<PAGE>
PROSPECTUS
Class A, Class B and Class C Shares
The Munder Framlington Global Financial Services Fund (the "Fund") is a
mutual fund that seeks to provide long-term capital appreciation. The Fund
invests primarily in equity securities of U.S. and foreign companies which are
principally engaged in the financial services industry. The Fund is a portfolio
of The Munder Framlington Funds Trust ("Framlington"), an open-end investment
company.
Munder Capital Management (the "Advisor") serves as investment advisor of
the Fund.
This Prospectus explains the objective, policies, risks and fees of the
Fund. You should read this Prospectus carefully before investing and retain it
for future reference. A Statement of Additional Information ("SAI") describing
the Fund has been filed with the Securities and Exchange Commission (the "SEC")
and is incorporated by reference into this Prospectus. You may obtain the SAI
free of charge by calling the Fund at (800) 438-5789. In addition, the SEC
maintains a Web site (http://www.sec.gov) that contains the SAI and other
information regarding the Fund.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not insured or guaranteed by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency. An
investment in the Fund involves investment risks, including the possible loss of
the principal amount invested.
SECURITIES OFFERED BY THIS PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Call Toll-Free for Shareholder Services:
(800) 438-5789
The date of this Prospectus is June 13, 1998
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TABLE OF CONTENTS
Page
----
Fund Highlights...........................................................3
What are the key facts regarding the Fund?..........................3
Fund Information..........................................................5
What are the Fund's goals and principal investments?................5
Who may want to invest in the Fund?.................................6
What are the Fund's investments and investment practices?...........6
What are the risks of investing in the Fund?........................9
Performance..............................................................10
How is the Fund's performance calculated?..........................10
Where can I obtain performance data?...............................11
Purchases and Exchange of Shares.........................................11
Which share class should I choose for my investment?...............11
What price do I pay for shares?....................................11
When can I purchase shares?........................................14
What is the minimum required investment?...........................14
How can I purchase shares?.........................................14
How can I exchange shares?.........................................15
Redemptions of Shares....................................................16
What price do I receive for redeemed shares?.......................16
When can I redeem shares?..........................................17
How can I redeem shares?...........................................17
When will I receive redemption amounts?............................18
Structure and Management of the Fund.....................................18
How is the Fund structured?........................................18
Who manages and services the Fund?.................................18
What are my rights as a shareholder?...............................20
Dividends, Distributions and Taxes.......................................20
When will I receive distributions from the Fund?...................20
How will distributions be made?....................................21
Are there tax implications of my investments in the Fund?..........21
Additional Information...................................................22
2
<PAGE>
FUND HIGHLIGHTS
What Are the Key Facts Regarding the Fund?
Q: What is the Fund's goal?
A: The Fund seeks to provide long-term capital appreciation.
Q: What is the Fund's strategy?
A: The Fund invests primarily in equity securities of U.S. and foreign companies
which are primarily engaged in the financial services industry and companies
providing services within the financial services industry.
Q: What are the Fund's risks?
A: The Fund's net asset value, which is determined on every business day, will
change daily. The net asset value changes are due to many factors including
national and international economic conditions, changes in the price of
securities owned by the Fund as a result of rises and falls in the stock market
in general, perceptions about the stock of particular companies and perceptions
about particular industries. You should note that you could lose a portion of
the amount you invest in the Fund. As a result of large investments in foreign
securities, the Fund is riskier than a domestic fund due to factors such as
freezes on convertibility and differences in accounting and reporting standards,
less government regulation and greater volatility. Also, this Fund concentrates
its investment in a single industry and could experience larger price
fluctuations than a fund invested in a broader range of industries.
Q: What are the options for investment in the Fund?
A: The Fund has registered five classes of shares: Class A, B, C, K and Y. Class
K and Class Y Shares, which are only offered to institutional and other
qualified investors, are offered in other prospectuses.
Maximum Front Maximum
Class Rule 12b-1 Fees* End Sales Load** CDSC***
----- ---------------- ---------------- -------
Class A 0.25% 5.5% None+
Class B 1% None 5%
Class C 1% None 1%, if redeemed
within 1 year of
purchase
- ----------
* An annual fee for distributing shares and servicing shareholder accounts
based on the Fund's average daily net assets.
** A one-time fee charged at the time of purchase of shares. The fee declines
based on the amount you invest.
*** A contingent deferred sales charge ("CDSC") is a one-time fee charged at
the time of redemption. The fee declines based on the length of time you
hold the shares.
+ A CDSC of 1% is imposed on certain redemptions of Class A Shares if
redeemed within one year of purchase.
If you invest over $250,000, you must buy Class A or Class C Shares.
Q: How do I buy and sell shares of the Fund?
A: Funds Distributor, Inc. (the "Distributor") sells shares of the Fund. You may
purchase shares from the Distributor through broker-dealers or other financial
institutions or from the Fund's transfer agent, First Data Investor Services
Group, Inc. (the "Transfer Agent"), by mailing the attached Account Application
Form with a check to the Transfer Agent. You must invest at least $250 ($50
through the Automatic Investment Plan) initially and at least $50 for subsequent
purchases.
Shares may be redeemed (sold back to the Fund) by mail or by telephone.
3
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You may also acquire the Fund's shares by exchanging shares of the same
class of other funds of Framlington, The Munder Funds, Inc. (the "Company") and
The Munder Funds Trust (the "Trust"), and may exchange Fund shares for shares of
the same class of other funds of Framlington, the Company and the Trust.
Q: What shareholder privileges does the Fund offer?
<TABLE>
<CAPTION>
A: Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C>
Automatic Investment Plan Automatic Investment Plan Automatic Investment Plan
Automatic Withdrawal Plan Automatic Withdrawal Plan Automatic Withdrawal Plan
Retirement Plans Retirement Plans Retirement Plans
Telephone Exchanges Telephone Exchanges Telephone Exchanges
Rights of Accumulation Reinvestment Privilege Reinvestment Privilege
Letter of Intent
Quantity Discounts
Reinvestment Privilege
</TABLE>
Q: When and how are distributions made?
A: Dividend distributions are made from the dividends and interest earned on
investments after expenses. The Fund pays dividends at least annually and
distributes capital gains at least annually. Unless you elect to receive
distributions in cash, all dividends and capital gains distributions of the Fund
will be automatically used to purchase additional shares of the Fund.
Q: Who manages the Fund's assets?
A: Munder Capital Management is the Fund's investment advisor. The Advisor
provides overall investment management services for the Fund and is responsible
for the selection and management of the domestic securities held by the Fund.
Framlington Overseas Investment Management Limited (the "Sub-Advisor") is
responsible for allocating assets among countries and for the selection and
management of the foreign securities held by the Fund.
SHAREHOLDER TRANSACTION EXPENSES(1)
The purpose of this table is to assist you in understanding the expenses a
shareholder in the Fund will bear directly.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
------ ------ ------
<S> <C> <C> <C>
Maximum Sales Charge on Purchase (as a % of Offering Price)...... 5.5%(2) None None
Sales Charge Imposed on Reinvested Dividends..................... None None None
Maximum Deferred Sales Charge.................................... None(3) 5%(4) None(5)
Redemption Fees(6)............................................... None None None
Exchange Fees.................................................... None None None
</TABLE>
- ----------
Notes:
(1) Does not include fees which institutions may charge for services they
provide to you.
(2) The sales charge declines as the amount invested increases.
(3) A 1% CDSC applies to redemption of Class A Shares within one year of
purchase that were purchased with no initial sales charge as part of an
investment of $1,000,000 or more.
(4) The CDSC payable upon redemption of Class B Shares declines over time.
(5) A 1% CDSC applies to redemptions of Class C Shares within one year of
purchase.
(6) The Transfer Agent may charge a fee of $7.50 for wire redemptions under
$5,000.
4
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FUND OPERATING EXPENSES
The purpose of this table is to assist you in understanding the expenses
charged directly to the Fund, which investors in the Fund will bear indirectly
for the current fiscal year. Such expenses include payments to Trustees,
auditors, legal counsel and service providers (such as the Advisor),
registration fees and distribution fees. The fees shown below are estimated for
the Fund's current fiscal year and reflect anticipated voluntary expense
reimbursements. The Advisor may discontinue such expense reimbursements at any
time in its sole discretion. Because of the 12b-1 fee, you may over the long
term pay more than the amount of the maximum permitted front-end sales charge.
ANNUAL FUND OPERATING EXPENSES
(as a % of average net assets)
- ------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
------ ------ ------
<S> <C> <C> <C>
Advisory Fees ....................... .75% .75% .75%
12b-1 Fees .......................... .25% 1.00% 1.00%
Other Expenses+ ..................... .50%++ .50%++ .50%++
--- --- ---
Total Fund Operating Expenses+ ...... 1.50%++ 2.25%++ 2.25%++
==== ==== ====
</TABLE>
- ----------
+ After expense reimbursements.
++ The Advisor expects to voluntarily reimburse the Fund for certain
operating expenses. In the absence of expense reimbursements, it is estimated
that total fund operating expenses would be 1.67% for Class A Shares, 2.42%
for Class B Shares and 2.42% for Class C Shares.
EXAMPLE
This example shows the amount of expenses you would pay (directly or
indirectly) on a $1,000 investment in the Fund assuming (1) a 5% annual return,
(2) redemption at the end of the following time periods (including the deduction
of the deferred sales charge, if any) and (3) no redemption at the end of the
time periods. This example is not a representation of past or future performance
or operating expenses; actual performance or operating expenses may be larger or
smaller than those shown.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
------ ------ ------
<S> <C> <C> <C>
- Redemption .................. $ 70 $ 74 $ 33
- No Redemption ............... $ 70 $ 23 $ 23
3 Years
- Redemption .................. $101 $104 $ 71
- No Redemption ............... $101 $ 71 $ 71
</TABLE>
FUND INFORMATION
What are the Fund's goals and principal investments?
This Prospectus describes Class A, Class B and Class C Shares of the Fund.
This section summarizes the Fund's goal and principal investments. The sections
entitled "What are the Fund's Investments and Investment Practices?" and "What
are the Risks of Investing in the Fund?" and the SAI give more information about
the Fund's investment techniques and risks.
5
<PAGE>
GOAL AND PRINCIPAL INVESTMENTS. The Fund's goal is to provide long-term
capital appreciation. Under normal market conditions, the Fund invests at least
65% of its assets in equity securities of U.S. and foreign companies which are
principally engaged in the financial services industry and companies providing
services primarily within the financial services industry. The Fund focuses
specifically on companies which are likely to benefit from growth or
consolidation in the financial services industry.
Examples of companies in the financial services industry are:
- commercial, industrial and investment banks
- savings and loan associations
- brokerage companies
- consumer and industrial finance companies
- real estate and leasing companies
- insurance companies
- holding companies for each of the above
A company is "principally engaged" in the financial services industry if
at least 50% of its gross income, net sales or net profits comes from activities
in the financial services industry or if the company dedicates more than 50% of
its assets to the production of revenues from the financial services industry.
Under normal market conditions, the Fund invests at least 65% of its
assets in at least three different countries, including the United States.
The Sub-Advisor allocates assets among countries based on its analysis of
the trends in the financial services industry in particular regions, the
relative valuation of financial services companies in different regions and its
assessment of the prospects for a particular equity market and its currency.
PORTFOLIO MANAGEMENT. A committee of professional managers employed by the
Advisor or the Sub-Advisor makes decisions for the Fund.
Who May Want to Invest in the Fund?
The Fund may be appropriate for investors who want to pursue growth
aggressively by concentrating a portion of their investment on domestic and
foreign securities within the financial services industry. The Fund is designed
for those investors who are actively interested in, and can accept the risks of,
industry-focused investing. Because of its narrow focus, the performance of the
Fund is closely tied to and affected by, the financial services industry.
What are the Fund's Investments and Investment Practices?
The Fund will invest in Equity Securities which includes common stocks,
preferred stocks, warrants and other securities convertible into common stocks.
Many of the common stocks the Fund will buy will not pay dividends; instead,
stocks will be bought for the potential that their prices will increase,
providing capital appreciation for the Fund. The value of Equity Securities will
fluctuate due to many factors, including the past and predicted earnings of the
issuer, the quality of the issuer's management, general market conditions, the
forecasts for the issuer's industry and the value of the issuer's assets.
Holders of Equity Securities only have rights to value in the company after all
the debts have been paid, and they could lose their entire investment in a
company that encounters financial difficulty. Warrants are rights to purchase
securities at a specified time at a specified price.
The Fund may invest in Foreign Securities. Foreign Securities are
securities issued by non-U.S. companies and governments. Investments in Foreign
Securities are riskier than investments in U.S. companies because (i) foreign
companies may be subject to different accounting, auditing and financial
reporting standards than U.S. companies, (ii) there is generally less public
information available about foreign companies, (iii) there may be less
governmental regulation and supervision of foreign stock exchanges, securities
markets and companies and (iv) foreign securities may be less liquid and more
volatile than U.S. securities markets.
6
<PAGE>
The Fund may purchase American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs"). ADRs are
issued by U.S. financial institutions and EDRs and GDRs are issued by European
financial institutions. They are receipts evidencing ownership of underlying
Foreign Securities.
The Fund may invest in Forward Foreign Currency Exchange Contracts, which
are obligations of the Fund to purchase or sell a specific currency at a future
date at a set price. These contracts may decrease the Fund's loss due to a
change in currency value, but also limit gains from currency exchanges.
The Fund may invest in Futures Contracts and Options on Futures Contracts.
Futures contracts are contracts in which the Fund agrees, at maturity, to make
delivery of or receive securities, the cash value of an index or foreign
currency. Futures contracts and options on futures contracts are used for
hedging purposes or to maintain liquidity. The Fund may not purchase or sell a
futures contract unless immediately after any such transaction the sum of the
aggregate amount of margin deposits on its existing futures positions and the
amount of premiums paid for related options is 5% or less of its total assets.
The Fund will set aside cash or other liquid securities to "cover" the Fund's
position in futures. See the SAI for more details and additional limitations.
The Fund may purchase or sell Options. The Fund may buy options giving it
the right to require a buyer to buy a security held by the Fund (put options),
buy options giving it the right to require a seller to sell securities to the
Fund (call options), sell (write) options giving a buyer the right to require
the Fund to buy securities from the buyer or write options giving a buyer the
right to require the Fund to sell securities to the buyer during a set time at a
set price. Options may relate to stock indices, individual securities, foreign
currencies or futures contracts. See the SAI for more details and additional
limitations.
The Fund may purchase securities on a "when-issued" basis and may purchase
or sell securities on a "forward commitment" basis. Although the price to be
paid by the Fund is set at the time of the agreement, the Fund usually does not
pay for the securities until they are received. The value of securities may
change between the time the price is set and payment. When the Fund purchases
securities for future delivery, the Fund's custodian will set aside cash or
liquid securities to "cover" the Fund's position. The Fund does not intend to
purchase securities for future delivery for speculative purposes.
The Fund may enter into Repurchase Agreements. Under a repurchase
agreement, the Fund agrees to purchase securities from a seller and the seller
agrees to repurchase the securities at a later time, typically within seven
days, at a set price. The seller agrees to set aside collateral at least equal
to the repurchase price. This ensures that the Fund will receive the purchase
price at the time it is due, unless the seller defaults or declares bankruptcy,
in which event the Fund will bear the risk of possible loss due to adverse
market action or delays in liquidating the underlying obligation.
The Fund may invest in Reverse Repurchase Agreements. Under a reverse
repurchase agreement, the Fund sells securities and agrees to buy them back
later at an agreed upon time and price. Reverse repurchase agreements are used
to borrow money for temporary purposes.
The Fund may Lend Securities to broker-dealers and other financially sound
institutional investors who will pay the Fund for the use of the securities,
thus potentially increasing the Fund's returns. The borrower must set aside cash
or liquid securities equal to the value of the securities borrowed at all times
during the terms of the loan. Loans may not exceed 25% of the value of the
Fund's total assets. Risks involved in such transactions include possible delay
in recovering the loaned securities and possible loss of the securities or the
collateral if the borrower fails financially.
The Fund may buy shares of registered Money Market Funds. The Fund will
bear a portion of the expenses of any investment company whose shares they
purchase, including operating costs and investment advisory, distribution and
administration fees. These expenses would be in addition to the Fund's own
expenses.
7
<PAGE>
The Fund may invest up to 10% of its assets in other investment companies and no
more than 5% of its assets in any one investment company.
The Fund may invest in Cash Equivalents, which are high-quality,
short-term money market instruments including, among other things, commercial
paper, bankers' acceptances and negotiable certificates of deposit of banks or
savings and loan associations, short-term corporate obligations and short-term
securities issued by, or guaranteed by, the U.S. Government and its agencies or
instrumentalities. These instruments will be used primarily pending investment,
to meet anticipated redemptions or as a temporary defensive measure. If the Fund
is investing defensively, it may not be pursuing its investment objective.
The Fund may purchase Fixed Income Securities. Fixed Income Securities are
securities which either pay interest at set times at either fixed or variable
rates, or which realize a discount upon maturity. Fixed Income Securities
include corporate bonds, debentures, notes and other similar corporate debt
instruments, zero coupon bonds (discount debt obligations that do not make
interest payments) and variable amount master demand notes that permit the
amount of indebtedness to vary in addition to providing for periodic adjustments
in the interest rate.
The Fund may invest in Lower-Rated Debt Securities. Lower-Rated Debt
Securities are securities which are rated below investment grade by Standard &
Poor's Ratings Service ("S&P"), Moody's Investors Service, Inc. ("Moody's") or
other nationally recognized rating agency. Lower-Rated Debt Securities are
considered riskier than investment grade securities. The Fund may invest up to
5% of its assets in lower-rated convertible securities, lower-rated corporate
bonds or commercial paper. These high yield, high risk securities are commonly
referred to as junk bonds.
The Fund may purchase U.S. Government Securities, which are securities
issued by, or guaranteed by, the U.S. Government or its agencies or
instrumentalities. Such securities include U.S. Treasury bills, which have
initial maturities of less than one year, U.S. Treasury notes, which have
initial maturities of one to ten years, U.S. Treasury bonds, which generally
have initial maturities of greater than ten years, and obligations of the
Federal Home Loan Mortgage Corporation, Federal National Mortgage Association
and Government National Mortgage Association. Under normal market conditions,
the Fund will not invest to a significant extent, or on a routine basis, in U.S.
Government Securities.
The Fund may invest up to 15% of the value of its net assets in Illiquid
Securities. Illiquid Securities are securities for which there is no ready
market, which inhibits the ability to sell them and obtain their full market
value, or which are legally restricted as to their resale by the Fund.
The Fund may invest in Asset-Backed Securities which include debt
securities backed by mortgages, installment sales contracts and credit card
receivables.
The Fund may invest in Stripped Securities which include participation in
trusts that hold U.S. Treasury and agency securities which represent either the
interest payments or principal payments on the securities or combinations of
both.
The Fund may invest in Real Estate Investment Trusts ("REITS") which are
companies, usually traded publicly, that manage a portfolio of real estate.
Risks involved in such investments include vulnerability to decline in real
estate prices and new construction rates.
The Fund may make Short Sales of securities. A Short Sale is a transaction
in which the Fund sells a security it does not own in anticipation that the
market price of that security will decline. When the Fund makes a short sale, it
must borrow the security sold short and deliver it to the broker-dealer through
which it made the short sale as collateral for its obligation to deliver the
security upon conclusion of the sale. The Fund may also sell securities that it
owns or has the right to acquire at no additional cost but does not intend to
deliver to the buyer, a practice known as selling short "against the box." See
the SAI for more details.
8
<PAGE>
The Fund may Borrow Money in an amount up to 5% of its assets for
temporary purposes and in an amount up to 33 1/3% of its assets to meet
redemptions. This is a "fundamental" policy which only can be changed by
shareholders.
Under SEC regulations, the Fund may not invest more than 5% of its total
assets in the equity securities of any company that derives more than 15% of its
revenues from brokerage or investment management activities.
The Fund is classified as a "diversified fund" which means that with
respect to 75% of its assets, the Fund cannot invest more than 5% of its assets
in a single issuer (other than the U.S. Government and its agencies and
instrumentalities). In addition, the Fund cannot invest more than 25% of its
assets in a single issuer.
What are the Risks of Investing in the Fund?
Investing in the Fund may be less risky than investing in individual
stocks due to the diversification of investing in a portfolio of many different
stocks; however, such diversification does not eliminate all risks. Because the
Fund invests mostly in Equity Securities, rises and falls in the stock market in
general, as well as in the value of particular Equity Securities held by the
Fund, can affect the Fund's performance. Your investment in the Fund is not
guaranteed. The net asset value of the Fund will change daily and you might not
recoup the amount you invest in the Fund.
Consistent with a long-term investment approach, investors in the Fund
should be prepared and able to maintain their investments during periods of
adverse market conditions. By itself, the Fund does not constitute a balanced
investment program and there is no guarantee that the Fund will achieve its
investment objective since there is uncertainty in every investment.
A fund's risk is mostly dependent on the types of securities it purchases
and its investment techniques. The Fund is authorized to use options, futures
and forward foreign currency exchange contracts, which are types of derivative
instruments. Derivative instruments are instruments that derive their value from
a different underlying security, index or financial indicator. The use of
derivative instruments exposes the Fund to additional risks and transaction
costs. Risks inherent in the use of derivative instruments include: (1) the risk
that interest rates, securities prices and currency markets will not move in the
direction that a portfolio manager anticipates; (2) imperfect correlation
between the price of derivative instruments and movements in the prices of the
securities, interest rates or currencies being hedged; (3) the fact that skills
needed to use these strategies are different than those needed to select
portfolio securities; (4) inability to close out certain hedged positions to
avoid adverse tax consequences; (5) the possible absence of a liquid secondary
market for any particular instrument and possible exchange-imposed price
fluctuation limits, either of which may make it difficult or impossible to close
out a position when desired; (6) leverage risk, that is, the risk that adverse
price movements in an instrument can result in a loss substantially greater than
the Fund's initial investment in that instrument (in some cases, the potential
loss is unlimited); and (7) particularly in the case of privately-negotiated
instruments, the risk that the counterparty will not perform its obligations,
which could leave the Fund worse off than if it had not entered into the
position.
Investing in the Fund, with its larger investment in Foreign Securities,
may involve more risk than investing in a U.S. fund for the following reasons:
(1) there may be less public information available about foreign companies than
is available about U.S. companies; (2) foreign companies are not generally
subject to the uniform accounting, auditing and financial reporting standards
and practices applicable to U.S. companies; (3) foreign markets have less volume
than U.S. markets, and the securities of some foreign companies are less liquid
and more volatile than the securities of comparable U.S. companies; (4) there
may be less government regulation of stock exchanges, brokers, listed companies
and banks in foreign countries than in the United States; (5) the Fund may incur
fees on currency exchanges when it changes investments from one country to
another; (6) the Fund's foreign investments could be affected by expropriation,
confiscatory taxation, nationalization of bank deposits, establishment of
exchange controls, political or social instability or diplomatic developments;
(7) fluctuations in foreign exchange rates will affect the value of the Fund's
portfolio securities, the value of dividends and interest earned, gains and
loses realized on the sale of securities, net investment income and unrealized
appreciation or depreciation of investments; and (8) possible imposition of
dividend or interest withholding by a foreign country.
9
<PAGE>
Financial services companies are subject to extensive governmental
regulation which may limit both the amount and types of loans and other
financial commitments they can make, and the interest rates and fees they can
charge. Profitability is largely dependent on the availability and cost of
capital funds, and can fluctuate significantly when interest rates change.
Credit losses resulting from financial difficulties of borrowers can negatively
impact the industry. Insurance companies may be subject to severe price
competition. Legislation is currently being considered which would reduce the
separation between commercial and investment banking businesses. If enacted this
could significantly impact the industry and the Fund. The Fund may be riskier
than a fund investing in a broader range of industries.
Although securities of large and well-established companies in the
financial services industry will be held in the Fund's portfolio, the Fund also
will invest in medium, small and/or newly-public companies which may be subject
to greater share price fluctuations and declining growth, particularly in the
event of rapid changes in the industry and/or increased competition. Securities
of those smaller and/or less seasoned companies may, therefore, expose
shareholders of the Fund to above-average risk.
To the extent that the Fund invests in illiquid securities, the Fund risks
not being able to sell securities at the time and the price that it would like.
The Fund may therefore have to lower the price, sell substitute securities or
forego an investment opportunity, each of which might adversely affect the Fund.
The risks of various investment techniques the Fund uses are described in
more detail in the SAI.
PERFORMANCE
How is the Fund's Performance Calculated?
There are various ways in which the Fund may calculate and report its
performance. Performance is calculated separately for each class of shares.
One method is to show the Fund's total return. Cumulative total return is
the percentage change in the value of an amount invested in a class of shares of
the Fund over a stated period of time and takes into account reinvested
dividends plus in the case of Class A Shares, the payment of the maximum sales
charge and, in the case of Class B and Class C Shares, the maximum CDSC.
Cumulative total return most closely reflects the actual performance of the
Fund. However, a shareholder who opts to receive dividends in cash, a Class A
shareholder who paid a sales charge lower than 5.5%, or a Class B or C
shareholder who paid lower than the maximum CDSC will have a different return
than the reported performance.
Average annual total return refers to the average annual compounded rates
of return over a specified period on an investment in shares of the Fund
determined by comparing the initial amount invested to the ending redeemable
value of the amount, taking into account reinvested dividends, the payment of
the maximum sales charge on Class A Shares, and the payment of the maximum CDSC
on Class B and Class C Shares.
The Fund may also publish its current yield. Yield is the net investment
income generated by a share of the Fund during a 30-day period divided by the
maximum offering price per share on the 30th day. "Maximum offering price"
includes the sales charge for Class A Shares.
The Fund may sometimes publish total returns that do not take into account
sales charges and such returns will be higher than returns which include sales
charges. You should be aware that (i) past performance does not indicate how the
Fund will perform in the future; and (ii) the Fund's return and net asset value
will fluctuate, so you cannot use the Fund's performance data to compare it to
investments in certificates of deposit, savings accounts or other investments
that provide a fixed or guaranteed yield.
10
<PAGE>
The Fund may compare its performance to that of other mutual funds, such
as the performance of similar funds reported by Lipper Analytical Services, Inc.
or information reported in national financial publications (such as Morningstar,
Inc., Money Magazine, Forbes, Barron's, The Wall Street Journal and The New York
Times) or in local or regional publications. The Fund may also compare its total
return to indices such as Standard & Poor's 500 Composite Stock Price Index and
other broad-based indices. These indices show the value of selected portfolios
of securities (assuming reinvestment of interest and dividends) which are not
managed by a portfolio manager. The Fund may report how they are performing in
comparison to the Consumer Price Index, an indication of inflation reported by
the U.S. Government.
Where Can I Obtain Performance Data?
The Wall Street Journal and certain local newspapers report information on
the performance of mutual funds. In addition, performance information is
contained in the Fund's annual report dated June 30 of each year and semi-annual
report dated December 31 of each year, which will automatically be mailed to
shareholders. To obtain copies of financial reports or performance information,
call (800) 438-5789.
PURCHASES AND EXCHANGES OF SHARES
Which Share Class Should I Choose For My Investment?
The Fund offers Class A, Class B and Class C Shares. Each Class has its
own cost structure, allowing you to choose the one that best meets your
requirements given the amount of your purchase and the intended length of your
investment. You should consider both ongoing annual expenses and initial or
contingent deferred sales charges in estimating the costs of investing in a
particular class of shares.
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C>
- - Front end sales charge. There - No front end sales charge. All - No front end sales charge or
are several ways to reduce these your money goes to work for CDSC, except for a CDSC for
sales charges. you right away. redemptions made within the
- - Lower annual expenses than - Higher annual expenses than first year after investing.
Class B and Class C Shares. Class A Shares. All your money goes to work
- A CDSC on shares you sell for you right away.
within six years of purchase. - Shares do not convert to
- Automatic conversion to Class A another class.
Shares approximately six years - Higher annual expenses than
after issuance, thus reducing Class A Shares.
future annual expenses.
- CDSC is waived for certain
redemptions.
</TABLE>
The Fund also issues Class K and Class Y Shares, which have different
sales charges, expense levels and performance. Class K and Class Y Shares are
available to limited types of investors. Call (800) 438-5789 to obtain more
information concerning Class K and Class Y Shares.
What Price Do I Pay For Shares?
Class A Shares are sold at the "net asset value next determined" by the
Fund plus any "applicable sales charge" and Class B and Class C Shares are sold
at the "net asset value next determined" by the Fund. These terms are explained
below. You should be aware that broker-dealers (other than the Fund's
Distributor) may charge investors additional fees if shares are purchased
through them.
11
<PAGE>
NET ASSET VALUE. Except in certain limited circumstances, the Fund
determines its net asset value ("NAV") on each day the New York Stock Exchange
("NYSE") is open for trading (a "Business Day") at the close of such trading
(normally 4:00 p.m. Eastern time). The Fund calculates NAV separately for each
class of shares. The "net asset value next determined" is the NAV calculated at
4:00 p.m. on the day the purchase order for shares is received, if the purchase
order is received prior to or at 4:00 p.m., and is the net asset value
calculated at 4:00 p.m. on the next Business Day, if the purchase order is
received after 4:00 p.m. NAV is calculated by totaling the value of all of the
assets of the Fund allocated to a particular class of shares, subtracting the
Fund's liabilities and expenses charged to that class and dividing the result by
the number of shares of that class outstanding.
APPLICABLE SALES CHARGE. Except in the circumstances described below, you
must pay a sales charge at the time of purchase of Class A Shares. The sales
charge as a percentage of your investment decreases as the amount you invest
increases. The current sales charge rates and commissions paid to selected
dealers are as follows:
<TABLE>
<CAPTION>
Sales Charge
as a Percentage of Dealer Reallowance
------------------ as a Percentage of the
Your Investment Net Asset Value Investment
--------------- --------------- ----------
<S> <C> <C> <C>
Less than $25,000 ...................... 5.50% 5.82% 5.00%
$25,000 but less than $50,000 .......... 5.25% 5.54% 4.75%
$50,000 but less than $100,000 ......... 4.50% 4.71% 4.00%
$100,000 but less than $250,000 ........ 3.50% 3.63% 3.25%
$250,000 but less than $500,000 ........ 2.50% 2.56% 2.25%
$500,000 but less than $1,000,000 ...... 1.50% 1.52% 1.25%
$1,000,000 or more ..................... None* None* (see below)**
</TABLE>
- ----------
* No initial sales charge applies on investments of $1 million or more.
However, a CDSC of 1% is imposed on certain redemptions within one year of
purchase.
** The Distributor will pay a 1% commission to dealers who initiate and are
responsible for purchases of $1 million or more.
The Distributor may pay the entire commission to dealers. If that occurs,
the dealer may be considered an "underwriter" under Federal securities laws.
SALES CHARGE WAIVERS. We will waive the initial sales charge on sales of
Class A Shares to the following types of purchasers:
(1) individuals with an investment account or relationship with the
Advisor;
(2) full-time employees and retired employees of the Advisor, employees
of the Fund's services providers and immediate family members of
such persons;
(3) registered broker-dealers that have entered into selling agreements
with the Distributor, for their own accounts or for the retirement
plans for their employees or sold to registered representatives for
full-time employees (and their families) that certify to the
Distributor at the time of purchase that such purchase is for their
own account (or for the benefit of their families);
(4) certain qualified employee benefit plans as described below;
(5) individuals who reinvest a distribution from a qualified
retirement plan for which the Advisor serves as an investment
advisor;
(6) individuals who reinvest the proceeds of redemptions from Class Y
Shares of the Fund of Framlington, the Company or Trust, within 60
days of redemption;
(7) banks and other financial institutions that have entered into
agreements with Framlington, the Company or the Trust to provide
shareholder services for customers ("Customers") (including
Customers of such banks and other financial institutions, and the
immediate family members of such Customers);
12
<PAGE>
(8) fee-based financial planners or employee benefit plan consultants
acting for the accounts of their clients;
(9) employer sponsored retirement plans which are administered by
Universal Pensions, Inc. ("UPI Plans");
(10) employer sponsored 401(k) plans that are administered by Merrill
Lynch Group Employee Services ("Merrill Lynch Plans") which meet the
criteria described below under "Qualified Employer Sponsored
Retirement Plan"; and
(11) individuals who reinvest proceeds of redemptions of Class A, Class B
or Class C Shares of the Short Term Treasury Fund provided, such
individuals were shareholders of the Short Term Treasury Fund on
June 2, 1998.
