<PAGE> 1
Securities Act File No. 33-65690
Investment Company Act File No. 811-7850
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ______ [ ]
Post-Effective Amendment No. 5 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 6
THE PARKSTONE ADVANTAGE FUND
-----------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
3435 STELZER ROAD
COLUMBUS, OHIO 43219
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (800) 451-8377
ROBERT C. ROSSELOT, ESQ.
MELANIE MAYO WEST, ESQ.
DAVID E. RIGGS, ESQ.
HOWARD & HOWARD ATTORNEYS, P.C.
1400 North Woodward Avenue, Suite 101
Bloomfield Hills, Michigan 48304-2856
-----------------------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Immediately, upon effectiveness
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b).
[X] on April 30, 1997 pursuant to paragraph (b).
[ ] 60 days after filing pursuant to paragraph (a)(1).
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485.
[ ] 75 days after filing pursuant to paragraph (a)(2).
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
Registrant has registered an indefinite number or amount of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. On February 26, 1997, Registrant filed its Rule 24f-2 Notice with
respect to its fiscal year ended December 31, 1996.
<PAGE> 2
THE PARKSTONE ADVANTAGE FUND
FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
PART A. INFORMATION REQUIRED IN A PROSPECTUS
ITEM NO. (RULE 404(a) CROSS REFERENCE)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Fees and Expenses
3. Condensed Financial Information Financial Highlights; Performance
Information
4. General Description of Registrant Cover Page; Investment Objectives
and Policies; Risk Factors and
Investment Techniques; Investment
Restrictions; Description of the
Trust and its Shares
5. Management of the Fund Management of the Trust; Fees and
Expenses
5A. Management's Discussion of Fund Not Applicable
Performance
6. Capital Stock and Other Securities Dividends and Taxes; Description
of the Trust and its Shares;
Miscellaneous
7. Purchase of Securities Being Purchase and Redemption of
Offered Shares; How Shares are Valued
8. Redemption or Repurchase Purchase and Redemption of Shares
9. Pending Legal Proceedings Not Applicable
</TABLE>
ii
<PAGE> 3
THE PARKSTONE ADVANTAGE FUND
3435 STELZER ROAD
COLUMBUS, OHIO 43219
PROSPECTUS
April 30, 1997
The Parkstone Advantage Fund (the "Trust") is an open-end, diversified
series investment company established exclusively for the purpose of providing
an investment vehicle for variable annuity contracts and variable life insurance
policies offered by the separate accounts (the "Separate Accounts") of various
life insurance companies ("Participating Insurance Companies"). Shares of the
Trust are not offered to the general public but solely to such Separate
Accounts. As of the date of this Prospectus, the only Participating Insurance
Company is Security Benefit Life Insurance Company. The Trust may, however,
pursuant to an exemptive order from the Securities and Exchange Commission (the
"SEC"),permit shares of the Trust to be sold to and held by Separate Accounts
funding variable annuity contracts and variable life insurance policies issued
by both affiliated and unaffiliated life insurance companies.
The Trust currently offers five portfolios - the Prime Obligations
Fund, the Small Capitalization Fund, the Mid Capitalization Fund (formerly, the
Equity Fund), the Bond Fund, and the International Discovery Fund (collectively,
the "Funds" and singly, a "Fund") with investment objectives as follows. There
is, of course, no assurance that a Fund will achieve its stated objective.
The PRIME OBLIGATIONS FUND'S investment objective is to seek current
income with liquidity and stability of principal.
The SMALL CAPITALIZATION FUND'S investment objective is to seek growth
of capital by investing primarily in a diversified portfolio of common stocks
and securities convertible into common stocks of small- to medium-sized
companies.
The MID CAPITALIZATION FUND'S investment objective is to seek growth of
capital by investing primarily in a diversified portfolio of common stocks and
securities convertible into common stocks.
The BOND FUND'S investment objective is to seek current income as well
as preservation of capital by investing in a portfolio of high- and medium-grade
fixed-income securities.
The INTERNATIONAL DISCOVERY FUND'S investment objective is to seek
long-term growth of capital.
Each of the Funds is advised by First of America Investment Corporation
("First of America" or "Investment Adviser"). First of America has retained the
services of Gulfstream Global Investors, Ltd. ("Gulfstream" or "Subadviser") to
assist in the management of the International Discovery Fund. The Funds are
distributed by BISYS Fund Services, LP ("BISYS") and BISYS Fund Services Ohio,
Inc. ("BISYS Ohio") serves as fund accountant and
<PAGE> 4
transfer agent. Union Bank of California, N.A. ("Union Bank"), formerly known as
The Bank of California, N.A., serves as custodian.
Shares of the Funds may only be purchased by the Separate Accounts of
Participating Insurance Companies for the purpose of funding variable annuity
contracts and variable life insurance policies. A particular Fund may not be
available under the variable annuity contract or variable life insurance policy
which you have chosen. The prospectus of the specific insurance product you have
chosen will indicate which Funds are available and should be read in conjunction
with this Prospectus. Inclusion in this Prospectus of a Fund which is not
available under your contract or policy is not to be considered a solicitation.
This Prospectus sets forth concisely the information about the Trust
that a prospective investor ought to know before investing and should be
retained for future reference. Certain additional information about the Trust is
contained in the April 30, 1997 Statement of Additional Information, as amended
from time to time, which has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. This Statement of Additional
Information is available upon request and without charge by writing to the Trust
at 3435 Stelzer Road, Columbus, Ohio 43219 or calling the Participating
Insurance Company sponsoring the variable annuity contract or variable life
insurance policy.
THE SHARES OF THE PARKSTONE ADVANTAGE FUND ARE NOT OBLIGATIONS OR
DEPOSITS OF FIRST OF AMERICA INVESTMENT CORPORATION OR ITS PARENT, AND THE
INVESTMENTS DESCRIBED IN THE PROSPECTUS ARE NOT ENDORSED, INSURED OR GUARANTEED
BY FIRST OF AMERICA INVESTMENT CORPORATION, ITS PARENT OR THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER AGENCY. INVESTMENTS IN THE PARKSTONE
ADVANTAGE FUND INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE
PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
2
<PAGE> 5
TABLE OF CONTENTS PAGE
FINANCIAL HIGHLIGHTS.................................................... 4
INVESTMENT OBJECTIVES AND POLICIES...................................... 10
RISK FACTORS AND INVESTMENT TECHNIQUES.................................. 16
INVESTMENT RESTRICTIONS................................................. 30
MANAGEMENT OF THE TRUST................................................. 31
DESCRIPTION OF THE TRUST AND ITS SHARES................................. 35
PURCHASE AND REDEMPTION OF SHARES....................................... 36
FEES AND EXPENSES....................................................... 37
HOW SHARES ARE VALUED................................................... 38
DIVIDENDS AND TAXES..................................................... 38
PERFORMANCE INFORMATION................................................. 40
MISCELLANEOUS........................................................... 41
3
<PAGE> 6
FINANCIAL HIGHLIGHTS
The tables on the following pages set forth certain information
concerning the investment results of each Fund since its inception. Further
financial information is included in the Statement of Additional Information and
the Trust's December 31, 1996 Annual Report to Shareholders which may be
obtained free of charge. The information contained in the tables on the
following pages has been derived from financial statements audited by Ernst &
Young LLP, independent auditors for the Trust, whose report thereon is
incorporated by reference in the Statement of Additional Information.
4
<PAGE> 7
PARKSTONE ADVANTAGE PRIME OBLIGATIONS FUND
<TABLE>
<CAPTION>
=================================================================================================
Year ended December 31,
- -------------------------------------------------------------------------------------------------
1996 1995 1994 1993(a)
---- ---- ---- -------
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------
- -------------------------------------------------------------------------------------------------
Investment Activities
- -------------------------------------------------------------------------------------------------
Net Investment Income 0.044 0.041 0.023 0.009
------- ------- ------- ------
- -------------------------------------------------------------------------------------------------
Total from Investment Activities 0.044 0.041 0.023 0.009
------- ------- ------- ------
- -------------------------------------------------------------------------------------------------
Distributions
- -------------------------------------------------------------------------------------------------
Net Investment Income (0.044) (0.041) (0.023) (0.009)
------- ------- ------- -------
- -------------------------------------------------------------------------------------------------
Total Distributions (0.044) (0.041) (0.023) (0.009)
------- ------- ------- -------
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.000 $1.000 $1.000 $1.000
======= ======= ======= ======
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Total Return (c) 4.46% 4.19% 2.29% 0.88%
- -------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------
Net Assets, End of Period (000) $3,579 $2,945 $2,232 $2,028
- -------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 1.01% 1.64% 1.90% 1.79%(b)
- -------------------------------------------------------------------------------------------------
Ratio of Net Investment Income
to Average Net Assets 4.34% 4.15% 2.29% 1.53%(b)
=================================================================================================
</TABLE>
5
<PAGE> 8
PARKSTONE ADVANTAGE SMALL CAPITALIZATION FUND
<TABLE>
<CAPTION>
==========================================================================================================================
Year ended December 31,
- --------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993(a)
---- ---- ---- -------
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $15.71 $11.58 $11.00 $10.00
------ ------ ------ ------
- --------------------------------------------------------------------------------------------------------------------------
Investment Activities
- --------------------------------------------------------------------------------------------------------------------------
Net Investment Loss (0.15) (0.15) (0.13) (0.03)
- --------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain
on Investments 4.79 4.28 0.71 1.03
------ ------ ------ ------
- --------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 4.64 4.13 0.58 1.00
------ ------ ------ ------
- --------------------------------------------------------------------------------------------------------------------------
Distributions
- --------------------------------------------------------------------------------------------------------------------------
Net Realized Gains (2.15) - - -
------
- --------------------------------------------------------------------------------------------------------------------------
Total Distributions (2.15) - - -
------
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $18.20 $15.71 $11.58 $11.00
====== ====== ====== ======
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Total Return (c) 29.66% 35.66% 5.27% 10.00%
- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000) $24,495 $13,273 $7,476 $3,065
- --------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 1.40% 1.64% 1.98% 1.87%(b)
- --------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Loss
to Average Net Assets (1.06%) (1.29%) (1.66%) (1.40%)(b)
- --------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets* - - - 2.23%(b)
- --------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Loss to Average
Net Assets* - - - (1.76%)(b)
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover 60% 64% 39% 23%
- --------------------------------------------------------------------------------------------------------------------------
Average Commission Rate Paid (d) $0.0799(e)
==========================================================================================================================
</TABLE>
6
<PAGE> 9
PARKSTONE ADVANTAGE MID CAPITALIZATION FUND
<TABLE>
<CAPTION>
==========================================================================================================================
Year ended December 31,
- --------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993(a)
---- ---- ---- -------
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.44 $ 9.64 $10.17 $10.00
------ ------ ------ ------
- --------------------------------------------------------------------------------------------------------------------------
Investment Activities
- --------------------------------------------------------------------------------------------------------------------------
Net Investment Loss (0.09) (0.08) (0.07) (0.02)
------
- --------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain
(Loss) on Investments 2.25 2.88 (0.46) 0.19
------ ------ ------ -----
- --------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 2.16 2.80 (0.53) 0.17
------ ------ ------ -----
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.60 $12.44 $ 9.64 $10.17
====== ====== ====== ======
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Total Return (c) 17.36% 29.05% (5.21%) 1.70%
- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000) $24,041 $14,977 $9,095 $3,893
- --------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 1.42% 1.62% 1.86% 2.11%(b)
- --------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Loss
to Average Net Assets (0.73%) (0.84%) (0.92%) (1.09%((b)
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover 127% 44% 51% 45%(b)
- --------------------------------------------------------------------------------------------------------------------------
Average Commission Rate Paid (d) $0.800(e)
==========================================================================================================================
</TABLE>
7
<PAGE> 10
PARKSTONE ADVANTAGE BOND FUND
<TABLE>
<CAPTION>
==========================================================================================================================
Year ended December 31,
- --------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993(a)
---- ---- ---- -------
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.50 $ 9.35 $ 9.96 $ 10.00
--------- --------- --------- ---------
Investment Activities
- --------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.36 0.40 0.42 0.10
- --------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain
(Loss) on Investments (0.18) 1.17 (0.96) (0.14)
--------- --------- --------- ---------
- --------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.18 1.57 (0.54) (0.04)
--------- --------- --------- ---------
- --------------------------------------------------------------------------------------------------------------------------
Distributions
- --------------------------------------------------------------------------------------------------------------------------
Net Investment Loss (0.35) (0.42) (0.07) --
--------- --------- --------- ---------
- --------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.35) (0.42) (0.07) --
--------- --------- --------- ---------
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.33 $ 10.50 $ 9.35 $ 9.96
========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------------
Total Return (c) 1.83% 16.98% (5.38%) (0.40%)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000) $ 9,754 $ 6,758 $ 4,651 $ 3,216
- --------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 1.29% 1.57% 1.80% 2.03%(b)
- --------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Loss
to Average Net Assets 5.32% 5.31% 5.27% 5.23%(b)
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover 492% 178% 159% 101%(b)
==========================================================================================================================
</TABLE>
8
<PAGE> 11
PARKSTONE ADVANTAGE INTERNATIONAL DISCOVERY FUND
<TABLE>
<CAPTION>
==================================================================================================================
Year ended December 31,
- ------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993(a)
---- ---- ---- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.59 $9.65 $10.35 $10.00
--------- ---------- --------- ---------
- ------------------------------------------------------------------------------------------------------------------
Investment Activities
- ------------------------------------------------------------------------------------------------------------------
Net Investment Loss (0.04) (0.03) (0.07) (0.03)
- ------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain
(Loss) on Investments 1.67 0.97 (0.63) 0.38
--------- ---------- --------- ---------
- ------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 1.63 0.94 (0.70) 0.35
--------- ---------- --------- ---------
- ------------------------------------------------------------------------------------------------------------------
Distributions
- ------------------------------------------------------------------------------------------------------------------
In Excess of Net Investment Income (0.04) -- -- --
--------- ---------- --------- ---------
- ------------------------------------------------------------------------------------------------------------------
Total Distributions (0.04) -- -- --
--------- ---------- --------- ---------
- ------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $12.18 $10.59 $9.65 $10.35
========= ========== ========= =========
- ------------------------------------------------------------------------------------------------------------------
Total Return (c) 15.41% 9.74% (6.76%) 3.50%
- ------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000) $17,001 $11,645 $9,537 $6,335
- ------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 2.00% 2.38% 2.34% 2.51%(b)
- ------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Loss
to Average Net Assets (0.35%) (0.39%) (1.13%) (1.38%)(b)
- ------------------------------------------------------------------------------------------------------------------
Portfolio Turnover 65% 86% 87% 13%(b)
- ------------------------------------------------------------------------------------------------------------------
Average Commission Rate Paid (d) $0.0316(e)
==================================================================================================================
<FN>
* During the period the investment advisory fee was voluntarily reduced.
If such voluntary fee reductions had not occurred, the ratios would
have been as indicated.
(a) Period from commencement of operations (September 23, 1993).
(b) Annualized.
(c) Total return information does not take into account any charges paid at
the time of purchase and for the year ended December 31, 1993 is not
annualized.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by
the Fund for which commissions were charged.
(e) For the period June 30, 1996 through December 31, 1996.
</TABLE>
9
<PAGE> 12
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
- -------
The investment objectives of each of the Funds is set forth below under
the headings describing the Funds. The investment objectives of each Fund are
fundamental and may not be changed without a vote of the holders of a majority
of the outstanding shares of that Fund (as defined in the Statement of
Additional Information). The investment policies of a Fund may be changed
without a vote of the holders of a majority of outstanding shares of that Fund
unless the policy is expressly deemed to be a fundamental policy or changeable
only by such majority vote. There can be no assurance that the investment
objective of any Fund will be achieved. Depending upon the performance of a
Fund's investments, the net asset value per share of that Fund may decrease
instead of increase.
During temporary defensive periods as determined by First of America or
Gulfstream, as the case may be, each of the Funds may hold up to 100% of its
total assets in short-term obligations including domestic bank certificates of
deposit, bankers' acceptances and repurchase agreements secured by bank
instruments. However, to the extent that a Fund is so invested, its investment
objective may not be achieved during that time. Uninvested cash reserves will
not earn income.
INVESTMENT OBJECTIVE AND POLICIES OF THE PRIME OBLIGATIONS FUND
---------------------------------------------------------------
The Prime Obligations Fund's investment objective is to seek current
income with liquidity and stability of principal. The Prime Obligations Fund
invests in high-quality money market instruments, including municipal securities
and other instruments deemed to be of comparable high quality as determined by
the Board of Trustees. The Prime Obligations Fund invests exclusively in United
States dollar-denominated instruments which the Trustees of the Fund and First
of America determine present minimal credit risks and which at the time of
acquisition are rated by one or more nationally recognized statistical rating
organizations ("NRSRO") (e.g., Standard and Poor's Corporation or Moody's
Investors Service, Inc.) in one of the two highest rating groups for short-term
debt obligations or, if unrated, which First of America deems present attractive
opportunities and are of comparable quality. In addition, the Prime Obligations
Fund diversifies its investments so that, with minor exceptions and except for
United States government securities, 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 at the time of
investment in the second highest rating group for short-term debt obligations or
deemed to be of comparable quality to securities rated in the second highest
rating group for short-term debt obligations (either referred to as "Second Tier
Securities") and not more than the greater of 1% of total assets or $1,000,000
is invested in the Second Tier Securities of one issuer. Notwithstanding these
diversification limitations, the Prime Obligations Fund may invest up to 25% of
its total assets in the securities of a single issuer for a period of up to
three days, provided that such securities are either government securities or
are rated by one or more NRSROs in the highest rating category for short-term
debt obligations
10
<PAGE> 13
or, if unrated, which First of America deems present attractive opportunities
and are of comparable quality.
All securities or instruments in which the Prime Obligations Fund
invests have remaining maturities of 397 calendar days (13 months) or less
(except for certain variable and floating rate notes and securities underlying
certain repurchase agreements). The dollar-weighted average maturity of the
obligations in which the Prime Obligations Fund invests will not exceed 90 days.
The Prime Obligations Fund may invest in commercial paper or 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
groups assigned by an NRSRO or, if not rated, found by the Investment Adviser
pursuant to procedures adopted by the Trust's Board of Trustees, to be of
comparable quality. Instruments may be purchased in reliance upon a rating only
when the rating organization is not affiliated with the issuer or guarantor of
the instrument. For a description of the rating groups of the NRSROs see the
Appendix to the Statement of Additional Information. The Prime Obligations Fund
may also invest in Canadian commercial paper ("CCP"), Europaper (U.S.
dollar-denominated commercial paper of a foreign issuer), bankers' acceptances,
certificates of deposit and time deposits.
Variable amount master demand notes in which the Prime Obligations Fund
and certain other Funds may invest are unsecured demand notes that permit the
indebtedness thereunder to vary, and provide for periodic adjustments in the
interest rate according to the terms of the instrument. Because master demand
notes are direct lending arrangements between a Fund and the issuer, they are
not normally traded. Although there is no secondary market in the notes, a Fund
may demand payment of principal and accrued interest at any time. While the
notes are not typically rated by credit rating agencies, issuers of variable
amount master demand notes (which are normally manufacturing, retail, financial
and other business concerns) must satisfy the same criteria as set forth above
for commercial paper. First of America will consider the earning power, cash
flow and other liquidity ratios of the issuers of such notes and will
continuously monitor their financial status and ability to meet payment on
demand. In determining average weighted portfolio maturity, a variable amount
master demand note will be deemed to have a maturity equal to the period of time
remaining until the principal amount can be recovered from the issuer through
demand, which shall not exceed 7 days.
The Prime Obligations Fund may acquire securities that are subject to
puts and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed period
(usually seven days) following a demand by the Fund. The demand feature may be
issued by the issuer of the underlying security, a dealer in the security, or by
another third party, and may not be transferred separately from the underlying
security. The Prime Obligations Fund uses these arrangements to provide
liquidity and not to protect against changes in the market value of the
underlying securities. The bankruptcy, receivership, or default by the issuer of
the demand feature, or a default on the underlying security or other event that
terminates the demand feature before its exercise, will adversely affect the
liquidity of the underlying security. Demand features that are exercisable
11
<PAGE> 14
after a payment default on the underlying security may be treated as a form of
credit enhancement.
Certain of the Prime Obligations Fund's permitted investments may have
received credit enhancement by a guaranty, letter of credit, or insurance. The
Prime Obligations Fund may evaluate the credit quality and ratings of
credit-enhanced securities based upon the financial condition and ratings of the
entity providing the credit enhancement, rather than the issuer. The bankruptcy,
receivership, or default of an entity providing credit enhancement may adversely
affect the quality and marketability of the underlying security.
Pursuant to the requirements of Rule 2a-7 adopted under the Investment
Company Act of 1940 (the "1940 Act"), with respect to 75% of its assets, the
Prime Obligations Fund will limit its investment in the demand features of a
single issuer to 10% of the Fund's assets. With respect to the remaining 25% of
the Prime Obligations Fund's assets, the Fund may invest in securities subject
to demand features from, or directly issued by, one or more institutions,
provided they are rated in the highest rating group by an NRSRO and are issued
by a "non- controlled person," as defined in the Rule. In addition, a demand
feature, other than a standby commitment, may be acquired by the Prime
Obligations Fund only if the demand feature or its issuer has received a
short-term rating from an NRSRO and not more than 5% of the Fund's assets are
invested in demand features from a single issuer rated in the second highest
short-term rating group by an NRSRO.
The Prime Obligations Fund intends to follow the operational policies
described above, as well as other non-fundamental policies that will enable the
Fund to comply with the laws and regulations applicable to money market mutual
funds, particularly Rule 2a-7 under the 1940 Act. The Prime Obligations Fund
shall determine the effective maturity of its investments, the applicable credit
rating of securities, and adequate diversification by reference to Rule 2a-7.
The Prime Obligations Fund may change its operational policies to reflect
changes in the laws and regulations applicable to money market mutual funds
without shareholder approval.
INVESTMENT OBJECTIVE AND POLICIES OF THE SMALL CAPITALIZATION FUND
------------------------------------------------------------------
The investment objective of the Small Capitalization Fund is to seek
growth of capital by investing primarily in a diversified portfolio of common
stocks and securities convertible into common stocks of small- to medium-sized
companies. Under normal market conditions, the Small Capitalization Fund will
invest at least 80% of the value of its total assets in common stocks and
securities convertible into common stocks of companies believed by First of
America to be characterized by sound management and the ability to finance
expected long-term growth. In addition, under normal market conditions, the
Small Capitalization Fund will invest at least 65% of the value of its total
assets in common stock or in securities convertible into common stocks of
companies considered by First of America to have a market capitalization of less
than $1 billion. The Small Capitalization Fund may also invest up to 20% of the
value of its total assets in preferred stocks, corporate bonds, notes, units of
real estate investment trusts, warrants, and short-term obligations (with
maturities of 12 months or less) consisting of commercial paper (including
variable amount master demand notes), bankers' acceptances,
12
<PAGE> 15
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 associations. The Small
Capitalization Fund may also hold securities of other investment companies in
depository or custodial receipts representing beneficial interests in any of the
foregoing securities.
Subject to the foregoing policies, the Small Capitalization Fund may
also invest up to 25% of its net assets in foreign securities either directly or
through the purchase of American Depository Receipts ("ADRs") or European
Depository Receipts ("EDRs") and may also invest in securities issued by foreign
branches of U.S. banks and foreign banks, in CCP, and in Europaper. For a
discussion of risks associated with foreign securities, see "RISK FACTORS AND
INVESTMENT TECHNIQUES - Foreign Securities" below.
The Small Capitalization Fund anticipates investing in dynamic small-
to medium-sized companies that exhibit outstanding potential for superior
growth. Small-sized companies are considered to be those with a market
capitalization of less than $1 billion. The Small Capitalization Fund will limit
its investment in securities of medium-sized companies to not more than 35% of
the value of its total assets. Companies that participate in sectors that are
identified as having long-term growth potential generally make up a substantial
portion of the Small Capitalization 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. As smaller capitalization stocks are quite volatile and subject to
wide fluctuations in both the short and medium term, the Small Capitalization
Fund may be fairly characterized as more aggressive than a general equity fund.
Consistent with the foregoing, the Small Capitalization Fund will focus
its investments in those companies and types of companies that First of America
believes will enable the Fund to achieve its investment objective.
INVESTMENT OBJECTIVE AND POLICIES OF THE MID CAPITALIZATION FUND
----------------------------------------------------------------
The Mid Capitalization Fund's investment objective is to seek growth of
capital by investing primarily in a diversified portfolio of common stocks and
securities convertible into common stocks. Under normal market conditions, the
Mid Capitalization Fund will invest at least 80% of the value of its total
assets in common stocks and securities convertible into common stocks of
companies believed by First of America to be characterized by sound management
and the ability to finance expected long-term growth. In addition, under normal
market conditions, the Mid Capitalization Fund will invest at least 65% of the
value of its total assets in common stocks and securities convertible into
common stocks of companies considered by First of America to have a market
capitalization between $1 and $5 billion. The Mid Capitalization Fund may also
invest up to 20% of the value of its total assets in preferred stocks, corporate
bonds, notes, units of real estate investment trusts, warrants, and short-term
obligations (with maturities of 12 months or less) consisting of commercial
paper (including variable amount master demand notes), bankers' acceptances,
certificates of deposit, repurchase agreements, obligations issued or guaranteed
by the U.S. government or its agencies or
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<PAGE> 16
instrumentalities, and demand and time deposits of domestic and foreign banks
and savings associations. The Mid Capitalization Fund may also hold securities
of other investment companies and depository or custodial receipts representing
beneficial interests in any of the foregoing securities.
Subject to the foregoing policies, the Mid Capitalization Fund may also
invest up to 25% of its net assets in foreign securities either directly or
through the purchase of ADRs or EDRs and may also invest in securities issued by
foreign branches of U.S. banks and foreign banks, in CCP and in Europaper. For a
discussion of risks associated with foreign securities, see "RISK FACTORS AND
INVESTMENT TECHNIQUES - Foreign Securities" below.
The Mid Capitalization Fund anticipates investing in growth-oriented,
medium-sized companies. Medium-sized companies are considered to be those with a
market capitalization between $1 and $5 billion. These companies have typically
exhibited consistent, above-average growth in revenues and earnings, strong
management, and sound and improving financial fundamentals. Often, these
companies are market or industry leaders, have excellent products and/or
services, and exhibit the potential for growth. Core holdings of the Mid
Capitalization Fund 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.
Consistent with the foregoing, the Mid Capitalization Fund will focus
its investment in those companies and types of companies that First of America
believes will enable the Fund to achieve its investment objective.
INVESTMENT OBJECTIVE AND POLICIES OF THE BOND FUND
--------------------------------------------------
The Bond Fund's investment objective is to seek current income as well
as preservation of capital by investing in a portfolio of high- and medium-grade
fixed-income securities. Under normal market conditions, the Bond Fund will
invest at least 80% of the value of its total assets in bonds, debentures, notes
with remaining maturities at the time of purchase of one year or more,
zero-coupon securities, mortgage-related securities, state, municipal or
industrial revenue bonds, obligations issued or guaranteed by the U.S.
government or its agencies or instrumentalities, debt securities convertible
into, or exchangeable for, common stocks, first mortgage loans, and
participation certificates in pools of mortgages issued or guaranteed by the
U.S. government or its agencies or instrumentalities. The Bond Fund will invest
in state and municipal securities when, in the opinion of First of America,
their yields are competitive with comparable taxable debt obligations. In
addition, up to 20% of the value of the Bond Fund's total assets may be invested
in preferred stocks, notes with remaining maturities at the time of purchase of
less than one year, short-term debt obligations consisting of domestic and
foreign commercial paper (including variable amount master demand notes),
bankers' acceptances, certificates of deposit and time deposits of domestic and
foreign branches of U.S. banks and foreign banks, repurchase agreements,
securities of other investment companies, and guaranteed investment contracts
("GICs") issued by insurance companies, as more fully described below. Some of
the securities in which the Bond Fund invests may have warrants or options
attached.
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<PAGE> 17
The Bond Fund expects to invest in a variety of U.S. Treasury
obligations, differing in their interest rates, maturities, and times of
issuance, as well as "stripped" U.S. Treasury obligations ("Stripped Treasury
Obligations") and other obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities. See "RISK FACTORS AND INVESTMENT
TECHNIQUES - Government Obligations" below.
The Bond Fund also expects to invest in bonds, notes and debentures of
a wide range of U.S. corporate issuers. Such obligations, in the case of
debentures will represent unsecured promises to pay, and in the case of notes
and bonds, may be secured by mortgages on real property or security interests in
personal property and will in most cases differ in their interest rates,
maturities and times of issuance.
The Bond Fund will invest only in corporate debt securities which are
rated at the time of purchase within the four highest rating groups assigned by
an NRSRO or, if unrated, which First of America deems present attractive
opportunities and are of comparable quality. For a discussion of debt securities
rated within the fourth highest rating group assigned by an NRSRO, see "RISK
FACTORS AND INVESTMENT TECHNIQUES - Medium-Grade Securities" below.
The Bond Fund may invest in obligations of the Export-Import Bank of
the United States, and in Yankee bonds, in Eurodollar bonds, in Canadian bonds
and in Supranational Agency bonds. The Bond Fund may also invest up to 25% of
its net assets in foreign securities either directly or through the purchase of
ADRs and may also invest in securities issued by foreign branches of U.S. banks
and foreign banks, in CCP and in Europaper.
An increase in interest rates will generally reduce the value of the
investments in the Bond Fund and a decline in interest rates will generally
increase the value of those investments. Depending upon the prevailing market
conditions, First of America 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,
First of America will consider many factors other than current yield, including
the preservation of capital, the potential for realizing capital appreciation,
maturity, and yield to maturity.
INVESTMENT OBJECTIVE AND POLICIES OF THE INTERNATIONAL DISCOVERY FUND
---------------------------------------------------------------------
The investment objective of the International Discovery Fund (the
"International Fund") is to seek the long-term growth of capital. Under normal
market conditions, the International Fund will invest at least 65% of its total
assets in an internationally diversified portfolio of equity securities which
trade on markets in countries other than the United States and which are issued
by companies (i) domiciled in countries other than the United States, or (ii)
that derive at least 50% of either their revenues or pre-tax income from
activities outside of the United States, and (iii) which are small- or
medium-sized companies on the basis of their capitalization.
15
<PAGE> 18
Equity securities include common and preferred stock, securities (bonds
and preferred stock) convertible into common stock, warrants and securities
representing underlying international securities such as ADRs or EDRs.
For purposes of investment by the International Fund only, companies
are deemed to be small- or medium-sized if, at the time of purchase, they are of
a size which would rank them in the lower half of a major market index in the
applicable country weighted by market capitalization and in the lower half of
all equity securities in listed recognized secondary markets where such markets
exists. In addition, in countries with less well-developed stock markets, where
the range of investment opportunities is more restrictive, the equity securities
of all listed companies will be eligible for investment. In major markets,
issuers could have capitalizations of approximately $10 billion while in smaller
markets issuers would be eligible with capitalizations as low as approximately
$200 million.
The International Fund may invest in securities of issuers in, but not
limited to, Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Hong Kong, Italy, Japan, Korea, Malaysia, the Netherlands, New Zealand,
Norway, Singapore, Spain, Sweden, Switzerland and the United Kingdom. Normally,
the International Fund will invest at least 65% of its total assets in
securities traded in at least three foreign countries, including the countries
listed above. It is possible, although not currently anticipated, that up to 35%
of the International Fund's assets could be invested in the securities of U.S.
companies. In addition, the International Fund temporarily may invest in
short-term debt instruments of U.S. and foreign issuers for cash management
purposes or pending investment.
RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in a Fund entails certain
risks. The Funds will not acquire portfolio securities issued by, make savings
deposits in or enter into repurchase, reverse repurchase or dollar roll
agreements with First of America Bank-Michigan, N.A. ("FOA-Michigan," the parent
corporation of First of America), BISYS, or their affiliates, and will not give
preference to FOA-Michigan's correspondents with respect to transactions,
securities, savings deposits, repurchase agreements, reverse repurchase
agreements and dollar roll agreements.
COMPLEX SECURITIES
------------------
Some of the investment techniques utilized by First of America and, in
the case of the International Fund, Gulfstream, in the management of each of the
Funds involve complex securities sometimes referred to as "derivatives." Among
such securities are put and call options, foreign currency transactions and
futures contracts, all of which are described below. The Investment Adviser and
Subadviser believe that such complex securities may in some circumstances play a
valuable role in successfully implementing each Fund's investment strategy and
achieving its goals. However, because complex securities and the strategies for
which they are used are by their nature complicated, they present substantial
opportunities for misunderstanding and misuse. To guard against these risks, the
Investment Adviser and
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<PAGE> 19
Subadviser will utilize complex securities primarily for hedging, not
speculative, purposes and only after careful review of the unique risk factors
associated with each such security.
FOREIGN SECURITIES
------------------
The International Fund invests primarily in the securities of foreign
issuers. The Small Capitalization Fund and Mid Capitalization Fund may also
invest in foreign securities as permitted by their respective investment
policies. The 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
Canadian commercial paper, and in Europaper. The Prime Obligations Fund may
invest in foreign securities by purchasing: Eurodollar Certificates of Deposit
("ECDs"), which are U.S. dollar-denominated certificates of deposit issued by
offices of foreign and domestic banks outside the U.S.; Eurodollar Time Deposits
("ETDs"), which are U.S. dollar-denominated deposits in a foreign branch of a
U.S. or foreign bank; Canadian time deposits ("CTDs"), which are essentially the
same as ETDs except that they are issued by Canadian offices of major Canadian
banks; Yankee certificates of deposit ("Yankee CDs"), which are U.S.
dollar-denominated certificates of deposit issued by a U.S. branch of a foreign
bank but held in the U.S.; CCP; and Europaper.
Investment in foreign securities is subject to special investment risks
that differ in some respects from those related to investments and securities of
U.S. domestic issuers. Such risks include political, social or economic
instability in the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of the imposition of exchange
controls, expropriation, limits on removal of currency or other assets,
nationalization of assets, foreign withholding and income taxation, and foreign
trading practices (including higher trading commissions, custodial charges and
delayed settlements). Such securities may be subject to greater fluctuations in
price than securities issued by U.S. corporations or issued or guaranteed by the
U.S. government, its agencies or instrumentalities. The markets on which such
securities trade may have less volume and liquidity, and may be more volatile
than securities markets in the United States. In addition, there may be less
publicly available information about a foreign company than about a U.S.
domiciled company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to U.S. domestic companies. There is generally less government
regulation of securities exchanges, brokers and listed companies abroad than in
the United States. Confiscatory taxation or diplomatic developments could also
affect investment in those countries. In addition, foreign branches of U.S.
banks, foreign banks and foreign issuers may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting, and
record keeping standards than those applicable to domestic branches of U.S.
banks and U.S. domestic issuers.
In many instances, foreign debt securities may provide higher yields
than securities of domestic issuers which have similar maturities and quality.
Under certain market conditions, these investments may be less liquid than the
securities of U.S. corporations and are certainly less liquid than securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
Finally, in the event of a default of any such foreign debt obligations, it may
17
<PAGE> 20
be more difficult for a Fund to obtain or 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 a U.S. dollar will result in a corresponding change in
the U.S. dollar value of a Fund's securities denominated in that currency. Such
changes will also affect a Fund's income and distributions to shareholders. In
addition, although a Fund will receive income on foreign securities in such
currencies, such Fund will be required to compute and distribute its income in
U.S. dollars. Therefore, if the exchange rate for any such currency declines
materially after such Fund's income has been accrued and translated into U.S.
dollars, the Fund could be required to liquidate portfolio securities to make
required distributions. Similarly, if an exchange rate declines between the time
a Fund incurs expenses in U.S. dollars and the time such expenses are paid, the
amount of such currency required to be converted into U.S. dollars in order to
pay such expenses in U.S. dollars will be greater.
For many foreign securities, U.S. dollar-denominated ADRs, which are
traded in the United States on exchanges or over-the-counter, are issued by
domestic banks. ADRs represent the right to receive securities of foreign
issuers deposited in a domestic bank or a correspondent bank. ADRs do not
eliminate all of the risk inherent in investing in the securities of foreign
issuers. However, by investing in ADRs rather than directly in foreign issuers'
stock, a Fund can avoid currency risks during the settlement period for either
purchases or sales. In general, there is a large, liquid market in the United
States for many ADRs. The information available for ADRs is subject to the
accounting, auditing and financial reporting standards of the domestic market or
exchange on which they are traded, standards which are more uniform and more
exacting than those to which many foreign issuers may be subject. The
International Fund may also invest in EDRs which are receipts evidencing an
arrangement with a European bank similar to that for ADRs and are designed for
use in the European securities markets. EDRs are not necessarily denominated in
the currency of the underlying security.
Certain of the ADRs and EDRs, typically those categorized as
unsponsored, require the 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 Bond Fund,
Small Capitalization Fund, Mid Capitalization Fund and International Fund may
invest in debt securities denominated in the ECU, which is a "basket" unit of
currency consisting of specified amounts of the currencies of certain of the 12
member states of the European Community. The specific amounts of the 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 market
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<PAGE> 21
stability of such securities. European governments and supranationals, in
particular, issue ECU-denominated obligations.
FOREIGN CURRENCY TRANSACTIONS
-----------------------------
Each of the Bond Fund, Small Capitalization Fund, Mid Capitalization
Fund and International Fund may utilize foreign currency transactions in its
portfolio. The value of the assets of a Fund, as measured in United States
dollars, may be affected favorably or unfavorably by changes in foreign currency
exchange rates and exchange control regulations, and a Fund may incur costs in
connection with conversions between various currencies. A Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or through
forward contracts to purchase or sell foreign currencies. A forward currency
exchange contract ("forward currency contracts") involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These forward currency contracts are
traded directly between currency traders (usually large commercial banks) and
their customers. The Funds may enter into forward currency contracts in order to
hedge against adverse movements in exchange rates between currencies.
For example, when a Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may want to establish
the United States dollar cost or proceeds, as the case may be. By entering into
a forward currency contract in United States dollars for the purchase or sale of
the amount of foreign currency involved in an underlying security transaction,
such Fund is able to protect itself against a possible loss between trade and
settlement dates resulting from an adverse change in the relationship between
the United States dollar and such foreign currency. Additionally, for example,
when a Fund believes that a foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a forward currency sale contract to
sell an amount of that foreign currency approximating the value of some or all
of that Fund's portfolio securities or other assets denominated in such foreign
currency. Alternatively, when a Fund believes it will increase, it may enter
into a forward currency purchase contract to buy that foreign currency for a
fixed U.S. dollar amount; however, this tends to limit potential gains which
might result from a positive change in such currency relationships. A Fund may
also hedge its foreign currency exchange rate risk by engaging in currency
financial futures and options transactions.
The forecasting of short-term currency market movement is extremely
difficult and whether such a short-term hedging strategy will be successful is
highly uncertain. It is impossible to forecast with precision the market value
of portfolio securities at the expiration of a forward currency contract.
Accordingly, it may be necessary for a Fund to purchase additional currency on
the spot market (and bear the expense of such purchase) if the market value of
the security is less than the amount of foreign currency such Fund is obligated
to deliver when a decision is made to buy the security and make delivery of the
foreign currency in settlement of a forward contract. Conversely, it may be
necessary to sell on the spot market
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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 the 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 a 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.
The International Fund does not intend to enter into forward currency
contracts if more than 15% of the value of its total assets would be committed
to such contracts on a regular or continuous basis. The International Fund does
not intend to enter into forward currency contracts or to maintain a net
exposure in such contracts where the International Fund would be obligated to
deliver an amount of foreign currency in excess of the value of the
International Fund's portfolio securities or other assets denominated in that
currency.
For further information about the characteristics, risks and possible
benefits of options, futures and foreign currency transactions, see "INVESTMENT
OBJECTIVES AND POLICIES Additional Information on Portfolio Instruments" in the
Statement of Additional Information.
FUTURES CONTRACTS
-----------------
Each of the Bond Fund, Small Capitalization Fund, Mid Capitalization
Fund and International Fund may also enter into contracts for the future
delivery of securities or foreign currencies and futures contracts based upon a
specific security, class of securities, foreign currency or an index, purchase
or sell options on any futures contracts and engage in related closing
transactions. A futures contract on a securities index is an agreement
obligating either party to pay, and entitling the other party to receive, while
the contract is outstanding, cash payments based on the level of a specified
securities index.
A Fund may engage in such futures contracts in an effort to hedge
against market risks. For example, when interest rates are expected to rise or
market values of portfolio securities are expected to fall, a Fund can seek
through the sale of futures contracts to offset a decline in the value of its
portfolio securities. When interest rates are expected to fall or market values
are
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<PAGE> 23
expected to rise, a Fund, through the purchase of such contracts, can attempt to
secure better rates or prices for the Fund than might later be available in the
market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums
paid for related options, may not exceed 5% of a Fund's total assets, and the
value of securities that are the subject of such futures and options (both for
receipt and delivery) may not exceed one-third of the market value of a Fund's
total assets. Futures transactions will be limited to the extent necessary to
maintain each Fund's qualification as a regulated investment company.
Futures transactions involve brokerage costs and require a Fund to
segregate assets to cover contracts that would require it to purchase securities
or currencies. A Fund may lose the expected benefit of futures transactions if
interest rates, exchange rates or securities prices move in an unanticipated
manner. Such unanticipated changes may also result in poorer overall performance
than if the Fund had not entered into any futures transactions. In addition, the
value of a Fund's futures positions may not prove to be perfectly or even highly
correlated with the value of its portfolio securities or foreign currencies,
limiting the Fund's ability to hedge effectively against interest rate, exchange
rate and/or market risk and giving rise to additional risks. There is no
assurance of liquidity in the secondary market for purposes of closing out
futures positions.
GOVERNMENT OBLIGATIONS
----------------------
Subject to the investment parameters described above, all of the Funds
may invest in obligations issued or guaranteed by the U.S. government or its
agencies or instrumentalities. The types of U.S. government obligations in which
each of these Funds may invest include U.S. Treasury notes, bills, bonds, and
any other securities directly issued by the U.S. government for public
investment, which differ only in their interest rates, maturities, and times of
issuance. Stripped Treasury Obligations are also permissible investments.
Stripped securities are issued at a discount to their "face value" and may
exhibit greater price volatility than ordinary debt securities because of the
manner in which their principal and interest are returned to investors. The
Stripped Treasury Obligations in which the Prime Obligations Fund may invest do
not include certificates of accrual on Treasury securities ("CATS") or Treasury
income growth receipts ("TIGRs").
Obligations of certain agencies and instrumentalities of the U.S.
government, such as the Government National Mortgage Association ("GNMA"), are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of 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,
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such as those of the Federal Farm Credit Banks or the Federal Home Loan Mortgage
Corporation ("FHLMC"), are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. government would provide financial
support to U.S. government-sponsored agencies or instrumentalities, such as
FNMA, SLMA, or the FHLMC, since it is not obligated to do so by law. These
agencies or instrumentalities are supported by the issuer's right to borrow
specific amounts from the U.S. Treasury, the discretionary authority of the U.S.
government to purchase certain obligations from such agencies or
instrumentalities, or the credit of the agency or instrumentality. The Funds
which may invest in these government obligations will invest in the obligations
of such agencies or instrumentalities only when First of America believes that
the credit risk with respect thereto is minimal.
GUARANTEED INVESTMENT CONTRACTS ("GICS")
----------------------------------------
The Bond Fund and the Prime Obligations Fund may invest in GICs. When
investing in GICs, the 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 may invest in
GICs of insurance companies without regard to the ratings, if any, assigned to
such insurance companies' outstanding debt securities. The Prime Obligations
Fund may only invest in GICs that have received the requisite ratings by one or
more NRSROs. See "Investment Objective and Policies of the Prime Obligations
Fund" in this prospectus. Because a Fund may not receive the principal amount of
a GIC from the insurance company on 7 days' notice or less, the GIC is
considered an illiquid investment. For the 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 assets may be
invested in instruments which are considered to be illiquid. In determining
average portfolio maturity, GICs will be deemed to have a maturity equal to the
period of time remaining until the next readjustment of the guaranteed interest
rate.
MEDIUM-GRADE SECURITIES
-----------------------
The Bond Fund may invest in fixed-income securities rated within the
fourth highest rating group assigned by an NRSRO (i.e., BBB or Baa by S&P and
Moody's, respectively) and comparable unrated securities as determined by the
Investment Adviser. These types of fixed-income securities are considered by the
NRSROs to have some speculative characteristics, and are more vulnerable to
changes and economic conditions, higher interest rates or adverse issuer-
specific developments which are more likely to lead to 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 the Bond Fund to fall below the fourth highest rating category,
First of America will consider such an event in determining whether the Bond
Fund should continue to hold that security. In no
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event, however, would the Bond Fund be required to liquidate any such portfolio
security where the Bond Fund would suffer a loss on the sale of such security.
MORTGAGE-RELATED SECURITIES
---------------------------
Each of the Funds, except the International Fund, may invest in
mortgage-related securities issued or guaranteed by the U.S. government or its
agencies or instrumentalities. Such agencies or instrumentalities include the
GNMA, FNMA and FHLMC. The Bond Fund and the Prime Obligations Fund may also
invest in mortgage-related securities issued by non-governmental entities which
are rated, at the time of purchase, within the three highest bond rating groups
assigned by an NRSRO or, if unrated, which First of America deems to 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 30-year
fixed-rate mortgage obligations, graduated payment mortgage obligations, 15-year
mortgage obligations and/or adjustable-rate mortgage obligations. All of these
mortgage obligations can be used to create pass-through securities when they 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 maturities would indicate. Because the prepayment characteristics of the
underlying mortgage obligations vary, it is not possible to predict accurately
the realized yield or average life of a particular issue of pass-through
certificates. Prepayment rates are important because of their effect on the
yield and price of the securities. Accelerated prepayments have an adverse
impact on yields for pass-throughs purchased at a premium (i.e., a price in
excess of principal amount) and may involve additional risk of loss of principal
because the premium may not have been fully amortized at the time the obligation
is prepaid. The opposite is true for pass-throughs purchased at a discount. The
Funds may purchase mortgage-related securities at a premium or at a discount.
If a Fund purchases a mortgage-related security at a premium, that
portion may be lost if there is a decline in the market value of the security,
whether resulting from changes in interest rates or prepayments in the
underlying mortgage collateral. As with other interest-bearing securities, the
prices of such securities are inversely affected by changes in interest rates.
However, though the value of a mortgage-related security may decline when
interest rates rise, the converse is not necessarily true, since in periods of
declining interest rates the mortgages underlying the securities are prone to
prepayment, thereby shortening the average life of the security and shortening
the period of time over which income at the higher rate is received. When
interest rates are rising, though, the rate of prepayment tends to decrease,
thereby lengthening the period of time over which income at the lower rate is
received. For these and other reasons, a mortgage-related security's average
maturity may be shortened or lengthened as a result of interest rate
fluctuations and, therefore, it is not possible to predict accurately the
23
<PAGE> 26
securities' return to a 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 associations, 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 Federal Home Loan Banks.
Participation certificates issued by FHLMC are guaranteed as to the timely
payment of interest and ultimate collection of principal, but are not backed by
the full faith and credit of the United States government.
Mortgage-related securities in which the above-named Funds may invest
may also include collateralized mortgage obligations ("CMOs"). CMOs are debt
obligations issued generally by finance subsidiaries or trusts that are secured
by mortgage-backed certificates, including, in many cases, certificates issued
by government-related guarantors, including GNMA, FNMA and FHLMC, together with
certain funds and other collateral. Although payment of the principal of and
interest on the mortgage-backed certificates pledged to secure the CMOs may be
guaranteed by GNMA, FNMA or FHLMC, the CMOs represent obligations solely of the
issuer and are not insured or guaranteed by GNMA, FHLMC, FNMA or any other
governmental agency, or by any other person or entity. The issuers of the CMOs
typically have no significant assets other than those pledged as collateral for
the obligations.
MUNICIPAL SECURITIES
--------------------
The two principal classifications of municipal securities which may be
held by the Bond Fund and the Prime Obligations Fund are "general obligation"
securities and "revenue" securities. General obligation securities are secured
by the issuer's pledge of its full faith, credit and taxing power for the
payment of principal and interest. Revenue securities are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source such as the user of the facility being financed.
24
<PAGE> 27
The Bond Fund and the Prime Obligations Fund may also invest in "moral
obligation" securities, which are normally issued by special purpose public
authorities. If the issuer of moral obligation securities is unable to meet its
debt service obligations from current revenues, it may draw on a reserve fund,
the restoration of which is a moral commitment, but not a legal obligation of
the state or municipality which created the issuer.
The Bond Fund invests primarily in municipal securities which are rated
at the time of purchase within the four highest rating groups assigned by an
NRSRO or in the highest rating group assigned by an NRSRO in the case of notes,
tax-exempt commercial paper or variable rate demand obligations. The Prime
Obligations Fund may invest in municipal securities only in compliance with the
requirements of Rule 2a-7 under the 1940 Act, which generally requires that it
invest only in securities rated in the two highest rating groups assigned by an
NRSRO (with no more than five percent of its assets invested in securities rated
in the second highest rating group). The Funds may also purchase municipal
securities which are unrated at the time of purchase but are determined to be of
comparable quality by First of America pursuant to guidelines approved by the
Trust's Board of Trustees. The applicable municipal securities ratings are
described in the Appendix to the Statement of Additional Information. For a
discussion of debt securities rated within the fourth highest rating group
assigned by an NRSRO, see "RISK FACTORS AND INVESTMENT TECHNIQUES - Medium-Grade
Securities" above.
Opinions relating to the validity of municipal securities and 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 Bond
Fund, the Prime Obligations Fund nor First of America will review the
proceedings relating to the issuance of Municipal Securities or the basis for
such opinions.
OTHER MUTUAL FUNDS
------------------
Each of the Bond Fund, Small Capitalization Fund, Mid Capitalization
Fund and International Fund may invest up to 5% of the value of its total assets
in the securities of any one money market mutual fund (including, if permitted
by rule or order of the Securities and Exchange Commission, shares of a
Parkstone affiliated money market funds), provided that no more than 10% of a
Fund's total assets may be invested in the securities of mutual funds in the
aggregate. In order to avoid the imposition of additional fees as a result of
investments by a Fund in shares of a Parkstone affiliated money market fund, the
Investment Adviser, Administrator and their affiliates (See "MANAGEMENT OF THE
TRUST - Investment Adviser and Subadviser" and "Administrator, Sub-Administrator
and Distributor" and "GENERAL INFORMATION - Transfer Agent and Fund Accounting
Services") will charge their fees to one of the Trust's Funds, rather than the
affiliated money market fund. Each Fund will incur additional expenses due to
the duplication of expenses as a result of investing in securities of other
unaffiliated mutual funds. Additional restrictions regarding the Funds'
investments in securities of affiliated or unaffiliated mutual funds are
contained in the Statement of Additional Information.
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<PAGE> 28
PUT AND CALL OPTIONS
--------------------
Each of the Small Capitalization Fund, Mid Capitalization Fund, Bond
Fund, and International Fund may purchase put and call options on securities and
foreign currencies, subject to its applicable investment policies, for the
purposes of hedging against market risks related to its portfolio securities and
adverse movements in exchange rates between currencies, respectively. Purchasing
options is a specialized investment technique that entails a substantial risk of
complete loss of the amounts paid as premiums to writers of options. Each of
these Funds may also engage in writing call options from time to time as First
of America or Gulfstream, as the case may be with respect to the International
Fund, deem appropriate. The Funds will write only covered call options (options
on securities or currencies owned by the particular Fund). In order to close out
a call option it has written, the Fund will enter into a "closing purchase
transaction" (the purchase of a call option on the same security or currency
with the same exercise price and expiration date as the call option which such
Fund previously has written). When a portfolio security or currency subject to a
call option is sold, the Fund will effect a closing purchase transaction to
close out any existing call option on that security or currency. If such Fund is
unable to effect a closing purchase transaction, it will not be able to sell the
underlying security or currency until the option expires or that Fund delivers
the underlying security or currency upon exercise. In addition, upon the
exercise of a call option by the option holder, the Fund will forego the
potential benefit represented by market depreciation over the exercise price.
Under normal market conditions, it is not expected that the Funds 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 the International Fund, 20%
of its net assets.
Each of the Small Capitalization Fund, Mid Capitalization Fund and
International Fund, as part of its options transactions, also may purchase index
put and call options and write index options. As with options on individual
securities, a Fund will write only covered index call options. Through the
writing or purchase of index options a Fund can achieve many of the same
objectives as through the use of options on individual securities. Options on
securities indices are similar to options on a security except that, rather than
the right to take or make delivery of a security at a specified price, an option
on a securities index gives the holder the right to receive, upon exercise of
the option, an amount of cash if the closing level of the securities index upon
which the option is based is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option.
Price movements in securities which a Fund owns or intends to purchase
probably will not correlate perfectly with movements in the level of an index
and, therefore, a Fund bears the risk of a loss on an index option that is not
completely offset by movements in the price of such securities. Because index
options are settled in cash, a call writer cannot determine the amount of its
settlement obligations in advance and, unlike call writing on specific
securities, cannot provide an 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.
26
<PAGE> 29
REPURCHASE AGREEMENTS
---------------------
Securities held by a Fund may be subject to repurchase agreements.
Under the terms of a repurchase agreement, a Fund acquires securities from a
financial institution such as a member bank of the Federal Deposit Insurance
Corporation or a registered broker-dealer which First of America or Gulfstream,
as the case may be, deems creditworthy under guidelines approved by the Trust'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
generally equals the price paid by the Fund plus interest negotiated on the
basis of current short-term rates, which may be more or less than the rate on
the underlying portfolio securities. Securities subject to repurchase agreements
will be held in a segregated account. If the seller were to default on its
repurchase obligation or become insolvent, the Fund would suffer a loss to the
extent that the proceeds from a sale of the underlying portfolio securities were
less than the repurchase price under the agreement, or to the extent that the
disposition of such securities by the Fund were delayed pending court action.
Repurchase agreements are considered to be loans by an investment company under
the 1940 Act. For further information about repurchase agreements, see
"INVESTMENT OBJECTIVES AND POLICIES - Additional Information on Portfolio
Instruments-Repurchase Agreements" in the Statement of Additional Information.
RESTRICTED SECURITIES
---------------------
Securities in which the Funds may invest include securities issued by
corporations without registration under the Securities Act of 1933, as amended
(the "1933 Act"), in reliance on the exemption from such registration afforded
by Section 3(a)(3) thereof, and securities issued in reliance on the so-called
"private placement" exemption from registration which is afforded by Section
4(2) of the 1933 Act ("Section 4(2) securities"). Section 4(2) securities are
restricted as to disposition under the federal securities laws, and generally
are sold to institutional investors, such as the Funds, who agree that they are
purchasing the securities for investment and not with a view to public
distribution. Any resale must also generally be made in an exempt transaction.
Section 4(2) securities are normally resold to other institutional investors
through or with the assistance of the issuer or investment dealers who make a
market in such Section 4(2) securities, thus providing liquidity. Pursuant to
the procedures adopted by the Trust's Board of Trustees, First of America may
determine Section 4(2) securities to be liquid if such securities are eligible
for resale under Rule 144A under the 1933 Act and are readily saleable.
Subject to the limitations described above, the Funds may acquire
investments that are illiquid or of limited liquidity, such as private
placements or investments that are not registered under the 1933 Act. An
illiquid investment is any investment that cannot be disposed of within seven
days in the normal course of business at approximately the amount at which it is
valued by a Fund. The price a Fund pays for illiquid securities or receives upon
resale may be lower than the price paid or received for similar securities with
a more liquid market. Accordingly, the valuation of these securities will
reflect any limitations on their liquidity. A Fund may not invest in additional
illiquid securities if, as a result, more than 15% of the market value of its
27
<PAGE> 30
net assets would be invested in illiquid securities or, in the case of the Prime
Obligations Fund, if more than 10% of its net assets would be invested in
illiquid securities.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS
--------------------------------------------------------
Each of the Funds may borrow money by entering into reverse repurchase
agreements, and in the case of the Bond Fund, 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 Bond Fund 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 or 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
insure that such equivalent value is maintained at all times. Reverse repurchase
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 and dollar roll agreements are
considered to be borrowings by an investment company under the 1940 Act and,
therefore, a form of leverage. A Fund may experience a negative impact on its
net asset value if interest rates rise during the term of a reverse repurchase
agreement or dollar roll agreement. A Fund generally will invest the proceeds of
such borrowings only when such borrowings will enhance a Fund's liquidity or
when the Fund reasonably expects that the interest income to be earned from the
investment of the proceeds is greater than the interest expense of the
transaction. For further information about reverse repurchase and dollar roll
agreements, see "INVESTMENT OBJECTIVES AND POLICIES - Additional Information on
Portfolio Instruments-Reverse Repurchase Agreements and Dollar Roll Agreements"
in the Statement of Additional Information.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
---------------------------------------------
Each of the Funds may purchase securities on a when-issued or
delayed-delivery basis. The Funds will engage in when-issued and
delayed-delivery transactions only for the purpose of acquiring portfolio
securities consistent with its investment objective 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 risk that the
yield obtained in the transaction will be less than those available in the
market when the delivery takes place. A Fund will not pay for such securities or
start earning interest on them until they are received. When a Fund agrees to
purchase such securities, its custodian will set aside cash or liquid securities
equal to the amount of the commitment in a separate account. Securities
purchased on a when-issued basis are recorded as an asset and are subject to
changes in the value based upon changes in the general level of interest rates.
In when-issued and delayed-delivery transactions, a Fund relies on the seller to
complete the transaction; the seller's failure to do so may cause such Fund to
miss a price or yield considered to be advantageous.
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<PAGE> 31
No Fund's commitment to purchase "when-issued" securities will exceed
25% of the value of its total assets under normal market conditions, and a
commitment by a Fund to purchase "when-issued" securities will not exceed 60
days. In the event that its commitments to purchase when-issued securities ever
exceeded 25% of the value of its assets, a Fund's liquidity and the ability of
First of America or Gulfstream, as the case may be, to manage it might be
adversely affected. The Funds intend only to purchase "when-issued" securities
for the purpose of acquiring portfolio securities, not for investment leverage
although such transactions represent a form of leveraging.
LENDING PORTFOLIO SECURITIES
----------------------------
In order to generate additional income, each of the Funds may, from
time to time, lend its portfolio securities to broker-dealers, banks, or
institutional borrowers of securities. A Fund must receive 100% collateral in
the form of cash or U.S. government securities. This collateral will be valued
daily by First of America or by the Subadviser, as the case may be. Should the
market value of the loan securities increase, the borrower must furnish
additional collateral to that Fund. During the time portfolio securities are on
loan, the borrower pays that Fund any dividends or interest paid on such
securities. Loans are subject to termination by the Fund or the borrower at any
time. While a Fund does not have the right to vote securities on loan, each Fund
intends to terminate the loan and regain the right to vote if that is considered
important with respect to the investment. In the event the borrower defaults in
its obligation to a Fund, such Fund bears the risk of delay in the recovery of
its portfolio securities and the risk of rights in the collateral. The Funds
will enter into loan agreements only with broker-dealers, banks, or other
institutions that First of America or the Subadviser, as the case may be, has
determined are creditworthy under guidelines established by the Trust's Board of
Trustees.
PORTFOLIO TURNOVER
------------------
The portfolio turnover rate for each Fund is calculated by dividing the
lesser of a Fund's purchases or sales of portfolio securities for the year by
the monthly average value of the portfolio securities. The SEC requires that the
calculation exclude all securities whose remaining maturities at the time of
acquisition are one year or less. Because the Prime Obligations Fund intends to
invest primarily in securities with maturities of less than one year (although
each may invest in securities with maturities of up to thirteen months) and
because the SEC requires such securities to be excluded from the calculation of
portfolio turnover rate, the portfolio turnover rate with respect to the Prime
Obligations Fund is expected to be zero for regulatory purposes. For portfolio
turnover rates for each of the other Funds, see "FINANCIAL HIGHLIGHTS" above.
The portfolio turnover rate for a Fund may vary greatly from year to
year, as well as within a particular year, and may also be affected by cash
requirements for redemption of shares. High portfolio turnover rates will
generally result in higher transaction costs, including brokerage commissions,
to a Fund and may result in additional tax consequences to a Fund's
shareholders. Portfolio turnover will not be a limiting factor in making
investment decisions.
29
<PAGE> 32
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that may be
changed only by a vote of a majority of the outstanding shares of that Fund (as
defined in the Statement of Additional Information).
No Fund may:
1. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in such issuer, or the Fund would hold more 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 on 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 described above, and
pursuant to Rule 2a-7 under the 1940 Act, the Prime Obligations Fund will, with
respect to 100% of its total assets, limit its investment in the securities of
any one issuer in the manner provided by such Rule, which limitations are
referred to above under the caption "Investment Objective and Policies of the
Prime Obligations Fund."
2. Purchase any securities which would cause more than 25% of the value
of the Fund's total assets at the time of purchase to be invested in securities
of one or more issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the U.S.
government or its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their parents;
and (c) utilities will be divided according to their services. For example, gas,
gas transmission, electric and gas, electric, and telephone will each be
considered a separate industry.
3. (a) Borrow money (not including reverse repurchase agreements 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% (10% in the
case of the Prime Obligations Fund) of its total assets at the time of borrowing
(and provided that such bank borrowings and reverse repurchase agreements and
dollar roll agreements do not exceed in the aggregate one-third of the Fund's
total assets less liabilities other than the obligations represented by the bank
borrowings, reverse repurchase agreements and dollar roll agreements), or
mortgage, pledge or hypothecate any assets except in connection with a bank
borrowing in amounts not to exceed 30% of the Fund's net assets at the time of
borrowing; (b) enter into reverse repurchase agreements and other permitted
borrowings in amounts exceeding in the aggregate one-third of the Fund's total
assets less liabilities other than the obligations represented by such reverse
30
<PAGE> 33
repurchase agreements and dollar roll agreements; and (c) issue senior
securities except as permitted by the 1940 Act or any rule, order or
interpretation thereunder.
4. Make loans, except that a Fund may purchase or hold debt instruments
and lend portfolio securities in accordance with its investment objective and
policies, and may enter into repurchase agreements.
For purposes only of investment limitation number two above only, such
limitation shall not apply to municipal securities or governmental guarantees of
municipal securities. Industrial development bonds or private activity bonds
that are backed only by the assets and revenues of a nongovernmental user shall
not be deemed to be municipal securities.
The following additional investment restriction may be changed without
the vote of a majority of the outstanding shares of a Fund.
