SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITES / /
ACT OF 1933 (File No. 2-39663)
Pre-effective Amendment No. / /
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Post-Effective Amendment No. 47 X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT X
COMPANY ACT OF 1940 (File No. 811-2168)
Amendment No. 29 / /
(Check appropriate box or boxes)
ACTIVA MUTUAL FUND TRUST
(Exact Name of Registrant as Specified in Charter)
2905 Lucerne Dr SE, Grand Rapids, Michigan 49546-7116
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (616) 787-6288
James J. Rosloniec, President and Treasurer
Activa Mutual Fund
2905 Lucerne Dr, SE
Grand Rapids, Michigan 49546-7116
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on April ___, 1999 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a) (1)
X 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Exhibit Index begins on Page C-1.
<PAGE>
AMWAY MUTUAL FUND
FORM N-1A
PART A
Information Required in a Prospectus for Class A
<PAGE>
ACTIVA MUTUAL FUND ACTIVA MUTUAL FUNDS LOGO
2905 LUCERNE SE
GRAND RAPIDS MICHIGAN 49546 PROSPECTUS
(616) 787-6288
(800) 346-2670 ACTIVA MUTUAL FUNDS.
Contents Page ACTIVA MONEY MARKET FUND
Facts at a Glance Sub-Adviser: JP Morgan Investment
Activa Money Market Fund Management, Inc.
Activa Intermediate Bond Fund ACTIVA INTERMEDIATE BOND FUND
Activa Value Fund Sub-Adviser: Van Kampen Management,Inc.
Activa Growth Fund ACTIVA VALUE FUND
Activa International Fund Sub-Adviser: Ark Asset Management Co.
Organization of the Funds ACTIVA GROWTH FUND
Investment Management Sub-Adviser: State Street Research &
Portfolio Management Management Company
Fundamental Investment Policies ACTIVA INTERNATIONAL FUND
Pricing of Fund Shares Sub-Adviser: Nicholas-Applegate Capital
Purchase of Fund Shares Management
How Shares are Redeemed
Exchange Privilege A selection of stock, bond, and money
Additional Account Policies market funds, managed by professional
Internet Address advisers, which are designed to help
Retirement Plans investors meet their financial goals.
Dividend & Capital Gain As with all mutual funds, the
Distributions to Shareholders Securities and Exchange Commission has
Tax Consequences not approved or disapproved these
Distribution Plan securities or passed upon the accuracy
Year 2000 Problem of this Prospectus. Any representation
Shareholder Inquiries to the contrary is a criminal offense.
Sub-Advisers Composite
Performance
General Investment Risks
International Investment Risks
and Considerations
General Fixed Income Securities
Risks
Repurchase Agreements & Risks
Temporary Investments & Risks The date of this Prospectus is
Lending of Portfolio Securities' Risk September 1, 1999.
Hedging Transaction Risks
Financial Highlights
Printed in U.S.A.
<PAGE>
ACTIVA MUTUAL FUNDS
FACTS AT A GLANCE
INVESTMENT OBJECTIVE
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Each of the five funds seeks the highest total return over time consistent
with its particular investment strategy and level of potential risk. There is no
assurance the funds will achieve their objective.
STRATEGIES AND RISKS/REWARD
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ACTIVA MONEY MARKET FUND. A money market fund which seeks as high a level of
current income as is consistent with the preservation of capital and liquidity.
The Fund invests in high quality money market securities. Risk/Reward. Lowest
potential risk and reward.
ACTIVA INTERMEDIATE BOND FUND. A bond fund which seeks as high a level of income
as is consistent with moderate risk of capital and maintenance of liquidity. The
Fund invests primarily in marketable debt securities. Risk/Reward. Potential for
moderate to high income with commensurate share price fluctuation.
ACTIVA VALUE FUND. A stock fund which seeks maximum long-term capital
appreciation. The Fund invests primarily in common stocks of companies which the
Fund believes are trading at low valuations relative to intrinsic worth and/or
historical market levels. Risk/Reward. Lower risk than a fund investing in
growth stocks, but greater risk than a bond fund.
ACTIVA GROWTH FUND. A stock fund which seeks maximum long-term capital
appreciation. The Fund invests primarily in common stocks of companies which the
Fund believes have the potential for above-average growth of earnings.
Risk/Reward. Lower risk than an international fund, but greater than a value
fund.
ACTIVA INTERNATIONAL FUND. A stock fund which seeks maximum long-term capital
appreciation. The Fund invests primarily in common stocks of non-U.S. companies
which the Fund believes have the potential for above-average growth of earnings.
Risk/Reward. The Fund's share price will fluctuate with changes in market,
economic, and foreign currency exchange conditions. High potential risk and
reward.
FEES AND CHARGES
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100% no load. No sales charge. Free telephone and internet exchange among funds.
MANAGEMENT/INVESTMENT MANAGERS
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Activa Asset Management, LLC is responsible for the overall administration and
management of each fund. Day-to-day decisions with respect to the purchase and
sale of securities are made by each Fund's Sub-Adviser. The Sub-Advisers have
been selected by Activa Asset Management, Inc. and the Board of Trustees of each
Fund.
<PAGE>
ACTIVA MUTUAL FUNDS
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ACTIVA MONEY MARKET FUND
INVESTMENT OBJECTIVE
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The Fund seeks as high a level of current income as is consistent with the
preservation of capital and liquidity.
INVESTMENT APPROACH
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The Fund invests in a broad spectrum of high-quality U.S.
dollar-denominated money market securities. The Fund's investments may include
obligations issued by the U.S. Treasury, government agencies, domestic and
foreign banks and corporations, foreign governments, repurchase agreements, as
well as asset-backed securities, taxable municipal obligations, and other money
market instruments. The average weighted maturity of the securities held by the
fund will not exceed 90 days.
INVESTMENT MANAGER
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The Fund's assets are managed by J.P. Morgan Investment Management, Inc.
(the "Sub-Adviser"), New York, New York. The Sub-Adviser is a subsidiary of J.P.
Morgan & Co., Incorporated ("J.P. Morgan"). J.P. Morgan, through the Sub-Adviser
and other subsidiaries, currently manages over $300 billion for individual and
institutional investors.
RISK FACTORS
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As with all money market funds, the Fund's investments are subject to
various risks. For example, the issuer or guarantor of a portfolio security or
the counterparty to a contract could default on its obligation. An unexpected
rise in interest rates could also lead to a loss in share price. To the extent
that the fund invests in foreign securities, the Fund could lose money because
of foreign government actions, political instability, or lack of adequate and
accurate information. For further explanation, see "Risk Factors and Special
Considerations" starting on page xx.
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund.
ACTIVA INTERMEDIATE BOND FUND
INVESTMENT OBJECTIVE
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The Fund seeks as high a level of current income as is consistent with
moderate risk of capital and maintenance of liquidity.
INVESTMENT APPROACH
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The Fund invests primarily in investment-grade debt securities, including
U.S. Government and agency securities, corporate bonds, asset-backed and
mortgage-backed securities, that it believes have the potential to provide a
high total return over time. The average maturity of securities held by the Fund
is expected to be three to ten years.
INVESTMENT MANAGER
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The Fund's assets are managed by Van Kampen Management Inc. of Oakbrook
Terrace, Illinois. Van Kampen currently manages over $75 billion for individual
and institutional investors.
RISK FACTORS
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As with any Fund that invests primarily in bonds, the value of the fund's
investments will fluctuate in response to movements in interest rates. When
rates rise, the prices of debt securities fall. When rates, fall, the prices of
debt securities rise. However, the Fund expects its fluctuations to be more
moderate than those of a fund with a longer average portfolio duration. To the
extent the Fund invests in these countries may affect performance. For further
explanation, see "Risk Factors and Special Considerations" starting on page xx.
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
<PAGE>
ACTIVA MUTUAL FUNDS
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ACTIVA VALUE FUND
INVESTMENT OBJECTIVE
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The Fund seeks maximum long-term capital appreciation. Income, while a factor
in portfolio selection, is secondary to the Fund's principal objective.
INVESTMENT APPROACH
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The Fund invests in common stocks of large and medium-size companies which
the Fund believes are trading at low valuations relative to intrinsic worth
and/or historical market levels. Such stocks are typically called "value
stocks."
INVESTMENT MANAGER
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The Fund's assets are managed by Ark Asset Management Co., Inc. of New
York, New York. Ark currently manages over $23 billion for individual and
institutional investors. For additional information about the Fund's portfolio
management team, see the section entitled "Portfolio Managers."
RISK FACTORS
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As with any equity fund, the value of the Fund's investments will vary from
day to day in response to the activities of individual companies and general
market and economic conditions. Investments in value stocks are subject to the
risk that their intrinsic values may not be realized by the market. For further
explanation, see "Risk Factors and Special Considerations" starting on page xx.
PAST PERFORMANCE
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Chart and Bar Table Disclosure
<TABLE>
<CAPTION>
Average Annual Return For
The Periods Ended December 31, 1998*
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
Activa Value Fund** 10.17% 15.36% 15.93%
S&P 500*** 28.58% 24.06% 19.21%
RUSSELL 1000 VALUE*** 15.63% 20.85% 17.39%
</TABLE>
*The Fund's calendar year-to-date return through the quarter ended June 30, 1999
was ___%, compared to ___% for the S&P 500 and ___% for the Russell 1000
Value Indices.
**Ark Asset Management Co., Inc. has been Sub-Adviser, since that time, May 1,
1995 and the Fund's average annual total return has been 22.1%. During this
period, the S&P 500's and the Russell 1000 Value's average annual total return
has been 29.3% and 25.9% respectively.
***The S&P 500 Index represents an unmanaged index generally representative of
the U.S. stock market. The Value Index represents a composite of value stocks
representative of the Fund's investment objectives and strategies, which is
compiled independently by the Frank Russell Companies. Neither index is impacted
by Fund operating expenses.
<PAGE>
ACTIVA GROWTH FUND
INVESTMENT OBJECTIVE
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The Fund seeks maximum long-term capital appreciation. Income, while a factor
in portfolio selection, is secondary to the Fund's principal objective.
INVESTMENT APPROACH
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The Fund invests primarily in common stocks of large and medium-sized U.S.
companies that the Fund believes have the potential for above-average growth in
earnings.
INVESTMENT MANAGER
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The Fund's assets are managed by State Street Research & Management Company
of Boston, Massachusetts. State Street currently manages over $50 billion for
individual and institutional investors. For additional information about the
Fund's portfolio management team, see the section entitled "Portfolio Managers."
RISK FACTORS
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As with any equity fund, the value of the Fund's investments will vary from
day to day in response to the activities of individual companies and general
market and economic conditions. Investments in growth stocks are subject to the
risk that growth potential perceived by the Fund may not be realized. For
further explanation, see "Risk Factors and Special Considerations" starting on
page xx.
ACTIVA INTERNATIONAL FUND
INVESTMENT OBJECTIVE
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The Fund seeks maximum long-term capital appreciation.
INVESTMENT APPROACH
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The Fund invests primarily in common stocks of large and medium-sized
non-U.S. companies which the Fund believes have the potential for above-average
growth of earnings.
INVESTMENT MANAGER
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The Fund's assets are managed by Nicholas-Applegate Capital Management of
San Diego, California. Nicholas-Applegate currently manages over $30 billion for
individual and institutional investors. For additional information about the
Fund's portfolio management team, see the section entitled "Portfolio Managers."
RISK FACTORS
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As with any equity fund, the value of the Fund's investments will vary from
day to day in response to the activities of individual companies and general
market and economic conditions. Investments in international stocks are subject
to certain additional risks, including changing currency values, different
political and regulatory environments, and other market and economic factors in
the countries where the Fund invests. For further explanation, see "Risk Factors
and Special Considerations" starting on page xx.
EXPENSES
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This Table describes the fees and expenses that you may pay if you buy and hold
shares of each series of the Fund.
Shareholder Transaction Expenses (Fees Paid Directly from Your Investment)
for each series.
Maximum Sales Charge Imposed on Purchases None
and Reinvested Distributions
Maximum Deferred Sales Charge None
Maximum Sales Charge Imposed on None
Reinvested Dividends
Exchange Fee None
<TABLE>
<CAPTION>
Annual Fund Operating Expenses Paid by the Fund
Money Market Bond Value Growth International
<S> <C> <C> <C> <C> <C>
Management Fees .35% .34% .64% .65% .85%
Distribution & Service (12b-1) Fees -0- .15 .15% .15% .15%
Other Expenses .28% .21% .28% .54% .62%
---- ----- ----- ----- ------
.63% .70% 1.07% 1.34% 1.62%
</TABLE>
<PAGE>
Total Fund Operating Expenses, for all Funds other than the Value Fund,
are based upon estimated total annualized expenses to be incurred by each series
of the Fund for the year ended December 31, 1999. The Value Series Fund
Operating Expenses are based upon total expenses incurred by the Fund for Class
A for the year ended December 31, 1998. Adjustments have been made to reflect
the 12b-1 distribution plan which allows a maximum annual rate of 0.25 of 1% of
the average daily net assets of the Fund. However, the maximum amount authorized
by the Trustees is 0.15 of 1% of the average daily net assets of the Fund.
Also, the advisory fee has been adjusted to reflect the new fee approved by the
Trustees and shareholders effective September 1, 1999.
The following example assumes that you invest $10,000 in each series of the
fund for the time periods indicated and then redeem all of your shares at the
end of these periods. The example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your cost would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Fund 64.38 201.69 351.27 786.30
Bond Fund 71.51 223.87 389.62 870.54
Value Fund 117.21 365.35 632.97 1397.53
Growth Fund 136.45 424.52 734.06 1612.66
International Fund 164.74 511.11 881.28 1921.92
</TABLE>
ORGANIZATION AND MANAGEMENT
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ORGANIZATION OF THE FUNDS
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Each Fund is a series of Activa Mutual Fund Trust, a Delaware business trust.
The Funds are governed by a Board of Trustees, which
meets regularly to review the Funds' investments, performance, expenses, and
other business affairs. The policy of each Fund is that a majority of Board
members will be independent of the Fund's Investment Adviser and Sub-Advisers.
INVESTMENT MANAGEMENT
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Activa Asset Management LLC ("Activa") serves as the Investment Adviser of
each Fund. Activa's offices are located at 2905 Lucerne SE, Grand Rapids,
Michigan 49546. Subject to the direction of the Board of Trustees, Activa
provides overall investment strategy for each Fund and furnishes all office
space, facilities, equipment and personnel which is necessary for servicing the
investments of the Funds.
Activa, together with the Board of Trustees, is responsible for selecting one
or more Sub-Advisers for each Fund. The Sub-Advisers furnish investment advise
and manage on a regular basis the investment portfolio of each Fund. The
Sub-Advisers make investment decisions on behalf of the Funds and place all
orders for the purchase or sale of portfolio securities. The Sub-Advisers are
employed by Activa and Activa, not the Funds, is responsible for paying their
fees.
Activa monitors and evaluates the investment performance of each
Sub-Adviser. If Activa believes it is in a Fund's best interests, Activa may
recommend that the Fund change Sub-Advisers or retain additional Sub-Advisers.
Any such action must be approved by the Fund's Trustees, including a majority of
the Fund's Independent Trustees. Such action would not require approval of the
Fund's shareholders. However, if a Fund hires new or additional Sub-Advisers,
information about the new Sub-Adviser will be provided to the Fund's
shareholders within 90 days. Additional information about the selection of
Sub-Advisers is contained in the Statement of Additional Information.
PORTFOLIO MANAGEMENT
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Each Sub-Adviser uses teams of portfolio managers to manage the funds. The
teams meet regularly to review portfolio holdings and discuss purchase and sale
activity. Team members buy and sell securities for a fund as they see fit,
guided by the fund's investment objective and strategy.
The following persons are primarily responsible for the day-to-day management
of the Activa Common Stock Funds indicated.
ACTIVA GROWTH FUND. John T. Wilson, Senior Vice President, State Street
Research & Management Company. He joined the Sub-Adviser in 1996 and has worked
as an investment professional since 1990.
ACTIVA VALUE FUND. C. Charles Hetzel, Vice Chairman, Ark Asset Management,
Inc. He has served as head of the Sub-Advisers Large Cap Value Group since 1981.
ACTIVA INTERNATIONAL FUND. Larry Speidel, Director of Global/Systematic
Portfolio Management and Research, Nicholas-Applegate Capital Management. He
joined the Sub-Adviser in 1994 and had 23 years of prior investment management
experience.
<PAGE>
FUNDAMENTAL INVESTMENT POLICIES
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The fundamental investment policies contained in each Fund's Statement of
Additional Information and the investment objective of each
Fund may not be changed without a shareholder vote. The Board of Trustees of
each Fund may change any other policies or investment strategies.
PRICING OF FUND SHARES
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The net asset value of each Fund's shares is determined by dividing the total
current value of the assets of the Fund, less its liabilities, by the number of
shares outstanding at that time. This determination is made at the close of
business of the New York Stock Exchange, usually 4:00 P.M. Eastern time, on each
business day on which that Exchange is open. Shares will not be priced on
national holidays or other days on which the New York Stock Exchange is closed
for trading.
Each Fund's investments are generally valued at current market value. If
market quotations are not readily available, the Fund's investments will be
valued at fair value as determined by the Fund's Board of Trustees.
PURCHASE OF SHARES
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In order to purchase shares for a new account, the completion of an
application form is required. The minimum initial investment for each Fund is
$500 or more. Additional investments of $50 or more can be made at any time by
using the lower portion of your account statement. Checks should be made payable
to "Activa Asset Management LLC" and mailed to 2905 Lucerne SE, Grand Rapids,
Michigan 49355-7150. Third party checks will not be accepted.
All purchases will be made at the Net Asset Value per share next calculated
after the Fund receives your investment and application in proper form.
HOW SHARES ARE REDEEMED
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Each Fund will redeem your shares at the net asset value next determined
after your redemption request is received in proper form. There is no redemption
charge by the Fund. However, if a shareholder uses the services of a
broker-dealer for the redemption, there may be a charge by the broker-dealer to
the shareholder for such services. Shares can be redeemed by the mail, telephone
or telegram. If the value of your account is $10,000 or more, you may arrange to
receive periodic cash payments. Please contact the Fund for more information.
Redemption proceeds may be delayed until investments credited to your account
have been received and collected.
BY MAIL:
When redeeming by mail, when no certificates have been issued, send a written
request for redemption to Activa Asset Management LLC, 2905 Lucerne S.E., Grand
Rapids, Michigan 49355-7150. The request must state the dollar amount or shares
to be redeemed, including your account number and the signature of each account
owner, signed exactly as your name appears on the records of the Fund. If a
certificate has been issued to you for the shares being redeemed, the
certificate (endorsed or accompanied by a signed stock power) must accompany
your redemption request, with your signature guaranteed by a bank, broker, or
other acceptable financial institution. Additional documents will be required
for corporations, trusts, partnerships, retirement plans, individual retirement
accounts and profit sharing plans.
BY PHONE:
At the time of your investment in the Fund, or subsequently, you may elect on
the Fund's application to authorize the telephone or telegram exchange or
redemption option. You may redeem shares under this option by calling the Fund
at the number indicated on the front of this Prospectus on any business day.
Requests received after 4:00 p.m. when the market has closed will receive the
next day's price. By establishing the telephone or telegram exchange or
redemption option, you authorize the Transfer Agent to honor any telephone or
telegram exchange or redemption request from any person representing themselves
to be the investor. Procedures required by the Fund to ensure that a
shareholder's requested telephone or telegram transaction is genuine include
identification by the shareholder of the account by number, recording of the
requested transaction and sending a written confirmation to shareholders
reporting the requested transaction. The Fund is not responsible for
unauthorized telephone or telegram exchanges or redemptions unless the Fund
fails to follow these procedures. Shares must be owned for 15 days before
redeeming by the telephone and telegram exchange and cannot be in certificate
form unless the certificate is tendered with the request for redemption.
Certificated shares cannot be redeemed by the telephone and telegram exchange.
All redemption proceeds will be forwarded to the address of record or bank
designated on the account application.
The Transfer Agent and the Fund have reserved the right to change, modify, or
terminate the telephone or telegram exchange or redemption option at any time.
Before this option is effective for a corporation, partnership, or other
organizations, additional documents may be required. This option is not
available for Profit-Sharing Trust and Individual Retirement Accounts. The Fund
<PAGE>
and the Transfer Agent disclaim responsibility for verifying the authenticity of
telephone and telegram exchange or redemption requests which are made in
accordance with the procedures approved by shareholders.
SPECIAL CIRCUMSTANCES:
In some circumstances a signature guarantee may be required before shares are
redeemed. These circumstances include a change in the address for an account
within the last 30 days, a request to send the proceeds to a different payee or
address from that listed for the account, or a redemption request for $100,000
or more. A signature guarantee may be obtained from a bank, broker, or other
acceptable financial institution. If a signature guarantee is required, we
suggest that you call us to ensure that the signature guarantee and redemption
request will be processed correctly.
Payment for redeemed shares is normally made by check and mailed within three
days thereafter. However, under the Investment Company Act of 1940, the right of
redemption may be suspended or the date of payment postponed for more than seven
days: (1) for any period during which the New York Stock Exchange is closed,
other than for customary weekend and holiday closings; (2) when trading on the
New York Stock Exchange is restricted, as determined by the SEC; (3) when an
emergency exists, as determined by the SEC, as a result of which it is not
reasonably practicable for the Fund to dispose of its securities or determine
the value of its net assets; or (4) for such other period as the SEC may by
order permit for the protection of the shareholders. During such a period, a
shareholder may withdraw his request for redemption or receive the net asset
value next computed when regular trading resumes.
The Fund has filed with the SEC an election to pay for all redeemed shares
in cash up to a limit, as to any one shareholder during any 90-day periods, of
$250,000 or 1% of the net asset value of the Fund, whichever is less. Beyond
that limit, the Fund is permitted to pay the redemption price wholly or partly
"in kind," that is, by distribution of portfolio securities held by the Fund.
This would occur only upon specific authorization by the Board of Trustees when,
in their judgment, unusual circumstances make it advisable. It is unlikely that
this will ever happen, but if it does, you will incur a brokerage charge in
converting the securities received in this manner into cash. Portfolio
securities distributed "in kind" will be valued as they are valued for the
determination of the net asset value of the Fund's shares.
EXCHANGE PRIVILEGE
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Shares of each Fund may be exchanged for shares of any other Activa Fund.
The above described Exchange Privilege may be exercised by sending written
instruction to the Transfer Agent. See "How Shares Are Redeemed" for applicable
signatures and signature guarantee requirements. Shareholders may authorize
telephone or telegram exchanges or redemptions by making an election on your
application. Procedures required by the Fund to ensure that a shareholder's
requested telephone or telegram transaction is genuine include identification by
the shareholder of the account by number, recording of the requested transaction
and sending a written confirmation to shareholders reporting the requested
transaction. The Fund is not responsible for unauthorized telephone or telegram
exchanges unless the Fund fails to follow these procedures. Shares must be owned
for 15 days before exchanging and cannot be in certificate form unless the
certificate is tendered with the request for exchange. Exchanges will be
accepted only if the registration of the two accounts is identical. Exchange
redemptions and purchases are effected on the basis of the net asset value next
determined after receipt of the request in proper order by the Fund. In the case
of exchanges into the Money Market Fund, dividends generally commence on the
following business day. For federal and state income tax purposes, an exchange
is treated as a sale and may result in a capital gain or loss.
ADDITIONAL ACCOUNT POLICIES
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If the value of your Fund account falls below $100, the Fund may mail you a
notice asking you to bring the account back to $100 or close it out. If you do
not take action within 60 days, the Fund may sell your shares and mail the
proceeds to you at the address of record. The Fund does not permit market-timing
or other abusive trading practices. Excessive, short-term (market-timing) and
other abusive trading practices may disrupt portfolio trading strategies and
harm Fund performance. To minimize harm to the Fund and its shareholders, each
Fund reserves the right to reject any purchase order (including exchanges) from
any investor we believe has a history of abusive trading.
INTERNET ADDRESS
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Activa's Web site is located at activafunds.com. Our Web site offers further
information about the Activa Funds as well as consumer information and the
ability to make certain transactions on-line.
RETIREMENT PLANS
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The Fund sponsors a prototype Profit-Sharing Trust and Individual Retirement
Accounts. Persons interested in additional information regarding these plans
should contact the Fund.
<PAGE>
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS TO SHAREHOLDERS
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Each Fund distributes substantially all of its net investment income and
capital gains to shareholders each year.
All distributions may be received in cash or reinvested in additional shares
of the Fund at their net asset value at the time of distribution. This election
can be changed at any time by requesting a change in writing, signed by all
account owners.
TAX CONSEQUENCES
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The Fund will make distributions of ordinary income and capital gains that
will be taxable to shareholders, and subsequently, relieve the Fund of all
federal income taxes. Distributions may be taxable at different rateS depending
on the length of time the Fund holds its assets. Distributions, whether in cash
or reinvested in additional shares of the Fund, may be subject to federal income
tax. Shareholders will receive a statement (Form 1099-DIV) annually informing
them of the amount of the income and capital gains which have been distributed
by the Fund during the calendar year.
Shareholders may realize a capital gain or loss when shares are redeemed or
exchanged. For most types of accounts, the Fund will report the proceeds of
redemptions to shareholders and the IRS annually. However, because the tax
treatment also depends on the purchase price and a shareholder's personal tax
position, you should also keep your regular account statements to use in
determining your tax.
The tax information in this prospectus is provided as general information and
will not apply to you if you are investing in a tax-deterred account such as an
IRA. You should consult your tax advisor about the tax consequences of an
investment in the Fund.
DISTRIBUTION PLAN
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The Trust has adopted a Plan and Agreement of Distribution ("Distribution
Plan"). Under the Distribution Plan, the Advisor provides shareholder services
and services in connection with the sale and distribution of the Fund's shares
and is compensated at a maximum annual rate of 0.25 of 1% of the average daily
net assets of the Fund. The maximum amount presently authorized by the Fund's
Board of Trustees is 0.15 of 1% of the average daily net assets of the Fund.
Since these fees are paid from Fund assets, over time these fees will increase
the cost of your investment and may cost you more than paying other types of
sales charges.
Amounts received by the Advisor pursuant to the Distribution Plan may be
retained by the Advisor as compensation for its services, or paid to other
investment professionals who provide services in connection with the
distribution of Fund shares. The Trustees will review the services provided and
compensation paid pursuant to the Distribution Plan no less often than
quarterly.
YEAR 2000 PROBLEM
- -------------------------------------------------------------------------------
Many companies use computers which are presently unable to perform
calculations with dates in excess of 1999. There is uncertainty as to whether
such companies will be able to effectively manage their operations after 1999,
and as to whether they will be required to install expensive upgrades to their
computer systems. This is commonly referred to as the "Year 2000 Problem", or
the "Y2K Problem."
Each Fund's management, after reviewing the Fund's operations and consulting
with the principal companies which provide services to the Fund, believes that
the Fund's operations are unlikely to be materially affected by the Y2K problem.
However, the Funds, like most companies, are still evaluating this matter.
Accordingly, there can be no assurance that the Y2K Problem will not have an
adverse effect on the Fund's operations, or an adverse effect on the operations
or financial results of the companies in which the Funds invest.
SHAREHOLDER INQUIRIES
- -------------------------------------------------------------------------------
Shareholder inquiries regarding each Fund should be directed to the Fund by
writing or telephoning the Fund at the address or telephone number indicated on
the back cover of the Prospectus.
SUB-ADVISERS COMPOSITE PERFORMANCE
- -------------------------------------------------------------------------------
The following tables set forth historical composite performance information
for the Sub-Adviser for each Fund. The performance information for these Funds
is based upon the performance achieved by accounts managed by each of the
Sub-Advisers which have materially equivalent investment objectives, policies,
strategies and restrictions as each of the respective Funds. All performance
information has been adjusted to reflect the expenses which are expected to be
borne by the investors in each Fund.
All information set forth in the tables relies on data supplied by each
respective Sub-Adviser, or from statistical services, reports or other sources
believed by each Sub-Adviser to be reliable. However, such information has not
been verified and is unaudited.
As with all mutual funds, past performance is not a prediction of future
results.
Chart and Bar Table Disclosure
<PAGE>
<TABLE>
<CAPTION>
Average Annual Returns for
The Periods Ended December 31, 1998
Past 1 Year Past 5 Years Past 10 Years
<S> <C> <C> <C>
JP Morgan Investment Management, Inc. 5.20% 5.00% 5.40%
Salomon Brothers 3-Month T-Bill Index* 5.10% 5.10% 5.40%
Van Kampen Management, Inc. 8.60% 8.20% 8.10%
Lehman Brother Aggregate Bond Index* 8.70% 7.30% 9.30%
Ark Asset Management Company 10.40% 18.58% 16.70%
S&P 500** 28.58% 24.06% 19.21%
Russell 1000 Value* 15.63% 20.85% 17.39%
State Street Research & Management Co. 37.70% 21.60% 18.30%
S&P 500* 28.60% 24.10% 19.20%
Nicholas Applegate Capital Management 21.60% 16.70% n/a
MSCI EAFE* 20.30% 9.30% 5.60%
</TABLE>
*The Salomon Brothers 3-Month Treasury Bill Index represents the current yield
of a constant maturity 3-month Treasury Bill. The Lehman Brothers Aggregate Bond
Index represents an unmanaged total return Index and includes U.S. Treasury and
agency obligations, foreign obligations and U.S. investment grade corporate
debt. The MSCI EAFE (Morgan Stanley Capital International Europe, Australia and
Far East Index) represents an unmanaged index of over 1000 foreign common stock
prices. The S&P 500 Index represents an unmanaged index generally representative
of the U.S. stock market. The Value Index represents a composite of value stocks
representative of the Fund's investment objectives and strategies which is
compiled independently by the Frank Russell Companies. Indices are not
impacted by Fund operating expenses.
GENERAL INVESTMENT RISKS
- -------------------------------------------------------------------------------
Information about the principal investment strategies and related risks for
each of the Funds is set forth in this Prospectus. Additional information about
each Fund's investment strategies and risks is contained in the Statement of
Additional Information which may be obtained by writing or telephoning the Fund.
STOCK MARKET RISKS. The value of equity securities in the Fund's portfolio
will go up and down. These fluctuations could be a sustained trend or a drastic
movement. The Fund's portfolio will reflect changes in prices of individual
portfolio stocks or general changes in stock valuations. Consequently, the
Fund's share price may decline and you could lose money.
The Fund's Sub-Adviser attempts to manage market risk of investing in
individual securities by limiting the amount the Fund invests in each stock.
SECTOR RISKS. Companies with similar characteristics may be grouped
together in broad categories called sectors. Sector risk is the possibility
that a certain sector may perform differently than other sectors or as
the market as a whole. As the Sub-Adviser allocates more of the portfolio
holdings to a particular sector, the Fund's performance will be more susceptible
to any economic, business or other developments which generally affect that
sector.
INTERNATIONAL INVESTMENT RISKS AND CONSIDERATIONS
- -------------------------------------------------------------------------------
FOREIGN SECURITIES. All of the Funds may invest in foreign securities
as a non-principal strategy. The International Fund invests in foreign
securities as a principal strategy.
CURRENCY FLUCTUATIONS. When a Fund invests in instruments issued by foreign
companies, the principal, income and sales proceeds may be paid to the Fund in
local foreign currencies. A reduction in the value of local currencies relative
to the U.S. dollar could mean a corresponding reduction in the value of a Fund's
investments. Also, a Fund may incur costs when converting from one currency to
another.
SOCIAL, POLITICAL AND ECONOMIC FACTORS. The economies of many of the
countries where the Funds may invest may be subject to a substantially greater
degree of social, political and economic instability than the United States.
This instability might impair the financial conditions of issuers or disrupt the
financial markets in which the Funds invest.
The economies of foreign countries may differ significantly from the
economy of the United States as to, for example, the rate of growth of gross
domestic product or rate of inflation. Governments of many foreign countries
continue to exercise substantial control over private enterprise and own or
control over private enterprise and own or control many companies. Government
actions could have a significant impact on economic conditions in certain
<PAGE>
countries which could affect the value of the securities in the Fund.
INFLATION. Certain foreign countries, especially many emerging countries,
have experienced substantial, and in some periods extremely high and volatile,
rates of inflation. Rapid fluctuations in inflation rates and wage and price
controls may continue to have unpredictable effects on the economies, companies
and securities markets of these countries.
DIFFERENCES IN SECURITIES MARKETS. The securities markets in foreign
countries have substantially less trading volume than the markets in the United
States and debt and equity securities of many companies listed on such markets
may be less liquid and more volatile than comparable securities in the United
States. Some of the stock exchanges in foreign countries, to the extent that
established markets exists, are in the earlier stages of their development. The
limited liquidity of certain securities markets may affect the ability of each
Fund to buy and sell securities at the desired price and time.
Trading practices in certain foreign countries are also significantly
different from those in the United Sates. Although brokerage commissions are
generally higher than those in the U.S., the Sub-Advisers will seek to achieve
the most favorable net results. In addition, securities settlements and
clearance procedures may be less developed and less reliable than those in the
United States. Delays in settlement could result in temporary periods in which
the assets of the Funds are not fully invested, or could result in a Fund being
unable to sell a security in a falling market.
CUSTODIAL AND REGISTRATION PROCEDURES. Systems for the registration and
transfer of securities in foreign markets can be less developed than similar
systems in the United States. There may be no standardized process for
registration of securities or a central registration system to track share
ownership. The process for transferring shares may be cumbersome, costly,
time-consuming and uncertain.
GOVERNMENT SUPERVISION OF SECURITIES MARKETS. Disclosure and regulatory
standards in many foreign countries are, in many respects, less stringent than
those in the United States. There may be less government supervision and
regulation of securities exchanges, listed companies, investors, and brokers in
foreign countries than in the United States, and enforcement of existing
regulations may be extremely limited.
FINANCIAL INFORMATION AND REPORTING STANDARDS. Issuers in foreign countries
are general subject to accounting, auditing, and financial standards and
requirements that differ, in some cases materially, from those in the United
States. In particular, the assets and profits appearing in financial statements
may not reflect their financial position or results in the way they would be
reflected had the statements been prepared in accordance with U.S. generally
accepted accounting principles. Consequently, financial data may not reflect the
true condition of those issuers and securities markets.
GENERAL FIXED INCOME SECURITIES RISKS
- -------------------------------------------------------------------------------
All of the Funds may invest in debt securities as a non-principal strategy.
The Money Market and Intermediate Bond Funds invest in debt securities as a
principal strategy. Fixed income securities are subject to the following risks:
MARKET RISK. Prices of fixed income securities rise and fall in response to
interest rate changes for similar securities. Generally, when interest rates
rise, prices of fixed income securities fall. Interest rate changes have a
greater affect on fixed income securities with longer durations.
CREDIT RISK. Credit risk is the possibility that an issuer will default
(the issuer fails to repay interest and principal when due). If an issuer
defaults, the Fund will lose money.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the rating of the fixed income
security, the greater the credit risk.
CALL RISK. Call risk is the possibility that an issuer may redeem a fixed
income security before maturity ("call") at a price below it's current market
price. An increase in the likelihood of a call may reduce the security's price.
If a fixed income security is called, the Fund may have to reinvest the proceeds
in other fixed income securities with lower interest rates, higher credit risks,
or other less favorable characteristics.
LIQUIDITY RISKS. Fixed income securities that have not been rated or that
are not widely held may trade less frequently than other securities. This may
increase the price volatility of these securities.
FOREIGN RISKS. Foreign debt securities pose additional risks because
foreign economic or political conditions may be less favorable than those of the
United States. Foreign financial markets may also have fewer investor
protections. Debt securities in foreign markets may also be subject to taxation
policies that reduce returns for U.S. investors. Due to these risk factors,
foreign debt securities may be more volatile and less liquid than similar
securities traded in the U.S.
<PAGE>
REPURCHASE AGREEMENTS AND RISKS
- -------------------------------------------------------------------------------
Each Fund may enter into repurchase agreements as a non-principal
investment strategy that is, the purchase by the Fund of a security that a
seller has agreed to buy back, usually within one to seven days. The seller's
promise to repurchase the security is fully collateralized by securities equal
in value to 102% of the purchase price, including accrued interest. If the
seller defaults and the collateral value declines, the Fund might incur a loss.
If the seller declares bankruptcy, the Fund may not be able to sell the
collateral at the desired time. The Funds enter into these agreements only with
brokers, dealers, or banks that meet credit quality standards established by the
Board of Trustees.
TEMPORARY INVESTMENTS AND RISKS
- -------------------------------------------------------------------------------
Each Fund may, from time to time, invest all of its assets in short-term
instruments when the Sub-Adviser determines that adverse
market, economic, political or other conditions call for a temporary defensive
posture. Such a defensive position may result in a Fund failing to achieve its
investment objective.
LENDING OF PORTFOLIO SECURITIES' RISK
- -------------------------------------------------------------------------------
In order to generate additional income, the Fund may lend portfolio
securities, on a short-term or a long-term basis, up to 30% of a Fund's total
assets to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the Adviser has determined are creditworthy under
guidelines established by the Board of Trustees and will receive collateral in
the form of cash or U.S. government securities equal to least 100% of the value
of the securities loaned.
There is the risk that when lending portfolio securities, the securities
may not be available to the Fund on a timely basis and the 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.
HEDGING TRANSACTION RISKS
- -------------------------------------------------------------------------------
Each of the Funds may trade in derivative contracts to hedge portfolio
holdings on a non-principal basis. Hedging activities are intended to reduce
various kinds of risks. For example, in order to protect against certain events
that might cause the value of its portfolio securities to decline, the Fund can
buy or sell a derivative contract (or a combination of derivative contracts)
intended to rise in value under the same circumstances. Hedging activities will
not eliminate risk, even if they work as they are intended to. In addition,
these strategies are not always successful, and could result in increased
expenses and losses to the Fund. The Fund may trade in the following types of
derivative contracts.
Futures contacts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a price, date, and
time specified with the contract is made. Futures contracts traded in the
over-the-counter markets are frequently referred to as forward contracts.
Entering into a contract to buy is commonly referred to as buying or purchasing
a contract or holding a long position. Entering into a contract to sell is
commonly referred to as selling a contract or holding a short position. Futures
are considered to be commodity contracts. The Fund can buy or sell futures
contracts on portfolio securities or indexes and engage in foreign currency
forward contracts.
Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period of time. A
call option gives the holder (buyer) the right to purchase the underlying asset
from the seller (writer) of the option. A put option gives the holder the right
to sell the underlying asset to the writer of the option. The writer of the
option receives a payment, or "premium," from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option.
When the Fund uses financial futures and options on financial futures as
hedging devices, much depends on the ability of the portfolio manger to predict
market conditions based upon certain economic analysis and factors. There is a
risk that the prices of the securities subject to the futures contracts may not
correlate perfectly with the prices of the securities in the Fund's portfolio.
This may cause the futures contract and any related options to react differently
than the portfolio securities to market changes. In addition, the portfolio
managers could be incorrect in their expectations about the direction or extent
or market factors such as interest rate movements. In these events, the Fund may
lose money on the futures contracts or options.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the Sub-Advisers will
consider liquidity before entering into options transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular contract or option at any particular time. The Fund's ability
to establish and close out futures and options positions depends on this
secondary market.
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The following table presents financial highlights for the Value Fund.
Financial highlights are not provided for the other funds because they are new
funds for which financial highlights are not available.
The financial highlights table is intended to help you understand the Value
Fund's financial performance for the past 5 years. Certain information reflects
financial results for a single fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by BDO Seidman, whose report, along with the Value
Fund's financial statements, are included in the Fund's annual report, which is
available upon request.
<TABLE>
<CAPTION>
(Selected data for each share of beneficial interest in Class A outstanding throughout each period.)
Year ended December 31,
- -----------------------------------------------------------------------------------------------------------
1998 1997 1996 1995* 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period $7.73 $7.62 $7.43 $6.88 $7.71
Income from investment
operations:
Net investment income .08 .09 .10 .10 .03
Net gain (loss) on securities .68 1.62 1.59 1.98 (.49)
-----------------------------------------------------------------------
Total from investment
operations .76 1.71 1.69 2.08 (.46)
-----------------------------------------------------------------------
Distributions:
Dividends (from net
investment income) .08 .10 .09 .11 .03
Distributions (from
capital gains) 1.23 1.50 1.41 1.42 .34
------------------------------------------------------------------------
Total distributions 1.31 1.60 1.50 1.53 .37
------------------------------------------------------------------------
Net Asset Value, end of period 7.18 $7.73 $7.62 $7.43 $ 6.88
------------------------------------------------------------------------
Total Return 10.17% 22.47% 23.18% 30.55% (5.87%)
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) $179,820 $139,164 $113,327 $77,248 $58,921
Ratio of expenses to
average net assets** 1.0% .9% 1.0% 1.1% 1.1%
Ratio of net income to
average net assets 1.0% 1.1% 1.2% 1.2% .4%
Portfolio turnover rate 101.1% 103.1% 100.4% 173.3% 78.1%
</TABLE>
*Effective May 1, 1995, Ark Asset Management Co., Inc. entered into a
Sub-Advisory Agreement with the Fund. Kemper Financial Services previously
served as the Fund's Sub-Advisor. Activa Asset Management has served as the
Fund's Investment Adviser since August __, 1999. Previously, Amway Management
Company served as the Fund's Investment Adviser.
**Financial information prior to April 22, 1998 does not reflect the Fund's Rule
12b-1 fee of a maximum of 0.25%, which became effective on that date. The Fund's
base portfolio accounting services expense in the amount of $2,500 per month
($30,000 annual base fee) was paid through the use of directed brokerage
commissions. The ratio includes fees paid with brokerage commissions for fiscal
years ending after September 1, 1995.
<PAGE>
BULK RATE
U.S. POSTAGE
PAID
ADA, MI
PERMIT 100
==============================================================================
ACTIVA
Mutual
Funds
Prospectus
The Statement of Additional Information ("SAI") provides additional details
about the Funds. Also, additional information about each Fund's investments is
available in the Funds Annual and Semi-Annual Reports. You will find in each
Fund's Annual Report a discussion of market conditions and investment
strategies, which significantly affected the Fund's performance during its last
fiscal year. The SAI, dated September 1, 1999, Annual Reports, and Semi-Annual
Reports are available without charge by writing or telephoning the Fund. The SAI
is incorporated into the Prospectus by reference.
Additional information about the Funds, including the SAI, can be reviewed
and copied at the SEC's Public Reference Room in Washington, D.C. Information on
the operation of the public reference room is available by calling the
Commission at 1-800-SEC-0330. The Commission's web site (http://www.sec.gov)
contains reports and other information on the Funds. Copies of this information
are available from the Commission upon the payment of a copying fee by writing
the Public Reference Section of the Commission, Washington, D.C. 20549-6009.
September 1, 1999
ACTIVA MUTUAL FUNDS LOGO
==============================================================================
ACTIVA MUTUAL FUNDS
2905 Lucerne SE
Grand Rapids Michigan 49546
(616) 787-6288
(800) 346-2670
Investment Company Act File #811-2168
<PAGE>
AMWAY MUTUAL FUND
FORM N-1A
PART A
Information Required in a Prospectus for Class R
<PAGE>
ACTIVA VALUE FUND
2905 LUCERNE SE
GRAND RAPIDS, MICHIGAN 49546
(616) 787-6288
(800) 346-2670
Contents Page
Investment Objective
Investment Approach
Management/Investment Managers
Risk Factors
Past Performance
Expenses
Financial Highlights
Organization of the Fund
Investment Management
Portfolio Management
Fundamental Investment Policies
Pricing of Fund Shares
Purchase of Fund Shares
How Shares are Redeemed
Retirement Plans
Dividend & Capital Gain
Distributions to Shareholders
Tax Consequences
Year 2000 Problem
General Investment Risks
Stock Market Risks
Sector Risks
Repurchase Agreements & Risks
Temporary Investments and Risks
Lending of Portfolio Securities' Risk
Hedging Transactions
Shareholder Inquiries
ACTIVA MUTUAL FUND LOGO
CLASS R
PROSPECTUS
The Fund's primary investment objective is
capital appreciation. The Fund will attempt to
meet its objective by investing in common stocks
that it believes are undervalued. Income may be a
factor in portfolio selection, but is secondary to
the principal objective.
