<PAGE> 1
As filed with the Securities and Exchange Commission on July 17, 1998
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. 7 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 8
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
W. Bruce McConnel, III, Esq.
Audrey C. Talley, Esq.
DRINKER BIDDLE & REATH LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to paragraph (b).
/ / on April 30, 1998 pursuant to paragraph (b).
/X/ 60 days after filing pursuant to paragraph (a)(1).
/ / on (date) pursuant to paragraph (a)(l) 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.
Title of Securities Being Registered: Shares of Beneficial Interest
<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>
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 Shares; How
Offered Shares are Valued
8. Redemption or Repurchase Purchase and Redemption of Shares
9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE> 3
THE PARKSTONE ADVANTAGE FUND
3435 STELZER ROAD
COLUMBUS, OHIO 43219
PROSPECTUS
SEPTEMBER __, 1998
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 four portfolios - the Small Capitalization
Fund, the Mid Capitalization Fund (formerly, the Equity Fund), the Bond Fund and
the International Discovery Fund (collectively, the "Funds" and individually, a
"Fund") with investment objectives as described below. There is, of course, no
assurance that a Fund will achieve its stated objective. Formerly, the Trust
also offered the Prime Obligations Fund which ceased operations on March 6,
1998.
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.
<PAGE> 4
Each of the Funds is advised by National City Investment Management
Company, Cleveland, Ohio ("National City" or "Investment Adviser"). National
City has retained the services of Gulfstream Global Investors, Ltd.
("Gulfstream" or the "Subadviser") to assist in the management of the
International Discovery Fund. The Funds are distributed by BISYS Fund Services,
L.P. Limited Partnership ("BISYS"). BISYS also serves as fund accountant and
transfer agent. National City Bank, an affiliate of National City (the
"Custodian"), 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 September __, 1998 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 NATIONAL CITY INVESTMENT MANAGEMENT COMPANY OR ITS PARENT OR ITS
AFFILIATES, AND THE INVESTMENTS DESCRIBED IN THE PROSPECTUS ARE NOT ENDORSED,
INSURED OR GUARANTEED BY NATIONAL CITY INVESTMENT MANAGEMENT COMPANY, ITS
PARENT, ITS AFFILIATES, THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
AGENCY. INVESTMENTS IN THE PARKSTONE 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
<PAGE> 5
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
TABLE OF CONTENTS
-----------------
<S> <C>
FINANCIAL HIGHLIGHTS...................................................1
INVESTMENT OBJECTIVES AND POLICIES.....................................6
RISK FACTORS AND INVESTMENT TECHNIQUES................................10
INVESTMENT RESTRICTIONS...............................................23
MANAGEMENT OF THE TRUST...............................................24
DESCRIPTION OF THE TRUST AND ITS SHARES...............................28
PURCHASE AND REDEMPTION OF SHARES.....................................29
FEES AND EXPENSES.....................................................30
HOW SHARES ARE VALUED.................................................31
DIVIDENDS AND TAXES...................................................31
PERFORMANCE INFORMATION...............................................33
MISCELLANEOUS.........................................................34
</TABLE>
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<PAGE> 7
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, 1997 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.
<PAGE> 8
PARKSTONE ADVANTAGE SMALL CAPITALIZATION FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1997 1996 1995 1994 1993(a)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 18.20 $ 15.71 $ 11.58 $ 11.00 $ 10.00
Investment Activities
Net Investment Loss (0.20) (0.15) (0.15) (0.13) (0.03)
Net Realized and Unrealized Gain (Loss)
on Investments (0.79) 4.79 4.28 0.71 1.03
Total from Investment Activities (0.99) 4.64 4.13 0.58 1.00
Distributions
Net Realized Gains (0.09) (2.15) - - -
Total Distributions (0.09) (2.15) - - -
Net Asset Value, End of Period $ 17.12 $ 18.20 $ 15.71 $ 11.58 $ 11.00
Total Return (c) (5.47%) 29.66% 35.66% 5.27% 10.00%
Ratios/Supplemental Data:
Net Assets, End of Period (000) $ 26,860 $ 24,495 $ 13,273 $ 7,476 $ 3,065
Ratio of Expenses to Average Net Assets 1.55% 1.40% 1.64% 1.98% 1.87% (b)
Ratio of Net Investment Loss
to Average Net Assets (1.20%) (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 51% 60% 64% 39% 23%
Average Commission Rate Paid (d) $ 0.0800 $ 0.0799(e) - - -
</TABLE>
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<PAGE> 9
PARKSTONE ADVANTAGE MID CAPITALIZATION FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993(a)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 14.60 $ 12.44 $ 9.64 $ 10.17 $ 10.00
Investment Activities
Net Investment Loss (0.11) (0.09) (0.08) (0.07) (0.02)
Net Realized and Unrealized Gain
(Loss) on Investments 1.90 2.25 2.88 (0.46) 0.19
Total from Investment Activities 1.79 2.16 2.80 (0.53) 0.17
-------- -------- -------- -------- --------
Distributions
From Net Realized Gains (2.16) -- -- -- --
-------- -------- -------- -------- --------
Total Distributions (2.16) -- -- -- --
-------- -------- -------- --------
Net Asset Value, End of Period $ 14.23 $ 14.60 $ 12.44 $ 9.64 $ 10.17
Total Return (c) 12.58% 17.36% 29.05% (5.21%) 1.70%
Ratios/Supplemental Data:
Net Assets, End of Period (000) $ 31,059 $ 24,041 $ 14,977 $ 9,095 $ 3,893
Ratio of Expenses to Average Net Assets 1.53% 1.42% 1.62% 1.86% 2.11% (b)
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.88%) (0.73%) (0.84%) (0.92%) (1.09%) (b)
Portfolio Turnover 55% 127% 44% 51% 45% (b)
Average Commission Rate Paid (d) $ 0.0798 $ 0.0800(e) - - -
</TABLE>
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<PAGE> 10
PARKSTONE ADVANTAGE BOND FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993(a)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.33 $ 10.50 $ 9.35 $ 9.96 $ 10.00
Investment Activities
Net Investment Income 0.48 0.36 0.40 0.42 0.10
Net Realized and Unrealized Gain
(Loss) on Investments 0.30 (0.18) 1.17 (0.96) (0.14)
Total from Investment Activities 0.78 0.18 1.57 (0.54) (0.04)
Distributions
Net Investment Income (0.41) (0.35) (0.42) (0.07) -
Total Distributions (0.41) (0.35) (0.42) (0.07) -
Net Asset Value, End of Period $ 10.70 $ 10.33 $ 10.50 $ 9.35 $ 9.96
Total Return (c) 7.69% 1.83% 16.98% (5.38%) (0.40%)
Ratios/Supplemental Data:
Net Assets, End of Period (000) $ 11,856 $ 9,754 $ 6,758 $ 4,651 $ 3,216
Ratio of Expenses to Average Net Assets 1.36% 1.29% 1.57% 1.80% 2.03% (b)
Ratio of Net Investment Loss
to Average Net Assets 5.36% 5.32% 5.31% 5.27% 5.23% (b)
Portfolio Turnover 144% 492% 178% 159% 101%
</TABLE>
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<PAGE> 11
PARKSTONE ADVANTAGE INTERNATIONAL DISCOVERY FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993(a)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period 12.18 $ 10.59 $ 9.65 $ 10.35 $ 10.00
Investment Activities
Net Investment Loss (0.06) (0.04) (0.03) (0.07) (0.03)
Net Realized and Unrealized Gain
(Loss) on Investments 0.32 1.67 0.97 (0.63) 0.38
Total from Investment Activities 0.26 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 $ 12.44 $ 12.18 $ 10.59 $ 9.65 $ 10.35
Total Return (c) 2.13% 15.41% 9.74% (6.76%) 3.50%
Ratios/Supplemental Data:
Net Assets, End of Period (000) $ 18,784 $ 17,001 $ 11,645 $ 9,537 $ 6,335
Ratio of Expenses to Average Net Assets 1.90% 2.00% 2.38% 2.34% 2.51% (b)
Ratio of Net Investment Loss
to Average Net Assets (0.46%) (0.35%) (0.39%) (1.13%) (1.38%)(b)
Portfolio Turnover 34% 65% 86% 87% 13%
Average Commission Rate Paid (d) $ 0.0264 $ 0.0316(e) - - -
<FN>
* During the period, certain investment advisory fees were voluntarily
reduced. If such voluntary fee reductions had not occurred, the ratios
would have been as indicated.
(a) Period from commencement of operations (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
security 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.
</FN>
</TABLE>
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<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 objective of each Fund may be
changed without a vote of the holders of a majority of the outstanding shares of
that Fund (as defined in the Statement of Additional Information) although the
Board of Trustees would only change a Fund's objective upon 30 days' notice to
shareholders. There can be no assurance that a Fund will achieve its objective.
Depending upon the performance of a Fund's investments, the net asset value per
share of that Fund may decrease instead of increase.
During temporary defensive periods as determined by the Investment
Adviser or Gulfstream, as the case may be, each of the Funds may hold up to 100%
of its total assets in short-term obligations including domestic bank
certificates of deposit, bankers' acceptances and repurchase agreements secured
by bank instruments. However, to the extent that a Fund is so invested, its
investment objective may not be achieved during that time. Uninvested cash
reserves will not earn income.
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 the
Investment Adviser to be characterized by sound management and the ability to
finance expected long-term growth. In addition, under normal market conditions,
the Small Capitalization Fund will invest at least 65% of the value of its total
assets in common stock or in securities convertible into common stocks of
companies considered by the Investment Adviser 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, 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.
-6-
<PAGE> 13
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 no 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 the Investment
Adviser 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 the Investment Adviser to be characterized by sound
management and the ability to finance expected long-term growth. In addition,
under normal market conditions, the 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 the Investment Adviser 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 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.
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<PAGE> 14
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, Canadian Commercial Paper
("CCP") and in Europaper. For a discussion of risks associated with foreign
securities, see "RISK FACTORS AND 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 the Investment
Adviser 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 issues or guaranteed by the
U.S. government or its agencies or instrumentalities. The Bond Fund will invest
in state and municipal securities when, in the opinion of the Investment
Adviser, their yields are competitive with comparable taxable debt obligations.