Qualified Employer Sponsored Retirement Plans
We will waive the initial sales charge on purchases of Class A Shares by
employer sponsored retirement plans that are qualified under Section 401(a) or
Section 403(b) of the Code (each, a "Qualified Employee Benefit Plan") and that
(1) invest $1,000,000 or more in Class A Shares of investment portfolios offered
by Framlington, the Company or the Trust or (2) have at least 75 eligible plan
participants. In addition, we will waive the CDSC 1% charged on certain
redemptions within one year of purchase for Qualified Employee Benefit Plan
purchases that meet the above criteria. A 1% commission will be paid by the
Distributor to dealers and other entities (as permitted by applicable Federal
and state law) who initiate and are responsible for Qualified Employee Benefit
Plan purchases that meet the above criteria. For purposes of this sales charge
waiver, Simplified Employee Pension Plans ("SEPs"), Individual Retirement
Accounts ("IRAs") and UPI Plans are not considered to be Qualified Employee
Benefit Plans.
We will also waive (i) the initial sales charge on Class A Shares on
purchases by UPI Plans for employees participating in an employer-sponsored or
administered retirement program operating under Section 408A of the Code and
(ii) the CDSC of 1% imposed on certain redemptions within one year of purchase
for these accounts. The Distributor will pay a 1% commission to dealers and
others (as permitted by applicable Federal and state law) who initiate and are
responsible for UPI Plan purchases.
We will waive the initial sales charge for all investments by Merrill
Lynch Plans if (i) the Plan is recordkept on a daily valuation basis by Merrill
Lynch Group Employee Services ("Merrill Lynch") and, on the date the plan
sponsor ("the Plan Sponsor") signs the Merrill Lynch Recordkeeping Service
Agreement, the Plan has $3 million or more in assets invested in broker/dealer
funds not advised or managed by Merrill Lynch Asset Management, L.P. ("MLAM")
that are made available pursuant to a Services Agreement between Merrill Lynch
and the Fund's principal underwriter or distributor and in funds advised or
managed by MLAM (collectively, the "Applicable Investments"); or (ii) the Plan
is recordkept on a daily valuation basis by an independent recordkeeper whose
services are provided through a contract or alliance arrangement with Merrill
Lynch, and on the date the Plan Sponsor signs the Merrill Lynch Recordkeeping
Service Agreement, the Plan has $3 million or more in assets, excluding money
market funds, invested in Applicable Investments; or (iii) the Plan has 500 or
more eligible employees, as determined by the Merrill Lynch plan conversion
manager, on the date the Plan Sponsor signs the Merrill Lynch Recordkeeping
Service Agreement.
SALES CHARGE REDUCTIONS. You may qualify for reduced sales charges in the
following cases:
- Letter of Intent. If you intend to purchase at least $25,000 of
Class A, Class B and Class C Shares of the Fund you may wish to
complete the Letter of Intent Section of your Account Application
Form. By doing so, you agree to invest a certain amount over a
13-month period. You would pay a sales charge on any Class A Shares
you purchase during the 13 months based on the total amount to be
invested under the Letter of Intent. You can apply any investments
you made in any of the funds during the preceding 90-day period
toward fulfillment of the Letter of Intent (although there will be
no refund of sales charge you paid during the 90-day period). You
should inform the Transfer Agent that you have a Letter of Intent
each time you make an investment.
13
<PAGE>
You are not obligated to purchase the amount specified in the
Letter of Intent. If you purchase less than the amount specified,
however, you must pay the difference between the sales charge paid
and the sales charge applicable to the purchases actually made. The
Custodian will hold such amount in escrow. The Custodian will pay
the escrowed funds to your account at the end of the 13 months
unless you do not complete your intended investment.
- Quantity Discounts. You may combine purchases of Class A Shares that
are made by you, your spouse, your children under age 21 and your
IRA when calculating the sales charge. You must notify your broker
or the Transfer Agent to qualify.
- Right of Accumulation. You may add the value of any shares of
non-money market funds of Framlington, the Company or the Trust you
already own to the amount of your next Class A Shares investment for
purposes of calculating the sales charge at the time of current
purchase. You must notify your broker or the Transfer Agent to
qualify.
Certain brokers may not offer these programs or may impose conditions on
use of these programs. You should consult with your broker prior to purchasing
the Fund's shares.
For further information on the sales charge waivers and reductions call
the Fund at (800) 438-5789.
When Can I Purchase Shares?
Shares of the Fund are sold on a continuous basis and can be purchased on
any Business Day.
What is the Minimum Required Investment?
The minimum initial investment for Class A, Class B and Class C Shares of
the Fund is $250 and subsequent investments must be at least $50. Purchases in
excess of $250,000 must be for Class A or Class C Shares.
How Can I Purchase Shares?
You can purchase Class A, Class B and Class C Shares in a number of
different ways. You may place orders directly through the Transfer Agent or the
Distributor or through arrangements with your authorized broker.
- By Broker. Any broker authorized by the Distributor can sell you
shares of the Fund. Please note that brokers may charge you fees for
their services.
- By Mail. You may open an account by mailing a completed and signed
Account Application Form and a check or other negotiable bank draft
(payable to The Munder Funds) for $250 or more to: The Munder Funds,
c/o First Data Investor Services Group, P.O. Box 5130, Westborough,
Massachusetts 01581-5130. Be sure to specify on your Account
Application Form the class of shares being purchased. If the class
is not specified, your purchase will automatically be invested in
Class A Shares. For additional investments send a letter stating the
Fund and share class you wish to purchase, your name and your
account number with a check for $50 or more to the address listed
above.
- By Wire. To open a new account, you should call the Fund at (800)
438-5789 to obtain an account number and complete wire instructions
prior to wiring any funds. Within seven days of purchase, you must
send a completed Account Application Form containing your certified
taxpayer identification number to the Transfer Agent at the address
provided above. Wire instructions must state the name of the Fund,
share class, your registered name and your account number. Your bank
wire should be sent through the Federal Reserve Bank Wire System to:
14
<PAGE>
Boston Safe Deposit and Trust Company
Boston, MA
ABA # 011001234
DDA # 16-798-3
Account No.:
You may make additional investments at any time using the wire
procedures described above. Note that banks may charge fees for
transmitting wires.
- Automatic Investment Plan ("AIP"). Under the AIP, you may arrange
for periodic investments in the Fund through automatic deductions
from a checking or savings account. To enroll in the AIP you should
complete the AIP Application Form or call the Fund at (800)
438-5789. The minimum pre-authorized investment amount is $50. You
may discontinue the AIP at any time. We may discontinue the AIP on
30 days' written notice to you.
- Reinvestment Privilege. Once a year you may reinvest redemption
proceeds from Class A, B and C Shares of the Fund (or Class A, B and
C Shares of another non-money market fund of the Company, the Trust
or Framlington) in shares of the same class of the Fund without any
sales charges, if the reinvestment is made within 60 days of
redemption. You or your broker must notify the Transfer Agent in
writing at the time of reinvestment in order to eliminate the sales
charge.
The Transfer Agent will send confirmations of the opening of an account
and of all subsequent purchases, exchanges or redemptions in the account. If
your account has been set up by a broker or other investment professional,
account activity will be detailed in their statements to you. We reserve the
right to (i) reject any purchase order if, in our opinion, it is in the Fund's
best interest to do so and (ii) suspend the offering of shares of any Class for
any period of time.
See the SAI for further information regarding purchases of the Fund's
shares.
How Can I Exchange Shares?
You may exchange shares of the Fund for shares of the same class of other
funds of Framlington, the Company or the Trust based on their relative net asset
values. Class A Shares of a money market fund of the Company or the Trust that
were (1) acquired through the use of the exchange privilege and (2) can be
traced back to a purchase of shares in one or more investment portfolios of
Framlington, the Company or the Trust for which a sales charge was paid, can be
exchanged for Class A Shares of a fund of Framlington, the Company or the Trust.
Class B and Class C Shares will continue to age from the date of the original
purchase and will retain the same CDSC rate as they had before the exchange.
You must meet the minimum purchase requirements for the fund of
Framlington, the Company or the Trust that you purchase by exchange. If you
are exchanging into shares of a fund with a higher sales charge, you must pay
the difference at the time of the exchange. Please note that a share exchange
is a taxable event and accordingly, you may realize a taxable gain or loss.
Before making an exchange request, read the Prospectus of the fund you wish
to purchase by exchange. You can obtain a Prospectus for any fund of
Framlington, the Company and the Trust by contacting your broker or the Fund
at (800) 438-5789. Brokers may charge a fee for handling exchanges.
- Exchanges by Telephone. You may give exchange instructions by
telephone to the Fund at (800) 438-5789. You may not exchange shares
by telephone if you hold share certificates. We reserve the right to
reject any telephone exchange request and to place restrictions on
telephone exchanges.
- Exchanges by Mail. You may send exchange orders to your broker or to
us at The Munder Funds c/o First Data Investor Services Group, P.O.
Box 5130, Westborough, Massachusetts 01581-5130.
15
<PAGE>
We may modify or terminate the exchange privilege at any time. You will be
given notice of any material modifications except where notice is not required.
REDEMPTIONS OF SHARES
What Price Do I Receive for Redeemed Shares?
The redemption price is the net asset value next determined after we
receive the redemption request in proper order. We will reduce the amount of any
applicable CDSC. See "Purchases of Shares-What Price Do I Pay for Shares?" for
an explanation of how the net asset value next determined is calculated.
Contingent Deferred Sales Charges. You pay a CDSC when you redeem:
- Class A Shares that are part of an investment of at least $1 million
within one year of buying them
- Class B Shares within six years of buying them
- Class C Shares within one year of buying them
The CDSC schedule for Class B Shares purchased after June 27, 1995 is set
forth below. Shares acquired in an exchange of shares of another Fund of
Framlington, the Company or the Trust that were purchased on or before June 27,
1995 are subject to any CDSC applicable to those shares. See the SAI for the
CDSC schedule for Class B Shares purchased before that time. The CDSC is based
on the original net asset value at the time of your investment or the net asset
value at the time of redemption, whichever is lower.
Class B Shares
<TABLE>
<CAPTION>
Years Since Purchase CDSC
- -------------------- ----
<S> <C>
First............................................................. 5.00%
Second............................................................ 4.00%
Third............................................................. 3.00%
Fourth............................................................ 3.00%
Fifth............................................................. 2.00%
Sixth............................................................. 1.00%
Seventh and thereafter............................................ 0.00%
</TABLE>
The Distributor pays sales commissions of 4.00% of the purchase price of
Class B Shares of the Fund to brokers at the time of sale that initiate and are
responsible for purchases of Class B Shares of the Fund.
You will not pay a CDSC to the extent that the value of the redeemed
shares represents:
- reinvestment of dividends or capital gain distributions
- capital appreciation of shares redeemed
When you redeem shares, we will assume you are redeeming first
shares representing investment of dividends and capital gain distributions,
then any appreciation on shares redeemed, and then remaining shares held by
you for the longest period of time. We will calculate the holding period of
shares of the Fund acquired through an exchange of shares of the Munder Money
Market Fund from the date that the shares of the Fund were initially
purchased.
CDSC Waivers. We will waive the CDSC payable upon redemptions of shares
which you purchased after June 27, 1995 for:
16
<PAGE>
- redemptions made within one year after the death of a shareholder or
registered joint owner
- minimum required distributions made from an IRA or other retirement
plan account after you reach age 70 1/2
- involuntary redemptions made by the Fund
- redemptions limited to 10% per year of an account's Net Asset Value
Consult the SAI for Class B Share CDSC waivers which apply when you
redeem shares acquired in an exchange of shares of another Fund of the
Company, the Trust or Framlington that were purchased on or before June 27,
1995.
We will waive the CDSC for Class B Shares for all redemptions by Merrill
Lynch Plans if: (i) the Plan is recordkept on a daily valuation basis by Merrill
Lynch; or (ii) the Plan is recordkept on a daily valuation basis by an
independent recordkeeper whose services are provided through a contract or
alliance arrangement with Merrill Lynch; or (iii) the Plan has less than 500
eligible employees, as determined by the Merrill Lynch plan conversion manager,
on the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement.
When Can I Redeem Shares?
You can redeem shares on any Business Day, provided all required documents
have been received by the Transfer Agent. The Fund may temporarily stop
redeeming shares when the NYSE is closed or trading on the NYSE is restricted,
when an emergency exists and the Fund cannot sell its assets or accurately
determine the value of its assets or if the SEC orders the Fund to suspend
redemptions.
How Can I Redeem Shares?
You may redeem shares of the Fund in several ways:
- By Mail. You may mail your redemption request to: The Munder Funds,
c/o First Data Investor Services Group, P.O. Box 5130, Westborough,
Massachusetts 01581-5130. The redemption request should state the
name of the Fund, share class, account number, amount of redemption,
account name and where to send the proceeds. All account owners must
sign. If a stock certificate has been issued to you, you must
endorse the stock certificate and return it together with the
written redemption request.
A signature guarantee is required for the following redemption
requests: (a) redemption proceeds greater than $50,000; (b)
redemption proceeds not being made payable to the owner of the
account; (c) redemption proceeds not being mailed to the address of
record on the account or (d) if the redemption proceeds are being
transferred to another Munder Funds account with a different
registration. You can obtain a signature guarantee from a financial
institution such as a commercial bank, trust company, savings
association or from a securities firm having membership on a
recognized stock exchange.
- By Telephone. You can redeem your shares by calling your broker or
the Fund at (800) 438-5789. There is no minimum requirement for
telephone redemptions paid by check. The Transfer Agent may deduct a
wire fee (currently $7.50) for wire redemptions under $5,000.
If you are redeeming at least $1,000 of shares and you have
authorized expedited redemption on your Account Application Form,
simply call the Fund prior to 4:00 p.m. (Eastern time), and request
the funds be mailed to the commercial bank or registered
broker-dealer you designated on your Account Application Form. We
will send your redemption amount to you on the next Business Day. We
reserve the right at any time to change or impose fees for this
expedited redemption procedure.
17
<PAGE>
We record all telephone calls for your protection and take
measures to identify the caller. If the Transfer Agent properly acts
on telephone instructions and follows reasonable procedures to
ensure against unauthorized transactions, neither the Company, the
Distributor nor the Transfer Agent will be responsible for any
losses. If these procedures are not followed, the Transfer Agent may
be liable to you for losses resulting from unauthorized
instructions.
During periods of unusual economic or market activity, you may
experience difficulties or delays in effecting telephone
redemptions. In such cases you should consider placing your
redemption request by mail.
- Automatic Withdrawal Plan ("AWP"). If you have an account value of
$2,500 or more in the Fund, you may redeem shares on a monthly,
quarterly, semi-annual or annual basis. The minimum withdrawal is
$50. We usually process withdrawals on the 20th day of the month and
promptly send you your redemption amount. You may enroll in the AWP
by completing the AWP Application Form available through the
Transfer Agent. To participate in the AWP you must have your
dividends automatically reinvested and may not hold share
certificates. You may change or cancel the AWP at any time upon
notice to the Transfer Agent. You should not buy Class A Shares (and
pay a sales charge) while you participate in the AWP and you must
pay an any applicable CDSCs when you redeem shares.
- Involuntary Redemption. We may redeem your account if its value
falls below $500 as a result of redemptions (but not as a result of
a decline in net asset value). You will be notified in writing and
allowed 60 days to increase the value of your account to the minimum
investment level.
When Will I Receive Redemption Amounts?
We will typically send redemption amounts to you within seven Business
Days after you redeem shares. We may hold redemption amounts from the sale of
shares you purchased by check until the purchase check has cleared, which may be
as long as 15 days.
STRUCTURE AND MANAGEMENT OF THE FUND
How is the Fund Structured?
Framlington is an open-end management investment company, which is a
mutual fund that sells and redeems shares every day that it is open for
business. It is managed under the direction of its governing Board of Trustees,
which is responsible for the overall management of Framlington and supervises
the Fund's service providers. Framlington is a Massachusetts business trust.
Who Manages and Services the Fund?
Investment Advisor. The Fund's investment advisor is Munder Capital
Management, a Delaware general partnership with its principal offices at 480
Pierce Street, Birmingham, Michigan 48009. The principal partners of the Advisor
are Old MCM, Inc. ("MCM"), Munder Group LLC, and WAM Holdings, Inc. ("WAM"). MCM
was founded in February 1985 as a Delaware corporation and was a registered
investment advisor. WAM is an indirect, wholly-owned subsidiary of Comerica
Incorporated ("Comerica"). Mr. Lee P. Munder, the Advisor's chairman, indirectly
owns or controls approximately 45% and Comerica owns or controls approximately
44% of the partnership interests in the Advisor. As of December 31, 1997, the
Advisor and its affiliates had approximately $45 billion in assets under
management, of which $22.2 billion were invested in equity securities, $9
billion were invested in money market or other short-term instruments, and $9.3
billion were invested in other fixed income securities and $4.5 billion in
non-discretionary assets.
18
<PAGE>
Framlington Overseas Investment Management Limited is the Fund's
Sub-Advisor. The Sub-Advisor is an indirect subsidiary of Framlington
Holdings Limited which is, in turn, owned 49% by the Advisor and 51% by
Credit Commercial de France S.A., a French banking corporation listed on the
Societe des Bourses Francaises.
The Advisor provides overall investment management services for the
Fund. Each of the Advisor and Sub-Advisor manages a portion of the assets of
the Fund. The Advisor provides research and credit analysis and is
responsible for all purchases and sales of domestic securities held by the
Fund. The Sub-Advisor is responsible for allocating assets among countries,
provides research and credit analysis and is responsible for all purchases
and sales of foreign securities held by the Fund.
The Advisor is entitled to receive a fee at an annual rate equal to 0.75%
of the average daily net assets of the Fund.
The Advisor may, from time to time, make payments to banks, broker-dealers
or other financial institutions for certain services to the Fund and/or their
shareholders, including sub-administration, sub-transfer agency and shareholder
servicing. The Advisor may make such payments out of its own resources and there
are no additional costs to the Fund or their shareholders.
The Sub-Advisor is entitled to receive an advisory fee equal to one
half of the fee paid to the Advisor by the Fund as compensation for its
services as Sub-Advisor. The Advisor pays fees to the Sub-Advisor. The Fund
pays no fees directly to the Sub-Advisor.
The Sub-Advisor selects broker-dealers to execute portfolio transactions
for the Fund based on best price and execution terms. The Sub-Advisor may
consider as a factor the number of shares sold by the broker-dealer.
Administrator. State Street Bank and Trust Company ("State Street" or
the "Administrator") is the Fund's administrator. The Administrator is
located at 225 Franklin Street, Boston, Massachusetts 02110. The
Administrator generally assists Framlington in all aspects of its
administration and operations. As compensation for its services, State Street
is entitled to receive fees, based on the aggregate daily net assets of the
Fund and certain other investment portfolios that are advised by the Advisor
for which it provides services, computed daily and payable monthly at the
annual rate of 0.113% on the first $2.8 billion of net assets, plus 0.103% on
the next $2.2 billion of net assets, plus 0.101% on the next $2.5 billion of
net assets, plus 0.095% on the next $2.5 billion of net assets, plus 0.080%
on the next $2.5 billion of net assets, plus 0.070% on all net assets in
excess of $12.5 billion (with a $75,000 minimum fee per annum in the
aggregate for all portfolios with respect to the Administrator). State Street
is also entitled to reimbursement for out-of-pocket expenses.
If the assets of the Framlington Funds do not exceed $120 million, the
ultimate rate charged the Framlington Funds will be reduced by their pro-rata
portion of the total fees if calculated at the rates of 0.062% of the first
$2.8 billion of net assets, plus 0.052% of the next $2.2 billion of net
assets, plus 0.050% of all net assets in excess of $5 billion.
State Street has entered into a Sub-Administration Agreement with the
Distributor under which the Distributor provides certain administrative services
with respect to the Fund. State Street pays the Distributor a fee for these
services out of its own resources at no cost to the Fund.
Transfer Agent. First Data Investor Services Group, Inc. is the Fund's
Transfer Agent. The Transfer Agent is a wholly-owned subsidiary of First Data
Corporation and is located at 53 State Street, Boston, Massachusetts 02109.
19
<PAGE>
Custodian and Sub-Custodian. Comerica Bank (the "Custodian") whose
principal business address is One Detroit Center, 500 Woodward Avenue,
Detroit, Michigan 48226, provides custodial services to the Fund. No
compensation is paid to the Custodian for such services. Comerica receives a
fee of 0.01% of the aggregate average daily net assets of the Fund
beneficially owned by Comerica and its customers for certain shareholders
services provided by Comerica to the Fund. State Street serves as
Sub-Custodian to the Fund.
Distributor. Funds Distributor, Inc. is the distributor of the Fund's
shares and is located at 60 State Street, Suite 1300, Boston, Massachusetts
02109. It markets and sells the Fund's shares.
For additional description of the services performed by the
Administrator, the Transfer Agent, the Custodian, the Sub-Custodian and the
Distributor, see the SAI.
Distribution Services Arrangement
Under Rule 12b-1 of the 1940 Act, the Fund has adopted a Service Plan
with respect to its Class A Shares and Service and Distribution Plans with
respect to its Class B and Class C Shares. Under the Plans, the Fund uses its
assets to finance activities relating to the distribution of shares to
investors and the provision of certain shareholder services. The Distributor
is paid a service fee at an annual rate of up to 0.25% of the value of the
average daily net assets of the Fund's Class A Shares. The Distributor is
also paid a service fee at an annual rate of 0.25% and a distribution fee at
an annual rate of up to 0.75% of the value of the average daily net assets of
the Fund's Class B and Class C Shares. The Distributor uses the service fees
primarily to pay ongoing trail commissions to securities dealers (which may
include the Distributor itself) and other financial organizations which
provide shareholder services for the Fund. These services include, among
other things, processing new shareholder account applications, reporting to
the Fund's Transfer Agent all transactions by customers and serving as the
primary information source to customers concerning the Fund.
What are My Rights as a Shareholder?
All shareholders have equal voting, liquidation and other rights. You
are entitled to one vote for each share you hold and a fractional vote for
each fraction of a share you hold. You will be asked to vote on matters
affecting Framlington as a whole and affecting the Fund. You will not vote by
Class unless expressly required by law or when the Trustees determine that
the matter to be voted on affects only the interests of the holders of a
particular class of shares. Framlington will not hold annual shareholder
meetings, but special meetings may be held at the written request of
shareholders owning more than 10% of outstanding shares for the purpose of
removing a Trustee. Under Massachusetts law, it is possible that a
shareholder may be liable for Framlington's obligations. If a shareholder
were required to pay a debt of the Fund, however, Framlington has committed
to reimburse the shareholder in full for their assets. The SAI contains more
information regarding voting rights.
As of the date of this Prospectus, Funds Distributor, Inc. has the
right to vote a majority of the outstanding shares of the Fund and therefore
it is considered to be a controlling person.
DIVIDENDS, DISTRIBUTIONS AND TAXES
When Will I Receive Distributions from the Fund?
As a shareholder, you are entitled to your share of net income and
capital gains, if any, on the Fund's investments. The Fund passes its
earnings along to its investors in the form of dividends. Dividend
distributions are the dividends or interest earned on investments after
expenses. The Fund pays dividends from net income, if any, at least annually.
The Fund's net realized capital gains (including net short-term capital
gains), if any, are distributed at least annually.
20
<PAGE>
It is possible that the Fund may make a distribution in excess of the
Fund's current and accumulated earnings and profits. You will treat such a
distribution as a return of capital which is applied against and reduces your
basis in your shares. To the extent that the amount of any such distribution
exceeds your basis in your shares, you will treat the excess as gain from a
sale or exchange of the shares.
How Will Distributions Be Made?
The Fund will pay dividend and capital gains distributions in additional
shares of the same class of the Fund. If you wish to receive distributions in
cash, either indicate this request on your Account Application Form or notify
the Fund at (800) 438-5789.
Are There Tax Implications of My Investments in the Fund?
In general, as long as the Fund meets the requirements to qualify as a
regulated investment company ("RIC") under Federal tax laws, it will not be
subject to Federal income tax on its income and capital gains that it
distributes in a timely manner to its shareholders. The Fund intends to qualify
annually as a RIC. Even if it qualifies as a RIC, the Fund may still be liable
for any excise tax on income that is not distributed in accordance with a
calendar year requirement; the Fund intends to avoid the excise tax by making
timely distributions.
Generally, you will owe tax on the amounts distributed to you, regardless
of whether you receive these amounts in cash or reinvest them in additional Fund
shares. Shareholders not subject to tax on their income generally will not be
required to pay any tax on amounts distributed to them. Federal income tax on
distributions to an IRA or to a qualified retirement plan will generally be
deferred.
Capital gains derived from sales of portfolio securities held by the Fund
will generally be designated as long-term or short-term. Distributions from the
Fund's long-term capital gains are generally taxed at the long-term capital
gains rates, regardless of how long you have owned shares in the Fund. Dividends
derived from other sources are generally taxed as ordinary income.
Dividends and capital gain distributions are generally taxable when you
receive them; however, if a distribution is declared in October, November or
December, but not paid until January of the following year, it will be
considered to be paid on December 31 in the year in which it was declared.
Shortly after the end of each year, you will receive from the Fund a statement
of the amount and nature of the distributions made to you during the year.
If you redeem, transfer or exchange Fund shares, you may have taxable gain
or a loss. If you hold Fund shares for six months or less, and during that time
you receive a capital gain dividend, any loss you realize on the sale of these
Fund shares will be treated as a long-term loss to the extent of the earlier
distribution.
Dividends and certain interest income earned from foreign securities by
the Fund may be subject to foreign withholding or other taxes. The Fund may be
permitted to pass on to its shareholders the right to a credit or deduction for
income or other tax credits earned from foreign investments and will do so if
possible. These deductions or credits may be subject to tax law limitations.
If the Fund invests in certain "passive foreign investment companies"
("PFICs"), it will be subject to Federal income tax (and possibly additional
interest charges) on a portion of any "excess distribution" or gain from the
disposition of such shares, even if it distributes such income to its
shareholders. If the Fund elects to treat a PFIC as a "qualified electing fund"
("QEF") and the PFIC furnishes certain financial information in the required
form to such Fund, the Fund will instead be required to include in income each
year its allocable share of the ordinary earnings and net capital gains of the
QEF, regardless of whether received, and such amounts will be subject to the
various distribution requirements described above. The Fund may also elect to
mitigate the tax effects of owning PFIC stock by making an annual mark-to-market
election with respect to PFIC shares.
21
<PAGE>
More information about the tax treatment of distributions from the Fund
and about other potential tax liabilities, including backup withholding for
certain taxpayers and information about tax aspects of dispositions of shares of
the Fund, is contained in the SAI. You should consult your tax advisor regarding
the impact of owning Fund shares on your own personal tax situation, including
the applicability of any state and local taxes.
ADDITIONAL INFORMATION
Shareholder Communications. You will receive unaudited Semi-Annual Reports
and audited Annual Reports on a regular basis from the Fund. In addition, you
will also receive updated Prospectuses or Supplements to this Prospectus. In
order to eliminate duplicate mailings, the Fund will only send one copy of the
above communications to (1) accounts with the same primary record owner, (2)
joint tenant accounts, (3) tenant in common accounts and (4) accounts which have
the same address.
22
<PAGE>
PROSPECTUS
Class K Shares
The Munder Framlington Global Financial Services Fund (the "Fund") is a
mutual fund that seeks to provide long-term capital appreciation. The Fund
invests primarily in equity securities of U.S. and foreign companies which
are principally engaged in the financial services industry. The Fund is a
portfolio of The Munder Framlington Funds Trust ("Framlington"), an open-end
investment company.
Munder Capital Management (the "Advisor") serves as investment advisor of
the Fund.
This Prospectus explains the objective, policies, risks and fees of the
Fund. You should read this Prospectus carefully before investing and retain
it for future reference. A Statement of Additional Information ("SAI")
describing the Fund has been filed with the Securities and Exchange
Commission (the "SEC") and is incorporated by reference into this Prospectus.
You may obtain the SAI free of charge by calling the Fund at (800) 438-5789.
In addition, the SEC maintains a Web site (http://www.sec.gov) that contains
the SAI and other information regarding the Fund.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not insured or guaranteed by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency. An investment in the Fund involves investment risks, including the
possible loss of the principal amount invested.
SECURITIES OFFERED BY THIS PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Call Toll-Free for Shareholder Services:
(800) 438-5789
The date of this Prospectus is June 13, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
Fund Highlights...........................................................3
What are the key facts regarding the Fund?..........................3
Fund Information..........................................................5
What are the Fund's goals and principal investments? ...............5
Who may want to invest in the Fund?.................................5
What are the Fund's investments and investment practices?...........5
What are the risks of investing in the Fund?........................8
Performance...............................................................9
How is the Fund's performance calculated?...........................9
Where can I obtain performance data?...............................10
Purchases of Shares......................................................10
What price do I pay for shares?....................................10
When can I purchase shares?........................................10
How can I purchase shares?.........................................10
Redemptions of Shares....................................................11
What price do I receive for redeemed shares?.......................11
When can I redeem shares?..........................................11
How can I redeem shares?...........................................11
When will I receive redemption amounts?............................11
Structure and Management of the Fund.....................................11
How is the Fund structured?........................................11
Who manages and services the Fund?.................................11
What are my rights as a shareholder?...............................13
Dividends, Distributions and Taxes.......................................13
When will I receive distributions from the Fund?...................13
How will distributions be made?....................................14
Are there tax implications of my investments in the Fund?..........14
Additional Information...................................................15
2
<PAGE>
FUND HIGHLIGHTS
What Are the Key Facts Regarding the Fund?
Q: What is the Fund's goal?
A: The Fund seeks to provide long-term capital appreciation.
Q: What is the Fund's strategy?
A: The Fund invests primarily in equity securities of U.S. and foreign companies
which are primarily engaged in the financial services industry and companies
providing services within the financial services industry.
Q: What are the Fund's risks?
A: The Fund's net asset value, which is determined on every business day, will
change daily. The net asset value changes are due to many factors including
national and international economic conditions, changes in the price of
securities owned by the Fund as a result of rises and falls in the stock market
in general, perceptions about the stock of particular companies and perceptions
about particular industries. You should note that you could lose a portion of
the amount you invest in the Fund. As a result of large investments in foreign
securities, the Fund is riskier than a domestic fund due to factors such as
freezes on convertibility and differences in accounting and reporting standards,
less government regulation and greater volatility. Also, this Fund concentrates
its investment in a single industry and could experience larger price
fluctuations than a fund invested in a broader range of industries.
Q: What are the options for investment in the Fund?
A: The Fund has registered five classes of shares: Class A, B, C, K and Y. Class
A, B, C and Y Shares are described in other prospectuses.
Q: How do I buy and sell shares of the Fund?
A: Class K Shares of the Fund are available to customers ("Customers") of banks
and other institutions, and the immediate family of such Customers, that have
entered into agreements with us to provide shareholder services for Customers.
You may purchase shares through such a bank or financial institution.
Shares may be redeemed (sold back to the Fund) through your financial
institution.
Q: When and how are distributions made?
A: Dividend distributions are made from the dividends and interest earned on
investments after expenses. The Fund pays dividends at least annually and
distributes capital gains at least annually. Unless you elect to receive
distributions in cash, all dividends and capital gains distributions of the
Fund will be automatically used to purchase additional shares of the Fund.