No Fund may:
1. Purchase or otherwise acquire any securities, if as a result, more
than 15% (10% for the Prime Obligations Fund) of the Fund's net assets would be
invested in securities that are illiquid.
In addition to the above investment restrictions, the Funds are subject
to certain other investment restrictions set forth under "INVESTMENT OBJECTIVES
AND POLICIES -- Investment Restrictions" in the Statement of Additional
Information.
MANAGEMENT OF THE TRUST
The business and affairs of the Trust are managed under the direction
of the Trust's Board of Trustees. The Trust will be managed by the Trustees in
accordance with the laws of the Commonwealth of Massachusetts governing business
trusts. There are currently six Trustees, three of whom are not "interested
persons" of the Trust within the meaning of that term under the 1940 Act. The
Trustees, in turn, elect the officers of the Trust to supervise actively its day
to day operations.
The names, addresses and principal occupations during the past five
years of the Trustees are set forth in the Statement of Additional Information.
The Trustees of the Trust receive quarterly fees and fees and expenses for each
meeting of the Board of Trustees attended. However, no officer or employee of
BISYS, BISYS Ohio or First of America Bank Corporation ("FABC") receives any
compensation from the Trust for acting as a Trustee of the Trust. The officers
of the Trust receive no compensation directly from the Trust for performing the
duties of their offices. BISYS receives fees from the Trust for acting as
Administrator. BISYS Ohio, an affiliate of BISYS, receives fees from the Trust
for acting as Transfer Agent and for providing certain fund accounting services.
31
<PAGE> 34
INVESTMENT ADVISER AND SUBADVISER
---------------------------------
First of America, 303 North Rose Street, Kalamazoo, Michigan 49007, was
established in 1932 and is the investment adviser of the Trust. First of
America, a registered investment adviser, is a wholly-owned subsidiary of
FOA-Michigan, which is a wholly-owned subsidiary of FABC. As of December 31,
1996, FABC had over $20 billion in assets and was providing financial services
to communities in Michigan, Indiana, Illinois and Florida. As of December 31,
1996, First of America managed over $14.3 billion on behalf of both taxable and
tax-exempt clients, including pensions, endowments, corporations and individual
portfolios. Of that amount, First of America acted as subadviser to the Trust
Division of FABC providing equity, fixed income, balanced and money management
services with respect to $3.7 billion in discretionary assets.
Subject to such policies as the Trust's Board of Trustees may
determine, First of America, either directly or, with respect to the
International Fund, through Gulfstream, furnishes a continuous investment
program for each Fund and makes investment decisions on behalf of each Fund.
First of America utilizes a team approach to the investment management
of the Funds, with up to three professionals working as a team to ensure a
disciplined investment process designed to result in long-term performance
consistent with each Fund's investment objectives. Roger H. Stamper, Director of
First of America, is primarily responsible for the day-to-day management of the
Mid Capitalization Fund and the Small Capitalization Fund. Mark R. Kummerer,
Managing Director-Fixed Income of First of America, is primarily responsible for
the day-to-day management of the Bond Fund. Messrs. Stamper and Kummerer have
held their respective positions with First of America since 1988 and 1986,
respectively.
For the services provided and expenses assumed pursuant to its
Investment Advisory Agreement with the Trust, First of America receives a fee
from each of the Small Capitalization Fund and Mid Capitalization Fund, computed
daily and paid monthly, at the annual rate of 1.00% of that Fund's average daily
net assets. For the services in connection with the International Fund, First of
America's fee is computed daily and paid monthly, at the annual rate of 1.25% of
the first $50 million of the International Fund's average daily net assets,
1.20% of average daily net assets between $50 million and $100 million, 1.15% of
average daily net assets between $100 million and $400 million and 1.05% of
average daily net assets above $400 million. For its services in connection with
the Bond Fund, First of America's fee is computed daily and paid monthly, at the
annual rate of 0.74% of that Fund's average daily net assets. For its services
in connection with the Prime Obligations Fund, First of America's fee is
computed daily and paid monthly, at the annual rate of 0.40% of that Fund's
average daily net assets. First of America may periodically voluntarily reduce
all or a portion of its advisory fee with respect to a Fund to increase the net
income of that Fund available for distribution as dividends. The voluntary fee
reduction will cause the yield of that Fund to be higher than it would otherwise
be in the absence of such a reduction.
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<PAGE> 35
Pursuant to the terms of its Investment Advisory Agreement with the
Trust, First of America has entered into a Sub-Investment Advisory Agreement
with Gulfstream, 100 Crescent Court, Suite 550, Dallas, Texas 75201. Pursuant to
the terms of such Sub-Investment Advisory Agreement, Gulfstream has been
retained by First of America to manage the investment and reinvestment of the
assets of the International Fund, subject to the direction and control of the
Trust's Board of Trustees.
Under this arrangement, Gulfstream is responsible for day-to-day
management of the International Fund's assets, reviewing investment performance
policies and guidelines and maintaining certain books and records, and First of
America is responsible for selecting and monitoring the performance of
Gulfstream and for reporting the activities of Gulfstream in managing the
International Fund to the Trust's Board of Trustees. First of America may also
render advice with respect to the International Fund's investments in the United
States. Gulfstream utilizes a team approach to the investment management of the
International Fund to ensure a disciplined investment process designed to result
in long-term performance consistent with its investment objective. No one person
is responsible for the Fund's management.
For its services provided and expenses assumed pursuant to its
Sub-Investment Advisory Agreement with First of America, Gulfstream receives
from First of America a fee, computed daily and paid monthly, at the annual rate
of 0.50% of the first $50 million of the International Fund's average daily net
assets which are invested in foreign securities, 0.45% of such average daily net
assets between $50 million and $100 million, 0.40% of such average daily net
assets between $100 million and $400 million and 0.30% of such average daily net
assets above $400 million, provided the minimum annual fee shall be $75,000.
Gulfstream was organized in 1991 as a Texas limited partnership by
Tull, Doud, Marsh & Triltsch, Inc., a Texas corporation ("TDMT"). TDMT is the
sole general partner of Gulfstream. TDMT is owned by C. Thomas Tull, Stephen C.
Doud, James P. Marsh and Reiner M. Triltsch. Messrs. Tull, Doud and Triltsch are
the portfolio managers and Mr. Marsh is responsible for client services with
Gulfstream. First of America is the sole limited partner and as of August 31,
1996 exercised options to increase its interest in Gulfstream from 49% to *72%.
As of December 31, 1996, Gulfstream had over $706 million in international
assets of institutional, investment company, governmental, pension fund and high
net worth individual clients under its investment management. Gulfstream's
portfolio management personnel average 20 years of investment experience and 9
years of international investment experience.
Under Gulfstream's partnership agreement, First of America possesses
veto authority over the general budgetary affairs of Gulfstream. Because of its
current 72% ownership interest, First of America is deemed to control Gulfstream
for purposes of the 1940 Act.
For further information regarding the relationship between Gulfstream
and First of America, see "MANAGEMENT OF THE TRUST - Investment Adviser" in the
Statement of Additional Information.
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<PAGE> 36
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 Trust 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 Trust'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.
ADMINISTRATOR
-------------
Effective July 1, 1996, BISYS, 3435 Stelzer Road, Columbus,
Ohio 43219, began serving as administrator to the Trust (the "Administrator").
Prior to that date, Security Management Company ("Security Management") served
as the Trust's administrator. Security Management is an indirect wholly-owned
subsidiary of Security Benefit Life Insurance Company.
The Administrator generally assists the Funds in their administration
and operation. For the services provided to the Funds, the Administrator is
entitled to receive administration fees, computed daily and paid monthly, at the
annual rate of 0.20% of the combined average daily net assets of the Funds up to
$1 billion. In the event that the combined average daily net assets of the Funds
exceed $1 billion, the parties intend to review the level of compensation
payable to the Administrator for its administrative services. In addition, the
Administrator also receives a separate annual fee from each Fund for certain
Fund accounting services. From time to time, the Administrator may waive all or
a portion of the administration fee payable to it by the Funds, either
voluntarily or pursuant to applicable statutory expense limitations.
DISTRIBUTOR
-----------
Shares of each Fund are sold on a continuous basis by the Trust's
distributor. Effective July 1, 1996, BISYS began serving as the Trust's
distributor (the "Distributor"). Until that time, Security Distributors, Inc.
("SDI"), a wholly-owned subsidiary of Security Benefit Life Insurance Company,
served as the Trust's distributor.
34
<PAGE> 37
TRANSFER AGENT AND FUND ACCOUNTANT
----------------------------------
Effective August 3, 1996, BISYS Ohio began serving as the transfer
agent for all Funds of the Trust (the "Transfer Agent"). Previously, Security
Management Company served as the Trust's transfer agent. In addition to serving
as transfer agent, the Transfer Agent also provides certain fund accounting
services to the Trust. Effective February 12, 1997, the Transfer Agent receives
an annual fee for its transfer agency services equal to $15,000 per Fund. The
Transfer Agent also receives an annual fee for its fund accounting services
equal to $10,000 per Fund. The Prime Obligations Fund pays an additional annual
fee of 0.016% of its average daily net assets. Each of the Small Capitalization
Fund, Mid Capitalization Fund and Bond Fund pays an additional annual fee of
0.022% of its average daily net assets and the International Fund pays an
additional annual fee of 0.035% of its average daily net assets.
CUSTODIAN
---------
Union Bank, 475 Sansome Street, San Francisco, California 94111, serves
as custodian of the Funds' assets. Services performed by Union Bank for the
Funds are described in the Statement of Additional Information.
DESCRIPTION OF THE TRUST AND ITS SHARES
The Trust was organized as a Massachusetts business trust on May 18,
1993. The Trust is a series fund currently authorized to issue its shares in the
following five series: Prime Obligations Fund; Small Capitalization Fund; Mid
Capitalization Fund; Bond Fund; and International Fund. Each share of the Trust
has no par value, represents an equal proportionate interest in the related Fund
with other shares of the same class, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to such Fund as
are declared in the discretion of the Board of Trustees. The Trust's Declaration
of Trust authorizes the Board of Trustees to classify or reclassify any class or
series of shares into one or more classes or series of shares.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by Fund, expect as otherwise expressly required by law or
when the Board of Trustees determines that the matter to be voted on affects
only the interests of shareholders of a particular Fund. The rights accompanying
Fund shares are legally vested in the separate accounts. However, holders of
variable annuity contracts and variable life insurance policies funded through
the separate accounts generally have the right to instruct separate accounts as
to voting Fund shares on all matters to be voted on by Fund shareholders. Voting
rights of the participants of the separate accounts are more fully set forth in
the prospectus relating to those accounts issued by the Participating Insurance
Companies.
The Trust is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove trustees.
35
<PAGE> 38
PURCHASE AND REDEMPTION OF SHARES
Investors may not purchase or redeem shares of the Funds directly, but
only through the variable annuity contracts and variable life insurance policies
offered through the separate accounts of Participating Insurance Companies. You
should refer to the prospectus of the Participating Insurance Company's separate
account for information on how to purchase a variable annuity contract or
variable life insurance policy, how to select specific Funds of the Trust as
investment options for your contract or policy and how to redeem monies from the
Trust.
The Separate Accounts of the Participating Insurance Companies place
orders to purchase and redeem shares of the Funds, based on, among other things,
the amount of premium payments to be invested and the amount of surrender and
transfer requests (as defined in the Prospectus describing the variable annuity
contracts and variable life insurance policies issued by the Insurance
Companies) to be effected on that day pursuant to variable annuity contracts and
variable life insurance policies. Orders received by the Trust are effected on
days on which the New York Stock Exchange ("NYSE") is open for trading. Orders
for the purchase and redemption of shares of a Fund received before the NYSE
closes are effected at the net asset value per share determined as of the close
of trading on the NYSE (generally 4:00 p.m. Eastern time) that day. Orders
received after the NYSE closes are effected at the next calculated net asset
value. Payment for redemptions will be made by the Funds within 7 days after the
request is received. The Trust may suspend the right of redemption under certain
extraordinary circumstances in accordance with the rules of the SEC.
The Funds do not assess any fees, either when they sell or redeem their
shares. Withdrawal charges, mortality and expense risk fees and other charges
may be assessed by Participating Insurance Companies under the variable annuity
contracts or variable life insurance policies. These fees are described in the
Participating Insurance Companies' prospectuses.
As of the date of this Prospectus, Security Benefit Life Insurance
Company is the only Participating Insurance Company. Shares of the Funds may
however, pursuant to an exemptive order from the SEC, be sold to and held by
separate accounts that fund variable annuity and variable life insurance
contracts issued by both affiliated and unaffiliated Participating Insurance
Companies. The Trust currently does not foresee any disadvantages to the holders
of variable annuity contracts and variable life insurance policies of affiliated
and unaffiliated Participating Insurance Companies arising from the fact that
interests of the holders of variable annuity contracts and variable life
insurance policies may differ due to differences of tax treatment or other
considerations or due to conflicts between the affiliated or unaffiliated
Participating Insurance Companies. Nevertheless, the Trustees will monitor
events to seek to identify any material irreconcilable conflicts which may
possibly arise and to determine what action, if any, should be taken in response
to such conflicts. Should a material unreconcilable conflict arise between the
holders of variable annuity contracts and variable life insurance policies of
affiliated or unaffiliated Participating Insurance Companies, the Participating
Insurance Companies may be required to withdraw the assets allocable to some or
all of the Separate Accounts from the Funds. Any such withdrawal could disrupt
orderly portfolio management to the potential
36
<PAGE> 39
detriment of such holders (See "MISCELLANEOUS" below for more details). The
variable annuity contracts and variable life insurance policies are described in
the separate prospectuses issued by the Participating Insurance Companies. The
Trust assumes no responsibility for such prospectuses.
FEES AND EXPENSES
While the advisory fees paid by the Trust are higher than the advisory
fees paid by most mutual funds, the Board of Trustees believes them to be
comparable to advisory fees paid by many funds having similar objectives and
policies. First of America may periodically voluntarily reduce all or a portion
of its advisory fee with respect to a Fund to increase the net income of that
Fund available for distribution as dividends. The voluntary fee reduction will
cause the return of that Fund to be higher than it would otherwise be in the
absence of such reduction.
ANNUAL FUND EXPENSES AFTER EXPENSE LIMITATION
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
Prime Small Mid International
Obligations Capitalization Capitalization Bond Discovery
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Management Fees............................. 0.40% 1.00% 1.00% 0.74% 1.25%
Administration Fees......................... 0.20% 0.20% 0.20% 0.20% 0.20%
Other Expenses After Voluntary Fee
Reduction*.................................. 0.41% 0.20% 0.22% 0.35% 0.55%
Total Fund Operating Expenses............. 1.01% 1.40% 1.42% 1.29% 2.00%
<FN>
* Currently, no fees are being voluntarily waived.
</TABLE>
The above expenses as shown for the Funds are based on estimated
expenses for the current fiscal year. The expenses which are borne by the Funds,
including Other Expenses to which reference is made in the above table, are
discussed below. The contracts and separate accounts of the Participating
Insurance Companies also incur fees and expenses. Investors should consult the
prospectus issued by the Participating Insurance Company describing the variable
annuity contract or variable life insurance policy for more information on such
additional fees and expenses.
Except as noted elsewhere in this Prospectus, First of America,
Gulfstream and BISYS bear all expenses in connection with the performance of
their services for the Funds. The Trust bears the expenses in connection with
the Funds' operations, whether incurred directly or on its behalf by First of
America, Gulfstream, BISYS or the Participating Insurance Companies,
37
<PAGE> 40
including taxes; interest; fees (including fees paid to its trustees and
officers except those trustees and officers who are affiliated with BISYS or
FABC); SEC fees; state securities qualification fees; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; advisory, administration, Fund accounting and custody fees;
certain insurance premiums; outside auditing and legal expenses; costs of
shareholders' reports and shareholder meetings; and any extraordinary expenses.
The Funds also pay for brokerage fees and commissions in connection with the
purchase of portfolio securities.
HOW SHARES ARE VALUED
The net asset value of shares of the Funds, with the exception of the
Prime Obligations Fund, is determined and their shares are priced as of the
close of trading on the NYSE on each Business Day (generally 4:00 p.m. Eastern
Time)(with respect to all Funds except the Prime Obligations Fund, the
"Valuation Time"). The net asset value of the shares of the Prime Obligations
Fund is determined and priced as of 12:00 p.m. noon (Eastern Time) and as of the
close of trading on the NYSE on each Business Day (with respect to the Prime
Obligations Fund, the "Valuation Time"). A "Business Day" is a day on which the
NYSE is open for trading (other than a day on which no shares are tendered for
redemption and no order to purchase any shares is received). Currently, the NYSE
will not open in observance of the following holidays: New Year's Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
Net asset value per share for a particular Fund for purposes of pricing
sales and redemptions is calculated by dividing the value of all securities and
other assets belonging to a Fund, less the liabilities charged to that Fund, by
the number of outstanding shares of such Fund.
The net asset value per share will fluctuate as the value of the
investment portfolio of a Fund changes. However, the assets in the Prime
Obligations Fund are valued based upon the amortized cost method. Pursuant to
the rules and regulations of the SEC regarding the use of the amortized cost
method, the Prime Obligations Fund will maintain a dollar-weighted average
portfolio maturity of 90 days or less. Although the Trust seeks to maintain the
Prime Obligations Fund's net asset value per share at $1.00, there can be no
assurance that net asset value will not vary.
The securities in each Fund will be valued at market value. If market
quotations are not available, the securities will be valued by a method which
the Board of Trustees believes accurately reflects fair value. Foreign
securities are valued based on quotations from the primary market in which they
are traded and are translated from the local currency into U.S. dollars using
current exchange rates. For further information about valuation of investments,
see "NET ASSET VALUE" in the Statement of Additional Information.
DIVIDENDS AND TAXES
Each Fund expects to make a distribution of substantially all of its
net investment income and capital gains each year at least once a year.
Dividends for the Prime Obligations Fund are
38
<PAGE> 41
declared daily at the close of business on the day of declaration and paid
monthly. Dividends for the Small Capitalization Fund, Mid Capitalization Fund,
Bond Fund, and International Fund are declared and paid at least annually. Net
capital gains, if any, will be distributed at least annually. All dividends and
capital gain distributions will be automatically reinvested in additional shares
of a Fund at the net asset value of such shares on the payment date.
Each Fund intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended (the "Code"), which would relieve
a Fund of liability for federal income taxes to the extent the Fund's earnings
are distributed in accordance with the Code. In order to so qualify, a Fund must
comply with certain distribution, diversification, source of income and other
applicable requirements. If for any taxable year a Fund does not qualify for the
special federal tax treatment afforded regulated investment companies, all of
the Fund's taxable income would be subject to tax at regular corporate rates
without any deduction for distributions to shareholders. In such event, a Fund's
distributions to segregated asset accounts holding shares of the Fund would be
taxable as ordinary income to the extent of the Fund's current and accumulated
earnings and profits. A failure of a Fund to quantity as a regulated investment
company could also result in the loss of the tax favored status of variable
annuity contracts and variable life insurance policies based on a segregated
asset account which invests in the Fund.
Under Code section 817(h), a segregated asset account upon which a
variable annuity contract or variable life insurance policy is based must be
"adequately diversified." A segregated asset account will be adequately
diversified if it complies with certain diversification tests set forth in
treasury regulations. If a regulated investment company satisfies certain
conditions relating to the ownership of its shares, a segregated asset account
investing in such investment company will be entitled to treat its pro rata
portion of each asset of the investment company as an asset for purposes of
these diversification tests. The Fund intends to meet these ownership conditions
and to comply with the diversification tests described above. Accordingly, a
segregated asset account investing solely in shares of a Fund will be adequately
diversified.
Taxes may be imposed on the International Fund by foreign countries
with respect to income received on foreign securities. If more than 50% of the
value of the International Fund's assets at the close of its taxable year
consists of stocks or securities of foreign corporations, the International Fund
may elect to treat any foreign income taxes it has paid as paid by its
shareholders. In this case, shareholders generally will be required to include
in income their pro rata share of such taxes, but will then be entitled to claim
a credit or deduction for their share of such taxes. However, a particular
shareholder's ability to utilize such a credit will be subject to certain
limitations imposed by the Code. The International Fund will report to its
shareholders each year the amount, if any, of foreign taxes per share that it
has elected to have treated as paid by its shareholders.
Provided that the Fund and funds in a segregated asset account
investing in the Fund satisfy the above requirements, any distributions from the
Fund will be exempt from current federal income taxation to the extent that such
distributions accumulate in a variable annuity contract or a variable life
insurance contract.
39
<PAGE> 42
Persons investing in a variable annuity or variable life insurance
contract offered by a segregated asset account investing in a Fund should refer
to the prospectus with respect to such contract for further tax information.
The foregoing discussion of federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus and is subject
to change by legislative or administrative action. Prospective investors should
consult their own tax advisors as to the tax consequences of investments in the
Funds.
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing their
average annual total return, aggregate total return and/or yield may be
presented in advertisements, sales literature and shareholder reports. Such
performance figures are based on historical earnings and are not intended to
indicate future performance. Average annual total return of a Fund will be
calculated for the period since the establishment of the Fund and will reflect
the imposition of the maximum sales charge, if any. Average annual total return
is measured by comparing the value of an investment in a Fund at the beginning
of the relevant period to the redemption value of the investment at the end of
the period (assuming immediate reinvestment of any dividends or capital gains
distributions) and annualizing the result. Aggregate total return is calculated
similarly to average annual total return except that the return figure is
aggregated over the relevant period instead of annualized. Yield of a Fund will
be computed by dividing a Fund's net investment income per share earned during a
recent 1-month period by that Fund 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 Fund may present their respective
distribution rates for a Fund in shareholder reports and in supplemental sales
literature which is accompanied or preceded by a Prospectus and in shareholder
reports. Distribution rates will be computed by dividing the distribution per
share over a 12-month period by the maximum offering price per share. The
calculation of income in the distribution rate includes both income and capital
gains dividends and does not reflect unrealized gains or losses, although a Fund
may also present a distribution rate excluding the effect of capital gains. The
distribution rate differs from the yield, because it include 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.
Investors may also judge the performance of a Fund by comparing or
referencing it to the performance of mutual funds with comparable investment
objectives and policies through various mutual fund or market indices such as
those published by various services, including, but not limited to, ratings
published by Morningstar, Inc. In addition to performance information, general
information about the Funds that appears in such publications may be included in
advertisements, in sales literature and in reports to shareholders. For further
40
<PAGE> 43
information regarding such services and publications, see "ADDITIONAL
INFORMATION-Performance Comparisons" in the Statement of Additional Information.
Total return and yield are functions of the type and quality of
instruments held in the portfolio, levels of operating expenses, and changes in
market conditions. Consequently, total return and yield will fluctuate and are
not necessarily representative of future results. Any fees charged by FABC or
any of its affiliates with respect to customer accounts for investing in shares
of the Funds will not be included in performance calculations. Such fees, if
charged, will reduce the actual performance from that quoted. In addition, if
First of America and BISYS voluntarily reduce all or a part of their respective
fees, as further discussed in this Prospectus, the total return of such Fund
will be higher than it would otherwise be in the absence of such voluntary fee
reductions.
Yields and total returns quoted for the Funds include the effect of
deducting the Funds' expenses, but may not include charges and expenses
attributable to a particular variable annuity contract or variable life
insurance policy. Since shares of the Funds may be purchased only through a
variable annuity contract or variable life insurance policy, you should
carefully review the prospectus of the variable annuity contract or variable
life insurance policy you have chosen for information on relevant charges and
expenses. Including these charges in the quotations of the Funds' yield and
total return would have the effect of decreasing performance. Performance
information for the Funds must always be accompanied by, and reviewed with,
performance information for the insurance product which invests in the Funds.
MISCELLANEOUS
Inquiries regarding the Trust may be directed in writing to The
Parkstone Advantage Fund at 3435 Stelzer Road, Columbus, Ohio 43219, or by
calling toll-free (800) 451-8377. Holders of variable annuity contracts or
variable life insurance policies issued by Participating Insurance Companies for
which shares of the Funds are the investment vehicle will receive from the
Participating Insurance Companies the Trust's unaudited semi-annual financial
statements and year-end financial statements audited by the Trust's independent
auditors. Each report will show the investments owned by the Funds and the
market values of the investments and will provide other information about the
Funds and their operations.
The Trust currently does not foresee any disadvantages to the holders
of variable annuity contracts and variable life insurance policies of affiliated
and unaffiliated Participating Insurance Companies arising from the fact that
the interests of the holders of variable annuity contracts and variable life
insurance policies may differ due to differences of tax treatment or other
considerations or due to conflict between the affiliated or unaffiliated
Participating Insurance Companies. Nevertheless, the Trustees intend to monitor
events in order to identify any material irreconcilable conflicts which may
possibly arise and to determine what action, if any, should be taken in response
to such conflicts. The variable annuity contracts and variable life insurance
policies are described in the separate prospectuses issued by the Participating
Insurance Companies. The Trust assumes no responsibility for such prospectuses.
41
<PAGE> 44
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
PRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST.
42
<PAGE> 45
THE PARKSTONE ADVANTAGE FUND
FORM N-1A
CROSS-REFERENCE SHEET
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
ITEM NO. RULE 404(a) CROSS REFERENCE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Additional Information-Description of Shares
13. Investment Objectives and Policies Investment Objectives and Policies; Net Asset Value
14. Management of the Fund Trustees and Officers; Expenses; Miscellaneous
15. Control Persons and Principal Holders Management of the Trust
Portfolio Transactions
16. Investment Advisory and Other Services Investment Adviser; Administrator; Distributor;
Custodian, Transfer Agent and Fund Accounting
Services; Independent Auditors; Counsel
17. Brokerage Allocation and Other Portfolio Transactions
Practices
18. Capital Stock and Other Securities Additional Information-Description of Shares
19. Purchase, Redemption and Pricing of Net Asset Value; Additional Purchase and
Securities Being Offered Redemption Information; Additional
Information-Description of Shares
20. Tax Status Additional Tax Information; Additional Tax
Information Concerning the International Fund
21. Underwriters Portfolio Transactions
22. Calculation of Performance Date Yield of the Prime Obligations Fund; Yields of
the Other Funds; Calculation of Total Return
23. Financial Statements Financial Statements
</TABLE>
<PAGE> 46
PRIME OBLIGATIONS FUND
SMALL CAPITALIZATION FUND
MID CAPITALIZATION FUND
BOND FUND
INTERNATIONAL DISCOVERY FUND
Each an Investment Portfolio of
THE PARKSTONE ADVANTAGE FUND
Statement of Additional Information
April 30, 1997
This Statement of Additional Information is not a Prospectus, but
should be read in conjunction with the Prospectus for The Parkstone Advantage
Fund dated April 30, 1997, which may be supplemented from time to time. This
Statement of Additional Information is incorporated by reference in its entirety
into the Prospectus. Copies of the Prospectus may be obtained by writing the
Parkstone Advantage Fund at P.O. Box 50551, Kalamazoo, Michigan 49005-0551, or
by calling toll free (800) 451-8377.
<PAGE> 47
TABLE OF CONTENTS
-----------------
Page
----
INVESTMENT OBJECTIVES AND POLICIES..........................................B-1
Additional Information on Portfolio Instruments....................B-1
Investment Restrictions...........................................B-15
Portfolio Turnover................................................B-18
NET ASSET VALUE............................................................B-19
Valuation of the Prime Obligations Fund...........................B-19
Valuation of the Non-Money Market Funds...........................B-20
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.............................B-20
MANAGEMENT OF THE TRUST....................................................B-21
Trustees and Officers.............................................B-21
Investment Adviser and Subadviser.................................B-24
Portfolio Transactions............................................B-28
Glass-Steagall Act................................................B-29
Administrator.....................................................B-30
Expenses..........................................................B-32
Distributor.......................................................B-32
Custodian, Transfer Agent and Fund Accounting Services............B-33
Independent Auditors..............................................B-34
Legal Counsel.....................................................B-34
ADDITIONAL INFORMATION.....................................................B-34
Description of Shares.............................................B-34
Vote of a Majority of the Outstanding Shares......................B-36
Shareholder and Trustee Liability.................................B-36
Additional Tax Information........................................B-36
Additional Tax Information Concerning the International Fund......B-40
Yield of the Prime Obligations Fund...............................B-40
Yields of the Non-Money Market Funds .............................B-41
Calculation of Total Return.......................................B-42
Performance Comparisons...........................................B-42
Miscellaneous.....................................................B-43
Financial Statements..............................................B-44
APPENDIX....................................................................A-1
i
<PAGE> 48
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
THE PARKSTONE ADVANTAGE FUND
----------------------------
The Parkstone Advantage Fund (the "Trust") is an open-end management
company which offers five separate and diversified investment portfolios
(collectively, the "Funds" and singly, a "Fund"), each with a different
investment objective. The Trust is established exclusively for the purpose of
providing an investment vehicle for variable annuity contracts and variable life
insurance policies offered by the separate accounts of various life insurance
companies ("participating insurance companies"). Shares of the Trust are not
offered to the general public but solely to such separate accounts ("separate
accounts").
The Trust includes the Prime Obligations Fund, a money market fund
which seeks current income consistent with liquidity and stability of principal
by investing in high quality money market instruments. In addition, the Trust
offers four variable net asset value funds: the Small Capitalization Fund, the
Mid Capitalization Fund (formerly, the Equity Fund), the Bond Fund, and the
International Discovery Fund. The Small Capitalization Fund seeks capital growth
by investing primarily in a diversified portfolio of common stocks and
securities convertible into common stocks of small- to medium-sized companies.
The Mid Capitalization Fund seeks capital growth by investing primarily in a
diversified portfolio of common stocks and securities convertible into common
stocks. The Bond Fund seeks current income with the preservation of capital by
investing in a portfolio of high- and medium-grade fixed-income securities. The
International Discovery Fund (the "International Fund") seeks long-term growth
of capital.
Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectus of the Trust
described above. Capitalized terms not defined herein are defined in the
Prospectus. No investment in shares of a Fund should be made without first
reading the Trust's Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
Additional Information on Portfolio Instruments
- -----------------------------------------------
The following policies supplement the investment objectives and
policies of each Fund of the Trust as set forth in the Prospectus for the Trust.
Bank Obligations.
- -----------------
Each of the Prime Obligations Fund, Small Capitalization Fund, Mid
Capitalization Fund and Bond Fund may invest in bank obligations consisting of
bankers' acceptances, certificates of deposit and time deposits.
B-1
<PAGE> 49
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, Small Capitalization Fund, Mid
Capitalization Fund and Bond 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 foreign bank;
and Canadian time deposits, which are basically the same as ETDs, except they
are issued by Canadian offices of major Canadian banks.
Commercial Paper
- ----------------
Commercial paper consists of unsecured promissory notes issued by
corporations. Except as noted below with respect to variable amount master
demand notes, issues of commercial paper normally have maturities of less than 9
months and fixed rates of return.
Subject to the limitations described in the Prospectus, the Prime
Obligations Fund will purchase commercial paper consisting of issues dated at
the time of purchase within the two highest rating categories assigned by a
nationally recognized statistical rating organization ("NRSRO"). The Prime
Obligations Fund may also invest in commercial paper that is not rated but that
is determined by First of America Investment Corporation ("First of America" or
the "Investment Adviser"), under guidelines established by the Trust'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 and 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 Prime Obligations Fund,
Small Capitalization Fund, Mid Capitalization Fund, International Fund and Bond
Fund may also invest in Canadian commercial paper, which
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is commercial paper issued by a Canadian corporation or counterpart of a U.S.
corporation and Europaper, which is U.S. dollar-denominated commercial paper of
a foreign issuer.
Variable Amount Master Demand Notes
- -----------------------------------
Variable amount master demand notes in which the Prime Obligations
Fund, Small Capitalization Fund, Mid Capitalization Fund and 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 the 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 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 set forth above for commercial paper. First of America
will consider the earning power, cash flow, and other liquidity ratios of such
notes and will continuously monitor the financial status and ability to make
payment on demand. In determining dollar average maturity, a variable amount
master demand note will be deemed to have a maturity equal to the longer of the
period of time remaining until the next interest rate adjustment or the period
of time remaining until the principal amount can be recovered from the issuer
through demand.
Foreign Investment
- ------------------
Investment in foreign securities is subject to special investment risks
that differ in some respects from those related to securities of U.S. domestic
issuers. Since investments in the securities of foreign issuers may involve
currencies of foreign countries, and since the International Fund may from time
to time temporarily hold funds in bank deposits in foreign currencies, the
International Fund may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations and may incur costs in
connection with conversions between various currencies.
Since foreign companies are not subject to accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. companies, there may be less publicly available information
about a foreign company than about a U.S. company. Volume and liquidity in most
foreign bond markets are less than in the U.S. and securities of many foreign
companies are less liquid and more volatile than securities of comparable U.S.
companies. Fixed commissions on foreign securities exchanges are generally
higher than negotiated commissions on U.S. exchanges, although the Funds
endeavor to achieve the most favorable net results in their portfolio
transactions. There is generally less government supervision and regulation of
the securities exchanges, brokers, dealers and listed companies than in the
U.S., thus increasing the risk of delayed settlements of portfolio transactions
or loss of certificates for portfolio securities.
Foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume
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of securities transactions, making it difficult to conduct such transactions.
Such delays in settlement could result in temporary periods when a portion of
the assets of a Fund is uninvested and no return is earned thereon. The
inability of a Fund to make intended security purchases due to settlement
problems could cause such Fund to miss attractive investment opportunities.
Losses to a Fund due to subsequent declines in the value of portfolio
securities, or losses arising out of the Fund's inability to fulfill a contract
to sell such securities, could result in potential liability to the Fund. In
addition, with respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect a Fund's investments in those
countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.
Each of the Prime Obligations Fund, Small Capitalization Fund, Mid
Capitalization Fund and Bond Fund will acquire foreign securities only when
First of America or Gulfstream Global Investors, Ltd. ("Gulfstream" or the
"Subadviser"), the subadviser of the International Fund, believes that the risks
associated with such investments are minimal.
Variable and Floating Rate Notes
- --------------------------------
The Prime Obligations Fund may acquire variable and floating rate
notes, subject to the 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 the Fund will be determined by First of America, under
guidelines established by the Trust's Board of Trustees, to be of comparable
quality at the time of purchase to rated instruments eligible for purchase under
the Fund's investment policies. In making such determinations, First of America
will consider the earning power, cash flow, and liquidity ratios of the issuers
of such notes (such issuers include financial, merchandising, bank holding, and
other companies) and will continuously monitor their financial condition.
Although there may be no active secondary market with respect to a particular
variable or floating rate note purchased by the 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 the Fund's investment
restrictions. Variable or floating rate notes may be secured by bank letters of
credit.
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<PAGE> 52
Variable or floating rate notes invested in by the Prime Obligations
Fund may have maturities of more than 397 days, as follows:
1. An instrument that is issued or guaranteed by the United States
government or any agency thereof which has a variable rate of interest adjusted
no less frequently than every 397 days will be deemed by the Fund to have a
maturity equal to the period remaining until the maturity date or the next
readjustment of the interest rate, whichever is less.
2. A variable rate note, the principal amount of which is scheduled on
the face of the instrument to be paid in 397 days or less, will be deemed by the
Fund to have a maturity equal to the period remaining until the maturity date or
the next readjustment of the interest rate whichever is less.
3. A variable rate note that is subject to a demand feature will be
deemed by the Fund to have a maturity equal to the longer of the period
remaining until the next readjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand.
4. A floating rate note that is subject to a demand feature will be
deemed by the Fund to have a maturity equal to the period remaining until the
principal amount can be recovered through demand.
As used above, a note is "subject to a demand feature" where the Fund
is entitled to receive the principal amount of the note either at any time on no
more than 30 days' notice or at specified intervals not exceeding 397 days.
Money Market Mutual Funds
- -------------------------
Each of the Small Capitalization Fund, Mid Capitalization Fund, Bond
Fund and International Fund (the "Non-Money Market Funds") may invest up to 5%
of the value of its total assets in the securities of any one money market
mutual fund (including, if permitted by rule or order of the Securities and
Exchange Commission, shares of a Parkstone affiliated money market fund),
provided that no more than 10% of a Non-Money Market Fund's total assets may be
invested in the securities of money market mutual funds in the aggregate. In
order to avoid the imposition of additional fees as a result of investments by
the Non-Money Market Funds in shares of a Parkstone affiliated money market
fund, the Investment Adviser, Administrator and their affiliates (See MANAGEMENT
OF THE TRUST - "Investment Adviser," "Administrator and Distributor" and
"Custodians, Transfer Agent and Fund Accounting Services") will charge their
fees to the Non-Money Market Funds, rather than the Parkstone affiliated money
market fund. Each Non-Money Market Fund will incur additional expenses due to
the duplication of expenses as a result of investing in securities of other
unaffiliated money market mutual funds.
The Non-Money Market Funds will incur no sales charges, contingent
deferred sales charges, 12b-1 fees or other underwriting or distribution fees in
connection with their investments in Parkstone affiliated money market funds.
The Non-Money Market Funds will
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<PAGE> 53
vote their shares of each of the Parkstone affiliated money market funds in
proportion to the vote by all other shareholders of those funds. Moreover, no
single Non-Money Market Fund may own more than 3% of the outstanding shares of
any Parkstone affiliated money market fund.
Municipal Securities
- --------------------
Each of the Prime Obligations Fund and the Bond Fund may invest in
Municipal Securities, but shall limit such investment to the extent necessary to
preclude it from paying "exempt-interest dividends" as that term is defined in
the Internal Revenue Code of 1986, as amended (the "Code"). Municipal Securities
are primarily bonds and notes issued by or on behalf of states (including the
District of Columbia), territories, and possessions of 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 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 two principal classifications of Municipal Securities consist of
"general obligation" and "revenue" issues. There are, of course, variations in
the quality of such Municipal Securities, both within a particular
classification and between classifications, and the yields on such Municipal
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 such Municipal Securities. It should be
emphasized, however, that ratings are general and are not absolute standards of
quality, and Municipal Securities with the same maturity, interest rate and
rating may have different yields, while Municipal Securities of the same
maturity and interest rate with different ratings may have the same yield.
Subsequent to purchase, an issue of Municipal Securities may cease to be rated
or its rating may be reduced below the minimum rating required for purchase.
First of America will consider such an event in determining whether a Fund
should continue to hold the obligation.
An issuer's obligations under Municipal 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
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<PAGE> 54
and principal of Municipal Securities may be materially adversely affected by
litigation or other conditions.
Government Obligations
- ----------------------
Each of the Funds may invest in obligations issued or guaranteed by the
U.S. government or its agencies or instrumentalities, including bills, notes and
bonds issued by the U.S. Treasury, as well as "stripped" U.S. Treasury
obligations ("Stripped Treasury Obligations") such as Treasury receipts issued
by the U.S. Treasury representing either future interest or principal payments.
Stripped securities are issued at a discount to their "face value" and may
exhibit greater price volatility than ordinary debt securities because of the
manner in which their principal and interest are returned to investors. The
Stripped Treasury Obligations in which the Prime Obligations Fund may invest do
not include certificates of approval on Treasury securities ("CATS") or Treasury
income growth receipts ("TIGRs").
Obligations of certain agencies and instrumentalities of the U.S.
government are supported by the full faith and credit of the U.S. Treasury;
others are supported by the right of the issuer to borrow from the Treasury;
others are supported by the discretionary authority of the U.S. government to
purchase the agency's obligations; and still others are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
government will provide financial support to the U.S. government-sponsored
agencies or instrumentalities if it is not obligated to do so by law.
Options Trading
- ---------------
Each of the Non-Money Market Funds may purchase put and call options. A
call option gives the purchaser of the option the right to buy, and the writer
has the obligation to sell, the underlying security or foreign currency at the
stated exercise price at any time prior to the expiration of the option,
regardless of the market price or exchange rate of the security or foreign
currency, as the case may be. The premium paid to the writer is consideration
for undertaking the obligations under the option contract. A put option gives
the purchaser the right to sell the underlying security or foreign currency at
the stated exercise price at any time prior to the expiration date of the
option, regardless of the market price or exchange rate of the security or
foreign currency, as the case may be. Put and call options purchased by the Non-
Money Market Funds are valued at the last sale price, or in the absence of such
a price, at the mean between bid and asked price.
When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included in the liability
section of the Fund's statement of assets and liabilities as a deferred credit.
The amount of the deferred credit will be subsequently marked-to-market to
reflect the current value of the option written. The current value of the traded
option is the last sale price or, in the absence of a sale, the average of the
closing bid and asked prices. If an option expires on the stipulated expiration
date or if the Fund enters into a closing purchase transaction, it will realize
a gain (or a loss if the cost of a closing purchase transaction exceeds the net
premium received when the option is sold) and the deferred
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<PAGE> 55
credit related to such option will be eliminated. If an option is exercised, the
Fund may deliver the underlying security in the open market. In either event,
the proceeds of the sale will be increased by the net premium originally
received and the Fund will realize a gain or loss.
Each of the Small Capitalization Fund, Mid Capitalization Fund and
International Fund may also purchase or sell index options. Index options (or
options on securities indices) are similar in many respects to options on
securities except that an index option gives the holder the right to receive,
upon exercise, cash instead of securities, if the closing level of the
securities index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
When-Issued and Delayed-Delivery Securities
- -------------------------------------------
Each Fund may purchase securities on a "when-issued" or
"delayed-delivery" basis (i.e., for delivery beyond the normal settlement date
at a stated price and yield). When the Fund agrees to purchase securities on a
"when-issued" or "delayed-delivery" basis, the Fund's Custodian will set aside
cash or liquid securities equal to the amount of the commitment in a separate
account. Normally, the Custodian will set aside portfolio securities to satisfy
the purchase commitment, and in such 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 First of America or Gulfstream,
as the case may be, to manage it might be affected in the event its commitments
to purchase "when-issued" or "delayed-delivery" securities ever exceeded 25% of
the value of its assets. Under normal market conditions, however, a Fund's
commitments to purchase "when-issued" or "delayed-delivery" securities will not
exceed 25% of the value of its assets.
If the Fund sells a "when-issued" or "delayed-delivery" security before
a delivery, any gain would not be tax-exempt. When the Fund engages in
"when-issued" or "delayed-delivery" transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in the Fund
incurring a loss or missing the opportunity to obtain a price considered to be
advantageous. The Funds will engage in "when-issued" or "delayed-delivery"
transactions only for the purpose of acquiring securities consistent with the
Funds' investment objectives and policies and not for investment leverage,
although such transactions represent a form of leveraging.
Mortgage-Related Securities
- ---------------------------
Each of the Funds, except the International Fund, may, consistent with
its investment objective and policies, invest in mortgage-related securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
The Prime Obligations Fund and the Bond Fund may, in addition, invest in
mortgage-related securities issued by non-governmental entities,
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<PAGE> 56
including collateralized mortgage obligations structured on pools of mortgage
pass-through certificates or mortgage loans, subject to the rating limitations
described in the Prospectus.
Mortgage-related securities, for purposes of the Trust's Prospectus and
this Statement of Additional Information, represent pools of mortgage loans
assembled for sale to investors by various governmental agencies such as the
Government National Mortgage Association ("GNMA") and government-related
organizations such as the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"), as well as by non-governmental
issuers such as commercial banks, savings and loan institutions, mortgage
bankers and private mortgage insurance companies. Although certain
mortgage-related securities are guaranteed by a third party or are otherwise
similarly secured, the market value of the security, which may fluctuate, is not
so secured. If a Fund purchases a mortgage-related security at a premium, that
portion may be lost if there is a decline in the market value of the security
whether resulting from changes in interest rates or prepayments in the
underlying mortgage collateral. As with other interest-bearing securities, the
prices of such securities are inversely affected by changes in interest rates.
However, though the value of a mortgage-related security may decline when
interest rates rise, the converse is not necessarily true, since in periods of
declining interest rates the mortgages underlying the securities are prone to
prepayment, thereby shortening the life of the security and shortening the
period of time over which income at the higher rate is received. When interest
rates are rising, though, the rate of prepayment tends to decrease thereby
lengthening the period of time over which income at the lower rate is received.
For these and other reasons, a mortgage-related security's average maturity may
be shortened or lengthened as a result of interest rate fluctuations and,
therefore, it is not possible to predict accurately the security's return to the
Funds. In addition, regular payments received in respect of mortgage-related
securities include both interest and principal. No assurance can be given as to
the return the Funds will receive when these amounts are reinvested.
There are a number of important differences among the agencies and the
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 guaranty 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 the 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 timely payment of the principal and interest by FNMA. Mortgage-related
securities issued by FHLMC include FHLMC mortgage participation certificates
(also known as "Freddie Macs" or "PCs"). FHLMC is a corporate instrumentality of
the United States, pursuant to an Act of Congress, which is 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
B-9
<PAGE> 57
do not constitute a debt or obligation of the United States or of any Federal
Home Loan bank. Freddie Macs entitle the holder to timely payment of interest,
which is guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or
timely payment of all principal payments on the underlying mortgage loans. When
FHLMC does not guarantee timely payment of principal, FHLMC may remit the amount
due on account of its guarantee of ultimate payment of principal at any time
after default on an underlying mortgage, but in no event later than one year
after it becomes payable.
Medium-Grade Securities
- -----------------------
The Bond Fund may invest in securities which are rated within the four
highest rating groups assigned by an NRSRO (including, for example, securities
rated BBB by S&P or Baa by Moody's) or, if not rated, are of comparable quality
as determined by First of America ("Medium-Grade Securities").
As with other fixed-income securities, Medium-Grade Securities are
subject to credit risk and market risk. Market risk relates to changes in a
security's value as a result of changes in interest rates. Credit risk relates
to the ability of an issuer to make payments of principal and interest.
Medium-Grade Securities are considered by Moody's to have speculative
characteristics.
Medium-Grade Securities are generally subject to greater credit risk
than comparable higher-rated securities because issuers are more vulnerable to
economic downturns, higher interest rates or adverse issuer-specific
developments. In addition, the prices of Medium-Grade Securities are generally
subject to greater market risk and therefore react more sharply to changes in
interest rates. The value and liquidity of Medium-Grade Securities may be
diminished by adverse publicity and investor perceptions.
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 the Fund to sell such securities at their fair 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 react more
strongly to changes in interest rates than the prices of other Medium-Grade
Securities. Some Medium-Grade Securities in which the 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 the 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
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<PAGE> 58
fashion adverse developments affecting an issuer. For these reasons, First of
America conducts its own independent credit analysis of Medium-Grade Securities.
Restricted Securities
- ---------------------
Each of the Funds may invest in Section 4(2) securities. "Section 4(2)
securities," as described in the Prospectus, are securities which are issued in
reliance on the "private placement" exemption from registration which is
afforded by Section 4(2) of the Securities Act of 1933 (the "1933 Act"). The
Funds will not purchase Section 4(2) securities which have not been determined
to be liquid in excess of 15% (10% in the case of the Prime Obligations Fund) of
the total assets of that Fund. The Trust's Board of Trustees has delegated to
First of America the day-to-day authority to determine whether a particular
issue of Section 4(2) securities that are eligible for resale under Rule 144A
under the 1933 Act should be treated as liquid. Rule 144A provides a safe-harbor
exemption from the registration requirements of the 1933 Act for resales to
"qualified institutional buyers" as defined in the Rule. With the exception of
registered broker-dealers, a qualified institutional buyer must generally own
and invest on a discretionary basis at least $100 million in securities.
First of America may deem Section 4(2) securities liquid if it believes
that, based on the trading markets for such security, such security can be
disposed of within seven (7) days in the ordinary course of business at
approximately the amount at which the Fund has valued the security. In making
such determination, First of America generally considers any and all factors
that it deems relevant, which may include: (i) the credit quality of the issuer;
(ii) the frequency of trades and quotes for the security; (iii) the number of
dealers willing to purchase or sell the security and the number of other
potential purchasers; (iv) dealer undertakings to make a market in the security;
and (v) the nature of the security and the nature of market-place trades.
Treatment of Section 4(2) securities as liquid could have the effect of
decreasing the level of a Fund's liquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities.
Repurchase Agreements
- ---------------------
Securities held by each of the 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 First of America deems creditworthy under the
guidelines approved by the Trust's Board of Trustees, subject to the seller's
agreement to repurchase such securities at a mutually agreed upon date and
price. The repurchase price would generally equal the price paid by the Fund
plus interest negotiated on the basis of current short-term rates, which may be
more or less than the rate on the underlying portfolio securities. The seller
under a repurchase agreement will be required to maintain at all times the value
of collateral held pursuant to the agreement at not less than the repurchase
price (including accrued interest). If the seller were to default on its
repurchase obligations 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
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<PAGE> 59
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 the claim by such seller or its receiver or trustee in
bankruptcy, to retain the underlying securities, although the Board of Trustees
of the Trust believes that, under the regular procedures normally in effect for
the 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 Trust
if presented with the question. Securities subject to repurchase agreements will
be held by the Trust'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 Investment Company Act of 1940 (the "1940 Act").
Reverse Repurchase Agreements and Dollar Roll Agreements
- --------------------------------------------------------
As discussed in the Prospectus, each of the Funds may borrow money by
entering into reverse repurchase agreements and, with respect to the Bond Fund,
dollar roll agreements in accordance with that Fund's investment restrictions.
Pursuant to such agreements, a Fund would sell portfolio securities to financial
institutions such as banks and brokers-dealers and agree to repurchase the
securities, or substantially similar securities in the case of a dollar roll
agreement, at a mutually agreed-upon date and price. A dollar roll agreement is
identical to a reverse repurchase agreement except for the fact that
substantially similar securities may be repurchased. At the time a Fund enters
into a reverse repurchase agreement or a dollar roll agreement, it will place in
a segregated custodial account assets such as U.S. government securities or
other liquid high-grade debt securities consistent with the Fund's investment
restrictions having a value equal to the repurchase price (including accrued
interest), and will subsequently continually monitor the account to insure that
such equivalent value is maintained. Reverse repurchase agreements and dollar
roll agreements involve the risk that the market value of the securities sold by
a Fund may decline below the price at which a Fund is obligated to repurchase
the securities. Reverse repurchase agreements and dollar roll agreements are
considered to be borrowings by a Fund under the 1940 Act.
Futures Contracts
- -----------------
Each of the Non-Money Market Funds may enter into futures contracts.
This investment technique is designed primarily to hedge against anticipated
future changes in market conditions or foreign exchange rates which otherwise
might adversely affect the value of securities which a Fund holds or intends to
purchase. For example, when interest rates are expected to rise or market values
of portfolio securities are expected to fall, a Fund can seek through the sale
of futures contracts to offset a decline in the value of its portfolio
securities. When interest rates are expected to fall or market values are
expected to rise, a Fund, through the purchase of such contract, can attempt to
secure better rates or prices for the Fund than might later be available in the
market when it effects anticipated purchases.
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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 anytime during the option period.
Futures transactions involve broker 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 contracts if interest
rates, securities or foreign exchange rates move in an unanticipated manner.
Such unanticipated changes may also result in poorer overall performance than if
the Fund had not entered into any futures transactions. In addition, the value
of a Fund's futures positions may not prove to be perfectly or even highly
correlated with its portfolio securities and foreign currencies, limiting the
Fund's ability to hedge effectively against interest rate, foreign exchange rate
and/or market risk and giving rise to additional risks. There is no assurance of
liquidity in the secondary market for purposes of closing out futures positions.
Forward Foreign Currency Exchange Contracts
- -------------------------------------------
Each of the Non-Money Market Funds may invest in forward foreign
currency exchange contracts. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specific currency at a future date
which may be any fixed number of days ("term") from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are traded directly between currency traders (usually large commercial
banks) and their customers.
No Fund intends to enter into such forward foreign currency exchange
contracts if such Fund would have more than 15% of the value of its total assets
committed to such contracts on a regular or continuous basis. A Fund also will
not enter into such forward contracts or maintain a net exposure on such
contracts where such Fund would be obligated to deliver an amount of foreign
currency in excess of the value of such Fund's securities or other assets
denominated in that currency. First of America and Gulfstream believe that it is
important to have the flexibility to enter into such forward contracts when it
determines that to do so is in the best interests of a Fund. The Fund's
Custodian segregates cash or liquid high-grade securities in an amount not less
than the value of the Fund's total assets committed to forward foreign currency
exchange contracts entered into for the purchase of a foreign security. If the
value of the securities segregated declines, additional cash or securities are
added so that the segregated amount is not less than the amount of such Fund's
commitments with respect to such contracts. The Funds generally do not enter
into a forward contract for a term longer than one year.
Foreign Currency Options
- ------------------------
Each of the Non-Money Market 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
B-13
<PAGE> 61
obligated to fulfill the terms of an 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 at 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 the 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 the
decline of 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 the 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 Non-Money Market Funds may invest in foreign currency
futures transactions. As part of its financial futures transactions, a Fund 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,
and may be traded on boards of trade and commodities exchanges or directly with
a dealer which makes a market in such contracts and options. It is anticipated
that such contracts may provide greater liquidity and lower cost than forward
foreign currency exchange contracts.
Regulatory Restrictions
- -----------------------
To the extent required to comply with Securities and Exchange
Commission (the "SEC") Release No. IC-10666, when purchasing a futures contract
or writing a put option or entering into a forward foreign currency exchange
purchase, a Fund will maintain in a segregated account cash or liquid high-grade
debt securities equal to the value of such contracts.
To the extent required to comply with Commodity Futures Trading
Commission Regulation 4.5 and thereby avoid being classified as a "commodity
pool operator," a Fund will not enter into a futures contract or purchase an
option thereon if immediately thereafter the initial margin deposits for futures
contracts held by such Fund plus premiums paid by it for open options on futures
would exceed 5% of such Fund's total assets. Such Fund will not engage in
transactions in financial futures contracts or options thereon for speculation,
but only to attempt to hedge against changes in market conditions affecting the
values of securities which such Fund holds or intends to purchase. When futures
contracts or options thereon are purchased to protect
B-14
<PAGE> 62
against a price increase on securities intended to be purchased later, it is
anticipated that at least 25% of such intended purchases will be completed. When
other futures contracts or options thereon are purchased, the underlying value
of such contracts will at all times not exceed the sum of: (1) accrued profit on
such contracts held by the broker; (2) cash or high-quality money market
instruments set aside in an identifiable manner; and (3) cash proceeds from
investments due in 30 days.
Lending of Portfolio Securities
- -------------------------------
In order to generate additional income, each of the Funds may, from
time to time, lend its portfolio securities to broker-dealers, banks or
institutional borrowers of securities. A Fund must receive 100% collateral in
the form of cash or U.S. government securities. This collateral must be valued
daily by First of America or Gulfstream and, should the market value of the
loaned securities increase, the borrower must furnish additional collateral to
the Fund. During the time portfolio securities are on loan, the borrower pays
the Fund any dividends or interest paid on such securities. Loans are subject to
termination by the Fund or the borrower at any time. While the Fund does not
have the right to vote securities on loan, it intends to terminate the loan and
regain the right to vote if that is considered important with respect to the
investment. In the event the borrower defaults in its obligation to a Fund, the
Fund bears the risk of delay in the recovery of its portfolio securities and the
risk of loss of rights in the collateral. The Fund will only enter into loan
arrangements with broker-dealers, banks or other institutions which First of
America or Gulfstream has determined are creditworthy under guidelines
established by the Trust's Board of Trustees.
Investment Restrictions
- -----------------------
Each Fund's investment objective is fundamental and may not be changed
without a vote of the holders of a majority of the Fund's outstanding shares. In
addition, the following investment restrictions may be changed with respect to a
particular Fund only by the vote of a majority of the outstanding shares of that
Fund (as defined under "ADDITIONAL INFORMATION - Vote of a Majority of the
Outstanding Shares" in this Statement of Additional Information).
The Prime Obligations Fund may not:
Purchase securities on margin except for use of short-term credit
necessary for clearance of purchases of portfolio securities.
None of the Non-Money Market Funds may:
Purchase securities on margin except for use of short-term credit
necessary for clearance of purchases of portfolio securities and except as may
be necessary to make margin payments in connection with foreign currency futures
and other derivative securities transactions.
B-15
<PAGE> 63
None 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 this investment restriction, and pursuant to Rule 2a-7
under the 1940 Act, the Prime Obligations Fund will, with respect to 100% of its
total assets, limit its investment in the securities of any one issuer in the
manner provided by such Rule, which limitations are referred to in the
Prospectus under the caption "Investment Objective and Policies of the Prime
Obligations Fund."
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 investment 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 agreement 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 parent;
and (c) utilities will be divided according to their services. For example, gas,
gas transmission, electric and gas, electric, and telephone will each be
considered a separate industry;
5. Borrow money (not including reverse repurchase agreements or dollar
roll agreements), except that each Fund may borrow from banks for temporary or
emergency purposes and then only in amounts up to 30% of its total assets at the
time of borrowing (and provided that such bank borrowings and reverse repurchase
agreements and dollar roll
B-16
<PAGE> 64
agreements do not exceed in the aggregate one-third of the Fund's total assets
less liabilities other than the obligations represented by bank borrowings,
reverse repurchase agreements and dollar roll agreements), or mortgage, pledge
or hypothecate any assets except in connection with a bank borrowing in amounts
not to exceed 30% of the Fund's net assets at the time of borrowing;
6. Enter into reverse repurchase agreements, dollar roll agreements and
other permitted borrowings in amounts exceeding in the aggregate one-third of
the Fund's total assets less liabilities other than the obligations represented
by such reverse repurchase and dollar roll agreements;
7. Issue senior securities except as permitted by 1940 Act rule, order
or interpretation thereunder;
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 guaranties 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 outstanding shares of a Fund. None of the Funds may:
1. Engage in any short sales;
2. Invest more than 10% of the Fund's total assets in the securities of
issuers which, together with any predecessors, have a record of less than 3
years of operations;
3. Purchase securities of other investment companies, except (a) in
connection with a merger, consolidation, acquisition or reorganization, and (b)
to the extent permitted by the 1940 Act or pursuant to any exemptions therefrom;
4. Purchase or retain securities of any issuer if the officers or
Trustees of the Trust 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;
B-17
<PAGE> 65
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).
6. Purchase or otherwise acquire any securities if, as a result, more
than 15% (10% in the case of the Prime Obligations Fund) of the Fund's net
assets would be invested in securities that are illiquid.
If any percentage restriction described above is satisfied at the time
of purchase, a later increase or decrease in percentage resulting from a change
in asset value will not constitute a violation of such restriction. However,
should a change in asset value or other external events cause a Fund's
investments in illiquid securities to exceed the limitations set forth above,
that Fund will act to cause the aggregate amount of illiquid securities to come
within such limit as soon as reasonably practicable. In such an event, however,
that Fund would not be required to liquidate any portfolio securities where the
Fund would suffer a loss on the sale of such securities.
Portfolio Turnover
- ------------------
The portfolio turnover rate for each of the 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 maturities at the time of
acquisition are one year or less.
Because the Prime Obligations 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 the Prime Obligations Fund is
expected to be zero for regulatory purposes.
Portfolio turnover rates for each of the other Funds for the fiscal
years ended December 31, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
FUND DECEMBER 31, 1996 DECEMBER 31, 1995
<S> <C> <C>
Small Capitalization 60% 64%
Mid Capitalization 127% 44%
Bond 492% 178%
International 65% 86%
</TABLE>
The portfolio turnover rates for the Funds of the Trust may vary
greatly from year to year as well as within a particular year, and may also be
affected by cash requirements for redemption of shares. The increase in the
portfolio turnover rate for the Mid Capitalization
B-18
<PAGE> 66
Fund for the fiscal year ended December 31, 1996 was primarily due to sales of
large capitalization stocks in connection with the transition of the Fund's
investment focus from that of a general equity fund to that of a fund primarily
investing in mid capitalization stocks. The increase in the portfolio turnover
rate for the Bond Fund for the same period was primarily due to the extremely
volatile fixed income securities market and the resulting need to seize
portfolio profits as they arose.
High portfolio turnover rates will generally result in higher
transaction costs to a Fund, including brokerage commissions, and may result in
additional tax consequences to a Fund's shareholders. Portfolio turnover will
not be a limiting factor in making investment decisions.
NET ASSET VALUE
As indicated in the Prospectus, 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 Prospectus on each Business Day of the Trust. A "Business Day" is
a day on which the New York Stock Exchange (the "NYSE") is open for trading and
the Federal Reserve Bank of Chicago is open, and any other day other than the
day in which no shares of the Fund are tendered for redemption and no order to
purchase any shares is received. Currently, the NYSE will not be open in
observance of the following holidays: New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas.
Valuation of the Prime Obligations Fund
- ---------------------------------------
The Prime Obligations Fund has 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 discounted 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 the Fund would receive if it sold the instrument. The value of
securities in this Fund can be expected to vary inversely with changes in
prevailing interest rates.
Pursuant to Rule 2a-7, the Prime Obligations Fund will maintain a
dollar-weighted average maturity appropriate to the Fund's objective of
maintaining a stable net asset value per share, provided that the Fund will not
purchase any security with a remaining maturity of more than 397 days (13
months) (securities subject to repurchase agreements may bear longer maturities)
nor will it maintain a dollar-weighted average maturity which exceeds 90 days.
The Trust's Board of Trustees has also undertaken to establish procedures
reasonably designed, taking into account current market conditions and
investment objective of the Fund, to stabilize the net asset value per share of
the 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 the 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 the Fund's
B-19
<PAGE> 67
$1.00 amortized cost price per share may result in material dilution or other
unfair results to new or existing investors, they will take such steps as they
consider appropriate to eliminate or reduce, to the extent reasonably
practicable, any such dilution or unfair results. These steps may include
selling portfolio instruments prior to maturity, shortening the dollar-weighted
average maturity, withholding or reducing dividends, reducing the number of the
Fund's outstanding shares without monetary consideration, or utilizing a net
asset value per share determined by using available market quotations. As
permitted by Rule 2a-7 and the procedures adopted by the Board, certain of the
Board's responsibilities under the Rule may be delegated to the Investment
Adviser.
Valuation of the Non-Money Market Funds
- ---------------------------------------
Portfolio securities, the principal market for which is a securities
exchange, will be valued at the closing sales price on that exchange on the day
of computation or, if there have been no sales during such day, at the latest
bid quotation. Portfolio securities, the principal market for which is not a
securities exchange, will be valued at their latest bid quotation in such
principal market. In either case, if no such bid price is available then such
securities will be valued in good faith at their respective fair market values
using methods by or under the supervision of the Board of Trustees of the Trust.
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 value as
determined in good faith under the general supervision of the Board of Trustees
of the Trust.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis by the Trust's
distributor BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
(the "Distributor" or "BISYS"). As described in the Prospectus, shares of the
Funds are sold and redeemed at their net asset value as next determined after
receipt of the purchase or redemption order. Each purchase is confirmed to a
separate account in a written statement of the number of shares purchased and
the aggregate number of shares currently held.
