<PAGE>
PROSPECTUS
OCTOBER 15, 1999
HUNTINGTON VA GROWTH FUND
[Huntington Funds Logo]
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities, nor has it passed upon the adequacy
or accuracy of the information contained in this Prospectus. It is a criminal
offense to state otherwise.
Also, like other investments, you could lose money on your investment in the
Huntington VA Growth Fund. Your investment in the Fund is not a bank deposit
and it is not insured or guaranteed by the FDIC or any other government agency.
<PAGE>
The Huntington VA Growth Fund is one of a series of mutual funds established
exclusively for the purpose of providing an investment vehicle for variable
annuity contracts and variable life insurance policies offered by the separate
accounts of the Hartford Life Insurance Company. The Huntington VA Funds are
advised by professional portfolio managers at The Huntington National Bank.
In connection with the offering made by this Prospectus, the Huntington VA
Funds have not authorized any person to give any information or to make any
representations other than those contained in this Prospectus. Consequently,
you may not rely upon any such information given or representations made as
having been authorized by a Fund or the Distributor. This Prospectus does not
constitute an offering by a Fund or by the Distributor in any jurisdiction in
which such offering may not lawfully be made.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
FUND SUMMARY................................................................ 1
Principal Investments....................................................... 2
More Fund Information....................................................... 2
RISK/RETURN INFORMATION..................................................... 2
ORGANIZATION OF THE TRUST................................................... 2
DISTRIBUTION OF THE FUND.................................................... 2
ABOUT PURCHASING SHARES..................................................... 2
</TABLE>
<TABLE>
<S> <C>
ABOUT REDEEMING SHARES...................................................... 3
</TABLE>
<TABLE>
<S> <C>
MANAGEMENT OF THE TRUST..................................................... 4
Investment Adviser........................................................ 4
Portfolio Managers........................................................ 4
Prior Performance of a Similarly-Managed Fund............................. 4
DIVIDENDS AND DISTRIBUTIONS................................................. 5
TAX CONSEQUENCES............................................................ 5
</TABLE>
<PAGE>
FUND SUMMARY
You may only purchase shares of the Huntington VA Growth Fund through
variable annuity contracts and variable life insurance policies offered by
Hartford Life.
For convenience, we may refer to the Huntington VA Funds as "the Trust" and
to The Huntington National Bank as "Huntington" or "the Adviser." We may also
refer to Hartford Life Insurance Company as "Hartford Life."
VA GROWTH FUND
INVESTMENT OBJECTIVE--The VA Growth Fund seeks to achieve long-term capital
appreciation primarily through investing in equity securities.
PRINCIPAL INVESTMENT STRATEGIES--The Adviser intends to invest in common
stock and other equity securities of medium or large companies which it
believes offer opportunities for growth. The Adviser frequently invests in
established companies which it believes have temporarily depressed prices.
In selecting investments, the Adviser reviews historical earnings, revenue
and cash flow to identify the best companies in each industry and to evaluate
the growth potential of these companies. On an ongoing basis, the Adviser also
monitors the Fund's existing positions to determine the benefits of retention.
Fundamental Policy: at least 65% of total assets invested in equity
securities.
PRINCIPAL RISKS--As a Fund which invests in equity securities, the VA
Growth Fund is subject to:
. equity risk--stock values can rise and fall quickly and dramatically in
response to changes in earnings or other conditions affecting the
issuer's profitability. As a result, total returns can fluctuate within a
wide range, so an investor could lose money over the short or long term.
The VA Growth Fund is also subject to a number of important risks common to
investment in most mutual funds, including:
. market risk--market values of securities move up and down, sometimes
rapidly and unpredictably;
. investment strategy risk--as market conditions change, the success of a
Fund's particular investment strategy will vary;
. management risk--the Adviser may not be able to achieve a Fund's desired
investment objective; and
. liquidity risk--at any particular time, the Adviser may have difficulty
selling a certain security at its expected price.
In addition, as we enter the new millennium, the VA Growth Fund is subject
to year 2000 risk. Year 2000 risk is the risk that a Fund could be adversely
affected if the computer systems used by Huntington or other service providers
do not properly process and calculate date-related information and data
beginning on January 1, 2000. When the year 2000 begins, computers may
interpret "00" as the year 1900 and either stop processing date-related
computations or process them incorrectly. These failures could have a negative
impact on the handling of securities trades, pricing and account services.
Year 2000 risk also affects the companies in which the Fund invests,
communications and public utility companies, governmental entities, financial
processors and other companies upon which all investment companies rely.
As with all mutual funds, loss of money is a risk of investing. Your
investment in the Fund is not a bank deposit and it is not insured or
guaranteed by the FDIC or any other government agency.
1
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For more information about the investments and risks of the VA Growth Fund,
call (800) 253-0412 for a free copy of the Trust's Statement of Additional
Information.
PRINCIPAL INVESTMENTS
The table below summarizes the principal investments for the VA Growth Fund.
The VA Growth Fund may also invest up to 100% of its assets in cash, money
market instruments, repurchase agreements and other short-term securities for
temporary defensive or liquidity purposes. In these situations, the Fund may
not achieve its investment objective.
COMMERCIAL PAPER -- secured and unsecured short-term promissory notes issued
by corporations and other entities. Maturities are generally six months or
less.
- --------------------------------------------------------------------------------
COMMON STOCK -- shares of ownership in a company.
- --------------------------------------------------------------------------------
PREFERRED STOCK -- shares of ownership in a company with a preferential right
to receive dividends.
A detailed description of each of the principal investments, as well as
other permissible investments and strategies, is contained in the Statement of
Additional Information.
MORE FUND INFORMATION
In the Fund Summary above, we discuss the investment objective for the VA
Growth Fund. The Fund's investment objective is fundamental and may be changed
only by a vote of a majority of the VA Growth Fund's outstanding shares.
We also summarize the principal investment strategies used under normal
market conditions. The Adviser may employ other strategies and investment
techniques on a less frequent basis. Unless otherwise noted, the investment
policies of the VA Growth Fund are not fundamental and the Trust's Board of
Trustees may change them without shareholder approval. Please note that when a
limitation on an investment or strategy is expressed in terms of a percentage
of assets, we apply the restriction at the time of the investment.
Also as part of the Fund Summary, we discuss the principal investment risks
(the risks associated with the Fund's investment objective and principal
investment strategies). There are other risks applicable to investing in the VA
Growth Fund.
Finally, we have provided a table illustrating the principal investments of
the VA Growth Fund.
By calling (800) 253-0412, you can obtain a copy of the Trust's Statement of
Additional Information which includes more detailed information about all of
the types of investments and risks associated with the Fund.
RISK/RETURN INFORMATION
As a new Fund, there is no information available as of the date of this
Prospectus relating to its performance.
ORGANIZATION OF THE TRUST
The Trust is organized as a Massachusetts business trust established
exclusively for the purpose of providing investment vehicles for variable
annuity contracts and variable life insurance policies offered by the separate
accounts of Hartford Life. Currently, the Trust is comprised of two Funds:
Huntington VA Growth Fund and Huntington VA Income Equity Fund.
DISTRIBUTION OF THE FUND
SEI Investments Distribution Co., whose address is One Freedom Valley Road,
Oaks, Pennsylvania 19456, serves as the Distributor of the Huntington VA Funds.
ABOUT PURCHASING SHARES
You may purchase shares of the VA Growth Fund only through variable annuity
contracts or variable life insurance policies offered by Hartford Life. These
shares are not offered directly to the public.
2
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You should refer to the prospectus provided by Hartford Life for information
on how to purchase a variable annuity contract or variable life insurance
policy and how to select the VA Growth Fund as an investment option for your
contract or policy.
WHAT SHARES COST
The offering price of a share is its net asset value (determined after the
order is considered received). The Trust has authorized Hartford Life to accept
purchase orders on its behalf.
The Trust calculates the net asset value per share for the VA Growth Fund as
of the close of business of the New York Stock Exchange (generally 4:00 p.m.
Eastern Time).
The Fund does not impose any sales charges on the purchase of its shares.
Withdrawal charges, mortality and expense risk fees and other charges may be
assessed by Hartford Life under the variable annuity contracts or variable life
insurance policies. These fees are described in the prospectuses for Hartford
Life's variable annuity contracts and variable life insurance policies.
The Trust calculates net asset value for the VA Growth Fund by valuing
securities held based on market value. These valuation methods are more fully
described in the Trust's Statement of Additional Information.
NOTES ABOUT PURCHASES
Hartford Life, through its separate account, is responsible for placing
orders to purchase shares of the VA Growth Fund. In order to purchase shares of
the Fund on a particular day, the Trust must receive payment before 4:00 p.m.
(Eastern Time) that day.
The Trust reserves the right to suspend the sale of shares of any of its
Funds temporarily and the right to refuse any order to purchase shares of any
of its Funds.
If the Trust receives insufficient payment for a purchase, it will cancel
the purchase and may charge the separate account a fee. In addition, the
separate account will be liable for any losses incurred by the Trust in
connection with the transaction.
ABOUT REDEEMING SHARES
You may redeem shares of the VA Growth Fund only through Hartford Life.
We redeem shares of the VA Growth Fund on any business day when both the
Federal Reserve Banks and the New York Stock Exchange are open. The price at
which the Trust will redeem a share will be its net asset value (determined
after the order is considered received). The Trust has authorized Hartford Life
to accept redemption requests on its behalf.
The Trust calculates the net asset value per share for the VA Growth Fund as
of the close of business of the New York Stock Exchange (generally 4:00 p.m.
Eastern Time).
NOTES ABOUT REDEMPTIONS
In order to redeem shares of the VA Growth Fund on a particular day, the
Trust must receive the request before 3:00 p.m. (Eastern Time) that day.
For redemption requests received prior to the cut-off time, usually the
proceeds will be wired on the same day; for redemption requests received after
the cut-off time, usually proceeds will be wired the following business day
after net asset value is next determined. Proceeds are wired to an account
designated by Hartford Life.
To the extent permitted by federal securities laws, the Trust reserves the
right to suspend the redemption of shares of any of its Funds temporarily under
extraordinary market conditions such as market closures or
3
<PAGE>
suspension of trading by the Securities and Exchange Commission. The Trust also
reserves the right to postpone payment for more than seven days where payment
for shares to be redeemed has not yet cleared.
The Trust may terminate or modify the methods of redemption at any time.
MANAGEMENT OF THE TRUST
The Trustees of the Trust are responsible for generally overseeing the
conduct of the VA Growth Fund's business. Huntington, whose address is
Huntington Center, 41 South High Street, Columbus, Ohio 43287, serves as
investment adviser to the Fund pursuant to an investment advisory agreement
with the Trust. According to the terms of the investment advisory agreement,
the Fund will pay to Huntington an annual fee of 0.60% of its average daily net
assets.
INVESTMENT ADVISER
Subject to the supervision of the Trustees, Huntington provides a continuous
investment program for the VA Growth Fund, including investment research and
management with respect to all securities, instruments, cash and cash
equivalents in the Fund.
Huntington is an indirect, wholly-owned subsidiary of Huntington Bancshares
Incorporated ("HBI"), a registered bank holding company with executive offices
located at Huntington Center, 41 South High Street, Columbus, Ohio 43287. With
$29 billion in assets as of September 30, 1999, HBI is a major Midwest regional
bank holding company. Huntington, a recognized investment advisory and
fiduciary services subsidiary of HBI, provides investment advisory services for
corporate, charitable, governmental, institutional, personal trust and other
assets. Huntington is responsible for $28.8 billion of assets, and has
investment discretion over approximately $8.3 billion of that amount.
Huntington has served as a mutual fund investment adviser since 1987 and has
over 75 years of experience providing investment advisory services to fiduciary
accounts.
PORTFOLIO MANAGERS
Philip H. Farrington, a Vice President of Huntington, has been a co-
portfolio manager of the Growth Fund since April of 1994. Mr. Farrington has
more than 30 years of investment management experience. He has held the
positions of Chief Investment Officer, Portfolio Manager, and Director of
Research for major banks and asset management companies. He is a member of the
equity management team at Huntington. Mr. Farrington is a graduate of Harvard
University.
James Gibboney, Jr., a Vice President of Huntington, has been a co-portfolio
manager of the Growth Fund since November of 1993. Mr. Gibboney, a Chartered
Financial Analyst, serves as one of Huntington's balanced portfolio managers.
Prior to joining Huntington in 1989, he gained more than 12 years of investment
management experience as portfolio manager for a major investment firm, a trust
company, and a state government agency. He received his undergraduate degree in
Finance from the Ohio State University and an MBA from Xavier University.
PRIOR PERFORMANCE OF A SIMILARLY-MANAGED FUND
The table below presents performance information for Trust Shares of the
Huntington Growth Fund, a portfolio of The Huntington Funds, a separate group
of mutual funds advised by Huntington. Messrs. Gibboney and Farrington, the
portfolio managers of the Huntington VA Growth Fund, also maintain joint
primary responsibility for the day-to-day portfolio management of the
Huntington
4
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Growth Fund. Each of the investment objectives, strategies and risks of the
Huntington VA Growth Fund is substantially similar in all material respects to
those of the Huntington Growth Fund. The Huntington Growth Fund is the only
account managed by Huntington with such substantial similarity.
The Huntington Growth Fund's Trust Shares are most similar to the shares
offered by the Huntington VA Growth Fund. Nevertheless, expenses for the
Huntington VA Growth Fund will differ from those of the Huntington Growth Fund
and will be subject to additional expenses of the separate account. Such higher
expenses will lower the performance of the Huntington VA Growth Fund.
The table shows how average annual returns of the Huntington Growth Fund
compare with those of a broad measure of market performance. Total returns
shown reflect all advisory and other expenses of Trust Shares of the Huntington
Growth Fund and assume reinvestment of dividends and distributions. The
Huntington Growth Fund is a separate fund and its historical performance is not
an indication of the potential performance of the Huntington VA Growth Fund.
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURNS
(ON A CALENDAR
YEAR BASIS)
----------------
HUNTINGTON
GROWTH S&P
FUND 500
---------- -----
<S> <C> <C>
1 Year........................................................ 18.55% 28.60%
5 Years....................................................... 20.16% 24.05%
Since Inception (7/3/89)...................................... 14.79% 17.48%
</TABLE>
DIVIDENDS AND DISTRIBUTIONS
The VA Growth Fund declares and pays dividends on investment income monthly.
The Fund also makes distributions of net capital gains, if any, at least
annually.
All dividends and distributions payable to a shareholder will be
automatically reinvested in additional shares of the VA Growth Fund.
TAX CONSEQUENCES
There are many important tax consequences associated with investment in the
VA Growth Fund. Please read the insurance contract prospectus provided by
Hartford Life and consult your tax advisor regarding the specific federal,
state and local tax consequences applicable to your investment.
The VA Growth Fund intends to comply with the variable contract asset
diversification regulations of the Internal Revenue Service. If the Fund fails
to comply with these regulations, contracts invested in the Fund will not be
treated as an annuity, endowment or life insurance contract under the Internal
Revenue Code and will not be entitled to favorable tax treatment.