In addition, up to 20% of the value of the Bond Fund's total assets may be
invested in preferred stocks, notes with remaining maturities at the time of
purchase of less than one year, short-term debt obligations consisting of
domestic and foreign commercial paper (including variable amount master demand
notes), bankers' acceptances, certificates of deposit and time deposits of
domestic and foreign branches of U.S. banks and foreign banks, repurchase
agreements, securities of other investment companies, and guaranteed investment
contracts ("GICs") issued by insurance companies, as more fully described below.
Some of the securities in which the Bond Fund invests may have warrants or
options attached.
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
-8-
<PAGE> 15
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 the Investment Adviser 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 U.S. dollar-denominated international bonds for which
the primary trading market is the United States ("Yankee Bonds"), or for which
the primary trading market is abroad ("Eurodollar Bonds"), Canadian bonds and
bonds issued by institutions, such as the World Bank and the European Economic
Community, organized for a specific purpose by two or more sovereign governments
("Supranational Agency Bonds"). The 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, the Investment Adviser may purchase debt securities at a discount
from face value, which produces a yield greater than the coupon rate.
Conversely, if debt securities are purchased at a premium over face value the
yield will be lower than the coupon rate. In making investment decisions for the
Bond Fund, the Investment Adviser will consider many factors other than current
yield, including the preservation of capital, the potential for realizing capita
appreciation, maturity and yield to maturity.
INVESTMENT OBJECTIVE AND POLICIES OF THE INTERNATIONAL DISCOVERY FUND
The investment objective of the International Discovery Fund is to seek
the long-term growth of capital. Under normal market conditions, the
International Discovery Fund will invest at least 65% of its total assets in an
internationally diversified
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<PAGE> 16
portfolio of equity securities which trade on markets in countries other than
the United States and which are issued by companies (i) which are small- or
medium-sized companies on the basis of their capitalization and (ii) which are
either domiciled in countries other than the United States or derive at least
50% of either their revenues or pre-tax income from activities outside of the
United States.
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 Discovery 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 (i) in the lower half of a major market
index in the applicable country weighted by market capitalization and (ii) 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 Discovery 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 Discovery 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 Discovery Fund's assets could be invested in the
securities of U.S. companies. In addition, the International Discovery 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 National City Bank, BISYS, or their affiliates, and will not
give preference to the correspondents of their bank affiliates 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 the Investment Adviser
and, in the case of the International Discovery Fund, Gulfstream, in the
management of each of
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<PAGE> 17
the Funds involve complex securities sometimes referred to as "derivatives."
Among such securities are put and call options, foreign currency transactions
and futures contracts, also of which are described below. The Investment Adviser
and Subadviser believe that such complex securities may in some circumstances
play a valuable role in successfully implementing each Fund's investment
strategy and achieving its goals. However, because complex securities and the
strategies for which they are used are by their nature complicated, they present
substantial opportunities for misunderstanding and misuse. To guard against
these risks, the Investment Adviser and Subadviser will utilize complex
securities primarily for hedging, not speculative purposes and only after
careful review of the unique risk factors associated with each such security.
FOREIGN SECURITIES
The International Discovery 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
CCP, and in 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, here 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
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<PAGE> 18
instrumentalities. Finally, in the event of a default of any such foreign debt
obligations, it may be more difficult for a Fund to obtain or 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 Discovery 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 Funds may
invest in debt securities denominated in the ECU, which is a "basket" unit of
currency consisting of specified amounts of the currencies of certain of the 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
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<PAGE> 19
the market stability of such securities. European governments and
supranationals, in particular, issue ECU-denominated obligations.
FOREIGN CURRENCY TRANSACTIONS
Each of the Funds may utilize foreign currency transactions in its
portfolio. The value of the assets of a Fund, as measured in United States
dollars, may be affected favorably or unfavorably by changes in foreign currency
exchange rates and exchange control regulations, and a Fund may incur costs in
connection with conversions between various currencies. A Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or through
forward contracts to purchase or sell foreign currencies. A forward 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 tragedy will be successful is
highly uncertain. It is impossible to forecast with precision the market value
of portfolio securities at the expiration of a forward currency contract.
Accordingly, it may be necessary for a Fund to purchase additional currency on
the spot market (and bear the expense of such purchase) if the market value of
the security is less than the amount of foreign currency such Fund is obligated
to deliver when a decision is made to buy the security and make delivery of the
foreign currency in settlement of a forward contract. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security if its market value exceeds the amount of
foreign currency such Fund is obligated to deliver.
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If 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 Discovery 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
Discovery Fund does not intend to enter into forward currency contracts or to
maintain a net exposure in such contracts where the International Discovery Fund
would be obligated to deliver an amount of foreign currency in excess of the
value of the International Discovery 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 Funds 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 expected to rise, a Fund, through the purchase of such contracts, can
attempt to secure better
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<PAGE> 21
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.
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, such as those of the Federal Farm Credit Banks or the Federal Home Loan
Mortgage Corporation
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<PAGE> 22
("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 the Investment Adviser believes that the credit risk
with respect thereto is minimal.
GUARANTEED INVESTMENT CONTRACTS ("GICS")
The Bond Fund may invest in GICs. When investing in GICs, the Bond Fund
makes 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. 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. 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, the
Investment Adviser will consider such an event in determining whether the Bond
Fund should continue to hold that security. In no 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.
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<PAGE> 23
MORTGAGE-RELATED SECURITIES
Each of the Funds, except the International Discovery 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 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 the Investment Adviser 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-through purchased at a premium (i.e., a price in
excess of principal amount) and may involve additional risk of loss of principal
because the premium may not have been fully amortized at the time the 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
security's 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.
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<PAGE> 24
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 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 special excise tax or other specific revenue source such as the user of the
facility being financed.
The Bond 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.
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<PAGE> 25
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 Fund may
also purchase municipal securities which are unrated at the time of purchase but
are determined to be of comparable quality by the Investment Adviser pursuant to
guidelines approved by the 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
nor the Investment Adviser will review the proceedings relating to the issuance
of municipal securities or the basis for such opinions.
OTHER MUTUAL FUNDS
Each of the 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 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.
PUT AND CALL OPTIONS
Each of the Funds 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 the
Funds may also engage in writing call options from time to time as the
Investment Adviser or Gulfstream, as the case may be, deems appropriate. The
Funds will write only covered call options (options on securities or currencies
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<PAGE> 26
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 portfolio security or currency subject to a call option is sold, the Fund
will effect a closing purchase transaction to close out an 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 Discovery Fund, 20% of its net
assets.
Each of the Small Capitalization Fund, Mid Capitalization Fund and
International Discovery 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.
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 the Investment Adviser 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
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<PAGE> 27
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 and Dollar Roll 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, the Investment Adviser
may determine Section 4(2) Securities to be liquid if such securities are
eligible for resale under Rule 144A under the 1933 Act and are readily saleable.
Subject to the limitations described above, the Funds may acquire
investments that are illiquid or of limited liquidity, such as private
placements or investments that are not registered under the 1933 Act. An
illiquid investment is any investment that cannot be disposed of within seven
days in the normal course of business at approximately the amount at which it is
valued by a Fund. The price a Fund pays for illiquid securities or receives upon
resale may be lower than the price paid or received for similar securities with
a more liquid market. Accordingly, the valuation of these securities will
reflect any limitations on their liquidity. A Fund may not invest in additional
illiquid securities if, as a result, more than 15% of the market value of its
net assets would be invested in illiquid securities.
REVERSE REPURCHASE AGREEMENTS 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
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<PAGE> 28
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 their investment objectives and policies, not for
investment leverage, although such transactions represent a form of leveraging.
When-issued securities are securities purchased for delivery beyond the normal
settlement date at a stated price and yield and thereby involve 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.
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
the Investment Adviser or the Subadviser, 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.
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<PAGE> 29
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 the Investment Adviser 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 the Investment Adviser 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. 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.
YEAR 2000 RISK
Like other mutual funds, and financial and business organizations
around the world, each of the Funds could be adversely affected if the computer
systems used by the Investment Adviser, other service providers and entities
with computer systems that are linked to Fund records do not properly process
and calculate date-related information and data from and after January 1, 2000.
This is commonly known as "Year 2000 Risk." The Investment Adviser is taking
steps that it believes are reasonable designed to address Year 2000 Risk with
respect to the computer systems that it uses and to obtain satisfactory
assurance that comparable steps are being taken by each of the Fund's other
major service providers. There can be no assurance, however, that these steps
will be sufficient to avoid any adverse impact on the Funds.
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<PAGE> 30
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 any securities which would cause 25% or more of the value
of its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the same
industry, provided that:
(a) there is no limitation with respect to obligations issued
or guaranteed by the U.S. government, any state, territory or
possession of the United States, the District of Columbia or any of
their authorities, agencies, instrumentalities or political
subdivisions, and repurchase agreements secured by such obligations;
(b) wholly-owned finance companies will be considered to be in
the industries of their parents if their activities are primarily
related to financing the activities of the parents;
(c) utilities will be divided according to their services, for
example, gas, gas transmission, electric and gas, electric, and
telephone will each be considered a separate industry; and
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<PAGE> 31
(d) personal credit and business credit businesses will be
considered separate industries.
2. Purchase securities of any one issuer, other than securities issued
or guaranteed by the U.S. government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in such issuer or the Fund would hold more than 10% of
any class of securities of the issuer or more than 10% of the outstanding voting
securities of the issuer, except that up to 25% of the value of the Fund's total
assets may be invested without regard to such limitations.
3. Make loans, except that a Fund may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies and may lend portfolio securities in an amount
not exceeding one-third of its total assets.
4. Borrow money, issue senior securities or mortgage, pledge or
hypothecate its assets except to the extent permitted under the 1940 Act.
For purposes of the above investment limitations, the Funds treat all
supranational organizations as a single industry and each foreign government
(and all of its agencies) as a separate industry. In addition, a security is
considered to be issued by the government entity (or entities) whose assets and
revenues back the security.
Except for the Funds' policy on illiquid securities, if a percentage
limitation is satisfied at the time of investment, a later increase or decrease
in such percentage resulting from a change in the value of a Fund's portfolio
securities will not constitute a violation of such limitation for purposes of
the 1940 Act.
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<PAGE> 32
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
BOARD OF TRUSTEES
The business and affairs of the Trust are managed under the direction
of its Board of Trustees. The trustees of the Trust, their addresses, principal
occupations during the past five years, other affiliations, and the compensation
paid by the Trust and the fees and reimbursed expenses they receive in
connection with each meeting of the Board of Trustees they attend are included
in the Statement of Additional Information.