Q: Who manages the Fund's assets?
A: Munder Capital Management is the Fund's investment advisor. The Advisor
provides overall investment management services for the Fund and is responsible
for the selection and management of the domestic securities held by the Fund.
Framlington Overseas Investment Management Limited (the "Sub-Advisor") is
responsible for allocating assets among countries and for the selection and
management of the foreign securities held by the Fund.
3
<PAGE>
SHAREHOLDER TRANSACTION EXPENSES(1)
The purpose of this table is to assist you in understanding the expenses a
shareholder in the Fund will bear directly.
<TABLE>
<S> <C>
Maximum Sales Charge on Purchase (as a % of Offering Price)...............None
Sales Charge Imposed on Reinvested Dividends..............................None
Maximum Deferred Sales Charge.............................................None
Redemption Fees(2)........................................................None
Exchange Fees.............................................................None
</TABLE>
- ----------
Notes:
(1) Does not include fees which institutions may charge for services they
provide to you.
(2) The Transfer Agent may charge a fee of $7.50 for wire redemptions under
$5,000.
FUND OPERATING EXPENSES
The purpose of this table is to assist you in understanding the expenses
charged directly to the Fund, which investors in the Fund will bear indirectly
for the current fiscal year. Such expenses include payments to Trustees,
auditors, legal counsel and service providers (such as the Advisor) and
registration fees. The fees shown below are estimated for the Fund's current
fiscal year and reflect anticipated voluntary expense reimbursements. The
Advisor may discontinue such expense reimbursements at any time in its sole
discretion.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(as a % of average net assets)
- ------------------------------
<S> <C>
Advisory Fees....................................................... .75%
Shareholder Servicing Fees.......................................... .25%
Other Expenses+..................................................... .50%++
----
Total Fund Operating Expenses+...................................... 1.50%++
----
----
</TABLE>
- ----------
+ After expense reimbursements.
++ The Advisor expects to voluntarily reimburse the Fund for certain operating
expenses. In the absence of expense reimbursements, it is estimated that total
fund operating expenses would be 1.67%.
EXAMPLE
This example shows the amount of expenses you would pay (directly or
indirectly) on a $1,000 investment in the Fund assuming (1) a 5% annual return,
(2) redemption at the end of the following time periods. This example is not a
representation of past or future performance or operating expenses; actual
performance or operating expenses may be larger or smaller than those shown.
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C>
$15 $48
</TABLE>
4
<PAGE>
FUND INFORMATION
What are the Fund's goals and principal investments?
This Prospectus describes Class K Shares of the Fund. This section
summarizes the Fund's goal and principal investments. The sections entitled
"What are the Fund's Investments and Investment Practices?" and "What are the
Risks of Investing in the Fund?" and the SAI give more information about the
Fund's investment techniques and risks.
GOAL AND PRINCIPAL INVESTMENTS. The Fund's goal is to provide long-term
capital appreciation. Under normal market conditions, the Fund invests at least
65% of its assets in equity securities of U.S. and foreign companies which are
principally engaged in the financial services industry and companies which are
likely to benefit from growth or consolidation in the financial services
industry.
Examples of companies in the financial services industry are:
- commercial, industrial and investment banks
- savings and loan associations
- brokerage companies
- consumer and industrial finance companies
- real estate and leasing companies
- insurance companies
- holding companiesfor each of the above
A company is "principally engaged" in the financial services industry if
at least 50% of its gross income, net sales or net profits comes from activities
in the financial services industry or if the company dedicates more than 50% of
its assets to the production of revenues from the financial services industry.
Under normal market conditions, the Fund invests at least 65% of its
assets in at least three different countries, including the United States.
The Sub-Advisor allocates assets among countries based on its analysis of
the trends in the financial services industry in particular regions, the
relative valuation of financial services companies in different regions and its
assessment of the prospects for a particular equity market and its currency.
PORTFOLIO MANAGEMENT. A committee of professional managers employed by
the Advisor or the Sub-Advisor makes decisions for the Fund.
Who May Want to Invest in the Fund?
The Fund may be appropriate for investors who want to pursue growth
aggressively by concentrating a portion of their investment on domestic and
foreign securities within the financial services industry. The Fund is
designed for those investors who are actively interested in, and can accept
the risks of, industry-focused investing. Because of its narrow focus, the
performance of the Fund is closely tied to and affected by, the financial
services industry.
What are the Fund's Investments and Investment Practices?
The Fund will invest in Equity Securities which includes common stocks,
preferred stocks, warrants and other securities convertible into common stocks.
Many of the common stocks the Fund will buy will not pay dividends; instead,
stocks will be bought for the potential that their prices will increase,
providing capital appreciation for the Fund. The value of Equity Securities will
fluctuate due to many factors, including the past and predicted earnings of the
issuer, the quality of the issuer's management, general market conditions, the
forecasts for the issuer's industry and the value of the issuer's assets.
Holders of Equity Securities only have rights to value in
5
<PAGE>
the company after all the debts have been paid, and they could lose their entire
investment in a company that encounters financial difficulty. Warrants are
rights to purchase securities at a specified time at a specified price.
The Fund may invest in Foreign Securities. Foreign Securities are
securities issued by non-U.S. companies and governments. Investments in
Foreign Securities are riskier than investments in U.S. companies because (i)
foreign companies may be subject to different accounting, auditing and
financial reporting standards than U.S. companies, (ii) there is generally
less public information available about foreign companies, (iii) there may be
less governmental regulation and supervision of foreign stock exchanges,
securities markets and companies and (iv) foreign securities may be less
liquid and more volatile than U.S. securities markets.
The Fund may purchase American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs"). ADRs
are issued by U.S. financial institutions and EDRs and GDRs are issued by
European financial institutions. They are receipts evidencing ownership of
underlying Foreign Securities.
The Fund may invest in Forward Foreign Currency Exchange Contracts,
which are obligations of the Fund to purchase or sell a specific currency at
a future date at a set price. These contracts may decrease the Fund's loss
due to a change in currency value, but also limit gains from currency
exchanges.
The Fund may invest in Futures Contracts and Options on Futures
Contracts. Futures contracts are contracts in which the Fund agrees, at
maturity, to make delivery of or receive securities, the cash value of an
index or foreign currency. Futures contracts and options on futures contracts
are used for hedging purposes or to maintain liquidity. The Fund may not
purchase or sell a futures contract unless immediately after any such
transaction the sum of the aggregate amount of margin deposits on its
existing futures positions and the amount of premiums paid for related
options is 5% or less of its total assets. The Fund will set aside cash or
other liquid securities to "cover" the Fund's position in futures. See the
SAI for more details and additional limitations.
The Fund may purchase or sell Options. The Fund may buy options giving
it the right to require a buyer to buy a security held by the Fund (put
options), buy options giving it the right to require a seller to sell
securities to the Fund (call options), sell (write) options giving a buyer
the right to require the Fund to buy securities from the buyer or write
options giving a buyer the right to require the Fund to sell securities to
the buyer during a set time at a set price. Options may relate to stock
indices, individual securities, foreign currencies or futures contracts. See
the SAI for more details and additional limitations.
The Fund may purchase securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. Although the
price to be paid by the Fund is set at the time of the agreement, the Fund
usually does not pay for the securities until they are received. The value of
securities may change between the time the price is set and payment. When the
Fund purchases securities for future delivery, the Fund's custodian will set
aside cash or liquid securities to "cover" the Fund's position. The Fund does
not intend to purchase securities for future delivery for speculative
purposes.
The Fund may enter into Repurchase Agreements. Under a repurchase
agreement, the Fund agrees to purchase securities from a seller and the
seller agrees to repurchase the securities at a later time, typically within
seven days, at a set price. The seller agrees to set aside collateral at
least equal to the repurchase price. This ensures that the Fund will receive
the purchase price at the time it is due, unless the seller defaults or
declares bankruptcy, in which event the Fund will bear the risk of possible
loss due to adverse market action or delays in liquidating the underlying
obligation.
The Fund may invest in Reverse Repurchase Agreements. Under a reverse
repurchase agreement, the Fund sells securities and agrees to buy them back
later at an agreed upon time and price. Reverse repurchase agreements are
used to borrow money for temporary purposes.
The Fund may Lend Securities to broker-dealers and other financially
sound institutional investors who will pay the Fund for the use of the
securities, thus potentially increasing the Fund's returns. The borrower must
set
6
<PAGE>
aside cash or liquid securities equal to the value of the securities borrowed
at all times during the terms of the loan. Loans may not exceed 25% of the
value of the Fund's total assets. Risks involved in such transactions include
possible delay in recovering the loaned securities and possible loss of the
securities or the collateral if the borrower fails financially.
The Fund may buy shares of registered Money Market Funds. The Fund will
bear a portion of the expenses of any investment company whose shares they
purchase, including operating costs and investment advisory, distribution and
administration fees. These expenses would be in addition to the Fund's own
expenses. The Fund may invest up to 10% of its assets in other investment
companies and no more than 5% of its assets in any one investment company.
The Fund may invest in Cash Equivalents, which are high-quality,
short-term money market instruments including, among other things, commercial
paper, bankers' acceptances and negotiable certificates of deposit of banks
or savings and loan associations, short-term corporate obligations and
short-term securities issued by, or guaranteed by, the U.S. Government and
its agencies or instrumentalities. These instruments will be used primarily
pending investment, to meet anticipated redemptions or as a temporary
defensive measure. If the Fund is investing defensively, it may not be
pursuing its investment objective.
The Fund may purchase Fixed Income Securities. Fixed Income Securities
are securities which either pay interest at set times at either fixed or
variable rates, or which realize a discount upon maturity. Fixed Income
Securities include corporate bonds, debentures, notes and other similar
corporate debt instruments, zero coupon bonds (discount debt obligations that
do not make interest payments) and variable amount master demand notes that
permit the amount of indebtedness to vary in addition to providing for
periodic adjustments in the interest rate.
The Fund may invest in Lower-Rated Debt Securities. Lower-Rated Debt
Securities are securities which are rated below investment grade by Standard
& Poor's Ratings Service ("S&P"), Moody's Investors Service, Inc. ("Moody's")
or other nationally recognized rating agency. Lower-Rated Debt Securities are
considered riskier than investment grade securities. The Fund may invest up
to 5% of its assets in lower-rated convertible securities, lower-rated
corporate bonds or commercial paper. These high yield, high risk securities
are commonly referred to as junk bonds.
The Fund may purchase U.S. Government Securities, which are
securities issued by, or guaranteed by, the U.S. Government or its agencies
or instrumentalities. Such securities include U.S. Treasury bills, which have
initial maturities of less than one year, U.S. Treasury notes, which have
initial maturities of one to ten years, U.S. Treasury bonds, which generally
have initial maturities of greater than ten years, and obligations of the
Federal Home Loan Mortgage Corporation, Federal National Mortgage Association
and Government National Mortgage Association. Under normal market conditions,
the Fund will not invest to a significant extent, or on a routine basis, in
U.S. Government Securities.
The Fund may invest up to 15% of the value of its net assets in
Illiquid Securities. Illiquid Securities are securities for which there is no
ready market, which inhibits the ability to sell them and obtain their full
market value, or which are legally restricted as to their resale by the Fund.
The Fund may invest in Asset-Backed Securities which include debt
securities backed by mortgages, installment sales contracts and credit card
receivables.
The Fund may invest in Stripped Securities which include participation
in trusts that hold U.S. Treasury and agency securities which represent
either the interest payments or principal payments on the securities or
combinations of both.
The Fund may invest in Real Estate Investment Trusts ("REITS") which
are companies, usually traded publicly, that manage a portfolio of real
estate. Risks involved in such investments include vulnerability to decline
in real estate prices and new construction rates.
7
<PAGE>
The Fund may make Short Sales of securities. A Short Sale is a
transaction in which the Fund sells a security it does not own in
anticipation that the market price of that security will decline. When the
Fund makes a short sale, it must borrow the security sold short and deliver
it to the broker-dealer through which it made the short sale as collateral
for its obligation to deliver the security upon conclusion of the sale. The
Fund may also sell securities that it owns or has the right to acquire at no
additional cost but does not intend to deliver to the buyer, a practice known
as selling short "against the box." See the SAI for more details.
The Fund may Borrow Money in an amount up to 5% of its assets for
temporary purposes and in an amount up to 33 1/3% of its assets to meet
redemptions. This is a "fundamental" policy which only can be changed by
shareholders.
Under SEC regulations, the Fund may not invest more than 5% of its
total assets in the equity securities of any company that derives more than
15% of its revenues from brokerage or investment management activities.
The Fund is classified as a "diversified fund" which means that with
respect to 75% of its assets, the Fund cannot invest more than 5% of its
assets in a single issuer (other than the U.S. Government and its agencies
and instrumentalities). In addition, the Fund cannot invest more than 25% of
its assets in a single issuer.
What are the Risks of Investing in the Fund?
Investing in the Fund may be less risky than investing in individual
stocks due to the diversification of investing in a portfolio of many
different stocks; however, such diversification does not eliminate all risks.
Because the Fund invests mostly in Equity Securities, rises and falls in the
stock market in general, as well as in the value of particular Equity
Securities held by the Fund, can affect the Fund's performance. Your
investment in the Fund is not guaranteed. The net asset value of the Fund
will change daily and you might not recoup the amount you invest in the Fund.
Consistent with a long-term investment approach, investors in the Fund
should be prepared and able to maintain their investments during periods of
adverse market conditions. By itself, the Fund does not constitute a balanced
investment program and there is no guarantee that the Fund will achieve its
investment objective since there is uncertainty in every investment.
A fund's risk is mostly dependent on the types of securities it
purchases and its investment techniques. The Fund is authorized to use
options, futures and forward foreign currency exchange contracts, which are
types of derivative instruments. Derivative instruments are instruments that
derive their value from a different underlying security, index or financial
indicator. The use of derivative instruments exposes the Fund to additional
risks and transaction costs. Risks inherent in the use of derivative
instruments include: (1) the risk that interest rates, securities prices and
currency markets will not move in the direction that a portfolio manager
anticipates; (2) imperfect correlation between the price of derivative
instruments and movements in the prices of the securities, interest rates or
currencies being hedged; (3) the fact that skills needed to use these
strategies are different than those needed to select portfolio securities;
(4) inability to close out certain hedged positions to avoid adverse tax
consequences; (5) the possible absence of a liquid secondary market for any
particular instrument and possible exchange-imposed price fluctuation limits,
either of which may make it difficult or impossible to close out a position
when desired; (6) leverage risk, that is, the risk that adverse price
movements in an instrument can result in a loss substantially greater than
the Fund's initial investment in that instrument (in some cases, the
potential loss is unlimited); and (7) particularly in the case of
privately-negotiated instruments, the risk that the counterparty will not
perform its obligations, which could leave the Fund worse off than if it had
not entered into the position.
Investing in the Fund, with its larger investment in Foreign
Securities, may involve more risk than investing in a U.S. fund for the
following reasons: (1) there may be less public information available about
foreign companies than is available about U.S. companies; (2) foreign
companies are not generally subject to the uniform accounting, auditing and
financial reporting standards and practices applicable to U.S. companies; (3)
foreign markets have less volume than U.S. markets, and the securities of
some foreign companies are less liquid and more volatile than the securities
of comparable U.S. companies; (4) there may be less government regulation of
stock
8
<PAGE>
exchanges, brokers, listed companies and banks in foreign countries than in
the United States; (5) the Fund may incur fees on currency exchanges when it
changes investments from one country to another; (6) the Fund's foreign
investments could be affected by expropriation, confiscatory taxation,
nationalization of bank deposits, establishment of exchange controls,
political or social instability or diplomatic developments; (7) fluctuations
in foreign exchange rates will affect the value of the Fund's portfolio
securities, the value of dividends and interest earned, gains and loses
realized on the sale of securities, net investment income and unrealized
appreciation or depreciation of investments; and (8) possible imposition of
dividend or interest withholding by a foreign country.
Financial services companies are subject to extensive governmental
regulation which may limit both the amount and types of loans and other
financial commitments they can make, and the interest rates and fees they can
charge. Profitability is largely dependent on the availability and cost of
capital funds, and can fluctuate significantly when interest rates change.
Credit losses resulting from financial difficulties of borrowers can
negatively impact the industry. Insurance companies may be subject to severe
price competition. Legislation is currently being considered which would
reduce the separation between commercial and investment banking businesses.
If enacted this could significantly impact the industry and the Fund. The
Fund may be riskier than a fund investing in a broader range of industries.
Although securities of large and well-established companies in the
financial services industry will be held in the Fund's portfolio, the Fund
also will invest in medium, small and/or newly-public companies which may be
subject to greater share price fluctuations and declining growth,
particularly in the event of rapid changes in the industry and/or increased
competition. Securities of those smaller and/or less seasoned companies may,
therefore, expose shareholders of the Fund to above-average risk.
To the extent that the Fund invests in illiquid securities, the Fund
risks not being able to sell securities at the time and the price that it
would like. The Fund may therefore have to lower the price, sell substitute
securities or forego an investment opportunity, each of which might adversely
affect the Fund.
The risks of various investment techniques the Fund uses are described
in more detail in the SAI.
PERFORMANCE
How is the Fund's Performance Calculated?
There are various ways in which the Fund may calculate and report its
performance. Performance is calculated separately for each class of shares.
One method is to show the Fund's total return. Cumulative total return
is the percentage change in the value of an amount invested in a class of
shares of the Fund over a stated period of time and takes into account
reinvested dividends. Cumulative total return most closely reflects the
actual performance of the Fund.
Average annual total return refers to the average annual compounded
rates of return over a specified period on an investment in shares of the
Fund determined by comparing the initial amount invested to the ending
redeemable value of the amount, taking into account reinvested dividends.
The Fund may also publish its current yield. Yield is the net
investment income generated by a share of the Fund during a 30-day period
divided by the maximum offering price per share on the 30th day.
You should be aware that (i) past performance does not indicate how the
Fund will perform in the future; and (ii) the Fund's return and net asset
value will fluctuate, so you cannot use the Fund's performance data to
compare it to investments in certificates of deposit, savings accounts or
other investments that provide a fixed or guaranteed yield.
9
<PAGE>
The Fund may compare its performance to that of other mutual funds,
such as the performance of similar funds reported by Lipper Analytical
Services, Inc. or information reported in national financial publications
(such as Morningstar, Inc., Money Magazine, Forbes, Barron's, The Wall Street
Journal and The New York Times) or in local or regional publications. The
Fund may also compare its total return to indices such as Standard & Poor's
500 Composite Stock Price Index and other broad-based indices. These indices
show the value of selected portfolios of securities (assuming reinvestment of
interest and dividends) which are not managed by a portfolio manager. The
Fund may report how they are performing in comparison to the Consumer Price
Index, an indication of inflation reported by the U.S. Government.
Where Can I Obtain Performance Data?
The Wall Street Journal and certain local newspapers report information
on the performance of mutual funds. In addition, performance information is
contained in the Fund's annual report dated June 30 of each year and
semi-annual report dated December 31 of each year, which will automatically
be mailed to shareholders. To obtain copies of financial reports or
performance information, call (800) 438-5789.
PURCHASES OF SHARES
Customers of banks and other institutions, and the immediate family
members of such Customers, that have entered into agreements with us to
provide shareholder services for Customers may purchase Class K Shares.
Customers may include individuals, trusts, partnerships and corporations. The
Fund also issues other classes of shares, which have different sales charges,
expense levels and performance. Call (800) 438-5789 to obtain more
information concerning the Fund's other classes of shares.
What Price Do I Pay For Shares?
Class K Shares are sold at the "net asset value next determined" by the
Fund without any initial sales charge. Except in certain limited
circumstances, the Fund determines its net asset value ("NAV") on each day
the New York Stock Exchange ("NYSE") is open for trading (a "Business Day")
at the close of such trading (normally 4:00 p.m. Eastern time). The Fund
calculates NAV separately for each class of shares. NAV is calculated by
totaling the value of all of the assets of the Fund allocated to a particular
class of shares, subtracting the Fund's liabilities and expenses charged to
that class and dividing the result by the number of shares of the class
outstanding.
When Can I Purchase Shares?
Shares of the Fund are sold on a continuous basis and can be purchased
on any Business Day.
How Can I Purchase Shares?
All share purchases are effected through a Customer's account at an
institution and confirmations of share purchases will be sent to the
institution involved. Institutions (or their nominees) will normally be
holders of record of the Fund shares acting on behalf of their Customers, and
will reflect their Customer's beneficial ownership of shares in the account
statements provided by them to their Customers.
We reserve the right to (i) reject any purchase order if, in our
opinion, it is in the Fund's best interest to do so and (ii) suspend the
offering of shares of any Class for any period of time.
You may pay for shares of the Fund with securities which the Fund is
allowed to hold, subject to approval by the Advisor.
10
<PAGE>
REDEMPTIONS OF SHARES
What Price Do I Receive for Redeemed Shares?
The redemption price is the net asset value next determined after we
receive the redemption request in proper order.
When Can I Redeem Shares?
You can redeem shares on any Business Day, provided all required
documents have been received by First Data Investor Services Group, Inc. (the
"Transfer Agent"). The Fund may temporarily stop redeeming shares when the
NYSE is closed or trading on the NYSE is restricted, when an emergency exists
and the Fund cannot sell its assets or accurately determine the value of its
assets or if the SEC orders the Fund to suspend redemptions.
How Can I Redeem Shares?
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by the Transfer Agent. Shares held by
an institution on behalf of its Customers must be redeemed in accordance with
instructions and limitations pertaining to the account at that institution.
When Will I Receive Redemption Amounts?
If we receive a redemption order for the Fund before 4:00 p.m. (Eastern
time) on a Business Day, we will normally wire payment to the redeeming
institution on the next Business Day. We may delay wiring redemption proceeds
for up to seven days if we feel an earlier payment would have a negative
impact on the Fund.
STRUCTURE AND MANAGEMENT OF THE FUND
How is the Fund Structured?
Framlington is an open-end management investment company, which is a
mutual fund that sells and redeems shares every day that it is open for
business. It is managed under the direction of its governing Board of
Trustees, which is responsible for the overall management of Framlington and
supervises the Fund's service providers. Framlington is a Massachusetts
business trust.
Who Manages and Services the Fund?
Investment Advisor. The Fund's investment advisor is Munder Capital
Management, a Delaware general partnership with its principal offices at 480
Pierce Street, Birmingham, Michigan 48009. The principal partners of the
Advisor are Old MCM, Inc. ("MCM"), Munder Group LLC and WAM Holdings, Inc.
("WAM"). MCM was founded in February 1985 as a Delaware corporation and was a
registered investment advisor. WAM is an indirect, wholly-owned subsidiary of
Comerica Incorporated ("Comerica"). Mr. Lee P. Munder, the Advisor's
chairman, indirectly owns or controls approximately 45% and Comerica
Incorporated owns or controls approximately 44% of the partnership interests
in the Advisor. As of December 31, 1997, the Advisor and its affiliates had
approximately $45 billion in assets under management, of which $22.2 billion
were invested in equity securities, $9 billion were invested in money market
or other short-term instruments, $9.3 billion were invested in other fixed
income securities, and $4.5 billion in non-discretionary assets.
Framlington Overseas Investment Management Limited is the Fund's
Sub-Advisor. The Sub-Advisor is an indirect subsidiary of Framlington
Holdings Limited which is, in turn, owned 49% by the Advisor and 51% by
Credit Commercial de France S.A., a French banking corporation listed on the
Societe des Bourses Francaises.
11
<PAGE>
The Advisor provides overall investment management services for the
Fund. Each of the Advisor and Sub-Advisor manages a portion of the assets of
the Fund. The Advisor provides research and credit analysis and is
responsible for all purchases and sales of domestic securities held by the
Fund. The Sub-Advisor is responsible for allocating assets among countries,
provides research and credit analysis and is responsible for all purchases
and sales of foreign securities held by the Fund.
The Advisor is entitled to receive a fee at an annual rate equal to
0.75% of the average daily net assets of the Fund.
The Advisor may, from time to time, make payments to banks,
broker-dealers or other financial institutions for certain services to the
Fund and/or their shareholders, including sub-administration, sub-transfer
agency and shareholder servicing. The Advisor may make such payments out of
its own resources and there are no additional costs to the Fund or their
shareholders.
The Sub-Advisor is entitled to receive an advisory fee equal to one
half of the fee paid to the Advisor by the Fund as compensation for its
services as Sub-Advisor. The Advisor pays fees to the Sub-Advisor. The Fund
pays no fees directly to the Sub-Advisor.
The Sub-Advisor selects broker-dealers to execute portfolio
transactions for the Fund based on best price and execution terms. The
Sub-Advisor may consider as a factor the number of shares sold by the
broker-dealer.
Administrator. State Street Bank and Trust Company ("State Street" or
the "Administrator") is the Fund's administrator. The Administrator is
located at 225 Franklin Street, Boston, Massachusetts 02110. The
Administrator generally assists Framlington in all aspects of its
administration and operations. As compensation for its services, State Street
is entitled to receive fees, based on the aggregate daily net assets of the
Fund and certain other investment portfolios that are advised by the Advisor
for which it provides services, computed daily and payable monthly at the
annual rate of 0.113% on the first $2.8 billion of net assets, plus 0.103% on
the next $2.2 billion of net assets, plus 0.101% on the next $2.5 billion of
net assets, plus 0.095% on the next $2.5 billion of net assets, plus 0.080%
on the next $2.5 billion of net assets, plus 0.070% on all net assets in
excess of $12.5 billion (with a $75,000 minimum fee per annum in the
aggregate for all portfolios with respect to the Administrator). State Street
is also entitled to reimbursement for out-of-pocket expenses.
If the assets of the Framlington Funds do not exceed $120 million, the
ultimate rate charged the Framlington Funds will be reduced by their pro-rata
portion of the total fees if calculated at the rates of 0.062% of the first
$2.8 billion of net assets, plus 0.052% of the next $2.2 billion of net
assets, plus 0.050% of all net assets in excess of $5 billion.
State Street has entered into a Sub-Administration Agreement with the
Distributor under which the Distributor provides certain administrative
services with respect to the Fund. State Street pays the Distributor a fee
for these services out of its own resources at no cost to the Fund.
Transfer Agent. First Data Investor Services Group, Inc. is the Fund's
Transfer Agent. The Transfer Agent is a wholly-owned subsidiary of First Data
Corporation and is located at 53 State Street, Boston, Massachusetts 02109.
Custodian and Sub-Custodian. Comerica Bank (the "Custodian") whose
principal business address is One Detroit Center, 500 Woodward Avenue,
Detroit, Michigan 48226, provides custodial services to the Fund. No
compensation is paid to the Custodian for such services. Comerica receives a
fee of 0.01% of the aggregate average daily net assets of the Fund
beneficially owned by Comerica and its customers for certain shareholders
services provided by Comerica to the Fund. State Street serves as
Sub-Custodian to the Fund.
Distributor. Funds Distributor, Inc. is the distributor of the Fund's
shares and is located at 60 State Street, Suite 1300, Boston, Massachusetts
02109. It markets and sells the Fund's shares.
12
<PAGE>
The Fund has adopted a Shareholder Servicing Plan (the "Class K Plan")
under which Class K Shares are sold through institutions which enter into
shareholder servicing agreements with the Fund. The agreements require the
institutions to provide shareholder services to their Customers who from time
to time own of record or beneficially Class K Shares in return for payment by
the Fund at a rate not exceeding 0.25% (on an annualized basis) of the
average daily net asset value of the Class K Shares beneficially owned by the
Customers. Class K Shares bear all fees paid to institutions under the Class
K Plan. Payments under the Class K Plan are not tied exclusively to the
shareholder expenses actually incurred by the institutions and the payments
may exceed service expenses actually incurred.
The services provided by institutions under the Class K Plan may
include processing purchase, exchange and redemption requests from Customers
and placing orders with the Transfer Agent; processing dividend and
distribution payments from the Fund on behalf of the Customers; providing
information periodically to Customers showing their positions in Class K
Shares; providing sub-accounting with respect to Class K Shares beneficially
owned by the Customers or the information necessary for sub-accounting;
responding to inquires from Customers concerning their investment in Class K
Shares; arranging for bank wires; and providing such other similar services
as may be reasonably requested.
For additional description of the services performed by the
Administrator, the Transfer Agent, the Custodian, the Sub-Custodian and the
Distributor, see the SAI.
What are My Rights as a Shareholder?
All shareholders have equal voting, liquidation and other rights. You
are entitled to one vote for each share you hold and a fractional vote for
each fraction of a share you hold. You will be asked to vote on matters
affecting Framlington as a whole and affecting the Fund. You will not vote by
Class unless expressly required by law or when the Trustees determine that
the matter to be voted on affects only the interests of the holders of a
particular class of shares. Framlington will not hold annual shareholder
meetings, but special meetings may be held at the written request of
shareholders owning more than 10% of outstanding shares for the purpose of
removing a Trustee. Under Massachusetts law, it is possible that a
shareholder may be liable for Framlington's obligations. If a shareholder
were required to pay a debt of the Fund, however, Framlington has committed
to reimburse the shareholder in full for their assets. The SAI contains more
information regarding voting rights.
As of the date of this Prospectus, Funds Distributor, Inc. has the
right to vote a majority of the outstanding shares of the Fund and therefore
it is considered to be a controlling person.
DIVIDENDS, DISTRIBUTIONS AND TAXES
When Will I Receive Distributions from the Fund?
As a shareholder, you are entitled to your share of net income and
capital gains, if any, on the Fund's investments. The Fund passes its
earnings along to its investors in the form of dividends. Dividend
distributions are the dividends or interest earned on investments after
expenses. The Fund pays dividends from net income, if any, at least annually.
The Fund's net realized capital gains (including net short-term capital
gains), if any, are distributed at least annually.
It is possible that the Fund may make a distribution in excess of the
Fund's current and accumulated earnings and profits. You will treat such a
distribution as a return of capital which is applied against and reduces your
basis in your shares. To the extent that the amount of any such distribution
exceeds your basis in your shares, you will treat the excess as gain from a
sale or exchange of the shares.
13
<PAGE>
How Will Distributions Be Made?
The Fund will pay dividend and capital gains distributions in
additional shares of the same class of the Fund. If you wish to receive
distributions in cash, either indicate this request on your Account
Application Form or notify the Fund at (800) 438-5789.
Are There Tax Implications of My Investments in the Fund?
In general, as long as the Fund meets the requirements to qualify as a
regulated investment company ("RIC") under Federal tax laws, it will not be
subject to Federal income tax on its income and capital gains that it
distributes in a timely manner to its shareholders. The Fund intends to
qualify annually as a RIC. Even if it qualifies as a RIC, the Fund may still
be liable for any excise tax on income that is not distributed in accordance
with a calendar year requirement; the Fund intends to avoid the excise tax by
making timely distributions.
Generally, you will owe tax on the amounts distributed to you,
regardless of whether you receive these amounts in cash or reinvest them in
additional Fund shares. Shareholders not subject to tax on their income
generally will not be required to pay any tax on amounts distributed to them.
Federal income tax on distributions to an IRA or to a qualified retirement
plan will generally be deferred.
Capital gains derived from sales of portfolio securities held by the
Fund will generally be designated as long-term or short-term. Distributions
from the Fund's long-term capital gains are generally taxed at the long-term
capital gains rates, regardless of how long you have owned shares in the
Fund. Dividends derived from other sources are generally taxed as ordinary
income.
Dividends and capital gain distributions are generally taxable when you
receive them; however, if a distribution is declared in October, November or
December, but not paid until January of the following year, it will be
considered to be paid on December 31 in the year in which it was declared.
Shortly after the end of each year, you will receive from the Fund a
statement of the amount and nature of the distributions made to you during
the year.