5
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For copies of Annual or Semi-Annual Reports, the Statement of Additional
Information, other information or for any other inquiries:
CALL (800) 253-0412
WRITE
Huntington VA Funds
41 South High Street
Columbus, OH 43287
LOG ON TO THE INTERNET
The Huntington National Bank maintains a . website, http://www.huntington.com,
with information relating to the Huntington VA Funds. The SEC's website,
http://www.sec.gov, contains text-only versions of the Huntington VA Funds
documents.
CONTACT THE SEC
Call (800) SEC-0330 about visiting the SEC's Public Reference Room in
Washington D.C. to review and copy information about the Funds. Alternatively,
you may send your request and a duplicating fee to the SEC's Public Reference
Section, Washington, D.C. 20549-6009.
More information about the Funds is available free upon request, including the
following:
ANNUAL AND SEMI-ANNUAL REPORTS
The Semi-Annual Report includes unaudited information about the performance of
the Huntington VA Funds, portfolio holdings and other financial information.
The Annual Report includes similar audited information as well as a letter from
the portfolio managers discussing recent market conditions, economic trends and
investment strategies that significantly affected performance during the last
fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
Provides more detailed information about the Fund and its policies. A current
Statement of Additional Information is on file with the Securities and Exchange
Commission and is incorporated by reference into (considered a legal part of)
this Prospectus.
THE HUNTINGTON NATIONAL BANK,a subsidiary of Huntington Bancshares,
Incorporated, is the Investment Adviser, Administrator, Custodian and
Recordkeeper of the Huntington VA Funds.
SEI INVESTMENTS DISTRIBUTION CO. is the Distributor and is not affiliated with
The Huntington National Bank.
[Huntinton Funds Logo]
. Not FDIC Insured . No Bank Guarantee . May Lose Value
SEC File No. 811-09481
<PAGE>
PROSPECTUS
OCTOBER 15, 1999
HUNTINGTON VA INCOME EQUITY FUND
[Huntington Funds logo]
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities, nor has it passed upon the adequacy
or accuracy of the information contained in this Prospectus. It is a criminal
offense to state otherwise.
Also, like other investments, you could lose money on your investment in the
Huntington VA Income Equity Fund. Your investment in the Fund is not a bank
deposit and it is not insured or guaranteed by the FDIC or any other government
agency.
<PAGE>
The Huntington VA Income Equity Fund is one of a series of mutual funds
established exclusively for the purpose of providing an investment vehicle for
variable annuity contracts and variable life insurance policies offered by the
separate accounts of the Hartford Life Insurance Company. The Huntington VA
Funds are advised by professional portfolio managers at The Huntington National
Bank.
In connection with the offering made by this Prospectus, the Huntington VA
Funds have not authorized any person to give any information or to make any
representations other than those contained in this Prospectus. Consequently,
you may not rely upon any such information given or representations made as
having been authorized by a Fund or the Distributor. This Prospectus does not
constitute an offering by a Fund or by the Distributor in any jurisdiction in
which such offering may not lawfully be made.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
FUND SUMMARY................................................................ 1
Principal Investments....................................................... 2
More Fund Information....................................................... 2
RISK/RETURN INFORMATION..................................................... 3
ORGANIZATION OF THE TRUST................................................... 3
DISTRIBUTION OF THE FUND.................................................... 3
ABOUT PURCHASING SHARES..................................................... 3
</TABLE>
<TABLE>
<S> <C>
ABOUT REDEEMING SHARES...................................................... 3
MANAGEMENT OF THE TRUST..................................................... 4
Investment Adviser........................................................ 4
Portfolio Manager......................................................... 4
Prior Performance of a Similarly-Managed Fund............................. 5
DIVIDENDS AND DISTRIBUTIONS................................................. 5
TAX CONSEQUENCES............................................................ 5
</TABLE>
<PAGE>
FUND SUMMARY
You may only purchase shares of the Huntington VA Income Equity Fund through
variable annuity contracts and variable life insurance policies offered by
Hartford Life.
For convenience, we may refer to the Huntington VA Funds as "the Trust" and
to The Huntington National Bank as "Huntington" or "the Adviser." We may also
refer to Hartford Life Insurance Company as "Hartford Life."
VA INCOME EQUITY FUND
INVESTMENT OBJECTIVE--The VA Income Equity Fund seeks to achieve high
current income and moderate appreciation of capital primarily through
investment in income-producing equity securities.
PRINCIPAL INVESTMENT STRATEGIES--The Adviser focuses primarily on equity
securities which have a history of increasing or paying high dividends. As an
additional income source, the Adviser also invests in investment grade
corporate debt obligations. At least 65% of the Fund's total assets will be
invested in income-producing equity securities. The Adviser selects securities
which it believes will maintain or increase the Fund's current income while
maintaining a price/earnings ratio below the market.
In evaluating the current yield of a security, the Adviser considers
dividend growth to be most important, followed by capital appreciation. The
Adviser actively monitors market activity which impacts dividend decisions. In
general, the Fund will sell a security when dividends are no longer expected to
increase.
Fundamental Policy: at least 65% of total assets invested in common stock,
securities convertible into common stock and securities deemed by the Adviser
to have common stock characteristics.
PRINCIPAL RISKS--As a Fund which invests in income-producing equity
securities, the VA Income Equity Fund is subject to:
. equity risk--stock values can rise and fall quickly and dramatically in
response to changes in earnings or other conditions affecting the
issuer's profitability. As a result, total returns can fluctuate within a
wide range, so an investor could lose money over the short or long term;
and
. dividend risk--an issuer's dividend policy may change in response to
strategic changes or other management decisions affecting the need for
available funds.
As a Fund which invests in corporate debt obligations, the VA Income Equity
Fund is subject to:
. interest rate risk--as interest rates change, the value of these
securities moves in the opposite direction; and
. credit (or default) risk--due to economic or governmental factors, an
issuer may no longer be able to make principal and interest payments.
The VA Income Equity Fund is also subject to a number of important risks
common to investment in most mutual funds, including:
. market risk--market values of securities move up and down, sometimes
rapidly and unpredictably;
. investment strategy risk--as market conditions change, the success of a
Fund's particular investment strategy will vary;
. management risk--the Adviser may not be able to achieve a Fund's desired
investment objective; and
1
<PAGE>
. liquidity risk--at any particular time, the Adviser may have difficulty
selling a certain security at its expected price.
In addition, as we enter the new millennium, the VA Income Equity Fund is
subject to year 2000 risk. Year 2000 risk is the risk that a Fund could be
adversely affected if the computer systems used by Huntington or other service
providers do not properly process and calculate date-related information and
data beginning on January 1, 2000. When the year 2000 begins, computers may
interpret "00" as the year 1900 and either stop processing date-related
computations or process them incorrectly. These failures could have a negative
impact on the handling of securities trades, pricing and account services. Year
2000 risk also affects the companies in which the Fund invests, communications
and public utility companies, governmental entities, financial processors and
other companies upon which all investment companies rely.
As with all mutual funds, loss of money is a risk of investing. Your
investment in the Fund is not a bank deposit and it is not insured or
guaranteed by the FDIC or any other government agency.
For more information about the investments and risks of the VA Income Equity
Fund, call (800) 253-0412 for a free copy of the Trust's Statement of
Additional Information.
PRINCIPAL INVESTMENTS
The table below summarizes the principal investments for the VA Income
Equity Fund. The VA Income Equity Fund may also invest up to 100% of its assets
in cash, money market instruments, repurchase agreements and other short-term
securities for temporary defensive or liquidity purposes. In these situations,
the Fund may not achieve its investment objective.
COMMERCIAL PAPER -- secured and unsecured short-term promissory notes issued
by corporations and other entities. Maturities are generally six months or
less.
- --------------------------------------------------------------------------------
COMMON STOCK -- shares of ownership in a company.
- --------------------------------------------------------------------------------
PREFERRED STOCK -- shares of ownership in a company with a preferential right
to receive dividends.
- --------------------------------------------------------------------------------
CORPORATE DEBT -- fixed income securities, such as bonds, issued by
corporations.
A detailed description of each of the principal investments, as well as
other permissible investments and strategies, is contained in the Statement of
Additional Information.
MORE FUND INFORMATION
In the Fund Summary above, we discuss the investment objective for the VA
Income Equity Fund. The Fund's investment objective is fundamental and may be
changed only by a vote of a majority of the VA Income Equity Fund's outstanding
shares.
We also summarize the principal investment strategies used under normal
market conditions. The Adviser may employ other strategies and investment
techniques on a less frequent basis. Unless otherwise noted, the investment
policies of the VA Income Equity Fund are not fundamental and the Trust's Board
of Trustees may change them without shareholder approval. Please note that when
a limitation on an investment or strategy is expressed in terms of a percentage
of assets, we apply the restriction at the time of the investment.
Also as part of the Fund Summary, we discuss the principal investment risks
(the risks associated with the Fund's investment objective and principal
investment strategies). There are other risks applicable to investing in the VA
Income Equity Fund.
Finally, we have provided a table illustrating the principal investments of
the VA Income Equity Fund.
2
<PAGE>
By calling (800) 253-0412, you can obtain a copy of the Trust's Statement
of Additional Information which includes more detailed information about all
of the types of investments and risks associated with the Fund.
RISK/RETURN INFORMATION
As a new Fund, there is no information available as of the date of this
Prospectus relating to its performance.
ORGANIZATION OF THE TRUST
The Trust is organized as a Massachusetts business trust established
exclusively for the purpose of providing investment vehicles for variable
annuity contracts and variable life insurance policies offered by the separate
accounts of Hartford Life. Currently, the Trust is comprised of two Funds:
Huntington VA Income Equity Fund and Huntington VA Growth Fund. As of the date
of this Prospectus, the Trust is only selling shares of the VA Income Equity
Fund.
DISTRIBUTION OF THE FUND
SEI Investments Distribution Co., whose address is One Freedom Valley Road,
Oaks, Pennsylvania 19456, serves as the Distributor of the Huntington VA
Funds.
ABOUT PURCHASING SHARES
You may purchase shares of the VA Income Equity Fund only through variable
annuity contracts or variable life insurance policies offered by Hartford
Life. These shares are not offered directly to the public.
You should refer to the prospectus provided by Hartford Life for
information on how to purchase a variable annuity contract or variable life
insurance policy and how to select the VA Income Equity Fund as an investment
option for your contract or policy.
WHAT SHARES COST
The offering price of a share is its net asset value (determined after the
order is considered received). The Trust has authorized Hartford Life to
accept purchase orders on its behalf.
The Trust calculates the net asset value per share for the VA Income Equity
Fund as of the close of business of the New York Stock Exchange (generally
4:00 p.m. Eastern Time).
The Fund does not impose any sales charges on the purchase of its shares.
Withdrawal charges, mortality and expense risk fees and other charges may be
assessed by Hartford Life under the variable annuity contracts or variable
life insurance policies. These fees are described in the prospectuses for
Hartford Life's variable annuity contracts and variable life insurance
policies.
The Trust calculates net asset value for the VA Income Equity Fund by
valuing securities held based on market value. These valuation methods are
more fully described in the Trust's Statement of Additional Information.
NOTES ABOUT PURCHASES
Hartford Life, through its separate account, is responsible for placing
orders to purchase shares of the VA Income Equity Fund. In order to purchase
shares of the Fund on a particular day, the Trust must receive payment before
4:00 p.m. (Eastern Time) that day.
The Trust reserves the right to suspend the sale of shares of any of its
Funds temporarily and the right to refuse any order to purchase shares of any
of its Funds.
If the Trust receives insufficient payment for a purchase, it will cancel
the purchase and may charge the separate account a fee. In addition, the
separate account will be liable for any losses incurred by the Trust in
connection with the transaction.
3
<PAGE>
ABOUT REDEEMING SHARES
You may redeem shares of the VA Income Equity Fund only through Hartford
Life.
We redeem shares of the VA Income Equity Fund on any business day when both
the Federal Reserve Banks and the New York Stock Exchange are open. The price
at which the Trust will redeem a share will be its net asset value (determined
after the order is considered received). The Trust has authorized Hartford Life
to accept redemption requests on its behalf.
The Trust calculates the net asset value per share for the VA Income Equity
Fund as of the close of business of the New York Stock Exchange (generally 4:00
p.m. Eastern Time).
NOTES ABOUT REDEMPTIONS
In order to redeem shares of the VA Income Equity Fund on a particular day,
the Trust must receive the request before 3:00 p.m. (Eastern Time) that day.
For redemptions requests received prior to the cut-off time, usually the
proceeds will be wired on the same day; for redemption requests received after
the cut-off time, usually proceeds will be wired the following business day
after net asset value is next determined. Proceeds are wired to an account
designated by Hartford Life.
To the extent permitted by federal securities laws, the Trust reserves the
right to suspend the redemption of shares of any of its Funds temporarily under
extraordinary market conditions such as market closures or suspension of
trading by the Securities and Exchange Commission. The Trust also reserves the
right to postpone payment for more than seven days where payment for shares to
be redeemed has not yet cleared.
The Trust may terminate or modify the methods of redemption at any time.
MANAGEMENT OF THE TRUST
The Trustees of the Trust are responsible for generally overseeing the
conduct of the VA Income Equity Fund's business. Huntington, whose address is
Huntington Center, 41 South High Street, Columbus, Ohio 43287, serves as
investment adviser to the Fund pursuant to an investment advisory agreement
with the Trust. According to the terms of the investment advisory agreement,
the Fund will pay to Huntington an annual fee of 0.60% of its average daily net
assets.
INVESTMENT ADVISER
Subject to the supervision of the Trustees, Huntington provides a continuous
investment program for the VA Income Equity Fund, including investment research
and management with respect to all securities, instruments, cash and cash
equivalents in the Fund.
Huntington is an indirect, wholly-owned subsidiary of Huntington Bancshares
Incorporated ("HBI"), a registered bank holding company with executive offices
located at Huntington Center, 41 South High Street, Columbus, Ohio 43287. With
$29 billion in assets as of September 30, 1999, HBI is a major Midwest regional
bank holding company. Huntington, a recognized investment advisory and
fiduciary services subsidiary of HBI, provides investment advisory services for
corporate, charitable, governmental, institutional, personal trust and other
assets. Huntington is responsible for $28.8 billion of assets, and has
investment discretion over approximately $8.3 billion of that amount.
Huntington has served as a mutual fund investment adviser since 1987 and has
over 75 years of experience providing investment advisory services to fiduciary
accounts.
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PORTFOLIO MANAGER
James M. Buskirk, Chief Investment Officer of Huntington, has been the
portfolio manager of the Huntington Income Equity Fund since 1990 and the VA
Income Equity Fund since its inception. As Chief Investment Officer of
Huntington, Mr. Buskirk has ultimate responsibility for all investment
management activities. He brings more than 20 years of investment experience to
Huntington. His background includes extensive experience in managing both
personal and employee benefit balanced portfolios for a major investment
advisory company and bank holding company. Mr. Buskirk is a Chartered Financial
Analyst. He received his undergraduate degree in Finance from the Ohio State
University and his MBA from the University of Oregon.