The Trusts will be managed by the Trustees in accordance with the laws
of the Commonwealth of Massachusetts governing business trusts. There are
currently eight Trustees, six 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 National City Corporation ("NCC," the successor to First
of America Bank Corporation) 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.
INVESTMENT ADVISER AND SUBADVISER
National City, 1900 East Ninth Street, Cleveland, Ohio 44114, serves as
investment adviser to the Funds. National City is a registered investment
adviser and an indirect wholly owned subsidiary of NCC. NCC recently
consolidated the asset management responsibilities of its various bank
affiliates including First of America Bank, N.A. ("FOA").
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<PAGE> 33
Prior to such time, the investment adviser of the Funds was First of America
Investment Corporation ("First of America"), a wholly owned subsidiary of FOA.
Subject to such policies as the Trust's Board of Trustees may
determine, the Investment Adviser, either directly or, with respect to the
International Discovery Fund, through Gulfstream, furnishes a continuous
investment program for each Fund and makes investment decisions on behalf of
each Fund.
The Investment Adviser 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. As of the date of
this Prospectus, _________, _________, is primarily responsible for the day
to-day management of the Mid Capitalization Fund and the Small Capitalization
Fund. _________________, _______________, is primarily responsible for the
day-to-day management of the Bond Fund. ________ and ________ have held their
respective positions with ________ since _____and ____, respectively.
For the services provided and expenses assumed pursuant to its
Investment Advisory Agreement with the Trust, the Investment Adviser 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
Discovery Fund, the Investment Adviser's fee is computed daily and paid monthly,
at the annual rate of [1.25%] of the first $50 million of the International
Discovery Fund's average daily net assets, [1.20%] of average daily net assets
between [$50 million and $100 million], [1.15%] of average daily net assets
between [$100 million and $400 million] and [1.05%] of average daily net assets
above [$400 million]. For its services in connection with the Bond Fund, the
Investment Adviser's fee is computed daily and paid monthly, at the annual rate
of [0.74%] of that Fund's average daily net assets. The Investment Adviser may
periodically voluntarily reduce all or a portion of its advisory fee with
respect to a Fund to increase the net income of that Fund available for
distribution as dividends. The voluntary fee reduction will cause the yield of
that Fund to be higher than it would otherwise be in the absence of such a
reduction.
Pursuant to the terms of its Investment Advisory Agreement with the
Trust, the Investment Adviser has entered into a Sub-Investment Advisory
Agreement with Gulfstream, 100 Crescent Court, Suite 550, Dallas, Texas 75201.
Pursuant to the terms of such Sub-Investment Advisory Agreement, Gulfstream has
been retained by the Investment Adviser to manage the investment and
reinvestment of the assets of the International Discovery Fund, subject to the
direction and control of the Trust's Board of
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<PAGE> 34
Trustees. Gulfstream will not continue as Subadviser beyond the end of the
current term of its agreement with the Fund in 1998.
Under this arrangement, Gulfstream is responsible for day-to-day
management of the International Discovery Fund's assets, reviewing investment
performance policies and guidelines and maintaining certain books and records,
and the Investment Adviser is responsible for selecting and monitoring the
performance of Gulfstream and for reporting the activities of Gulfstream in
managing the International Discovery Fund to the Trust's Board of Trustees. The
Investment Adviser may also render advice with respect to the International
Discovery Fund's investments in the United States. Gulfstream utilizes a team
approach to the investment management of the International Discovery 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 the Investment Adviser, Gulfstream
receives from the Investment Adviser a fee, computed daily and paid monthly, at
the annual rate of [0.50%] of the first [$50 million] of the International
Discovery 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 of Gulfstream, holding
a 72% interest. As of _________, 1998, Gulfstream had over $863 million in
international assets of institutional, investment company, governmental, pension
fund and high net worth individual clients under its investment management.
Gulfstream's portfolio management personnel average over 20 years of investment
experience and 10 years of international investment experience.
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 may or may not be deemed to
control Gulfstream for purposes of the 1940 Act.
For further information regarding the relationship between Gulfstream
and the Investment Adviser, see "MANAGEMENT OF THE TRUST - Investment Adviser"
in the Statement of Additional Information.
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<PAGE> 35
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
BISYS, 3435 Stelzer Road, Columbus, Ohio 43219, serves as administrator
to the Trust (the "Administrator").
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. BISYS also serves as the Trust's distributor (the "Distributor").
TRANSFER AGENT AND FUND ACCOUNTANT
BISYS (formerly BISYS Fund Services Ohio, Inc.) also serves as the
transfer agent for all Funds of the Trust (the "Transfer Agent"). In addition to
serving as transfer agent, the Transfer Agent also provides certain fund
accounting services to the Trust.
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<PAGE> 36
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. 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 Discovery Fund pays
an additional annual fee of 0.035% of its average daily net assets.
CUSTODIAN
National City Bank serves as custodian of the Funds' assets. Services
performed by National City 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 four series: Small Capitalization Fund; Mid Capitalization Fund; Bond
Fund; and International Discovery 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, except 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. All of the outstanding Shares of each Fund are held of record by
Security Benefit Life Insurance Company.
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.
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
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<PAGE> 37
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 (the "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 redemption 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 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,
however, may 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 pursuant to an exemptive order from the SEC.
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 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.
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<PAGE> 38
FEES AND EXPENSES
While the advisory fees 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. The
Investment Adviser may periodically voluntarily reduce all or a portion of its
advisory fee with respect to a Fund to increase the net income of that Fund
available for distribution as dividends. The voluntary fee reduction will cause
the 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>
SMALL MID INTERNATIONAL
CAPITALIZATION CAPITALIZATION BOND DISCOVERY
FUND FUND FUND FUND
---- ---- ---- ----
<S> <C> <C> <C> <C>
Management Fees..................... 1.00% 1.00% 0.74% 1.25%
Administration Fees................. 0.20% 0.20% 0.20% 0.20%
Other Expenses After Voluntary
Fee Reduction*...................... 0.35% 0.33% 0.42% 0.45%
----- ----- ----- -----
Total Fund Operating Expenses....... 1.55% l.53% 1.36% 1.90%
===== ===== ===== =====
</TABLE>
* Currently, no fees are being voluntarily waived.
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, the Investment Adviser,
the Subadviser 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 the
Investment Adviser, the Subadviser, BISYS or the Participating Insurance
Companies, including taxes; interest; fees (including fees paid to its trustees
and officers except those trustees and officers who are affiliated with BISYS or
National City); 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;
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<PAGE> 39
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 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) ("Valuation Time"). A "Business Day" is a day
on which the NYSE is open for trading and any other day other than a day on
which no shares are tendered for redemption and no order to purchase any shares
is received. Currently, the NYSE will not open in observance of the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
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.
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 Funds 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" (a
"RIC") under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification generally will relieve the Funds of liability for federal income
taxes to the extent their earnings are distributed in accordance with the Code.
However, taxes may be imposed on the Funds, particularly the International
Discovery Fund, by foreign countries with respect to income received on foreign
securities.
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<PAGE> 40
To qualify as a RIC, 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 RICs, 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 of the extent to the
Fund's current and accumulated earnings and profits. A failure of a Fund to
qualify as a RIC also could result in the loss of the tax-favored status of
variable annuity contracts 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 RIC 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
Funds intend to meet these ownership conditions and to comply with the
diversification tests noted above. Accordingly, a segregated asset account
investing solely in shares of a Fund will be adequately diversified. However,
the failure of a Fund to meet such conditions and to comply with such tests
could cause the owners of variable annuity contracts and variable life insurance
policies based on such account to recognize ordinary income each year in the
amount of any net appreciation of such contract or policy during the year.
Provided that a Fund and a segregated asset account investing in the
Fund satisfy the above requirements, any distributions from the Fund to such
account will be exempt from current federal
-34-
<PAGE> 41
income taxation to the extent that such distributions accumulate in a variable
annuity contract or variable life insurance policy.
Persons investing in a variable annuity contract or variable life
insurance policy offered by a segregated asset account investing in a Fund
should refer to the Prospectus with respect to such contract or policy 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. Each prospective investor
should consult his own tax adviser 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 one-month period by that Fund's per share maximum offering price (reduced
by any undeclared earned income expected to be paid shortly as a dividend) on
the last day of the period and annualizing the result. Each Fund may also
present its average annual total return, aggregate total return and yield, as
the case may be, excluding the effect of a sales charge, if any.
In addition, from time to time the Funds may present their respective
distribution rates 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 twelve-month period by the maximum offering price per share. The calculation
of income in the distribution rate includes both income and capital gains
dividends and does not reflect unrealized gains or losses, although a Fund may
also present a distribution rate excluding the effect of capital gains. The
distribution rate differs from the yield, because it includes capital gains
which are often non-recurring in nature, whereas yield does not include such
items. Distribution rates may also be presented excluding the effect of a sales
charge, if any.
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
-35-
<PAGE> 42
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, sales literature
and reports to shareholders. For further information regarding such services and
publications, see "ADDITIONAL INFORMATION-Performance Comparisons" in the
Statement of Additional Information.
Total return and yield are functions of the type and quality of
instruments held in the portfolio, levels of operation 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 National
City or any of its affiliates with respect to customer accounts for investing in
shares of the Funds will not be included in performance calculations. Such fees,
if charged, will reduce the actual performance from that quoted. In addition, if
the Investment Adviser or 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
-36-
<PAGE> 43
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.
Pursuant to Rule 17f-2, since National City and National City Bank
serve as the Group's Investment Adviser and Custodian, respectively, a procedure
has been established requiring three annual verifications, two of which are to
be unannounced, of all investments held pursuant to the Custodian Services
Agreement, to be conducted by the Group's independent auditors.
The portfolio managers of the Funds and other investment professionals
may from time to time discuss in advertising, sales literature or other
material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include, but are not
limited to, the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products and tax, retirement and investment planning.
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
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST.