If you redeem, transfer or exchange Fund shares, you may have taxable
gain or a loss. If you hold Fund shares for six months or less, and during
that time you receive a capital gain dividend, any loss you realize on the
sale of these Fund shares will be treated as a long-term loss to the extent
of the earlier distribution.
Dividends and certain interest income earned from foreign securities by
the Fund may be subject to foreign withholding or other taxes. The Fund may
be permitted to pass on to its shareholders the right to a credit or
deduction for income or other tax credits earned from foreign investments and
will do so if possible. These deductions or credits may be subject to tax law
limitations.
If the Fund invests in certain "passive foreign investment companies"
("PFICs"), it will be subject to Federal income tax (and possibly additional
interest charges) on a portion of any "excess distribution" or gain from the
disposition of such shares, even if it distributes such income to its
shareholders. If the Fund elects to treat a PFIC as a "qualified electing
fund" ("QEF") and the PFIC furnishes certain financial information in the
required form to such Fund, the Fund will instead be required to include in
income each year its allocable share of the ordinary earnings and net capital
gains of the QEF, regardless of whether received, and such amounts will be
subject to the various distribution requirements described above. The Fund
may also elect to mitigate the tax effects of owning PFIC stock by making an
annual mark-to-market election with respect to PFIC shares.
More information about the tax treatment of distributions from the Fund
and about other potential tax liabilities, including backup withholding for
certain taxpayers and information about tax aspects of dispositions of shares
of the Fund, is contained in the SAI. You should consult your tax advisor
regarding the impact of owning Fund shares on your own personal tax
situation, including the applicability of any state and local taxes.
14
<PAGE>
ADDITIONAL INFORMATION
Shareholder Communications. You will receive unaudited Semi-Annual
Reports and audited Annual Reports on a regular basis from the Fund. In
addition, you will also receive updated Prospectuses or Supplements to this
Prospectus. In order to eliminate duplicate mailings, the Fund will only send
one copy of the above communications to (1) accounts with the same primary
record owner, (2) joint tenant accounts, (3) tenant in common accounts and
(4) accounts which have the same address.
15
<PAGE>
PROSPECTUS
Class Y Shares
The Munder Framlington Global Financial Services Fund (the "Fund") is a
mutual fund that seeks to provide long-term capital appreciation. The Fund
invests primarily in equity securities of U.S. and foreign companies which
are principally engaged in the financial services industry. The Fund is a
portfolio of The Munder Framlington Funds Trust ("Framlington"), an open-end
investment company.
Munder Capital Management (the "Advisor") serves as investment advisor
of the Fund.
This Prospectus explains the objective, policies, risks and fees of the
Fund. You should read this Prospectus carefully before investing and retain
it for future reference. A Statement of Additional Information ("SAI")
describing the Fund has been filed with the Securities and Exchange
Commission (the "SEC") and is incorporated by reference into this Prospectus.
You may obtain the SAI free of charge by calling the Fund at (800) 438-5789.
In addition, the SEC maintains a Web site (http://www.sec.gov) that contains
the SAI and other information regarding the Fund.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not insured or guaranteed by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency. An investment in the Fund involves investment risks, including the
possible loss of the principal amount invested.
SECURITIES OFFERED BY THIS PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Call Toll-Free for Shareholder Services:
(800) 438-5789
The date of this Prospectus is June 13, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
Fund Highlights...........................................................3
What are the key facts regarding the Fund?..........................3
Fund Information..........................................................5
What are the Fund's goals and principal investments? ...............5
Who may want to invest in the Fund?.................................6
What are the Fund's investments and investment practices?...........6
What are the risks of investing in the Fund?........................8
Performance...............................................................9
How is the Fund's performance calculated?...........................9
Where can I obtain performance data?...............................10
Purchases and Exchange of Shares.........................................10
What price do I pay for shares?....................................11
When can I purchase shares?........................................11
What is the minimum required investment?...........................11
How can I purchase shares?.........................................11
How can I exchange shares?.........................................12
Redemptions of Shares....................................................12
What price do I receive for redeemed shares?.......................12
When can I redeem shares?..........................................12
How can I redeem shares?...........................................12
When will I receive redemption amounts?............................13
Structure and Management of the Fund.....................................13
How is the Fund structured?........................................13
Who manages and services the Fund?.................................13
What are my rights as a shareholder?...............................14
Dividends, Distributions and Taxes.......................................15
When will I receive distributions from the Fund?...................15
How will distributions be made?....................................15
Are there tax implications of my investments in the Fund?..........15
Additional Information...................................................16
2
<PAGE>
FUND HIGHLIGHTS
What Are the Key Facts Regarding the Fund?
Q: What is the Fund's goal?
A: The Fund seeks to provide long-term capital appreciation.
Q: What is the Fund's strategy?
A: The Fund invests primarily in equity securities of U.S. and foreign companies
which are primarily engaged in the financial services industry and companies
providing services within the financial services industry.
Q: What are the Fund's risks?
A: The Fund's net asset value, which is determined on every business day,
will change daily. The net asset value changes are due to many factors
including national and international economic conditions, changes in the
price of securities owned by the Fund as a result of rises and falls in the
stock market in general, perceptions about the stock of particular companies
and perceptions about particular industries. You should note that you could
lose a portion of the amount you invest in the Fund. As a result of large
investments in foreign securities, the Fund is riskier than a domestic fund
due to factors such as freezes on convertibility and differences in
accounting and reporting standards, less governmental regulation and greater
volatilty. Also, this Fund concentrates its investment in a single industry
and could experience larger price fluctuations than a fund invested in a
broader range of industries.
Q: What are the options for investment in the Fund?
A: The Fund has registered five classes of shares: Class A, B, C, K and Y. Class
A, B, C and K Shares are described in other prospectuses.
Q: How do I buy and sell shares of the Fund?
A: Funds Distributor, Inc. (the "Distributor") sells shares of the Fund. You
may purchase shares from the Distributor through broker-dealers or other
financial institutions or from the Fund's transfer agent, First Data Investor
Services Group, Inc. (the "Transfer Agent"), by mailing an Account
Application Form with a check to the Transfer Agent. Fiduciary and
discretionary accounts of institutions and institutional investors must
invest at least $500,000 initially. Other types of investors are not subject
to any minimum required investment.
Shares may be redeemed through your bank or financial institution.
You may also acquire the Fund's shares by exchanging shares of the same
class of other funds of Framlington, The Munder Funds, Inc. (the "Company")
and The Munder Funds Trust (the "Trust"), and exchange Fund shares for shares
of the same class of other funds of Framlington, the Company and the Trust.
Q: What shareholder privileges does the Fund offer?
A: o Automatic Investment Plan
o Automatic Withdrawal Plan
3
<PAGE>
Q: When and how are distributions made?
A: Dividend distributions are made from the dividends and interest earned on
investments after expenses. The Fund pays dividends at least annually and
distributes capital gains at least annually. Unless you elect to receive
distributions in cash, all dividends and capital gains distributions of the
Fund will be automatically used to purchase additional shares of the Fund.
Q: Who manages the Fund's assets?
A: Munder Capital Management is the Fund's investment advisor. The Advisor
provides overall investment management services for the Fund and is
responsible for the selection and management of the domestic securities held
by the Fund. Framlington Overseas Investment Management Limited (the
"Sub-Advisor") is responsible for allocating assets among countries and for
the selection and management of the foreign securities held by the Fund.
SHAREHOLDER TRANSACTION EXPENSES(1)
The purpose of this table is to assist you in understanding the expenses a
shareholder in the Fund will bear directly.
<TABLE>
<S> <C>
Maximum Sales Charge on Purchase (as a % of Offering Price)...............None
Sales Charge Imposed on Reinvested Dividends..............................None
Maximum Deferred Sales Charge.............................................None
Redemption Fees(2)........................................................None
Exchange Fees.............................................................None
</TABLE>
- ----------
Notes:
(1) Does not include fees which institutions may charge for services they
provide to you.
(2) The Transfer Agent may charge a fee of $7.50 for wire redemptions under
$5,000.
FUND OPERATING EXPENSES
The purpose of this table is to assist you in understanding the expenses
charged directly to the Fund, which investors in the Fund will bear indirectly
for the current fiscal year. Such expenses include payments to Trustees,
auditors, legal counsel and service providers (such as the Advisor) and
registration fees. The fees shown below are estimated for the Fund's current
fiscal year and reflect anticipated voluntary expense reimbursements. The
Advisor may discontinue such expense reimbursements at any time in its sole
discretion.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A % OF AVERAGE NET ASSETS)
- ------------------------------
<S> <C>
Advisory Fees...................................................... .75%
Other Expenses+.................................................... .50%++
---
Total Fund Operating Expenses+..................................... 1.25%++
====
</TABLE>
- ----------
+ After expense reimbursements.
++ The Advisor expects to voluntarily reimburse the Fund for certain operating
expenses. In the absence of expense reimbursements, it is estimated that total
fund operating expenses would be 1.42%.
4
<PAGE>
EXAMPLE
This example shows the amount of expenses you would pay (directly or
indirectly) on a $1,000 investment in the Fund assuming (1) a 5% annual
return, (2) redemption at the end of the following time periods. This example
is not a representation of past or future performance or operating expenses;
actual performance or operating expenses may be larger or smaller than those
shown.
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C>
$13 $40
</TABLE>
FUND INFORMATION
What are the Fund's goals and principal investments?
This Prospectus describes Class Y Shares of the Fund. This section
summarizes the Fund's goal and principal investments. The sections entitled
"What are the Fund's Investments and Investment Practices?" and "What are the
Risks of Investing in the Fund?" and the SAI give more information about the
Fund's investment techniques and risks.
GOAL AND PRINCIPAL INVESTMENTS. The Fund's goal is to provide long-term
capital appreciation. Under normal market conditions, the Fund invests at
least 65% of its assets in equity securities of U.S. and foreign companies
which are principally engaged in the financial services industry and
companies which are likely to benefit from growth or consolidation in the
financial services industry.
Examples of companies in the financial services industry are:
- commercial, industrial and investment banks
- savings and loan associations
- brokerage companies
- consumer and industrial finance companies
- real estate and leasing companies
- insurance companies
- holding companies for each of the above
A company is "principally engaged" in the financial services industry if
at least 50% of its gross income, net sales or net profits comes from activities
in the financial services industry or if the company dedicates more than 50% of
its assets to the production of revenues from the financial services industry.
Under normal market conditions, the Fund invests at least 65% of its
assets in at least three different countries, including the United States.
The Sub-Advisor allocates assets among countries based on its analysis
of the trends in the financial services industry in particular regions, the
relative valuation of financial services companies in different regions and
its assessment of the prospects for a particular equity market and its
currency.
PORTFOLIO MANAGEMENT. A committee of professional managers employed by
the Advisor or the Sub-Advisor makes decisions for the Fund.
5
<PAGE>
Who May Want to Invest in the Fund?
The Fund may be appropriate for investors who want to pursue growth
aggressively by concentrating a portion of their investment on domestic and
foreign securities within the financial services industry. The Fund is
designed for those investors who are actively interested in, and can accept
the risks of, industry-focused investing. Because of its narrow focus, the
performance of the Fund is closely tied to and affected by, the financial
services industry.
What are the Fund's Investments and Investment Practices?
The Fund will invest in Equity Securities which includes common stocks,
preferred stocks, warrants and other securities convertible into common
stocks. Many of the common stocks the Fund will buy will not pay dividends;
instead, stocks will be bought for the potential that their prices will
increase, providing capital appreciation for the Fund. The value of Equity
Securities will fluctuate due to many factors, including the past and
predicted earnings of the issuer, the quality of the issuer's management,
general market conditions, the forecasts for the issuer's industry and the
value of the issuer's assets. Holders of Equity Securities only have rights
to value in the company after all the debts have been paid, and they could
lose their entire investment in a company that encounters financial
difficulty. Warrants are rights to purchase securities at a specified time at
a specified price.
The Fund may invest in Foreign Securities. Foreign Securities are
securities issued by non-U.S. companies and governments. Investments in
Foreign Securities are riskier than investments in U.S. companies because (i)
foreign companies may be subject to different accounting, auditing and
financial reporting standards than U.S. companies, (ii) there is generally
less public information available about foreign companies, (iii) there may be
less governmental regulation and supervision of foreign stock exchanges,
securities markets and companies and (iv) foreign securities may be less
liquid and more volatile than U.S. securities markets.
The Fund may purchase American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs"). ADRs
are issued by U.S. financial institutions and EDRs and GDRs are issued by
European financial institutions. They are receipts evidencing ownership of
underlying Foreign Securities.
The Fund may invest in Forward Foreign Currency Exchange Contracts,
which are obligations of the Fund to purchase or sell a specific currency at
a future date at a set price. These contracts may decrease the Fund's loss
due to a change in currency value, but also limit gains from currency
exchanges.
The Fund may invest in Futures Contracts and Options on Futures
Contracts. Futures contracts are contracts in which the Fund agrees, at
maturity, to make delivery of or receive securities, the cash value of an
index or foreign currency. Futures contracts and options on futures contracts
are used for hedging purposes or to maintain liquidity. The Fund may not
purchase or sell a futures contract unless immediately after any such
transaction the sum of the aggregate amount of margin deposits on its
existing futures positions and the amount of premiums paid for related
options is 5% or less of its total assets. The Fund will set aside cash or
other liquid securities to "cover" the Fund's position in futures. See the
SAI for more details and additional limitations.
The Fund may purchase or sell Options. The Fund may buy options giving
it the right to require a buyer to buy a security held by the Fund (put
options), buy options giving it the right to require a seller to sell
securities to the Fund (call options), sell (write) options giving a buyer
the right to require the Fund to buy securities from the buyer or write
options giving a buyer the right to require the Fund to sell securities to
the buyer during a set time at a set price. Options may relate to stock
indices, individual securities, foreign currencies or futures contracts. See
the SAI for more details and additional limitations.
The Fund may purchase securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. Although the
price to be paid by the Fund is set at the time of the agreement, the Fund
usually does not pay for the securities until they are received. The value of
securities may change between the
6 <PAGE>
time the price is set and payment. When the Fund purchases securities for
future delivery, the Fund's custodian will set aside cash or liquid
securities to "cover" the Fund's position. The Fund does not intend to
purchase securities for future delivery for speculative purposes.
The Fund may enter into Repurchase Agreements. Under a repurchase
agreement, the Fund agrees to purchase securities from a seller and the
seller agrees to repurchase the securities at a later time, typically within
seven days, at a set price. The seller agrees to set aside collateral at
least equal to the repurchase price. This ensures that the Fund will receive
the purchase price at the time it is due, unless the seller defaults or
declares bankruptcy, in which event the Fund will bear the risk of possible
loss due to adverse market action or delays in liquidating the underlying
obligation.
The Fund may invest in Reverse Repurchase Agreements. Under a reverse
repurchase agreement, the Fund sells securities and agrees to buy them back
later at an agreed upon time and price. Reverse repurchase agreements are
used to borrow money for temporary purposes.
The Fund may Lend Securities to broker-dealers and other financially
sound institutional investors who will pay the Fund for the use of the
securities, thus potentially increasing the Fund's returns. The borrower must
set aside cash or liquid securities equal to the value of the securities
borrowed at all times during the terms of the loan. Loans may not exceed 25%
of the value of the Fund's total assets. Risks involved in such transactions
include possible delay in recovering the loaned securities and possible loss
of the securities or the collateral if the borrower fails financially.
The Fund may buy shares of registered Money Market Funds. The Fund will
bear a portion of the expenses of any investment company whose shares they
purchase, including operating costs and investment advisory, distribution and
administration fees. These expenses would be in addition to the Fund's own
expenses. The Fund may invest up to 10% of its assets in other investment
companies and no more than 5% of its assets in any one investment company.
The Fund may invest in Cash Equivalents, which are high-quality,
short-term money market instruments including, among other things, commercial
paper, bankers' acceptances and negotiable certificates of deposit of banks
or savings and loan associations, short-term corporate obligations and
short-term securities issued by, or guaranteed by, the U.S. Government and
its agencies or instrumentalities. These instruments will be used primarily
pending investment, to meet anticipated redemptions or as a temporary
defensive measure. If the Fund is investing defensively, it may not be
pursuing its investment objective.
The Fund may purchase Fixed Income Securities. Fixed Income Securities
are securities which either pay interest at set times at either fixed or
variable rates, or which realize a discount upon maturity. Fixed Income
Securities include corporate bonds, debentures, notes and other similar
corporate debt instruments, zero coupon bonds (discount debt obligations that
do not make interest payments) and variable amount master demand notes that
permit the amount of indebtedness to vary in addition to providing for
periodic adjustments in the interest rate.
The Fund may invest in Lower-Rated Debt Securities. Lower-Rated Debt
Securities are securities which are rated below investment grade by Standard
& Poor's Ratings Service ("S&P"), Moody's Investors Service, Inc. ("Moody's")
or other nationally recognized rating agency. Lower-Rated Debt Securities are
considered riskier than investment grade securities. The Fund may invest up
to 5% of its assets in lower-rated convertible securities, lower-rated
corporate bonds or commercial paper. These high yield, high risk securities
are commonly referred to as junk bonds.
The Fund may purchase U.S. Government Securities, which are securities
issued by, or guaranteed by, the U.S. Government or its agencies or
instrumentalities. Such securities include U.S. Treasury bills, which have
initial maturities of less than one year, U.S. Treasury notes, which have
initial maturities of one to ten years, U.S. Treasury bonds, which generally
have initial maturities of greater than ten years, and obligations of the
Federal Home Loan Mortgage Corporation, Federal National Mortgage Association
and Government National Mortgage Association.
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Under normal market conditions, the Fund will not invest to a significant
extent, or on a routine basis, in U.S. Government Securities
The Fund may invest up to 15% of the value of its net assets in
Illiquid Securities. Illiquid Securities are securities for which there is no
ready market, which inhibits the ability to sell them and obtain their full
market value, or which are legally restricted as to their resale by the Fund.
The Fund may invest in Asset-Backed Securities which include debt
securities backed by mortgages, installment sales contracts and credit card
receivables.
The Fund may invest in Stripped Securities which include participation
in trusts that hold U.S. Treasury and agency securities which represent
either the interest payments or principal payments on the securities or
combinations of both.
The Fund may invest in Real Estate Investment Trusts ("REITS") which
are companies, usually traded publicly, that manage a portfolio of real
estate. Risks involved in such investments include vulnerability to decline
in real estate prices and new construction rates.
The Fund may make Short Sales of securities. A Short Sale is a
transaction in which the Fund sells a security it does not own in
anticipation that the market price of that security will decline. When the
Fund makes a short sale, it must borrow the security sold short and deliver
it to the broker-dealer through which it made the short sale as collateral
for its obligation to deliver the security upon conclusion of the sale. The
Fund may also sell securities that it owns or has the right to acquire at no
additional cost but does not intend to deliver to the buyer, a practice known
as selling short "against the box." See the SAI for more details.
The Fund may Borrow Money in an amount up to 5% of its assets for
temporary purposes and in an amount up to 33 1/3% of its assets to meet
redemptions. This is a "fundamental" policy which only can be changed by
shareholders.
Under SEC regulations, the Fund may not invest more than 5% of its
total assets in the equity securities of any company that derives more than
15% of its revenues from brokerage or investment management activities.
The Fund is classified as a "diversified fund" which means that with
respect to 75% of its assets, the Fund cannot invest more than 5% of its
assets in a single issuer (other than the U.S. Government and its agencies
and instrumentalities). In addition, the Fund cannot invest more than 25% of
its assets in a single issuer.
What are the Risks of Investing in the Fund?
Investing in the Fund may be less risky than investing in individual
stocks due to the diversification of investing in a portfolio of many
different stocks; however, such diversification does not eliminate all risks.
Because the Fund invests mostly in Equity Securities, rises and falls in the
stock market in general, as well as in the value of particular Equity
Securities held by the Fund, can affect the Fund's performance. Your
investment in the Fund is not guaranteed. The net asset value of the Fund
will change daily and you might not recoup the amount you invest in the Fund.
Consistent with a long-term investment approach, investors in the Fund
should be prepared and able to maintain their investments during periods of
adverse market conditions. By itself, the Fund does not constitute a balanced
investment program and there is no guarantee that the Fund will achieve its
investment objective since there is uncertainty in every investment.
A fund's risk is mostly dependent on the types of securities it
purchases and its investment techniques. The Fund is authorized to use
options, futures and forward foreign currency exchange contracts, which are
types of derivative instruments. Derivative instruments are instruments that
derive their value from a different underlying security, index or financial
indicator. The use of derivative instruments exposes the Fund to additional
risks and
8 <PAGE>
transaction costs. Risks inherent in the use of derivative instruments
include: (1) the risk that interest rates, securities prices and currency
markets will not move in the direction that a portfolio manager anticipates;
(2) imperfect correlation between the price of derivative instruments and
movements in the prices of the securities, interest rates or currencies being
hedged; (3) the fact that skills needed to use these strategies are different
than those needed to select portfolio securities; (4) inability to close out
certain hedged positions to avoid adverse tax consequences; (5) the possible
absence of a liquid secondary market for any particular instrument and
possible exchange-imposed price fluctuation limits, either of which may make
it difficult or impossible to close out a position when desired; (6) leverage
risk, that is, the risk that adverse price movements in an instrument can
result in a loss substantially greater than the Fund's initial investment in
that instrument (in some cases, the potential loss is unlimited); and (7)
particularly in the case of privately-negotiated instruments, the risk that
the counterparty will not perform its obligations, which could leave the Fund
worse off than if it had not entered into the position.
Investing in the Fund, with its larger investment in Foreign
Securities, may involve more risk than investing in a U.S. fund for the
following reasons: (1) there may be less public information available about
foreign companies than is available about U.S. companies; (2) foreign
companies are not generally subject to the uniform accounting, auditing and
financial reporting standards and practices applicable to U.S. companies; (3)
foreign markets have less volume than U.S. markets, and the securities of
some foreign companies are less liquid and more volatile than the securities
of comparable U.S. companies; (4) there may be less government regulation of
stock exchanges, brokers, listed companies and banks in foreign countries
than in the United States; (5) the Fund may incur fees on currency exchanges
when it changes investments from one country to another; (6) the Fund's
foreign investments could be affected by expropriation, confiscatory
taxation, nationalization of bank deposits, establishment of exchange
controls, political or social instability or diplomatic developments; (7)
fluctuations in foreign exchange rates will affect the value of the Fund's
portfolio securities, the value of dividends and interest earned, gains and
loses realized on the sale of securities, net investment income and
unrealized appreciation or depreciation of investments; and (8) possible
imposition of dividend or interest withholding by a foreign country.
Financial services companies are subject to extensive governmental
regulation which may limit both the amount and types of loans and other
financial commitments they can make, and the interest rates and fees they can
charge. Profitability is largely dependent on the availability and cost of
capital funds, and can fluctuate significantly when interest rates change.
Credit losses resulting from financial difficulties of borrowers can
negatively impact the industry. Insurance companies may be subject to severe
price competition. Legislation is currently being considered which would
reduce the separation between commercial and investment banking businesses.
If enacted this could significantly impact the industry and the Fund. The
Fund may be riskier than a fund investing in a broader range of industries.
Although securities of large and well-established companies in the
financial services industry will be held in the Fund's portfolio, the Fund
also will invest in medium, small and/or newly-public companies which may be
subject to greater share price fluctuations and declining growth,
particularly in the event of rapid changes in the industry and/or increased
competition. Securities of those smaller and/or less seasoned companies may,
therefore, expose shareholders of the Fund to above-average risk.
To the extent that the Fund invests in illiquid securities, the Fund
risks not being able to sell securities at the time and the price that it
would like. The Fund may therefore have to lower the price, sell substitute
securities or forego an investment opportunity, each of which might adversely
affect the Fund.
The risks of various investment techniques the Fund uses are described
in more detail in the SAI.
PERFORMANCE
How is the Fund's Performance Calculated?
There are various ways in which the Fund may calculate and report its
performance. Performance is calculated separately for each class of shares.
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One method is to show the Fund's total return. Cumulative total return
is the percentage change in the value of an amount invested in a class of
shares of the Fund over a stated period of time and takes into account
reinvested dividends. Cumulative total return most closely reflects the
actual performance of the Fund.
Average annual total return refers to the average annual compounded
rates of return over a specified period on an investment in shares of the
Fund determined by comparing the initial amount invested to the ending
redeemable value of the amount, taking into account reinvested dividends.
The Fund may also publish its current yield. Yield is the net
investment income generated by a share of the Fund during a 30-day period
divided by the maximum offering price per share on the 30th day.
You should be aware that (i) past performance does not indicate how the
Fund will perform in the future; and (ii) the Fund's return and net asset
value will fluctuate, so you cannot use the Fund's performance data to
compare it to investments in certificates of deposit, savings accounts or
other investments that provide a fixed or guaranteed yield.
The Fund may compare its performance to that of other mutual funds,
such as the performance of similar funds reported by Lipper Analytical
Services, Inc. or information reported in national financial publications
(such as Morningstar, Inc., Money Magazine, Forbes, Barron's, The Wall Street
Journal and The New York Times) or in local or regional publications. The
Fund may also compare its total return to indices such as Standard & Poor's
500 Composite Stock Price Index and other broad-based indices. These indices
show the value of selected portfolios of securities (assuming reinvestment of
interest and dividends) which are not managed by a portfolio manager. The
Fund may report how they are performing in comparison to the Consumer Price
Index, an indication of inflation reported by the U.S. Government.
Where Can I Obtain Performance Data?
The Wall Street Journal and certain local newspapers report information
on the performance of mutual funds. In addition, performance information is
contained in the Fund's annual report dated June 30 of each year and
semi-annual report dated December 31 of each year, which will automatically
be mailed to shareholders. To obtain copies of financial reports or
performance information, call (800) 438-5789.
PURCHASES AND EXCHANGES OF SHARES
The following persons may purchase Class Y Shares:
- fiduciary and discretionary accounts of institutions
- institutional investors (including: banks, savings institutions,
credit unions and other financial institutions; corporations,
foundations, partnerships, pension and profit sharing and employee
benefit plans and trusts and insurance companies, investment
companies, investment advisors and broker-dealers acting for their
own accounts or for the accounts of institutional investors)
- trustees, directors, officers and employees of Framlington, the
Company and the Trust, the Advisor and the Distributor
- the Advisor's investment advisory clients
- family members of employees of the Advisor
The Fund also has registered Class A, B, C and K Shares, which have
different sales charges, expense levels and performance. Call (800) 438-5789
to obtain more information concerning the Fund's other classes of shares.
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<PAGE>
What Price Do I Pay For Shares?
Class Y Shares are sold at the net asset value next determined by the
Fund without any initial sales charge. You should be aware that
broker-dealers (other than Fund's Distributor) may charge investors
additional fees if shares are purchased through them.
Except in certain limited circumstances, the Fund determines its net
asset value ("NAV") on each day the New York Stock Exchange ("NYSE") is open
for trading (a "Business Day") at the close of such trading (normally 4:00
p.m. Eastern time). The Fund calculates NAV separately for each class of
shares. NAV is calculated by totaling the value of all of the assets of the
Fund allocated to a particular class of shares, subtracting the Fund's
liabilities and expenses charged to that class and dividing the result by the
number of shares of that class outstanding.
When Can I Purchase Shares?
Shares of the Fund are sold on a continuous basis and can be purchased
on any Business Day.
What is the Minimum Required Investment?
The minimum initial investment by fiduciary and discretionary accounts
of institutions and institutional investors for Class Y Shares of the Fund is
$500,000. Other types of investors are not subject to any minimum required
investment.
How Can I Purchase Shares?
You can purchase Class Y Shares in a number of different ways. You may
place orders for Class Y Shares directly through the Transfer Agent or the
Distributor or through arrangements with a financial institution.
- Through a Financial Institution. You may purchase shares through a
financial institution through procedures established with that
institution. Confirmations of share purchases will be sent to the
institution.
- By Mail. You may open an account by mailing a completed and signed
Account Application Form and a check or other negotiable bank draft
(payable to The Munder Funds) to: The Munder Funds, c/o First Data
Investor Services Group, P.O. Box 5130, Westborough, Massachusetts
01581-5130. You can obtain an Account Application Form by calling
(800) 438-5789. For additional investments, send a letter stating
the Fund and share class you wish to purchase, your name and your
account number with a check for $50 or more to the address listed
above.
- By Wire. You may make additional investments in the Fund by wire.
Wire instructions must state the Fund name, share class, your
registered name and your account number. Your bank wire should be
sent through the Federal Reserve Bank Wire System to:
Boston Safe Deposit and Trust Company
Boston, MA
ABA # 011001234
DDA # 16-798-3
Account No.:
Note that banks may charge fees for transmitting wires.
- Automatic Investment Plan ("AIP"). Under the AIP, you may arrange
for periodic investments in the Fund through automatic deductions
from a checking or savings account. To enroll in the AIP you should
complete the AIP Application Form or call the Fund at (800)
438-5789. The minimum pre-
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<PAGE>
authorized investment amount is $50. You may discontinue the AIP at
any time. We may discontinue the AIP on 30 days' written notice to
you.
We reserve the right to (i) reject any purchase order if, in our
opinion, it is in the Fund's best interest to do so and (ii) suspend the
offering of shares of any Class for any period of time. You may pay for
shares of the Fund with securities which the Fund is allowed to hold, subject
to approval by the Advisor.
See the SAI for further information regarding purchases of the Fund's
shares.
How Can I Exchange Shares?
You may exchange Class Y Shares of the Fund for Class Y Shares of other
funds of Framlington, the Company, or the Trust based on their relative net
asset values.
You must meet the minimum purchase requirements for the fund of
Framlington, the Company or the Trust that you purchase by exchange. You must
pay any difference in sales charge at the time of the exchange. Please note
that a share exchange is a taxable event and accordingly, you may realize a
taxable gain or loss. Before making an exchange request, read the Prospectus
of the fund you wish to purchase by exchange. You can obtain a Prospectus for
any fund of Framlington, the Company and the Trust by contacting your broker
or the Fund at (800) 438-5789. Brokers may charge a fee for handling
exchanges.
We may modify or terminate the exchange privilege at any time. You will
be given notice of any material modifications except where notice is not
required.
REDEMPTIONS OF SHARES
What Price Do I Receive for Redeemed Shares?
The redemption price is the net asset value next determined after we
receive the redemption request in proper order.
When Can I Redeem Shares?
You can redeem shares on any Business Day, provided all required
documents have been received by the Transfer Agent. The Fund may temporarily
stop redeeming shares when the NYSE is closed or trading on the NYSE is
restricted, when an emergency exists and the Fund cannot sell its assets or
accurately determine the value of its assets or if the SEC orders the Fund to
suspend redemptions.
How Can I Redeem Shares?
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by the Transfer Agent. Shares held by
an institution on behalf of its Customers must be redeemed in accordance with
instructions and limitations pertaining to the account at that institution.
- Involuntary Redemption. We may redeem your account if its value
falls below $500 as a result of redemptions (but not as a result of
a decline in net asset value). You will be notified in writing and
allowed 60 days to increase the value of your account to the minimum
investment level.
- Automatic Withdrawal Plan ("AWP"). If you have an account value of
$2,500 or more in the Fund, you may redeem shares on a monthly,
quarterly, semi-annual or annual basis. The minimum withdrawal is
$50. We usually process withdrawals on the 20th day of the month and
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<PAGE>
promptly send you your redemption amount. You may enroll in the AWP
by completing the AWP Application Form available through the
Transfer Agent. To participate in the AWP you must have your
dividends automatically reinvested and may not hold share
certificates. You may change or cancel the AWP at any time upon
notice to the Transfer Agent.
When Will I Receive Redemption Amounts?
If we receive a redemption order for the Fund before 4:00 p.m. (Eastern
time) on a Business Day, we will normally wire payment to the redeeming
institution on the next Business Day. We may delay wiring redemption proceeds
for up to seven days if we feel an earlier payment would have a negative
impact on the Fund.
STRUCTURE AND MANAGEMENT OF THE FUND
How is the Fund Structured?