PRIOR PERFORMANCE OF A SIMILARLY-MANAGED FUND
The table below presents performance information for Trust Shares of the
Huntington Income Equity Fund, a portfolio of The Huntington Funds, a separate
group of mutual funds advised by Huntington. Mr. Buskirk, the portfolio manager
of the Huntington VA Income Equity Fund, has maintained primary responsibility
for the day-to-day portfolio management of the Huntington Equity Income Fund
since its inception. Each of the investment objectives, strategies and risks of
the Huntington VA Income Equity Fund is substantially similar in all material
respects to those of the Huntington Income Equity Fund. The Huntington Income
Equity Fund is the only account managed by Huntington with such substantial
similarity.
The Huntington Income Equity Fund's Trust Shares are most similar to the
shares offered by the Huntington VA Income Equity Fund. Nevertheless, expenses
for the Huntington VA Income Equity Fund will differ from those of the
Huntington Income Equity Fund and will be subject to additional expenses of the
separate account. Such higher expenses will lower the performance of the
Huntington VA Income Equity Fund.
The table shows how average annual returns of the Huntington Income Equity
Fund compare with those of a broad measure of market performance. Total returns
shown reflect all advisory and other expenses of Trust Shares of the Huntington
Income Equity Fund and assume reinvestment of dividends and distributions. The
Huntington Income Equity Fund is a separate fund and its historical performance
is not an indication of the potential performance of the Huntington VA Income
Equity Fund.
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURNS
(ON A CALENDAR
YEAR BASIS)
----------------
HUNTINGTON
INCOME
EQUITY S&P
FUND 500
---------- -----
<S> <C> <C>
1 Year........................................................ 17.79% 28.60%
5 Years....................................................... 17.09% 24.05%
Since Inception (7/3/89)...................................... 12.43% 17.48%
</TABLE>
DIVIDENDS AND DISTRIBUTIONS
The VA Income Equity Fund declares and pays dividends on investment income
monthly. The Fund also makes distributions of net capital gains, if any, at
least annually.
All dividends and distributions payable to a shareholder will be
automatically reinvested in additional shares of the VA Income Equity Fund.
TAX CONSEQUENCES
There are many important tax consequences associated with investment in the
VA Income Equity Fund. Please read the insurance contract prospectus provided
by Hartford Life and consult your tax advisor regarding the specific federal,
state and local tax consequences applicable to your investment.
The VA Income Equity Fund intends to comply with the variable contract asset
diversification regulations of the Internal Revenue Service. If the Fund fails
to comply with these regulations, contracts invested in the Fund will not be
treated as an annuity, endowment or life insurance contract under the Internal
Revenue Code and will not be entitled to favorable tax treatment.
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For copies of Annual or Semi-Annual Reports, the Statement of Additional
Information, other information or for any other inquiries:
CALL (800) 253-0412
WRITE
Huntington VA Funds
41 South High Street
Columbus, OH 43287
LOG ON TO THE INTERNET
The Huntington National Bank maintains a . website, http://www.huntington.com,
with information relating to the Huntington VA Funds. The SEC's website,
http://www.sec.gov, contains text-only versions of the Huntington VA Funds
documents.
CONTACT THE SEC
Call (800) SEC-0330 about visiting the SEC's Public Reference Room in
Washington D.C. to review and copy information about the Funds.
Alternatively, you may send your request and a duplicating fee to the SEC's
Public Reference Section, Washington, D.C. 20549-6009.
More information about the Funds is available free upon request, including the
following:
ANNUAL AND SEMI-ANNUAL REPORTS
The Semi-Annual Report includes unaudited information about the performance of
the Huntington VA Funds, portfolio holdings and other financial information.
The Annual Report includes similar audited information as well as a letter from
the portfolio managers discussing recent market conditions, economic trends and
investment strategies that significantly affected performance during the last
fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
Provides more detailed information about the Fund and its policies. A current
Statement of Additional Information is on file with the Securities and Exchange
Commission and is incorporated by reference into (considered a legal part of)
this Prospectus.
THE HUNTINGTON NATIONAL BANK,a subsidiary of Huntington Bancshares,
Incorporated, is the Investment Adviser, Administrator, Custodian and
Recordkeeper of the Huntington VA Funds.
SEI INVESTMENTS DISTRIBUTION CO. is the Distributor and is not affiliated with
The Huntington National Bank.
{Logo}
. Not FDIC Insured . No Bank Guarantee . May Lose Value
SEC File No. 811-09481
<PAGE>
Huntington VA Funds
Huntington VA Growth Fund
Huntington VA Income Equity Fund
Statement of Additional Information
This Statement of Additional Information contains information which may be of
interest to investors in the Huntington VA Funds (the "Trust") but which is not
included in the Prospectus. This Statement is not a prospectus and is only
authorized for distribution when accompanied or preceded by the Prospectus for
the Huntington VA Funds dated October 15, 1999. This Statement should be read
together with the Prospectus. Investors may obtain a free copy of a Prospectus
by calling the Huntington VA Funds at 800-253-0412.
October 15, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
DEFINITIONS........................................................ 1
INVESTMENT PRACTICES AND RISKS..................................... 1
Common Stock..................................................... 1
Convertible Securities........................................... 2
Corporate Debt................................................... 2
Credit (or Default) Risk......................................... 2
Credit-Enhanced Securities....................................... 2
Defensive Investments............................................ 3
Equity Risk...................................................... 3
Equity Securities................................................ 3
Fixed Income Securities.......................................... 3
Foreign Currency Options......................................... 3
Foreign Currency Transactions.................................... 4
Forward Foreign Currency and Foreign Currency Futures Contracts.. 5
Foreign Securities............................................... 6
Futures Contracts and Options on Futures Contracts............... 6
Index Futures Contracts and Options on Index Futures Contracts... 9
Interest Rate Risk............................................... 10
Lending Portfolio Securities..................................... 10
Liquidity Risk................................................... 11
Market Risk...................................................... 11
Money Market Instruments......................................... 11
Commercial Paper......................................... 11
Bank Obligations......................................... 11
Variable Rate Demand Notes............................... 11
Money Market Mutual Funds........................................ 12
Options.......................................................... 12
Preferred Stock.................................................. 14
Repurchase Agreements............................................ 15
Restricted and Illiquid Securities............................... 15
Security-Specific Risk........................................... 15
U.S. Government Securities....................................... 15
U.S. Treasury Security Futures Contracts and Options............. 16
When-Issued and Delayed Delivery Transactions.................... 17
Year 2000 Risk................................................... 17
INVESTMENT RESTRICTIONS............................................ 17
Portfolio Turnover............................................... 19
MANAGEMENT OF THE TRUST............................................ 19
Trustees and Officers............................................ 19
Trustee Compensation............................................. 21
Investment Adviser............................................... 22
Glass-Steagall Act............................................... 22
Portfolio Transactions........................................... 23
Brokerage Allocation and Other Practices......................... 23
Administrator.................................................... 24
Sub-Administrator................................................ 25
Administrative Services..........................................
Custodian and Record Keeper...................................... 26
Transfer Agent and Dividend Disbursing Agent..................... 26
Independent Auditors............................................. 26
Principal Holders of Securities.................................. 26
SHAREHOLDER RIGHTS................................................. 26
ADDITIONAL INFORMATION ON PURCHASES, EXCHANGES AND REDEMPTIONS..... 27
Other Purchase Information....................................... 27
Other Exchange Information....................................... 28
Other Redemption Information..................................... 28
DETERMINATION OF NET ASSET VALUE................................... 28
TAXES.............................................................. 29
Federal Income Taxation.......................................... 29
DIVIDENDS AND DISTRIBUTIONS........................................ 31
PERFORMANCE INFORMATION............................................ 31
FINANCIAL STATEMENTS............................................... 32
APPENDIX--DESCRIPTION OF BOND RATINGS.............................. 33
</TABLE>
<PAGE>
DEFINITIONS
For convenience, we will use the following terms throughout this Statement
of Additional Information.
"1940 Act" -- The Investment Company Act of 1940, as amended.
"Funds" -- Each of the separate investment portfolios of the
Trust.
"Hartford Life" -- Hartford Life Insurance Company, the underwriter of
variable annuity contracts and life insurance
policies through which you may invest in the Funds.
"Huntington" -- The Huntington National Bank, the Trust's
investment adviser, administrator, custodian and
recordkeeper.
"Independent Trustees" -- Trustees who are not "interested persons" of the
Trust, as defined in the 1940 Act.
"NRSRO" -- Nationally Recognized Statistical Ratings
Organization such as Moody's Investor Service or
Standard and Poor's Ratings Group.
"Prospectus" -- The Prospectus for shares of the Funds.
"SAI" -- This Statement of Additional Information.
"SEI Administrative" -- SEI Fund Resources, the Trust's sub-administrator.
"SEI Investments" -- SEI Investments Distribution Co., the Trust's
distributor.
"Trust" -- Huntington VA Funds.
The Trust was organized as a Massachusetts business trust on June 30, 1999.
The Trust is an open-end, management investment company consisting of two
separate Funds with separate investment objectives and policies established
exclusively as investment vehicles for separate accounts offered by Hartford
Life Insurance Company. Each of these Funds is diversified.
INVESTMENT PRACTICES AND RISKS
The Prospectus discusses the principal investment strategies and risks of
investing in each of the Funds. Below you will find more detail about the types
of investments and investment practices permitted by each Fund, including those
which are not part of a Fund's principal investment strategy.
Common Stock
Common stock is a type of equity security which represents an ownership
interest in a corporation and the right to a portion of the assets of the
corporation in the event of liquidation. This right, however, is subordinate to
that of preferred stockholders and any creditors, including holders of debt
issued by the
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<PAGE>
corporation. Owners of common stock are generally entitled to vote on important
matters. A corporation may pay dividends on common stock.
Each of the Funds may invest in common stock.
Convertible Securities
Convertible securities include fixed income securities that may be
exchanged or converted into a predetermined number of shares of the issuer's
underlying common stock at the option of the holder during a specified period.
Convertible securities may take the form of convertible preferred stock,
convertible bonds or debentures, units consisting of "usable" bonds and warrants
or a combination of the features of several of these securities. The investment
characteristics of each convertible security vary widely, which allows
convertible securities to be employed for a variety of investment strategies. A
Fund will exchange or convert the convertible securities held in its portfolio
into shares of the underlying common stock when, in its investment adviser's
opinion, the investment characteristics of the underlying common shares will
assist the Fund in achieving its investment objective. Otherwise the Fund may
hold or trade convertible securities.
Each of the Funds may invest in convertible securities.
Corporate Debt (Including Bonds, Notes and Debentures)
Corporate debt includes any obligation of a corporation to repay a borrowed
amount at maturity and usually to pay the holder interest at specific intervals.
Corporate debt can have a long or short maturity and is often rated by one or
more nationally recognized statistical rating organizations. See the Appendix
to this SAI for a description of these ratings.
The Income Equity Fund may invest in corporate debt.
Credit (or Default) Risk
To the extent that a Fund invests in corporate debt or other fixed income
securities, it is subject to the risk that an issuer of those securities may
default on its obligation to pay interest and repay principal. Also, changes in
the financial strength of an issuer or changes in the credit rating of a
security may affect its value. Credit risk includes "counterparty risk," -- the
risk that the other party to a transaction will not fulfill its contractual
obligation. This risk applies, for example, to repurchase agreements into which
a Fund may enter. Securities rated below investment grade are particularly
subject to credit risk.
Credit-Enhanced Securities
Credit-enhanced securities are securities whose credit rating has been
enhanced, typically by the existence of a guarantee, letter of credit, insurance
or unconditional demand feature. In most cases, Huntington evaluates the credit
quality and ratings of credit-enhanced securities based upon the financial
condition and ratings of the party providing the credit enhancement (the "credit
enhancer") rather than the issuer. However, except where prohibited by Rule 2a-
7 under the 1940 Act, credit-enhanced securities will not be treated as having
been issued by the credit enhancer for diversification purposes, unless the Fund
has invested more than 10% of its assets in securities issued, guaranteed or
otherwise credit enhanced by the credit enhancer, in which case the securities
will be treated as having been issued both by the issuer and the credit
enhancer. The bankruptcy, receivership or default of the credit enhancer will
adversely affect the quality and marketability of the underlying security. A
default on the underlying
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<PAGE>
security or other event that terminates a demand feature prior to its exercise
will adversely affect the liquidity of the underlying security.
Each of the Funds may invest in credit-enhanced securities.
Defensive Investments
At times Huntington may determine that conditions in securities markets may
make pursuing a Fund's principal investment strategies inconsistent with the
best interests of the Fund's shareholders. At such times, Huntington may
temporarily use alternative strategies, primarily designed to reduce
fluctuations in the value of a Fund's assets. In implementing these temporary
"defensive" strategies, a Fund may temporarily place all or a portion of its
assets in cash, U.S. Government securities, debt securities which Huntington
considers to be of comparable quality to the acceptable investments of the Fund
and other investments which Huntington considers consistent with such
strategies.
Equity Risk
Equity risk is the risk that stock prices will fall quickly and
dramatically over short or extended periods of time. Stock markets tend to move
in cycles, with periods of rising prices and period of falling prices. Often,
dramatic movements in prices occur in response to reports of a company's
earnings, economic statistics or other factors which affect an issuer's
profitability.
To the extent that a Fund invests in smaller capitalization stocks, it may
be subject to greater risks than those associated with investment in larger,
more established companies. Small companies tend to have limited product lines,
markets or financial resources, and may be dependent on a small management
group. Small company stocks may be subject to more abrupt or erratic price
movements, for reasons such as lower trading volumes, greater sensitivity to
changing conditions and less certain growth prospects. Additionally, there are
fewer market makers for these stocks and wider spreads between quoted bid and
asked prices in the over-the-counter market for these stocks. Small cap stocks
also tend to be subject to greater liquidity risk, particularly during periods
of market disruption, and there is often less publicly available information
concerning these securities.
Equity Securities
Equity securities include both foreign and domestic common stocks,
preferred stocks, securities convertible or exchangeable into common or
preferred stocks, and other securities which the Adviser believes have common
stock characteristics, such as rights and warrants.
Each of the Funds may invest in equity securities.
Fixed Income Securities
Fixed income securities include corporate debt securities, U.S. Government
securities, mortgage-related securities, tax-exempt securities and any other
securities which provide a stream of fixed payments to the holder.
Foreign Currency Options (Also see "Options")
Options on foreign currencies operate similarly to options on securities,
and are traded primarily in the over-the-counter market (so-called "OTC
options"), although options on foreign currencies have recently been listed on
several exchanges. Options will be purchased or written only when Huntington
believes
4
<PAGE>
that a liquid secondary market exists for such options. There can be no
assurance that a liquid secondary market will exist for a particular option at
any specific time. Options on foreign currencies are affected by all of those
factors which influence exchange rates and investments generally.
Purchases and sales of options may be used to increase current return. They
are also used in connection with hedging transactions. See "Foreign Currency
Transactions."
Writing covered call options on currencies may offset some of the costs of
hedging against fluctuations in currency exchange rates. For transaction
hedging purposes a Fund may also purchase exchange-listed and OTC put and call
options on foreign currency futures contracts and on foreign currencies. A put
option on a futures contract gives a Fund the right to assume a short position
in the futures contract until expiration of the option. A call option on a
futures contract gives a Fund the right to assume a long position in the futures
contract until the expiration of the option.
