Bond Fund
MONEY MARKET FUNDS
Parkstone Tax-Free Fund
Parkstone Prime Obligations Fund
Parkstone U.S. Government Obligations Fund
Parkstone Treasury 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 and Investor B
Shares Prospectus and Institutional Shares Prospectus dated September 13,
1999. 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> 167
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INVESTMENTS AND RISKS....................................................................2
Additional Information About The Funds...................................................2
Additional Information On Portfolio Instruments..........................................8
Investment Restrictions.................................................................34
Additional Investment Limitations.......................................................36
Portfolio Turnover.....................................................................40
NET ASSET VALUE.........................................................................42
Valuation Of The Money Market Funds.....................................................43
Valuation Of The Non-Money Market Funds.................................................44
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..........................................44
ADDITIONAL INFORMATION ABOUT HOW TO BUY INSTITUTIONAL SHARES............................45
ADDITIONAL INFORMATION ABOUT REDEMPTION OF INSTITUTIONAL SHARES.........................46
MANAGEMENT OF THE GROUP.................................................................46
Trustees And Officers..................................................................46
Trustee Deferred Compensation Plan......................................................50
Investment Adviser......................................................................50
Portfolio Transactions..................................................................53
Authority To Act As Investment Adviser..................................................55
Glass-Steagall Act......................................................................55
Administrator And Sub-Administrator.....................................................56
Expenses................................................................................58
Distributor.............................................................................59
Custodian, Transfer Agent And Fund Accounting Services..................................62
Independent Auditors....................................................................63
Legal Counsel...........................................................................63
ADDITIONAL INFORMATION..................................................................63
Description Of Shares...................................................................63
Vote Of A Majority Of The Outstanding Shares............................................65
Shareholder And Trustee Liability.......................................................65
Additional Tax Information..............................................................66
Additional Tax Information Concerning The Exempt Funds..................................67
Additional Tax Information Concerning The International Discovery Fund..................68
Performance Information.................................................................69
Yields Of The Money Market Funds........................................................69
Yields Of The Non-Money Market Funds....................................................71
Calculation Of Total Return.............................................................72
Distribution Rates......................................................................74
Performance Comparisons.................................................................75
Miscellaneous...........................................................................76
PRINCIPAL HOLDERS OF VOTING SECURITIES..................................................78
FINANCIAL STATEMENTS....................................................................87
APPENDIX A..............................................................................A-1
</TABLE>
-i-
<PAGE> 168
STATEMENT OF ADDITIONAL INFORMATION
THE PARKSTONE GROUP OF FUNDS
The Parkstone Group of Funds, which was organized in the
Commonwealth of Massachusetts on March 25, 1987 (the "Group"), is an open-end
management investment company composed of sixteen separate investment
portfolios, fifteen 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 sixteen portfolios (collectively, the "Funds" and
singly, a "Fund").
The Group includes four money market Funds: the Tax-Free Fund,
the Prime obligations Fund, the U.S. Government obligations Fund, the Treasury
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 twelve variable net asset value
Funds: the International Discovery Fund, the Small Capitalization Fund, the Mid
Capitalization Fund, the Large Capitalization Fund, the Equity Income Fund, the
Balanced Allocation Fund, the Bond Fund, the Intermediate Government Obligations
Fund, the U.S. Government Income Fund, the Limited Maturity Bond Fund, the
Michigan Municipal Bond Fund and the National Tax Exempt Bond (collectively, the
"Non-Money Market Funds"). The International Discovery Fund provides capital
appreciation by investing in equity securities of foreign issuers. The Small
Capitalization Fund provides capital appreciation with a diversified portfolio
of publicly traded smaller cap equity securities. The Mid Capitalization Fund
provides capital appreciation with a diversified portfolio of publicly traded
mid cap equity securities. The Large Capitalization Fund provides capital
appreciation with a diversified portfolio of publicly traded larger cap equity
securities. The Equity Income Fund provides capital appreciation with a
diversified portfolio of publicly traded larger cap equity securities which, in
the aggregate, provide an above-average current yield. The Balanced Allocation
Fund provides long-term capital appreciation and current income. The Bond Fund
seeks current income with preservation of capital by investing in a portfolio of
high- and medium-grade fixed-income securities. The Intermediate Government
Obligations Fund provides current income as well as preservation of capital by
investing primarily in U.S. government securities. The U.S. Government Income
Fund provides current
<PAGE> 169
income as well as preservation of capital by investing primarily in U.S.
government securities. The Limited Maturity Bond Fund provides current income as
well as preservation of capital by investing in a portfolio of high- and medium
grade fixed income securities. The Michigan Municipal Bond Fund provides current
income exempt from federal income taxes and, to the extent possible, from
Michigan personal income taxes, as is consistent with conservation of capital.
The National Tax Exempt Bond Fund provides current income exempt from federal
income taxes as is consistent with conservation of capital.
The International Discovery Fund, Small Capitalization Fund,
Mid Capitalization Fund and Large Capitalization Fund are sometimes referred to
as the Growth Funds. The Equity Income Fund and Balanced Allocation Fund are
sometimes referred to as the Growth and Income Funds. The Bond Fund,
Intermediate Government Obligations Fund, U.S. Government Income Fund and
Limited Maturity Bond Fund are sometimes referred to as the Income Funds. The
Michigan Municipal Bond Fund and National Tax Exempt Bond Fund are sometimes
referred to as the Tax-Free Income Funds.
The Trustees of the Group have divided beneficial ownership of
each of the Funds into an unlimited number of transferable units called shares.
Each Fund of the Group offers multiple classes of shares. 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.
Much of the information contained in this Statement of
Additional Information expands upon subjects discussed in the Prospectuses of
the sixteen 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.
INVESTMENTS AND RISKS
ADDITIONAL INFORMATION ABOUT THE FUNDS
The following information supplements and should be read in
conjunction with the principal strategies and risk disclosures in the
Prospectus.
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 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.
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
-2-
<PAGE> 170
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-sized companies that exhibit outstanding potential for superior growth.
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.
The International Discovery Fund will seek to achieve its
investment objective by investing, under normal market conditions, at least 80%
of its total assets in equity securities of foreign issuers. The Fund's assets
normally will be invested in the securities of issuers located in at least three
foreign countries. Foreign investments also may include debt obligations issued
or guaranteed by foreign governments or their agencies, authorities,
instrumentalities or political subdivisions, including a foreign state, province
or municipality.
The Fund will invest primarily in equity securities, including
common and preferred stocks, rights, warrants, securities convertible into
common stocks and American Depository Receipts ("ADR's") of companies included
in the Morgan Stanley Capital International Europe, Australaisia, Far East
("EAFE") Index, a broadly diversified international index consisting of more
than 1,000 equity securities of companies located in Australia, Austria,
Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan,
Malaysia, the Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland, and the United Kingdom. The Fund, however, will not be an "index"
fund, and is neither sponsored by nor affiliated with Morgan Stanley Capital
International. The Fund will not presently make investments in markets where,
in the judgement of the adviser, property rights are not defined and supported
by adequate legal infrastructure. More than 25% of the Fund's assets may be
invested in the securities of issuers located in the same country.
The Balanced Allocation Fund may vary from time to time the
amount it invests in stocks, bonds and cash reserves, depending upon the
investment Adviser's assessment of business, economic and market conditions,
including any advantage of price shifts between the stock market and the bond
market. 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,
-3-
<PAGE> 171
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 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.
Some of the securities in which the Limited Maturity Bond Fund
invests may have warrants or options attached. Furthermore, certain debt
securities including, but not limited to, mortgage-related securities,
collateralized mortgage obligations ("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.
The Bond Fund and Limited Maturity Bond Fund may 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. 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.
Under normal market conditions, the Intermediate Government
Obligations Fund expects to maintain a dollar-weighted average portfolio
maturity of its debt securities of
-4-
<PAGE> 172
three to ten years. By seeking to maintain such dollar-weighted average
portfolio maturity, 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. The 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.
To the extent the National Tax Exempt 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.
The Michigan Municipal Bond Fund is classified as a
"non-diversified" investment company, which means that the amount of assets of
the Michigan Municipal 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 Municipal 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 Municipal 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 Municipal 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. However, the
Michigan Municipal Bond Fund attempts to diversify, to the extent the Investment
Adviser deems appropriate, among issuers and geographic areas in the State of
Michigan.
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The types of U.S. government obligations, including
mortgage-related securities, invested in by the U.S. 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.
The Prime Obligations Fund and, within certain limits, 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 Canadian Commercial Paper ("CCP"), which is commercial paper
issued by a Canadian corporation or counterpart of a U.S. corporation,
Europaper, bankers' acceptances, certificates of deposit and time deposits, as
described below.
The U.S. Government Obligations Fund, the Prime Obligations
Fund and certain other Funds may invest in variable amount master demand notes
which 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 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 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.
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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 certain limitations and subject to the quality standards for tax-exempt
commercial paper described below, may invest in commercial paper.
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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. 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. See "ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
- --FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS and -- FOREIGN CURRENCY FUTURES
TRANSACTIONS." These forward currency contracts are traded directly between
currency traders (usually large commercial banks). 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 or
commission, they do realize a profit based on the difference (the "spread") the
prices at which they are buying and selling various currencies.
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
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.
Some of the investment techniques utilized by the Investment
Adviser 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 believes 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 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.
The following descriptions of portfolio instruments are
intended to supplement and should be read in conjunction with the investment
objectives, principal investment strategies and related risks 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, Balanced Allocation Fund, Equity
Income Fund, Bond Fund, Limited Maturity Bond Fund, U.S. Government Income Fund,
National Tax Exempt Bond Fund and Michigan Municipal Bond Fund may invest in
bank obligations consisting of bankers' acceptances, certificates of deposit,
and time deposits.
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Bankers' acceptances are negotiable drafts or bills of
exchange typically drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Bankers' acceptances invested in by the Funds will be those guaranteed by
domestic and foreign banks having, at the time of investment, capital, surplus,
and undivided profits in excess of $100,000,000 (as of the date of their most
recently published financial statements).
Certificates of deposit are negotiable certificates issued
against funds deposited in a commercial bank or a savings and loan association
for a definite period of time and earning a specified return. Certificates of
deposit and time deposits will be those of domestic and foreign banks and
savings and loan associations if (a) at the time of investment, the depository
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, Balanced
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 Prospectus, 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, Balanced
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Allocation Fund, Equity Income Fund, Bond Fund, Limited Maturity Bond Fund and
National Tax Exempt 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, Balanced Allocation Fund, Equity Income
Fund, Bond Fund, Limited Maturity Bond Fund and U.S. Government Income Fund may
also invest in CCP and in Europaper, which is U.S. dollar-denominated commercial
paper of a foreign issuer.
Equity Securities. Include common and preferred stock,
securities (bonds and preferred stock) convertible into common stock, warrants
and in the case of the International Discovery Fund, securities representing
underlying international securities such as American Depository Receipts
("ADRs") and European Depository Receipts ("EDRs"), as described below.
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, Balanced Allocation Fund, Equity Income Fund, Bond Fund,
Limited Maturity Bond Fund, U.S. Government Income Fund, National Tax Exempt
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 weighted 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 Securities. The International Discovery 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 U.S. 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-
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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.; 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
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 stringent
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 introduction of a single currency, the euro, on January 1,
1999 for participating nations in the European Economic and Monetary Union
presents unique uncertainties, including 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, 2001 and beyond; whether the interest rate, tax and labor
regimes of European countries participating in the euro will converge over time;
and whether the conversion of the currencies of other countries in the European
Union ("EU"), such as the United Kingdom and Denmark, 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, and
could adversely affect the value of securities held by the Funds.
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 many foreign issuers may be subject. The ADR is sometimes referred to as a
Global Depository 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 Discovery 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
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
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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.
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, International
Discovery Fund, Balanced Allocation Fund and Limited Maturity Bond Fund will
acquire foreign securities only when the Investment Adviser 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, National Tax Exempt 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 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:
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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. A floating rate
instrument issued or guaranteed by the U.S. government or an agency thereof or a
floating rate instrument the principal amount of which must conditionally be
paid in 397 days or less is deemed to mature in one day.
A variable rate note, the principal amount of which
is scheduled 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.
A variable rate note the principal amount of which is
scheduled to be paid in more than 397 days 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.
A floating rate note the principal amount of which is
scheduled to be paid in more than 397 days 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 approximate amortized cost plus accrued
interest 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 National Tax
Exempt Bond Fund, the assets of such Funds will be primarily invested in bonds
and notes issued by or on behalf of states (including the District of Columbia),
territories, and possessions of the United States and their respective
authorities, agencies, instrumentalities and political subdivisions, the
interest on which is both exempt from federal income tax and not treated as a
preference item for purposes of the federal alternative minimum tax ("Municipal
Securities"). With respect to the Tax-Free Fund, Municipal Securities are
expected to have remaining maturities of 397 days or less. Under normal market
conditions, at least 80% of the total assets of each such Fund will be invested
in Municipal Securities. The U.S. Government Obligations Fund may invest up to
35% of the 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").
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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. The Michigan Municipal Bond Fund may invest up to 100% of its total assets
in private activity bonds which may be treated as a specific tax preference item
under the federal alternative minimum tax.
Among other types of Municipal Securities, the Tax-Free Fund
and National Tax Exempt 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 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
taxes ("Michigan Municipal Securities"). Under normal market conditions, at
least 80% of the net assets of the Michigan Municipal Bond Fund will be invested
in Michigan Municipal Securities, and at least 65% of the net assets of the
Michigan Municipal Bond Fund will be invested in Michigan Municipal Securities
issued by or on behalf of the State of Michigan, its political subdivisions,
municipalities and public authorities.
Michigan Municipal Securities include debt obligations issued
by governmental entities to obtain funds for various public purposes, such as
the construction of a wide range of public 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
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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 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, National Tax
Exempt 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.
Opinions relating to the validity of Municipal Securities and
to the exemption of interest thereon from federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
Funds nor the Investment Adviser will review the proceedings relating to the
issuance of Municipal Securities or the basis for such opinions.
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Interest income from certain 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 that 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. Investment 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.
Special Investment Considerations Relating To Investing In The
Michigan Municipal Bond Fund. The following information is drawn from various
Michigan governmental publications, particularly the Governor's Executive Budget
for Fiscal year 1999-2000, and from official statements relating to securities
offerings of 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 1.9% in 1998. The rate of unemployment is estimated to have been 3.8%
in 1998, below the national average for the fifth consecutive year. Personal
income grew at an estimated 5.1% annual rate in 1998, up from the 4.6% growth
reported for 1997.
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, 1998 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
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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, 1998,
the State had approximately $874 million of general obligation bonds
outstanding.
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
1999, 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. Notable among these
legal proceedings are lawsuits brought by a number of school districts
challenging the constitutionality of certain state-mandated special education
services without corresponding State 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
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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.
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. 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, 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
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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 ("GIC"). 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. 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.
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.
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
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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 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 affect 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 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 Discovery Fund, 20% of its net assets.
Each of the Growth Funds, the Growth and Income Funds and the
U.S. 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
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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).
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.
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). The
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 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, 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
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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. The U.S. Government Income Fund
normally invests at least 80% of its total assets in obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities. However,
the U.S. Government Income Fund may invest greater amounts as conditions
warrant. Each of the remaining Funds, except the International Discovery 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, U.S. 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
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-
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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.