-37-
<PAGE> 44
THE PARKSTONE ADVANTAGE FUND
FORM N-lA
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 of Management of the Trust
Securities
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 Practices Portfolio Transactions
l8. Capital Stock and Other Securities Additional Information-Description of Shares
19. Purchase, Redemption and Pricing of Net Asset Value; Additional Purchase and Redemption
Securities Being Offered Information; Additional Information-Description of Shares
20. Tax Status Additional Tax Information; Additional Tax Information
Concerning the International Discovery Fund
21. Underwriters Portfolio Transactions
22. Calculation of Performance Date Yields of the Funds; Calculation of Total Return
23. Financial Statements Financial Statements
</TABLE>
B-1
<PAGE> 45
SMALL CAPITALIZATION FUND
MID CAPITALIZATION FUND
BOND FUND
INTERNATIONAL DISCOVERY FUND
Each an Investment Portfolio of
THE PARKSTONE ADVANTAGE FUND
Statement of Additional Information
September , 1998
This Statement of Additional Information is not a Prospectus, but
should be read in conjunction with the Prospectus for The Parkstone Advantage
Fund dated September __, 1998, 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 _______________________, Oaks, Pennsylvania 19456,
or by calling toll free (800)____________________ .
B-2
<PAGE> 46
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES ................................................B-4
Additional Information on Portfolio Instruments ..........................B-4
Investment Restrictions .................................................B-16
Portfolio Turnover ......................................................B-19
NET ASSET VALUE ..................................................................B-20
Valuation of the Funds ..................................................B-20
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION ...................................B-21
MANAGEMENT OF THE TRUST ..........................................................B-21
Trustees and Officers ...................................................B-21
Investment Adviser and Subadviser .......................................B-26
Portfolio Transactions ..................................................B-29
Authority to Act as Investment Adviser ..................................B-31
Glass-Steagall Act ......................................................B-31
Administrator ...........................................................B-32
Expenses ................................................................B-34
Distributor .............................................................B-34
Custodian, Transfer Agent and Fund Accounting Services ..................B-35
Independent Auditors ....................................................B-36
ADDITIONAL INFORMATION ...........................................................B-36
Description of Shares ...................................................B-36
Vote of a Majority of the Outstanding Shares ............................B-37
Shareholder and Trustee Liability .......................................B-38
Additional Tax Information ..............................................B-38
Additional Tax Information Concerning the International Discovery Fund...B-41
Yields of the Funds .....................................................B-42
Calculation of Total Return .............................................B-43
Performance Comparisons .................................................B-43
Miscellaneous ...........................................................B-44
Financial Statements ....................................................B-45
APPENDIX ......................................................................... A-1
</TABLE>
B-3
<PAGE> 47
STATEMENT OF ADDITIONAL INFORMATION
THE PARKSTONE ADVANTAGE FUND
The Parkstone Advantage Fund (the "Trust") is an open-end management
company which offers four separate and diversified investment portfolios
(collectively, the "Funds" and each individually, 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 (the "Participating Insurance Companies"). Shares of
the Trust are not offered to the general public but solely to such separate
accounts (the "Separate Accounts").
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. Until March 6, 1998, the
Trust also offered a money market fund, the Prime Obligations Fund, which is no
longer available. The Small Capitalization Fund seeks growth of capital by
investing primarily in a diversified portfolio of common stocks and securities
convertible into common stocks of small- to medium-sized companies. The Mid
Capitalization Fund seeks growth of capital by investing primarily in a
diversified portfolio of common stocks and securities convertible into common
stocks. The Bond Fund seeks 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 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 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-4
<PAGE> 48
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 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.
The Small Capitalization Fund, Mid Capitalization Fund and Bond Fund
may invest in commercial paper rated in any rating category or not rated by a
nationally recognized statistical rating organization ("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 Small Capitalization Fund, Mid
Capitalization Fund, International Discovery Fund and Bond Fund may also invest
in Canadian commercial paper, which is commercial paper issued by a Canadian
corporation or counterpart of a U.S. corporation and 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 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
B-5
<PAGE> 49
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
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.
The Investment Adviser will consider the earning power, cash flow, and other
liquidity ratios of such notes and will continuously monitor the financial
status and ability to make payment on demand. In determining dollar average
maturity, a variable amount master demand note will be deemed to have a maturity
equal to the longer of the period of time remaining until the next interest rate
adjustment or the period of time remaining until the principal amount can be
recovered from the issuer through demand.
Foreign Investment
------------------
Investment in foreign securities is subject to special investment risks
that differ in some respects from those related to securities of U.S. domestic
issuers. Since investments in the securities of foreign issuers may involve
currencies of foreign countries, and since the International Discovery Fund may
from time to time temporarily hold funds in bank deposits in foreign currencies,
the International Discovery Fund may be affected favorably or unfavorably, by
changes in currency rates and in exchange control regulations and may incur
costs in connection with conversions between various currencies.
Since foreign companies are not subject to 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. bond market 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 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
B-6
<PAGE> 50
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 Small Capitalization Fund, Mid Capitalization Fund and Bond
Fund will acquire foreign securities only when the Investment Adviser or
Gulfstream Global Investors, Ltd. ("Gulfstream" or the "Subadviser"), the
subadviser of the International Discovery Fund, believes that the risks
associated with such investments are minimal.
Money Market Mutual Funds
-------------------------
Each of the 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
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 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 Funds, rather than the Parkstone 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 money market mutual
funds.
The 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 Funds
will 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 Fund may own more than 3% of the outstanding shares of any Parkstone
affiliated money market fund.
Municipal Securities
--------------------
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
B-7
<PAGE> 51
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 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 its
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. The
Investment Adviser 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 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.
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
B-8
<PAGE> 52
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 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 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 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 Discovery 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 a Fund agrees to purchase securities on a
"when-issued" or "delayed-delivery" basis, a 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, a 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 a Fund's commitment. It may
be expected that a Fund's net assets
B-9
<PAGE> 53
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 a Fund will set aside cash or liquid securities to satisfy its purchase
commitments in the manner described above, a Fund's liquidity and the ability of
the Investment Adviser or the Subadviser, 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 a Fund sells a "when-issued" or "delayed-delivery" security before a
delivery, any gain would not be tax-exempt. When the Fund engages in
"when-issued" or "delayed-delivery" transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in the Fund
incurring a loss or missing the opportunity to obtain a price considered to be
advantageous. The Funds will engage in "when-issued" or "delayed-delivery"
transactions only for the purpose of acquiring securities consistent with the
Funds' investment objectives and policies and not for investment leverage,
although such transactions represent a form of leveraging.
Mortgage-Related Securities
---------------------------
Each of the Funds, except the International Discovery Fund, may,
consistent with its investment objective and policies, invest in
mortgage-related securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities. The Bond Fund may, in addition, invest in
mortgage-related securities issued by non-governmental entities, including
collateralized mortgage obligations structured on pools of mortgage pass-through
certificates or mortgage loans, subject to the rating limitations described in
the 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.
B-10
<PAGE> 54
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 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 the Investment Adviser ("Medium-Grade Securities").
As with other fixed-income securities, Medium-Grade Securities are
subject to credit risk and market risk. Market risk relates to changes in a
security's value as a result of changes in interest rates. Credit risk relates
to the ability of an issuer to make payments of principal and interest.
Medium-Grade Securities are considered by Moody's to have speculative
characteristics.
B-11
<PAGE> 55
Medium-Grade Securities are generally subject to greater credit risk
than comparable higher-rated securities because issuers are more vulnerable to
economic downturns, higher interest rates or adverse issuer-specific
developments. In addition, the prices of Medium-Grade Securities are generally
subject to greater market risk and therefore react more sharply to changes in
interest rates. The value and liquidity of Medium-Grade Securities may be
diminished by adverse publicity and investor perceptions.
Because certain Medium-Grade Securities are traded only in markets
where the number of potential purchasers and sellers, if any, is limited, the
ability of a Fund to sell such securities at their fair 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 a Fund may invest may be
subject to redemption or call provisions that may limit increases in market
value that might otherwise result from lower interest rates while increasing the
risk that a Fund may be required to reinvest redemption or call proceeds during
a period of relatively low interest rates.
The credit ratings issued by Moody's and S&P are subject to various
limitations. For example, while such ratings evaluate credit risk, they
ordinarily do not evaluate the market risk of Medium-Grade Securities. In
certain circumstances, the ratings may not reflect in a timely fashion adverse
developments affecting an issuer. For these reasons, the Investment Adviser
conducts its own independent credit analysis of Medium-Grade Securities.
Restricted Securities
---------------------
Each of the Funds 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"). A Fund
will not purchase Section 4(2) securities which have not been determined to be
liquid in excess of 15% of the total assets of that Fund. The Trust's Board of
Trustees has delegated to the Investment Adviser the day-to-day authority to
determine whether a particular issue of Section 4(2) Securities that are
eligible for resale under Rule 144A under the 1933 Act should be treated as
liquid. Rule 144A provides a safe-harbor exemption from the registration
requirements of the 1933 Act for resales to "qualified institutional buyers" as
defined in the Rule. With the exception of registered broker-dealers, a
qualified institutional buyer must generally own and invest on a discretionary
basis at least $100 million in securities.
The Investment Adviser may deem Section 4(2) Securities liquid if it
believes that, based on the trading markets for such security, such security can
be disposed of within seven (7) days in the ordinary course of business at
approximately the amount at which a Fund has valued the security. In making such
determination, the
B-12
<PAGE> 56
Investment Adviser generally considers any and all factors that it deems
relevant, which may include: (i) the credit quality of the issuer; (ii) the
frequency of trades and quotes for the security; (iii) the number of dealers
willing to purchase or sell the security and the number of other potential
purchasers; (iv) dealer undertakings to make a market in the security; and (v)
the nature of the security and the nature of market-place trades.
Treatment of Section 4(2) Securities as liquid could have the effect of
decreasing the level of a Fund's liquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities.
Repurchase Agreements
---------------------
Securities held by each of the Funds may be subject to repurchase
agreements. Under the terms of a repurchase agreement, a Fund would acquire
securities from member banks of the Federal Deposit Insurance Corporation and
registered broker-dealers which the Investment Adviser deems creditworthy under
the guidelines approved by the 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 a 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 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 broker-dealers and agree to repurchase the
securities, or substantially similar securities in the case of a dollar roll
agreement, at a mutually agreed-upon date and price. A dollar roll agreement is
identical to a reverse repurchase agreement except for the fact that
substantially similar securities may be repurchased.
B-13
<PAGE> 57
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 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.