The value of a foreign currency option is dependent upon the value of the
foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors
maybe disadvantaged by having to deal in an odd lot market (generally consisting
of transactions of less than $1 million) for the underlying foreign currencies
at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the U.S. options
markets.
Each of the Funds may invest in foreign currency options.
Foreign Currency Transactions
Foreign currency transactions include purchasing and selling foreign
currencies, entering into forward or futures contracts to purchase or sell
foreign currencies (see "Forward Foreign Currency and Foreign Currency Futures
Contracts"), and purchasing and selling options on foreign currencies (see
"Foreign Currency Options"). Foreign currency transactions may be used to hedge
against uncertainty in the level of future foreign currency exchange rates and
to increase current return.
Purchases and sales of foreign currencies on a spot basis are used to
increase current return. They are also used in connection with both "transaction
hedging" and "position hedging."
Transaction hedging involves entering into foreign currency transactions
with respect to specific receivables or payables generally arising in connection
with the purchase or sale of portfolio securities. Transaction hedging is used
to "lock in" the U.S. dollar price of a security to be purchased or sold, or the
U.S. dollar equivalent of a dividend or interest payment in a foreign currency.
The goal is to protect against a possible loss resulting from an adverse change
in the relationship between the U.S. dollar and the applicable foreign currency
during the period between the date on which the security is purchased or sold or
on which the dividend or interest payment is declared, and the date on which
such payments are made or received.
5
<PAGE>
Position hedging involves entering into foreign currency transactions
either to protect against: (i) a decline in the value of a foreign currency in
which a security held or to be sold is denominated; or (ii) an increase in the
value of a foreign currency in which a security to be purchased is denominated.
In connection with position hedging, a Fund may purchase put or call options on
foreign currency and foreign currency futures contracts and buy or sell forward
contracts and foreign currency futures contracts.
Neither transaction nor position hedging eliminates fluctuations in the
underlying prices of the securities which a Fund owns or intends to purchase or
sell. They simply establish a rate of exchange which can be achieved at some
future point in time. Additionally, although these techniques tend to minimize
the risk of loss due to a decline in the value of the hedged currency, they also
tend to limit any potential gain which might result from the increase in the
value of such currency
Hedging transactions are subject to correlation risk due to the fact that
the amounts of foreign currency exchange transactions and the value of the
portfolio securities involved will not generally be perfectly matched. This is
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the values of those securities between the
dates the currency exchange transactions are entered into and the dates they
mature.
Each of the Funds may use foreign currency transactions.
Forward Foreign Currency and Foreign Currency Futures Contracts
A forward foreign currency contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract as agreed by the parties, at a price set at the
time of the contract. In the case of a cancelable forward contract, the holder
has the unilateral right to cancel the contract at maturity by paying a
specified fee. The contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.
A foreign currency futures contract is a standardized contract for the
future delivery of a specified amount of a foreign currency at a future date at
a price set at the time of the contract. Foreign currency futures contracts
traded in the United States are designed by and traded on exchanges regulated by
the Commodity Futures Trading Commission (the "CFTC"), such as the New York
Mercantile Exchange.
Forward foreign currency contracts differ from foreign currency futures
contracts in certain respects. For example, the maturity date of a forward
contract may be any fixed number of days from the date of the contract agreed
upon by the parties, rather than a predetermined date in a given month. Forward
contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward foreign currency contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, a Fund may either accept
or make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
6
<PAGE>
Forward foreign currency contracts and foreign currency futures contracts
can be used to increase current return. They are also used in connection with
both "transaction hedging" and "position hedging." See "Foreign Currency
Transactions."
Among the risks of using foreign currency futures contracts is the fact
that positions in these contracts (and any related options) may be closed out
only on an exchange or board of trade which provides a secondary market.
Although it is intended that any Fund using foreign currency futures contracts
and related options will only purchase or sell them on exchanges or boards of
trade where there appears to be an active secondary market, there is no
assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or option or at any particular time. In such event,
it may not be possible to close a futures or related option position and, in the
event of adverse price movements, a Fund would continue to be required to make
daily cash payments of variation margin on its futures positions.
In addition, it is impossible to forecast with precision the market value
of a security at the expiration or maturity of a forward or futures contract.
Accordingly, it may be necessary to purchase additional foreign currency on the
spot market (and bear the expense of such purchase) if the market value of the
security being hedged is less than the amount of foreign currency a Fund is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency. Conversely, it may be necessary to sell on the
spot market some of the foreign currency received upon the sale of the hedged
portfolio security if the market value of such security exceeds the amount of
foreign currency a Fund is obligated to deliver.
Each of the Funds may invest in forward foreign currency and foreign
currency futures contracts.
Foreign Securities
Foreign securities are those securities which are issued by companies
located outside the United States and principally traded in foreign markets.
This includes equity and debt securities of foreign entities and obligations of
foreign branches of U.S. and foreign banks. Investment in foreign securities is
subject to a number of special risks.
Since foreign securities are normally denominated and traded in foreign
currencies, the value of a Fund's assets invested in such securities may be
affected favorably or unfavorably by currency exchange rates and exchange
control regulation. Exchange rates with respect to certain currencies may be
particularly volatile. Additionally, although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at one
rate, while offering a lesser rate of exchange should a Fund desire to resell
that currency to the dealer.
There may be less information publicly available about a foreign company
than about a U.S. company, and foreign companies are not generally subject to
accounting, auditing, and financial reporting standards and practices comparable
to those in the United States. The securities of some foreign companies are less
liquid and at times more volatile than securities of comparable U.S. companies.
Foreign brokerage commissions and other fees are also generally higher than in
the United States. Foreign settlement procedures and trade regulations may
involve certain risks (such as delays in payment or delivery of securities or in
the recovery of a Fund's assets held abroad) and expenses not present in the
settlement of domestic investments.
In addition, with respect to certain foreign countries, there is a
possibility of nationalization or expropriation of assets, confiscatory
taxation, political or financial instability and diplomatic developments which
could affect the value of investments in those countries. In certain countries,
legal remedies
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<PAGE>
available to investors may be more limited than those available with respect to
investments in the United States or other countries. The laws of some foreign
countries may limit a Fund's ability to invest in securities of certain issuers
located in those countries. Special tax considerations apply to foreign
securities.
Each of the Funds may invest in foreign securities.
Futures Contracts and Options on Futures Contracts
A futures contract is a binding contractual commitment which, if held to
maturity, will result in an obligation to make or accept delivery of a security
at a specified future time and price. By purchasing futures (assuming a "long"
position) a Fund will legally obligate itself to accept the future delivery of
the underlying security and pay the agreed price. By selling futures (assuming a
"short" position) it will legally obligate itself to make the future delivery of
the security against payment of the agreed price. Open futures positions on debt
securities will be valued at the most recent settlement price, unless that price
does not in the judgment of the Trustees reflect the fair value of the contract,
in which case the positions will be valued by or under the direction of the
Trustees. Positions taken in the futures markets are not normally held to
maturity, but are instead liquidated through offsetting transactions which may
result in a profit or a loss. While futures positions taken by a Fund will
usually be liquidated in this manner, a Fund may instead make or take delivery
of the underlying securities whenever it appears economically advantageous to
the Fund to do so. A clearing corporation associated with the exchange on which
futures are traded assumes responsibility for such closing transactions and
guarantees that the Fund's sale and purchase obligations under closed-out
positions will be performed at the termination of the contract.
Hedging by use of futures on debt securities seeks to establish more
certainly than would otherwise be possible the effective rate of return on
portfolio securities. A Fund may, for example, take a "short" position in the
futures market by selling contracts for the future delivery of debt securities
held by the Fund (or securities having characteristics similar to those held by
the Fund) in order to hedge against an anticipated rise in interest rates that
would adversely affect the value of the Fund's portfolio securities. When
hedging of this character is successful, any depreciation in the value of
portfolio securities may be offset by appreciation in the value of the futures
position.
On other occasions, a Fund may take a "long" position by purchasing futures
on debt securities. This would be done, for example, when Huntington expects to
purchase for a Fund particular securities when it has the necessary cash, but
expects the rate of return available in the securities markets at that time to
be less favorable than rates currently available in the futures markets. If the
anticipated rise in the price of the securities should occur (with its
concomitant reduction in yield), the increased cost to the Fund of purchasing
the securities may be offset by the rise in the value of the futures position
taken in anticipation of the subsequent securities purchase.
Successful use by a Fund of futures contracts on debt securities is subject
to Huntington's ability to predict correctly movements in the direction of
interest rates and other factors affecting markets for debt securities. For
example, if a Fund has hedged against the possibility of an increase in interest
rates which would adversely affect the market prices of debt securities held by
it and the prices of such securities increase instead, the Fund will lose part
or all of the benefit of 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 margin maintenance requirements. A Fund may have
to sell securities at a time when it may be disadvantageous to do so.
A Fund may purchase and write put and call options on debt futures
contracts, as they become available. Such options are similar to options on
securities except that options on futures contracts give
8
<PAGE>
the purchaser the right, in return for the premium paid, to assume a position in
a futures contract (a long position if the option is a call and a short position
if the option is a put) at a specified exercise price at any time during the
period of the option. As with options on securities, the holder or writer of an
option may terminate its position by selling or purchasing an option of the same
series. There is no guarantee that such closing transactions can be effected. A
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, and, in addition, net option premiums received will be
included as initial margin deposits. See "Margin Payments" below. Compared to
the purchase or sale of futures contracts, the purchase of call or put options
on futures contracts involves less potential risk to a Fund because the maximum
amount at risk is the premium paid for the options plus transactions costs.
However, there may be circumstances when the purchases of call or put options on
a futures contract would result in a loss to a Fund when the purchase or sale of
the futures contracts would not, such as when there is no movement in the prices
of debt securities. The writing of a put or call option on a futures contract
involves risks similar to those risks relating to the purchase or sale of
futures contracts.
Margin payments. When a Fund purchases or sells a futures contract, it is
required to deposit with its custodian an amount of cash, U.S. Treasury bills,
or other permissible collateral equal to a small percentage of the amount of the
futures contract. This amount is known as "initial margin". The nature of
initial margin is different from that of in security transactions in that it
does not involve borrowing money to finance transactions. Rather, initial margin
is similar to a performance bond or good faith deposit that is returned to the
Fund upon termination of the contract, assuming the Fund satisfies its
contractual obligations. Subsequent payments to and from the broker occur on a
daily basis in a process known as "marking to market". These payments are called
"variation margin" and are made as the value of the underlying futures contract
fluctuates. For example, when a Fund sells a futures contract and the price of
the underlying debt security rises above the delivery price, the Fund's position
declines in value. The Fund then pays the broker a variation margin payment
equal to the difference between the delivery price of the futures contract and
the market price of the securities underlying the futures contract. Conversely,
if the price of the underlying security falls below the delivery price of the
contract, the Fund's futures position increases in value. The broker then must
make a variation margin payment equal to the difference between the delivery
price of the futures contract and the market price of the securities underlying
the futures contract.
When a Fund terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Fund, and the Fund realizes a loss or a gain. Such closing transactions involve
additional commission costs.
Liquidity risks. Positions in futures contracts may be closed out only on
an exchange or board of trade which provides a secondary market for such
futures. Although the Trust intends to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange or
board of trade will exist for any particular contract or at any particular time.
If there is not a liquid secondary market at a particular time, it may not be
possible to close a futures position at such time and, in the event of adverse
price movements, a Fund would continue to be required to make daily cash
payments of variation margin. However, in the event financial futures are used
to hedge portfolio securities, such securities will not generally be sold until
the financial futures can be terminated. In such circumstances, an increase in
the price of the portfolio securities, if any, may partially or completely
offset losses on the financial futures.
In addition to the risks that apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability to
establish and close out positions in such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
such a market will develop. Although a Fund generally will purchase only those
options for which there appears to be an
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active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option or at any particular time. In
the event no such market exists for particular options, it might not be possible
to effect closing transactions in such options, with the result that the Fund
would have to exercise the options in order to realize any profit.
Hedging risks. There are several risks in connection with the use by a Fund
of futures contracts and related options as a hedging device. One risk arises
because of the imperfect correlation between movements in the prices of the
futures contracts and options and movements in the prices of securities which
are the subject of the hedge. Huntington will, however, attempt to reduce this
risk by purchasing and selling, to the extent possible, futures contracts and
related options on securities and indexes the movements of which will, in its
judgment, correlate closely with movements in the prices of the portfolio
securities sought to be hedged.
Successful use of futures contracts and options by a Fund for hedging
purposes is also subject to Huntington's ability to predict correctly movements
in the direction of the market. It is possible that, where a Fund has purchased
puts on futures contracts to hedge its portfolio against a decline in the
market, the securities or index on which the puts are purchased may increase in
value and the value of securities held in the portfolio may decline. If this
occurred, the Fund would lose money on the puts and also experience a decline in
value in its portfolio securities. In addition, the prices of futures, for a
number of reasons, may not correlate perfectly with movements in the underlying
securities or index due to certain market distortions. First, all participants
in the futures market are subject to margin deposit requirements. Such
requirements may cause investors to close futures contracts through offsetting
transactions which could distort the normal relationship between the underlying
security or index and futures markets. Second, the margin requirements in the
futures markets are less onerous than margin requirements in the securities
markets in general, and as a result the futures markets may attract more
speculators than the securities markets do. Increased participation by
speculators in the futures markets may also cause temporary price distortions.
Due to the possibility of price distortion, even a correct forecast of general
market trends by Huntington may still not result in a successful hedging
transaction over a very short time period.
Other risks. Funds will incur brokerage fees in connection with their
futures and options transactions. In addition, while futures contracts and
options on futures will be purchased and sold to reduce certain risks, those
transactions themselves entail certain other risks. Thus, while a Fund may
benefit from the use of futures and related options, unanticipated changes in
interest rates or stock price movements may result in a poorer overall
performance for the Fund than if it had not entered into any futures contracts
or options transactions. Moreover, in the event of an imperfect correlation
between the futures position and the portfolio position which is intended to be
protected, the desired protection may not be obtained and the Fund may be
exposed to risk of loss.
Index Futures Contracts and Options on Index Futures Contracts
A debt index futures contract is a contract to buy or sell units of a
specified debt index at a specified future date at a price agreed upon when the
contract is made. A unit is the current value of the index. A stock index
futures contract is a contract to buy or sell units of a stock index at a
specified future date at a price agreed upon when the contract is made. A unit
is the current value of the stock index.
The following example illustrates generally the manner in which index
futures contracts operate. The Standard & Poor's 100 Stock Index is composed of
100 selected common stocks, most of which are listed on the New York Stock
Exchange. The S&P 100 Index assigns relative weightings to the common stocks
included in the Index, and the Index fluctuates with changes in the market
values of those common stocks. In the case of the S&P 100 Index, contracts are
to buy or sell 100 units. Thus, if the value of the S&P 100 Index were $180, one
contract would be worth $18,000 (100 units X $180). The stock index futures
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contract specifies that no delivery of the actual stocks making up the index
will take place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the contract
price and the actual level of the stock index at the expiration of the contract.