The Trust 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 suspensions; or (d) an emergency exists as a result of which: (i) disposal
by the Trust of securities owned by it is not reasonably practicable, or (ii) it
is not reasonably practicable for the Trust to determine the fair market value
of its net assets.
B-20
<PAGE> 68
The Prime Obligations Fund may redeem shares involuntarily if
redemption appears appropriate in light of the Trust's responsibilities under
the 1940 Act. See "NET ASSET VALUE - Valuation of the Prime Obligations Fund" in
this Statement of Additional Information.
MANAGEMENT OF THE TRUST
Trustees and Officers
- ---------------------
Overall responsibility for management of the Trust rests with its Board
of Trustees, who are elected by the shareholders of the Trust's Funds. The
Trustees elect the officers of the Trust to supervise actively its day-to-day
operations. Two officers of the Trust, James R. Schmank and Brenda M. Harwood
also serve as Trustees.
The names of the Trustees and officers, their addresses and their
principal occupations during the past 5 years are as follows:
<TABLE>
<CAPTION>
Principal Occupation During
Names, Addresses and Birthdates Position(s) With Trust Past Five Years
- ------------------------------- ---------------------- ---------------------------
<S> <C> <C>
John B. Rapp* Chairman of the Board and From 1989 to present, Executive
First of America Bank Corporation Trustee Vice President, First of America
211 South Rose Street Bank Corporation
Kalamazoo, MI 49007
11/3/36
James R. Schmank* Trustee and Vice President From September 1988 to present,
Security Management Company Senior Vice President, Treasurer,
700 Harrison Street Chief Financial Officer and
Topeka, KS 66636-0001 Director, Security Management
2/21/53 Company
Brenda M. Harwood* Trustee and Assistant From December 1987 to present,
Security Management Company Secretary and Assistant Assistant Vice President,
700 Harrison Street Treasurer Assistant Treasurer and Assistant
Topeka, KS 66636-0001 Secretary, Security Management
11/3/63 Company
Robert M. Beam Trustee From January 1985 to present,
Western Michigan University Vice President for Business &
300 Seibert Admin. Building Finance and Treasurer, Western
Kalamazoo, MI 49008 Michigan University
8/02/43
</TABLE>
B-21
<PAGE> 69
<TABLE>
<S> <C> <C>
Adrian Charles Edwards Trustee From 1964 to present, Professor
Haworth College of Business of Finance and Commercial Law,
Western Michigan University Western Michigan University;
3289 Schneider Hall since 1977, owner, Economic and
Kalamazoo, MI 49008 Financial Analysis (financial
4/22/36 consulting)
Lawrence D. Bryan Trustee From August 1, 1996 to present,
1701 Whaley Road Self-Employed Educational Consultant;
Coldwater, MI 49036 from 1990 to July 31, 1996, President,
1/30/45 Kalamazoo College.
George R. Landreth President From December 1992 to present,
BISYS Fund Services employee of BISYS; from
3435 Stelzer Road July 1991 to December
Columbus, OH 43219 1992, employee of
7/11/42 PNC Financial Corporation.
Scott A. Englehart Vice President October 1990 to present,
BISYS Fund Services employee of BISYS.
3435 Stelzer Road
Columbus, OH 43219
8/12/62
J. David Huber Vice President From June 1987 to present,
BISYS Fund Services Executive Vice President of
3435 Stelzer Road BISYS.
Columbus, OH 43219
5/3/46
William J. Tomko Vice President From April 1987 to present,
BISYS Fund Services employee of BISYS.
3435 Stelzer Road
Columbus, OH 43219
8/30/58
Brian D. Barker Vice President From February 1993 to present,
BISYS Fund Services employee of BISYS; from November
157 S. Mall Plaza 1989 to February 1993, Direct
Kalamazoo, MI 49007 Lending Manager, Banc One.
2/4/58
Dana A. Gentile Vice President From December 1987 to present,
BISYS Fund Services employee of BISYS.
3435 Stelzer Road
Columbus, OH 43219
10/4/62
</TABLE>
B-22
<PAGE> 70
<TABLE>
<S> <C> <C>
Timothy A. Thiebout Secretary From June 1992 to present,
BISYS Fund Services employee of BISYS; from July
157 S. Mall Plaza 1990 to July 1992, Mutual Fund
Kalamazoo, MI 49007 Specialist, First of America
6/26/67 Brokerage Services.
Tom E. Line Treasurer From January 1997 to present,
BISYS Fund Services employee of BISYS; from
3435 Stelzer Road September 1989 to December 1996,
Columbus, OH 43219 employee of KPMG Peat Marwick.
7/4/67
<FN>
* Denotes Trustees who are "interested persons" of the Trust as defined in the 1940 Act.
</TABLE>
George R. Landreth, an employee of BISYS, served as Chairman of the
Board and Trustee from May 23, 1996 through February 12, 1997. John B. Rapp
assumed the positions of Chairman of the Board and Trustee beginning on February
12, 1997.
The Trust paid an aggregate of $19,418 in Trustees' fees and expenses
for the fiscal year ended December 31, 1996 to all Trustees of the Trust who
served during that year (excluding Mr. Landreth who received no compensation).
Messrs. Beam, Bryan, Edwards and Rapp also serve as Trustees of The Parkstone
Group of Funds, an open-end investment company managed by the Trust's Investment
Adviser. The following table depicts, for the fiscal year ended December 31,
1996, the compensation received by each of the Trustees from the Trust and in
total from all investment companies managed by the Investment Adviser to the
Trust.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Total
Compensation
Pension or From Trust and
Aggregate Retirement Benefits Estimated Annual The Parkstone
Compensation Accrued as Part of Benefits Upon Group of Funds
Name of Trustee from the Trust Fund Expenses Retirement Paid to Trustees
--------------- -------------- ------------- ---------- ----------------
<S> <C> <C> <C> <C>
George R. Landreth* None None None None
John B. Rapp* None None None None
Robert M. Beam $5,000 None None $18,500
Lawrence D. Bryan $5,000 None None $18,500
Adrian Charles Edwards $5,000 None None $18,500
James R. Schmank None None None None
Brenda M. Harwood None None None None
<FN>
* Mr. Landreth served as Chairman of the Board and Trustee from May 23, 1996 through February 12, 1997.
Mr. Rapp assumed the positions of Chairman of the Board and Trustee beginning on February 12, 1997.
</TABLE>
B-23
<PAGE> 71
As Administrator, BISYS receives fees from the Trust. BISYS Fund
Services Ohio Inc. ("BISYS Ohio," the "Transfer Agent" or the "Fund Accountant")
receives fees from the Trust for acting as transfer agent and providing certain
fund accounting services. The officers of the Trust, Messrs. Landreth,
Englehart, Huber, Tomko, Barker, Thiebout and Line as well as Ms. Gentile, are
employees of BISYS and receive no compensation directly from the Trust for
performing the duties of their offices.
Each Trustee who is not an affiliated person of BISYS or First of
America Bank Corporation ("FABC") receives annual compensation and compensation
for meeting attendance from the Trust for his services as a Trustee and is
reimbursed for expenses incurred in attending meetings. Mr. Rapp is an employee
of FABC and a director of First of America. He receives no compensation from the
Trust for acting as a Trustee.
Investment Adviser and Subadviser
- ---------------------------------
Subject to the general supervision of the Trust's Board of Trustees and
in accordance with the Fund's investment objectives and restrictions, investment
advisory services are provided to the Funds of the Trust by First of America,
303 North Rose Street, Suite 500, Kalamazoo, Michigan 49007, pursuant to two
Investment Advisory Agreements dated August 18, 1993 (the "Investment Advisory
Agreements"). The first Investment Advisory Agreement relates to the management
of the Prime Obligations Fund, the Small Capitalization Fund, the Mid
Capitalization Fund and the Bond Fund (the "First Investment Advisory
Agreement"), while the second Investment Advisory Agreement (the "Second
Investment Advisory Agreement") relates to the management of the International
Fund.
First of America is a wholly-owned subsidiary of First of America
Bank-Michigan, N.A. ("FOA-Michigan"), which in turn is a wholly-owned subsidiary
of FABC, a publicly-held bank holding company.
Under the Investment Advisory Agreements, First of America has agreed
to provide, either directly or through one or more subadvisers, investment
advisory services for each of the Trust's Funds as described in the Prospectus.
For the services provided and the expenses assumed pursuant to the Investment
Advisory Agreements each of the Trust's Funds pays First of America a fee,
computed daily and paid monthly, at an annual rate calculated as a percentage of
the average daily net assets of that Fund. The annual rates for the Funds are as
follows: 0.40% for the Prime Obligations Fund; 1.00% for the Small
Capitalization Fund and the Mid Capitalization Fund; 0.74% for the Bond Fund;
and, for the International Fund, 1.25% of the first $50 million of the
International Fund's average daily net assets, 1.20% of average daily net assets
between $50 million and $100 million, 1.15% of average daily net assets between
$100 million and $400 million, and 1.05% of average daily net assets above $400
million. While the fees for the Small Capitalization Fund, Mid Capitalization
Fund and International Fund are higher than the advisory fees paid by most
mutual funds, the Board of Trustees of the Trust believes them to be comparable
to advisory fees paid by many funds having objectives and policies similar to
these Funds. First of America may periodically voluntarily reduce all or a
B-24
<PAGE> 72
portion of its advisory fee with respect to any Fund to increase the net income
of one or more of the Funds available for distribution as dividends.
Pursuant to each of the Investment Advisory Agreements, First of
America will pay all expenses, including, as applicable, the compensation of any
subadvisers directly appointed by it, incurred by it in connection with its
activities under the Investment Advisory Agreements other than the cost of
securities (including brokerage commissions) if any, purchased for the Trust.
For the fiscal years ended December 31, 1996, 1995 and 1994, First of
America collected and voluntarily reduced the amounts indicated below which were
payable to it with respect to its advisory services to the indicated Funds:
<TABLE>
<CAPTION>
January 1, 1996 to January 1, 1995 to January 1, 1994 to
December 31, 1996 December 31, 1995 December 31, 1994
----------------- ----------------- -----------------
Gross Fees Gross Fees Gross Fees
Fees Voluntarily Fees Voluntarily Fees Voluntarily
Fund Collected Reduced Collected Reduced Collected Reduced
- ---- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Prime Obligations $16,993 $0 $9,911 $0 $8,533 $0
Small Capitalization $189,694 $0 $99,935 $0 $51,521 $0
Mid Capitalization $200,885 $0 $119,192 $0 $71,773 $0
Bond $59,493 $0 $40,840 $0 $31,862 $0
International $177,635 $0 $129,924 $0 $107,053 $0
</TABLE>
Pursuant to the terms of the Trust's Second Investment Advisory
Agreement, First of America may retain a subadviser to manage the investment and
reinvestment of the assets of the International Fund, subject to the direction
and control of the Trust's Board of Trustees.
As of January 1, 1995, First of America entered into a Sub-Investment
Advisory Agreement between First of America and Gulfstream, 100 Crescent Court,
Suite 550, Dallas, Texas 75201 (the "Initial Sub-Investment Advisory Agreement")
which had been approved by the Trustees. Pursuant to the terms of the Initial
Sub-Investment Advisory Agreement, Gulfstream was retained by First of America
to manage the investment and reinvestment of the assets of the International
Fund, subject to the direction and control of First of America and the Trust's
Board of Trustees. At a meeting of shareholders held on February 28, 1995,
shareholders of the International Fund approved both the Initial Sub-Investment
Advisory Agreement and a Sub-Investment Advisory Agreement between First of
America and Gulfstream which became effective upon the acquisition by FABC of a
controlling interest in Gulfstream (the "Current Sub-Investment Advisory
Agreement"). Under the Current Sub-Investment Advisory Agreement, Gulfstream is
responsible for the day-to-day management of the International Fund. Gulfstream
also has responsibility for reviewing investment performance, policies and
guidelines, and maintaining certain books and records. First of America is
responsible for selecting and monitoring the performance of Gulfstream and for
reporting the
B-25
<PAGE> 73
activities of Gulfstream in managing the International Fund to the Trust's Board
of Trustees. First of America may also render advice with respect to the
International Fund's investments in the United States and otherwise participate
to the extent it deems necessary or desirable in day-to-day management of the
International Fund.
For its services provided and expenses assumed pursuant to the Current
Sub-Investment Advisory Agreement, Gulfstream is entitled to receive from First
of America a fee, computed daily and paid monthly, at the annual rate of 0.50%
of the first $50 million of the International Fund's average daily net assets,
0.45% of net assets between $50 million and $100 million, 0.40% of net assets
between $100 million and $400 million and 0.30% of net assets above $400
million, provided the minimum annual fee shall be $75,000.
Pursuant to the Current Sub-Investment Advisory Agreement, Gulfstream
will pay all expenses incurred by it in connection with its activities under the
Current Sub-Investment Advisory Agreement other than the cost of securities
(including brokerage commissions, if any) purchased for the Trust.
Gulfstream was organized in 1991 as a Texas limited partnership by
Tull, Doud, Marsh & Triltsch, Inc., a Texas corporation ("TDMT"). TDMT is the
sole general partner of Gulfstream. TDMT is owned by C. Thomas Tull, Stephen C.
Doud, James P. Marsh and Reiner M. Triltsch. Messrs. Tull, Doud and Triltsch are
the portfolio managers and Mr. Marsh is responsible for client services with
Gulfstream. The Sail Company, a Delaware corporation, ("Sail") was the sole
limited partner, holding a 49% interest in Gulfstream. Sail is a wholly-owned
subsidiary of Rosewood Investments, Inc., a Delaware corporation, 100 Crescent
Court, Suite 1700, Dallas, Texas 75201. As of December 31, 1996, Gulfstream had
over $706 million in international assets of institutional, governmental,
pension fund and high net worth individual clients under its investment
management. Gulfstream's portfolio management personnel average over 20 years
investment experience and over 9 years of international investment experience.
Gulfstream's investment process is designed to provide long-term growth of
capital. Like First of America, Gulfstream focuses on identifying companies
world-wide with strong balance sheets, superior operating margins and consistent
sales and earnings growth and endeavors to purchase the securities of those
companies at reasonable valuations. Gulfstream generally avoids investments in
the securities of cyclical, financial or turnaround companies, whose earnings
are less predictable and more volatile. These stock selection criteria lead
Gulfstream to invest in small to medium capitalization companies in
international markets in pursuit of superior returns from long-term growth of
capital. First of America and the Trustees of the Trust believe that
Gulfstream's style of investment management is well-suited to the investment
objective and policies of the International Fund.
Gulfstream's investment process is designed to provide long-term growth
of capital. Like First of America, Gulfstream focuses on identifying companies
worldwide with strong balance sheets, superior operating margins and consistent
sales and earnings growth and endeavors to purchase the securities of those
companies at reasonable valuations. Gulfstream generally avoids investments in
the securities of cyclical, financial or turnaround companies, whose earnings
are less predictable and more volatile. These stock selection criteria lead
Gulfstream to invest in
B-26
<PAGE> 74
small- to medium-capitalization companies in international markets in pursuit of
superior returns from long-term growth of capital. First of America and the
Trustees of the Trust believe that Gulfstream's style of investment management
is well-suited to the investment objective and policies of the International
Fund.
On December 7, 1994, Gulfstream, Sail, TDMT and FABC entered into a
Partnership Interest Purchase Agreement (the "Acquisition Agreement") under
which First of America acquired a controlling interest in Gulfstream. The
Acquisition Agreement provided for the following transactions. First, FABC
acquired all of Sail's limited and preferred partnership interests for a cash
payment. Second, TDMT paid to Sail an additional amount with the proceeds of a
loan to TDMT by FABC, which loan bears interest at the annual rate of 10%.
Third, First of America committed to contribute to Gulfstream additional working
capital to be represented by an additional preferred partnership interest.
Fourth, TDMT granted First of America an irrevocable 3-year option to acquire up
to an additional 20% partnership interest in Gulfstream, which option became
exercisable when Gulfstream's annualized revenue derived from sources
attributable to FABC satisfied certain revenue targets. First of America's
exercise price was established at five times Gulfstream's annualized revenue not
derived from sources attributable to FABC multiplied by the additional
percentage partnership interest acquired by First of America. TDMT also granted
First of America another irrevocable 3-year option to acquire an additional 3%
partnership interest in Gulfstream exercisable upon First of America's
acquisition of an aggregate 69% partnership interest but not sooner than 1995.
Fifth, TDMT and First of America granted each other rights of first refusal with
respect to any sale or any other disposition of their respective interests in
Gulfstream. These transactions were consummated on February 28, 1995. On August
31, 1996, First of America exercised options to increase its interest in
Gulfstream to 72%.
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 (i) by the Trust's Board of Trustees or by vote of a majority of the
outstanding voting securities of such Fund and (ii) by vote of 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 such party, cast in
person at a meeting called for such purpose. Unless sooner terminated, the
current Sub-Investment Advisory Agreement continues in effect for successive
one-year periods ending December 31 of each year, if such continuance is
approved as described above with respect to the Investment Advisory Agreements.
Each of the Investment Advisory Agreements and the Current Sub-Investment
Advisory Agreement is terminable as to a particular Fund at any time on 60 days'
prior written notice without penalty by the Trustees, by vote of a majority of
the outstanding shares of that Fund, by First of America or, in the case of the
Current Sub-Investment Advisory Agreement, on 150 days' prior written notice
from Gulfstream. The Agreements also terminate automatically in the event of any
assignment, as defined in the 1940 Act.
The Investment Advisory Agreements and the Current Sub-Investment
Advisory Agreement provide that neither First of America nor Gulfstream shall be
liable for any error of judgment or mistake of law or for any loss suffered by
the Trust in connection with the
B-27
<PAGE> 75
performance of their duties, except a loss suffered by a Fund resulting from a
breach of fiduciary duty with respect to their 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.
Portfolio Transactions
- ----------------------
With respect to all Funds of the Trust other than the International
Fund, pursuant to the Investment Advisory Agreements, First of America
determines, subject to the general supervision of the Trustees of the Trust and
in accordance with each Fund's objective and restrictions, which securities are
to be purchased and sold by a Fund and which brokers are to be eligible to
execute such Fund's portfolio transactions. With respect to the International
Fund, pursuant to the terms of the Current Sub-Investment Advisory Agreement,
Gulfstream determines, subject to the general supervision of First of America,
the Board of Trustees of the Trust and in accordance with the International
Fund's investment objective and restrictions, which securities are to be
purchased and sold by the International Fund, and which brokers are to be
eligible to execute the International 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 Trust, where possible will deal directly with the
dealers who make a market in the securities involved except under those
circumstances where better price and execution are available elsewhere.
Allocation of transactions, including their frequency, to various
brokers and dealers is determined by First of America and Gulfstream in their
best judgment and in the manner deemed fair and reasonable to shareholders. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price. Subject to this consideration, brokers and dealers who
provide supplemental investment research to First of America or Gulfstream may
receive orders for transactions on behalf of the Trust. Information so received
is in addition to and not in lieu of services required to be performed by First
of America or Gulfstream and does not reduce the fees payable to such advisers
by the Trust or First of America, as the case may be. Such information may be
useful to First of America or Gulfstream in serving both the Trust 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 Trust.
While First of America and Gulfstream generally seek competitive
commissions, the Trust may not necessarily pay the lowest commission available
on each brokerage transaction
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<PAGE> 76
for the reasons discussed above. For the fiscal years ended December 31, 1996,
1995, and 1994, the Trust paid an aggregate of approximately $155,690, $60,622
and $84,223, respectively, as brokerage commissions on behalf of the Funds. The
increase in commissions paid during the fiscal year ended December 31, 1996 was
primarily due to a significant increase in assets held by the Trust as well as
the increase in portfolio turnover for the Mid Capitalization Fund. See
"INVESTMENT OBJECTIVES AND POLICIES--Portfolio Turnover" above.
The Trust will not acquire portfolio securities issued by, make savings
deposits in, or enter into repurchase or reverse repurchase agreements with
FOA-Michigan (the parent corporation of First of America), the Distributor, or
their affiliates, and will not give preference to FOA-Michigan's correspondents
with respect to such transactions, securities, savings deposits, repurchase
agreements and reverse repurchase agreements.
Investment decisions for each Fund of the Trust are made independently
from those made for the other Funds or any other portfolio investment company or
account managed by First of America. Any such other portfolio, investment
company or account may also invest in the same securities as the Trust. When a
purchase or sale of the same security is made at substantially the same time on
behalf of a Fund and another Fund, portfolio, investment company or account, the
transaction will be averaged as to price and available investments will be
allocated as to amount in a manner which First of America believes to be
equitable to the Fund(s) and such other portfolio, investment company, or
account. In some instances, this investment procedure may adversely affect the
price paid or received by a Fund or the size of the position obtained by the
Fund. To the extent permitted by law, First of America may aggregate the
securities to be sold or purchased for a Fund with those to be sold or purchased
for other Funds or for other portfolios, investment companies, or accounts in
order to obtain best execution. As provided by the Investment Advisory
Agreements in making investment recommendations for the Trust, First of America
will not inquire or take into consideration whether an issuer of securities
proposed for purchase or sale by the Trust is a customer of First of America,
its parent or its subsidiaries or affiliates, and, in dealing with its
customers, First of America, its parent, subsidiaries and affiliates will not
inquire or take into consideration whether securities of such customers are held
by the Trust.
Each of the Funds held from time to time during the fiscal year ended
December 31, 1996, securities of its regular brokers or dealers defined in Rule
10b-1 under the 1940 Act, or their parent companies, including those of Merrill
Lynch, Goldman Sachs, Lehman Brothers, and J.P. Morgan. As of December 31, 1996,
the Prime Obligations Fund held the following amounts of the securities of
Merrill Lynch, Goldman Sachs and Lehman Brothers, respectively: $98,425,
$495,000 and $495,000. As of December 31, 1996, the Bond Fund held securities of
Lehman Brothers in the amount of $150,726.
Glass-Steagall Act
- ------------------
In 1971, the United States Supreme Court held in Investment Company
Institute v. Camp, that the federal statute commonly referred to as the
"Glass-Steagall Act" prohibits a national bank from operating a mutual fund for
the collective investment of managing agency accounts. Subsequently, the Board
of Governors of the Federal Reserve System ("the Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of
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<PAGE> 77
1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing or controlling a registered open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in Board of Governors of the Federal Reserve System v.
Investment Company Institute, that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to registered closed-end investment companies. In the Board
of Governors case, the Supreme Court also stated that if a national bank
complied with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act. The Office of the Comptroller of the Currency,
which has jurisdiction over national banks and their subsidiaries, has
specifically permitted national banks and their subsidiaries to act as
investment advisers to investment companies.
First of America believes that it possesses the legal authority to
perform the services contemplated by the Prospectus, this Statement of
Additional Information and the Investment Advisory Agreements without violation
of applicable statutes and regulations. Future changes in either federal or
state statutes and regulations relating to the permissible activities of banks
or bank holding companies and the subsidiaries or affiliates of those entities,
as well as further judicial or administrative decisions or interpretations of
present and future statutes and regulations, could prevent or restrict First of
America from continuing to perform such services for the Trust. Depending on the
nature of any changes in the services which could be provided by First of
America, the Board of Trustees would review the Trust's relationship with First
of America and consider taking all action necessary under the circumstances.
Should future legislative, judicial or administrative action prohibit
or restrict the proposed activities of First of America and/or First of America
Bank Corporation's affiliated and correspondent banks in connection with
customer purchases of shares of the Trust, 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 Trust's method of operations
would affect its net asset value per share or result in financial losses to any
shareholder.
Administrator
- -------------
BISYS serves as the administrator (the "Administrator") to the Trust
pursuant to an Administration Agreement dated as of July 1, 1996 (the
"Administration Agreement"). Prior to that time, Security Management Company, an
indirect wholly-owned subsidiary of Security Benefit Life Insurance Company
("Security Benefit"), was the Trust's administrator. The Administrator assists
in supervising all operations of each Fund (other than those performed by First
of America under the Investment Advisory Agreements, by Gulfstream under the
Current Sub-Investment Advisory Agreement, by the Bank of California, N.A.
("Union Bank" or the
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<PAGE> 78
"Custodian") under the Custody and Custodian Agreements and by BISYS under the
Fund Accounting and Transfer Agency Agreement).
Under the Administration Agreement, the Administrator has agreed to
maintain office facilities for the Trust; furnish statistical and research data,
clerical and certain bookkeeping services and stationary and office supplies;
prepare the periodical reports to the SEC on Form N-SAR or any replacement forms
therefor; compile data for, prepare for execution by the Funds and file certain
federal and state tax returns and required tax filings; prepare compliance
filings pursuant to state securities laws with the advice of the Trust's
counsel; keep and maintain the financial accounts and records of the Funds,
including calculation of daily expense accruals; in the case of the Prime
Obligations Fund, determine the actual variance from $1.00 of the Fund's net
asset value per share; and generally assist in all aspects of the Trust's
operations other than those performed by First of America under the Investment
Advisory Agreement, by Gulfstream under the Sub-Investment Advisory Agreement,
by Bank of California under the Custody and Custodian Agreements and by Security
Management or BISYS, as applicable, under the Fund Accounting and Transfer
Agency Agreement. Under the Administration Agreement, the Administrator may
delegate all or any part of its responsibilities thereunder.
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 monthly, at the annual rate of 0.20% of the combined
average daily net assets of the Funds up to $1 billion. In the event that the
combined average daily net assets of the Funds exceed $1 billion, the parties
intend to review the level of compensation payable to the Administrator for its
administrative services. In addition, the Administrator also receives a separate
annual fee from each Fund for certain fund accounting services. From time to
time, the Administrator may waive all or a portion of the administration fee
payable to it by the Funds, either voluntarily or pursuant to applicable
statutory expense limitations.
For the fiscal years ended December 31, 1996, 1995 and 1994, the
Administrator collected and voluntarily reduced the amounts indicated below
which were payable to it with respect to its administrative services to the
indicated Funds:
<TABLE>
<CAPTION>
January 1, 1996 to January 1, 1995 to January 1, 1994 to
December 31, 1996* December 31, 1995* December 31, 1994*
------------------ ------------------ ------------------
Gross Fees Gross Fees Gross Fees
Fees Voluntarily Fees Voluntarily Fees Voluntarily
Fund Collected Reduced Collected Reduced Collected Reduced
- ---- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Prime Obligations $8,404 $0 $4,955 $0 $3,727 $0
Small Capitalization $37,603 $0 $19,987 $0 $9,247 $0
Mid Capitalization $39,847 $0 $23,838 $0 $12,851 $0
Bond $15,952 $0 $11,038 $0 $7,558 $0
International $28,310 $0 $20,788 $0 $14,144 $0
</TABLE>
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<PAGE> 79
* Administration fees for the fiscal years ended December 31, 1995 and 1994 were
paid to Security Management. Of the $130,116 in administration fees paid in the
fiscal year ended December 31, 1996, $57,773 were paid to Security Management.
The balance was paid to BISYS.
Unless sooner terminated as provided therein, the Administration
Agreement between the Trust and BISYS will continue in effect until December 31,
1999. The Administration Agreement thereafter shall be renewed for successive
five-year terms ending on December 31 of each five-year period if such
continuance is approved at least annually (i) by the Trust's Board of Trustees
or by vote of a majority of the outstanding voting securities of the affected
Fund and (ii) by vote of a majority of the Trustees who are not interested
persons (as defined in the 1940 Act) of any party to the Administration
Agreement cast in person at a meeting called for such purpose. The
Administration Agreement is terminable with respect to a particular Fund at any
time on 90 days' written notice without penalty by the Trustees, by vote of a
majority of the outstanding shares of that Fund or by BISYS.
The Administration Agreement provides that the Administrator shall not
be liable for any error of judgment or mistake of law or any loss suffered by
the Trust in connection with the matters to which the Administration Agreement
relates, except a loss from willful misfeasance, bad faith, or gross negligence
in the performance of its duties, or from the reckless disregard by the
Administrator of its obligations and duties thereunder.
Expenses
- --------
If total expenses borne by any of the Funds in any fiscal year exceed
expense limitations imposed by applicable state securities regulations, First of
America, Gulfstream (only with respect to the International Fund) and the
Administrator will reimburse that Fund by the amount of such excess in the
proportion to their respective fees. As of the date of this Statement of
Additional Information, there is no expense limitation applicable to the Trust's
Funds. Any expense reimbursements will be estimated daily and reconciled and
paid on a monthly basis.
Distributor
- -----------
BISYS serves as distributor to the Trust pursuant to a Distribution
Agreement dated as of July 1, 1996 (the "Distribution Agreement"). Prior to that
time, Security Distributors, Inc. ("SDI"), a wholly-owned subsidiary of Security
Benefit, served as distributor.
Unless otherwise terminated, the Distribution Agreement between the
Trust and BISYS will take effect on July 1, 1996, continue in effect until June
30, 1998 and thereafter continue for successive one-year periods ending June 30
of each year if approved at least annually (i) by the Trust's Board of Trustees
or by the vote of a majority of the outstanding shares of the Trust, and (ii) by
the vote of a majority of the Trustees of the Trust 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 is terminable at
any time on 60 days' written notice without penalty by the Trustees, by a vote
of a majority of the shareholders of the Trust, or by
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<PAGE> 80
BISYS on 90 days' written notice. The Distribution Agreement may also be
terminated in the event of any assignment as defined in the 1940 Act.
Custodian, Transfer Agent and Fund Accounting Services
- ------------------------------------------------------
Union Bank, formerly The Bank of California, N.A., 475 Sansome Street,
San Francisco, California 94111, serves as Custodian to the Trust with respect
to each Fund, except the International Fund, pursuant to the Custody Agreement
dated as of August 16, 1993. Union Bank serves as Custodian to the International
Fund pursuant to the Custodian Agreement dated as of July 31, 1995 (the Custody
Agreement and Custodian Agreement together referred to as the "Custody
Agreements"). Union Bank's responsibilities include safeguarding and controlling
the Funds' cash and securities, handling the receipt and delivery of securities,
and collecting interest and dividends on the Funds' investments.
BISYS Fund Services Ohio, Inc. ("BISYS Ohio") serves as the transfer
agent (the "Transfer Agent") for all Funds of the Trust pursuant to a Fund
Accounting and Transfer Agency Agreement dated August 3, 1996, as amended (the
"Fund Accounting and Transfer Agency Agreement"). Prior to that time, Security
Management served as transfer agent and fund accountant. Pursuant to the Fund
Accounting and Transfer Agency Agreement, the Transfer Agent, among other
things, performs the following services: maintenance of shareholder records for
each of the Trust's shareholders of record; processing shareholder purchase and
redemption orders; processing transfers and exchanges of shares of payments and
reinvestments; and assistance in the mailing of shareholder reports and proxy
solicitation materials.
In addition, the Transfer Agent provides certain fund accounting
services to the Trust pursuant to the Fund Accounting and Transfer Agency
Agreement. Pursuant to an amendment to the Fund Accounting and Transfer Agency
Agreement, effective February 12, 1997, the Trust's fee schedule is as follows.
The Transfer Agent receives an annual fee for its transfer agency services for
each Fund equal to $15,000 per Fund, payable in equal monthly installments. The
Transfer Agent also receives an annual fee for its fund accounting services
equal to $10,000 per Fund, payable in equal monthly installments. The Prime
Obligations Fund pays an additional annual fee of 0.016% of its average daily
net assets payable monthly. Each of the Small Capitalization Fund, Mid
Capitalization Fund and Bond Fund pays an additional annual fee of 0.022% of its
average daily net assets payable monthly and the International Fund pays an
additional annual fee of 0.035% of its average daily net assets payable monthly.
The Transfer Agent 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 debts and credits, general and auxiliary ledgers reflecting all asset,
liability, reserve, capital, income and expense accounts, including interest
accrued and interest received, and other required separate ledger accounts;
maintains a monthly trial balance of all ledger accounts; performs certain
accounting services for the Funds, including calculation of the net asset value
per share, calculation of the dividend and capital gain distributions, if any,
and of yield, reconciliation of cash movements with Funds' custodians,
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<PAGE> 81
affirmation to the Funds' custodians of all portfolio trades and cash
settlements, verification and reconciliation with the Funds' custodians of all
daily trade activities; provides certain reports; obtains dealer quotations,
prices from a pricing service or matrix prices on all portfolio securities in
order to mark the portfolio to the market; and prepares an interim balance
sheet, statement of income and expense, and statement of changes in net assets
for the Funds. For such transfer agency and accounting services for the fiscal
years ended December 31, 1996, 1995 and 1994, the Transfer Agent received
$75,000, $90,000, and $90,000, respectively, from the Trust. Fund accounting and
transfer agency fees for the fiscal years ended December 31, 1995 and 1994 were
paid to Security Management. Of the $75,000 in fees paid in the fiscal year
ended December 31, 1996, $37,500 was paid to Security Management. The balance
was paid to BISYS Ohio.
Independent Auditors
- --------------------
The Financial Statements of the Trust as of December 31, 1996,
appearing in the Trust's Annual Report dated December 31, 1996, have been
audited by Ernst & Young LLP, 10 West Broad St., Columbus, Ohio 43215,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. The Financial Statements are incorporated
herein by reference in reliance upon such report and upon the authority of Ernst
& Young LLP as experts in auditing and accounting.
Legal Counsel
- -------------
Howard & Howard Attorneys, P.C., the Kalamazoo Building, Suite 400, 107
West Michigan Avenue, Kalamazoo, Michigan 49007, are counsel to the Trust and
will pass upon certain legal matters pertaining to the shares offered hereby.
Howard & Howard serves as legal counsel to the Investment Adviser, its parent
and its affiliates.
ADDITIONAL INFORMATION
Description of Shares
- ---------------------
The Parkstone Advantage Fund is a Massachusetts business trust. The
Trust was organized on May 18, 1993 and the Trust's Declaration of Trust was
filed with the Secretary of State of the Commonwealth of Massachusetts on May
19, 1993. The Declaration of Trust authorizes through the Board of Trustees to
issue an unlimited number of shares and to classify or re-classify any unissued
shares into one or more additional classes by setting or changing in 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. Pursuant to such authority, the Board of Trustees has
authorized the issuance of five series of shares, each representing interest in
one of five separate portfolios: The Prime Obligations Fund, Small
Capitalization Fund, Mid Capitalization Fund, Bond Fund, and International Fund.
The Trust's shares have no 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 Prospectus, the Trust's shares will be
fully paid and non-assessable. In the event of the
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<PAGE> 82
liquidation or dissolution of the Trust or an individual Fund, shareholders of a
Fund are entitled to receive the assets available for distribution belonging to
the particular Fund, at a proportionate distribution based on the relative asset
values of the respective Funds, of any general assets of the Trust 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 in an
investment company such as the Trust shall not be deemed to have been
effectively acted upon unless approved by holders of a majority of the
outstanding shares of each Fund affected by the matter. A particular Fund is
deemed to be affected by a matter unless it is clear that the interest of each
Fund in the matter are substantially identical or that the matter does not
affect any interest of the Fund. Under the Rule, the approval of an Investment
Advisory Agreement or any change in fundamental investment policy would be
effectively acted upon with respect to a Fund only if approved by a majority of
the outstanding share of such Fund. However, the Rule also provides that the
ratification of the appointment of independent public accountants, the approval
of principal underwriting contracts, and the election of Trustees may be
effectively acted upon by shareholders of the Trust voting without regard to
series.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held and will vote in the aggregate, and
not by class except as otherwise required by the 1940 Act or other applicable
law, or when the matter to be voted upon affects only interests of the
shareholders of a particular class. Voting rights are not cumulative, and,
accordingly, the holders of more than 50% of the Trust's outstanding shares may
elect all of the Trustees, irrespective of the votes of other shareholders.
The Trust does not intend to hold annual shareholder meetings except as
may be required by the 1940 Act. The Trust's Agreement and 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 Trust entitled to vote.
The Trust's Agreement and Declaration of Trust authorizes the Board of
Trustees, without shareholder approval (unless otherwise required by applicable
law) to (a) sell and convey the assets of a class of shares to another
management investment company for consideration which may include securities
issued by the purchaser and, in connection therewith, to cause all outstanding
shares of such class to be redeemed at a price which is equal to their net asset
value and which may be cash or by distribution of the securities or other
consideration received from the sale and conveyance; (b) sell and convert the
assets belonging to a class of shares into money and, in connection therewith,
to cause all outstanding shares of such class to be redeemed at their net asset
value; or (c) combine the assets belonging to a class of shares with the assets
belonging to one or more other classes of shares of the Trust if the Board of
Trustees reasonably determines that such combination will not have a material
adverse effect on the shareholders of any class participating in such
combination and, in connection therewith, to cause all outstanding shares of any
class to be redeemed at their net asset value or converted into shares of
another class of the Trust'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
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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 Funds' Prospectus and the Statement of Additional
Information, "vote of a majority of the outstanding shares" of the Trust 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 Trust 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 Trust or the
Fund are represented in person or by proxy, or (b) the holders of more than
fifty percent (50%) of the outstanding votes of shareholders of the Trust 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 Trust's Declaration of Trust
provides that the shareholders shall not be subject to any personal liability
for the obligations of the Trust, and that every written agreement, obligation,
instrument or undertaking made by the Trust 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 being or having
been a shareholder. The Declaration of Trust also provides that the Trust shall,
upon request, assume the defense of any claim made against any shareholder for
any act or obligations of the Trust, and shall satisfy any judgment thereon.
Thus, the risk of the shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust itself
would be unable to meet its obligations.
The Declaration of Trust states further that no Trustee, officer or
agent of the Trust shall be personally liable in connection with the
administration or preservation of the assets of the Trust or the conduct of the
Trust's business; nor shall any Trustee, officer or agent be personally liable
to any person for any action or failure to act except for bad faith, willful
misfeasance, gross negligence, or reckless disregard of his duties. The
Declaration of Trust also provides that all persons having any claim against the
Trustees or the Trust shall look solely to the assets of the Trust for payment.
Additional Tax Information
- --------------------------
Individual federal income tax is computed on the basis of five
graduated tax rates of 15%, 28%, 31%, 36% and 39.6%. The benefit of personal
exemptions and the benefit of itemized deductions are phased out by a rate
adjustment for taxpayers with gross income in excess of certain threshold
amounts resulting in a marginal federal tax rate in excess of 39.6%. The maximum
tax rate applicable to corporations is 35%. Although a corporation's taxable
income of less than $10 million is subject to tax at lower rates, the benefit of
these lower rates
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is phased out for corporations with income in excess of $15 million resulting in
a maximum effective marginal tax rate of 38%.
For non-corporate taxpayers, the maximum tax rate imposed on net
capital gains is 28%. The limitation on the deductibility of capital losses has
been retained. Capital losses may be used to offset capital gains. Individual
taxpayers may deduct up to $3,000 of capital losses each year to offset ordinary
income and excess capital loss may be carried over in future years.
The Code generally permits a corporation to deduct 70% of dividends
received from a domestic corporations. Each of the Trust's Funds will designate
the portion of any dividend distribution for which the dividend received
deduction will be allowed. The amounts so designated may not exceed the
aggregate amount of dividends from domestic corporations that otherwise qualify
for the dividends received deduction received by the Fund for its taxable year.
A non-deductible excise tax is also imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
for the one-year period ending on October 31 of such calendar year. The balance
of such income must be distributed during the next calendar year. For the
foregoing purposes, a Fund is treated as having distributed any amount on which
it is subject to income tax for any taxable year ending in such calendar year.
If distributions during a calendar year were less than the required amount, a
particular Fund would be subject to a non-deductible excise tax equal to 4% of
the deficiency.
Each of the Funds will be required in certain cases to withhold and
remit to the United States Treasury 31% of taxable dividends paid to any
shareholder who has provided either an incorrect tax identification number or no
number at all or who is subject to withholding by the Internal Revenue Service
for failure to properly report on the return payments of interest or dividends.
Although each of the Funds expects to qualify as a "regulated
investment company" and to be relieved of all or substantially all federal
income taxes, depending on the extent of its activities in states and localities
in which its offices are maintained, in which its agents or independent
contractors are located, or in which it is otherwise deemed to be conducting
business, each Fund may be subject to the tax laws of such states or localities.
In addition, if for any taxable year the Fund does not qualify for the special
tax treatment afforded regulated investment companies, all of its taxable income
will be subject to a federal tax at regular corporate rates (without any
deduction for distributions to its shareholders). In such event, dividend
distributions would be taxable to shareholders to the extent of earnings and
profits, and would be eligible for the dividends-received deduction for
corporations.
A portion of the difference between the issue price and the face amount
of zero coupon securities (the "Original Issue Discount") will be treated as
income to any Fund holding securities with Original Issue Discount each year,
although no current payments will be received by such Fund with respect to such
income. This original issue discount will comprise a part of
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that investment company taxable income of such Fund which must be distributed to
shareholders in order to maintain its qualification as a registered investment
company and to avoid federal income tax at the level of the relevant Fund.
Taxable shareholders of such a Fund will be subject to income tax on such
original issue discount, whether or not they elect to receive their
distributions in cash. In the event that a Fund acquires a debt instrument at a
market discount, it is possible that a portion of any gain recognized on this
disposition of such instrument may be treated as ordinary income.
A Fund's investment in options, futures contracts and forward
contracts, options on futures contracts, and stock indices and certain other
securities, including transactions involving actual or deemed short sales or
foreign exchange gains or losses are subject to many complex and special tax
rules. For example, over-the-counter options on debt securities and certain
equity options, including options on stock and narrow-based stock indexes, will
be subject to tax under Section 1234 of the Code, generally producing a
long-term or short-term capital gain or loss upon exercise, lapse, or closing
out of the option or sale of the underlying stock or security. By contrast, a
Fund's treatment of certain other options, futures and forward contracts entered
into by the Fund is generally governed by Section 1256 of the Code. These
"Section 1256" positions generally include regulated futures contracts, foreign
currency contracts, non-equity options and dealer equity options.
Absent a tax election to the contrary, each such Section 1256 position
held by a Fund will be marked-to-market (i.e., treated as if it were sold for
fair market value) on the last business day of the Fund's fiscal year, and all
gain or loss associated with fiscal year transactions and marked-to-market
positions at fiscal year end (except certain currency gain or loss covered by
Section 988 of the Code) will generally be treated as 60% long-term capital gain
or loss and 40% short-term capital gain or loss. The effect of Section 1256
mark-to-market rules may be to accelerate income or to convert what otherwise
would have been long-term capital gains into short-term capital gains or
short-term capital losses into long-term capital losses within such Fund. The
acceleration of income on Section 1256 positions may require a Fund to accrue
taxable income without the corresponding receipt of cash. In order to generate
cash to satisfy the distribution requirements of the Code, a fund may be
required to dispose of portfolio securities that it would have continued to hold
or to use cash flows from other sources such as the sale of the Fund's shares.
In these ways, any or all of these rules may affect the amount, character and
timing of income earned and in turn distributed to shareholders by the Funds.
When a Fund holds options or contracts which substantially diminish its
risk of loss with respect to other positions (as might occur in some hedging
transactions), this combination of positions could be treated as a "straddle"
for tax purposes, resulting in possible deferral of losses, adjustments in the
holding periods of securities owned by a Fund and conversion of short-term
capital losses into long-term capital losses. Certain tax elections exist for
mixed straddles, i.e., straddles comprised of at least one Section 1256 position
and at least one non-Section 1256 position which may reduce or eliminate the
operation of these straddle rules.
As a regulated investment company, each Fund is also subject to the
requirement that less than 30% of its annual gross income be derived from the
sale or other disposition of securities
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and certain other investments held for less than three months ("short-short
income"). This requirement may limit a Fund's ability to engage in options,
spreads, straddles, hedging transactions, forward or futures contracts, or
options on any of these positions because these transactions are often
consummated in less than three months, and may require the sale of portfolio
securities held less than three months and may, as in the sale of short sales or
portfolio securities, reduce the holding periods within each Fund, resulting in
additional short-short income for the Fund.
Each Fund will monitor its transactions and such options and contracts
and may make such other tax elections in order to mitigate the effect of the
above rules and prevent disqualification of a Fund as a regulated investment
company under Subchapter M of the Code.
In order for a Fund to qualify as a regulated investment company for
any taxable year, at least 90% of the Fund's annual gross income must be derived
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stock or securities, including gains from
foreign currencies, and other income derived with respect to the business of
investing in stock, securities or currencies. Future Treasury regulations may
provide that foreign exchange gains may not qualify for purposes of the 90%
limitation if such gains are not directly related to the Fund's principal
business of investing in stock or securities or options or futures with respect
to such stock or securities. Currency speculation or the use of currency forward
contracts or other currency instruments for non-hedging purposes may generate
gains deemed to be not directly related to the Fund's principal business of
investing in stock or securities and related options or futures. Pursuant to the
Code, a Fund is also required to derive less than 30% of its gross income from
the sole or other disposition of stock or securities held for less than 3
months. Under current law, non-directly related gains arising from foreign
currency positions or instruments held for less than three months are treated as
derived from the disposition of securities held less than three months when
determining a Fund's compliance with the 30% limitation. Each Fund will limit
its activities involving foreign exchange gains to the extent necessary to
comply with the above requirements.
The federal income tax treatment of interest rate and currency swaps is
unclear in certain respects and may in some circumstances result in the
realization of income not qualifying under the 90% limitation described above or
be deemed to be derived from the disposition held less than three months in
determining a Fund's compliance with the 30% limitation. Each Fund will limit
its interest rate and currency swaps to the extent necessary to comply with
these requirements.
Information set forth in the Prospectus and this Statement of
Additional Information which relates to federal taxation is only a summary of
some of the important federal tax considerations generally affecting purchasers
of shares of the Funds. No attempt has been made to present a detailed
explanation of the federal income tax treatment of a Fund or its shareholders
and this description is not intended as a substitute for federal 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 Prospectus and this Statement of Additional
Information is based on tax laws and regulations which are in
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effect on the date of the Prospectus and this Statement of Additional
Information; such laws and regulations may be changed by legislative or
administrative action.
Additional Tax Information Concerning the International Fund
- ------------------------------------------------------------
The International Fund may invest in non-U.S. corporations which would
be treated as "passive foreign investment companies," or "PFICs," under the Code
which will result in adverse tax consequences upon the disposition of, or the
receipt of, "excess distributions" with respect to such equity investments. To
the extent that the International Fund invests in PFICs, it may adopt certain
tax strategies to reduce or eliminate the adverse effects of certain federal tax
provisions governing PFIC investments. Many non-U.S. banks and insurance
companies may not be treated as PFICs if they satisfy certain technical
requirements under the Code. To the extent that the International Fund does
invest in foreign securities which are determined to be PFIC securities and is
required to pay a tax on such investments, a credit for this tax would not be
allowed to be passed through to the International Fund's shareholders.
Therefore, the payment of this tax would reduce the International Fund's
economic return from its PFIC investments. Gains from dispositions of PFIC
shares and excess distributions received with respect to such shares are treated
as ordinary income rather than capital gains.
If, for any reason, the International Fund were treated as being a
United Kingdom ("UK") resident, the International Fund's worldwide income and
capital gains would be subject to UK tax. If, for any reason, the International
Fund were treated as having a permanent establishment in the UK, the
International Fund's UK source income (although not its capital gains) would
become subject to UK tax and certain other advantages otherwise available to the
International Fund under the double tax treaty between the UK and the US would
not be available. Provided that the International Fund is not treated as being
resident or having a permanent establishment in the UK, the International Fund
will not incur any UK tax liability with respect to the types of income or gains
that it is likely to receive, except with respect to income on UK securities
held in the International Fund's portfolio. The Trust believes, based upon the
advice of special counsel, that it would be highly unlikely for the
International Fund, as a result of the activities of the Fund's Subadviser
Gulfstream, to be deemed or treated as being a UK resident for UK tax purposes
or having a permanent establishment in the UK pursuant to the double tax treaty
between the United States and the UK.
Yield of the Prime Obligations Fund
- -----------------------------------
The standardized, annualized seven-day yield for the Prime Obligations
Fund is computed by: (1) determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account in the 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 value of the account in the Fund includes the value of
additional shares purchased with dividends from the original share, dividends
declared on both the original share and any such additional shares, and all fees
other than non-recurring account
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and sales charges charged by the Fund 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 realized gains and losses from the sale of securities and
unrealized appreciation and depreciation. The effective yield for the Fund is
computed by adding one to the base period return (calculated as described above)
raising the sum to a power equal to 365 divided by seven, and subtracting one
from the result. Thirty-day yields and effective yields are calculated in the
same manner, except that the base period is thirty days rather than seven days.
For the seven-day period ended December 31, 1996, the yield and
compounded effective yield for the Prime Obligations Fund was 4.61% and 4.72%,
respectively. For the thirty-day period ended December 31, 1996, the yield and
compounded effective yield for the Prime Obligations Fund was 4.53% and 4.63%,
respectively. The current yield for the Prime Obligations Fund may be obtained
by calling the Trust at the telephone numbers provided on the cover page of the
Prospectus.
Yields of the Non-Money Market Funds
- ------------------------------------
As summarized in the Prospectus 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 shares maximum offering price (reduced by any
undeclared earned income expected to be paid shortly as a dividend) on the last
trading day of that period. Net investment income will reflect amortization of
any market value premium or discount of fixed-income securities (except for
obligations backed by mortgages or other assets) and may include recognition of
a pro-rata portion of the stated dividend rate of dividend paying portfolio
securities. The yield of each of the Non-Money Market Funds will vary from time
to time, depending upon market conditions, the composition of a funds portfolio
and operating expenses of the Trust 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.
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.
For the period ended December 31, 1996, none of the Small
Capitalization Fund, Mid Capitalization Fund, Bond Fund or International Fund
advertised or quoted yield information to shareholders or in advertisements.
None of these Funds expects to quote such figures in the current fiscal year.
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Calculation of Total Return
- ---------------------------
As summarized in the Prospectus under the heading "PERFORMANCE
INFORMATION," average annual total return is a measure of the change in value of
the 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 all additional shares which would have been purchased
if all dividends and distributions paid or distributed during the period had
immediately been 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 ending December 31, 1996 and the period from
commencement of operations to December 31, 1996, the average annual total
returns for the Funds were: Small Capitalization Fund, 29.66% and 24.25%; Mid
Capitalization Fund, 17.36% and 12.24%; Bond Fund, 1.83% and 3.59%; and
International Fund 15.41% and 6.32%.
Performance Comparisons
- -----------------------
Investors may judge the performance of the Funds by comparing their
performance to the performance of other mutual funds or mutual fund portfolios
with comparable investment objectives and policies through various mutual fund
or market indices such as the Morgan Stanley Capital International EAFE Index
and those prepared by Dow-Jones & Co., Inc., Standard & Poor's Corporation,
Shearson-Lehman Brothers, Inc. and the Russell 2000 Index and to data prepared
by Lipper Analytical Services, Inc. a widely recognized independent service
which monitors the performance of mutual funds, Morningstar, Inc. and the
Consumer Price Index. Comparisons may also be made to indices or data published
in Donoghue's MONEY FUND REPORT of Holliston, Massachusetts 01746, a nationally
recognized money market fund reporting service, MONEY MAGAZINE, FORBES,
BARRON'S, THE WALL STREET JOURNAL, THE BOND BUYER'S WEEKLY, 20-BOND INDEX, THE
BOND BUYER'S INDEX, THE BOND BUYER, THE NEW YORK TIMES, BUSINESS WEEK, PENSIONS
AND INVESTMENTS, and USA TODAY. In addition to performance information, general
information about these Funds that appears in a publication such as those
mentioned above, may be included in advertisements and in reports to
shareholders.
From time to time, the Funds may include the following types of
information in advertisements, supplemental sales literature and reports to
shareholders: (1) discussions of general economic or financial principles (such
as the effects of compounding and the benefits of dollar-cost averaging); (2)
discussions of general economic trend; (3) presentations of statistical data to
supplement such discussions; (4) descriptions of past or anticipated portfolio
holdings for one or more of the Funds within the Trust; (5) descriptions of
investment strategies for one or more of the Funds; (6) descriptions or
comparisons of various savings and investment
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policies (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 on 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 the 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 on customer accounts by the
Investment Adviser or its affiliated or correspondent banks or cash management
services will reduce a Fund's effective yield to its customers.
Miscellaneous
- -------------
Individual Trustees are elected by the shareholders and, subject to
removal by a 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 outstanding cast in person or by proxy at any meeting
called for that purpose, or by a written declaration signed by the shareholder
voting not less than two-thirds of the shares then outstanding.
The Trust is registered with the SEC as a management investment
company. Such registration does not involve supervision of the management
policies of the Trust. The 1996 Annual Report and, when available, the June 30,
1997 Semi-Annual Report to shareholders of the Trust are incorporated herein by
reference. These reports include the financial statements for the fiscal year
ended December 31, 1996, and the six months ending June 30, 1997, respectively.
In addition, the Annual Report includes management's discussion of Fund
performance for the Small Capitalization Fund, Mid Capitalization Fund, Bond
Fund and International Fund, as well as line graph comparisons to appropriate
broad-based securities market indices.
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The Prospectus 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 by payment of
the prescribed fee.
The Prospectus 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 Prospectus and this Statement of Additional Information.
As of December 31, 1996, the Trustees and officers of the Trust, as a
group, owned, as separate account contract owners or otherwise, none of the
shares of any Fund of the Trust. As of December 31, 1996, FOA-Michigan, as
trustee of the First of America Bank Corporation Employees Retirement Plan,
owned beneficially the following percentages of the Funds, respectively: Prime
Obligations Fund, 64.0%, Bond Fund, 22.2%, Small Capitalization Fund, 15.7%, Mid
Capitalization Fund, 11.4% and International Fund, 34.7%. FOA-Michigan may be
presumed to control both the Trust 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 Trust and each of its Funds. As a result, FABC may
have the ability to elect the Trustees of the Trust, approve the Investment
Advisory, Sub-Investment Advisory and Distribution Agreements for each of the
Funds and to control any other matters submitted to the shareholders of the
Funds for their approval or ratification.
Financial Statements
- --------------------
Financial Statements describing audited financial information for each
Fund's operations since inception appear in the Trust's Annual Report dated
December 31, 1996, and on file with the SEC (File Nos. 33-65690 and 811-7850)
are incorporated herein by reference. The Report of Ernst & Young LLP,
independent auditors of the Trust, appears therein.
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APPENDIX
The nationally recognized statistical rating organizations (individually, an
"NRSRO") that may be utilized by First of America with regard to portfolio
investments for the Trust include Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Corporation ("S&P"), Duff & Phelps, Inc. ("Duff"), Fitch
Investors Service, Inc. ("Fitch"), IBCA Limited and its affiliate, IBCA Inc.
(collectively, "IBCA"), and Thomson BankWatch, Inc. ("Thomson"). Set forth below
is a description of the relevant ratings of each such NRSRO. The NRSROs that may
be utilized by First of America are, and the description of each NRSRO's ratings
is, as of the date of this Statement of Additional Information, and may
subsequently change.
LONG-TERM DEBT RATINGS (May be assigned, for example, to corporate and municipal
bonds)
Description of the three highest long-term debt ratings by Moody's (Moody's
supplies numerical modifiers (1, 2, and 3) in each rating category to indicate
the security's ranking within the category):
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt-edged." Interest payments
are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group, they comprise what
are generally known as high-grade bonds. They are rated lower
than the best bonds because margins of protection may not be
as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment some time in the
future.
Description of the three highest long-term debt ratings by S&P (S&P may apply a
plus (+) or a minus (-) to a particular rating classification to show relative
standing within that classification):
AAA Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only
in small degree.
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A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Description of the three highest long-term debt ratings by Duff:
AAA Highest credit quality. The risk factors are negligible being
only slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality protection factors are strong.
AA Risk is modest but may vary slightly from time to time
AA- because of economic conditions.
A+ Protection factors are average but adequate. However,
A risk factors are more variable and greater in periods
A- of economic stress.
Description of the three highest long-term debt ratings by Fitch (plus or minus
signs are used with a rating symbol to indicate the relative position of the
credit within the rating category):
AAA Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely
to be affected by reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong
as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issues is
generally rated F-1+ (see below).
A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
IBCA's description of its three highest long-term debt ratings:
AAA Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal
and interest is substantial such that adverse changes in
business, economic or financial conditions are unlikely to
increase investment risk significantly.
AA Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal
and interest is substantial. Adverse
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changes in business, economic, or financial conditions may
increase investment risk albeit not very significantly.
A Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest
is strong, although adverse changes in business, economic or
financial conditions may lead to increased investment risk.
Thomson's description of its three highest long-term debt ratings (Thomson may
include a plus (+) or minus (-) designation to indicate where within the
respective category the issue is placed):
AAA The highest category; indicates ability to repay principal and
interest on a timely basis is very high.
AA The second highest category; indicates a superior ability to
repay principal and interest on a timely basis with limited
incremental risk versus issues rated in the highest category.
A The third highest category; indicates the ability to repay
principal and interest is strong. Issues rated "A" could be
more vulnerable to adverse developments (both internal and
external) than obligations with higher ratings.
SHORT-TERM DEBT RATINGS (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit)
Moody's description of its three highest short-term debt ratings:
Prime-1 Issuers rated Prime-1 (or supporting institutions)
have a superior capacity for repayment of senior
short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by many of the
following characteristics:
- Leading market positions in well-established
industries.
- High rates of return on funds employed.
- Conservative capitalization structures with
moderate reliance on debt and ample asset
protection.
- Broad margins in earnings coverage of fixed
financial charges and high internal cash
generation.
- Well-established access to a range of
financial markets and assured sources of
alternate liquidity.
A-3
<PAGE> 95
Prime-2 Issuers rated Prime-2 (or supporting institutions)
have a strong capacity for repayment of senior
short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above
but to a lesser degree. Earnings trends and coverage
ratios, while sound, may be more subject to
variation. Capitalization characteristics, while
still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions)
have an acceptable ability for repayment of senior
short-term obligations. The effect of industry
characteristics and market compositions may be more
pronounced. Variability in earnings and profitability
may result in changes in the level of debt protection
measurements and may require relatively high
financial leverage. Adequate alternate liquidity is
maintained.
S&P's description of its three highest short-term debt ratings:
A-1 This designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to have
extremely strong safety characteristics are denoted with a
plus sign (+).
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
A-3 Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.
Duff's description of its three highest short-term debt ratings (Duff
incorporates gradations of "1+" (one plus) and "1-" (one minus) to assist
investors in recognizing quality differences within the highest rating
category):
Duff 1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is
just below risk-free U.S. Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection
factors. Risk factors are minor.
Duff 1- High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors.
Risk factors are very small.
A-4
<PAGE> 96
Duff 2 Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs
may enlarge total financing requirements, access to capital
markets is good. Risk factors are small.
Duff 3 Satisfactory liquidity and other protection factors qualify
issues as investment grade. Risk factors are larger and
subject to more variation.
Nevertheless, timely payment is expected.
Fitch's description of its three highest short-term debt ratings:
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for
timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than
issues rated F-1+.
F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as for issues assigned F-1+ or
F-1 ratings.
F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate, however, near-term adverse changes
could cause these securities to be rated below investment grade.
IBCA's description of its three highest short-term debt ratings:
A+ Obligations supported by the highest capacity for timely
repayment.
A1 Obligations supported by a very strong capacity for timely
repayment.
A2 Obligations supported by a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in
business, economic or financial conditions.
Thomson's description of its three highest short-term ratings:
TBW-1 The highest category; indicates a very high degree of
likelihood that principal and interest will be paid on a
timely basis.
TBW-2 The second highest category; while the degree of safety
regarding timely repayment of principal and interest is
strong, the relative degree of safety is not as high as for
issues rated "TBW-1".
A-5
<PAGE> 97
TBW-3 The lowest investment grade category; indicates that while
more susceptible to adverse developments (both internal and
external) than obligations with higher ratings, capacity to
service principal and interest in a timely fashion is
considered adequate.
Short-Term Loan/Municipal Note Ratings.
- ---------------------------------------
Moody's description of its two highest short-term loan/municipal note ratings:
MIG-1/VMIG-1 This designation denotes best quality. There is
present strong protection by established cash flows,
superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG-2/VMIG-2 This designation denotes high quality. Margins of
protection are ample although not as large as in the
preceding group.
S&P's description of its two highest municipal note ratings:
SP-1 Very strong or strong capacity to pay principal and
interest. Those issues determined to possess
overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
A-6
<PAGE> 98
THE PARKSTONE ADVANTAGE FUND
FORM N-1A
PART C. OTHER INFORMATION
ITEM NO.
- --------------------------------------------------------------------------------
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Included in Part A:
-- Financial Highlights
Included by reference to Annual Report in Part B:
-- Report of Ernst & Young LLP, Independent Auditors
-- Statement of Assets and Liabilities as of December 31,
1996
-- Statement of Operations for the year ended December 31,
1996
-- Statement of Changes in Net Assets for the years ended
December 31, 1996 and 1995
-- Schedule of Investments as of December 31, 1996
-- Notes to Financial Statements dated December 31, 1996
(b) Exhibits:
(1) Declaration of Trust of the Registrant dated May 18,
1993.
(2) (a) Code of Regulations as approved and adopted by
the Registrant's Board of Trustees.
(b) Amendment to Code of Regulations dated February
10, 1994.
(3) Not Applicable.
(4) Not Applicable.
(5) (a) Investment Advisory Agreement between Registrant
and First of America Investment Corporation,
dated August 18, 1993, relating
C-1
<PAGE> 99
to the Prime Obligations Fund, the Equity Fund,
the Small Capitalization Fund and the Bond Fund.
(b) Investment Advisory Agreement between Registrant
and First of America Investment Corporation,
dated August 18, 1993, relating to the
International Discovery Fund.
(c) Sub-Investment Advisory Agreement between First
of America Investment Corporation and Gulfstream
Global Investors, Ltd., dated March 1, 1995,
relating to the International Fund.
(6) Distribution Agreement between Registrant and BISYS
Fund Services, L.P., dated July 1, 1996.
(7) Not Applicable.
(8) (a) Custody Agreement between Registrant and The
Bank of California, N.A., dated August 16, 1993,
relating to the Prime Obligations Fund, the
Equity Fund, the Small Capitalization Fund, the
Bond Fund and the International Discovery Fund.
(b) Custodian Agreement between Registrant and The
Bank of California, N.A., dated July 31, 1995
relating to the International Discovery Fund.
(9) (a) Administration Agreement between Registrant and
BISYS Fund Services, L.P., dated July 1, 1996.
(b) Fund Accounting and Transfer Agency Agreement
between Registrant and BISYS Fund Services,
L.P., dated July 1, 1996.
(i) Amendment dated February 12, 1997 to
Exhibit C.