Framlington is an open-end management investment company, which is a
mutual fund that sells and redeems shares every day that it is open for
business. It is managed under the direction of its governing Board of
Trustees, which is responsible for the overall management of Framlington and
supervises the Fund's service providers. Framlington is a Massachusetts
business trust.
Who Manages and Services the Fund?
Investment Advisor. The Fund's investment advisor is Munder Capital
Management, a Delaware general partnership with its principal offices at 480
Pierce Street, Birmingham, Michigan 48009. The principal partners of the
Advisor are Old MCM, Inc. ("MCM"), Munder Group LLC and WAM Holdings, Inc.
("WAM"). MCM was founded in February 1985 as a Delaware corporation and was a
registered investment advisor. WAM is an indirect, wholly-owned subsidiary of
Comerica Incorporated ("Comerica"). Mr. Lee P. Munder, the Advisor's
chairman, indirectly owns or controls approximately 45% and Comerica
Incorporated owns or controls approximately 44% of the partnership interests
in the Advisor. As of December 31, 1997, the Advisor and its affiliates had
approximately $45 billion in assets under management, of which $22.2 billion
were invested in equity securities, $9 billion were invested in money market
or other short-term instruments, $9.3 billion were invested in other fixed
income securities, and $4.5 billion in non-discretionary assets.
Framlington Overseas Investment Management Limited is the Fund's
Sub-Advisor. The Sub-Advisor is an indirect subsidiary of Framlington
Holdings Limited which is, in turn, owned 49% by the Advisor and 51% by
Credit Commercial de France S.A., a French banking corporation listed on the
Societe des Bourses Francaises.
The Advisor provides overall investment management services for the
Fund. Each of the Advisor and Sub-Advisor manages a portion of the assets of
the Fund. The Advisor provides research and credit analysis and is
responsible for all purchases and sales of domestic securities held by the
Fund. The Sub-Advisor is responsible for allocating assets among countries,
provides research and credit analysis and is responsible for all purchases
and sales of foreign securities held by the Fund.
The Advisor is entitled to receive a fee at an annual rate equal to
0.75% of the average daily net assets of the Fund.
The Advisor may, from time to time, make payments to banks,
broker-dealers or other financial institutions for certain services to the
Fund and/or their shareholders, including sub-administration, sub-transfer
agency and shareholder servicing. The Sub-Advisor may make such payments out
of its own resources and there are no additional costs to the Fund or their
shareholders.
The Advisor is entitled to receive an advisory fee equal to one half of
the fee paid to the Advisor by the Fund as compensation for its services as
Sub-Advisor. The Advisor pays fees to the Sub-Advisor. The Fund pays no fees
directly to the Sub-Advisor.
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<PAGE>
The Sub-Advisor selects broker-dealers to execute portfolio
transactions for the Fund based on best price and execution terms. The
Sub-Advisor may consider as a factor the number of shares sold by the
broker-dealer.
Administrator. State Street Bank and Trust Company ("State Street" or
the "Administrator") is the Fund's administrator. The Administrator is
located at 225 Franklin Street, Boston, Massachusetts 02110. The
Administrator generally assists Framlington in all aspects of its
administration and operations. As compensation for its services, State Street
is entitled to receive fees, based on the aggregate daily net assets of the
Fund and certain other investment portfolios that are advised by the Advisor
for which it provides services, computed daily and payable monthly at the
annual rate of 0.113% on the first $2.8 billion of net assets, plus 0.103% on
the next $2.2 billion of net assets, plus 0.101% on the next $2.5 billion of
net assets, plus 0.095% on the next $2.5 billion of net assets, plus 0.080%
on the next $2.5 billion of net assets, plus 0.070% on all net assets in
excess of $12.5 billion (with a $75,000 minimum fee per annum in the
aggregate for all portfolios with respect to the Administrator). State Street
is also entitled to reimbursement for out-of-pocket expenses.
If the assets of the Framlington Funds do not exceed $120 million, the
ultimate rate charged the Framlington Funds will be reduced by their pro-rata
portion of the total fees if calculated at the rates of 0.062% of the first
$2.8 billion of net assets, plus 0.052% of the next $2.2 billion of net
assets, plus 0.050% of all net assets in excess of $5 billion.
State Street has entered into a Sub-Administration Agreement with the
Distributor under which the Distributor provides certain administrative
services with respect to the Fund. State Street pays the Distributor a fee
for these services out of its own resources at no cost to the Fund.
Transfer Agent. First Data Investor Services Group, Inc. is the Fund's
Transfer Agent. The Transfer Agent is a wholly-owned subsidiary of First Data
Corporation and is located at 53 State Street, Boston, Massachusetts 02109.
Custodian and Sub-Custodian. Comerica Bank (the "Custodian") whose
principal business address is One Detroit Center, 500 Woodward Avenue,
Detroit, Michigan 48226, provides custodial services to the Fund. No
compensation is paid to the Custodian for such services. Comerica receives a
fee of 0.01% of the aggregate average daily net assets of the Fund
beneficially owned by Comerica and its customers for certain shareholders
services provided by Comerica to the Fund. State Street serves as
Sub-Custodian to the Fund.
Distributor. Funds Distributor, Inc. is the distributor of the Fund's
shares and is located at 60 State Street, Suite 1300, Boston, Massachusetts
02109. It markets and sells the Fund's shares.
For an additional description of the services performed by the
Administrator, the Transfer Agent, the Custodian, the Sub-Custodian and the
Distributor, see the SAI.
What are My Rights as a Shareholder?
All shareholders have equal voting, liquidation and other rights. You
are entitled to one vote for each share you hold and a fractional vote for
each fraction of a share you hold. You will be asked to vote on matters
affecting Framlington as a whole and affecting the Fund. You will not vote by
Class unless expressly required by law or when the Trustees determine that
the matter to be voted on affects only the interests of the holders of a
particular class of shares. Framlington will not hold annual shareholder
meetings, but special meetings may be held at the written request of
shareholders owning more than 10% of outstanding shares for the purpose of
removing a Trustee. Under Massachusetts law, it is possible that a
shareholder may be liable for Framlington's obligations. If a shareholder
were required to pay a debt of the Fund, however, Framlington has committed
to reimburse the shareholder in full for their assets. The SAI contains more
information regarding voting rights.
As of the date of this Prospectus, Funds Distributor, Inc. has the
right to vote a majority of the outstanding shares of the Fund and therefore
it is considered to be a controlling person.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
When Will I Receive Distributions from the Fund?
As a shareholder, you are entitled to your share of net income and
capital gains, if any, on the Fund's investments. The Fund passes its
earnings along to its investors in the form of dividends. Dividend
distributions are the dividends or interest earned on investments after
expenses. The Fund pays dividends at least annually.
The Fund's net realized capital gains (including net short-term capital
gains), if any, are distributed at least annually.
It is possible that the Fund may make a distribution in excess of the
Fund's current and accumulated earnings and profits. You will treat such a
distribution as a return of capital which is applied against and reduces your
basis in your shares. To the extent that the amount of any such distribution
exceeds your basis in your shares, you will treat the excess as gain from a
sale or exchange of the shares.
How Will Distributions Be Made?
The Fund will pay dividend and capital gains distributions in
additional shares of the same class of the Fund. If you wish to receive
distributions in cash, either indicate this request on your Account
Application Form or notify the Fund at (800) 438-5789.
Are There Tax Implications of My Investments in the Fund?
In general, as long as the Fund meets the requirements to qualify as a
regulated investment company ("RIC") under Federal tax laws, it will not be
subject to Federal income tax on its income and capital gains that it
distributes in a timely manner to its shareholders. The Fund intends to
qualify annually as a RIC. Even if it qualifies as a RIC, the Fund may still
be liable for any excise tax on income that is not distributed in accordance
with a calendar year requirement; the Fund intends to avoid the excise tax by
making timely distributions.
Generally, you will owe tax on the amounts distributed to you,
regardless of whether you receive these amounts in cash or reinvest them in
additional Fund shares. Shareholders not subject to tax on their income
generally will not be required to pay any tax on amounts distributed to them.
Federal income tax on distributions to an IRA or to a qualified retirement
plan will generally be deferred.
Capital gains derived from sales of portfolio securities held by the
Fund will generally be designated as long-term or short-term. Distributions
from the Fund's long-term capital gains are generally taxed at the long-term
capital gains rates, regardless of how long you have owned shares in the
Fund. Dividends derived from other sources are generally taxed as ordinary
income.
Dividends and capital gain distributions are generally taxable when you
receive them; however, if a distribution is declared in October, November or
December, but not paid until January of the following year, it will be
considered to be paid on December 31 in the year in which it was declared.
Shortly after the end of each year, you will receive from the Fund a
statement of the amount and nature of the distributions made to you during
the year.
If you redeem, transfer or exchange Fund shares, you may have taxable
gain or a loss. If you hold Fund shares for six months or less, and during
that time you receive a capital gain dividend, any loss you realize on the
sale of these Fund shares will be treated as a long-term loss to the extent
of the earlier distribution.
Dividends and certain interest income earned from foreign securities by
the Fund may be subject to foreign withholding or other taxes. The Fund may
be permitted to pass on to its shareholders the right to a credit or
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deduction for income or other tax credits earned from foreign investments and
will do so if possible. These deductions or credits may be subject to tax law
limitations.
If the Fund invests in certain "passive foreign investment companies"
("PFICs"), it will be subject to Federal income tax (and possibly additional
interest charges) on a portion of any "excess distribution" or gain from the
disposition of such shares, even if it distributes such income to its
shareholders. If the Fund elects to treat a PFIC as a "qualified electing
fund" ("QEF") and the PFIC furnishes certain financial information in the
required form to such Fund, the Fund will instead be required to include in
income each year its allocable share of the ordinary earnings and net capital
gains of the QEF, regardless of whether received, and such amounts will be
subject to the various distribution requirements described above. The Fund
may also elect to mitigate the tax effects of owning PFIC stock by making an
annual mark-to-market election with respect to PFIC shares.
More information about the tax treatment of distributions from the Fund
and about other potential tax liabilities, including backup withholding for
certain taxpayers and information about tax aspects of dispositions of shares
of the Fund, is contained in the SAI. You should consult your tax advisor
regarding the impact of owning Fund shares on your own personal tax
situation, including the applicability of any state and local taxes.
ADDITIONAL INFORMATION
Shareholder Communications. You will receive unaudited Semi-Annual
Reports and audited Annual Reports on a regular basis from the Fund. In
addition, you will also receive updated Prospectuses or Supplements to this
Prospectus. In order to eliminate duplicate mailings, the Fund will only send
one copy of the above communications to (1) accounts with the same primary
record owner, (2) joint tenant accounts, (3) tenant in common accounts and
(4) accounts which have the same address.
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MUNDER FRAMLINGTON GLOBAL FINANCIAL SERVICES FUND
STATEMENT OF ADDITIONAL INFORMATION
The Munder Framlington Global Financial Services Fund (the
"Fund") is currently one of four series of shares of The Munder Framlington
Funds Trust ("Framlington"), an open-end management investment company. The
Fund's investment advisor is Munder Capital Management (the "Advisor").
This Statement of Additional Information is intended to supplement the
information provided to investors in the Fund's Prospectuses dated June 13,
1998 and has been filed with the Securities and Exchange Commission (the
"SEC") as part of Framlington's Registration Statement. This Statement of
Additional Information is not a prospectus, and should be read only in
conjunction with the Fund's Prospectuses dated June 13, 1998 (the
"Prospectus"). The contents of this Statement of Additional Information are
incorporated by reference in the Prospectuses in its entirety. A copy of each
Prospectus may be obtained through Funds Distributor, Inc. (the
"Distributor"), or by calling (800) 438-5789. This Statement of Additional
Information is dated June 13, 1998.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY BANK, AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
TABLE OF CONTENTS
Page
General......................................................................3
Fund Investments.............................................................3
Investment Limitations......................................................17
Trustees and Officers.......................................................18
Investment Advisory and Other Service Arrangements..........................23
Portfolio Transactions......................................................27
Additional Purchase and Redemption Information..............................29
Net Asset Value.............................................................32
Performance Information.....................................................32
Taxes.......................................................................33
Additional Information Concerning Shares....................................39
Miscellaneous...............................................................40
Registration Statement......................................................40
Appendix A..................................................................41
Appendix B..................................................................44
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information or in
each Prospectus in connection with the offering made by each Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. The Prospectuses do not
constitute an offering by the Fund or by the Distributor in any jurisdiction in
which such offering may not lawfully be made.
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GENERAL
As stated in each Prospectus, the investment advisor of the Fund is
Munder Capital Management (the "Advisor"). The principal partners of the
Advisor are Old MCM, Inc., Munder Group LLC, and WAM Holdings, Inc. ("WAM").
Mr. Lee P. Munder, the Advisor's Chairman, indirectly owns or controls
approximately 45% and Comerica Incorporated owns or controls approximately
44% of the partnership interests of the Advisor. Capitalized terms used
herein and not otherwise defined have the same meanings as are given to them
in the Prospectuses.
Framlington Overseas Investment Management Limited (the "Sub-Advisor")
serves as sub-advisor for the Fund. The Sub-Advisor is a subsidiary of
Framlington Group Limited, incorporated in England and Wales which, through
its subsidiaries, provides a wide range of investment services. Framlington
Group Limited is a wholly owned subsidiary of Framlington Holdings Limited
which is, in turn, owned 49% by the Advisor and 51% by Credit Commercial de
France S.A., a French banking corporation listed on the Societe des Bourses
Francaises.
FUND INVESTMENTS
The following supplements the information contained in the Prospectuses
concerning the investment objective and policies of the Fund. The Fund's
investment objective is a non-fundamental policy and may be changed without
the authorization of the holders of a majority of the Fund's outstanding
shares. All other investment policies other than those specifically
designated as fundamental, are non-fundamental policies and may be changed
without the authorization of the holders of a majority of the Fund's
outstanding shares. There can be no assurance that the Fund will achieve its
objective. A description of applicable credit ratings is set forth in
Appendix A hereto.
Borrowing. The Fund is authorized to borrow money in amounts up to 5%
of the value of its total assets at the time of such borrowings for temporary
purposes, and is authorized to borrow money in excess of the 5% limit as
permitted by the Investment Company Act of 1940, as amended (the "1940 Act")
to meet redemption requests. This borrowing may be unsecured. The 1940 Act
requires the Fund to maintain continuous asset coverage of 300% of the amount
borrowed. If the 300% asset coverage should decline as a result of market
fluctuations or other reasons, the Fund may be required to sell some of its
portfolio holdings within three days to reduce the debt and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time. Borrowed funds are subject to
interest costs that may or may not be offset by amounts earned on the
borrowed funds. The Fund may also be required to maintain minimum average
balance in connection with such borrowing or to pay a commitment or other
fees to maintain a line of credit; either of these requirements would
increase the cost of borrowing over the stated interest rate. The Fund may,
in connection with permissible borrowings, transfer as collateral, securities
owned by the Fund.
Foreign Securities. Under normal market conditions, the Fund will
invest at least 65% of its assets in securities of issuers located in at
least three countries one of which may be the United States. The Fund may
purchase foreign securities which are represented by American Depositary
Receipts ("ADRs") listed on a domestic securities exchange or included in the
NASDAQ National Market System, or foreign securities listed directly on a
domestic securities exchange or included in the NASDAQ National Market
System. ADRs are receipts typically issued by a United States bank or trust
company evidencing ownership of the underlying foreign securities. Certain
such institutions issuing ADRs may not be sponsored by the issuer. A
non-sponsored depositary may not provide the same shareholder information
that a sponsored depositary is required to provide under its contractual
arrangements with the issuer.
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The Fund may also purchase Global Depositary Receipts ("GDRs") or
European Depositary Receipts ("EDRs"), which are receipts issued by European
financial institutions evidencing ownership of the underlying foreign
securities.
Income and gains on foreign securities may be subject to foreign
withholding taxes. Investors should consider carefully the substantial risks
involved in securities of companies and governments of foreign nations, which
are in addition to the usual risks inherent in domestic investments.
There may be less publicly available information about foreign
companies comparable to the reports and ratings published about companies in
the United States. Foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards, and auditing
practices and requirements may not be comparable to those applicable to
United States companies. Foreign markets have substantially less volume than
the New York Stock Exchange and securities of some foreign companies are less
liquid and more volatile than securities of comparable United States
companies. Commission rates in foreign countries, which are generally fixed
rather than subject to negotiation as in the United States, are likely to be
higher. In many foreign countries there is less government supervision and
regulation of stock exchanges, brokers, and listed companies than in the
United States. Such concerns are particularly heightened for emerging markets
and Eastern European countries.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
These risks include (i) less social, political and economic stability; (ii)
the small current size of the markets for such securities and the currently
low or nonexistent volume of trading, which result in a lack of liquidity and
in greater price volatility; (iii) certain national policies which may
restrict the Fund's investment opportunities, including restrictions on
investment in issuers or industries deemed sensitive to national interest;
(iv) foreign taxation; (v) the absence of developed legal structures
governing private or foreign investment or allowing for judicial redress for
injury to private property; (vi) the absence, until recently in certain
Eastern European countries, of a capital market structure or market-oriented
economy; and (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries.
Investments in Eastern European countries may involve risks of
nationalization, expropriation and confiscatory taxation. The Communist
governments of a number of East European countries expropriated large amounts
of private property in the past, in many cases without adequate compensation,
and there can be no assurance that such expropriation will not occur in the
future. In the event of such expropriation, the Fund could lose a substantial
portion of any investments it has made in the affected countries. Further, no
accounting standards exist in Eastern European countries. Finally, even
though certain Eastern European currencies may be convertible into United
States dollars, the conversion rates may be artificial to the actual market
values and may be adverse to the Fund.
The Sub-Advisor endeavors to buy and sell foreign currencies on as
favorable a basis as practicable. Some price spread on currency exchange (to
cover service charges) may be incurred, particularly when the Fund changes
investments from one country to another or when proceeds of the sale of Fund
shares in U.S. dollars are used for the purchase of securities in foreign
countries. Also, some countries may adopt policies which would prevent the
Fund from transferring cash out of the country or withhold portions of
interest and dividends at the source. There is the possibility of
expropriation, nationalization or confiscatory taxation, withholding and
other foreign taxes on income or other amounts, foreign exchange controls
(which may include suspension of the ability to transfer currency from a
given country), default in foreign government securities, political or social
instability or diplomatic developments that could affect investments in
securities of issuers in foreign nations.
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The Fund may be affected either unfavorably or favorably by
fluctuations in the relative rates of exchange between the currencies of
different nations, by exchange control regulations and by indigenous economic
and political developments. Changes in foreign currency exchange rates will
influence values within the Fund from the perspective of U.S. investors, and
may also affect the value of dividends and interest earned, gains and losses
realized on the sale of securities, and net investment income and gains, if
any, to be distributed to shareholders by the Fund. The rate of exchange
between the U.S. dollar and other currencies is determined by the forces of
supply and demand in the foreign exchange markets. These forces are affected
by the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. The
Sub-Advisor will attempt to avoid unfavorable consequences and to take
advantage of favorable developments in particular nations where, from time to
time, it places the Fund's investments.
The exercise of this flexible policy may include decisions to purchase
securities with substantial risk characteristics and other decisions such as
changing the emphasis on investments from one nation to another and from one
type of security to another. Some of these decisions may later prove
profitable and others may not. No assurance can be given that profits, if
any, will exceed losses.
Forward Foreign Currency Transactions. In order to protect against a
possible loss on investments resulting from a decline or appreciation in the
value of a particular foreign currency against the U.S. dollar or another
foreign currency, the Fund is authorized to enter into forward foreign
currency exchange contracts ("forward currency contracts"). These contracts
involve an obligation to purchase or sell a specified currency at a future
date at a price set at the time of the contract. Forward currency contracts
do not eliminate fluctuations in the values of portfolio securities but
rather allow the Fund to establish a rate of exchange for a future point in
time.
When entering into a contract for the purchase or sale of a security,
the Fund may enter into a forward currency contract for the amount of the
purchase or sale price to protect against variations, between the date the
security is purchased or sold and the date on which payment is made or
received, in the value of the foreign currency relative to the U.S. dollar or
other foreign currency.
When the Sub-Advisor anticipates that a particular foreign currency may
decline substantially relative to the U.S. dollar or other leading
currencies, in order to reduce risk, the Fund may enter into a forward
contract to sell, for a fixed amount, the amount of foreign currency
approximating the value of some or all of the Fund's securities denominated
in such foreign currency. Similarly, when the obligations held by the Fund
create a short position in a foreign currency, the Fund may enter into a
forward contract to buy, for a fixed amount, an amount of foreign currency
approximating the short position. With respect to any forward foreign
currency contract, it will not generally be possible to match precisely the
amount covered by that contract and the value of the securities involved due
to the changes in the values of such securities resulting from market
movements between the date the forward contract is entered into and the date
it matures. In addition, while forward contracts may offer protection from
losses resulting from declines or appreciation in the value of a particular
foreign currency, they also limit potential gains which might result from
changes in the value of such currency. The Fund will also incur costs in
connection with forward currency contracts and conversions of foreign
currencies and U.S. dollars.
A separate account consisting of cash or liquid securities equal to the
amount of the Fund's assets that could be required to consummate forward
contracts will be established with the Fund's Sub-Custodian except to the
extent the contracts are otherwise "covered." For the purpose of determining
the adequacy of the securities in the account, the deposited securities will
be valued at market or fair value. If the market or fair value of such
securities declines, additional cash or securities will be placed in the
account daily so that the value of the account will equal the amount of such
commitments by the Fund. A forward contract to sell a foreign currency is
"covered" if the Fund owns the currency (or securities
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<PAGE>
denominated in the currency) underlying the contract, or holds a forward
contract (or call option) permitting the Fund to buy the same currency at a
price no higher than the Fund's price to sell the currency. A forward contract
to buy a foreign currency is "covered" if the Fund holds a forward contract (or
put option) permitting the Fund to sell the same currency at a price as high as
or higher than the Fund's price to buy the currency.
Futures Contracts and Related Options. The Fund currently expects that it
may purchase and sell futures contracts on interest-bearing securities or
securities or bond indices, and may purchase and sell call and put options on
futures contracts. For a detailed description of futures contracts and related
options, see Appendix B to this Statement of Additional Information.
Illiquid Securities. The Fund may invest up to 15% of the value of its net
assets (determined at time of acquisition) in securities which are illiquid.
Illiquid securities would generally include securities for which there is a
limited trading market, repurchase agreements and time deposits with
notice/termination dates in excess of seven days, and certain securities which
are subject to trading restrictions because they are not registered under the
Securities Act of 1933, as amended (the "Act"). If, after the time of
acquisition, events cause this limit to be exceeded, the Fund will take steps to
reduce the aggregate amount of illiquid securities as soon as reasonably
practicable in accordance with the policies of the SEC.
The Fund may invest in commercial obligations issued in reliance on the
"private placement" exemption from registration afforded by Section 4(2) of the
Act ("Section 4(2) paper"). The Fund may also purchase securities that are not
registered under the Act, but which can be sold to qualified institutional
buyers in accordance with Rule 144A under the Act, ("Rule 144A securities").
Section 4(2) paper is restricted as to disposition under the Federal securities
laws, and generally is sold to institutional investors who agree that they are
purchasing the paper for investment and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2) paper
normally is resold to other institutional investors through or with the
assistance of the issuer or investment dealers which make a market in the
Section 4(2) paper, thus providing liquidity. Rule 144A securities generally
must be sold only to other qualified institutional buyers. If a particular
investment in Section 4(2) paper or Rule 144A securities is not determined to be
liquid, that investment will be included within the Fund's limitation on
investment in illiquid securities. The Sub-Advisor will determine the liquidity
of such investments pursuant to guidelines established by Framlington's Board of
Trustees. It is possible that unregistered securities purchased by the Fund in
reliance upon Rule 144A could have the effect of increasing the level of the
Fund's illiquidity to the extent that qualified institutional buyers become, for
a period, uninterested in purchasing these securities.
Investment Company Securities. The Fund may invest in securities issued by
other investment companies. As a shareholder of another investment company, the
Fund would bear its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the expenses the
Fund bears directly in connection with its own operations. The Fund currently
intends to limit its investments in securities issued by other investment
companies so that, as determined immediately after a purchase of such securities
is made: (i) not more than 5% of the value of the Fund's total assets will be
invested in the securities of any one investment company; (ii) not more than 10%
of the value of its total assets will be invested in the aggregate in securities
of investment companies as a group; and (iii) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Fund.
Lending of Portfolio Securities. To enhance the return on its portfolio,
the Fund may lend securities in its portfolio (subject to a limit of 25% of the
Fund's total assets) to securities firms and financial institutions, provided
that each loan is secured continuously by collateral in the form of cash, high
quality money market instruments or short-term U.S. Government securities
adjusted daily to have a
6
<PAGE>
market value at least equal to the current market value of the securities
loaned. These loans are terminable at any time, and the Fund will receive any
interest or dividends paid on the loaned securities. In addition, it is
anticipated that the Fund may share with the borrower some of the income
received on the collateral for the loan or the Fund will be paid a premium for
the loan. The risk in lending portfolio securities, as with other extensions of
credit, consists of possible delay in recovery of the securities or possible
loss of rights in the collateral should the borrower fail financially. In
determining whether the Fund will lend securities, the Sub-Advisor will consider
all relevant facts and circumstances. The Fund will only enter into loan
arrangements with broker-dealers, banks or other institutions which the
Sub-Sub-Advisor has determined are creditworthy under guidelines established by
the Board of Trustees.
Lower-Rated Securities. The Fund may invest up to 5% of its total assets
in securities that are rated below investment grade by Standard & Poor's or
Moody's. Such securities are also known as junk bonds. The yields on lower-rated
debt and comparable unrated securities generally are higher than the yields
available on higher-rated securities. However, investments in lower-rated debt
and comparable unrated securities generally involve greater volatility of price
and risk of loss of income and principal, including the possibility of default
by or bankruptcy of the issuers of such securities. Lower-rated debt and
comparable unrated securities (a) will likely have some quality and protective
characteristics that, in the judgment of the rating organization, are outweighed
by large uncertainties or major risk exposures to adverse conditions and (b) are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. Accordingly,
it is possible that these types of factors could, in certain instances, reduce
the value of securities held in the Fund's portfolio, with a commensurate effect
on the value of the Fund's shares. Therefore, an investment in the Fund should
not be considered as a complete investment program and may not be appropriate
for all investors.
While the market values of lower-rated debt and comparable unrated
securities tend to react more to fluctuations in interest rate levels than the
market values of higher-rated securities, the market values of certain lower
rated debt and comparable unrated securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-rated securities. In addition, lower-rated debt securities and comparable
unrated securities generally present a higher degree of credit risk. Issuers of
lower-rated debt and comparable unrated securities often are highly leveraged
and may not have more traditional methods of financing available to them so that
their ability to service their debt obligations during an economic downturn or
during sustained periods of rising interest rates may be impaired. The risk of
loss due to default by such issuers is significantly greater because lower-rated
debt and comparable unrated securities generally are unsecured and frequently
are subordinated to the prior payment of senior indebtedness. The Fund may incur
additional expenses to the extent that it is required to seek recovery upon a
default in the payment of principal or interest on its portfolio holdings. The
existence of limited markets for lower-rated debt and comparable unrated
securities may diminish the Fund's ability to (a) obtain accurate market
quotations for purposes of valuing such securities and calculating its net asset
value and (b) sell the securities at fair value either to meet redemption
requests or to respond to changes in the economy or in financial markets.
Lower-rated debt securities and comparable unrated securities may have
call or buy-back features that permit their issuers to call or repurchase the
securities from their holders. If an issuer exercises these rights during
periods of declining interest rates, the Fund may have to replace the security
with a lower yielding security, thus resulting in a decreased return to the
Fund.
Money Market Instruments. The Fund may invest from time to time in "money
market instruments," a term that includes, among other things, bank obligations,
commercial paper, variable amount master demand notes and corporate bonds with
remaining maturities of 397 days or less.
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Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits, including U.S. dollar-denominated
instruments issued or supported by the credit of U.S. or foreign banks or
savings institutions. Although the Fund will invest in obligations of foreign
banks or foreign branches of U.S. banks only where the Sub-Advisor deems the
instrument to present minimal credit risks, such investments may nevertheless
entail risks that are different from those of investments in domestic
obligations of U.S. banks due to differences in political, regulatory and
economic systems and conditions. All investments in bank obligations are limited
to the obligations of financial institutions having more than $1 billion in
total assets at the time of purchase.
Investments by the Fund in commercial paper will consist of issues rated
at the time A-1 and/or P-1 by Standard & Poor's Rating Service, a division of
McGraw-Hill Companies, Inc. ("S&P") or Moody's Investor Services, Inc.
("Moody's"). In addition, the Fund may acquire unrated commercial paper and
corporate bonds that are determined by the Sub-Advisor at the time of purchase
to be of comparable quality to rated instruments that may be acquired by the
Fund as previously described.
The Fund may also purchase variable amount master demand notes which are
unsecured instruments that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate. Although the notes are
not normally traded and there may be no secondary market in the notes, the Fund
may demand payment of the principal of the instrument at any time. The notes are
not typically rated by credit rating agencies, but issuers of variable amount
master demand notes must satisfy the same criteria as set forth above for
issuers of commercial paper. If an issuer of a variable amount master demand
note defaulted on its payment obligation, the Fund might be unable to dispose of
the note because of the absence of a secondary market and might, for this or
other reasons, suffer a loss to the extent of the default. The Fund invests in
variable amount master notes only when the Sub-Advisor deems the investment to
involve minimal credit risk.
Non-Domestic Bank Obligations. Non-domestic bank obligations include
Eurodollar Certificates of Deposit ("ECDs"), which are U.S. dollar-denominated
certificates of deposit issued by offices of foreign and domestic banks located
outside the United States; Eurodollar Time Deposits ("ETDs"), which are U.S.
dollar-denominated deposits in a foreign branch of a U.S. bank or a foreign
bank; Canadian Time Deposits ("CTDs"), which are essentially the same as ETDs
except they are issued by Canadian offices of major Canadian banks; Schedule Bs,
which are obligations issued by Canadian branches of foreign or domestic banks;
Yankee Certificates of Deposit (Yankee CDs"), which are U.S. dollar-denominated
certificates of deposit issued by a U.S. branch of a foreign bank and held in
the United States; and Yankee Bankers' Acceptances ("Yankee BAs"), which are
U.S. dollar-denominated bankers' Acceptances issued by a U.S. branch of a
foreign bank and held in the United States.
Options. The Fund may write covered call options, buy put options, buy
call options and write secured put options in an amount not exceeding 5% of its
net assets. Such options may relate to particular securities and may or may not
be listed on a national securities exchange and issued by the Options Clearing
Corporation. Options trading is a highly specialized activity which entails
greater than ordinary investment risk. Options on particular securities may be
more volatile than the underlying securities, and therefore, on a percentage
basis, an investment in options may be subject to greater fluctuation than an
investment in the underlying securities themselves. For risks associated with
options on foreign currencies, see Appendix B to this Statement of Additional
Information.
A call option for a particular security gives the purchaser of the option
the right to buy, and a writer the obligation to sell, the underlying security
at the stated exercise price at any time prior to the expiration of the option,
regardless of the market price of the security. The premium paid to the writer
is in consideration for undertaking the obligations under the option contract. A
put option for a particular security gives the purchaser the right to sell the
underlying security at the stated exercise price at any time prior to the
expiration date of the option, regardless of the market price of the security.
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The writer of an option that wished to terminate its obligation may effect
a "closing purchase transaction." This is accomplished by buying an option of
the same series as the option previously written. The effect of the purchase is
that the writer's position will be canceled by the clearing corporation.