For example, if a Fund enters into a futures contract to buy 100 units of the
S&P 100 Index at a specified future date at a contract price of $180 and the S&P
100 Index is at $184 on that future date, the Fund will gain $400 (100 units X
gain of $4). If the Fund enters into a futures contract to sell 100 units of the
stock index at a specified future date at a contract price of $180 and the S&P
100 Index is at $182 on that future date, the Fund will lose $200 (100 units X
loss of $2). A Fund may purchase or sell futures contracts with respect to any
stock index. Positions in index futures may be closed out only on an exchange or
board of trade which provides a secondary market for such futures.
Purchases and sales of index futures may be used to hedge an investment. To
hedge an investment successfully, however, a Fund must invest in futures
contracts with respect to indices or sub-indices the movements of which will
have a significant correlation with movements in the prices of the Fund's
securities.
Options on index futures contracts are similar to options on securities
except that options on index futures contracts give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the holder assumes the underlying futures position
and receives a variation margin payment of cash or securities approximating the
increase in the value of the holder's option position. If an option is exercised
on the last trading day prior to the expiration date of the option, the
settlement is made entirely in cash based on the difference between the exercise
price of the option and the closing level of the index on which the futures
contract is based on the expiration date. Purchasers of options who fail to
exercise their options prior to the exercise date suffer a loss of the premium
paid.
As an alternative to purchasing call and put options on index futures
contracts, a Fund may purchase put and call options on the underlying indices
themselves to the extent that such options are traded on national securities
exchanges. Index options are similar to options on individual securities in that
the purchaser of an index option acquires the right to buy, and the writer
undertakes the obligation to sell, an index at a stated exercise price during
the term of the option. Instead of giving the right to take or make actual
delivery of securities, the holder of an index option has the right to receive a
cash "exercise settlement amount." This amount is equal to the amount by which
the fixed exercise price of the option exceeds (in the case of a put) or is less
than (in the case of a call) the closing value of the underlying index on the
date of the exercise, multiplied by a fixed "index multiplier."
Each of the Funds may utilize index futures or options on index futures.
Interest Rate Risk
Interest rate risk is the risk that changes in interest rates may cause a
decline in the market value of an investment. With bonds and other fixed income
securities, a rise in interest rates typically causes a fall in bond values,
while a fall in interest rates typically causes a rise in bond values. Fixed
income securities with longer maturities are more susceptible to changes in
value due to interest rate changes than are those with shorter maturities.
Recent market experience has shown that certain derivative mortgage
securities have a higher degree of interest rate risk and, as a result, the
prices of such securities may be highly volatile. In addition, recent market
experience has shown that during periods of rising interest rates, the market
for certain derivative mortgage securities may become more unstable and such
securities may become more
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difficult to sell as market makers either choose not to repurchase such
securities or offer prices which are unacceptable to the Adviser based on market
conditions.
Lending Portfolio Securities
In order to generate additional income, each of the Funds may lend its
portfolio securities on a short-term basis to brokers, dealers or other
financial institutions which Huntington has determined are creditworthy under
guidelines established by the Trustees. Consistent with guidelines established
by the SEC requirements, any loans made will be continuously secured by
collateral in cash or U.S. Government obligations at least equal at all times to
102% of the value of the securities on loan. As a matter of fundamental policy,
the aggregate value of all securities loaned by a Fund may not exceed 20% of the
Fund's total assets.
While portfolio securities are on loan, the borrower will pay to the
lending Fund any dividends or interest received on the securities. In addition,
the Fund retains all or a portion of the interest received on investment of the
collateral or receives a fee from the borrower. Although voting rights, or
rights to consent, with respect to the loaned securities pass to the borrower,
the lending Fund retains the right to call the loans at any time on reasonable
notice, and it will do so to enable a Fund to exercise voting rights on any
matters materially affecting the investment. A Fund may also call such loans in
order to sell the securities.
One of the risks in lending portfolio securities, as with other extensions
of credit, is the possible delay in recovery of the securities or possible loss
of rights in the collateral should the borrower fail financially. There is also
the risk that, when lending portfolio securities, the securities may not be
available to a Fund on a timely basis and a Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
Liquidity Risk
Certain securities may be difficult or impossible to sell at the time and
price that a Fund would like. A Fund may have to accept a lower price, sell
other securities or forego an investment opportunity, and this could have a
negative effect on performance. This risk applies to restricted securities, Rule
144A Securities certain over-the-counter options, securities not traded in the
U.S. markets and other securities that may trade in U.S. markets but are not
registered under the federal securities laws.
Market Risk
Market risk is the risk that the value of a security will move up or down,
sometimes rapidly and unpredictably. These fluctuations, which are often
referred to as "volatility," may cause a security to be worth less than it was
worth at an earlier time. Market risk may affect a single issuer, industry or
sector of the economy or the market as a whole. Market risk is common to most
investments, including stocks and bonds, and the mutual funds that invest in
them. Bonds and other fixed income securities generally involve less market risk
than stocks. The risks of investing in bonds, however, can vary significantly
depending upon factors such as issuer and maturity. The bonds of some companies
may be riskier than the stocks of others.
Money Market Instruments
Except where otherwise noted, each of the Funds may, for temporary
defensive or liquidity purposes, invest up to 100% of their assets in money
market instruments.
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Commercial Paper
Commercial paper represents an unsecured promissory note issued by a
corporation. Generally, issues of commercial paper have maturities of less
than nine months and rates of return which are fixed.
The commercial paper in which any of the Money Market Funds may invest
is subject to the issuer diversification and quality restrictions imposed
by Rule 2a-7 under the 1940 Act. The commercial paper in which the Mortgage
Securities Fund may invest must be: (i) rated A-1 or better by Standard &
Poor's Ratings Group ("S&P") or P-1 or better by Moody's Investors Service,
Inc. ("Moody's"); or (ii) unrated, but issued by companies with outstanding
debt issues rated AAA by S&P or Aaa by Moody's.
Bank Obligations
Bank obligations are short-term obligations issued by U.S. and foreign
banks, including bankers' acceptances, certificates of deposit, time
deposits and similar securities.
Variable Rate Demand Notes
Variable rate demand notes ("VRDNs") are unsecured, direct lending
arrangements between a Fund, as the lender, and a corporation, financial
institution, government agency, municipality or other entity.
VRDNs have interest rates which float or which are adjusted at regular
intervals ranging from daily to annually. Although the VRDNs are not
generally traded, a Fund may demand payment of principal and accrued
interest according to its arrangement with the borrower (usually upon no
more than seven days' notice). VRDNs are, therefore, treated as maturing on
the later of the next interest adjustment or the date on which a Fund may
next demand payment. Some VRDNs are backed by bank letters of credit.
Each of the Funds may only invest in VRDNs which satisfy its credit
requirements for commercial paper.
Money Market Mutual Funds
Under the 1940 Act, a Fund may not invest more than 10% of its total assets
at any one time in the shares of other funds, 5% of its total assets in the
shares of any one mutual fund, or more than 3% of the shares of any one fund.
When a Fund invests in the shares of other mutual funds, investment advisory and
other fees will apply, and the investment's yield will be reduced accordingly.
Each of the Funds may invest up to 5% of its total assets in the shares of
money market mutual funds for liquidity purposes.
Options
A call option gives the purchaser of the option the right to buy a security
at a stated price from the writer (seller) of the option. A put option gives the
purchaser of the option the right to sell a security at a stated price to the
writer of the option. In a covered call option, during the option period the
writer owns the security (or a comparable security sufficient to satisfy
securities exchange requirements) which may be sold pursuant to the option. In a
covered put option, the writer holds cash and/or short-term debt instruments
sufficient in an amount equal to the exercise price of the option. In addition,
a put or call
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option will be considered covered if and to the extent that some or all of the
risk of the option has been offset by another option. A Fund may write
combinations of covered puts and calls on the same underlying security.
In general, a Fund may write options in an attempt to increase returns or
purchase options for hedging purposes.
The premium received from writing a put or call option, increases a Fund's
return on the underlying security in the event that the option expires
unexercised or is closed out at a profit. The amount of the premium reflects,
among other things, the relationship between the exercise price and the current
market value of the underlying security, the volatility of the underlying
security, the amount of time remaining until expiration, current interest rates,
and the effect of supply and demand in the options market and in the market for
the underlying security. A put option locks in the price at which a Fund may
sell a security it holds, thus hedging against market declines and a call option
locks in the price at which a Fund may purchase a security, thus hedging against
inflation. Such protection is provided during the life of the put option since
the Fund, as holder of the option, is able to sell the underlying security at
the option's exercise price regardless of any decline in the underlying
security's market price.
By writing a call option, a Fund limits its opportunity to profit from any
increase in the market value of the underlying security above the exercise price
of the option but continues to bear the risk of a decline in the value of the
underlying security. By writing a put option, a Fund assumes the risk that it
may be required to purchase the underlying security for an exercise price higher
than its then current market value, resulting in a potential capital loss unless
the security substantially appreciates in value.
A Fund may terminate an option that it has written prior to its expiration
by entering into a closing purchase transaction, in which it purchases an
offsetting option. A Fund realizes a profit or loss from a closing transaction
if the cost of the transaction (option premium plus transaction costs) is less
or more than the premium received from writing the option. Because increases in
the market price of a call option generally reflect increases in the market
price of the security underlying the option, any loss resulting from a closing
purchase transaction may be offset in whole or in part by unrealized
appreciation of the underlying security owned by a Fund.
In order for a put option to be profitable, the market price of the
underlying security must decline sufficiently below the exercise price to cover
the premium and transaction costs. By using put options in this manner a Fund
will reduce any profit it might otherwise have realized from appreciation of the
underlying security by the premium paid for the put option and by transaction
costs.
In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs.
Each of the Funds may write or purchase put and call options. All call
options written must be covered.
The successful use of options depends on the ability of Huntington to
forecast interest rate and market movements. For example, if a Fund were to
write a call option based on Huntington's expectation that the price of the
underlying security will fall, but the price rises instead, the Fund could be
required to sell the security upon exercise at a price below the current market
price. Similarly, if a Fund were to write a put option based on Huntington's
expectations that the price of the underlying security will rise, but the price
falls instead, the Fund could be required to purchase the security upon exercise
at a price higher than the current market price.
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When a Fund purchases an option, it runs the risk that it will lose its
entire investment in the option in a relatively short period of time, unless the
Fund exercises the option or enters into a closing sale transaction with respect
to the option during the life of the option. If the price of the underlying
security does not rise (in the case of a call) or fall (in the case of a put) to
an extent sufficient to cover the option premium and transaction costs, a Fund
will lose part or all of its investment in the option. This contrasts with an
investment by a Fund in the underlying security, since the Fund will not lose
any of its investment in such security if the price does not change.
The use of options also involves the risk of imperfect correlation between
movements in option prices and movements in the value of the underlying
securities.
The effective use of options also depends on the Fund's ability to
terminate option positions at times when Huntington deems it desirable to do so.
Although a Fund will take an option position only if Huntington believes there
is a liquid secondary market for the option, there is no assurance that the Fund
will be able to effect closing transaction at any particular time or at an
acceptable price.
The Funds generally expect that their options transactions will be
conducted on recognized exchanges. In certain instances, however, a Fund may
purchase and sell options in the over-the-counter ("OTC") markets. A Fund's
ability to terminate options in the OTC market may be more limited than for
exchange-traded options and may also involve the risk that securities dealers
participating in such transactions would be unable to meet their obligations to
a Fund. A Fund will, however, engage in OTC market transactions only when
appropriate exchange-traded transactions are unavailable and when, in the
opinion of Huntington, the pricing mechanism and liquidity of the OTC market is
satisfactory and the participants are responsible parties likely to meet their
contractual obligations.
If a secondary trading market in options were to become unavailable, a Fund
could no longer engage in closing transactions. Lack of investor interest might
adversely affect the liquidity of the market for particular options or series of
options. A market may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable if unusual
events--such as volume in excess of trading or clearing capability--were to
interrupt its normal operations.
A market may at times find it necessary to impose restrictions on
particular types of options transactions, such as opening transactions. For
example, if an underlying security ceases to meet qualifications imposed by the
market or the Options Clearing Corporation, new series of options on that
security will no longer be opened to replace expiring series, and opening
transactions in existing series may be prohibited. If an options market were to
become unavailable, a Fund as a holder of an option would be able to realize
profits or limit losses only by exercising the option, and the Fund, as option
writer, would remain obligated under the option until expiration.
Disruptions in the markets for the securities underlying options purchased
or sold by a Fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, a Fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with considerable losses if trading in the security reopens
at a substantially different price. In addition, the Options Clearing
Corporation or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, a Fund as a purchaser or writer of an option will be locked
into its position until one of the two restrictions has been lifted. If the
Options Clearing Corporation were to determine that the available supply of an
underlying security appears insufficient to permit delivery by the writers of
all outstanding calls in the event of exercise, it may prohibit indefinitely the
exercise of put options by holders who would be unable to deliver the underlying
interest. A Fund, as holder of such a put option, could lose its entire
investment if the prohibition remained in effect
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until the put option's expiration and the Fund was unable either to acquire the
underlying security or to sell the put option in the market.
Special risks are presented by internationally-traded options. Because of
time differences between the United States and various foreign countries, and
because different holidays are observed in different countries, foreign options
markets may be open for trading during hours or on days when U.S. markets are
closed. As a result, option premium may not reflect the current prices of the
underlying interest in the United States.
An exchange-listed option may be closed out only on an exchange which
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. If no secondary market were to
exist, it would be impossible to enter into a closing transaction to close out
an option position. As a result, a Fund may be forced to continue to hold, or to
purchase at a fixed price, a security on which it has sold an option at a time
when Huntington believes it is inadvisable to do so.
Higher than anticipated trading activity or order flow or other unforeseen
events might cause the Options Clearing Corporation or an exchange to institute
special trading procedures or restrictions that might restrict a Fund's use of
options. The exchanges have established limitations on the maximum number of
calls and puts of each class that may be held or written by an investor or group
of investors acting in concert. It is possible that the Trust and other clients
of Huntington may be considered such a group. These position limits may restrict
the Trust's ability to purchase or sell options on particular securities.
Options which are not traded on national securities exchanges may be closed out
only with the other party to the option transaction. For that reason, it may be
more difficult to close out unlisted options than listed options. Furthermore,
unlisted options are not subject to the protection afforded purchasers of listed
options by the Options Clearing Corporation.
Preferred Stock
Preferred stock is a type of equity security which represents an ownership
interest in a corporation and the right to a portion of the assets of the
corporation in the event of a liquidation. This right, however, is subordinate
to that of any creditors, including holders of debt issued by the corporation.
Owners of preferred stock ordinarily do not have voting rights, but are entitled
to dividends at a specified rate.
Each of the Funds may invest in preferred stock.