This Prospectus contains information with respect
to Class R shares of Activa Value Fund. Class R is
offered only to tax exempt retirement and benefit
plans of Amway Corporation and its affiliates. The
Fund also offers Class A shares, which are
available to members of the general public.
Information about class A is contained in the Activa
Funds Prospectus dated September 1, 1999 which is
available upon request.
As with all mutual funds, the Securities and
Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of
this Prospectus. Any representation to the contrary
is a criminal offense.
The date of this Prospectus is September 1, 1999.
Printed in U.S.A.
<PAGE>
ACTIVA VALUE FUND
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The Fund seeks maximum long-term capital appreciation. Income, while a factor
in portfolio selection, is secondary to the Fund's principal objective.
INVESTMENT APPROACH
- --------------------------------------------------------------------------------
The Fund invests in common stocks of large and medium-size companies which
the Fund believes are trading at low valuations relative to intrinsic worth
and/or historical market levels. Such stock are typically called "value stocks."
MANAGEMENT/INVESTMENT MANAGERS
- --------------------------------------------------------------------------------
Activa Asset Management, Inc. is responsible for the overall administration
and management of the Fund. Day-to-day decisions with respect to the purchase
and sale of securities are made by the Fund's Sub-Adviser, Ark Asset Management
Co., Inc. of New York, New York. Ark currently manages over $23 billion for
individual and institutional investors.
RISK FACTORS
- --------------------------------------------------------------------------------
As with any equity fund, the value of the Fund's investments will vary from
day to day in response to the activities of individual companies and general
market and economic conditions. Investments in value stocks are subject to the
risk that their intrinsic values may not be realized by the market. For further
explanation, see "Risk Factors and Special Considerations" starting on page XXX.
PAST PERFORMANCE
- --------------------------------------------------------------------------------
The two tables below, which are based upon Class A Shares, show the Fund's
annual returns and its long-term performance. The first table provides
indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year. The second compares the Fund's performance
over time to that of the Standard and Poor's 500 Stock Index (S&P 500) and the
Russell 1000 Value Index ("Value Index"). The investment performance of Class R
is expected to be substantially similar to Class A because both Classes invest
in the same portfolio of securities and investment performance will differ only
to the extent that the classes do not have the same expenses. The estimated
expenses for Class R, which are lower than the expenses for Class A, are
disclosed in the Fee Expense Table.
As with all mutual funds, past performance is not a prediction of future
results.
CHART
During the periods shown in the chart, the Fund's highest return for a
quarter was 20.53% (quarter ending March 31, 1991), and the Fund's lowest return
for a quarter was -14.60% (quarter ending September 30,1990).
* Ark Asset Management Company has been the Fund's Sub-Advisor since May 1,
1995. Since that time, the Fund's highest return for a quarter was 13.76%
(quarter ending June 30, 1997) and the lowest return for a quarter was -9.40%
(quarter ending September 30, 1998).
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN FOR THE PERIODS PAST PAST PAST
ENDED DECEMBER 31, 1998 1 YEAR 5 YEARS 10 YEARS
----------------------------------------------------------------------------
<S> <C> <C> <C>
ACTIVA VALUE FUND* 10.17% 15.36% 15.93%
RUSSELL 1000 VALUE 15.63% 20.85% 17.39%
S&P 500 28.58% 24.06% 19.21%
</TABLE>
*Ark Asset Management Company has been Sub-Adviser since May 1, 1995. Since
that time, the Fund's average annual total return has been 22.1%. During this
period, the S&P 500's and the Russell 1000 Value's average annual total return
has been 29.3% and 25.9%, respectively.
EXPENSES
- --------------------------------------------------------------------------------
This Table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Shareholder Transaction Expenses (Fees Paid Directly From Your Investment)
Maximum Sales Charge Imposed on Purchases None
and Reinvested Distributions
Maximum Deferred Sales Charge None
Maximum Sales Charge Imposed on None
Reinvested Dividends
Exchange Fee None
Annual Fund Operating Expenses Paid by the Fund
Management Fees .54%
Distribution & Service (12b-1) Fees None
Other Expenses .46%
Total Fund Operating Expenses* 1.00%
======
*Total Fund Operating Expenses are based upon total expenses incurred by the
Fund for Class A for the year ended December 31, 1998, and have been adjusted
for Class R to reflect adoption of the Transfer Agent and Shareholder Servicing
Agreement and the elimination of the 12b-1 distribution plan.
The following example assumes that you invest $10,000 in the Fund for the
time periods indicated and then redeem all of your shares at the end of these
periods. The example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your cost would be:
1 Year 3 Years 5 Years 10 Years
$102 $318 $552 $1,225
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by BDO Seidman, the Independent Certified Public
Accountants for the Fund, whose report, along with the Fund's financial
statements, are included in the annual report, which is available upon request.
<PAGE>
(Selected data for each share of beneficial interest in Class A and Class R
throughout each period.)
<TABLE>
<CAPTION>
Class R*** Class A
- ----------------------------------------------------------------------------------------------------------------
Year ended December 31, 1998 1998 1997 1996 1995* 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period $8.42 $7.73 $7.62 $7.43 $6.88 $7.71
Income from investment
operations:
Net investment income .09 .08 .09 .10 .10 .03
Net gain (loss) on securities (.02) .68 1.62 1.59 1.98 (.49)
------------------------------------------------------------------------------
Total from investment
operations .07 .76 1.71 1.69 2.08 (.46)
------------------------------------------------------------------------------
Distributions:
Dividends (from net
investment income) .10 .08 .10 .09 .11 .03
Distributions (from
capital gains) 1.23 1.23 1.50 1.41 1.42 .34
-----------------------------------------------------------------------------
Total distributions 1.33 1.31 1.60 1.50 1.53 .37
-----------------------------------------------------------------------------
Net Asset Value, end of period $7.16 7.18 $7.73 $7.62 $7.43 $ 6.88
------------------------------------------------------------------------------
Total Return 7.08% 10.17% 22.47% 23.18% 30.55% (5.87%)
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) $135,385 $179,820 $139,164 $113,327 $77,248 $58,921
Ratio of expenses to
average net assets** 1.0% 1.0% .9% 1.0% 1.1% 1.1%
Ratio of net income to
average net assets 1.8% 1.0% 1.1% 1.2% 1.2% .4%
Portfolio turnover rate 101.1% 101.1% 103.1% 100.4% 173.3% 78.1%
</TABLE>
*Effective May 1, 1995, Ark Asset Management Co., Inc. entered into a
Sub-Advisory Agreement with the Fund. Kemper Financial Services previously
served as the Fund's Sub-Advisor.
**Financial information prior to April 22, 1998 does not reflect the fund's
Rule 12b-1 fee of 0.25%, which became effective on that date. The Fund's base
portfolio accounting services expense in the amount of $2,500 per month
($30,000 annual base fee) was paid through the use of directed brokerage
commissions. The ratio includes fees paid with
brokerage commissions for fiscal years ending after September 1, 1995.
***The Fund began offering Class R Shares on November 1, 1998. Class R return
and ratios have been annualized.
ORGANIZATION OF THE FUND
- --------------------------------------------------------------------------------
The Fund is a series of Activa Mutual Fund Trust, a Delaware business trust.
The Fund is governed by a Board of Trustees, which meets
regularly to review the Funds' investments, performance, expenses, and other
business affairs. The policy of the Fund is that a majority of Board members
will be independent of the Fund's Investment Adviser and Sub-Advisers.
INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
Activa Asset Management LLC ("Activa") serves as the Investment Adviser of
each Fund. Activa's offices are located at 2905 Lucerne SE, Grand Rapids,
Michigan 49546. Subject to the direction of the Board of Trustees, Activa
provides overall investment strategy for each Fund, and furnishes all office
space, facilities, equipment and personnel which is necessary for servicing the
investments of the Funds.
Activa, together with the Board of Trustees, is responsible for selecting one
or more Sub-Advisers for each Fund. The Sub-Advisers furnish investment advise
and manage on a regular basis the investment portfolio of each Fund. The
Sub-Advisers make investment decisions on behalf of the Funds and place all
orders for the purchase or sale of portfolio securities. The Sub-Advisers are
employed by Activa and Activa, not the Funds, is responsible for paying their
fees.
Activa monitors and evaluates the investment performance of each Sub-Adviser.
If Activa believes it is in a Fund's best interests, Activa may recommend that
the Fund change Sub-Advisers or retain additional Sub-Advisers. Any such action
must be approved by the Fund's Trustees, including a majority of the Fund's
Independent Trustees. Such action would not require approval of the Fund's
shareholders. However, if a Fund hires new or additional Sub-Advisers,
information about the new Sub-Adviser will be provided to the Fund's
shareholders within 90 days. Additional information about the selection of
Sub-Advisers is contained in the Statement of Additional Information.
<PAGE>
PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------
The Sub-Adviser uses a team of portfolio managers to manage the Fund. The
team meets regularly to review portfolio holdings and discuss purchase and sale
activity. Team members buy and sell securities for the Fund as they see fit,
guided by the Fund's investment objective and strategy.
C. Charles Hetzel, Vice Chairman of Ark Asset Management, Inc., is the head
of the Large Cap Value Group, which, since April 1995, has been responsible for
management of the Fund's portfolio. He has served as the head of the Large Cap
Value Group since 1981. Mr. Hetzel has spent his entire career at Ark Asset
Management, Inc. or a predecessor firm. He received a B.S. degree from the
University of Utah and M.B.A. from the Columbia School of Business
Administration.
FUNDAMENTAL INVESTMENT POLICIES
- --------------------------------------------------------------------------------
The fundamental investment policies contained in the Fund's Statement of
Additional Information and the investment objective of each
Fund may not be changed without a shareholder vote. The Board of Trustees of the
Fund may change any other policies or investment strategies.
PRICING OF FUND SHARES
- --------------------------------------------------------------------------------
The net asset value of the Fund's shares is determined by dividing the total
current value of the assets of the Fund, less its liabilities, by the number of
shares outstanding at that time. This determination is generally made at the
close of business of the New York Stock Exchange, 4:00 P.M. Eastern time, on
each business day on which that Exchange is open. Shares will not be priced on
national holidays or other days on which the New York Stock Exchange is closed
for trading.
The Fund's investments are generally valued at current market value. If
market quotations are not readily available, the Fund's investments will be
valued at fair value as determined by the Fund's Board of Trustees.
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Class R Shares are offered to tax-exempt retirement and benefit plans of
Amway Corporation and its affiliates. There are no minimum investment
requirements for shares of Class R. Participants in the tax-exempt retirement
and benefits plans of Amway Corporation and its affiliates should contact the
Plan Administrator for information about particular procedures or requirements
which may apply to Pan Participants.
All purchases will be made at the Net Asset Value per share net calculated
after the Fund receives your investment and application in proper form.
HOW SHARES ARE REDEEMED
- --------------------------------------------------------------------------------
The Fund will redeem your shares at the net asset value next determined after
your redemption request is received in proper form.
Payment for redeemed shares is normally made by check and mailed within three
days thereafter. However, under the Investment Company Act of 1940, the right of
redemption may be suspended or the date of payment postponed for more than seven
days: (1) for any period during which the New York Stock Exchange is closed,
other than for customary weekend and holiday closings; (2) when trading on the
New York Stock Exchange is restricted, as determined by the SEC; (3) when an
emergency exists, as determined by the SEC, as a result of which it is not
reasonably practicable for the Fund to dispose of its securities or determine
the value of its net assets; or (4) for such other period as the SEC may by
order permit for the protection of the shareholders. During such a period, a
shareholder may withdraw his request for redemption or receive the net asset
value next computed when regular trading resumes.
The Fund has filed with the SEC an election to pay for all redeemed shares in
cash up to a limit, as to any one shareholder during any 90-day periods, of
$250,000 or 1% of the net asset value of the Fund, whichever is less. Beyond
that limit, the Fund is permitted to pay the redemption price wholly or partly
"in kind," that is, by distribution of portfolio securities held by the Fund.
This would occur only upon specific authorization by the Board of Trustees when,
in their judgment, unusual circumstances make it advisable. It is unlikely that
this will ever happen, but if it does, you will incur a brokerage charge in
converting the securities received in this manner into cash. Portfolio
securities distributed "in kind" will be valued as they are valued for the
determination of the net asset value of the Fund's shares.
<PAGE>
Participants in the tax-exempt retirement and benefit plans of Amway
Corporation and its affiliates should contact the Plan Administrator for
information about particular redemption procedures or requirements which may
apply to Plan Participants.
RETIREMENT PLANS
- --------------------------------------------------------------------------------
The Fund sponsors a prototype Profit-Sharing Trust and Individual Retirement
Accounts. Persons interested in additional information regarding these plans
should contact the Fund.
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The Fund distributes substantially all of its net investment income and
capital gains to shareholders each year. Distributions, in the past, have been
paid in December. The net investment income and capital gain distribution will
be paid on a basis which is consistent with past policy. All distributions may
be received in cash or reinvested in additional shares of the Fund at their net
asset value at the time of distribution. This election can be changed at any
time by requesting a change in writing, signed by all account owners.
TAX CONSEQUENCES
- --------------------------------------------------------------------------------
The Fund will make distributions of ordinary income and capital gains that
will relieve the Fund of all federal income taxes.
Shares of Class R will be held by the qualified retirement and benefit plans
of Amway Corporation and its affiliates ("the plans") for the benefit of plan
participants. The plans do not pay federal income taxes. Plan participants
should consult the plans' governing documents, and their own tax advisors, for
information about the tax consequences associated with participating in the
plans.
YEAR 2000 PROBLEM
- --------------------------------------------------------------------------------
Many companies use computers which are presently unable to perform
calculations with dates in excess of 1999. These is uncertainty as to whether
such companies will be able to effectively manage their operations after 1999,
and as to whether they will be required to install expensive upgrades to their
computer systems. This is commonly referred to as the "Year 2000 Problem", or
the "Y2K Problem."
The Fund's management, after reviewing the Fund's operations and consulting
with the principal companies which provide services to the Fund, believes that
the Fund's operations are unlikely to be materially affected by the Y2K problem.
However, the Fund, like most companies, is still evaluating this matter.
Accordingly, there can be no assurance that the Y2K Problem will not have an
adverse effect on the Fund's operations, or an adverse effect on the operations
or financial results of the companies in which the Fund invests.
GENERAL INVESTMENT RISKS
- --------------------------------------------------------------------------------
Information about the principal investment strategies and related risks for
the Fund is set forth in this Prospectus. Additional information about the
Fund's investment strategies and risks is contained in the Statement of
Additional Information which may be obtained by writing or telephoning the Fund.
STOCK MARKET RISKS. The value of equity securities in the Fund's portfolio
will go up and down. These fluctuations could be a sustained trend or a drastic
movement. The Fund's portfolio will reflect changes in prices of individual
portfolio stocks or general changes in stock valuations. Consequently, the
Fund's share price may decline and you could lose money.
The Fund's Sub-Adviser attempts to manage market risk of investing in
individual securities by limiting the amount the Fund invests in each stock.
SECTOR RISKS. Companies with similar characteristics may be grouped together
in broad categories called sectors. Sector risk is the possibility that a
certain sector may perform differently than other sectors or as the market as a
whole. As the Sub-Adviser allocates more of the portfolio holdings to a
particular sector, the Fund's performance will be more susceptible to any
economic, business or other developments which generally affect that sector.
REPURCHASE AGREEMENTS AND RISKS
- --------------------------------------------------------------------------------
The Fund may enter into repurchase agreements as a non-principal investment
strategy that is, the purchase by the Fund of a security that a seller has
agreed to buy back, usually within one to seven days. The seller's promise to
repurchase the security is fully collateralized by securities equal in value to
102% of the purchase price, including accrued interest. If the seller defaults
and the collateral value declines, the Fund might incur a loss. If the seller
declares bankruptcy, the Fund may not be able to sell the collateral at the
desired time. The Fund enters into these agreements only with brokers, dealers,
or banks that meet credit quality standards established by the Board of
Trustees.
<PAGE>
TEMPORARY INVESTMENTS AND RISKS
- --------------------------------------------------------------------------------
The Fund may, from time to time, invest all of its assets in short-term
instruments when the Sub-Adviser determines that adverse
market, economic, political or other conditions call for a temporary defensive
posture. Such a defensive position may result in the Fund failing to achieve its
investment objective.
LENDING OF PORTFOLIO SECURITIES' RISK
- --------------------------------------------------------------------------------
In order to generate additional income, the Fund may lend portfolio
securities, on a short-term or a long-term basis, up to 30% of a Fund's total
assets to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the Adviser has determined are creditworthy under
guidelines established by the Board of Trustees and will receive collateral in
the form of cash or U.S. government securities equal to least 100% of the value
of the securities loaned.
There is the risk that when lending portfolio securities, the securities
may not be available to the Fund on a timely basis and the 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.
HEDGING TRANSACTION RISKS
- --------------------------------------------------------------------------------
The Fund may trade in derivative contracts to hedge portfolio holdings on a
non-principal basis. Hedging activities are intended to reduce various kinds of
risks. For example, in order to protect against certain events that might cause
the value of its portfolio securities to decline, the Fund can buy or sell a
derivative contract (or a combination of derivative contracts) intended to rise
in value under the same circumstances. Hedging activities will not eliminate
risk, even if they work as they are intended to. In addition, these strategies
are not always successful, and could result in increased expenses and losses to
the Fund. The Fund may trade in the following types of derivative contracts.
Futures contacts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a price, date, and
time specified with the contract is made. Futures contracts traded in the
over-the-counter markets are frequently referred to as forward contracts.
Entering into a contract to buy is commonly referred to as buying or purchasing
a contract or holding a long position. Entering into a contract to sell is
commonly referred to as selling a contract or holding a short position. Futures
are considered to be commodity contracts. The Fund can buy or sell futures
contracts on portfolio securities or indexes and engage in foreign currency
forward contracts.
Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period of time. A
call option gives the holder (buyer) the right to purchase the underlying asset
from the seller (writer) of the option. A put option gives the holder the right
to sell the underlying asset to the writer of the option. The writer of the
option receives a payment, or "premium," from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option.
When the Fund uses financial futures and options on financial futures as
hedging devices, much depends on the ability of the portfolio manger to predict
market conditions based upon certain economic analysis and factors. There is a
risk that the prices of the securities subject to the futures contracts may not
correlate perfectly with the prices of the securities in the Fund's portfolio.
This may cause the futures contract and any related options to react differently
than the portfolio securities to market changes. In addition, the portfolio
managers could be incorrect in their expectations about the direction or extent
or market factors such as interest rate movements. In these events, the Fund may
lose money on the futures contracts or options.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the Sub-Advisers will
consider liquidity before entering into options transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular contract or option at any particular time. The Fund's ability
to establish and close out futures and options positions depends on this
secondary market.
SHAREHOLDER INQUIRIES
- --------------------------------------------------------------------------------
Shareholder inquiries regarding the Fund should be directed to the Fund by
writing or telephoning the Fund at the address or telephone number indicated on
the cover page of the Prospectus. Inquiries relating to a specific account
should be directed to the Plan Administrator for the tax-exempt retirement and
benefits plan of Amway Corporation and its affiliates.
<PAGE>
BULK RATE
U.S. POSTAGE
PAID
ADA, MI
PERMIT 100
===================================================
ACTIVA
VALUE
FUND
CLASS R
PROSPECTUS
The Statement of Additional Information ("SAI")
provides additional details about the Fund. Also,
additional information about the Fund's investments is
available in the Fund's Annual and Semi-Annual Reports.
You will find in the Fund's Annual Report a discussion
of market conditions and investment strategies, which
significantly affected the Fund's performance during
its last fiscal year. The SAI, dated September 1, 1999,
Annual Reports, and Semi-Annual Reports are available
without charge by writing or telephoning the Fund.
The SAI is incorporated into the Prospectus by reference.
Additional information about the Fund, including the SAI,
can be reviewed and copied at the SEC's Public Reference
Room in Washington, D.C. Information on the operation of
the public reference room is available by calling the
Commission at 1-800-SEC-0330. The Commission's web site
(HTTP://WWW.SEC.GOV) contains reports and other
information on the Funds. Copies of this information are
available from the Commission upon the payment of a copying
fee by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009.
September 1, 1999
ACTIVA MUTUAL FUND LOGO
===================================================
ACTIVA MUTUAL FUND
2905 Lucerne SE
Grand Rapids, Michigan 45546
Investment Company Act File #_____
<PAGE>
AMWAY MUTUAL FUND
FORM N-1A
PART B
Information Required in a Statement of Additional Information for Class A
<PAGE>
ACTIVA MONEY MARKET FUND
(a series of Activa Mutual Fund Trust)
2905 Lucerne SE
Grand Rapids, Michigan 49546
(616) 787-6288
(800) 346-2670
Contents Page
Organization of the Fund
Objectives, Policies, and
Restrictions on the Fund's
Investments
Investment Strategies
Portfolio Transactions
Principal Shareholders
Officers and Trustees of the Fund
Investment Advisor
Sub-Advisor
Plan of Distribution and Principal
Underwriter
Administrative Agreement
Transfer Agent
Custodian
Auditors
Pricing of Fund Shares
Purchase of Shares
How Shares are Redeemed
Exchange Privilege
Additional Account Policies
Internet Address
Federal Income Tax
Reports to Shareholders
and Annual Audit
Appendix A
ACTIVA MUTUAL FUND LOGO
STATEMENT OF ADDITIONAL
INFORMATION
This Statement of Additional Information is not
a prospectus. Therefore, it should be read only in
conjunction with the Prospectus, which can be
requested from the Fund by writing or telephoning
as indicated above. This Statement of Additional
Information relates to the Prospectus for the Fund
dated September 1, 1999.
The date of this Statement of Additional
Information is September 1, 1999.
Printed in U.S.A.
1
<PAGE>
ACTIVA MONEY MARKET FUND
ORGANIZATION OF THE FUND
- -------------------------------------------------------------------------------
The Fund is a series of Activa Mutual Fund Trust, an open-end diversified
management investment company which was organized as a Delaware business trust
on February 2, 1998.
The Declaration of Trust authorizes the Trustees to create additional series
and to issue an unlimited number of units of beneficial interest, or "shares."
The Trustees are also authorized to issue different classes of shares of any
series. No series which may be issued by the Trust is entitled to share in the
assets of any other series or is liable for the expenses or liabilities of any
other series. The Fund presently has only one class of shares.
The Trust is not required to hold annual meetings of shareholders and does
not intend to hold such meetings. Shareholders of the Trust will have voting
rights only with respect to the limited number of matters specified in the
Declaration of Trust, and such other matters as may be determined or as may be
required by law. A meeting will be called for the purpose of voting on the
removal of a Trustee at the written request of holders of 10% of the Trust's
outstanding shares. In the event a meeting of shareholders is held, shareholders
will be entitled to one vote for each dollar of net asset value (or a
proportionate fractional vote with respect to fractional dollar amounts) on all
matters presented to shareholders, including the election of Trustees.
OBJECTIVES, POLICIES AND RESTRICTIONS ON THE FUND'S INVESTMENTS
- --------------------------------------------------------------------------------
The Fund's investment objective is to maximize current income consistent with
the preservation of capital and same day liquidity. The Fund seeks to achieve
its investment objective by maintaining a dollar-weighted average portfolio
maturity of not more than 90 days and by investing in U.S. dollar denominated
securities described in this Statement of Additional Information that meet
certain rating criteria, present minimal credit risk and have effective
maturities of not more than thirteen months. The Fund's ability to achieve
maximum current income is affected by its high quality standards. See "Quality
and Diversification Requirements."
INVESTMENT FUNDAMENTAL RESTRICTIONS
The investment restrictions below have been adopted by the Fund. Except where
otherwise noted, these investment restrictions are "fundamental policies which,
under the 1940 Act, may or may not be changed without the vote of a majority of
the outstanding voting securities of the Fund, as the case may be. A "majority
of the outstanding voting securities" is defined in the 1940 Act as the lesser
of (a) 67% or more of the voting securities present at a meeting if the holders
of more than 50% of the outstanding voting securities are present or represented
by proxy, or (b) more than 50% of the outstanding voting securities. The
percentage limitations contained in the restrictions below apply at the time of
the purchase of securities.
The Fund:
1. May not make any investment inconsistent with the Fund's classification
as a diversified investment company under the Investment Company Act of
1940.
2. May not purchase any security which would cause the Fund to concentrate
its investments in the securities of issuers primarily engaged in any
particular industry except as permitted by the SEC. This restriction
does not apply to instruments considered to be domestic bank money
market instruments.
3. May not issue senior securities, except as permitted under the
Investment Company Act of 1940 or any rule, order or interpretation
thereunder;
4. May not borrow money, except to the extent permitted by applicable law;
5. May not underwrite securities or other issues, except to the extent
that the Fund, in disposing of portfolio securities, may be deemed an
underwriter within the meaning of the 1933 Act;
6. May not purchase or sell real estate, except that, to the extent
permitted by applicable law, the Fund may (a) invest in securities or
other instruments directly or indirectly secured by real estate, and
(b) invest in securities or other instruments issued by issuers that
invest in real estate;
<PAGE>
7. May not purchase or sell commodities or commodity contracts unless
acquired as a result of ownership of securities or other instruments
issued by persons that purchase or sell commodities or commodities
contracts; but this shall not prevent the Fund from purchasing, selling
and entering into financial futures contracts (including futures
contracts on indices of securities, interest rates and currencies),
options on financial futures contracts (including futures contracts on
indices of securities, interests rates and currencies), warrants,
swaps, forward contracts, foreign currency spot and forward contracts
or other derivative instruments that are not related to physical
commodities; and
8. May make loans to other persons, in accordance with the Fund's
investment objective and policies and to the extent permitted by
applicable law.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
The investment restrictions described below are not fundamental policies of
the Fund and may be changed by the Fund's Trustees. These non-fundamental
investment policies require that the Fund: (i) may not acquire any illiquid
securities, if as a result thereof, more than 10% of the market value of the
Fund's total assets would be in investments which are illiquid; (ii) may not
purchase securities on margin, make short sales of securities, or maintain a
short position, provided that this restriction shall not be deemed to be
applicable to the purchase or sale of when-issued or delayed delivery
securities; (iii) may not acquire securities of other investment companies,
except as permitted by the 1940 Act or any order pursuant thereto; (iv) may not
enter into reverse repurchase agreements or borrow money, except from banks for
extraordinary or emergency purposes, if such obligations exceed in the aggregate
one-third of the market value of the Fund's total assets, less liabilities other
than obligations created by reverse repurchase agreements and borrowings.
Not withstanding any other fundamental or non-fundamental investment
restriction or policy, the Fund reserves the right, without the approval of
shareholders, to invest all of its assets in the securities of a single open-end
registered investment company with substantially the same investment objective,
restrictions and policies as the Fund.
There will be no violation of any investment restriction if that restriction
is complied with at the time the relevant action is taken notwithstanding a
later change in market value of an investment, in net or total assets, in the
securities rating of the investment, or any other later change.
For purposes of fundamental investment restrictions regarding industry
concentration, the Advisor may classify issuers by industry in accordance with
classifications set forth in the Directory of Companies Filing Annual Reports
With The Securities and Exchange Commission or other sources. In the absence of
such classification or if the Advisor determines in good faith based on its own
information that the economic characteristics affecting a particular issue make
it more appropriately considered to be engaged in a different industry, the
Advisor may classify accordingly. For instance, personal credit finance
companies and business credit finance companies are deemed to be separate
industries and wholly owned finance companies are considered to be in the
industry of their parents if their activities are primarily related to financing
the activities of their parents.
INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The following discussion supplements the information regarding the investment
objective of the Fund and the policies to be employed to achieve the objective
by the Fund as set forth herein and in the Prospectus.
The Fund is designed for investors who seek high current income consistent
with the preservation of capital and same day liquidity from a portfolio of high
quality money market instruments. The Fund's investment objective is to maximize
current income consistent with the preservation of capital and same day
liquidity.
The Fund seeks to achieve its investment objective by maintaining a
dollar-weighted average portfolio maturity of not more than 90 days and by
investing in U.S. dollar denominated securities described in this Statement of
Additional Information that meet certain rating criteria, present minimal credit
risk and have effective maturities of not more than thirteen months. The Fund's
ability to achieve maximum current income is affected by its high quality
standards. See "Quality and Diversification Requirements."
MONEY MARKET INSTRUMENTS
A description of the various types of money market instruments that may be
purchased by the Fund appears below. Also see "Quality and Diversification
Requirements."
<PAGE>
U.S. TREASURY SECURITIES. The Fund may invest in direct obligations of the
U.S. Treasury, including Treasury bills, notes and bonds, all of which are
backed as to principal and interest payments by the full faith and credit of the
United States.
ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. The Fund may invest in obligations
issued or guaranteed by U.S. Government agencies or instrumentalities. These
obligations may or may not be backed by the "full faith and credit" of the
United States. Securities which are backed by the full faith and credit of the
United States include obligations of the Government National Mortgage
Association, the Farmers Home Administration, and the Export-Import Bank. In the
case of securities not backed by the full faith and credit of the United States,
the Fund must look principally to the federal agency issuing or guaranteeing the
obligation for ultimate repayment and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitments. Securities in which the Fund may invest that are not
backed by the full faith and credit of the United States include, but are not
limited to: (i) obligations of the Tennessee Valley Authority, the Federal Home
Loan Mortgage Corporation, the Federal Home Loan Banks and the U.S. Postal
Service, each of which has the right to borrow from the U.S. Treasury to meet
its obligations; (ii) securities issued by the Federal National Mortgage
Association, which are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; and (iii) obligations of the
Federal Farm Credit System and the Student Loan Marketing Association, each of
whose obligations may be satisfied only by the individual credits of the issuing
agency.
FOREIGN GOVERNMENT OBLIGATIONS. The Fund, subject to its applicable
investment policies, may also invest in short-term obligations of foreign
sovereign governments or of their agencies, instrumentalities, authorities or
political subdivisions. See "Foreign Investments." These securities must be
denominated in the U.S. dollar.
BANK OBLIGATIONS. The Fund, unless otherwise noted in the Prospectus or
below, may invest in negotiable certificates of deposit, time deposits and
bankers' acceptances of (i) banks, savings and loan associations and savings
banks which have more than $2 billion in total assets and are organized under
the laws of the United States or any state, (ii) foreign branches of these banks
or of foreign banks of equivalent size (Euros) and (iii) U.S. branches of
foreign banks of equivalent size (Yankees). See "Foreign Investments." The Fund
will not invest in obligations for which the Advisor, or any of its affiliated
persons, is the ultimate obligor or accepting bank. The Fund may also invest in
obligations of international banking institutions designated or supported by
national governments to promote economic reconstruction, development or trade
between nations (e.g., the European Investment Bank, the Inter-American
Development Bank, or the World Bank).
COMMERCIAL PAPER. The Fund may invest in commercial paper, including master
demand obligations. Master demand obligations are obligations that provide for a
periodic adjustment in the interest rate paid and permit daily changes in the
amount borrowed. Master demand obligations are governed by agreements between
the issuer and Morgan acting as agent, for no additional fee. The monies loaned
to the borrower come from accounts managed by Morgan or its affiliates, pursuant
to arrangements with such accounts. Interest and principal payments are credited
to such accounts. Morgan, an affiliate of the Advisor, has the right to increase
or decrease the amount provided to the borrower under an obligation. The
borrower has the right to pay without penalty all or any part of the principal
amount then outstanding on an obligation together with interest to the date of
payment. Since these obligations typically provide that the interest rate is
tied to the Federal Reserve commercial paper composite rate, the rate on master
demand obligations is subject to change. Repayment of a master demand obligation
to participating accounts depends on the ability of the borrower to pay the
accrued interest and principal of the obligation on demand which is continuously
monitored by Morgan. Since master demand obligations typically are not rated by
credit rating agencies, the Fund may invest in such unrated obligations only if
at the time of an investment the obligation is determined by the Advisor to have
a credit quality which satisfies the Fund's quality restrictions. See "Quality
and Diversification Requirements." Although there is no secondary market for
master demand obligations, such obligations are considered by the Fund to be
liquid because they are payable upon demand. The Fund does not have any specific
percentage limitation on investments in master demand obligations. It is
possible that the issuer of a master demand obligation could be a client of
Morgan to whom Morgan, in its capacity as a commercial bank, has made a loan.
ASSET-BACKED SECURITIES. The Fund may also invest in securities generally
referred to as asset-backed securities, which directly or indirectly represent a
participation interest in, or are secured by and payable from, a stream of
payments generated by particular assets, such as motor vehicle or credit card
receivables or other asset-backed securities collateralized by such assets.
<PAGE>
Asset-backed securities provide periodic payments that generally consist of both
interest and principal payments. Consequently, the life of an asset-backed
security varies with the prepayment experience of the underlying obligations.
Payments of principal and interest may be guaranteed up to certain amounts and
for a certain time period by a letter of credit issued by a financial
institution unaffiliated with the entities issuing the securities. The
asset-backed securities in which the Fund may invest are subject to the Fund's
overall credit requirements. However, asset-backed securities, in general, are
subject to certain risks. Most of these risks are related to limited interests
in applicable collateral. For example, credit card debt receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts on credit card debt thereby reducing the
balance due. Additionally, if the letter of credit is exhausted, holders of
asset-backed securities may also experience delays in payments or losses if the
full amounts due on underlying sales contracts are not realized. Because
asset-backed securities are relatively new, the market experience in these
securities is limited and the market's ability to sustain liquidity through all
phases of the market cycle has not been tested.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
brokers, dealers or banks that meet the credit guidelines approved by the Funds'
Trustees. In a repurchase agreement, the Fund buys a security from a seller that
has agreed to repurchase the same security at a mutually agreed upon date and
price. The resale price normally is in excess of the purchase price, reflecting
an agreed upon interest rate. This interest rate is effective for the period of
time a Fund is invested in the agreement and is not related to the coupon rate
on the underlying security. A repurchase agreement may also be viewed as a fully
collateralized loan of money by a Fund to the seller. The period of these
repurchase agreements will usually be short, from overnight to one week, and at
no time will the Fund invest in repurchase agreements for more than thirteen
months. The securities which are subject to repurchase agreements, however, may
have maturity dates in excess of thirteen months from the effective date of the
repurchase agreement. The Fund will always receive securities as collateral
whose market value is, and during the entire term of the agreement remains, at
least equal to 100% of the dollar amount invested by the Fund in each agreement
plus accrued interest, and the Fund will make payment for such securities only
upon physical delivery or upon evidence of book entry transfer to the account of
the Custodian. The Fund will be fully collateralized within the meaning of
paragraph (a)(4) of Rule 2a-7 under the Investment Company Act of 1940, as
amended (the "1940 Act"). If the seller defaults, the Fund might incur a loss if
the value of the collateral securing the repurchase agreement declines and might
incur disposition costs in connection with liquidating the collateral. In
addition, if bankruptcy proceedings are commenced with respect to the seller of
the security, realization upon disposal of the collateral by the Fund may be
delayed or limited.
The Fund may make investments in other debt securities with remaining
effective maturities of not more than thirteen months, including, without
limitation, corporate and foreign bonds, asset-backed securities and other
obligations described in the Prospectus or this Statement of Additional
Information.
FOREIGN INVESTMENTS
The Fund may invest in certain foreign securities. All investments must be
U.S. dollar-denominated. Investment in securities of foreign issuers and in
obligations of foreign branches of domestic banks involves somewhat different
investment risks from those affecting securities of U.S. domestic issuers. There
may be limited publicly available information with respect to foreign issuers,
and foreign issuers are not generally subject to uniform accounting, auditing
and financial standards and requirements comparable to those applicable to
domestic companies. Any foreign commercial paper must not be subject to foreign
withholding tax at the time of purchase.
Investors should realize that the value of the Fund's investments in foreign
securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Fund's operations. Furthermore, the economies of individual foreign nations
may differ from the U.S. economy, whether favorably or unfavorably, in areas
such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investments made by the Fund must be made in compliance with
U.S. and foreign currency restrictions and tax laws restricting the amounts and
types of foreign investments.
<PAGE>
ADDITIONAL INVESTMENTS
MUNICIPAL BONDS. The Fund may invest in municipal bonds issued by or on
behalf of states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies, authorities and
instrumentalities. The Fund may also invest in municipal notes of various types,
including notes issued in anticipation of receipt of taxes, the proceeds of the
sale of bonds, other revenues or grant proceeds, as well as municipal commercial
paper and municipal demand obligations such as variable rate demand notes and
master demand obligations. These municipal bonds and notes will be taxable
securities; income generated from these investments will be subject to federal,
state and local taxes.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase securities
on a when-issued or delayed delivery basis. For example, delivery of and payment
for these securities can take place a month or more after the date of the
purchase commitment. The purchase price and the interest rate payable, if any,
on the securities are fixed on the purchase commitment date or at the time the
settlement date is fixed. The value of such securities is subject to market
fluctuation and for money market instruments and other fixed income securities,
no interest accrues to the Fund until settlement takes place. At the time the
Fund makes the commitment to purchase securities on a when-issued or delayed
delivery basis, it will record the transaction, reflect the value each day of
such securities in determining its net asset value and, if applicable, calculate
the maturity for the purposes of average maturity from that date. At the time of
settlement a when-issued security may be valued at less than the purchase price.
To facilitate such acquisitions, the Fund will maintain with the Custodian a
segregated account with liquid assets, consisting of cash, U.S. Government
securities or other appropriate securities, in an amount at least equal to such
commitments. On delivery dates for such transactions, the Fund will meet its
obligations from maturities or sales of the securities held in the segregated
account and/or from cash flow. If the Fund chooses to dispose of the right to
acquire a when-issued security prior to its acquisition, it could, as with the
disposition of any other portfolio obligation, incur a gain or loss due to
market fluctuation. Also, the Fund may be disadvantaged if the other party to
the transaction defaults. It is the current policy of the Fund not to enter into
when-issued commitments exceeding in the aggregate 15% of the market value of
the Fund's total assets, less liabilities other than the obligations created by
when-issued commitments.
INVESTMENT COMPANY SECURITIES. Securities of other investment companies may
be acquired by the Fund to the extent permitted under the 1940 Act or any order
pursuant thereto. These limits currently require that, as determined immediately
after a purchase is made, (i) not more than 5% of the value of a Fund's total
assets will be invested in the securities of any one investment company, (ii)
not more than 10% of the value of its total assets will be invested in the
aggregate in securities of investment companies as a group, and (iii) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by a Fund, provided however, that a Fund may invest all of its investable
assets in an open-end investment company that has the same investment objective
as the Fund. As a shareholder of another investment company, the Fund would
bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses would be
in addition to the advisory and other expenses that the Fund bears directly in
connection with its own operations.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements. In a reverse repurchase agreement, the Fund sells a security and
agrees to repurchase the same security at a mutually agreed upon date and price
reflecting the interest rate effective for the term of the agreement. For
purposes of the 1940 Act a reverse repurchase agreement is also considered as
the borrowing of money by the Fund and, therefore, a form of leverage. Leverage
may cause any gains or losses for the Fund to be magnified. The Fund will invest
the proceeds of borrowings under reverse repurchase agreements. In addition,
except for liquidity purposes, the Fund will enter into a reverse repurchase
agreement only when the expected return from the investment of the proceeds is
greater than the expense of the transaction. The Fund will not invest the
proceeds of a reverse repurchase agreement for a period which exceeds the
duration of the reverse repurchase agreement. The Fund will establish and
maintain with the custodian a separate account with a segregated portfolio of
securities in an amount at least equal to its purchase obligations under its
reverse repurchase agreements. See "Investment Restrictions" for the Fund's
limitations on reverse repurchase agreements and bank borrowings.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Fund is permitted to lend its securities in an amount up to 33 1/3% of the
value of the Fund's net assets. The Fund may lend its securities if such loans
are secured continuously by cash or equivalent collateral or by a letter of
credit in favor of the Fund at least equal at all times to 100% of the market
value of the securities loaned, plus accrued interest. While such securities are
on loan, the borrower will pay the Fund any income accruing thereon. Loans will
be subject to termination by the Fund in the normal settlement time, generally
<PAGE>
three business days after notice, or by the borrower on one day's notice.
Borrowed securities must be returned when the loan is terminated. Any gain or
loss in the market price of the borrowed securities which occurs during the term
of the loan inures to the Fund and its respective investors. The Fund may pay
reasonable finders' and custodial fees in connection with a loan. In addition,
the Fund will consider all facts and circumstances including the
creditworthiness of the borrowing financial institution, and no Fund will make
any loans in excess of one year. Loans of portfolio securities may be considered
extensions of credit by the Funds. The risks to each Fund with respect to
borrowers of its portfolio securities are similar to the risks to each Fund with
respect to sellers in repurchase agreement transactions. See "Repurchase
Agreements". The Funds will not lend their securities to any officer, Trustee,
Director, employee or other affiliate of the Funds, the Advisor or the
Distributor, unless otherwise permitted by applicable law.
ILLIQUID INVESTMENTS, PRIVATELY PLACED AND CERTAIN UNREGISTERED SECURITIES.
The Fund may invest in privately placed, restricted, Rule 144A or other
unregistered securities. No Fund may acquire any illiquid holdings if, as a
result thereof, more than 10% of a Fund's net assets would be in illiquid
investments. Subject to this non-fundamental policy limitation, the Funds may
acquire investments that are illiquid or have limited liquidity, such as private
placements or investments that are not registered under the Securities Act of
1933, as amended (the "1933 Act") and cannot be offered for public sale in the
United States without first being registered under the 1933 Act. An illiquid
investment is any investment that cannot be disposed of within seven days in the
normal course of business at approximately the amount at which it is valued by
the Funds. The price the Funds pay for illiquid securities or receives upon
resale may be lower than the price paid or received for similar securities with
a more liquid market. Accordingly the valuation of these securities will reflect
any limitations on their liquidity.
The Fund may also purchase Rule 144A securities sold to institutional
investors without registration under the 1933 Act. These securities may be
determined to be liquid in accordance with guidelines established by the Advisor
and approved by the Trustees. The Trustees will monitor the Sub-Advisor's
implementation of these guidelines on a periodic basis.
As to illiquid investments, the Fund is subject to a risk that should the
Fund decide to sell them when a ready buyer is not available at a price the Fund
deems representative of their value, the value of the Fund's net assets could be
adversely affected. Where an illiquid security must be registered under the 1933
Act, before it may be sold, the Fund may be obligated to pay all or part of the
registration expenses, and a considerable period may elapse between the time of
the decision to sell and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the Fund might obtain a less favorable price
than prevailed when it decided to sell.
SYNTHETIC INSTRUMENTS. The Fund may invest in certain synthetic instruments.
Such instruments generally involve the deposit of asset-backed securities in a
trust arrangement and the issuance of certificates evidencing interests in the
trust. The certificates are generally sold in private placements in reliance on
Rule 144A. The Sub-Advisor will review the structure of synthetic instruments to
identify credit and liquidity risks and will monitor those risks. See "Illiquid
Investments, Privately Placed and Certain Unregistered Securities".
QUALITY AND DIVERSIFICATION REQUIREMENTS
The Fund intends to meet the diversification requirements of the 1940 Act.
Current 1940 Act diversification requirements require that with respect to 75%
of the assets of the Fund: (1) the Fund may not invest more than 5% of its total
assets in the securities of any one issuer, except obligations of the U.S.