(c) Fund Participation and Variable Contract
Marketing Agreement between Registrant and
Security Benefit Life Insurance Company, the
Parkstone Variable Annuity Account, Security
Management Company, Security Distributors, Inc.,
First of America Brokerage Service, Inc. and
First of America Bank Corporation, dated
September 10, 1993.
(10) Opinion of counsel that shares are validly issued,
fully paid and non-assessable is incorporated by
reference to Registrant's filing pursuant to Rule
24f-2 (filed February 26, 1997).
(11) (a) Consent of Ernst & Young LLP.
C-2
<PAGE> 100
(b) Consent of Howard & Howard.
(12) Not Applicable.
(13) Purchase Agreement between Registrant and Security
Distributors, Inc., dated August 17, 1993.
(14) Not Applicable.
(15) Not Applicable.
(16) (a) Computation of Total Returns for the Small
Capitalization Fund, the Mid Capitalization
Fund, the Bond Fund, the International Discovery
Fund and the Prime Obligations Fund.
(b) Computation of Yields for the Small
Capitalization Fund, the Mid Capitalization
Fund, the Bond Fund, the International Discovery
Fund and the Prime Obligations Fund.
(17) Financial Data Schedules.
(18) Not Applicable.
(19) (a) Power of Attorney for Lawrence D. Bryan, Robert
M. Beam, Adrian Charles Edwards, James R.
Schmank and Brenda M. Luthi.
(b) Power of Attorney for John B. Rapp.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is controlled by its Board of Trustees, some of the members
of which also serve as members of the Board of Trustees of the
Parkstone Group of Funds. As of December 31, 1996, First of America
Bank Corporation, a bank holding company ("FABC") and the parent of
First of America Bank - Michigan, N.A., may be deemed to control the
Registrant because of its indirect record ownership and beneficial
ownership through its wholly-owned subsidiaries of more than 25% of the
shares of each series of the Registrant outstanding on such date. In
addition to controlling the Registrant, FABC may be deemed to control,
and therefore the Registrant may be under common control with, First of
America Investment Corporation, a Michigan corporation and a
wholly-owned subsidiary of First of America Bank - Michigan, N.A.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Registrant was organized primarily for the purpose of providing a
vehicle for the investment of assets received by various separate
investment accounts ("Separate
C-3
<PAGE> 101
Accounts") established by various participating life insurance
companies (the "Participating Insurance Companies"). The assets in the
Separate Accounts are, under state law, assets of the Participating
Insurance Companies which have established Separate Accounts. Thus, at
any time, the Participating Insurance Companies will own Registrant's
outstanding shares purchased with Separate Account assets; however,
where required to do so, the Participating Insurance Companies will
vote such shares only in accordance with the instructions received of
the contracts pursuant to which monies are invested in the Separate
Accounts. As of December 31, 1996, the only Participating Insurance
Company was Security Benefit Life Insurance Company and the number of
record holders of each series of shares of the Registrant were as
follows:
Title of Series Number of Record Holders
-----------------------------------------------------------------------
Prime Obligations Fund 5
Small Capitalization 6
Mid Capitalization Fund 5
Bond Fund 5
International Discovery Fund 5
ITEM 27. INDEMNIFICATION
Indemnification of Registrant's principal underwriter, custodian,
investment adviser, administrator, transfer agent and fund accountant
is provided for, respectively, in Section 6 of the Distribution
Agreement filed or incorporated by reference as Exhibit (6) hereto,
Section 10.1 of the Custody Agreement filed or incorporated by
reference as Exhibit (8)(a) hereto, Section 16 of the Custodian
Agreement filed or incorporated by reference as Exhibit (8)(b) hereto,
Section 8 of the Investment Advisory and Sub-Investment Advisory
Agreements filed or incorporated by reference as Exhibits 5(a), (b) and
(c) hereto, Section 5 of the Administration Agreement filed or
incorporated by reference as Exhibit 9(a) hereto, and Section 8 of the
Fund Accounting and Transfer Agency Agreement filed or incorporated by
reference as Exhibit 9(b) hereto. Registrant has obtained from a major
insurance carrier a Trustee's and officer's liability policy covering
certain types of errors and omissions. In no event will Registrant
indemnify any of its Trustees, officers, employees or agents against
any liability to which such person would otherwise be subject by reason
of his or her willful misfeasance, bad faith or gross negligence in the
performance of his or her duties, or by reason of his or her reckless
disregard of the duties involved in the conduct of his or her office or
under his or her agreement with Registrant. In addition, Section 9.2 of
Registrant's Agreement and Declaration of Trust dated May 18, 1993,
filed herein as Exhibit (1), provides as follows:
9.2 Indemnification of Trustees, Representatives and
Employees. The trust shall indemnify, to the fullest
extent permitted by law, every person who is or has
been a trustee or officer of the trust and any
person rendering or having rendered investment
advisory, administrative, distribution, custodian or
transfer agency services to the trustee or to the
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<PAGE> 102
trust or any series thereof pursuant to Article VII of this
Declaration of Trust or otherwise, and every officer,
director, trustee, shareholder, employee and agent of any such
person (all persons hereinafter referred to as the "covered
persons") against all liabilities and expenses (including
amounts paid in satisfaction of judgments, and compromise, as
fines and penalties, and as counsel fees (reasonably incurred
by him in connection with the defense or disposition of any
action, suit, or other proceeding, whether civil or criminal,
in which he may be involved or which he may be threatened
while as a covered person or thereafter, by reason of his
being or having been such a covered person EXCEPT with respect
to any matter as to which he shall have been adjudicated to
have acted in bad faith, willful misfeasance, gross
negligence, or reckless disregard of his duties; PROVIDED,
HOWEVER, that as to any matter disposed of by a compromised
payment by such person, pursuant to a consent decree or
otherwise, no indemnification either for said payment or for
any other expenses shall be provided unless the trust shall
have received a written opinion from independent legal counsel
approved by the trustees to the effect that, if either the
matter of willful misfeasance, gross negligence, or reckless
disregard of duty or the matter of bad faith had been
adjudicated, it would in the opinion of such counsel, have
been adjudicated in favor of such person. The rights accruing
to any covered person under these provisions shall not exclude
any other right to which she may be lawfully entitled;
PROVIDED, HOWEVER, that no covered person may satisfy any
right of indemnity or reimbursement except out of the property
of the trust if the trustees make advance payments in
connection with the indemnification under this Section 9.2.;
PROVIDED, HOWEVER, that the indemnified covered person shall
have given a written undertaking to reimburse the trust in the
event that it is subsequently determined that he is not
entitled to such indemnification. Rights of indemnification
herein provided may be insured against by policies maintained
by the trust. Such rights of indemnification or severable, and
such inure to the benefit of the heirs, executors,
administrators and other legal representatives of such covered
persons.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
First of America Investment Corporation ("First of America"),
Kalamazoo, Michigan, is an investment adviser registered under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"). First
of America is a Michigan-chartered, wholly-owned subsidiary of First of
America Bank-Michigan, N.A., Kalamazoo, Michigan ("FOA-Michigan").
First of America currently manages over $14.3 billion on behalf of both
taxable and tax-exempt clients, including pensions, endowments,
corporations, individual portfolios and the Parkstone Group of Funds.
First of America acts as subadviser to the Trust Division of First of
America Bank Corporation with respect to $3.7 billion in discretionary
assets, providing equity, fixed income, balanced and money market
investment services.
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<PAGE> 103
To the knowledge of Registrant, none of the directors or officers of
First of America is or has been at any time during the past two fiscal
years engaged in any other business, profession, vocation or employment
of a substantial nature, except that certain directors and officers of
First of America also hold positions with First of America's parent,
FOA-Michigan, or First of America Bank Corporation (FOA-Michigan's
parent) or other subsidiaries. Information relating to any business,
profession, or employment of a substantial nature engaged in by
officers and directors of First of America during the past two years is
incorporated herein by reference to Schedules A and D of Form ADV filed
by First of America pursuant to the Advisers Act (SEC File No.
801-446).
ITEM 29. PRINCIPAL UNDERWRITER
(a) BISYS Fund Services Limited Partnership, formerly known as The
Winsbury Company Limited Partnership ("BISYS") acts as
distributor and administrator for Registrant. BISYS also
distributes the securities of The Victory Portfolios, The
AmSouth Mutual Funds, The Sessions Group, The Coventry Group,
The BB&T Mutual Funds Group, The American Performance Funds,
The ARCH Fund, Inc., Inc., The MMA Praxis Mutual Funds, The
MarketWatch Funds, The Pacific Capital Funds, The Qualivest
Funds, The Riverfront Funds, Inc., The Summit Investment
Trust, The Pegasus Funds, The Fountain Square Funds, The Kent
Group of Funds, The HSBC Funds, First Choice Funds Trust, The
Empire Builder Tax Free Bond Fund, The Hirtle Callaghan Trust,
The Intrust Funds, The Meyers Sheppard Investment Trust, The
Minerva Funds, The M.S.D. & T. Funds, The Sefton Funds, The
Parkstone Group of Funds, SBSF Funds, Inc., Infinity Mutual
Funds, Inc., The Republic Funds and The Time Horizon Funds,
each of which is an investment management company.
(b) Directors, officers and partners of BISYS, as of December 31,
1996, were as follows:
<TABLE>
<CAPTION>
Name and Principal Business Positions and Offices with Positions and Offices
Address BISYS Fund Services, L.P. with Registrant
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
The BISYS Group, Inc. Sole Shareholder of BISYS None
150 Clove Road Fund Services, Inc. and Sole
Little Falls, NJ 07424 Limited Partner
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus, OH 43219
</TABLE>
C-6
<PAGE> 104
(c) Compensation to BISYS during the fiscal year ended December
31, 1996 was as follows:
<TABLE>
Net Underwriting Compensation
Discounts and on Redemption Brokerage Other
Commissions and Repurchase Commissions Compensation
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
-0- -0- -0- -0-
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
(1) First of America Investment Corporation, 303 N. Rose Street,
Suite 500, Kalamazoo, Michigan 49007 (records relating to its
functions as investment adviser); Gulfstream Global Investors,
Ltd. 100 Crescent Court, Suite 550, Dallas, Texas 75201
(records relating to certain functions of the subadviser for
the International Discovery Fund).
(2) BISYS Fund Services, L.P., 3435 Stelzer Road, Columbus, Ohio
43219 and Security Distributors, Inc., 700 Harrison Street,
Topeka, Kansas 66636 (records relating to service as
distributor).
(3) BISYS Fund Services, L.P., 3435 Stelzer Road, Columbus, Ohio
43219 and Security Management Company, 700 Harrison Street,
Topeka, Kansas 66636 (records relating to service as
administrator).
(4) Howard & Howard, Attorneys, P.C., 1400 North Woodward Avenue,
Suite 101, Bloomfield Hills, Michigan 48304-2856 (Registrant's
Declaration of Trust, Code of Regulations and Minutes Books).
(5) Union Bank of California, N.A., 475 Sansome Street, San
Francisco, California 94111 (records relating to its functions
as custodian for the Funds).
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
(1) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered a copy of its latest annual report,
containing Management's Discussion of Fund Performance, to
shareholders upon request and without charge.
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<PAGE> 105
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, Registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Columbus, State of Ohio on the 16th
day of April, 1997.
THE PARKSTONE ADVANTAGE FUND
/s/ George R. Landreth
-----------------------------
By: George R. Landreth
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ John B. Rapp Chairman of the Board of April 16, 1997
- ------------------------- Trustees and President
John B. Rapp*
/s/ James R. Schmank Trustee April 16, 1997
- -------------------------
James R. Schmank*
/s/ Brenda M. Harwood Trustee
- -------------------------
Brenda M. Harwood* April 16, 1997
/s/ Robert M. Beam Trustee
- -------------------------
Robert M. Beam* April 16, 1997
/s/ Adrian C. Edwards Trustee
- -------------------------
Adrian C. Edwards* April 16, 1997
/s/ Lawrence D. Bryan Trustee
- -------------------------
Lawrence D. Bryan* April 16, 1997
*By: /s/ George R. Landreth
-------------------------
George R. Landreth, Attorney-In-Fact
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<PAGE> 106
EXHIBIT INDEX
-------------
EXHIBIT NO.
- -----------
(1) Declaration of Trust of the Registrant dated May 18, 1993
(2)(a) Code of Regulations as approved and adopted by the Registrant's
Board of Trustees
(2)(b) Amendment to Registrant's Code of Regulations dated February 10,
1994
(5)(a) Investment Advisory Agreement between Registrant and First of
America Investment Corporation dated August 18, 1993
(5)(b) Investment Advisory Agreement between Registrant and First of
America Investment Corporation dated August 18, 1993
(5)(c) Sub-Investment Advisory Agreement between First of America
Investment Corporation and Gulfstream Global Investors, Ltd.
(6) Distribution Agreement between Registrant and BISYS Fund Services,
L.P. dated July 1, 1996
(8)(a) Custody Agreement between Registrant and The Bank of California,
N.A. dated August 16, 1993
(8)(b) Custodian Agreement between Registrant and The Bank of California,
N.A. dated July 31, 1995
(9)(a) Administration Agreement between Registrant and BISYS Fund
Services, L.P. dated July 1, 1996
(9)(b) Fund Accounting and Transfer Agency Agreement between Registrant
and BISYS Fund Services, L.P. dated July 1, 1996
(9)(b)(i) Amendment dated February 12, 1997 to Exhibit C
(9)(c) Fund Participation and Variable Contract Marketing Agreement dated
September 10, 1993
(11)(a) Consent of Ernst & Young LLP
(11)(b) Consent of Howard & Howard Attorneys, P.C.
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<PAGE> 107
(13) Purchase Agreement between Registrant and Security Distributors,
Inc. dated August 17, 1993
(16)(a) Computation of Total Returns for the Small Capitalization Fund,
the Mid Capitalization Fund, the Bond Fund, the International
Discovery Fund and the Prime Obligations Fund
(16)(b) Computation of Yields for the Small Capitalization Fund, the Mid
Capitalization Fund, the Bond Fund, the International Discovery
Fund and the Prime Obligations Fund
(17) Financial Data Schedules
(19)(a) Power of Attorney for Lawrence D. Bryan, Robert M. Beam, Adrian
Charles Edwards, James R. Schmank and Brenda M. Luthi
(19)(b) Power of Attorney for John B. Rapp
C-10
<PAGE> 1
EXHIBIT 1
DECLARATION OF TRUST
THE PARKSTONE ADVANTAGE FUND
MAY 18, 1993
DECLARATION OF TRUST, made as of May 18, 1993, by David E. Riggs
("Trustee").
WHEREAS, the Trustee desires to establish a trust fund for the
investment and reinvestment of funds contributed thereto;
NOW, THEREFORE, the Trustee declares that all money and property
contributed to the Trust fund hereunder shall be held in Trust and managed under
this Declaration of Trust as herein set forth below.
I. NAME
This Trust shall be known as The Parkstone Advantage Fund (hereinafter
called the "Trust").
II. PURPOSE OF TRUST; AGENT FOR SERVICE
The Trust is a Massachusetts business trust as described in chapter
182, Section 1 of the General Laws of the Commonwealth of Massachusetts, and is
formed for the purpose of acting as an open-end registered investment company
under the Investment Company Act of 1940; provided, however, that the Trust may
exercise all powers which are ordinarily exercised by or permissible for
Massachusetts business trusts.
The agent of the Trust for service of process within the Commonwealth
of Massachusetts shall be: C.T. Corporation System, 2 Oliver Street, Boston,
Massachusetts 02109.
III. DEFINITIONS
3.1. Definition of Certain Terms. As used in this Declaration of
Trust, the terms set forth below shall have the following meanings:
3.1.a. "Shares" means the equal proportionate transferrable units of
interest into which the beneficial interest of each series of the Trust may be
divided or redivided from time to time by the Trustees acting under this
Declaration of Trust or, in the absence of such action, such term means the
equal proportionate transferrable units of interest into which the entire
beneficial interest in the Trust shall be divided from time to time, and
includes fractions of Shares as well as whole Shares.
3.1.b. The holder of each Share shall be entitled to one (1) vote for
each dollar of value invested, and a proportionate fractional vote for any
fraction of a dollar invested, irrespective of series, then recorded in his name
on the books of the Trust. On any matter submitted to a
<PAGE> 2
vote of the Shareholders, all Shares then issued and outstanding and entitled to
vote, irrespective of the series, shall be voted in the aggregate and not by
series except; (1) as otherwise required by the Act; or (2) when the matter, as
conclusively determined by the Trustees, affects only the interest of the
Shareholders of the particular series of the Trust (in which case only
Shareholders of the affected series shall be entitled to vote thereon).
3.1.c. "Person" shall mean a natural person, a corporation, a
partnership, an association, a joint-stock company, a trust, a fund, any
federal, state, or local governmental body, agency, instrumentality, or any
political subdivision thereof, or any organized group of persons whether or not
incorporated.
3.1.d. "Trustees" refers to the individual Trustees of the Trust, in
their capacity as Trustees hereunder and not as individuals, and to their
successor or successors while serving in office as a Trustee of the Trust.
3.1.e. The "Act" refers to the Investment Company Act of 1940, as now
or hereafter amended, and to the rules and Regulations of adopted from time to
time thereunder.
3.1.f. The terms "assignment" and "interested person" shall have the
respective meaning set forth in the Act. The term "vote of a majority of the
outstanding Shares" shall mean, where required by the Act, the approval, at a
meeting of the Shareholders duly called, of the lessor of (i) the holders of 67%
or more of the voters present at any such meeting, if the holders of more than
50% of the outstanding votes are present or represented by proxy there at; (ii)
the holders of more than 50% of the outstanding votes; provided, however, that
the term "vote of a majority of the outstanding Shares" may be used herein with
respect to Shares for the Trust as a whole, or respect to Shares of a particular
series of the Trust, as the context may require.
3.1.g. The "Regulations" shall refer to the Code of Regulations of the
Trust as adopted and amended from time to time.
3.1.h. The "Declaration of Trust" shall mean this Declaration of Trust
as amended or restated from time to time.
IV. OWNERSHIP OF THE TRUST
The assets of the Trust shall be held in a separate capacity, other
than as Trustees hereunder, by the Trustees. Legal title to all the assets of
the Trust shall be vested in the Trustees as joint tenants except that the
Trustees shall have power to cause legal title to any assets of the Trust to be
held by or in the name of one (1) or more of the Trustees, in the name of the
Trust, in the name of a particular series of the Trust, or in the name of any
other person as nominee, on such terms as the Trustees may reasonably determine.
The right, title, and interest of the Trustees and the assets of the Trust shall
vest automatically in each person who may hereafter become a Trustee. Upon the
resignation, removal, or death of a Trustee, such
2
<PAGE> 3
Trustee shall automatically cease to have any right, title, or interest in any
of the assets of the Trust, and the right, title, and interest of such Trustee
and the assets of the Trust shall vest automatically in the remaining Trustees.
Such vesting and cessation of title shall be effective regardless of whether
conveyancing documents (pursuant to Section 6.6 of this Declaration of Trust or
otherwise) have been executed and delivered. Except to the extent otherwise
required by Article V hereof, no Shareholder shall be deemed to have severable
ownership of any individual asset of the Trust or any right of portion or
possession thereof; nor shall any Shareholder be called upon to assume any
losses of the Trust or suffer an assignment of any kind by virtue of his
ownership of Shares; but each Shareholder shall have a proportionate undivided
beneficial interest in the series of the Trust in respect of which the Shares
held by such Shareholder have been issued.
V. SHAREHOLDERS; SERIES; BENEFICIAL INTEREST IN SERIES
OF THE TRUST; PURCHASE AND REDEMPTION OF SHARES
5.1 Shares and the Series of the Trust.
5.1.a. The Trustees shall have full power and authority, in their sole
discretion, without obtaining the prior approval of the Shareholders (either
with respect to the Trust as a whole or with respect to any series of the Trust)
by vote or otherwise, to establish one (1) or more series of Shares of the
Trust. The establishment of any such series shall be effective upon the adoption
by majority of the Trustees then in office of the resolution establishing such
series and setting forth the voting rights, preferences, designations,
conversion or other rights, restrictions, limitations as to distributions,
conditions of redemption, qualifications, or other terms of the Shares of such
series. The beneficial interest in each series of the Trust shall at all times
be divided into full and fractional transferrable Shares without par value.
There is no numerical limitation on the number of Shares of a series that may be
issued. The investment objective, policies, and restrictions governing the
management and operations of each series of the Trust, including the management
of assets belonging to any particular series may from time to time be changed or
supplemented by the Trustees, subject to the requirement of the Act. The
Trustees may from time to time divided or combined the outstanding Shares of one
(1) or more series of the Trust into a greater or lessor number without thereby
changing their proportionate beneficial interest in the Trust assets located or
belonging to such series.
Subject to the respective voting rights, preferences, participating or
other special rights and qualifications, restrictions, and limitations expressly
provided for in this Declaration of Trust with respect to Shares of each series
of the Trust, the Trustees have the power to classify or reclassify Shares of
any series of the Trust into one (1) or more classes by setting or changing in
any one (1) or more respects, from time to time, the preferences, designations,
conversion or other rights, restrictions, limitations as to dividends,
conditions of redemption, qualifications, or other terms deplicable to Shares of
such class. All references in the Declaration of Trust to Shares of any series
of the Trust shall include and refer to the Shares of any class thereof.
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5.1.b. The holder of each Share shall be entitled to one (1) vote for
each dollar value invested, and a proportionate fractional vote for any fraction
of a dollar invested, irrespective of series, and recorded in his name on the
books of the Trust. On any matter submitted to a vote of the Shareholders, all
Shares then issued and outstanding and entitled to vote, irrespective of series,
shall be voted in the aggregate and not by series except: (1) as otherwise
required by the Act: (2) when the matter, as conclusively determined by the
Trustees, effects only the interests of the Shareholders of a particular series
of the Trust (in which case only Shareholders of the effective series shall be
entitled to vote thereon).
5.1.c. Shares of each series of the Trust shall have the following
preferences, participating or other special rights, qualifications, restrictions
and limitations:
5.1.c.1. Shares Belonging to a Series. All consideration received by
the Trust for the issue or sale of Shares of any series, together with all
assets in which such consideration is invested or reinvested, including any
proceeds derived from the sale, exchange, or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds in whatever
form the same may be, shall be referred to as "assets belonging to" that series.
In addition, any assets, income, earnings, profits or proceeds thereof, or funds
or payments which are not readily identifiable as belonging to a particular
series shall be allocated by the Trustees to one (1) or more series (such
allocation to be conclusive and binding upon the Shareholders of all series for
all purposes). In such manner as they, in their sole discretion, deem fair and
equitable, and shall also be referred to as "assets belonging to" such series.
Such assets belonging to a particular series shall irrevocably belong for all
purposes to the Shares of the series, and shall be so handled upon the books or
the account of the Trust. Such assets and income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange, or
liquidation thereof, and any funds or payments derived from any reinvestment of
such proceeds in whatever form, are herein referred to "assets belonging to"
such a series. Shareholders of any series have no right, title or interest in or
to the assets belonging to any other series.
5.1.c.2. Liabilities Belonging to a Series. The assets belonging to any
series of the Trust shall be charged with the direct liabilities and respect of
such series and with all expenses, costs, charges, and reserves attributable to
such series, and shall also be charged with the Share of such series of the
general liabilities, expenses, costs, charges, and reserves of the Trust which
are not readily identifiable as belonging to a particular series in proportion
to the relative assets of the respective series, as determined at such time or
times as may be authorized by the Trustees. Any such determination by the
Trustees shall be conclusive and binding upon the Shareholders of all series for
all purposes; provided, however, under no circumstances shall the assets
allocated or belonging to any series of Trust be charged with liabilities
directly attributable to any other series. The liability so charged to a series
herein referred to as "liabilities belonging to" such series. All persons who
may have extended credit to a particular series or who have contracts or claims
with respect to a particular series shall look only to the assets of that
particular series for payment of such contracts or claims.
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5.1.c.3. Liquidating Distributions. In the event of the termination of
the Trust or a particular series thereof and the winding up of its affairs, the
Shareholders of the Trust or such particular series shall be entitled to receive
out of the assets of the Trust or belonging to the particular series, as the
case may be, available for distribution to Shareholders, but other than general
assets not belonging to any particular series of the Trust, the assets belonging
to such series; and the assets so distributable to the Shareholders of any
series shall be distributed among such Shareholders and proportioned to the
number of Shares of such series held by them and recorded in their name on the
books of the Trust. In the event that there are any general assets not belonging
to any particular series of the Trust available for distribution, such
distribution shall be made to the Shareholders of all series subject to such
termination and winding up in proportion to the relative net assets of the
respective series determined as hereinafter provided and the number of Shares of
such series held by them and recorded in their names on the books of the Trust.
5.1.c.4. Dividends and Distributions. Shares of each series shall be
entitled to such dividends and distributions in Shares or in cash or both, as
may be declared from time to time by the Trustees acting in their sole
discretion, with respect to such series, provided, however, that dividends and
distributions on Shares of a particular series shall be paid only out of the
lawfully available "assets belonging to" such series as such term is defined in
this Declaration of Trust.
5.2 Purchase of Shares. The Trustees may accept investments in each
series of the Trust from such persons for such consideration and on such other
terms as they may from time to time authorize. The Trust may reject any order
for, or refuse to give effect on the books of the Trust to the transfer of, any
Shares as permitted under the Act. Each such investment shall be credited to the
Shareholder's account in the form of full and fractional Shares of the
appropriate series of the Trust, at the net asset value per Share next computed
after receipt of the investment.
5.3 Net Asset Value per Share. The net asset value per Share of each
series of the Trust shall be computed at such time or times as the Trustees may
specify pursuant to the Act. Assets shall be valued at net asset value per Share
shall be determined by such person or person as the Trustee may appoint under
the supervision of the Trustees in such manner not inconsistent with the Act and
any orders of the Securities and Exchange Commission received by the Trust, as
the Trustees may determine.
5.4 Ownership of Shares. The ownership of Shares shall be recorded
separately with respect to each series on the record books of the Trust.
Certificates for Shares shall be issued to holders of such Shares only upon
authorization of the Trustee, in their discretion, to issue such certificates,
and shall be issued, if at all, subject to such rules and Regulations as the
Trustees may determine. The Trustees may make such rules as they consider
appropriate for the transfer of Shares and similar matters. The record books of
the Trustee shall be conclusive as to the identity of holders of Shares and as
to the number of Shares of each series held by each Shareholder.
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5.5 Preemptive Rights. Shareholders shall have no preemptive or
other rights to subscribe to any additional Shares or other securities issued by
the Trust or by the Trustees.
5.6 Redemption of Shares. To the extent of the assets of the Trust
legally available for redemption, a Shareholder of any series of the Trust shall
have the right, subject to the provisions of Section 5.7 hereof, to require the
Trust to redeem his full and fractional Shares of any series out of assets
belonging to such series that a redemption price equal to the net asset value
per Share next determined after receipt of a request to redeem in proper form as
determined by the Trustees. The Trustees shall establish such rules and
procedures they deem appropriate for redemption of Shares; provided, however,
that all redemption shall be in accordance with the Act. Without limiting the
generality of the foregoing, the Trust shall, to the extent permitted by
applicable law, have the right at any time to redeem the Shares owned by any
holder thereof (i) if the value of such Shares in an account maintained by the
Trust or its transfer agent for any Shareholder with respect to any series where
the Trust is less than the amount specified by resolution of the Trustees;
provided, however, that any Shareholder shall be notified if the value of his
account is less than such amount, and shall be allowed such period of time as
specified by resolution of the Trustees to make additional purchases of Shares
of the appropriate series so that the value of his account may be increased
before any such involuntary redemption is processed by the Trust; or (ii) if the
net income with respect to any particular series of the Trust should be negative
or it should otherwise be appropriate to carry out the Trust's responsibilities
under the Act, in each case subject to such further terms and conditions as the
Board of Trustees of the Trust may from time to time adopt. The redemption price
of Shares of any series of the Trust shall, except as otherwise provided in this
section, be the net asset value thereof as determined by the Board of Trustees
of the Trust from time to time in accordance with the provisions of applicable
law, less such redemption fee or other charge, if any, as may be fixed by
resolution of the Board of Trustees of the Trust. When the net income with
respect to any particular series of the Trust is negative or whenever deemed
appropriate by the Board of Trustees of the Trust in order to carry out the
Trust's responsibilities under the Act, any series of the Trust may, without
payment of compensation but in consideration of the interest of the Trust or a
particular series thereof and of the Shareholders of the Trust or of such series
in maintaining constant net asset value per Share with respect to such series,
redeem pro rata from each Shareholder of record on such day, such number of full
and fractional Shares of each series as may be necessary to reduce the aggregate
number of outstanding Shares of such series in order to permit the net asset
value thereof to remain constant. Payment of the redemption price, if any, shall
be made in cash by the appropriate series of the Trust at such time and in such
manner that may be determined from time to time by the Board of Trustees of the
Trust unless, in the opinion of the Board of Trustees, which shall be conclusive
and binding upon the Shareholders for all purposes, conditions exist which make
payment wholly in cash unwise or undesirable; in such event the appropriate
series of the Trust may make payment in the assets belonging or allocable to
such series, the value of which shall be determined as provided herein.
5.7 Suspension of Right of Redemption. The Trustees may suspend
the right of redemption by Shareholders or postpone the date of payment or the
recordation of transfer of
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Shares of any series, as permitted under the Act or applicable law. Such
suspension or postponement shall take affect at such time as the Trustee shall
specify but not later than the close of business of the business day following
the declaration of suspension or postponement, and thereafter shall be no right
of redemption or payment or transfer until the Trustee shall declare the
suspension at an end. In case of suspension of the right of redemption, a
Shareholder may either withdraw his request for redemption or receive payment
based on the net asset value existing after the termination of the suspension.
5.8 Conversion Rights. The Trustee shall have the authority to provide
from time to time that the holders of Shares of any series shall have the right
to convert or exchange said Shares for or into Shares of one (1) or more other
series in accordance with such requirements and procedures as may be established
from time to time by the Trustees.
VI. THE TRUSTEES
6.1 Management of the Trust. Subject to any applicable requirements of
law, the business and affairs of the Trust shall be managed by the Trustees, who
shall have all powers necessary or desirable to carry out such responsibility,
including without limitation the appointment of and delegation of responsibility
to such officers, employees, agents, and contractors as they may select.
6.2 Number and Term of Office. The number of Trustees shall be
determined from time to time by the Trustees themselves, but shall not be less
than three (3), nor more than ten (10), subject to any applicable requirements
of law, provided, however, that if there are less than three (3) Shareholders,
the number of Trustees may be less than three (3) but not less than the number
of Shareholders and in no event less than one (1). Each Trustees shall hold such
position for such term as may be provided in the Regulations, and until his
successor is elected and qualifies. A Trustee shall qualify by accepting in
writing his election or appointment and agreeing to be bound by the provisions
of this Declaration of Trust. Except as otherwise provided herein in the case of
vacancies, Trustees (other than the initial Trustee provided in Section 6.3)
shall be elected by the Shareholders, who shall vote in the aggregate and not by
series and at such time or times as the Trustee shall determine that such
election is required under Section 16(a) of the Act or as otherwise advisable.
Notwithstanding the foregoing, (a) any Trustee may resign as a Trustee by
written instrument signed by him and delivered to the other Trustees at the
principal business office of the Trust (without need for prior or subsequent
accounting), which resignation shall take affect upon such delivery or upon such
later date as is specified therein; (b) any Trustee may be removed at any time
with our without cause by written instrument, signed by at least two-thirds
(2/3) of the number of Trustees prior to such removal, specifying the date when
such removal shall become effective; (c) any Trustee who requests to be retired
or who has become incapacitated by illness or injury may be retired by written
instrument signed by a majority of the other Trustees; and (d) the term of a
Trustee shall terminate at his death, resignation, bankruptcy, removal, or
adjudicated incompetency.
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6.3 Initial Trustee. The initial Trustee shall be David E. Riggs,
who, by his execution hereof, has agreed to be bound by the provisions of this
Declaration of Trust.
6.4 Meetings and Committees. Meetings of the Trustees shall be held
from time to time within or without Massachusetts upon the call of such person
or persons as may be designated in the Regulations. The required quorum for any
such meeting shall be as set forth in the Regulations. Meetings of the Trustees
may be held by means of a conference telephone circuit or similar communications
equipment by means of which all persons participating may hear each other at the
same time. The Trustees may also act without a meeting, unless provided
otherwise in this Declaration of Trust, the Regulations or the Act, by written
consents of a majority of the Trustees.
The Trustees may appoint committees of Trustees and delegate powers to
them as provided in the Regulations. Any committee of the Trustees, including an
Executive Committee, if any, may act with or without a meeting. The requisite
quorum for all meetings of any committee shall be as set forth in the
Regulations. Unless provided otherwise in this Declaration of Trust, the
Regulations or the Act, any action of any such committee may be taken at a
meeting by vote of a majority of the members present (a quorum being present),
or without a meeting by unanimous written consent of the members.
6.5 Vacancies. In case a vacancy shall exist by reason of an increase
in the number of Trustees, or for any other reason, the remaining Trustees may
fill such vacancy by appointing such other persons as they in their discretion
shall select, subject to the requirements of the Act. Such appointment shall be
evidenced by a written instrument signed by a majority of the then Trustees, but
the appointment shall not take effect until the individual so named shall have
qualified by excepting in writing the appointment and agreeing to be bound by
the terms of this Declaration of Trust. As may be required by law, the Trustees
shall cause notice thereof to be mailed to each of the Shareholders of record at
the address of such Shareholder on the books of the Trust. Whenever a vacancy in
the number of Trustees shall occur, until such vacancy is filled as provided in
this section, the Trustees in office, regardless of their number, shall have all
the powers granted to the Trustees and shall discharge all the duties imposed on
the Trustees by this Declaration of Trust. In anticipation of a vacancy to occur
as a result of the resignation, retirement, or removal of a Trustee or increase
in the number of the Trustees, a majority of the Trustees then in office may
appoint such other person to fill such vacancy as they may in their discretion
shall select, such appointment to be effective at such future time as the
Trustees may specify (subject to the acceptance in writing by such other person
of said appointment and his or her agreement to be bound by the terms of this
Declaration of Trust), with such notice as required to be mailed as aforesaid to
the Shareholders of record. A vacancy may also be filled by the Shareholders in
an election held at a meeting of the Shareholders. As soon as any Trustee so
appointed or elected shall have qualified, the Trust estate shall vest in the
new Trustee or Trustees, together with the continuing Trustees, without any
further act or conveyance.
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6.6. Effect of Death, Resignation, etc. of Trustee. The death,
resignation, bankruptcy, removal, retirement, or incapacity of the Trustees, or
anyone of them, shall not operate to annul the Trust or to revoke any existing
agency created pursuant to the terms of this Declaration of Trust. Upon the
resignation or removal of a Trustee, or his otherwise ceasing to be a Trustee,
he shall execute and deliver such documents as the remaining Trustees shall
require for the purpose of conveying to the Trust or the remaining Trustees any
assets of the Trust held in the name of the resigning or removed Trustee. Upon
the incapacity or death of any Trustee, his legal representative shall execute
and deliver on his behalf such documents as the remaining Trustee shall require
as provided in the preceding sentence. The failure to request or deliver such
documents shall not effect the operation of the provisions of Article IV hereof.
6.7. Powers. The Trustees in all instances shall act as principals and
shall be free from the control of the Shareholders. The Trustee shall have full
power and authority to do any and all acts and to make and execute any and all
contracts and instruments that they may consider necessary or desirable in
connection with the management of the Trust. The Trustee shall not be bound or
limited by present or future laws or customs in regard to Trust investments, but
shall have full authority and power to make any and all investments which they,
in their uncontrolled discretion, shall deem proper to accomplish the purpose of
this Trust. Subject to any applicable limitation and this Declaration of Trust
or the Regulations, and without limiting the generality of the foregoing, the
Trustee shall have power and authority:
6.7.a. To establish, in their sole discretion, without obtaining the
prior approval of the Shareholders, one or more series of the Trust, such
establishment to be effective upon the adoption by majority of the Trustees then
in office of a resolution establishing such series and setting the voting
rights, preferences, designations, conversion or other rights, restrictions,
limitations as to distributions, conditions of redemptions, qualifications, or
other terms of the Shares of such series, and to allocate among such series any
assets, income, earnings, profits or proceeds thereof, funds or payments, or
expenses, costs, charges, or reserves not readily identifiable as belonging to a
particular series, such allocation to be conclusive and binding upon all
Shareholders for all purposes in accordance with the provisions of Article V of
this Declaration of Trust.
6.7.b. To buy and invest funds in their hands and such securities, debt
instruments, and other instruments and rights of a financial character as they
may from time to time determine; and to invest and reinvest cash and other
property or to hold cash and other property uninvested, in either instance
without being subject to any limitations imposed by law upon the nature of
investments made by fiduciaries.
6.7.c. To adopt a Code of Regulations not inconsistent with this
Declaration of Trust providing for the conducting of the affairs of the Trust,
and to amend and repeal this Declaration of Trust or such Regulations to the
extent that this Declaration of Trust or such Regulations do not reserve that
right solely to the Shareholders.
6.7.d. To elect and remove representatives and terminate the
appointment of agents.
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6.7.e. To set record dates in the manner provided for hereinafter or
in the Regulations.
6.7.f. To issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in full and
fractional Shares with respect to each series of the Trust for such amount and
type of consideration, including, without limitation, cash or property, as the
Trustees may determine; and to apply to any such repurchase, redemption,
retirement, cancellation or acquisition of Shares, any funds or other assets of
the Trust, whether constituting capital or surplus or otherwise and to divide or
combine Shares of any series without thereby changing the proportionate
beneficial interests in any series of the Trust.
6.7.g. To vote or give consent, or exercise any rights of ownership,
with respect to securities or property; to solicit proxies from Shareholders and
to execute and deliver powers to attorney and proxies to such person or person
as the Trustee shall deem proper, granting to such person or persons such power
and discretion with relation to securities or property as the Trustee shall deem
proper.
6.7.h. To exercise powers and rights of subscription or otherwise which
in any manner arise out of ownership securities.
6.7.i. To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered, or other negotiable form, in the name of
the Trust or a particular series thereof or in the name of the custodian or a
nominee or nominees, subject in either case to proper safeguards according with
applicable law or the usual practices of Massachusetts business trusts or
investment companies.
6.7.j. To consent to or participate in any plan for the reorganization,
consolidation, or merger of any corporation or concern, any security of which is
held by any series of the Trust; to consent to any contract, lease, mortgage,
purchase, or sale of property by such corporation or concern, and to pay calls
or subscriptions with respect to any security held by any series of the Trust.
6.7.k. To collect all property due to the Trust; to pay all claims,
including taxes, against the assets belonging to the Trust; to prosecute,
defend, compromise, arbitrate, or otherwise adjust claims in favor of or against
the Trust or any matter in controversy, including, but not limited to, claims
for taxes; to foreclose any security interest securing any obligations by virtue
of which any property is owed to the Trust; and to enter into releases,
agreements, and other instruments.
6.7.l. To establish in their absolute discretion in accordance with the
provisions of applicable law the basis or method for determining the value of
the assets belonging to any series, the value of the liabilities belonging to
any series, the allocation of any assets or liabilities to any series, the net
asset value of any series, the times at which Shares of any series shall be
deemed to be outstanding or no longer outstanding and the net asset value of
each Share of any series for purposes of sales, redemptions, repurchases of
Shares or otherwise.
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6.7.m. To determine in accordance with generally accepted accounting
principles and practices what constitutes net profits or net earnings, and to
determine what accounting periods shall be used by the Trust for any purpose,
whether annual or any other period, including daily; to set apart out of the
assets belonging to any series such reserves of funds for such purposes as it
shall determine and to abolish the same; to declare and pay any dividends and
distributions to any series in cash, securities or other property from any
assets legally available therefore, at such intervals (which may be as
frequently as the elite) or on such other periodic basis, as it shall determine;
to declare such dividends or distributions by means of a formula or other method
of determination, at meetings held less frequently than the frequency of the
effectiveness of such declarations; to establish payment dates for dividends or
any other distributions on any basis, including dates occurring less frequently
than the effectiveness of declarations thereof; and to provide for the payment
of declared dividends on a date earlier or later than the specified payment date
in the case of Shareholders redeeming their entire ownership of Shares of any
series.
6.7.n. To issue guarantees, to lend its assets, and to borrow money
from banks, and to pledge, assign, mortgage, encumber or hypothecate the assets
of any series of the Trust.
6.7.o. To issue, acquire, hold, resell, convey, and otherwise deal in
securities, debt instruments, and other instruments on the rights of a financial
character, and to apply to any acquisition of series of any property of the
appropriate series of the Trust, whether from capital or surplus or otherwise.
6.7.p. To enter into joint ventures, partnerships, and any other
combinations or associations.
6.7.q. To purchase and pay for out of the assets of the Trust,
insurance policies insuring the Shareholders, trustees, officers, employees,
agents, or independent contractors of the trust against all claims arising by
reason of holding any such position or by reason of any action or admitted to be
taken by such person in such capacity, whether or not constituting negligence,
or whether or not the Trust would have the power to indemnify such persons
against such liability.
6.7.r. To the extent permitted by law, to indemnify any person with
whom the Trust has dealings, to such extent as the Trustee shall determine
consistent with Article X hereof.
6.7.s. To engage in and to prosecute, defend, compromise, abandon, or
adjust, by arbitration or otherwise, any actions, suits, proceedings, disputes,
claims, and demands relating to the Trust or the assets of the Trust, and, out
of the assets of the Trust, to pay or to satisfy any debts, claims or expenses
incurred in connection there with, including those of litigation, and such
powers shall include without limitation the power of the Trustees or any
appropriate committee thereof, in the exercise of their or its good faith
business judgment, consenting to dismiss any action, suit, proceeding, dispute,
claims, or demand, derivative or otherwise, brought by any person, including a
Shareholder in such Shareholder's own name or in the name
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of the Trust, whether or not the Trust or any of the Trustees may be named
individually therein or the subject matter arises by reason of business for or
on behalf of the Trust.
6.7.t. To retain and employ persons to serve on behalf of the Trust as
investment advisor, administrator, transfer agent, custodian, underwriter,
distributor, or in such other capacities as they consider desirable.
6.7.u. To the extent permitted by law, to delegate such power and
authority as they consider desirable to any representatives of the Trust and to
any investment advisor, administrator, transfer agent, custodian, underwriter,
distributor, or other person.
6.7.v. To conduct, operate and carry on, either directly or through one
or more wholly-owned subsidiary, business of an investment company or any other
lawful business activity which the Trustees, in their sole discretion, consider
to be incidental to the business of the Trust or any series of the Trust as an
investment company, conducive to or expedient for the benefit or protection of
the Trust, any series of the Trust, or the Shareholders, or calculated in any
other manner to promote the interest of the Trust, any series of the Trust, or
the Shareholders.
6.7.w. To engage in any other lawful act or activity in which a
Massachusetts business Trust may engage.
No undealing with the Trustees shall be under any obligation to make
any inquiry concerning the authority of the Trustees, or to see the application
of any payments made or property transferred to the Trustees or upon their
order.
6.8. Trustees and Representatives as Shareholders. Any Trustee,
representative, or other agent of the Trust may acquire, own, vote, and dispose
of Shares of any series of the Trust to the same extent as if he were not a
Trustee, representative, or agent; and the Trust may issue and sell or caused to
be issued and sold Shares of any series of the Trust to, and may buy such Shares
from, any persons with which such Trustee, representative, or agent is
affiliated, subject only to the general limitations herein contained as to the
sale and purchase of such Shares, and to any restrictions which may be contained
in the Regulations and in the Act.
6.9. Trustee Reimbursement. The Trustee shall have the power to incur
and to pay (or shall be reimbursed) from the Trust estate all expenses and
disbursements of the Trust, including without limitation: interest expenses;
compensation payable to Trustees and representatives of the Trust; taxes; fees
and commissions of every kind incurred in connection with the affairs of the
Trust; expenses of the issue, repurchase, and redemption of Shares; expenses of
registering and qualifying the Trust and its Shares under federal and state
securities laws and Regulations; charges of custodians, transfer agents,
investment advisors, administrators, and registerers; expenses of preparing and
printing and distributing prospectus; auditing and legal expenses; expenses of
reports to Shareholders; expenses of meetings of Shareholders and proxy
solicitations therefore; insurance expenses; association membership dues; and
such non- reoccurring items as may arise, including costs and expenses of
litigation to which the Trust is
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a party. For all losses and liabilities by them incurred in administering the
Trust, and for payment of such expenses, disbursements, losses, and liabilities,
the Trustees shall have a lien on the Trust estate prior to any rights or
interest of the Shareholders thereto; provided, however, that this section shall
not prevent the Trust from directly paying any of the aforementioned fees and
expenses.
6.10. Power to Carry Out Trust's Purposes; Presumptions. The Trustee
shall have power to carry out any and all acts consistent with the Trust's
purposes through branches and offices both within and without the Commonwealth
of Massachusetts, in any and all states of the United States of America, in the
District of Columbia, and in any and all Commonwealths, territories,
dependencies, possessions, agencies, or instrumentalities of the United States
of America and of foreign governments, and to do all such other things and
execute all such instruments as they deem necessary, proper, or desirable in
order to promote the interests of the Trust, although such things may not be
herein specifically mentioned. Any determination as to what is in the interest
of the Trust made by the Trustees in good faith shall be conclusive and binding
for all purposes. In construing the provisions of this Declaration of Trust, the
presumption shall be in favor of a grant of power to the Trustees. The Trustees
shall not be required to obtain any court order to deal with the Trust property.
6.11. Service and Other Capacities. Any Trustee, representative,
employee, or agent of the Trust, including any investment advisor, transfer
agent, administrator, distributor, custodian, or underwriter for the Trust, may
serve in any other capacity on his or its own behalf or on behalf of others, and
may engage in other business activities in addition to his or its services on
behalf of the Trust; provided, however, that such other activities do not
materially interfere with the performance of his or its duties for or on behalf
of the Trust.
6.12. Determinations by Trustees. Any determination made in good faith
and, so far as the accounting matters are involved in accordance with generally
accepted accounting principles, by or pursuant to the direction of the Trustees
to the amount and value of the assets, obligations or liabilities of the Trust
or any series, as to the amount of net income of the Trust or any series from
dividends and interest for any period or amounts at any time legally available
for the payment of dividends, as to the amount of any reserves or charges set up
and the propriety thereof, as to the time of or purpose for creating reserves or
as to the use, alteration or cancellation of any reserves or charges (whether or
not any obligation or liability for which such reserves or charges shall have
been created shall have been paid or discharged or shall be then or thereafter
required to be paid or discharged), as to the value of any security owned by the
Trust or any series, as to allocation of any assets of liabilities to any
series, as to the times at which Shares of any series shall be deemed to be
outstanding or no longer outstanding, or as to any other matters relating to the
issuance, sale, redemption or other acquisition or disposition of securities or
Shares, and any reasonable determination made in good faith by the Trustees as
to whether any transaction constitutes a purchase of securities "margin," a sale
of securities "short," or any underwriting of the sale of, or a participation in
any underwriting or selling group in connection with the public distribution of,
any securities, shall be final and conclusive, and shall be binding upon the
Trust and all Shareholders, past, present and future, and Shares
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are issued and sold on the condition and understanding, evidenced by the
purchase of Shares or acceptance of Share certificates, that any and all such
determination shall be binding as aforesaid.
VII. AGREEMENTS WITH INVESTMENT ADVISER, PRINCIPAL
UNDERWRITER, ADMINISTRATOR, TRANSFER AGENT, AND CUSTODIAN
7.1. Investment Adviser. Subject to the vote of a majority of the
outstanding Shares of each series effected thereby, if then required by the Act,
and subject to all other applicable requirements of the Act, the Trustees may,
on such terms and conditions as they may in their discretion determine, enter
into a written Investment Advisory agreement or agreements with person or
persons whereby such person(s) shall undertake to furnish the Trustees, on
behalf of the Trust or one or more series of the Trust, such portfolio
management, Investment Advisory, statistical, research, and other services upon
such terms and conditions as the Trustees may in their discretion determine.
Notwithstanding any provisions of this Declaration of Trust, the Trustees may
authorize the Investment Adviser (subject to such general or specific
instructions as the Trustees may adopt) to effect purchases, sales, or exchanges
of portfolio securities of any series of the Trust on behalf of the Trustees, or
may authorize any representative, agent, or a Trustee to effect such purchases,
sales, or exchanges pursuant to the recommendations of the Investment Adviser
(and all without further action by the Trustees). Any such purchases, sales, and
exchanges so effected shall be deemed to have been authorized by all of the
Trustees.
7.2. Administrator. The Trustees may, on such terms and conditions as
they may in their discretion determine, enter into one or more agreements with
any person or persons providing for administrative services to the Trust,
including assistance and supervising the affairs of the Trust or one or more of
its series and the performance of administrative, clerical, and other services
considered desirable by the Trustees, and to determine the net asset value and
net income with respect to Shares of each series of the Trust.
7.3. Principal Underwriter. The Trustees may, on such terms and
conditions as they may in their discretion determine, enter into one or more
distribution agreements with any person or persons providing for the sale of
Shares of any series at a price at least equal to the net asset value per Share
of such series and further providing for sale of Shares of any series pursuant
to arrangements by which the Trust may either agree to sell the Shares to the
other party to the agreement or appoint such other party its sales agents for
such Shares. Such agreement may also provide for the repurchase of Shares of any
series of the Trust by such other party as principal or agent of the Trust, and
may authorize the other party to enter into agreements with others for purpose
of the distribution or repurchase of Shares of any series.
7.4. Transfer Agent. The Trustees may, on such terms and conditions as
they may in their discretion determine, enter into one or more agreements with
any person or persons providing for transfer agency and other services to
Shareholders of any series of the Trust.
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7.5. Custodian. The Trustee shall at all times employ one or more banks
or Trust companies, each organized under the laws of the United States or one of
the states thereof, and having capital, surplus, and undivided profits of at
least twenty million dollars ($20,000,000.00), as custodian(s) with authority as
the agent of the Trust, but subject to such restrictions, limitations, and other
requirements as may be established by the Trustee from time to time:
(1) To hold the cash and securities owned by the Trust and deliver
the same upon written order;
(2) To receive and receipt for any monies due to the Trust and
deposit the same in its own banking department or elsewhere as
the Trustees may direct; and
(3) To disburse such funds upon orders or vouchers.
The Trust may also employ such custodian(s) as its agent:
(1) To furnish transfer agency services;
(2) To keep the books and accounts of the Trust and furnish clerical
and accounting services; and
(3) To compute, if authorized to do so by the Trustees, the net asset
value and net income of the Trust or any series thereof in
accordance with the provisions hereof; all upon such basis of
compensation as may be agreed upon between the Trustees and the
custodian(s). If so directed by vote of a majority of outstanding
Shares of each effective series, any custodian shall deliver and
pay over all property of the series of the Trust held by it as
specified in such vote.
The Trustees may also authorize the custodian(s) to employ one or more
subcustodians from time to time to perform such of the acts and services of the
custodian(s) and upon such terms and conditions, as may be agreed between the
custodian(s) and such subcustodians. Any such subcustodian shall be a bank or
Trust company organized under the laws of the United States or one of the states
thereof and having capital, surplus, and undivided profits of at least twenty
million dollars ($20,000,000.00), or such other person as may be permitted by
the Securities and Exchange Commission, or otherwise in accordance with the Act
as from time to time amended.
7.6. Central Certificate System. Subject to such rules, Regulations,
and orders as the Securities and Exchange Commission may adopt, the Trustees may
direct the custodian to deposit all or any part of the securities owned by any
series of the Trust in a system for the central handling of securities
established by a national securities exchange or a national securities
association registered with the Securities and Exchange Commission under the
Securities and Exchange Act of 1934, or such other persons as may be permitted
by the Securities and Exchange Commission, or otherwise in accordance with the
Act as from time to time amended,
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pursuant to which system all securities of any particular class or series of any
issue or deposited within the system are treated as fundable and may be
transferred or pledged by bookkeeping entry without physical deliver of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust.
7.7. Parties to the Agreement. The same person or persons may be
employed in multiple capacities under Section 7.1 through 7.5 of this Article
VII and may receive compensation from the Trust in as many capacities in which
such person or persons shall serve the Trust. The Trustees may enter into any
agreement of the character described in this Article VII or any other agreement
or transaction with any person, including any person in which any Trustee,
representative, employee, or Shareholder of the Trust may be interested,
pecuniarily or otherwise and no such agreement or transaction shall be
invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any person holding such relationship be liable by reason
of such relationship for any loss or expense to the Trust under or by reason of
said agreement or transaction, or accountable for any profit realized directly
or indirectly therefrom; provided, however, that any such agreement or
transaction, when entered into, shall have been reasonable and fair and not
inconsistent with this Declaration of Trust, the Regulations, or the Act. The
same person or persons may be party to the agreements or transactions entered
into pursuant to this Article VII and any such other agreement or transaction,
and any individuals may be financially interested in or otherwise affiliated
with persons who are party to any or all of the agreements or transactions
mentioned in this Section 7.7.
VIII. SHAREHOLDERS' VOTING POWERS AND MEETINGS
8.1 Voting Powers. The Shareholders shall have power to vote (a) for
the election or removal of Trustees; (b) with respect to the amendment of this
Declaration of Trust as provided in Section 10.8 hereof; (c) with respect to the
approval of Investment Advisory and distribution agreements entered into on
behalf of the Trust or one or more series thereof, and with respect to such
other matters relating to the Trust as may be required by law, by this
Declaration of Trust, the Regulations, or the Act, by any requirements
applicable to or agreement of the Trust, and as the Trustees may consider
desirable; (d) to the same extent as the Shareholders of a Massachusetts
business corporation, when considering whether a court action, proceeding, or
claim should or should not be brought or maintained derivatively or as a class
action on behalf of the Trust or the Shareholders; provided, however, that no
Shareholder of a particular series shall be entitled to bring, or vote in
respect of, any class of derivative action not on behalf of the series of the
Trust in respect of which the Shareholder owns Shares. Every Shareholder of
record shall have the right to one vote for each dollar of value invested in his
name as shown on the books of the Trust, and to have a appropriate fractional
vote for any fraction of one dollar invested, as to any matter on which the
Shareholder is entitled to vote. There shall be no cumulative voting. Shares may
be voted in person or by proxy. On any matter submitted to a vote of the
Shareholders, all Shares shall be voted in the aggregate and not by individual
series, except (i) where required by Act, Shares shall be voted by individual
series, and (ii) if the Trustee shall have determined that a matter effects the
interest only of one
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or more series, then only Shareholders of such effected series shall be entitled
to vote thereon. Until Shares are issued, the Trustees may exercise all rights
of Shareholders and may take any action required or permitted to be taken by
Shareholders by law, this Declaration of Trust, or the Regulations.
8.2 Meetings. Meetings of Shareholders may be called by the Trustees
as provided in the Regulations, and shall be called by the Trustees upon the
written request of Shareholders owning at least twenty percent (20%) of the
outstanding Shares entitled to vote.
8.3. Quorum and Required Vote. At any meeting of the Shareholders, a
quorum for the transaction of business shall consist of a majority represented
in person or by proxy of all votes attributable to the outstanding Shares
(without regard to individual series) entitled to vote with respect to a matter;
provided, however, that at any meeting in which the only actions to be taken are
actions required by the Act should be taken by a vote of the Shareholders of an
individual series, a quorum shall consist of a majority of all votes
attributable to the outstanding Shares of such individual series entitled to
vote thereon, and that at any meeting at which the only actions to be taken
shall have been determined by the Board of Trustees to effect the rights and
interests of one or more but not all series of the Trust, a quorum shall consist
of a majority of all votes attributable to the outstanding Shares of the series
so effected; and provided, further, that reasonable adjournments of such meeting
until a quorum is obtained may be made by a vote attributable to the Shares
present in person or by proxy. A majority of the vote shall decide any question
and a plurality shall elect a Trustee, subject to the applicable requirements of
law or of this Declaration of Trust or the Regulations; provided, however, that
when any provision of law or of this Declaration of Trust requires the holders
of Shares of any particular series to vote by series and not in the aggregate
with respect to a matter, then a majority of all votes attributable to the
outstanding Shares of that series shall decide such matter insofar as that
particular series shall be concerned.
8.4. Shareholder Action by Written Consent. Any action which may be
taken by Shareholders may be taken without a meeting of the holders of not less
than two-thirds of all votes attributable to the outstanding Shares entitled to
vote with respect to the matter consent to the action in writing and the written
consents are filed with the records of the meetings of Shareholders. Such
consent shall be treated for all purposes as a vote taken at a meeting of the
Shareholders.
8.5. Code of Regulations. The Regulations may include further
provisions not in consistent with this Declaration of Trust for Shareholders'
meetings, votes, record dates, notices of meetings, and related matters.
IX. LIMITATION OF LIABILITY AND INDEMNIFICATION
9.1. Limitation of Trustee Liability. Every act or thing done or
admitted, and every power exercise or obligation incurred by the Trustees or any
one of them in the administration of this Trust or in connection with any
affairs, property, or concerns of the Trust, whether
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ostensibly in their own names or in their capacity as Trustees, shall be done,
omitted, exercise, or incurred by them as Trustees and as not as individuals;
and every person contracting or dealing with the Trustees or having any debt,
claim, or judgment against them or any of them shall look only to the funds and
property of the Trust for payment or satisfaction. No Trustee or Trustees of the
Trust shall ever be personally liable for or on account of any contract, debt,
tort, claim, damage, judgment, or decree arising out of or in connected with the
administration or preservation of the Trust estate or the conduct of any of the
affairs of the Trust. Every note, bond, contract, order, or other undertaking
issued by the Trust or the Trustees relating to the Trust and stationery used by
the Trust, shall include the notice set forth in Section 9.5 of this Article IX
(but the admission thereof shall not be construed as a waiver of the foregoing
provision, and shall not render the Trustees personally liable).
It is the intention of this Section 9.1 that no Trustees shall be
subject to any personally liability whatsoever to any person for any action or
failure to act, or any action or failure to act of any officer, agent, employee
of the Trust or of any Investment Adviser, administrator, distributor,
custodian, or transfer agent to the Trust or to any series thereof, or any
officer, agent, or employee of any of the foregoing (including, without
limitation, the failure to comply in any way any former or acting Trustee to
readdress any breach of Trust), except that nothing in this Declaration of Trust
shall protect any Trustee from any liability to the Trust or its Shareholder to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of his duties, or by reason of reckless
disregard of his obligations and duties as Trustee; and that all persons shall
look solely to the assets of the Trust for satisfaction of claims of any nature
arising in connection with the affairs of the Trust.
9.2. Indemnification of Trustees, Representatives, and Employees.
The Trust shall indemnify, to the fullest extent permitted by law, every person
who is or has been a Trustee or officer of the Trust and any person rendering or
having rendered Investment Advisory, administrative, distribution, custodian, or
transfer agency services to the Trustee or to the Trust or any series thereof
pursuant to Article VII of this Declaration of the Trust or otherwise, and every
officer, director, Trustee, Shareholder, employee, and agent of any such person
(all such persons hereinafter referred to as the "covered persons") against all
liabilities and expenses (including amounts paid in satisfaction of judgments,
and compromise, as fines and penalties, and as counsel fees) reasonably incurred
by him in connection with the defense or disposition of any action, suit, or
other proceeding, whether civil or criminal, in which he may be involved or with
which he may be threatened, while as a covered person or thereafter, by reason
of his being or having been such a covered person except with respect to any
matter as to which he shall have been adjudicated to have acted in bad faith,
willful misfeasance, gross negligence, or reckless disregard of his duties;
provided, however that as to any matter disposed of by a compromised payment by
such person, pursuant to a consent decree or otherwise, no indemnification
either for said payment or for any other expenses shall be provided unless the
Trust shall have received a written opinion from independent legal counsel
approved by the Trustees to the effect that, if either the matter of willful
misfeasance, gross negligence, or reckless disregard of duty or the matter of
bad faith had been adjudicated, it would in the opinion of such counsel, have
been adjudicated in favor of such person. The rights accruing to
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any covered person under these provisions shall not exclude any other right to
which he may be lawfully entitled; provided, however that no covered person may
satisfied any right of indemnify or reimbursement except out of the property of
the Trust. If the Trustees make advance payments in connection with the
indemnification under this Section 9.2.; provided, however, that the indemnified
covered person shall have given a written undertaking to reimburse the Trust in
the event it is subsequently determined that he is not entitled to such
indemnification. Rights of indemnification herein provided may be insured
against by policies maintained by the Trust. Such rights of indemnification are
severable, and such inure to the benefit of the heirs, executors,
administrators, and other legal representatives of such covered persons.
9.3. Reliance on Experts, etc. Each Trustee and representative of the
Trust shall, in performance of his duties, be fully and completely justified and
protected with regard to any act or any failure to act resulting from reliance
in good faith upon the books of account or other records of the Trust, upon an
opinion of counsel satisfactory to the Trust, or upon reports made to the Trust
by any of its representatives or employees or by the Investment Adviser, the
principal underwriter, selected dealers, accountants, appraisers, or other
experts or consultants selected with reasonable care by the Trustees or
representatives of the Trust, regardless of whether such counsel or expert may
also be a Trustee.
9.4. Limitation of Shareholder Liability. Shareholders shall not be
subject to any personal liability in connection with the assets of the Trust for
the acts or obligations of the Trust. The Trustee shall have no power to bind or
any Shareholder personally or to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as the Shareholder may
at any time personally agree to pay by way of subscription to any Share or
otherwise. Every obligation, contract, instrument, certificate, Share, or other
security or undertaking of the Trust, and every other act whatsoever executed in
connection with the Trust shall be conclusively presumed to have been executed
or done by the executors thereof only in their capacities as Trustees under this
Declaration of Trust or in their capacity as officers, employees, or agents of
the Trust, and not individually. Every note, bond, contract, order, or other
undertaking issued by or on behalf of the Trust or the Trustees relating to the
Trust or to any series of the Trust, and the stationery used by the Trust, shall
include a recitation limiting the obligation represented thereby to the Trust
and its assets (but the omission of such recitation shall not operate to bind
any Shareholder) as follows:
The names "The Parkstone Advantage Fund" and "Trustees of The
Parkstone Advantage Fund" refer respectively to the Trust
created and the Trustees, as Trustees but not individually or
personally, acting from time to time under this Declaration of
Trust dated March 25, 1987 to which reference is hereby made
and a copy of which is on file at the office of the Secretary
of the Commonwealth of Massachusetts and elsewhere as required
by law, and to any and all amendments thereto so filed or
hereafter filed. The obligations of "The Parkstone Advantage
Fund" entered into in the name or on behalf thereof by any of
the Trustees,
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representatives or agents are made not individually, but in
such capacities, and are not binding upon any of the Trustees,
Shareholders or representatives of the Trust personally, but
by only the assets of the Trust, and all persons dealing with
any series of Shares of the Trust must look solely to the
assets of the Trust belonging to such series for the
enforcement of any claims against the Trust.