Repurchase Agreements
Repurchase agreements are agreements through which banks, broker-dealers
and other financial institutions approved by the Trustees sell securities
(usually U.S. Government securities) to a Fund and agree to repurchase those
securities at a specified price and time (usually not more than seven days from
the original sale). The seller's obligation to pay the repurchase price is
secured by the securities to be repurchased. These securities are required to be
held by the Fund, its custodian or a third-party custodian. In order to protect
the Fund's interest, collateral securities must have a value of at least 100% of
the resale price at all times. (The seller must provide additional collateral in
the event that this condition is not met). In general, the Adviser will require
collateral securities to have a value of at least 102% of the resale price at
the time the repurchase agreement is made. The collateral is marked to market on
a daily basis, thus enabling the Adviser to determine when to request additional
collateral from the seller.
If a seller defaults on its repurchase obligation, a Fund could realize a
loss on the sale of the underlying securities to the extent that the proceeds of
the sale (including accrued interest) are less than
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the resale price. In addition, even though the U.S. Bankruptcy Code provides
protection to a Fund if the seller becomes bankrupt or insolvent, the Fund may
suffer losses in such event.
Restricted and Illiquid Securities
Restricted securities are any securities which are subject to restriction
on resale under federal securities law, including commercial paper issued in
reliance on the exemption from registration afforded by Section 4(2) of the
Securities Act of 1933. Illiquid securities are any securities for which there
is a limited trading market and may, therefore, be difficult to sell at market
value. Because restricted and illiquid securities may be difficult to sell at an
acceptable price, they may be subject to greater volatility and may result in a
loss to a Fund.
Section 4(2) commercial paper is generally sold to institutional investors,
such as mutual funds, who agree that they are purchasing the paper for
investment purposes and not with a view to public distribution. Any resale by
the purchaser must be in an exempt transaction. Section 4(2) commercial paper is
normally resold to other institutional investors through or with the assistance
of the issuer or investment dealers who make a market in Section 4(2) commercial
paper, thus providing liquidity. The Trust believes that Section 4(2) commercial
paper and possibly certain other restricted securities which meet the criteria
for liquidity established by the Trustees are quite liquid. The Trust intends,
therefore, to treat these securities as liquid and not subject to the investment
limitation applicable to illiquid securities. In addition, because Section 4(2)
commercial paper is liquid, the Trust intends not to subject such paper to any
limitation applicable to restricted securities.
Each of the Funds may invest in illiquid securities (including restricted
securities, repurchase agreements providing for settlement on more than seven
days' notice and OTC options). None of the Funds will invest more than 10% of
its total assets in such securities.
Security-Specific Risk
Security-specific risk is the risk that the value of a particular security
may or may not move in the same direction as the market as a whole. All Funds
are subject to this type of risk.
U.S. Government Securities
U.S. Government securities are securities that are either issued or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies or instrumentalities. U.S. Government securities are limited to: direct
obligations of the U.S. Treasury, such as U.S. Treasury bills, notes, and bonds
and notes, bonds, and discount notes of U.S. Government agencies or
instrumentalities, including certain mortgage securities.
Some obligations issued or guaranteed by agencies or instrumentalities of
the U.S. Government, such as Government National Mortgage Association
participation certificates, are backed by the full faith and credit of the U.S.
Treasury.
Other such obligations are only supported by: the issuer's right to borrow
an amount limited to a specific line of credit from the U.S. Treasury; the
discretionary authority of the U.S. Government to purchase certain obligations
of an agency or instrumentality; or the credit of the agency or instrumentality.
Each of the Funds may invest in U.S. Government securities and may use them
for defensive purposes.
U.S. Treasury Security Futures Contracts and Options
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U.S. Treasury security futures contracts require the seller to deliver, or
the purchaser to take delivery of, the type of U.S. Treasury security called for
in the contract at a specified date and price. Options on U.S. Treasury
securities futures contracts give the purchaser the right in return for the
premium paid to assume a position in a U.S. Treasury security futures contract
at the specified option exercise price at any time during the period of the
option. U.S. Treasury security futures contracts and options on such contracts
are used to hedge against movements in the value of tax-exempt securities.
Successful use of U.S. Treasury security futures contracts depends on the
ability to predict the direction of interest rate movements and the effects of
other factors on the value of debt securities. For example, the sale of U.S.
Treasury security futures contracts is used to hedge against the possibility of
an increase in interest rates which would adversely affect the value of tax-
exempt securities held in a Fund's portfolio. If, unexpectedly, the prices of
the tax-exempt securities increase following a decline in interest rates, the
Fund will lose part or all of the benefit of 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 maintenance margin
requirements at a time when it may be disadvantageous to do so.
There is also a risk that price movements in U.S. Treasury security futures
contracts and related options will not correlate closely with price movements in
markets for tax-exempt securities. For example, if a Fund has hedged against a
decline in the values of tax-exempt securities held by it by selling U.S.
Treasury securities futures and the value of U.S. Treasury securities
subsequently increases while the value of its tax-exempt securities decreases,
the Fund will incur losses on both its U.S. Treasury security futures contracts
and its tax-exempt securities. Huntington will seek to reduce this risk by
monitoring movements in markets for U.S. Treasury security futures and options
and for tax-exempt securities closely.
Warrants
Warrants are basically options to purchase common stock at a specific price
(usually at a premium above the market value of the optioned common stock at
issuance) valid for a specific period of time. Warrants may have a life ranging
from less than a year to twenty years or may be perpetual. However, most
warrants have expiration dates after which they are worthless. In addition, if
the market price of the common stock does not exceed the warrant's exercise
price during the life of the warrant, the warrant will expire as worthless.
Warrants have no voting rights, pay no dividends, and have no rights with
respect to the assets of the corporation issuing them. The percentage increase
or decrease in the market price of the warrant may tend to be greater than the
percentage increase or decrease in the market price of the optioned common
stock.
Each of the Funds may invest in warrants.
When-Issued and Delayed Delivery Transactions
When-issued and delayed delivery transactions are arrangements through
which a Fund purchases securities with payment and delivery scheduled for a
future time. No fees or other expenses, other than normal transaction costs, are
incurred. However, liquid assets of the purchasing Fund sufficient to make
payment for the securities are segregated on the Fund's records at the trade
date. These assets are then marked to market daily and maintained until the
transaction has been settled. A seller's failure to complete a transaction may
cause a Fund to miss a desired price or yield. In addition, because of delayed
settlement, a Fund may pay more than market value on the settlement date. The
Adviser may choose to dispose of a commitment prior to settlement.
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None of the Funds intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20% of
the total value of its assets.
Each of the Funds may engage in when-issued and delayed delivery
transactions.
Year 2000 Risk
Year 2000 Risk is the risk that a Fund could be adversely affected if the
computer systems used by its investment adviser or other service providers do
not properly process and calculate date-related information and data beginning
on January 1, 2000. Year 2000 Risk exists because most computer systems were
designed only to recognize a two-digit year, not a four-digit year. When the
year 2000 begins, these computers may interpret "00" as the year 1900 and either
stop processing date-related computations or process them incorrectly. These
failures could have a negative impact on the handling of securities trades,
pricing and account services. Huntington is taking steps designed to address
Year 2000 Risk with respect to the computer systems that it uses and to obtain
satisfactory assurances that comparable steps are being taken by each of the
Trust's other service providers.
As of the date of this SAI, it is not anticipated that Year 2000 Risk
relating to the investment adviser or the Trust's other major service providers
will result in shareholders experiencing negative effects on their investment,
or on the services provided in connection therewith. There can be no assurances,
however, that the steps taken by Huntington and the Trust's other service
providers will be sufficient to avoid any adverse impact on the Funds. Year 2000
Risk also affects the companies in which the Funds invest, communications and
public utility companies, governmental entities, financial processors and other
companies upon which all investment companies rely.
INVESTMENT RESTRICTIONS
The following investment restrictions are fundamental and may not be
changed without a vote of a majority of the outstanding shares of a Fund.
Accordingly, the Trust will not, on behalf of a Fund:
(1) Invest 25% or more of the value of its total assets in securities of
companies primarily engaged in any one industry (other than the U.S.
Government, its agencies and instrumentalities). Such concentration
may occur as a result of changes in the market value of portfolio
securities, but such concentration may not result from investment.
(2) Loan more than 20% of a Fund's portfolio securities to brokers,
dealers or other financial organizations. All such loans will be
collateralized by cash or U.S. Government obligations that are
maintained at all times in an amount equal to at least 102% of the
current value of the loaned securities.
(3) Invest more than 10% of the value of its total assets in illiquid
securities including restricted securities, repurchase agreements of
over seven days' duration and OTC options.
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(4) Borrow in excess of 5% of its total assets (borrowings are permitted
only as a temporary measure for extraordinary or emergency purposes)
or pledge (mortgage) its assets as security for an indebtedness.
(5) Purchase or sell real estate or real estate mortgage loans; provided,
however, that the Funds may invest in securities secured by real
estate or interests therein or issued by companies which invest in
real estate or interests therein.
(6) Purchase or sell commodities or commodities contracts, or interests in
oil, gas, or other mineral exploration or development programs
provided, however, that the Funds may invest in futures contracts for
bona fide hedging transactions, as defined in the General Regulations
under the Commodity Exchange Act, or for other transactions permitted
to entities exempt from the definition of the term commodity pool
operator, as long as, immediately after entering a futures contract no
more than 5% of the fair market value of a Fund's assets would be
committed to initial margins.
(7) Engage in the business of underwriting securities issued by others or
purchase securities, other than time deposits and restricted
securities (i.e., securities which cannot be sold without registration
or an exemption from registration), subject to legal or contractual
restrictions on disposition.
(8) Make loans to any person or firm except as provided below; provided,
however, that the making of a loan shall not be construed to include
(i) the acquisition for investment of bonds, debentures, notes or
other evidences of indebtedness of any corporation or government which
are publicly distributed or of a type customarily purchased by
institutional investors (which are debt securities, generally rated
not less than A by Moody's or S&P, or the equivalent, privately issued
and purchased by such entities as banks, insurance companies and
investment companies), or (ii) the entry into repurchase agreements.
However, each of the Funds may lend its portfolio securities to
brokers, dealers or other institutional investors deemed by Huntington
pursuant to criteria adopted by the Trustees, to be creditworthy if,
as a result thereof, the aggregate value of all securities loaned does
not exceed 20% of the value of total assets and the loan is
collateralized by cash or U.S. Government obligations that are
maintained at all times in an amount equal to at least 102% of the
current market value of the loaned securities. Such transactions will
comply with all applicable laws and regulations.
(9) Issue senior securities.
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All percentage limitations on investments will apply at the time of the
making of an investment and should not be considered violated unless an excess
or deficiency occurs or exists immediately after and as a result of such
investment.
Portfolio Turnover
The portfolio turnover rate of a Fund is defined by the Securities and
Exchange Commission as the ratio of the lesser of annual sales or purchases to
the monthly average value of the portfolio, excluding from both the numerator
and the denominator securities with maturities at the time of acquisition of one
year or less. Portfolio turnover generally involves some expense to a Fund,
including brokerage commissions or dealer mark-ups and other transactions costs
on the sale of securities and reinvestment in other securities.
Portfolio turnover rates for each of the Growth Fund and the Income Equity
Fund are estimated to be less than 50% per year.
MANAGEMENT OF THE TRUST
Trustees and Officers
The Trustees of the Trust are responsible for generally overseeing the
conduct of each Fund's business in accordance with the laws of the state of
Massachusetts. Trustees and officers of the Trust and their principal
occupations during the past five years are as set forth below.
Position(s)
Held With Principal Occupation(s)
Name, Age and Address The Trust During Past Five Years
- --------------------- --------- -----------------------
David S. Schoedinger Trustee Chairman of the Board,
229 East State Street Schoedinger Funeral
Columbus, Ohio Service; President
Birth date: November 27, 1942 Schoedinger Financial
Services, Inc.; Past
President, Board of
Directors of National
Selected (1992-1993).
John M. Shary Trustee and Retired; Formerly:
3097 Walden Ravine Chairman of the Member, Business
Columbus, Ohio 43321 Board Advisory Board, DPEC-Data
Birth date: November 28, 1930 Processing Education
Corp. (1993-1996);
Member, Business Advisory
Board, Hublink, Inc.
(1993-1997); Member,
Business Advisory
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Position(s)
Held With Principal Occupation(s)
Name, Age and Address The Trust During Past Five Years
- --------------------- --------- -----------------------
Board, Miratel
Corporation (1993- 1995);
Member, Board of
Directors, Applied
Information Technology
Research Center (1987-
1990); Member, Board of
Directors, AIT (1987-
1990); Chief Financial
Officer of OCLC Online
Computer Library Center,
Inc. (1978-1993).
William R. Wise Trustee Retired; Formerly,
613 Valley Forge Court Corporate Director of
Westerville, Ohio Financial Services and
Birth date: October 20, 1931 Treasurer, Children's
Hospital, Columbus, Ohio;
Associate Executive
Director and Treasurer,
Children's Hospital,
Columbus, Ohio (1985-
1989).
Mark Nagle President and Vice President, Fund
One Freedom Valley Road Chief Executive Accounting and
Oaks, Pennsylvania 19456 Officer Administration of SEI
Birth date: October 20, 1959 Fund Resources since
1996; BISYS Fund Services
from 1995 to 1996; Senior
Vice President, Fidelity
Investments from 1981-
1995.
Robert DellaCroce Treasurer, Director, Funds
One Freedom Valley Road Controller and Administration and
Oaks, Pennsylvania 19456 Chief Financial Accounting of SEI since
Birth date: December 17, 1963 Officer 1994. Senior Audit
Manager, Arthur Anderson
LLP, from 1986 to 1994.
James R. Foggo Vice President Vice President and
One Freedom Valley Road and Secretary Assistant Secretary of
Oaks, Pennsylvania 19456 SEI since 1998;
Birth date: June 30, 1964 Associate, Paul, Weiss,
Rifkind, Wharton &
Garrison (1998);
Associate, Baker &
McKenzie (1995-1998);
Associate, Battle Fowler
L.L.P. (1993-1998).
Kathy Heilig Vice President Treasurer of SEI
One Freedom Valley Road and Assistant Investments Company since
Oaks, Pennsylvania 19456 Secretary 1997; Assistant
Birth date: December 21, 1958 Controller of SEI
Investments Company since
1995; Vice President of
SEI Investments Company
since 1991.
Todd Cipperman Vice President Vice President and
One Freedom Valley Road and Assistant Assistant Secretary of
Oaks, Pennsylvania 19456 Secretary SEI Corporation since
Birth date: February 14, 1966 1995; Associate attorney
with Dewey Ballantine
(1994-1995); Associate
attorney with Winston &
Strawn (1991-1994).
Kevin P. Robbins Vice President Senior Vice President,
and General
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Position(s)
Held With Principal Occupation(s)
Name, Age and Address The Trust During Past Five Years
- --------------------- --------- -----------------------
One Freedom Valley Road Assistant Counsel and Secretary of
Oaks, Pennsylvania 19456 Secretary SEI Corporation since
Birth date: April 15, 1961 1994. Vice President and
Assistant Secretary
(1992-1994); Associate
attorney with Morgan,
Lewis & Bockius (1988-
1992).