Government, its agencies and instrumentalities, and (2) the Fund may not own
more than 10% of the outstanding voting securities of any one issuer. As for the
other 25% of the Fund's assets not subject to the limitation described above,
there is no limitation on investment of these assets under the 1940 Act, so that
all of such assets may be invested in securities of any one issuer. Investments
not subject to the limitations described above could involve an increased risk
to a Fund should an issuer, or a state or its related entities, be unable to
make interest or principal payments or should the market value of such
securities decline.
At the time the Fund invests in any taxable commercial paper, master demand
obligation, bank obligation or repurchase agreement, the issuer must have
outstanding debt rated A or higher by Moody's or Standard & Poor's, the issuer's
parent corporation, if any, must have outstanding commercial paper rated Prime-1
by Moody's or A-1 by Standard & Poor's, or if no such ratings are available, the
investment must be of comparable quality in Morgan's opinion.
In order to maintain a stable net asset value, the Fund will (i) limit its
investment in the securities (other than U.S. Government securities) of any one
issuer to no more than 5% of its assets, measured at the time of purchase,
<PAGE>
except for investments held for not more than three business days; and (ii)
limit investments to securities that present minimal credit risks and securities
(other than U.S. Government securities) that are rated within the highest
short-term rating category by at least two nationally recognized statistical
rating organizations ("NRSROs") or by the only NRSRO that has rated the
security. Securities which originally had a maturity of over one year are
subject to more complicated, but generally similar rating requirements. A
description of illustrative credit ratings is set forth in "Appendix A." The
Fund may also purchase unrated securities that are of comparable quality to the
rated securities described above. Additionally, if the issuer of a particular
security has issued other securities of comparable priority and security and
which have been rated in accordance with (ii) above, that security will be
deemed to have the same rating as such other rated securities.
In addition, the Board of Trustees has adopted procedures which (i) require
the Board of Trustees to approve or ratify purchases by the Fund of securities
(other than U.S. Government securities) that are unrated; (ii) require the Fund
to maintain a dollar-weighted average portfolio maturity of not more than 90
days and to invest only in securities with a remaining maturity of not more than
397 days; and (iii) require the Fund, in the event of certain downgradings of or
defaults on portfolio holdings, to dispose of the holding, subject in certain
circumstances to a finding by the Trustees that disposing of the holding would
not be in the Fund's best interest.
PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
The Sub-Advisor places orders for the Fund for all purchases and sales of
portfolio securities, enters into repurchase agreements, and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of the Fund. See "Investment Objectives and Policies."
Fixed income and debt securities are generally traded at a net price with
dealers acting as principal for their own accounts without a stated commission.
The price of the security usually includes profit to the dealers. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain securities may be
purchased directly from an issuer, in which case no commissions or discounts are
paid.
Portfolio transactions for the Fund will be undertaken principally to
accomplish the Fund's objective in relation to expected movements in the general
level of interest rates. The Fund may engage in short-term trading consistent
with its objectives. See "Investment Objectives and Policies - Portfolio
Turnover."
In connection with portfolio transactions for the Fund, the Sub-Advisor
intends to seek best execution on a competitive basis for both purchases and
sales of securities.
The Fund has a policy of investing only in securities with maturities of not
more than thirteen months, which will result in high portfolio turnovers. Since
brokerage commissions are not normally paid on investments which the Fund makes,
turnover resulting from such investments should not adversely affect the net
asset value or net income of the Fund.
Subject to the overriding objective of obtaining best execution of orders,
the Sub-Advisor may allocate a portion of the Fund's brokerage transactions to
affiliates of the Sub-Advisor. In order for affiliates of the Sub-Advisor to
effect any portfolio transactions for the Fund, the commissions, fees or other
remuneration received by such affiliates must be reasonable and fair compared to
the commissions, fees, or other remuneration paid to other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on a securities exchange during a comparable period of time. Furthermore,
the Trustees of the Fund, including a majority of the Trustees who are not
"interested persons," have adopted procedures which are reasonably designed to
provide that any commissions, fees, or other remuneration paid to such
affiliates are consistent with the foregoing standard.
Portfolio securities will not be purchased from or through or sold to or
through the Sub-Advisor or any other "affiliated person" (as defined in the 1940
Act) of the Sub-Advisor when such entities are acting as principals, except to
the extent permitted by law. In addition, the Fund will not purchase securities
during the existence of any underwriting group relating thereto of which the
Sub-Advisor or an affiliate of the Sub-Advisor is a member, except to the extent
permitted by law.
On those occasions when the Sub-Advisor deems the purchase or sale of a
security to be in the best interests of the Fund as well as other customers, the
Sub-Advisor to the extent permitted by applicable laws and regulations, may, but
is not obligated to, aggregate the securities to be sold or purchased for the
Fund with those to be sold or purchased for other customers in order to obtain
best execution, including lower brokerage commissions if appropriate. In such
event, allocation of the securities so purchased or sold as well as any expenses
incurred in the transaction will be made by the Sub-Advisor in the manner it
considers to be most equitable and consistent with its fiduciary obligations to
the Fund. In some instances, this procedure might adversely affect the Fund.
<PAGE>
PRINCIPAL SHAREHOLDERS
- --------------------------------------------------------------------------------
Amway Corporation ("Amway") indirectly, as of August 30, 1999, owned
_________ shares of beneficial interest, which constitutes all of the
outstanding shares of the Fund. Jay Van Andel and Richard M. DeVos are
controlling persons of Amway since they own, together with their spouses,
substantially all of its outstanding securities. Amway is a Michigan
manufacturer and direct selling distributor of home care and personal care
products. If Amway were to substantially reduce its investment in the Fund, it
could have an adverse effect on the Fund by decreasing the size of the fund and
by causing the Fund to incur brokerage charges in connection with the redemption
of Amway's shares. Amway has advised the Fund that it has no present intention
of reducing its investment in the Fund; however, there can be no assurance that
Amway will not reduce its investment in the Fund at some time in the future.
OFFICERS AND TRUSTEES OF THE FUND
- --------------------------------------------------------------------------------
The business affairs of the fund are managed and under the direction of the
Board of Trustees. The following are the Officers and Trustees of the Fund or
the Advisor or both, together with their principal occupations during the past
five years:
<TABLE>
<CAPTION>
Name and Address Age Office Held Principal Occupation Last Five
Years
<S> <C> <C> <C>
Richard A. DeWitt 85 Trustee of the Fund President, DeWitt Land and
10001 Buttonwood Way Cattle Company (investments
Tequesta, Florida in land and cattle)
33469
Allan D. Engel* 47 Trustee, Vice Sr. Manager, Investments and
2905 Lucerne SE President, Secretary Real Estate, Amway Corporation.
Grand Rapids, Michigan and Assistant Treasurer Director, President and
49546 of the Fund; President, Secretary of Amway Management
and Secretary of the Company (1981-1999). Trustee,
Investment Advisor. Vice President and Secretary,
Amway Mutual Fund (1981- 1999).
Donald H. Johnson 69 Trustee of the Fund Retired, Former Vice
19017 Vintage Trace Circle President-Treasurer, SPX
Fort Myers, Florida Corporation (Designs,
33912 manufactures and markets
products and services for the
motor vehicle industry), 1986
to 1994.
Walter T. Jones 57 Trustee of the Fund Retired, Former Senior Vice
936 Sycamore Ave. President-Chief Financial
Holland, Michigan Officer, Prince Corporation
49424
James J. Rosloniec* 54 Trustee, President and Vice President-Audit and
2905 Lucerne SE Treasurer of the Fund; Control, Amway Corporation,
Grand Rapids, Michigan and Director, 1991 to present. Director, Vice
49546 Vice-President and President and Treasurer of
Treasurer of the Amway Management Company
Investment Advisor. (1984-1999). Trustee, President
and Treasurer, Amway Mutual
Fund, (1981-1999).
<PAGE>
Name and Address Age Office Held Principal Occupation Last Five
Years
Richard E. Wayman 64 Trustee of the Fund Retired, Former Finance
24578 Rutherford Director, Amway Corporation,
Ramona, California 1976 to 1996
92065
</TABLE>
*These Trustees are interested persons under the Investment Company Act of
1940, as amended.
INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
The Fund has entered into an Investment Advisory Contract ("Contract") with
Activa Asset Management LLC (the "Investment Adviser"). Under the Contract, the
Investment Adviser sets overall investment strategies for the Fund and monitors
and evaluates the investment performance of the Fund's Sub-Adviser, including
compliance with the investment objectives, policies and restrictions of the
Fund. If the Investment Adviser believes it is in the Fund's best interests, it
may recommend that additional or alternative Sub-Advisers be retained on behalf
of the Fund. If more than one Sub-Adviser is retained, the Investment Adviser
will recommend to the Fund's Trustees how the Fund's assets should be allocated
or reallocated from time to time, among the Sub-Advisers.
The Investment Adviser and the Fund have received an exemptive order from the
Securities and Exchange Commission with respect to certain provisions of the
Investment Company Act. Absent the exemptive order, these provisions would
require that any change of Sub-Advisers be submitted to the Fund's shareholders
for approval. Pursuant to the exemptive order, any change in the Fund's
Sub-Advisers must be approved by the Fund's Trustees, including a majority of
the Fund's independent Trustees. If the Fund hires a new or an additional
Sub-Adviser, information about the new Sub-Adviser will be provided to the
Fund's shareholders within 90 days.
The Investment Advisory Agreement between the Fund and AAM became effective
on June 11, 1999. For providing services under this contract, Activa is to
receive a fee, payable quarterly, at the annual rate of .35 of 1% of the average
of the daily aggregate net asset value of the Fund until aggregate assets total
$500,000,000. When assets total $500,000,000, then the fee will be .35 of 1%
of the average of the daily aggregate net asset value of the Fund on the first
$100,000,000; .325% on the next $100,000,000; and .30% on the assets in excess
of $200,000,000. Activa also provides certain administrative services for the
Fund pursuant to a separate agreement. See "Administrative Services Agreement."
Members of the families of Jay Van Andel and Richard M. DeVos indirectly own
substantially all of the outstanding ownership interests of AAM. Jay Van Andel
and Richard M. DeVos are also controlling persons of Amway Corporation which, as
of August 30, 1999, owned all of the outstanding shares of the Fund. See
"Principal Shareholders."
A Sub-Advisory Agreement has been entered into between the Investment Advisor
and J.P. Morgan Investment Management, Inc., 522 Fifth Avenue, New York, New
York 10036 (Sub-Advisor). Under the Sub-Advisory Agreement, the Advisor employs
the Sub-Advisor to furnish investment advice and manage on a regular basis the
investment portfolio of the Fund, subject to the direction of the Advisor, the
Board of Directors of the Fund, and to the provisions of the Fund's current
Prospectus. The Sub-Advisor will make investment decisions on behalf of the Fund
and place all orders for the purchase or sale of portfolio securities for the
Fund's account, except when otherwise specifically directed by the Fund or the
Advisor. The fees of the Sub-Adviser are paid by the Investment Adviser, not the
Fund.
SUB-ADVISOR
- --------------------------------------------------------------------------------
The Fund's Sub-Adviser is J. P. Morgan Investment Management, Inc. ("JPMIM").
Subject to the supervision of the Fund's Trustees and Investment Adviser, the
Sub-Adviser makes the Fund's day-to-day investment decisions, arranges for the
execution of portfolio transactions and generally manages the Fund's
investments. JPMIM, a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, which manages employee benefit funds of
corporations, labor unions and state and local governments and the accounts of
other institutional investors, including investment companies.
<PAGE>
J.P. Morgan, through the Advisor and other subsidiaries, acts as investment
advisor to individuals, governments, corporations, employee benefit plans,
mutual funds and other institutional investors with combined assets under
management of approximately $320 billion.
J.P. Morgan has a long history of services as adviser, underwriters and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of the Sub-Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, and Singapore to cover companies, industries and countries on
site. In addition, the investment management divisions employ approximately 300
capital market researchers, portfolio managers and traders. The Sub-Advisor's
fixed income investment process is based on analysis of real rates, sector
diversification and quantitative and credit analysis.
The investment advisory services the Sub-Advisor provides to the Fund are not
exclusive under the terms of the Sub-Advisory Agreement. The Sub-Advisor is free
to and does render similar investment advisory services to others. The
Sub-Advisor serves as investment advisor to personal investors and other
investment companies and acts as fiduciary for trusts, estates and employee
benefit plans. Certain of the assets of trusts and estates under management are
invested in common trust funds for which the Sub-Advisor serves as trustee. The
accounts which are managed or advised by the Sub-Advisor have varying investment
objectives and the Sub-Advisor invests assets of such accounts in investments
substantially similar to, or the same as, those which are expected to constitute
the principal investments of the Fund. Such accounts are supervised by officers
and employees of the Sub-Advisor who may also be acting in similar capacities
for the Fund. See "Portfolio Transactions."
Sector weightings are generally similar to a benchmark with the emphasis on
security selection as the method to achieve investment performance superior to
the benchmark. The benchmark for the Fund is currently IBC's First Tier Money
Fund Average.
Morgan, also a wholly owned subsidiary of J.P. Morgan, is a bank holding
company organized under the laws of the State of Delaware. Morgan, who principal
offices are at 60 Wall Street, New York, New York 10260, is a New York trust
company which conducts a general banking and trust business. Morgan is subject
to regulation by the New York State Banking Department and is a member bank of
the Federal Reserve System. Through offices in New York City and abroad, Morgan
offers a wide range of services, primarily to governmental, institutional,
corporate and high net worth individual customers in the United States and
throughout the world.
The Fund is managed by officers of the Sub-Advisor who, in acting for their
customers, including the Fund, do not discuss their investment decisions with
any personnel of J.P. Morgan or any personnel of other divisions of the
Sub-Advisor or with any of its affiliated persons, with the exception of certain
other investment management affiliates of J.P. Morgan.
As compensation for the services rendered under the Sub-Advisory Agreement,
the Investment Adviser has agreed to pay the Sub-Advisor a fee, which is
computed daily and may be paid quarterly, equal to the annual rates of 0.15% of
the Fund's average daily net assets until assets total $500,000,000. When assets
total $500,000,000, then the fee will be .15 of 1% of the average of the daily
aggregate net asset value of the Fund on the first $100,000,000, .125% on the
next $100,000,000 and .10% on the assets in excess of $200,000,000.
The Sub-Advisory Agreement provides that it will continue in effect for
a period of two years after execution only if specifically approved thereafter
annually in the same manner as the Investment Advisory Agreement. See
"Investment Advisory" above. The Sub-Advisory Agreement will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Fund's Trustees, or by a vote of the holders of a
majority of the Fund's outstanding voting securities, on 60 days' written notice
to the Sub-Advisor and by the Sub-Advisor on 90 days' written notice to the
Fund. See "Additional Information."
The Glass-Steagall Act and other applicable laws generally prohibit banks such
as the Sub-Advisor from engaging in the business of underwriting or distributing
securities, and the Board of Governors of the Federal Reserve System has issued
an interpretation to the effect that under these laws a bank holding company
registered under the federal Bank Holding Company Act or certain subsidiaries
thereof may not sponsor, organize, or control a registered open-end investment
company continuously engaged in the issuance of its shares, such as the Fund.
The interpretation does not prohibit a holding company or a subsidiary thereof
from acting as investment advisor and custodian to such an investment company.
The Sub-Advisor believes that it may perform the services for the Fund
contemplated by the Sub-Advisory Agreements without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. State laws
<PAGE>
on this issue may differ from the interpretation of relevant federal law, and
banks and financial institutions may be required to register as dealers pursuant
to state securities laws. However, it is possible that future changes in either
federal or state statutes and regulations concerning the permissible activities
of banks or trust companies, as well as further judicial or administrative
decisions and interpretations of present and future statutes and regulations,
might prevent the Sub-Advisor from continuing to perform such services for the
Fund.
If the Sub-Advisor were prohibited from acting as investment advisor to the
Fund, it is expected that the Trustees of the Fund would select another
qualified sub-advisor.
PLAN OF DISTRIBUTION & PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------
The Advisor acts as the exclusive agent for sales of shares of the Fund
pursuant to a Principal Underwriting Agreement. The only compensation currently
received by the Advisor in connection with the sale of Fund shares is pursuant
to the Distribution Plan.
ADMINISTRATIVE AGREEMENT
- --------------------------------------------------------------------------------
Pursuant to the Administrative Agreement between the Fund and AAM, AAM
provides specified assistance to the Fund with respect to compliance matters,
taxes and accounting, the provision of legal services, meetings of the Fund's
Trustees and shareholders, and preparation of the Fund's registration statement
and other filings with the Securities and Exchange Commission. In addition, AAM
pays the fees of the Fund's Trustees, and the salaries and fees of all of the
Fund's Trustees and officers who devote part or all of their time to the affairs
of AAM. For providing these services AAM receives a fee, payable quarterly, at
the annual rate of 0.15% of the Fund's average daily assets.
The Administrative Agreement provides that AAM is only responsible for paying
such fees and expenses and providing such services as are specified in the
agreement. The Fund is responsible for all other expenses including (i) expenses
of maintaining the Fund and continuing its existence; (ii) registration of the
Trust under the Investment Company Act of 1940; (iii) commissions, fees and
other expenses connected with the acquisition, disposition and valuation of
securities and other investments; (iv) auditing, accounting and legal expenses;
(v) taxes and interest; (vi) government fees; (vii) expenses of issue, sale,
repurchase and redemption of shares; (viii) expenses of registering and
qualifying the Trust, the Fund and its shares under federal and state securities
laws and of preparing and printing prospectuses for such purposes and for
distributing the same to shareholders and investors; (ix) expenses of reports
and notices to stockholders and of meetings of stockholders and proxy
solicitations therefore; (x) expenses of reports to governmental officers and
commissions; (xi) insurance expenses; (xii) association membership dues; (xiii)
fees, expenses and disbursements of custodians and sub-custodians for all
services to the Trust (including without limitation safekeeping of funds and
securities, and keeping of books and accounts); (xiv) fees, expenses and
disbursement of transfer agents, dividend disbursing agents, stockholder
servicing agents and registrars for all services to the Trust; (xv) expenses for
servicing shareholder accounts; (xvi) any direct charges to shareholders
approved by the Trustees of the Trust; and (xvii) such non-recurring items as
may arise, including expenses incurred in connection with litigation,
proceedings and claims and the obligation of the Trust to indemnify its Trustees
and officers with respect thereto.
The Fund has entered into an agreement with Bisys Fund Services Ohio, Inc.
("Bisys") whereby Bisys provides a portfolio accounting and information system
for portfolio management for the maintenance of records and processing of
information which is needed daily in the determination of the net asset value of
the Fund.
TRANSFER AGENT
- --------------------------------------------------------------------------------
Under a separate contract, the functions of the Transfer Agent and Dividend
Disbursing Agent are performed by Activa Asset Management LLC, Grand Rapids,
Michigan, which acts as the Fund's agent for transfer of the Fund's shares and
for payment of dividends and capital gain distributions to shareholders.
In return for its services, the Fund pays the Transfer Agent, a fee of $1.167
per account in existence during the month, payable monthly, less earnings in the
redemption liquidity account after deducting bank fees, if any. The fee schedule
is reviewed annually by the Board of Trustees.
CUSTODIAN
- --------------------------------------------------------------------------------
The portfolio securities of the Fund are held, pursuant to a Custodian
Agreement, by Northern Trust Company, 50 South LaSalle, Chicago, Illinois, as
Custodian. The Custodian performs no managerial or policymaking functions for
the Fund.
<PAGE>
AUDITORS
- --------------------------------------------------------------------------------
BDO Seidman, LLP, 99 Monroe Avenue, N.W., Suite 800, Grand Rapids, Michigan,
are the independent certified public accountants for the Fund. Services include
an annual audit of the Fund's financial statements, tax return preparation, and
review of certain filings with the SEC.
PRICING OF FUND SHARES
- --------------------------------------------------------------------------------
The net asset value of the Fund's shares is determined by dividing the
total current value of the assets of the Fund, less its liabilities, by the
number of shares outstanding at that time. This determination is made at the
close of business of the New York Stock Exchange, usually 4:00 P.M. Eastern
time, on each business day on which that Exchange is open. Shares will not be
priced on national holidays or other days on which the New York Stock Exchange
is closed for trading.
The Fund's investments are generally valued at current market value. If
market quotations are not readily available, the Fund's investments will be
valued at fair value as determined by the Fund's Board of Trustees.
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
In order to purchase shares for a new account, the completion of an
application form is required. The minimum initial investment is $500 or more.
Additional investments of $50 or more can be made at any time by using the lower
portion of your account statement. Checks should be made payable to "Activa
Asset Management LLC" and mailed to 2905 Lucerne SE, Grand Rapids, Michigan
49355-7150. Third party checks will not be accepted.
All purchases will be made at the Net Asset Value per share net calculated
after the Fund receives your investment and application in proper form.
HOW SHARES ARE REDEEMED
- --------------------------------------------------------------------------------
Each Fund will redeem your shares at the net asset value next determined
after your redemption request is received in proper form. There is no redemption
charge by the Fund. However, if a shareholder uses the services of a
broker-dealer for the redemption, there may be a charge by the broker-dealer to
the shareholder for such services. Shares can be redeemed by the mail, telephone
or telegram. If the value of your account is $10,000 or more, you may arrange to
receive periodic cash payments. Please contact the Fund for more information.
Redemption proceeds may be delayed until investments credited to your account
have been received and collected.
BY MAIL:
When redeeming by mail, when no certificates have been issued, send a written
request for redemption to Activa Asset Management LLC, 2905 Lucerne S.E., Grand
Rapids, Michigan 49355-7150. The request must state the dollar amount or shares
to be redeemed, including your account number and the signature of each account
owner, signed exactly as your name appears on the records of the Fund. If a
certificate has been issued to you for the shares being redeemed, the
certificate (endorsed or accompanied by a signed stock power) must accompany
your redemption request, with your signature by a bank, broker, or other
acceptable financial institution. Additional documents will be required for
corporations, trusts, partnerships, retirement plans, individual retirement
accounts and profit sharing plans.
BY PHONE:
At the time of your investment in the Fund, or subsequently, you may elect on
the Fund's application to authorize the telephone or telegram exchange or
redemption option. You may redeem shares under this option by calling the Fund
at the number indicated on the front of this Prospectus on any business day.
Requests received after 4:00 p.m. when the market has closed will receive the
next day's price. By establishing the telephone or telegram exchange or
redemption option, you authorize the Transfer Agent to honor any telephone or
telegram exchange or redemption request from any person representing themselves
to be the investor. Procedures required by the Fund to ensure that a
shareholder's requested telephone or telegram transaction is genuine include
identification by the shareholder of the account by number, recording of the
requested transaction and sending a written confirmation to shareholders
reporting the requested transaction. The Fund is not responsible for
unauthorized telephone or telegram exchanges or redemptions unless the Fund
fails to follow these procedures. Shares must be owned for 15 days before
redeeming by the telephone and telegram exchange and cannot be in certificate
form unless the certificate is tendered with the request for redemption.
Certificated shares cannot be redeemed by the telephone and telegram exchange.
All redemption proceeds will be forwarded to the address of record or bank
designated on the account application.
<PAGE>
The Transfer Agent and the Fund have reserved the right to change, modify, or
terminate the telephone or telegram exchange or redemption option at any time.
Before this option is effective for a corporation, partnership, or other
organizations, additional documents may be required. This option is not
available for Profit-Sharing Trust and Individual Retirement Accounts. The Fund
and the Transfer Agent disclaim responsibility for verifying the authenticity of
telephone and telegram exchange or redemption requests which are made in
accordance with the procedures approved by shareholders.
SPECIAL CIRCUMSTANCES:
In some circumstances a signature guarantee may be required before shares are
redeemed. These circumstances include a change in the address for an account
within the last 30 days, a request to send the proceeds to a different payee or
address from that listed for the account, or a redemption request for $100,000
or more. A signature guarantee may be obtained from a bank, broker, or other
acceptable financial institution. If a signature guarantee is required, we
suggest that you call us to ensure that the signature guarantee and redemption
request will be processed correctly.
Payment for redeemed shares is normally made by check and mailed within three
days thereafter. However, under the Investment Company Act of 1940, the right of
redemption may be suspended or the date of payment postponed for more than seven
days: (1) for any period during which the New York Stock Exchange is closed,
other than for customary weekend and holiday closings; (2) when trading on the
New York Stock Exchange is restricted, as determined by the SEC; (3) when an
emergency exists, as determined by the SEC, as a result of which it is not
reasonably practicable for the Fund to dispose of its securities or determine
the value of its net assets; or (4) for such other period as the SEC may by
order permit for the protection of the shareholders. During such a period, a
shareholder may withdraw his request for redemption or receive the net asset
value next computed when regular trading resumes.
The Fund has filed with the SEC an election to pay for all redeemed shares in
cash up to a limit, as to any one shareholder during any 90-day periods, of
$250,000 or 1% of the net asset value of the Fund, whichever is less. Beyond
that limit, the Fund is permitted to pay the redemption price wholly or partly
"in kind," that is, by distribution of portfolio securities held by the Fund.
This would occur only upon specific authorization by the Board of Trustees when,
in their judgment, unusual circumstances make it advisable. It is unlikely that
this will ever happen, but if it does, you will incur a brokerage charge in
converting the securities received in this manner into cash. Portfolio
securities distributed "in kind" will be valued as they are valued for the
determination of the net asset value of the Fund's shares.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shares of each Fund may be exchanged for shares of any other Activa Fund.
The above described Exchange Privilege may be exercised by sending written
instruction to the Transfer Agent. See "How Shares Are Redeemed" for applicable
signatures and signature guarantee requirements. Shareholders may authorize
telephone or telegram exchanges or redemptions by making an election on your
application. Procedures required by the Fund to ensure that a shareholder's
requested telephone or telegram transaction is genuine include identification by
the shareholder of the account by number, recording of the requested transaction
and sending a written confirmation to shareholders reporting the requested
transaction. The Fund is not responsible for unauthorized telephone or telegram
exchanges unless the Fund fails to follow these procedures. Shares must be owned
for 15 days before exchanging and cannot be in certificate form unless the
certificate is tendered with the request for exchange. Exchanges will be
accepted only if the registration of the two accounts is identical. Exchange
redemptions and purchases are effected on the basis of the net asset value next
determined after receipt of the request in proper order by the Fund. In the case
of exchanges into the Money Market Fund, dividends generally commence on the
following business day. For federal and state income tax purposes, an exchange
is treated as a sale and may result in a capital gain or loss.
ADDITIONAL ACCOUNT POLICIES
- --------------------------------------------------------------------------------
If the value of your account falls below $100, the Fund may mail you a notice
asking you to bring the account back to $100 or close it out. If you do not take
action within 60 days, the Fund may sell your shares and mail the proceeds to
you at the address of record.
The Fund does not permit market-timing or other abusive trading practices.
Excessive, short-term (market-timing) and other abusive trading practices may
disrupt portfolio trading strategies and harm Fund performance. To minimize harm
to the Fund and its shareholders, each Fund reserves the right to reject any
purchase order (including exchanges) from any investor we believe has a history
of abusive trading.
<PAGE>
INTERNET ADDRESS
- --------------------------------------------------------------------------------
Activa's Web site is located at activafunds.com. Our Web site offers further
information about the Activa Funds as well as consumer information and the
ability to make certain transactions on-line.
FEDERAL INCOME TAX
- --------------------------------------------------------------------------------
The Fund intends to comply with the provisions of Subchapter M of the
Internal Revenue Code applicable to investment companies. As the result of
paying to its shareholders as dividends and distributions substantially all net
investment income and realized capital gains, the Fund will be relieved of
substantially all Federal income tax.
For Federal income tax purposes, distributions of net investment income and
any capital gains will be taxable to shareholders. Distributions of net
investment income will normally qualify for the 70% deduction for dividends
received by corporations. After the last dividend and capital gains distribution
in each year, the Fund will send you a statement of the amount of the income and
capital gains which you should report on your Federal income tax return.
Dividends derived from net investment income and net short-term capital gains
are taxable to shareholders as ordinary income and long-term capital gain
dividends are taxable to shareholders as long-term capital gain regardless of
how long the shares have been held and whether received in cash or reinvested in
additional shares of the Fund. Qualified long-term capital gain dividends
received by individual shareholders are taxed a maximum rate of 20%.
In addition, shareholders may realize a capital gain or loss when shares are
redeemed. For most types of accounts, the Fund will report the proceeds of
redemptions to shareholders and the IRS annually. However, because the tax
treatment also depends on the purchase price and a shareholder's personal tax
position, you should also keep your regular account statements to use in
determining your tax.
On the record date for a distribution, the Fund's share value is reduced by
the amount of the distribution. If a shareholder buys shares just before the
record date ("buying a dividend"), they will pay the full price for the shares,
and then receive a portion of the price back as a taxable distribution.
Also, under the Code, a 4% excise tax is imposed on the excess of the
required distribution for a calendar year over the distributed amount for such
calendar year. The required distribution is the sum of 98% of the Fund's net
investment income for the calendar year plus 98% of its capital gain net income
for the one-year period ended December 31, plus any undistributed net investment
income from the prior calendar year, plus any undistributed capital gain net
income from the prior calendar year, minus any overdistribution in the prior
calendar year. The Fund intends to declare or distribute dividends during the
appropriate periods of an amount sufficient to prevent imposition of the 4%
excise tax.
Under certain circumstances, the Fund will be required to withhold 31% of a
shareholder's distribution or redemption from the Fund. These circumstances
include failure by the shareholder to furnish the Fund with a proper taxpayer
identification number; notification of the Fund by the Secretary of the Treasury
that a taxpayer identification number is incorrect, or that withholding should
commence as a result of the shareholder's failure to report interest and
dividends; and failure of the shareholder to certify, under penalties of
perjury, that he is not subject to withholding. In this regard, failure of a
shareholder who is a foreign resident to certify that he is a nonresident alien
may result in 31% of his redemption proceeds and 31% of his capital gain
distribution being withheld. In addition, such a foreign resident may be subject
to a 30% or less, as prescribed by an applicable tax treaty, withholding tax on
ordinary income dividends distributed unless he qualifies for relief under an
applicable tax treaty.
Trustees of qualified retirement plans are required by law to withhold 20% of
the taxable portion of any distribution that is eligible to be "rolled over."
The 20% withholding requirement does not apply to distributions from IRA's or
any part of a distribution that is transferred directly to another qualified
retirement plan, 403(b)(7) account or IRA. Shareholders should consult their tax
advisor regarding the 20% withholding requirement.
Prior to purchasing shares of the Fund, the impact of any dividends or
capital gain distributions which are about to be declared should be carefully
considered. Any such dividends and capital gain distributions declared shortly
after you purchase shares will have the effect of reducing the per share net
asset value of your shares by the amount of dividends or distributions on the
ex-dividend date. All or a portion of such dividends or distributions, although
in effect a return of capital, are subject to taxes which may be at ordinary
income tax rates.
Each shareholder is advised to consult with his tax advisor regarding the
treatment of distributions to him under various state and local income tax laws.
<PAGE>
REPORTS TO SHAREHOLDERS AND ANNUAL AUDIT
- --------------------------------------------------------------------------------
The Fund's year begins on January 1 and ends on December 31. At least
semiannually, the shareholders of the Fund receive reports, pursuant to
applicable laws and regulations, containing financial information. The annual
shareholders report is incorporated by reference into the Statement of
Additional Information. The cost of printing and distribution of such reports to
shareholders is borne by the Fund.
At least once each year, the Fund is audited by independent certified public
accountants appointed by resolution of the Board and approved by the
shareholders. The fees and expenses of the auditors are paid by the Fund.
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITY RATINGS
STANDARD & POOR'S
CORPORATE AND MUNICIPAL BONDS
AAA - Debt rated AAA have the highest ratings assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and
repay principal is extremely strong.
AA - Debt rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in
a small degree.
A - Debt rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB - Debt rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt
in higher rated categories.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
A - Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
further refined with the designations 1,2, and 3 to indicate the
relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
SHORT-TERM TAX-EXEMPT NOTES
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest rating
assigned by Standard & Poor's and has a very strong or strong
capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a "plus" (+)
designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory
capacity to pay principal and interest.
<PAGE>
MOODY'S
CORPORATE AND MUNCIPAL BONDS
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 an "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aa 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.
Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
Prime 1 - Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the
following characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- Well established access to a range of financial markets and assured
sources of alternate liquidity.
SHORT-TERM TAX-EXEMPT NOTES
MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest rating
assigned by Moody's for notes judged to be the best quality. Notes
with this rating enjoy strong protection from established cash flows
of funds for their servicing or from established and broad-based
access to the market for refinancing, or both.
MIG-2 - MIG-2 rated notes are of high quality but with margins of protection
not as large as MIG-1.
<PAGE>
ACTIVA MONEY MARKET FUND
(a Series of Activa Mutual Fund Trust)
2905 Lucerne SE
Grand Rapids, Michigan 49546
(616) 787-6288
(800) 346-2670
=========================================
ACTIVA
MONEY
MARKET
FUND
Statement of
Additional Information
September 1, 1999
ACTIVA MUTUAL FUND LOGO
==========================================
Printed in U.S.A.
Draft 6/13/99
<PAGE>
ACTIVA INTERMEDIATE BOND FUND
(a series of Activa Mutual Fund Trust)
2905 Lucerne SE Grand Rapids, Michigan 49546
(616) 787-6288
(800) 346-2670
Contents Page
Organization of the Fund
Objectives, Policies, and
Restrictions on the Fund's
Investments
Income Securities
Description of Securities Ratings
Portfolio Transactions and
Brokerage Allocation
Principal Shareholders
Officers and Trustees of the Fund
Investment Advisor
Plan of Distribution and Principal
Underwriter
Administrative Agreement
Transfer Agent
Custodian
Auditors
Pricing of Fund Shares
Purchase of Shares
How Shares are Redeemed
Exchange Privilege
Additional Account Policies
Internet Address
Federal Income Tax
Reports to Shareholders and Annual Audit
ACTIVA MUTUAL FUND LOGO
STATEMENT OF ADDITIONAL
INFORMATION
This Statement of Additional Information is not
a prospectus. Therefore, it should be read only in
conjunction with the Prospectus, which can be
requested from the Fund by writing or telephoning
as indicated above. This Statement of Additional
Information relates to the Prospectus for the Fund
dated September 1, 1999.
The date of this Statement of Additional
Information is September 1, 1999.
Printed in U.S.A.
1
<PAGE>
ACTIVA INTERMEDIATE BOND FUND
ORGANIZATION OF THE FUND
- --------------------------------------------------------------------------------
The Fund is a series of Activa Mutual Fund Trust, an open-end diversified
management investment company which was organized as a Delaware business trust
on February 2, 1998.
The Declaration of Trust authorizes the Trustees to create additional series
and to issue an unlimited number of units of beneficial interest, or "shares."
The Trustees are also authorized to issue different classes of shares of any
series. No series which may be issued by the Trust is entitled to share in the
assets of any other series or is liable for the expenses or liabilities of any
other series. The Fund presently has only one class of shares.
The Trust is not required to hold annual meetings of shareholders and does
not intend to hold such meetings. Shareholders of the Trust will have voting
rights only with respect to the limited number of matters specified in the
Declaration of Trust, and such other matters as may be determined or as may be
required by law. A meeting will be called for the purpose of voting on the
removal of a Trustee at the written request of holders of 10% of the Trust's
outstanding shares. In the event a meeting of shareholders is held, shareholders
will be entitled to one vote for each dollar of net asset value (or a
proportionate fractional vote with respect to fractional dollar amounts) on all
matters presented to shareholders, including the election of Trustees.
OBJECTIVES, POLICIES AND RESTRICTIONS ON THE FUND'S INVESTMENTS
- --------------------------------------------------------------------------------
The investment objective of the Fund is to provide high total return
consistent with moderate risk of capital and maintenance liquidity. The Fund
will attempt to meet its objective by investing in a diversified portfolio of
intermediate and long-term income securities of U.S. issuers.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The investment restrictions below have been adopted by the Fund. Except where
otherwise noted, these investment restrictions are "fundamental" policies which,
under the 1940 Act, may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as the case may be. A "majority of
the outstanding voting securities" is defined in the 1940 Act as the lesser of
(a) 67% or more of the voting securities present at a meeting if the holders of
more than 50% of the outstanding voting securities are present or represented by
proxy, or (b) more than 50% of the outstanding voting securities. The percentage
limitations contained in the restrictions below apply at the time of the
purchase of securities.
The Fund :
1. May not make any investment inconsistent with the Fund's classification
as a diversified investment company under the Investment Company Act of
1940.
2. May not purchase any security which would cause the Fund to concentrate
its investments in the securities of issuers primarily engaged in any
particular industry except as permitted by the SEC. This restriction
does not apply to instruments considered to be domestic bank money
market instruments.
3. May not issue senior securities, except as permitted under the
Investment Company Act of 1940 or any rule, order or interpretation
thereunder;
4. May not borrow money, except to the extent permitted by applicable law;
5. May not underwrite securities or other issues, except to the extent
that the Fund, in disposing of portfolio securities, may be deemed an
underwriter within the meaning of the 1933 Act;
6. May not purchase or sell real estate, except that, to the extent
permitted by applicable law, the Fund may (a) invest in securities or
other instruments directly or indirectly secured by real estate, and
(b) invest in securities or other instruments issued by issuers that
invest in real estate;
7. May not purchase or sell commodities or commodity contracts unless
acquired as a result of ownership of securities or other instruments
issued by persons that purchase or sell commodities or commodities
contracts; but this shall not prevent the Fund from purchasing, selling
and entering into financial futures contracts (including futures
contracts on indices of securities, interest rates and currencies),
options on financial futures contracts (including futures contracts on
indices of securities, interests rates and currencies), warrants,
swaps, forward contracts, foreign currency spot and forward contracts
or other derivative instruments that are not related to physical
commodities; and
8. May make loans to other persons, in accordance with the Fund's
investment objective and policies and to the extent permitted by
applicable law.
<PAGE>
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
The investment restrictions described below are not fundamental policies of
the Fund and may be changed by the Fund's Trustees. These non-fundamental
investment policies require that the Fund: (i) may not acquire any illiquid
securities, if as a result thereof, more than 10% of the market value of the
Fund's total assets would be in investments which are illiquid; (ii) may not
purchase securities on margin, make short sales of securities, or maintain a
short position, provided that this restriction shall not be deemed to be
applicable to the purchase or sale of when-issued or delayed delivery
securities; (iii) may not acquire securities of other investment companies,
except as permitted by the 1940 Act or any order pursuant thereto; (iv) may not
enter into reverse repurchase agreements or borrow money, except from banks for
extraordinary or emergency purposes, if such obligations exceed in the aggregate
one-third of the market value of the Fund's total assets, less liabilities other
than obligations created by reverse repurchase agreements and borrowings.
Not withstanding any other fundamental or non-fundamental investment
restriction or policy, the Fund reserves the right, without the approval of
shareholders, to invest all of its assets in the securities of a single open-end
registered investment company with substantially the same investment objective,
restrictions and policies as the Fund.
There will be no violation of any investment restriction if that restriction
is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
INCOME SECURITIES
- --------------------------------------------------------------------------------
Income securities include securities issued or guaranteed by the U.S.
government, its agencies or its instrumentalities ("U.S. Government
Securities"); mortgage-backed or asset-backed securities; corporate debt
securities; zero-coupon or stripped securities; variable and floating rate debt
securities; commercial paper; certificates of deposit, time deposits and bankers
acceptances; other instruments having investment characteristics substantially
similar to any of the foregoing and repurchase agreements with respect to any of
the foregoing. The following disclosure supplements disclosure in the Prospectus
and does not, standing along, present a complete or accurate explanation of the
matters disclosed.
U.S. TREASURY SECURITIES. U.S. Treasury securities include bills, notes and
bonds issued by the U.S. Treasury. These instruments are direct obligations of
the U.S. government and, as such, are backed by the full faith and credit of the
United States. They differ primarily in their interest rates, the lengths of
their maturities and the dates of their issuances.
STRIPPED TREASURY SECURITIES. Stripped Treasury securities are obligations
representing an interest in all or a portion of the income or principal
component of an underlying Treasury or pool of Treasury securities. Stripped
Treasury securities include obligations entitled to receive all of the interest
component but none of the principal component (IOs) and obligations entitled to
receive all of the principal component but none of the interest component (POs).
The market values of stripped Treasury securities tend to be more volatile in
response to changes in interest rates than are those of conventional Treasury
securities.
OBLIGATIONS ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. Obligations issued by agencies of the U.S. government or
instrumentalities established or sponsored by the U.S. government include those
that are guaranteed by federal agencies or instrumentalities and may or may not
be backed by the full faith and credit of the United States. Obligations of the
Government National Mortgage Association ("GNMA"), the Farmers Home
Administration and the Export-Import Bank are backed by the full faith and
credit of the United States. U.S. Government Securities that are not backed by
the full faith and credit of the United States include, among others,
obligations issued by the Tennessee Valley Authority, the Resolution Trust
Corporation ("FHLMC") and the United States Postal Service, each of which has
the right to borrow from the United States Treasury to meet its obligations, and
obligations of the Federal Farm Credit Bank and the Federal Home Loan Bank, the
obligations of which may be satisfied only by the individual credit of the
issuing agency. Investments in FHLMC, FNMA and other obligations may include
collateralized mortgage obligations and real estate mortgage investment conduits
issued or guaranteed by such entities. In the case of securities not backed by
the full faith and credit of the United States, a Fund must look principally to
the agency issuing or guaranteeing the obligation for ultimate repayment and may
not be able to assert a claim against the U.S. if the agency or instrumentality
does not meet its commitments.
MORTGAGE-BACKED SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT
INSTRUMENTALITIES. Mortgage-backed securities may be issued or guaranteed by
U.S. government agencies such as GNMA, FNMA or FHLMC and represent undivided
<PAGE>
ownership interests in pools of mortgages. The mortgages backing these
securities may include conventional 30-year fixed rate mortgages, 15-year fixed
rate mortgages adjustable rate mortgages. The U.S. government or the issuing
agency guarantees the payment of the interest on and principal of these
securities. However, the guarantees do not extend to the securities' yield or
value, which are likely to vary inversely with fluctuations in interest rates,
nor do the guarantees extend to the yield or value of a Fund's shares. These
securities are in most cases "pass-through" instruments, through which the
holders receive a share of all interest and principal payments from the
mortgages underlying the securities, net of certain fees. Because the principal
amounts of such underlying mortgages may generally be prepaid in whole or in
part by the mortgagees at any time without penalty and the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life of a particular issue of pass-through securities.
Mortgage-backed securities are subject to more rapid repayment than their stated
maturity date would indicate as a result of the pass-through of prepayments or
principal on the underlying mortgage obligations. The remaining maturity of a
mortgage-backed security will be deemed to be equal to the average maturity of
the mortgages underlying such security determined by the Sub-Adviser on the
basis of assumed prepayment rates with respect to such mortgages. The remaining
expected average life of a pool of mortgages underlying a mortgage-backed
security is a prediction of when the mortgages will be repaid and is based upon
a variety of factors such as the demographic and geographic characteristics of
the borrowers and the mortgaged properties, the length of time that each of the
mortgages has been outstanding, the interest rates payable on the mortgages and
the current interest rate environment. During periods of declining interest
rates, prepayment of mortgages underlying mortgage-backed securities can be
expected to accelerate. When the mortgage obligations underlying mortgage-back
securities can be expected to accelerate. When the mortgage obligations are
prepaid, a Fund reinvests the prepaid amounts in other income producing
securities, the yields of which reflect interest rates prevailing at the time.
Therefore, a Fund's ability to maintain a portfolio of high-yielding
mortgage-backed securities will be adversely affected to the extent that
prepayments of mortgages must be reinvested in securities which have lower
yields than the prepaid mortgage-backed securities. Moreover, prepayments of
mortgages which underlie securities purchased by a Fund at a premium would
result in capital losses. Alternatively, during periods of rising interest
rates, mortgage-backed securities are often more susceptible to extension risk
(i.e. rising interest rates could cause property owners to prepay their mortgage
loans more slowly than expected when the security was purchased by the Fund
which may further reduce the market value of such security and lengthen the
duration of such security) than traditional debt securities.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES.