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.
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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.
The U.S. Government Income Fund also may invest up to 20% 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 U.S. 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 U.S. 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 U.S. 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 U.S. Government Income Fund's total assets will be illiquid.
Mortgage-related securities in which the above-named Funds may
invest may also include 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.
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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 U.S. 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 U.S. Government Income Fund's
investment objective, policies and quality standards, consider making
investments in such new types of securities.
Medium-Grade Securities. The Balanced Allocation Fund, Bond
Fund, Limited Maturity Bond Fund, National Tax Exempt 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, respectively) or, if not rated,
are of comparable quality as determined by the Investment Adviser.
("Medium-Grade Securities"). 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
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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.
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. 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
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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. The Group's
Board of Trustees has delegated to the Investment Adviser the day-to-day
authority to determine whether a particular issue of Section 4(2) Securities
that are eligible for resale under Rule 144A under the 1933 Act should be
treated as liquid. Rule 144A provides a safe-harbor exemption from the
registration requirements of the 1933 Act for resales to "qualified
institutional buyers" as defined in the Rule. With the exception of registered
broker-dealers, a qualified institutional buyer must generally own and invest on
a discretionary basis at least $100 million in securities.
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
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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 resale premium). 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. Each
of the Funds except the Treasury Fund may borrow money by entering into reverse
repurchase agreements and, in the case of the Income Funds and the Tax-Free
Income Funds, dollar roll agreements in accordance with the investment
restrictions described below. Pursuant to reverse repurchase agreements, a Fund
would sell certain of its securities to financial institutions such as banks and
broker-dealers, and agree to repurchase the securities at a mutually agreed upon
date and price. Dollar roll agreements utilized by the Income Funds and Tax-Free
Income Funds are identical to reverse repurchase agreements except for the fact
that substantially similar securities may be repurchased. At the time a Fund
enters into a reverse repurchase agreement or a dollar roll agreement, it will
place in a segregated custodial account assets such as U.S. government
securities or other liquid high-grade debt securities consistent with its
investment restrictions having a value equal to the repurchase price (including
accrued interest), and will subsequently continually monitor the account to
ensure that such equivalent value is maintained at all times. Reverse repurchase
agreements and dollar roll agreements involve the risk that the market value of
securities sold by a Fund may decline below the price at which it is obligated
to repurchase the securities. Reverse repurchase agreements and dollar roll
agreements are considered to be borrowings by an investment company under the
1940 Act and therefore a form of leverage. A Fund may experience a negative
impact on its net asset value if interest rates rise during the term of a
reverse repurchase agreement or dollar roll agreement. A Fund generally will
invest the proceeds of such borrowings only when such borrowings will enhance a
Fund's liquidity or when the Fund reasonably expects that the interest income to
be earned from the investment of the proceeds is greater than the interest
expense of the transaction.
Futures Contracts. The Growth Funds, the Growth and Income
Funds, the Income Funds and the National Tax Exempt 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
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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 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.
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.
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For example, when a Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may want to
establish the United States dollar cost or proceeds, as the case may be. By
entering into a forward currency contract in United States dollars for the
purchase or sale of the amount of foreign currency involved in an underlying
security transaction, such Fund is able to protect itself against a possible
loss between trade and settlement dates resulting from an adverse change in the
relationship between the United States dollar and such foreign currency.
Additionally, for example, when a Fund believes that a foreign currency may
suffer a substantial decline against the U.S. dollar, it may enter into a
forward currency sale contract to sell an amount of that foreign currency
approximating the value of some or all of that Fund's portfolio securities or
other assets denominated in such foreign currency. Alternatively, when a Fund
believes it will increase, it may enter into a forward currency purchase
contract to buy that foreign currency for a fixed U.S. dollar amount; however,
this tends to limit potential gains which might result from a positive change in
such currency relationships. A Fund may also hedge its foreign currency exchange
rate risk by engaging in currency financial futures and options transactions.
The forecasting of short-term currency market movement is
extremely difficult and whether such a short-term hedging strategy will be
successful is highly uncertain. It is impossible to forecast with precision the
market value of portfolio securities at the expiration of a forward currency
contract. Accordingly, it may be necessary for a Fund to purchase additional
currency on the spot market (and bear the expense of such purchase) if the
market value of the security is less than the amount of foreign currency such
Fund is obligated to deliver when a decision is made to buy the security and
make delivery of the foreign currency in settlement of a forward contract.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security if its market value
exceeds the amount of foreign currency such Fund is obligated to deliver.
If a Fund retains the portfolio security and engages in an
offsetting transaction, such Fund will incur a gain or a loss (as described
below) to the extent that there has been movement in forward currency contract
prices. If the Fund engages in an offsetting transaction, it may subsequently
enter into a new forward currency contract to sell the foreign currency. If
forward prices decline during the period between which a Fund enters into a
forward currency contract for the sale of foreign currency and the date it
enters into an offsetting contract for the purchase of the foreign currency,
such Fund would realize a gain to the extent the price of the currency it has
agreed to sell exceeds the price of the currency it has agreed to purchase. If
forward prices increase, such Fund would suffer a loss to the extent the price
of the currency it has agreed to purchase exceeds the price of the currency it
has agreed to sell. Although such contracts tend to minimize the risk of loss
due to a decline in the value of the hedged currency, they also tend to limit
any potential gain which might result if the value of such currency increases.
The Funds will have to convert their holdings of foreign currencies into United
States dollars from time to time. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies.
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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.
Foreign Currency Options. Each of the Funds, except the Money
Market Funds and the Tax-Free Income Funds, may invest in foreign currency
options. A foreign currency option provides the option buyer with the right to
buy or sell a stated amount of foreign currency at the exercise price at a
specified date or during the option period. A call option gives its owner the
right, but not the obligation, to buy the currency, while a put option gives its
owner the right, but not the obligation, to sell the currency. The option seller
(writer) is obligated to fulfill the terms of the option sold if it is
exercised. However, either seller or buyer may close its position during the
option period in the secondary market for such options any time prior to
expiration.
A call rises in value if the underlying currency appreciates.
Conversely, a put rises in value if the underlying currency depreciates. While
purchasing a foreign currency option can protect a Fund against an adverse
movement in the value of a foreign currency, it does not limit the gain which
might result from a favorable movement in the value of such currency. For
example, if a Fund were holding securities denominated in an appreciating
foreign currency and had purchased a foreign currency put to hedge against a
decline in the value of the currency, it would not have to exercise its put.
Similarly, if a Fund has entered into a contract to purchase a security
denominated in a foreign currency and had purchased a foreign currency call to
hedge against a rise in the value of the currency but instead the currency had
depreciated in value between the date of purchase and the settlement date, such
Fund would not have to exercise its call, but could acquire in the spot market
the amount of foreign currency needed for settlement.
Foreign Currency Futures Transactions. Each of the Funds,
except the Money Market Funds and the Tax-Free Income Funds, may invest in
foreign currency futures transactions. As part of its financial futures
transactions, the Funds may use foreign currency futures contracts and options
on such futures contracts. Through the purchase or sale of such contracts, a
Fund may be able to achieve many of the same objectives as through forward
foreign currency exchange contracts more effectively and possibly at a lower
cost.
Unlike forward foreign currency exchange contracts, foreign
currency futures contracts and options on foreign currency futures contracts are
standardized as to amount and delivery period and may be traded on boards of
trade and commodities exchanges or directly with a dealer 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
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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 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 pays 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 has determined are creditworthy under
guidelines established by the Group's Board of Trustees.
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 Statement of Additional
Information) 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
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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 National Tax Exempt Bond Fund and the Michigan
Bond Fund" in the Statement of Additional Information.
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 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 Non-Money Market Fund, with the exception of the Michigan
Municipal 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
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(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 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 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.
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;
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(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;
(c) and 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. 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;
(a) 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
(b) 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.
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.
Generally, 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.
ADDITIONAL INVESTMENT LIMITATIONS
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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 restrictions
disclosed above, 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 is 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.
(a) 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
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<PAGE> 205
transactions in options on securities or indices of securities, future contracts
and options on futures contracts and in similar investments.
3. Purchase securities on margin, make short sales of securities or
maintain a short position, except that, as consistent with a Fund's investment
objective and policies, (a) this investment limitation shall not apply to the
Fund's transactions in futures contracts and related options, options on
securities or indices of securities and similar instruments, and (b) it may
obtain short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities.
4. Purchase securities of companies for the purpose of exercising
control.
5. Invest more than 15% (10% in the case of a Money Market Fund) of its
net assets in illiquid securities.
The following investment restriction applies 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.
None of the Funds will:
1. Underwrite the securities issued by other persons, except to the
extent that a Fund may be deemed to be an underwriter under certain securities
laws in the disposition of "restricted securities";
2. Purchase or sell commodities or commodities contracts, except to the
extent disclosed in the current Prospectus of the Fund;
3. Purchase or sell real estate (although investments in marketable
securities of companies engaged in such activities and securities secured by
real estate or interests therein are not prohibited by this restriction);
4. Purchase any securities which would cause more than 25% of the value
of the Fund's total assets at the time of purchase to be invested in securities
of one or more issuers conducting their principal business activities in the
same industry, provided that: (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the U.S.
government or its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their parents,
and (c) utilities will provide according to their services. For example, gas,
gas transmission, electric and gas, electric, and telephone will each be
considered a separate industry;
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<PAGE> 206
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 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;
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<PAGE> 207
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. 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 200%.
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 National Tax Exempt Bond Fund and the Michigan Municipal Bond Fund, by
requirements which enable those Funds to receive certain favorable tax
treatments. 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.
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<PAGE> 208
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 FUND
During the fiscal year ended May 31, 1999, portfolio turnover was 53.07% as
compared to 774.28% for the previous fiscal year. The style of investment
management employed by the investment advisor sought to enhance shareholders'
total return through the active trading of portfolio holdings. The adviser's
style involves the monitoring of market values of securities held by the fund
relative to securities available in the marketplace. When the adviser believes
the relationships to be out of line with historically normal relationships, the
securities held would be traded for those in the marketplace. The adviser
believes that these "swaps" produce profits which benefit shareholders.
The adviser 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 too may the opportunities to profit
from those market conditions. The management team determined that it was
appropriate to trade less actively in the volatile market environment present
during the fiscal year ended May 31, 1999, and therefore turnover was less than
during the previous period.
PARKSTONE U.S. GOVERNMENT INCOME FUND
During the fiscal year ended May 31, 1999, portfolio turnover was 52.60% as
compared to 278.94% for the previous fiscal year. The style of investment
management employed by the investment adviser sought to enhance shareholders'
total return through the active trading of portfolio holdings. The adviser's
style involves the monitoring of market values of securities held by the fund
relative to securities available in the marketplace. When the adviser believes
the relationships to be out of line with historically normal relationships, the
securities held would be traded for those in the marketplace. The adviser
believes that these "swaps" produce profits which benefit shareholders.
The adviser 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 too may the opportunities to profit
from those market conditions. The management team determined that it was
appropriate to trade less actively in the volatile market environment present
during the fiscal year ended May 31, 1999, and therefore turnover was less than
during the previous period.
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<PAGE> 209
PARKSTONE NATIONAL TAX EXEMPT BOND FUND
During the fiscal year ended May 31, 1999, portfolio turnover
was 6.67% as compared to 85.56% for the previous fiscal year. During fiscal year
ended May 31, 1999, the Fund experienced increased shareholder redemptions and a
net withdrawal of assets. As a result, the Fund engaged in fewer investment
purchase transactions, producing lower portfolio turnover figures than the
previous fiscal period.
PARKSTONE MID CAPITALIZATION FUND
During the fiscal year ended May 31, 1999, portfolio turnover
was 100.19% as compared to 38.41% for the previous fiscal year. The adviser
attributes increased portfolio turnover in fiscal year ended May 31, 1999 to a
portfolio restructuring beginning in early 1998 which continued into the
following fiscal year.
The adviser believes that opportunities for profits are
related to market conditions such as volatility. As market volatility varies
from period to period, so too may the opportunities to profit from those market
conditions. In the adviser's estimation, the fiscal year ended May 31, 1999
presented more opportunity for such profitable trades than did the previous
fiscal period 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 period ended May 31, 1998 covers eleven
months as compared to twelve for the following fiscal year.
PARKSTONE EQUITY INCOME FUND
During the fiscal year ended May 31, 1999, portfolio turnover
was 51.09% as compared to 18.62% for the previous fiscal year. The adviser
attributes increased portfolio turnover in fiscal year ended May 31, 1999 to a
portfolio restructuring beginning in early 1998 which continued into the
following fiscal year.
The adviser believes that opportunities for profits are
related to market conditions such as volatility. As market volatility varies
form period to period, so too may the opportunities to profit from those market
conditions. In the adviser'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 increased turnover is the result
of the change in the fiscal year. The fiscal period ended May 31, 1998 covers
eleven months as compared to twelve for the following 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 for the Funds is generally a day that the New York Stock Exchange is open
for business. The Funds 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, Columbus Day (Money Market
Funds only), Veterans Day (Money Market Funds only), Thanksgiving and Christmas
Day.
The offering prices for Investor A Shares of the Non-Money
Market Funds as of May 31, 1999 were calculated as illustrated in this example
using the Small Capitalization Fund:
Net Assets $ 57,813,023.36
=============
Outstanding Shares 3,127,013.544
=============
Net Asset Value Per Share $18.49
======
Sales Charge, 4.50% of the offering price
(4.71 of NAV) per share $0.87
=====
Offering Price $19.36
=====
The offering prices for Investor B Shares of the Funds as of
May 31, 1999 were calculated as illustrated in this example using the Small
Capitalization Fund:
Net Assets $18,735,578.45
==============
Outstanding Shares 1,053,724.266
=============
Net Asset Value Per Share $17.78
======
Sales Charge $0
==
Offering Price $17.78
======
The offering prices for Institutional Shares of the Non-Money
market Funds as of May 31, 1999 were calculated as illustrated in this example
using the Small Capitalization Fund:
Net Assets $226,139,332.69
===============
Outstanding Shares 11,972,740.594
==============
Net Asset Value Per Share $18.89
======
Sales Charge $0
==
Offering Price $18.89
======
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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.
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 (calculated under the Rule) of
more than 397 days (thirteen months) (securities subject to repurchase
agreements may bear longer maturities) nor will it maintain a dollar-weighted
average maturity which exceeds 90 days. The Group's Board of Trustees has also
undertaken to establish procedures reasonably designed, taking into account
current market conditions and the investment objective of each of these Funds,
to stabilize the net asset value per share of each Fund for purposes of sales
and redemptions at $1.00. These procedures include review by the Trustees, at
such intervals as they deem appropriate, to determine the extent, if any, to
which the net asset value per share of each Fund calculated by using available
market quotations deviates from $1.00 per share. In the event such deviation
exceeds 0.5%, Rule 2a-7 requires that the Board of Trustees promptly consider
what action, if any, should be initiated. If the Trustees believe that the
extent of any deviation from a Fund's $1.00 amortized cost price per share may
result in material dilution or other unfair results to new or existing
investors, they will take such steps as they consider appropriate to eliminate
or reduce, to the extent reasonably practicable, any such dilution or unfair
results. These steps may include selling portfolio instruments prior to
maturity, shortening the dollar-weighted average maturity, withholding or
reducing dividends, reducing the number of the Fund's outstanding shares without
monetary consideration, or utilizing a net asset value per share determined by
using available market quotations. As permitted by Rule 2a-7 and the procedures
adopted by the Board, certain of the Board's responsibilities under the Rule may
be delegated to the Investment Adviser.