Trustee Compensation
During the year ended December 31, 1998, prior to the commencement of the
Trust's operations, the Trustees received the following total compensation from
the Huntington Funds, a separate investment company advised by Huntington, for
their services as Trustees with respect to those Funds:
Name and Position Compensation
----------------- ------------
David S. Schoedinger, Trustee $ 12,500
John M. Shary, Trustee and Chairman $ 16,500
William R. Wise, Trustee $ 12,500
There are no pension or retirement plans or programs in effect for Trustees
of the Trust. No officers of the Trust or of any other Fund receive compensation
from the Trust or the Funds as officers or employees of the Trust of any such
Fund.
The Declaration of Trust of the Trust provides that the Trust will, to the
fullest extent permitted by law, indemnify its Trustees and officers against all
liabilities and against all expenses reasonably incurred in connection with any
claim, action, suit or proceeding in which they may be involved because of their
offices with the Trust, except if it is determined in the manner specified in
the Declaration of Trust that they have not acted in good faith in the
reasonable belief that their actions were in the best interests of the Trust or
that such indemnification would relieve any officer or Trustee of any liability
to the Trust or its shareholders by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of his or her duties. The Trust, at its
expense, may provide liability insurance for the benefit of its Trustees and
officers.
Investment Adviser
Huntington National Bank is the investment adviser to each of the Funds of
the Trust. It is an indirect, wholly-owned subsidiary of Huntington Bancshares
Incorporated ("HBI") and is deemed to be controlled by HBI. With $29 billion in
assets as of September 30, 1999, HBI is a major Midwest regional bank holding
company. Through its subsidiaries and affiliates, HBI offers a full range of
services to the public, including: commercial lending, depository services, cash
management, brokerage services, retail banking, international services, mortgage
banking, investment advisory services and trust services.
Under the investment advisory agreement between the Trust and Huntington
(the "Investment Advisory Agreement"), Huntington, at its expense, furnishes a
continuous an investment program for the Funds and makes investment decisions on
their behalf, all subject to such policies as the Trustees may determine.
Investment decisions are subject to the provisions of the Trust's Declaration of
Trust and
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By-laws, and of the 1940 Act. In addition, Huntington makes decisions consistent
with a Fund's investment objectives, policies, and restrictions, and such
policies and instructions as the Trustees may, from time to time, establish.
Each of the Funds pays advisory fees to Huntington based on a percentages
of its average daily net assets as specified in the Investment Advisory
Agreement and described in the Prospectus.
The Investment Advisory Agreement provides that Huntington shall not be
subject to any liability for any error of judgment or mistake of law or for any
loss suffered by the Trust in connection with the matters to which the
Investment Advisory Agreement relates, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith, gross negligence, or
reckless disregard of its obligations and duties on the part of Huntington.
The Investment Advisory Agreement may be terminated without penalty with
respect to any Fund at any time by the vote of the Trustees or by the
shareholders of that Fund upon 60 days' written notice, or by Huntington on 90
days' written notice. The Investment Advisory Agreement may be amended only by a
vote of the shareholders of the affected Fund(s). The Agreement also terminates
without payment of any penalty in the event of its assignment. The Investment
Advisory Agreement provides that it will continue in effect from year to year
only so long as such continuance is approved at least annually with respect to
each Fund by the vote of either the Trustees or the shareholders of the Fund,
and, in either case, by a majority of the Trustees who are not "interested
persons" of Huntington.
From time to time, the Adviser may use a portion of its investment advisory
fee to pay for certain administrative services provided by financial
institutions on shares of the Funds.
Glass-Steagall Act
In 1971, the United States Supreme Court held in Investment Company
Institute v. Camp that the federal statute commonly referred to as the Glass-
Steagall Act prohibits a national bank from operating a mutual fund for the
collective investment of managing agency accounts. Subsequently, the Board of
Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in Board of Governors of the Federal Reserve System v.
Investment Company Institute that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to registered closed-end investment companies. In the Board
of Governors case, the Supreme Court also stated that if a national bank
complies with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
Huntington believes that it possesses the legal authority to perform the
services for the Trust contemplated by the Investment Advisory Agreement. Future
changes in either federal or state statutes and regulations relating to the
permissible activities of banks or bank holding companies and the subsidiaries
or affiliates of those entities, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations
could prevent or restrict Huntington from
24
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continuing to perform such services for the Trust. Depending upon the nature of
any changes in the services which could be provided by Huntington, the Board of
Trustees of the Trust would review the Trust's relationship with Huntington and
consider taking all action necessary in the circumstances.
Should further legislative, judicial, or administrative action prohibit or
restrict the activities of Huntington, its affiliates, and its correspondent
banks in connection with customer purchases of shares of the Trust, such banks
might be required to alter materially or discontinue the services offered by
them to customers. It is not anticipated, however, that any change in the Funds'
method of operations would affect their net asset values per share or result in
financial losses to any customer.
State securities laws governing the ability of depository institutions to
act as underwriters or distributors of securities may differ from
interpretations given to the Glass-Steagall Act and, therefore, banks and
financial institutions maybe required to register as dealers pursuant to state
law.
Portfolio Transactions
Huntington may place portfolio transactions with broker-dealers which
furnish, without cost, certain research, statistical, and quotation services of
value to Huntington and its affiliates in advising the Trust and other clients,
provided that they shall always seek best price and execution with respect to
the transactions. Certain investments may be appropriate for the Trust and for
other clients advised by Huntington. Investment decisions for the Trust and
other clients are made with a view to achieving their respective investment
objectives and after consideration of such factors as their current holdings,
availability of cash for investment, and the size of their investments
generally. Frequently, a particular security may be bought or sold for only one
client or in different amounts and at different times for more than one but less
than all clients. Likewise, a particular security may be bought for one or more
clients when one or more other clients are selling the security. In addition,
purchases or sales of the same security may be made for two or more clients of
an investment adviser on the same day. In such event, such transactions will be
allocated among the clients in a manner believed by Huntington to be equitable
to each. In some cases, this procedure could have an adverse effect on the price
or amount of the securities purchased or sold by the Trust. Purchase and sale
orders for the Trust may be combined with those of other clients of Huntington
in the interest of achieving the most favorable net results for the Trust.
As part of its regular banking operations, Huntington may make loans to
public companies. Thus, it may be possible, from time to time, for the Funds to
hold or acquire the securities of issuers which are also lending clients of
Huntington. The lending relationship will not be a factor in the selection of
securities for the Funds.
Brokerage Allocation and Other Practices
Transactions on U.S. stock exchanges and other agency transactions involve
the payment by a Fund of negotiated brokerage commissions. Such commissions vary
among different brokers. Also, a particular broker may charge different
commissions according to such factors as the difficulty and size of the
transaction. Transactions in foreign securities often involve the payment of
fixed brokerage commissions, which are generally higher than those in the United
States. There is generally no stated commission in the case of securities traded
in the over-the-counter markets, but the price paid by a Fund usually includes
an undisclosed dealer commission or mark-up. In underwritten offerings, the
price paid by a Fund includes a disclosed, fixed commission or discount retained
by the underwriter or dealer.
Huntington places all orders for the purchase and sale of portfolio
securities for a Fund and buys and sells securities for a Fund through a
substantial number of brokers and dealers. In so doing, it uses its best efforts
to obtain for a Fund the best price and execution available. In seeking the best
price and
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<PAGE>
execution, Huntington, having in mind a Fund's best interests, considers all
factors it deems relevant, including, by way of illustration, price, the size of
the transaction, the nature of the market for the security, the amount of the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience, and financial stability of the broker-dealer
involved, and the quality of service rendered by the broker-dealer in other
transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research, statistical, and quotation services from broker-dealers
that execute portfolio transactions for the clients of such advisers. Consistent
with this practice, Huntington receives research, statistical, and quotation
services from many broker-dealers with which it places a Fund's portfolio
transactions. These services, which in some cases may also be purchased for
cash, include such matters as general economic and security market reviews,
industry and company reviews, evaluations of securities, and recommendations as
to the purchase and sale of securities. Some of these services are of value to
Huntington and its affiliates in advising various of their clients (including
the Trust), although not all of these services are necessarily useful and of
value in managing the Trust. The fee paid by a Fund to Huntington is not reduced
because Huntington and its affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, as
amended, and by the Investment Advisory Agreements, Huntington may cause a Fund
to pay a broker-dealer that provides the brokerage and research services
described above an amount of disclosed commission for effecting a securities
transaction for the Fund in excess of the commission which another broker-dealer
may charge for effecting that transaction. Huntington's authority to cause a
Fund to pay any such greater commissions is also subject to such policies as the
Trustees may adopt from time to time.
Administrator
Huntington is the Administrator of the Trust. Pursuant to its
Administration Agreement, Huntington provides the Trust with administrative
services, regulatory reporting, fund accounting and related portfolio accounting
services, all necessary office space, equipment, personnel, compensation and
facilities for handling the affairs of the Funds and such other services as the
Trustees may, from time to time, reasonably request and Huntington shall, from
time to time, reasonably determine to be necessary to perform its obligations
under the Administration Agreement. In addition, Huntington coordinates with
other service providers and legal counsel to provide other services to the
Trust. For its services, Huntington receives an annual fee, computed daily and
paid monthly, of 0.11% of each Fund's average daily net assets.
The Administration Agreement became effective on ___________, 1999, and
will continue in effect for a period of two years, and thereafter will continue
for successive one year periods, unless terminated by either party on not less
than 60 days' prior written notice. Under certain circumstances, the
Administration Agreement may be terminated on 45 days' prior written notice or
immediately by the Trust without prior notice. The Administration Agreement
provides that Huntington shall not be liable for any error of judgment or
mistake of law or any loss suffered by the Trust in connection with the matters
to which the Administration Agreement relates, except a loss resulting from
willful misfeasance, bad faith, or negligence in the performance of its duties,
or from the disregard by Huntington of its obligations and duties thereunder.
Sub-Administrator
Huntington has entered into a Sub-Administration Agreement with SEI
Administrative pursuant to which SEI Administrative provides certain
administrative services to the Trust. Under this Agreement,
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Huntington will pay to SEI Administrative a periodic fee at an annual rate of
0.05% of the average daily net assets of all Funds.
Administrative Services
Pursuant to an Administrative Services Agreement, Hartford Life Insurance
Company ("Hartford") provides certain administrative services to the Trust with
respect to assets of its separate accounts which are invested in the Funds.
These administrative services include: teleservicing support in connection with
the Funds; facilitation of delivery of current prospectuses, reports, notices,
proxies and proxy statements and other information materials; facilitation of
the tabulation of Variable Contract owners' votes in the event of a meeting of
Fund shareholders; providing the information relating to the Variable Contracts
and Share balances under such Variable Contracts to the Trust as may be
reasonably requested; provision of communication support services including
providing information about the Funds and answering questions concerning the
Funds, including questions respecting Variable Contract owners' interests in one
or more Funds; administration of fund transfers, dollar cost averaging, asset
allocation, portfolio rebalancing, earnings sweep, and pre-authorized deposits
and withdrawals involving the Funds; and provision of other services as may be
agreed upon from time to time. Hartford is compensated under the Administrative
Services Agreement at an annual rate of 0.25% of the average daily net assets of
shares of the Funds held by Hartford separate accounts.
Distributor
SEI Investments Distribution Co., whose address is One Freedom Valley Road,
Oaks, Pennsylvania 19456, is the Distributor (principal underwriters) of the
Funds. SEI Distribution is an affiliated person of SEI Administrative, the
Trust's Sub-Administrator. Under a Distribution Agreement with SEI Distribution
the Distributor sells and distributes shares of each of the Funds on a
continuous basis, but is not obligated to sell any specific amount of shares of
any Fund.
The Distribution Agreement may be terminated at any time as to any Fund on
not more than 60 days' notice by vote of a majority of the Trustees who are not
parties to such agreement or "interested persons" of any such party or by the
vote of a majority of the outstanding voting securities of the Fund.
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Custodian and Record Keeper
For each of the Funds, Huntington acts as custodian and record keeper. For
an annual fee of 0.056% of each Fund's average daily net assets, Huntington is
generally responsible as custodian for the safekeeping of Fund assets, including
the acceptance or delivery of cash or securities where appropriate, registration
of securities in the appropriate Fund name or the name of a nominee, maintenance
of bank accounts on behalf of the Funds and coordinating with other service
providers in such matters as shareholder taxation or proxy solicitation and the
calculation of net asset value. In addition, Huntington is responsible as record
keeper for the creation and maintenance of all Fund accounting records relating
to custodian activities required by the 1940 Act.
Transfer Agent and Dividend Disbursing Agent
State Street Bank and Trust Company, whose address is Two Heritage Drive,
Quincy, Massachusetts 02171, serves as the transfer agent and dividend
disbursing agent for the Trust.
Independent Auditors
KPMG LLP, whose address is Two Nationwide Plaza, Columbus, Ohio 43215,
serves as the independent auditors for the Trust.
Principal Holders of Securities
As of the date of this SAI, none of the Funds had any shareholders of
record.
SHAREHOLDER RIGHTS
The Trust is an open-end management investment company, whose Declaration
of Trust permits the Trust to offer separate series of shares of beneficial
interest, representing interests in separate portfolios of securities. The
shares in any one portfolio may be offered in two or more separate classes. As
of the date of this SAI, the Trustees have established one class of shares in
the VA Growth Fund and the VA Income Equity Fund.
All shareholders are entitled to one vote for each share held on the record
date for any action requiring a vote by the shareholders, and a proportionate
fractional vote for each fractional share held. Shareholders of the Trust will
vote in the aggregate and not by Fund except as otherwise expressly required by
law or when the Trustees determine that the matter to be voted upon affects only
the interests of the shareholders of a particular Fund.
The rights of shareholders cannot be modified without a majority vote.
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The Trust is not required to hold annual meetings of shareholders for the
purpose of electing Trustees except that (i) the Trust is required to hold a
shareholders' meeting for the election of Trustees at such time as less than a
majority of the Trustees holding office have been elected by shareholders and
(ii) if, as a result of a vacancy on the Board of Trustees, less than two-thirds
of the Trustees holding office have been elected by the shareholders, that
vacancy may only be filled by a vote of the shareholders. In addition, Trustees
may be removed from office by a written consent signed by the holders of shares
representing two-thirds of the outstanding shares of the Trust at a meeting duly
called for the purpose, which meeting must be held upon written request of not
less than 10% of the outstanding shares of the Trust. Upon written request by
the holders of shares representing 1% of the outstanding shares of the Trust
stating that such shareholders wish to communicate with the other shareholders
for the purpose of obtaining the signatures necessary to demand a meeting to
consider removal of a Trustee, the Trust will provide a list of shareholders or
disseminate appropriate materials (at the expense of the requesting
shareholders). Except as set forth above, the Trustees may continue to hold
office and may appoint successor Trustees.
Under Massachusetts law, shareholders could, under certain circumstances,
beheld personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Trust and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by the Trust or
the Trustees. The Declaration of Trust provides for indemnification out of a
Fund's property for all loss and expense of any shareholder held personally
liable for the obligations of a Fund. Thus the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Fund would be unable to meet its obligations.