The rights accruing to a Shareholder under this Section 9.4 shall not
exclude any other right to which such Shareholder may be lawfully entitled, nor
shall anything herein contained restrict the right of the Trust to indemnify or
reimburse a Shareholder in any appropriate situation even though not
specifically provided for herein, provided, however, that a Shareholder of any
series of the Trust shall be indemnified only from assets belonging to that
series.
9.5. Indemnification of Shareholders. In case any Shareholder or former
Shareholder shall be held to be personally liable solely by reason of his being
or having been a Shareholder and not because of his acts or omissions or for
some other reason, the Shareholder or former Shareholder (or his heirs,
executors, administrators, or other legal representatives, or, in the case of a
corporation or other entities, its corporate or other general successor) shall
be entitled out of the Trust estate to be held harmless from and indemnified
against all loss and expense arising from such liability. The Trust, upon
request by the Shareholder, assume the defense of any claim made against any
Shareholder for any act or obligations of the Trust, and shall satisfy any
judgment thereon.
9.6. Liabilities of a Series. Liabilities belonging to any series of
the Trust, including, without limitation, expenses, fees, charges, taxes, and
liabilities incurred or arising in connection with a particular series, or in
connection with the management thereof, shall be paid only from the assets
belonging to that series.
X. MISCELLANEOUS
10.1 Trust Not a Partnership. It is hereby expressly declared that a
Massachusetts business Trust and not a partnership, joint venture, corporation,
joint stock company or any form o of legal relationship other than a Trust is
created hereby. Nothing herein shall be construed to make the Shareholders,
either by themselves or with the Trustees, partners or members of a joint stock
association. No Trustee hereunder shall have any power to bind personally either
the Trust's representatives or any Shareholders. All person extending credit to,
contracting with, or having any claim against any series of the Trust or the
Trustee shall look only to the assets of the appropriate series of the Trust for
payment under such credit, contract, or claim; and neither the Shareholders, or
the Trustees nor any of their agents, whether past, present, or future, shall be
personally liable therefore.
10.2. No Bond or Surety. The Trustee shall not be required to give
any bond as such, nor any surety of a bond is required.
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10.3. Termination of Trust. This Trust shall continue without
limitation of time; provided, however, that:
10.3.a. The Trustees, with the vote of a majority of the outstanding
Shares of any series of the Trust, may sell and convey the assets belonging to
such series to another Trust or corporation organized under the laws of any
state of the United States, which is a management investment company as defined
in the Act, for an adequate consideration which may include the assumption of
all outstanding obligations, taxes, and other liabilities, accrued or
contingent, of a series and which may include beneficial interests of the Trust
or stock of such corporation. Upon making provision for the payment of all such
liabilities, by such assumption or otherwise, the Trustees shall distribute
their remaining proceeds rateably among the holders of the Shares of the series
then outstanding.
10.3.b. The Trustees, with a vote of a majority of the outstanding
Shareholders of any series of the Trust, may sell and convert into money all the
assets belonging to such series. Upon making provision for the payment of all
outstanding obligations, taxes, and other liabilities, accrued or contingent, of
the series, the Trustee shall distribute the remaining assets belonging to such
series ratably among the Shareholders of the outstanding Shares of the series.
10.3.c. Without the vote of a majority of the outstanding Shares of any
series of the Trust (unless Shareholder approval is otherwise required by
applicable law), the Trustees may combine the assets belonging to any two or
more series into a single series if the Trustees reasonably determine that such
combination will not have a material adverse effect on the Shareholders of each
series effected thereby.
10.3.d. After the effective date of the determination of the Trustees
under paragraph 10.3.a or 10.3.b above,
10.3.d.1. The Trust shall carry on no business relating to the assets
of such series except for the purpose of winding up the affairs of such series.
10.3.d.2. The Trustee shall proceed to wind up the affairs of such
series and all of the powers of the Trustees under this Declaration of Trust
shall continue until the affairs of such series shall have been wound up,
including the power to fulfill or discharge the contracts of the Trust relating
to such series, to collect assets of such series, to sell, convey, assign,
exchange, transfer, or otherwise dispose of all or any part of the remaining
assets of such class to one or more persons at public or private sale for
consideration that may consist in whole or in part of cash, securities, or other
property of any kind, to discharge or pay its liabilities, and to do all other
acts appropriate to liquidate the business of such series.
Upon completion of the distribution of the remaining proceeds or the
remaining assets as provided in paragraphs 10.3.a and 10.3.b of this Section,
the Trustees may authorize the termination of that series of the Trust. Such
termination of shall be effective upon filing with the state secretary of the
Commonwealth of Massachusetts of an instrument setting forth such
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termination, at which time the Trustee shall be discharged of any and all
further liabilities and duties hereunder relating to such series and the right,
title and interest of all parties shall be canceled and discharged with respect
to such series. Such instrument shall constitute an amendment to this
Declaration of Trust then filed with the state secretary of the Commonwealth of
Massachusetts as provided in this Title X.
10.4. Incorporation. With the vote of a majority of the outstanding
Shares without regard to individual series, the Trustees may cause to be
organized, or assist in organizing, a corporation or corporation under the laws
of any jurisdiction, to carry on any affairs in which the Trust property shall
directly or indirectly have any interest, and to transfer the Trust property to
any person in exchange for any Shares or securities thereof or otherwise, and to
lend money to, subscribe for the Shares or securities of, and enter into any
contract with any such person in which the Trust holds or is about to acquire
Shares or any other interest. The Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any person if and
to the extent permitted by law. Nothing contained herein shall be construed as
requiring approval of Shareholders in order for the Trustees to organize or
assist in organizing one or more corporations, Trusts, partnerships,
associations, or other organizations and selling, conveying, or transferring a
portion of the Trust property to any person(s).
10.5. Filing of Copies, References, Headings. The original instrument
of this Declaration of Trust and each amendment hereto shall be filed with the
state secretary of the Commonwealth of Massachusetts and in such other place or
places as may be required under the laws of the Commonwealth of Massachusetts,
and copies thereof shall be kept at the office of the Trust where they may be
inspected by any Shareholder. Each amendment so filed shall be accompanied by a
certificate signed and acknowledged by a Trustee or by the secretary or any
assistant secretary of the Trust stating that such action was duly taken in a
manner provided herein and, unless such amendment or such certificate sets forth
some later time for the effectiveness of such amendment, such amendment shall be
effective upon its filing. A restated declaration, integrating into a single
instrument and all of the provisions of the declaration that are then in effect
and operative, may be executed from time to time by a majority of the Trustees
and shall, upon filing with state secretary of the Commonwealth of
Massachusetts, be conclusive evidence of all amendments contained therein and
may thereafter be referred to in lieu of the initial declaration and the various
amendments thereto. Anyone dealing with the Trust may rely on a certificate by
representative of the Trust as to whether or not any such amendment hereto shall
have been made and as to any matters in connection with the Trust hereunder, and
with the same effect as if it were the original, may rely on a copy certified by
a representative of the Trust to be a copy of this instrument or of any
amendment thereto. Headings are placed herein for convenience of reference only,
and in the case of any conflict, the text of this instrument, rather than the
headings, shall control. This instrument may be executed in any number of
counterparts, each of which shall be deemed an original. All signatures to this
instrument need not appear on the same page.
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10.6. Applicable Law. The Trust set forth in this instrument as a
Trust made in the Commonwealth of Massachusetts and is to be governed by and
construed and administered according to the laws of said Commonwealth.
10.7. Provisions in Conflict with Law or Regulations.
10.7.a. The provisions of this Declaration of Trust are severally and,
if the Trustee shall determine with the advise of counsel that any of such
provisions shall be in conflict with the Act, the regulated investment company
provisions of the Internal Revenue Code, Chapter 182 of the General Laws of the
Commonwealth of Massachusetts, or with other applicable laws and Regulations,
the conflicting provisions shall be deemed never to have constituted a part of
this Declaration of Trust; provided, however, that such determination shall not
effect any of the remaining provisions of this Declaration of Trust or render
invalid or improper any action taken or admitted prior to such determination.
10.7.b. If any provision of this Declaration of Trust shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceablility shall attach only to such provision in such jurisdiction and
shall not in any manner effect such provision in any other jurisdiction or any
other provision of this Declaration of Trust in any jurisdiction.
10.7.c. Notwithstanding the foregoing, nothing contained in this
Declaration of Trust shall permit any amendment of this Declaration of Trust
which would impair the exemption from personal liability of the Trustees and
Shareholders or to permit assessments upon Shareholders.
10.8. Amendment Procedure.
10.8.a. This Declaration of Trust may be amended by the affirmative
vote of the holders of not less than a majority of all votes attributable to the
outstanding Shares without regard to individual series (unless otherwise
required by Section 8.1 herein) or by any larger vote as may be required by any
provisions of applicable law.
10.8.b. Notwithstanding any other provisions hereof, until such time as
a registration statement under the Securities Act of 1933, as amended, covering
the first public offering as securities of the Trust shall have become
effective, this Declaration of Trust may be terminated or amended in any respect
by the affirmative vote of a majority of the Trustees.
10.8.c. The Trustees may also amend this Declaration without the vote
of Shareholders to cure any error or ambiguity or to change the name of the
Trust or, if they deem it necessary, to conform this Declaration of Trust to the
requirements of applicable state or federal laws or Regulations or the
requirements of the regulated investment company provisions of the Internal
Revenue Code of 1986, but the Trustees shall not be liable for failing to do so.
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IN WITNESS WHEREOF, the undersigned has executed this Declaration of
Trust as Trustee and not individually, as of the 18th day of May, 1993.
/s/ David E. Riggs
----------------------------------
David E. Riggs
Address of Trustee and Initial Principal
Office of Trust:
The Kalamazoo Building, Suite 400
107 West Michigan Avenue
Kalamazoo, Michigan 49007
(616) 382-8771
STATE OF MICHIGAN )
) SS
COUNTY OF KALAMAZOO )
On this 18th day of May, 1993, David E. Riggs, known to me and known to
be the individual described in and who executed the foregoing instrument,
personally appeared before me and acknowledged the foregoing instrument to be
his free act and deed.
/s/ Marabeth L. Maupin
-------------------------------------
Marabeth L. Maupin, Notary Public
My Commission Expires: April 25, 1994
(Seal)
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EXHIBIT 2(a)
CODE OF REGULATIONS
THE PARKSTONE ADVANTAGE FUND
ARTICLE I
MEETINGS OF SHAREHOLDERS
1.1. Meetings. Meetings of Shareholders of the Parkstone Advantage Fund (the
"Trust") may be called by the Trusts, and shall be called by the Trustees
whenever required by law or upon the written request of holders of at least
twenty (20%) percent of all votes attributable to the outstanding units of
beneficial interest in the Trust (the "Shares") entitled to vote.
1.2. Notice. Written notice, stating the place, day, and hour of each meeting
of Shareholders and the general nature of the business to be transacted shall be
given by, or at the direction of, the person calling the meeting to each
Shareholder of record entitled to vote at the meeting at least ten (10) days
prior to the day named for the meeting, unless in a particular case a longer
period of notice is required by law.
1.3. Shareholder's List. The officer or agent having charge of the transfer
books for Shares of the Trust shall make, at least five (5) days before each
meeting of Shareholders, a complete list of the Shareholders entitled to vote at
the meeting, arranged in alphabetical order with the address of and the number
of Shares held by each such Shareholder. The list shall be kept on file at the
office of the Trust and shall be subject to inspection by any Shareholders at
any time during usual business hours, and shall also be produced and kept open
at the time and place of each meeting of Shareholders and shall be subject to
the inspection of any Shareholder during each meeting of Shareholders.
1.4. Record Date. The Trustees may fix a time (during which they may close the
Share transfer books of the Trust) not more than ninety (90) days prior to the
date of any meeting of Shareholders, or the date fixed for the payment of any
dividend, or the date of the allotment of rights or the date when any change or
conversion or exchange of Shares shall go into effect, as a record date for the
determination of the Shareholders entitled to notice of, or to vote at, any such
meeting, or entitled to receive payment of any such dividend, or to receive any
such allotment of rights, or to exercise such rights, as the case may be. In
such case, only such Shareholders as shall be Shareholders of record at the
close of business on the date so fixed shall be entitled to notice of, or to
vote at such meeting or to receive payment of such dividend, or to receive such
allotment of rights, or to exercise such rights, as the case may be,
notwithstanding any transfer of any Shares on the books of the Trust after any
record date fixed, as aforesaid.
ARTICLE II
TRUSTEES
2.1. Number and Term of Office. The number of Trustees shall be fixed from
time to time by the Trustees but shall not be less than three (3) no more than
ten (10), provided, however, that if there are less than three (3)
Shareholders, the number of Trustees may be less than three (3), but not less
than the number of Shareholders and in no event less than one (1). Each
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Trustee shall hold office until the next meeting of Shareholders following his
election or appointment as Trustee at which Trustees are elected and until his
successor shall have been elected and qualified.
2.2. Quorum. At all meetings of the Trustees, a majority of the Trustees shall
constitute a quorum for the transaction of business and action of a majority of
the Trustees present at any meeting at which a quorum is present shall be the
action of the Trustees unless the concurrence of a greater portion is required
for action by law, the Declaration of Trust, or by these regulations. If a
quorum shall not be present at any meeting of the Trustees, the Trustees present
there at made by a majority vote adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
A quorum for all meetings of any committee of the Trustee shall be a majority of
the members thereof.
2.3. Place of Meeting; Telephone Meetings. Meetings of the Trustees, regular
or special, shall be held at the principal business office of the Trust or at
such other place that the Trustees may from time to time determine. Except as
may otherwise be required by law or by the Declaration of Trust, the Trustees
or any committee thereof may participate in a meeting of the Trustees of such
committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the conference may
hear each other at the same time, and participation by such means shall
constitute presents in person at the meeting. The Trustees may also act
without a meeting, unless provided otherwise in the Declaration of Trust. This
Code of Regulations or required by law, by written consents of a majority of
the Trustees.
2.4. Regular Meetings. Regular meetings of the Trustees may be called by the
President or the Secretary and must be called by the President at the request
of any two (2) Trustees. Regular meetings for the Trustees may be held without
notice at such time and at the principal office of the Trust or at such other
place as the Trustees may from time to time determine.
2.5. Special Meetings. Special meetings of the Trustees may be called by the
President on one (1) day's notice to each Trustee; special meetings shall be
called by the President or Secretary in like manner and on like notice of the
written request of a majority of the Trustees then in office.
2.6. Committees. The Trustees may by resolution passed by majority of the
Trustees appoint from among the Trustees an executive committee and other
committees composed of two (2) or more Trustees, and may delegate to such
committees, in the intervals between meetings of the Trustees, any or all of the
powers of the Trustees in management of the business and affairs of the Trust,
except the power to issue Shares in the Trust or to recommend to Shareholders
any action requiring Shareholders' approval.
2.7. Chairman of the Board. The Trustees may at any time appoint one of their
member as Chairman of the Board, who shall serve at the pleasure of the Trustees
and who shall perform
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and execute such duties as the Trustees may from time to time provide but who
shall not by reason of performing or executing these duties be deemed an
officer or employee of the Trust.
2.8. Compensation. Any Trustee, whether or not a salaried officer, employee, or
agent of the Trust, may be compensated for his services as Trustee or as a
member of a committee, or as Chairman of the Board of Trustees or chairman of a
committee, by fixed periodic payments or by fees for attendance at meetings or
by both and, in addition, may be reimbursed for transportation and other
expenses, all in such manner and amounts as the Trustees may from time to time
determine.
ARTICLE III
NOTICES
3.1. Form. Notices to Shareholders shall be in writing and delivered
personally or mailed to the Shareholders at their addresses appearing on the
books of the Trust. Notices to Trustees shall be oral or by telephone or
telegram or in writing delivered personally or mailed to the Trustees at their
addresses appearing on the books of the Trust. Oral notice shall be deemed to
be given when given directly to the person required to be notified and notice
by mail shall be deemed to be given when deposited in the United States mail
or with a telegraph office or currier service for transmission. Notices to
Trustees need not state the purpose of a regular or special meeting.
3.2. Waiver. Whenever any notice of the time, place, or purpose of any meeting
of Shareholders, Trustees, or committee is required to be given under the
provisions of Massachusetts law of under the provisions of the Declaration of
Trust or these Regulations, a waiver thereof in writing, signed by the person
or persons entitled to such notice and filed with the records of the meeting,
whether before or after the holding thereof, or actual attendance at the
meeting of Shareholders in person or by proxy, or at the meeting of Trustees
or committee and person, shall be deemed equivalent to the giving of such
notice to such persons.
ARTICLE IV
OFFICERS
4.1. Number. The officers of the Trust shall be chosen by the Trustees and
shall include a President, who shall be a Trustee, a Secretary, and a
Treasurer. The Board of Trustees may, from time to time, elect or appoint one
(1) or more Vice Presidents, Assistant Secretaries, and Assistant Treasurers.
4.2. Other Officers. The Trustees may from time to time appoint such other
officers and agents as they shall deem advisable, who shall hold their offices
for such terms and shall exercise such powers and perform such duties as shall
be determined from time to time by the Trustees. The Trustees may delegate to
one (1) or more officers or agents the power to appoint any such subordinate
officers or agents and to prescribe their respective rights, terms of office,
authorities, and duties.
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4.3. Election and Tenure. The officers of the Trust shall be chosen annually
by the Trustees. Two (2) or more offices may be held by the same person but no
officer shall execute, acknowledge, or verify any instrument in more than one
(1) capacity, if such instrument is required by law, the Declaration of Trust,
or these regulations to be executed, acknowledged, or verified by two (2) or
more officers. Any officer or agent may be removed by the Trustees. An officer
of the Trust may resign by filing a written resignation with the President,
with the Trustees, or with the Secretary. Any vacancy occurring in any office
of the Trust by death, resignation, removal, or otherwise shall be filled by
the Trustees.
4.4. Compensation. The salaries or other compensation of all officers and
agents of the Trust shall be fixed by the Trustees, except that the Trustees
may delegate to any committee the power to fix the salary or other
compensation of any officer of the Trust.
4.5. President. The President shall be the chief executive officer of the
Trust; he shall preside at all meetings of the Shareholders and the Trustees
unless a chairman has been designated, shall be a member ex officio of all
outstanding committees, and shall see that all orders and resolutions of the
Trustees are carried into effect. He, or such person as he may designate,
shall sign, and execute, and acknowledge, in the name of the Trust, deeds,
mortgages, bonds, contracts, and other instruments authorized by the Trustees,
except in the case where the signing and execution thereof shall be delegated
by the Trustees to some other officer or agent of the Trust. The President
shall also be the chief administrative officer of the Trust and shall perform
such other duties and have such other powers as the Trustees may from time to
time prescribe.
4.6. Vice Presidents. The Vice Presidents, if any, in order of their seniority
shall, in the absence or disability of the President, perform the duties and
exercise the powers of the President and shall perform such other duties as
the Trustees may from time to time prescribe.
4.7. Secretary. The Secretary shall attend meetings of the Trustees and
meetings of the Shareholders and report all the proceedings thereof and shall
perform like duties for any committee when required. He shall give, or cause
to be given, notice of meetings of the Shareholders and of the Trustees, and
shall perform such other duties as may be prescribed by the Trustees or the
President, under whose supervision he shall be. He shall keep in safe custody
the seal of the Trust and, when authorized by the Trustees, affix and attest
the same to any instrument requiring it; provided, however, that in lieu of
affixing the seal of the Trust to any document, it shall be sufficient to meet
the requirements of any law, rule, or regulation relating to a seal to affix
the word "(SEAL)" adjacent to the signature of the authorized officer of the
Trust. The Trustees may give general authority to any other officer to affix
the seal of the Trust and to attest the affixing by his signature.
4.8. Assistant Secretaries. The Assistant Secretaries, if any, when so
directed by the Secretary, or in the absence or disability of the Secretary,
in order of their seniority, shall perform the duties and exercise the powers
of the Secretary and shall perform such other duties as the Trustee shall
prescribe.
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4.9. Treasurer. The Treasurer shall be the chief financial officer of the
Trust. He shall be responsible for the maintenance of its accounting records
and shall render to the Trustees when the Trustees so require an account of
all the Trust's financial transactions and a report of the financial condition
of the Trust.
4.10. Assistant Treasurers. The Assistant Treasurers, if any, when so directed
by the Treasurer, or in the absence or disability of the Treasurer, in the order
of their seniority, shall perform the duties and exercise the powers of the
Treasurer and shall perform such other duties as the Trustees may from time to
time prescribe.
ARTICLE V
INVESTMENT RESTRICTIONS
The Trustees may from time to time adoption such restrictions upon the
investment of the assets of the Trust, or amendments thereto, as they consider
necessary or desirable; provided, however, that any such restriction or
amendment shall be approved by majority of the outstanding Shares of the Trust
entitled to vote thereon if required by the Investment Company Act of 1940, as
amended.
ARTICLE VI
GENERAL PROVISIONS
6.1. Inspection of Books. The Trustee shall from time to time determine
whether and to what extent, and at what times and places and under what
conditions and regulations, the accounts and books of the Trust or any of them
shall be open to the inspection of the Shareholders; and no Shareholder shall
have any right to inspect any account or book or document of the Trust except
as conferred by law or by these Regulations or authorized by the Trustees or
by resolution of the Shareholders.
6.2. Reports. The Trust shall transmit to the Shareholders and file with
federal and state regulatory agencies such reports of its operation the
Trustees shall consider necessary or desirable or as may be required by law.
6.3. Bonding of Officers and Employees. All officers and employees of the
Trust shall be bonded to such extent, and in such manner, as may be required
by law.
6.4. Transfer of Shares. Transfers of Shares shall be made on the books of the
Trust at the direction of the person named on the Trust's books or named in any
certificates for such Shares (if issued), or by his attorney lawfully
constituted in writing, and upon surrender of any certificate or certificates
for such Shares (if issued) properly endorsed, together with a proper request
for redemption, to the Trust's transfer agent, with such evidence of the
authenticity of such transfer, authorization, and other matters as the Trust or
its agents may reasonably require, and subject to such other reasonable
conditions and requirements as may be required by the
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Trust or its agents; or, if the Trustee shall by resolution so provide,
transfer of Shares may be made in any other manner provided by law.
ARTICLE VII
AMENDMENTS
This Code of Regulations may be altered or repealed by the Trustees at
any regular or special meeting of the Trustees.
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EXHIBIT 2(b)
THE PARKSTONE ADVANTAGE FUND
AMENDMENT TO CODE OF REGULATIONS
Amended: February 10, 1994
ARTICLE II, Section 2.1 of the Trust's Code of Regulations is amended
by deleting such Section 2.1 in its entirety and by substituting in place
thereof the following new Section 2.1:
2.1 Number and Term of Office
(a) The number of Trustees shall be fixed from time
to time by the Trustees, but shall not be less than three
(3) nor more than ten (10), provided, however, that if there
are less than three (3) Shareholders, the number of Trustees
may be less than three (3), but not less than the number of
Shareholders and in no event less than one (1). Each Trustee
shall hold office until the next meeting of Shareholders
following his or her election or appointment as Trustee at
which Trustees are elected and until his or her successor
shall have been elected and qualified.
(b) To be eligible for election or appointment as a
Trustee, a person must be less than 65 years of age. At the
end of the month in which any Trustee attains age 65, such
Trustee's qualification to serve shall cease, his or her
trusteeship shall be deemed vacated and such person shall
thereafter not be eligible for election or appointment to
the Board; provided, however, that the foregoing shall not
disqualify or render ineligible for service persons serving
as Trustees and who are 65 years of age or older as of
February 10, 1994, and provided further, that such persons
shall remain eligible for service through December 31, 1995,
immediately after which date such persons' eligibility to
serve shall cease.
<PAGE> 1
EXHIBIT 5(a)
THE PARKSTONE ADVANTAGE FUND
INVESTMENT ADVISORY AGREEMENT
PRIME OBLIGATIONS FUND, EQUITY FUND,
SMALL CAPITALIZATION FUND AND BOND FUND
AGREEMENT made as of August 18, 1993 between THE PARKSTONE ADVANTAGE
FUND, a Massachusetts business trust, located in Topeka, Kansas (the "Trust")
and FIRST OF AMERICA INVESTMENT CORPORATION, located in Kalamazoo, Michigan
(the "Adviser").
WHEREAS, the Trust is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Trust desires to retain the Adviser as investment
adviser to the Prime Obligations Fund, Equity Fund, Small Capitalization Fund
and Bond Fund, each being a series of the Trust (individually, a "Fund," and
collectively, the "Funds");
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Delivery of Documents. The Adviser acknowledges that it has
received copies of each of the following as certified by the Trust:
(a) The Trust's Agreement and Declaration of Trust,
as filed with the State Secretary of the Commonwealth of
Massachusetts on May 19, 1993 and all amendments thereto
(such Agreement and Declaration of Trust, as presently in
effect and as it shall from time to time be amended, is
herein called the "Declaration of Trust");
(b) The Trust's Code of Regulations and any
amendments thereto (such Code of Regulations, as presently
in effect and as it shall from time to time be amended, is
herein called the "Code of Regulations");
(c) Resolutions of the Trust's Board of Trustees
authorizing the appointment of the Adviser and approving
this Agreement;
(d) The Trust's Notification of Registration on
Form N-8A under the 1940 Act as filed with the Securities
and Exchange Commission ("SEC") on July 6, 1993 and all
amendments thereto;
(e) The Trust's Registration Statement on Form N-1A
under the Securities Act of 1933, as amended (the "1933
Act") (File No. 33-65690) and under the 1940 Act as filed
with the SEC on July 6, 1993 and all amendments thereto; and
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(f) The Trust's most recent prospectus and
statement of additional information with respect to the
Funds (such prospectus, as presently in effect and all
amendments and supplements thereto herein called the
"Prospectus").
The Trust will furnish the Adviser from time to time with executed
copies of all amendments of, or supplements to, the foregoing.
2. Services. The Trust hereby appoints the Adviser to act as
investment adviser to the Funds for the period and on the terms set forth in
this Agreement. Intending to be legally bound, the Adviser accepts such
appointment and agrees to furnish the services required herein to the Funds
for the compensation hereinafter provided.
Subject to the supervision of the Trust's Board of Trustees, the
Adviser will provide with respect to the Funds, a continuous investment
program for each Fund, including investment research and management with
respect to all securities and investments and cash equivalents in such Fund.
The adviser will determine from time to time what securities and other
investments will be purchased, retained or sold by each Fund and will arrange
for the purchase and sale of securities and other investments of each Fund.
The Adviser will provide the services under this Agreement in accordance with
each Fund's investment objective, policies and restrictions as stated in the
Prospectus and resolutions of the Trust's Board of Trustees applicable to such
Fund.
3. Covenants by Adviser. The Adviser agrees with respect to the
services provided to each Fund that it:
(a) will conform with all Rules and Regulations of
the SEC applicable to it as investment adviser and will in
addition conduct its activities under this agreement in
accordance with those regulations of the Board of Governors
of the Federal Reserve System pertaining to the investment
advisory activities of bank holding companies which are
applicable to the Adviser;
(b) will use the same skill and care in providing
such services as it uses in providing services to other
investment companies;
(c) will place orders pursuant to its investment
determinations for the Funds either directly with the issuer
or with any broker or dealer. In placing orders with brokers
and dealers, the Adviser will attempt to obtain the best net
price and the most favorable execution of its orders.
Consistent with this obligation, when the execution and
price offered by two or more brokers or dealers are
comparable, the Adviser may, in its discretion, purchase and
sell portfolio securities from and to brokers and dealers
who provide the Trust with research advice and other
services. Except as permitted by the SEC, the portfolio
securities will not be purchased from or sold to the
Adviser, the Funds' distributor (the "Distributor"), or any
affiliated person of the Trust, the Adviser or the
Distributor, provided, however, that subject to the
provisions of this paragraph and to the extent permitted by
law, the Adviser may purchase or sell portfolio securities
through the Distributor or an affiliate of the Distributor
or the Adviser acting as broker;
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(d) will maintain all books and records with
respect to the securities transactions for the Funds, keep
the Trust's books of account with respect to the Funds and
furnish the Trust's Board of Trustees such periodic and
special reports as the Board may request with respect to the
Funds;
(e) will treat confidentially and as proprietary
information of the Trust all records and other information
relative to the Funds and prior, present or potential
shareholders, and will not use such records and information
for any purpose other than performance of its
responsibilities and duties hereunder (except after prior
notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be
withheld and will be deemed granted where the Adviser may be
exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such
information by duly constituted authorities, or when so
requested by the Trust).
4. Services Not Exclusive. The services furnished by the Adviser
hereunder are deemed not to be exclusive, and nothing in this Agreement shall
(i) prevent the Adviser or any affiliated person (as defined in the 1940 Act)
of the Adviser from acting as investment adviser or manager for any other
person or persons, including other management investment companies with
investment objectives and policies the same as or similar to those of any Fund
or (ii) limit or restrict the Adviser or any such affiliated person from
buying, selling or trading any securities or other investments (including any
securities or other investments which any Fund is eligible to buy) for its or
their own accounts or for the accounts of others for whom it or they may be
acting; provided, however, that the Adviser agrees that it will not undertake
any activities which, in its judgment, will adversely affect the performance
of its obligations to the Funds under this Agreement.
5. Books and Records. In compliance with the requirements of Rule
31a-3 under the 1940 Act, the Adviser hereby agrees that all records which it
maintains for the Funds are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon the Trust's request.
The Adviser further agrees to preserve for the periods prescribed by Rule
31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1
under the 1940 Act.
6. Expenses. During the term of this Agreement, the Adviser will pay
all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities (including brokerage commissions,
if any) purchased for the Funds.
7. Compensation. For the services provided and the expenses assumed
with respect to the Prime Obligations Fund pursuant to this Agreement, the
Trust will pay the Adviser from the assets belonging to the Fund and the
Adviser will accept as full compensation therefor fees, computed daily and
paid monthly, at an annual rate of .40% of the net assets of the Fund.
For the services provided and the expenses assumed with respect to
the Equity Fund and Small Capitalization Fund pursuant to this Agreement, the
Trust will pay the Adviser from the assets belonging to the Fund involved and
the Adviser will accept as full compensation therefor
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fees, computed daily and paid monthly, at an annual rate of 1.00% of the net
assets of each Fund.
For the services provided and the expenses assumed with respect to
the Bond Fund pursuant to this Agreement, the Trust will pay the Adviser from
the assets belonging to the Fund and the Adviser will accept as full
compensation therefor fees, computed daily and paid monthly, at an annual rate
of .74% of the net assets of the Fund.
If in any fiscal year the aggregate expenses of any Fund (as defined
under the securities regulations of any state having jurisdiction over such
Fund) exceed the expense limitations of any such state, the Adviser will
reimburse the Trust for such excess expenses to the extent described in any
written undertaking provided by the Adviser to such state.
Except as permitted by applicable law, the Adviser shall not be
compensated on the basis of a share of capital gains upon or capital
appreciation of the Funds.
8. Limitation of Liability. The Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Trust,
except a loss 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 Adviser in the
performance of its duties or from reckless disregard of its obligations and
duties under this Agreement.
9. Duration and Termination. This Agreement shall become effective
with respect to each Fund on the day such Fund first commences the public
offering of its shares and, unless sooner terminated, shall continue in effect
until December 31, 1995. Thereafter, if not terminated, this Agreement shall
continue in effect with respect to a particular Fund for successive twelve
month periods ending on December 31, provided such continuance is specifically
approved at least annually (a) by the vote of a majority of those members of
the Trust's Board of Trustees who are not parties to this Agreement, or
interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval, and (b) by the Trust's Board of
Trustees or by the vote of a majority of the outstanding voting securities of
such Fund. Notwithstanding the foregoing, this Agreement may be terminated as
to any Fund at any time, without the payment of any penalty, by the Trust's
Board of Trustees or by vote of a majority of the outstanding voting
securities of such Fund, or by the Adviser, on 60 days' written notice (which
notice may be waived by the party entitled to receive the same). This
Agreement will immediately terminate in the event of its assignment. (As used
in this Agreement, the terms "majority of the outstanding voting securities,"
"interested persons" and "assignment" shall have the same meaning as such
terms in the 1940 Act.)
10. Amendment of this Agreement. No provision of this Agreement may
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change,
waiver, discharge or termination is sought. No amendment of this Agreement
shall be effective with respect to a particular Fund until approved by the
vote of a majority of the outstanding voting securities of that Fund.
11. Miscellaneous. The Adviser expressly agrees that notwithstanding
the termination of or failure to continue this Agreement with respect to a
particular Fund, the Adviser shall
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continue to be legally bound to provide the services required herein for the
other Funds for the period and on the terms set forth in this Agreement.
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and shall be governed by
the laws of the State of Michigan.
12. Names. The names "The Parkstone Advantage Fund" and "Trustees of
The Parkstone Advantage Fund" refer respectively to the Trust created and the
Trustees, as trustees but not individually or personally, acting from time to
time under an Agreement and Declaration of Trust dated May 18, 1993 which is
hereby referred to and a copy of which is on file at the office of the State
Secretary of the Commonwealth of Massachusetts and the principal office of the
Trust. The obligations of "The Parkstone Advantage Fund" entered into in the
name or on behalf thereof by any of the Trustees, representatives or agents
are made not individually, but in such capacities, and are not binding upon
any of the Trustees, shareholders, or representatives of the Trust personally,
but bind only the property of the Trust, and all persons dealing with any
class of shares of the Trust must look solely to the property of the Trust
belonging to such class for the enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
THE PARKSTONE ADVANTAGE FUND
By: /s/ Larry J. Bruning
-----------------------------
Larry J. Bruning
Its: President
FIRST OF AMERICA INVESTMENT
CORPORATION
By: /s/ Richard A. Wolf
-----------------------------
Richard A. Wolf
Its: President
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EXHIBIT 5(b)
THE PARKSTONE ADVANTAGE FUND
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the 18th day of August, 1993 between THE
PARKSTONE ADVANTAGE FUND, a Massachusetts business trust (the "Trust"), and
FIRST OF AMERICA INVESTMENT CORPORATION, a wholly owned Michigan-chartered
subsidiary of First of America Bank Michigan, N.A. (the "Investment Adviser").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Trust desires to retain the Investment Adviser to
provide, or arrange for the provision of, investment advisory services to one
or more investment portfolios of the Trust (the "Funds") and the Investment
Adviser represents that it is willing and possesses legal authority to so
furnish such services; and
WHEREAS, the Investment Adviser is registered under the Investment
Advisers Act of 1940, as amended, and is engaged in the business of rendering
investment advisory services to the Trust and to others and desires to provide
the services described herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Trust hereby appoints the Investment Adviser to
act as investment adviser to the Funds identified on Schedule A hereto for the
period and on the terms set forth in this Agreement. The Investment Adviser
accepts such appointment and agrees to furnish the services herein set forth
for the compensation herein provided. Additional investment portfolios may
from time to time be added to those covered by this Agreement by the parties
executing a new Schedule A which shall become effective upon its execution and
shall supersede any Schedule A having an earlier date.
2. DELIVERY OF DOCUMENTS. The Trust has furnished the Investment
Adviser with copies properly certified or authenticated of each of the
following:
(a) the Trust's Declaration of Trust, as executed on May 18,
1993 and as filed with the Secretary of State of the Commonwealth of
Massachusetts on May 19, 1993, and all amendments thereto or
restatements thereof (such Declaration, as presently in effect and as
it shall from time to time be amended or restated, is herein called
the "Declaration of Trust");
(b) the Trust's Code of Regulations and amendments thereto;
(c) resolutions of the Trust's Board of Trustees authorizing
the appointment of the Investment Adviser and approving this
Agreement;
<PAGE> 2
(d) the Trust's Notification of Registration on Form N-8A
under the 1940 Act as filed with the Securities and Exchange
Commission ("SEC") on July 6, 1993 and all amendments thereto;
(e) the Trust's Registration Statement on Form N-lA under
the Securities Act of 1933, as amended ("1933 Act") (File No.
33-65690), and under the 1940 Act, as filed with the SEC on July 6,
1993; and
(f) each Fund's most recent Prospectus and Statement of
Additional Information (such Prospectus and Statement of Additional
Information, as presently in effect, and all amendments and
supplements thereto are herein collectively called the "Prospectus").
The Trust will furnish the Investment Adviser from time to time with
copies of all amendments of or supplements to the foregoing.
3. MANAGEMENT. Subject to the supervision of the Trust's Board of
Trustees, the Investment Adviser will provide, or arrange for the provision
of, a continuous investment program for each of the Funds, including
investment research and management with respect to all securities and
investments and cash equivalents in said Funds. The Investment Adviser will
determine, or arrange for others to determine, from time to time what
securities and other investments will be purchased, retained or sold by the
Trust with respect to the Funds and will implement, or arrange for others to
implement, such determinations through the placement, in the name of the
Funds, of orders for the execution of portfolio transactions with or through
such brokers or dealers as it may select. The Investment Adviser will provide,
or arrange for the provision of, the services under this Agreement in
accordance with each of the Funds' investment objectives, policies and
restrictions as stated in the Prospectus and resolutions of the Trust's Board
of Trustees.
Subject to the provisions of this Agreement, the Declaration of Trust
and the 1940 Act, the Investment Adviser directly and indirectly may select
and enter into contracts with one or more qualified investment advisers
("Sub-Advisers") to provide to the Trust some or all of the services required
by this Agreement. With respect to any such appointment by the Investment
Adviser of any of the Sub-Advisers, the Investment Adviser will, as
appropriate:
(a) advise the Sub-Advisers with respect to United States
("U.S.") economic conditions and trends;
(b) assist Sub-Advisers with the placement of orders for the
purchase and sale of securities of U.S. issuers;
(c) assist and consult with the Sub-Advisers regarding the
management of the Funds' short-term cash balance positions
denominated in U.S. dollars to preserve liquidity in the Funds'
assets, including the placement of orders for U.S. money market
instruments;
2
<PAGE> 3
(d) assist and consult with the Sub-Advisers in connection
with the Funds' continuous investment programs; and
(e) periodically review, evaluate and report to the Trust's
Board of Trustees with respect to the performance of the
Sub-Advisers.
In fulfilling its responsibilities hereunder, the Investment Adviser
agrees that it will, or, with respect to services provided to the Trust by any
of the Sub-Advisers appointed by the Investment Adviser, that it will require
that each of the Sub-Advisers:
(a) use the same skill and care in providing such services
as it uses in providing services to fiduciary accounts for which it
has investment responsibilities;
(b) conform with all applicable Rules and Regulations of the
SEC and in addition will conduct its activities under this Agreement
(or any applicable sub-investment advisory agreement) in accordance
with any applicable regulations of any governmental authority
pertaining to the investment advisory activities of the Investment
Adviser or Sub-Advisers;
(c) not make loans to any person to purchase or carry units
of beneficial interest in the Trust or make loans to the Trust;
(d) place orders pursuant to investment determinations for
the Trust either directly with the issuer or with an underwriter,
market maker or broker or dealer. In placing orders with brokers and
dealers, the Investment Adviser will use its reasonable best efforts
to obtain, or require that each of the Sub-Advisers obtain, prompt
execution of orders in an effective manner at the most favorable
price. Consistent with this obligation, the Investment Adviser and
any of the Sub-Advisers may, to the extent permitted by law, purchase
and sell portfolio securities to and from brokers and dealers who
provide brokerage and research services (within the meaning of
Section 28(e) of the Securities Exchange Act of 1934) to or for the
benefit of the Funds and/or other accounts over which the Investment
Adviser or any of the Sub-Advisers or any of their respective
affiliates exercises investment discretion. Subject to the review of
the Trust's Board of Trustees from time to time with respect to the
extent and continuation of the policy, the Investment Adviser and any
of the Sub-Advisers are authorized to pay a broker or dealer who
provides such brokerage and research services a commission for
effecting a securities transaction for any of the Funds which is in
excess of the amount of commission another broker or dealer would
have charged for effecting that transaction if the Investment Adviser
or Sub-Advisers determine in good faith that such commission was
reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either
that particular transaction or the overall responsibilities of the
Investment Adviser or Sub-Advisers with respect to the accounts as to
which it exercises investment discretion. In no instance will
portfolio securities be purchased from or sold to Security Management
Company, Investment
3
<PAGE> 4
Adviser or any Sub-Adviser, or any affiliated person of the Trust,
except as may be permitted by the 1940 Act;
(e) maintain all books and records with respect to the
Trust's securities transactions and will furnish the Trust's Board of
Trustees such periodic and special reports as the Board reasonably
may request;
(f) treat confidentially and as proprietary information of
the Trust all records and other information relative to the Trust and
prior, present, or potential interest-holders, and will not use such
records and information for any purpose other than performance of its
responsibilities and duties hereunder, except that, subject to prompt
notification of the Trust, the Investment Adviser and any of the
Sub-Advisers may divulge such information to duly constituted
authorities, or when so requested by the Trust, PROVIDED, HOWEVER,
that nothing contained herein shall prohibit the Investment Adviser
or any of the Sub-Advisers from advertising or soliciting the public
generally with respect to other products or services regardless of
whether such advertisement or solicitation may include prior, present
or potential shareholders of the Funds; and
(g) maintain its policy and practice of conducting its
fiduciary functions independently. In making investment
recommendations for the Trust, the Investment Adviser's or
Sub-Adviser's personnel will not inquire or take into consideration
whether the issuers of securities proposed for purchase or sale for
the Trust's account are customers of the Investment Adviser or
Sub-Adviser or of their respective parents, subsidiaries or
affiliates. In dealing with such customers, the Investment Adviser or
Sub-Adviser and their respective parents, subsidiaries, and
affiliates will not inquire or take into consideration whether
securities of those customers are held by the Trust.
4. SERVICES NOT EXCLUSIVE. The services furnished by the Investment
Adviser and any Sub-Adviser hereunder are not to be deemed exclusive, and the
Investment Adviser and any Sub-Adviser shall be free to furnish similar
services to others so long as its services under this Agreement or any
sub-advisory agreement are not impaired thereby. It is understood that the
action taken by the Investment Adviser under this Agreement may differ from
the advice given or the timing or nature of action taken with respect to other
clients of the Investment Adviser, and that a transaction in a specific
security may not be accomplished for all clients of the Investment Adviser at
the same time or at the same price.
5. BOOKS AND RECORDS. In compliance with the requirements of Rule
31a-3 under the 1940 Act, the Investment Adviser hereby agrees that all
records, if any, which it maintains for the Trust are the property of the
Trust and further agrees to surrender promptly, and to require each of the
Sub-Advisers to surrender promptly, to the Trust any of such records upon the
Trust's request. The Investment Adviser further agrees to preserve, and to
require each of the Sub-Advisers to preserve, for the periods prescribed by
Rule 31a-2 under the 1940 Act, the records required to be maintained by Rule
31a-1 under the 1940 Act.
4
<PAGE> 5
6. EXPENSES. During the term of this Agreement, the Investment
Adviser will pay all expenses, including, as applicable, the compensation of
any Sub-Advisers directly appointed by it, incurred by it in connection with
its activities under this Agreement other than the cost of securities
(including brokerage commissions, if any) purchased for the Trust.
7. COMPENSATION. For the services provided and the expenses assumed
pursuant to this Agreement, each of the Funds will pay the Investment Adviser
and the Investment Adviser will accept as full compensation therefor a fee set
forth on Schedule A hereto. Each of the Funds' obligations to pay the
above-described fee to the Investment Adviser will begin as of the date of the
initial public sale of shares in that Fund. Except as permitted by applicable
law, the Investment Adviser shall not be compensated on the basis of a share
of capital gains upon or capital appreciation of any of the Funds or any
portion thereof.
If in any fiscal year the aggregate expenses of any of the Funds (as
defined under the securities regulations of any state having jurisdiction over
the Trust) exceed the expense limitations of any such state, the Investment
Adviser will reimburse the Fund for a portion of such excess expenses equal to
such excess times the ratio of the fees otherwise payable by the Fund to the
Investment Adviser hereunder to the aggregate fees otherwise payable by the
Fund to the Investment Adviser hereunder and to Security Management Company
under the Administration Agreement between Security Management Company and the
Trust. The obligation of the Investment Adviser to reimburse the Funds
hereunder is limited in any fiscal year to the amount of its fee hereunder for
such fiscal year, PROVIDED, HOWEVER, that notwithstanding the foregoing, the
Investment Adviser shall reimburse the Funds for such proportion of such
excess expenses regardless of the amount of fees paid to it during such fiscal
year to the extent that the securities regulations of any state having
jurisdiction over the Trust so require. Such expense reimbursement, if any,
will be estimated daily and reconciled and paid on a monthly basis.
8. LIMITATION OF LIABILITY. The Investment Adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Funds in connection with the performance of this Agreement, except a loss
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 Investment Adviser in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement.
9. DURATION AND TERMINATION. This Agreement will become effective as
to a particular Fund as of the date first written above (or, if a particular
Fund is not in existence on that date, on the date a registration statement
relative to that Fund becomes effective with the SEC), provided that it shall
have been approved by a vote of a majority of the outstanding voting
securities of such Fund, in accordance with the requirements under the 1940
Act, and, unless sooner terminated as provided herein, shall continue in
effect until June 30, 1995.
Thereafter, if not terminated, this Agreement shall continue in
effect as to a particular Fund for successive periods of approximately twelve
months each ending on December 31 of
5
<PAGE> 6
each year, PROVIDED such continuance is specifically approved at least
annually (a) by the vote of a majority of those members of the Trust's Board
of Trustees who are not parties to this Agreement or interested persons of any
party to this Agreement, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by the vote of a majority of the Trust's
Board of Trustees or by the vote of a majority of all votes attributable to
the outstanding Shares of such Fund. Notwithstanding the foregoing, this
Agreement may be terminated as to a particular Fund at any time on sixty days'
written notice, without the payment of any penalty, by the Trust (by vote of
the Trust's Board of Trustees or by vote of a majority of the outstanding
voting securities of such Fund) or by the Investment Adviser. This Agreement
will immediately terminate in the event of its assignment. No assignment of
this Agreement shall be made by the Investment Adviser without the consent of
the Board of Trustees of the Trust. (As used in this Agreement, the terms
"majority of the outstanding voting securities, "interested persons" and
"assignment" shall have the same meaning of such terms in the 1940 Act.)
10. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change,
waiver, discharge or termination is sought.
11. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by the law of the State of Ohio.
The names "The Parkstone Advantage Fund" and "Trustees of The
Parkstone Advantage Fund" refer respectively to the Trust created and the
Trustees, as trustees but not individually or personally, acting from time to
time under the Declaration of Trust and to which reference is hereby made and
a copy of which is on file at the office of the Secretary of the Commonwealth
of Massachusetts and elsewhere as required by law, and to any and all
amendments thereto as filed or hereafter filed. The obligations of "The
Parkstone Group of Funds" entered into in the name or on behalf thereof by any
of the Trustees, representatives or agents are made not individually, but in
such capacities, and are not binding upon any of the Trustees,
interest-holders or representatives of the Trust personally, but bind only the
assets of the Trust, and all persons dealing with any Fund of the Trust must
look solely to the assets of the Trust belonging to such Fund for the
enforcement of any claims against the Trust.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written. (Seal)
THE PARKSTONE ADVANTAGE FUND
By: /s/ Larry J. Bruning
-----------------------------------
Larry J. Bruning
Its: President
FIRST OF AMERICA INVESTMENT
CORPORATION
By: /s/ Richard A. Wolf
-----------------------------------
Richard A. Wolf
Its: President
7
<PAGE> 8
Dated: August 18, 1993
SCHEDULE A
to the Investment Advisory Agreement
between The Parkstone Advantage Fund
and First of America Investment Corporation
Name of Fund Compensation Date
- ------------ ------------ -----
International Annual Rate of 1.25% of the first $50
Discovery Fund Million of the average daily net assets of
such Fund, 1.20% of the average daily net
assets between $50 Million and $100
Million, 1.15% of the average daily net
assets between $100 Million and $400
Million, and 1.05% of the average daily
net assets over $400 Million.
THE PARKSTONE ADVANTAGE FUND
By: /s/ Larry J. Bruning
----------------------------------
Larry J. Bruning
Its: President
FIRST OF AMERICA INVESTMENT
CORPORATION
By: /s/ Richard A. Wolf
----------------------------------
Richard A. Wolf
Its: President
<PAGE> 1
EXHIBIT 5(c)
SUB-INVESTMENT ADVISORY AGREEMENT
SUB-INVESTMENT ADVISORY AGREEMENT made as of the 1st day of March,
1995, by and between First of America Investment Corporation, a Michigan
corporation (the "Adviser"), and Gulfstream Global Investors, Ltd., a Texas
limited partnership (the "Sub- Adviser").
WHEREAS, the Adviser serves as investment adviser of The Parkstone
Advantage Fund, a Massachusetts business trust and an open-end management
investment company (the "Trust"), which has filed a registration statement (the
"Registration Statement") under the Investment Company Act of 1940, as amended
(the "1940 Act") and the Securities Act of 1933.
WHEREAS, the Trust is comprised of several separate investment
portfolios; and
WHEREAS, the Adviser desires to avail itself of the services,
information, advice, assistance and facilities of an investment adviser
experienced in the management of a portfolio of international securities to
assist the Adviser in performing services for the portfolios indicated on
Schedule A to this Agreement (the "Funds"); and
WHEREAS, the Sub-Adviser is registered under the Investment Advisers
Act of 1940, as amended, and is engaged in the business of rendering investment
advisory and sub-advisory services to investment companies and desires to
provide such services to the Adviser; and
WHEREAS, the Sub-Adviser is familiar with the investment objective,
policies and restrictions of the Funds and has reviewed the Investment Advisory
Agreement dated as of August 18, 1993 between the Adviser and the Trust (the
"Trust/Adviser Agreement").
NOW, THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is agreed as follows:
1. APPOINTMENT OF THE SUB-ADVISER. The Adviser hereby appoints the
Sub-Adviser to provide a continuous investment program for the Funds, subject to
such instructions and supervision as the Adviser may from time to time furnish
and further subject to the control and direction of the Trust's Board of
Trustees, for the period and on the terms hereinafter set forth. The Sub-Adviser
hereby accepts such appointment and agrees during such period to render the
services and to assume the obligations herein set forth for the compensation
herein provided. The Sub-Adviser will provide the services under this Agreement
in accordance with the Funds' investment objective, policies and restrictions as
stated in each Fund's most recent Prospectus and Statement of Additional
Information and as the same may, from time to time, be supplemented or amended
and in resolutions of the Trust's Board of Trustees. Adviser agrees to furnish
the Sub-Adviser from time to time copies of all amendments of or supplements to
such Prospectus and Statement of Additional Information. The Sub-Adviser shall
for all purpose herein be deemed to be an independent contractor and shall,
except as expressly provided or authorized (whether herein or otherwise), have
no authority to act for or represent the Adviser, the Funds or the Trust in any
way.
<PAGE> 2
2. SUB-ADVISORY SERVICES. Subject to such instructions and supervision
as the Adviser may from time to time furnish, the continuous investment program
of the Funds provided by the Sub-Adviser shall include, among other things,
investment research and management with respect to all securities, investments
and cash equivalents in the Funds. The Sub-Adviser will determine from time to
time what securities and other investments will be purchased, retained or sold
by the Fund, the appropriate portion of the Fund's assets to be invested in
particular countries or geographic regions, the use of foreign exchange
contracts and other foreign currency matters, and the manner in which voting
rights, rights to consent to corporate action and other rights pertaining to the
Funds' investments should be exercised. The Sub-Adviser will implement such
determinations through the placement, in the name of a Fund, of orders for the
execution of portfolio transactions with or through such brokers or dealers as
it may select.
In fulfilling its responsibilities hereunder, the Sub-Adviser agrees
that it will:
(a) use the same skill and care in providing such
services as it uses in providing services to other
fiduciary accounts for which it has investment
responsibilities;
(b) conform with all applicable Rules and Regulations of
the United States Securities and Exchange Commission
("SEC") and in addition will conduct its activities
under this Agreement in accordance with any
applicable regulations of any government authority
pertaining to the investment advisory activities of
the Sub-Adviser and shall furnish such written
reports or other documents substantiating such
compliance as the Adviser reasonably may from time to
time request;
(c) not make loans to any person to purchase or carry
units of beneficial interest in the Trust or make
loans to the Trust;
(d) place orders pursuant to investment determinations
for the Funds either directly with the issuer or with
an underwriter, market maker or broker or dealer. In
placing orders with brokers and dealers, the
Sub-Adviser will use its reasonable best efforts to
obtain prompt execution of orders in an effective
manner at the most favorable price. Consistent with
this obligation, the Sub-Adviser may, to the extent
permitted by law, purchase and sell portfolio
securities to, from and through brokers and dealers
who provide brokerage and research services (within
the meaning of Section 28(e) of the Securities
Exchange Act of 1934) to or for the benefit of the
Funds and/or other accounts over which the
Sub-Adviser exercises investment discretion. Subject
to the review of the Trust's Board of Trustees from
time to time with respect to the extent and
continuation of the policy, the Sub-Adviser is
authorized to pay a broker or dealer who provides
such brokerage and research services a commission for
effecting a securities transaction for a Fund which
is in excess of the amount of commission another
broker or dealer would have charged for effecting
that transaction if the Sub-Adviser determines in
good faith that such commission was reasonable in
relation to the value of the brokerage and
2
<PAGE> 3
research services provided by such broker or dealer,
viewed in terms of either that particular transaction
or the overall responsibilities of the Sub-Adviser
with respect to the accounts as to which it exercises
investment discretion. In no instance will portfolio
securities be purchased from or sold to the Trust,
Security Management Company, Adviser or Sub-Adviser
or any affiliate of the foregoing except as may be
permitted by the 1940 Act;
(e) maintain all necessary or appropriate books and
records with respect to each Fund's securities
transactions in accordance with all applicable laws,
rules and regulations, including but not limited to
Section 31(a) of the 1940 Act and will furnish the
Trust's Board of Trustees such periodic and special
reports as the Board reasonably may request;
(f) treat confidentially and as proprietary information
of the Adviser and the Trust all records and other
information relative to the Adviser and the Trust and
prior, present, or potential interest-holders, and
will not use such records and information for any
purpose other than performance of its
responsibilities and duties hereunder, except that
subject to prompt notification to the Trust and
Adviser, Sub-Adviser may divulge such information to
duly constituted authorities, or when so requested by
the Adviser and the Trust, PROVIDED, HOWEVER, that
nothing contained herein shall prohibit the
Sub-Adviser from advertising or soliciting the public
generally with respect to other products or services,
regardless of whether such advertisement or
solicitation may be directed to persons including
prior, present or potential shareholders of the
Funds;
(g) maintain its policy and practice of conducting its
fiduciary functions independently. In making
investment recommendations for the Trust, the
Sub-Adviser's personnel will not inquire or take into
consideration whether the issuers of securities
proposed for purchase or sale for the Trust's account
are customers of the Adviser, Sub-Adviser or of their
respective parents, subsidiaries or affiliates. In
dealing with such customers, the Sub-Adviser and its
affiliates will not inquire or take into
consideration whether securities of those customers
are held by the Trust; and
(h) render, upon request of the Adviser or the Trust's
Board of Trustees, written reports concerning the
investment activities of the Funds.
3. EXPENSES. During the term of this Agreement, the Sub-Adviser will
pay all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities (including brokerage commissions, if
any) purchased for the Funds.
4. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Sub-Adviser hereby agrees that all records, if any,
which it maintains for the Funds are the property of such Funds and further
agrees to surrender promptly, to the Adviser
3
<PAGE> 4
or the Trust any such records upon the Adviser's or the Trust's request and that
such records shall be available for inspection by the SEC. The Sub-Adviser
further agrees to preserve for the periods and at the places prescribed by Rule
31a-2 under the 1940 Act, the records required to be maintained by Rule 31a-1
under the 1940 Act.
5. COMPENSATION OF THE SUB-ADVISER. In consideration of services
rendered pursuant to this Agreement, the Adviser will pay the Sub-Adviser a fee
at the annual rate of the value of each Fund's average daily net assets set
forth in Schedule A hereto. Such fee shall be accrued daily and paid monthly as
soon as practicable after the end of each month. If the Sub-Adviser shall serve
for less than the whole of any month, the foregoing compensation shall be
prorated. For the purpose of determining fees payable to the Sub-Adviser, the
value of each Fund's net assets shall be computed at the times and in the manner
specified in the Trust's Registration Statement. If the Adviser is required to
reduce its fee or to reimburse the Trust because the expenses of a Fund exceed
applicable limits under state securities regulations or are in excess of any
voluntary expense limitations set forth in the Trust's current Registration
Statement, the Sub-Adviser's fee hereunder shall be reduced by an amount equal
to such excess expense multiplied by the ratio that the Sub-Adviser's fee
hereunder bears to the sum of the fees paid to the Adviser and to Security
Management Company (under the Trust's Administration Agreement with Security
Management Company) by the Trust with respect to the Fund. Notwithstanding
anything contained herein to the contrary, the Sub-Adviser shall not be
compensated on the basis of a share of capital gains or upon capital
appreciation of a Funds or any portion thereof except as may be authorized by
applicable law.
6. SERVICES NOT EXCLUSIVE. The services of the Sub-Adviser hereunder
are not to be deemed exclusive, and the Sub-Adviser shall be free to render
similar services to others and to engage in other activities, so long as the
services rendered hereunder are not impaired. It is understood that the action
taken by the Sub-Adviser under this Agreement may differ from the advice given
or the timing or nature of action taken with respect to other clients of the
Sub-Adviser, and that a transaction in a specific security may not be
accomplished for all clients of the Sub-Adviser at the same time or at the same
price.
7. USE OF NAMES. The Sub-Adviser shall not use the name of the Trust or
the Adviser in any material relating to the Sub-Adviser in any manner not
approved prior thereto by the Adviser; provided, however, that the Adviser shall
approve all uses of its or the Trust's name which merely refer in accurate terms
to the appointment of the Sub-Adviser hereunder or which are required by the SEC
or a state securities commission; and, provided further, that in no event shall
such approval be unreasonably withheld.
8. LIABILITY. Sub-Adviser, in rendering its services hereunder, agrees
to use its best judgment and efforts, and Adviser agrees that Sub-Adviser shall
not be liable hereunder for any mistake in judgment or any event whatsoever
except for lack of good faith on the part of Sub-Adviser. Notwithstanding the
foregoing, nothing herein shall be deemed to protect or purport to protect
Sub-Adviser against any liability to Adviser, the Trust, or the holders of
securities of the Trust to which Sub-Adviser would otherwise be subject by
reason of an act or practice constituting willful misfeasance, bad faith, gross
negligence, reckless disregard of duty or a breach of fiduciary duty involving
personal misconduct, or loss resulting from breach of
4
<PAGE> 5
fiduciary duty with respect to the receipt of compensation for services (all
within the meaning of 1940 Act) in respect of Adviser or the Trust in the
performance of duties hereunder.
9. LIMITATION OF TRUST'S LIABILITY. The Sub-Adviser acknowledges that
it has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Adviser agrees that any of the
Trust's obligations shall be limited to the assets of the Funds and that the
Sub-Adviser shall not seek satisfaction of any such obligation from the
shareholders of the Trust nor from any Trustee, Trust employee or agent of the
Trust.
10. DURATION, RENEWAL, TERMINATION AND AMENDMENT. This Agreement shall
become effective as of the date first written above and, unless sooner
terminated as provided herein, shall continue until December 31, 1996.
After December 31, 1996, if not terminated, this Agreement shall
continue in effect with respect to Funds for successive periods of approximately
twelve months each ending on December 31 of each year, provided such continuance
is specifically approved at least annually (a) by the vote of a majority of
those members of the Trust's Board of Trustees who are not parties to this
Agreement or interested persons of any party to this Agreement, cast in person
at a meeting called for the purpose of voting on such approval, and (b) by the
vote of a majority of the Trust's Board of Trustees or by the vote of a majority
of all votes attributable to the outstanding Shares of a Fund. This Agreement
may be terminated as to a Fund at any time, without payment of any penalty, by
the Trust's Board of Trustees, by the Adviser, or by a vote of the majority of
the outstanding voting securities of the Fund, upon 60 days' prior written
notice to the Sub-Adviser, or by the Sub-Adviser upon 150 days' prior written
notice to the Adviser and the Trust's Board of Trustees, or upon such shorter
notice as may be mutually agreed upon. This Agreement shall terminate
automatically and immediately upon termination of the Trust/Adviser Agreement.
This Agreement shall terminate automatically and immediately in the
event of its assignment. No assignment of this Agreement shall be made by the
Sub-Adviser without the consent of the Adviser and the Board of Trustees of the
Trust. The terms "assignment" and "vote of a majority of the outstanding voting
securities" shall have the meaning set forth for such terms in the 1940 Act.
This Agreement may be amended at any time by the Adviser and the Sub-Adviser,
subject to approval by the Trust's Board of Trustees and, if required by
applicable SEC rules and regulations, a vote of a majority of the Fund's
outstanding voting securities.
11. CONFIDENTIAL RELATIONSHIP. Any information and advice furnished by
either party to this Agreement to the other shall be treated as confidential and
shall not be disclosed to third parties except as required by law.
12. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
13. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the state of Michigan and the applicable provisions
of the 1940 Act. To the
5
<PAGE> 6
extent applicable law of the state of Michigan, or any of the provisions herein,
conflict with applicable provisions of the 1940 Act, the latter shall control.
14. NAMES. The names "The Parkstone Advantage Fund" and "Trustees of
the Parkstone Advantage Fund" refer respectively to the Trust created and the
Trustees, as trustees but no individually or personally, acting from time to
time under an Agreement and Declaration of Trust dated May 18, 1993 which is
hereby referred to and a copy of which is on file at the office of the State
Secretary of the Commonwealth of Massachusetts and the principal office of the
Trust. The obligations of "The Parkstone Advantage Fund" entered into in the
name or on behalf thereof by any of the Trustees, representatives or agents are
made not individually, but in such capacities, and are not binding upon any of
the Trustees, shareholders, or representatives of the Trust personally, but bind
only the property of the Trust, and all persons dealing with any class of shares
of the Trust must look solely to the property of the Trust belonging to such
class for the enforcement of any claims against the Trust.
15. MISCELLANEOUS. This Agreement constitutes the full and complete
agreement of the parties hereto with respect to the subject matter hereof. Each
party agrees to perform such further actions and execute such further documents
as are necessary to effectuate the purposes hereof. The captions in this
Agreement are included for convenience only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed in several counterparts, all of which together shall
for all purposes constitute one Agreement, binding on all parties.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.