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.
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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. With respect to the Fixed Income Funds, Tax-Free
Income Fund and the fixed income securities of the Balanced Allocation Fund, if
there have been no sales during such day, portfolio securities will be valued at
the mean between the most recent quoted bid and asked prices. Portfolio
securities, the principal market for which is not a securities exchange, will be
valued at the mean between the most recent quoted bid and asked prices in such
principal market. With respect to the Growth Funds, Equity Income Fund, and the
equity securities of the Balanced Allocation Fund, if there have been no sales
during such day, portfolio securities will be valued at the latest bid
quotation. In either case, if no such 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 two 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 its 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 a
Fund 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. The offering price is rounded to two decimal places
each time a computation is made.
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<PAGE> 212
The public offering price of Investor B Shares of each Fund is
its 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.
Investor A Shares and Investor B Shares of all Funds, except
the Money Market Funds, are eligible to earn dividends on the first business day
following the settlement of the purchase. Investor A Shares and Investor B
Shares of the Treasury and Tax-Free Funds purchased before 1 p.m., Eastern Time
begin earning dividends on the same business day. Investor A Shares and
Investor B Shares of the Prime Obligations Fund and the U.S. Government
Obligations Fund purchased before 3:00 p.m. Eastern Time begin earning dividends
on the same business day. Investor A Shares and Investor B Shares of the Funds
continue to be eligible to earn dividends through the day before their
redemption.
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. When redeeming shares, 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, and
(3) the amount of the redemption check is less than $10,000.
When purchases are made by check, redemption proceeds will not
be released until the investment being redeemed has been in the account 15 days.
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.
Institutional Shares of the Michigan Municipal Bond Fund may
only be sold in those states where the Fund has filed the required notification
documents, at the time of filing this registration statement only Colorado,
District of Columbia, Florida, Georgia, Hawaii, Illinois, Indiana, Michigan,
Mississippi, New Jersey, Ohio and Virginia.
Purchases of Shares of any of the Funds will be effected only
on a Business Day (as defined in "PRICING OF FUND SHARES" in the prospectus) 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 settlement of the
purchase. Institutional Shares of the Treasury and Tax-Free Funds purchased
before 1 p.m., Eastern Time, will begin earning dividends on the same Business
Day. Institutional Shares of the Prime Obligations Fund and the U.S. Government
Obligations Fund purchased before 3:00 p.m. Eastern Standard Time begin earning
dividends on the same Business Day. Institutional Shares of the Funds continue
to be eligible to earn dividends through the day before their redemption.
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<PAGE> 213
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. 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 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.
ADDITIONAL INFORMATION ABOUT REDEMPTION OF INSTITUTIONAL SHARES
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 except the Money
Market Funds 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.
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, ages and principal
occupations during the past five years are as follows:
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<PAGE> 214
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Names, Addresses and Ages with the Group During Past 5 Years
- ------------------------- ---------------- ---------------------
<S> <C> <C>
Robert D. Neary Chairman of the Retired Co-Chairman of Ernst & Young, April 1984
32980 Creekside Drive Board and Trustee to September 1993; Director, Cold Metal Products,
Pepper Pike, OH 44124 Inc., since March 1994; Director, Strategic Distribution, Inc., since
Age 65 January 1999; Trustee of Armada Funds and Parkstone Advantage Funds
since November 1997.
Herbert R. Martens, Jr.* President and Executive Vice President, National City Corporation (bank holding
c/o NatCity Investments, Inc. Trustee company), since July 1997; Chairman, President and Chief Executive
1965 East Sixth Street Officer, NatCity Investments, Inc. (investment banking), since July
Cleveland, OH 44114 1995; President and Chief Executive Officer, Raffensberger, Hughes &
Age 47 Co., (broker-dealer) from 1993 until 1995; President, Reserve Capital
Group, from 1990 until 1993; Trustee of Armada Funds and Parkstone
Advantage Funds since November 1997.
Leigh Carter* Trustee Retired President and Chief Operating Officer, B.F. Goodrich Company,
13901 Shaker Blvd., #6B August 1986 to September 1990; Director, Adams Express Company
Cleveland, OH 44120 (closed-end investment company), April 1982 to December 1997;
Age 74 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; Director, TruSeal Technologies (manufacturer of
insulated glass sealants), since April 1997; Trustee of Armada Funds
and Parkstone Advantage Funds since November 1997.
John F. Durkott Trustee President and Chief Operating Officer, Kittle's Home Furnishings
8600 Allisonville Road Center, Inc., since January 1982; partner, Kittles Bloomington
Indianapolis, IN 46250 Properties LLC, since January 1981; partner, KK&D LLC, since January
Age 55 1989; partner, KKGD II LLC, since February 1998 (affiliated real
estate companies of Kittles Home Furnishings Center); Trustee of
Armada Funds and Parkstone Advantage Funds since November 1997.
Robert J. Farling Trustee Retired Chairman, President and Chief Executive Officer, Centerior
1608 Balmoral Way Energy (electric utility), March 1992 to October 1997; Director,
Westlake, OH 44145 National City Bank until October 1997; Director, Republic Engineered
Age 62 Steels, October 1997 to September 1998; Trustee of Armada Funds and
Parkstone Advantage Funds since November 1997.
Richard W. Furst, Dean Trustee Garvice D. Kincaid Professor of Finance and Dean, Carol Martin Gatton
2133 Rothbury Road College of Business and Economics; University of Kentucky, since
Lexington, KY 40515 1981; Director, The Seed Corporation (restaurant group), since 1990;
Age 61 Director, Foam Design, Inc., (manufacturer of industrial and
commercial foam products), since 1993; Trustee of Armada Funds and
Parkstone Advantage Funds since November 1997.
Gerald L. Gherlein Trustee Executive Vice-President and General Counsel, Eaton Corporation,
3679 Greenwood Drive since 1991 (global manufacturing); Trustee, WVIZ Educational
Pepper Pike, OH 44124 Television (public television); Trustee of Armada Funds and
Age 61 Parkstone Advantage Funds since November 1997.
</TABLE>
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<PAGE> 215
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Names, Addresses and Ages with the Group During Past 5 Years
- ------------------------- ---------------- ---------------------
<S> <C> <C>
J. William Pullen Trustee President and Chief Executive Officer, Whayne Supply Co. (engine and
Whayne Supply Company heavy equipment distribution), since 1986; President and Chief
1400 Cecil Avenue Executive Officer, American Contractors Rentals & Sales (rental
P.O. Box 25900 subsidiary of Whayne Supply Co.), since 1988.
Louisville, KY 40232-5900
Age 60
</TABLE>
*Mr. Carter and Mr. Martens are each an "interested person"
of the Trust, as defined in the 1940 Act.
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.
Mr. Carter is an "interested person" of the Trust, as defined
in the 1940 Act, due to his ownership of 7,200 shares of stock of National City
Corporation, an affiliate of National City Investment Management Company, the
Fund's investment adviser.
The Group paid an aggregate of $78,688 in Trustees' fees
and expenses for the fiscal year ended May 31, 1999, 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, 1999, the compensation received by each of the Trustees from the
Group and in total from all investment companies managed by the Investment
Adviser to the Group.
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR TOTAL COMPENSATION
RETIREMENT ESTIMATED FROM GROUP THE PARKSTONE
AGGREGATE BENEFITS ACCRUED ANNUAL ADVANTAGE FUND AND THE
COMPENSATION AS PART OF FUND BENEFITS UPON FUND COMPLEX (ARMADA
NAME OF TRUSTEE FROM THE GROUP EXPENSES RETIREMENT FUNDS) PAID TO TRUSTEES*
--------------- ------------- ---------------- ------------- ------------------------
<S> <C> <C> <C> <C>
Robert D. Neary $7,546 -0- 35,000
Leigh Carter 6,367 -0- 30,000
John F. Durkott 6,367 -0- 30,000
Robert J. Farling 6,367 -0- 30,000
Richard W. Furst 6,367 -0- 30,000
Gerald L. Gherlein 6,367 -0- 30,000
Herbert R. Martens, Jr. 6,367 -0- 30,000
</TABLE>
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<PAGE> 216
<TABLE>
<CAPTION>
PENSION OR TOTAL COMPENSATION
RETIREMENT ESTIMATED FROM GROUP THE PARKSTONE
AGGREGATE BENEFITS ACCRUED ANNUAL ADVANTAGE FUND AND THE
COMPENSATION AS PART OF FUND BENEFITS UPON FUND COMPLEX (ARMADA
NAME OF TRUSTEE FROM THE GROUP EXPENSES RETIREMENT FUNDS) PAID TO TRUSTEES*
--------------- ------------- ---------------- ------------- ------------------------
<S> <C> <C> <C> <C>
J. William Pullen $6,367 -0- $30,000
John B. Rapp 6,588 -0- 6,588
George R Landreth 6,588 -0- 6,588
Robert M. Beam 6,588 -0- 6,588
Lawrence D. Bryan 6,588 -0- 6,588
Adrian Charles Edwards 6,588 -0- 6,588
James F. Jones, Jr. 6,588 -0- 6,588
</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 $15,000 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. On February 12,
1997, Mr. Rapp became a Trustee. Dr. Jones began serving as a Trustee on August
21, 1997. 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 fiscal year
June 1, 1998 through May 31, 1999.
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
c/o NatCity Investments (bank holding company), since July 1997; Chairman,
1965 East Sixth Street President and Chief Executive Officer, NatCity
Cleveland, OH 44114 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,
One Logan Square Philadelphia.
18th and Cherry Streets
Philadelphia, PA 19103-6996
</TABLE>
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<PAGE> 217
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name With the Group During Past 5 Years
- ---- -------------- -------------------
<S> <C> <C>
Gary Tenkman Treasurer Director of Financial Services, BISYS Fund Services
3435 Stelzer Road since April 1998; formerly, Audit Manager, Ernst &
Columbus, OH 43219 Young LLP.
R. Jeffrey Young Assistant Treasurer Vice President, Client Services; BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
</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 Treasurer of
the Group, and Mr. Young, the Assistant Treasurer of the Group, are employees of
BISYS.
TRUSTEE DEFERRED COMPENSATION PLAN
The Trustees may elect to defer payment of 25% to 100% of the
fees the Trustee receives in accordance with a Trustee Deferred Compensation
Plan (the "Plan"). Under the Plan, a Trustee may elect to have his or her
deferred fees treated as if they had been invested by the Trust in the shares of
one or more portfolios of Armada Funds, and the amount paid to the Trustee under
the Plan will be determined based on the performance of such investments.
Distributions are generally of equal installments over a period of two to 15
years. The Plan will remain unfunded for federal income tax purposes under the
Internal Revenue Code of 1986, as amended (the "Code"). Deferral of Trustee fees
in accordance with the Plan will have a negligible impact on Portfolio assets
and liabilities and will not obligate the Trust to retain any Trustee or pay any
particular level of compensation to a Trustee.
INVESTMENT ADVISER
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, National Tax Exempt Bond Fund, Michigan Municipal Bond Fund,
Balanced Allocation Fund and Government Income Fund) (the "First Investment
Advisory Agreements") and the Investment Advisory Agreement
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<PAGE> 218
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"). As of August 5,
1998, NCC 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: 0.35% for the Prime Obligations, U.S. Government
Obligations and Tax-Free Funds; 0.30% for the Treasury Fund; 0.55% for the Bond
Fund, Intermediate Government Obligations Fund, National Tax Exempt Bond Fund,
Michigan Municipal Bond Fund and U.S. Government Income Fund; 0.45% for the
Limited Maturity Bond Fund; 1.00% for the Small Capitalization Fund and Mid
Capitalization Fund; 0.75% for the Equity Income Fund, Balanced Allocation
Fund and the Large Capitalization Fund; and 1.15% for the International
Discovery Fund. 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.
For the fiscal year ended May 31, 1999, the fiscal period
ended May 31, 1998 and the fiscal year ended June 30, 1997, IMC collected and
voluntarily reduced the amounts indicated below which were payable to it with
respect to its investment advisory services to the indicated Funds under the
Investment Advisory Agreements:
<TABLE>
<CAPTION>
------------------------------------- ---------------------------- ----------------------------- ------------------------------
Fiscal Year Ended Fiscal Period Ended Fiscal Year Ended
May 31 May 31 June 20
Fund 1999 1998 1997
------------------------------------- -------------- ------------- -------------- -------------- -------------- ---------------
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>
</TABLE>
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<PAGE> 219
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Prime Obligations Fund 2,999,418 -- 3,212,525 -- 3,441,611 --
========= ==
U.S. Government Obligations Fund 985,798 -- 1,390,243 -- 1,712,370 --
======= ==
Tax-Free Fund 508,087 -- 631,554 -- 651,531 --
======= ==
Treasury Fund 1,656,809 -- 1,905,446 -- 1,618,910 --
========= ==
Small Capitalization Fund 4,620,482 -- 7,988,486 -- 7,049,924 --
========= ==
Mid Capitalization Fund 4,989,834 -- 6,103,574 -- 6,531,413 --
========= ==
Large Capitalization Fund(1) 3,460,325 -- 2,681,620 -- 2,725,217 --
========= ==
International Discovery Fund 4,475,280 -- 4,978,744 -- 4,981,112 --
========= ==
Equity Income Fund 3,577,042 -- 3,390,234 -- 4,335,969 --
========= ==
Balanced Allocation Fund 2,522,347 630,584 2,599,865 649,964 1,946,812 484,709
========= =======
Bond Fund 3,501,772 189,286 3,554,009 192,110 4,027,206 207,298
========= =======
Limited Maturity Bond Fund 1,300,423 333,893 1,263,800 324,490 1,134,805 289,664
========= =======
Intermediate Government Obligations 1,266,774 68,475 1,334,336 72,116 1,692,438 86,957
Fund ========= ========
U.S. Government Income Fund 1,630,666 639,043 1,649,105 646,269 1,587,392 620,579
========= =======
National Tax Exempt Bond Fund 909,411 233,498 954,911 245,181 1,058,852 270,292
======= =======
Michigan Municipal Bond Fund 1,762,680 452,581 1,705,361 437,864 1,715,085 437,841
========= =======
------------------------------------- -------------- ------------- -------------- -------------- -------------- ---------------
</TABLE>
(1) Commenced operations December 27, 1995.
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, and a majority of the Trustees who are not
parties to the Investment Advisory Agreements or interested persons (as defined
in the 1940 Act) of any party to the Investment Advisory Agreements by votes
cast in person at a meeting called for such purpose.
The Investment Advisory Agreements is 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.
Such Agreements also terminate automatically in the event of any assignment, as
defined in the 1940 Act.
The Investment Advisory Agreements provide that the Investment
Adviser shall not 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 including, but not
limited to, (i) descriptions of the Investment Adviser's operations; (ii)
descriptions of certain personnel and their functions; and (iii) statistics and
rankings related to the Investment Adviser's operations.
PORTFOLIO TRANSACTIONS
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<PAGE> 220
With respect to all Funds of the Group 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.