However, a writer may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, an investor who is the holder
of an option may liquidate its position by effecting a "closing sale
transaction." The cost of such a closing purchase plus transaction costs may be
greater than the premium received upon the original option, in which event the
Fund will have incurred a loss in the transaction. There is no guarantee that
either a closing purchase or a closing sale transaction can be effected.
Effecting a closing transaction in the case of a written call option will
permit the Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case of
a written put option, will permit the Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
The Fund may write options in connection with buy-and-write transactions;
that is, the Fund may purchase a security and then write a call option against
that security. The exercise price of the call the Fund determines to write will
depend upon the expected price movement of the underlying security. The exercise
price of a call option may be below ("in-the-money"), equal to ("at-the-money")
or above ("out-of-the-money") the current value of the underlying security at
the time the option is written. Buy-and-write transactions using in-the-money
call options may be used when it is expected that the price of the underlying
security will remain flat or decline moderately during the option period.
Buy-and-write transactions using out-of-the-money call options may be used when
it is expected that the premiums received from writing the call option plus the
appreciation in the market price of the underlying security up to the exercise
price will be greater than the appreciation in the price of the underlying
security alone. If the call options are exercised in such transactions, the
Fund's maximum gain will be the premium received by it for writing the option,
adjusted upwards or downwards by the difference between the Fund's purchase
price of the security and the exercise price. If the options are not exercised
and the price of the underlying security declines, the amount of such decline
will be offset in part, or entirely, by the premium received.
In the case of a call option on a security, the option is "covered" if the
Fund owns the security underlying the call or has an absolute and immediate
right to acquire that security without additional cash consideration (or, if
additional cash consideration is required, cash or cash equivalents in such
amount as are held in a segregated account by its custodian) upon conversion or
exchange of other securities held by it. For a call option on an index, the
option is covered if the Fund maintains with its Sub-Custodian cash or cash
equivalents equal to the contract value. A call option is also covered if the
Fund holds a call on the same security or index as the call written where the
exercise price of the call held is (i) equal to or less than the exercise price
of the call written, or (ii) greater than the exercise price of the call written
provided the difference is maintained by the portfolio in cash or cash
equivalents in a segregated account with its custodian. The Fund will limit its
investment in uncovered call options purchased or written by the Fund to 33 1/3%
of the Fund's total assets. The Fund will write put options only if they are
"secured" by cash or liquid securities maintained in a segregated account by the
Fund's sub-custodian in an amount not less than the exercise price of the option
at all times during the option period.
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The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the Fund's gain will be limited to the premium
received. If the market price of the underlying security declines or otherwise
is below the exercise price, the Fund may elect to close the position or take
delivery of the security at the exercise price and the Fund's return will be the
premium received from the put option minus the amount by which the market price
of the security is below the exercise price.
The Fund may purchase put options to hedge against a decline in the value
of its portfolio. By using put options in this way, the Fund will reduce any
profit it might otherwise have realized in the underlying security by the amount
of the premium paid for the put option and by transaction costs. The Fund may
purchase call options to hedge against an increase in the price of securities
that it anticipates purchasing in the future. The premium paid for the call
option plus any transaction costs will reduce the benefit, if any, realized by
the Fund upon exercise of the option, and, unless the price of the underlying
security rises sufficiently, the option may expire worthless to the Fund.
When the Fund purchases an option, the premium paid by it is recorded as
an asset of the Fund. When the 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 this asset or deferred credit will be
subsequently marked-to-market to reflect the current value of the option
purchased or 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 purchased by the Fund expires unexercised, the Fund
realizes a loss equal to the premium paid. If the Fund enters into a closing
sale transaction on an option purchased by it, the Fund will realize a gain if
the premium received by the Fund on the closing transaction is more than the
premium paid to purchase the option, or a loss if it is less. If an option
written by the Fund expires on the stipulated expiration date or if the Fund
enters into a closing purchase transaction, it will realize a gain (or 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 written by the Fund is exercised, the proceeds of the
sale will be increased by the net premium originally received and the Fund will
realize a gain or loss.
There are several risks associated with transactions in options on
securities and indices. For example, there are significant differences between
the securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its
objectives. An option writer, unable to effect a closing purchase transaction,
will not be able to sell the underlying security (in the case of a covered call
option) or liquidate the segregated account (in the case of a secured put
option) until the option expires or the optioned security is delivered upon
exercise with the result that the writer in such circumstances will be subject
to the risk of market decline or appreciation in the security during such
period.
There is no assurance that the Fund will be able to close an unlisted
option position. Furthermore, unlisted options are not subject to the
protections afforded purchasers of listed options by the Options Clearing
Corporation, which performs the obligations of its members who fail to do so in
connection with the purchase or sale of options.
In addition, a liquid secondary market for particular options, whether
traded over-the-counter or on a national securities exchange ("Exchange") may be
absent for reasons which include the following: there may be insufficient
trading interest in certain options; restrictions may be imposed by an Exchange
on opening transactions or closing transactions or both; trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; unusual or unforeseen
circumstances may interrupt normal operations on an Exchange; the facilities of
an Exchange or the Options Clearing Corporation may not at all times be adequate
to handle current trading value; or
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one or more Exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that Exchange (or in that class or series of options) would cease to exist,
although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
Currency transactions, including options on currencies and currency
futures, are subject to risks different from those of other portfolio
transactions. Because currency control is of great importance to the issuing
governments and influences economic planning and policy, purchases and sales of
currency and related instruments can be negatively affected by government
exchange controls, blockages, and manipulations or exchange restrictions imposed
by governments. These can result in losses to the Fund if it is unable to
deliver or receive currency or funds in settlement of obligations and could also
cause hedges it has entered into to be rendered useless, resulting in full
currency exposure as well as the incurring of transaction costs. Buyers and
sellers of currency futures are subject to the same risks that apply to the use
of futures generally. Further, settlement of a currency futures contract for the
purchase of most currencies must occur at a bank based in the issuing nation.
Trading options on currency futures is relatively new, and the ability to
establish and close out positions on such options is subject to the maintenance
of a liquid market which may not always be available. Currency exchange rates
may fluctuate based on factors extrinsic to that country's economy.
Repurchase Agreements. The Fund may agree to purchase securities from
financial institutions such as member banks of the Federal Reserve System, any
foreign bank or any domestic or foreign broker/dealer that is recognized as a
reporting government securities dealer, subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). The
Sub-Advisor will review and continuously monitor the creditworthiness of the
seller under a repurchase agreement, and will require the seller to maintain
liquid assets in a segregated account in an amount that is greater than the
repurchase price. Default by, or bankruptcy of the seller would, however, expose
the Fund to possible loss because of adverse market action or delays in
connection with the disposition of underlying obligations.
The repurchase price under the repurchase agreements described in the
Prospectuses 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 securities underlying the repurchase agreement).
Securities subject to repurchase agreements will be held by Framlington's
Custodian in the Federal Reserve/Treasury book-entry system or by another
authorized securities depositary. Repurchase agreements are considered to be
loans by the Fund under the 1940 Act.
Reverse Repurchase Agreements. The Fund may borrow funds for temporary or
emergency purposes by selling portfolio securities to financial institutions
such as banks and broker/dealers and agreeing to repurchase them at a mutually
specified date and price ("reverse repurchase agreements"). Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Fund may decline below the repurchase price. The Fund will pay interest on
amounts obtained pursuant to a reverse repurchase agreement. While reverse
repurchase agreements are outstanding, the Fund will maintain in a segregated
account, cash, U.S. Government securities or other liquid high-grade securities
of an amount at least equal to the market value of the securities, plus accrued
interest, subject to the agreement.
Rights and Warrants. As stated in its Prospectuses, the Fund may purchase
warrants, which are privileges issued by corporations enabling the owners to
subscribe to and purchase a specified number of shares of the corporation at a
specified price during a specified period of time. Subscription rights normally
have a short life span to expiration. The purchase of warrants involves the risk
that the
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Fund could lose the purchase value of a warrant if the right to subscribe to
additional shares is not exercised prior to the warrant's expiration. Also, the
purchase of warrants involves the risk that the effective price paid for the
warrant added to the subscription price of the related security may exceed the
value of the subscribed security's market price such as when there is no
movement in the level of the underlying security.
Stock Index Futures, Options on Stock and Bond Indices and Options on
Stock Index Future Contracts. The Fund may purchase and sell stock index
futures, options on stock and bond indices and options on stock index futures
contracts as a hedge against movements in the equity and bond markets.
A stock index futures contract is an agreement in which one party agrees
to deliver to the other an amount of cash equal to a specific dollar amount
times the difference between the value of a specific stock index at the close of
the last trading day of the contract and the price at which the agreement is
made. No physical delivery of securities is made.
Options on stock indices are similar to options on specific securities,
described above, except that, rather than the right to take or make delivery of
the specific security at a specific price, an option on a stock index gives the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing level of that stock index is greater than, in the case of a call
option, or less than, in the case of a put option, the exercise price of the
option. This amount of cash is equal to such difference between the closing
price of the index and the exercise price of the option expressed in dollars
times a specified multiple. The writer of the option is obligated, in return for
the premium received, to make delivery of this amount. Unlike options on
specific securities, all settlements of options on stock indices are in cash,
and gain or loss depends on general movements in the stocks included in the
index rather than price movements in particular stocks.
If the Sub-Advisor expects general stock or bond market prices to rise, it
might purchase a stock index futures contract, or a call option on that index,
as a hedge against an increase in prices of particular securities it ultimately
wants to buy. If in fact the index does rise, the price of the particular
securities intended to be purchased may also increase, but that increase would
be offset in part by the increase in the value of the Fund's futures contract or
index option resulting from the increase in the index. If, on the other hand,
the Sub-Advisor expects general stock or bond market prices to decline, it might
sell a futures contract, or purchase a put option, on the index. If that index
does in fact decline, the value of some or all of the securities in the Fund's
portfolio may also be expected to decline, but that decrease would be offset in
part by the increase in the value of the Fund's position in such futures
contract or put option.
The Fund may purchase and write call and put options on stock or bond
index futures contracts. The Fund may use such options on futures contracts in
connection with its hedging strategies in lieu of purchasing and selling the
underlying futures or purchasing and writing options directly on the underlying
securities or indices. For example, the Fund may purchase put options or write
call options on stock and bond index futures, rather than selling futures
contracts, in anticipation of a decline in general stock or bond market prices
or purchase call options or write put options on stock or bond index futures,
rather than purchasing such futures, to hedge against possible increases in the
price of securities which the Fund intends to purchase.
In connection with transactions in stock or bond index futures, stock or
bond index options and options on stock index or bond futures, the Fund will be
required to deposit as "initial margin" an amount of cash and short-term U.S.
Government securities equal to from 5% to 8% of the contract amount. Thereafter,
subsequent payments (referred to as "variation margin") are made to and from the
broker to reflect changes in the value of the option or futures contract. The
Fund may not at any time commit
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<PAGE>
more than 5% of its total assets to initial margin deposits on futures
contracts, index options and options on futures contracts.
Stripped Securities. The Fund may acquire U.S. Government obligations and
their unmatured interest coupons that have been separated ("stripped") by their
holder, typically a custodian bank or investment brokerage firm. Having
separated the interest coupons from the underlying principal of the U.S.
Government obligations, the holder will resell the stripped securities in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" ("TIGRs") and "Certificate of Accrual on Treasury
Securities" ("CATS"). The stripped coupons are sold separately from the
underlying principal, which is usually sold at a deep discount because the buyer
receives only the right to receive a future fixed payment on the security and
does not receive any rights to periodic interest (cash) payments. The underlying
U.S. Treasury bonds and notes themselves are held in book-entry form at the
Federal Reserve Bank or, in the case of bearer securities (i.e., unregistered
securities which are ostensibly owned by the bearer or holder), in trust on
behalf of the owners. Counsel to the underwriters of these certificates or other
evidences of ownership of U.S. Treasury securities have stated that, in their
opinion, purchasers of the stripped securities most likely will be deemed the
beneficial holders of the underlying U.S. Government obligations for federal tax
and securities purposes. The Trust is not aware of any binding legislative,
judicial or administrative authority on this issue.
Only instruments which are stripped by the issuing agency will be
considered U.S. Government obligations. Securities such as CATS and TIGRs which
are stripped by their holder do not qualify as U.S. Government obligations.
Within the past several years the Treasury Department has facilitated
transfers of ownership of zero coupon securities by accounting separately for
the beneficial ownership of particular interest coupon and principal payments on
Treasury securities through the Federal Reserve book-entry record-keeping
system. The Federal Reserve program as established by the Treasury Department is
known as "STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities." Under the STRIPS program, a Fund is able to have its beneficial
ownership of zero coupon securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificates or other evidences
of ownership of the underlying U.S. Treasury securities.
In addition, the Fund may invest in stripped mortgage-backed securities
("SMBS"), which represent beneficial ownership interests in the principal
distributions and/or the interest distributions on mortgage assets. SMBS are
usually structured with two classes that receive different proportions of the
interest and principal distributions on a pool of mortgage assets. One type of
SMBS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class will receive most of
the interest and the remainder of the principal. In the most common case, one
class of SMBS will receive all of the interest (the interest-only or "IO"
class), while the other class will receive all of the principal (the
principal-only or "PO" class). SMBS may be issued by FNMA or FHLMC.
The original principal amount, if any, of each SMBS class represents the
amount payable to the holder thereof over the life of such SMBS class from
principal distributions of the underlying mortgage assets, which will be zero in
the case of an IO class. Interest distributions allocable to a class of SMBS, if
any, consist of interest at a specific rate of its principal amount, if any, or
its notional principal amount in the case of an IO class. The notional principal
amount is used solely for purposes of the determination of interest
distributions and certain other rights of holders of such IO class and does not
represent an interest in principal distributions of the mortgage assets.
Yield on SMBS will be extremely sensitive to the prepayment experience on
the underlying mortgage loans, and there are other associated risks. For IO
classes of SMBS and SMBS that were
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purchased at prices exceeding their principal amounts there is a risk that the
Fund may not fully recover its initial investment.
The determination of whether a particular government-issued IO or PO
backed by fixed-rate mortgages is liquid may be made under guidelines and
standards established by the Board of Trustees. Such securities may be deemed
liquid if they can be disposed of promptly in the ordinary course of business at
a value reasonable close to that used in the calculation of the Fund's net asset
value per share.
Supranational Bank Obligations. Supranational banks are international
banking institutions designed or supported by national governments to promote
economic reconstruction, development or trade between nations (e.g., The World
Bank). Obligations of supranational banks may be supported by appropriated but
unpaid commitments of their member countries and there is no assurance these
commitments will be undertaken or met in the future.
U.S. Government Obligations. The Fund may purchase obligations issued or
guaranteed by the U.S. Government and U.S. Government agencies and
instrumentalities. Obligations of certain agencies and instrumentalities of the
U.S. Government, such as those of the Government National Mortgage Association,
are supported by the full faith and credit of the U.S. Treasury. Others, such as
those of the Export-Import Bank of the United States, are supported by the right
of the issuer to borrow from the U.S. Treasury; and still others, such as those
of the Student Loan Marketing Association, are supported only by the credit of
the agency or instrumentality issuing the obligation. No assurance can be given
that the U.S. Government would provide financial support to U.S.
government-sponsored instrumentalities if it is not obligated to do so by law.
Examples of the types of U.S. Government obligations that may be acquired by the
Funds include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and the
obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land
Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks and Maritime Administration.
Variable and Floating Rate Instruments. Debt instruments may be structured
to have variable or floating interest rates. Variable and floating rate
obligations purchased by the Fund may have stated maturities in excess of the
Fund's maturity limitation if the Fund can demand payment of the principal of
the instrument at least once during such period on not more than thirty days'
notice (this demand feature is not required if the instrument is guaranteed by
the U.S. Government or an agency thereof). These instruments may include
variable amount master demand notes that permit the indebtedness to vary in
addition to providing for periodic adjustments in the interest rates. The
Sub-Advisor will consider the earning power, cash flows and other liquidity
ratios of the issuers and guarantors of such instruments and, if the instrument
is subject to a demand feature, will continuously monitor their financial
ability to meet payment on demand. Where necessary to ensure that a variable or
floating rate instrument is equivalent to the quality standards applicable to
the Fund, the issuer's obligation to pay the principal of the instrument will be
backed by an unconditional bank letter or line of credit, guarantee or
commitment to lend.
In determining average weighted portfolio maturity of the Fund, an
instrument will usually be deemed to have a maturity equal to the longer of the
period remaining until the next interest rate adjustment or the time the Fund
involved can recover payment of principal as specified in the instrument.
Variable rate U.S. Government obligations held by the Fund, however, will be
deemed to have maturities equal to the period remaining until the next interest
rate adjustment.
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The absence of an active secondary market for certain variable and
floating rate notes could make it difficult to dispose of the instruments,
and the Fund could suffer a loss if the issuer defaulted or during periods
that the Fund is not entitled to exercise its demand rights.
Variable and floating rate instruments held by the Fund will be subject
to the Fund's limitation on illiquid investments when the Fund may not demand
payment of the principal amount within seven days absent a reliable trading
market.
When-Issued Purchases and Forward Commitments (Delayed-Delivery
Transactions). When-issued purchases and forward commitments
(delayed-delivery transactions) are commitments by the Fund to purchase or
sell particular securities with payment and delivery to occur at a future
date (perhaps one or two months later). These transactions permit the Fund to
lock-in a price or yield on a security, regardless of future changes in
interest rates.
When the Fund agrees to purchase securities on a when-issued or forward
commitment basis, the Fund will segregate cash or liquid portfolio securities
equal to the amount of the commitment. Normally, the Fund will segregate
portfolio securities to satisfy a purchase commitment, and in such a case the
Fund may be required subsequently segregate additional assets in order to
ensure that the value of the account remains equal to the amount of the
Fund's commitments. It may be expected that the market value of the Fund's
net assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash.
Because the Fund's liquidity and ability to manage its portfolio might be
affected when it sets aside cash or portfolio securities to cover such
purchase commitments, the Sub-Advisor expects that its commitments to
purchase when-issued securities and forward commitments will not exceed 25%
of the value of the Fund's total assets absent unusual market conditions.
The Fund will purchase securities on a when-issued or forward
commitment basis only with the intention of completing the transaction and
actually purchasing the securities. If deemed advisable as a matter of
investment strategy, however, the Fund may dispose of or renegotiate a
commitment after it is entered into, and may sell securities it has committed
to purchase before those securities are delivered to the Fund on the
settlement date. In these cases the Fund may realize a taxable capital gain
or loss.
When the Fund engages in when-issued and forward commitment
transactions, it relies on the other party to consummate the trade. Failure
of such party to do so may result in the Fund's incurring a loss or missing
an opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase or
a forward commitment to purchase securities, and any subsequent fluctuations
in their market value, are taken into account when determining the market
value of the Fund starting on the day the Fund agrees to purchase the
securities. The Fund does not earn interest on the securities it has
committed to purchase until they are paid for and delivered on the settlement
date.
Real Estate Securities. The Fund may invest in shares of real estate
investment trusts ("REITs"). REITs pool investors' funds for investment
primarily in income producing real estate loans or interests. A REIT is not
taxed on income distributed to shareholders if it complies with several
requirements relating to its organization, ownership, assets, and income and
a requirement that it distribute to its shareholders at least 95% of its
taxable income (other than net capital gains) for each taxable year. REITs
can generally be classified as Equity REITs, Mortgage REITs and Hybrid REITs.
Equity REITs and Mortgage REITs, which invest the majority of their assets
directly in real property, derive their income primarily from rents. Equity
REITs can also realize capital gains by selling properties that have
appreciated in value. Mortgage REITs, which invest the majority of their
assets in real estate mortgages, derive their income primarily from interest
payments. Hybrid REITs combine the
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characteristics of both Equity REITs and Mortgage REITs. The Fund will not
invest in real estate directly, but only in securities issued by real estate
companies.
In addition to these risks, Equity REITs may be affected by changes in
the value of the underlying property owned by the trusts, while Mortgage
REITs may be affected by the quality of any credit extended. Further, Equity
and Mortgage REITs are also subject to heavy cash flow dependency, defaults
by borrowers and self-liquidation. In addition, Equity and Mortgage REITs
could possibly fail to qualify for the beneficial tax treatment available to
real estate investment trusts under the Internal Revenue Code of 1986, as
amended (the "Code") or to maintain their exemptions from registration under
the 1940 Act. The above factors may also adversely affect a borrowers or a
lessee's ability to meet its obligations to the REIT. In the event of a
default by a borrower or lessee, the REIT may experience delays in enforcing
its rights as a mortgage or lessor and may incur substantial costs associated
with protecting investments.
Short Sales. The Fund may make Short Sales of securities. A short sale
is a transaction in which the Fund sells a security it does not own in
anticipation that the market price of that security will decline. When the
Fund makes a short sale, it must borrow the security sold short and deliver
it to the broker-dealer through which it made the short sale as collateral
for its obligation to deliver the security upon conclusion of the sale. The
Fund may also sell securities that it owns or has the right to acquire at no
additional cost but does not intend to deliver to the buyer, a practice known
as selling short "against-the-box." The Fund may have to pay a fee to borrow
particular securities and is often obligated to pay over any payments
received on such borrowed securities. The Fund's obligation to replace the
borrowed security will be secured by collateral deposited with the
broker-dealer, usually cash, U.S. Government securities or other highly
liquid securities similar to those borrowed. The Fund will also be required
to deposit similar collateral with its Sub-Custodian to the extent necessary
so that the value of both collateral deposits in the aggregate is at all time
equal to at least 100% of the current market value of the security sold
short. Depending on arrangements made with the broker-dealer from which it
borrowed the security regarding payment over any received by the Fund on such
security, the Fund may not receive any payments (including interest) on its
collateral deposited with such broker-dealer.
If the price of the security sold short increases between the time of
the short sale and the time the Fund replaces the borrowed security, the Fund
will incur a loss; conversely, if the price declines, the Fund will realize a
capital gain. Any gain is limited to the price at which it sold the security
short, its potential loss is theoretically unlimited.
Yields and Ratings. The yields on certain obligations, including the
money market instruments in which the Fund may invest (such as commercial
paper and bank obligations), are dependent on a variety of factors, including
general money market conditions, conditions in the particular market for the
obligation, the financial condition of the issuer, the size of the offering,
the maturity of the obligation and the ratings of the issue. The ratings of
S&P, Moody's, Duff & Phelps Credit Rating Co., Thomson Bank Watch, Inc., and
other nationally recognized statistical NRSROs represent their respective
opinions as to the quality of the obligations they undertake to rate.
Ratings, however, are general and are not absolute standards of quality.
Consequently, obligations with the same rating, maturity and interest rate
may have different market prices.
Other. Subsequent to its purchase by the Fund, a rated security may
cease to be rated or its rating may be reduced below the minimum rating
required for purchase by the Fund. The Board of Trustees or the Sub-Advisor,
pursuant to guidelines established by the Board, will consider such an event
in determining whether the Fund should continue to hold the security in
accordance with the interests of the Fund and applicable regulations of the
SEC.
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It is possible that unregistered securities purchased by the Fund in
reliance upon Rule 144A under the Securities Act of 1933, as amended, could
have the effect of increasing the level of the Fund's illiquidity to the
extent that qualified institutional buyers become, for a period, uninterested
in purchasing these securities.
INVESTMENT LIMITATIONS
The Fund is subject to the investment limitations enumerated in this
section which may be changed only by a vote of the holders of a majority of
the Fund's outstanding shares (as defined under "Miscellaneous - Shareholder
Approvals").
The Fund may not:
1. Purchase securities (except U.S. Government securities) if more than
5% of its total assets will be invested in the securities of any one
issuer, except that up to 25% of the assets of the Fund may be
invested without regard to this 5% limitation;
2. Invest 25% or more of its total assets in securities issued by one
or more issuers conducting their principal business activities in
the same industry (except that the Fund will invest more than 25% of
its total assets in securities of issuers conducting their principal
business activities in the financial services industry);
3. Borrow money or enter into reverse repurchase agreements except that
the Fund may (i) borrow money or enter into reverse repurchase
agreements for temporary purposes in amounts not exceeding 5% of its
total assets and (ii) borrow money for the purpose of meeting
redemption requests, in amounts (when aggregated with amounts
borrowed under clause (i)) not exceeding 33 1/3% of its total
assets;
4. Pledge, mortgage or hypothecate its assets other than to secure
borrowings permitted by restriction 3 above (collateral arrangements
with respect to margin requirements for options and futures
transactions are not deemed to be pledges or hypothecations for this
purpose);
5. Make loans of securities to other persons in excess of 25% of the
Fund's total assets; provided the Fund may invest without limitation
in short-term debt obligations (including repurchase agreements) and
publicly distributed debt obligations;
6. Underwrite securities of other issuers, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933, as
amended, in selling portfolio securities;
7. Purchase or sell real estate or any interest therein, including
interests in real estate limited partnerships, except securities
issued by companies (including real estate investment trusts) that
invest in real estate or interests therein;
8. Purchase securities on margin except for the use of short-term
credit necessary for the clearance of purchases and sales of
portfolio securities, but the Fund may make margin deposits in
connection with transactions in options, futures and options on
futures;
9. Make investments for the purpose of exercising control or
management;
10. Invest in commodities or commodity futures contracts, provided that
this limitation shall not prohibit the purchase or sale by the Fund
of forward foreign currency exchange
17
<PAGE>
contracts, financial futures contracts and options on financial
futures contracts, foreign currency contracts, and options on
securities, foreign currencies and securities indices, as permitted
by the Fund's Prospectuses; or
11. Issue senior securities, except as permitted by the 1940 Act.
Additional investment restrictions adopted by the Fund, which may be
changed by the Board of Trustees, provide that the Fund may not:
1. Invest more than 15% of its net assets in illiquid securities;
2. Own more than 10% (taken at market value at the time of purchase) of
the outstanding voting securities of any single issuer; or
3. Invest in other investment companies except as permitted under the
1940 Act.
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
the Fund's investments will not constitute a violation of such limitation,
except that any borrowing by the Fund that exceeds the fundamental investment
limitations stated above must be reduced to meet such limitations within the
period required by the 1940 Act (currently three days). Otherwise, the Fund may
continue to hold a security even though it causes the Fund to exceed a
percentage limitation because of fluctuation in the value of the Fund's assets.
TRUSTEES AND OFFICERS
The trustees and executive officers of Framlington, and their business
addresses and principal occupations during the past five years, are:
Principal Occupation
Name, Address and Age Position with Framlington During Past Five Years
- --------------------- ------------------------- ----------------------
Charles W. Elliott Chairman of the Board of Senior Advisor to the
1024 Essex Circle Trustees President - Western
Kalamazoo, MI 49008 Michigan University
Age: 65 since July 1995;
Executive Vice President -
Administration & Chief
Financial Officer, Kellogg
Company from January 1987
through June 1995; before
that Price Waterhouse.
Board of Directors,
Steelcase Financial
Corporation.
John Rakolta, Jr. Trustee and Vice Chairman Chairman and Chief
1876 Rathmor of the Board of Trustees Executive Officer,
Bloomfield Hills, MI 48304 Walbridge Aldinger
Age: 50 Company (construction
company).
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Principal Occupation
Name, Address and Age Position with Framlington During Past Five Years
- --------------------- ------------------------- ----------------------
Thomas B. Bender Trustee Investment Advisor,
7 Wood Ridge Road Financial & Investment
Glen Arbor, MI 49636 Management Group (since
Age: 64 April, 1991); Vice
President Institutional
Sales, Kidder, Peabody &
Co. (Retired April,
1991); Trustee, Vining
Real Estate Investment
Trust.
David J. Brophy Trustee Professor, University of
1025 Martin Place Michigan; Director,
Ann Arbor, MI 48104 River Place Financial
Age: 61 Corp.
Dr. Joseph E. Champagne Trustee Dean, University Center,
319 East Snell Road Macomb College since
Rochester, MI 48306 September 1997;
Age: 59 Corporate and Executive
Consultant since September
1995; prior to that
Chancellor, Lamar
University from September
1994 until September 1995;
before that Consultant to
Management; President and
Chief Executive Officer,
Crittenton Corporation
(holding company that owns
healthcare facilities) and
Crittenton Development
Corporation until August
1993; before that
President Oakland
University of Rochester,
MI, until August 1991;
Chairman, Board of
Directors, Ross Controls
of Troy, MI.
Thomas D. Eckert Trustee President and Chief
10726 Falls Pointe Drive Executive Officer,
Great Falls, VA 22066 Capital Automotive REIT
Age: 50 from November 1997 to
present (real estate
investment trust
specializing in retail
automotive properties);
prior to that President
and COO, Mid-Atlantic
Group of Pulte Home
Corporation (developer of
residential land and
construction of housing
units) from 1983 until
1997.
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<PAGE>
Principal Occupation
Name, Address and Age Position with Framlington During Past Five Years
- --------------------- ------------------------- ----------------------
Lee P. Munder* Trustee and President Chairman of the Advisor
480 Pierce Street since February 1998;
Suite 300 Chief Executive Officer
Birmingham, MI 48009 of World Asset
Age: 52 Management since January
1995; Chief Executive
Officer of Old MCM
(predecessor of Advisor)
since 1985; and
Director, LPM Investment
Services, Inc. ("LPM").
Terry H. Gardner Vice President, Chief Vice President and Chief
480 Pierce Street Financial Officer and Financial Officer of the
Suite 300 Treasurer Advisor, and Chief
Birmingham, MI 48009 Financial Officer of Old
Age: 37 MCM (February 1993 to
present); Secretary of
LPM.
Paul Tobias Vice President Chief Executive Officer
480 Pierce Street of the Advisor (since
Birmingham, MI 48009 February 1998); Chief
Suite 300 Operating Officer of the
Age: 45 Advisor; Executive Vice
President (April
1995-February 1998); and
Executive Vice President
of Comerica, Inc.
Gerald Seizert Vice President Chief Executive Officer
480 Pierce Street of the Advisor (since
Suite 300 February 1998); Chief
Birmingham, MI 48009 Investment
Age: 45 Officer/Equities of the
Advisor; Executive Vice
President (April
1995-February 1998);
Managing Director
(1991-1995), Director
(1992-1995) and Vice
President (1984-1991) of
Loomis, Sayles and
Company, L.P.
Elyse G. Essick Vice President Vice President and
480 Pierce Street Director of Marketing
Suite 300 for the Advisor; Vice
Birmingham, MI 48009 President and Director
Age: 40 of Client Services of
Old MCM(August 1988 to
December 1994).
James C. Robinson Vice President Vice President and Chief
480 Pierce Street Investment Officer/Fixed
Suite 300 Income for the Advisor;
Birmingham, MI 48009 Vice President and
Age: 35 Director of Fixed Income
of Old MCM (1987-1994).
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<PAGE>
Principal Occupation
Name, Address and Age Position with Framlington During Past Five Years
- --------------------- ------------------------- ----------------------
Leonard J. Barr, II Vice President Vice President and
480 Pierce Street Director of Core Equity
Suite 300 Research of the Advisor;
Birmingham, MI 48009 Director and Senior Vice
Age: 52 President of Old MCM
(since 1988); Director
of LPM.
Lisa A. Rosen Secretary, Assistant General Counsel of the
480 Pierce Street Treasurer Advisor (since May
Suite 300 1996); formerly Counsel,
Birmingham, MI 48009 First Data Investor
Age: 30 Services Group, Inc.;
Assistant Vice President
and Counsel with The
Boston Company Advisors,
Inc.; Associate with
Hutchins, Wheeler &
Dittmar.
Ann F. Putallaz Vice President Vice President and
480 Pierce Street Director of Fiduciary
Suite 300 Services of the Advisor
Birmingham, MI 48009 (since January 1995);
Age: 51 Director of Client and
Marketing Services of
Woodbridge.
Therese Hogan Assistant Secretary Director, State
53 State Street Regulation Department,
Boston, MA 02109 First Data Investor
Age: 36 Services Group (June
1994-present); formerly
Senior Legal Assistant,
Palmer & Dodge (October
1993-June 1994); Blue Sky
Paralegal, Robinson & Cole
(February 1984-October
1993).