Collateralized mortgage obligations ("CMOs") are debt obligations collateralized
by mortgage loans or mortgage pass-through securities. Typically, CMOs are
collateralized by GNMA, FNMA and FHLMC certificates, but also may be
collateralized by whole loans or private pass-through securities (such
collateral collectively hereinafter referred to as "Mortgage Assets").
Multiclass pass-through securities are equity interests in a trust composed of
Mortgage Assets. Unless the context indicates otherwise, all references herein
to CMOs include multiclass pass-through securities. Payments of principal of and
interest on the Mortgage Assets, and any reinvestment income thereon, provide
the funds to pay debt service on the CMOs or make scheduled distributions on the
multiclass pass-through securities. CMOs deemed to be U.S. government securities
are those issued or guaranteed as to principal and interest by a person
controlled or supervised by and acting as an agency or instrumentality of the
U.S. government. The issuer of a series of CMOs may elect to be treated as a
Real Estate Mortgage Investment Conduit (a "REMIC").
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche", is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates. Interest typically is paid or accrues on a monthly, quarterly or
semi-annual basis. The principal and interest on the Mortgage Assets may be
allocated among the several classes of a series of CMO in innumerable ways. In
one structure, payments of principal, including any principal prepayments, on
the Mortgage Assets are applied to the classes of a CMO in order of their
respective stated maturities or final distribution dates, so that no payment of
principal will be made on any class of CMOs until all other classes having an
earlier stated maturity or final distribution date have been paid in full.
Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. These simultaneous payments are taken into
account in calculating the stated maturity date or final distribution date of
each class, which, as with other CMO structures, must be retired by its stated
<PAGE>
maturity date or final distribution date but may be retired earlier. Planned
Amortization Class CMOs ("PAC Bonds") generally require payments of a specified
amount of principal on each payment date. PAC Bonds are always parallel pay CMOs
with the required principal payments on such securities having the highest
priority after interest has been paid to all classes.
TYPES OF CREDIT SUPPORT. Mortgage-backed securities are often backed by a
pool of assets representing the obligation of a number of different parties. To
lessen the effect of failures by obligors on underlying assets to make payments,
such securities may contain elements of credit support. Such credit support
falls into two categories: (i) liquidity protection and (ii) protection against
losses resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures ultimate payment of the obligations on
at least a portion of the assets in the pool. Such protection may be provided
through guarantees, insurance policies or letters of credit obtained by the
issuer or sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments, sometimes funded from a portion of the
payments on the underlying assets, are held in reserve against future losses)
and "overcollaterization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceeds that required to make payment of the
securities and pay any servicing or other fees). The degree of credit support is
provided for each issue is generally bases on historical information respecting
the level of credit risk associated with the underlying assets. Delinquencies or
losses in excess of those anticipated could adversely affect the return on an
investment in such issue.
ASSET-BACKED SECURITIES. The securitization techniques used to develop
mortgage-back securities are now also applied to a broad range of assets.
Through the use of trusts and special purpose corporations, various types of
assets, primarily automobile and credit card receivables, are being securitized
in pass-through structures similar to the mortgage pass-through structures
described above or in a pay-through structure similar to the CMO structure.
Other types of asset-backed securities may be developed in the future.
In general, the collateral supporting asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. As with mortgage-backed securities, asset-backed securities are
often backed by a pool of assets representing the obligations of a number of
different parties and use similar credit enhancement techniques. Asset-backed
securities present certain risks that are not presented by mortgage-backed
securities. Primarily, these securities do not have the benefit of the same
security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of asset-backed securities backed by automobile
receivables permit the servicers of such receivables to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related asset-backed securities. In
addition, because of the large number of vehicles involved in a typical issuance
and technical requirements under state laws, the trustee for the holders of
asset-backed securities backed by automobile receivables may not have a proper
security interest in all of the obligations backing such receivables. Therefore,
there is the possibility that recoveries on repossessed collateral may not, in
some cases, be available to support payments on these securities.
ZERO-COUPON SECURITIES. Zero-coupon securities pay no cash interest but are
sold at substantial discounts from their value at maturity. When a zero-coupon
bond is held to maturity, its entire investment return comes from the difference
between its purchase price and its maturity value. The market values of such
securities are generally subject to greater fluctuations in response to market
rates of interest than bonds that pay interest currently. Because such
securities allow an issuer to avoid the need to generate cash to meet current
interest payments, such bonds may involve greater credit risk than bonds paying
cash interest currently.
PREMIUM SECURITIES. The Fund may at times invest in securities bearing coupon
rates higher than prevailing market rates. Such "premium" securities are
typically purchased at prices greater than the principal amounts payable on
maturity. If an issuer were to redeem securities held by the Fund during a time
of declining interest rates, the Fund may not be able to reinvest the proceeds
in securities providing the same investment return as the securities redeemed.
<PAGE>
If securities purchased by the Fund at a premium are called or sold prior to
maturity, the fund generally will recognize a capital loss to the extent the
call or sale price is less than the Fund's adjusted tax basis in such
securities. Additionally, the Fund generally will recognize a capital loss if it
holds such securities to maturity.
ADJUSTABLE AND FLOATING RATE SECURITIES. Adjustable rate securities are
securities having interest rates which are adjusted or reset at periodic
intervals ranging, in general, from one day to several years, based on a spread
over a specific interest rate or interest rate index or on the results of
periodic auctions. There are three main categories of indices: (i) those based
on U.S. Government Securities; (ii) those derived from a calculated measure such
as a cost of funds index; and (iii) those based on a moving average of interest
rates, including mortgage rates. Commonly utilized indices include, for example,
the One Year Constant Maturity Treasury Index, the London Interbank Offered Rate
(LIBOR), the Federal Home Loan Bank Cost of Funds, the prime rate and commercial
paper rates.
Adjustable rate securities allow a Fund to participate in all or a portion of
increases in interest rates through periodic upward adjustments of the coupon
rates of such securities, resulting in higher yields. During period of declining
interest rates however, coupon rates may readjust downward resulting in lower
yields to the Fund. During periods of rising interest rates, changes in the
coupon rate of adjustable rate securities will lag behind changes in the market
interest rate, which may result in such security having a lower value until the
coupon resets to reflect more closely market interest rates. Adjustable rate
securities frequently limit the maximum amount the rate may be adjusted during
any adjustment period, in any one year or during the term of the security.
DEFENSIVE STRATEGIES. In certain circumstances market conditions may, in the
Sub-Adviser's judgment, make pursuing the Fund's basic investment strategy
inconsistent with the best interests of its shareholders. At such times, the
Sub-Adviser may use alternative strategies primarily designed to reduce
fluctuations in the value of the Fund's assets. In implementing these
"defensive" strategies, the Fund may invest to a substantial degree in
high-quality, short-term obligations. Such obligations may include: obligations
of the U.S. Government, its agencies or instrumentalities; other debt securities
rated within the three highest grades by either Standard and Poor's ("S&P") or
Moody's Investor Services, Inc. ("Moody's) (or comparably rated by any other
nationally recognized statistical rating organization ("NRSRO")); commercial
paper rated in the highest grade by either rating service (or comparably rated
by any other nationally recognized statistical rating organization);
certificates of deposit and bankers' acceptances; repurchase agreements with
respect to any of the foregoing investments; or any other fixed-income
securities that the Fund considers consistent with such strategy.
BORROWINGS
The Fund may borrow money from banks for temporary, emergency purposes only
(such as meeting share redemption requests), although the Fund does not expect
to do so in an amount exceeding 5% of its respective total assets (after giving
effect to any such borrowing). Borrowing creates special risk considerations
such as increased volatility in the net asset value of the shares and in the
yield on the Fund's portfolio. Borrowing will create interest expenses for a
Fund which can exceed the income from the assets retained.
"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS
The Fund may purchase and sell portfolio securities on a "when issued" and
"delayed delivery" basis. No income accrues to or is earned by a fund on
purchases of portfolio securities in connection with such transactions prior to
the date the Fund actually takes delivery of such securities. These transactions
are subject to market fluctuation; the value of such securities at delivery may
be more or less than their purchase price, and yields generally available on
such securities when delivery occurs may be higher than yields on such
securities obtained pursuant to such transactions. Because a Fund relies on the
buyer or seller, as the case may be, to consummate the transaction, failure by
the other party to complete the transaction may result in the Fund missing the
opportunity of obtaining a price or yield considered to be advantageous. When
the Fund is the buyer in such a transaction, however, it will maintain, in a
segregated account with its custodian, cash or liquid securities having an
aggregate value equal to the amount of such purchase commitments until payment
is made. The Fund will make commitments to purchase securities on such basis
only with the intention of actually acquiring these securities, but the Fund may
sell such securities prior to the settlement date if such sale is considered to
be advisable. To the extent the Fund engages in "when issued" and "delayed
delivery" transactions, it will do so for the purpose of acquiring securities
for the Fund's portfolio consistent with the Fund's investment objectives and
policies and not for the purposes of investment leverage. No specific limitation
<PAGE>
exists as to the percentage of the Fund's assets which may be used to acquire
securities on a "when issued" or "delayed delivery" basis.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for a fiscal year by the average
monthly value of the Fund's portfolio securities during such fiscal year. The
turnover rate may vary greatly from year to year as well as within a year. A
high portfolio turnover (100% or more) increases a Fund's transaction costs,
including brokerage commissions, and may result in the realization of more
short-term capital gains than if the Fund had a lower portfolio turnover. The
turnover rate will not be a limiting factor, however, if the Sub-Adviser deems
portfolio changes appropriate.
DESCRIPTION OF SECURITIES RATINGS
- --------------------------------------------------------------------------------
STANDARD & POOR'S - A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follow:
A S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
A debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
as audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of payment - capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms of
the obligation:
2. Nature of and provisions of the obligation:
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditor's rights.
1. LONG-TERM DEBT - INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
meet its financial commitment on the obligation is extremely strong.
AA: Debt rated "AA" differs from the highest rated issues only in small
degree. Capacity to meet its financial commitment on the obligation is very
strong.
A: Debt rated "A" is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories. Capacity to meet its financial commitment on the obligation is
still strong.
BBB: Debt rated "BBB" exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to meet its financial commitment on the obligation.
SPECULATIVE GRADE
BB, B, CCC, CC, C: Debts rated "BB", "B", "CCC", "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: Debt rated "BB" is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B: Debt rated "B" is more vulnerable to nonpayment than obligations rated
"BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligors capacity or willingness to meet its
financial commitment on the obligation.
CCC: Debt rated "CCC" is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
<PAGE>
CC: Debt rated "CC" is currently highly vulnerable to nonpayment.
C: The "C" rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on this
obligation are being continued.
D: Debt rated "D" is in payment default. The "D" rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grade period. The "D" rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
-: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposes to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
DEBT OBLIGATIONS OR ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain ratings or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
2. COMMERCIAL PAPER
A-S & P commercial paper rating is a current assessment of the likelihood
of timely payment of debt considered short-term in the relevant market. Ratings
are graded into several categories, ranging from "A-1" for the highest quality
obligations to "D" for the lowest. These categories are as follow:
A-1: The highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high for issues
designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C: This rating is assigned to short-term debt obligations currently
vulnerable to nonpayment and is dependent upon favorable business, financial and
economic conditions for the obligor to meet its financial commitment on the
obligation.
D: Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. The "D" rating also will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
A commercial paper rating is not a recommendation to purchase, sell or hold
a security inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are bases on current information furnished to
S & P by the issuer or obtained from other sources it considers reliable. S & P
does not perform an audit in connection with any rating and may, on occasion,
rely on unaudited information. The ratings may be changed, suspended or
<PAGE>
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
3. PREFERRED STOCK
A S & P preferred stock rating is an assessment of the capacity and
willingness of an issuer to pay preferred stock dividends and any applicable
sinking fund obligation. A preferred stock rating differs from a bond rating
inasmuch as it is assigned to an equity issue, which issue is intrinsically
different from, and subordinated to, a debt issue. Therefore, to reflect this
difference, the preferred stock rating symbol will normally not be higher than
the bond rating symbol assigned to, or that would be assigned to, the senior
debt of the same issuer. The preferred stock ratings are based on the following
considerations:
I. Likelihood of payment-capacity and willingness of the issuer to meet
the timely payment of preferred stock dividends and any applicable
sinking fund requirements in accordance with the terms of the
obligation.
II. Nature of, and provisions of, the issuer.
III. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangements under the laws of bankruptcy and
other laws affecting creditors' rights.
AAA: This is the highest rating that may be assigned by S & P to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligation.
AA: A preferred stock issue rated "AA" also qualifies as a high-quality,
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated "AAA".
A: An issue rated "A" is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
BBB: An issue rated "BBB" is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to weakened capacity to make payments for a preferred stock
in this category than for issues in the "A" category.
BB, B AND CCC: Preferred stock rated "BB", "B" and "CCC" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. "BBB" indicates the lowest degree of
speculation and "CCC" the highest. While such issues will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CC: The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currentlypaying.
C: A preferred stock issue rated "C" is a nonpaying issue.
D: A preferred stock rated "D" is a nonpaying issue with the issuer in
default on debt instruments.
NR: This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S & P does not rate
a particular type of obligation as a matter of policy. PLUS (+) or MINUS (-): To
provide more detailed indications of preferred stock quality, ratings from "AA"
to "CCC" may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
A preferred stock rating is not a recommendation to purchase, sell, or hold
a security inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished to
S & P by the issuer or obtained by S & P from other sources it considers
reliable. S & P does not perform an audit in connection with any rating and may,
on occasion, rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or based on other circumstances.
<PAGE>
MOODY'S INVESTORS SERVICE-a brief description of the applicable Moody's
Investors Service (Moody's) rating symbols and their meanings (as published by
Moody's Investor Service) follows:
1. LONG-TERM DEBT
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 protected 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 the Aaa securities.
A: Bonds which are rated "A" possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.
BAA: Bonds which are rated Baa are considered a medium-grade obligation,
(i.e., they are neither highly protected nor poorly secured.) Interest payment
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA: Bonds which are rated BA are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA: Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Note: Moody's applies numerical modifiers 1,2, and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the issue ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for the reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgement to be formed; if a bond is
called for redemption; or for other reasons.
<PAGE>
2. SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year unless explicitly noted. Moody's employs the
following three designations, all judged to be investment grade, to indicate the
relative repayment ability of rated issues:
ISSUERS RATED PRIME-1 (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 repayment ability
will often be evidenced by many of the following characteristics:
- -Leading market positions in well-established industries.
- -High rates of return on funds employed.
- -Conservative capitalization structure with moderate reliance on debt and ample
asset protection. -Broad margins is 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.
ISSUERS RATED PRIME-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
ISSUERS RATED PRIME-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes of the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
3. PREFERRED STOCK
Preferred stock rating symbols and their definitions are as follows:
AAA: An issue which is rated "AAA" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
AA: An issue which is rated "AA" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
A: An issue which is rated "A" is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the "AAA"
and "AA" classifications, earnings and asset protections are, nevertheless,
expected to be maintained at adequate levels.
BAA: An issue which is rated "BAA" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
BA: An issue which is rated "BA" is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
B: An issue which is rated "B" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
CAA: An issue which is rated "CAA" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
CA: An issue which is rated "CA" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of
eventual payment.
C: This is the lowest rated class of preferred or preference stock. Issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating classification.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category, the modifier 2 indicates a mid-range ranking, and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
- --------------------------------------------------------------------------------
The Sub-Adviser is responsible for decisions to buy and sell securities for
the Funds, the selection of brokers and dealers to effect the transactions and
the negotiation of prices and any brokerage commissions on such transactions.
While the Sub-Adviser will be primarily responsible for the placement of the
Fund's portfolio business, the policies and practices in this regard will at all
times be subject to review by the Trustees of the Fund.
Many securities in which the Fund invests are traded principally in the
over-the-counter market. Over-the-counter securities generally are traded on a
net basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a mark-up
to the dealer. Securities purchased in underwritten offerings generally include,
in the price a fixed amount of compensation for the financial advisers,
underwriters and dealers. The Fund also may purchase certain money market
instruments directly from an issuer, in which case no commissions or discounts
are paid. Purchases and sales of securities on a stock exchange are effected
through brokers who charge a commission for their services. Day to day
management of the portfolios of each Fund is the responsibility of a team of
officers of the Sub-Adviser.
The Sub-Adviser is responsible for placing portfolio transactions and does so
in a manner deemed fair and reasonable to the Fund and not according to any
formula. The primary consideration in all portfolio transactions is prompt
execution of orders in an effective manner at the most favorable price. In
selecting broker/dealers and in negotiating prices and any brokerage commissions
on such transactions, the Sub-Adviser considers the firm's reliability,
integrity and financial condition and the firm's execution capability, the size
and breadth of the market for the security, the size of and difficulty in
executing the order, and the best net price. There are many instances when, in
the judgment of the Sub-Adviser, more than one firm can offer comparable
execution services. In selecting among such firms, consideration may be given to
those firms which supply research and other services in addition to execution
services. The Sub-Adviser is authorized to pay higher commissions to brokerage
firms that provide it with investment and research information than to firms
which do not provide such services if the Sub-Adviser determines that such
commissions are reasonable in relation to the overall services provided. No
specific value can be assigned to such research services which are furnished
without cost to the Sub-Adviser. Since statistical and other research
information is only supplementary to the research efforts of the Sub-Adviser to
the Fund and still must be analyzed and reviewed by its staff, the receipt of
research information is not expected to reduce its expenses materially. The
investment advisory fee is not reduced as a result of the Sub-Adviser's receipt
of such research services. Services provided may include (a) furnishing advice
as to the value of securities, the advisability of investing in, purchasing or
selling securities, and the availability of securities or purchasers or sellers
of securities; (b) furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy, and the
performance of accounts; and (c) effecting securities transactions and
performing functions incidental thereto (such as clearance, settlement and
custody). Research services furnished by firms through which the Fund effects
its securities transactions may be used by the Sub-Adviser in servicing all of
its advisory accounts; not all of such services may be used by the Sub-Adviser
in connection with the Fund. The Sub-Adviser also may place portfolio
transactions, to the extent permitted by law, with brokerage firms affiliated
with the Fund, the Sub-Adviser or the Distributor and with brokerage firms
participating in the distribution of the Fund's shares if it reasonably believes
that the quality of execution and the commission are comparable to that
available from other qualified firms. Similarly, to the extent permitted by law
and subject to the same considers on quality of execution and comparable
commission rates, the Sub-Adviser may direct an executing broker to pay a
portion or all of any commissions, concessions or discounts to a firm supplying
research or other services or to a firm participating in the distribution of the
Fund's shares.
The Sub-Adviser may place portfolio transactions at or about the same time
for other advisory accounts, including other investment companies. The
Sub-Adviser seeks to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities for the Fund and
another advisory account. In some cases, this procedure could have an adverse
effect on the price or the amount of securities available to the Fund. In making
such allocations among the Fund and other advisory accounts, the main factors
considered by the Sub-Adviser are the respective sizes of the Fund and other
advisory accounts, the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and
opinions of the persons responsible for recommending the investment.
<PAGE>
Effective October 31, 1996, Morgan Stanley & Co. Incorporated ("Morgan
Stanley") became an affiliate of the Adviser. Effective May 31, 1997, Dean
Witter Reynolds, Inc. ("Dean Witter") became an affiliate of the Adviser. The
Trustees have adopted certain policies incorporating the standards of Rule 17e-1
issued by the SEC under the 1940 Act which requires that the commissions, fees
or other remuneration received or to be received by other brokers in connection
with comparable transactions involving similar securities during a comparable
period of time. The rule and procedures also contain review requirements and
require the Sub-Adviser to furnish reports to the Trustees and to maintain
records in connection with such reviews. After consideration of all factors
deemed relevant, the Trustees will consider from time to time whether the
advisory fee for the Fund will be reduced by all or a portion of the brokerage
commission given to affiliated brokers.
PRINCIPAL SHAREHOLDERS
- --------------------------------------------------------------------------------
Amway Corporation ("Amway") indirectly, as of August 30, 1999, owned
_________ shares of beneficial interest, which constitutes all of the
outstanding shares of the Fund. Jay Van Andel and Richard M. DeVos are
controlling persons of Amway since they own, together with their spouses,
substantially all of its outstanding securities. Amway is a Michigan
manufacturer and direct selling distributor of home care and personal care
products. If Amway were to substantially reduce its investment in the Fund, it
could have an adverse effect on the Fund by decreasing the size of the fund and
by causing the Fund to incur brokerage charges in connection with the redemption
of Amway's shares. Amway has advised the Fund that it has no present intention
of reducing its investment in the Fund; however, there can be no assurance that
Amway will not reduce its investment in the Fund at some time in the future.
OFFICERS AND TRUSTEES OF THE FUND
- --------------------------------------------------------------------------------
The business affairs of the fund are managed and under the direction of the
Board of Trustees. The following are the Officers and Trustees of the Fund or
the Advisor or both, together with their principal occupations during the past
five years:
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE OFFICE HELD PRINCIPAL OCCUPATION LAST FIVE YEARS
- ---------------------- --- --------------------- ------------------------------------
<S> <C> <C> <C>
Richard A. DeWitt 85 Trustee of the Fund President, DeWitt Land and
10001 Buttonwood Way Cattle Company (investments
Tequesta, Florida 33469 in land and cattle)
Allan D. Engel* 47 Trustee, Vice Sr. Manager, Investments and
2905 Lucerne SE President, Secretary Real Estate, Amway Corporation.
Grand Rapids, Michigan and Assistant Treasurer Director, President and
49546 of the Fund; President, Secretary of Amway Management
and Secretary of the Company (1981-1999). Trustee,
Investment Advisor. Vice President and Secretary,
Amway Mutual Fund (1981-1999).
Donald H. Johnson 69 Trustee of the Fund Retired, Former Vice
19017 Vintage Trace Circle President-Treasurer, SPX
Fort Myers, Florida Corporation (Designs,
33912 manufactures and markets
products and services for the
motor vehicle industry), 1986
to 1994.
Walter T. Jones 57 Trustee of the Fund Retired, Former Senior Vice
936 Sycamore Ave. President-Chief Financial
Holland, Michigan Officer, Prince Corporation
49424
<PAGE>
NAME AND ADDRESS AGE OFFICE HELD PRINCIPAL OCCUPATION LAST FIVE YEARS
- ---------------------- --- ---------------------- ------------------------------------
James J. Rosloniec* 54 Trustee, President and Vice President-Audit and
2905 Lucerne SE Treasurer of the Fund; Control, Amway Corporation,
Grand Rapids, Michigan and Director, 1991 to present. Director, Vice
49546 Vice-President and President and Treasurer of
Treasurer of the Amway Management Company
Investment Advisor. (1984-1999). Trustee,
President and Treasurer, Amway
Mutual Fund (1981-1999).
Richard E. Wayman 64 Trustee of the Fund Retired, Former Finance
24578 Rutherford Director, Amway Corporation,
Ramona, California 1976 to 1996
92065
</TABLE>
*These Trustees are interested persons under the Investment Company Act of
1940, as amended.
INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
The Fund has entered into an Investment Advisory Contract ("Contract") with
Activa Asset Management LLC (the "Investment Adviser"). Under the Contract, the
Investment Adviser sets overall investment strategies for the Fund and monitors
and evaluates the investment performance of the Fund's Sub-Adviser, including
compliance with the investment objectives, policies and restrictions of the
Fund. If the Investment Adviser believes it is in the Fund's best interests, it
may recommend that additional or alternative Sub-Advisers be retained on behalf
of the Fund. If more than one Sub-Adviser is retained, the Investment Adviser
will recommend to the Fund's Trustees how the Fund's assets should be allocated
or reallocated from time to time, among the Sub-Advisers.
The Investment Adviser and the Fund have received an exemptive order from the
Securities and Exchange Commission with respect to certain provisions of the
Investment Company Act. Absent the exemptive order, these provisions would
require that any change of Sub-Advisers be submitted to the Fund's shareholders
for approval. Pursuant to the exemptive order, any change in the Fund's
Sub-Advisers must be approved by the Fund's Trustees, including a majority of
the Fund's independent Trustees. If the Fund hires a new or an additional
Sub-Adviser, information about the new Sub-Adviser will be provided to the
Fund's shareholders within 90 days.
The Investment Advisory Agreement between the Fund and Activa became
effective on June 11, 1999. For providing services under this contract, AAM is
to receive compensation which is computed daily and may be paid quarterly equal
to the annual rate of .40 of 1% of the average of the daily aggregate net asset
value of the Fund on the first $50,000,000 of assets and .32% on the assets in
excess of $50,000,000 Activa also provides certain administrative services for
the Fund pursuant to a separate agreement. See "Administrative Services
Agreement."
Members of the families of Jay Van Andel and Richard M. DeVos indirectly own
substantially all of the outstanding ownership interests of AAM. Jay Van Andel
and Richard M. DeVos are also controlling persons of Amway Corporation which, as
of August 30, 1999, owned all of the outstanding shares of the Fund. See
"Principal Shareholders."
SUB-ADVISOR
- --------------------------------------------------------------------------------
A Sub-Advisory Agreement has been entered into between the Investment Advisor
and Van Kampen Management, Inc., 1 Parkview Plaza, Oakbrook Terrace, Illinois
60181-5555 (Sub-Advisor). Under the Sub-Advisory Agreement, the Advisor employs
the Sub-Advisor to furnish investment advice and manage on a regular basis the
investment portfolio of the Fund, subject to the direction of the Advisor, the
Board of Directors of the Fund, and to the provisions of the Fund's current
Prospectus. The Sub-Advisor will make investment decisions on behalf of the Fund
and place all orders for the purchase or sale of portfolio securities for the
<PAGE>
Fund's account, except when otherwise specifically directed by the Fund or the
Advisor. The fees of the Sub-Adviser are paid by the Investment Adviser, not the
Fund.
As compensation for the services rendered under the Sub-Advisory Agreement,
the Investment Adviser has agreed to pay the Sub-Adviser a fee, which is
computed daily and may be paid monthly, equal to the annual rates of .20 of 1%
of the average of the daily aggregate net asset value of the Fund on the first
$50,000,000 of assets and .12% on the assets in excess of $50,000,000.
The Sub-Advisory Agreement provides that it will continue in effect for a
period two years after execution only if specifically approved thereafter
annually in the same manner as the Investment Advisory Agreement. See
"Investment Advisory" above. The Sub-Advisory Agreement will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Fund's Trustees, or by a vote of the holders of a
majority of the Fund's outstanding voting securities, on 60 days' written notice
to the Sub-Adviser and by the Sub-Adviser on 60 days' written notice to the
Fund. See "Additional Information."
PLAN OF DISTRIBUTION & PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------
The Trust has adopted a Plan and Agreement of Distribution ("Distribution
Plan"). Under the Distribution Plan, the Advisor provides shareholder services
and services in connection with the sale and distribution of the Fund's shares
and is compensated at a maximum annual rate of 0.25 of 1% of the average daily
net assets of the Fund. The maximum amount presently authorized by the Fund's
Board of Trustees is 0.15 of 1% of the average daily net assets of the Fund.
Since these fees are paid from Fund assets, over time these fees will increase
the cost of your investment and may cost you more than paying other types of
sales charges.
Amounts received by the Advisor pursuant to the Distribution Plan may be
retained by the Advisor as compensation for its services, or paid to other
investment professionals who provide services in connection with the
distribution of Fund shares. The Trustees will review the services provided and
compensation paid pursuant to the Distribution Plan no less often than
quarterly.
The Advisor acts as the exclusive agent for sales of shares of the Fund
pursuant to a Principal Underwriting Agreement. The only compensation currently
received by the Advisor in connection with the sale of Fund shares is pursuant
to the Distribution Plan.
ADMINISTRATIVE AGREEMENT
- --------------------------------------------------------------------------------
Pursuant to the Administrative Agreement between the Fund and Activa Asset
Management LLC ("Activa"), Activa provides specified assistance to the Fund with
respect to compliance matters, taxes and accounting, the provision of legal
services, meetings of the Fund's Trustees and shareholders, and preparation of
the Fund's registration statement and other filings with the Securities and
Exchange Commission. In addition, Activa pays the fees of the Fund's Trustees,
and the salaries and fees of all of the Fund's Trustees and officers who devote
part or all of their time to the affairs of Activa. For providing these services
Activa receives a fee, payable quarterly, at the annual rate of 0.15% of the
Fund's average daily assets.
The Administrative Agreement provides that Activa is only responsible for
paying such fees and expenses and providing such services as are specified in
the agreement. The Fund is responsible for all other expenses including (i)
expenses of maintaining the Fund and continuing its existence; (ii) registration
of the Trust under the Investment Company Act of 1940; (iii) commissions, fees
and other expenses connected with the acquisition, disposition and valuation of
securities and other investments; (iv) auditing, accounting and legal expenses;
(v) taxes and interest; (vi) government fees; (vii) expenses of issue, sale,
<PAGE>
repurchase and redemption of shares; (viii) expenses of registering and
qualifying the Trust, the Fund and its shares under federal and state securities
laws and of preparing and printing prospectuses for such purposes and for
distributing the same to shareholders and investors; (ix) expenses of reports
and notices to stockholders and of meetings of stockholders and proxy
solicitations therefore; (x) expenses of reports to governmental officers and
commissions; (xi) insurance expenses; (xii) association membership dues; (xiii)
fees, expenses and disbursements of custodians and sub-custodians for all
services to the Trust (including without limitation safekeeping of funds and
securities, and keeping of books and accounts); (xiv) fees, expenses and
disbursement of transfer agents, dividend disbursing agents, stockholder
servicing agents and registrars for all services to the Trust; (xv) expenses for
servicing shareholder accounts; (xvi) any direct charges to shareholders
approved by the Trustees of the Trust; and (xvii) such non-recurring items as
may arise, including expenses incurred in connection with litigation,
proceedings and claims and the obligation of the Trust to indemnify its Trustees
and officers with respect thereto.
The Fund has entered into an agreement with Bisys Fund Services Ohio, Inc.
("Bisys") whereby Bisys provides a portfolio accounting and information system
for portfolio management for the maintenance of records and processing of
information which is needed daily in the determination of the net asset value of
the Fund.
TRANSFER AGENT
- --------------------------------------------------------------------------------
Under a separate contract, the functions of the Transfer Agent and Dividend
Disbursing Agent are performed by Activa Asset Management LLC, Grand Rapids,
Michigan, which acts as the Fund's agent for transfer of the Fund's shares and
for payment of dividends and capital gain distributions to shareholders.
In return for its services, the Fund pays the Transfer Agent, a fee of $1.167
per account in existence during the month, payable monthly, less earnings in the
redemption liquidity account after deducting bank fees, if any. The fee schedule
is reviewed annually by the Board of Trustees.
CUSTODIAN
- --------------------------------------------------------------------------------
The portfolio securities of the Fund are held, pursuant to a Custodian
Agreement, by Northern Trust Company, 50 South LaSalle, Chicago, Illinois, as
Custodian. The Custodian performs no managerial or policymaking functions for
the Fund.
AUDITORS
- --------------------------------------------------------------------------------
BDO Seidman, LLP, 99 Monroe Avenue, N.W., Suite 800, Grand Rapids, Michigan,
are the independent certified public accountants for the Fund. Services include
an annual audit of the Fund's financial statements, tax return preparation, and
review of certain filings with the SEC.
PRICING OF FUND SHARES
- --------------------------------------------------------------------------------
The net asset value of the Fund's shares is determined by dividing the
total current value of the assets of the Fund, less its liabilities, by the
number of shares outstanding at that time. This determination is made at the
close of business of the New York Stock Exchange, usually 4:00 P.M. Eastern
time, on each business day on which that Exchange is open. Shares will not be
priced on national holidays or other days on which the New York Stock Exchange
is closed for trading.
The Fund's investments are generally valued at current market value. If
market quotations are not readily available, the Fund's investments will be
valued at fair value as determined by the Fund's Board of Trustees.
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
In order to purchase shares for a new account, the completion of an
application form is required. The minimum initial investment is $500 or more.
Additional investments of $50 or more can be made at any time by using the lower
portion of your account statement. Checks should be made payable to "Activa
Asset Management LLC" and mailed to 2905 Lucerne SE, Grand Rapids, Michigan
49355-7150. Third party checks will not be accepted.
All purchases will be made at the Net Asset Value per share net calculated
after the Fund receives your investment and application in proper form.
HOW SHARES ARE REDEEMED
- --------------------------------------------------------------------------------
Each Fund will redeem your shares at the net asset value next determined
after your redemption request is received in proper form. There is no redemption
charge by the Fund. However, if a shareholder uses the services of a
broker-dealer for the redemption, there may be a charge by the broker-dealer to
the shareholder for such services. Shares can be redeemed by the mail, telephone
or telegram. If the value of your account is $10,000 or more, you may arrange to
receive periodic cash payments. Please contact the Fund for more information.
Redemption proceeds may be delayed until investments credited to your account
have been received and collected.
<PAGE>
BY MAIL:
When redeeming by mail, when no certificates have been issued, send a written
request for redemption to Activa Asset Management LLC, 2905 Lucerne S.E., Grand
Rapids, Michigan 49355-7150. The request must state the dollar amount or shares
to be redeemed, including your account number and the signature of each account
owner, signed exactly as your name appears on the records of the Fund. If a
certificate has been issued to you for the shares being redeemed, the
certificate (endorsed or accompanied by a signed stock power) must accompany
your redemption request, with your signature by a bank, broker, or other
acceptable financial institution. Additional documents will be required for
corporations, trusts, partnerships, retirement plans, individual retirement
accounts and profit sharing plans.
BY PHONE:
At the time of your investment in the Fund, or subsequently, you may elect on
the Fund's application to authorize the telephone or telegram exchange or
redemption option. You may redeem shares under this option by calling the Fund
at the number indicated on the front of this Prospectus on any business day.
Requests received after 4:00 p.m. when the market has closed will receive the
next day's price. By establishing the telephone or telegram exchange or
redemption option, you authorize the Transfer Agent to honor any telephone or
telegram exchange or redemption request from any person representing themselves
to be the investor. Procedures required by the Fund to ensure that a
shareholder's requested telephone or telegram transaction is genuine include
identification by the shareholder of the account by number, recording of the
requested transaction and sending a written confirmation to shareholders
reporting the requested transaction. The Fund is not responsible for
unauthorized telephone or telegram exchanges or redemptions unless the Fund
fails to follow these procedures. Shares must be owned for 15 days before
redeeming by the telephone and telegram exchange and cannot be in certificate
form unless the certificate is tendered with the request for redemption.
Certificated shares cannot be redeemed by the telephone and telegram exchange.
All redemption proceeds will be forwarded to the address of record or bank
designated on the account application.
The Transfer Agent and the Fund have reserved the right to change, modify, or
terminate the telephone or telegram exchange or redemption option at any time.
Before this option is effective for a corporation, partnership, or other
organizations, additional documents may be required. This option is not
available for Profit-Sharing Trust and Individual Retirement Accounts. The Fund
and the Transfer Agent disclaim responsibility for verifying the authenticity of
telephone and telegram exchange or redemption requests which are made in
accordance with the procedures approved by shareholders.
SPECIAL CIRCUMSTANCES:
In some circumstances a signature guarantee may be required before shares are
redeemed. These circumstances include a change in the address for an account
within the last 30 days, a request to send the proceeds to a different payee or
address from that listed for the account, or a redemption request for $100,000
or more. A signature guarantee may be obtained from a bank, broker, or other
acceptable financial institution. If a signature guarantee is required, we
suggest that you call us to ensure that the signature guarantee and redemption
request will be processed correctly.
Payment for redeemed shares is normally made by check and mailed within three
days thereafter. However, under the Investment Company Act of 1940, the right of
redemption may be suspended or the date of payment postponed for more than seven
days: (1) for any period during which the New York Stock Exchange is closed,
other than for customary weekend and holiday closings; (2) when trading on the
New York Stock Exchange is restricted, as determined by the SEC; (3) when an
emergency exists, as determined by the SEC, as a result of which it is not
reasonably practicable for the Fund to dispose of its securities or determine
the value of its net assets; or (4) for such other period as the SEC may by
order permit for the protection of the shareholders. During such a period, a
shareholder may withdraw his request for redemption or receive the net asset
value next computed when regular trading resumes.
The Fund has filed with the SEC an election to pay for all redeemed shares in
cash up to a limit, as to any one shareholder during any 90-day periods, of
$250,000 or 1% of the net asset value of the Fund, whichever is less. Beyond
that limit, the Fund is permitted to pay the redemption price wholly or partly
"in kind," that is, by distribution of portfolio securities held by the Fund.
This would occur only upon specific authorization by the Board of Trustees when,
in their judgment, unusual circumstances make it advisable. It is unlikely that
this will ever happen, but if it does, you will incur a brokerage charge in
converting the securities received in this manner into cash. Portfolio
securities distributed "in kind" will be valued as they are valued for the
determination of the net asset value of the Fund's shares.
<PAGE>
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shares of each Fund may be exchanged for shares of any other Activa Fund.
The above described Exchange Privilege may be exercised by sending written
instruction to the Transfer Agent. See "How Shares Are Redeemed" for applicable
signatures and signature guarantee requirements. Shareholders may authorize
telephone or telegram exchanges or redemptions by making an election on your
application. Procedures required by the Fund to ensure that a shareholder's
requested telephone or telegram transaction is genuine include identification by
the shareholder of the account by number, recording of the requested transaction
and sending a written confirmation to shareholders reporting the requested
transaction. The Fund is not responsible for unauthorized telephone or telegram
exchanges unless the Fund fails to follow these procedures. Shares must be owned
for 15 days before exchanging and cannot be in certificate form unless the
certificate is tendered with the request for exchange. Exchanges will be
accepted only if the registration of the two accounts is identical. Exchange
redemptions and purchases are effected on the basis of the net asset value next
determined after receipt of the request in proper order by the Fund. In the case
of exchanges into the Money Market Fund, dividends generally commence on the
following business day. For federal and state income tax purposes, an exchange
is treated as a sale and may result in a capital gain or loss.
ADDITIONAL ACCOUNT POLICIES
- --------------------------------------------------------------------------------
If the value of your account falls below $100, the Fund may mail you a notice
asking you to bring the account back to $100 or close it out. If you do not take
action within 60 days, the Fund may sell your shares and mail the proceeds to
you at the address of record.
The Fund does not permit market-timing or other abusive trading practices.
Excessive, short-term (market-timing) and other abusive trading practices may
disrupt portfolio trading strategies and harm Fund performance. To minimize harm
to the Fund and its shareholders, each Fund reserves the right to reject any
purchase order (including exchanges) from any investor we believe has a history
of abusive trading.
INTERNET ADDRESS
- --------------------------------------------------------------------------------
Activa's Web site is located at activafunds.com. Our Web site offers further
information about the Activa Funds as well as consumer information and the
ability to make certain transactions on-line.
FEDERAL INCOME TAX
- --------------------------------------------------------------------------------
The Fund intends to comply with the provisions of Subchapter M of the
Internal Revenue Code applicable to investment companies. As the result of
paying to its shareholders as dividends and distributions substantially all net
investment income and realized capital gains, the Fund will be relieved of
substantially all Federal income tax.
For Federal income tax purposes, distributions of net investment income and
any capital gains will be taxable to shareholders. Distributions of net
investment income will normally qualify for the 70% deduction for dividends
received by corporations. After the last dividend and capital gains distribution
in each year, the Fund will send you a statement of the amount of the income and
capital gains which you should report on your Federal income tax return.
Dividends derived from net investment income and net short-term capital gains
are taxable to shareholders as ordinary income and long-term capital gain
dividends are taxable to shareholders as long-term capital gain regardless of
how long the shares have been held and whether received in cash or reinvested in
additional shares of the Fund. Qualified long-term capital gain dividends
received by individual shareholders are taxed a maximum rate of 20%.
In addition, shareholders may realize a capital gain or loss when shares are
redeemed. For most types of accounts, the Fund will report the proceeds of
redemptions to shareholders and the IRS annually. However, because the tax
treatment also depends on the purchase price and a shareholder's personal tax
position, you should also keep your regular account statements to use in
determining your tax.
On the record date for a distribution, the Fund's share value is reduced by
the amount of the distribution. If a shareholder buys shares just before the
record date ("buying a dividend"), they will pay the full price for the shares,
and then receive a portion of the price back as a taxable distribution.
Also, under the Code, a 4% excise tax is imposed on the excess of the
required distribution for a calendar year over the distributed amount for such
calendar year. The required distribution is the sum of 98% of the Fund's net
investment income for the calendar year plus 98% of its capital gain net income
for the one-year period ended December 31, plus any undistributed net investment
income from the prior calendar year, plus any undistributed capital gain net
income from the prior calendar year, minus any overdistribution in the prior
<PAGE>
calendar year. The Fund intends to declare or distribute dividends during the
appropriate periods of an amount sufficient to prevent imposition of the 4%
excise tax.
Under certain circumstances, the Fund will be required to withhold 31% of a
shareholder's distribution or redemption from the Fund. These circumstances
include failure by the shareholder to furnish the Fund with a proper taxpayer
identification number; notification of the Fund by the Secretary of the Treasury
that a taxpayer identification number is incorrect, or that withholding should
commence as a result of the shareholder's failure to report interest and
dividends; and failure of the shareholder to certify, under penalties of
perjury, that he is not subject to withholding. In this regard, failure of a
shareholder who is a foreign resident to certify that he is a nonresident alien
may result in 31% of his redemption proceeds and 31% of his capital gain
distribution being withheld. In addition, such a foreign resident may be subject
to a 30% or less, as prescribed by an applicable tax treaty, withholding tax on
ordinary income dividends distributed unless he qualifies for relief under an
applicable tax treaty.
Trustees of qualified retirement plans are required by law to withhold 20% of
the taxable portion of any distribution that is eligible to be "rolled over."
The 20% withholding requirement does not apply to distributions from IRA's or
any part of a distribution that is transferred directly to another qualified
retirement plan, 403(b)(7) account or IRA. Shareholders should consult their tax
advisor regarding the 20% withholding requirement.
Prior to purchasing shares of the Fund, the impact of any dividends or
capital gain distributions which are about to be declared should be carefully
considered. Any such dividends and capital gain distributions declared shortly
after you purchase shares will have the effect of reducing the per share net
asset value of your shares by the amount of dividends or distributions on the
ex-dividend date. All or a portion of such dividends or distributions, although
in effect a return of capital, are subject to taxes which may be at ordinary
income tax rates.
Each shareholder is advised to consult with his tax advisor regarding the
treatment of distributions to him under various state and local income tax laws.
REPORTS TO SHAREHOLDERS AND ANNUAL AUDIT
- --------------------------------------------------------------------------------
The Fund's year begins on January 1 and ends on December 31. At least
semiannually, the shareholders of the Fund receive reports, pursuant to
applicable laws and regulations, containing financial information. The annual
shareholders report is incorporated by reference into the Statement of
Additional Information. The cost of printing and distribution of such reports to
shareholders is borne by the Fund.
At least once each year, the Fund is audited by independent certified public
accountants appointed by resolution of the Board and approved by the
shareholders. The fees and expenses of the auditors are paid by the Fund.
<PAGE>
ACTIVA INTERMEDIATE BOND FUND
(a Series of Activa Mutual Fund Trust)
2905 Lucerne SE
Grand Rapids, Michigan 49546
(616) 787-6288
(800) 346-2670
=====================================================
ACTIVA
INTERMEDIATE
BOND
FUND
Statement of
Additional Information
September 1, 1999
ACTIVA MUTUAL FUND LOGO
=====================================================
Printed in U.S.A.