Purchases and sales of portfolio securities which are debt
securities usually are principal transactions in which portfolio securities are
normally purchased directly from the issuer or from an underwriter or market
maker for the securities. Purchases from underwriters of portfolio securities
generally include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers serving as market makers may include the
spread between the bid and asked prices. Transactions on stock exchanges involve
the payment of negotiated brokerage commissions. Transactions in the
over-the-counter market are generally principal transactions with dealers. With
respect to the over-the-counter market, the Group, where possible, will deal
directly with dealers who make a market in the securities involved except in
those circumstances where better price and execution are available elsewhere.
Allocation of transactions, including their frequency, to
various brokers and dealers is determined by the Investment Adviser 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 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 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 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 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 year
ended May 31, 1999, the fiscal period ended May 31, 1998 and the fiscal year
ended June 30, 1997, the Group paid an aggregate of approximately $4,823,984,
$2,930,315 and $3,118,633, respectively, as brokerage commissions on behalf of
the Funds.
For the fiscal year ended May 31, 1999, the Group paid the
following amounts in brokerage commissions:
Large Capitalization Fund $414,931
Mid Capitalization Fund $1,208,884
Small Capitalization Fund $820,444
Equity Income Fund $447,314
Balanced Allocation Fund $305,194
International Discovery Fund $1,627,217
Total $4,823,984
For the fiscal period ended May 31, 1998, the Group paid the
following amounts in broker commissions:
Large Capitalization Fund $279,187
Mid Capitalization Fund $599,906
Small Capitalization Fund $518,158
Equity Income Fund $292,869
Balanced Allocation Fund $168,030
International Discovery Fund $1,024,637
Aggressive Allocation Fund $39,287
Conservative Allocation Fund $8,241
Total $2,930,315
For the fiscal year ended June 30, 1997, the Group paid the
following amounts in brokerage commissions:
Large Capitalization Fund $435,624
Mid Capitalization Fund $823,397
Small Capitalization Fund $222,770
Equity Income Fund $269,746
Balanced Allocation Fund $218,542
International Discovery Fund $1,117,150
Aggressive Allocation Fund $29,100
Conservative Allocation Fund $2,304
Total $3,118,633
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
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<PAGE> 221
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 to be sold or purchased for other Funds or for other
portfolios, investment companies or accounts in order to obtain best execution.
As provided by the Investment Advisory Agreements, in making investment
recommendations for the Group, 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, Mid Capitalization Fund, Equity Income
Fund, Small Capitalization Fund, Bond Fund, Limited Maturity Bond Fund,
Balanced Allocation Fund, U.S. Government Income Fund and Large Capitalization
Fund held, from time to time during the fiscal period ended May 31, 1999,
securities of its regular brokers or dealers, as defined in Rule 10b-1 under
the 1940 Act, or their parent companies, including: with respect to the Prime
Obligations Fund, those of Morgan Stanley, Goldman Sachs and Merrill Lynch;
with respect to the Mid Capitalization Fund, those of Merrill Lynch; with
respect to the Equity Income Fund, those of Merrill Lynch and J.P. Morgan; with
respect to the Small Capitalization Fund, those of Merrill Lynch; with respect
to the Bond Fund, those of Merrill Lynch and J.P. Morgan; with respect to the
Limited Maturity Bond Fund, those of Lehman Brothers and Merrill Lynch; with
respect to the Balanced Allocation Fund, those of Merrill Lynch and J.P.
Morgan; with respect to the U.S. Government Income Fund, those of Prudential,
Merrill Lynch and Morgan Stanley; and with respect to the Large Capitalization
Fund, those of Merrill Lynch and J.P. Morgan.
As of May 31, 1999, the Prime Obligations Fund held the following amounts of
the securities of Merrill Lynch: $9,998,000. The Mid Capitalization Fund held
the following amounts of the securities of Merrill Lynch:$20,000,000. The
Equity Income Fund held the following amounts of securities of Merrill
Lynch:$10,000,000. The Bond Fund held the following amounts of securities of
Merrill Lynch:$20,000,000. The Limited Maturity Fund held the following amounts
of the securities of Lehman Brothers and Merrill Lynch, respectively:
$5,036,000 and $2,463,000. The Balanced Allocation Fund held the following
amounts of the securities of Merrill Lynch and J.P. Morgan, respectively:
$10,000,000 and $794,000. The U.S. Government Income Fund held the following
amounts of the securities of Prudential: $900,000. The Large Capitalization
Fund held the following amounts of the securities of Merrill Lynch and J.P.
Morgan, respectively: $20,000,000 and $4,597,000.
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<PAGE> 222
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding
company registered under the Bank Holding Company Act of 1956, as amended, or
any bank or non-bank affiliate thereof from sponsoring, organizing, controlling
or distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibits banks
generally from issuing, underwriting, selling, or distributing securities such
as shares of the Funds, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent,
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. The investment adviser and
custodians are subject to such banking laws and regulations. Should legislative,
judicial, or administrative action prohibit or restrict the activities of such
companies in connection with their services to the Funds, the Group might be
required to alter materially or discontinue its arrangements with such companies
and change its method of operation. It is anticipated, however, that any
resulting change in the Group's method of operation would not affect a Fund's
net asset value per share or result in financial losses to any shareholder.
State securities laws on this issue may differ from federal law and banks and
financial institutions may be required to register as dealers pursuant to state
law.
GLASS-STEAGALL ACT
In 1971, the United States Supreme Court held in Investment
Company Institute v. Camp that the Federal statute commonly referred to as the
Glass-Steagall Act prohibits a national bank from operating a mutual fund for
the collective investment of managing agency accounts. Subsequently, the Board
of Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in Board of Governors of The Federal Reserve System v.
Investment Company Institute that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank-companies and their non-bank affiliates to act as investment
advisers to registered closed-end investment companies. In the Board of
Governors case, the Supreme Court also stated that if a national 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
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<PAGE> 223
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, 3435 Stelzer Road, Columbus, Ohio 43219, 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"). 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) administrative and recordkeeping securities to and
through banking and other financial organizations. The Administrator assists in
supervising all operations of each Fund (other than those performed by the
Investment Adviser under the Investment Advisory Agreements, by National City
Bank and 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.
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
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<PAGE> 224
$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 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 year ended May 31, 1999, the fiscal period
ended May 31, 1998 and the fiscal year ended June 30, 1997, 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 Year Ended Fiscal Period Ended Fiscal Year Ended
May 31 May 31 June 20
Fund 1999 1998 1997
------------------------------------- -------------- ------------- -------------- -------------- -------------- ---------------
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 Fund 1,499,723 134,776 1,606,277 160,613 1,717,665 168,939
========= =======
U.S. Government Obligations Fund 492,903 46,317 695,128 69,506 854,229 83,726
======= ========
Tax-Free Fund 254,046 22,864 315,780 31,575 325,122 31,933
======= ========
Treasury Fund 828,412 405,054 952,742 476,362 808,404 403,676
======= =======
Small Capitalization Fund 924,103 -- 1,597,709 -- 1,410,121 --
======= ==
Mid Capitalization Fund 997,974 -- 1,220,724 -- 1,306,285 --
======= ==
Large Capitalization Fund 865,089 -- 670,411 -- 681,310 --
======= ==
International Discovery Fund 768,074 -- 865,301 -- 858,253 --
======= ==
Equity Income Fund 715,413 -- 76,053 -- 867,179 --
======= ==
Balanced Allocation Fund 504,473 -- 519,977 -- 389,895 --
======= ==
Bond Fund 946,432 223,053 960,550 240,142 1,089,049 270,497
======= =======
Limited Maturity Bond Fund 351,468 82,614 341,570 85,394 306,698 76,205
======= ========
Intermediate Government Obligations 342,374 80,466 360,580 90,147 457,683 113,651
======= ========
Fund
U.S. Government Income Fund 440,724 103,020 445,707 111,428 428,868 106,625
======= =======
National Tax Exempt Bond Fund 245,789 119,170 258,086 129,041 286,364 142,990
======= =======
Michigan Municipal Bond Fund 476,403 230,331 460,912 230,452 463,836 231,610
======= =======
------------------------------------- -------------- ------------- -------------- -------------- -------------- ---------------
</TABLE>
Unless sooner terminated as provided therein, the
Administration Agreement and the Sub-Administration Agreement will continue in
effect until December 31, 1999. The Administration Agreement and the
Sub-Administration Agreement thereafter shall be renewed automatically for
successive five-year terms, unless written notice not to renew is given by the
non-renewing party to the other Party at least 60 days prior to the examination
of the then-current term. The Administration Agreement and the
Sub-Administration Agreement are each terminable with respect to a particular
Fund only upon mutual agreement of the parties to the Administration Agreement
(or Sub-Administration Agreement, as the case may be) and for cause (as defined
in the Administration Agreement) by the party alleging cause, an no less than 60
days' written notice by the Group's Board of Trustees or by the Administrator
(or Sub-Administrator, in the case of the Sub-Administration Agreement).
The Administration Agreement and the Sub-Administration
Agreement provide that the Administrator and the Sub-Administrator shall not be
liable for any error of judgment or mistake of law or any loss suffered by the
Group in connection with the matters to which the Administration Agreement or
the Sub-Administration Agreement relate, except a loss resulting from willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
from the reckless disregard by the Administrator or the Sub-Administrator of its
obligations and duties thereunder.
EXPENSES
The Investment Adviser and BISYS each bear all expenses in
connection with the performance of their services as Investment Adviser 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,
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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 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.
DISTRIBUTOR
SEI Investments Distribution Co. ("SEI" or the "Distributor"),
a registered broker/dealer, serves as Distributor to the Group pursuant to the
Distribution Agreement dated September 14, 1998 (the "Distribution Agreement").
SEI is located at One Freedom Valley Drive, Oaks, Pennsylvania 19456. 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. Under the
Distribution Agreement, SEI acts as agent for the Funds in the distribution of
their shares and, in such capacity, solicits orders for the sale of shares,
advertisers, 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
change imposed upon Investor A or Investor B Shares and may receive compensation
under the Distribution and Shareholder Service Plans described below.
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<PAGE> 227
For the Group's fiscal year ended May 31, 1999, total
commissions paid in connection with sales of the Group's shares were $277,171.
Of that amount SEI retained $89,040. For the period from June 1, 1998 to
September 14, 1998, the fiscal period ended May 31, 1998 and the fiscal year
ended June 30, 1997, total commissions paid in connection with sales of the
Group's shares were $142,333, $1,259,061 and $3,523,450, respectively. Of that
amount BISYS retained $106,172, $10,863 and $3,241,396 respectively,
As described in the Prospectuses, the Group has adopted an
Investor A Distribution and Shareholder Service Plan with respect to Investor A
Shares (the "Investor A Plan") and an Investor B Distribution and Shareholder
Service Plan with respect to Investor B Shares (the "Investor B Plan") (the
Investor A Plan and Investor B Plan together are hereinafter referred to as the
"Plans") pursuant to Rule 12b-1 of the 1940 Act. 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 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
Investor A Shares, 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.
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 for: (a) 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 (b)
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 Investor B Shares, printing
and distributing advertising and sales literature and reports to Shareholders
for use in connection with the sale of Investor B Shares, processing purchase,
exchange and redemption request 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 (c) 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 a Fund
(the "Service Fee") for (i) payment 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 with respect to Investor B Shares
beneficially owned by customers or the information necessary for
sub-accounting, arranging for bank wires, and providing office space,
equipment, telephone facilities and various personnel including clerical,
supervisory and computer.
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 from September 14, 1998 to May 31, 1999,
SEI received $845,227 pursuant to the Investor A Plan to compensate dealers for
their distribution and shareholder service assistance. For the fiscal period
from June 1, 1998 to September 20, 1998, BISYS received $612,647 pursuant to the
Investor A Plan to compensate dealers for their distribution and shareholder
service assistance.
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<PAGE> 228
For the fiscal period from September 21, 1998 to May 31, 1999,
SEI received $226,863 pursuant to the Investor B Plan to compensate dealers for
their distribution and shareholder service assistance. For the fiscal period
from June 1, 1998 to September 20, 1998, BISYS received $469,426 pursuant to the
Investor B Plan to compensate dealers for their distribution and shareholder
service assistance.
The Plans may be terminated as to a Fund by vote of a majority
of the Independent Trustees, or by vote of a majority of the outstanding shares
of the applicable class of the Fund. Any change in a Plan that would materially
increase the distribution cost to the Fund requires shareholder approval. The
Trustees review quarterly a written report of such costs and the purposes for
which such costs have been incurred. The Plan may be amended by vote of the
Trustees including a majority of the Independent Trustees, cast in person at a
meeting called for that purpose. For so long as the Plans are in effect,
selection and nomination of those Trustees who are not interested persons of the
Group shall be committed to the discretion of such Independent Trustees. All
agreements with any person relating to the implementation of a Plan may be
terminated at any time on 60 days' written notice without payment of any
penalty, by vote of a majority of the Independent Trustees or by a vote of the
majority of the outstanding shares of the applicable class of the Fund. The
Plans will continue in effect for successive one-year periods, provided that
each such continuance is specifically approved (i) by the vote of a majority of
the Independent Trustees, and (ii) by a vote of a majority of the entire Board
of Trustees cast in person at a meeting called for that purpose. The Board of
Trustees has a duty to request and evaluate such information as may be
reasonably necessary for them to make an informed determination of whether the
Plans should be implemented or continued. In addition the Trustees in approving
the Plans must determine that there is a reasonable likelihood that the Plans
will benefit the Funds and their shareholders.
The Board of Trustees of the Group believes that the Plans are
in the best interests of the Funds since they encourage Fund growth. As the
Funds grow in size, certain expenses, and therefore total expenses per share,
may be reduced and overall performance per share may be improved.
As authorized by the Investor B Plan, SEI 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
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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 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. Union Bank of California
serves as Custodian for the International Discovery Fund pursuant to an
Agreement dated July 31, 1995. 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.
State Street Bank and Trust Company, P.O. Box 8590, Boston, MA
02266, 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 from September 14, 1998 to May 31, 1999,
State Street received $1,710,000 from the Group for services as Transfer Agent
for all portfolios of the Group. For the fiscal period from June 1, 1998 to
September 14, 1998, the fiscal period ended May 31, 1998 and the fiscal year
ended June 30, 1997 , BISYS received $680,000, $2,576,000, and $2,091,000,
respectively, from the Group for services as transfer agent for all portfolios
of the Group.
In addition, BISYS Ohio, 3435 Stelzer Road, Columbus, Ohio
43219 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
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<PAGE> 230
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. 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 portfolios first $100 million of average daily net assets, .010% of each
portfolios next $650 million of average daily net assets and .008% of the
average daily net assets of each portfolio which exceed $750 million.
For such services, for fiscal year ended May 31, 1999, the
fiscal period ended May 31, 1998 and the fiscal year ended June 30, 1997, BISYS
Ohio received $1,596,000, $1,746,000 and $1,722,000, respectively, from the
Group.
INDEPENDENT AUDITORS
The Financial Statements of the Group as of May 31, 1999,
which appear in the Group's Annual Report dated May 31, 1999, have been audited
by PricewaterhouseCoopers LLP, 100 East Broad Street, Columbus, Ohio 43215,
independent auditors. The Financial Statements are incorporated herein by
reference to the Annual Report in reliance upon such report and on the authority
of PricewaterhouseCoopers LLP as experts in auditing and accounting.