* "Interested Person" of Framlington, as defined in the 1940 Act.
Trustees of Framlington and The Munder Funds Trust (the "Trust") and the
Directors of the Munder Funds, Inc. (the "Company") and St. Clair Funds, Inc.
("St. Clair") receive an aggregate fee from the Company, the Trust, Framlington
and St. Clair for services on those organizations' respective Boards comprised
of an annual retainer fee of $30,000 and a fee of $2,500 for each Board meeting
attended, and are reimbursed for all out-of-pocket expenses relating to
attendance at meetings.
The following table summarizes the compensation paid by Framlington, the
Trust, the Company and St. Clair, to their respective Trustees/Directors for the
year ended June 30, 1997.
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<PAGE>
Aggregate Pension
Compensation Retirement
from the Benefits Estimated
Company, the Accrued Annual
Name of Trust, St. as Part of Benefits Total from
Person Clair and Fund upon the Fund
and Position Framlington Expenses Retirement Complex
------------ ----------- -------- ---------- -------
Charles W. Elliott $20,000 None None $20,000
Chairman
John Rakolta, Jr. $18,500 None None $18,500
Vice Chairman
Thomas B. Bender $20,000 None None $20,000
Trustee and Director
David J. Brophy $20,000 None None $20,000
Trustee and Director
Dr. Joseph E. Champagne $20,000 None None $20,000
Trustee and Director
Thomas D. Eckert $20,000 None None $20,000
Trustee and Director
No officer, Trustee or employee of the Advisor, Comerica Incorporated
("Comerica"), the Sub-Custodian, the Distributor, the Administrator or the
Transfer Agent currently receives any compensation from the Company, the Trust,
St. Clair or Framlington. As of March 20, 1998, the Trustees and Officers of
Framlington, as a group, owned less than 1% of outstanding shares of the Fund.
Shareholder and Trustee Liability. Under Massachusetts law,
shareholders of a business trust may, under certain circumstances, be held
personally liable as partners for the obligations of the trust. However,
Framlington's Declaration of Trust, as amended, provides that shareholders
shall not be subject to any personal liability in connection with the assets
of the Framlington for the acts or obligations of the Framlington, and that
every note, bond, contract, order or other undertaking made by the
Framlington shall contain a provision to the effect that the shareholders are
not personally liable thereunder. The Declaration of Trust, as amended,
provides for indemnification out of the trust property of any shareholder
held personally liable solely by reason of his or her being or having been a
shareholder and not because of his or her acts or omissions or some other
reason. The Declaration of Trust, as amended, also provides that Framlington
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Framlington, and shall satisfy
any judgment thereon. Thus, the risk of a shareholder's incurring financial
loss on account of shareholder liability is limited to circumstances in which
Framlington itself would be unable to meet its obligations.
The Declaration of Trust, as amended, further provides that all persons
having any claim against the Trustees, of Framlington shall look solely to
the trust property for payment; that no Trustee of Framlington shall be
personally liable for or on account of any contract, debt, tort, claim,
damage, judgment or decree arising out of or connected with the
administration or preservation of the trust property or the conduct of any
business of Framlington; and that no Trustee shall be personally liable to
any person for any action or failure to act except by reason of his own bad
faith, willful misfeasance,
22
<PAGE>
gross negligence or reckless disregard of his duties as a trustee. With the
exception stated, the Declaration of Trust, as amended, provides that a
Trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of
any proceeding in which he may be involved or with which he may be threatened
by reason of being or having been a Trustee, and that the Trustees will
indemnify officers, representatives and employees of Framlington to the same
extent that Trustees are entitled to indemnification.
INVESTMENT ADVISORY AND OTHER SERVICE ARRANGEMENTS
Investment Advisor. The Advisor of the Fund is Munder Capital
Management, a Delaware general partnership. The general partners of the
Advisor are WAM, Old MCM, and Munder Group, LLC. WAM is a wholly-owned
subsidiary of Comerica Bank --Ann Arbor, which, in turn is a wholly-owned
subsidiary of Comerica Incorporated, a publicly-held bank holding company.
The Investment Advisory Agreement between the Advisor and Framlington
with respect to the Fund (the "Advisory Agreement") was approved by
Framlington's Board of Trustee's on February 24, 1998 and by shareholders on
June 5, 1998. Under the terms of the Advisory Agreement, the Advisor
furnishes continuing investment supervision to the Fund.
For the advisory services provided and expenses assumed with regard to
the Fund, the Advisor has agreed to a fee from the Fund, computed daily and
payable monthly, at an annual rate of 0.75% of the average daily net assets
of the Fund.
The Advisory Agreement will continue in effect for a period of two
years from its effective date. If not sooner terminated, the Advisory
Agreement will continue in effect for successive one year periods thereafter,
provided that each continuance is specifically approved annually by (a) the
vote of a majority of the Board of Trustees who are not parties to the
Advisory Agreement or interested persons (as defined in the 1940 Act), cast
in person at a meeting called for the purpose of voting on approval, and (b)
either (i) the vote of a majority of the outstanding voting securities of the
Fund, or (ii) the vote of a majority of the Board of Trustees. The Advisory
Agreement is terminable by vote of the Board of Trustees, or by the holders
of a majority of the outstanding voting securities of the Fund, at any time
without penalty, upon 60 days' written notice to the Advisor. The Advisor may
also terminate its advisory relationship with the Fund without penalty upon
90 days' written notice to Framlington. The Advisory Agreement terminates
automatically in the event of its assignment (as defined in the 1940 Act).
The Sub-Advisor is a subsidiary of Framlington Group Limited, which is
incorporated in England and Wales and, through its subsidiaries, provides a
wide range of investment services. Framlington Group Limited is a wholly
owned subsidiary of Framlington Holdings Limited which is, in turn, owned 49%
by the Advisor and 51% by Credit Commercial de France S.A., a French banking
corporation listed on the Societe des Bourses Francaises.
Under the terms of the sub-advisory agreement with the Sub-Advisor, the
Sub-Advisor provides sub-advisory services to the Fund. Subject to
supervision of the Advisor, the Sub-Advisor is responsible for the management
of the Fund's portfolio, including all decisions regarding purchases and
sales of portfolio securities by the Fund. The Sub-Advisor is also
responsible for arranging the execution of all portfolio management
decisions, including the selection of brokers to execute trades and the
negotiation of brokerage commissions in connection therewith.
Framlington's Sub-Advisory Agreement, with respect to the Fund, will
continue in effect with respect to the Fund for a period of two years from
its effective date. If not sooner terminated, the Sub-Advisory Agreement will
continue in effect for successive one year periods thereafter, provided that
each continuance is specifically approved annually by (a) the vote of a
majority of the Board of Trustees who
23
<PAGE>
are not parties to the Sub-Advisory Agreement or interested persons (as
defined in the 1940 Act), cast in person at a meeting called for the purpose
of voting on approval, and (b) either (i) with respect to the Fund, the vote
of a majority of the outstanding voting securities of the Fund, or (ii) the
vote of a majority of the Board of Trustees. The Sub-Advisory Agreement is
terminable by vote of the Board of Trustees, or, with respect to the Fund, by
the holders of a majority of the outstanding voting securities of the Fund,
at any time without penalty, on 60 days' written notice to the Sub-Advisor,
or by the Advisor on 90 days' written notice to the Sub-Advisor. The
Sub-Advisor may also terminate its sub-advisory relationship with the Fund
without penalty on 90 days' written notice to Framlington. The Sub-Advisory
Agreement terminates automatically in the event of its assignment (as defined
in the 1940 Act).
For its services, the Advisor pays the Sub-Advisor a monthly fee equal
on an annual basis of 0.375% of average daily net assets.
Distribution Agreement. Framlington has entered into a distribution
agreement, under which the Distributor, as agent, sells shares of the Fund on
a continuous basis. The Distributor has agreed to use appropriate efforts to
solicit orders for the purchase of shares of the Fund although it is not
obligated to sell any particular amount of shares. The Distributor pays the
cost of printing and distributing prospectuses to persons who are not holders
of fund shares (excluding preparation and printing expenses necessary for the
continued registration of the shares) and of printing and distributing all
sales literature. The Distributor's principal offices are located at 60 State
Street, Suite 1300, Boston, Massachusetts 02109.
Distribution Services Arrangements - Class A, Class B and Class C
Shares. The Fund has adopted a Service and Distribution Plan with respect to
its Class A Shares pursuant to which it uses its assets to finance activities
relating to the provision of certain shareholder services. Under the Service
and Distribution Plan for Class A Shares, the Distributor is paid an annual
service fee at the rate of up to 0.25% of the value of average daily net
assets of the Class A Shares of the Fund. The Fund has also adopted a Service
and Distribution Plan with respect to its Class B and Class C Shares,
pursuant to which it uses its assets to finance activities relating to the
distribution of its shares to investors and provision of certain shareholder
services. Under the Service and Distribution Plans for Class B and Class C
Shares, the Distributor is paid an annual service fee of up to 0.25% of the
value of average daily net assets of the Class B and Class C Shares of the
Fund and an annual distribution fee at the rate of up to 0.75% of the value
of average daily net assets of the Class B and Class C Shares of the Fund.
Under the terms of the Service and Distribution Plans (collectively,
the "Plans"), each Plan continues from year to year, provided such
continuance is approved annually by vote of the Board of Trustees, including
a majority of the Board of Trustees who are not interested persons of
Framlington, and who have no direct or indirect financial interest in the
operation of that Plan (the "Non-Interested Plan Trustees"). The Plans may
not be amended to increase the amount to be spent for the services provided
by the Distributor without shareholder approval, and all amendments of the
Plans also must be approved by the Trustees in the manner described above.
Each Plan may be terminated at any time, without penalty, by vote of a
majority of the Non-Interested Plan Trustees or by a vote of a majority of
the outstanding voting securities of the relevant class of the Fund (as
defined in the 1940 Act) on not more than 30 days' written notice to any
other party to the Plan. Pursuant to each Plan, the Distributor will provide
the Board of Trustees periodic reports of amounts expended under the Plan and
the purpose for which such expenditures were made.
The Trustees have determined that the Plans will benefit Framlington
and its shareholders by (i) providing an incentive for broker or bank
personnel to provide continuous shareholder servicing after the time of sale;
(ii) retention of existing accounts; (iii) facilitating portfolio management
flexibility through continued cash flow into the Fund; and (iv) maintaining a
competitive sales structure in the mutual fund industry.
24
<PAGE>
With respect to Class B and Class C Shares of the Fund, the Distributor
expects to pay sales commissions to dealers authorized to sell the Fund's Class
B and Class C Shares at the time of sale. The Distributor will use its own funds
(which may be borrowed) to pay such commissions pending reimbursement by the
relevant Service and Distribution Plan. In addition, the Advisor may use its own
resources to make payments to the Distributor or dealers authorized to sell the
Funds shares to support their sales efforts.
Shareholder Servicing Arrangements - Class K Shares. As stated in the
Fund's Prospectus for Class K Shares, Class K Shares are sold to investors
through institutions which enter into Shareholder Servicing Agreements with
Framlington to provide support services to their Customers who beneficially own
Class K Shares in consideration of the Fund's payment of not more than .25% (on
an annualized basis) of the average daily net asset value of the Class K Shares
beneficially owned by the Customers.
Services provided by institutions under their service agreements may
include: (i) aggregating and processing purchase and redemption requests for
Class K Shares from Customers and placing net purchase and redemption orders
with the Distributor; (ii) providing Customers with a service that invests the
assets of their accounts in Class K Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend payments on behalf of
Customers; (iv) providing information periodically to Customers showing their
positions in Class K Shares; (v) arranging for bank wires; (vi) responding to
Customer inquiries relating to the services performed by the institutions; (vii)
providing subaccounting with respect to Class K Shares beneficially owned by
Customers or the information necessary for subaccounting; (viii) if required by
law, forwarding shareholder communications from Framlington (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; (ix) forwarding to Customers proxy
statements and proxies containing any proposals regarding Framlington's
arrangements with institutions; and (x) providing such other similar services as
Framlington may reasonably request to the extent the institutions are permitted
to do so under applicable statutes, rules and regulations.
Pursuant to Framlington's agreements with such institutions, the Board of
Trustees will review, at least quarterly, a written report of the amounts
expended under Framlington's agreements with Institutions and the purposes for
which the expenditures were made. In addition, the arrangements with
Institutions must be approved annually by a majority of the Board of Trustees,
including a majority of the Trustees who are not "interested persons" as defined
in the 1940 Act, and have no direct or indirect financial interest in such
arrangements.
The Board of Trustees have approved the arrangements with Institutions
based on information provided by the service contractors that there is a
reasonable likelihood that the arrangements will benefit the Fund and their
shareholders by affording the Fund greater flexibility in connection with the
servicing of the accounts of the beneficial owners of its shares in an efficient
manner.
Administration Agreement. State Street Bank and Trust Company ("State
Street") located at 225 Franklin Street, Boston, Massachusetts 02110, serves as
administrator for Framlington pursuant to an administration agreement (the
"Administration Agreement"). State Street has agreed to maintain office
facilities for Framlington; oversee the computation of each Fund's net asset
value, net income and realized capital gains, if any; furnish statistical and
research data, clerical services, and stationery and office supplies; prepare
and file various reports with the appropriate regulatory agencies; and prepare
various materials required by the SEC or any state securities commission having
jurisdiction over Framlington. State Street may enter into an agreement with one
or more third parties pursuant to which such third parties will provide
administrative services on behalf of the Funds.
25
<PAGE>
The Administration Agreement provides that the Administrator performing
services thereunder shall not be liable under the Agreement except for its
willful misfeasance, bad faith or negligence in the performance of its duties or
from the reckless disregard by it of its duties and obligations thereunder.
Custodian, Sub-Custodian and Transfer Agency Agreements. Comerica Bank,
whose principal business address is One Detroit Center, 500 Woodward Avenue,
Detroit, MI 48226, is the custodian of the Fund pursuant to a custodian
agreement ("Custody Agreement") with Framlington. The Custodian receives no
compensation for such services. State Street serves as the sub-custodian to the
Fund pursuant to a sub-custodian agreement (the "Sub-Custodian Contract") among
Framlington, Comerica Bank and State Street. State Street is also the
Sub-Custodian with respect to the custody of foreign securities held by the
Fund. State Street has in turn entered into additional agreements with financial
institutions and depositories located in foreign countries with respect to the
custody of such securities. Under the Sub-Custodian Contract, the Sub-Custodian
(i) maintains a separate account in the name of the Fund, (ii) holds and
transfers portfolio securities on account of the Fund, (iii) accepts receipts
and makes disbursements of money on behalf of the Fund, (iv) collects and
receives all income and other payments and distributions on account of the
Fund's securities and (v) makes periodic reports to the Board of Trustees
concerning the Fund's operations.
First Data Investor Services Group, Inc. ("Investor Services Group")
serves as the transfer and dividend disbursing agent for the Fund pursuant to a
transfer agency agreement (the "Transfer Agency Agreement") with Framlington,
under which Investor Services Group (i) issues and redeems shares of the Fund,
(ii) addresses and mails all communications by the Fund to its record owners,
including reports to shareholders, dividend and distribution notices and proxy
materials for its meetings of shareholders, (iii) maintains shareholder
accounts, (iv) responds to correspondence by shareholders of the Fund and (v)
makes periodic reports to the Board of Trustees concerning the operations of the
Fund.
Other Information Pertaining to Administration, Transfer Agency and
Sub-Custodian Agreements. As stated in the Prospectuses, the Administrator, the
Transfer Agent and the Sub-Custodian each receives a separate fee for its
services. In approving the Administration Agreement, the Sub-Custodian Contract
and the Transfer Agency Agreement, the Board of Trustees did consider the
services that are to be provided under their respective agreements, the
experience and qualifications of the respective service contractors, the
reasonableness of the fees payable by Framlington in comparison to the charges
of competing vendors, the impact of the fees on the estimated total ordinary
operating expense ratio of the Fund and the fact that neither the Administrator,
the Sub-Custodian nor the Transfer Agent is affiliated with Framlington or the
Advisor. The Board also considered its responsibilities under federal and state
law in approving these agreements.
Comerica. As stated in the Fund's Class K Shares Prospectus, Class K
Shares of the Fund are sold to customers of banks and other institutions. Such
banks and institutions may include Comerica Incorporated (a publicly-held bank
holding company), its affiliates and subsidiaries ("Comerica") and other
institutions that have entered into agreements with Framlington providing for
shareholder services for their customers.
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 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 prohibit banks generally
from underwriting securities, but such banking laws and regulations do not
prohibit such a holding company or affiliate or banks generally from acting as
investment advisor, administrator, 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 Advisor and the Custodian are subject to such
banking laws and regulations.
26
<PAGE>
The Advisor and the Custodian believe they may perform the services for
Framlington contemplated by its respective agreements with Framlington without
violation of applicable banking laws and regulations. It should be noted,
however, that there have been no cases deciding whether bank and non-bank
subsidiaries of a registered bank holding company may perform services
comparable to those that are to be performed by these companies, and future
changes in either Federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well as
future judicial or administrative decisions or interpretations of current and
future statutes and regulations, could prevent these companies from continuing
to perform certain services for the Fund.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of such companies in connection with the provision of
services on behalf Framlington, Framlington might be required to alter
materially or discontinue the arrangements with the institutions and change the
method of operations. It is not anticipated, however, that any change in the
Fund's method of operations would affect the net asset value per share of the
Fund or result in a financial loss to any shareholder of the Fund.
It should be noted that future changes in either Federal or state statutes
and regulations relating to permissible activities of banks and their
subsidiaries or affiliates, as well as future judicial or administrative
decisions or interpretations of current and future statutes and regulations,
could prevent Comerica and certain other institutions from continuing to perform
certain services for Class K shares of the Fund.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of Comerica and/or other institutions in connection with
the provision of services on behalf of Class K shares of the Fund, Framlington
might be required to alter materially or discontinue the arrangements with the
institutions and change the method of operations with respect to Comerica and
certain other institutions. It is not anticipated, however, that any change in
the Fund's method of operations would affect the net asset value per share of
the Fund or result in a financial loss to any holder of Class K shares of the
Fund.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Board of Trustees, the
Sub-Advisor makes decisions with respect to and places orders for all purchases
and sales of portfolio securities for the Fund.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. Transactions on foreign
stock exchanges involve payment for brokerage commissions which are generally
fixed.
Over-the-Counter issues, including corporate debt and government
securities, are normally traded on a "net" basis (i.e., without commission)
through dealers, or otherwise involve transactions directly with the issuer of
an instrument. With respect to over-the-counter transactions, the Sub-Advisor
will normally deal directly with dealers who make a market in the instruments
involved except in those circumstances where more favorable prices and execution
are available elsewhere. The cost of foreign and domestic securities purchased
from underwriters includes an underwriting commission or concession, and the
prices at which securities are purchased from and sold to dealers include a
dealer's mark-up or mark-down.
The Fund may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to
27
<PAGE>
members of a bidding group. The Fund will engage in this practice, however, only
when the Sub-Advisor believes such practice to be in the Fund's interests.
The portfolio turnover rate of the Fund is calculated by dividing the
lesser of the Fund's annual sales or purchases of portfolio securities
(exclusive of purchase or sales of securities whose maturities at the time of
acquisition were one year or less) by the monthly average value of the
securities held by the Fund during the year. The Fund may engage in short-term
trading to achieve its investment objective. Portfolio turnover may vary greatly
from year to year as well as within a particular year.
In the Sub-Advisory Agreement, the Sub-Advisor agrees to select
broker-dealers in accordance with guidelines established by the Board of
Trustees from time to time and in accordance with applicable law. In assessing
the terms available for any transaction, the Sub-Advisor shall consider all
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker-dealer, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. In addition, the
Sub-Advisory Agreement authorizes the Sub-Advisor, subject to the prior approval
of the Board of Trustees, to cause the Fund to pay a broker-dealer which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker-dealer for effecting the same transaction,
provided that the Sub-Advisor determines in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either the particular
transaction or the overall responsibilities of the Sub-Advisor to the Fund. Such
brokerage and research services might consist of reports and statistics on
specific companies or industries, general summaries of groups of bonds and their
comparative earnings and yields, or broad overviews of the securities markets
and the economy.
Supplementary research information so received is in addition to, and not
in lieu of, services required to be performed by the Sub-Advisor and does not
reduce the advisory fees payable to the Sub-Advisor. It is possible that certain
of the supplementary research or other services received will primarily benefit
one or more other investment companies or other accounts for which investment
discretion is exercised. Conversely, the Fund may be the primary beneficiary of
the research or services received as a result of portfolio transactions effected
for such other account or investment company.
Portfolio securities will not be purchased from or sold to the Advisor,
Sub-Adviser or Distributor or any affiliated person (as defined in the 1940 Act)
of the foregoing entities except to the extent permitted by SEC exemptive order
or by applicable law.
Investment decisions for the Fund and for other investment accounts
managed by the Sub-Advisor are made independently of each other in the light of
differing conditions. However, the same investment decision may be made for two
or more of such accounts. In such cases, simultaneous transactions are
inevitable. Purchases or sales are then averaged as to price and allocated as to
amount in a manner deemed equitable to each such account. While in some cases
this practice could have a detrimental effect on the price or value of the
security as far as the Fund is concerned, in other cases it is believed to be
beneficial to the Fund. To the extent permitted by law, the Advisor may
aggregate the securities to be sold or purchased for the Fund with those to be
sold or purchased for other investment companies or accounts in executing
transactions.
The Fund will not purchase securities during the existence of any
underwriting or selling group relating to such securities of which the Advisor,
Sub-Adviser or any affiliated person (as defined in the 1940 Act) thereof is a
member except pursuant to procedures adopted by Framlington's Board of Trustees
in accordance with Rule 10f-3 under the 1940 Act.
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Except as noted in the Prospectuses and this Statement of Additional
Information the Fund's service contractors bear all expenses in connection with
the performance of their services and the Fund bears the expenses incurred in
its operations. These expenses include, but are not limited to, fees paid to the
Advisor, Administrator, Sub-Custodian and Transfer Agent; fees and expenses of
officers and Trustees; taxes; interest; legal and auditing fees; brokerage fees
and commissions; certain fees and expenses in registering and qualifying the
Fund and its shares for distribution under Federal and state securities laws;
expenses of preparing prospectuses and statements of additional information and
of printing and distributing prospectuses and statements of additional
information to existing shareholders; the expense of reports to shareholders,
shareholders' meetings and proxy solicitations; fidelity bond and directors' and
officers' liability insurance premiums; the expense of using independent pricing
services; and other expenses which are not assumed by the Administrator. Any
general expenses of Framlington that are not readily identifiable as belonging
to a particular investment portfolio of Framlington are allocated among all
investment portfolios of the Framlington by or under the direction of the Board
of Trustees in a manner that the Board of Trustees determines to be fair and
equitable, taking into consideration whether it is appropriate for expenses to
be borne by the Fund in addition to Framlington's other funds. The Advisor,
Administrator, Sub-Custodian and Transfer Agent may voluntarily waive all or a
portion of their respective fees from time to time.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchases and redemptions are discussed in the Fund's prospectuses and
such information is incorporated herein by reference.
Purchases. As described in the Prospectuses, shares of the Fund may be
purchased in a number of different ways. Such alternative sales arrangements
permit an investor to choose the method of purchasing shares that is more
beneficial depending on the amount of the purchase, the length of time the
investor expects to hold shares and other relevant circumstances. An investor
may place orders directly through the Transfer Agent or the Distributor or
through arrangements with his/her authorized broker.
Retirement Plans. Shares of the Fund may be purchased in connection with
various types of tax deferred retirement plans, including individual retirement
accounts ("IRAs"), qualified plans, deferred compensation for public schools and
charitable organizations (403(b) plans) and simplified employee pension IRAs. An
individual or organization considering the establishment of a retirement plan
should consult with an attorney and/or an accountant with respect to the terms
and tax aspects of the plan. A $10.00 annual custodial fee is also charged on
IRAs. This custodial fee is due by December 15 of each year and may be paid by
check or shares liquidated from a shareholder's account.
Redemptions. As described in the Fund's Prospectuses, shares of the Fund
may be redeemed in a number of different ways:
- By Mail
- By Telephone
- Automatic Withdrawal Plan
The redemption price for Fund shares is the net asset value next determined
after receipt of the redemption request in proper order. The redemption proceeds
will be reduced by the amount of any applicable contingent deferred sales charge
("CDSC").
Contingent Deferred Sales Charge - Class B Shares. Class B Shares redeemed
within six years of purchase are subject to a CDSC. The CDSC is based on the
original net asset value at the time of investment or the net asset value at the
time of redemption, whichever is lower.
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The CDSC Schedule for Class B Shares of the Trust Funds purchased before
June 27, 1995 is set forth below. The Prospectuses describe the CDSC Schedule
for Class B Shares of Funds of the Trust, the Company and Framlington purchased
after June 27, 1995.
Class B Shares of the Trust Funds
Purchased on or before June 27, 1995
Redemption During CDSC
- ----------------- ----
1st Year Since Purchase......................................4.00%
2nd Year Since Purchase......................................4.00%
3rd Year Since Purchase......................................3.00%
4th Year Since Purchase......................................3.00%
5th Year Since Purchase......................................2.00%
6th Year Since Purchase......................................1.00%
CDSC Waivers - Class B Shares of the Trust Funds Purchased on or before
June 27, 1995. The CDSC will be waived with respect to Class B Shares of the
Trust Funds purchased on or before June 27, 1995 in the following circumstances:
(1) total or partial redemptions made within one year following the
death or disability of a shareholder or registered joint owner;
(2) minimum required distributions made in connection with an IRA or
other retirement plan following attainment of age 59 1/2; and
(3) redemptions pursuant to a Fund's right to liquidate a shareholder's
account involuntarily.
CDSC Waivers - Class B Shares of the Company Purchased on or before June
27, 1995. The CDSC will be waived on the following types of redemptions with
respect to Class B Shares of Company Funds purchased on or before June 27, 1995:
(1) redemptions by investors who have invested a lump sum amount of $1
million or more in the Fund;
(2) redemptions by the officers, Trustees, and employees of the Advisor
or the Distributor and such persons' immediate families;
(3) dealers or brokers who have a sales agreement with the Distributor,
for their own accounts, or for retirement plans for their employees
or sold to registered representatives or full time employees (and
their families) that certify to the Distributor at the time of
purchase that such purchase is for their own account (or for the
benefit of their families);
(4) involuntary redemptions effected pursuant to the Fund's right to
liquidate shareholder accounts having an aggregate net asset value
of less than $500; and
(5) redemptions the proceeds of which are reinvested in the Fund within
90 days of the redemption.
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Contingent Deferred Sales Charge - Class A and Class C Shares. The
Prospectuses describe the CDSC for Class A or C Shares of the Funds of the
Trust, the Company and Framlington purchased after June 27, 1995.
Class A Shares of the Trust Funds purchased on or before June 27, 1995
without a sales charge by reason of a purchase of $500,000 or more are subject
to a CDSC of 1.00% of the lower of the original purchase price or the net asset
value at the time of redemption if such shares are redeemed within two years of
the date of purchase. Class A Shares of the Trust Funds purchased on or before
June 27, 1995 that are redeemed will not be subject to the CDSC to the extent
that the value of such shares represents: (1) reinvestment of dividends or other
distributions; (2) Class A Shares redeemed more than two years after their
purchase; (3) a minimum required distribution made in connection with IRA or
other retirement plans following attainment of age 59 1/2; or (4) total or
partial redemptions made within one year following the death or disability of a
shareholder or registered joint owner.
No CDSC is imposed to the extent that the current market value of the
shares redeemed does not exceed (a) the current net asset value of shares
purchased through reinvestment of dividends or capital gain distributions plus
(b) the current net asset value of shares purchased more than one year prior to
the redemption, plus (c) increases in the net asset value of the shareholder's
shares above the purchase payments made during the preceding one year.
The holding period of Class A or Class C Shares of a Fund acquired through
an exchange of the corresponding class of shares of the Munder Money Market Fund
(which are available only by exchange of Class A or Class C Shares of the Fund,
as the case may be) and the Company Funds and the non-money market funds of the
Trust will be calculated from the date that the Class A or Class C Shares of the
Fund were initially purchased.
In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing all
Class A Shares on which a front-end sales charge has been assessed; then of
shares acquired pursuant to the reinvestment of dividends and distributions; and
then of amounts representing the cost of shares purchased one year or more prior
to the redemption.
Other Information. Redemption proceeds are normally paid in cash; however,
the Fund may pay the redemption price in whole or part by a distribution in kind
of securities from the portfolio of the Fund, in lieu of cash, in conformity
with applicable rules of the SEC. If shares are redeemed in kind, the redeeming
shareholder might incur transaction costs in converting the assets into cash.
The Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of its net assets during any 90-day period for any one
shareholder.
The Fund reserve the right to suspend or postpone redemptions during any
period when: (i) trading on the New York Stock Exchange (the "Stock Exchange")
is restricted by applicable rules and regulations of the SEC; (ii) the Stock
Exchange is closed for other than customary weekend and holiday closings; (iii)
the SEC has by order permitted such suspension or postponement for the
protection of the shareholders; or (iv) an emergency exists as determined by the
SEC making disposal of portfolio securities or valuation of net assets of the
Fund not reasonably practicable.
The Fund may involuntarily redeem an investor's shares if the net asset
value of such shares is less than $500; provided that involuntary redemptions
will not result from fluctuations in the value of an investor's shares. A notice
of redemption, sent by first-class mail to the investor's address of record,
will fix a date not less than 30 days after the mailing date, and shares will be
redeemed at the net asset value at the close of business on that date unless
sufficient additional shares are purchased to bring the
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aggregate account value up to $500 or more. A check for the redemption proceeds
payable to the investor will be mailed to the investor at the address of record.
Exchanges. In addition to the method of exchanging shares described in the
Fund's Prospectuses, a shareholder exchanging at least $1,000 of shares (for
which certificates have not been issued) and who has authorized expedited
exchanges on the application form filed with the Transfer Agent may exchange
shares by telephoning the Fund at (800) 438-5789. Telephone exchange
instructions must be received by the Transfer Agent by 4:00 p.m., Eastern time.
The Fund, the Distributor and the Transfer Agent reserve the right at any time
to suspend or terminate the expedited exchange procedure or to impose a fee for
this service. During periods of unusual economic or market changes, shareholders
may experience difficulties or delays in effecting telephone exchanges. Neither
the Funds nor the Transfer Agent will be responsible for any loss, damages,
expense or cost arising out of any telephone exchanges effected upon
instructions believed by them to be genuine. The Transfer Agent has instituted
procedures that it believes are reasonably designed to insure that exchange
instructions communicated by telephone are genuine, and could be liable for
losses caused by unauthorized or fraudulent instructions in the absence of such
procedures. The procedures currently include a recorded verification of the
shareholder's name, social security number and account number, followed by the
mailing of a statement confirming the transaction, which is sent to the address
of record.
NET ASSET VALUE
In determining the approximate market value of portfolio investments,
Framlington may employ outside organizations, which may use matrix or formula
methods that take into consideration market indices, matrices, yield curves and
other specific adjustments. This may result in the securities being valued at a
price different from the price that would have been determined had the matrix or
formula methods not been used. All cash, receivables and current payables are
carried on Framlington's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith under the supervision of the
Board Members.
In-Kind Purchases
Payment for shares may, in the discretion of the Advisor, be made in the
form of securities that are permissible investments for the Fund as described in
the Prospectuses. For further information about this form of payment please
contact the Transfer Agent. In connection with an in-kind securities payment,
the Fund will require, among other things, that the securities (a) meet the
investment objectives and policies of the Funds; (b) are acquired for investment
and not for resale; (c) are liquid securities that are not restricted as to
transfer either by law or liquidity of markets; (d) have a value that is readily
ascertainable by a listing on a nationally recognized securities exchange; and
(e) are valued on the day of purchase in accordance with the pricing methods
used by the Fund and that the Fund receive satisfactory assurances that (i) it
will have good and marketable title to the securities received by it; (ii) that
the securities are in proper form for transfer to the Fund; and (iii) adequate
information will be provided concerning the basis and other tax matters relating
to the securities.