Shareholder inquiries regarding the Funds should be directed to the Trust
c/o The Huntington National Bank, 41 South High Street, Columbus, Ohio 43215,
Attn: Investor Services.
ADDITIONAL INFORMATION ON PURCHASES, EXCHANGES AND REDEMPTIONS
Shares of the Funds may be purchased, exchanged and redeemed only by
contacting Hartford Life.
In connection with certain redemption or exchange requests, a shareholder
may be required to obtain a signature guarantee for authentication purposes. In
such cases, the signature must be guaranteed by:
. a trust company or commercial bank whose deposits are insured by the
Bank Insurance Fund ("BIF"), which is administered by the FDIC;
. a member of the New York, American, Midwest, or Pacific Stock
Exchanges;
. a savings bank or savings and loan association whose deposits are
insured by the Savings Association Insurance Fund ("SAIF"), which is
administered by the FDIC; or
. any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934.
The Trust does not accept signatures guaranteed by a notary public. In the
future, the Trust may elect to limit eligible signature guarantors to
institutions that are members of a signature guarantee program. The Trust
reserves the right to amend these standards at any time without notice.
Other Purchase Information
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Purchases are made at net asset value. If at any time the right to purchase
shares is suspended, although no new purchases may be made, in some
circumstances existing shareholders may be permitted to purchase additional
shares and have dividends reinvested.
Other Exchange Information
Exchanges may only be made between Funds having identical shareholder
registrations. For any other exchanges you must obtain a signature guarantee.
Unless otherwise specified in writing, the existing registration relating
to a Fund being exchanged will be used for any new Fund accounts required to be
opened in the exchange.
Exchanges will not be available for shares purchased by check until the
check has cleared.
Other Redemption Information
If a shareholder wishes to wire redemption proceeds to a bank other than
the one previously designated, redemption may be delayed by as much as seven
days. To change the name of the bank account to which redemption proceeds will
be wired, a shareholder should send a written request (and, if necessary, with a
signature guarantee) to the Trust, c/o Huntington National Bank, 41 South High
Street (HC 1116), Columbus Ohio 43287, Attention: Investor Services.
Proceeds from the redemption of shares purchased by check will not be
available until the check has cleared.
DETERMINATION OF NET ASSET VALUE
Net asset value is calculated as of the close of the New York Stock
Exchange every Monday through Friday except (i) days on which there are not
sufficient changes in the value of a Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no shares are
tendered for redemption and no orders to purchase shares are received; (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day and (iv) other
civil holidays, such as Veterans' Day and Martin Luther King Day, when the
Federal Reserve Banks or the financial markets are closed.
Each of the Funds relies on one or more pricing services authorized by the
Board of Trustees ("Authorized Pricing Services") to value its securities in
calculating net asset value. Each of the Funds values its securities in
calculating net asset value as follows. Securities traded on a national
securities exchange or quoted on the NASDAQ National Market System are valued at
their last-reported sale price on the principal exchange or reported by NASDAQ
or, if there is no reported sale, and in the case of over-the-counter securities
not included in the NASDAQ National Market System, at a bid price estimated by
an Authorized Pricing Service. For debt securities, including zero-coupon
securities, and foreign securities, an Authorized Pricing Service will be used.
Short-term investments with remaining maturities of 60 days or less at the
time of purchase are valued at amortized cost. Investments in other open-end
investment companies are valued at net asset value.
For securities which cannot be priced by an Authorized Pricing Service, the
Board of Trustees has authorized the Trust's record keeper to seek a good faith
fair value determination from a broker-dealer or
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other financial intermediary. In certain circumstances, in accordance with the
Trust's Security Valuation Policy, the record keeper may seek a good faith fair
value determination where an Authorized Pricing Service has provided a price.
The Trust's Security Valuation Policy has also established a Pricing Committee
which will price a security in the event that no price can be obtained from an
Authorized Pricing Service, a broker-dealer or other financial intermediary.
If any securities held by a Fund are restricted as to resale, their fair
value is generally determined as the amount which the Fund could reasonably
expect to realize from an orderly disposition of such securities over a
reasonable period of time. The valuation procedures applied in any specific
instance are likely to vary from case to case. However, consideration is
generally given to the financial position of the issuer and other fundamental
analytical data relating to the investment and to the nature of the restrictions
on disposition of the securities (including any registration expenses that might
be borne by the Fund in connection with such disposition). In addition, specific
factors are also generally considered, such as the cost of the investment, the
market value of any unrestricted securities of the same class (both at the time
of purchase and at the time of valuation), the size of the holding, the prices
of any recent transactions or offers with respect to such securities, and any
available analysts' reports regarding the issuer.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the New
York Stock Exchange. The values of these securities used in determining the net
asset value of the Fund's shares are computed as of such times. Also, because of
the amount of time required to collect and process trading information as to
large numbers of securities issues, the values of certain securities (such as
convertible bonds and U.S. Government securities) are determined based on market
quotations collected earlier in the day at the latest practicable time prior to
the close of the Exchange. Occasionally, events affecting the value of such
securities may occur between such times and the close of the Exchange which will
not be reflected in the computation of the Fund's net asset value. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value, in the manner described
above.
The proceeds received by each Fund for each issue or sale of its shares,
and all income, earnings, profits, and proceeds thereof, subject only to the
rights of creditors, will be specifically allocated to such Fund, and constitute
the underlying assets of that Fund. The underlying assets of each Fund will be
segregated on the Trust's books of account, and will be charged with the
liabilities in respect of such Fund and with a share of the general liabilities
of the Trust. Expenses with respect to any two or more Funds are to be allocated
in proportion to the net asset values of the respective Funds except where
allocations of direct expenses can otherwise be fairly made.
TAXES
Federal Income Taxation
It is intended that each Fund qualifies each year as a regulated investment
company under Subchapter M of the Code. In order to qualify for the special tax
treatment accorded regulated investment companies and their shareholders, a Fund
must, among other things:
(a) derive at least 90% of its gross income from dividends, interest,
payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities and foreign currencies,
or other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to its business of
investing in such stock, securities, or currencies;
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(b) distribute with respect to each taxable year at least 90% of its
"investment company taxable income" (as that term is defined in the
Code) and tax-exempt income (less deductions attributable to that
income) for such year; and
(c) diversify its holdings so that, at the end of each fiscal quarter (i)
at least 50% of the market value of the Fund's assets is represented
by cash or cash items (including receivables), U.S. Government
securities, securities of other regulated investment companies, and
other securities limited in respect of any one issuer to a value not
greater than 5% of the value of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than
25% of the value of its assets is invested in the securities (other
than those of the U.S. Government or other regulated investment
companies) of any one issuer or of two or more issuers which the Fund
controls and which are engaged in the same, similar, or related trades
or businesses.
If a Fund qualifies as a regulated investment company that is accorded
special tax treatment, the Fund will not be subject to federal income tax on
income paid to its shareholders in the form of dividends (including capital gain
dividends).
If a Fund fails to qualify as a regulated investment company accorded
special tax treatment in any taxable year, the Fund would be subject to tax on
its income at corporate rates, and could be required to recognize net unrealized
gains and make distributions of any accumulated earnings and profits before
requalifying as a regulated investment company that is accorded special tax
treatment. In addition, all distributions by the Fund would be taxed as if made
by a regular corporation. In such a case, a Fund could not pay exempt-interest
or capital gains dividends. Failure to qualify as a regulated investment company
also could result in the loss of the tax-favored status of variable annuity
contracts based on a segregated asset account which invests in the Funds.
Segregated asset account. Under Code Section 817(h), a segregated asset
account upon which a variable annuity contract or variable life insurance policy
is based must be "adequately diversified." A segregated asset account will be
adequately diversified if it complies with certain diversification tests set
forth in Treasury regulations. If all of the beneficial interests in a regulated
investment company are owned by one or more insurance companies in segregated
asset accounts, then a segregated asset account investing in such investment
company will be entitled to treat its pro rata portion of each asset of the
investment company as an asset for purposes of these diversification tests. Each
of the Funds intends to meet these ownership conditions and to comply with the
diversification tests noted above. Accordingly, a segregated asset account
investing solely in shares of a Fund will be adequately diversified. However,
the failure of a Fund to meet such ownership conditions and to comply with such
diversification test could cause the owners of variable annuity contracts and
variable life insurance policies based on such account to recognize ordinary
income each year in the amount of any net appreciation of such contract or
policy during the year.
Provided that a Fund and a segregated asset account investing in the Fund
satisfy the above requirements, any distributions from the Fund to such account
will be exempt from current federal income taxation to the extent that such
distributions accumulate in a variable annuity contract or variable life
insurance policy. Persons investing in a variable annuity contract or variable
annuity life insurance policy offered by a segregated asset account investing in
a Fund should refer to the prospectus for such contract or policy for further
tax information.
Return of capital distributions. If a Fund makes a distribution in excess
of its current and accumulated "earnings and profits" in any taxable year, the
excess distribution will be treated as a
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non-taxable return of capital to the extent of a shareholder's tax basis in his
shares. If the shareholder's basis has been reduced to zero, any additional
return of capital distributions will be taxable as capital gain.
Hedging transactions. Certain investment and hedging activities of a Fund,
including transactions in options, futures contracts, straddles, forward
contracts, foreign currencies, foreign securities, or other similar
transactions, will be subject to special tax rules. In a given case, these rules
may accelerate income to the Fund, defer losses to the Fund, cause adjustments
in the holding periods of the Fund's assets, or convert short-term capital
losses into long-term capital losses. These rules could therefore affect the
amount, timing, and character of the Fund's income and distributions to
shareholders. Income earned as a result of these transactions would, in general,
not be eligible for the dividends received deduction or for treatment as exempt-
interest dividends when distributed to shareholders. Each Fund will endeavor to
make any available elections pertaining to such transactions in a manner
believed to be in the best interests of the Fund. Under the 30% of gross income
test described above (see "Federal Income Taxation"), a Fund will be restricted
in selling assets held or considered under Code rules to have been held for less
than three months, and in engaging in certain hedging transactions (including
hedging transactions in options and futures) that could cause certain Fund
assets to be treated as held for less than three months.
Foreign currency-denominated securities and related hedging transactions. A
Fund's transactions in foreign currency-denominated debt securities, certain
foreign currency options, futures contracts, and forward contracts may give rise
to ordinary income or loss to the extent such income or loss results from
fluctuations in the value of the foreign currency concerned.
Backup Withholding. In general, a Fund is required to withhold 31% of the
taxable dividends and other distributions paid to any shareholder who fails to
furnish the Fund with a correct taxpayer identification number, who has under
reported dividends or interest income, or who fails to certify to the Fund that
he or she is not subject to such withholding.
The foregoing is only a summary of some of the important federal income tax
considerations generally affecting purchases of shares of a Fund. No attempt is
made to present a detailed explanation of the federal income tax treatment of
each Fund or its shareholders, and this discussion is not intended as a
substitute for careful tax planning. Accordingly, investors are urged to consult
their tax advisors with specific reference to their own tax situation.
DIVIDENDS AND DISTRIBUTIONS
Each of the Funds will declare and distribute dividends from net investment
income, if any, and will distribute its net realized capital gains, if any, at
least annually.
PERFORMANCE INFORMATION
From time to time the Trust may advertise the performance of one or more of
the Funds. All data is based on past performance and is not intended to indicate
future results.
Generally, the Funds will advertise average annual total returns. In
accordance with SEC
ERV 1
Average Annual Return= ------ - -1
P n
guidelines, the average annual total return is calculated according to the
following formula:
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where p = a hypothetical initial of $1,000; n = number of years; and ERV =
ending redeemable value of the hypothetical $1,000 investment after the
investment period.
In accordance with SEC guidelines, the yield of a Fund is computed by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula:
a-b /6/
Yield = 2[----- +1) +1]
cd
where a = dividends and interest earned during the period; b = expenses accrued
for the period (net of reimbursements); c = the average daily number of shares
outstanding during the period that were entitled to receive dividends; and d =
the maximum offering price per share on the last day of the period.
FINANCIAL STATEMENTS
As of the date of this SAI, there were no audited financial statements of
the Funds, as they had not yet commenced operations.
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APPENDIX--DESCRIPTION OF BOND RATINGS
Standard & Poor's Ratings Group Corporate Bond Rating Definitions
AAA - Debt rated "AAA" has the highest rating assigned by Standard & Poor's
Ratings Group. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effect of changes in
circumstances and economic conditions than debt in higher rated categories.
S&P may apply a plus (+) or minus (-) to the above rating classifications to
show relative standing within the classifications.
Moody's Investors Service, Inc. Corporate Bond Rating Definitions
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Duff & Phelps, Inc. Corporate Bond Rating Definitions
AAA - Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA- - High credit quality protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, A- - Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
Fitch IBCA Long-Term Rating Definitions
AAA - Obligations for which there is the lowest expectation of credit risk.
Assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
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AA - Obligations for which there is a very low expectation of credit risk. They
indicated very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to unforeseeable events.
A - Obligations for which there is a low expectation of credit risk. The
capacity for timely repayment of financial commitments is considered strong.
This capacity may, nevertheless, be more vulnerable to change in circumstances
or economic conditions.
Fitch IBCA Short-Term Rating Definitions
F1 - Obligations supported by the highest capacity for timely repayment.
F2 - Obligations supported by a strong capacity for timely repayment. However,
the relative degree of risk is slightly higher than for issues classified as
"A1" and capacity for timely repayment may be susceptible to adverse changes in
business, economic, or financial conditions.
F3 - Obligations supported by an adequate capacity for timely repayment,
although such capacity is more susceptible to adverse changes in business,
economic or financial conditions.
Standard and Poor's Ratings Group Commercial Paper Rating Definitions
A-1 - This designation indicates that the degree of safety regarding timely
payment strong. Those issues determined to have extremely strong safety
characteristics are denoted with a plus (+) sign.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
Moody's Investors Service, Inc. Commercial Paper Rating Definitions
Prime 1 - Issuers (or supporting institutions) rated Prime-1 (P-1) have a
superior ability for repayment of senior short-term promissory obligations. P-1
repayment capacity will often be evidenced by many of the following
characteristics:
. Leading market positions in well-established industries.
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
. Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
. Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime 2 - Issuers (or supporting institutions) rated Prime-2 (P-2) have a strong
ability for repayment of senior short-term debt obligations. This normally will
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
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variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
NR indicates the bonds are not currently rated by Moody's or S&P. However,
management considers them to be of good quality.
Duff & Phelps, Inc. Commercial Paper Rating Definitions
Duff 1+ - Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations.
Duff 1 - Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
Duff 1-High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
Duff 2-Good certainty of timely payment Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
Fitch IBCA Commercial Paper Rating Definitions
F-1 - Issues assigned this rating are regarded as having the highest capacity
for timely payment.
F-2 - Issues assigned this rating reflect a strong capacity for timely payment.
However, the relative degree of risk is slightly higher than for issues
classified as "A1" and capacity for repayment may be susceptible to adverse
changes in business, economics, or financial conditions.
F-3 - Issues assigned this rating have an adequate capacity for timely payment.
Such capacity is more susceptible to adverse changes in business, economic or
financial conditions.
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