FIRST OF AMERICA INVESTMENT
CORPORATION
By: /s/ Richard A. Wolf
--------------------------------------
Richard A. Wolf
Its: President
GULFSTREAM GLOBAL INVESTORS, LTD.
By: Tull, Doud, Marsh & Triltsch, Inc.,
General Partner
By: /s/ C. Thomas Tull
--------------------------------------
C. Thomas Tull
Its: President
6
<PAGE> 7
The Parkstone Advantage Fund and First of America Investment
Corporation each acknowledge receipt of Gulfstream Global Investors, Ltd.
Disclosure Statement as required by Rule 204-3 under the Investment Advisers Act
of 1940 not less than 48 hours prior to the execution date of this Agreement.
THE PARKSTONE ADVANTAGE FUND
By: /s/ George R. Landreth
--------------------------------------
George R. Landreth
Its: President
FIRST OF AMERICA INVESTMENT
CORPORATION
CORPORATION
By: /s/ Richard A. Wolf
--------------------------------------
Richard A. Wolf
Its: President
7
<PAGE> 8
DATED: MARCH 1, 1995
SCHEDULE A
TO THE SUB-INVESTMENT ADVISORY AGREEMENT
BETWEEN FIRST OF AMERICA INVESTMENT CORPORATION
AND GULFSTREAM GLOBAL INVESTORS, LTD.
<TABLE>
<CAPTION>
NAME OF FUND COMPENSATION DATE
- ------------ ------------ ----
<S> <C> <C>
International Discovery Fund Annual Rate of 0.50% of the first $50 March 1, 1995
million of the average daily net assets
under management pursuant to
agreements with First of America
Investment Corporation, 0.45% of the
average daily net assets between $50
million and $100 million, 0.40% of the
average daily net assets between $100
million and $400 million, and 0.30% of
the average daily net assets above $400
million, provided, the minimum annual
fee shall be $75,000.
</TABLE>
FIRST OF AMERICA INVESTMENT
CORPORATION
By: /s/ Richard A. Wolf
------------------------------------
Richard A. Wolf
Its: President
GULFSTREAM GLOBAL INVESTORS, LTD.
By: Tull, Doud, Marsh & Triltsch, Inc.
General Partner
By: /s/ C. Thomas Tull
------------------------------------
C. Thomas Tull
Its: President
8
<PAGE> 1
EXHIBIT 6
DISTRIBUTION AGREEMENT
AGREEMENT, made as of this 1st day of July, 1996, between PARKSTONE
ADVANTAGE FUND, a Massachusetts business trust (the "Trust"), and BISYS FUND
SERVICES, L.P., an Ohio limited partnership ("BISYS" or "Distributor").
WHEREAS, the Trust is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Trust is authorized to issue shares of Capital Stock
("Capital Stock") in separate Series (the "Series") with each such Series
representing interests in a separate portfolio of securities and other assets;
and
WHEREAS, the Trust currently offers shares in five series designated as
the Prime Obligations Fund, Equity Fund, Small Capitalization Fund, Bond Fund
and International Discovery Fund (the "Initial Series"), such Series together
with all other Series subsequently established by the Trust with respect to
which the Trust desires to retain the Distributor to render services hereunder
and with respect to which the Distributor is willing so to do, being herein
collectively referred to as the "Series."
THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree as follows:
1. The Trust hereby appoints BISYS as Distributor of the Capital Stock
on the terms and for the period set forth in this Agreement and BISYS hereby
accepts such appointment and agrees to render the services and undertake the
duties set forth herein.
2. (a) In performing its duties as Distributor, BISYS will act in
conformity with the Prospectus and with the instructions and directions of the
Board of Trustees of the Trust, the requirements of the Securities Act of 1933
(the "1933 Act"), and 1940 Act, and all other applicable federal and state laws
and regulations.
(b) BISYS will hold itself available to receive by mail, telex
and/or telephone orders for the purchase or redemption of the Capital Stock and
will accept or reject such orders on behalf of the Trust in accordance with the
provisions of the Prospectus, and will transmit such orders as are so accepted
to the Trust's transfer agent promptly for processing at the share's net asset
value next determined in accordance with the prospectus. Distributor will not
use any sales literature which has not been previously approved by the Trust and
its investment adviser.
(c) BISYS shall not be obligated to sell any certain number of
shares of Capital Stock. Such shares shall be sold without sales charge. No
commission or other fee will be paid to BISYS in connection with the sale of
shares of Capital Stock.
<PAGE> 2
3. During the term of this Agreement, BISYS will bear all its expenses
in complying with this Agreement including the following expenses:
(a) Costs of sales presentations, mailings, advertising, and
any other marketing efforts by BISYS in connection with the distribution or sale
of Capital Stock; and
(b) Any compensation paid to employees of BISYS in connection
with the distribution or sale of the Capital Stock.
4. The Trust shall bear all of its other expenses including, but not
limited to:
(a) Preparation and setting in type of its reports, proxies
and prospectuses and printing and distributing reports, proxies and prospectuses
and other communications to existing shareholders;
(b) Registration of the Trust's shares with the Securities and
Exchange Commission;
(c) Qualification of the Trust's shares for sale in
jurisdictions designated by the Distributor;
5. BISYS shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Trust in connection with the matters to
which this Agreement relates, except a loss resulting from its willful
misfeasance, bad faith or negligence in the performance of its duties under this
Agreement. Any person, even though also an officer, employee or agent of BISYS,
who may be or become an officer, trustee, employee or agent of the Trust shall
be deemed, when rendering services or otherwise acting in his or her capacity as
an officer, trustee, employee or agent of the Trust, to be rendering such
services to or acting solely for the Trust and not as an officer, partner,
employee or agent or one under the control or direction of BISYS even though
paid by BISYS.
6. BISYS hereby agrees to indemnify and hold harmless the Trust and the
several officers and Trustees thereof against any and all losses, liabilities,
damages and claims arising out of or based upon any untrue or alleged untrue
statement or representation made (except for such statements made in reliance on
any prospectus, registration statement or sales material supplied by the Trust),
any failure to deliver a currently effective prospectus, or the use of any
unauthorized sales literature by any officer, employee or agent of BISYS in
connection with the offer or sale of the Capital Stock. BISYS shall reimburse
each such person for any legal or other expenses reasonably incurred in
connection with investigating or defending any such loss, liability, damage or
claim.
Promptly after receipt by a party entitled to indemnification under
this section ("Indemnified Party") of notice of the commencement of any action,
if a claim for indemnification in respect thereof is to be made against BISYS,
such Indemnified Party will
2
<PAGE> 3
notify BISYS in writing of the commencement thereof, and the omission so to
notify BISYS will not relieve it from any liability under this section, except
to the extent that the omission results in a failure of actual notice to BISYS
and it is damaged solely as a result of the failure to give such notice.
7. This Agreement shall take effect on July 1, 1996, and shall continue
in effect, unless sooner terminated as provided herein, for two years from such
date and shall continue from year to year thereafter so long as such continuance
is specifically approved at least annually (a) by the vote of a majority of
those members of the Board of Trustees of the Trust who are not parties to this
Agreement or interested persons (as defined in the 1940 Act) of any such party,
cast in person at a meeting called for the purpose of voting on such approval,
and (b) either by a majority of the entire Board of Trustees of the Trust or by
a majority vote (as defined in the Prospectus) of the shareholders of the Trust;
provided, HOWEVER, that this Agreement may be terminated without penalty by the
Board of Trustees of the Trust; by a majority vote (as defined in the
Prospectus) of the shareholders of the Trust on 60 days' written notice to
BISYS, or by BISYS at any time, without payment of any penalty, on 90 days'
written notice to the Trust. This Agreement will automatically and immediately
terminate in the event of its assignment (as defined in the 1940 Act).
8. Notices of any kind to be given to BISYS by the Trust shall be in
writing and shall be duly given if mailed, first-class postage prepaid, or
delivered to BISYS at 3435 Stelzer Road, Columbus, Ohio 43219, or at such other
address or to such individual as shall be specified by BISYS to the Trust.
Notices of any kind to be given to the Trust shall be in writing and shall be
duly given if mailed, first-class postage prepaid, or delivered to the Trust at
3435 Stelzer Road, Columbus, Ohio 43219, at such other address or to such
individual as shall be specified by the Trust.
9. The services of the Distributor to the Trust under this Agreement
are not to be deemed exclusive, and the Distributor shall be free to render
similar services or other services to others so long as its services hereunder
are not impaired thereby.
10. The Distributor shall for all purposes herein provided transact its
business with the Trust as principal, be deemed to be an independent contractor
and, unless otherwise expressly provided or authorized, shall have no authority
to act for or represent the Trust in any way or otherwise be deemed an agent of
the Trust. It is understood and agreed that the Distributor, by separate
agreement with the Trust, may also serve the Trust in other capacities.
11. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original.
12. This Agreement shall be governed by the laws of Ohio, provided that
nothing herein shall be construed in a manner inconsistent with the Investment
Company Act of 1940, the Securities Exchange Act of 1934 or any rule or order of
the Securities and Exchange Commission.
3
<PAGE> 4
13. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
BISYS FUND SERVICES, L.P.
By: /s/ Stephen G. Mintos
------------------------------
Its: Executive Vice President
------------------------------
PARKSTONE ADVANTAGE FUND
By: /s/ George R. Landreth
------------------------------
Its: President
4
<PAGE> 1
EXHIBIT 8(a)
CUSTODY AGREEMENT
THIS AGREEMENT is entered into as of August 16, 1993, between THE
PARKSTONE ADVANTAGE FUND (the "Fund"), a business trust, having its principal
office and place of business at 700 Harrison Street, Topeka, Kansas 66636, and
THE BANK OF CALIFORNIA, NATIONAL ASSOCIATION (the "Bank"), a National Banking
Association organized under the laws of the United States with its principal
place of business at 400 California Street, San Francisco, California 94104.
In consideration of the mutual promises set forth below, the Fund and
the Bank agree as follows:
1. DEFINITIONS. Whenever used in this Agreement or in any Schedules to
this Agreement, the words and phrases set forth below shall have the following
meanings, unless the context otherwise requires:
1.1 "AUTHORIZED PERSON" shall mean the President, and any Vice
President, the Secretary, the Assistant Secretary, the Treasurer and any
Assistant Treasurer of the Fund, or any other person, including persons employed
by the investment manager of the Fund, whether or not any such person is an
officer of the Fund, duly authorized by the Board of Trustees of the Fund to
give Written Instructions on behalf of the Fund and listed in the certification
annexed hereto as Appendix A or such other certification as may be received by
the Bank from time to time.
1.2 "BOOK-ENTRY SYSTEM" shall mean the Federal
Reserve/Treasury book-entry system for United States and federal agency
securities, its successor or successors and its nominee or nominees.
1.3 "DECLARATION OF TRUST" shall mean the Declaration of Trust
of the Fund as now in effect and as the same may be amended from time to time.
1.4 "DEPOSITORY" shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17(a) of the Securities Exchange Act of 1934, as
amended, its successor or successors and its nominee or nominees, in which the
Bank is hereby specifically authorized to make deposits. The term "Depository"
shall further mean and include any other person to be named in Written
Instructions authorized to act as a depository under the 1940 Act, its successor
or successors and its nominee or nominees.
1.5 "MONEY MARKET SECURITY" shall mean any security generally
referred to as a "money market" instrument, and be deemed to include, without
limitation, debt obligations issued or guaranteed as to interest and principal
by the Government of the United States or agencies or instrumentalities thereof,
and repurchase and reverse repurchase agreements with respect to any of the
foregoing types of securities, commercial paper, bank certificates of
<PAGE> 2
deposit, bankers' acceptances and short-term corporate obligations, where the
purchase or sale of such securities normally requires settlement in federal
funds on the same day as such purchase or sale.
1.6 "PROSPECTUS" shall mean the Fund's current prospectus and
statement of additional information relating to the registration of the Fund's
Shares under the Securities Act of 1933, as amended.
1.7 "SECURITY" or "SECURITIES" shall mean any security and
other investment from time to time owned by any Portfolio, and shall be deemed
to include, without limitation, bonds, debentures, notes, stocks, shares,
evidences of indebtedness, and other securities and investments from time to
time owned by each Portfolio of the Fund.
1.8 "SHARES" refers to the shares of beneficial interest of a
Portfolio of the Fund.
1.9 "PORTFOLIO" shall mean Portfolios shown on Schedule A,
attached hereto and made a part hereof by this reference, and any such other
Portfolio as may from time to time be created and designated in accordance with
the provisions of the Declaration of Trust.
1.10 "TRANSFER AGENT" shall mean the person which performs the
transfer agent, dividend disbursing agent and shareholder servicing agent
functions for the Fund.
1.11 "WRITTEN INSTRUCTIONS" shall mean a written or electronic
communication actually received by the Bank from an Authorized Person or from a
person reasonably believed by the Bank to be an Authorized Person by telex or
any other such system whereby the receiver of such communication is able to
verify through codes or otherwise with a reasonable degree of certainty the
authenticity of the sender of such communication.
1.12 "ORAL INSTRUCTIONS" shall mean an oral or telephonic or
similar communication actually received by the Bank from an Authorized Person or
from a person reasonably believed by the Bank to be an Authorized Person by
telephone or any other such system whereby the receiver of such communication is
able to verify with a reasonable degree of certainty the authenticity of the
sender of the communication. All Oral Instruction shall be confirmed by Written
Instructions.
1.13 The "1940 ACT" shall mean the Investment Company Act of
1940, and the rules and regulations thereunder, all as amended from time to
time.
2. APPOINTMENT OF CUSTODIAN
2.1 The Fund hereby constitutes and appoints the Bank as
custodian of all the Securities and moneys owned by or in the possession of the
Fund during the period of this Agreement.
2
<PAGE> 3
2.2 The Bank hereby accepts appointment as custodian for the
Fund and agrees to perform the duties thereof as hereinafter set forth. In
addition to the specific duties set forth in this Agreement, the Bank will in
general attend to all routine and mechanical matters in connection with the
sale, exchange, substitution, purchase, transfer, deposit or other dealings with
Securities or other property of the Fund except as may be otherwise provided in
this Agreement or directed from time to time by the Board of Trustees of the
Fund.
2.3 The Bank agrees to notify the Fund promptly should its
aggregate capital, surplus, and undivided profits fall below prescribed minimums
under the 1940 Act or, for any reason, should it becomes unqualified to act as
Custodian under the 1940 Act or other law.
3. COMPENSATION
3.1 The Fund will compensate the Bank for its services
rendered under this Agreement in accordance with the fees set forth in the Fee
Schedule attached as Schedule B and made a part of this Agreement by this
reference.
3.2 The parties to this Agreement will agree upon the
compensation for acting as Custodian for any Portfolio hereafter established and
designated, and at the time that the Bank commences serving as such for said
Portfolio, such agreement shall be reflected in a revised Fee Schedule for the
Fund, which shall be attached to Schedule B of this Agreement.
3.3 Any compensation agreed to hereunder may be adjusted from
time to time by not less than 90 days advance written notice of such fee
increase from the Bank to the Fund.
3.4 The Bank will bill the Fund as soon as practicable after
the end of the month, and said billings will be detailed in accordance with the
Fee Schedule. The Fund will promptly pay to the Bank the amount of such billing.
In the event such bill is not promptly paid with respect to a Portfolio, the
Bank may charge against any money specifically allocated to the Portfolio such
compensation and any expenses incurred by the Bank in the performance of its
duties pursuant to this Agreement. The Bank shall also be entitled to charge
against any money held by it and specifically allocated to a Portfolio the
amount of any loss, damage, liability or expense incurred with respect to such
Portfolio, including counsel fees, for which it shall be entitled to
reimbursement under the provisions of this Agreement.
There shall be no additional fees or expenses to the Fund
incurred by the Bank's use of Sub-Custodians or foreign branches of the Bank in
settling Portfolio Security transactions outside of San Francisco or New York
city.
4. CUSTODY OF CASH AND SECURITIES
4.1 RECEIPT AND HOLDING OF ASSETS. The Fund will deliver or
cause to be delivered to the Bank all Securities and moneys owned by it,
including cash received from the issuance of its Shares, at any time during the
period of this Agreement and shall specify the
3
<PAGE> 4
Portfolio to which the Securities and moneys are to be specifically allocated.
The Bank shall physically segregate and keep apart on its books, the assets of
each Portfolio, including separate identification of Securities held in the
Book-Entry System. The Bank will not be responsible for such Securities and
moneys until actually received by it. The Fund shall instruct the Bank from time
to time in its sole discretion, by means of Written Instructions or Oral
Instruction as to the manner in which and in what amounts Securities and moneys
of a Portfolio are to be deposited on behalf of such Portfolio in the Book-Entry
System or the Depository and specifically allocated on the books of the Bank to
such Portfolio. Securities and moneys of the Fund deposited in the Book-Entry
System or the Depository will be represented in accounts which include only
assets held by the Bank for customers, including but not limited to accounts in
which the Bank acts in a fiduciary or representative capacity.
4.2 ACCOUNTS AND DISBURSEMENTS. The Bank shall establish and
maintain a separate account for each Portfolio and shall credit to the separate
account of each Portfolio all moneys received by it for the account of such
Portfolio and shall disburse the same only:
4.2.1 In payment for Securities purchased for such
Portfolio, as provided in Section hereof;
4.2.2 In payment of dividends or distributions with
respect to the Shares of such Portfolio;
4.2.3 In payment of original issue or other taxes
with respect to the Shares of such Portfolio;
4.2.4 In payment for Shares which have been redeemed
by such Portfolio;
4.2.5 Pursuant to Written Instructions or Oral
Instructions confirmed by Written Instructions, setting forth the name of such
Portfolio, the name and address of the person to whom the payment is to be made,
the amount to be paid and the purpose for which payment is to be made; or
4.2.6 In payment of fees and in reimbursement of the
expenses and liabilities of the Bank attributable to such Portfolio.
4.2.7 The Bank shall upon receipt of Written
Instructions, or Oral Instructions confirmed by Written Instructions, establish
and maintain a segregated account or accounts for and on behalf of each
Portfolio of the Fund, into which account or accounts may be transferred cash
and securities, (i) in accordance with the provisions of any agreement among the
Fund, the Bank and a broker-dealer registered under the Securities and Exchange
Act of 1934 (the "1934 Act") and a member of the NASD (or any futures commission
merchant registered under the Commodities Exchange Act), relating to compliance
with the rules of the Options Clearing Corporation and of any registered
national securities exchange (or the Commodities Futures Trading Commission or
any registered contract market), or of any similar
4
<PAGE> 5
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for purposes of segregating cash
or government securities in connection with options purchased, sold or written
by the Fund or commodity futures contracts or options thereon purchased or sold
by the Fund, (iii) for the purposes of compliance by the Fund with procedures
required by Investment Company Act Release No. 10666, or any subsequent release
or releases of the Securities and Exchange Commission relating to the
maintenance of segregated accounts by registered investment companies and (iv)
for other proper corporate purposes.
4.3 CONFIRMATIONS AND STATEMENTS. Promptly after the close of
business each day, the Bank shall make available to the Fund information with
respect to all transfers to and from the account of each Portfolio during that
day. The Bank need not send written confirmation or a summary of all such
transfers to or from the account of each Portfolio. Provided, however that upon
the written request of the Fund, the Bank shall provide within 5 business days
of such written request a copy of any confirmations which include transactions
of the Fund. Where securities purchased by a Fund are in a fungible bulk of
Securities registered in the name of the Bank (or its nominee) or shown on the
Bank's account on the books of the Depository or the Book-Entry System, the Bank
shall by book entry or otherwise identify the quantity of those securities
belonging to such Portfolio. At least monthly, the Bank shall furnish the Fund
with a detailed statement of the Securities and moneys held for each Portfolio
under this Agreement.
4.4 REGISTRATION OF SECURITIES AND PHYSICAL SEPARATION. All
Securities held for a Portfolio which are issued or issuable only in bearer
form, except such Securities as are held in the Book-Entry System, shall be held
by the Bank in that form; all other Securities held for a Portfolio may be
registered in the name of any duly appointed registered nominee of the Bank as
the Bank may from time to time determine, or in the name of the Book-Entry
System or the Depository or their successor or successors, or their nominee or
nominees. When a reference is made in this Agreement to an action to be taken by
Bank it is understood by the parties that the action may be taken directly or in
the case of book-entry securities, through the appropriate depository. The Fund
agrees to furnish to the Bank appropriate instruments to enable the Bank to hold
or deliver in proper form for transfer, or to register in the name of its
registered nominee or in the name of the Book-Entry System or the Depository,
any Securities which it may hold for the account of a Portfolio. The Bank (or
its authorized sub-custodians) shall hold all such Securities specifically
allocated to a Portfolio which are not held in the Book-Entry System or the
Depository in a separate account for such Portfolio in the name of such
Portfolio physically segregated at all times from those of any other person or
persons.
4.5 COLLECTION OF INCOME AND OTHER MATTERS AFFECTING
SECURITIES. Unless otherwise instructed to the contrary by Written Instructions,
the Bank shall with respect to all Securities held for a Portfolio in accordance
with this Agreement:
4.5.1 Collect all income due or payable and credit
such income promptly on the contractual settlement date, whether or not actually
received, to the account of the
5
<PAGE> 6
appropriate Portfolio, except for income from foreign issues (which shall be
collected as soon as reasonably practicable and shall be credited when actually
received). Income which has not been collected after reasonable effort, within a
time agreed upon between the parties, shall be repaid to the Bank pending final
collection at such date as may be mutually agreed upon by the Fund and the Bank;
4.5.2 Present for payment and collect the amount
payable upon all Securities which may mature or be called, redeemed or retired,
or otherwise become payable. The Bank shall make a good faith effort to inform
the Fund of any call, redemption or retirement date with respect to Securities
which are owned by a Portfolio and held by the Bank or its nominee.
Notwithstanding the foregoing, the Bank shall have no responsibility to the Fund
or a Portfolio for monitoring or ascertaining of any call, redemption or
retirement date with respect to securities which are owned by a Portfolio and
held by Bank or its nominee. Nor shall the Bank have any responsibility or
liability to the Fund or to a Portfolio for any loss by a Portfolio for any
missed payment or other default resulting therefrom with respect to any put
security owned by a Portfolio and held by the Bank or its nominee unless the
Bank received timely general notification, which shall not be less than 5
business days, from the Fund or the Portfolio specifying the time, place and
manner for the presentment of any such put security. The Bank shall not be
responsible and assumes no liability to the Fund or a Portfolio for the accuracy
or completeness of any notification the Bank shall provide to the Fund or a
Portfolio with respect to put securities;
4.5.3 Execute any necessary declarations or
certificates of ownership under the Federal income tax laws or the laws or
regulations of any other taxing authority now or hereafter in effect; and
4.5.4 Hold for the account of each Portfolio all
rights and Securities issued with respect to any Securities held by the Bank
hereunder for such Portfolio.
4.6 DELIVERY OF SECURITIES AND EVIDENCE OF AUTHORITY. Upon
receipt of Written Instructions, or Oral Instructions confirmed by Written
Instructions, the Bank shall:
4.6.1 Execute and deliver or cause to be executed and
delivered, to such persons as may be designated in such Written Instructions,
proxies, consents, authorizations, and any other instruments whereby the
authority of the Fund as owner of any Securities may be exercised;
4.6.2 Deliver or cause to be delivered any Securities
held for a Portfolio in exchange for other Securities or cash issued or paid in
connection with the liquidation, reorganization, refinancing, merger,
consolidation or recapitalization of any corporation, or the exercise of any
conversion privilege;
4.6.3 Deliver or cause to be delivered any Securities
held for a Portfolio to any protective committee, reorganization committee or
other person in connection with the
6
<PAGE> 7
reorganization, refinancing, merger, consolidation or recapitalization or sale
of assets of any corporation, and receive and hold under the terms of this
Agreement such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery;
4.6.4 Make or cause to be made such transfers or
exchanges of assets and take such steps as shall be stated in said Written
Instructions, to be for the purpose of effectuating any duly authorized plan of
liquidation, reorganization, merger, consolidation or recapitalization of the
Fund or a Portfolio;
4.6.5 Deliver Securities owned by any Portfolio upon
sale of such Securities for the account of such Portfolio pursuant to Section 5;
4.6.6 Deliver Securities owned by any Portfolio upon
the receipt of payment in connection with any repurchase agreement related to
such Securities entered into by such Portfolio;
4.6.7 Deliver Securities owned by any Portfolio to
the issuer thereof or its agent when such Securities are called, redeemed,
retired or otherwise become payable; provided, however, that in any such case
the cash or other consideration is be delivered to the Bank;
4.6.8 Deliver Securities owned by any Portfolio in
connection with any loans of Securities made by such Portfolio but only against
receipt of adequate collateral as agreed upon from time to time by the Bank and
the Fund, which may be in any form permitted under the 1940 Act or any
interpretations thereof issued by the Securities and Exchange Commission or its
staff;
4.6.9 Deliver Securities owned by any Portfolio for
delivery as security in connection with any borrowings by such Portfolio
requiring a pledge of Portfolio assets, but only against receipt of amounts
borrowed;
4.6.10 Deliver Securities owned by any Portfolio upon
receipt of instructions from such Portfolio for delivery to the Transfer Agent
or to the holders of Shares of such Portfolio in connection with distributions
in kind, as may be described from time to time in the Fund's Prospectus, in
satisfaction of requests by holders of Shares for repurchase or redemption; and
4.6.11 Deliver Securities owned by any Portfolio for
any other proper business purpose, but only upon receipt of, in addition to
Written Instructions, a certified copy of a resolution of the Board of Trustees
signed by an Authorized Person and certified by the Secretary or Assistant
Secretary of the Fund, specifying the Securities to be delivered, setting forth
the purpose of which such delivery is to be made, declaring such purpose to be a
proper
7
<PAGE> 8
business purpose, and naming the person or persons to whom delivery of such
Securities shall be made.
4.7 ENDORSEMENT AND COLLECTION OF CHECKS, ETC. The Bank is
hereby authorized to endorse and collect all checks, drafts or other orders for
the payment of money received by the Bank for the account of a Portfolio.
5. PURCHASE AND SALE OF INVESTMENTS OF THE PORTFOLIO
5.1 Promptly after each purchase of Securities for a
Portfolio, the Fund shall deliver to the Bank Written Instructions, or Oral
Instructions confirmed by Written Instructions, specifying with respect to each
purchase: (1) the name of the Portfolio to which such Securities are to be
specifically allocated; (2) the name of the issuer and the title of the
Securities; (3) the number of shares or the principal amount purchased and
accrued interest, if any; (4) the date of purchase and settlement; (5) the
purchase price per unit; (6) the total amount payable upon such purchase; (7)
the name of the person from whom or the broker through whom the purchase was
made, if any; (8) whether or not such purchase is to be settled through the
Book-Entry System or the Depository; and (9) whether the Securities purchased
are to be deposited in the Book-Entry System or the Depository. The Bank shall
receive all Securities purchased by or for a Portfolio and upon receipt of such
Securities shall pay out of the moneys held for the account of such Portfolio
the total amount payable upon such purchase, provided that the same conforms to
the total amount payable as set forth in such Written Instructions, or Oral
Instructions confirmed by Written Instructions.
5.2 Promptly after each sale of Securities of a Portfolio, the
Fund shall deliver to the Bank Written Instructions, or Oral Instructions
confirmed by Written Instructions, specifying with respect to such sale: (1) the
name of the Portfolio to which the Securities were sold were specifically
allocated; (2) the name of the issuer and the title of the Securities; (3) the
number of shares or principal amount sold, and accrued interest, if any; (4) the
date of sale; (5) the sale price per unit; (6) the total amount payable to the
Portfolio upon such sale; (7) the name of the broker through whom or the person
to whom the sale was made; and (8) whether or not such sale is to be settled
through the Book-Entry System or the Depository. The Bank shall deliver or cause
to be delivered the Securities to the broker or other person designated by the
Fund upon receipt of the total amount payable to such Portfolio upon such sale,
provided that the same conforms to the total amount payable to such Portfolio as
set forth in such Written Instructions, or Oral Instructions confirmed by
Written Instructions. Subject to the foregoing, the Bank may accept payment in
such form as shall be satisfactory to it, and may deliver Securities and arrange
for payment in accordance with the customs prevailing among dealers in
Securities.
6. PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
6.1 The Fund shall furnish to the Bank the resolution of the
Board of Trustees of the Fund certified by the Secretary or Assistant Secretary
(i) authorizing the declaration of
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<PAGE> 9
dividends or distribution with respect to a Portfolio on a specified periodic
basis and authorizing the Bank to rely on Written Instructions specifying the
date of the declaration of such dividend or distribution, the date of payment
thereof, the record date as of which shareholders entitled to payment shall be
determined, the amount payable per Share to the shareholders of record as of the
record date and the total amount payable per share to the shareholders of record
as of the record date and the total amount payable to the Transfer Agent on the
payment date, or (ii) setting forth the date of declaration of any dividend or
distribution by a Portfolio, the date of payment thereof, the record date as of
which shareholders entitled to payment shall be determined, the amount payable
per share to the shareholders of record as of the record date and the total
amount payable to the Transfer Agent on the payment date.
6.2 Upon the payment date specified in such resolution or
Written Instructions the Bank shall pay out the moneys specifically allocated to
and held for the account of the appropriate Portfolio the total amount payable
to the Transfer Agent of the Fund.
7. SALE AND REDEMPTION OF SHARES OF A PORTFOLIO
7.1 Whenever the Fund shall sell or redeem any Shares of a
Portfolio, the Fund shall deliver or cause to be delivered to the Bank Written
Instructions, or Oral Instructions confirmed by Written Instructions, duly
specifying:
7.1.1 The name of the Portfolio whose Shares were
sold or redeemed;
7.1.2 The number of Shares sold or redeemed, trade
date, and price; and
7.1.3 The amount of money to be received or paid by
the Bank for the sale or redemption of such Shares.
7.2 Upon receipt of such money from the Transfer Agent, the
Bank shall credit such money to the separate account of the Portfolio.
7.3 Upon issuance of any Shares of a Portfolio in accordance
with the foregoing provisions of this Section 7, the Bank shall pay, out of the
moneys specifically allocated and held for the account of such Portfolio, all
original issue or other taxes required to be paid in connection with such
issuance upon the receipt of Written Instructions, or Oral Instructions
confirmed by Written Instructions, specifying the amount to be paid.
7.4 Upon receipt from the Transfer Agent of advice setting
forth the number of Shares of a Portfolio received by the Transfer Agent for
redemption and that such Shares are valid and in good form for redemption, the
Bank shall make payment to the Transfer Agent out of the moneys specifically
allocated to and held for the account of the Portfolio.
9
<PAGE> 10
8. INDEBTEDNESS
8.1 The Fund will cause to be delivered to the Bank, by any
bank (excluding the Bank) from which the Fund borrows money for temporary
administrative or emergency purposes using Securities as collateral for such
borrowings, a notice or undertaking in the form currently employed by any such
bank setting forth the amount which such bank will loan to the Fund against
delivery of a stated amount of collateral. The Fund shall promptly deliver to
the Bank Written Instructions, or Oral Instructions confirmed by Written
Instructions, stating with respect to each such borrowing: (1) the name of the
Portfolio for which the borrowing is to be made; (2) the name of the bank; (3)
the amount and terms of the borrowing, which may be set forth by incorporating
by reference an attached promissory note, duly endorsed by the Fund, or other
loan agreement; (4) the time and date, if known, on which the loan is to be
entered into (the "borrowing date"); (5) the date on which the loan becomes due
and payable; (6) the total amount payable to the Fund for the separate account
of the Portfolio on the borrowing date; (7) the market value of Securities to be
delivered as collateral for such loan, including the name of the issuer, the
title and the number of shares or the principal amount of any particular
Securities; (8) whether the Bank is to deliver such collateral through the
Book-Entry System or the Depository; and (9) a statement that such loan is in
conformance with the 1940 Act and the Fund's Prospectus.
8.2 Upon receipt of the Written Instructions, or Oral
Instructions confirmed by Written Instructions, referred to above, the Bank
shall deliver on the borrowing date the specified collateral and the executed
promissory note, if any, against delivery by the lending bank of the total
amount of the loan payable, provided that the same conforms to the total amount
payable as set forth in the Written Instructions, or Oral Instructions confirmed
by Written Instructions. The Bank may at the option of the lending bank keep
such collateral in its possession, but such collateral shall be subject to all
rights therein given the lending bank by virtue of any promissory note or loan
agreement. The Bank shall deliver as additional collateral in the manner
directed by the Fund from time to time such Securities specifically allocated to
such Portfolio as may be specified in Written Instructions, or Oral Instructions
confirmed by Written Instructions, to collateralize further any transaction
described in this Section 8. The Fund shall cause all Securities released from
collateral status to be returned directly to the Bank, and the Bank shall
receive from time to time such return of collateral as may be tendered to it. In
the event that the Fund fails to specify in Written Instructions, or Oral
Instructions confirmed by Written Instructions, all of the information required
by this Section 8, the Bank shall not be under any obligation to deliver any
Securities. Collateral returned to the Bank shall be held hereunder as it was
prior to being used as collateral.
9. PERSONS HAVING ACCESS TO ASSETS OF THE FUND
9.1 No Trustee, officer, employee or agent of the Fund, and no
officer, director, employee or agent of the Fund's investment advisor, shall
have physical access to the assets of any Portfolio held by the Bank or be
authorized or permitted to withdraw any investments of any Portfolio, nor shall
the Bank deliver any assets of any Portfolio to any such
10
<PAGE> 11
person. No officer, director, employee or agent of the Bank who holds any
similar position with the Fund or the Fund's investment advisor shall have
access to the assets of the Fund.
9.2 The individual employees of the Bank initially duly
authorized by the Board of Directors of the Bank to have access to the assets of
the Fund are listed on Schedule C which is attached and made a part of this
Agreement by this reference. The Bank shall advise the Fund of any change in the
individuals authorized to have access to the assets of the Fund by written
notice to the Fund.
9.3 Nothing in this Section 9 shall prohibit any officer,
employee or agent of the Fund, or any officer, director, employee or agent of
the Fund's investment advisor, from giving Written Instructions, or Oral
Instructions confirmed by Written Instructions, to the Bank so long as it does
not result in delivery of or access to assets of any Portfolio prohibited by
this Section 9.
10. CONCERNING THE BANK
10.1 STANDARD OF CONDUCT. The Bank shall not be responsible
for the title, validity or genuineness of any property or evidence of title
thereto received by it or delivered by it pursuant to this Agreement and
reasonably believed by it to be valid or genuine and shall be held harmless in
acting upon proper instructions, resolutions, any notice, request, consent,
certificate or other instrument reasonably believed it to be genuine and to be
signed by the proper party or parties and shall be entitled to receive as
conclusive proof of any fact or matter required to be ascertained by it
hereunder, a certificate signed by the President, a Vice President, the
Treasurer, the Secretary or an Assistant Secretary of the Fund. The Bank may
receive and accept a resolution as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any determination or of
any action by the Board of Trustees pursuant to the Declaration of Trust as
described in such resolution, and such resolution may be considered as in full
force and effect until receipt by the Bank of written notice from the Secretary
or an Assistant Secretary of the Fund to the contrary.
The Bank shall be entitled to rely on and may act upon advice
of counsel (who may be counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice. Provided, however, that if such reliance involves a potential material
loss to the Fund, the Bank shall advise the Fund in advance and in writing of
any such actions to be taken in accordance with such advice of counsel to the
Bank.
The Bank shall be held to the exercise of reasonable care in
carrying out the provisions of this Agreement but shall be liable only for its
own negligent or bad faith acts or willful misconduct or failures to act by the
Bank and its agents or employees. The Bank shall have no responsibility for
reviewing or questioning the acts or records of any prior custodian. The Fund
shall indemnify the Bank and hold it harmless from and against all losses,
liabilities, demands, claims, actions, expenses, attorneys' fees, and taxes with
respect to each Portfolio which the Bank may suffer or incur on account of being
Custodian hereunder except to the
11
<PAGE> 12
extent that such losses, liabilities, demands, claims, actions, expenses,
attorneys fees or taxes arise from the Bank's own negligence or bad faith or
willful misconduct or failure to act.
If the Fund requires the Bank to take any action with respect
to Securities of a Portfolio, which action involves the payment of money or
which action may, in the opinion of the Bank, result in the Bank or its nominee
assigned to such Portfolio being liable for the payment of money or incurring
liability of some other form, the Fund, as a prerequisite to requiring the Bank
to take such action, shall, prior to the Bank taking such action, provide
indemnity in writing to the Bank in an amount and form satisfactory to it.
The Bank shall not be liable for any loss of data or any delay
in its performance under this Agreement to the extent such loss or delay is due
to causes beyond its control, including but not limited to: acts of God,
interruption in, loss of or malfunction in power, significant computer hardware
or systems software or telephone communication service; act of civil or military
authority, sabotage; war or civil commotion; fire; explosion; or strike (except
that the Bank shall at all time be required to maintain minimum critical
activities). The Bank shall use its best efforts to minimize any such loss or
delay by all practical steps and to replace any lost data promptly. The Bank
agrees not to discriminate against the Fund in favor of any other customer of
the Bank in making computer time and its personnel available to input and
process transactions hereunder when such a loss of data or delay occurs.
10.2 LIMIT OF DUTIES. Without limiting the generality of the
foregoing, the Bank shall be under no duty or obligation to inquire into and
shall not be liable for:
10.2.1 The validity of the issue of any Securities
purchased by any Portfolio, the legality of the purchase thereof, the
permissibility of the purchase thereof under the Fund's governing documents, or
the propriety of the amount paid therefor;
10.2.2 The legality of the sale of any Securities by
any Portfolio, the permissibility of such sale under the Fund's governing
documents, or the propriety of the amount for which the same are sold;
10.2.3 The legality of the issue or the sale of any
Shares of any Portfolio, or the sufficiency of the amount to be received
therefor;
10.2.4 The legality of the redemption of any Shares
of any Portfolio, or the propriety of the amount to be paid therefor;
10.2.5 The legality of the declaration or payment of
any dividend or other distribution of any Portfolio;
10.2.6 The legality of any borrowing for temporary or
emergency administrative purposes.
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<PAGE> 13
10.3 NO LIABILITY UNTIL RECEIPT. The Bank shall not be liable
for, or considered to be the custodian of, any money, whether or not represented
by any check, draft, or other instrument for the payment of money, received by
it on behalf of any Portfolio until the Bank actually receives and collects such
money directly or by the final crediting of the account representing the Fund's
interest in the Book-Entry System or the Depository.
10.4 COLLECTION WHERE PAYMENT REFUSED. The Bank shall not be
under any duty or obligation to take action to effect collection of any amount,
if the Securities upon which such amount is payable are in default, or if
payment is refused after due demand or presentation, unless and until (a) it
shall be directed to take such action by Written Instructions, or Oral
Instructions confirmed by Written Instructions, and (b) it shall be assured to
its satisfaction of reimbursement of its costs and expenses in connection with
any such action.
10.5 APPOINTMENT OF AGENTS AND SUB-CUSTODIANS. The Bank may
appoint one or more banking institutions, including but not limited to banking
institutions located in foreign countries, to act as depository or depositories
or as sub-custodian or as sub-custodians of Securities and moneys at any time
owned by any Portfolio, upon terms and conditions specified in Written
Instructions, or Oral Instructions confirmed by Written Instructions. As such
depository or sub-custodian shall be approved in advance by the Board of
Trustees of the Trust. The Custodians shall remain primarily responsible for the
Securities of the Fund held by any one depository or sub-custodian in the same
manner as if held directly by the Custodian.
10.6 NO DUTY TO ASCERTAIN: AUTHORITY. The Bank shall not be
under any duty or obligation to ascertain whether any Securities at any time
delivered to or held by it for the Fund and specifically allocated to a
Portfolio are such as may properly be held by the Portfolio and specifically
allocated to such Portfolio under the provisions of the Declaration of Trust and
the Fund's Prospectus.
10.7 RELIANCE ON CERTIFICATES AND INSTRUCTIONS. The Bank shall
be entitled to rely upon any Written Instructions or Oral Instructions actually
received by the Bank pursuant to the applicable Sections of this Agreement and
reasonably believed by the Bank to be genuine and to be given by an Authorized
Person. The Fund agrees to forward to the Bank Written Instructions from an
Authorized Person confirming such Oral Instructions in such manner so that such
Written Instructions are received by the Bank, whether by hand delivery, telex,
or otherwise, by the close of business on the same day that such Oral
Instructions are given to the Bank. The Fund agrees that the fact that such
confirming instructions are not received by the Bank shall in no way affect the
validity for the transactions or enforceability of the transactions hereby
authorized by the Fund. The Fund agrees that the Bank shall incur no liability
to the Fund in acting upon Oral Instructions given to the Bank hereunder
concerning such transactions provided such instructions reasonably appear to
have been received from a duly Authorized Person.
10.8 MAINTENANCE AND INSPECTION OF BOOKS AND RECORDS. The Bank
will create, maintain, preserve for the specified periods and make available
upon request, all records
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<PAGE> 14
relating to its activities and obligations under this Agreement in such a manner
as will meet the obligations of the Fund under the Investment Company Act of
1940, including records required by Rule 31a-1 of the General Rules and
Regulations under the 1940 Act and under other applicable federal and state tax
laws and any other law or administrative rules or procedures which may be
applicable to the Fund. All such records shall be the property of the Fund. The
books and records of the Bank regarding the Fund shall be open to inspection and
audit at reasonable times by officers and auditors employed by the Fund and by
employees of the Securities and Exchange Commission. The Bank shall provide the
Fund, upon request, with any report obtained by the Bank on the system of
internal accounting control of the Book-Entry System or the Depository and with
such reports on its own systems of internal accounting control (including
reports by the Bank's independent accountants for distribution generally to
customers of the Bank) as the Fund may reasonably request from time to time.
10.9 Neither the Bank nor any nominee of the Bank shall vote
any of the securities held hereunder by or for the account of the Fund, except
in accordance with Written Instructions, or Oral Instructions confirmed by
Written Instructions, from the Fund. The Bank shall promptly deliver, or cause
to be executed and delivered, to the Fund all notices, proxies and proxy
soliciting materials with relation to such Securities (if registered otherwise
than in the name of the Fund), but without indicating the manner in which such
proxies are to be voted. The Bank shall also promptly deliver to the Fund all
other communications it may receive with respect to the Securities held by it
hereunder.
The Bank shall also transmit promptly to the Fund all written
information (including, without limitation, pendency of calls and maturities of
securities and expirations of rights in connection therewith and notices of
exercise of call and put options written by the Fund and the maturity of futures
contracts purchased or sold by the Fund) received by the Bank from issuers of
the securities being held for the Fund. With respect to capital changes or
reorganizations the Bank shall transmit promptly to the Fund or its advisors all
information received from issuers or their agents which requires an action by
the Fund or its advisor. If the Fund desires to take action with respect to any
tender offer, exchange offer or any other similar transactions, the Fund shall
notify the Bank at least three business days prior to the date on which the Bank
is to take such action.
11. TERM AND TERMINATION
11.1 This Agreement shall become effective on the date first
set forth above (the "Effective Date") and shall continue in effect thereafter
as the parties may mutually agree.
11.2 Either of the parties hereto may terminate this Agreement
with respect to any Portfolio by giving to the other party a notice in writing
specifying the date of such termination, which shall be not less than 90 days
after the date of receipt of such notice. In the event such notice is given by
the Fund, it shall designate a successor custodian or custodians, which shall be
a person qualified to so act under the 1940 Act. In the event such notice is
given by the Bank, the Fund shall, on or before the termination date, deliver to
the Bank, Written
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<PAGE> 15
Instructions, or Oral Instructions confirmed by Written Instructions,
designating a successor Custodian or Custodians. In the absence of such
designation by the Fund, the Bank may designate a successor Custodian, which
shall be a person qualified to so act under the 1940 Act. If the Fund fails to
designate a successor Custodian for any Portfolio, the Fund shall upon the date
specified in the notice of termination of this Agreement and upon the delivery
by the Bank of all Securities (other than Securities held in the Book-Entry
Systems which cannot be delivered to the Fund) and moneys then owned by such
Portfolio, be deemed to be its own Custodian and the Bank shall thereby be
relieved of all duties and responsibilities pursuant to this Agreement, other
than the duty with respect to Securities held in the Book-Entry system which
cannot be delivered to the Fund.
11.3 Upon the date set forth in such notice under Section ,
this Agreement shall terminate to the extent specified in such notice, and the
Bank shall upon receipt of a notice of acceptance by the successor Custodian on
that date deliver directly to the successor Custodian all Securities and moneys
then held by the Bank and specifically allocated to the Portfolio specified,
after deducting all fees, expenses and other amounts mutually agreed to prior to
termination by the Bank and the Trust for the payment or reimbursement of which
it shall then be entitled with respect to such Portfolio.
12. ADDITIONAL SERVICES BY BANK
12.1 If allowed by the Prospectus, the Fund's investment
adviser may direct that the assets of any Portfolio be invested in deposits in
the Bank or its affiliates bearing a reasonable rate of interest.
12.2 OTHER BANK SERVICES. Any Authorized Person may direct the
Bank to utilize other services or facilities provided by BanCal Tri-State Corp.
("BanCal"), its subsidiaries or affiliates including the Bank. Such services
shall include, but not be limited to (1) the placing of orders for the purchase,
sale exchange, investment or reinvestment of securities through any brokerage
service conducted by, or (2) the purchase of units of any investment company
managed or advised by the Bank, BanCal, or their subsidiaries or affiliates
and/or for which the Bank, BanCal, or their subsidiaries or affiliates act as
custodian or provide investment advice or other services for a fee, including,
without limitation, the HighMark Group of Funds. The Fund hereby acknowledges
that the Bank, BanCal or their subsidiaries or affiliates will receive fees for
such services in addition to the fees payable under this Agreement. Fee
Schedules for such additional directed services shall be delivered to the
Authorized Person before provision of such services.
13. MISCELLANEOUS
13.1 Annexed hereto as Schedule C is a certification signed by
two of the present officers of the Fund setting forth the names and the
signatures of the present Authorized Persons. The Fund agrees to furnish to the
Bank a new certification in similar form in the event that any such present
Authorized Person ceases to be such an Authorized Person or in the event
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<PAGE> 16
that other or additional Authorized Persons are elected or appointed. Until such
new certification shall be received, the Bank shall be fully protected in acting
under the provisions of this Agreement upon signatures of the present Authorized
Persons as set forth in the last delivered certification.
13.2 Annexed hereto as Appendix B is a certification signed by
two of the present officers of the Fund setting forth the names and the
signatures of the present officers of the Fund. The Fund agrees to furnish to
the Bank a new certification in similar form in the event any such present
officer ceases to be an officer of the Fund or in the event that other or
additional officers are elected or appointed. Until such new certification shall
be received, the Bank shall be fully protected in acting under the provisions of
this Agreement upon the signature of the officers set forth in the last
delivered certification.
13.3 Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Bank, shall be sufficiently given
if addressed to the Bank and mailed or delivered to it at its offices at:
The Bank of California, N.A.
Mutual Fund Services Dept., Fund Group
475 Sansome Street, 11th Floor
San Francisco, California 94111
or such other place as the Bank may from time to time designate in writing.
13.4 Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Fund, shall be sufficiently given if
addressed to the Fund and mailed or delivered to it at its offices at:
The Parkstone Advantage Fund
700 Harrison Street
Topeka, Kansas 66636
Attn: Amy J. Lee, Vice President
or at such other place as the Trust may from time to time designate in writing.
13.5 This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the same formality as this
Agreement, and as may be permitted or required by the 1940 Act.
13.6 This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Fund without the written
consent of the Bank, or by the Bank without the written consent of the Fund
authorized or approved by a resolution of the Board of Trustees of the Fund, and
any attempted assignment without such written consent shall be null and void.
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<PAGE> 17
13.7 This Agreement shall be construed in accordance with the laws of
the State of California (with regard to principles of conflicts of law).
13.8 It is expressly agreed to that the obligations of the Fund
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents, or employees of the Fund personally, but bind only the
property of the Fund, as provided in the Declaration of Trust of the Fund. The
execution and delivery of this Agreement have been authorized by the Trustees of
the Fund and signed by an authorized officer of the Fund, acting as such, and
neither such authorization by such Trustees nor such execution and delivery by
such officer shall be deemed to have been made by any of them individually or to
impose any liability on any of the them personally, but shall bind only the Fund
property of the Fund as provided in its Declaration of Trust.
13.9 The captions of the Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
13.10 This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
13.11 The Bank represents and warrants to the Fund that it is a
national banking association duly organized and existing and in good standing
under the laws of the United States; it is duly qualified to carry on its
business in the State of California; it is empowered under applicable laws and
by its charter and by-laws to enter into and perform this Agreement; all
requisite corporate proceedings have been taken to authorize it to enter into
and perform this Agreement; all requisite corporate proceedings have been taken
to authorize it to enter into and perform this Agreement; and it is duly
authorized to act as a custodian under the 1940 Act.
The Fund represents and warrants to the Bank that it is a business
trust duly organized and existing and in good standing under the laws of the
State of Massachusetts; it is empowered under applicable laws and by its
Declaration of Trust and Code of Regulations to enter into and perform this
Agreement; all proceedings required by said Declaration of Trust and Code of
Regulations have been taken to authorize it to enter into and perform this
Agreement; and it is an open-end, diversified investment company registered
under the Investment Company Act of 1940.
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<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunder duly authorized as of the day
and year first above written.
THE PARKSTONE ADVANTAGE FUND
By: /s/ James R. Schmank
---------------------------------
Its: Secretary/Treasurer
---------------------------------
Date: 8-16-93
-------------------------------
THE BANK OF CALIFORNIA, N.A.
By: /s/ Mary Fowler
---------------------------------
Mary Fowler, Vice President
Date: 8/16/93
-------------------------------
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SCHEDULE A - PORTFOLIOS
The Prime Obligations Fund
The Equity Fund
The Small Capitalization Fund
The Bond Fund
THE PARKSTONE ADVANTAGE FUND
By: /s/ James R. Schmank
---------------------------------
Its: Secretary/Treasurer
---------------------------------
Date: 8-16-93
-------------------------------
THE BANK OF CALIFORNIA, N.A.
By: /s/ Mary Fowler
---------------------------------
Mary Fowler, Vice President
Date: 8/16/93
-------------------------------
<PAGE> 20
SCHEDULE B
MUTUAL FUND SERVICES
SCHEDULE OF FEES
CUSTODY
Each Portfolio of the Fund will pay an annual fee based on the average
daily net assets of that Portfolio as calculated and provided to Bank of
California by Security Management Company. These annual fee schedules are:
0.000135 of the net asset value of
the funds listed on Schedule A
* To avoid duplicative fees, the net assets will be reduced by the
value of any Short Term Government shares held in the Portfolio.
THE PARKSTONE ADVANTAGE FUND
By: /s/ James R. Schmank
---------------------------------
Its: Secretary/Treasurer
---------------------------------
Date: 8-16-93
-------------------------------
THE BANK OF CALIFORNIA, N.A.
By: /s/ Mary Fowler
---------------------------------
Mary Fowler, Vice President
Date: 8/16/93
-------------------------------
<PAGE> 21
SCHEDULE C
AUTHORIZED PERSONS
Part I - Access Persons of Bank
Mark Peterson
Mary Fowler
Moon Shil Lee
Charles Casillas
Cari Umekubo
Part II - Authorized Persons of the Fund
Any of the officers named below, and
Larry J. Bruning Richard A. Wolf Todd C. Bell
James R. Schmank Mark R. Kummerer Steve Wisneski
Amy J. Lee Laura A. Willey Nancy Lacko
Brenda Luthi Gregory Prose Richard L. Sutterfield
Mary McGinnis Bruce Bartlett Sheila Hickey
Tammi Brownfield Roger H. Stamper Mark Tourangeau
Part III - Officers
President: Larry J. Bruning
Secretary and Treasurer: James R. Schmank
Vice President and Assistant Secretary: Amy J. Lee
Vice President and Assistant Treasurer: Brenda Luthi
THE PARKSTONE ADVANTAGE FUND
By: /s/ James R. Schmank
---------------------------------
Title: Secretary/Treasurer
-------------------------------
Date: 8-16-93
-------------------------------
THE BANK OF CALIFORNIA, N.A.
By: /s/ Mary Fowler
---------------------------------
Mary Fowler, Vice President
Date: 8/16/93
-------------------------------
<PAGE> 22
ADDENDUM
This is an addendum to that contract dated August 16, 1993 between The
Bank of California, N.A., and The Parkstone Advantage Fund ("Fund") (a copy of
which is attached hereto) for the purposes of addressing securities lending
activities.
1. If any Portfolio is permitted as disclosed in its current Prospectus
or Statement of Additional Information to lend Securities specifically allocated
to that Portfolio, within 24 hours after each loan of Securities, the Fund shall
deliver to the Bank Written Instructions, or Oral Instructions confirmed by
Written Instructions, specifying with respect to each such loan; (1) the
Portfolio to which the loaned Securities are specifically allocated; (2) the
name of the issuer and title of the Securities; (3) the number of shares or the
principal amount loaned; (4) the date of loan and delivery; (5) the total amount
to be delivered to the Bank, and specifically allocated to such Portfolio
against the loan of the Securities, including the amount of cash collateral and
the premium, if any, separately identified; (6) the name of the broker-dealer or
financial institution to which the loan was made; and (7) whether the Securities
loaned are to be delivered through the Book-Entry System or the Depository.
2. Promptly after each termination of a loan of Securities specifically
allocated to a Portfolio, the Fund shall deliver to the Bank Written
Instructions, or Oral Instructions confirmed by Written Instructions, specifying
with respect to each such loan termination and return of Securities: (1) the
name of the Portfolio to which such loaned Securities are specifically
allocated; (2) the name of the issuer and the title of the Securities to be
returned; (3) the number of shares or the principal amount to be returned; (4)
the date of termination; (5) a specific identification of the Securities held as
collateral on the total amount to be delivered by the Bank including the total
amount to be delivered by the Bank including the cash collateral; (6) the name
of the broker-dealer or financial institution from which the Securities will be
returned; (7) whether such return is to be effected through the Book Entry
System or the Depository; and (8) the name of the broker-dealer or financial
institution to which the cash or Securities collateral is to be returned. The
Bank shall receive all Securities returned from the broker-dealer or financial
institution to which such Securities were loaned and upon receipt thereof shall
pay, out of the money specifically allocated to such Portfolio, the total amount
payable upon such return of Securities as set forth in the Written Instruction.
Securities returned to the Bank shall be held as they were prior to such loan.
THE PARKSTONE ADVANTAGE FUND
By: /s/ James R. Schmank
---------------------------------
Title: Secretary/Treasurer
------------------------------
Date: 8-16-93
--------------------------------
THE BANK OF CALIFORNIA, N.A.
By: /s/ Mary Fowler
---------------------------------
Mary Fowler, Vice President
Date: 8/16/93
--------------------------------
<PAGE> 1
EXHIBIT 8(b)
MITSUBISHI GLOBAL CUSTODY
CUSTODIAN AGREEMENT
(FOREIGN AND DOMESTIC SECURITIES)
THIS CUSTODIAN AGREEMENT is made by and between THE PARKSTONE
ADVANTAGE FUND ("Principal") and THE BANK OF CALIFORNIA, NATIONAL ASSOCIATION
("Custodian"). Principal desires that Custodian hold and administer on behalf
of Principal certain Securities (as herein defined). Custodian is willing to do
so on the terms and conditions set forth in this Agreement. Accordingly,
Principal and Custodian agree as follows:
1. DEFINITIONS. Certain terms used in this Agreement are defined as
follows:
(a) "Account" means, collectively, each custodianship account
maintained by Custodian pursuant to Paragraph 3 of this Agreement.
(b) "Eligible Foreign Securities Depository" ("Depository")
shall mean a securities depository or clearing agency incorporated or
organized under the laws of a country other than the United States
which operates (i) the central system for handling securities or
equivalent book-entries in that country, or (ii) a transnational system
for the central handling of securities or equivalent book-entries.
(c) "Investment Manager" means an investment advisor or
manager identified by Principal in a written notice to Custodian as
having the authority to direct Custodian regarding the management,
acquisition, or disposition of Securities.
(d) "Securities" means domestic or foreign securities or both
within the meaning of Section 2(a)(36) of the Investment Company Act of
1940 ("1940 Act") and regulations issued by the U.S. Securities and
Exchange Commission ("SEC") under Section 17(f) of the 1940 Act, 17
C.F.R. 270.17f-5(c)(1), as amended, which are held by Custodian in the
Account, and shall include cash of any currency or other property of
Principal and all income and proceeds of sale of such securities or
other property of Principal.
(e) "Eligible Foreign Custodian", ("Sub-Custodian") shall mean
(i) a banking institution or trust company incorporated or organized
under the laws of a country other than the United States that is
regulated as such by that country's government or an agency thereof and
that has shareholders' equity in excess of $200 million in U.S.
currency (or a foreign currency equivalent thereof), (ii) a majority
owned direct or indirect subsidiary of a qualified U.S. bank or bank
holding company that is incorporated or organized under the laws of a
country other than the United States and that has shareholders' equity
in excess of $100 million in U.S. currency (or a foreign currency
equivalent thereof), (iii) a banking institution or trust company
incorporated or organized under the laws of a country other than the
United States or a majority owned direct or
<PAGE> 2
indirect subsidiary of a qualified U.S. bank as defined in Rule 17f-5
or bank holding company that is incorporated or organized under the
laws of a country other than the United States which has such other
qualifications as shall be specified in Instructions and approved by
the Bank; or (iv) any other entity that shall have been so qualified by
exemptive order, rule or other appropriate action of the SEC. Custodian
shall evaluate and determine at least annually the continued
eligibility of each Sub-Custodian as described in Paragraph 5.(d) of
this Agreement.
2. REPRESENTATIONS.
(a) Principal represents that with respect to any Account
established by Principal to hold Securities, Principal is authorized to
enter into this Agreement and to retain Custodian on the terms and
conditions and for the purposes described herein.
(b) Custodian represents that (i) it is organized under the
laws of the United States and has its principal place of business in
the United States, (ii) it is a bank within the meaning of Section
202(a)(2) of the Investment Advisers Act of 1940 and Section 2(a)(5) of
the Investment Company Act of 1940, as amended, and (iii) it has equity
capital in excess of $1 million.
3. ESTABLISHMENT OF ACCOUNTS. Principal hereby establishes with
Custodian, and may in the future establish, one or more Accounts in Principal's
name. The Account shall consist of Securities delivered to and receipted for by
Custodian or by any Sub-Custodian. Custodian, in its sole discretion, may
reasonably refuse to accept any property now or hereafter delivered to it for
inclusion in the Account. Principal shall be notified promptly of such refusal
and any such property shall be immediately returned to Principal.
4. CUSTODY. Subject to the terms of this Agreement, Custodian shall be
responsible for the safekeeping and custody of the Securities. Custodian may (i)
retain possession of all or any portion of the Securities in a foreign branch or
other office of Custodian, or (ii) retain, in accordance with Paragraph 5 of
this Agreement, one or more Sub-Custodians to hold all or any portion of the
Securities. Custodian and any Sub-Custodian may, in accordance with Paragraph 5
of this Agreement, deposit definitive or book-entry Securities with one or more
Depositories.
(a) If Custodian retains possession of Securities, Custodian
shall ensure the Securities are at all times properly identified as
being held for the appropriate Account. Custodian shall segregate
physically the Securities from other securities or property held by
Custodian. Custodian shall not be required to segregate physically the
Securities from other securities or property held by Custodian for
third parties as Custodian, but Custodian shall maintain adequate
records showing the true ownership of the Securities.
2
<PAGE> 3
(b) If Custodian deposits Securities with a Sub-Custodian,
Custodian shall maintain adequate records showing the identity and
location of the Sub-Custodian, the Securities held by the
Sub-Custodian, and each Account to which such Securities belong.
(c) If Custodian or any Sub-Custodian deposits Securities with
a Depository, Custodian shall maintain, or shall cause the
Sub-Custodian to maintain, adequate records showing the identity and
location of the Depository, the Securities held by the Depository, and
each Account to which such Securities belong.
(d) If Principal directs Custodian to deliver certificates or
other physical evidence of ownership of Securities to any broker or
other party, other than a Sub-Custodian or Depository employed by
Custodian for purposes of maintaining the Account, Custodian's sole
responsibility shall be to exercise care and diligence in effecting the
delivery as instructed by Principal. Upon completion of the delivery,
Custodian shall be discharged completely of any further liability or
responsibility with respect to the safekeeping and custody of
Securities so delivered.
(e) Custodian shall ensure that (i) the Securities will not be
subject to any right, charge, security interest, lien, or claim of any
kind in favor of Custodian or any Sub-Custodian or Depositor, except
for Custodian's expenses relating to the Securities' safe custody or
administration, and (ii) the beneficial ownership of the Securities
will be freely transferable without the payment of money or value other
than for safe custody or administration.
(f) Principal or its authorized representatives shall have
reasonable access to inspect books and records maintained by Custodian
or any Sub-Custodian or Depository holding Securities hereunder to
verify the accuracy of such books and records. Custodian shall notify
Principal promptly of any applicable law or regulation in any country
where Securities are held that would restrict such access or
inspection.
5. SUB-CUSTODIANS AND DEPOSITORIES. With Principal's advance written
approval, as provided in Paragraph 5.(c) of this Agreement, Custodian may from
time to time retain one or more Sub-Custodians and Depositories to hold
Securities hereunder.
(a) Custodian shall exercise reasonable care in the selection
of Sub-Custodians and Depositories. In making its selection, Custodian
shall consider (i) the Sub-Custodian's or Depository's financial
strength, general reputation and standing in the country in which it is
located, its ability to provide efficiently the custodial services
required, and the relative cost of such services, (ii) whether the
Sub-Custodian or Depository would provide a level of safeguards for
safekeeping and custody of Securities not materially different from
those prevailing in the U.S., (iii) whether the Sub-Custodian or
Depository has branch offices in the U.S. in order to facilitate
jurisdiction over and enforcement of judgments against it, and (iv) in
the case of a Depository, the number of its participants and its
operating history.
3
<PAGE> 4
(b) Custodian shall give written notice to Principal of its
intention to deposit Securities with a Sub-Custodian or (directly or
through a Sub-Custodian) with a Depository. The notice shall identify
the proposed Sub-Custodian or Depository and shall include reasonably
available information relied on by Custodian in making the selection.