<PAGE>
ACTIVA VALUE FUND
(a series of Activa Mutual Fund Trust)
2905 Lucerne SE Grand Rapids, Michigan 49546
(616) 787-6288
(800) 346-2670
Contents Page
Organization of the Fund
Objectives, Policies, and
Restrictions on the Fund's
Investments
Additional Risks & Information
Concerning Certain Investment
Techniques
Portfolio Transactions & Brokerage
Principal Shareholders
Officers and Trustees of the Fund
Investment Advisor
Plan of Distribution and Principal
Underwriter
Administrative Agreement
Transfer Agent
Custodian
Auditors
Pricing of Fund Shares
Purchase of Shares
How Shares are Redeemed
Exchange Privilege
Additional Account Policies
Internet Address
Federal Income Tax
Investment Performance Information
Reports to Shareholders and Annual Audit
ACTIVA MUTUAL FUND LOGO
CLASS A
STATEMENT OF ADDITIONAL
INFORMATION
This Statement of Additional Information is not
a prospectus. Therefore, it should be read only in
conjunction with the Class A Prospectus, which can
be requested from the Fund by writing or
telephoning as indicated above. This Statement of
Additional Information relates to the Class A
Prospectus for the Fund dated September 1, 1999.
Class A is offered to members of the general
public. The Fund also offers Class R shares, which
are available only to tax-exempt retirement and
benefits plans of Amway Corporation and its
affiliates. Information about Class R is contained
in the Class R prospectus dated September 1, 1999,
which is available upon request.
The date of this Statement of Additional Information
is September 1, 1999.
Printed in U.S.A.
1
<PAGE>
ACTIVA MUTUAL FUND
ORGANIZATION OF THE FUND
- --------------------------------------------------------------------------------
The Fund is a series of Activa Mutual Fund Trust, an open-end diversified
management investment company which was organized as a Delaware business trust
on February 2, 1998. The Fund is the successor of Amway Mutual Fund, Inc., which
was organized as a Delaware corporation on February 13, 1970.
The Declaration of Trust authorizes the Trustees to create additional series
and to issue an unlimited number of units of beneficial interest, or "shares."
The Trustees are also authorized to issue different classes of shares of any
series. No series which may be issued by the Trust is entitled to share in the
assets of any other series or is liable for the expenses or liabilities of any
other series.
Shares of beneficial interest of Class A are offered to members of the
general public. When issued, shares of Class A will be fully paid and
non-assessable. The Board of Trustees of the Fund has authorized Class R, which
is offered to tax-exempt retirement and benefit plans of Amway Corporation and
its affiliates. Each share of Class A and Class R will represent an equal
proportionate interest in the Fund and, generally, will have identical voting,
dividend, liquidation, and other rights and the same terms and conditions,
except that (a) expenses allocated to a particular Class ("Class Expenses") will
be borne solely by that Class, and (b) each Class will have exclusive voting
rights with respect to matters affecting only that Class. Examples of Class
Expenses include: (1) Rule 12b-1fees, (2) transfer agent and shareholder
services fees attributable to a specified Class, (3) stationary, printing,
postage, and delivery expenses related to preparing and distributing materials
such as shareholder reports, prospectuses, and proxy statements to current
shareholders of a Class, (4) Blue Sky registration fees incurred by a Class, (5)
SEC registration fees incurred by a Class, (6) trustees' fees or expenses
incurred as a result of issues relating to one Class, (8) accounting fees
relating solely to one Class, (9) litigation expenses and legal fees and
expenses relating to a particular Class, and (10) expenses incurred in
connection with shareholders meetings as a result of issues relating to one
Class. Shares are freely transferable and have no preemptive, subscription or
conversion rights.
The Trust is not required to hold annual meetings of shareholders and does
not intend to hold such meetings. Shareholders of the Trust will have voting
rights only with respect to the limited number of matters specified in the
Declaration of Trust, and such other matters as may be determined or as may be
required by law. A meeting will be called for the purpose of voting on the
removal of a Trustee at the written request of holders of 10% of the Trust's
outstanding shares. In the event a meeting of shareholders is held, shareholders
will be entitled to one vote for each dollar of net asset value (or a
proportionate fractional vote with respect to fractional dollar amounts) on all
matters presented to shareholders, including the election of Trustees.
OBJECTIVES, POLICIES AND RESTRICTIONS ON THE FUND'S INVESTMENTS
- --------------------------------------------------------------------------------
The primary investment objective of the Fund is capital appreciation. The
Fund will attempt to meet its objectives by investing primarily in stocks and
convertible securities that the Fund believes have long term gorwth potential.
Income may be a factor in portfolio selection but is secondary to the principal
objective. The Fund's policy is to invest in a broadly diversified portfolio and
not to concentrate investments in a particular industry or group of industries.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The investment restrictions below have been adopted by the Fund. Except where
otherwise noted, these investment restrictions are "fundamental" policies which,
under the 1940 Act, may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as the case may be. A "majority of
the outstanding voting securities" is defined in the 1940 Act as the lesser of
(a) 67% or more of the voting securities present at a meeting if the holders of
more than 50% of the outstanding voting securities are present or represented by
proxy, or (b) more than 50% of the outstanding voting securities. The percentage
limitations contained in the restrictions below apply at the time of the
purchase of securities.
The Fund :
1. May not make any investment inconsistent with the Fund's classification
as a diversified investment company under the Investment Company Act of
1940.
<PAGE>
2. May not purchase any security which would cause the Fund to concentrate
its investments in the securities of issuers primarily engaged in any
particular industry except as permitted by the SEC. This restriction
does not apply to instruments considered to be domestic bank money
market instruments.
3. May not issue senior securities, except as permitted under the
Investment Company Act of 1940 or any rule, order or interpretation
thereunder;
4. May not borrow money, except to the extent permitted by applicable law;
5. May not underwrite securities or other issues, except to the extent
that the Fund, in disposing of portfolio securities, may be deemed an
underwriter within the meaning of the 1933 Act;
6. May not purchase or sell real estate, except that, to the extent
permitted by applicable law, the Fund may (a) invest in securities or
other instruments directly or indirectly secured by real estate, and
(b) invest in securities or other instruments issued by issuers that
invest in real estate;
7. May not purchase or sell commodities or commodity contracts unless
acquired as a result of ownership of securities or other instruments
issued by persons that purchase or sell commodities or commodities
contracts; but this shall not prevent the Fund from purchasing, selling
and entering into financial futures contracts (including futures
contracts on indices of securities, interest rates and currencies),
options on financial futures contracts (including futures contracts on
indices of securities, interests rates and currencies), warrants,
swaps, forward contracts, foreign currency spot and forward contracts
or other derivative instruments that are not related to physical
commodities; and
8. May make loans to other persons, in accordance with the Fund's
investment objective and policies and to the extent permitted by
applicable law.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
The investment restrictions described below are not fundamental policies of
the Fund and may be changed by the Fund's Trustees. These non-fundamental
investment policies require that the Fund: (i) may not acquire any illiquid
securities, if as a result thereof, more than 10% of the market value of the
Fund's total assets would be in investments which are illiquid; (ii) may not
purchase securities on margin, make short sales of securities, or maintain a
short position, provided that this restriction shall not be deemed to be
applicable to the purchase or sale of when-issued or delayed delivery
securities; (iii) may not acquire securities of other investment companies,
except as permitted by the 1940 Act or any order pursuant thereto; (iv) may not
enter into reverse repurchase agreements or borrow money, except from banks for
extraordinary or emergency purposes, if such obligations exceed in the aggregate
one-third of the market value of the Fund's total assets, less liabilities other
than obligations created by reverse repurchase agreements and borrowings.
Not withstanding any other fundamental or non-fundamental investment
restriction or policy, the Fund reserves the right, without the approval of
shareholders, to invest all of its assets in the securities of a single open-end
registered investment company with substantially the same investment objective,
restrictions and policies as the Fund.
There will be no violation of any investment restriction if that restriction
is complied with at the time the relevant action is taken notwithstanding a
later change in market value of an investment, in net or total assets, in the
securities rating of the investment, or any other later change.
In view of the Fund's investment objective of capital appreciation, with
income as a secondary objective, the Fund intends to purchase securities for
long-term or short-term profits, as appropriate. Securities will be disposed of
in situations where, in management's opinion, such potential is no longer
feasible or the risk of decline in the market price is too great. Therefore, in
order to achieve the Fund's objectives, the purchase and sale of securities will
be made without regard to the length of time the security is to be held.
Higher portfolio turnover rates can result in corresponding increases in
brokerage commissions.
<PAGE>
ADDITIONAL RISKS AND INFORMATION CONCERNING CERTAIN INVESTMENT TECHNIQUES
- --------------------------------------------------------------------------------
DERIVATIVES.
------------
The Fund may buy and sell certain types of derivatives, such as options,
futures contracts, options on futures contracts, and swaps under circumstances
in which such instruments are expected by Ark Asset Management Company (the
"Sub-Adviser") to aid in achieving the Fund's investment objective. The Fund may
also purchase instruments with characteristics of both futures and securities
(e.g., debt instruments with interest and principal payments determined by
reference to the value of a commodity or a currency at a future time) and which,
therefore, possess the risks of both futures and securities investments.
Derivatives, such as options, futures contracts, options on futures
contracts, and swaps enable the Fund to take both "short" positions (positions
which anticipate a decline in the market value of a particular asset or index)
and "long" positions (positions which anticipate an increase in the market value
of a particular asset or index). The Fund may also use strategies which involve
simultaneous short and long positions in response to specific market conditions,
such as where the Sub-Adviser anticipates unusually high or low market
volatility.
The Sub-Adviser may enter into derivative positions for the Fund for either
hedging or non-hedging purposes. The term hedging is applied to defensive
strategies designed to protect the Fund from an expected decline in the market
value of an asset or group of assets that the Fund owns (in the case of a short
hedge) or to protect the Fund from an expected rise in the market value of an
asset or group of assets which it intends to acquire in the future (in the case
of a long or "anticipatory" hedge). Non-hedging strategies include strategies
designed to produce incremental income (such as the option writing strategy
described below) or "speculative" strategies, which are undertaken to profit
from (i) an expected decline in the market value of an asset or group of assets
which the Fund does not own or (ii) expected increases in the market value of an
asset which it does not plan to acquire. Information about specific types of
instruments is provided below.
FUTURE CONTRACTS.
-----------------
Futures contracts are publicly traded contracts to buy or sell an underlying
asset or group of assets, such as a currency or an index of securities, at a
future time at a specified price. A contract to buy establishes a long position
while a contract to sell establishes a short position.
The purchase of a futures contract on an equity security or an index of
equity securities normally enables a buyer to participate in the market movement
of the underlying asset or index after paying a transaction charge and posting
margin in an amount equal to a small percentage of the value of the underlying
asset or index. The Fund will initially be required to deposit with the Trust's
custodian or the futures commission merchant effecting the futures transaction
an amount of "initial margin" in cash or securities, as permitted under
applicable regulatory policies.
Initial margin in futures transactions is different from margin in securities
transactions in that the former does not involve the borrowing of funds by the
customer to finance the transaction. Rather, the initial margin is like a
performance bond or good faith deposit on the contract. Subsequent payments
(called "maintenance margin") to and from the broker will be made on a daily
basis as the price of the underlying asset fluctuates. This process is known as
"marking to market." For example, when the Fund has taken a long position in a
futures contract and the value of the underlying asset has risen, that position
will have increased in value and the Fund will receive from the broker a
maintenance margin payment equal to the increase in value of the underlying
asset. Conversely, when the Fund has taken a long position in a futures contract
and the value of the underlying instrument has declined, the position would be
less valuable, and the Fund would be required to make a maintenance margin
payment to the broker.
At any time prior to expiration of the futures contract, the Fund may elect
to close the position by taking an opposite position which will terminate the
Fund's position in the futures contract. A final determination of maintenance
margin is then made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or a gain. While futures contracts with
respect to securities do provide for the delivery and acceptance of such
securities, such delivery and acceptance are seldom made.
In transactions establishing a long position in a futures contract, assets
equal to the face value of the futures contract will be identified by the Fund
to the Trust's custodian for maintenance in a separate account to insure that
the use of such futures contracts is unleveraged. Similarly, assets having a
value equal to the aggregate face value of the futures contract will be
identified with respect to each short position. The Fund will utilize such
<PAGE>
assets and methods of cover as appropriate under applicable exchange and
regulatory policies.
OPTION
------
The Fund may use options to implement its investment strategy. There are two
basic types of options: "puts" and "calls." Each type of option can establish
either a long or a short position, depending upon whether the Fund is the
purchaser or the writer of the option. A call option on a security, for example,
gives the purchaser of the option the right to buy, and the writer the
obligation to sell, the underlying asset at the exercise price during the option
period. Conversely, a put option on a security gives the purchaser the right to
sell, and the writer the obligation to buy, the underlying asset at the exercise
price during the option period.
Purchased options have defined risk, that is, the premium paid for the
option, no matter how adversely the price of the underlying asset moves, while
affording an opportunity for gain corresponding to the increase or decrease in
the value of the optioned asset. In general, a purchased put increases in value
as the value of the underlying security falls and a purchased call increases in
value as the value of the underlying security rises.
The principal reason to write options is to generate extra income (the
premium paid by the buyer). Written options have varying degrees or risk. An
uncovered written call option theoretically carries unlimited risk, as the
market price of the underlying asset could rise far above the exercise price
before its expiration. This risk is tempered when the call option is covered,
that is when the option writer owns the underlying asset. In this case, the
writer runs the risk of the lost opportunity to participate in the appreciation
in value of the asset rather than the risk of an out-of-pocket loss. A written
put option has defined risk, that is, the difference between the agreed-upon
price that the Fund must pay to the buyer upon exercise of the put and the
value, which could be zero, of the asset at the time of exercise.
The obligation of the writer of an option continues until the writer effects
a closing purchase transaction or until the option expires. To secure its
obligation to deliver the underlying asset in the case of a call option, or to
pay for the underlying asset in the case of a put option, a covered writer is
required to deposit in escrow the underlying security or other assets in
accordance with the rules of the applicable clearing corporation and exchanges.
Among the options which the Fund may enter are options on securities indices.
In general, options on indices of securities are similar to options on the
securities themselves except that delivery requirements are different. For
example, a put option on an index of securities does not give the holder the
right to make actual delivery of a basket of securities but instead gives the
holder the right to receiver an amount of cash upon exercise of the option if
the value of the underlying index has fallen below the exercise price. The
amount of cash received will be equal to the difference between the closing
price of the index and the exercise price of the option expressed in dollars
times a specified multiple. As with options on equity securities, or futures
contracts, a Fund may offset its position in index options prior to expiration
by entering into a closing transaction on an exchange or it may let the option
expire unexercised.
A securities index assigns relative values to the securities included in the
index and the index options are based on a broad market index. In connection
with the use of such options, the Fund may cover its position by identifying
assets having a value equal to the aggregate face value of the option position
taken.
OPTIONS ON FUTURES CONTRACT
---------------------------
An option on a futures contract gives the purchaser the right, in return for
the premium paid, to assume a position in a future 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.
Limitations and Risks of Options and Futures Activity
The Fund may no establish a position in a commodity futures contract or
purchase or sell a commodity option contract for other than bona fide hedging
purposes if immediately thereafter the sum of the amount of initial margin
deposits and premiums required to establish such positions for such nonhedging
purposes would exceed 5% of the market value of the Fund's net assets. The Fund
applies a similar policy to options that are not commodities.
As noted above, the Fund may engage in both hedging and nonhedging
strategies. Although effective hedging can generally capture the bulk of a
desired risk adjustment, no hedge is completely effective. The Fund's ability to
hedge effectively through transactions in futures and options depends on the
degree to which price movements in its holdings correlate with price movements
of the futures and options.
<PAGE>
Nonhedging strategies typically involve special risks. The profitability of
the Fund's nonhedging strategies will depend of the Sub-Adviser to analyze both
the applicable derivatives market and the market for the underlying asset or
group of assets. Derivatives markets are often more volatile than corresponding
securities markets and a relatively small change in the price of the underlying
asset or group of assets can have a magnified effect upon the price of a related
derivative instrument.
Derivatives markets also are often less liquid than the market for the
underlying asset or group of assets. Some positions in futures and options may
be closed out only on an exchange which provides a secondary market thereof.
There can be no assurance that a liquid secondary market will exist for any
particular futures contract or option at any specific time. Thus, it may not be
possible to close such an option or futures positions prior to maturity. The
inability to close options and futures positions also could have an adverse
impact on the Fund's ability to effectively carry out their derivative
strategies and might, in some cases, require a Fund to deposit cash to meet
applicable margin requirements. The Fund will enter into an option or futures
position only if it appears to be a liquid investment.
SHORT SALES AGAINST THE BOX
---------------------------
The Fund may effect short sales, but only if such transactions are short sale
transactions known as short sales "against the box." A short sale is a
transaction in which the Fund sells a security it does not own by borrowing it
from a broker, and consequently becomes obligated to replace that security. A
short sale against the box is a short sale where the Fund owns the security sold
short or has an immediate and unconditional right to acquire that security
without additional cash consideration upon conversion, exercise or exchange of
options with respect to securities held in its portfolio. The effect of selling
a security short against the box is to insulate that security against any future
gain or loss.
SWAP ARRANGEMENTS
-----------------
The Fund may enter into various forms of swap arrangements with
counterparties with respect to interest rates, currency rates or indices,
including purchase of caps, floors and collars as described below. In an
interest rate swap the Fund could agree for a specified period to pay a bank or
investment banker the floating rate of interest on a so-called notional
principal amount (i.e., an assumed figure selected by the parties for this
purpose) in exchange for agreement by the bank or investment banker to pay the
Fund a fixed rate of interest on the notional principal amount. In a currency
swap the Fund would agree with the other party to exchange cash flows based on
the relative differences in values of a notional amount of two (or more)
currencies; in an index swap, the Fund would agree to exchange cash flows on a
notional amount based on changes in the values of the selected indices. Purchase
of a cap entitles the purchaser to receive payments from the seller on a
notional amount to the extent that the selected index exceeds an agreed upon
interest rate or amount whereas purchase of a floor entitles the purchaser to
receive such payments to the extent the selected index falls below an agreed
upon interest rate or amount. A collar combines a cap and a floor.
The Fund may enter credit protection swap arrangements involving the sale by
the Fund of a put option on a debt security which is exercisable by the buyer
upon certain events, such as a default by the referenced creditor on the
underlying debt or a bankruptcy event of the creditor.
Most swaps entered into by the Fund will be on a net basis; for example, in
an interest rate swap, amounts generated by application of the fixed rate and
the floating rate to the notional principal amount would first offset one
another, with the Fund either receiving or paying the difference between such
amounts. In order to be in a position to meet any obligations resulting from
swaps, the Fund will set up a segregated custodial account to hold appropriate
liquid assets, including cash; for swaps entered into on a net basis, assets
will be segregated having a daily net asset value equal to any excess of the
Fund's accrued obligations over the accrued obligations of the other party,
while for swaps on other than a net basis assets will be segregated having a
value equal to the total amount of the Fund's obligations.
These arrangements will be made primarily for hedging purposes, to preserve
the return on an investment or on a portion of the Fund's portfolio. However,
the Fund may, as noted above, enter into such arrangements for income purposes
to the extent permitted by the Commodities Futures Trading Commission for
entities which are not commodity pool operators, such as the Fund. In entering a
swap arrangement, the Fund is dependent upon the creditworthiness and good faith
of the counterparty. The Fund attempts to reduce the risks of nonperformance by
the counterparty by dealing only with established, reputable institutions. The
swap market is still relatively new and emerging; positions in swap arrangements
may become illiquid to the extent that nonstandard arrangements with one
<PAGE>
counterparty are not readily transferable to another counterparty or if a market
for the transfer of swap positions does not develop. The use of interest rate
swaps is a highly specialized activity which involves investment techniques and
risks different from those associated with ordinary portfolio securities
transactions. If the Sub-Adviser is incorrect in its forecasts of market values,
interest rates and other applicable factors, the investment performance of the
Fund would diminish compared with what it would have been if these investment
techniques were not used. Moreover, even if the Sub-Adviser is correct in its
forecasts, there is a risk that the swap position may correlate imperfectly with
the price of the asset or liability being hedged.
REPURCHASE AGREEMENTS.
----------------------
The Fund may enter into repurchase agreements. Repurchase agreements occur
when the Fund acquires a security and the seller, which may be either (i) a
primary dealer in U.S. Government securities or (ii) an FDIC-insured bank having
gross assets in excess of $500 million, simultaneously commits to repurchase it
at an agreed-upon price on an agreed-upon date within a specified number of days
(usually not more than seven) from the date of purchase. The repurchase price
reflects the purchase price plus an agreed-upon market rate of interest which is
unrelated to the coupon rate or maturity of the acquired-security. The Fund will
only enter into repurchase agreements involving U.S. Government securities.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the other party, including possible delays or restrictions upon
the Fund's ability to dispose of the underlying securities. Repurchase
agreements will be limited to 30% of the Fund's net assets, except that
repurchase agreements extending for more than seven days when combined with any
other illiquid securities held by the Fund will be limited to 15% of the Fund's
net assets. To the extent excludable under relevant regulatory interpretations,
repurchase agreements involving U.S. Government securities are not subject to
the Fund's investment restrictions which otherwise limit the amount of the
Fund's total assets which may be invested in one issuer or industry.
REVERSE REPURCHASE AGREEMENTS.
------------------------------
The Fund may enter into reverse repurchase agreements. However, the Fund may
not engage in reverse repurchase agreements in excess of 5% of the Fund's total
assets. In a reverse repurchase agreement the Fund transfers possession of a
portfolio instrument to another person, such as a financial institution, broker
or dealer, in return for a percentage of the instrument's market value in cash,
and agrees that on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest at an
agreed-upon rate. The ability to use reverse repurchase agreements may enable,
but does not ensure the ability of, the Fund to avoid selling portfolio
instruments at a time when a sale may be deemed to be disadvantageous.
When effecting reverse repurchase agreements, assets of the Fund in a dollar
amount sufficient to make payment of the obligations to be purchased are
segregated on the Fund's records at the trade date and maintained until the
transaction is settled.
WHEN-ISSUED SECURITIES.
-----------------------
The Fund may purchase "when-issued" securities, which are traded on a price
or yield basis prior to actual issuance. Such purchases will be made only to
achieve the Fund's investment objective and not for leverage. The when-issued
trading period generally lasts from a few days to months, or over a year or
more; during this period dividends or interest on the securities are not
payable. A frequent form of when-issued trading occurs when corporate securities
to be created by a merger of companies are traded prior to the actual
consummation of the merger. Such transactions may involve a risk of loss if the
value of the securities falls below the price committed to prior to actual
issuance. The Trust's custodian will establish a segregated account when the
Fund purchases securities on a when-issued basis consisting of cash or liquid
securities equal to the amount of the when-issued commitments. Securities
transactions involving delayed deliveries or forward commitments are frequently
characterized as when-issued transactions and are similarly treated by the Fund.
RESTRICTED SECURITIES.
----------------------
It is the Fund's policy not to make an investment in restricted securities,
including restricted securities sold in accordance with Rule 144A under the
Securities Act of 1933 ("Rule 144A Securities") if, as a result, more than 35%
of the Fund's total assets are invested in restricted securities, provided not
more than 10% of the Fund's total assets are invested in restricted securities
other than Rule 144A Securities.
Securities may be resold pursuant to Rule 144A under certain circumstances
only to qualified institutional buyers as defined in the rule, and the markets
and trading practices for such securities are relatively new and still
developing; depending on the development of such markets, Rule 144A Securities
<PAGE>
may be deemed to be liquid as determined by or in accordance with methods
adopted by the Trustees. Under such methods the following factors are
considered, among others: the frequency of trades and quotes for the security,
the number of dealers and potential purchasers in the market, market making
activity, and the nature of the security and marketplace trades. Investments in
Rule 144A Securities could have the effect of increasing the level of the Fund's
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing such securities. Also, the Fund may be
adversely impacted by the subjective valuation of such securities in the absence
of a market for them. Restricted securities that are not resalable under Rule
144A may be subject to risks of illiquidity and subjective valuations to a
greater degree than Rule 144A Securities.
FOREIGN INVESTMENTS.
--------------------
The Fund reserves the right to invest without limitation in securities of
non-U.S. issuers directly, or indirectly in the form of American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs"). Under current
policy, however, the Fund limits such investments, including ADRs and EDRs, to a
maximum of 35% of its total assets.
ADRs are receipts, typically issued by a U.S. bank or trust company, which
evidence ownership of underlying securities issues by a foreign corporation or
other entity. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. Generally, ADRs in registered form are designed for use
in U.S. securities markets and EDRs are designed for use in European securities
markets. The underlying securities are not always denominated in the same
currency as the ADRs or EDRs. Although investment in the form of ADRs or EDRs
facilitates trading in foreign securities, it does not mitigate all the risks
associated with investing in foreign securities.
ADRs are available through facilities which may be either "sponsored" or
"unsponsored." In a sponsored arrangement, the foreign issuer establishes the
facility, pays some or all of the depository's fees, and usually agrees to
provide shareholder communications. In an unsponsored arrangement, the foreign
issuer is not involved, and the ADR holders pay the fees of the depository.
Sponsored ADRs are generally more advantageous to the ADR holders and the issuer
than are unsponsored ADRs. More and higher fees are generally charged in an
unsponsored program compared to a sponsored facility. Only sponsored ADRs may be
listed on the New York or American Stock Exchanges. Unsponsored ADRs may prove
to be more risky due to (a) the additional costs involved to the Fund; (b) the
relative illiquidity of the issue in U.S. markets; and (c) the possibility of
higher trading costs in the over-the-counter market as opposed to exchange based
tradings. The Fund will take these and other risk considerations into account
before making an investment in an unsponsored ADR.
The risks associated with investments in foreign securities include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments, including the risks of
nationalization or exporpriation, the possible imposition of currency exchange
blockages, higher operating expenses, foreign withholding and other taxes which
may reduce investment return, reduced availability of public information
concerning issuers, the difficulties in obtaining and enforcing a judgment
against a foreign issuer and the fact that foreign issuers are not generally
subject to uniform accounting, auditing and financial reporting standards or to
other regulatory practices and requirements comparable to those applicable to
domestic issuers. Moreover, securities of many foreign issuers may be less
liquid and their prices more volatile than those of securities of comparable
domestic issuers.
These risks are usually higher in less-develop countries. Such countries
include countries that have an emerging stock market on which trade a small
number of securities and/or countries with economics that are based on only a
few industries. The Fund may invest in the securities of issuers in countries
with less developed economics as deemed appropriate by the Sub-Adviser. However,
it is anticipated that a majority of the foreign investments by the Fund will
consist of securities of issuers in countries with developed economics.
CURRENCY TRANSACTIONS.
----------------------
The Fund may engage in currency exchange transactions in order to protect
against the effect of uncertain future exchange rates on securities denominated
in foreign currencies. The Fund will conduct its currency exchange transactions
either on a spot (i.e., cash) basis at the rate prevailing in the currency
exchange market, or by entering into forward contracts to purchase or sell
currencies. The Fund's dealings in forward currency exchange contracts will be
limited to hedging involving either specific transactions or aggregate portfolio
<PAGE>
positions. A forward 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 agreed upon by the parties, at a price set at the
time of the contract. These contracts are not commodities and are entered into
in the interbank market conducted directly between currency traders (usually
large commercial banks) and their customers. In entering a forward currency
contract, the Fund is dependent upon the creditworthiness and good faith of the
counterparty. The Fund attempts to reduce the risks of nonperformance by the
counterparty by dealing only with established, reputable institutions. Although
spot and forward contracts will be used primarily to protect the Fund from
adverse currency movements, they also involve the risk that anticipated currency
movements will not be accurately predicted, which may result in losses to the
Fund. This method of protecting the value of the Fund's portfolio securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange that can be achieved at some future point in time. Although such
contracts tend to minimize the risk of loss due to a decline in the value of
hedged currency, they tend to limit any potential gain that might result should
the value of such currency increase.
SECURITIES LENDING.
-------------------
The Fund may lend portfolio securities with a value of up to 33 1/3% of its
total assets. The Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as collateral in an amount equal to at least 100% of the
current market value of any loaned securities plus accrued interest. Collateral
received by the Fund will generally be held in the form tendered, although cash
may be invested in unaffiliated mutual funds with quality short-term portfolios,
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities or certain unaffiliated mutual funds, irrevocable stand-by
letters of credit issued by a bank, or repurchase agreements, or other similar
investments. The investment of cash collateral received from loaning portfolio
securities involves leverage which magnifies the potential for gain or loss on
monies invested and, therefore, results in an increase in the volatility of the
Fund's outstanding securities. Such loans may be terminated at any time.
The Fund may receive a lending fee and will retain rights to dividends,
interest or other distributions, on the loaned securities. Voting rights pass
with the lending, although the Fund may call loans to vote proxies if desired.
Should the borrower of the securities fail financially, there is a risk of delay
in recovery which are deemed by the Sub-Adviser or its agents to be of good
financial standing.
SHORT-TERM TRADING.
-------------------
The Fund may engage in short-term trading of securities and reserves full
freedom with respect to portfolio turnover. In periods where there are rapid
changes in economic conditions and security price levels or when reinvestment
strategy changes significantly, portfolio turnover may be higher than during
times of economic and market price stability or when investment strategy remains
relatively constant. The Fund's portfolio turnover rate may involve greater
transaction costs, relative to other funds in general, and may have tax and
other consequences.
TEMPORARY AND DEFENSIVE INVESTMENTS.
------------------------------------
The Fund may hold up to 100% of its assets in cash or short-term debt
securities for temporary defensive purposes. The Fund will adopt a temporary
defensive position when, in the opinion of the Sub-Adviser, such a position is
more likely to provide protection against adverse market conditions than
adherence to the Fund's other investment policies. The types of short-term
instruments in which the Fund may invest for such purposes include short-term
money market securities, such as repurchase agreements, and securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
certificates of deposit, time deposits and bankers' acceptances of certain
qualified financial institutions and corporate commercial paper, which at the
time of purchase are rated at least within the "A" major rating category by
Standard & Poor's Corporation ("S&P") or the "Prime" major rating category by
Moody's Investor's Service, Inc. ("Moody's"), or if not rated, issued by
companies having an outstanding long-term unsecured debt issued rated at least
within the "A" category by S&P or Moody's.
INDUSTRY CLASSIFICATIONS.
-------------------------
In determining how much of the portfolio is invested in a given industry, the
following industry classifications are currently used. Securities issued or
guaranteed as to principal or interest by the U.S. Government or its agencies or
instrumentalities or mixed-ownership Government corporations or sponsored
enterprises (including repurchase agreements involving U.S. Government
securities to the extent excludable under relevant regulatory interpretations)
are excluded. Securities issued by foreign governments are also excluded.
Companies engaged in the business of financing may be classified according to
the industries of their parent or sponsor companies, or industries that
<PAGE>
otherwise most affect such financing companies. Issuers of asset-backed pools
will be classified as separate industries based on the nature of the underlying
assets, such as mortgages and credit card receivables.
"Asset-backed-Mortgages" includes privates pools of nongovernment backed
mortgages.
<TABLE>
<CAPTION>
AUTOS & TRANSPORTATION CONSUMER PRODUCTS FINANCIAL SERVICES
----------------------- ----------------- -------------------
<S> <C> <C>
Air Transport Consumer Services Banks & Savings and Loans
Auto parts Household Furnishings Financial Data Processing
Automobiles Leisure Time Services & Systems
Miscellaneous Photography Insurance
Transportation Printing & Publishing Miscellaneous Financial
Railroad Equipment Restaurants Real Estate Investment
Railroads Retail Trusts
Recreational Vehicles & Shoes Rental & Leasing Services:
Boats Textile Apparel Commercial
Tires & Rubber Manufacturers Securities Brokerage &
Truckers Toys Services
CONSUMER DISCRETIONARY CONSUMER STAPLES HEALTH CARE
---------------------- ---------------- -----------
Advertising Agencies Beverages Drugs & Biotechnology
Casino/Gambling, Drug & Grocery Store Health Care Facilities
Hotel/Motel Chains Health Care Services
Commercial Services Foods Hospital Supply
Communications, Media & Household Products Service Miscellaneous
Entertainment Tobacco
Consumer Electronics
INTEGRATED OILS OTHER ENERGY TECHNOLOGY
--------------- ------------ ------------
Oil: Integrated Domestic Gas Pipelines Communications Technology
Oil: Integrated International Miscellaneous Energy Computer Software
Offshore Drilling Computer Technology
MATERIALS & PROCESSING Oil & Gas Producers Electronics
----------------------- Oil Well Equipment & Electronics: Semi-
Agriculture Services Conductors/Components
Building & Construction Miscellaneous Technology
Chemicals
Containers & Packaging PRODUCER DURABLES
-----------------
Diversified Manufacturing Aerospace UTILITIES
Engineering & Contracting Electrical Equipment & ---------
Services Components Miscellaneous Utilities
Fertilizers Electronics: Industrial Utilities: Cable TV & Radio
Forest Products Components Utilities: Electrical
Gold & Precious Metals Industrial Products Utilities: Gas Distribution
Miscellaneous Materials & Machine Tools Utilities: Telecommunications
Processing Machinery Utilities: Water
Non-Ferrous Metals Miscellaneous Equipment
Office Supplies Miscellaneous Producer
Paper & Forest Products Durables
Real Estate & Construction Office Furniture & Business
Steel Equipment
Textile Products Pollution Control and
Environmental Services
OTHER Production Technology
------
Trust Certificates - Equipment
<PAGE>
Government Related Telecommunications
Lending Equipment
Asset-backed-Mortgages
Asset-backed-Credit Card
Receivables
Miscellaneous
Multi-Sector Companies
</TABLE>
COMPUTER-RELATED RISKS
----------------------
Many mutual funds and other companies that issue securities, as well as
government entities upon whom those mutual funds and companies depend, may be
adversely affected by computer systems (whether their own systems or systems of
their service providers) that do not properly process dates beginning with
January 1, 2000 and information related to those dates.
The Sub-Adviser currently is in the process of reviewing its internal
computer systems as they related to the Fund, as well as the computer systems of
those service providers upon which the Fund relies, in order to obtain
reasonable assurances that the Fund will not experience a material adverse
impact related to the problem. The Fund does not currently anticipate that the
problem will have a material adverse impact on its portfolio investments, taken
as a whole. There can be no assurances in the area, however, including the
possibility that the problem could negatively affect the investment markets or
the economy generally.
OTHER INVESTMENT COMPANIES
--------------------------
The Fund may invest in securities of other investment companies, including
affiliated investment companies, such as open- or closed-end management
investment companies, hub and spoke (master/feeder) funds, pooled accounts or
other similar, collective investment vehicles. As a shareholder of an investment
company, the Fund may indirectly bear service and other fees in addition to the
fees the Fund pays its service providers. Similarly, other investment companies
may invest in the Fund. Other investment companies that invest in the Fund may
hold significant portions of the Fund and materially affect the sale and
redemption of Fund shares and the Fund's portfolio transactions.
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS
-----------------------------------------------
The Fund may invest in long-term and short-term debt securities. Certain debt
securities and money market instruments in which the Fund may invest are
described below.
U.S. GOVERNMENT AND RELATED SECURITIES. U.S. Government securities are
securities which are issued or guaranteed as to principal or interest by the
U.S. Government, a U.S. Government agency or instrumentality, or certain
mixed-ownership Government corporations as described herein. The U.S. Government
securities in which the Fund invests include, among others:
o direct obligations of the U.S. Treasury, i.e., U.S. Treasury bills, notes,
certificates and bonds;
o obligations of U.S. Government agencies or instrumentalities, such as the
Federal Home Loan Banks, the Federal Farm Credit Banks, the Federal
National Mortgage Association, the Government National Mortgage
Association and the Federal Home Loan Mortgage Corporation; and
o obligations of mixed-ownership Government corporations such as Resolution
Funding Corporation.
U.S. Government Securities which the Fund may buy are backed in a variety of
ways by the U.S. Government, its agencies or instrumentalities. Some of these
obligations, such as Government National Mortgage Association mortgage-backed
securities, are backed by the full faith and credit of the U.S. Treasury. Other
obligations, such as those of the Federal National Mortgage Association, are
backed by the discretionary authority of the U.S. Government to purchase certain
obligations of agencies or instrumentalities, although the U.S. Government has
no legal obligation to do so. Obligations such as those of the Federal Home Loan
Bank, the Federal Farm Credit Bank, the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation are backed by the credit of the
agency or instrumentality issuing the obligations. Certain obligations of
Resolution Funding Corporation, a mixed-ownership Government corporation, are
backed with respect to interest payments by the U.S. Treasury, and with respect
to principal payments by U.S. Treasury obligations held in a segregated account
with a Federal Reserve Bank. Except for certain mortgage-related securities, the
Fund will only invest in obligations issued by mixed-ownership Government
corporations where such securities are guaranteed as to payment of principal or
interest by the U.S. Government or a U.S. Government agency or instrumentality,
<PAGE>
and any unguaranteed principal or interest is otherwise supported by U.S.
Government obligations held in a segregated account.
U.S. Government securities may be acquired by the Fund in the form of
separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury. The principal and interest components of
selected securities are traded independently under the Separate Trading of
Registered Interest and Principal of Securities ("STRIPS") program. Under the
STRIPS program, the principal and interest components are individually numbered
and separately issued by the U.S. Treasury at the request of depository
financial institutions, which then trade the component parts independently.
Obligations of Resolution Funding Corporation are similarly divided into
principal and interest components and maintained as such on the book entry
records of the Federal Reserve Banks.
In addition, the Fund may invest in custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Treasury notes or bonds in connection with programs sponsored by banks and
brokerage firms. Such notes and bonds are held in custody by a bank on behalf of
the owners of the receipts. These custodial receipts are known by various names,
including "Treasury Receipts" ("TRs"), "Treasury Investment Growth Receipts"
(TIGRs") and "Certificates of Accrual on Treasury Securities ("CATS"), and may
be deemed U.S. Government securities.
The Fund may also invest from time to time in collective investment vehicles,
the assets of which consist principally of U.S. Government securities or other
assets substantially collateralized or supported by such securities, such as
Government trust certificates.
BANK MONEY INVESTMENTS
----------------------
Bank money investments include, but are not limited to, certificates of
deposit, bankers' acceptances and time deposits. Certificates of deposit are
generally short-term (i.e., less than one year), interest-bearing negotiable
certificates issued by commercial banks or savings and loan associations against
funds deposited in the issuing institution. A banker's acceptance is a time
draft drawn on a commercial bank by a borrower, usually in connection with an
international commercial transaction (to finance the import, export, transfer or
storage of goods). A banker's acceptance may be obtained from a domestic or
foreign bank, including a U.S. branch or agency of a foreign bank. The borrower
is liable for payment as well as the bank, which unconditionally guarantees to
pay the draft at its face amount on the maturity date. Most acceptances have
maturities of six months or less and are traded in secondary markets prior to
maturity. Time deposits are nonnegotiable deposits for a fixed period of time at
a stated interest rate. The Fund will not invest in any such bank money
investment unless the investment is issued by a U.S. bank that is a member of
the Federal Deposit Insurance Corporation ("FDIC"), including any foreign branch
thereof, a U.S. branch or agency of a foreign bank, a foreign branch of a
foreign bank, or a savings bank or savings and loan association that is a member
of the FDIC and which at the date of investment has capital, surplus and
undivided profits (as of the date of its most recently published financial
statements) in excess of $50 million. The Fund will not invest in time deposits
maturing in more than seven days and will not invest more than 10% of its total
assets in time deposits maturing in two to seven days.
U.S. branches and agencies of foreign banks are offices of foreign banks and
are not separately incorporated entities. They are chartered and regulated
either federally or under state law. U.S. federal branches or agencies of
foreign banks are chartered and regulated by the Comptroller of the Currency,
while state branches and agencies are chartered and regulated by authorities of
the respective states or the District of Columbia. U.S. branches of foreign
banks may accept deposits and thus are eligible for FDIC insurance; however, not
all such branches elect FDIC insurance. Unlike U.S. branches of foreign banks,
U.S. agencies of foreign banks may not accept deposits and thus are not eligible
for FDIC insurance. Both branches and agencies can maintain credit balances,
which are funds received by the office incidental to or arising out of the
exercise of their banking powers and can exercise other commercial functions,
such as lending activities.
SHORT-TERM CORPORATE DEBT INSTRUMENTS
-------------------------------------
Short-term corporate debt instruments include commercial paper to finance
short-term credit needs (i.e., short-term, unsecured promissory notes) issued by
corporations including but not limited to (a) domestic or foreign bank holding
companies or (b) their subsidiaries or affiliates where the debt instrument is
guaranteed by the bank holding company or an affiliated bank or where the bank
holding company or the affiliated bank is unconditionally liable for the debt
instrument. Commercial paper is usually sold on a discounted basis and has a
maturity at the time of issuance not exceeding nine months.
<PAGE>
ZERO AND STEP COUPON SECURITIES
-------------------------------
Zero and step coupon securities are debt securities that may pay no interest
for all or a portion of their life but are purchased at a discount to face value
at maturity. Their return consist of the amortization of the discount between
their purchase price and their maturity value, plus in the case of a step
coupon, any fixed rate interest income. Zero coupon securities pay no interest
to holders prior to maturity even though interest on these securities is
reported as income to the Fund. The Fund will be required to distribute all or
substantially all of such amounts annually to its shareholders. These
distributions may cause the Fund to liquidate portfolio assets in order to make
such distributions at a time when the Fund may have otherwise chosen not to sell
such securities. The market value of such securities may be more volatile than
that of securities which pay interest at regular intervals.
COMMERCIAL PAPER RATINGS
------------------------
Commercial paper investments at the time of purchase will be rated within the
"A" major rating category by S&P or within the "Prime" major rating category by
Moody's, or, if not rated, issued by companies having an outstanding long-term
unsecured debt issue rated at least within the "A" category by S&P or by
Moody's. The money market investments in corporate bonds and debentures (which
must have maturities at the date of settlement of one year or less) must be
rated at the time of purchase at least within the "A" category by S&P or within
the "Prime" category by Moody's, within comparable categories of other rating
agencies or considered to be of comparable quality by the Sub-Adviser.
Commercial paper rated within the "A" category (highest quality) by S&P is
issued by entities which have liquidity ratios which are adequate to meet cash
requirements. Long-term senior debt is rated within the "A" category or better,
although in some cases credits within the "BBB" category may be allowed. The
issuer has access to at least two additional channels of borrowing. Basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances. Typically, the issuer's industry is well established and the
issuer has a strong positions within the industry. The reliability and quality
of management are unquestioned. The relative strength or weakness of the above
factors determines whether the issuer's commercial paper is rated A-1, A-2 or
A-3. (Those A-1 issues determined to possess overwhelming safety characteristics
are denoted with a plus (+) sign: A-1+.)
The rating Prime is the highest commercial paper rating category assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: evaluation of the management of the issuer; economic evaluation of
the issuer's industry or industries and an appraisal of speculative-type risks
which may be inherent in certain areas; evaluation of the issuer's products in
relation to competition and customer acceptance; liquidity; amount and quality
of long-term debt; trend of earnings over a period of 10 years; financial
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations. These
factors are all considered in determining whether the commercial paper is rated
Prime-1, Prime-2 or Prime-3.
In the event the lowering of ratings of debt instruments held by the Fund by
applicable rating agencies results in a material decline in the overall quality
of the Fund's portfolio, the Trustees of the Trust will review the situation and
take such action as they deem in the best interests of the Fund's shareholders,
including, if necessary, changing the composition of the portfolio.
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
It is the policy of the Fund when purchasing and selling portfolio securities
to obtain the highest possible price on sales and the lowest possible price on
purchases of securities, consistent with the best execution of portfolio
transactions. Activa Asset Management, LLC, the ("Investment Advisor"), or the
Sub-Advisors will select the brokers and resulting allocation of brokerage
commission; but, the Investment Advisor's practice is subject to review by the
Board of Trustees of the Fund, which has the primary responsibility in this
regard, and must be consistent with the policies stated above.