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 any time 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 Funds may invest in forward foreign currency exchange
contracts. A forward foreign currency exchange contract involves an obligation
to purchase or sell a specific currency at a future date which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are traded directly
between currency traders (usually large commercial banks) and their customers.
B-14
<PAGE> 58
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. The Investment Adviser and the Subadviser 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 Funds may invest in foreign currency options. A foreign
currency option provides the option buyer with the right to buy or sell a stated
amount of foreign currency at the exercise price at a specified date or during
the option period. A call option gives its owner the right, but not the
obligation, to buy the currency while a put option gives its owner the right,
but not the obligation, to sell the currency. The option seller (writer) is
obligated to fulfill the terms of 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 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 it may achieve through forward foreign currency exchange contracts
more effectively and possibly at a lower cost. Unlike forward foreign
B-15
<PAGE> 59
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 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 underling value of such contracts will at
all times not exceed the sum of: (1) accrued profit on such contracts held by
the broker; (2) cash or high-quality money market instruments set aside in an
identifiable manner; and (3) cash proceeds from investments due in 30 days.
Lending of Portfolio Securities
-------------------------------
In order to generate additional income, each of the Funds may, from
time to time, lend its portfolio securities to broker-dealers, banks or
institutional borrowers of securities. A Fund must receive 100% collateral in
the form of cash or U.S. government securities. This collateral must be valued
daily by the Investment Adviser or the Subadviser 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 the Investment Adviser or the Subadviser has determined are creditworthy
under guidelines established by the Trust's Board of Trustees.
B-16
<PAGE> 60
Investment Restrictions
- -----------------------
Each Fund's investment objective may be changed without a vote of the
holders of a majority of the Fund's outstanding shares. In addition, 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).
No Fund may:
1. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except insofar as it might be deemed to be an underwriter
upon the disposition of portfolio securities acquired within the limitation on
purchases of illiquid securities and except to the extent that the purchase of
obligations directly from the issuer thereof in accordance with its investment
objective, policies and limitations may be deemed to be underwriting;
2. Invest in commodities, except that as consistent with its investment
objective and policies the Fund may: (a) purchase and sell options, forward
contracts, futures contracts, including without limitation those relating to
indices; (b) purchase and sell options on futures contracts or indices; and (c)
purchase publicly traded securities of companies engaging in whole or in part in
such activities. For the purposes of this investment limitation, "commodities"
includes commodity contracts.
3. Purchase or sell real estate, except that it may purchase securities
of issuers which deal in real estate and may purchase securities which are
secured by interests in real estate;
B-17
<PAGE> 61
In addition, the Funds are subject to the following non-fundamental
limitations, which may be changed without the vote of shareholders.
No Fund may:
1. Acquire any other investment company or investment company security
except in connection with a merger, consolidation, reorganization or acquisition
of assets or where otherwise permitted under the 1940 Act.
2. Write or sell put options, call options, straddles, spreads, or any
combination thereof, except, as consistent with the Fund's investment objective
and policies for transactions in options on securities or indices of securities,
future contracts and options on futures contracts and in similar investments.
3. Purchase securities on margin, make short sales of securities or
maintain a short position, except that, as consistent with a Fund's investment
objective and policies, (a) this investment limitation shall not apply to the
Fund's transactions in futures contracts and related options, options on
securities or indices of securities and similar instruments, and (b) it may
obtain short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities.
4. Purchase securities of companies for the purpose of exercising
control.
5. Invest more than 15% of its net assets in illiquid securities.
The Funds do not intend to purchase securities while their outstanding
borrowings (including reverse repurchase agreements) are in excess of 5% of
their respective total assets. Securities held in escrow or separate accounts in
connection with a Fund's investment practices are not deemed to be pledged for
purposes of this limitation.
B-18
<PAGE> 62
B-19
<PAGE> 63
B-20
<PAGE> 64
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.
B-21
<PAGE> 65
Portfolio turnover rates for each of the Funds for the fiscal years
ended December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
FUND DECEMBER 31, 1997 DECEMBER 31, 1996
---- -------------------- ------------------
<S> <C> <C>
Small Capitalization 51% 60%
Mid Capitalization 55% 127%
Bond 144% 492%
International Discovery 34% 65%
</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 decrease in
portfolio turnover for the Mid Capitalization Fund for the year ended December
31, 1997 represented a return to the expected range for that Fund following the
previous year's adjustment of investment strategy. The decrease in portfolio
turnover rate for the Bond Fund for the same period was primarily due to the
decrease in volatility of fixed income securities market versus 1996. The
decrease in portfolio turnover for the International Discovery Fund, which was
lower than the expected range between 50% and 75%, resulted from the fact that
country allocation for the Fund remained relatively stable throughout the year
and performance of most of the companies held in the portfolio met the
Subadviser's expectations.
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
any other day other than a day on which no shares of the Fund are tendered for
redemption and no order to purchase any shares is received. Currently, the NYSE
will not be open in observance of the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Valuation of the 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
B-22
<PAGE> 66
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 an 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.
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. One officer of the Trust, Herbert R. Martens, Jr., also serves as a
Trustee.
The names of the Trustees and officers, their addresses and their
principal occupations during the past 5 years are as follows:
<TABLE>
<CAPTION>
Names, Addresses and Principal Occupation During
Birthdates Position(s) With Trust Past Five Years
-------------------- ---------------------- ---------------------------
<S> <C>
</TABLE>
B-23
<PAGE> 67
<TABLE>
<S> <C> <C>
Robert D. Neary Chairman of the Board Retired Co-Chairman of Ernst &
32980 Creekside Drive Young, April 1984 - September 1993;
Pepper Pike, OH 44124 Director, Cold Metal Products, Inc.,
Age 64 since March 1994; Director, Zurn
Industries, Inc. (building products
and construction services), since
June 1995; Chairman of the board of
Armada Funds since November 1996 and
a trustee since August 1996.
</TABLE>
B-24
<PAGE> 68
<TABLE>
<CAPTION>
Names, Addresses and Principal Occupation During
Birthdates Position(s) With Trust Past Five Years
-------------------- ---------------------- ---------------------------
<S> <C> <C>
Leigh Carter* Trustee Retired President and Chief
13901 Shaker Blvd. #6 B Operating Officer, B.F. Goodrich
Cleveland, OH 44120 Company, August 1986 to September
Age 72 1990; Director, Adams Express
Company (closed-end investment
company), April 1982 to December
1997; Director, Acromed Corporation
(producer of spinal implants),
since June 1992; Director,
Petroleum & Resources Corp., April
1987 to December 1997; Director,
Morrison Products (manufacturer of
blower fans and air moving
equipment), since April 1983;
Director, Kirtland Capital Corp.
(privately funded investment
group), since January 1992;
trustee, Armada Funds, since
November 1993.
John F. Durkott Trustee President and Chief Operating
8600 Allisonville Road Officer, Kittle's Home Furnishings
Indianapolis, IN 46250 Center, Inc., since January 1982;
partner, Kittles Bloomington
Property Company, since January
1981; partner, KK&D (Affiliated
Real Estate Companies of Kittle's
Home Furnishings Center), since
January 1989; trustee, Armada
Funds, since November 1993.
</TABLE>
B-25
<PAGE> 69
<TABLE>
<CAPTION>
Names, Addresses and Principal Occupation During
Birthdates Position(s) With Trust Past Five Years
-------------------- ---------------------- ---------------------------
<S> <C> <C>
Robert J. Farling Trustee Retired Chairman, President and
1608 Balmoral Way Chief Executive Officer, Centerior
Westlake, OH 44145 Energy (electric utility), March
Age 62 1992 to October 1997; Director,
National City Corporation (bank
holding company) until October
1997; Director, Republic Engineered
Steels, since October 1997;
trustee, Armada Funds, since
November 1997.
Richard W. Furst, Dean Trustee Professor of Finance and Dean, Carol
600 Autumn Lane Martin Gatton College of Business
Lexington, KY 40502 and Economics, University of
Age 59 Kentucky, since 1981; Director, The
Seed Corporation (restaurant
group), since 1990; Director, Foam
Design, Inc. (manufacturer of
industrial and commercial foam
products), since 1993; trustee,
Armada Funds, since June 1990.
Gerald L. Gherlein Trustee Executive Vice-President and General
3679 Greenwood Drive Counsel, Eaton Corporation (global
Pepper Pike, OH 44124 manufacturing), since 1991; Trustee,
Age 59 Meridia Health System (four hospital
health system); Trustee, WVIZ
Educational Television (public
television); Trustee, Armada Funds,
since July 1997.
</TABLE>
B-26
<PAGE> 70
<TABLE>
<CAPTION>
Names, Addresses and Principal Occupation During
Birthdates Position(s) With Trust Past Five Years
-------------------- ---------------------- ---------------------------
<S> <C> <C>
Herbert R. Martens, Jr . Trustee and President Executive Vice President, National
C/o NatCity Investments, Inc . City Corporation (bank holding
1965 East Sixth Street company), since July 1997; Chairman,
Cleveland, OH 44120 President and Chief Executive
Age 72 Officer, NatCity Investments, Inc.
(investment banking), since July
1995; President and Chief Executive
Officer, Raffensperger, Hughes &
Co. (broker-dealer), from 1993
until 1995; President, Reserve
Capital Group, from 1990 until
1993; President, since July 1997
and Trustee, since November 1997 of
Armada Funds.
J. William Pullen Trustee President and Chief Executive
Whayne Supply Company Officer, Whayne Supply Co. (engine
1400 Cecil Avenue and heavy equipment distribution),
P.O. Box 35900 since 1986; President and Chief
Louisville, KY 40232-5900 Executive Officer, American
Contractors Rentals & Sales (rental
subsidiary of Whayne Supply Co.),
since 1988; Trustee of Armada
Funds, since November 1993.
</TABLE>
B-27
<PAGE> 71
<TABLE>
<CAPTION>
Names, Addresses and Principal Occupation During
Birthdates Position(s) With Trust Past Five Years
-------------------- ---------------------- ---------------------------
<S> <C> <C>
W. Bruce McConnel, III Secretary Partner of the law firm Drinker
Drinker Biddle & Reath LLP Biddle & Reath LLP
Philadelphia National Bank Philadelphia, Pennsylvania.