(c) Within 30 days of its receipt of a notice from Custodian
pursuant to Paragraph 5.(b) of this Agreement regarding Custodian's
proposed selection of one or more Sub-Custodians or Depositories,
Principal shall give written notice to Custodian of Principal's
approval or disapproval of the proposed selection. If Principal has
not responded within 30 days of receipt of Custodian's request for
approval of a Sub-Custody, Principal will be deemed to have approved
such Sub-Custody. Principal hereby approves Custodian's retention of
those Sub-Custodians and Depositories, if any, which are identified in
Appendix A of this Agreement.
(d) Custodian shall evaluate and determine at least annually
the continued eligibility of each Sub-Custodian and Depository approved
by Principal to act as such hereunder. In discharging this
responsibility, Custodian shall (i) monitor continuously the day to day
services and reports provided by each Sub-Custodian or Depository, (ii)
at least annually, obtain and review the annual financial report
published by such Sub-Custodian or Depository and any reports on such
Sub-Custodian or Depository prepared by a reputable independent
analyst, (iii) at least triennially, physically inspect the operations
of such Sub-Custodian or Depository and (iv) Custodian shall provide
Principal with a report of its annual review of each Sub-Custodian and
Depository.
(e) If Custodian determines that any Sub-Custodian or
Depository no longer satisfies the applicable requirements described in
Paragraph 1.(b) (in the case of a Depository) or Paragraph 1.(e) (in
the case of a Sub-Custodian) of this Agreement or is otherwise
no longer capable or qualified to perform the functions contemplated
herein, Custodian shall promptly give written notice thereof to
Principal. The notice shall, in addition, either (i) indicate
Custodian's intention to transfer Securities held by the removed
Sub-Custodian or Depository to another Sub-Custodian or Depository
previously approved by Principal, or (ii) include a notice pursuant to
Paragraph 5.(b) of this Agreement of Custodian's intention to deposit
Securities with a new Sub-Custodian or Depository.
6. REGISTRATION. Subject to any specific instructions from Principal,
Custodian shall hold or cause to be held all Securities in the name of
Custodian, or any Sub-Custodian or Depository approved by Principal pursuant to
Paragraph 5 of this Agreement, or in the name of a nominee of any of them, as
Custodian shall determine to be appropriate under the circumstances.
7. TRANSACTIONS. Principal or any Investment Manager from time to time
may instruct Custodian (which in turn shall be responsible for giving
appropriate instructions to any
4
<PAGE> 5
Sub-Custodian or Depository) regarding the purchase or sale of Securities in
accordance with this Paragraph 7:
(a) Custodian shall effect and account for each Securities and
currency sale on the date such transaction actually settles; provided,
however, that Principal may in its sole discretion direct Custodian, in
such manner as shall be acceptable to Custodian, to account for
Securities and currency purchases and sales on contractual settlement
date, regardless of whether settlement of such transactions actually
occurs on contractual settlement date. Principal may, from time to
time, direct Custodian to change the accounting method employed by
Custodian in a written notice delivered to Custodian at least thirty
(30) days prior to the date a change in accounting method shall become
effective.
(b) Custodian shall effect purchases by charging the Account
with the amount necessary to make the purchase and effecting payment to
the seller or broker for the securities or other property purchased.
Custodian shall have no liability of any kind to any person, including
Principal, except in the case of negligent or intentional tortious
acts, or willful misconduct, if the Custodian effects payment on behalf
of Principal, and the seller or broker fails to deliver the securities
or other property purchased. Custodian shall exercise such ordinary
care and diligence as would be employed by a reasonably prudent
custodian and due diligence in examining and verifying the certificates
or other indicia of ownership of the property purchased before
accepting them.
(c) Custodian shall effect sales by delivering certificates or
other indicia of ownership of the Property, and, as instructed, shall
receive cash for such sales. Custodian shall have no liability of any
kind to any person, including Principal, if Custodian exercises due
diligence and delivers such certificates or indicia of ownership and
the purchaser or broker fails to effect payment. If a purchase or sale
is effected through a Depository, Custodian shall exercise such
ordinary care and diligence as would be employed by a reasonably
prudent custodian and due diligence in verifying proper consummation of
the transaction by the Depository.
(d) Principal or, where applicable, the Investment Manager, is
responsible for ensuring Custodian receives timely instructions and/or
funds to enable Custodian to effect settlement of any purchase or sale
of Securities or Currency Transactions. If Custodian does not receive
such timely instructions or funds, Custodian shall have no liability of
any kind to any person, including Principal, for failing to effect
settlement. However, Custodian shall use reasonable efforts to effect
settlement as soon as possible after receipt of appropriate
instructions. Principal shall be liable for interest compensation
and/or principal amounts to Custodian and/or its counterparty for
failure to deliver instructions or funds in a timely manner to effect
settlements of foreign exchange funds movement.
(e) At the direction of Principal or the Investment Manager,
as the case may be, Custodian shall convert currency in the Account to
other currencies through
5
<PAGE> 6
customary channels including, without limitation, Custodian or any of
its affiliates, as shall be necessary to effect any transaction
directed by Principal or the Investment Manager. Principal or the
Investment Manager, as the case may be, acknowledges that 1) the
foreign currency exchange department is a part of the Custodian or one
of its affiliates or subsidiaries, 2) the Account is not obligated to
effect foreign currency exchange with Custodian, 3) the Custodian will
receive benefits for such foreign currency transactions which are in
addition to the compensation which the Custodian receives for
administering the Account, and 4) the Custodian will make available the
relevant data so that Principal or the Investment Manager, as the case
may be, can determine that the foreign currency exchange transactions
are as favorable to the Account as terms generally available in arm's
length transactions between unrelated parties.
(f) Custodian shall have no responsibility to manage or
recommend investments of the Account or to initiate any purchase, sale,
or other investment transaction in the absence of instructions from
Principal or, where applicable, an Investment Manager.
8. CAPITAL CHANGES; INCOME.
(a) Custodian may, without further instructions from Principal
or any Investment Manager, exchange temporary certificates and may
surrender and exchange Securities for other securities in connection
with any reorganization, recapitalization, or similar transaction in
which the owner of the Securities is not given an option. Custodian has
no responsibility to effect any such exchange unless it has received
actual notice of the event permitting or requiring such exchange at its
office designated in Paragraph of this Agreement or at the office of
its designated agents.
(b) Custodian, or its designated agents, are authorized, as
Principal's agent, to surrender against payment maturing obligations
and obligations called for redemption, and to collect and receive
payments of interest and principal, dividends, warrants, and other
things of value in connection with Securities. Except as otherwise
provided in Paragraph 15.(d) of this Agreement, Custodian or its
designated agents shall not be obligated to enforce collection of any
item by legal process or other means.
(c) Custodian or its designated agents are authorized to sign
for Principal all declarations, affidavits, certificates, or other
documents that may be required to collect or receive payments or
distributions with respect to Securities. Custodian or its designated
agents are authorized to disclose, without further consent of
Principal, Principal's identity to issuers of Securities, or the agents
of such issuers, who may request such disclosure.
9. NOTICES RE ACCOUNT SECURITIES. Custodian shall notify Principal or,
where applicable, the Investment Manager, of any reorganization,
recapitalization, or similar transaction not covered by Paragraph 8, and any
subscription rights, proxies, and other
6
<PAGE> 7
shareholder information pertaining to the Securities actual notice of which is
received by Custodian at its office designated in Paragraph 14 of this
Agreement or at the offices of its designated agents. Custodian's sole
responsibility in this regard shall be to give such notices to Principal or the
Investment Manager, as the case may be, within a reasonable time after
Custodian receives them, and Custodian shall not otherwise be responsible for
the timeliness of such notices. Custodian has no responsibility to respond or
otherwise act with respect to any such notice unless and until Custodian has
received appropriate instructions from Principal or the Investment
Manager.
10. TAXES. Custodian shall pay or cause to be paid from the Account all
taxes and levies in the nature of taxes imposed on the Account or the
Securities thereof by any country. Custodian will use its best efforts to give
the Investment Manager advance written notice of the imposition of such taxes.
However, Custodian shall use reasonable efforts to obtain refunds of taxes
withheld on Securities or the income thereof that are available under
applicable tax laws, treaties, and regulations.
11. CASH. The Principal may from time to time, direct Custodian to hold
Account cash in The HighMark Group of mutual funds or in any investment company
for which Custodian or its affiliates or subsidiaries, acts as investment
advisor, custodies the assets, or provides other services. Principal shall
designate the particular HighMark fund or such other above-mentioned fund that
Principal deems appropriate for the Account. Principal or an Investment Manager,
where applicable, acknowledges that Custodian will receive fees for such
services which will be in addition to those fees charged by Custodian as agent
for the Account.
12. REPORTS. Custodian shall give written reports to Principal showing
(i) each transaction involving Securities effected by or reported to Custodian,
(ii) the identity and location of Securities held by Custodian as of the date of
the report, (iii) any transfer of location of Securities not otherwise reported,
and (iv) such other information as shall be agreed upon by Principal and
Custodian. Unless otherwise agreed upon by Principal and Custodian, Custodian
shall provide the reports described in this Paragraph 12 on a monthly basis.
13. INSTRUCTIONS FROM PRINCIPAL.
(a) Principal shall certify or cause to be certified to
Custodian in writing the names and specimen signatures of all persons
authorized to give instructions, notices, or other communications on
behalf of Principal or any Investment Manager. Such certification shall
remain effective until Custodian receives notice to the contrary.
(b) Principal or authorized Investment Manager, as the case
may be, may give instruction, notice, or other communication called for
by this Agreement to Custodian in writing, or by telecopy, telex,
telegram, or other form of electronic communication acceptable to
Custodian. Unless otherwise expressly provided, all Instructions shall
continue in full force and effect until canceled or superseded.
Principal or Investment Manager may give and Custodian may accept oral
instructions on an exception basis;
7
<PAGE> 8
provided, however, that Principal or Investment Manager shall promptly
confirm any oral communications in writing or by telecopy or other
means permitted hereunder. Principal will hold Custodian harmless for
the failure of Principal or Investment Manager to send confirmation in
writing, the failure of such confirmation to conform to the telephone
instructions received or the Custodians's failure to produce such
confirmation at any subsequent time. The Custodian may electronically
record any instruction given by telephone, and any other telephone
discussions with respect to the Custody Account.
(c) All such communications shall be deemed effective upon
receipt by Custodian at its address specified in Paragraph 14 of this
Agreement, as amended from time to time. Custodian without liability
may rely upon and act in accordance with any instruction that Custodian
using ordinary care believes has been given by Principal or an
Investment Manager.
(d) Custodian may at any time request instructions from
Principal and may await such instructions without incurring liability.
Custodian has no obligation to act in the absence of such requested
instructions, but may, however, without liability take such action as
it deems appropriate to carry out the purposes of this Agreement.
14. ADDRESSES. Until further notice from either party, all
communications called for under this Agreement shall be addressed as follows:
IF TO PRINCIPAL:
Name: THE PARKSTONE ADVANTAGE FUND
--------------------------------------------------
Street Address: 700 SW Harrison Street
--------------------------------------------------
City, State, Zip: Topeka, Kansas 66636
--------------------------------------------------
Attn: Brenda M. Luthi, Trustee, Secretary and Treasurer
--------------------------------------------------
Telephone: (913) 295-3075
--------------------------------------------------
Telecopier: (913) 295-3099
--------------------------------------------------
Telex (Answerback):
--------------------------------------------------
IF TO CUSTODIAN:
THE BANK OF CALIFORNIA, NATIONAL ASSOCIATION
Mitsubishi Global Custody
Attn: Ms. Janet E. Potter, Vice President
475 Sansome Street, 15th Floor
San Francisco, California 94111
Telephone: (415) 291-7685
Telecopier: (415) 291-7697
Telex (Answerback): 215748/MBCTD UR
8
<PAGE> 9
15. CUSTODIAN'S RESPONSIBILITIES AND LIABILITIES:
(a) Custodian's duties and responsibilities shall be limited
to those expressly set forth in this Agreement, or as otherwise agreed by
Custodian in writing. In carrying out its responsibilities, Custodian shall
exercise no less than the same degree of care and diligence it usually
exercises with respect to similar property of its own.
(b) Custodian (i) shall not be required to maintain any
special insurance for the benefit of Principal, and (ii) shall not be liable or
responsible for any loss of or damage to Securities resulting from any causes
beyond Custodian's reasonable control including, without limitations, acts of
God, war, government action, civil commotion, fire, earthquake, or other
casualty or disaster. However, Custodian shall use reasonable efforts to
replace Securities lost or damaged due to such causes with securities of the
same class and issue with all rights and privileges pertaining thereto. The
Custodian shall be liable to the Principal for any loss which shall occur as
the result of the failure of a Sub-Custodian to exercise reasonable care with
respect to the safekeeping of assets to the same extent that the Custodian
would be liable to the Principal if the Custodian were holding such securities
and cash in their own premises. The Custodian shall be liable to the Principal
only to the extent of the Principal's direct damages, to be determined based on
the market value of the property which is subject to loss and without reference
to any special conditions or circumstances.
(c) The parties intend that Custodian shall not be considered
a fiduciary of the Account. Accordingly, Custodian shall have no power to make
decisions regarding any policy, interpretation, practice, or procedure with
respect to the Account, but shall perform the ministerial and administrative
functions described in this Agreement as provided herein and within the
framework of policies, interpretations, rules, practices, and procedures made
by Principal or an investment manager, where applicable, as the same shall be
reflected in instructions to Custodian from Principal or any Investment
Manager.
(d) Custodian shall not be required to appear in or defend any
legal proceedings with respect to the Account or the Securities unless
Custodian has been indemnified to its reasonable satisfaction against loss and
expense (including reasonable attorneys' fees).
(e) With respect to legal proceedings referred to in paragraph
15.(d) of this agreement, Custodian may consult with counsel acceptable to it
after written notification to Principal concerning its duties and
responsibilities under this Agreement, and shall not be liable for any action
taken or not taken in good faith on the advice of such counsel.
16. INDEMNITIES.
(a) Principal hereby agrees to indemnify Custodian against all
liability, claims, demands, damages, losses, and costs, including reasonable
attorneys' fees and expenses of legal proceedings, resulting from Custodian's
compliance with instructions from Principal or any Investment Manager and the
terms of this Agreement, except where Custodian has acted with negligence or
willful misconduct.
9
<PAGE> 10
(b) Custodian's right to indemnity under Paragraph 16.(a) of
this Agreement shall survive the termination of this Agreement.
17. COMPENSATION; EXPENSES. Principal shall reimburse Custodian for all
reasonable out-of-pocket expenses and processing costs incurred by Custodian in
the administration of the Account including, without limitation, reasonable
counsel fees incurred by Custodian pursuant to Paragraph 15.(e) of this
Agreement. Principal also shall pay Custodian reasonable compensation for its
services hereunder as specified in Appendix B. Custodian shall be entitled to
withdraw such expenses or compensation from the Account if Principal fails to
pay the same to Custodian within 45 days after Custodian has sent an
appropriate billing to Principal; provided, however, that Custodian will give
Principal ten (10) days prior written notice before withdrawing such funds.
18. AMENDMENT; TERMINATION. This Agreement may be amended at any time
by a written instrument signed by the parties. Either party may terminate this
Agreement and the Account upon 90 days' written notice to the other unless the
parties agree on a different time period. Upon such termination, Custodian shall
deliver or cause to be delivered the Securities, less any amounts due and owing
to Custodian under this Agreement, to a successor custodian designated by
Principal or, if a successor custodian has not accepted an appointment by the
effective date of termination of the Account, to Principal. Upon completion of
such delivery Custodian shall be discharged of any further liability or
responsibility with respect to the Securities so delivered.
19. SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their successors in interest. Without consent
of the parties, this agreement cannot be assigned to any third party.
20. GOVERNING LAW. The validity, construction, and administration of
this Agreement shall be governed by the applicable laws of the United States
from time to time in force and effect and, to the extent not preempted by such
laws of the United States, by the laws of the State of California from time to
time in force and effect.
21. EFFECTIVE DATE. This Agreement shall be effective as of the date
appearing below, and shall supersede any prior or existing agreements between
the parties pertaining to the subject matter hereof.
THE PARKSTONE ADVANTAGE FUND
Date: 7/31/95
--------------------------------
By: /s/ Brenda M. Luthi
---------------------------------
Authorized Signature
"Principal"
-10-
<PAGE> 11
THE BANK OF CALIFORNIA, N.A.
By: /s/ Kevin Galvin
------------------------------
Title: Vice President
--------------------------
By: /s/ Greg C. King
------------------------------
Title: Senior Vice President
--------------------------
"Custodian"
11
<PAGE> 12
APPENDIX A
<TABLE>
<CAPTION>
MITSUBISHI GLOBAL CUSTODY SUB-CUSTODIAN NETWORK SUMMARY
- -------------------------------------------------------------------------------------------------------------
LAST REPORTED CREDIT RATINGS
---------------------------------
MARKET SUB-CUSTODIAN EQUITY($mill) IBCA MOODY'S S&P
------ ------------- ------ ---- ------- ---
<S> <C> <C> <C> <C> <C>
Argentina Citibank $11,067 AA- A1 A+
Australia National Australia Bank $ 5,830 AA Aa3 AA
Austria Creditansalt-Bankverein $ 1,791 A+ Aa3 A-1
Belgium Kredietbank $ 2,381 AA Aa2 A+
(1) Brazil Citibank $11,067 AA- A1 A+
Canada Royal Bank of Canada $ 6,066 AA- A1 A+
Chile Citibank $11,067 AA- Aa2 AA-
(1) China/Shenzen Standard Chartered Bank $ 1,982 A A2 -NR-
Denmark Den Danske Bank $ 2,960 AA- Aa3 A
Euro-CDs First National Bank of Chicago $ 4,264 A+ A1 A+
Finland Union Bank of Finland $ 1,354 A- A3 BBB
France Banque Indosuez $ 2,655 AA- A1 A+
Germany Dresdner Bank $ 7,077 AA+ Aaa A-1+
Hong Kong Hong King & Shanghai Bank $ 7,827 AA- A3 A-1
(1) India Standard Chartered Bank $ 1,982 A A2 -NR-
Indonesia Standard Chartered Bank $ 1,982 A A2 -NR-
Ireland Allied Irish Banks $ 1,784 A+ A1 A
Italy Banca Commerciale Italiana $ 3,631 AA- A1 A
Japan Mitsubishi Bank Limited $15,398 AA Aa3 AA-
(1) Korea (Rep. of) Standard Chartered Bank $ 1,982 A A2 -NR-
- --------
<FN>
1 Market restrictions require investor registration prior to trading.
Please see your Relationship Manager for further details.
2 Rated by Thomson Bank Watch-Asia
</TABLE>
<PAGE> 13
APPENDIX A
<TABLE>
<CAPTION>
MITSUBISHI GLOBAL CUSTODY SUB-CUSTODIAN NETWORK SUMMARY
- -------------------------------------------------------------------------------------------------------------
LAST REPORTED CREDIT RATINGS
---------------------------------
MARKET SUB-CUSTODIAN EQUITY($mill) IBCA MOODY'S S&P
------ ------------- ------ ---- ------- ---
<S> <C> <C> <C> <C> <C>
Malaysia Malayan Banking Berhad $ 1,330 A(2) -NR- -NR-
Mexico Citibank $ 11,067 AA- A1 A+
Netherlands MeesPierson N.V. $ 1,019 A1 -NR- -NR-
New Zealand National Australia Bank $ 5,830 AA Aa3 AA
Norway Christiania Bank $ 715 A A3 A-3
Philippines Standard Chartered Bank $ 1,982 A A2 -NR-
Portugal Banco Totta & Acores $ 790 A A3 A-
Singapore DBS Bank $ 2,860 AA(2) -NR- -NR-
Spain Banco Bilbao Vizcaya $ 5,211 AA Aa2 AA-
Sweden Svenska Handelsbanken $ 2,528 AA- A1 A
Switzerland Union Bank of Switzerland $14,076 AAA Aaa AAA
(1) Taiwan Standard Chartered Bank $ 1,982 A A2 -NR-
Thailand Hong Kong & Shanghai Bank $ 7,827 AA- A3 A-1
U.K. Midland Bank $ 4,214 AA- Aa3 A
(1) Venezuela Citibank $11,067 AA- A1 A+
- --------
<FN>
1 Market restrictions require investor registration prior to trading.
Please see your Relationship Manager for further details.
2 Rated by Thomson Bank Watch-Asia
</TABLE>
<PAGE> 1
EXHIBIT 9(a)
ADMINISTRATION AGREEMENT
THIS AGREEMENT is made as of this 1st day of July, 1996 by and between
THE PARKSTONE ADVANTAGE FUND, a Massachusetts business trust (the "Trust") and
BISYS FUND SERVICES, L.P. ("BISYS"), an Ohio limited partnership.
W I T N E S S E T H :
WHEREAS, the Trust is registered as an open-end, diversified management
investment company under the Investment Company Act of 1940 (the "1940 Act");
and
WHEREAS, the Trust desires to employ the capital held in the following
of its series of investment portfolios, namely the Prime Obligations Fund,
Equity Fund, Small Capitalization Fund, Bond Fund and International Discovery
Fund (individually, a "Fund" and collectively, the "Funds"), by investing and
reinvesting the same in investments of the type and in accordance with the
limitations specified in its Declaration of Trust and in the Prospectus with
respect to each Fund as from time to time in effect; and
WHEREAS, the Trust has submitted or will submit to BISYS copies of the
Trust's Declaration of Trust and the Prospectus for each Fund and resolutions of
the Trust's Board of Trustees with respect to each Fund; and
WHEREAS, the Trust desires to appoint BISYS as administrator of each
Fund and BISYS is prepared to provide such administrative services;
NOW THEREFORE, in consideration of the premises and mutual covenants
set forth herein and intending to be legally bound hereby the parties hereto
agree as follows:
1. SERVICES AS ADMINISTRATOR. BISYS hereby accepts its appointment as
administrator for the Funds, and agrees to provide services hereunder subject to
the direction and control of the Trust's Board of Trustees.
With respect to each Fund, BISYS agrees to: furnish statistical and
research data as needed, including yield and total return data; provide
appropriate personnel, stationery and office supplies necessary to provide
services under this Agreement; prepare those portions of the Trust's semiannual
reports to the Securities and Exchange Commission on Form N-SAR that pertain to
each Fund, and coordinate and file such reports; supply financial data for the
Trust's filings with the SEC to update its registration statement on Form N-1A;
compile data for and prepare for execution by the Trust those portions of the
Trust's federal and state tax returns and required tax filings that pertain to
each Fund and to file such returns and filings when completed (other than those
filings required to be made by the Trust's custodian and transfer agent);
prepare compliance filings pursuant to state securities laws with the advice of
the Trust's counsel; prepare those portions of the Trust's Annual and Semiannual
Reports to shareholders that pertain to each Fund, and coordinate and file such
reports; compile data for, prepare, and file timely notices to the Securities
and Exchange Commission required with respect to the
<PAGE> 2
registration of each Fund's shares pursuant to Rule 24f-2 under the 1940 Act,
and generally assist in all aspects of the Funds' operations; including
coordination of the activities of the Trust's other service providers.
BISYS also agrees, with respect to each Fund, to review the Fund's
compliance with the requirements of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), and the Fund's compliance with the requirements
of Section 817(h) of the Code and to report the findings of its review to the
investment adviser of the Fund. BISYS shall conduct such reviews from time to
time as it shall deem appropriate and in the case of the review of compliance
with Section 817(h) of the Code, no less frequently than quarterly.
BISYS also agrees to maintain office facilities for the Trust (which
may be at the offices of BISYS or a corporate affiliate and which shall be in
such location as BISYS may reasonably determine) and to supervise all
administrative aspects of the Funds' operations except those performed by the
Funds' investment adviser under its Investment Advisory Agreement.
In compliance with the requirements of Rule 31a-3 under the 1940 Act,
BISYS hereby agrees that all records which it maintains for the Trust are the
property of the Trust, and further agrees to surrender promptly to the Trust any
of such records upon the Trust's request. BISYS further agrees to preserve for
the periods prescribed by Rule 31a-2 under the 1940 Act the records required to
be maintained by Rule 31a-1 under the 1940 Act, except for those records which
are to be maintained for the Fund by its investment adviser.
2. DELEGATION OF DUTIES. Notwithstanding any other provision of this
Agreement to the contrary, BISYS may, at its discretion, delegate, assign or
subcontract any of the duties, responsibilities and services governed by this
Agreement, to its parent company, whether or not by formal written agreement, or
to a third party. BISYS shall, however, retain ultimate responsibility to the
Trust and shall implement such reasonable procedures as may be necessary for
assuring that any duties, responsibilities or services so assigned,
subcontracted or delegated are performed in conformity with the terms and
conditions of this Agreement.
3. FEES; EXPENSES; EXPENSE REIMBURSEMENT. In consideration of services
provided and expenses assumed with respect to the Funds, the Trust will pay
BISYS a monthly fee as set forth on Schedule A hereto.
BISYS will from time to time employ or associate with itself such
person or persons as BISYS may believe to be particularly fitted to assist it in
the performance of this Agreement. Such person or persons may be officers and
employees who are employed by both BISYS and the Trust. The compensation of such
person or persons shall be paid by BISYS and no obligation will be incurred on
behalf of the Trust in such respect.
BISYS will bear all expenses in connection with the performance of its
services under this Agreement. Other expenses to be incurred in the operation of
the Funds including taxes, interest, brokerage fees and commissions, if any,
fees of trustees who are not officers, directors,
2
<PAGE> 3
stockholders or employees of BISYS, or of the Funds' investment adviser or
distributor, Securities and Exchange Commission fees and state Blue Sky
qualification fees, advisory and administration fees, charges of custodians,
transfer and dividend disbursing agents' fees, certain insurance premiums,
outside auditing and legal expenses, costs of maintenance of corporate
existence, typesetting and printing of prospectuses for regulatory purposes and
for distribution to shareholders of the Funds, cost of shareholders' reports and
corporate meetings and any extraordinary expenses will be borne by the Funds,
provided, however, that the Funds will not bear, directly or indirectly, the
cost of any activity which is primarily intended to result in the distribution
of Fund shares.
If in any fiscal year the aggregate expenses of a Fund (as defined
under the securities regulations of any state having jurisdiction over such
Fund) exceed the expense limitations of any such state, BISYS will reimburse
such Fund for 100 percent of such excess expense. The expense reimbursement
obligation of BISYS is limited to the amount of its fees hereunder for such
fiscal year, PROVIDED, HOWEVER, that notwithstanding the foregoing, BISYS shall
reimburse a Fund for such excess expense regardless of the amount of fees paid
to it during such fiscal year to the extent that the securities regulations of
any state having jurisdiction over the Fund so require. Such expense
reimbursement, if any, will be estimated, reconciled, and paid on a monthly
basis.
4. PROPRIETARY INFORMATION. BISYS agrees on behalf of itself and its
employees to treat as proprietary information of the Trust all records and other
information relative to the Trust and prior, present or potential shareholders,
and not to use such records and information for any purpose other than
performance of its responsibilities and duties hereunder, except after prior
notification to and approval in writing by the Trust, which approval shall not
be unreasonably withheld and may not be withheld and will be deemed granted
where BISYS may be exposed to civil or criminal contempt proceedings for failure
to comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Trust.
5. LIMITATION OF LIABILITY. BISYS shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust in connection
with the matters to which this Agreement relates, except for a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of BISYS in
the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. Further, notwithstanding its
agreement hereunder to conduct reviews of each Fund's compliance with the
requirements of Subchapter M and Section 817(h) of the Code, BISYS shall not
bear any responsibility for any Fund's failure to comply with such requirements.
In the event of willful misfeasance, bad faith or gross negligence by BISYS in
the performance of such compliance reviews or reckless disregard by it of its
obligation to conduct such reviews, BISYS' liability shall be limited to
$1,000.00 per occurrence. Any person, even though also an officer, employee, or
agent of BISYS, who may be or become an officer, trustee, employee or agent of
the Trust, shall be deemed, when rendering services of the Trust or acting on
any business of the Trust (other than services or business in connection with
BISYS' duties as administrator hereunder), to be rendering such
3
<PAGE> 4
services to or acting solely for the Trust and not as an officer, employee, or
agent or one under the control or direction of BISYS even though paid by them.
6. TERM. This Agreement shall become effective as of the date first
above written and, unless sooner terminated as provided herein, shall continue
until December 31, 1999, and thereafter shall continue automatically for
successive five-year periods, PROVIDED, such continuance is specifically
approved at least annually (a) by the vote of a majority of those members of the
Trust's Board of Trustees who are not interested persons of any party to this
Agreement, cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the Trust's Board of Trustees or by the vote of a majority
of the outstanding voting securities of the affected Fund. Notwithstanding the
foregoing, this Agreement may be terminated as to any Fund at any time without
the payment of any penalty, by the Trust by the vote of the Trust's Board of
Trustees, or by the vote of a majority of the outstanding voting securities of
the Fund, or by BISYS, on ninety days' written notice. (As used in this
Agreement, the terms "majority of the outstanding voting securities" and
"interested person" shall have the same meaning as such terms in the 1940 Act.)
This Agreement shall be governed by the laws of the State of Ohio.
7. NAMES. The names "The Parkstone Advantage Fund" and "Trustees of the
Parkstone Advantage Fund" refer respectively to the Trust created and the
Trustees, as trustees but not individually or personally, acting from time to
time under a Declaration of Trust dated May 18, 1993, which is hereby referred
to and a copy of which is on file at the office of the State Secretary of the
Commonwealth of Massachusetts and at the principal office of the Trust. The
obligations of "The Parkstone Advantage Fund" entered into in the name or on
behalf thereof by any of the Trustees, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, shareholders, or representatives of the Trust personally, but bind
only the Trust Property, and all persons dealing with any class of shares of the
Trust must look solely to the Trust Property belonging to such class for the
enforcement of any claims against the Trust.
8. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
THE PARKSTONE ADVANTAGE FUND
By: /s/ George R. Landreth
---------------------------------
Its: President
BISYS FUND SERVICES, L.P.
By: /s/ Stephen G. Mintos
---------------------------------
Its: Executive Vice President
--------------------------------
5
<PAGE> 6
SCHEDULE A
TO THE ADMINISTRATION AGREEMENT
DATED JULY 1, 1996
------------------
THE PRIME OBLIGATIONS FUND, THE EQUITY FUND, THE SMALL CAPITALIZATION FUND,
THE INTERNATIONAL DISCOVERY FUND AND THE BOND FUND
--------------------------------------------------
Average Daily Net Assets Compensation
------------------------ ------------
Up to $1 billion 0.200% of Average Daily Net Assets
As compensation for the services to be rendered by BISYS pursuant to this
Agreement, the Trust shall pay BISYS an annual fee based on the fee schedule set
forth above and the average daily closing value of the net assets of each Fund.
Such fee shall be calculated daily and payable monthly. In the event that the
average daily net assets of the Trust exceed $1 billion, the parties intend to
review the level of compensation payable to BISYS for administration services.
THE PARKSTONE ADVANTAGE FUND BISYS FUND SERVICE, L.P.
By: /s/ George R. Landreth By: /s/ Stephen G. Mintos
------------------------ -----------------------------
Its: President Its: Executive Vice President
Date: July 1, 1996 Date: July 1, 1996
-------------------------- ----------------------------
<PAGE> 1
EXHIBIT 9(b)
FUND ACCOUNTING AND TRANSFER AGENCY AGREEMENT
AGREEMENT made this 1st day of July, 1996, between THE PARKSTONE
ADVANTAGE FUND (the "Trust"), a Massachusetts business trust, and BISYS FUND
SERVICES, Inc., a Delaware corporation.
WHEREAS, the Trust desires that BISYS perform certain fund accounting
and transfer agency services for each investment portfolio of the Trust
identified on Schedule A hereto, as such Schedule shall be amended from time to
time (individually referred to herein as a "Fund" and collectively as the
"Funds"); and
WHEREAS, BISYS is willing to perform such services on the terms and
conditions set forth in this Agreement;
NOW THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. RECORD MAINTENANCE. BISYS will keep and maintain the following books
and records of each Fund pursuant to Rule 31a-1 under the Investment Company Act
of 1940 (the "Rule"):
(a) Journals containing an itemized daily record in detail of all
purchases and sales of securities, all receipts and disbursements of cash and
all other debits and credits, as required by subsection (b)(1) of the Rule;
(b) General and auxiliary ledgers reflecting all asset, liability,
reserve, capital, income and expense accounts, including interest accrued and
interest received, as required by subsection (b)(2)(i) of the Rule;
(c) Separate ledger accounts required by subsections (b)(2)(iii)
and (iv) of the Rule;
(d) A monthly trial balance of all ledger accounts as required by
subsection (b)(8) of the Rule; and
(e) All shareholder records for each of the Trust's shareholder
accounts as described on Schedule B hereto.
2. ACCOUNTING SERVICES. In addition to the maintenance of the books
and records specified above, BISYS shall perform the following accounting
services daily for each Fund:
(a) Calculate the net asset value per share, utilizing, if
necessary, one or more independent pricing services approved from time to time
by the Board of Trustees of the Trust to obtain securities prices;
<PAGE> 2
(b) Calculate the dividend and capital gain distribution, if
any;
(c) Reconcile cash movements with the Fund's custodian;
(d) Affirm to the Fund's custodian all portfolio trades and cash
settlements;
(e) Verify and reconcile with the Fund's custodian all daily
trade activity;
(f) Provide the following reports:
(i) A current security position report;
(ii) A summary report of transactions and pending
maturities (including the principal, cost, and
accrued interest on each portfolio security in
maturity date order); and
(iii) A current cash position report (including cash
available from portfolio sales and maturities and
sales of a Fund's shares less cash needed for
redemptions and settlement of portfolio
purchases); and
(g) Such other similar services with respect to a Fund as may be
reasonably requested by the Trust.
BISYS shall perform the following accounting services for each Fund at
least monthly:
(a) Obtain actual dealer quotations, prices from a pricing
service, or matrix prices on all portfolio securities
(including those with less than 60 days to maturity) in order
to mark the entire portfolio to the market; and
(b) Prepare an interim balance sheet, statement of income and
expense, and statement of changes in net assets for the
Fund.
3. TRANSFER AGENCY SERVICES. BISYS shall perform the following
transfer agency services on a daily basis:
(a) Process new accounts on the shareholder file by
processing directly from shareholders.
(b) Process additional purchases to the records of shareholder
accounts, including, on a shareholder's instructions, allocating payments among
the Funds.
(c) Transfer shares upon the receipt of proper instructions
from shareholders.
2
<PAGE> 3
(d) Process instructions from shareholders of the Trust
to redeem shares of the Trust as the agent for the Trust.
BISYS shall perform the following transfer agency services on a
periodic basis:
(a) Upon receipt of instructions as to payment of dividends and
distributions, which may be standing instructions, compute
distributions and inform the Trust of the amount to be
reinvested in additional shares.
(b) Process redemptions as instructed by shareholders.
(c) Produce transcripts of account history as requested by the
Trust or by the sole shareholder.
BISYS shall maintain all balance controls daily and produce monthly
summaries expressed in:
1. shares
2. dollar amounts
4. COMPENSATION. The Trust shall pay BISYS for the services to
be provided by BISYS under this Agreement in accordance with, and in the manner
set forth in, Schedule C hereto.
5. REIMBURSEMENT OF EXPENSES. In addition to paying BISYS the
fees described in Section 4 hereof, the Trust agrees to reimburse BISYS for
BISYS' out-of-pocket expenses in providing services hereunder, including without
limitation the following:
A. All mail, freight and other delivery and bonding
charges incurred by BISYS in delivering materials
to and from the Trust and in delivering all
materials to shareholders;
B. All direct telephone, telephone transmission and
telecopy or other electronic transmission expenses
incurred by BISYS in communication with the Trust,
the Trust's investment adviser or custodian,
dealers or others as required for BISYS to perform
the services to be provided hereunder;
C. Costs of pricing the portfolio securities of each
Fund;
D. The cost of microfilm or microfiche or records or
other materials; and
3
<PAGE> 4
E. Any expenses BISYS shall incur at the written
direction of an officer of the Trust thereunto
duly authorized.
6. EFFECTIVE DATE. This Agreement shall become effective with respect
to a Fund as of the date first written above (or, if a particular Fund is not in
existence on that date, on the date an amendment to Schedule A to this Agreement
relating to that Fund is executed) (the "Effective Date").
7. TERM. This Agreement shall continue in effect, unless earlier
terminated by either party hereto as provided hereunder, for an initial term of
one year from the Effective Date (the "Initial Term"). Thereafter, this
Agreement shall be renewed automatically for successive one-year terms unless
written notice not to renew is given by the non-renewing party to the other
party at least 90 days prior to the expiration of the then-current term;
provided, however, that after such termination, for so long as BISYS in fact
continues to perform any one or more of the services contemplated by this
Agreement or any schedule or exhibit hereto, the provisions of this Agreement,
including without limitation the provisions dealing with indemnification, shall
continue in full force and effect. Compensation due BISYS and unpaid by the
Trust upon such termination shall be immediately due and payable upon and
notwithstanding such termination. BISYS shall be entitled to collect from the
Trust, in addition to the compensation described under Paragraphs 4 and 5
hereof, the amount of all of BISYS' cash disbursements for services in
connection with BISYS' activities in effecting such termination, including
without limitation, the delivery to the Trust and/or its designees of the
Trust's property, records, instruments and documents, or any copies thereof.
Subsequent to such termination, for a reasonable fee BISYS will provide the
Trust with reasonable access to any Trust documents or records remaining in its
possession.
This Agreement is terminable with respect to a particular Fund only
upon mutual agreement of the parties hereto or for "cause" (as defined below) by
the party alleging "cause," in either case on not less than 90 days' written
notice by the Trust's Board of Trustees or by BISYS.
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, gross negligence, or reckless disregard on the part of
either party with respect to its obligations and duties set forth herein; (b) a
final, unappealable judicial, regulatory or administrative ruling or order in
which either party has been found guilty of criminal or unethical behavior in
the conduct of its business; (c) the dissolution or liquidation of either party
or other cessation of business other than a reorganization or recapitalization
of such party as an ongoing business; (d) financial difficulties on the part of
either party which is evidenced by the authorization or commencement of, or
involvement by way of pleading, answer, consent, or acquiescence in, a voluntary
or involuntary case under Title 11 of the United States Code, as from time to
time is in effect, or any applicable law, other than said Title 11, of any
jurisdiction relating to the liquidation or reorganization of debtors or to the
modification or alteration of the rights of creditors; or (e) any circumstance
which substantially impairs the performance of either party's obligations and
duties as contemplated herein.
4
<PAGE> 5
8. STANDARD OF CARE; RELIANCE ON RECORDS AND INSTRUCTIONS;
INDEMNIFICATION. BISYS shall use its best efforts to ensure the accuracy of all
services performed under this Agreement, but shall not be liable to the Trust
for any action taken or omitted by BISYS in the absence of bad faith, willful
misfeasance or gross negligence. Each Fund agrees to indemnify and hold harmless
BISYS, its subsidiaries, affiliates, employees, agents, directors, officers and
nominees from and against any and all claims, demands, actions and suits,
whether groundless or otherwise, and from and against any and all judgments,
liabilities, losses, damages, costs, charges, counsel fees and other expenses of
every nature and character arising out of or in any way relating to BISYS'
actions taken or nonactions with respect to the performance of services under
this Agreement with respect to such Fund or based, if applicable, upon
reasonable reliance on information, records, instructions or requests with
respect to such Fund given or made to BISYS by the Trust or the investment
adviser and on any record provided by any custodian thereof; provided that this
indemnification shall not apply to actions or omissions of BISYS in cases of its
own willful misfeasance or gross negligence, and further provided that prior to
confessing any claim against it which may be the subject of this
indemnification, BISYS shall give the Trust written notice of and reasonable
opportunity to defend against said claim in its own name or in the name of
BISYS.
9. RECORD RETENTION AND PROPRIETARY INFORMATION. BISYS shall keep and
maintain on behalf of the Trust all books and records which the Trust or BISYS
is, or may be, required to keep and maintain pursuant to any applicable
statutes, rules and regulations, including without limitation Rules 31a-1 and
31a-2 under the Investment Company Act of 1940, relating to the maintenance of
books and records in connection with the services to be provided hereunder.
BISYS agrees that all such books and records shall be the property of the Trust.
BISYS will make such books and records available for inspection by the Trust or
by the Securities and Exchange Commission, at reasonable times, and otherwise
will treat as proprietary all books and records and other information relative
to the Trust and its shareholders, except when requested to divulge such
information by duly-constituted authorities or court process, or requested by a
shareholder with respect to information concerning an account as to which such
shareholder has either a legal or beneficial interest or when requested by the
Trust, the shareholder, or the dealer of record as to such account.
10. UNCONTROLLABLE EVENTS. BISYS assumes no responsibility hereunder,
and shall not be liable, for any damage, loss of data, delay or any other loss
whatsoever caused by events beyond its reasonable control.
11. LEGAL ADVICE. BISYS shall notify the Trust at any time BISYS
believes that it is in need of the advice of counsel (other than counsel in the
regular employ of BISYS or any affiliated companies) with regard to BISYS'
responsibilities and duties pursuant to this Agreement. After so notifying the
Trust, BISYS, at its discretion, shall be entitled to seek, receive and act upon
advice of legal counsel of its choosing, such advice to be at the expense of the
Trust or Funds unless relating to a matter involving BISYS' willful misfeasance
or gross negligence with respect to BISYS' responsibilities and duties hereunder
and shall in no event be
5
<PAGE> 6
liable to the Trust or any Fund or any shareholder or beneficial owner of the
Trust for any action reasonably taken pursuant to such advice.
12. REPORTS. BISYS will furnish to the Trust and to its properly
authorized auditors, investment advisers, examiners, distributors, dealers,
underwriters, salesmen, insurance companies and others designated by the Trust
in writing, such reports and at such times as are prescribed pursuant to the
terms and the conditions of this Agreement to be provided or completed by BISYS,
or as subsequently agreed upon by the parties pursuant to an amendment hereto.
The Trust agrees to examine each such report or copy promptly and will report or
cause to be reported any errors or discrepancies therein no later than three
business days from the receipt thereof. In the event that errors or
discrepancies, except such errors and discrepancies as may not reasonably be
expected to be discovered by the recipient within three days after conducting a
diligent examination, are not so reported within the aforesaid period of time, a
report will for all purposes be accepted by and binding upon the Trust and any
other recipient, and BISYS shall have no liability for errors or discrepancies
therein and shall have no further responsibility with respect to such report
except to perform reasonable corrections of such errors and discrepancies within
a reasonable time after requested to do so by the Trust.
13. RIGHTS OF OWNERSHIP. All computer programs and procedures developed
to perform services required to be provided by BISYS under this Agreement are
the property of BISYS. All records and other data except such computer programs
and procedures are the exclusive property of the Trust and all such other
records and data will be furnished to the Trust in appropriate form as soon as
practicable after termination of this Agreement for any reason.
14. RETURN OF RECORDS. BISYS may at its option at any time, and shall
promptly upon the Trust's demand, turn over to the Trust and cease to retain the
Trust's files, records and documents created and maintained by BISYS pursuant to
this Agreement which are no longer needed by BISYS in the performance of its
services or for its legal protection. If not so turned over to the Trust, such
documents and records will be retained by BISYS for six years from the year of
creation. At the end of such six-year period, such records and documents will be
turned over to the Trust unless the Trust authorizes in writing the destruction
of such records and documents.
15. REPRESENTATIONS OF THE TRUST. The Trust certifies to BISYS that:
(1) as of the close of business on the Effective Date, each Fund which is in
existence as of the Effective Date has authorized unlimited shares, and (2) by
virtue of its Declaration of Trust, shares of each Fund which are redeemed by
the Trust may be sold by the Trust from its treasury and (3) this Agreement has
been duly authorized by the Trust and, when executed and delivered by the Trust,
will constitute a legal, valid and binding obligation of the Trust, enforceable
against the Trust in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and secured parties.
6
<PAGE> 7
16. REPRESENTATIONS OF BISYS. BISYS represents and warrants that the
various procedures and systems which BISYS has implemented with regard to
safeguarding the blank checks, records, and other data of the Trust and BISYS'
records, data, equipment facilities and other property used in the performance
of its obligations hereunder from loss or damage attributable to fire, theft, or
any other cause are adequate and that it will make such changes therein from
time to time as are required for the secure performance of its obligations
hereunder.
17. INSURANCE. BISYS shall notify the Trust should any of its insurance
coverage be changed for any reason. Such notification shall include the date of
change and the reasons therefor. BISYS shall notify the Trust of any material
claims against it with respect to services performed under this Agreement,
whether or not they may be covered by insurance, and shall notify the Trust from
time to time as may be appropriate of the total outstanding claims made by BISYS
under its insurance coverage.
18. INFORMATION TO BE FURNISHED BY THE TRUST AND FUNDS. The Trust has
furnished to BISYS the following:
A. Copies of the Declaration of Trust of the Trust and of
any amendments thereto, certified by the proper official
of the state in which such Declaration has been filed.
B. Copies of the following documents:
1. The Trust's Code of Regulations and any
amendments thereto;
2. Certified copies of resolutions of the Board of
Trustees covering: the approval of this
Agreement, authorization of a specified officer
of the Trust to execute and deliver this
Agreement and authorization for specified
officers of the Trust to instruct BISYS
thereunder.
C. A list of all the officers of the Trust, together with
specimen signatures of those officers who are authorized
to instruct BISYS in any and all matters.
D. Two copies of the following (if such documents are
employed by the Trust):
1. Prospectuses and Statements of Additional
Information for each Fund;
2. Distribution Agreements;
3. Investment Advisory Agreements; and
7
<PAGE> 8
4. All other forms commonly used by the Trust or
its Distributor with regard to their
relationships and transactions with shareholders
of the Trust.
19. INFORMATION FURNISHED BY BISYS. BISYS has furnished to the Trust
the following:
A. BISYS' Articles of Incorporation.
B. Certified copies of actions of BISYS covering the
following matters:
1. Approval of this Agreement, and authorization of
a specified officer of BISYS to execute and
deliver this Agreement;
2. Authorization of BISYS to act as fund accountant
for the Trust and to provide accounting services
by the Trust.
20. AMENDMENTS TO DOCUMENTS. The Trust shall furnish BISYS written
copies of any amendments to, and changes in, any of the items referred to in
Section 18 hereof forthwith upon the effective date of such amendments and/or
changes. In addition, the Trust agrees that no amendments will be made to the
Prospectuses or Statements of Additional Information of the Trust which might
have the effect of changing the procedures employed by BISYS in providing the
services agreed to hereunder or which might affect the duties of BISYS hereunder
unless the Trust first obtains BISYS' approval of such amendment.
21. RELIANCE ON AMENDMENTS. BISYS may rely on any amendments to
or changes in any of the documents and other items to be provided by the Trust
pursuant to Sections 18 and 20 and of this Agreement and the Trust hereby
indemnifies and holds harmless BISYS, its subsidiaries, affiliates, officers,
directors, employees, and successors, from and against any and all claims,
demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, counsel fees and other expenses of every nature and character which
may result from actions or omissions on the part of BISYS in reasonable
reliance upon such amendments and/or changes. Although BISYS is authorized to
rely on the above-mentioned amendments to and changes in the documents and
other items to be provided pursuant to Sections 18 and 20 hereof, BISYS shall
be under no duty to comply with or take any action as a result of any of such
amendments or changes unless the Trust first obtains BISYS' written consent to
and approval of such amendments or changes.
22. COMPLIANCE WITH LAW. Except for the obligations of BISYS as set
forth in Section 9 hereof, the Trust assumes full responsibility for compliance
with all applicable requirements of the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and any other laws, rules and
regulations of governmental authorities having jurisdiction as to the
preparation, contents, and distribution of each prospectus of the Trust.
8
<PAGE> 9
BISYS shall have no obligation to take cognizance of any laws relating to the
sale of the Trust's shares.
23. NOTICES. Any notice provided hereunder shall be sufficiently
given when sent by registered or certified mail to the party required to be
served with such notice, at the following address:
PARKSTONE ADVANTAGE FUND
3435 Stelzer Road
Columbus, Ohio 43219
BISYS FUND SERVICES, INC.
3435 Stelzer Road
Columbus, Ohio 43219
or at such other address as such party may from time to time specify in writing
to the other party pursuant to this Section.
24. HEADINGS. Paragraph headings in this Agreement are included
for convenience only and are not to be used to construe or interpret this
Agreement.
25. ASSIGNMENT. This Agreement and the rights and duties
hereunder shall not be assignable with respect to a Fund by either of the
parties hereto except with the specific written consent of the other party.
26. GOVERNING LAW. This Agreement shall be governed by and its
provisions shall be construed in accordance with the laws of the State of Ohio.
27. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS. The
names "The Parkstone Advantage Fund" and "Trustees of Parkstone Advantage Fund"
refer respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under a Declaration of
Trust dated as of May 18, 1993, to which reference is hereby made and a copy of
which is on file at the office of the Secretary of the Commonwealth of
Massachusetts and elsewhere as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of "Parkstone Advantage
Fund" entered into in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually, but in such capacities,
and are not binding upon any of the Trustees, Shareholders or representatives
of the Trust personally, but bind only the assets of the Trust, and all persons
dealing with any series of shares of the Trust must look solely to the assets
of the Trust belonging to such series for the enforcement of any claims against
the Trust.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
THE PARKSTONE ADVANTAGE FUND
By: /s/ George R. Landreth
------------------------------
BISYS FUND SERVICES, INC.
By: /s/ Stephen G. Mintos
-------------------------------
10
<PAGE> 11
SCHEDULE A
TO THE FUND ACCOUNTING AND TRANSFER AGENCY AGREEMENT
DATED JULY 1, 1996
PARKSTONE ADVANTAGE FUND
------------------------
The investment portfolios of the Trust to which this agreement applies are as
follows:
Prime Obligations Fund
Equity Fund
Bond Fund
International Discovery Fund
Small Capitalization Fund
<PAGE> 12
SCHEDULE B
TO THE FUND ACCOUNTING AND TRANSFER AGENCY AGREEMENT
DATED JULY 1, 1996
------------------
TRANSFER AGENCY SERVICES
------------------------
RECORD MAINTENANCE
- ------------------
BISYS shall provide full maintenance of all shareholder records for each account
in the Trust. Such records will include:
(a) Share balances.
(b) Account transaction history, including dividends paid and the date and
price for all transactions.
(c) Name and address of the record shareholder, including ZIP codes and tax
identification numbers (but BISYS shall not be responsible for obtaining
certified tax identification numbers or impending back-up withholding).
(d) Records of distributions and dividend payments.
(e) Transfer records.
(f) Overall control records.
<PAGE> 13
SCHEDULE C
TO THE FUND ACCOUNTING AND TRANSFER AGENCY AGREEMENT
DATED JULY 1, 1996
------------------
DOMESTIC FUNDS
--------------
First 12 months, per Fund:
AVERAGE DAILY NET ASSETS COMPENSATION
- ------------------------ -------------
Less than $100 million .03%, plus
$100 million but less than $250 million .02%, plus
$250 million and more .01%
Minimum fee per Fund $1,250 per month
Second 12 months and subsequent years, per Fund:
AVERAGE DAILY NET ASSETS COMPENSATION
- ------------------------ ------------
Less than $250 million .02%, plus
$250 million and more .01%
Minimum fee per Fund $2,500 per month
INTERNATIONAL DISCOVERY FUND
----------------------------
AVERAGE DAILY NET ASSETS COMPENSATION
- ------------------------ ------------
Less than $100 million .08%, plus
$100 million but less than $250 million .04%, plus
$250 million but less than $500 million .02%
$500 million and over .015%
Minimum fee per Fund $2,500 per month
The domestic Funds consist of The Prime Obligations, Bond, Equity and Small
Capitalization Funds.
As compensation for the services to be rendered by BISYS pursuant to this
Agreement, the Trust shall pay BISYS an annual fee based on the fee schedule set
forth above, and the average daily closing value of the net assets of each Fund.
Such fee shall be calculated daily and payable
<PAGE> 14
monthly. If for any month the fee calculated for a Fund, based on its net
assets, does not exceed the applicable Minimum Fee, then such Minimum Fee shall
be paid for that month.
THE PARKSTONE ADVANTAGE FUND BISYS FUND SERVICES, INC.
By: /s/ George R. Landreth By: /s/ Stephen G. Mintos
---------------------------------- -----------------------------
Its: President Its: Executive Vice President
----------------------------
Date: July 1, 1996 Date: July 1, 1996
-------------------------------- --------------------------
<PAGE> 1
EXHIBIT 9(b)(i)
DATED: FEBRUARY 12, 1997
SCHEDULE C
TO THE
FUND ACCOUNTING AND TRANSFER AGENCY AGREEMENT
BETWEEN THE PARKSTONE ADVANTAGE FUND
AND BISYS FUND SERVICES, L.P.
DATED JULY 1, 1996
FUND ACCOUNTING
- ---------------
1. Each Fund shall pay an annual base fee of $10,000 payable in equal
monthly installments.
2. Each money market Fund shall pay an additional annual fee of 0.016% of
the average daily net assets of each portfolio payable monthly.
3. Each variable net asset value Fund, except for the International
Discovery Fund, shall pay an additional annual fee of 0.022% of the
average daily net assets of each portfolio payable monthly.
4. The International Discovery Fund shall pay an additional annual fee of
0.035% of the average daily net assets of such portfolio payable
monthly.
TRANSFER AGENCY
- ---------------
Each Fund shall pay an annual base fee of $15,000 payable in equal
monthly installments.
THE PARKSTONE ADVANTAGE FUND BISYS FUND SERVICES, L.P.
BY: /s/ SCOTT A. ENGLEHART BY: /s/ STEPHEN G. MINTOS
--------------------------------------- ------------------------------
SCOTT A. ENGLEHART STEPHEN G. MINTOS
PRESIDENT EXECUTIVE VICE PRESIDENT
<PAGE> 1
EXHIBIT 9(c)
FUND PARTICIPATION AND VARIABLE CONTRACT
MARKETING AGREEMENT
AMONG
SECURITY BENEFIT LIFE INSURANCE COMPANY
ON ITS BEHALF AND ON BEHALF OF
THE PARKSTONE VARIABLE ANNUITY ACCOUNT,
THE PARKSTONE ADVANTAGE FUND,
FIRST OF AMERICA INVESTMENT CORPORATION,
SECURITY MANAGEMENT COMPANY,
SECURITY DISTRIBUTORS, INC.,
FIRST OF AMERICA BROKERAGE SERVICE, INC.
AND
FIRST OF AMERICA BANK CORPORATION
DATED AS OF SEPTEMBER 10, 1993
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I OFFER OF VARIABLE CONTRACTS................................................................. 2
1.1 Form of Contracts.................................................................... 2
1.2 Acceptance of Applications........................................................... 2
1.3 Related Agreements................................................................... 2
ARTICLE II PURCHASE AND SALE OF FUND SHARES........................................................... 3
2.1 Agreements to Purchase and Sell...................................................... 3
2.2 Diversification...................................................................... 3
2.3 Mixed and Shared Funding............................................................. 3
2.4 Redemption........................................................................... 4
2.5 Settlement Upon Sales................................................................ 4
2.6 Book Entry........................................................................... 4
2.7 Dividends............................................................................ 4
2.8 Net Asset Value...................................................................... 4
ARTICLE III REPRESENTATIONS AND WARRANTIES............................................................ 4
A. Insurer.............................................................................. 4
3.1 The Insurance Company................................................................ 4
3.2 Separate Account..................................................................... 5
3.3 Variable Contracts................................................................... 5
3.4 Separate Account..................................................................... 5
3.5 Annuity Contracts.................................................................... 5
B. The Fund and Administrator........................................................... 5
3.6 Organization......................................................................... 5
3.7 Shares............................................................................... 5
C. The Fund, Investment Adviser and Administrator....................................... 5
3.8 Regulated Investment Company......................................................... 5
D. The Investment Adviser............................................................... 6
3.9 Investment Adviser................................................................... 6
E. Distributor.......................................................................... 6
i
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
3.10 Broker-Dealer........................................................................ 6
F. The Servicing Agent.................................................................. 6
3.11 Broker-Dealer........................................................................ 6
ARTICLE IV GENERAL DUTIES............................................................................. 6
A. The Fund and/or the Administrator.................................................... 6
4.1 Registration of Fund Shares.......................................................... 6
4.2 Organizational Expenses.............................................................. 6
4.3 Statutory Seed Money................................................................. 7
B. The Fund and the Investment Adviser.................................................. 7
4.4 Subchapter M......................................................................... 7
4.5 Diversification...................................................................... 7
4.6 Other Requirements................................................................... 7
C. The Insurer.......................................................................... 7
4.7 Organizational Expenses for Separate Account......................................... 7
4.8 Registration of Separate Account..................................................... 7
4.9 Annuities............................................................................ 8
4.10 Compliance........................................................................... 8
D. The Distributor...................................................................... 8
4.11 Compliance........................................................................... 8
E. All Parties.......................................................................... 8
4.12 Cooperation.......................................................................... 8
4.13 Compliance Responsibilities.......................................................... 8
ARTICLE V PROSPECTUSES AND PROXY STATEMENTS; VOTING................................................... 9
5.1 Fund Documents....................................................................... 9
5.2 Fund Prospectus...................................................................... 9
5.3 Fund SAI............................................................................. 9
5.4 Proxy Statements and Periodic Reports................................................ 9
ii
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
5.5 Separate Account Documents........................................................... 9
5.6 Separate Account Prospectus and SAI.................................................. 10
5.7 Voting............................................................................... 10
ARTICLE VI MARKETING AND PROMOTION.................................................................... 10
6.1 [Reserved]........................................................................... 10
6.2 Insurer's, Administrator's and Distributor's Sales Literature........................ 10
6.3 Representations About Fund........................................................... 11
6.4 Servicing Agent's, Investment Adviser's and Holding Company's Sales
Literature........................................................................... 11
6.5 Representations About Insurer........................................................ 11
6.6 Fund SEC Filings..................................................................... 11
6.7 Separate Account SEC Filings......................................................... 11
6.8 Sales Literature..................................................................... 12
6.9 Confidentiality...................................................................... 12
ARTICLE VII INDEMNIFICATION........................................................................... 12
7.1 Indemnification by the Insurer....................................................... 12
7.2 Indemnification by the Administrator................................................. 13
7.3 Indemnification by the Investment Adviser............................................ 14
7.4 Indemnification by the Servicing Agent............................................... 15
7.5 Indemnification by Distributor....................................................... 16
7.6 Indemnification Not Applicable....................................................... 17
7.7 Notification......................................................................... 17
7.8 Notice............................................................................... 17
ARTICLE VIII EXCLUSIVITY.............................................................................. 18
8.1 The Fund............................................................................. 18
8.2 The Separate Account................................................................. 18
ARTICLE IX APPLICABLE LAW............................................................................. 18
9.1 Kansas Law........................................................................... 18
9.2 Securities Acts...................................................................... 18
ARTICLE X REINSURANCE OF VARIABLE CONTRACTS........................................................... 18
10.1 Change in Law........................................................................ 18
10.2 Change in Rating of Insurer.......................................................... 19
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE XI SUBSTITUTION AND TERMINATION............................................................... 19
11.1 Substitution......................................................................... 19
11.2 Grounds for Termination.............................................................. 19
11.3 Notice............................................................................... 20
11.4 Effect of Termination................................................................ 21
ARTICLE XII NOTICES................................................................................... 21
ARTICLE XIII MISCELLANEOUS............................................................................ 22
13.1 Trustees and Shareholders Not Liable................................................. 22
13.2 Rights of Trustees and Shareholders.................................................. 23
13.3 "Parkstone" Name..................................................................... 23
13.4 Protection of Name................................................................... 23
13.5 Consultation......................................................................... 23
13.6 Captions............................................................................. 23
13.7 Execution in Counterpart............................................................. 23
13.8 Invalidity of a Provision............................................................ 24
13.9 Assignment........................................................................... 24
</TABLE>
iv
<PAGE> 6
FUND PARTICIPATION AND VARIABLE CONTRACT
MARKETING AGREEMENT
THIS AGREEMENT is made as of the 10th day of September, 1993, by and
among SECURITY BENEFIT LIFE INSURANCE COMPANY ("Insurer"), a Kansas mutual life
insurance corporation, on its behalf and on behalf of The Parkstone Variable
Annuity Account (the "Separate Account"), a segregated asset account of the
Insurer; the PARKSTONE ADVANTAGE FUND (the "Fund"), a Massachusetts business
trust; FIRST OF AMERICA INVESTMENT CORPORATION ("Investment Adviser"), a
Michigan corporation; SECURITY MANAGEMENT COMPANY ("Administrator"), a Kansas
corporation; SECURITY DISTRIBUTORS, INC. (Distributor"), a Kansas corporation
and a subsidiary of Insurer; FIRST OF AMERICA BROKERAGE SERVICE, INC.
("Servicing Agent"), a Michigan corporation and an affiliate of Investment
Adviser; and FIRST OF AMERICA BANK CORPORATION ("Holding Company"), a Michigan
corporation and the parent of Investment Adviser and Servicing Agent.
WHEREAS, the Fund is registered with the Securities and Exchange
Commission ("SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended ("1940 Act"), and the Fund is
authorized to issue separate series of shares of beneficial interest ("shares"),
each representing an interest in a separate portfolio of assets ("series"), and
each series has its own investment objective or objectives, policies, and
limitations; and
WHEREAS, the Fund is currently comprised of five separate series, and
other series may be established in the future; and
WHEREAS, the Separate Account is registered with the SEC as a unit
investment trust under the 1940 Act: and
WHEREAS, pursuant to Investment Advisory Agreements, the Investment
Adviser serves as investment adviser to the Fund and its series; and
WHEREAS, pursuant to an Administration Agreement, the Administrator is
promoter of the Fund, and provides administrative services to the Fund; and
WHEREAS, pursuant to a Distribution Agreement, the Distributor is
distributor of the Fund's shares; and
WHEREAS, shares of one or more of the Fund's series are or will be
available to be offered to the Separate Account to serve as an investment medium
for variable annuity contracts to be issued by the Insurer ("Variable
Contracts"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Insurer wishes to purchase shares of one or more of the Fund's
series on behalf of the Separate
<PAGE> 7
Account to serve as an investment medium for Variable Contracts funded by the
Separate Account; and
WHEREAS, pursuant to an Application and Service Agreement, the
Servicing Agent has agreed to assist Distributor and First Advantage Insurance
Agency, Inc. in accepting applications for Variable Contracts; and
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants hereinafter set forth, the parties hereby agree as
follows:
ARTICLE I
OFFER OF VARIABLE CONTRACTS
1.1 FORM OF CONTRACTS. The Variable Contracts funded or to be funded by
the Separate Account shall be substantially similar to the form of the variable
annuity contracts attached hereto as Exhibits A and B, although the Insurer may
make such immaterial changes to the form of the contracts in Exhibits A and B as
deemed appropriate by the Insurer. The Insurer shall notify Holding Company and
Servicing Agent prior to making any such changes.