The Investment Advisor and Sub-Advisor, in effecting purchases and sales of
portfolio securities for the account of the Fund, will implement the Fund's
policy of seeking best execution of orders, which includes best net prices.
Consistent with this policy, orders for portfolio transactions are placed with
broker-dealer firms giving consideration to the quality, quantity, and nature of
each firm's professional services which include execution, clearance procedures,
wire service quotations, research information, statistical, and other services
provided to the Fund, Advisor, and the Sub-Advisor. Any research benefits
derived by the Sub-Advisor are available to all clients of the Sub-Advisor.
Since research information, statistical and other services are only
<PAGE>
supplementary to the research efforts of the Sub-Advisor and still must be
analyzed and reviewed by its staff, the receipt of research information is not
expected to materially reduce expenses.
Also, subject to the policy of seeking best price and execution of orders,
certain Fund expenses may be paid through the use of directed brokerage
commissions. While the Sub-Advisor will be primarily responsible for the
placement of the Fund's business, the policies and practices in this regard must
be consistent with the foregoing and will at all times be subject to review by
the Trustees of the Fund.
During the years ended December 31, 1998, 1997, and 1996, the Fund paid total
brokerage commissions on purchase and sale of portfolio securities of $358,825,
$301,990, and $250,136, respectively. Transactions in the amount of $58,297,046,
involving commissions of approximately $59,629, were directed to brokers because
of research services provided during 1998.
The Sub-Advisor furnishes investment advice to other clients. The other
accounts may also make investments in the same investment securities and at the
same time as the Fund. When two or more of such clients are simultaneously
engaged in the purchase or sale of the same security, the transactions are
allocated as to amount and price in a manner considered equitable to each, so
that each receives, to the extent practicable, the average price of such
transactions, which may or may not be beneficial to the Fund. The Board of
Trustees of the Fund believes that the benefits of the Sub-Advisor's
organization outweigh any limitations that may arise from simultaneous
transactions.
The Fund may acquire securities of brokers who execute the Fund's portfolio
transactions. As of December 31, 1998, the Fund owned no such securities.
PRINCIPAL SHAREHOLDERS
- --------------------------------------------------------------------------------
Amway Corporation indirectly, as of June 30, 1999, 1998, owned __________
shares, or ___%, of the outstanding shares of the Fund. Jay Van Andel and
Richard M. DeVos are controlling persons of Amway Corporation since they own,
together with their spouses, substantially all of its outstanding securities.
Amway Corporation is a Michigan manufacturer and direct selling distributor of
home care and personal care products. Jay Van Andel owns all the outstanding
securities of JVA Properties Corporation, the General Partner for JVA
Enterprises Limited Partnership, which owns, as of __________, 1998,
______________ shares, or ___%, of the outstanding shares of the Fund. The Jay
and Betty Van Andel Foundation, as of June 30, 1999, 1998 owns ____________
shares, or ___%, of the outstanding shares of the Fund. No other person is known
by the Fund to own of record or beneficially 5% or more of the Fund's shares.
As noted above, Jay Van Andel together with his spouse beneficially owns more
than 25% of the Fund's voting securities. Accordingly, he may be deemed to
control the Fund.
If any of the Fund's principal shareholders were to substantially reduce its
investment in the Fund, it could have an adverse effect on
the Fund by decreasing the size of the Fund and by causing the Fund to incur
brokerage charges in connection with the redemption of the Fund's shares.
OFFICERS AND TRUSTEES OF THE FUND
- --------------------------------------------------------------------------------
The business affairs of the fund are managed and under the direction of the
Board of Trustees. The following are the Officers and Trustees of the Fund or
the Advisor or both, together with their principal occupations during the past
five years:
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE OFFICE HELD PRINCIPAL OCCUPATION LAST FIVE YEARS
- --------------- --- ----------- ------------------------------------
<S> <C> <C> <C>
Richard A. DeWitt 85 Trustee of the Fund President, DeWitt Land and
10001 Buttonwood Way Cattle Company (investments
Tequesta, Florida 33469 in land and cattle)
Allan D. Engel* 47 Trustee, Vice Sr. Manager, Investments and
2905 Lucerne SE President, Secretary Real Estate, Amway Corporation.
Grand Rapids, Michigan and Assistant Treasurer Director, President and
49546 of the Fund; President, Secretary of Amway Management
and Secretary of the Company (1981-1999). Trustee,
Investment Advisor. Vice President and Secretary,
Amway Mutual Fund, successor to
Activa Value Fund (1981-1999).
Donald H. Johnson 69 Trustee of the Fund Retired, Former Vice
19017 Vintage Trace Circle President-Treasurer, SPX
Fort Myers, Florida Corporation (Designs,
33912 manufactures and markets
products and services for the
motor vehicle industry), 1986
to 1994.
Walter T. Jones 57 Trustee of the Fund Retired, Former Senior Vice
936 Sycamore Ave. President-Chief Financial
Holland, Michigan Officer, Prince Corporation.
49424
James J. Rosloniec* 54 Trustee, President and Vice President-Audit and
2905 Lucerne SE Treasurer of the Fund; Control, Amway Corporation,
Grand Rapids, Michigan and Director, 1991 to present. Director, Vice
49546 Vice-President and President and Treasurer of
Treasurer of the Amway Management Company
Investment Advisor. (1984-1999). Trustee,
President and Treasurer, Amway
Mutual Fund, successor to
Activa Value Fund (1981-1999).
Richard E. Wayman 64 Trustee of the Fund Retired, Former Finance
24578 Rutherford Director, Amway Corporation,
Ramona, California 1976 to 1996
92065
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PENSION OR
NAME OF PERSON, TRUSTEE RETIREMENT ESTIMATED ANNUAL TOTAL COMPENSATION
POSITION COMPENSATION BENEFITS ACCRUED AS BENEFITS PAID TO TRUSTEES
PART OF FUND UPON RETIREMENT
EXPENSE
------- ------------ ------------------- -------- ----------------
<S> <C> <C> <C> <C>
Richard A. DeWitt $5,000 -0- -0- $5,000
Trustee
Allan D. Engel* $5,000 -0- -0- $5,000
Trustee
Donald H. Johnson $5,000 -0- -0- $5,000
Trustee
Walter T. Jones $5,000 -0- -0- $5,000
Trusstee
James J. Rosloniec $5,000 -0- -0- $5,000
Trustee
Richard E. Wayman $4,500 -0- -0- $4,500
Trustee
</TABLE>
*These Trustees are interested persons under the Investment Company Act of
1940, as amended.
All Officers and certain Trustees of the Fund and the Investment Advisor are
affiliated with Amway Corporation. The Officers serve without compensation from
the Fund. Fees paid to all Trustees during the year ended December 31, 1998,
amounted to $29,500. Under the Administrative Agreement, the Investment Advisor
pays the fees of the Trustees of the Fund. The Trustees and Officers of the Fund
owned, as a group, less than 1% of the outstanding shares of the Fund. The
Advisor also serves as the Fund's principal underwriter (see "Distribution of
Shares").
INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
The Fund has entered into an Investment Advisory Contract ("Contract") with
Activa Asset Management, LLC (the "Investment Adviser or Activa"). Under the
Contract, the Investment Adviser sets overall investment strategies for the Fund
and monitors and evaluates the investment performance of the Fund's Sub-Adviser,
including compliance with the investment objectives, policies and restrictions
of the Fund. If the Investment Adviser believes it is in the Fund's best
interests, it may recommend that additional or alternative Sub-Advisers be
retained on behalf of the Fund. If more than one Sub-Adviser is retained, the
Investment Adviser will recommend to the Fund's Trustees how the Fund's assets
should be allocated or reallocated from time to time, among the Sub-Advisers.
The Investment Adviser and the Fund have received an exemptive order from the
Securities and Exchange Commission with respect to certain provisions of the
Investment Company Act. As sent the exemptive order these provisions would
require that any change of Sub-Advisers be submitted to the Fund's shareholders
for approval. Pursuant to the exemptive order, any change in the Fund's
Sub-Advisers must be approved by the Fund's Trustees, including a majority of
the Fund's independent Trustees. If the Fund hires a new or an additional
Sub-Adviser, information about the new Sub-Adviser will be provided to the
Fund's shareholders within 90 days.
The Investment Advisory Agreement between the Fund and the Investment Adviser
became effective on September 1, 1999. For providing services under this
contract, the Investment Adviser is to receive compensation payable quarterly,
at the annual rate of .65 of 1% on the first $100,000,000 of average daily net
assets of the Fund, .60% on the next $50,000,000 in assets, and .55% on the next
$50,000,000 in assets. When the Fund's assets reach $200,000,000, the rate shall
be .60% on assets up to $200,000,000 and .55% on assets in excess of
$200,000,000 so long as the Fund continues to have at least $200,000,000
in assets. Activa also provides certain administrative services for the Fund
pursuant to a separate agreement. See "Administrative Services Agreement."
Prior to September 1, 1999, Amway Management Company ("AMC") served as the
Fund's investment adviser. Pursuant to an Advisory and Service Contract between
the Fund and AMC, AMC provided certain administrative services to the Fund. The
fees paid by the Fund to AMC pursuant to this contract during the years
December 31, 1998, 1997, and 1996, were $864,715, $727,102, and $524,637,
respectively.
Members of the families of Jay Van Andel and Richard M. DeVos indirectly own
substantially all of the outstanding ownership interests of Activa. Members of
these families also indirectly own[ed] substantially all of the outstanding
securities of AMC.
<PAGE>
A Sub-Advisory Agreement has been entered into between the Investment Advisor
and Ark Asset Management Co., Inc., One New York Plaza, 29th Floor, New York, NY
10004 (Sub-Advisor). Under the Sub-Advisory Agreement, the Advisor employs the
Sub-Advisor to furnish investment advice and manage on a regular basis the
investment portfolio of the Fund, subject to the direction of the Advisor, the
Board of Directors of the Fund, and to the provisions of the Fund's current
Prospectus. The Sub-Advisor will make investment decisions on behalf of the Fund
and place all orders for the purchase or sale of portfolio securities for the
Fund's account, except when otherwise specifically directed by the Fund or the
Advisor. The fees of the Sub-Advisor are paid by the Investment Adviser, not the
Fund. During the years ended December 31, 1998, 1997, and 1996, these fees were
$702,560, $594,901, and $428,905, respectively.
PLAN OF DISTRIBUTION & PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------
The Trust has adopted a Plan and Agreement of Distribution ("Distribution
Plan"). Under the Distribution Plan, Activa provides shareholder services and
services in connection with the sale and distribution of the Fund's shares and
is compensated at a maximum annual rate of 0.25 of 1% of the average daily net
assets of the Fund. The maximum amount presently authorized by the Fund's Board
of Trustees is 0.15 of 1% of the average daily net assets of the Fund. Since
these fees are paid from Fund assets, over time these fees will increase the
cost of your investment and may cost you more than paying other types of sales
charges. Prior to September 1, 1999 AMC provided services pursuant to the
Distribution Plan. During 1998 the Fund paid $285,016 under the Distribution
Plan for compensation. The services provided under the Distribution Plan
included printing and mailing of prospectuses ($24,462) and general and
administrative services ($290,124) which services include employee related
services, security registrations, Broker-Dealer Registration, and related office
facility expenses.
Amounts received by Activa pursuant to the Distribution Plan may be retained
by Activa as compensation for its services, or paid to other investment
professionals who provide services in connection with the distribution of Fund
shares. The Trustees will review the services provided and compensation paid
pursuant to the Distribution Plan no less often than quarterly.
Since September 1, 1999, Activa has acted as the exclusive agent for
sales of the Fund's shares pursuant to a Principal Underwriting Agreement. Prior
to September 1, 1999, AMC served as the Fund's Principal Underwriter. Prior to
April 22, 1998, the Principal Underwriter received a sales commission of 3% of
the offering price of the Fund's shares. The sales commission was eliminated
when the Fund adopted the Distribution Plan. During the years ended December 31,
1998, 1997 and 1996, AMC received sales commissions of $473,151, $513,417 and
$475,319, respectively. The only compensation currently received by the Advisor
in connection with the sale of Fund shares is pursuant to the Distribution Plan.
ADMINISTRATIVE AGREEMENT
- --------------------------------------------------------------------------------
Pursuant to the Administrative Agreement between the Fund and Activa, Activa
provides specified assistance to the Fund with respect to compliance matters,
taxes and accounting, the provision of legal services, meetings of the Fund's
Trustees and shareholders, and preparation of the Fund's registration statement
and other filings with the Securities and Exchange Commission. In addition,
Activa pays the fees of the Fund's Trustees, and the salaries and fees of all of
the Fund's Trustees and officers who devote part or all of their time to the
affairs of Activa. For providing these services Activa receives a fee, payable
quarterly, at the annual rate of 0.15% of the Fund's average daily assets
beginning September 1, 1999.
The Administrative Agreement provides that Activa is only responsible
for paying such fees and expenses and providing such services as are specified
in the agreement. The Fund is responsible for all other expenses including (i)
expenses of maintaining the Fund and continuing its existence; (ii) registration
of the Trust under the Investment Company Act of 1940; (iii) commissions, fees
and other expenses connected with the acquisition, disposition and valuation of
securities and other investments; (iv) auditing, accounting and legal expenses;
(v) taxes and interest; (vi) government fees; (vii) expenses of issue, sale,
repurchase and redemption of shares; (viii) expenses of registering and
qualifying the Trust, the Fund and its shares under federal and state securities
laws and of preparing and printing prospectuses for such purposes and for
distributing the same to shareholders and investors; (ix) expenses of reports
and notices to stockholders and of meetings of stockholders and proxy
solicitations therefore; (x) expenses of reports to governmental officers and
commissions; (xi) insurance expenses; (xii) association membership dues; (xiii)
fees, expenses and disbursements of custodians and sub-custodians for all
services to the Trust (including without limitation safekeeping of funds and
securities, and keeping of books and accounts); (xiv) fees, expenses and
<PAGE>
disbursement of transfer agents, dividend disbursing agents, stockholder
servicing agents and registrars for all services to the Trust; (xv) expenses for
servicing shareholder accounts; (xvi) any direct charges to shareholders
approved by the Trustees of the Trust; and (xvii) such non-recurring items as
may arise, including expenses incurred in connection with litigation,
proceedings and claims and the obligation of the Trust to indemnify its Trustees
and officers with respect thereto.
Activa has provided administration to the Fund since September 1, 1999.
Administrative services were previously provided to the Fund by AMC pursuant to
the Advisory and Service Agreement between the Fund and AMC. See "Investment
Advisor."
The Fund has entered into an agreement with Bisys Fund Services Ohio, Inc.
("Bisys") whereby Bisys provides a portfolio accounting and information system
for portfolio management for the maintenance of records and processing of
information which is needed daily in the determination of the net asset value of
the Fund.
TRANSFER AGENT
- --------------------------------------------------------------------------------
Under a separate contract, the functions of the Transfer Agent and Dividend
Disbursing Agent are performed by Activa Asset Management LLC, Grand Rapids,
Michigan, which acts as the Fund's agent for transfer of the Fund's shares and
for payment of dividends and capital gain distributions to shareholders.
In return for its services, the Fund pays the Transfer Agent, a fee of $1.167
per account in existence during the month, payable monthly, less earnings in the
redemption liquidity account after deducting bank fees, if any. The fee schedule
is reviewed annually by the Board of Trustees.
CUSTODIAN
- --------------------------------------------------------------------------------
The portfolio securities of the Fund are held, pursuant to a Custodian
Agreement, by Northern Trust Company, 50 South LaSalle, Chicago, Illinois, as
Custodian. The Custodian performs no managerial or policymaking functions for
the Fund.
AUDITORS
- --------------------------------------------------------------------------------
BDO Seidman, LLP, 99 Monroe Avenue, N.W., Suite 800, Grand Rapids, Michigan,
are the independent certified public accountants for the Fund. Services include
an annual audit of the Fund's financial statements, tax return preparation, and
review of certain filings with the SEC.
PRICING OF FUND SHARES
- --------------------------------------------------------------------------------
The net asset value of the Fund's shares is determined by dividing the
total current value of the assets of the Fund, less its liabilities, by the
number of shares outstanding at that time. This determination is made at the
close of business of the New York Stock Exchange, usually 4:00 P.M. Eastern
time, on each business day on which that Exchange is open. Shares will not be
priced on national holidays or other days on which the New York Stock Exchange
is closed for trading.
The Fund's investments are generally valued at current market value. If
market quotations are not readily available, the Fund's investments will be
valued at fair value as determined by the Fund's Board of Trustees.
The Fund will redeem your shares at the net asset value next determined after
your redemption request is received in proper form.
There is no redemption charge by the Fund. However, if a shareholder uses the
services of a broker-dealer for the redemption, there may be a charge by the
broker-dealer to the shareholder for such services. Shares can be redeemed by
the mail, telephone or telegram. If the value of your account is $10,000 or
more, you may arrange to receive periodic cash payments. Please contact the Fund
for more information.
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
In order to purchase shares for a new account, the completion of an
application form is required. The minimum initial investment is $500 or more.
Additional investments of $50 or more can be made in your account at any time by
using the lower portion of your account statement. Checks should be made payable
to "Activa Asset Management LLC" and mailed to 2905 Lucerne SE, Grand Rapids,
Michigan 49355-7150. Third party checks will not be accepted.
All purchases will be made at the Net Asset Value per share net calculated
after the Fund receives your investment and application in proper form.
HOW SHARES ARE REDEEMED
- --------------------------------------------------------------------------------
Each Fund will redeem your shares at the net asset value next determined
after your redemption request is received in proper form. There is no redemption
charge by the Fund. However, if a shareholder uses the services of a
<PAGE>
broker-dealer for the redemption, there may be a charge by the broker-dealer to
the shareholder for such services. Shares can be redeemed by the mail, telephone
or telegram. If the value of your account is $10,000 or more, you may arrange to
receive periodic cash payments. Please contact the Fund for more information.
Redemption proceeds may be delayed until investments credited to your account
have been received and collected.
BY MAIL:
- --------
When redeeming by mail, when no certificates have been issued, send a written
request for redemption to Activa Asset Management LLC, 2905 Lucerne S.E., Grand
Rapids, Michigan 49355-7150. The request must state the dollar amount or shares
to be redeemed, including your account number and the signature of each account
owner, signed exactly as your name appears on the records of the Fund. If a
certificate has been issued to you for the shares being redeemed, the
certificate (endorsed or accompanied by a signed stock power) must accompany
your redemption request, with your signature by a bank, broker, or other
acceptable financial institution. Additional documents will be required for
corporations, trusts, partnerships, retirement plans, individual retirement
accounts and profit sharing plans.
BY PHONE:
- --------
At the time of your investment in the Fund, or subsequently, you may elect on
the Fund's application to authorize the telephone or telegram exchange or
redemption option. You may redeem shares under this option by calling the Fund
at the number indicated on the front of this Prospectus on any business day.
Requests received after 4:00 p.m. when the market has closed will receive the
next day's price. By establishing the telephone or telegram exchange or
redemption option, you authorize the Transfer Agent to honor any telephone or
telegram exchange or redemption request from any person representing themselves
to be the investor. Procedures required by the Fund to ensure that a
shareholder's requested telephone or telegram transaction is genuine include
identification by the shareholder of the account by number, recording of the
requested transaction and sending a written confirmation to shareholders
reporting the requested transaction. The Fund is not responsible for
unauthorized telephone or telegram exchanges or redemptions unless the Fund
fails to follow these procedures. Shares must be owned for 15 days before
redeeming by the telephone and telegram exchange and cannot be in certificate
form unless the certificate is tendered with the request for redemption.
Certificated shares cannot be redeemed by the telephone and telegram exchange.
All redemption proceeds will be forwarded to the address of record or bank
designated on the account application.
The Transfer Agent and the Fund have reserved the right to change, modify, or
terminate the telephone or telegram exchange or redemption option at any time.
Before this option is effective for a corporation, partnership, or other
organizations, additional documents may be required. This option is not
available for Profit-Sharing Trust and Individual Retirement Accounts. The Fund
and the Transfer Agent disclaim responsibility for verifying the authenticity of
telephone and telegram exchange or redemption requests which are made in
accordance with the procedures approved by shareholders.
SPECIAL CIRCUMSTANCES:
- ----------------------
In some circumstances a signature guarantee may be required before shares are
redeemed. These circumstances include a change in the address for an account
within the last 30 days, a request to send the proceeds to a different payee or
address from that listed for the account, or a redemption request for $100,000
or more. A signature guarantee may be obtained from a bank, broker, or other
acceptable financial institution. If a signature guarantee is required, we
suggest that you call us to ensure that the signature guarantee and redemption
request will be processed correctly.
Payment for redeemed shares is normally made by check and mailed within three
days thereafter. However, under the Investment Company Act of 1940, the right of
redemption may be suspended or the date of payment postponed for more than seven
days: (1) for any period during which the New York Stock Exchange is closed,
other than for customary weekend and holiday closings; (2) when trading on the
New York Stock Exchange is restricted, as determined by the SEC; (3) when an
emergency exists, as determined by the SEC, as a result of which it is not
reasonably practicable for the Fund to dispose of its securities or determine
the value of its net assets; or (4) for such other period as the SEC may by
order permit for the protection of the shareholders. During such a period, a
shareholder may withdraw his request for redemption or receive the net asset
value next computed when regular trading resumes.
The Fund has filed with the SEC an election to pay for all redeemed shares in
cash up to a limit, as to any one shareholder during any 90-day periods, of
$250,000 or 1% of the net asset value of the Fund, whichever is less. Beyond
<PAGE>
that limit, the Fund is permitted to pay the redemption price wholly or partly
"in kind," that is, by distribution of portfolio securities held by the Fund.
This would occur only upon specific authorization by the Board of Trustees when,
in their judgment, unusual circumstances make it advisable. It is unlikely that
this will ever happen, but if it does, you will incur a brokerage charge in
converting the securities received in this manner into cash. Portfolio
securities distributed "in kind" will be valued as they are valued for the
determination of the net asset value of the Fund's shares.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shares of each Fund may be exchanged for shares of any other Activa Fund.
The above described Exchange Privilege may be exercised by sending written
instruction to the Transfer Agent. See "How Shares Are Redeemed" for applicable
signatures and signature guarantee requirements. Shareholders may authorize
telephone or telegram exchanges or redemptions by making an election on your
application. Procedures required by the Fund to ensure that a shareholder's
requested telephone or telegram transaction is genuine include identification by
the shareholder of the account by number, recording of the requested transaction
and sending a written confirmation to shareholders reporting the requested
transaction. The Fund is not responsible for unauthorized telephone or telegram
exchanges unless the Fund fails to follow these procedures. Shares must be owned
for 15 days before exchanging and cannot be in certificate form unless the
certificate is tendered with the request for exchange. Exchanges will be
accepted only if the registration of the two accounts is identical. Exchange
redemptions and purchases are effected on the basis of the net asset value next
determined after receipt of the request in proper order by the Fund. In the case
of exchanges into the Money Market Fund, dividends generally commence on the
following business day. For federal and state income tax purposes, an exchange
is treated as a sale and may result in a capital gain or loss.
ADDITIONAL ACCOUNT POLICIES
- --------------------------------------------------------------------------------
If the value of your account falls below $100, the Fund may mail you a notice
asking you to bring the account back to $100 or close it out. If you do not take
action within 60 days, the Fund may sell your shares and mail the proceeds to
you at the address of record.
The Fund does not permit market-timing or other abusive trading practices.
Excessive, short-term (market-timing) and other abusive trading practices may
disrupt portfolio trading strategies and harm Fund performance. To minimize harm
to the Fund and its shareholders, each Fund reserves the right to reject any
purchase order (including exchanges) from any investor we believe has a history
of abusive trading.
INTERNET ADDRESS
- --------------------------------------------------------------------------------
Activa's Web site is located at activafunds.com. Our Web site offers further
information about the Activa Funds as well as consumer information and the
ability to make certain transactions on-line.
FEDERAL INCOME TAX
- --------------------------------------------------------------------------------
The Fund intends to continue to comply with the provisions of Subchapter M of
the Internal Revenue Code applicable to investment companies. As the result of
paying to its shareholders as dividends and distributions substantially all net
investment income and realized capital gains, the Fund will be relieved of
substantially all Federal income tax.
For Federal income tax purposes, distributions of net investment income and
any capital gains will be taxable to shareholders. Distributions of net
investment income will normally qualify for the 70% deduction for dividends
received by corporations. After the last dividend and capital gains distribution
in each year, the Fund will send you a statement of the amount of the income and
capital gains which you should report on your Federal income tax return.
Dividends derived from net investment income and net short-term capital gains
are taxable to shareholders as ordinary income and long-term capital gain
dividends are taxable to shareholders as long-term capital gain regardless of
how long the shares have been held and whether received in cash or reinvested in
additional shares of the Fund. Qualified long-term capital gain dividends
received by individual shareholders are taxed a maximum rate of 20%.
In addition, shareholders may realize a capital gain or loss when shares are
redeemed. For most types of accounts, the Fund will report the proceeds of
redemptions to shareholders and the IRS annually. However, because the tax
treatment also depends on the purchase price and a shareholder's personal tax
position, you should also keep your regular account statements to use in
determining your tax.
<PAGE>
On the record date for a distribution, the Fund's share value is reduced by
the amount of the distribution. If a shareholder buys shares just before the
record date ("buying a dividend"), they will pay the full price for the shares,
and then receive a portion of the price back as a taxable distribution.
Also, under the Code, a 4% excise tax is imposed on the excess of the
required distribution for a calendar year over the distributed amount for such
calendar year. The required distribution is the sum of 98% of the Fund's net
investment income for the calendar year plus 98% of its capital gain net income
for the one-year period ended December 31, plus any undistributed net investment
income from the prior calendar year, plus any undistributed capital gain net
income from the prior calendar year, minus any overdistribution in the prior
calendar year. The Fund intends to declare or distribute dividends during the
appropriate periods of an amount sufficient to prevent imposition of the 4%
excise tax.
Under certain circumstances, the Fund will be required to withhold 31% of a
shareholder's distribution or redemption from the Fund. These circumstances
include failure by the shareholder to furnish the Fund with a proper taxpayer
identification number; notification of the Fund by the Secretary of the Treasury
that a taxpayer identification number is incorrect, or that withholding should
commence as a result of the shareholder's failure to report interest and
dividends; and failure of the shareholder to certify, under penalties of
perjury, that he is not subject to withholding. In this regard, failure of a
shareholder who is a foreign resident to certify that he is a nonresident alien
may result in 31% of his redemption proceeds and 31% of his capital gain
distribution being withheld. In addition, such a foreign resident may be subject
to a 30% or less, as prescribed by an applicable tax treaty, withholding tax on
ordinary income dividends distributed unless he qualifies for relief under an
applicable tax treaty.
Trustees of qualified retirement plans are required by law to withhold 20% of
the taxable portion of any distribution that is eligible to be "rolled over."
The 20% withholding requirement does not apply to distributions from IRA's or
any part of a distribution that is transferred directly to another qualified
retirement plan, 403(b)(7) account or IRA. Shareholders should consult their tax
advisor regarding the 20% withholding requirement.
Prior to purchasing shares of the Fund, the impact of any dividends or
capital gain distributions which are about to be declared should be carefully
considered. Any such dividends and capital gain distributions declared shortly
after you purchase shares will have the effect of reducing the per share net
asset value of your shares by the amount of dividends or distributions on the
ex-dividend date. All or a portion of such dividends or distributions, although
in effect a return of capital, are subject to taxes which may be at ordinary
income tax rates.
Each shareholder is advised to consult with his tax advisor regarding the
treatment of distributions to him under various state and local income tax laws.
INVESTMENT PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
Following is the average annual total return percentages for one, five and
ten years for the Fund for annual periods ended December 31, 1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN FOR THE PERIODS PAST PAST PAST
ENDED DECEMBER 31, 1998 1 YEAR 5 YEARS 10 YEARS
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
ACTIVA VALUE FUND* 10.17% 15.36% 15.93%
RUSSELL 1000 VALUE** 15.63% 20.85% 17.39%
S&P 500** 28.58% 24.06% 19.21%
</TABLE>
*Ark Asset Management Company has been subadvisor since May 1, 1995. Since
that time, the Fund's average annual total return has been 22.1%. Also, the S&P
500's and the Russell 1000 Value's average annual total return has been 29.3%
and 25.9%, respectively.
**The S&P 500 Index represents an unmanaged index generally representative of
the U.S. stock market. The Value Index represents a composite of value stocks
representative of the Fund's investment objectives and strategies which is
compiled independently by the Frank Russell Companies. Neither index is impacted
by Fund operating expenses.
Activa Asset Management LLC has served as the Fund's investment adviser since
July __, 1999. The Fund's previous investment adviser was Amway Management
Company. See "Investment Adviser."
<PAGE>
Total return performance for the Fund is calculated by making an initial
investment of $1,000 at the beginning of the period, in the Fund's shares at the
net asset value (without sales charge) and reinvesting all ordinary income
dividends and capital gain distributions paid during the period in additional
shares at net asset value per share on the reinvestment dates. The illustration
includes recurring expenses incurred by all shareholder accounts and not those
incurred for specific shareholder purposes such as bank fees for wire transfers,
Individual Retirement Accounts, or Profit-Sharing Trusts.
The average annual total return for the Fund for a specific period is found
by dividing the ending total value by the cost of the initial investment for the
period and taking this quotient to the Nth root, then subtracting 1 (N
represents the number of years in the period). The average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if the Fund's performance had been constant
over the entire period. Such calculation is with all ordinary income dividends
and capital gain distributions reinvested at net asset value exclusive of sales
charges. No adjustment has been made for any income taxes payable by
shareholders on ordinary income dividends and capital gain distributions
accepted in shares which are payable by shareholders in the tax year received.
Average annual total return percentages of the Fund will vary and the
publication of performance results is not a representation as to
future investment performance. Factors affecting the Fund's performance include
general market conditions, operating expenses and investment management. Net
asset values of the Fund will fluctuate. Additional information about the
performance of the Fund is contained in the Annual Shareholders Report which can
be obtained without charge.
REPORTS TO SHAREHOLDERS AND ANNUAL AUDIT
- --------------------------------------------------------------------------------
The Fund's year begins on January 1 and ends on December 31. At least
semiannually, the shareholders of the Fund receive reports, pursuant to
applicable laws and regulations, containing financial information. The annual
shareholders report is incorporated by reference into the Statement of
Additional Information. The cost of printing and distribution of such reports to
shareholders is borne by the Fund.
At least once during each year, the Fund is audited by independent certified
public accountants appointed by resolution of the Board and approved by the
shareholders. The fees and expenses of the auditors are paid by the Fund.
The financial statements for the Fund are contained in the Fund's 1998 Annual
Report to Shareholders along with additional information about the performance
of the Fund, which is incorporated herein by reference and may be obtained by
writing or calling the Fund.
<PAGE>
ACTIVA VALUE FUND
(a Series of Activa Mutual Fund Trust)
2905 Lucerne SE
Grand Rapids, Michigan 49546
(616) 787-6288
(800) 346-2670
=====================================================
ACTIVA
VALUE
FUND
Statement of
Additional Information
September 1, 1999
ACTIVA MUTUAL FUND LOGO
=====================================================
Printed in U.S.A.
<PAGE>
ACTIVA GROWTH FUND
(a series of Activa Mutual Fund Trust)
2905 Lucerne SE Grand Rapids, Michigan 49546
(616) 787-6288
(800) 346-2670
Contents Page
Organization of the Fund
Objectives, Policies, and
Restrictions on the Fund's
Investments
Portfolio Transactions and
Brokerage
Principal Shareholders
Officers and Trustees of the Fund
Investment Advisor and Other Services
Plan of Distribution and Principal
Underwriter
Transfer Agent
Custodian
Auditors
Pricing of Fund Shares
Purchase of Shares
How Shares are Redeemed
Federal Income Tax
Reports to Shareholders and Annual Audit
ACTIVA MUTUAL FUND LOGO
STATEMENT OF ADDITIONAL
INFORMATION
This Statement of Additional Information is not
a prospectus. Therefore, it should be read only in
conjunction with the Prospectus, which can be
requested from the Fund by writing or telephoning
as indicated above. This Statement of Additional
Information relates to the Prospectus for the Fund
dated September 1, 1999.
The date of this Statement of Additional Information
is September 1, 1999.
Printed in U.S.A.
1
<PAGE>
ORGANIZATION OF THE FUND
- --------------------------------------------------------------------------------
The Fund is a series of Activa Mutual Fund Trust, an open-end diversified
management investment company which was organized as a Delaware business trust
on February 2, 1998.
The Declaration of Trust authorizes the Trustees to create additional series
and to issue an unlimited number of units of beneficial interest, or "shares."
The Trustees are also authorized to issue different classes of shares of any
series. No series which may be issued by the Trust is entitled to share in the
assets of any other series or is liable for the expenses or liabilities of any
other series. The Fund presently has only one class of shares.
The Trust is not required to hold annual meetings of shareholders and does
not intend to hold such meetings. Shareholders of the Trust will have voting
rights only with respect to the limited number of matters specified in the
Declaration of Trust, and such other matters as may be determined or as may be
required by law. A meeting will be called for the purpose of voting on the
removal of a Trustee at the written request of holders of 10% of the Trust's
outstanding shares. In the event a meeting of shareholders is held, shareholders
will be entitled to one vote for each dollar of net asset value (or a
proportionate fractional vote with respect to fractional dollar amounts) on all
matters presented to shareholders, including the election of Trustees.
OBJECTIVES, POLICIES AND RESTRICTIONS ON THE FUND'S INVESTMENTS
- --------------------------------------------------------------------------------
The primary investment objective of the Fund is capital appreciation. The
Fund will attempt to meet its objectives by investing primarily in stocks and
convertible securities that the Fund believes have long term gorwth potential.
Income may be a factor in portfolio selection but is secondary to the principal
objective. The Fund's policy is to invest in a broadly diversified portfolio and
not to concentrate investments in a particular industry or group of industries.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The investment restrictions below have been adopted by the Fund. Except where
otherwise noted, these investment restrictions are "fundamental" policies which,
under the 1940 Act, may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as the case may be. A "majority of
the outstanding voting securities" is defined in the 1940 Act as the lesser of
(a) 67% or more of the voting securities present at a meeting if the holders of
more than 50% of the outstanding voting securities are present or represented by
proxy, or (b) more than 50% of the outstanding voting securities. The percentage
limitations contained in the restrictions below apply at the time of the
purchase of securities.
The Fund :
1. May not make any investment inconsistent with the Fund's classification
as a diversified investment company under the Investment Company Act of
1940.
2. May not purchase any security which would cause the Fund to concentrate
its investments in the securities of issuers primarily engaged in any
particular industry except as permitted by the SEC. This restriction
does not apply to instruments considered to be domestic bank money
market instruments.
3. May not issue senior securities, except as permitted under the
Investment Company Act of 1940 or any rule, order or interpretation
thereunder;
4. May not borrow money, except to the extent permitted by applicable law;
5. May not underwrite securities or other issues, except to the extent
that the Fund, in disposing of portfolio securities, may be deemed an
underwriter within the meaning of the 1933 Act;
6. May not purchase or sell real estate, except that, to the extent
permitted by applicable law, the Fund may (a) invest in securities or
other instruments directly or indirectly secured by real estate, and
(b) invest in securities or other instruments issued by issuers that
invest in real estate;
7. May not purchase or sell commodities or commodity contracts unless
acquired as a result of ownership of securities or other instruments
issued by persons that purchase or sell commodities or commodities
contracts; but this shall not prevent the Fund from purchasing,
selling and entering into financial futures contracts (including
futures contracts on indices of securities, interest rates and
currencies), options on financial futures contracts (including futures
contracts on indices of securities, interests rates and currencies),
warrants, swaps, forward contracts, foreign currency spot and forward
contracts or other derivative instruments that are not related to
physical commodities; and
<PAGE>
8. May make loans to other persons, in accordance with the Fund's
investment objective and policies and to the extent permitted by
applicable law.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
The investment restrictions described below are not fundamental policies of
the Fund and may be changed by the Fund's Trustees. These non-fundamental
investment policies require that the Fund: (i) may not acquire any illiquid
securities, if as a result thereof, more than 10% of the market value of the
Fund's total assets would be in investments which are illiquid; (ii) may not
purchase securities on margin, make short sales of securities, or maintain a
short position, provided that this restriction shall not be deemed to be
applicable to the purchase or sale of when-issued or delayed delivery
securities; (iii) may not acquire securities of other investment companies,
except as permitted by the 1940 Act or any order pursuant thereto; (iv) may not
enter into reverse repurchase agreements or borrow money, except from banks for
extraordinary or emergency purposes, if such obligations exceed in the aggregate
one-third of the market value of the Fund's total assets, less liabilities other
than obligations created by reverse repurchase agreements and borrowings.
Not withstanding any other fundamental or non-fundamental investment
restriction or policy, the Fund reserves the right, without the approval of
shareholders, to invest all of its assets in the securities of a single open-end
registered investment company with substantially the same investment objective,
restrictions and policies as the Fund.
There will be no violation of any investment restriction if that restriction
is complied with at the time the relevant action is taken notwithstanding a
later change in market value of an investment, in net or total assets, in the
securities rating of the investment, or any other later change.
In view of the Fund's investment objective of capital appreciation, with
income as a secondary objective, the Fund intends to purchase securities for
long-term or short-term profits, as appropriate. Securities will be disposed of
in situations where, in management's opinion, such potential is no longer
feasible or the risk of decline in the market price is too great. Therefore, in
order to achieve the Fund's objectives, the purchase and sale of securities will
be made without regard to the length of time the security is to be held.
Higher portfolio turnover rates can result in corresponding increases in
brokerage commissions.
ADDITIONAL RISKS AND INFORMATION CONCERNING CERTAIN INVESTMENT TECHNIQUES
- --------------------------------------------------------------------------------
DERIVATIVES.
------------
The Fund may buy and sell certain types of derivatives, such as options,
futures contracts, options on futures contracts, and swaps under circumstances
in which such instruments are expected by State Street Research & Management
Company (the "Sub-Adviser") to aid in achieving the Fund's investment objective.
The Fund may also purchase instruments with characteristics of both futures and
securities (e.g., debt instruments with interest and principal payments
determined by reference to the value of a commodity or a currency at a future
time) and which, therefore, possess the risks of both futures and securities
investments.
Derivatives, such as options, futures contracts, options on futures
contracts, and swaps enable the Fund to take both "short" positions (positions
which anticipate a decline in the market value of a particular asset or index)
and "long" positions (positions which anticipate an increase in the market value
of a particular asset or index). The Fund may also use strategies which involve
simultaneous short and long positions in response to specific market conditions,
such as where the Sub-Adviser anticipates unusually high or low market
volatility.
The Sub-Adviser may enter into derivative positions for the Fund for either
hedging or non-hedging purposes. The term hedging is applied to defensive
strategies designed to protect the Fund from an expected decline in the market
value of an asset or group of assets that the Fund owns (in the case of a short
hedge) or to protect the Fund from an expected rise in the market value of an
asset or group of assets which it intends to acquire in the future (in the case
of a long or "anticipatory" hedge). Non-hedging strategies include strategies
designed to produce incremental income (such as the option writing strategy
described below) or "speculative" strategies, which are undertaken to profit
from (i) an expected decline in the market value of an asset or group of assets
which the Fund does not own or (ii) expected increases in the market value of an
asset which it does not plan to acquire. Information about specific types of
instruments is provided below.
<PAGE>
FUTURE CONTRACTS.
-----------------
Futures contracts are publicly traded contracts to buy or sell an underlying
asset or group of assets, such as a currency or an index of securities, at a
future time at a specified price. A contract to buy establishes a long position
while a contract to sell establishes a short position.
The purchase of a futures contract on an equity security or an index of
equity securities normally enables a buyer to participate in the market movement
of the underlying asset or index after paying a transaction charge and posting
margin in an amount equal to a small percentage of the value of the underlying
asset or index. The Fund will initially be required to deposit with the Trust's
custodian or the futures commission merchant effecting the futures transaction
an amount of "initial margin" in cash or securities, as permitted under
applicable regulatory policies.
Initial margin in futures transactions is different from margin in securities
transactions in that the former does not involve the borrowing of funds by the
customer to finance the transaction. Rather, the initial margin is like a
performance bond or good faith deposit on the contract. Subsequent payments
(called "maintenance margin") to and from the broker will be made on a daily
basis as the price of the underlying asset fluctuates. This process is known as
"marking to market." For example, when the Fund has taken a long position in a
futures contract and the value of the underlying asset has risen, that position
will have increased in value and the Fund will receive from the broker a
maintenance margin payment equal to the increase in value of the underlying
asset. Conversely, when the Fund has taken a long position in a futures contract
and the value of the underlying instrument has declined, the position would be
less valuable, and the Fund would be required to make a maintenance margin
payment to the broker.
At any time prior to expiration of the futures contract, the Fund may elect
to close the position by taking an opposite position which will terminate the
Fund's position in the futures contract. A final determination of maintenance
margin is then made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or a gain. While futures contracts with
respect to securities do provide for the delivery and acceptance of such
securities, such delivery and acceptance are seldom made.
In transactions establishing a long position in a futures contract, assets
equal to the face value of the futures contract will be identified by the Fund
to the Trust's custodian for maintenance in a separate account to insure that
the use of such futures contracts is unleveraged. Similarly, assets having a
value equal to the aggregate face value of the futures contract will be
identified with respect to each short position. The Fund will utilize such
assets and methods of cover as appropriate under applicable exchange and
regulatory policies.
OPTION
------
The Fund may use options to implement its investment strategy. There are two
basic types of options: "puts" and "calls." Each type of option can establish
either a long or a short position, depending upon whether the Fund is the
purchaser or the writer of the option. A call option on a security, for example,
gives the purchaser of the option the right to buy, and the writer the
obligation to sell, the underlying asset at the exercise price during the option
period. Conversely, a put option on a security gives the purchaser the right to
sell, and the writer the obligation to buy, the underlying asset at the exercise
price during the option period.
Purchased options have defined risk, that is, the premium paid for the
option, no matter how adversely the price of the underlying asset moves, while
affording an opportunity for gain corresponding to the increase or decrease in
the value of the optioned asset. In general, a purchased put increases in value
as the value of the underlying security falls and a purchased call increases in
value as the value of the underlying security rises.
The principal reason to write options is to generate extra income (the
premium paid by the buyer). Written options have varying degrees or risk. An
uncovered written call option theoretically carries unlimited risk, as the
market price of the underlying asset could rise far above the exercise price
before its expiration. This risk is tempered when the call option is covered,
that is when the option writer owns the underlying asset. In this case, the
writer runs the risk of the lost opportunity to participate in the appreciation
in value of the asset rather than the risk of an out-of-pocket loss. A written
put option has defined risk, that is, the difference between the agreed-upon
price that the Fund must pay to the buyer upon exercise of the put and the
value, which could be zero, of the asset at the time of exercise.
The obligation of the writer of an option continues until the writer effects
a closing purchase transaction or until the option expires. To secure its
obligation to deliver the underlying asset in the case of a call option, or to
pay for the underlying asset in the case of a put option, a covered writer is
required to deposit in escrow the underlying security or other assets in
<PAGE>
accordance with the rules of the applicable clearing corporation and exchanges.
Among the options which the Fund may enter are options on securities indices.
In general, options on indices of securities are similar to options on the
securities themselves except that delivery requirements are different. For
example, a put option on an index of securities does not give the holder the
right to make actual delivery of a basket of securities but instead gives the
holder the right to receiver an amount of cash upon exercise of the option if
the value of the underlying index has fallen below the exercise price. The
amount of cash received will be equal to the difference between the closing
price of the index and the exercise price of the option expressed in dollars
times a specified multiple. As with options on equity securities, or futures
contracts, a Fund may offset its position in index options prior to expiration
by entering into a closing transaction on an exchange or it may let the option
expire unexercised.