LEGAL COUNSEL
Drinker Biddle & Reath LLP, One Logan Square, 18th and Cherry Streets,
Philadelphia, PA 19103-6996 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 sixteen 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 are offered in three
separate classes: Investor A Shares, Investor B Shares and Institutional Shares.
Shares of the Money Market Funds are offered in
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<PAGE> 231
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. The Group's Declaration of Trust authorizes the Board of
Trustees to classify or re-classify any unissued shares of the Group into one or
more additional series by setting or changing in any one or more respects their
respective preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption.
Shares of each of the Group's Funds have no subscription or
pre-emptive rights and only such conversion or exchange rights as the Board of
Trustees may grant in its discretion. When issued for payment as described in
the Prospectuses and this Statement of Additional Information, shares of the
Group's Funds will be fully paid and non-assessable. In the event of a
liquidation or dissolution of the Group or an individual Fund, shareholders of a
Fund are entitled to receive the assets available for distribution belonging to
that Fund at a proportionate distribution, based upon the relative asset values
of the respective Funds, of any general assets not belonging to any particular
Fund which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter
required to be submitted to the shareholders of the outstanding voting
securities of an investment company such as the Group shall not be deemed to
have been effectively acted upon unless approved by the holders of a majority of
the outstanding shares of each Fund affected by the matter. For purposes of
determining whether the approval of a majority of the outstanding shares of a
Fund will be required in connection with a matter, a Fund will be deemed to be
affected by a matter unless it is clear that the interests of each Fund in the
matter are identical or that the matter does not affect any interest of the
Fund. Under Rule 18f-2, the approval of an investment advisory agreement or any
change in fundamental investment policy submitted to shareholders would be
effectively acted upon with respect to a Fund only if approved by majority of
the outstanding shares of such Fund. However, Rule 18f-2 also provides that the
ratification of independent accountants, the approval of principal underwriting
contracts, and the election of Trustees may be effectively acted upon by
shareholders of the Group voting without regard to a Fund.
Shareholders are entitled to one vote for each dollar value
invested and fractional votes for any fraction of a dollar invested 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
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<PAGE> 232
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 a
class participating in such combination and, in connection therewith, to cause
all outstanding shares of any class to be redeemed at their net asset value or
converted into shares of another class of the Group's shares at their net asset
value. However, the exercise of such authority by the Board of Trustees may be
subject to certain restrictions under the 1940 Act. The Board of Trustees may
authorize the termination of any class of shares after the assets belonging to
such class have been distributed to its shareholders.
VOTE OF A MAJORITY OF THE OUTSTANDING SHARES
As used in the Prospectuses and the Statement of Additional
Information, a "vote of a majority of the outstanding shares" of the Group or
the Fund, means the affirmative vote, at an annual or special meeting of
shareholders duly called, of the lesser of: (a) 67% or more of the votes of
shareholders of the Group or the Fund present at such meeting at which the
holders of more than 50% of the votes attributable to the shareholders of record
of the Group or the Fund are represented in person or by proxy, or (b) the
holders of more than 50% of the outstanding votes of shareholders of the Group
or the Fund.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, holders of units of interest in a
business trust may, under certain circumstances, be held personally liable as
partners for the obligations of the trust. However, the Group's Declaration of
Trust provides that shareholders shall not be subject to any personal liability
for the obligations of the Group, and that every written agreement, obligation,
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 on his own bad faith,
willful-misfeasance, gross negligence, or reckless disregard of his duties. The
Declaration of
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<PAGE> 233
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
Each Fund intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code, and to distribute out its
income to shareholders each year, so that the Fund itself generally will be
relieved of federal income and excise taxes. If a Fund were to fail to so
qualify: (1) the Fund would be taxed at regular corporate rates without any
deduction for distributions to shareholders; and (2) shareholders would be taxed
as if they received ordinary dividends, although corporate shareholders could be
eligible for the dividends received deduction.
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.
The tax principles applicable to transactions in financial
instruments and futures contacts and options that may be engaged in by a Fund,
and Investments in passive foreign investment companies ("PFICs"), are complex
and, in some cases, uncertain. Such transactions and investments may cause a
Fund to recognize taxable income prior to the receipt of cash, thereby requiring
the Fund to liquidate other positions, or to borrow money, so as to make
sufficient distributions to shareholders to avoid corporate-level tax. Moreover,
some or all of the taxable income recognized may be ordinary income or
short-term capital gain, so that the distributions may be taxable to
shareholders as ordinary income.
In addition, in the case of any shares of a PFIC in which a
Fund invests, the Fund may be liable for corporate-level tax on any ultimate
gain or distributions on the shares if the Fund fails to make an election to
recognize income annually during the period of its ownership of the shares.
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
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made to present a detailed explanation of the federal income tax treatment of a
Fund or its shareholders and this discussion is not intended as a substitute for
careful tax planning. Accordingly, potential purchasers of shares of a Fund are
urged to consult their tax advisers with specific reference to their own tax
situation. In addition, the tax discussion in the Prospectuses and this
Statement of Additional Information is based on tax laws and regulations which
are in effect on the date of the Prospectuses and this Statement of Additional
Information; such laws and regulations may be changed by legislative or
administrative action.
ADDITIONAL TAX INFORMATION CONCERNING THE EXEMPT FUNDS
As indicated in the Prospectuses, the Exempt Funds are
designed to provide shareholders with current tax-exempt interest income. The
Exempt Funds are not intended to constitute balanced investment programs and are
not designed for investors seeking capital appreciation or maximum tax-exempt
income irrespective of fluctuations in principal. Shares of the Exempt Funds
would not be suitable for tax-exempt institutions and may not be suitable for
retirement plans qualified under Section 401 of the Code, H.R. 10 plans and
individual retirement accounts, since such plans and accounts are generally
tax-exempt and, therefore, would not gain any additional benefit from the Exempt
Funds, dividends being tax-exempt; furthermore, such dividends would be
ultimately taxable to the beneficiaries when distributed to them. In addition,
the Exempt Funds may not be appropriate investments for entities which are
"substantial users," or "related persons" thereof, of facilities financed by
private activity bonds held by an Exempt Fund. "Substantial user" is defined
under U.S. Treasury Relations to include a non-exempt person who regularly uses
a part of such facilities in his or her trade or business and whose gross
revenues derived with respect to the facilities financed by the issuance of
bonds represent more than 50% of the total revenues derived by any users of such
facilities, or who occupies more than 5% of the usable area of such facilities
or for whom such facilities or a part thereof were specifically constructed,
reconstructed or acquired. "Related persons" include certain related natural
persons, affiliated corporations, a partnership and its partners and an S
Corporation and its shareholders.
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.
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<PAGE> 235
As indicated in the Prospectuses, each Exempt Fund may acquire
rights regarding specified portfolio securities under puts. See "INVESTMENTS AND
RISKS 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.
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 tax treatment of the Michigan Municipal Bond Fund or its
shareholders, and this discussion is not intended as a substitute for careful
tax planning. Accordingly potential purchasers of shares of these Funds are
urged to consult their own tax advisers with specific reference to their own tax
situation. In addition, the foregoing discussion is based on tax laws and
regulations which are in effect on the date of this Statement of Additional
Information; such laws and regulations may be changed by legislative or
administrative action.
ADDITIONAL TAX INFORMATION CONCERNING THE INTERNATIONAL DISCOVERY FUND
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 they are likely to
receive, except with respect to income on UK securities held 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' Investment Adviser.
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
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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 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 of the same
period.
YIELDS OF THE MONEY MARKET FUNDS
For the seven-day period ended May 31, 1999, 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: 4.26% and 4.35%; 4.21% and 4.30%; 4.16% and 4.25%; and
2.74% and 2.78%. For the thirty-day period ended May 31, 1999, 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: 4.22% and 4.31%; 4.13% and 4.21%; 4.05% and 4.13%; and
2.71% and 2.74%.
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<PAGE> 237
For the seven-day period ended may 31, 1999, 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: 4.36% and 4.45%; 4.31% and 4.40%; 4.15% and 4.23%; and
2.84% and 2.88%. For the thirty-day period ended May 31, 1999, 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: 4.32% and 4.41%; 4.23% and 4.31%; 4.15% and 4.23%;
and 2.81% and 2.84%.
The standardized seven-day yield for each of the Money Market
Funds is computed: (1) by determining the net change, exclusive of capital
changes and income other than investment income, in the value of a hypothetical
pre-existing account in that Fund having a balance of one share at the beginning
of the seven-day base period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts; (2) dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return; and (3) annualizing the results (i.e., multiplying the base period
return by (365/7)). The net change in the account value of each of the Money
Market Funds includes the value of additional shares purchased with dividends
from the original share, dividends declared on both the original share and any
additional shares, and all fees, other than non-recurring account or sales
charges charged to all shareholder accounts in proportion to the length of the
base period and assuming that Fund's average account size. The capital changes
to be excluded from the calculation of the net change in account value are net
realized gains and losses from the sale of securities and unrealized
appreciation and depreciation.
The effective yield for each of the Money Market Funds is
computed by compounding the base period return, as calculated above by adding
one to the base period return, raising the sum to a power equal to 365 divided
by seven and subtracting one from the result. Each of the thirty-day yields and
effective yields is calculated as described above except that the base period is
30 days rather than 7 days.
For the seven-day period ended May 31, 1999, the
tax-equivalent yield (using a federal income tax rate of 39.6%) of the Investor
A Shares of the Tax-Free Fund was 4.54% and its tax-equivalent effective yield
(using a federal income tax rate of 39.6%) for the same period was 4.60%. For
the thirty-day period ended May 31, 1999, the tax-equivalent yield of the
Investor A Shares of the Tax-Free Fund (using a federal income tax rate of
39.6%) was 4.49% and its tax-equivalent effective yield (using a federal
income tax rate of 39.6%) for the same period was 4.54%.
For the seven-day period ended May 31, 1999, the
tax-equivalent yield (using a federal income tax rate of 39.6%) of the
Institutional Shares of the Tax-Free Fund was 4.70% and its tax-equivalent
effective yield (using a federal income tax rate of 39.6%) for the same period
was 4.77%. For the thirty-day period ended May 31, 1999, the tax-equivalent
yield of the Institutional Shares of the Tax-Free Fund (using a federal income
tax rate of 39.6%) was 4.65% and its tax-equivalent effective yield (using a
federal income tax rate of 39.6%) for the same period was 4.70%.
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The Tax-Free Fund's tax-equivalent yields were computed by
dividing that portion of the Tax-Free Fund's yield which is tax-exempt by one
minus the stated income tax rate and adding the result to that portion, if any,
of the Tax-Free Fund's yield that is not tax-exempt. The Tax-Free Fund's
tax-equivalent effective yields were computed by dividing that portion of the
effective yield which is tax-exempt by one minus the stated income tax rate and
adding to that result the portion, if any, of the Tax-Free Fund's effective
yield that is not tax-exempt.
At any time in the future, yields may be higher or lower than
past yields and there can be no assurance that any historical results will
continue.
YIELDS OF THE NON-MONEY MARKET FUNDS
As summarized in the Prospectuses under the heading
"PERFORMANCE INFORMATION," yields of each of the Non-Money Market Funds will be
computed by analyzing net investment income per share for a recent thirty-day
period and dividing that amount by a Fund share's maximum offering price
(reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last trading day of that period. Net investment income will
reflect amortization of any market value premium or discount of fixed income
securities (except for obligations backed 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, 1999, the yields,
calculated as set forth above, for the Funds were as follows:
<TABLE>
<CAPTION>
Investor A Shares With Investor B Investor I
Sales Load Shares Shares
<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 0.00% 0.00% 0.00%
===== ===== =====
Parkstone Equity Income Fund 0.71% 0.00% 1.01%
===== ===== =====
Parkstone Balanced Allocation Fund 3.06% 2.46% 3.46%
===== ===== =====
Parkstone Bond Fund 4.99% 4.49% 5.50%
===== ===== =====
</TABLE>
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<TABLE>
<CAPTION>
Investor A Shares With Investor B Investor I
Sales Load Shares Shares
<S> <C> <C> <C>
Parkstone Limited Maturity Fund 5.12% 4.50% 5.52%
===== ===== =====
Parkstone Intermediate Government Obligations Fund 4.24% 3.70% 4.71%
===== ===== =====
Parkstone U.S. Government Income Fund 4.89% 4.38% 5.40%
===== ===== =====
</TABLE>
The tax-equivalent yields for the Municipal Bond Funds for the
30-day period ended May 31, 1999 (assuming a 39.6% federal tax rate for the
Municipal Bond Fund and a 4.4% Michigan income tax rate for the Michigan
Municipal Bond Fund) were as follows:
<TABLE>
<CAPTION>
Investor A Shares Investor Institutional
With Sales Load B Shares Shares
<S> <C> <C> <C>
Parkstone National Tax Exempt Bond Fund 4.72% 3.69% 5.36%
===== ===== =====
Parkstone Michigan Municipal Bond Fund 4.95% 4.00% 5.58%
===== ===== =====
</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. Average annual total
return will be calculated by: (1) adding to the total number of shares purchased
by a hypothetical $1,000 investment in the Fund and (less the maximum sales
charge, if any) all additional shares which would have been purchased if all
dividends and distributions paid or distributed during the period had been
immediately reinvested; (2) calculating the value of the hypothetical initial
investment of $1,000 as of the end of the period by multiplying the total number
of shares owned at the end of the period by the net asset value per share on the
last trading day of the period; (3) assuming redemption at the end of the
period; and (4) dividing this account value for the hypothetical investor by the
initial $1,000 investment and annualizing the result for periods of less than
one year.
For the one-year period ended May 31, 1999, the five-year
period ended June 30, 1999, and the period from commencement of operations to
May 31, 1999, 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, (23.38)%, 7.86% and 11.00%; Mid Capitalization Fund,
2.14%, 13.73% and 12.52%; Equity Income Fund, 5.98%, 15.23% and 12.95%;
Balanced Allocation Fund, (2.40)%, 10.51% and 9.41%; Bond Fund, (2.34)%, 5.74%
and 6.99%; Limited Maturity Bond Fund, 1.94%, 5.04% and 6.12%; Intermediate
Government Obligations Fund, (1.08)%, 4.76% and 6.11%; National Tax
Exempt Bond Fund, (1.57)%, 3.97% and 5.27%; and Michigan Municipal Bond Fund,
(1.53)%, 4.29% and 5.43%. For the one-year period ended May 31, 1999, and the
period from commencement of operations to May 31, 1999, 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, 16.64%
and 24.50%; Government Income Fund, (0.48)% and 5.26%; and International
Discovery Fund, (10.41)% and 7.83%.
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For the one-year period ended May 31, 1999, the five-year
period ended June 30, 1999 and the period from the commencement of operations to
May 31, 1999 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, (18.92)%, 9.09% and 11.63%; Mid Capitalization Fund,
8.08%, 15.03% and 13.16%; Equity Income Fund, 12.12%, 16.54% and 13.59%;
Balanced Allocation Fund, 2.47%, 11.59% and 10.14%; Bond Fund, 2.55%, 6.78% and
7.51%; Limited Maturity Bond Fund, 4.84%, 5.63% and 6.42%; Intermediate
Government Obligations Fund, 3.83%, 5.78% and 6.64%; National Tax Exempt Bond
Fund, 3.29%, 4.99% and 5.78%; and Michigan Municipal Bond Fund, 3.38%, 5.31%
and 6.00%. For the one-year period ended May 31, 1999, and the period from
commencement of operations to May 31, 1999, 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, 23.42% and 26.63%; Government Income
Fund, 4.46% and 6.04%; and International Discovery Fund, (5.20)% and 8.79%.