1.2 ACCEPTANCE OF APPLICATIONS. The Insurer shall appoint Distributor
as the exclusive principal underwriter for the sale of the Variable Contracts,
and shall direct that, subject to agreement among Distributor and the Servicing
Agent, Distributor shall enter into an agreement, substantially in the form
attached hereto as Exhibit C, with the Servicing Agent under which the Servicing
Agent, or such affiliates of Insurer, Distributor or Servicing Agent as shall be
or become parties to such agreement pursuant to Section 1.3 hereof, will be
authorized to accept applications and render related services for the Variable
Contracts ("Application and Service Agreement"), for which the Servicing Agent
shall be the broker/dealer of record.
1.3 RELATED AGREEMENTS. In those states that do not permit the
necessary licensing of Servicing Agent or as to which Insurer or Distributor and
Servicing Agent otherwise agree, Insurer shall establish, or cause Distributor
to establish, appropriately licensed insurance agencies ("Other Agencies") and
shall cause each of such Other Agencies to accept applications for the Variable
Contracts in accordance with the terms of the Application and Service Agreement.
Insurer and Distributor, as appropriate, shall cause each of the Other Agencies
to enter into agreements, substantially in the form attached hereto as Exhibit
D, with registered representatives of and designated by Servicing Agent under
which such registered representatives shall be appointed agents of Insurer and
authorized by the Other Agency to accept, on behalf of the Other Agency,
customer applications for the Variable Contracts (each a "Dual Service
Agreement"). Insurer, and Distributor, as appropriate, shall enter into, and
shall cause the Other Agencies to enter into, agreements, substantially in the
form attached hereto as Exhibit E, with Servicing Agent or an affiliate of
Servicing Agent under which Insurer and the Other
2
<PAGE> 8
Agency grant Servicing Agent or its affiliate an option to purchase all of the
assets and to assume the liabilities of the Other Agencies (each an "Option
Agreement").
ARTICLE II
PURCHASE AND SALE OF FUND SHARES
2.1 AGREEMENTS TO PURCHASE AND SELL. The Fund agrees to offer and make
available and Distributor agrees to sell to the Separate Account and on behalf
of the Separate Account, Insurer agrees to purchase from Distributor and the
Fund shares of the series offered and made available as the investment medium
for the Variable Contracts and identified on Schedule A, as such may be amended
from time to time, ("Series"). Distributor and the Fund agree to make such
shares available to the Insurer and Separate Account and to execute such orders
on each day on which the Fund calculates its net asset value pursuant to rules
of the SEC ("business day") at the net asset value next computed after receipt
and acceptance by the Fund or its agent of the order for the shares of the Fund,
without the imposition of any sales load; provided, however, that the Board of
Trustees of the Fund may refuse to sell shares of any Series to any person, or
suspend or terminate the offering of shares of any Series, if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Trustees, acting in good faith and in light of the
Trustees' fiduciary duties under applicable law, necessary in the best interests
of the shareholders of any Series.
2.2 DIVERSIFICATION. The Fund and Distributor agree that shares of the
Series of the Fund will be sold only to the Insurer on behalf of the Separate
Account and other persons consistent with each Series being adequately
diversified pursuant to Section 817(h) of the Internal Revenue Code of 1986, as
amended ("Code") and the regulations thereunder. No shares of any Series will be
sold directly to the general public to the extent prohibited by Section 817(h)
and the regulations thereunder.
2.3 MIXED AND SHARED FUNDING. Subject to the provisions of Articles
VIII and X of this Agreement, the Fund and Distributor will not sell shares of
the Fund to any insurance company or separate account to serve as an investment
vehicle for variable life insurance policies unless the Fund has first obtained
an appropriate exemptive order from the SEC if required by the 1940 Act and the
rules thereunder, such as an order to permit "mixed funding" or "shared
funding" if the Fund offers its shares to a variable life separate account of
the Insurer or of an unaffiliated life insurer. In such event, all parties to
this Agreement agree to comply with any applicable conditions imposed under any
exemptive order issued by the SEC, or any applicable conditions specified in
Rule 6e-2 or Rule 6e-3(T) under the 1940 Act (or, if permanently adopted, Rule
6e-3), whichever is applicable. The Fund and Distributor will not sell shares
of the Series to any insurance company or separate account other than the
Insurer, and the Separate Account unless there is in effect an agreement
containing provisions necessary to comply with any applicable conditions of an
SEC exemptive order, Rule 6e-2 or 6e-3(T) (or, if permanently adopted, Rule
6e-3), whichever is applicable.
3
<PAGE> 9
2.4 REDEMPTION. Upon receipt of a request for redemption in proper form
from the Insurer, the Fund agrees to redeem any full or fractional shares of the
Series held by the Insurer, including shares held on behalf of the Separate
Account, ordinarily executing such requests on each business day at the net
asset value next computed after receipt and acceptance by the Fund or its agent
of the request for redemption, except that the Fund reserves the right to
suspend the right of redemption, consistent with Section 22(e) of the 1940 Act
and any rules thereunder. Such redemption ordinarily shall be paid not later
than one business day following receipt by the Fund or its agent of the request
for redemption, although the Fund reserves the right to delay payment upon
redemption, consistent with Section 22(e) of the 1940 Act and any rules
thereunder.
2.5 SETTLEMENT UPON SALES. The Insurer shall pay for shares of the
Series not later than one business day after it places an order to purchase
shares of the Series. Payment shall be in federal funds transmitted by wire.
2.6 BOOK ENTRY. Issuance and transfer of shares of the Series will be
by book entry only unless otherwise agreed by the Fund. Stock certificates will
not be issued to the Insurer or the Separate Account unless otherwise agreed by
the Fund. Shares ordered from the Fund will be recorded in an appropriate title
for the Separate Account or the appropriate subaccounts of the Separate Account.
2.7 DIVIDENDS. The Fund shall promptly furnish notice (by wire or
telephone, followed by written confirmation) to the Insurer of any dividends or
capital gains distributions payable on the shares of the Series. The Insurer
hereby elects to reinvest in the Series all such dividends and distributions as
are payable on a Series' shares and to receive such dividends and distributions
in additional shares of that Series. The Insurer reserves the right to revoke
this election in writing, giving at least five days prior notice, and to receive
all such dividends and distributions in cash. The Fund shall notify the Insurer
of the number of shares so issued as payment of such dividends and
distributions.
2.8 NET ASSET VALUE. The Fund shall instruct its recordkeeping agent to
advise the Insurer on each business day of the net asset value per share for
each Series by 5:00 p.m. New York City time, or, if not possible by 5:00 p.m.,
as soon as reasonably practical after the net asset value per share is
calculated.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
A. INSURER
3.1 THE INSURANCE COMPANY. The Insurer represents and warrants
that it is a life insurance company duly organized and in good standing under
Kansas law, that the Insurer is
4
<PAGE> 10
authorized to offer the Variable Contracts in those states set forth in Schedule
B and that it is taxed as an insurance company under Subchapter L of the Code.
3.2 SEPARATE ACCOUNT. The Insurer represents and warrants that it has
legally and validly established the Separate Account as a segregated asset
account under the insurance laws and regulations of the state of Kansas, and
that the Separate Account is a validly existing segregated asset account under
applicable federal and state law.
3.3 VARIABLE CONTRACTS. The Insurer represents and warrants that the
Variable Contracts to be issued by the Insurer or interests in the Separate
Account under such Variable Contracts are or, prior to issuance, will be
registered as securities under the Securities Act of 1933 ("1933 Act").
3.4 SEPARATE ACCOUNT. The Insurer represents and warrants that the
Separate Account is or, prior to issuance, will be registered as a unit
investment trust in accordance with the provisions of the 1940 Act.
3.5 ANNUITY CONTRACTS. The Insurer represents that it believes, in good
faith and in accordance with current law, that the Variable Contracts, when
issued, will be treated as annuity contracts under applicable provisions of the
Code.
B. THE FUND AND ADMINISTRATOR
3.6 ORGANIZATION. The Fund and Administrator represent and warrant that
the Fund is duly organized as a business trust under the laws of the
Commonwealth of Massachusetts, and is in good standing under applicable law.
3.7 SHARES. The Fund and Administrator represent and warrant that the
shares of the Series are duly authorized for issuance in accordance with
applicable law, that the shares of the Series are or, prior to issuance, will be
registered as securities under the 1933 Act, and that the Fund is registered as
an open-end management investment company under the 1940 Act.
C. THE FUND, INVESTMENT ADVISER AND ADMINISTRATOR
3.8 REGULATED INVESTMENT COMPANY. The Fund and the Investment Adviser
and Administrator represent and warrant that they believe that each Series of
the Fund shall be eligible to qualify as a regulated investment company under
Subchapter M of the Code, and each has no reason to believe that any Series will
not so qualify, and has no reason to believe that any Series will not be able to
meet the diversification requirements of Section 817(h) of the Code and the
regulations thereunder.
5
<PAGE> 11
D. THE INVESTMENT ADVISER
3.9 INVESTMENT ADVISER. The Investment Adviser represents and warrants
that it is registered as an investment adviser with the SEC and with each state
in which it is required to be registered in connection with its responsibilities
to the Fund pursuant to the Investment Advisory Agreements.
E. DISTRIBUTOR
3.10 BROKER-DEALER. Distributor represents and warrants that it is a
member in good standing of the NASD and is registered as a broker-dealer with
the SEC under the Securities Exchange Act of 1934 ("1934 Act") and with each
state in which it is required to be registered in connection with its
responsibilities to the Fund pursuant to the Distribution Agreement.
F. THE SERVICING AGENT
3.11 BROKER-DEALER. The Servicing Agent represents and warrants that it
is a member in good standing of the NASD and is registered as a broker-dealer
with the SEC under the 1934 Act and with each state in which it is required to
be registered in connection with its responsibilities pursuant to the
Application and Service Agreement.
ARTICLE IV
GENERAL DUTIES
A. THE FUND AND/OR THE ADMINISTRATOR
4.1 REGISTRATION OF FUND SHARES. The Fund and the Administrator shall
take all such actions as are necessary to permit the sale of the shares of each
Series to the Separate Account, including, but not limited to, maintaining the
Fund's registration as an investment company under the 1940 Act and registering
the shares of the Series sold to the Separate Account under the 1933 Act for so
long as required by applicable law. The Fund and the Administrator shall amend
the Registration Statement of the Fund filed with the SEC under the 1933 Act and
the 1940 Act from time to time as required in order to effect the continuous
offering of the shares of the Series. The Fund and Administrator shall register
and qualify the shares of the Fund for sale in accordance with the laws of the
various states to the extent required by applicable law.
4.2 ORGANIZATIONAL EXPENSES. The Administrator will pay, on behalf of
the Fund and subject to recovery from the Fund, all expenses of the Fund
incurred on or prior to the commencement of operations of the Fund, including,
but not limited to, legal fees, auditing fees, SEC registration fees, and
organizational fees that are determined to be "organizational costs" of the
Fund.
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4.3 STATUTORY SEED MONEY. The Administrator agrees that prior to the
effective date of the Registration Statement for the Fund, the Administrator
shall invest $100,000 in the Fund to the extent required by Section 14(a) of the
1940 Act, subject to the understanding that at the time of investment, the
Administrator has no current intention of reselling the shares so acquired, and
that all redemptions by the Administrator of any part of its investment in the
Fund will be effected in accordance with any applicable legal standards,
including restrictions on the amount that may be redeemed.
B. THE FUND AND THE INVESTMENT ADVISER
4.4 SUBCHAPTER M. The Fund and Investment Adviser shall take all
necessary steps to ensure that each Series qualifies and to maintain each
Series' qualification as a Regulated Investment Company under Subchapter M of
the Code (or any successor or similar provision), and shall notify the Insurer
immediately upon having a reasonable basis for believing that a Series has
ceased to so qualify or that it might not so qualify in the future.
4.5 DIVERSIFICATION. The Fund and Investment Adviser shall take all
necessary steps to ensure that each Series complies and maintains compliance
with the diversification provisions of Section 817(h) of the Code and the
regulations issued thereunder relating to the diversification requirements for
variable annuity contracts and any prospective amendments or other modifications
to Section 817 or regulations thereunder, and shall notify the Insurer
immediately upon having a reasonable basis for believing that any Series has
ceased to comply.
4.6 OTHER REQUIREMENTS. The Fund and Investment Adviser shall take all
steps necessary to adhere to any requirements under tax or insurance law or
otherwise that pertain to the Fund by virtue of serving as an investment vehicle
for the Variable Contracts and for which notice is provided, pursuant to Section
4.13, to the Fund, Investment Adviser or Administrator by the Insurer.
C. THE INSURER
4.7 ORGANIZATIONAL EXPENSES FOR SEPARATE ACCOUNT. The Insurer will pay
all expenses in connection with organization of the Separate Account incurred on
or prior to its commencement of operations, including, but not limited to, legal
fees, auditing fees, SEC registration fees for the Separate Account, the cost of
any necessary applications for exemptive relief from the provisions of the 1940
Act in connection with the offering of the Variable Contracts, and any other
expenses that arise in connection with the organization of the Separate Account,
and will pay the expense of filing or obtaining approval for the Variable
Contracts with the insurance commissioners or other applicable authorities in
the states indicated on Schedule B.
4.8 REGISTRATION OF SEPARATE ACCOUNT. The Insurer shall take all such
actions as are necessary under applicable federal and state law to permit the
sale of the Variable Contracts issued by the Insurer, including registering the
Separate Account as an investment company under the 1940 Act, and registering
the Variable Contracts or interests in the Separate Account
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<PAGE> 13
under the Variable Contracts under the 1933 Act, and obtaining all necessary
approvals to offer the Variable Contracts from state insurance commissioners or
other insurance authorities in the states indicated on Schedule B.
4.9 ANNUITIES. The Insurer shall, to the extent consistent with
applicable law, take all reasonable steps necessary to maintain the treatment of
the Variable Contracts issued by the Insurer as annuity contracts under
applicable provisions of the Code, and shall notify the other parties to this
Agreement immediately upon having a reasonable basis for believing that such
Variable Contracts have ceased to be so treated or that they might not be so
treated in the future.
4.10 COMPLIANCE. The Insurer shall offer the Variable Contracts issued
by the Insurer in accordance with applicable provisions of the 1933 Act, the
1934 Act, the 1940 Act, the NASD Rules of Fair Practice, and state law
respecting the offering of variable annuity contracts.
D. THE DISTRIBUTOR
4.11 COMPLIANCE. Distributor shall sell and distribute the shares of
the Series of the Fund in accordance with the applicable provisions of the 1933
Act, the 1934 Act, the 1940 Act, the NASD Rules of Fair Practice, and state law.
E. ALL PARTIES
4.12 COOPERATION. Each party hereto shall cooperate with each other
party and all appropriate governmental authorities having jurisdiction
(including, without limitation, the SEC, the NASD, and state insurance
regulators) and shall permit such authorities reasonable access to its books and
records in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
4.13 COMPLIANCE RESPONSIBILITIES. Each party hereto shall take all
reasonable steps necessary to comply with any requirements under applicable law,
including without limitation those respecting securities, insurance, banking or
variable annuity contracts, that relate to the responsibilities of such party
under this Agreement or under the Application and Service Agreement. The
Insurer, the Administrator and/or the Distributor shall notify the Investment
Adviser, Servicing Agent, Holding Company and the Fund of changes subsequent to
the date hereof in applicable insurance law, regulation or interpretations
thereof affecting the responsibilities of any such party under this Agreement or
the Application and Service Agreement. The Holding Company, Investment Adviser
and/or Servicing Agent shall notify the Insurer, the Administrator, the
Distributor and the Fund of changes subsequent to the date hereof in applicable
banking law, regulation or interpretations thereof affecting the
responsibilities of any such party under this Agreement or the Application and
Service Agreement.
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ARTICLE V
PROSPECTUSES AND PROXY STATEMENTS; VOTING
5.1 FUND DOCUMENTS. The Distributor shall provide and the Servicing
Agent shall deliver such prospectuses, statements of additional information
("SAIs"), proxy statements, and periodic reports of the Fund to the owners of
Variable Contracts as are required to be distributed to such Variable Contract
Owners under applicable federal or state law.
5.2 FUND PROSPECTUS. The Distributor shall provide the Servicing Agent
with as many copies of the current prospectus of the Fund as the Servicing Agent
may reasonably request. If requested by the Servicing Agent in lieu thereof, the
Distributor shall provide such documentation (including a final copy of the
Fund's prospectus as set in type or in camera-ready copy) and other assistance
as is reasonably necessary in order for the Servicing Agent to print together in
one document the current prospectus for the Variable Contracts issued by the
Insurer and the current prospectus for the Fund. The Fund shall bear the expense
of printing copies of its current prospectus that will be distributed to
existing Variable Contract Owners, and the Distributor shall bear the expense of
printing copies of the Fund's prospectus that are used in connection with
accepting applications for the Variable Contracts.
5.3 FUND SAI. The Fund and the Distributor shall provide (1) at the
Fund's expense, such copies of the Fund's current SAI to the Servicing Agent as
the Servicing Agent may reasonably request for purposes of delivering the SAI to
any owner of a Variable Contract who requests such SAI, (2) at the Distributor's
expense, such additional copies of the Fund's current SAI as the Servicing Agent
shall reasonably request and that shall be required in accordance with
applicable law in connection with accepting applications for the Variable
Contracts.
5.4 PROXY STATEMENTS AND PERIODIC REPORTS. The Fund and the
Administrator shall provide to the Servicing Agent, at the Fund's expense,
copies of the Fund's proxy material, periodic reports to shareholders and other
communications to shareholders in such quantity as the Servicing Agent shall
reasonably require for purposes of delivering to owners of Variable Contracts.
The Fund and the Administrator shall provide to the Servicing Agent, at the
Administrator's expense, copies of the Fund's periodic reports to shareholders
and other communications to shareholders in such quantity as the Servicing Agent
shall reasonably request for use in connection with accepting applications for
the Variable Contracts. If requested by the Servicing Agent in lieu thereof, the
Fund and Administrator shall provide such documentation (including a final copy
of the Fund's proxy materials, periodic reports to shareholders and other
communications to shareholders, as set in type or in camera-ready copy) and
other assistance as reasonably necessary in order for the Servicing Agent to
print such shareholder communications for distribution to owners of the Variable
Contracts.
5.5 SEPARATE ACCOUNT DOCUMENTS. The Insurer and the Distributor shall
provide and the Servicing Agent shall deliver such prospectuses, SAIs and
periodic reports of the Separate
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<PAGE> 15
Account to the Owners of the Variable Contracts as are required to be delivered
to such Variable Contract Owners under applicable federal or state law.
5.6 SEPARATE ACCOUNT PROSPECTUS AND SAI. The Insurer and the
Distributor, at their expense, shall provide the Servicing Agent with as many
copies of the current prospectus and SAI of the Separate Account and any
periodic reports of the Separate Account as the Servicing Agent may reasonably
request. If requested by the Servicing Agent in lieu thereof, the Insurer and
the Distributor shall provide such documentation (including a final copy of any
of such documents as set in type or in camera-ready copy) and other assistance
as is reasonably necessary in order for the Servicing Agent to print together in
one document the current prospectus and/or SAI for the Separate Account and the
current prospectus and/or SAI for the Fund or the periodic reports for the
Separate Account and the Fund.
5.7 VOTING. For so long as the SEC interprets the 1940 Act to require
that owners of variable contracts funded by a registered separate account be
given "pass through" voting rights in connection with meetings of shareholders
of an underlying fund in which the separate account invests, the Insurer shall
vote shares of each Series of the Fund held in the Separate Account or a
subaccount thereof at regular and special meetings of the Fund in accordance
with instructions timely received by the Insurer (or its designated agent for
these purposes, which may be the Servicing Agent) from owners of Variable
Contracts funded by the Separate Account or subaccount thereof having a voting
interest in the Series. The Insurer shall vote shares of a Series of the Fund
held in the Separate Account or a subaccount thereof that are attributable to
the Variable Contracts as to which no timely instructions are received, as well
as shares held in the Separate Account or subaccount thereof that are not
attributable to the Variable Contracts and are owned beneficially by the Insurer
(resulting from charges against the Variable Contracts or otherwise), in the
same proportion as the votes cast by owners of the Variable Contracts funded by
the Separate Account or subaccount thereof having a voting interest in the
Series from whom instructions have been timely received. The Insurer shall vote
shares of each Series of the Fund held in its general account, if any, in the
same proportion as the votes cast with respect to shares of the Series held in
all separate accounts of the Insurer or subaccounts thereof that invest in the
Fund, in the aggregate.
ARTICLE VI
MARKETING AND PROMOTION
6.1 [Reserved]
6.2 INSURER'S, ADMINISTRATOR'S AND DISTRIBUTOR'S SALES LITERATURE. The
Insurer, the Administrator and the Distributor shall each furnish, or shall
cause to be furnished, to the Servicing Agent, each piece of sales literature or
other promotional material that it generates in which the Fund (or any Series
thereof), the Variable Contracts, the Investment Adviser, the Servicing Agent,
Holding Company or any of their affiliates is named, and no such sales
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<PAGE> 16
literature or other promotional material shall be used without the approval of
the Servicing Agent or its designee.
6.3 REPRESENTATIONS ABOUT FUND. The Insurer and Distributor each agree
that each and the affiliates of each shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund other
than the information or representations contained in the Registration Statement
or prospectus for the Fund shares, as such registration statement and prospectus
may be amended or supplemented from time to time, or in periodic reports or
proxy statements for the Fund, or in sales literature or other promotional
material approved by the Servicing Agent or its designee, except with the
permission of the Servicing Agent; provided, however, that Administrator shall
not be prohibited by this provision from providing any information necessary in
connection with its duties under the Administration Agreement.
6.4 SERVICING AGENT'S, INVESTMENT ADVISER'S AND HOLDING COMPANY'S SALES
LITERATURE. The Servicing Agent, the Investment Adviser and the Holding Company
shall each furnish, or shall cause to be furnished, to the Insurer or its
designee and to the Administrator or its designee, each piece of sales
literature or other promotional material that it generates in which the Insurer,
its Separate Account, the Administrator, or either of the Variable Contracts is
named, and no such material shall be used without the approval of the Insurer or
its designee and the Administrator or its designee.
6.5 REPRESENTATIONS ABOUT INSURER. The Fund and the Servicing Agent
each agree that each and the affiliates of each shall not give any information
or make any representations on behalf of the Insurer or concerning the Insurer,
the Separate Account, or the Variable Contracts, other than the information or
representations contained in a registration statement or prospectus for such
Separate Account, as such registration statement and prospectus may be amended
or supplemented from time to time, or in periodic reports for the Separate
Account, or in sales literature or other promotional material approved by the
Insurer or its designee, except with the permission of the Insurer; provided,
however, that Investment Adviser shall not be prohibited by this provision from
providing any information necessary in connection with its duties under the
Investment Advisory Agreements.
6.6 FUND SEC FILINGS. The Fund and the Administrator will provide to
the Insurer and Investment Adviser at least one complete copy of all
prospectuses, Statements of Additional Information, reports, proxy statements
and other voting solicitation materials, and all amendments and supplements to
any of the above, that relate to the Fund or its shares, promptly after the
filing of such document with the SEC or other regulatory authorities.
6.7 SEPARATE ACCOUNT SEC FILINGS. The Insurer will provide to the
Administrator and Investment Adviser at least one complete copy of all
prospectuses, Statements of Additional Information, reports, solicitations for
voting instructions, and all amendments or supplements to any of the above, that
relate to the Variable Contracts issued by the Company or the Separate Account
promptly after the filing of such document with the SEC or other regulatory
authority.
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<PAGE> 17
6.8 SALES LITERATURE. For purposes of this Article VI, the phrase
"sales literature or other promotional material" includes, but is not limited
to, advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures,
computerized media, or other public media), sales literature (i.e., any written
communication distributed or made generally available to customers or the
public, including brochures, circulars, research reports, market letters, form
letters, seminar texts, reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training materials or other
communications distributed or made generally available to some or all agents or
employees.
6.9 CONFIDENTIALITY. Each of the parties hereto shall keep information
about the other parties' business, finances, operations, and customers
confidential; provided, however, that this Section shall not prevent Servicing
Agent and its affiliates from marketing products and services other than the
Variable Contracts to the owners of the Variable Contracts.
ARTICLE VII
INDEMNIFICATION
7.1 INDEMNIFICATION BY THE INSURER. Except as provided in Sections 7.6
or 7.7 of this Agreement, the Insurer agrees to indemnify and hold harmless
the Fund, the Investment Adviser, and the Servicing Agent, each of their
directors, trustees, and officers, and each person, if any, who controls the
Investment Adviser and the Servicing Agent within the meaning of Section 15 of
the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 7.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Insurer)
or litigation expenses (including legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
litigation expenses are related to the sale or acquisition of the Fund's shares
or the Variable Contracts or to the acceptance of applications for the Variable
Contracts or to the operation of the Separate Account or the Fund, and, in any
such case:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement material fact contained in the
registration statement or prospectus for the Separate
Account or sales literature for the Variable Contracts or
the Fund generated by the Insurer (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Insurer,
directly or indirectly, by or on behalf
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<PAGE> 18
of any Indemnified Party for use in the registration
statement or prospectus for the Separate Account or sales
literature (or any amendment or supplement thereto) or
otherwise for use in connection with the sale of such
Variable Contracts or Fund shares or the acceptance of
applications for the Variable Contracts;
(ii) arise out of or as a result of any statement or
representation (other than statements or representations
contained in the registration statement or prospectus of the
Fund or in sales literature that were not supplied by the
Insurer) or wrongful conduct of the Insurer or any of its
affiliates, employees or agents (but not including agents
that are Indemnified Parties or employees or agents of
Indemnified Parties) with respect to the sale or
distribution of the Variable Contracts or Fund shares or the
acceptance of applications for the Variable Contracts;
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in a
registration statement or prospectus of the Fund or any
amendment thereof or supplement thereto or in sales
literature, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, if
such statement or omission was made in reliance upon
information furnished to an Indemnified Party by or on
behalf of the Insurer; or
(iv) arise as a result of a failure by the Insurer to meet its
responsibilities under Section 4.9 of this Agreement.
7.2 INDEMNIFICATION BY THE ADMINISTRATOR. Except as provided in Section
and 7.7 of this Agreement, the Administrator and Insurer agree, jointly and
severally, to indemnify and hold harmless the Fund, the Investment Adviser, the
Servicing Agent, and Holding Company, each of their directors, trustees, and
officers, and each person, if any, who controls the Fund, the Investment
Adviser, the Servicing Agent or Holding Company within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 7.2) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Insurer and
Administrator) or litigation expenses (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or litigation expenses are related to the sale or acquisition of the Fund's
shares or the Variable Contracts or to the operation of the Fund, and, in any
such case:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement or prospectus for the Fund or
sales literature for the Variable Contracts or the Fund
generated by the Distributor (or any amendment or supplement
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<PAGE> 19
to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that
this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and
in conformity with information furnished to the
Administrator directly or indirectly, by or on behalf of any
Indemnified Party for use in the registration statement or
prospectus for the Fund or sales literature (or any
amendment or supplement thereto) or otherwise for use in
connection with the sale of such Variable Contracts or Fund
shares or the acceptance of applications for the Variable
Contracts:
(ii) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in a
registration statement or prospectus of the Fund or any
amendment thereof or supplement thereto or in sales
literature, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, if
such statement or omission was made in reliance upon
information furnished to an Indemnified Party by or on
behalf of the Administrator; or
(iii) arise as a result of a failure by the Administrator to meet
its responsibilities under Section 4.1 through 4.3 and 4.6
of this Agreement.
7.3 INDEMNIFICATION BY THE INVESTMENT ADVISER. Except as provided in
Sections 7.6 or 7.7 of this Agreement, the Investment Adviser and Holding
Company agree, jointly and severally, to indemnify and hold harmless the
Insurer, the Administrator, Distributor, and the Fund, and each of their
directors, trustees, and officers, and each person, if any, who controls the
Insurer, Administrator, or Distributor within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
7.3) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Investment Adviser
and Holding Company) or litigation expenses (including legal and other
expenses) to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or litigation expenses are related to the sale or
acquisition of the Fund's shares or the Variable Contracts or to the acceptance
of applications for the Variable Contracts or to the operation of the Separate
Account or the Fund, and, in any such case:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement or prospectus for the Fund or
sales literature for the Variable Contracts or the Fund
generated by the Investment Adviser, Holding Company or an
affiliate thereof (or any amendment or supplement to any of
the
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<PAGE> 20
foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in
conformity with information furnished to the Investment
Adviser or the Fund or the designee of either by or on
behalf of the Insurer or Administrator for use in the
registration statement or prospectus for the Fund or in
sales literature (or any amendment or supplement thereto) or
otherwise for use in connection with the sale of the
Variable Contracts or Fund shares or the acceptance of
applications for the Variable Contracts;
(ii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement or prospectus for the Separate Account or any
amendment thereof or supplement thereto, or in sales
literature, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, if
such statement or omission was made in reliance upon
information furnished to the Insurer or Administrator by or
on behalf of the Investment Adviser; or
(iii) arise as a result of a failure by the Fund and/or the
Investment Adviser to meet the responsibilities under
Section 4.4, 4.5, or 4.6 of this Agreement.
7.4 INDEMNIFICATION BY THE SERVICING AGENT. Except as provided in
Sections 7.6 or 7.7 of this Agreement, the Servicing Agent and Holding Company
agree, jointly and severally, to indemnify and hold harmless the Insurer, the
Administrator, and the Fund, and each of their directors, trustees, and
officers and each person, if any, who controls the Insurer or Administrator
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 7.4) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Servicing Agent and Holding Company) or litigation
expenses (including legal and other expenses) to which the Indemnified Parties
may become subject under any statute, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or litigation expenses are related to
the sale or acquisition of the Fund's shares or the Variable Contracts issued
by the Insurer or the acceptance of applications for the Variable Contracts,
and in any such case:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the
sales literature for the Variable Contracts or the Fund
generated by the Servicing Agent, or arise out of or are
based upon the omission or alleged omission to state in such
sales literature a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this
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<PAGE> 21
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in
conformity with information furnished to the Servicing Agent
or its designee by or on behalf of the Insurer or
Administrator (which, for these purposes, shall be deemed to
include information furnished directly by the Insurer or
Administrator or persons under the sole control of the
Insurer or Administrator) for use in the sales literature or
otherwise for use in connection with the sale of the
Variable Contracts or Fund shares or the acceptance of
applications for the Variable Contracts;
(ii) arise out of or as a result of any statement or
representation (other than statements or representations
contained in the registration statement or prospectus for
the Separate Account or the Fund not supplied by the
Servicing Agent or the Investment Adviser), any unauthorized
use of any sales materials related to the Variable
Contracts, or wrongful conduct of the Servicing Agent, or
the affiliates, employees, or agents of the Servicing Agent
with respect to the sale or distribution of the Variable
Contracts or Fund shares or the acceptance of applications
for the Variable Contracts, including but not limited to any
verbal or written misrepresentations, unlawful sales
practices, and failure to deliver the Separate Account or
Fund prospectus; or
(iii) arise as a result of a failure by the Servicing Agent to
meet its responsibilities under Section 2.3 of the
Application and Service Agreement.
7.5 INDEMNIFICATION BY DISTRIBUTOR. Except as provided in Section 7.6
and 7.7 of this Agreement, Distributor and the Insurer agree, jointly and
severally, to indemnify and hold harmless the Fund, the Investment Adviser, the
Servicing Agent and Holding Company, each of their directors, trustees, and
officers, and each person, if any, who controls the Fund, the Investment
Adviser, the Servicing Agent or Holding Company within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of
this Section 7.5) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of Insurer and
Distributor) or litigation expenses (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages,
liabilities or litigation expenses are related to the sale or acquisition of
the Fund's shares or the Variable Contracts or to the operation of the Fund,
and, in any such case:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
sales literature for the Fund generated by Distributor, or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be
stated
16
<PAGE> 22
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall
not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished
to Distributor directly or indirectly, by or on behalf of
any Indemnified Party (which for these purposes shall be
deemed to include information furnished directly by any
Indemnified Party and persons under the sole control of an
Indemnified Party) for use in the sales literature or
otherwise for use in connection with the sale of such Fund
shares; or
(ii) arise out of or as a result of any unauthorized use of any
sales materials related to the Fund, or wrongful conduct of
Distributor, or the affiliates, employees, or agents of
Distributor with respect to the sale or distribution of the
Fund shares, including but not limited to any verbal or
written misrepresentations, and unlawful sales practices.
7.6 INDEMNIFICATION NOT APPLICABLE. No person required to provide
indemnification under the terms of Sections 7.1, 7.2, 7.3, 7.4 or 7.5 of
this Agreement shall be liable under any such section with respect to any
losses, claims, damages, liabilities or litigation expenses to which an
Indemnified Party under any such section would otherwise be subject by reason
of willful misfeasance or bad faith on the part of such Indemnified Party, or
gross negligence in the performance of such Indemnified Party's duties to the
Fund or the Separate Account, as the case may be, or by reason of such
Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Fund or the Separate Account, as the case may be.
7.7 NOTIFICATION. Any person required to provide indemnification under
the terms of Sections 7.1, 7.2, or 7.5 of this Agreement ("Indemnifying
Party") shall not be liable under the indemnification provisions of Section
7.1, 7.2, 7.5 with respect to any claim made against an Indemnified Party
under any such section unless such Indemnified Party shall have notified the
Indemnifying Party in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after such Party shall have
received notice of such service on any designated agent), but failure to notify
the Indemnifying Party of any such claim shall not relieve the Indemnifying
Party from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of the above-designated
indemnification provisions. In case any such action is brought against an
Indemnified Party, the Indemnifying Party shall be entitled to participate, at
its own expense, in the defense of such action, and counsel selected by any
Indemnified Party must be satisfactory to the Indemnifying Party.
7.8 NOTICE. Each party to this Agreement shall promptly notify the
other parties to the Agreement of the commencement of any litigation or
proceedings against it or any of its officers or directors or affiliated persons
in connection with the issuance or sale of the Variable Contracts or the Fund's
shares, or with the acceptance of applications for the Variable Contracts, or
with the operation of the Variable Contracts, the Separate Account, or the Fund.
17
<PAGE> 23
ARTICLE VIII
EXCLUSIVITY
8.1 THE FUND. Other than shares sold in connection with seeding the
Fund and the purchase of shares of the Series by the First of America Bank
Corporation Employees Retirement Plan, the Fund shall offer and sell the shares
of the Series exclusively to the Separate Account and other separate accounts of
the Insurer for the term of this Agreement, except that the Fund with the
written consent of the Insurer and Investment Adviser, may offer and sell the
shares of the Series to any insurance company or separate account in accordance
with Section of this Agreement. Such written consent shall not be unreasonably
withheld.
8.2 THE SEPARATE ACCOUNT. The Separate Account shall invest
exclusively in the Series of the Fund for the term of this Agreement, unless
otherwise agreed to in writing by the Insurer, the Servicing Agent, and the
Investment Adviser.
ARTICLE IX
APPLICABLE LAW
9.1 KANSAS LAW. This Agreement shall be construed and the
provisions hereof interpreted under and in accordance with the laws of the State
of Kansas.
9.2 SECURITIES ACTS. This Agreement shall be subject to the provisions
of the 1933, 1934, and 1940 Acts, and the rules and regulations and rulings
thereunder, and the terms of this Agreement shall be interpreted and construed
in accordance therewith. The word "affiliate" or "affiliated" shall have the
meaning as defined in Section 2(a)(3) of the 1940 Act.
ARTICLE X
REINSURANCE OF VARIABLE CONTRACTS
10.1 CHANGE IN LAW. In the event of a change in applicable law such
that the Servicing Agent, Holding Company or any of their affiliates are
permitted to engage in insurance underwriting and other insurance-related
activities, the Servicing Agent, or such affiliate ("transferee") shall have the
right subject to conformance with applicable law and to the reasonable
determination by the Insurer that the transferee is suitable and creditworthy,
to require the Insurer to transfer all or part of the assets of the Separate
Account invested in the Fund to the transferee, provided that such transferee is
duly licensed as a life insurance company under the laws of each state in which
owners of the Variable Contracts reside and is authorized to issue variable
annuity contracts in all such states, and to cause the Variable Contracts to be
reinsured by such transferee and further provided that, in the event Holding
Company elects to require the Insurer to transfer only part of the assets of the
Separate Account invested in the Fund to the transferee, the amount of such
assets remaining after the transfer is at least
18
<PAGE> 24
$50 million. The terms of reinsurance shall be negotiated in good faith by the
Servicing Agent, Holding Company or other transferee and the Insurer and shall
provide for the Insurer to receive from the transferee the fair market value of
the Variable Contracts to be reinsured. The transferee shall bear the costs
associated with the transfer of the Separate Account assets, including but not
limited to obtaining any approvals required from the SEC, state insurance
departments or Contract Owners.
10.2 CHANGE IN RATING OF INSURER. In the event that the rating of the
claims-paying ability of the Insurer by Standard & Poors Corporation ("S&P")
falls below BBB, the Insurer shall, at the option of the Holding Company, cause
the Variable Contracts to be reinsured by a life insurance company that is
acceptable to Holding Company, the claims-paying ability of which is rated BBB
or better by S&P, that is duly licensed as a life insurance company under the
laws of each state in which owners of the Variable Contracts reside, and is
authorized to issue variable contracts in all such states. The terms of
reinsurance shall be negotiated in good faith by the Insurer, in consultation
with Holding Company, and the reinsuring life insurance company, and the Insurer
shall be free to seek from the reinsuring life insurance company the fair market
value of the Variable Contracts to be reinsured.
ARTICLE XI
SUBSTITUTION AND TERMINATION
11.1 SUBSTITUTION. All parties agree that the Variable Contracts will
provide that the Insurer reserves the right to substitute the shares of another
investment company or series thereof for the shares of the Fund or a Series
thereof if, shares of any or all of the Series of the Fund are no longer
available for investment, or if, in the judgment of the Insurer's management,
further investment in the shares of the Fund or any or all Series of the Fund
would be inappropriate in view of the purposes of the Variable Contracts.
11.2 GROUNDS FOR TERMINATION. This Agreement shall terminate:
(a) at the option of the Fund, the Investment Adviser, the
Servicing Agent, the Administrator, Distributor, or the Insurer, and upon 90
days advance written notice, at any time after three years from the commencement
of operations of the Separate Account; or
(b) at the option of the Fund, the Investment Adviser, or the
Servicing Agent, upon institution of formal proceedings against the Insurer, the
Administrator, or Distributor by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body that relate to or are likely
to affect the Insurer's, the Administrator's, or Distributor's duties under this
Agreement, the sale or acceptance of applications for the Variable Contracts,
the operation of the Separate Account, or the purchase of the Fund's shares; or
(c) at the option of the Insurer, Administrator, or
Distributor, upon institution of formal proceedings against the Fund, the
Investment Adviser, the Servicing Agent, or any
19
<PAGE> 25
affiliate thereof by the NASD, the SEC, banking authorities, or any state
securities or insurance department or any other regulatory body that relate to
or are likely to affect the duties of any of such persons under this Agreement,
the sale or acceptance of applications for the Variable Contracts, the operation
of the Fund, or the purchase of the Fund's shares; or
(d) at the option of the Insurer, Administrator, or
Distributor, upon the commencement of bankruptcy, liquidation or similar
proceedings respecting the Investment Adviser, or Servicing Agent; and at the
option of the Investment Adviser, Fund, or Servicing Agent, upon the
commencement of bankruptcy, liquidation or similar proceedings respecting the
Insurer, the Administrator, or Distributor; or
(e) upon the substitution by the Insurer of the shares of
another investment company or series thereof for the corresponding shares of the
Fund or a Series thereof in accordance with the terms of the Variable Contracts;
or
(f) at the option of any party in the event of a material
breach in performing the duties specified under this Agreement by any other
unaffiliated party or in the event of a material breach of any representation or
warranty made in this Agreement by any other unaffiliated party; or
(g) at the option of any party in the event that such party
reasonably determines that performance of the duties under this Agreement by any
other unaffiliated party to this Agreement would likely result in a violation of
applicable law, and for these purposes, such a determination shall be deemed
reasonable if supported by an opinion of qualified outside counsel; or
(h) at the option of the Fund, the Investment Adviser, or the
Servicing Agent in the event that any such party reasonably determines that the
Variable Contracts will not be treated as annuity contracts under applicable
provisions of the Code, and for these purposes, such a determination shall be
deemed reasonable if supported by an opinion of qualified outside counsel; or
(i) at the option of any party upon a merger of the Fund
or any of its Series, or the sale of substantially all of the assets of the Fund
or a Series thereof, or a change in the investment adviser to the Fund: or
(j) upon termination of the Application and Service
Agreement between Distributor and the Servicing Agent; or
(k) upon the mutual agreement of all parties to this
Agreement.
11.3 NOTICE. Each party to this Agreement shall promptly notify the
other parties to the Agreement of the institution against such party of any such
formal proceedings as described in Sections 11.2(b), 11.2(c) or 11.2(d) or
hereof.
20
<PAGE> 26
11.4 EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund, the Administrator, and Distributor shall at the option of
the Insurer, continue to make available additional shares of the Fund pursuant
to the terms and conditions of this Agreement, for all Variable Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without limitation, based
upon instructions from the owners of the Existing Contracts, the Separate
Account shall be permitted to reallocate investments in the series of the Fund
and redeem investments in the series, and shall be permitted to invest in the
series in the event that owners of the Existing Contracts make additional
purchase payments under the Existing Contracts. If this Agreement terminates,
the parties agree that Article VII, and Sections 4.12, 13.1, 13.2, 13.3 and
13.5 to the extent that all or a portion of the assets of the
Separate Account continue to be invested in the Fund or any Series of the Fund,
Article II and Sections 4.1, 4.4, 4.5, 4.6, 4.8, 4.9, 4.10, and 5.7 will remain
in effect after termination.
ARTICLE XII
NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
IF TO THE FUND: The Parkstone Advantage Fund
700 S.W. Harrison Street
Topeka, Kansas 66636
Attention: Ms. Amy J. Lee
Vice President and Assistant
Secretary
IF TO THE ADMINISTRATOR: Security Management Company
700 S.W. Harrison Street
Topeka, Kansas 66636
Attention: Mr. James R. Schmank
Senior Vice President
21
<PAGE> 27
IF TO THE DISTRIBUTOR: Security Distributors, Inc.
700 S.W. Harrison Street
Topeka, Kansas 66636
Attention: Ms. Amy J. Lee
Secretary
IF TO THE INVESTMENT ADVISER: First of America Investment Corporation
303 North Rose Street
Kalamazoo, Michigan 49007
Attention: Mr. Richard A. Wolf
President and Chief
Executive Officer
IF TO THE SERVICING AGENT: First of America Brokerage Service, Inc.
157 South Kalamazoo Mall
Kalamazoo, Michigan 49007
Attention: Ms. Susan L. Currier
President and Chief
Executive Officer
IF TO HOLDING COMPANY: First of America Bank Corporation
211 South Rose Street
Kalamazoo, Michigan 49007
Attention: Mr. John B. Rapp
Executive Vice President
IF TO THE INSURER: Security Benefit Life Insurance Company
700 S.W. Harrison Street
Topeka, Kansas 66636
Attention: Ms. Amy J. Lee
Assistant Counsel
ARTICLE XIII
MISCELLANEOUS
13.1 TRUSTEES AND SHAREHOLDERS NOT LIABLE. A copy of the Fund's
Declaration of Trust is on file with the Secretary of the Commonwealth of
Massachusetts and notice is hereby given that such Declaration of Trust has been
executed on behalf of the Fund by a Trustee of the Fund in his or her capacity
as Trustee and not individually. The obligations of this
22
<PAGE> 28
Agreement shall only be binding upon the assets and property of the Fund and
shall not be binding upon any Trustee, officer or shareholder of the Fund
individually.
13.2 RIGHTS OF TRUSTEES AND SHAREHOLDERS. Nothing in this Agreement
shall impede the Fund's Trustees or shareholders of the shares of the Fund's
Series from exercising any of the rights provided to such Trustees or
shareholders in the Fund's Declaration of Trust, as amended, a copy of which
will be provided to the Insurer upon request.
13.3 "PARKSTONE" NAME. It is understood that the name "Parkstone" or
any derivative thereof or logo associated with that name is a registered
trademark and the valuable property of The Parkstone Group of Funds, a
Massachusetts business trust, and an open-end management investment company
registered under the 1940 Act.
13.4 PROTECTION OF NAME. It is understood that the name "Security
Benefit," "SBL" or any derivative thereof or logo associated with that name is
the valuable property of the Insurer and its affiliates, and that the Insurer
and other parties to this Agreement have the right to use such name (or
derivative or logo) only so long as this Agreement is in effect. Upon
termination of this Agreement all parties other than the Insurer shall forthwith
cease to use such name (or derivative or logo).
13.5 CONSULTATION. In the event Insurer or a subsidiary of Insurer has,
as a result of actions not within the control of Insurer or its subsidiaries or
Holding Company or its subsidiaries, failed to be reimbursed for amounts
intended by the Insurer and the Holding Company or any of its subsidiaries to be
reimbursable and expended by it in connection with a business relationship
involving Holding Company or its subsidiaries and other than those to which this
Agreement relates, then Holding Company or a subsidiary shall pay to the Insurer
a consultation fee in advance in an amount at least equal to unreimbursed amount
expended, and the Insurer shall provide to the Holding Company or its
subsidiaries for a period of one-year consultation service with respect to
insurance and annuity marketing, mutual fund management, administration,
shareholder servicing, transfer agency, and fund accounting, or any combination
of the foregoing, as Insurer and Holding Company shall agree. Such consultation
service will relate only to matters within the expertise and knowledge of
Insurer or its subsidiaries and will not require more than 500 hours of employee
time for the one-year period.
13.6 CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
13.7 EXECUTION IN COUNTERPART. This Agreement may be executed
simultaneously in two or more counterparts, each of which taken together shall
constitute one and the same instrument.
23
<PAGE> 29
13.8 INVALIDITY OF A PROVISION. If any provision of this Agreement
shall be held or made invalid by a court decision, statute, rule or otherwise,
the remainder of the Agreement shall not be affected thereby.
13.9 ASSIGNMENT. This Agreement may not be assigned by any party to the
Agreement except with the written consent of the other parties to the Agreement,
which may not be unreasonably withheld. For purposes of this Section,
"assignment" shall have the meaning as defined in Section 2(a)(4) of the 1940
Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
<TABLE>
<CAPTION>
<S> <C>
ATTEST: SECURITY BENEFIT LIFE INSURANCE COMPANY
/s/ Amy J. Lee By: /s/ Gary L. Eisenbarth
- ---------------------------------- ---------------------------------
Gary L. Eisenbarth
Its: Executive Vice President
THE PARKSTONE ADVANTAGE FUND
/s/ Amy J. Lee By: /s/ Larry J. Bruning
- --------------------------------- --------------------------------
Larry J. Bruning
Its: President
FIRST OF AMERICA INVESTMENT CORPORATION
/s/ R. William Shauman By: /s/ Richard A. Wolf
- --------------------------------- ------------------------------------
Richard A. Wolf
Its: President and Chief Executive Officer
FIRST OF AMERICA BROKERAGE SERVICE, INC.
/s/ R. William Shauman By: /s/ Susan L. Currier
- --------------------------------- ------------------------------------
Susan L. Currier
Its: President and Chief Executive Officer
</TABLE>
24
<PAGE> 30
FIRST OF AMERICA BANK CORPORATION
/s/ R. William Shauman By: /s/ John B. Rapp
------------------------------ ------------------------------------
John B. Rapp
Its: Executive Vice President
SECURITY MANAGEMENT COMPANY
/s/ Amy J. Lee By: /s/ James R. Schmank
------------------------------- ----------------------------------
James R. Schmank
Its: Senior Vice President - Chief
Financial Officer and Treasurer
SECURITY DISTRIBUTORS, INC.
/s/ James R. Schmank By: /s/ Amy J. Lee
- --------------------------------- ------------------------------------
Amy J. Lee
Its: Secretary
25
<PAGE> 1
EXHIBIT 11(a)
Consent of Independent Auditors
We consent to the references to our firm under the caption "Financial
Highlights" in the Prospectus and under the captions "Independent Auditors" and
"Financial Statements" in the Statement of Additional Information, both included
in Post-Effective Amendment No. 5 to the Registration Statement (Form N-1A No.
33-65690) of the Parkstone Advantage Fund and to use our report dated February
10, 1997, incorporated by reference therein.
/s/ Ernst & Young LLP
Columbus, Ohio
April 14, 1997
<PAGE> 1
EXHIBIT 11(b)
CONSENT OF HOWARD & HOWARD ATTORNEYS, P.C.
We hereby consent to the use of our name and to the references to our
firm under the caption "Legal Counsel" included in or made a part of the
post-effective Amendment No. 5 to the Registration Statement on Form N-1A, File
No. 33-65690, filed under the Securities Act of 1933, as amended, and Amendment
No. 6 to the Registration Statement on Form N-1A, File No. 811-7850, filed under
the Investment Company Act of 1940, as amended, of the Parkstone Advantage Fund.
Bloomfield Hills, Michigan HOWARD & HOWARD ATTORNEYS, P.C.
April 15, 1997
By: /s/ Melanie Mayo West
---------------------------
Melanie Mayo West
<PAGE> 1
EXHIBIT 13
SHARE PURCHASE AGREEMENT
AGREEMENT made as of August 17, 1993 between THE PARKSTONE ADVANTAGE
FUND, a Massachusetts business trust, located in Topeka, Kansas (the "Trust")
and SECURITY BENEFIT LIFE INSURANCE COMPANY, a mutual life insurance company,
located in Topeka, Kansas ("Security Benefit").
WHEREAS, the Trust has filed a registration statement with the
Securities and Exchange Commission ("SEC") in order to be registered as an
open-end, diversified, management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust offers five (5) investment portfolios, Series A
units of beneficial interest (representing interest in the Prime Obligations
Fund), Series B units of beneficial interest (representing interest in the
Equity Fund), Series C units of beneficial interest (representing interest in
the Small Capitalization Fund), Series D units of beneficial interest
(representing interest in the Bond Fund), and Series E units of beneficial
interest (representing interest in the International Discovery Fund), each being
a series of the Trust (individually, a "Fund," and collectively, the "Funds");
WHEREAS, the Trust, under the regulation of the SEC, requires an
initial shareholder of the Trust's units of beneficial interest to commit, on a
contingent basis, to the assumption of unamortized organizational expenses of
the Trust;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Offering. The Trust hereby offers Security Benefit and Security
Benefit hereby purchases 100,000 Series A units of beneficial interest
(representing interest in the Prime Obligations Fund) in the Trust (such 100,000
units of beneficial interest being hereinafter collectively known as "Initial
Shares") at the price of $1.00 per share. Security Benefit hereby acknowledges
purchase of the Initial Shares and the Trust hereby acknowledges receipt from
Security Benefit of funds in the amount of $100,000 in full payment for such
shares.
2. Redemption; Unamortized Organizational Expenses. Security Benefit
agrees that if it redeems any of the Initial Shares prior to the fifth
anniversary of the date the Trust begins its investment activities, Security
Benefit will pay the Trust an amount equal to the number resulting from
multiplying the Trust's total unamortized organizational expenses by a fraction,
the numerator of which is equal to the number of Initial Shares redeemed by
Security Benefit and the denominator of which is equal to the number of Initial
Shares outstanding as of the date of such reimbursement. Security Benefit
further agrees that in the event of any transfer of the Initial Shares prior to
the expiration of the fifth anniversary of the date the Trust begins its
investment activities, it will impose a written condition to such transfer
requiring the transferee as well as such transferee's direct or indirect
transferee to agree that upon redemption of any of the Initial Shares prior to
the fifth anniversary of the date the Trust begins its investment
<PAGE> 2
activities, such transferee will pay to the Trust an amount equal to the number
resulting from multiplying the Trust's total unamortized organizational expenses
by a fraction, the numerator of which is equal to the number of Initial Shares
outstanding as of the date of such redemption, as long as the administrative
position of the staff of the SEC require such reimbursement. Security Benefit
agrees to give the Trust's legal counsel prior notice of any transfer of the
Fund's Initial Shares.
3. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by the law of the State of Kansas.
The names "The Parkstone Advantage Fund" and "Trustees of The Parkstone
Advantage Fund" refer respectively to the Trust created and the Trustees, as
trustees but not individually or personally, acting from time to time under the
Declaration of Trust and to which reference is hereby made and a copy of which
is on file at the office of the Secretary of the Commonwealth of Massachusetts
and elsewhere as required by law, and to any and all amendments thereto as filed
or hereafter filed. The obligations of "The Parkstone Advantage Fund" entered
into in the name or on behalf thereof by any of the Trustees, representatives or
agents are made not individually, but in such capacities, and are not binding
upon any of the Trustees, interest-holders or representatives of the Trust
personally, but bind only the assets of the trust, and all persons dealing with
any Fund of the Trust must look solely to the assets of the Trust belonging to
such Fund for the enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereby have executed this Agreement as
of the seventeenth day of August, 1993.
Attest: THE PARKSTONE ADVANTAGE FUND
/s/ Amy J. Lee By: /s/ Larry J. Bruning
- -------------------------------- ---------------------------------
Its: President
Attest: SECURITY BENEFIT LIFE INSURANCE
COMPANY
/s/ Amy J. Lee By: /s/ Gary Eisenbarth
- -------------------------------- ---------------------------------
Authorized Officer
-2-
<PAGE> 1
EXHIBIT 16(a)
PARKSTONE ADVANTAGE FUND
COMPUTATION OF TOTAL RETURNS
EXAMPLES INVOLVING A
HYPOTHETICAL INVESTMENT OF $1,000
- ---------------------------------
- -
AVERAGE ANNUAL |REDEEMABLE VALUE AT THE END OF | (1/NUMBER
TOTAL RETURN = |THE PERIOD OF SHARES PURCHASED | OF YEARS)
|WITH $1,000 PLUS ANY DIVIDENDS |
|OR DISTRIBUTIONS ON SUCH SHARES | - 1
| ------------------------------ |
|VALUE AT BEGINNING OF PERIOD |
- -
- -
AGGREGATE |REDEEMABLE VALUE AT THE END OF |
TOTAL RETURN = |THE PERIOD OF SHARES PURCHASED |
|WITH $1,000 PLUS ANY DIVIDENDS | - 1
|OR DISTRIBUTIONS ON SUCH SHARES |
| ------------------------------ |
|VALUE AT BEGINNING OF PERIOD |
- -
EXAMPLES:
- ---------
1/1/YR0 = DATE OF FUND INCEPTION
6/30/YR12 = DATE OF CALCULATIONS
$1,246.9 = VALUE OF SHARES ON 7/1/YR2
$1,775.2 = VALUE OF SHARES ON 7/1/YR7
$2,104.7 = VALUE OF SHARES ON 7/1/YR11
$2,223.5 = REDEEMABLE VALUE OF SHARES ON 6/30/YR12
- -(1/12.5)
AVERAGE ANNUAL TOTAL RETURN | 2,233.5 |
| ------- | - 1 = 6.60%
SINCE INCEPTION: | 1,000 |
- -
- -
ONE-YEAR PERIOD ENDED 6/30/YR12: | 2,223.5 |
| ------- | - 1 = 5.64%
| 2,104.7 |
- -
- -(1/5)
FIVE-YEAR PERIOD ENDED 6/30/YR12: | 2,223.5 |
| ------- | - 1 = 4.61%
| 1,775.2 |
- -
- -(1/10)
TEN-YEAR PERIOD ENDED 6/30/YR12: | 2,223.5 |
| ------- | - 1 = 5.95%
| 1,246.9 |
- -
<PAGE> 2
- -
AGGREGATE TOTAL RETURN | 2,233.5 |
| ------- | - 1 = 122.35%
SINCE INCEPTION: | 1,000 |
- -
- -
ONE-YEAR PERIOD ENDED 6/30/YR12: | 2,223.5 |
| ------- | - 1 = 5.64%
| 2,104.7 |
- -
- -
FIVE-YEAR PERIOD ENDED 6/30/YR12: | 2,223.5 |
| ------- | - 1 = 25.25%
| 1,775.2 |
- -
- -
TEN-YEAR PERIOD ENDED 6/30/YR12: | 2,223.5 |
| ------- | - 1 = 78.32%
| 1,246.9 |
- -
-2-
<PAGE> 1
Exhibit 16(b)
PARKSTONE ADVANTAGE FUND
COMPUTATION OF YIELDS
- -
| SEVEN-DAY RETURN x 365 |
SEVEN-DAY YIELD = | ------------------------- |
| 7 |
- -
- (365/7) -
SEVEN-DAY EFFECTIVE YIELD = | (SEVEN-DAY RETURN + 1) | - 1
- -
- -
| THIRTY-DAY RETURN x 365 |
THIRTY-DAY YIELD = | ------------------------- |
| 30 |
- -
- (365/30)-
THIRTY-DAY EFFECTIVE YIELD = |(THIRTY-DAY RETURN + 1) | - 1
- -
- -
| (SEVEN-DAY YIELD) |
SEVEN-DAY TAX-EQUIVALENT YIELD* = | ------------------------- |
| (1 - 0.396) |
- -
- -
| SEVEN-DAY EFFECTIVE YIELD |
SEVEN-DAY TAX-EQUIVALENT | ------------------------- |
EFFECTIVE YIELD* = | (1 - 0.396) |
- -
- -
| (THIRTY-DAY YIELD) |
THIRTY-DAY TAX-EQUIVALENT YIELD* = | ------------------------- |
| (1 - 0.396) |
- -
- -
|THIRTY-DAY EFFECTIVE YIELD |
THIRTY-DAY TAX-EQUIVALENT | ------------------------- |
EFFECTIVE YIELD* = | (1 - 0.396) |
- -
EXAMPLES:
- ---------
1/31/YR0 = DATE OF CALCULATIONS
SEVEN-DAY RETURN = 0.00020
THIRTY-DAY RETURN = 0.00062
- -
| 0.00020 x 365 |
SEVEN-DAY YIELD = | ---------------- | = 1.04%
| 7 |
- -
- (365/7) -
SEVEN-DAY EFFECTIVE YIELD = | (1 + 0.00020) | - 1 = 1.05%
- -
- -
| 0.00062 x 365 |
THIRTY-DAY YIELD = | ---------------- | = 0.75%
| 30 |
- -
<PAGE> 2
- (365/30) -
THIRTY-DAY EFFECTIVE YIELD = |(1 + 0.00062) | - 1 = 0.76%
- -
- -
| 0.0104 |
SEVEN-DAY TAX-EQUIVALENT YIELD* = | ---------- | = 1.72%
| (1 - 0.396) |
- -
- -
| 0.0105 |
SEVEN-DAY TAX-EQUIVALENT | ---------- | = 1.74%
EFFECTIVE YIELD* = | (1 - 0.396) |
- -
- -
| 0.0075 |
THIRTY-DAY TAX-EQUIVALENT YIELD* = | ---------- | = 1.24%
| (1 - 0.396) |
- -
- -
| 0.0076 |
THIRTY-DAY TAX-EQUIVALENT | ---------- | = 1.26%
EFFECTIVE YIELD* = | (1 - 0.396) |
- -
* If applicable (assuming the entire portion of the yield or effective yield is
tax-exempt).
-2-
<PAGE> 1
EXHIBIT 19(a)
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints the President, Secretary, and Assistant Secretary of The Parkstone
Advantage Fund, and each of them, their true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution for them and in their
names, place and stead, in any and all capacities, to sign any and all documents
to be filed with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment
Company Act of 1940, by means of the Securities and Exchange Commission's
electronic disclosure system known as EDGAR; and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to sign and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as each of them might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitutes, may lawfully do or cause to
be done by virtue thereof.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ George R. Landreth Trustee and May 23, 1996
- ------------------------------------ Chairman of the Board
George R. Landreth
/s/ James R. Schmank Trustee May 23, 1996
- ------------------------------------
James R. Schmank
/s/ Brenda M. Luthi Trustee May 23, 1996
- ------------------------------------
Brenda M. Luthi
/s/ Lawrence D. Bryan Trustee May 23, 1996
- ------------------------------------
Lawrence D. Bryan
/s/ Robert M. Beam Trustee May 23, 1996
- ------------------------------------
Robert M. Beam
/s/ Adrian Charles Edwards Trustee May 23, 1996
- ------------------------------------
Adrian Charles Edwards
</TABLE>
Sworn to and subscribed before me this 23rd day of May, 1996.
---- ---
/s/ Stephen Mintos
- -----------------------------------
Stephen Mintos, Notary Public
Franklin County, Ohio
- -------------- ------------------
My Commission Expires: Lifetime Commission
---------------------
Attorney at Law
<PAGE> 1
EXHIBIT 19(b)
POWER OF ATTORNEY
John B. Rapp, whose signature appears below, hereby constitutes and
appoints the President, Secretary, and Assistant Secretary of The Parkstone
Advantage Fund, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution for him and in his
name, place and stead, in any and all capacities, to sign any and all documents
to be filed with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment
Company Act of 1940, by means of the Securities and Exchange Commission's
electronic disclosure system known as EDGAR; and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to sign and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as each of them might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitutes, may lawfully do or cause to
be done by virtue thereof.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ John B. Rapp Trustee and February 17, 1997
- ---------------------------- Chairman of the Board
John B. Rapp
Sworn to and subscribed before me this 17th day of February, 1997.
/s/ Marabeth L. Maupin
- ----------------------
Notary Public
Kalamazoo County, Michigan
- ---------------------------- -----------
My Commission Expires: 5/26/98
-----------
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000908823
<NAME> THE PARKSTONE ADVANTAGE FUND
<SERIES>
<NUMBER> 1
<NAME> PRIME OBLIGATIONS FUND
<S> <C>
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<DIVIDEND-INCOME> 8381
<INTEREST-INCOME> 218244
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000908823
<NAME> THE PARKSTONE ADVANTAGE FUND
<SERIES>
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<NAME> MID CAPITALIZATION FUND
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000908823
<NAME> THE PARKSTONE ADVANTAGE FUND
<SERIES>
<NUMBER> 3
<NAME> SMALL CAPITALIZATION FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000908823
<NAME> THE PARKSTONE ADVANTAGE FUND
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<NAME> BOND FUND
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000908823
<NAME> THE PARKSTONE ADVANTAGE FUND
<SERIES>
<NUMBER> 5
<NAME> INTERNATIONAL DISCOVERY FUND
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</TABLE>