Building
1345 Chestnut Street
Suite 1100
Philadelphia, PA 19107
Age 54
</TABLE>
B-28
<PAGE> 72
<TABLE>
<CAPTION>
Names, Addresses and Principal Occupation During
Birthdates Position(s) With Trust Past Five Years
-------------------- ---------------------- ---------------------------
<S> <C> <C>
Gary Tenkman Assistant Treasurer Director of Financial Services,
[address] BISYS Fund Services since April
[birthdate] 1998; formerly, Audit Manager, Ernst
& Young LLP.
</TABLE>
B-29
<PAGE> 73
*Mr. Carter is an "interested person" of the Trust, as defined in the
1940 Act, due to his ownership of _______shares of stock of National City
Corporation, the ultimate parent corporation of National City Investment
Management Company, the Funds' investment adviser. Mr. Martens is an "interested
person" because (1) he is an Executive Vice President of National City
Corporation, (2) he owns shares of common stock and options to purchase common
stock of National City Corporation, and (3) he is the Chief Executive Officer of
NatCity Investments, Inc., a broker-dealer affiliated with National City
Investment Management Company.
The Trust paid an aggregate of $15,000 in Trustees' fees and expenses
for the fiscal year ended December 31, 1997 to all Trustees of the Trust who
served during that year.
COMPENSATION TABLE
B-30
<PAGE> 74
<TABLE>
<CAPTION>
Total Compensation
from Trust, The
Pension or Parkstone Group of
Aggregate Retirement Funds and the Fund
Compensation Benefits Accrued Estimated Annual Complex (Armada
from the as Part of Fund Benefits Upon Funds) Paid to
Name of Trustee Trust Expenses Retirement Trustees
- --------------- ----- -------- ---------- --------
<S> <C> <C> <C> <C>
Robert D. Neary - 0 - - 0 - - 0 -
Lehigh Carter - 0 - - 0 - - 0 -
John F. Durkott - 0 - - 0 - - 0 -
Robert J. Farling - 0 - - 0 - - 0 -
Richard W. Puret - 0 - - 0 - - 0 -
Gerald L. Gherlein - 0 - - 0 - - 0 -
Herbert R. Martens, Jr - 0 - - 0 - - 0 - - 0 -
J. William Pullen - 0 - - 0 - - 0 -
</TABLE>
As Administrator, BISYS receives fees from the Trust. BISYS also
receives fees from the Trust for acting as Transfer Agent and Fund Accountant.
Mr. Tenkman, the Assistant Treasurer of the Trust, is an employee of BISYS and
receives no compensation directly from the Trust for performing the duties of
office.
Each Trustee who is not an affiliated person of BISYS or National City
Corporation 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.
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 National City
Investment Management Company ("National City" or the "Investment Adviser"),
1900 East Ninth Street, Cleveland, Ohio 44114, pursuant to two Investment
Advisory Agreements dated _______________(the "Investment Advisory Agreements").
The first Investment Advisory Agreement relates to the management of 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 Discovery Fund.
B-31
<PAGE> 75
The Investment Adviser is a registered investment adviser and an
indirect wholly-owned subsidiary of National City Corporation ("NCC"), a
publicly-held bank holding company NCC recently consolidated the asset
management responsibilities of its various bank affiliates including First of
America Bank, N.A. ("FOA"). Prior to such time, the investment adviser of the
Funds was First of America Investment Corporation ("First of America"), a wholly
owned subsidiary of First of America Bank, N.A. ("FOA").
Under the Investment Advisory Agreements, the Investment Adviser has
agreed to provide, either directly or through one or more subadvisers,
investment advisory services for each of the 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 the Investment
Adviser 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: [1.00%] for the Small Capitalization Fund and the Mid
Capitalization Fund; [0.74%] for the Bond Fund; and, for the International
Discovery Fund, [1.25%] of the first $50 million of the International Discovery
Fund's average daily net assets, [1.20%] of average daily net assets between $50
million and $100 million, [1.15%] of average daily net assets between $100
million and $400 million, and [1.05%] of average daily net assets above $400
million. While the fees for the Small Capitalization Fund, Mid Capitalization
Fund and International Discovery 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. The Investment Adviser may periodically voluntarily
reduce all or a portion of its advisory fee with respect to any Fund to increase
the net income of one or more of the Funds available for distribution as
dividends.
Pursuant to each of the Investment Advisory Agreements, the Investment
Adviser will pay all expenses, including as applicable, the compensation of any
subadvisers directly appointed by it, incurred by it in connection with its
activities under the Investment Advisory Agreements other than the cost of
securities (including brokerage commissions) if any, purchased for the Trust.
For the fiscal years ended December 31, 1997, 1996 and 1995, 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, 1997 to January 1, 1996 to January 1, 1995 to
December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- -----------------
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>
Small $256,828 $0 $189,694 $0 $99,935 $0
Capitalization
</TABLE>
B-32
<PAGE> 76
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Mid $278,450 $0 $200,885 $0 $119,192 $0
Capitalization
Bond $78,638 $0 $59,493 $0 $40,840 $0
International $239,144 $0 $177,635 $0 $129,924 $0
Discovery
</TABLE>
Pursuant to the terms of the Trust's Second Investment Advisory
Agreement, the Investment Adviser may retain a subadviser to manage the
investment and reinvestment of the assets of the International Discovery Fund,
subject to the direction and control of the Trust's Board of Trustees.
Pursuant to a Sub-Investment Advisory Agreement between the Investment
Adviser and Gulfstream, 100 Crescent Court, Suite 550, Dallas, Texas 75201 (the
"Sub-Investment Advisory Agreement"), Gulfstream manages the investment and
reinvestment of the assets of the International Discovery Fund, subject to the
direction and control of the Investment Adviser and the Trust's Board of
Trustees.
Under the Sub-Investment Advisory Agreement, Gulfstream is responsible
for the day-to-day management of the International Discovery Fund. Gulfstream
also has responsibility for reviewing investment performance, policies and
guidelines, and maintaining certain books and records. The Investment Adviser is
responsible for selecting and monitoring the performance of Gulfstream and for
reporting the activities of Gulfstream in managing the International Discovery
Fund to the Trust's Board of Trustees. The Investment Adviser may also render
advice with respect to the International Discovery 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 Discovery Fund.
For its services provided and expenses assumed pursuant to the
Sub-Investment Advisory Agreement, Gulfstream is entitled to receive from the
Investment Adviser a fee, computed daily and paid monthly, at the annual rate of
0.50% of the first $50 million of the International Discovery Fund's average
daily net assets, [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 Sub-Investment Advisory Agreement, Gulfstream will pay
all expenses incurred by it in connection with its activities under the
Sub-Investment Advisory Agreement other than the cost of securities (including
brokerage commissions, if any) purchased for the 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. As of July ___, 1998, First of America was the sole limited partner
of Gulfstream, holding a 72% interest. As of ______________, 1998, Gulfstream
had over $863 million in international assets of institutional,
B-33
<PAGE> 77
governmental, pension fund and high net worth individual clients under its
investment management. Gulfstream's portfolio management personnel average over
20 years investment experience and over nine years of international investment
experience. Gulfstream's investment process is designed to provide long-term
growth of capital. Gulfstream focuses on identifying companies world-wide with
strong balance sheets, superior operating margins and consistent sales and
earnings growth and endeavors to purchase the Securities of those companies at
reasonable valuations. Gulfstream generally avoids investments in the securities
of cyclical, financial or turnaround companies, whose earnings are less
predictable and more volatile. These stock selection criteria lead Gulfstream to
invest in small to medium capitalization companies in international markets in
pursuit of superior returns from long-term growth of capital. The Investment
Adviser and the Trustees of the Trust believe that Gulfstream's style of
investment management is well suited to the investment objective and policies of
the International Discovery Fund.
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
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 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 outstanding shares of
that Fund, by the Investment Adviser or, in the case of the 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 Sub-Investment Advisory
Agreement provide that neither the Investment Adviser nor Gulfstream shall be
liable for any error of judgment or mistake of law or for any loss suffered by
the Trust in connection with the performance of their duties, except a loss
suffered by a Fund resulting from a breach of
B-34
<PAGE> 78
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 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
Discovery Fund, pursuant to the Investment Advisory Agreements, the Investment
Adviser 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 Discovery Fund, pursuant to the terms of the Sub-Investment
Advisory Agreement, Gulfstream determines, subject to the general supervision of
the Investment Advisory, the Board of Trustees of the Trust and in accordance
with the International Discovery Fund's investment objective and restrictions,
which securities are to be purchased and sold by the International Discovery
Fund, and which brokers are to be eligible to execute the International
Discovery 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 the Investment Adviser 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 the
Investment Adviser 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 the Investment Adviser or Gulfstream and
does not reduce the fees payable to such advisers by the Trust or the Investment
Adviser, as the case may be. Such information may be useful to the Investment
Adviser 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.
B-35
<PAGE> 79
While the Investment Adviser and Gulfstream generally seek competitive
commissions, the Trust may not necessarily pay the lowest commission available
on each brokerage transaction for the reasons discussed above. For the fiscal
years ended December 31, 1997, 1996 and 1995, the Trust paid an aggregate of
approximately $204,067, $155,690 and $60,622, respectively, as brokerage
commissions on behalf of the Funds. 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 NCC,
the Distributor, or their affiliates, and will not give preference to NCC'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 the Investment Adviser. 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 the Investment Adviser believes to be
equitable to the Fund(s) and such other portfolio, investment company, or
account. In some instances, this investment procedure may adversely affect the
price paid or received by a Fund or the size of the position obtained by the
Fund. To the extent permitted by law, the Investment Adviser may aggregate the
securities to be sold or purchased for a Fund with those to be sold or purchased
for other Funds or for other portfolios, investment companies, or accounts in
order to obtain best execution. As provided by the Investment Advisory
Agreements in making investment recommendations for the Trust, the Investment
Adviser will not inquire or take into consideration whether an issuer of
securities proposed for purchase or sale by the Trust is a customer of the
Investment Adviser, its parent or affiliates, and, in dealing with its
customers, the Investment Adviser, its parent 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, 1997, securities of its regular brokers or dealers defined in Rule
l0b-1 under the 1940 Act, or their parent companies, including those of BA
Securities, Lehman Brothers and Chase Securities. As of December 31, 1997, the
Bond Fund held $248,236 in asset-backed securities of Banc One Auto Grantor
Trust, $88,128 in asset-backed securities of Lehman FHA-Title 1 Loan Trust and
$277,148 in corporate bonds of Chase Capital Trust II.