PERFORMANCE INFORMATION
The Fund, in advertising its "average annual total return" computes its
return by determining the average annual compounded rate of return during
specified periods that equates the initial amount invested to the ending
redeemable value of such investment according to the following formula:
P (1 + T)^n = ERV
Where: T = average annual total return;
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ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5, or 10
year (or other) periods at the end of the
applicable period and of any CDSC deduction (or a
fractional portion thereof);
P = hypothetical initial payment of $1,000;
n = number of years and portion of a year
The Fund, in advertising its "aggregate total return" computes its return
by determining the aggregate compounded rates of return during specified periods
that likewise equate the initial amount invested to the ending redeemable value
of such investment. The formula for calculating aggregate total return is as
follows:
Aggregate Total Return = (ERV)/P - 1
The calculations are made assuming that (1) all dividends and capital gain
distributions are reinvested on the reinvestment dates at the price per share
existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all non-recurring charges at the end of the
measuring period. The Fund's average annual total return and load adjusted
aggregate total return quotations for Class A Shares will reflect the deduction
of the maximum sales charge charged in connection with the purchase of such
shares; and the Fund's load adjusted average annual total return and load
adjusted aggregate total return quotations for Class B Shares will reflect any
applicable CDSC; provided that the Fund may also advertise total return data
without reflecting any applicable CDSC sales charge imposed on the purchase of
Class A Shares or Class B Shares in accordance with the views of the SEC.
Quotations which do not reflect the sales charge will, of course, be higher than
quotations which do.
The performance of any investment is generally a function of portfolio
quality and maturity, type of investment and operating expenses.
From time to time, in advertisements or in reports to shareholders, the
Fund's total returns may be quoted and compared to those of other mutual funds
with similar investment objectives and to stock or other relevant indices.
TAXES
The following summarizes certain additional tax considerations generally
affecting the Fund and its shareholders that are not described in the Fund's
Prospectuses. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussion here and in the
Prospectuses is not intended as a substitute for careful tax planning. Potential
investors should consult their tax advisors with specific reference to their own
tax situations.
General. The Fund intends to elect and qualify annually to be taxed
separately as a regulated investment company under Subchapter M, of the Internal
Revenue Code of 1986, as amended (the "Code"). As a regulated investment
company, the Fund generally is exempt from Federal income tax on its net
investment income and realized capital gains which it distributes to its
shareholders, provided that
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it distributes an amount equal to the sum of (a) at least 90% of its investment
company taxable income (net investment income and the excess of net short-term
capital gain over net long-term capital loss), if any, for the year and (b) at
least 90% of its net tax-exempt interest income, if any, for the year (the
"Distribution Requirement") and satisfies certain other requirements of the Code
that are described below. Distributions of investment company taxable income and
net tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement.
In addition to satisfaction of the Distribution Requirement, the Fund must
derive with respect to a taxable year at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans and gains
from the sale or other disposition of stock or securities or foreign currencies,
or from other income derived with respect to its business of investing in such
stock, securities, or currencies (the "Income Requirement").
In addition to the foregoing requirements, at the close of each quarter of
its taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of its total assets in securities of such
issuer and as to which the Fund does not hold more than 10% of the outstanding
voting securities of such issuer) and no more than 25% of the value of the
Fund's total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses.
Certain debt instruments acquired by the Fund may include "original issue
discount" or "market discount". As a result, the Fund may be deemed under tax
law rules to have earned discount income in taxable periods in which it does not
actually receive any payments on the particular debt instruments involved. This
income, however, will be subject to the Distribution Requirements and must also
be distributed in accordance with the excise tax distribution rules discussed
below, which may cause the Fund to have to borrow or liquidate securities to
generate cash in order to timely meet these requirements (even though such
borrowing or liquidating securities at that time may be detrimental from the
standpoint of optimal portfolio management). Gain from the sale of a debt
instrument having market discount may be treated for tax purposes as ordinary
income to the extent that market discount accrued during the Fund's ownership of
that instrument.
Distributions of net investment income received by the Fund and any net
realized short-term capital gains distributed by the Fund will be taxable to
shareholders as ordinary income and will be eligible for the dividends received
deduction for corporations.
The Fund intends to distribute to shareholders any excess of net long-term
capital gain over net short-term capital loss ("net capital gain") for each
taxable year. Such gain is distributed as a capital gain dividend and is taxable
to shareholders as gain from the sale or exchange of a capital asset held for
more than one year, regardless of the length of time the shareholder has held
the Fund shares, and regardless of whether the distribution is paid in cash or
reinvested in shares. The Fund expects that capital gain dividends will be
taxable to shareholders as long-term gains. Capital gain dividends are not
eligible for the dividends received deduction.
In the case of corporate shareholders, distributions of the Fund for any
taxable year generally qualify for the dividends received deductions to the
extent of the gross amount of "qualifying dividends" received by such Fund for
the year and if certain holding period requirements are met. Generally, a
dividend will be treated as a "qualifying dividend" if it has been received from
a domestic corporation.
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If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders. In such
event, all distributions (whether or not derived from exempt-interest income)
would be taxable as ordinary income and would be eligible for the dividends
received deduction in the case of corporate shareholders to the extent of the
Fund's current and accumulated earnings and profits.
Shareholders will be advised annually as to the Federal income tax
consequences of distributions made by the Fund each year.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax. To
prevent imposition of the excise tax, the Fund must distribute during each
calendar year an amount equal to the sum of (1) at least 98% of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, (2) at least 98% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses, as prescribed by the Code) for the
one-year period ending on October 31 of the calendar year, and (3) any ordinary
income and capital gains for previous years that was not distributed during
those years. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December with a record date in such a month and paid by the Fund during January
of the following calendar year. Such distributions will be taxable to
shareholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received. To
prevent application of the excise tax, the Fund intends to make its
distributions in accordance with the calendar year distribution requirement.
Disposition of Shares. Upon the redemption, sale or exchange of shares of
the Fund, a shareholder may realize a capital gain or loss depending upon his or
her basis in the shares. Such gain or loss will be treated as capital gain or
loss if the shares are capital assets in the shareholder's hands and will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. Any loss realized on a redemption, sale or exchange will
be disallowed to the extent the shares disposed of are replaced (including
shares acquired pursuant to a dividend reinvestment plan) within a period of 61
days beginning 30 days before and ending 30 days after disposition of the
shares. In such a case, the basis of the shares acquired will be adjusted to
reflect the disallowed loss. Any loss realized by a shareholder on a disposition
of Fund shares held by the shareholder for six months or less will be treated as
a long-term capital loss to the extent of any distributions of net capital gains
received by the shareholder with respect to such shares and treated as long-term
capital gains. Furthermore a loss realized by a shareholder on the redemption,
sale or exchange of shares of the Fund with respect to which exempt-interest
dividends have been paid will, to the extent of such exempt-interest dividends,
be disallowed if such shares have been held by the shareholder for six months or
less.
In some cases, shareholders will not be permitted to take sales charge
into account for purposes of determining the amount of gain or loss realized on
the disposition of their stock. This prohibition generally applies where (1) the
shareholder incurs a sales charge in acquiring the stock of the Fund, (2) the
stock is disposed of before the 91st day after the date on which it was
acquired, and (3) the shareholder subsequently acquires the stock on the same or
another fund and the otherwise applicable sales charge is reduced under a
"reinvestment right" received upon the initial purchase of the regulated
investment company shares. The term "reinvestment right" means any right to
acquire stock of one or more funds without the payment of a sale charge or with
the payment of a reduced sales charge. Sales charges affected by this rule are
treated as if they were incurred with respect to the stock acquired under the
reinvestment right. This provision may be applied to successive acquisitions of
Fund shares.
Although the Fund expects to qualify as a "regulated investment company"
and to be relieved of all or substantially all Federal income taxes, depending
upon the extent of its activities in states and localities in which its offices
are maintained, in which its agents or independent contractors are located
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<PAGE>
or in which it is otherwise deemed to be conducting business, the Fund may be
subject to the tax laws of such states or localities.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other foreign taxes. The payment of such taxes will
reduce the amount of dividends and distributions paid to the Fund's
shareholders. So long as the Fund qualifies as a regulated investment company,
certain distribution requirements are satisfied, and more than 50% of the value
of the Fund's assets at the close of the taxable year consists of securities of
foreign corporations, the Fund may elect, subject to limitation, to pass through
its foreign tax credits to its shareholders. The Fund may qualify for and make
this election in some, but not necessarily all, of its taxable years. If the
Fund were to make an election, an amount equal to the foreign income taxes paid
by the Fund would be included in the income of its shareholders and the
shareholders would be entitled to credit their portions of this amount against
their U.S. tax due, if any, or to deduct such portions from their U.S. taxable
income, if any. Shortly after any year for which it makes such an election, the
Fund will report to its shareholders, in writing, the amount per share of such
foreign tax that must be included in each shareholder's gross income and the
amount which will be available for deduction or credit. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Certain
limitations are imposed on the extent to which the credit (but not the
deduction) for foreign taxes may be claimed.
Shareholders who choose to utilize a credit (rather than a deduction)for
foreign taxes will be subject to limitations, including the restriction that the
credit may not exceed the shareholder's United States tax (determined without
regard to the availability of the credit) attributable to his or her total
foreign source taxable income. For this purpose, the portion of dividends and
distributions paid by the Fund from its foreign source income will be treated as
foreign source income. The Fund's gains and losses from the sale of securities
will generally be treated as derived from United States sources and certain
foreign currency gains and losses likewise will be treated as derived from
United States sources. The limitation on the foreign tax credit is applied
separately to foreign source "passive income", such as the portion of dividends
received from the Fund which qualifies as foreign source income. In addition,
only a portion of the foreign tax credit will be allowed to offset any
alternative minimum tax imposed on corporations and individuals. Because of
these limitations, shareholders may be unable to claim a credit for the full
amount of their proportionate shares of the foreign income taxes paid by the
Fund.
Hedging Transactions. The taxation of equity options and over-the-counter
options on debt securities is governed by Code section 1234. Pursuant to Code
section 1234, the premium received by the Fund for selling a put or call option
is not included in income at the time of receipt. If the option expires, the
premium is short-term capital gain to the Fund. If the Fund enters into a
closing transaction, the difference between the amount paid to close out its
position and the premium received is short-term capital gain or loss. If a call
option written by the Fund is exercised, thereby requiring the Fund to sell the
underlying security, the premium will increase the amount realized upon the sale
of such security and any resulting gain or loss will be a capital gain or loss,
and will be long-term or short-term depending upon the holding period of the
security. With respect to a put or call option that is purchased by the Fund, if
the option is sold, any resulting gain or loss will be a capital gain or loss,
and will be long-term or short-term, depending upon the holding period of the
option. If the option expires, the resulting loss is a capital loss and is
long-term or short-term, depending upon the holding period of the option. If the
option is exercised, the cost of the option, in the case of a call option, is
added to the basis of the purchased security and, in the case of a put option,
reduces the amount realized on the underlying security in determining gain or
loss.
Any regulated futures contracts and certain options (namely, non-equity
options and dealer equity options) in which the Fund may invest are "section
1256 contracts." Gains or losses on section 1256 contracts generally are
considered 60% long-term and 40% short-term capital gains or losses; however,
foreign currency gains or losses (as discussed below) arising from certain
section 1256
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contracts may be treated as ordinary income or loss. Also, section 1256
contracts held by a Portfolio at the end of each taxable year (and, generally,
for purposes of the 4% excise tax, on October 31 of each year) are
"marked-to-market" (that is, treated as sold at fair market value), resulting in
unrealized gains or losses being treated as though they were realized.
Generally, the hedging transactions undertaken by the Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Fund of engaging in hedging
transactions are not entirely clear. Hedging transactions may increase the
amount of short-term capital gain realized by the Fund which is taxed as
ordinary income when distributed to shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because the straddle rules may affect the character of gains or losses,
defer losses and/or accelerate the recognition of gains or losses from the
affected straddle positions, the amount which may be distributed to
shareholders, and which will be taxed to them as ordinary income or long-term
capital gain, may be increased or decreased as compared to a fund that did not
engage in such hedging transactions.
The diversification requirements applicable to the Fund's assets may limit
the extent to which the Fund will be able to engage in transactions in options,
futures or forward contracts.
Constructive Sales. Recently enacted rules may affect the timing and
character of gain if the Fund engages in transactions that reduce or eliminate
its risk of loss with respect to appreciated financial positions. If the Fund
enters into certain transactions in property while holding substantially
identical property, the Fund would be treated as if it had sold and immediately
repurchased the property and would be taxed on any gain (but not loss) from the
constructive sale. The character of gain from a constructive sale would depend
upon the Fund's holding period in the property. Loss from a constructive sale
would be recognized when the property was subsequently disposed of, and its
character would depend on the Fund's holding period and the application of
various loss deferral provisions of the Code.
Currency Fluctuations - "Section 988" Gains or Losses. Under the Code,
gains or losses attributable to fluctuations in exchange rates which occur
between the time the Fund accrues receivables or liabilities denominated in a
foreign currency, and the time the Fund actually collects such receivables or
pays such liabilities, generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of debt securities denominated in a foreign
currency and on disposition of certain options and futures contracts, gains or
losses attributable to fluctuations in the value of foreign currency between the
date of acquisition of the security or contract and the date of disposition also
are treated as ordinary gain or loss. These gains or losses, referred to under
the Code as "Section 988" gains or losses, may increase or decrease the amount
of the Fund's investment company taxable income to be distributed to its
shareholders as ordinary income.
Passive Foreign Investment Companies. The Fund may invest in shares of
foreign corporations that may be classified under the Code as passive foreign
investment companies ("PFICs"). In general, a foreign corporation is classified
as a PFIC if at least one-half of its assets constitute
37
<PAGE>
investment-type assets, or 75% or more of its gross income investment-type
income. If the Fund receives a so-called "excess distribution" with respect to
PFIC stock, the Fund itself may be subject to a tax on a portion of the excess
distribution, whether or not the corresponding income is distributed by the Fund
to shareholders. In general, under the PFIC rules, an excess distribution is
treated as having been realized ratably over the period during which the Fund
held the PFIC shares. The Fund will itself be subject to tax on the portion, if
any, of an excess distribution that is so allocated to prior Fund taxable years
and an interest factor will be added to the tax, as if the tax had been payable
in such prior taxable years. Certain distributions from a PFIC as well as gain
from the sale of PFIC shares are treated as excess distributions. Excess
distributions are characterized as ordinary income even though, absent
application of the PFIC rules, certain excess distributions might have been
classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with respect
to PFIC shares. Under an election that currently is available in some
circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions were received from the PFIC in a given year. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions, would not apply. In addition, another election would
involve marking to market the Fund's PFIC shares at the end of each taxable
year, with the result that unrealized gains would be treated as though they were
realized and reported as ordinary income. Any mark-to-market losses and loss
from an actual disposition of Fund shares would be deductible as ordinary losses
to the extent of any net mark-to-market gains included in income in prior years.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries.
Framlington will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable distributions paid to any shareholder (i)
who has provided either an incorrect tax identification number or no number at
all, (ii) who is subject to backup withholding by the Internal Revenue Service
for failure to report the receipt of taxable interest or dividend income
properly, or (iii) who has failed to certify to Framlington that he is not
subject to backup withholding or that he is an "exempt recipient."
Fund shareholders may be subject to state, local and foreign taxes on
their Fund distributions. In many states, Fund distributions which are derived
from interest on certain U.S. Government obligations are exempt from taxation.
The tax consequences to a foreign shareholder of an investment in the Fund may
be different from those described herein. Foreign shareholders are advised to
consult their own tax advisers with respect to the particular tax consequences
to them of an investment in the Fund. Shareholders are advised to consult their
own tax advisers with respect to the particular tax consequences to them of an
investment in the Fund.
Other Taxation
The foregoing general discussion of Federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the date
of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
38
<PAGE>
ADDITIONAL INFORMATION CONCERNING SHARES
Framlington is a Massachusetts business trust organized on October 30,
1996. Under its Declaration of Trust, the beneficial interest in Framlington
may be divided into an unlimited number of full and fractional transferable
shares. Framlington's Declaration of Trust authorizes the Board of Trustees
to classify or reclassify any unissued shares of Framlington into one or more
classes by setting or changing, in any one or more respects, their respective
designations, preferences, conversion or other rights, voting powers,
restrictions, limitations, qualifications and terms and conditions of
redemption. Pursuant to the authority of Framlington's Declaration of Trust,
the Trustees have authorized the issuance of an unlimited number of shares of
beneficial interest in Framlington representing interest in four series of
shares. The Fund is currently offered in five separate classes: Class A,
Class B, Class C, Class K and Class Y Shares.
At a meeting on February 24, 1998, Framlington adopted a Multi-Class
Plan ("Multi-Class Plan") on behalf of the Fund. The Multi-Class Plan
provides that shares of each class of the Fund are identical, except for one
or more expense variables, certain related rights, exchange privileges, class
designation and sales loads assessed due to differing distribution methods.
In the event of a liquidation or dissolution of Framlington or the
Fund, shareholders of the Fund would be entitled to receive the assets
available for distribution belonging to the Fund, and a proportionate
distribution, based upon the relative net asset values of the Fund, of any
general assets not belonging to the Fund which are available for
distribution. Shareholders of the Fund are entitled to participate in the net
distributable assets of the Fund on liquidation, based on the number of
shares of the Fund that are held by each shareholder.
Shareholders of the Fund, as well as those of any other investment
portfolio now or hereafter offered by Framlington, will vote together in the
aggregate and not by class on all matters, except that only Class A Shares of
the Fund will be entitled to vote on matters submitted to a vote of
shareholders pertaining to the Fund's Class A Plan, only Class B Shares will
be entitled to vote on matters submitted to a vote of shareholders pertaining
to the Fund's Class B Plan, only Class C Shares of the Fund will be entitled
to vote on matters submitted to a vote of shareholders pertaining to the
Fund's Class C Plan, and only Class K Shares of the Fund will be entitled to
vote on matters submitted to a vote of shareholders pertaining to the Class K
Plan. Further, shareholders of the Fund, as well as those of any other
investment portfolio now or hereafter offered Framlington, will vote together
in the aggregate and not separately on a Fund-by-Fund basis, except as
otherwise required by law or when permitted by the Board of Trustees. Rule
18f-2 under the 1940 Act provides that any matter required to be submitted to
the holders of the outstanding voting securities of an investment company
such as Framlington shall not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the outstanding shares of the
Fund affected by such matter. The Fund is affected by such a matter, unless
(i) it is clear that the interests of the Fund in the matter are
substantially identical, or (ii) the matter does not affect any interest of
the Fund. Under the Rule, the approval of an investment advisory agreement,
sub-advisory agreement or any change in a fundamental investment policy would
be effectively acted upon with respect to the Fund only if approved by a
majority of the outstanding shares of the Fund. However, the Rule also
provides that the ratification of the appointment of independent auditors,
the approval of principal underwriting contracts and the election of trustees
may be effectively acted upon by shareholders of Framlington voting together
in the aggregate without regard to a particular fund.
Shares of Framlington have noncumulative voting rights and,
accordingly, the holders of more than 50% of Framlington's outstanding shares
(irrespective of class) may elect all of the trustees. Shares have no
preemptive rights and only such conversion and exchange rights as the Board
may grant in its
39
<PAGE>
discretion. When issued for payment as described in the applicable
Prospectus, shares will be fully paid and non-assessable by Framlington.
Shareholder meetings to elect trustees will not be held unless and
until such time as required by law. At that time, the trustees then in office
will call a shareholders' meeting to elect trustees. Except as set forth
above, the trustees will continue to hold office and may appoint successor
trustees. Meetings of the shareholders of Framlington shall be called by the
trustees upon the written request of shareholders owning at least 10% of the
outstanding shares entitled to vote.
Framlington's Declaration of Trust, as amended, authorizes the Board of
Trustees, without shareholder approval (unless otherwise required by
applicable law), to (i) sell and convey the assets belonging to 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 paid in cash or by
distribution of the securities or other consideration received from the sale
and conveyance; (ii) sell and convert the assets belonging to one or more
classes 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
(iii) combine the assets belonging to a class of share with the assets
belonging to one or more other classes of shares if the Board of Trustees
reasonable determines that such combination and, in connection therewith, to
cause all outstanding shares of any such class to be redeemed or converted
into shares of another class of shares at their net asset value. However, the
exercise of such authority may be subject to certain restrictions under the
1940 Act. Framlington's Board of Trustees may authorize the termination of
any class of shares after the assets belonging to such class have been
distributed to shareholders.
MISCELLANEOUS
Counsel. The law firm of Dechert Price & Rhoads, 1775 Eye Street, N.W.,
Washington, DC 20006, has passed upon certain legal matters in connection
with the shares offered by the Fund and serves as counsel to Framlington.
Independent Auditors. Ernst & Young LLP, 200 Clarendon Street,
Boston, Massachusetts 02116, serves as Framlington's independent auditors.
Shareholder Approvals. As used in this Statement of Additional
Information and in the Prospectus, a "majority of the outstanding shares" of
the Fund means the lesser of (a) 67% of the shares of the Fund represented at
a meeting at which the holders of more than 50% of the outstanding shares of
such Fund are present in person or by proxy, or (b) more than 50% of the
outstanding shares of such Fund.
REGISTRATION STATEMENT
This Statement of Additional Information and the Fund's Prospectuses do
not contain all the information included in the Fund's registration statement
filed with the SEC under the 1933 Act with respect to the securities offered
hereby, certain portions of which have been omitted pursuant to the rules and
regulations of the SEC. The registration statement, including the exhibits filed
therewith, may be examined at the offices of the SEC in Washington, D.C.
Statements contained herein and in the Fund's Prospectuses as to the
contents of any contract of other documents referred to are not necessarily
complete, and, in such instance, reference is made to the copy of such contract
or other documents filed as an exhibit to the Fund's registration statement,
each such statement being qualified in all respects by such reference.
40
<PAGE>
APPENDIX A
- Rated Investments -
Corporate Bonds
Excerpts from Moody's Investors Services, Inc. ("Moody's") description
of its bond ratings:
"Aaa": Bonds that are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." 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 that are rated "Aa" are judged to be of high-quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as "high-grade" bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A": Bonds that are rated "A" possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
"Baa": Bonds that are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appears 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": Bonds that are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
"B": Bonds that are rated "B" generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
"Caa": Bonds that are rated "Caa" are of poor standing. These issues may
be in default or present elements of danger may exist with respect to principal
or interest.
Moody's applies numerical modifiers (1, 2 and 3) with respect to bonds
rated "Aa" through "B". The modifier 1 indicates that the bond being rated ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category.
Excerpts from Standard & Poor's Corporation ("S&P") description of its
bond ratings:
"AAA": Debt rated "AAA" has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
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<PAGE>
"AA": Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from "AAA" issues by a small degree.
"A": Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
"BBB": Bonds rated "BBB" are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than for bonds in higher rated categories.
"BB", "B" and "CCC": Bonds rated "BB" and "B" are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligations. "BB" represents a
lower degree of speculation than "B" and "CCC" the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
To provide more detailed indications of credit quality, the "AA" or "A"
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
Commercial Paper
The rating "Prime-1" is the highest commercial paper rating assigned by
Moody's. These issues (or related supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.
Issues rated "Prime-2" (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics of "Prime-1" rated issues, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Commercial paper ratings of S&P are current assessments of the likelihood
of timely payment of debt having original maturities of no more than 365 days.
Commercial paper rated "A-1" by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted "A-1+."
Commercial paper rated "A-2" by S&P indicates that capacity for timely payment
is strong. However, the relative degree of safety is not as high as for issues
designated "A-1."
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<PAGE>
APPENDIX A
- Rated Investments -
Commercial Paper
Rated commercial paper purchased by the Fund must have (at the time of
purchase) the highest quality rating assigned to short-term debt securities or,
if not rated, or rated by only one agency, are determined to be of comparative
quality pursuant to guidelines approved by the Fund's Board of Trustees. Highest
quality ratings for commercial paper for Moody's and S&P are as follows:
Moody's: The rating "Prime-1" is the highest commercial paper rating
category assigned by Moody's. These issues (or related supporting institutions)
are considered to have a superior capacity for repayment of short-term
promissory obligations.
S&P: Commercial paper ratings of S&P are current assessments of the
likelihood of timely payment of debts having original maturities of no more than
365 days. Commercial paper rated in the "A-1" category by S&P indicates that the
degree of safety regarding timely payment is either overwhelming or very strong.
Those issues determined to possess overwhelming safety characteristics are
denoted "A-1+".
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<PAGE>
APPENDIX B
As stated in the Prospectuses, the Fund may enter into certain futures
transactions and options for hedging purposes. Such transactions are described
in this Appendix.
I. Index Futures Contracts
General. A stock index assigns relative values to the stocks included in
the index and the index fluctuates with changes in the market values of the
stocks included. Some stock index futures contracts are based on broad market
indexed, such as the Standard & Poor's 500 or the New York Stock Exchange
Composite Index. In contrast, certain exchanges offer futures contracts on
narrower market indexes, such as the Standard & Poor's 100 or indexes based on
an industry or market segment, such as oil and gas stocks.
Futures contracts are traded on organized exchanges regulated by the
Commodity Futures Trading Commission. Transactions on such exchanges are cleared
through a clearing corporation, which guarantees the performance of the parties
to each contract.
The Fund will sell index futures contracts in order to offset a decrease
in market value of its portfolio securities that might otherwise result from a
market decline. The Fund will purchase index futures contracts in anticipation
of purchases of securities. In a substantial majority of these transactions, the
Fund will purchase such securities upon termination of the long futures
position, but a long futures position may be terminated without a corresponding
purchase of securities.
In addition, the Fund may utilize index futures contracts in anticipation
of changes in the composition of its portfolio holdings. For example, in the
event that the Fund expects to narrow the range of industry groups represented
in its holdings it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. The Fund may also
sell futures contracts in connection with this strategy, in order to protect
against the possibility that the value of the securities to be sold as part of
the restructuring of the portfolio will decline prior to the time of sale.
Examples of Stock Index Futures Transactions. The following are examples
of transactions in stock index futures (net of commissions and premiums, if
any).
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate buying $62,500 in Equity Securities Buying 1 Index Futures at 125
Value of Futures =
$62,500/Contract
-Day Hedge is Lifted-
Buy Equity Securities with Actual Cost = $65,000 Sell 1 Index Futures at 130
Increase in Purchase Price = $2,500 Value of Futures =
$65,000/Contract
Gain on Futures = $2,500
</TABLE>
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<PAGE>
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract - 125 X $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Selling $1,000,000 in Equity Securities Sell 16 Index Futures at
125
Value of Futures =
$1,000,000
-Day Hedge is Lifted-
Equity Securities - Own Stock Buy 16 Index Futures at 120
with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Value = $40,000 Gain on Futures = $40,000
</TABLE>
II. Margin Payments
Unlike purchase or sales of portfolio securities, no price is paid or
received by the Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with the Custodian an amount of cash or cash equivalents, known as initial
margin, based on the value of the contract. The nature of initial margin in
futures transactions is different from that of margin in security transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions. Rather, the initial margin is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instruments fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking-to-the-market. For example, when the Fund has purchased a futures
contract and the price of the contract has risen in response to a rise in the
underlying instruments, that position will have increased in value and the Fund
will be entitled to receive from the broker a variation margin payment equal to
that increase in value. Conversely, where the Fund has purchased a futures
contract and the price of the futures contract has declined in response to a
decrease in the underlying instruments, the position would be less valuable and
the Fund would be required to make a variation margin payment to the broker. At
any time prior to expiration of the futures contract, the Advisor may elect to
close the position by taking an opposite position, subject to the availability
of a secondary market, which will operate to terminate the Fund's position in
the futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund, and the Fund
realizes a loss or gain.
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<PAGE>
III. Risks of Transactions in Futures Contracts
There are several risks in connection with the use of futures by the Fund
as hedging devices. One risk arises because of the imperfect correlation between
movements in the price of the futures and movements in the price of the
instruments which are the subject of the hedge. The price of the future may move
more than or less than the price of the instruments being hedged. If the price
of the futures moves less than the price of the instruments which are the
subject of the hedge, the hedge will not be fully effective but, if the price of
the instruments being hedged has moved in an unfavorable direction, the Fund
would be in a better position than if it had not hedged at all. If the price of
the instruments being hedged has moved in a favorable direction, this advantage
will be partially offset by the loss on the futures. If the price of the futures
moves more than the price of the hedged instruments, the Fund will experience
either a loss or gain on the futures which will not be completely offset by
movements in the price of the instruments which are the subject of the hedge. To
compensate for the imperfect correlation of movements in the price of
instruments being hedged and movements in the price of futures contracts, the
Fund may buy or sell futures contracts in a greater dollar amount than the
dollar amount of instruments being hedged if the volatility over a particular
time period of the prices of such instruments has been greater than the
volatility over such time period of the futures, or if otherwise deemed to be
appropriate by the Advisor. Conversely, the Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
instruments being hedged is less than the volatility over such time period of
the futures contract being used, or if otherwise deemed to be appropriate by the
Advisor. It is also possible that, when the Fund had sold futures to hedge its
portfolio against a decline in the market, the market may advance and the value
of instruments held in the Fund may decline. If this occurred, the Fund would
lose money on the futures and also experience a decline in value in its
portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before the Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the Fund
will realize a loss on the futures contract that is not offset by a reduction in
the price of the instruments that were to be purchased.
In instances involving the purchase of futures contracts by the Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Sub-Custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the instruments
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions which could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced thus producing distortions. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the
46
<PAGE>
movements in the cash market and movements in the price of futures, a correct
forecast of general market trends or interest rate movements by the Advisor may
still not result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Fund
intends to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions. The
trading of futures contracts is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
Successful use of futures by the Fund is also subject to the Advisor's
ability to predict correctly movements in the direction of the market. For
example, if the Fund has hedged against the possibility of a decline in the
market adversely affecting securities held by it and securities prices increase
instead, the Fund will lose part or all of the benefit to the increased value of
its securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has insufficient
cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Fund may have to sell
securities at a time when it may be disadvantageous to do so.
IV. Options on Futures Contracts
The Fund may purchase and write options on the futures contracts described
above. A futures option gives the holder, in return for the premium paid, the
right to buy (call) from or sell (put) to the writer of the option a futures
contract at a specified price at any time during the period of the option. Upon
exercise, the writer of the option is obligated to pay the difference between
the cash value of the futures contract and the exercise price. Like the buyer or
seller of a futures contract, the holder, or writer, of an option has the right
to terminate its position prior to the scheduled expiration of the option by
selling, or purchasing an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss. The Fund will
be required to deposit initial margin and variation margin with respect to put
and call options on futures contracts written by it pursuant to brokers'
requirements similar to those described above. Net option premiums received will
be included as initial margin deposits.
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Investments in futures options involve some of the same considerations
that are involved in connection with investments in future contracts (for
example, the existence of a liquid secondary market). In addition, the
purchase or sale of an option also entails the risk that changes in the value
of the underlying futures contract will not correspond to changes in the
value of the option purchased. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or upon the
price of the securities being hedged, an option may or may not be less risky
than ownership of the futures contract or such securities. In general, the
market prices of options can be expected to be more volatile than the market
prices on underlying futures contract. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to the Fund because the
maximum amount at risk is the premium paid for the options (plus transaction
costs). The writing of an option on a futures contract involves risks similar
to those risks relating to the sale of futures contracts.
V. Other Matters
Accounting for futures contracts will be in accordance with generally
accepted accounting principles.
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