A securities index assigns relative values to the securities included in the
index and the index options are based on a broad market index. In connection
with the use of such options, the Fund may cover its position by identifying
assets having a value equal to the aggregate face value of the option position
taken.
OPTIONS ON FUTURES CONTRACTS
----------------------------
An option on a futures contract gives the purchaser the right, in return for
the premium paid, to assume a position in a future 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.
Limitations and Risks of Options and Futures Activity
The Fund may no establish a position in a commodity futures contract or
purchase or sell a commodity option contract for other than bona fide hedging
purposes if immediately thereafter the sum of the amount of initial margin
deposits and premiums required to establish such positions for such nonhedging
purposes would exceed 5% of the market value of the Fund's net assets. The Fund
applies a similar policy to options that are not commodities.
As noted above, the Fund may engage in both hedging and nonhedging
strategies. Although effective hedging can generally capture the bulk of a
desired risk adjustment, no hedge is completely effective. The Fund's ability to
hedge effectively through transactions in futures and options depends on the
degree to which price movements in its holdings correlate with price movements
of the futures and options.
Nonhedging strategies typically involve special risks. The profitability of
the Fund's nonhedging strategies will depend of the Sub-Adviser to analyze both
the applicable derivatives market and the market for the underlying asset or
group of assets. Derivatives markets are often more volatile than corresponding
securities markets and a relatively small change in the price of the underlying
asset or group of assets can have a magnified effect upon the price of a related
derivative instrument.
Derivatives markets also are often less liquid than the market for the
underlying asset or group of assets. Some positions in futures and options may
be closed out only on an exchange which provides a secondary market thereof.
There can be no assurance that a liquid secondary market will exist for any
particular futures contract or option at any specific time. Thus, it may not be
possible to close such an option or futures positions prior to maturity. The
inability to close options and futures positions also could have an adverse
impact on the Fund's ability to effectively carry out their derivative
strategies and might, in some cases, require a Fund to deposit cash to meet
applicable margin requirements. The Fund will enter into an option or futures
position only if it appears to be a liquid investment.
SHORT SALES AGAINST THE BOX
---------------------------
The Fund may effect short sales, but only if such transactions are short sale
transactions known as short sales "against the box." A short sale is a
transaction in which the Fund sells a security it does not own by borrowing it
from a broker, and consequently becomes obligated to replace that security. A
short sale against the box is a short sale where the Fund owns the security sold
short or has an immediate and unconditional right to acquire that security
without additional cash consideration upon conversion, exercise or exchange of
options with respect to securities held in its portfolio. The effect of selling
a security short against the box is to insulate that security against any future
gain or loss.
SWAP ARRANGEMENTS
-----------------
The Fund may enter into various forms of swap arrangements with
counterparties with respect to interest rates, currency rates or indices,
including purchase of caps, floors and collars as described below. In an
interest rate swap the Fund could agree for a specified period to pay a bank or
investment banker the floating rate of interest on a so-called notional
principal amount (i.e., an assumed figure selected by the parties for this
purpose) in exchange for agreement by the bank or investment banker to pay the
<PAGE>
Fund a fixed rate of interest on the notional principal amount. In a currency
swap the Fund would agree with the other party to exchange cash flows based on
the relative differences in values of a notional amount of two (or more)
currencies; in an index swap, the Fund would agree to exchange cash flows on a
notional amount based on changes in the values of the selected indices. Purchase
of a cap entitles the purchaser to receive payments from the seller on a
notional amount to the extent that the selected index exceeds an agreed upon
interest rate or amount whereas purchase of a floor entitles the purchaser to
receive such payments to the extent the selected index falls below an agreed
upon interest rate or amount. A collar combines a cap and a floor.
The Fund may enter credit protection swap arrangements involving the sale by
the Fund of a put option on a debt security which is exercisable by the buyer
upon certain events, such as a default by the referenced creditor on the
underlying debt or a bankruptcy event of the creditor.
Most swaps entered into by the Fund will be on a net basis; for example, in
an interest rate swap, amounts generated by application of the fixed rate and
the floating rate to the notional principal amount would first offset one
another, with the Fund either receiving or paying the difference between such
amounts. In order to be in a position to meet any obligations resulting from
swaps, the Fund will set up a segregated custodial account to hold appropriate
liquid assets, including cash; for swaps entered into on a net basis, assets
will be segregated having a daily net asset value equal to any excess of the
Fund's accrued obligations over the accrued obligations of the other party,
while for swaps on other than a net basis assets will be segregated having a
value equal to the total amount of the Fund's obligations.
These arrangements will be made primarily for hedging purposes, to preserve
the return on an investment or on a portion of the Fund's portfolio. However,
the Fund may, as noted above, enter into such arrangements for income purposes
to the extent permitted by the Commodities Futures Trading Commission for
entities which are not commodity pool operators, such as the Fund. In entering a
swap arrangement, the Fund is dependent upon the creditworthiness and good faith
of the counterparty. The Fund attempts to reduce the risks of nonperformance by
the counterparty by dealing only with established, reputable institutions. The
swap market is still relatively new and emerging; positions in swap arrangements
may become illiquid to the extent that nonstandard arrangements with one
counterparty are not readily transferable to another counterparty or if a market
for the transfer of swap positions does not develop. The use of interest rate
swaps is a highly specialized activity which involves investment techniques and
risks different from those associated with ordinary portfolio securities
transactions. If the Sub-Adviser is incorrect in its forecasts of market values,
interest rates and other applicable factors, the investment performance of the
Fund would diminish compared with what it would have been if these investment
techniques were not used. Moreover, even if the Sub-Adviser is correct in its
forecasts, there is a risk that the swap position may correlate imperfectly with
the price of the asset or liability being hedged.
REPURCHASE AGREEMENTS.
----------------------
The Fund may enter into repurchase agreements. Repurchase agreements occur
when the Fund acquires a security and the seller, which may be either (i) a
primary dealer in U.S. Government securities or (ii) an FDIC-insured bank having
gross assets in excess of $500 million, simultaneously commits to repurchase it
at an agreed-upon price on an agreed-upon date within a specified number of days
(usually not more than seven) from the date of purchase. The repurchase price
reflects the purchase price plus an agreed-upon market rate of interest which is
unrelated to the coupon rate or maturity of the acquired-security. The Fund will
only enter into repurchase agreements involving U.S. Government securities.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the other party, including possible delays or restrictions upon
the Fund's ability to dispose of the underlying securities. Repurchase
agreements will be limited to 30% of the Fund's net assets, except that
repurchase agreements extending for more than seven days when combined with any
other illiquid securities held by the Fund will be limited to 15% of the Fund's
net assets. To the extent excludable under relevant regulatory interpretations,
repurchase agreements involving U.S. Government securities are not subject to
the Fund's investment restrictions which otherwise limit the amount of the
Fund's total assets which may be invested in one issuer or industry.
<PAGE>
REVERSE REPURCHASE AGREEMENTS.
------------------------------
The Fund may enter into reverse repurchase agreements. However, the Fund may
not engage in reverse repurchase agreements in excess of 5% of the Fund's total
assets. In a reverse repurchase agreement the Fund transfers possession of a
portfolio instrument to another person, such as a financial institution, broker
or dealer, in return for a percentage of the instrument's market value in cash,
and agrees that on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest at an
agreed-upon rate. The ability to use reverse repurchase agreements may enable,
but does not ensure the ability of, the Fund to avoid selling portfolio
instruments at a time when a sale may be deemed to be disadvantageous.
When effecting reverse repurchase agreements, assets of the Fund in a dollar
amount sufficient to make payment of the obligations to be purchased are
segregated on the Fund's records at the trade date and maintained until the
transaction is settled.
WHEN-ISSUED SECURITIES.
-----------------------
The Fund may purchase "when-issued" securities, which are traded on a price
or yield basis prior to actual issuance. Such purchases will be made only to
achieve the Fund's investment objective and not for leverage. The when-issued
trading period generally lasts from a few days to months, or over a year or
more; during this period dividends or interest on the securities are not
payable. A frequent form of when-issued trading occurs when corporate securities
to be created by a merger of companies are traded prior to the actual
consummation of the merger. Such transactions may involve a risk of loss if the
value of the securities falls below the price committed to prior to actual
issuance. The Trust's custodian will establish a segregated account when the
Fund purchases securities on a when-issued basis consisting of cash or liquid
securities equal to the amount of the when-issued commitments. Securities
transactions involving delayed deliveries or forward commitments are frequently
characterized as when-issued transactions and are similarly treated by the Fund.
RESTRICTED SECURITIES.
----------------------
It is the Fund's policy not to make an investment in restricted securities,
including restricted securities sold in accordance with Rule 144A under the
Securities Act of 1933 ("Rule 144A Securities") if, as a result, more than 35%
of the Fund's total assets are invested in restricted securities, provided not
more than 10% of the Fund's total assets are invested in restricted securities
other than Rule 144A Securities.
Securities may be resold pursuant to Rule 144A under certain circumstances
only to qualified institutional buyers as defined in the rule, and the markets
and trading practices for such securities are relatively new and still
developing; depending on the development of such markets, Rule 144A Securities
may be deemed to be liquid as determined by or in accordance with methods
adopted by the Trustees. Under such methods the following factors are
considered, among others: the frequency of trades and quotes for the security,
the number of dealers and potential purchasers in the market, market making
activity, and the nature of the security and marketplace trades. Investments in
Rule 144A Securities could have the effect of increasing the level of the Fund's
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing such securities. Also, the Fund may be
adversely impacted by the subjective valuation of such securities in the absence
of a market for them. Restricted securities that are not resalable under Rule
144A may be subject to risks of illiquidity and subjective valuations to a
greater degree than Rule 144A Securities.
FOREIGN INVESTMENTS.
--------------------
The Fund reserves the right to invest without limitation in securities of
non-U.S. issuers directly, or indirectly in the form of American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs"). Under current
policy, however, the Fund limits such investments, including ADRs and EDRs, to a
maximum of 35% of its total assets.
ADRs are receipts, typically issued by a U.S. bank or trust company, which
evidence ownership of underlying securities issues by a foreign corporation or
other entity. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. Generally, ADRs in registered form are designed for use
in U.S. securities markets and EDRs are designed for use in European securities
markets. The underlying securities are not always denominated in the same
currency as the ADRs or EDRs. Although investment in the form of ADRs or EDRs
facilitates trading in foreign securities, it does not mitigate all the risks
associated with investing in foreign securities.
ADRs are available through facilities which may be either "sponsored" or
"unsponsored." In a sponsored arrangement, the foreign issuer establishes the
facility, pays some or all of the depository's fees, and usually agrees to
<PAGE>
provide shareholder communications. In an unsponsored arrangement, the foreign
issuer is not involved, and the ADR holders pay the fees of the depository.
Sponsored ADRs are generally more advantageous to the ADR holders and the issuer
than are unsponsored ADRs. More and higher fees are generally charged in an
unsponsored program compared to a sponsored facility. Only sponsored ADRs may be
listed on the New York or American Stock Exchanges. Unsponsored ADRs may prove
to be more risky due to (a) the additional costs involved to the Fund; (b) the
relative illiquidity of the issue in U.S. markets; and (c) the possibility of
higher trading costs in the over-the-counter market as opposed to exchange based
tradings. The Fund will take these and other risk considerations into account
before making an investment in an unsponsored ADR.
The risks associated with investments in foreign securities include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments, including the risks of
nationalization or exporpriation, the possible imposition of currency exchange
blockages, higher operating expenses, foreign withholding and other taxes which
may reduce investment return, reduced availability of public information
concerning issuers, the difficulties in obtaining and enforcing a judgment
against a foreign issuer and the fact that foreign issuers are not generally
subject to uniform accounting, auditing and financial reporting standards or to
other regulatory practices and requirements comparable to those applicable to
domestic issuers. Moreover, securities of many foreign issuers may be less
liquid and their prices more volatile than those of securities of comparable
domestic issuers.
These risks are usually higher in less-develop countries. Such countries
include countries that have an emerging stock market on which trade a small
number of securities and/or countries with economics that are based on only a
few industries. The Fund may invest in the securities of issuers in countries
with less developed economics as deemed appropriate by the Sub-Adviser. However,
it is anticipated that a majority of the foreign investments by the Fund will
consist of securities of issuers in countries with developed economics.
CURRENCY TRANSACTIONS.
----------------------
The Fund may engage in currency exchange transactions in order to protect
against the effect of uncertain future exchange rates on securities denominated
in foreign currencies. The Fund will conduct its currency exchange transactions
either on a spot (i.e., cash) basis at the rate prevailing in the currency
exchange market, or by entering into forward contracts to purchase or sell
currencies. The Fund's dealings in forward currency exchange contracts will be
limited to hedging involving either specific transactions or aggregate portfolio
positions. A forward 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 agreed upon by the parties, at a price set at the
time of the contract. These contracts are not commodities and are entered into
in the interbank market conducted directly between currency traders (usually
large commercial banks) and their customers. In entering a forward currency
contract, the Fund is dependent upon the creditworthiness and good faith of the
counterparty. The Fund attempts to reduce the risks of nonperformance by the
counterparty by dealing only with established, reputable institutions. Although
spot and forward contracts will be used primarily to protect the Fund from
adverse currency movements, they also involve the risk that anticipated currency
movements will not be accurately predicted, which may result in losses to the
Fund. This method of protecting the value of the Fund's portfolio securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange that can be achieved at some future point in time. Although such
contracts tend to minimize the risk of loss due to a decline in the value of
hedged currency, they tend to limit any potential gain that might result should
the value of such currency increase.
SECURITIES LENDING.
-------------------
The Fund may lend portfolio securities with a value of up to 33 1/3% of its
total assets. The Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as collateral in an amount equal to at least 100% of the
current market value of any loaned securities plus accrued interest. Collateral
received by the Fund will generally be held in the form tendered, although cash
may be invested in unaffiliated mutual funds with quality short-term portfolios,
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities or certain unaffiliated mutual funds, irrevocable stand-by
letters of credit issued by a bank, or repurchase agreements, or other similar
investments. The investment of cash collateral received from loaning portfolio
securities involves leverage which magnifies the potential for gain or loss on
monies invested and, therefore, results in an increase in the volatility of the
Fund's outstanding securities. Such loans may be terminated at any time.
<PAGE>
The Fund may receive a lending fee and will retain rights to dividends,
interest or other distributions, on the loaned securities. Voting rights pass
with the lending, although the Fund may call loans to vote proxies if desired.
Should the borrower of the securities fail financially, there is a risk of delay
in recovery which are deemed by the Sub-Adviser or its agents to be of good
financial standing.
SHORT-TERM TRADING.
-------------------
The Fund may engage in short-term trading of securities and reserves full
freedom with respect to portfolio turnover. In periods where there are rapid
changes in economic conditions and security price levels or when reinvestment
strategy changes significantly, portfolio turnover may be higher than during
times of economic and market price stability or when investment strategy remains
relatively constant. The Fund's portfolio turnover rate may involve greater
transaction costs, relative to other funds in general, and may have tax and
other consequences.
TEMPORARY AND DEFENSIVE INVESTMENTS.
------------------------------------
The Fund may hold up to 100% of its assets in cash or short-term debt
securities for temporary defensive purposes. The Fund will adopt a temporary
defensive position when, in the opinion of the Sub-Adviser, such a position is
more likely to provide protection against adverse market conditions than
adherence to the Fund's other investment policies. The types of short-term
instruments in which the Fund may invest for such purposes include short-term
money market securities, such as repurchase agreements, and securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
certificates of deposit, time deposits and bankers' acceptances of certain
qualified financial institutions and corporate commercial paper, which at the
time of purchase are rated at least within the "A" major rating category by
Standard & Poor's Corporation ("S&P") or the "Prime" major rating category by
Moody's Investor's Service, Inc. ("Moody's"), or if not rated, issued by
companies having an outstanding long-term unsecured debt issued rated at least
within the "A" category by S&P or Moody's.
INDUSTRY CLASSIFICATIONS.
-------------------------
In determining how much of the portfolio is invested in a given industry, the
following industry classifications are currently used. Securities issued or
guaranteed as to principal or interest by the U.S. Government or its agencies or
instrumentalities or mixed-ownership Government corporations or sponsored
enterprises (including repurchase agreements involving U.S. Government
securities to the extent excludable under relevant regulatory interpretations)
are excluded. Securities issued by foreign governments are also excluded.
Companies engaged in the business of financing may be classified according to
the industries of their parent or sponsor companies, or industries that
otherwise most affect such financing companies. Issuers of asset-backed pools
will be classified as separate industries based on the nature of the underlying
assets, such as mortgages and credit card receivables.
"Asset-backed-Mortgages" includes privates pools of nongovernment backed
mortgages.
<TABLE>
<CAPTION>
AUTOS & TRANSPORTATION CONSUMER PRODUCTS FINANCIAL SERVICES
---------------------- ----------------- ------------------
<S> <C> <C>
Air Transport Consumer Services Banks & Savings and Loans
Auto parts Household Furnishings Financial Data Processing
Automobiles Leisure Time Services & Systems
Miscellaneous Photography Insurance
Transportation Printing & Publishing Miscellaneous Financial
Railroad Equipment Restaurants Real Estate Investment
Railroads Retail Trusts
Recreational Vehicles & Shoes Rental & Leasing Services:
Boats Textile Apparel Commercial
Tires & Rubber Manufacturers Securities Brokerage &
Truckers Toys Services
<PAGE>
CONSUMER DISCRETIONARY CONSUMER STAPLES HEALTH CARE
---------------------- ---------------- -----------
Advertising Agencies Beverages Drugs & Biotechnology
Casino/Gambling, Drug & Grocery Store Health Care Facilities
Hotel/Motel Chains Health Care Services
Commercial Services Foods Hospital Supply
Communications, Media & Household Products Service Miscellaneous
Entertainment Tobacco
Consumer Electronics
INTEGRATED OILS OTHER ENERGY TECHNOLOGY
--------------- ------------ ----------
Oil: Integrated Domestic Gas Pipelines Communications Technology
Oil: Integrated International Miscellaneous Energy Computer Software
Offshore Drilling Computer Technology
MATERIALS & PROCESSING Oil & Gas Producers Electronics
Agriculture Oil Well Equipment & Electronics: Semi-
Building & Construction Services Conductors/Components
Chemicals Miscellaneous Technology
Containers & Packaging PRODUCER DURABLES
-----------------
Diversified Manufacturing Aerospace UTILITIES
---------
Engineering & Contracting Electrical Equipment & Miscellaneous Utilities
Services Components Utilities: Cable TV & Radio
Fertilizers Electronics: Industrial Utilities: Electrical
Forest Products Components Utilities: Gas Distribution
Gold & Precious Metals Industrial Products Utilities: Telecommunications
Miscellaneous Materials & Machine Tools Utilities: Water
Processing Machinery
Non-Ferrous Metals Miscellaneous Equipment
Office Supplies Miscellaneous Producer
Paper & Forest Products Durables
Real Estate & Construction Office Furniture & Business
Steel Equipment
Textile Products Pollution Control and
Environmental Services
OTHER Production Technology
Trust Certificates - Equipment
Government Related Telecommunications
Lending Equipment
Asset-backed-Mortgages
Asset-backed-Credit Card
Receivables
Miscellaneous
Multi-Sector Companies
</TABLE>
COMPUTER-RELATED RISKS
----------------------
Many mutual funds and other companies that issue securities, as well as
government entities upon whom those mutual funds and companies depend, may be
adversely affected by computer systems (whether their own systems or systems of
their service providers) that do not properly process dates beginning with
January 1, 2000 and information related to those dates.
The Sub-Adviser currently is in the process of reviewing its internal
computer systems as they related to the Fund, as well as the computer systems of
those service providers upon which the Fund relies, in order to obtain
reasonable assurances that the Fund will not experience a material adverse
impact related to the problem. The Fund does not currently anticipate that the
problem will have a material adverse impact on its portfolio investments, taken
as a whole. There can be no assurances in the area, however, including the
possibility that the problem could negatively affect the investment markets or
the economy generally.
<PAGE>
OTHER INVESTMENT COMPANIES
--------------------------
The Fund may invest in securities of other investment companies, including
affiliated investment companies, such as open- or closed-end management
investment companies, hub and spoke (master/feeder) funds, pooled accounts or
other similar, collective investment vehicles. As a shareholder of an investment
company, the Fund may indirectly bear service and other fees in addition to the
fees the Fund pays its service providers. Similarly, other investment companies
may invest in the Fund. Other investment companies that invest in the Fund may
hold significant portions of the Fund and materially affect the sale and
redemption of Fund shares and the Fund's portfolio transactions.
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS
-----------------------------------------------
The Fund may invest in long-term and short-term debt securities. Certain debt
securities and money market instruments in which the Fund may invest are
described below.
U.S. GOVERNMENT AND RELATED SECURITIES. U.S. Government securities are
securities which are issued or guaranteed as to principal or interest by the
U.S. Government, a U.S. Government agency or instrumentality, or certain
mixed-ownership Government corporations as described herein. The U.S. Government
securities in which the Fund invests include, among others:
o direct obligations of the U.S. Treasury, i.e., U.S. Treasury bills,
notes, certificates and bonds;
o obligations of U.S. Government agencies or instrumentalities, such as
the Federal Home Loan Banks, the Federal Farm Credit Banks, the Federal
National Mortgage Association, the Government National Mortgage
Association and the Federal Home Loan Mortgage Corporation; and
o obligations of mixed-ownership Government corporations such as Resolution
Funding Corporation.
U.S. Government Securities which the Fund may buy are backed in a variety of
ways by the U.S. Government, its agencies or instrumentalities. Some of these
obligations, such as Government National Mortgage Association mortgage-backed
securities, are backed by the full faith and credit of the U.S. Treasury. Other
obligations, such as those of the Federal National Mortgage Association, are
backed by the discretionary authority of the U.S. Government to purchase certain
obligations of agencies or instrumentalities, although the U.S. Government has
no legal obligation to do so. Obligations such as those of the Federal Home Loan
Bank, the Federal Farm Credit Bank, the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation are backed by the credit of the
agency or instrumentality issuing the obligations. Certain obligations of
Resolution Funding Corporation, a mixed-ownership Government corporation, are
backed with respect to interest payments by the U.S. Treasury, and with respect
to principal payments by U.S. Treasury obligations held in a segregated account
with a Federal Reserve Bank. Except for certain mortgage-related securities, the
Fund will only invest in obligations issued by mixed-ownership Government
corporations where such securities are guaranteed as to payment of principal or
interest by the U.S. Government or a U.S. Government agency or instrumentality,
and any unguaranteed principal or interest is otherwise supported by U.S.
Government obligations held in a segregated account.
U.S. Government securities may be acquired by the Fund in the form of
separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury. The principal and interest components of
selected securities are traded independently under the Separate Trading of
Registered Interest and Principal of Securities ("STRIPS") program. Under the
STRIPS program, the principal and interest components are individually numbered
and separately issued by the U.S. Treasury at the request of depository
financial institutions, which then trade the component parts independently.
Obligations of Resolution Funding Corporation are similarly divided into
principal and interest components and maintained as such on the book entry
records of the Federal Reserve Banks.
In addition, the Fund may invest in custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Treasury notes or bonds in connection with programs sponsored by banks and
brokerage firms. Such notes and bonds are held in custody by a bank on behalf of
the owners of the receipts. These custodial receipts are known by various names,
including "Treasury Receipts" ("TRs"), "Treasury Investment Growth Receipts"
(TIGRs") and "Certificates of Accrual on Treasury Securities ("CATS"), and may
be deemed U.S. Government securities.
The Fund may also invest from time to time in collective investment vehicles,
the assets of which consist principally of U.S. Government securities or other
assets substantially collateralized or supported by such securities, such as
Government trust certificates.
<PAGE>
BANK MONEY INVESTMENTS
----------------------
Bank money investments include, but are not limited to, certificates of
deposit, bankers' acceptances and time deposits. Certificates of deposit are
generally short-term (i.e., less than one year), interest-bearing negotiable
certificates issued by commercial banks or savings and loan associations against
funds deposited in the issuing institution. A banker's acceptance is a time
draft drawn on a commercial bank by a borrower, usually in connection with an
international commercial transaction (to finance the import, export, transfer or
storage of goods). A banker's acceptance may be obtained from a domestic or
foreign bank, including a U.S. branch or agency of a foreign bank. The borrower
is liable for payment as well as the bank, which unconditionally guarantees to
pay the draft at its face amount on the maturity date. Most acceptances have
maturities of six months or less and are traded in secondary markets prior to
maturity. Time deposits are nonnegotiable deposits for a fixed period of time at
a stated interest rate. The Fund will not invest in any such bank money
investment unless the investment is issued by a U.S. bank that is a member of
the Federal Deposit Insurance Corporation ("FDIC"), including any foreign branch
thereof, a U.S. branch or agency of a foreign bank, a foreign branch of a
foreign bank, or a savings bank or savings and loan association that is a member
of the FDIC and which at the date of investment has capital, surplus and
undivided profits (as of the date of its most recently published financial
statements) in excess of $50 million. The Fund will not invest in time deposits
maturing in more than seven days and will not invest more than 10% of its total
assets in time deposits maturing in two to seven days.
U.S. branches and agencies of foreign banks are offices of foreign banks and
are not separately incorporated entities. They are chartered and regulated
either federally or under state law. U.S. federal branches or agencies of
foreign banks are chartered and regulated by the Comptroller of the Currency,
while state branches and agencies are chartered and regulated by authorities of
the respective states or the District of Columbia. U.S. branches of foreign
banks may accept deposits and thus are eligible for FDIC insurance; however, not
all such branches elect FDIC insurance. Unlike U.S. branches of foreign banks,
U.S. agencies of foreign banks may not accept deposits and thus are not eligible
for FDIC insurance. Both branches and agencies can maintain credit balances,
which are funds received by the office incidental to or arising out of the
exercise of their banking powers and can exercise other commercial functions,
such as lending activities.
SHORT-TERM CORPORATE DEBT INSTRUMENTS
-------------------------------------
Short-term corporate debt instruments include commercial paper to finance
short-term credit needs (i.e., short-term, unsecured promissory notes) issued by
corporations including but not limited to (a) domestic or foreign bank holding
companies or (b) their subsidiaries or affiliates where the debt instrument is
guaranteed by the bank holding company or an affiliated bank or where the bank
holding company or the affiliated bank is unconditionally liable for the debt
instrument. Commercial paper is usually sold on a discounted basis and has a
maturity at the time of issuance not exceeding nine months.
ZERO AND STEP COUPON SECURITIES
-------------------------------
Zero and step coupon securities are debt securities that may pay no interest
for all or a portion of their life but are purchased at a discount to face value
at maturity. Their return consist of the amortization of the discount between
their purchase price and their maturity value, plus in the case of a step
coupon, any fixed rate interest income. Zero coupon securities pay no interest
to holders prior to maturity even though interest on these securities is
reported as income to the Fund. The Fund will be required to distribute all or
substantially all of such amounts annually to its shareholders. These
distributions may cause the Fund to liquidate portfolio assets in order to make
such distributions at a time when the Fund may have otherwise chosen not to sell
such securities. The market value of such securities may be more volatile than
that of securities which pay interest at regular intervals.
COMMERCIAL PAPER RATINGS
------------------------
Commercial paper investments at the time of purchase will be rated within the
"A" major rating category by S&P or within the "Prime" major rating category by
Moody's, or, if not rated, issued by companies having an outstanding long-term
unsecured debt issue rated at least within the "A" category by S&P or by
Moody's. The money market investments in corporate bonds and debentures (which
must have maturities at the date of settlement of one year or less) must be
rated at the time of purchase at least within the "A" category by S&P or within
the "Prime" category by Moody's, within comparable categories of other rating
agencies or considered to be of comparable quality by the Sub-Adviser.
Commercial paper rated within the "A" category (highest quality) by S&P is
issued by entities which have liquidity ratios which are adequate to meet cash
requirements. Long-term senior debt is rated within the "A" category or better,
although in some cases credits within the "BBB" category may be allowed. The
<PAGE>
issuer has access to at least two additional channels of borrowing. Basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances. Typically, the issuer's industry is well established and the
issuer has a strong positions within the industry. The reliability and quality
of management are unquestioned. The relative strength or weakness of the above
factors determines whether the issuer's commercial paper is rated A-1, A-2 or
A-3. (Those A-1 issues determined to possess overwhelming safety characteristics
are denoted with a plus (+) sign: A-1+.)
The rating Prime is the highest commercial paper rating category assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: evaluation of the management of the issuer; economic evaluation of
the issuer's industry or industries and an appraisal of speculative-type risks
which may be inherent in certain areas; evaluation of the issuer's products in
relation to competition and customer acceptance; liquidity; amount and quality
of long-term debt; trend of earnings over a period of 10 years; financial
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations. These
factors are all considered in determining whether the commercial paper is rated
Prime-1, Prime-2 or Prime-3.
In the event the lowering of ratings of debt instruments held by the Fund by
applicable rating agencies results in a material decline in the overall quality
of the Fund's portfolio, the Trustees of the Trust will review the situation and
take such action as they deem in the best interests of the Fund's shareholders,
including, if necessary, changing the composition of the portfolio.
BROKERAGE ALLOCATION
- --------------------------------------------------------------------------------
The Sub-Adviser's policy is to seek for its clients, including the Fund, what
in the Sub-Adviser's judgment will be the best overall execution of purchase or
sale orders and the most favorable net prices in securities transactions
consistent with its judgment as to the business qualifications of the various
broker or dealer firms with whom the Sub-Adviser may do business, and the
Sub-Adviser may not necessarily choose the broker offering the lowest available
commission rate. Decisions with respect to the market where the transaction is
to be completed, to the form of transaction (whether principal or agency), and
to the allocation of orders among brokers or dealers are made in accordance with
this policy. In selecting brokers or dealers to effect portfolio transactions,
consideration is given to their proven integrity and financial responsibility,
their demonstrated execution experience and capabilities both generally and with
respect to particular markets or securities, the competitiveness of their
commission rates in agency transactions (and their net prices in principal
transactions), their willingness to commit capital, and their clearance and
settlement capability. The Sub-Adviser makes every effort to keep informed of
commission rate structures and prevalent bid/ask spread characteristics of the
markets and securities in which transactions for the Fund occur. Against this
background, the Sub-Adviser evaluates the reasonableness of a commission or a
net price with respect to a particular transaction by considering such factors
as difficulty of execution or security positioning by the executing firm. The
Sub-Adviser may or may not solicit competitive bids based on its judgment of the
expected benefit or harm to the execution process for that transaction.
When it appears that a number of firms could satisfy the required standards
in respect of a particular transaction, consideration may also be given by the
Sub-Adviser to services other than execution services which certain of such
firms have provided in the past or may provide in the future. Negotiated
commission rates and prices, however, are based upon the Sub-Adviser's judgment
of the rate which reflects the execution requirements of the transaction without
regard to whether the broker provides services in addition to execution. Among
such other services are the supplying of supplemental investment research;
general economic, political and business information; analytical and statistical
data; relevant market information, quotation equipment and services; reports and
information about specific companies, industries and securities; purchase and
sale recommendations for stocks and bonds; portfolio strategy services;
historical statistical information; market data services providing information
on specific issues and prices; financial publications; proxy voting data and
analysis services; technical analysis of various aspects of the securities
markets, including technical charts; computer hardware used for brokerage and
research purposes; computer software and databases (including those contained in
certain trading systems and used for portfolio analysis and modeling and also
including software providing investment personnel with efficient access to
current and historical data from a variety of internal and external sources) and
portfolio evaluation services and relative performance of accounts.
In the case of the Fund and other registered investment companies advised by
the Sub-Adviser or its affiliates, the above services may include data relating
to performance, expenses and fees of those investment companies and other
investment companies. This information is used by the Trustees or Directors of
<PAGE>
the investment companies to fulfill their responsibility to oversee the quality
of the Sub-Advisor's advisory contracts between the investment companies and the
Sub-Adviser. The Sub-Adviser considers these investment company services only in
connection with the execution of transactions on behalf of its investment
company clients and not its other clients. Certain of the nonexecution services
provided by broker-dealers may in turn be obtained by the broker-dealers from
third parties who are paid for such services by the broker-dealers.
The Sub-Adviser regularly reviews and evaluates the services furnished by
broker-dealers. The Sub-Adviser's investment management personnel seek to
evaluate the quality of the research and other services provided by various
broker-dealer firms, and the results of these efforts are made available to the
equity trading department, which uses this information as consideration to the
extent described above in the selection of brokers to execute portfolio
transactions.
Some services furnished by broker-dealers may be used for research and
investment decision-making purposes, and also for marketing or administrative
purposes. Under these circumstances, the Sub-Adviser allocates the cost of the
services to determine the proportion which is allocable to research or
investment decision-making and the proportion allocable to other purposes. The
Sub-Adviser pays directly from its own funds for that portion allocable to uses
other than research or investment decision-making. Some research and execution
services may benefit the Sub-Adviser's clients as a whole, while others may
benefit a specific segment of clients. Not all such services will necessarily be
used exclusively in connection with the accounts which pay the commissions to
the broker-dealer providing the services.
The Sub-Adviser has no fixed agreements or understandings with any
broker-dealer as to the amount of brokerage business which the firm may expect
to receive for services supplied to the Sub-Adviser or otherwise. There may be,
however, understandings with certain firms that in order for such firms to be
able to continuously supply certain services, they need to receive an allocation
of a specified amount of brokerage business. These understandings are honored to
the extent possible in accordance with the policies set forth above.
It is not the Sub-Adviser's policy to intentionally pay a firm a brokerage
commission higher than that which another firm would charge for handling the
same transaction in recognition of services (other than execution services)
provided. However, the Sub-Adviser is aware that this is an area where
differences of opinion as to fact and circumstances may exist, and in such
circumstances, if any, the Sub-Adviser relies on the provisions of Section 28(e)
of the Securities Exchange Act of 1934.
In the case of the purchase of fixed income securities in underwriting
transactions, the Sub-Adviser follows any instructions received from its clients
as to the allocation of new issue discounts, selling commissions and
designations to brokers or dealers which provide the client with research,
performance evaluation, master trustee and other services. In the absence of
instructions from the client, the Sub-Adviser may make such allocations to
broker-dealers which have provided the Sub-Adviser with research and brokerage
services.
In some instances, certain clients of the Sub-Adviser request it to place all
or part of the orders for their account with certain brokers or dealers, which
in some cases provide services to those clients. The Sub-Adviser generally
agrees to honor these requests to the extent practicable. Clients may request
that the Sub-Adviser only effect transactions with the specified broker-dealers
if the broker-dealers are competitive as to price and execution. Where the
request is not so conditioned, the Sub-Adviser may be unable to negotiate
commissions or obtain volume discounts or best execution. In cases where the
Sub-Adviser is requested to use a particular broker-dealer, different
commissions may be charged to clients making the requests. A client who requests
the use of a particular broker-dealer should understand that it may lose the
possible advantage which non-requesting clients derive from aggregation of
orders for several clients as a single transaction for the purchase or sale of a
particular security. Among other reasons why best execution may not be achieved
with directed brokerage is that, in an effort to achieve orderly execution of
transactions, execution of orders that have designated particular brokers may,
at the discretion of the trading desk, be delayed until execution of other
non-designated orders has been completed.
When more than one client of the Sub-Adviser is seeking to buy or sell the
same security, the sale or purchase is carried out in a manner which is
considered fair and equitable to all accounts. In allocating investments among
various clients (including in what sequence orders for trades are placed), the
Sub-Adviser will use its best business judgment and will take into account such
factors as the investment objectives of the clients, the amount of investment
funds available to each, the size of the order, the amount already committed for
each client to a specific investment and the relative risks of the investments,
all in order to provide on balance a fair and equitable result to each client
over time. Although sharing in large transactions may sometimes affect price or
<PAGE>
volume of shares acquired or sold, overall it is believed there may be an
advantage in execution. The Sub-Adviser may follow the practice of grouping
orders of various clients for execution to get the benefit of lower prices or
commission rates. In certain cases where the aggregate order may be executed in
a series of transactions at various prices, the transactions are allocated as to
amount and price in a manner considered equitable to each so that each receives,
to the extent practicable, the average price of such transactions. Exceptions
may be made based on such factors as the size of the account and the size of the
trade. For example, the Sub-Adviser may not aggregate trades where it believes
that it is in the best interests of clients not to do so, including situations
where aggregation might result in a large number of small transactions with
consequent increased custodial and other transactional costs which may
disproportionately impact smaller accounts. Such disaggregation, depending on
the circumstances, may or may not result in such accounts receiving more or less
favorable execution relative to other clients.
PRINCIPAL SHAREHOLDERS
- --------------------------------------------------------------------------------
Amway Corporation ("Amway") indirectly, as of August 31, 1999, owned
_________ shares of beneficial interest, which constitutes all of the
outstanding shares of the Fund. Jay Van Andel and Richard M. DeVos are
controlling persons of Amway since they own, together with their spouses,
substantially all of its outstanding securities. Amway is a Michigan
manufacturer and direct selling distributor of home care and personal care
products. If Amway were to substantially reduce its investment in the Fund, it
could have an adverse effect on the Fund by decreasing the size of the fund and
by causing the Fund to incur brokerage charges in connection with the redemption
of Amway's shares. Amway has advised the Fund that it has no present intention
of reducing its investment in the Fund; however, there can be no assurance that
Amway will not reduce its investment in the Fund at some time in the future.
OFFICERS AND TRUSTEES OF THE FUND
- --------------------------------------------------------------------------------
The business affairs of the fund are managed and under the direction of the
Board of Trustees. The following are the Officers and Trustees of the Fund or
the Advisor or both, together with their principal occupations during the past
five years:
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE OFFICE HELD PRINCIPAL OCCUPATION LAST FIVE YEARS
- ---------------- --- ----------- ------------------------------------
<S> <C> <C> <C>
Richard A. DeWitt 85 Trustee of the Fund President, DeWitt Land and
10001 Buttonwood Way Cattle Company (investments
Tequesta, Florida 33469 in land and cattle)
Allan D. Engel* 47 Trustee, Vice Sr. Manager, Investments and
2905 Lucerne SE President, Secretary Real Estate, Amway Corporation.
Grand Rapids, Michigan and Assistant Treasurer Director, President and
49546 of the Fund; President, Secretary of Amway Management
and Secretary of the Company (1981-1999). Trustee,
Investment Advisor. Vice President and Secretary,
Amway Mutual Fund (1981-1999).
Donald H. Johnson 69 Trustee of the Fund Retired, Former Vice
19017 Vintage Trace Circle President-Treasurer, SPX
Fort Myers, Florida Corporation (Designs,
33912 manufactures and markets
products and services for the
motor vehicle industry), 1986
to 1994.
<PAGE>
NAME AND ADDRESS AGE OFFICE HELD PRINCIPAL OCCUPATION LAST FIVE YEARS
- ---------------- --- ------------ ------------------------------------
Walter T. Jones 57 Trustee of the Fund Retired, Former Senior Vice
936 Sycamore Ave. President-Chief Financial
Holland, Michigan Officer, Prince Corporation.
49424
James J. Rosloniec* 54 Trustee, President and Vice President-Audit and
2905 Lucerne SE Treasurer of the Fund; Control, Amway Corporation,
Grand Rapids, Michigan and Director, 1991 to present. Director, Vice
49546 Vice-President and President and Treasurer of
Treasurer of the Amway Management Company
Investment Advisor. (1984-1999). Trustee,
President and Treasurer, Amway
Mutual Fund (1981-1999).
Richard E. Wayman 64 Trustee of the Fund Retired, Former Finance
24578 Rutherford Director, Amway Corporation,
Ramona, California 1976 to 1996
92065
</TABLE>
*These Trustees are interested persons under the Investment Company Act of
1940, as amended.
All Officers and certain Trustees of the Fund and the Investment Advisor are
affiliated with Amway Corporation. The Officers serve without compensation from
the Fund. Fees paid to all Trustees during the year ended December 31, 1998,
amounted to $29,500. Under the Administrative Agreement, the Investment Advisor
pays the fees of the Trustees of the Fund. The Trustees and Officers of the Fund
owned, as a group, less than 1% of the outstanding shares of the Fund. The
Advisor also serves as the Fund's principal underwriter (see "Distribution of
Shares").
INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
The Fund has entered into an Investment Advisory Contract ("Contract") with
Activa Asset Management LLC (the "Investment Adviser"). Under the Contract, the
Investment Adviser sets overall investment strategies for the Fund and monitors
and evaluates the investment performance of the Fund's Sub-Adviser, including
compliance with the investment objectives, policies and restrictions of the
Fund. If the Investment Adviser believes it is in the Fund's best interests, it
may recommend that additional or alternative Sub-Advisers be retained on behalf
of the Fund. If more than one Sub-Adviser is retained, the Investment Adviser
will recommend to the Fund's Trustees how the Fund's assets should be allocated
or reallocated from time to time, among the Sub-Advisers.
The Investment Adviser and the Fund have received an exemptive order from the
Securities and Exchange Commission with respect to certain provisions of the
Investment Company Act. Absent the exemptive order, these provisions would
require that any change of Sub-Advisers be submitted to the Fund's shareholders
for approval. Pursuant to the exemptive order, any change in the Fund's
Sub-Advisers must be approved by the Fund's Trustees, including a majority of
the Fund's independent Trustees. If the Fund hires a new or an additional
Sub-Adviser, information about the new Sub-Adviser will be provided to the
Fund's shareholders within 90 days.
The Investment Advisory Agreement between the Fund and Activa became
effective on June 11, 1999. For providing services under this contract, Activa
is to receive compensation payable quarterly, at the annual rate of .70 of 1%
of the average of the daily aggregate net asset value of the Fund on the first
$25,000,000 of assets, .65% on the next $25,000,000, and .60% on assets in
excess of $50,000,000. Activa also provides certain administrative services for
the Fund pursuant to a separate agreement. See "Administrative Services
Agreement."
Members of the families of Jay Van Andel and Richard M. DeVos indirectly own
substantially all of the outstanding ownership interests of Activa. Jay Van
Andel and Richard M. DeVos are also controlling persons of Amway Corporation
which, as of August 30, 1999, owned all of the outstanding shares of the Fund.
See "Principal Shareholders."
<PAGE>
SUB-ADVISOR
- --------------------------------------------------------------------------------
A Sub-Advisory Agreement has been entered into between the Investment Advisor
and State Street Research & Management Company, One Financial Center, Boston,
Massachusetts 02111-2690 (Sub-Advisor). Under the Sub-Advisory Agreement, the
Advisor employs the Sub-Advisor to furnish investment advice and manage on a
regular basis the investment portfolio of the Fund, subject to the direction of
the Advisor, the Board of Directors of the Fund, and to the provisions of the
Fund's current Prospectus. The Sub-Advisor will make investment decisions on
behalf of the Fund and place all orders for the purchase or sale of portfolio
securities for the Fund's account, except when otherwise specifically directed
by the Fund or the Advisor. The fees of the Sub-Adviser are paid by the
Investment Adviser, not the Fund.
As compensation for the services rendered under the Sub-Advisory Agreement,
the Investment Adviser has agreed to pay the Sub-Adviser a fee, which is
computed daily and may be paid monthly, equal to the annual rates of .50 of 1%
of the average of the daily aggregate net asset value of the Fund on the first
$25,000,000 of assets, .45% on the next $25,000,000 and .40% on assets in excess
of $50,000,000.
The Sub-Advisory Agreement provides that it will continue in effect for a
period two years after execution only if specifically approved thereafter
annually in the same manner as the Investment Advisory Agreement. See
"Investment Advisory" above. The Sub-Advisory Agreement will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Fund's Trustees, or by a vote of the holders of a
majority of the Fund's outstanding voting securities, on 60 days' written notice
to the Sub-Adviser and by the Sub-Adviser on 60 days' written notice to the
Fund. See "Additional Information."