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
B-36
<PAGE> 80
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.
Glass-Steagall Act
- ------------------
In 1971, the United States Supreme Court held in Investment Company
Institute v. Camp, that the federal statute commonly referred to as the
"Glass-Steagall Act" prohibits a national bank from operating a mutual fund for
the collective investment of managing agency accounts. Subsequently, the Board
of Governors of the Federal Reserve System ("the Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing or controlling a registered open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer agent
and custodian to such an investment company. In 1981, the United States Supreme
Court held in Board of Governors of the Federal Reserve System v. Investment
Company Institute, that the Board did not exceed its authority under the Holding
Company Act when it adopted its regulation and interpretation authorizing bank
holding companies and their non-bank affiliates to act as investment advisers to
registered closed-end investment companies. In the Board of Governors case, the
Supreme Court also stated that if a national bank complied with the restrictions
imposed by the Board in its regulation and interpretation authorizing bank
holding companies and their non-bank affiliates to act as investment advisers to
investment companies, a national bank performing investment advisory services
for an investment company would not violate the Glass-Steagall Act. The Office
of the Comptroller of the Currency, which has jurisdiction over national banks
and their subsidiaries, has specifically permitted national banks and their
subsidiaries to act as investment advisers to investment companies.
The Investment Adviser 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
B-37
<PAGE> 81
those entities, as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations, could prevent or
restrict the Investment Adviser from continuing to perform such services for the
Trust. Depending on the nature of any changes in the services which could be
provided by the Investment Adviser, the Board of Trustees would review the
Trust's relationship with the Investment Adviser and consider taking all action
necessary under the circumstances.
Should future legislative, judicial or administrative action prohibit
or restrict the proposed activities of the Investment Adviser and/or NCC'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 the
Investment Adviser under the Investment Advisory Agreements, by Gulfstream under
the Sub-Investment Advisory Agreement, by National City Bank (the "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 stationery 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; and generally assist in all
aspects of the Trust's operations other than those performed by the Investment
Adviser under the Investment Advisory Agreements, by Gulfstream under the
Sub-Investment Advisory Agreement, by the Custodian under the Custody and
Custodian Agreements and by BISYS 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,
B-38
<PAGE> 82
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, 1997, 1996 and 1995, 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, 1997 to January 1, 1996 to January 1, 1995 to
December 31, 1997* December 31, 1996* December 31, 1995*
------------------ ------------------ ------------------
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>
Small $51,366 $0 $37,603 $0 $19,987 $0
Capitalization
Mid $55,690 $0 $39,847 $0 $23,838 $0
Capitalization
Bond $21,254 $0 $15,952 $0 $11,038 $0
International $38,263 $0 $28,310 $0 $20,788 $0
Discovery
</TABLE>
* Administration fees for the fiscal year ended December 31, 1995 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 vote of 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.
B-39
<PAGE> 83
Expenses
- --------
If total expenses borne by any of the Funds in any fiscal year exceed
expense limitations imposed by applicable state securities regulations, the
Investment Adviser, Gulfstream (only with respect to the International Discovery
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 BISYS on 90 days' written
notice. The Distribution Agreement will automatically terminate in the event of
any assignment as defined in the 1940 Act.
Custodian, Transfer Agent and Fund Accounting Services
- ------------------------------------------------------
National City Bank, 1900 East Ninth Street, Cleveland, Ohio 44114,
serves as Custodian to the Trust with respect to each Fund, except the
International Discovery Fund, pursuant to the Custody Agreement dated as of ,
1998. National City Bank serves as Custodian to the International Discovery Fund
pursuant to the Custodian Agreement dated as of July 31, 1995 (the Custody
Agreement and Custodian Agreement together referred to as the "Custody
Agreements"). National City Bank's responsibilities include safeguarding and
controlling the Funds' cash and securities, handling the receipt and delivery of
securities, and collecting interest and dividends on the Funds' investments.
BISYS (formerly 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 July 1, 1996, as amended
(the "Fund Accounting and Transfer Agency Agreement") . Prior to that time,
Security Management served as transfer
B-40
<PAGE> 84
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 base 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 base fee for its fund accounting
services equal to $10,000 per Fund, payable in equal monthly installments. 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 Discovery 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,
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, 1997, 1996 and 1995, the Transfer Agent received
$151,071, $75,000 and $90,000, respectively, from the Trust. Fund accounting and
transfer agency fees for the fiscal year ended December 31, 1995 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, 1997,
appearing in the Trust's Annual Report dated December 31, 1997, 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.
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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 four series of shares, each representing interest in
one of four separate portfolios: The Small Capitalization Fund, Mid
Capitalization Fund, Bond Fund and International Discovery 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 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 is 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 shares 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.
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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 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 or
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
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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
- --------------------------
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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.
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B-46
<PAGE> 90
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 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 Discovery Fund
- ----------------------------------------------------------------------
If, for any reason, the International Discovery Fund were
treated as being a United Kingdom ("UK") resident, the International Discovery
Fund's worldwide income and capital gains would be subject to UK tax. If, for
any reason, the International Discovery Fund were treated as having a permanent
establishment in the UK, the International Discovery 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 Discovery Fund under
the double tax treaty between the UK and the US would not be available. Provided
that the International Discovery Fund is not treated as being resident or having
a permanent establishment in the UK, the International Discovery 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 Discovery Fund's portfolio. The Trust believes, based upon the
advice of special counsel, that it would be highly unlikely for the
International Discovery 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.
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Yields of the Funds
- -------------------
As summarized in the Prospectus under the heading "PERFORMANCE
INFORMATION," yields of each of the 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 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, 1997, none of the Small
Capitalization Fund, Mid Capitalization Fund, Bond Fund or International
Discovery 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.
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, 1997 and the period from
commencement of operations (September 23, 1993) to December 31, 1997, the
average annual total returns for the Funds were, respectively: Small
Capitalization Fund, (5.47%) and 16.56%; Mid
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<PAGE> 92
Capitalization Fund, 12.58% and 12.32%; Bond Fund, 7.69% and 4.54%; and
International Discovery Fund, 2.13% and 5.32%.
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 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 trends; (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 policies (including, but not
limited to, insured bank products, annuities, qualified retirement plans and
individual stocks and bonds), which may or my 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
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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 persons on or by proxy at an 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 1997 Annual Report and, when available, the June 30,
1998 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, 1997, and the six months ending June 30, 1998, 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 Discovery Fund, as well as line graph comparisons to
appropriate broad-based securities market indices.
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 _____________________________, 1998, 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 April 1, 1998, FOA, as
trustee of the First of America Bank Corporation Employees Retirement Plan [is
this still the case?], owned beneficially the following percentages of the
Funds, respectively: Bond Fund, 19.7%, Small Capitalization Fund, 14.8%, Mid
Capitalization Fund, 11.2% and International Discovery Fund, 34.6%. FOA 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 certain of its Funds. As a result, National
City Bank 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
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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, 1997, 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
--------
A-1
<PAGE> 96
A-2
<PAGE> 97
COMMERCIAL PAPER RATINGS
A-3
<PAGE> 98
A Standard & Poor's ("S&P") commercial paper rating is a
current assessment of the likelihood of timely payment of debt having an
original maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment is
strong. Within this category, certain obligations are designated with a plus
sign (plus sign). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations rated "A-1". However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent on favorable business, financial, and economic conditions for the
obligor to meet its financial obligation.
"D" - Obligations are in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due,
even if the applicable grace period has not expired, unless S&P believes such
payments will be made during such grace period. The "D" rating will also be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in
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earnings coverage of fixed financial charges and high internal cash generation;
and well-established access to a range of financial markets and assured sources
of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D-1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely
payment. Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
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"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as investment grade. Risk factors are larger
and subject to more variation.
Nevertheless, timely payment is expected.
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"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of
securities rated "F1."
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
"B" - Securities possess speculative credit quality. this
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
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"C" - Securities possess high default risk. This designation
indicates that the capacity for meeting financial commitments is solely reliant
upon a sustained, favorable business and economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher
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rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - Debt is more vulnerable to non-payment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
"CCC" - Debt is currently vulnerable to non-payment, and is
dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial or economic conditions, the obligor is not likely to
have the capacity to meet its financial commitment on the obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable
to non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This
rating is used when payments on an obligation are not made on the date due, even
if the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
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"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca" and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds
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<PAGE> 105
secured by (a) earnings of projects under construction, (b) earnings of projects
unseasoned in operation experience, (c) rentals which begin when facilities are
completed, or (d) payments to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols, Aa1, A1, Baa1, Ba1 and B1.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD" and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of
investment risk and are assigned
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<PAGE> 106
only in case of exceptionally strong capacity for timely payment of financial
commitments. This capacity is very unlikely to be adversely affected by
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of investment
risk and indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of investment risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to adverse changes in
circumstances or in economic conditions than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of investment risk. The capacity for timely payment of financial commitments is
adequate, but adverse changes in circumstances and in economic conditions are
more likely to impair this category.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC," "CC" and "C" - Bonds have high default risk. Capacity
for meeting financial commitments is reliant upon sustained, favorable business
or economic developments. "CC" ratings indicate that default of some kind
appears probable, and "C" ratings signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery on these securities, and "D" represents the lowest
potential for recovery.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which
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<PAGE> 107
are issued by United States commercial banks, thrifts and non-bank banks;
non-United States banks; and broker-dealers. The following summarizes the rating
categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC" and "CC" - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
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<PAGE> 108
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality,
enjoying strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with
margins of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack
of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
A-14
<PAGE> 109
THE PARKSTONE ADVANTAGE FUND
FORM N-lA
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, 1997
-- Statement of Operations for the year ended
December 31, 1997
-- Statement of Changes in Net Assets for the
years ended December 31, 1997 and 1996
-- Schedule of Investments as of December 31,
1997
-- Notes to Financial Statements dated December
31, 1997
(b) Exhibits:
(1) Declaration of Trust of the Registrant dated
May 18, 1993.(l)
(2) (b) Code of Regulations as approved and
adopted by the Registrant's Board of
Trustees.(l)
(b) Amendment to Code of Regulations
dated February 10, 1994.(l)
(3) Not Applicable.