For the one-year period ended May 31, 1999 and the period from
the commencement of operations to May 31, 1999, 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, (23.07)% and 6.41%; Mid Capitalization Fund, 2.57% and
12.03%; Large Capitalization Fund, 17.38% and 25.19%; Equity Income Fund,
6.36% and 13.60%; Balanced Allocation Fund, (3.17)% and 9.02%; Bond Fund,
(3.18)% and 4.78%; Limited Maturity Bond Fund, (0.93)% and 4.08%; Intermediate
Government Obligations Fund, (1.99)% and 3.99%; Government Income Fund,
(1.17)% and 5.10%; National Tax Exempt Bond Fund, (2.40)% and 3.34%;
International Discovery Fund, (10.33)% and 2.90%; and Michigan Municipal Bond
Fund, (2.42)% and 3.62%.
For the one-year period ended May 31, 1999, and the period
from commencement of operations to May 31, 1999, 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,
(19.02)% and 6.41%; Mid Capitalization Fund, 7.19% and 12.03%; Large
Capitalization Fund, 22.38% and 25.72%; International Discovery Fund, (5.89)%
and 2.90%; Equity Income Fund, 11.22% and 13.60%; Balanced Allocation Fund,
1.72% and 9.02%; Government Income Fund, 3.76% and 5.10%; Bond Fund, 1.66% and
4.78%; Limited Maturity Bond Fund, 4.03% and 4.08%; Intermediate Government
Obligations Fund, 2.96% and 3.99%; National Tax Exempt Bond Fund, 2.53% and
3.34%; and Michigan Municipal Bond Fund, 2.52% and 3.62%.
For the one-year period ended May 31, 1999, the five-year
period ended May 31, 1999, and the period from commencement of operations to May
31, 1999, the average annual total returns for the Institutional Shares of the
following Funds were: Small Capitalization Fund, (18.71)%, 9.32% and 11.79%; Mid
Capitalization Fund, 8.20%, 15.15% and 13.23%; Equity Income Fund, 12.40%,
16.73% and 13.70%; Balanced Allocation Fund, 2.73%, 11.84% and 10.32%; Bond
Fund, 2.70%, 7.15% and 7.70%; Limited Maturity Bond
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Fund, 5.12%, 5.88% and 6.57%; Intermediate Government Obligations Fund, 4.01%,
6.00% and 6.77%; National Tax Exempt Bond Fund, 3.56%, 5.26% and 5.93%; Michigan
Municipal Bond Fund, 3.54%, 5.57% and 6.16%; Government Income Fund, 4.73%,
6.92% and 6.24%; and International Discovery Fund, (4.94)%, 5.66% and 9.06%. For
the one-year period ended May 31, 1999, and the period from commencement of
operations to May 31, 1999, the average annual total returns for Institutional
Shares of the Large Capitalization Fund were 23.67% and 27.30%.
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 fiscal period ended May 31, 1999, 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, 12.91%;
Mid Capitalization Fund, 12.33%; Large Capitalization Fund, 1.44%;
International Discovery Fund, 5.59%; Equity Income Fund, 12.72%; Balanced
Allocation Fund, 4.51%; Bond Fund, 5.50%; Limited Maturity Bond Fund,
5.49%; Intermediate Government Obligations Fund, 4.65%; Government Income
Fund, 5.71%; National Tax Exempt Bond Fund, 4.45%; and Michigan Municipal
Bond Fund, 4.46%. For the fiscal period ended May 31, 1999, 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, 0.00%; International Discovery Fund, 0.00%; Equity
Income Fund, 1.15%; Balanced Allocation Fund, 1.94%; Bond Fund, 5.25%;
Limited Maturity Bond Fund, 5.49%; Intermediate Government Obligations Fund,
4.65%; Government Income Fund, 5.71%; National Tax Exempt Bond Fund, 3.39%;
and Michigan Municipal Bond Fund, 3.83%.
Excluding the effect of sales loads but including the effect
of capital gains, for the fiscal period ended May 31, 1999, the distribution
rates for the Investor A Shares of the Funds were as follows: Small
Capitalization Fund, 13.66%; Mid Capitalization Fund, 13.04%; Large
Capitalization Fund, 1.52%; International Discovery Fund, 5.91%; Equity
Income Fund, 13.46%; Balanced Allocation Fund, 4.73%; Bond Fund, 5.77%;
Limited Maturity Bond Fund, 5.65%; Intermediate Government Obligations Fund,
4.89%; Government Income Fund, 6.00%; Municipal Bond Fund, 4.68%; and
Michigan Municipal Bond Fund, 4.68%. For the fiscal period ended May 31, 1999,
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,
0.00%; International Discovery Fund, 0.00%; Equity Income Fund, 1.22%;
Balanced Allocation Fund, 2.03%; Bond Fund, 5.52%; Limited Maturity Bond
Fund, 5.65%; Intermediate Government Obligations Fund, 4.89%; Government
Income Fund, 6.00%; National Tax Exempt Bond Fund, 3.56%; and Michigan
Municipal Bond Fund, 4.02%.
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
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Investor B Shares of the Funds, excluding the effect of sales loads but
including the effect of capital gains, for the fiscal period ended May 31, 1999,
were as follows: Small Capitalization Fund, 14.20%; Mid Capitalization Fund,
14.00%; Large Capitalization Fund, 1.56%; International Discovery Fund,
6.16%; Equity Income Fund,13.03%; Balanced Allocation Fund, 3.92%; Bond
Fund, 4.98%; Limited Maturity Bond Fund, 4.86%; Intermediate Government
Obligations Fund, 4.13%; Government Income Fund, 5.21%; Municipal Bond Fund,
3.92%; and Michigan Municipal Bond Fund, 3.92%. For the fiscal period ended
May 31, 1999, 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, 0.00%; International Discovery Fund, 0.00%; Equity
Income Fund, 0.69%; Balanced Allocation Fund, 1.22%; Bond Fund, 4.72%;
Limited Maturity Bond Fund, 4.86%; Intermediate Government Obligations Fund,
4.13%; Government Income Fund, 5.21%; National Tax Exempt Bond Fund, 2.80%;
and Michigan Municipal Bond Fund, 3.26%.
For the fiscal period ended May 31, 1999, the distribution
rates, including the effect of capital gains, for the Institutional Shares of
the Funds were as follows: Prime Obligations Fund, 4.66%; Small Capitalization
Fund, 13.37%; Mid Capitalization Fund, 12.89%; Large Capitalization Fund,
1.51%; International Discovery Fund, 5.84%; Equity Income Fund, 13.77%;
Balanced Allocation Fund, 4.99%; Bond Fund, 6.02%; Limited Maturity Bond
Fund, 5.93%; Intermediate Government Obligations Fund, 5.16%; Government
Income Fund, 4.94%; Municipal Bond Fund, 4.93%; and Michigan Municipal Bond
Fund, 4.94%. For the fiscal period ended May 31, 1999, the distribution rates,
excluding the effect of capital gains, for the Institutional Shares of the Funds
were as follows: Prime Obligations Fund, 4.66%; Small Capitalization Fund,
0.00%; Mid Capitalization Fund, 0.00%; Large Capitalization Fund, 0.00%;
International Discovery Fund, 0.02%; Equity Income Fund, 1.46%; Balanced
Allocation Fund, 2.29%; Bond Fund, 5.76%; Limited Maturity Bond Fund,
5.93%; Intermediate Government Obligations Fund, 5.16%; Government Income
Fund, 6.27%; National Tax Exempt Bond Fund, 3.82% and Michigan Municipal
Bond Fund, 4.28%.
PERFORMANCE COMPARISONS
Investors may judge the performance of the Funds by comparing
their performance to the performance of other mutual funds or mutual fund
portfolios with comparable investment objectives and policies through various
mutual fund or market indices such as the Morgan Stanley Capital International
EAFE Index and those prepared by Dow Jones & Co., Inc., Standard & Poor's
Corporation, Shearson Lehman Brothers, Inc. and The Russell 2000 Index and to
data prepared by Lipper, 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
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<PAGE> 243
information, general information about these Funds that appears in a publication
such as those mentioned above may be included in advertisements and in reports
to shareholders.
From time to time, the Funds may include the following types
of information in advertisements, supplemental sales literature and reports to
shareholders: (1) discussions of general economic or financial principles (such
as the effects of compounding and the benefits of dollar-cost averaging); (2)
discussions of general economic trends; (3) presentations of statistical data to
supplement such discussions; (4) descriptions past or anticipated portfolio
holdings for one or more of the funds within the Group; (5) descriptions of
investment strategies for one or more of the Funds; (6) descriptions or
comparisons of various savings and investment products (including, but not
limited to, insured bank products, annuities, qualified retirement plans and
individual stocks and bonds), which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant market or
industry indices or other appropriate benchmarks; and (8) discussions of fund
rankings or ratings by recognized rating organizations. The Funds may also
include calculations, such as hypothetical compounding examples, which describe
hypothetical investment results in such communications. Such performance
examples will be based on an express set of assumptions and are not indicative
of the performance of any of the Funds.
Morningstar, Inc., Chicago, Illinois, rates mutual funds on a
one- to five-star rating scale with five stars representing the highest rating.
Such ratings are based upon a fund's historical risk/reward ratio as determined
by Morningstar relative to other funds in that fund's class. Funds are divided
into classes based upon their respective investment objectives. The one- to
five-star ratings represent the following ratings by Morningstar, respectively:
Lowest, Below Average, Neutral, Above Average and Highest.
Current yields or performance will fluctuate from time to time
and are not necessarily representative of future results. Accordingly, a Fund's
yield or performance may not provide for comparison with bank deposits or other
investments which provide fixed returns for a stated period of time. Yield and
performance are functions of a Fund's quality, composition, and maturity, as
well as expenses allocated to the Fund. Fees imposed upon customer accounts by
the Investment Adviser or its affiliated or correspondent banks for cash
management services will reduce a Fund's effective yield to customers.
MISCELLANEOUS
Individual Trustees are elected by the shareholders and,
subject to removal by the vote of two-thirds of the Board of Trustees, serve for
a term lasting until the next meeting of shareholders at which Trustees are
elected. Such meetings are not required to be held at any 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.
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<PAGE> 244
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 1999 Annual Report and, when
available, the November 30, 1999 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, 1999. In addition, the Annual
Report includes management's discussion of Fund performance for each of the
Non-Money Market Funds, as well as line graph comparisons to appropriate
broad-based securities indices.
The Prospectuses and this Statement of Additional Information
omit certain of the information contained in the Registration Statement filed
with the SEC. Copies of such information may be obtained from the SEC upon
payment of the prescribed fee.
The Prospectuses and this Statement of Additional Information
are not an offering of the securities herein described in any state in which
such offering may not lawfully be made. No salesman, dealer, or other person is
authorized to give any information or make any representation other than those
contained in the Prospectuses and this Statement of Additional Information.
As of May 31, 1999, the Trustees and officers of the Group, as
a group, owned less than one percent of the shares of any Fund of the Group.