C-1
<PAGE> 110
(4) Not Applicable.
(5) (a) Investment Advisory Agreement
between Registrant and National
City Investment Management Company,
dated ______, 1998, relating to the
Equity Fund, the Small
Capitalization Fund and the Bond
Fund.
(b) Investment Advisory Agreement
between Registrant and National
City Investment Management Company,
dated _______, 1998, relating to
the International Discovery Fund.
(c) Sub-Investment Advisory Agreement
between National City Investment
Management Company and
_____________, dated ______, 1998,
relating to the International
Discovery Fund.
(6) Distribution Agreement between Registrant
and BISYS Fund Services, L.P., dated July 1,
1996.(l)
(7) Not Applicable.
(8) (a) Custody Agreement between
Registrant and National City Bank.
dated _______, 1998, relating to
the Equity Fund, the Small
Capitalization Fund, the Bond Fund
and the International Discovery
Fund.
(b) Custodian Agreement between
Registrant and National City Bank,
dated ______,
C-2
<PAGE> 111
1998 relating to the International
Discovery Fund.
(9) (a) Administration Agreement
between Registrant and BISYS Fund
Services, L.P., dated July 1, 1996
(1)
(b) Fund Accounting and Transfer Agency
Agreement between Registrant and
BISYS Fund Services, Inc., dated
July 1, 1996(1)
(i) Schedule C to Fund
Accounting and Transfer
Agency Agreement between
the Registrant and BISYS
Funds Services, L.P. dated
February 12, 1997. (1)
(c) Fund Participation and Variable
Contract Marketing Agreement
between Registrant and Security
Benefit Life Insurance Company, on
its behalf and on behalf of The
Parkstone Variable Annuity Account,
The Parkstone Advantage Fund,
National City Investment Management
Company, Security Management
Company, Security Distributors,
Inc., and [Servicing Agent], dated
September 10, 1993.
(10) None.
(11) (a) Consent of Counsel.*
(b) Consent of Ernst & Young LLP.*
(12) Not Applicable.
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<PAGE> 112
(13) Purchase Agreement between Registrant and
Security Benefit Life Insurance Company.,
dated August 17, 1993.(l)
(14) Not Applicable.
(15) Not Applicable.
C-4
<PAGE> 113
(16) (a) Computation of Total Returns
for the Small Capitalization Fund,
the Mid Capitalization Fund, the
Bond Fund, and the International
Discovery Fund. (1)
(b) Computation of Yields for the Small
Capitalization Fund, the Mid
Capitalization Fund, the Bond Fund,
and the International Discovery
Fund .(l).
(17) Financial Data Schedules.(1)
(18) Not Applicable.
* Filed herewith.
(1) Incorporated by reference to Post-Effective Amendment No. 5 to
Registrant's Registration Statement of Form N-lA filed on or about
April 30, 1997.
(2) Incorporated by reference to Post-Effective Amendment No. 6 to
Registrant's Registration Statement of Form N-1A filed on or about
April 30, 1998.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is controlled by its Board of Trustees, all of the
members of which also serve as members of the Board of
Trustees of The Parkstone Group of Funds and as members of the
Board of Trustees of the Armada Funds. As of April 1, 1998,
National City Corporation ("National City"), a bank holding
company which is the ultimate parent of National City
Investment Management Company, 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.
C-5
<PAGE> 114
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 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 July 1, 1998, 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
Small Capitalization 6
Mid Capitalization Fund 4
Bond Fund 5
International Discovery Fund 5
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 __ of the Custody
Agreement filed or incorporated by reference as Exhibit (8)(a) hereto, Section
__ of the Custodian Agreement filed or incorporated by reference as Exhibit
(8)(b) hereto, Section __ 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
C-6
<PAGE> 115
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 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 an 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 he 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 are 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
National City Investment Management Company ("National
C-7
<PAGE> 116
City") Cleveland, Ohio is an investment adviser registered under the
Investment Advisers' Act of 1940, as amended (the "Advisers Act").
National City is an indirect, wholly-owned subsidiary of National City
Corporation. National City currently manages over $12 billion on
behalf of both taxable and tax-exempt clients, including pensions,
endowments, corporations, individual portfolios, The Parkstone Group of
Funds and Armada Funds. To the knowledge of Registrant, none of the
directors or officers of National City is or has been at any time
during the past two fiscal years engaged in any other business
profession, vocation or employment of a substantial nature, except that
certain directors and officers of National City may also hold positions
with _______, National City's parent, or National City Corporation or
other subsidiaries. Information relating to any business, profession,
or employment of a substantial nature engaged in by officers and
directors of First of America during the past two years is incorporated
herein by reference to Schedules A and D of Form ADV filed by National
City pursuant to the Advisers Act (SEC File No. 811-446.)
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
Victory Variable Funds, The AmSouth Mutual Funds, The Sessions
Group, The Coventry Group, The BB&T Mutual Funds Group, The
American Performance Funds, The ARCH Fund, Inc., MMA Praxis
Mutual Funds, The Pacific Capital Funds, The Riverfront Funds,
Inc., The Summit Investment Trust, The Pegasus Funds, The
Puget Sound Alternative Investment Series Trust, The Fountain
Square Funds, The Kent Group of Funds, The HSBC Funds, The
Empire Builder Tax Free Bond Fund, ESC Strategic Funds, Inc.,
The Eureka Funds, The Hirtle Callaghan Trust, The Intrust
Funds, The Meyers Sheppard Investment Trust, Magna Funds, The
M.S.D. & T. Funds, The Sefton Funds, The Parkstone Group of
Funds, SBSF Funds, Inc., The Infinity Mutual Funds, Inc., The
Republic Funds Trust, The Republic Advisors Funds Trust ,
Variable Insurance Funds and Vintage Mutual Funds, Inc., each
of which is an investment management company.
(b) Directors, officers and partners of BISYS, as of December 31,
1997, were as follows:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Positions and Offices
Business Address BISYS Fund Services, L.P. with Registrant
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
</TABLE>
C-8
<PAGE> 117
<TABLE>
<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
</TABLE>
C-9
<PAGE> 118
<TABLE>
<S> <C> <C>
BISYS Fund Services, Inc . Sole General Partner None
3435 Stelzer Road
Columbus, OH 43219
</TABLE>
(c) Compensation to BISYS during the fiscal year ended December
31, 1997 was as follows:
<TABLE>
<CAPTION>
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) National City Investment Management Company, 1900 East Ninth
Street, Cleveland, Ohio 44114 (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) Drinker Biddle & Reath LLP, Philadelphia National Bank
Building, 1345 Chestnut Street, Philadelphia, PA 19107-3496
(Registrant's Declaration of Trust, Code of Regulations and
Minutes Books).
(5) National City Bank, 1900 East Ninth Street, Cleveland, Ohio
44114 (records relating to its functions as custodian for the
Funds).
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<PAGE> 119
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> 120
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 17th day
of July, 1998.
THE PARKSTONE ADVANTAGE FUND
/s/ Herbert R. Martens, Jr.
----------------------------
By: Herbert R. Martens, Jr.
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.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------------------------------------------------------------
<S> <C> <C>
/s/ John B. Rapp Chairman of the Board; July 17, 1998
- ----------------------------- Trustee
John B. Rapp*
/s/ James R. Schmank Trustee July 17, 1998
- -----------------------------
James R. Schmank*
/s/ Brenda M. Harwood Trustee July 17, 1998
- -----------------------------
Brenda M. Harwood*
</TABLE>
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<PAGE> 121
<TABLE>
<S> <C> <C>
/s/ Robert M. Beam Trustee July 17, 1998
- -----------------------------
Robert M. Beam*
/s/ Adrian C. Edwards Trustee July 17, 1998
- -----------------------------
Adrian C. Edwards*
/s/ Lawrence D. Bryan Trustee July 17, 1998
- -----------------------------
Lawrence D. Bryan*
/s/ Gary Tenkman Treasurer July 17, 1998
- -----------------------------
Gary Tenkman
</TABLE>
*By: /s/ Herbert R. Martens, Jr.
-----------------------------
Herbert R. Martens, Jr., Attorney-In-Fact
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<PAGE> 122
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 of 1934, and the Investment
Company Act of 1940, by means of the Securities and Exchange Commission's
electronic disclosure system known as EDGAR; and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to sign and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as each of them might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitutes, may lawfully do or cause to
be done by virtue thereof.
SIGNATURE TITLE DATE
/s/ George R. Landreth Trustee and May 23, 1996
- -------------------------- Chairman of the Board
George R. Landreth
/s/ 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
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> 123
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 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 of his substitutes, may lawfully do or cause
to be done by virtue thereof.
SIGNATURE TITLE DATE
/s/ John B. Rapp Trustee and February 17, 1997
- ------------------------- Chairman of the Board
John B. Rapp
Sworn to and subscribed before me this 17th day of February, 1997.
/s/ Marabeth L. Maupin
- -------------------------
Notary Public
Kalamazoo County, Michigan My Commission Expires: 5/26/98
<PAGE> 124
EXHIBIT INDEX
EXHIBIT NO.
(11) (a) Consent of Counsel.
(b) Consent of Ernst & Young LLP.
<PAGE> 1
EXHIBIT (11)(a)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference
to our Firm under the caption "Counsel" in the Statement of Additional
Information included in Post-Effective Amendment No. 7 to the Registration
Statement (1933 Act No. 33-65690; 1940 Act No. 811-7850) on Form N-1A under the
Securities Act of 1933 and the Investment Company Act of 1940, as amended, of
The Parkstone Advantage Fund. This consent does not constitute a consent under
Section 7 of the Securities Act of 1933, and in consenting to the use of our
name and the references to our Firm under such caption we have not certified any
part of the Registration Statement and do not otherwise come within the
categories of persons whose consent is required under said Section 7 or the
rules and regulations of the Securities and Exchange Commission thereunder.
/s/ Drinker Biddle & Reath LLP
DRINKER BIDDLE & REATH LLP
Philadelphia, Pennsylvania
July 17, 1998
<PAGE> 1
EXHIBIT 11(b)
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. 7 to the Registration Statement (Form N-1A No.
811-7850) of The Parkstone Advantage Fund and to the use of our report dated
February 10, 1998, incorporated by reference therein.
/s/ Ernst & Young L.L.P.
Columbus, Ohio
July 15, 1998
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