As of August 20, 1999, 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>
SHARES PERCENT
FUND OWNER OWNED OWNED
<S> <C> <C> <C>
Prime Obligations A Shares BISYS Fund Services 2,030,916.3900 11.02
FBO Commercial Bank of Everett
Attn: Mike Bryan
3435 Stelzer Road
Columbus, OH 43219-6004
BISYS Fund Services 6,934,348.7400 37.62
FBO Heritage Savings Bank
Attn: Mike Bryan
3435 Stelzer Road
Columbus, OH 43219-6004
Corelink Financial Inc. 3,822,653.4300 20.74
P.O. Box 4054
Concord, CA 94524-4054
U.S. Gov't Obligations A BISYS Fund Services 228,500.00 7.27
Shares FBO First National Bank of Leesport
Attn: Mike Bryan
3435 Stelzer Road
Columbus, OH 43219-6004
</TABLE>
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<PAGE> 245
<TABLE>
<CAPTION>
SHARES PERCENT
FUND OWNER OWNED OWNED
<S> <C> <C> <C>
BISYS Fund Services 2,255,000.0000 71.76
FBO Bank Rhode Island
Attn: Mike Bryan
3435 Stelzer Road
Columbus, OH 43219-6004
Coventry Place LLC TIRF 160,606.5800 5.11
31100 Telegraph Road
Suite 200
Bingham Farmss, MI 48025
Tax Free Obligations A Frank K. Zinn and Ruth A. Zinn, JT TEN 60,021.4700 5.78
Shares c/o Dykema Gossett
400 Renaissance Center
35th Floor
Detroit, MI 48243-1502
Corelink Financial Inc. 829,154.4650 79.91
P.O. Box 4054
Concord, CA 94524-4054
Mid Capitalization A Corelink Financial Inc. 386,396.2800 12.37
Shares P.O. Box 4054
Concord, CA 94524-4054
Small Capitalization A Wilmington Trust Co., 201,876.4980 7.79
Shares Trust Zeneca Holdings DCP
DTD 4-1-93 A/C 29510-0
c/o Mutual Funds
P.O. Box 8882
Wilmington, DE 19899-8882
Corelink Financial Inc. 221,292.8260 8.54
P.O. Box 4054
Concord, CA 94524-4054
Equity Income A Shares Corelink Financial Inc. 229,020.0840 5.47
P.O. Box 4054
Concord, CA 94524-4054
Limited Maturity Bond A Corelink Financial Inc. 1,337,476.6680 65.61
Shares P.O. Box 4054
Concord, CA 94524-4054
Municipal Bond A Shares Corelink Financial Inc. 260,294.7970 43.37
P.O. Box 4054
Concord, CA 94524-4054
Caren M. Peterson 30,248.5900 5.04
1813 Kings Highway
Rockford, IL 61107-1354
</TABLE>
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<PAGE> 246
<TABLE>
<CAPTION>
SHARES PERCENT
FUND OWNER OWNED OWNED
<S> <C> <C> <C>
Michigan Municipal Bond Corelink Financial Inc. 306,727.2690 12.68
A Shares P.O. Box 4054
Concord, CA 94524-4054
Balanced Allocation A Shares Corelink Financial Inc. 62,226.9390 5.75
P.O. Box 4054
Concord, CA 94524-4054
U.S. Government Income A Corelink Financial Inc. 1,012,876.4960 28.93
Shares P.O. Box 4054
Concord, CA 94524-4054
International Discovery A Corelink Financial Inc. 159,710.3670 10.62
Shares P.O. Box 4054
Concord, CA 94524-4054
Treasury Fund A Shares BISYS Fund Services 3,562,484.3900 36.60
FBO Heritage Savings Bank
Attn: Mike Bryan
3435 Stelzer Road
Columbus, OH 43219-6004
Bear Stearns Securities Corp. 900,000.000 9.25
FBO 220-57870-19
1 Metrotech Center North
Brooklyn, NY 11201-3870
The Bank of New York 2,512,805.9000 25.81
TRST FOA CCMT Series 1995-2
Attn: Joyce Maccou
101 Barclay Street 12E
New York, NY 10286-0099
BISYS Fund Services 1,749,863.5400 17.98
FBO First Federal of Spartanburg
Attn: Mike Bryan
3435 Stelzer Road
Columbus, OH 43219-6004
BISYS Fund Services 671,434.3700 6.90
FBO Commercial Bank of Everett
Attn: Mike Bryan
3435 Stelzer Road
Columbus, OH 43219-6004
Large Capitalization Fund Corelink Financial Inc. 392,132.6870 31.62
A Shares P.O. Box 4054
Concord, CA 94524-4054
</TABLE>
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<PAGE> 247
<TABLE>
<CAPTION>
SHARES PERCENT
FUND OWNER OWNED OWNED
<S> <C> <C> <C>
Prime Obligations B Shares First Clearing Corporation 35,297.4900 5.10
A/C 8672-4507
Honghong Zhang & Yuxian NIU
1201 Brighton Drive
Urbana, IL 61801-6414
Richard C. Sloan 75,894.3100 10.98
287 Twin Lakes Drive
Moultrie, GA 31768-7942
Donald L. Edwards 150,626.7500 21.78
P.O. Box 1766
Moultrie, GA 31776-1766
SEI Trust Co. Custodian 39,878.9200 5.77
Michael D. Laughhunn
SEP IRA
6884 3 Mile
White Cloud, MI 49349-9657
Limited Maturity First Clearing Corporation 10,081.8070 10.55
Bond B Shares A/C 4422-0525
Isaac Walker Company
5727 Sheridan Road
Peoria, IL 60614-4269
Intermediate First Clearing Corporation 24,070.4450 19.04
Government B Shares A/C 3549-0227
Horace B. & Joyce L. Gemmill TTE
2360 McComb Drive
Clio, MI 48420-1055
National Tax Exempt Bond B Shares Donaldson Lufkin Jenrette 5,577.4930 11.74
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
Wayne Hummer Investments LLC 12,878.0180 27.11
910-33414-19
Attn: Mutual Funds
P.O. Box 750
Chicago, IL 60690-0750
Theodore H. Stein and Dolores A. Stein 2,407.0680 5.07
JTWROS
153 Kingsbridge
Bristol, TN 37620-2957
</TABLE>
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<PAGE> 248
<TABLE>
<CAPTION>
SHARES PERCENT
FUND OWNER OWNED OWNED
<S> <C> <C> <C>
First Clearing Corporation 12,117.4210 25.51
A/C 1684-5440
Betty J. Bowen
2400 Country Club Drive
Springfield, IL 62704-3262
First Clearing Corporation 2,550.1730 5.37
A/C 8999-5047
First of America TTEE
FBO Neil Grossberger
2309 Vassar
Lansing, MI 48912-5135
Michigan Municipal Bond B First Clearing Corporation 15,411.0640 5.62
A/C 1474-8811
Marion E. Belloni
27715 Alger Lane
Madison Heights, MI 48071-4523
Prime Obligations National City Bank of 536,259,664.0700 85.77
Institutional Shares Michigan/Illinois
Trust Operations
Trust I
P.O. Box 4042
Kalamazoo, MI 49003-4042
National City Bank of 71,058,911.0700 11.36
Michigan/Illinois
Trust Operations
Trust 2
P.O. Box 4042
Kalamazoo, MI 49003-4042
U.S. Gov't Obligations National City Bank of 83,348,573.1900 71.92
Institutional Shares Michigan/Illinois
Trust Operations
Trust I
P.O. Box 4042
Kalamazoo, MI 49003-4042
National City Bank of 29,699,399.0300 25.63
Michigan/Illinois
Trust Operations
Trust 2
P.O. Box 4042
Kalamazoo, MI 49003-4042
</TABLE>
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<PAGE> 249
<TABLE>
<CAPTION>
SHARES PERCENT
FUND OWNER OWNED OWNED
<S> <C> <C> <C>
Tax Free Obligations National City Bank of 90,012,040.6500 96.29
Institutional Shares Michigan/Illinois
Trust Operations
Trust I
P.O. Box 4042
Kalamazoo, MI 49003-4042
Mid Capitalization National City Bank of 8,192,536.9570 39.43
Institutional Shares Michigan/Illinois
Trust Operations
Cash
P.O. Box 4042
Kalamazoo, MI 49003-4042
National City Bank of 5,449,610.5360 26.23
Michigan/Illinois
Trust Operations
Reinvest
P.O. Box 4042
Kalamazoo, MI 49003-4042
Sheldon & Co. 6,569,839.1110 31.62
Attn: Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
Small Capitalization National City Bank of 4,834,442.6780 46.40
Institutional Shares Michigan/Illinois
Trust Operations
Cash
P.O. Box 4042
Kalamazoo, MI 49003-4042
National City Bank of 3,072,508.4590 29.49
Michigan/Illinois
Trust Operations
Reinvest
P.O. Box 4042
Kalamazoo, MI 49003-4042
Sheldon & Co. 2,289,267.3310 21.97
Attn: Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
Equity Income National City Bank of 2,199,971.1520 18.97
Institutional Shares Michigan/Illinois
Trust Operations
Cash
P.O. Box 4042
Kalamazoo, MI 49003-4042
</TABLE>
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<PAGE> 250
<TABLE>
<CAPTION>
SHARES PERCENT
FUND OWNER OWNED OWNED
<S> <C> <C> <C>
National City Bank of 8,766,506.8060 75.59
Michigan/Illinois
Trust Operations
Reinvest
P.O. Box 4042
Kalamazoo, MI 49003-4042
Bond Institutional Shares National City Bank of 11,203,826.7030 30.79
Michigan/Illinois
Trust Operations
Cash
P.O. Box 4042
Kalamazoo, MI 49003-4042
National City Bank of 13,406,035.9790 36.84
Michigan/Illinois
Trust Operations
Reinvest
P.O. Box 4042
Kalamazoo, MI 49003-4042
Sheldon & Co. 11,001,783.8580 30.23
Attn: Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
Limited Maturity Bond National City Bank of 3,585,650.3320 29.32
Institutional Shares Michigan/Illinois
Trust Operations
Cash
P.O. Box 4042
Kalamazoo, MI 49003-4042
National City Bank of 8,173,093.5430 66.83
Michigan/Illinois
Trust Operations
Reinvest
P.O. Box 4042
Kalamazoo, MI 49003-4042
Intermediate Government National City Bank of 3,351,842.5630 26.21
Obligations Institutional Shares Michigan/Illinois
Trust Operations
Cash
P.O. Box 4042
Kalamazoo, MI 49003-4042
</TABLE>
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<PAGE> 251
<TABLE>
<CAPTION>
SHARES PERCENT
FUND OWNER OWNED OWNED
<S> <C> <C> <C>
National City Bank of 8,868,981.9910 69.34
Michigan/Illinois
Trust Operations
Reinvest
P.O. Box 4042
Kalamazoo, MI 49003-4042
National Tax Exempt Bond National City Bank of 7,509,647.6630 83.39
Institutional Shares Michigan/Illinois
Trust Operations
Reinvest
P.O. Box 4042
Kalamazoo, MI 49003-4042
Sheldon & Co. 555,065.4670 6.16
Attn: Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
Michigan Municipal Bond National City Bank of 1,805,453.4940 10.60
Institutional Shares Michigan/Illinois
Trust Operations
Cash
P.O. Box 4042
Kalamazoo, MI 49003-4042
National City Bank of 14,811,332.4940 86.96
Michigan/Illinois
Trust Operations
Reinvest
P.O. Box 4042
Kalamazoo, MI 49003-4042
Balanced Allocation National City Bank of 10,402,900.3000 92.01
Institutional Shares Michigan/Illinois
Trust Operations
Cash
P.O. Box 4042
Kalamazoo, MI 49003-4042
National City Bank of 858,148.0520 7.59
Michigan/Illinois
Trust Operations
Reinvest
P.O. Box 4042
Kalamazoo, MI 49003-4042
</TABLE>
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<PAGE> 252
<TABLE>
<CAPTION>
SHARES PERCENT
FUND OWNER OWNED OWNED
<S> <C> <C> <C>
U.S. Government Income National City Bank of 1,812,869.2300 11.04
Institutional Shares Michigan/Illinois
Trust Operations
Cash
P.O. Box 4042
Kalamazoo, MI 49003-4042
National City Bank of 13,729,447.7960 83.60
Michigan/Illinois
Trust Operations
Reinvest
P.O. Box 4042
Kalamazoo, MI 49003-4042
International Discovery National City Bank of 4,196,808.1700 24.98
Institutional Shares Michigan/Illinois
Trust Operations
Cash
P.O. Box 4042
Kalamazoo, MI 49003-4042
National City Bank of 7,183,715.0640 42.76
Michigan/Illinois
Trust Operations
Reinvest
P.O. Box 4042
Kalamazoo, MI 49003-4042
Sheldon & Co. 5,081,305.3250 30.25
Attn: Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
Treasury Fund National City Bank of 279,537,746.9100 98.17
Institutional Shares Michigan/Illinois
Trust Operations
Trust 1
P.O. Box 4042
Kalamazoo, MI 49003-4042
Large Capitalization Fund National City Bank of 4,044,430.1940 20.43
Institutional Fund Shares Michigan/Illinois
Trust Operations
Cash
P.O. Box 4042
Kalamazoo, MI 49003-4042
</TABLE>
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<PAGE> 253
<TABLE>
<CAPTION>
SHARES PERCENT
FUND OWNER OWNED OWNED
<S> <C> <C> <C>
National City Bank of 7,381,556.2710 37.28
Michigan/Illinois
Trust Operations
Reinvest
P.O. Box 4042
Kalamazoo, MI 49003-4042
Sheldon & Co. 7,885,038.6260 39.83
Attn: Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
</TABLE>
As of August 20, 1999, 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
beneficial owners of approximately 95.1% of the Institutional Shares of the
Group as follows:
Institutional Shares Beneficially Owned
<TABLE>
<CAPTION>
Percentage
Name Portfolio Beneficially Owned
- ---- --------- ------------------
<S> <C> <C>
Cookson America Inc 401K Parkstone Balanced Allocation 5.68%
Planworks 2 Parkstone Balanced Allocation 5.76%
Planworks 3 Parkstone Balanced Allocation 9.51%
Planworks 4 Parkstone Balanced Allocation 6.26%
Planworks 8 Parkstone Balanced Allocation 9.79%
Planworks Class Parkstone Balanced Allocation 14.00%
Planworks Class II Parkstone Balanced Allocation 10.50%
NCC Non Contrib Mutual Funds Parkstone Bond 28.70%
NCC Non Contrib - Mutual Funds Parkstone International Discovery 29.50%
NCC Non Contrib - Mutual Funds Parkstone Large Capitalization 38.70%
Cookson America Inc 401K Parkstone Intermediate Govt Obligations 10.40%
NCC Non Contrib - Mutual Funds Parkstone Mid Capitalization 30.70%
Planworks 2 Parkstone Mid Capitalization 5.74%
St Francis TSP - Contribution Parkstone Mid Capitalization 8.36%
Cookson America Inc 401K Parkstone Small Capitalization 5.13%
NCC Non Contrib - Mutual Funds Parkstone Small Capitalization 21.40%
Planworks 2 Parkstone Small Capitalization 6.19%
MI SBA CP NTS SER 2 ACQN Parkstone Treasury 9.52%
</TABLE>
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
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<PAGE> 254
Agreements and Distribution Agreement for each of the Funds and to control any
other matters submitted to the shareholders of the Funds for their approval or
ratification.
With respect to all of the Funds, the Group's officers and
directors collectively owned less than 1% of the Funds' outstanding securities.
FINANCIAL STATEMENTS
Financial Statements describing audited financial information
for each Fund's operations since inception appear in the Group's Annual Report
dated May 31, 1999, 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> 255
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current
opinion of the creditworthiness of an obligor with respect to financial
obligations 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 on the
obligation 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 in higher rating categories. 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 upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the 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 Standard & Poor's
believes that such payments will be made during such grace period. The "D"
rating will 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 senior 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:
A-1
<PAGE> 256
"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.
A-2
<PAGE> 257
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as to 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 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 best 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 the
higher ratings.
"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 default is a real possibility and 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 Financial 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 Financial BankWatch:
"TBW-1" - This designation represents Thomson Financial
BankWatch's highest category and indicates a very high likelihood that principal
and interest will be paid on a timely basis.
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"TBW-2" - This designation represents Thomson Financial
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 Financial
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 Financial
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.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded
as having significant speculative characteristics. "BB" indicates the least
degree of speculation and "C" the highest. While such obligations will likely
have some quality and protective characteristics, these may be outweighed by
large uncertainties or major exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to
nonpayment than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse
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business, financial or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
"B" - An obligation rated "B" is more vulnerable to
nonpayment 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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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 nonpayment.
"C" - The "C" rating may be used to cover a situation where
a bankruptcy petition has been filed or similar action taken, but payments on
this obligation are being continued.
"D" - An obligation rated "D" is 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 Standard &
Poor's believes that such payments will be made during such grace period. The
"D" rating also will be used upon the filing of a bankruptcy petition or the
taking of a 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 symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
The following summarizes the ratings used by Moody's for corporate
and municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the
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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 risk appear somewhat larger than the "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" indicates 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 operating 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: Moody's applies numerical modifiers 1, 2, and 3 in
each generic rating classification from "Aa" through "Caa." The modifier 1
indicates that the obligation ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates a ranking in the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
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"AA" - Debt is considered to be 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 in periods of greater 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 credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly 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 credit 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 credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for 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 credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
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"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 change 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. Default is
a real possibility, and capacity for meeting financial commitments is solely
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. The ratings of
obligations in this category are based on their prospects for achieving partial
or full recovery in a reorganization or liquidation of the obligor. While
expected recovery values are highly speculative and cannot be estimated with any
precision, the following serve as general guidelines. "DDD" obligations have
the highest potential for recovery, around 90%-100% of outstanding amounts and
accrued interest. "DD" indicates potential recoveries in the range of 50%-90%,
and "D" the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all
of their obligations. Entities rated "DDD" have the highest prospect for
resumption of performance or continued operation with or without a formal
reorganization process. Entities rated "DD" and "D" are generally undergoing a
formal reorganization or liquidation process; those rated "DD" are likely to
satisfy a higher portion of their outstanding obligations, while entities rated
"D" have a poor prospect for repaying all obligations.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "CCC" may be modified by the
addition of a plus (+) or minus (-) sign to denote relative standing within
these major rating categories.
Thomson Financial 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 indicates that the ability to repay
principal and interest on a timely basis is extremely high.
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"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis, with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are 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 Financial BankWatch to non-investment grade long-term debt.
Such issues are regarded as having speculative characteristics regarding the
likelihood of timely repayment 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 note rating reflects the liquidity
factors and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's 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 a very strong capacity to pay debt service 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.
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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.
There is present strong protection by established cash flows, superior liquidity
support or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality.
Margins of protection are ample although not 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack 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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APPENDIX B
As stated in the Prospectus, the Equity and Bond Funds, other
than the Colorado Tax-Exempt Fund may enter into futures contracts and options
for hedging purposes. Such transactions are described in this Appendix.
I. Interest Rate Futures Contracts.
Use of Interest Rate Futures Contracts. Bond prices are
established in both the cash market and the futures market. In the cash market,
bonds are purchased and sold with payment for the full purchase price of the
bond being made in cash, generally within five business days after the trade. In
the futures market, only a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate futures
as a defense, or hedge, against anticipated interest rate changes and not for
speculation. As described below, this would include the use of futures contract
sales to protect against expected increases in interest rates and futures
contract purchases to offset the impact of interest rate declines.
The Funds presently could accomplish a similar result to that
which it hopes to achieve through the use of futures contracts by selling bonds
with long maturities and investing in bonds with short maturities when interest
rates are expected to increase, or conversely, selling short-term bonds and
investing in long-term bonds when interest rates are expected to decline.
However, because of the liquidity that is often available in the futures market
the protection is more likely to be achieved, perhaps at a lower cost and
without changing the rate of interest being earned by the Funds, through using
futures contracts.
Description of Interest Rate Futures Contracts. An interest
rate futures contract sale would create an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by a Fund, as purchaser, to take delivery of the specific
type of financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
Although interest rate futures contracts by their terms call
for actual delivery or acceptance of securities, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery
of securities. Closing out a futures contract sale is effected by a Fund
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
of the sale exceeds the price of the offsetting purchase, a Fund is immediately
paid the difference and thus realizes a gain. If the offsetting purchase price
exceeds the sale
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price, a Fund pays the difference and realizes a loss. Similarly, the closing
out of a futures contract purchase is effected by the Fund entering into a
futures contract sale. If the offsetting sale price exceeds the purchase price,
a Fund realizes a gain, and if the purchase price exceeds the offsetting sale
price, a Fund realizes a loss.
Interest rate futures contracts are traded in an auction
environment on the floors of several exchanges - principally, the Chicago Board
of Trade and the Chicago Mercantile Exchange and the New York Futures Exchange.
The Fund would deal only in standardized contract's on recognized exchanges.
Each exchange guarantees performance under contract provisions through a
clearing corporation, a nonprofit organization managed by the exchange
membership.
A public market now exists in futures contracts covering
various financial instruments including long-term Treasury Bonds and Notes;
Government National Mortgage Association (GNMA) modified pass-through
mortgage-backed securities; three-month Treasury Bills; and ninety-day
commercial paper. A Fund may trade in any futures contract for which there
exists a public market, including, without limitation, the foregoing
instruments.
II. Stock Index Futures Contracts.
General. A stock index assigns relative values to the stocks
included in the index and the index fluctuates with changes in the market values
of the stocks included. Some stock index futures contracts are based on broad
market indexes, such as the Standard & Poor's 500 or the New York Stock Exchange
Composite Index. In contrast, certain exchanges offer futures contracts on
narrower market indexes, such as the Standard & Poor's 100 or indexes based on
an industry or market segment, such as oil and gas stocks. Futures contracts are
traded on organized exchanges regulated by the Commodity Futures Trading
Commission. Transactions on such exchanges are cleared through a clearing
corporation, which guarantees the performance of the parties to each contract.
A Fund will sell index futures contracts in order to offset a
decrease in market value of its securities that might otherwise result from a
market decline. A Fund may do so either to hedge the value of its portfolio as a
whole, or to protect against declines, occurring prior to sales of securities,
in the value of the securities to be sold. Conversely, a Fund will purchase
index futures contracts in anticipation of purchases of securities. In a
substantial majority of these transactions, a Fund will purchase such securities
upon termination of the long futures position, but a long futures position may
be terminated without a corresponding purchase of securities.
In addition, a Fund may utilize stock index futures contracts
in anticipation of changes in the composition of its holdings. For example, in
the event that a Fund expects to narrow the range of industry groups represented
in its holdings it may, prior to making purchases of the actual securities,
establish a long futures position based on a more
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restricted index, such as an index comprised of securities of a particular
industry group. A Fund may also sell futures contracts in connection with this
strategy, in order to protect against the possibility that the value of the
securities to be sold as part of the restructuring of its portfolio will decline
prior to the time of sale.
III. Futures Contracts on Foreign Currencies.
A futures contract on foreign currency creates a binding
obligation on one party to deliver, and a corresponding obligation on another
party to accept delivery of, a stated quantity of a foreign currency, for an
amount fixed in U.S. dollars. Foreign currency futures may be used by a Fund to
hedge against exposure to fluctuations in exchange rates between the U.S. dollar
and other currencies arising from multinational transactions.
IV. Margin Payments.
Unlike when a Fund purchases or sells a security, no price is
paid or received by a Fund upon the purchase or sale of a futures contract.
Initially, a Fund will be required to deposit with the broker or in a segregated
account with a Fund's custodian an amount of cash or cash equivalents, the value
of which may vary but is generally equal to 10% or less of the value of the
contract. This amount is known as initial margin. The nature of initial margin
in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to a Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instrument fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
"marking-to-market." For example, when a Fund has purchased a futures contract
and the price of the contract has risen in response to a rise in the underlying
instruments, that position will have increased in value and a Fund will be
entitled to receive from the broker a variation margin payment equal to that
increase in value. Conversely, where a Fund has purchased a futures contract and
the price of the futures contract has declined in response to a decrease in the
underlying instruments, the position would be less valuable and a Fund would be
required to make a variation margin payment to the broker. At any time prior to
expiration of the futures contract, Denver Investment Advisors may elect to
close the position by taking an opposite position, subject to the availability
of a secondary market, which will operate to terminate a Fund's position in the
futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to a Fund, and a Fund
realizes a loss or gain.
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V. Risks of Transactions in Futures Contracts.
There are several risks in connection with the use of futures
by a Fund as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the future and movements in the
price of the securities which are the subject of the hedge. The price of the
future may move more than or less than the price of the securities being hedged.
If the price of the future moves less than the price of the securities which are
the subject of the hedge, the hedge will not be fully effective but, if the
price of the securities being hedged has moved in an unfavorable direction, a
Fund would be in a better position than if it had not hedged at all. If the
price of the securities being hedged has moved in a favorable direction, this
advantage will be partially offset by the loss on the future. If the price of
the future moves more than the price of the hedged securities, a Fund involved
will experience either a loss or gain on the future which will not be completely
offset by movements in the price of the securities which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
securities being hedged and movements in the price of futures contracts, a Fund
may buy or sell futures contracts in a greater dollar amount than the dollar
amount of securities being hedged if the volatility over a particular time
period of the prices of such securities has been greater than the volatility
over such time period of the future, or if otherwise deemed to be appropriate by
Denver Investment Advisors. Conversely, a Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
securities being hedged is less than the volatility over such time period of the
futures contract being used, or if otherwise deemed to be appropriate by Denver
Investment Advisors. It is also possible that, where a Fund has sold futures to
hedge its portfolio against a decline in the market, the market may advance and
the value of securities held by a Fund may decline. If this occurred, a Fund
would lose money on the future and also experience a decline in value in its
portfolio securities.
Where futures are purchased to hedge against a possible
increase in the price of securities or a currency before a Fund is able to
invest its cash (or cash equivalents) in securities (or options) in an orderly
fashion, it is possible that the market may decline instead; if a Fund then
concludes not to invest in securities or options at that time because of concern
as to possible further market decline or for other reasons, a Fund will realize
a loss on the futures contract that is not offset by a reduction in the price of
securities purchased.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent
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participants decide to make or take delivery, liquidity in the futures market
could be reduced thus producing distortions. Third, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by Denver Investment Advisors may still
not result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or
board of trade which provides a secondary market for such futures. Although the
Funds intend to purchase or sell futures only on exchanges or boards of trade
where there appear to be active secondary markets, there is no assurance that a
liquid secondary market on any exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, the Funds would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have been
used to hedge portfolio securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the futures contract. However, as described above, there is no guarantee that
the price of the securities will in fact correlate with the price movements in
the futures contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary
market in a futures contract may be adversely affected by "daily price
fluctuation limits" established by commodity exchanges which limit the amount of
fluctuation in a futures contract price during a single trading day. Once the
daily limit has been reached in the contract, no trades may be entered into at a
price beyond the limit, thus preventing the liquidation of open futures
positions. The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Successful use of futures by the Funds is also subject to
Denver Investment Advisor's ability to predict correctly movements in the
direction of the market. For example, if a Fund has hedged against the
possibility of a decline in the market adversely affecting securities held in
its portfolio and securities prices increase instead, a Fund will lose part or
all of the benefit to the increased value of its securities which it has hedged
because it will have offsetting losses in its futures positions. In addition, in
such situations, if a Fund has insufficient cash, it may have to sell securities
to meet daily variation margin requirements. Such sales of securities may be,
but will not necessarily be, at increased prices which reflect the rising
market. A Fund may have to sell securities at a time when it may be
disadvantageous to do so.
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VI. Options on Futures Contracts.
The Funds may purchase options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer, of
an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing, an option of the same
series, at which time the person entering into the closing transaction will
realize a gain or loss.
Investments in futures options involve some of the same
considerations that are involved in connection with investments in futures
contracts (for example, the existence of a liquid secondary market). In
addition, the purchase or sale of an option also entails the risk that changes
in the value of the underlying futures contract will not be fully reflected in
the value of the option purchased. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or upon the
price of the securities being hedged, an option may or may not be less risky
than ownership of the futures contract or such securities. In general, the
market prices of options can be expected to be more volatile than the market
prices on the underlying futures contract. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to the Funds because the
maximum amount at risk is the premium paid for the options (plus transaction
costs). The writing of an option on a futures contract involves risks similar to
those risks relating to the sale of futures contracts. Although permitted by
their fundamental investment policies, the Funds do not currently intend to
write futures options during the current fiscal year, and will not do so in the
future absent any necessary regulatory approvals.
VII. Accounting and Tax Treatment.
Accounting for futures contracts and options will be in
accordance with generally accepted accounting principles.
Generally, futures contracts held by the Funds at the close of
the Funds' taxable year will be treated for federal income tax purposes as sold
for their fair market value on the last business day of such year, a process
known as "mark-to-market." Forty percent of any gain or loss resulting from such
constructive sale will be treated as short-term capital gain or loss and sixty
percent of such gain or loss will be treated as long-term capital gain or loss
without regard to the length of time a Fund holds the futures contract ("the
40-60 rule"). The amount of any capital gain or loss actually realized by a Fund
in a subsequent sale or other disposition of those futures contracts will be
adjusted to reflect any capital gain or loss taken into account by a Fund in a
prior year as a result of the constructive sale of the contracts. With respect
to futures contracts to sell, which will be
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regarded as parts of a "mixed straddle" because their values fluctuate inversely
to the values of specific securities held by a Fund, losses as to such contracts
to sell will be subject to certain loss deferral rules which limit the amount of
loss currently deductible on either part of the straddle to the amount thereof
which exceeds the unrecognized gain (if any) with respect to the other part of
the straddle, and to certain wash sales regulations. Under short sales rules,
which will also be applicable, the holding period of the securities forming part
of the straddle will (if they have not been held for the long-term holding
period) be deemed not to begin prior to termination of the straddle. With
respect to certain futures contracts, deductions for interest and carrying
charges will not be allowed. Notwithstanding the rules described above, with
respect to futures contracts to sell which are properly identified as such, a
Fund may make an election which will exempt (in whole or in part) those
identified futures contracts from being treated for federal income tax purposes
as sold on the last business day of a Fund's taxable year, but gains and losses
will be subject to such short sales, wash sales, loss deferral rules and the
requirement to capitalize interest and carrying charges. Under temporary
regulations, a Fund would be allowed (in lieu of the foregoing) to elect either
(1) to offset gains or losses from portions which are part of a mixed straddle
by separately identifying each mixed straddle to which such treatment applies,
or (2) to establish a mixed straddle account for which gains and losses would be
recognized and offset on a periodic basis during the taxable year. Under either
election, the 40-60 rule will apply to the net gain or loss attributable to the
futures contracts, but in the case of a mixed straddle account election, no more
than 50% of any net gain may be treated as long-term and no more than 40% of any
net loss may be treated as short-term. Options on futures contracts generally
receive federal tax treatment similar to that described above.
Certain foreign currency contracts entered into by the Funds
may be subject to the "mark-to-market" process. If the Fund makes a Capital
Asset Election with respect to such contracts, the contracts will be subject to
the 40-60 rule, described above. Otherwise, such gain or loss will be treated as
100% ordinary gain or loss. To receive such federal income tax treatment, a
foreign currency contract must meet the following conditions: (1) the contract
must require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contract depends;
(2) the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under the provisions respecting foreign currency contracts. As
of the date of this Statement of Additional Information, the Treasury has not
issued any such regulations. Foreign currency contracts entered into by a Fund
may result in the creation of one or more straddles for federal income tax
purposes, in which case certain loss deferral, short sales, and wash sales rules
and the requirement to capitalize interest and carrying charges may apply.
Some investments may be subject to special rules which govern
the federal income tax treatment of certain transactions denominated in terms of
a currency other than the U.S. dollar or determined by reference to the value of
one or more currencies
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other than the U.S. dollar. The types of transactions covered by the special
rules include the following: (i) the acquisition of, or becoming the obligor
under, a bond or other debt instrument (including, to the extent provided in
Treasury regulations, preferred stock); (ii) the accruing of certain trade
receivables and payables; and (iii) the entering into or acquisition of any
forward contract, futures contract, option and similar financial instrument.
However, regulated futures contracts and non-equity options are generally not
subject to the special currency rules if they are or would be treated as sold
for their fair market value at year-end under the "mark-to-market" rules, unless
an election is made to have such currency rules apply. The disposition of a
currency other than the U.S. dollar by a U.S. taxpayer is also treated as a
transaction subject to the special currency rules. With respect to transactions
covered by the special rules, foreign currency gain or loss is calculated
separately from any gain or loss on the underlying transaction and is normally
taxable as ordinary gain or loss. A taxpayer may elect to treat as capital gain
or loss foreign currency gain or loss arising from certain identified forward
contracts, futures contracts and options that are capital assets in the hands of
the taxpayer and which are not part of a straddle. In accordance with Treasury
regulations, certain transactions subject to the special currency rules that are
part of a "section 988 hedging transaction" (as defined in the Code and the
Treasury regulations) will be integrated and treated as a single transaction or
otherwise treated consistently for purposes of the Code. "Section 988 hedging
transactions" are not subject to the mark-to-market or loss deferral rules under
the Code. It is anticipated that some of the non-U.S. dollar denominated
investments and foreign currency contracts that a Fund may make or may enter
into will be subject to the special currency rules described above. Gain or loss
attributable to the foreign currency component of transactions engaged in by the
Funds which are not subject to special currency rules (such as foreign equity
investments other than certain preferred stocks) will be treated as capital gain
or loss and will not be segregated from the gain or loss on the underlying
transaction.
Under the federal income tax provisions applicable to
regulated investment companies, less than 30% of a company's gross income must
be derived from gains realized on the sale or other disposition of securities
held for less than three months. With respect to futures contracts and other
financial instruments subject to the "mark-to-market" rules, the Internal
Revenue Service has ruled in private letter rulings that a gain realized from
such a futures contract or financial instrument will be treated as being derived
from a security held for three months or more (regardless of the actual period
for which the contract or instrument is held) if the gain arises as a result of
a constructive sale under the "mark-to-market" rules, and will be treated as
being derived from a security held for less than three months only if the
contract or instrument is terminated (or transferred) during the taxable year
(other than by reason of the mark-to-market rules) and less than three months
have elapsed between the date the contract or instrument is acquired and the
termination date. In determining whether the 30% test is met for a taxable year,
increases and decreases in the value of the Funds' futures contracts and other
investments that qualify as part of a "designated hedge," as defined in the
Code, may be netted.
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