PLAN OF DISTRIBUTION & PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------
The Trust has adopted a Plan and Agreement of Distribution ("Distribution
Plan"). Under the Distribution Plan, the Advisor provides shareholder services
and services in connection with the sale and distribution of the Fund's shares
and is compensated at a maximum annual rate of 0.25 of 1% of the average daily
net assets of the Fund. The maximum amount presently authorized by the Fund's
Board of Trustees is 0.15 of 1% of the average daily net assets of the Fund.
Since these fees are paid from Fund assets, over time these fees will increase
the cost of your investment and may cost you more than paying other types of
sales charges.
Amounts received by the Advisor pursuant to the Distribution Plan may be
retained by the Advisor as compensation for its services, or paid to other
investment professionals who provide services in connection with the
distribution of Fund shares. The Trustees will review the services provided and
compensation paid pursuant to the Distribution Plan no less often than
quarterly.
The Advisor acts as the exclusive agent for sales of shares of the Fund
pursuant to a Principal Underwriting Agreement. The only compensation currently
received by the Advisor in connection with the sale of Fund shares is pursuant
to the Distribution Plan.
ADMINISTRATIVE AGREEMENT
- --------------------------------------------------------------------------------
Pursuant to the Administrative Agreement between the Fund and Activa, Activa
provides specified assistance to the Fund with respect to compliance matters,
taxes and accounting, the provision of legal services, meetings of the Fund's
Trustees and shareholders, and preparation of the Fund's registration statement
and other filings with the Securities and Exchange Commission. In addition,
Activa pays the fees of the Fund's Trustees, and the salaries and fees of all of
the Fund's Trustees and officers who devote part or all of their time to the
affairs of Activa. For providing these services AAM receives a fee, payable
quarterly, at the annual rate of 0.15% of the Fund's average daily assets.
The Administrative Agreement provides that Activa is only responsible
for paying such fees and expenses and providing such services as are specified
in the agreement. The Fund is responsible for all other expenses including (i)
expenses of maintaining the Fund and continuing its existence; (ii) registration
of the Trust under the Investment Company Act of 1940; (iii) commissions, fees
and other expenses connected with the acquisition, disposition and valuation of
securities and other investments; (iv) auditing, accounting and legal expenses;
(v) taxes and interest; (vi) government fees; (vii) expenses of issue, sale,
repurchase and redemption of shares; (viii) expenses of registering and
qualifying the Trust, the Fund and its shares under federal and state securities
laws and of preparing and printing prospectuses for such purposes and for
distributing the same to shareholders and investors; (ix) expenses of reports
and notices to stockholders and of meetings of stockholders and proxy
solicitations therefore; (x) expenses of reports to governmental officers and
commissions; (xi) insurance expenses; (xii) association membership dues; (xiii)
fees, expenses and disbursements of custodians and sub-custodians for all
services to the Trust (including without limitation safekeeping of funds and
securities, and keeping of books and accounts); (xiv) fees, expenses and
disbursement of transfer agents, dividend disbursing agents, stockholder
servicing agents and registrars for all services to the Trust; (xv) expenses for
servicing shareholder accounts; (xvi) any direct charges to shareholders
approved by the Trustees of the Trust; and (xvii) such non-recurring items as
<PAGE>
may arise, including expenses incurred in connection with litigation,
proceedings and claims and the obligation of the Trust to indemnify its Trustees
and officers with respect thereto.
The Fund has entered into an agreement with Bisys Fund Services Ohio, Inc.
("Bisys") whereby Bisys provides a portfolio accounting and information system
for portfolio management for the maintenance of records and processing of
information which is needed daily in the determination of the net asset value of
the Fund.
TRANSFER AGENT
- --------------------------------------------------------------------------------
Under a separate contract, the functions of the Transfer Agent and Dividend
Disbursing Agent are performed by Activa Asset Management LLC, Grand Rapids,
Michigan, which acts as the Fund's agent for transfer of the Fund's shares and
for payment of dividends and capital gain distributions to shareholders.
In return for its services, the Fund pays the Transfer Agent, a fee of $1.167
per account in existence during the month, payable monthly, less earnings in the
redemption liquidity account after deducting bank fees, if any. The fee schedule
is reviewed annually by the Board of Trustees.
CUSTODIAN
- --------------------------------------------------------------------------------
The portfolio securities of the Fund are held, pursuant to a Custodian
Agreement, by Northern Trust Company, 50 South LaSalle, Chicago, Illinois, as
Custodian. The Custodian performs no managerial or policymaking functions for
the Fund.
AUDITORS
- --------------------------------------------------------------------------------
BDO Seidman, LLP, 99 Monroe Avenue, N.W., Suite 800, Grand Rapids, Michigan,
are the independent certified public accountants for the Fund. Services include
an annual audit of the Fund's financial statements, tax return preparation, and
review of certain filings with the SEC.
PRICING OF FUND SHARES
- --------------------------------------------------------------------------------
The net asset value of the Fund's shares is determined by dividing the
total current value of the assets of the Fund, less its liabilities, by the
number of shares outstanding at that time. This determination is made at the
close of business of the New York Stock Exchange, usually 4:00 P.M. Eastern
time, on each business day on which that Exchange is open. Shares will not be
priced on national holidays or other days on which the New York Stock Exchange
is closed for trading.
The Fund's investments are generally valued at current market value. If
market quotations are not readily available, the Fund's investments will be
valued at fair value as determined by the Fund's Board of Trustees.
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
In order to purchase shares for a new account, the completion of an
application form is required. The minimum initial investment is $500 or more.
Additional investments of $50 or more can be made at any time by using the lower
portion of your account statement. Checks should be made payable to "Activa
Asset Management LLC" and mailed to 2905 Lucerne SE, Grand Rapids, Michigan
49355-7150. Third party checks will not be accepted.
All purchases will be made at the Net Asset Value per share net calculated
after the Fund receives your investment and application in proper form.
HOW SHARES ARE REDEEMED
- --------------------------------------------------------------------------------
Each Fund will redeem your shares at the net asset value next determined
after your redemption request is received in proper form. There is no redemption
charge by the Fund. However, if a shareholder uses the services of a
broker-dealer for the redemption, there may be a charge by the broker-dealer to
the shareholder for such services. Shares can be redeemed by the mail, telephone
or telegram. If the value of your account is $10,000 or more, you may arrange to
receive periodic cash payments. Please contact the Fund for more information.
Redemption proceeds may be delayed until investments credited to your account
have been received and collected.
BY MAIL:
- --------
When redeeming by mail, when no certificates have been issued, send a written
request for redemption to Activa Asset Management LLC, 2905 Lucerne S.E., Grand
Rapids, Michigan 49355-7150. The request must state the dollar amount or shares
to be redeemed, including your account number and the signature of each account
owner, signed exactly as your name appears on the records of the Fund. If a
certificate has been issued to you for the shares being redeemed, the
certificate (endorsed or accompanied by a signed stock power) must accompany
your redemption request, with your signature by a bank, broker, or other
<PAGE>
acceptable financial institution. Additional documents will be required for
corporations, trusts, partnerships, retirement plans, individual retirement
accounts and profit sharing plans.
BY PHONE:
- ---------
At the time of your investment in the Fund, or subsequently, you may elect on
the Fund's application to authorize the telephone or telegram exchange or
redemption option. You may redeem shares under this option by calling the Fund
at the number indicated on the front of this Prospectus on any business day.
Requests received after 4:00 p.m. when the market has closed will receive the
next day's price. By establishing the telephone or telegram exchange or
redemption option, you authorize the Transfer Agent to honor any telephone or
telegram exchange or redemption request from any person representing themselves
to be the investor. Procedures required by the Fund to ensure that a
shareholder's requested telephone or telegram transaction is genuine include
identification by the shareholder of the account by number, recording of the
requested transaction and sending a written confirmation to shareholders
reporting the requested transaction. The Fund is not responsible for
unauthorized telephone or telegram exchanges or redemptions unless the Fund
fails to follow these procedures. Shares must be owned for 15 days before
redeeming by the telephone and telegram exchange and cannot be in certificate
form unless the certificate is tendered with the request for redemption.
Certificated shares cannot be redeemed by the telephone and telegram exchange.
All redemption proceeds will be forwarded to the address of record or bank
designated on the account application.
The Transfer Agent and the Fund have reserved the right to change, modify, or
terminate the telephone or telegram exchange or redemption option at any time.
Before this option is effective for a corporation, partnership, or other
organizations, additional documents may be required. This option is not
available for Profit-Sharing Trust and Individual Retirement Accounts. The Fund
and the Transfer Agent disclaim responsibility for verifying the authenticity of
telephone and telegram exchange or redemption requests which are made in
accordance with the procedures approved by shareholders. SPECIAL CIRCUMSTANCES:
In some circumstances a signature guarantee may be required before shares are
redeemed. These circumstances include a change in the address for an account
within the last 30 days, a request to send the proceeds to a different payee or
address from that listed for the account, or a redemption request for $100,000
or more. A signature guarantee may be obtained from a bank, broker, or other
acceptable financial institution. If a signature guarantee is required, we
suggest that you call us to ensure that the signature guarantee and redemption
request will be processed correctly.
Payment for redeemed shares is normally made by check and mailed within three
days thereafter. However, under the Investment Company Act of 1940, the right of
redemption may be suspended or the date of payment postponed for more than seven
days: (1) for any period during which the New York Stock Exchange is closed,
other than for customary weekend and holiday closings; (2) when trading on the
New York Stock Exchange is restricted, as determined by the SEC; (3) when an
emergency exists, as determined by the SEC, as a result of which it is not
reasonably practicable for the Fund to dispose of its securities or determine
the value of its net assets; or (4) for such other period as the SEC may by
order permit for the protection of the shareholders. During such a period, a
shareholder may withdraw his request for redemption or receive the net asset
value next computed when regular trading resumes.
The Fund has filed with the SEC an election to pay for all redeemed shares in
cash up to a limit, as to any one shareholder during any 90-day periods, of
$250,000 or 1% of the net asset value of the Fund, whichever is less. Beyond
that limit, the Fund is permitted to pay the redemption price wholly or partly
"in kind," that is, by distribution of portfolio securities held by the Fund.
This would occur only upon specific authorization by the Board of Trustees when,
in their judgment, unusual circumstances make it advisable. It is unlikely that
this will ever happen, but if it does, you will incur a brokerage charge in
converting the securities received in this manner into cash. Portfolio
securities distributed "in kind" will be valued as they are valued for the
determination of the net asset value of the Fund's shares.
<PAGE>
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shares of each Fund may be exchanged for shares of any other Activa Fund.
The above described Exchange Privilege may be exercised by sending written
instruction to the Transfer Agent. See "How Shares Are Redeemed" for applicable
signatures and signature guarantee requirements. Shareholders may authorize
telephone or telegram exchanges or redemptions by making an election on your
application. Procedures required by the Fund to ensure that a shareholder's
requested telephone or telegram transaction is genuine include identification by
the shareholder of the account by number, recording of the requested transaction
and sending a written confirmation to shareholders reporting the requested
transaction. The Fund is not responsible for unauthorized telephone or telegram
exchanges unless the Fund fails to follow these procedures. Shares must be owned
for 15 days before exchanging and cannot be in certificate form unless the
certificate is tendered with the request for exchange. Exchanges will be
accepted only if the registration of the two accounts is identical. Exchange
redemptions and purchases are effected on the basis of the net asset value next
determined after receipt of the request in proper order by the Fund. In the case
of exchanges into the Money Market Fund, dividends generally commence on the
following business day. For federal and state income tax purposes, an exchange
is treated as a sale and may result in a capital gain or loss.
ADDITIONAL ACCOUNT POLICIES
- --------------------------------------------------------------------------------
If the value of your account falls below $100, the Fund may mail you a notice
asking you to bring the account back to $100 close it out. If you do not take
action within 60 days, the Fund may sell your shares and mail the proceeds to
you at the address of record.
The Fund does not permit market-timing or other abusive trading practices.
Excessive, short-term (market-timing) and other abusive trading practices may
disrupt portfolio trading strategies and harm Fund performance. To minimize harm
to the Fund and its shareholders, each Fund reserves the right to reject any
purchase order (including exchanges) from any investor we believe has a history
of abusive trading.
INTERNET ADDRESS
- --------------------------------------------------------------------------------
Activa's Web site is located at activafunds.com. Our Web site offers further
information about the Activa Funds as well as consumer information and the
ability to make certain transactions on-line.
FEDERAL INCOME TAX
- --------------------------------------------------------------------------------
The Fund intends to continue to comply with the provisions of Subchapter M of
the Internal Revenue Code applicable to investment companies. As the result of
paying to its shareholders as dividends and distributions substantially all net
investment income and realized capital gains, the Fund will be relieved of
substantially all Federal income tax.
For Federal income tax purposes, distributions of net investment income and
any capital gains will be taxable to shareholders. Distributions of net
investment income will normally qualify for the 70% deduction for dividends
received by corporations. After the last dividend and capital gains distribution
in each year, the Fund will send you a statement of the amount of the income and
capital gains which you should report on your Federal income tax return.
Dividends derived from net investment income and net short-term capital gains
are taxable to shareholders as ordinary income and long-term capital gain
dividends are taxable to shareholders as long-term capital gain regardless of
how long the shares have been held and whether received in cash or reinvested in
additional shares of the Fund. Qualified long-term capital gain dividends
received by individual shareholders are taxed a maximum rate of 20%.
In addition, shareholders may realize a capital gain or loss when shares are
redeemed. For most types of accounts, the Fund will report the proceeds of
redemptions to shareholders and the IRS annually. However, because the tax
treatment also depends on the purchase price and a shareholder's personal tax
position, you should also keep your regular account statements to use in
determining your tax.
On the record date for a distribution, the Fund's share value is reduced by
the amount of the distribution. If a shareholder buys shares just before the
record date ("buying a dividend"), they will pay the full price for the shares,
and then receive a portion of the price back as a taxable distribution.
Also, under the Code, a 4% excise tax is imposed on the excess of the
required distribution for a calendar year over the distributed amount for such
calendar year. The required distribution is the sum of 98% of the Fund's net
investment income for the calendar year plus 98% of its capital gain net income
for the one-year period ended December 31, plus any undistributed net investment
income from the prior calendar year, plus any undistributed capital gain net
income from the prior calendar year, minus any overdistribution in the prior
<PAGE>
calendar year. The Fund intends to declare or distribute dividends during the
appropriate periods of an amount sufficient to prevent imposition of the 4%
excise tax.
Under certain circumstances, the Fund will be required to withhold 31% of a
shareholder's distribution or redemption from the Fund. These circumstances
include failure by the shareholder to furnish the Fund with a proper taxpayer
identification number; notification of the Fund by the Secretary of the Treasury
that a taxpayer identification number is incorrect, or that withholding should
commence as a result of the shareholder's failure to report interest and
dividends; and failure of the shareholder to certify, under penalties of
perjury, that he is not subject to withholding. In this regard, failure of a
shareholder who is a foreign resident to certify that he is a nonresident alien
may result in 31% of his redemption proceeds and 31% of his capital gain
distribution being withheld. In addition, such a foreign resident may be subject
to a 30% or less, as prescribed by an applicable tax treaty, withholding tax on
ordinary income dividends distributed unless he qualifies for relief under an
applicable tax treaty.
Trustees of qualified retirement plans are required by law to withhold 20% of
the taxable portion of any distribution that is eligible to be "rolled over."
The 20% withholding requirement does not apply to distributions from IRA's or
any part of a distribution that is transferred directly to another qualified
retirement plan, 403(b)(7) account or IRA. Shareholders should consult their tax
advisor regarding the 20% withholding requirement.
Prior to purchasing shares of the Fund, the impact of any dividends or
capital gain distributions which are about to be declared should be carefully
considered. Any such dividends and capital gain distributions declared shortly
after you purchase shares will have the effect of reducing the per share net
asset value of your shares by the amount of dividends or distributions on the
ex-dividend date. All or a portion of such dividends or distributions, although
in effect a return of capital, are subject to taxes which may be at ordinary
income tax rates.
Each shareholder is advised to consult with his tax advisor regarding the
treatment of distributions to him under various state and local income tax laws.
REPORTS TO SHAREHOLDERS AND ANNUAL AUDIT
- -------------------------------------------------------------------------------
The Fund's year begins on January 1 and ends on December 31. At least
semiannually, the shareholders of the Fund receive reports, pursuant to
applicable laws and regulations, containing financial information. The annual
shareholders report is incorporated by reference into the Statement of
Additional Information. The cost of printing and distribution of such reports to
shareholders is borne by the Fund.
At least once each year, the Fund is audited by independent certified public
accountants appointed by resolution of the Board and approved by the
shareholders. The fees and expenses of the auditors are paid by the Fund.
<PAGE>
ACTIVA INTERNATIONAL FUND
(a series of Activa Mutual
Fund Trust) 2905 Lucerne SE
Grand Rapids, Michigan 49546
(616) 787-6288
(800) 346-2670
Contents Page
Organization of the Fund
Objectives, Policies, and
Restrictions on the Fund's
Investments
Securities Descriptions &
Techniques
Risk Management & Return
Enhancement Strategies
Portfolio Transactions & Brokerage
Principal Shareholders
Officers & Trustees of the Fund
Investment Advisor
Plan of Distribution & Principal
Underwriters
Administrative Agreement
Transfer Agent
Custodian
Auditors
Pricing of Fund Shares
Purchase of Shares
How Shares are Redeemed
Exchange Privilege
Additional Account Policies
Internet Address
Federal Income Tax
Reports to Shareholders
and Annual Audit
ACTIVA MUTUAL FUND LOGO
STATEMENT OF ADDITIONAL
INFORMATION
This Statement of Additional Information is not
a prospectus. Therefore, it should be read only in
conjunction with the Prospectus, which can be
requested from the Fund by writing or telephoning
as indicated above. This Statement of Additional
Information relates to the Prospectus for the Fund
dated September 1, 1999.
The date of this Statement of Additional
Information is September 1, 1999.
Printed in U.S.A.
1
<PAGE>
ACTIVA INTERNATIONAL FUND
ORGANIZATION OF THE FUND
- --------------------------------------------------------------------------------
The Fund is a series of Activa Mutual Fund Trust, an open-end diversified
management investment company which was organized as a Delaware business trust
on February 2, 1998.
The Declaration of Trust authorizes the Trustees to create additional series
and to issue an unlimited number of units of beneficial interest, or "shares."
The Trustees are also authorized to issue different classes of shares of any
series. No series which may be issued by the Trust is entitled to share in the
assets of any other series or is liable for the expenses or liabilities of any
other series. The Fund presently has only one class of shares.
The Trust is not required to hold annual meetings of shareholders and does
not intend to hold such meetings. Shareholders of the Trust will have voting
rights only with respect to the limited number of matters specified in the
Declaration of Trust, and such other matters as may be determined or as may be
required by law. A meeting will be called for the purpose of voting on the
removal of a Trustee at the written request of holders of 10% of the Trust's
outstanding shares. In the event a meeting of shareholders is held, shareholders
will be entitled to one vote for each dollar of net asset value (or a
proportionate fractional vote with respect to fractional dollar amounts) on all
matters presented to shareholders, including the election of Trustees.
OBJECTIVES, POLICIES AND RESTRICTIONS ON THE FUND'S INVESTMENTS
- -------------------------------------------------------------------------------
The primary investment objective of the Fund is capital appreciation. The
Fund will attempt to meet its objectives by investing primarily in common stocks
and equity-related securities of non-U.S. companies. The Fund's policy is to
invest in a broadly diversified portfolio and not to concentrate investments in
a particular industry or group of industries.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The investment restrictions below have been adopted by the Fund. Except where
otherwise noted, these investment restrictions are "fundamental" policies which,
under the 1940 Act, may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as the case may be. A "majority of
the outstanding voting securities" is defined in the 1940 Act as the lesser of
(a) 67% or more of the voting securities present at a meeting if the holders of
more than 50% of the outstanding voting securities are present or represented by
proxy, or (b) more than 50% of the outstanding voting securities. The percentage
limitations contained in the restrictions below apply at the time of the
purchase of securities.
The Fund :
1. May not make any investment inconsistent with the Fund's classification
as a diversified investment company under the Investment Company Act of
1940.
2. May not purchase any security which would cause the Fund to concentrate
its investments in the securities of issuers primarily engaged in any
particular industry except as permitted by the SEC. This restriction
does not apply to instruments considered to be domestic bank money
market instruments.
3. May not issue senior securities, except as permitted under the
Investment Company Act of 1940 or any rule, order or interpretation
thereunder;
4. May not borrow money, except to the extent permitted by applicable law;
5. May not underwrite securities or other issues, except to the extent
that the Fund, in disposing of portfolio securities, may be deemed an
underwriter within the meaning of the 1933 Act;
6. May not purchase or sell real estate, except that, to the extent
permitted by applicable law, the Fund may (a) invest in securities or
other instruments directly or indirectly secured by real estate, and
(b) invest in securities or other instruments issued by issuers that
invest in real estate;
7. May not purchase or sell commodities or commodity contracts unless
acquired as a result of ownership of securities or other instruments
issued by persons that purchase or sell commodities or commodities
contracts; but this shall not prevent the Fund from purchasing,
selling and entering into financial futures contracts (including
futures contracts on indices of securities, interest rates and
currencies), options on financial futures contracts (including futures
contracts on indices of securities, interests rates and currencies),
warrants, swaps, forward contracts, foreign currency spot and forward
contracts or other derivative instruments that are not related to
physical commodities; and
<PAGE>
8. May make loans to other persons, in accordance with the Fund's
investment objective and policies and to the extent permitted by
applicable law.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
The investment restrictions described below are not fundamental policies of
the Fund and may be changed by their Fund's Trustees. These non-fundamental
investment policies require that the Fund: (i) may not acquire any illiquid
securities, if as a result thereof, more than 10% of the market value of the
Fund's total assets would be in investments which are illiquid; (ii) may not
purchase securities on margin, make short sales of securities, or maintain a
short position, provided that this restriction shall not be deemed to be
applicable to the purchase or sale of when-issued or delayed delivery
securities; (iii) may not acquire securities of other investment companies,
except as permitted by the 1940 Act or any order pursuant thereto; (iv) may not
enter into reverse repurchase agreements or borrow money, except from banks for
extraordinary or emergency purposes, if such obligations exceed in the aggregate
one-third of the market value of the Fund's total assets, less liabilities other
than obligations created by reverse repurchase agreements and borrowings.
Not withstanding any other fundamental or non-fundamental investment
restriction or policy, the Fund reserves the right, without the approval of
shareholders, to invest all of its assets in the securities of a single open-end
registered investment company with substantially the same investment objective,
restrictions and policies as the Fund.
There will be no violation of any investment restriction if that restriction
is complied with at the time the relevant action is taken notwithstanding a
later change in market value of an investment, in net or total assets, in the
securities rating of the investment, or any other later change.
In view of the Fund's investment objective of capital appreciation, with
income as a secondary objective, the Fund intends to purchase securities for
long-term or short-term profits, as appropriate. Securities will be disposed of
in situations where, in management's opinion, such potential is no longer
feasible or the risk of decline in the market price is too great. Therefore, in
order to achieve the Fund's objectives, the purchase and sale of securities will
be made without regard to the length of time the security is to be held.
Higher portfolio turnover rates can result in corresponding increases in
brokerage commissions.
SECURITIES DESCRIPTIONS AND TECHNIQUES
- --------------------------------------------------------------------------------
The following discussion provides the various principal and non-principal
investment policies and techniques employed by the Fund.
EQUITY SECURITIES:
------------------
COMMON STOCK is the most prevalent type of equity security. Common
stockholders receive the residual value of the issuers earning and assets after
the issuer pays its creditors and any preferred stockholders. As a result,
changes in an issuer's earnings directly influence the value of its common
stock.
PREFERRED STOCKS have the right to receive specified dividends or
distributions before the payment of dividends or distributions on common stock.
Some preferred stocks also participate in dividends and distributions paid on
common stock. Preferred stocks may also permit the issuer to redeem the stock.
WARRANTS give the Funds the option to buy the issuer's stock or other
equity securities at a specified price. The Funds may buy the designated shares
by paying the exercise price before the warrant expires. Warrants may become
worthless if the price of the stock does not rise above the exercise price by
the expiration date. Rights are the same as warrants, except they are typically
issued to existing stockholders.
CONVERTIBLE SECURITIES are fixed income securities that a Fund has the
option to exchange for equity securities at a specified conversion price. The
option allows the Fund to realize additional returns if the market price of the
equity securities exceeds the conversion price.
Convertible securities have lower yields than comparable fixed income
securities to compensate for the value of the conversion option. In addition,
the conversion price exceeds the market value of the underlying equity
securities at the time a convertible security is issued. Thus, convertible
securities may provide lower returns than non-convertible fixed-income
securities or equity securities depending upon changes in the price of the
underlying equity securities. However, convertible securities permit a Fund to
realize some of the potential appreciation of the underlying equity securities
with less risk of losing its initial investment.
The Fund treats convertible securities as equity securities for purposes of
their investment policies and limitations, because of their unique
characteristics.
<PAGE>
FIXED INCOME SECURITIES:
------------------------
CORPORATE DEBT SECURITIES are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt security. The credit risks of corporate debt securities vary
widely among issuers.
ZERO COUPON SECURITIES do not pay interest or principal until final
maturity. Most debt securities provide periodic payments of interest (referred
to as a "coupon payment"). In contrast, investors buy zero coupon securities at
a price below the amount payable at maturity. The difference between the price
and the amount paid at maturity represents interest on the zero coupon security.
This increases the market and credit risk of a zero coupon security, because an
investor must wait until maturity before realizing any return on the investment.
There are many forms of zero coupon securities. Some securities are
originally issued at a discount and are referred to as "zero coupon" or "capital
appreciation" bonds. Others are created by separating the right to receive
coupon payments from the principal due at maturity, a process known as "coupon
stripping." Treasury STRIPs, IOs, and POs are the most common forms of
"stripped" zero coupon securities. In addition, some securities give the issuer
the option to deliver additional securities in place of cash interest payments,
thereby increasing the amount payable at maturity. These are referred to as
"pay-in-kind" or "PIK" securities.
COMMERCIAL PAPER is an issuer's draft or note with a maturity of less than
nine months. Companies typically issue commercial paper to fund current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. Commercial paper may default
if the issuer cannot continue to obtain liquidity in this fashion. The sort
maturity of commercial paper reduces both the market and credit risk as compared
to other debt securities of the same issuer.
BANK INSTRUMENTS are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances. Instruments denominated in U.S. dollars and issued by
non-U.S. branches of U.S. or foreign banks are commonly referred to as
Eurodollar instruments. Instruments denominated in U.S. dollars are issued by
U.S. branches of foreign banks are referred to as Yankee instruments.
DEMAND INSTRUMENTS are corporate debt securities that the issuer must repay
upon demand. Other demand instruments require a third party, such as a dealer or
bank, to repurchase the security for its face value upon demand. The Fund treats
demand instruments as short-term securities, even though their stated maturity
may extend beyond one year. Insurance contracts include guaranteed investment
contracts, funding agreements and annuities.
GOVERNMENT OBLIGATIONS include Treasury bills, certificates of
indebtedness, notes and bonds, and issues of such entities as the Government
National Mortgage Association ("GNMA"), Export-Import Bank of the United States,
Tennessee Valley Authority, Resolution Funding Corporation, Farmers Home
Administration, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration,
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation, and the Student Loan Marketing Association. No assurances can be
given that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
PARTICIPATION INTERESTS represent an undivided interest in or assignment of
a loan made by an issuing financial institution. Participation interests are
primarily dependent upon the financial strength of the borrowing corporation,
which is obligated to make payments of principal and interest on the loan, and
there is a risk that such borrowers may have difficulty making payments. In the
event the borrower fails to pay scheduled interest or principal payments, a Fund
could experience a reduction in its income and might experience a decline in the
net asset value of its shares. In the event of a failure by the financial
institution to perform its obligations in connection with the participation, a
Fund might incur certain costs and delays in realizing payment or may suffer a
loss of principal and/or interest.
In acquiring participation interests, the Sub-Adviser will conduct analysis
and evaluation of the financial condition of each co-lender and participant to
ensure that the participation interest meets a high quality standard and will
continue to do so as long as it holds a participation. In conducting its
analysis and evaluation, the Sub-Adviser will consider all relevant factors in
determining the credit quality of the underlying or borrower, the amount and
quality of the collateral, the terms of the loan participation agreement and
other relevant agreements (including any intercreditor agreements), the degree
to which the credit of an intermediary was deemed material to the decision to
purchase the loan participation, the interest rate environment, and general
economic conditions applicable to the borrower and the intermediary.
<PAGE>
VARIABLE AND FLOATING RATE INSTRUMENTS are generally not rated by credited
rating agencies; however, the Sub-Adviser under guidelines established by the
Trust's Board of Trustees will determine what unrated and variable and floating
rate instruments are of comparable quality at the time of the purchase to rated
instruments eligible for purchase by the Fund. In making such determinations,
the Sub-Adviser considers the earning power, cash flow and other liquidity
ratios of the issuers of such instruments (such issuers include financial,
merchandising, bank holding and other companies) and will monitor their
financial condition. An active secondary market may not exist with respect to
particular variable or floating rate instruments purchased by a Fund. The
absence of such an active secondary market could make it difficult for a Fund to
dispose of the variable or floating rate instrument involved in the event of the
issuer of the instrument defaulting on its payment obligation or during periods
in which a Fund is not entitled to exercise its demand rights, and a Fund could,
for these or other reasons, suffer a loss to the extent of the default. Variable
and floating rate instruments may be secured by bank letters of credit. FOREIGN
SECURITIES:
Foreign securities are securities of issuers based outside the U.S. They
are primarily denominate in foreign currencies and traded outside of the United
States. In addition to the risks normally associated with equity and fixed
income securities, foreign securities are subject to country risk and currency
risks. Trading in certain foreign markets is also subject to liquidity risks.
FOREIGN EXCHANGE CONTRACTS are used by a Fund to convert U.S. dollars into
the currency needed to buy a foreign security, or to convert foreign currency
received from the sale of a foreign security into U.S. dollars ("spot currency
trades"). The Fund may also enter into derivative contracts in which a foreign
currency is an underlying asset. Use of these derivative contracts may increase
or decrease the Fund's exposure to currency risk.
FOREIGN GOVERNMENT SECURITIES generally consist of fixed income securities
supported by national, state, or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples of these include, but are not limited to, the International Bank for
Reconstruction and Development (the World Bank), the Asian Development Bank, the
European Investment Bank and the Inter-American Development Bank.
Foreign government securities also include fixed income securities of
"quasi-governmental agencies" which are either issued by entities that are owned
by a national, state or equivalent government or are obligations of a political
unit that are not backed by the national government's full faith and credit and
general taxing powers. Further, foreign government securities include
mortgage-related securities issued or guaranteed by national, state or
provincial governmental instrumentalities, including guasi-governmental
agencies.
DEPOSITORY RECEIPTS are receipts issued by an American bank or trust
company evidencing ownership of underlying securities issued by foreign issuers.
ADRs in registered form, are designed for use in U.S. securities markets. Such
depository receipts may be sponsored by the foreign issuer or may be
unsponsored. The Fund may also invest in European and Global Depository Receipts
("EDRs" and "GDRs"), which in bearer form, are designed for use in European
securities markets, and in other instruments representing securities of foreign
companies. Such depository receipts may be sponsored by the foreign issuer or
may be unsponsored. Unsponsored depository receipts are organized independently
and without the cooperation of the foreign issuer of the underlying securities;
as a result, available information regarding the issuer may not be as current as
for sponsored depository receipts, and the prices of unsponsored depository
receipts may be more volatile than if they were sponsored by the issuer of the
underlying securities. ADRs may be listed on a national securities exchange or
may trade in the over-the-counter market. ADR prices are denominated in U.S.
dollars; the underling security may be denominated in a foreign currency,
although the underlying security may be subject to foreign governmental taxes
which would reduce the yield on such securities.
EURODOLLAR CONVERTIBLE SECURITIES are fixed income securities of a U.S.
issuer or a foreign issuer that are issued outside the United States and are
convertible into equity securities of the same or a different issuer. Interest
and dividends on Eurodollar securities are payable in U.S. dollars outside the
United States. The Fund may invest without limitation in Eurodollar convertible
securities, subject to its investment policies and restrictions, that are
convertible into foreign equity securities listed, or represented by ADRs
listed, on the New York Stock Exchange or the American Stock Exchange or
convertible into publicly traded common stock of U.S. companies.
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EURODOLLAR AND YANKEE DOLLAR INSTRUMENTS are bonds that pay interest and
principal in U.S. dollars held in banks outside the United States, primarily in
Europe. Eurodollar instruments are usually issued on behalf of multinational
companies and foreign governments by large underwriting groups composed of banks
and issuing houses from may countries. Yankee Dollar instruments are U.S. dollar
denominated bonds issued in the U.S. by foreign banks and corporations.
RISK MANAGEMENT AND RETURN ENHANCEMENT STRATEGIES
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The Fund may engage in various portfolio strategies, including using
derivatives, to reduce certain risks of its investments and to enhance return.
The Fund, and thus its investors, may lose money through any unsuccessful use of
these strategies. These strategies include the use of foreign currency forward
contracts, options, futures contracts and options thereon. The Fund's ability to
use these strategies may be limited by various factors, such as market
conditions, regulatory limits and tax considerations, and there can be no
assurance that any of these strategies will succeed. If new financial products
and risk management techniques are developed, the Fund may use them to the
extent consistent with its investment objectives and polices.
RISKS OF RISK MANAGEMENT AND RETURN ENHANCEMENT STRATEGIES. Participation
in the options and futures markets and in currency exchange transactions
involves investment risks and transaction costs to which a Fund would not be
subject absent the use of these strategies. The Fund, and thus its investors,
may lose money through any unsuccessful use of these strategies. If the
Sub-Adviser's predictions of movements in the direction of the securities,
foreign currency or interest rate markets are inaccurate, the adverse
consequences to a Fund may leave the Fund in a worse position than if such
strategies were not used. Risk inherent in the use of options, foreign currency
and futures contracts and options on futures contracts include (1) dependence on
the Sub-Adviser's ability to predict correctly movements in the direction of
interest rates, securities prices and currency markets; (2) imperfect
correlation between the price of options and futures contracts and options
thereon and movements in the prices of the securities being hedged; (3) the fact
that skills needed to use these strategies are different from those needed to
select portfolio securities; (4) the possible absence of a liquid secondary
market for any particular instrument at any time; (5) the risk that the
counterparty may be unable to complete the transaction; and (6) the possible
liability of a Fund to purchase or sell a portfolio security at a
disadvantageous time, due to the need for a Fund to maintain "cover" or to
segregate assets in connection with hedging transactions. DERIVATIVES:
INDEX AND CURRENCY-LINKED SECURITIES are debt securities of companies that
call for interest payments and/or payment at maturity in different terms than
the typical note where the borrower agrees to make fixed interest payments and
to pay a fixed sum at maturity. Principal and/or interest payments on an
index-linked note depend on the performance of one or more market indices, such
as the S&P 500 Index or a weighted index of commodity futures such as crude oil,
gasoline and natural gas. The Fund may also invest in "equity linked" and
"currency-linked" debt securities. At maturity, the principal amount of an
equity-linked debt security is exchanged for common stock of the issuer or is
payable in an amount based on the issuer's common stock price at the time of
maturity. Currency-linked debt securities are short-term or intermediate term
instruments having a value at maturity, and/or an interest rate, determined by
reference to one or more foreign currencies. Payment of principal or periodic
interest may be calculated as a multiple of the movement of one currency against
another currency, or against an index.
MORTGAGE-RELATED SECURITIES are derivative interests in pools of mortgage
loans made to U.S. residential home buyers, including mortgage loans made by
savings and loan institutions, mortgage bankers, commercial banks and others.
Pools of mortgage loans are assembled as securities for sale to investors by
various governmental, government-related and private organizations.
U.S. MORTGAGE PASS-THROUGH SECURITIES. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their residential mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by repayments of principal resulting from the
sale of the underlying residential property, refinancing or foreclosure, net of
fees or costs which may be incurred. Some mortgage-related securities (such as
securities issued by the Government National Mortgage Association) are described
as "modified pass-thoughts." These securities entitle the holder to receive all
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interest and principal payments owed on the mortgage pool, net of certain fees,
at the scheduled payment dates regardless of whether or not the mortgagor
actually makes the payment.
The principal governmental guarantor of U.S. mortgage-related securities is
the Government National Mortgage Association ("GNMA"). GNMA is a wholly owned
United States Government corporation within the Department of Housing and Urban
Development. GNMA is authorized to guarantee, with the full faith and credit of
the United States Government, the timely payment of principal and interest on
securities issued by institutions approved by GNMA (such as savings and loan
institutions, commercial banks and mortgage bankers) and backed by pools of
mortgages insured by the Federal Housing Agency or guaranteed by the Veterans
Administration.
Government-related grantors include the Federal National Mortgage
Association ("FNMA") and the Federal Home loan Mortgage Corporation ("FHLMC").
FNMA is a government-sponsored corporation owned entirely by private
stockholders and subject to general regulation by the Secretary of Housing and
Urban Development. FNMA purchases conventional residential mortgages not insure
or guaranteed by any government agency from a list of approved seller/services
which include state and federally chartered savings and loan associations,
mutual savings banks, commercial banks and credit unions and mortgage bankers.
FHLMC is a government-sponsored corporation created to increase availability of
mortgage credit for residential housing and owned entirely by private
stockholders. FHLMC issues participation certificates which represent interests
in conventional mortgages from FHLMC's national portfolio. Pass-through
securities issued by FNMA and participation certificates issued by FHLMC are
guaranteed as to timely payment of principal and interest by FNMA and FHLMC,
respectively, but are not backed by the full faith and credit of the United
States Government.
Although the underlying mortgage loans in a pool may have maturities of up
to 30 years, the actual average life of the pool certificates typically will be
substantially less because the mortgages will be subject to normal principal
amortization and may be prepaid prior to maturity. Prepayment rates vary widely
and may be affected by changes in market interest rates. In periods of falling
interest rates, the rate of prepayment tends to increase, thereby shortening the
actual average life of the pool certificates. In the even higher than
anticipated prepayments of principal, a Fund may be subject to reinvestment in a
market of lower interest rates. Conversely, when interest rates are rising, the
rate of prepayments tends to decrease, thereby lengthening the actual average
life of the certificates. Accordingly, it is not possible to predict accurately
the average life of a particular pool.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). A domestic or foreign CMO in
which a Fund may invest is a hybrid between mortgage-backed bond and a mortgage
pass-through security. Like a bond, interest is paid, in most cases,
semiannually. CMOs may be collateralized by whole mortgage loans, but are more
typically collateralized by portfolios of mortgage pass through securities
guaranteed by GNMA, FHLMC, FNMA or equivalent foreign entities.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life depend upon the prepayment experience
of the collateral. CMOs provide for a modified form of call protection through a
de facto breakdown of the underlying pool of mortgages according to how quickly
the loans are repaid. Monthly payment of principal and interest received from
the pool of underlying mortgages, including prepayments, is first returned to
the class having the earliest maturity date or highest maturity. Classes that
have longer maturity dates and lower seniority will receive principal only after
the higher class has been retired.
SYNTHETIC CONVERTIBLE SECURITIES are derivative positions composed of two
or more different securities whose investment characteristics, taken together,
resemble those of convertible securities. For example, a Fund may purchase a
non-convertible debt security and a warrant or option, which enables the Fund to
have a convertible-like position with respect to a company, group of companies
or stock index. Synthetic convertible securities are typically offered by
financial institutions and investment banks in private placement transactions.
Upon conversion, a Fund generally receives an amount in cash equal to the
difference between the conversion price and the then current value of the
underlying security. Unlike a true convertible security, a synthetic convertible
comprises two or more separate securities, each with its own market value.
Therefore, the market value of a synthetic convertible is the sum of the values
of its fixed-income component and its convertible component. For this reason,
the values of a synthetic convertible and a true convertible security may
respond differently to market fluctuations. The Fund only invests in synthetic
convertibles with respect to companies whose corporate debt securities are rated
"A" or higher by Moody's or "A" or higher by Standard and Poor's.
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OPTIONS AND FUTURES:
OPTIONS are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period of time. A
call option gives the holder (buyer) the right to purchase the underlying asset
from the seller (writer) of the option. A put option gives the holder the right
to sell the underlying asset to the writer of the option. The writer of the
option receives a payment, or "premium", from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option.
The Fund may:
o Buy call options on foreign currency in anticipation of an increase
in the value of the underlying asset.
o Buy put options on foreign currency, portfolio securities, and futures
in anticipation of a decrease in the value of the underlying asset.
o Write call options on portfolio securities and futures to generate
income from premiums, and in anticipation of a decrease or only limited
increase in the value of the underlying asset. If a call written by a
Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying asset over the exercise
price plus the premium received. When a Fund writes options on futures
contracts, it will be subject to margin requirements similar to those
applied to futures contracts.
STOCK INDEX OPTIONS. The Fund may also purchase put and call options with
respect to the S&P 500 and other stock indices. The Fund may purchase such
options as a hedge against changes in the values of portfolio securities or
securities which it intends to purchase or sell, or to reduce risks inherent in
the ongoing management of the Fund.
The distinctive characteristics of options on stock indices create certain
risks not found in stock options generally. Because the value of an index option
depends upon movements in the level of the index rather than the price of a
particular stock, whether the Fund will realize a gain or loss on the purchase
or sale of an option on an index depends upon movements in the level of stock
prices in the stock market generally rather than movements in the price of a
particular stock. Accordingly, successful use by a Fund of options on a stock
index depends on the Investment Adviser's ability to predict correctly movements
in the direction of the stock market generally. This requires different skills
and techniques than predicting changes in the price of individual stocks.
Index prices may be distorted if circumstances disrupt trading of certain
stocks included in the index, such as if trading were halted in a substantial
number of stocks included in the index. If this happens, the Fund could not be
able to close out options which it had purchased, and if restrictions on
exercise were imposed, the Fund might be unable to exercise an option it holds,
which could result in substantial losses to the Fund. The Fund purchases put or
call options only with respect to an index which the Sub-Adviser believes
includes a sufficient number of stocks to minimize the likelihood of a trading
halt in the index.
FOREIGN CURRENCY OPTIONS. The Fund may buy or sell put and call options on
foreign currencies. A put or call option on foreign currency gives the purchaser
of the option the right to sell or purchase a foreign currency at the exercise
price until the option expires. The Fund uses foreign currency options
separately or in combination to control currency volatility. Among the
strategies employed to control currency volatility is an option collar. An
option collar involves the purchase of a put option and the simultaneous sale of
a call option on the same currency with the same expiration date but with
different exercise (or "strike") prices. Generally, the put option will have an
out-of-the-money strike price, while the call option will have either an
at-the-money strike price of an in-the-money strike prices. Foreign currency
options are derivative securities. Currency options traded on U.S. or other
exchanges may be subject to position limits which may limit the ability of the
Funds to reduce foreign currency risk using such options.
As with other kinds of option transactions, writing options on foreign
currency constitutes only a partial hedge, up to the amount of the premium
received. The Fund could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on foreign currency may constitute an effective hedge against exchange
rate fluctuations; however, in the event of exchange rate movements adverse to a
Fund's position, the Fund may forfeit the entire amount of the premium plus
related transaction costs.
FORWARD CURRENCY CONTRACTS. The Fund may enter into forward currency
contracts in anticipation of changes in currency exchange rates. A forward
currency contract is an obligation to purchase or sell a specific currency at a
future date, which may be any fix number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. For
example, a Fund might purchase a particular currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. For example, a Fund might
purchase a particular currency or enter into a forward currency contract to
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preserve the U.S. dollar price of securities it intends to or has contracted to
purchase. Alternatively, it might sell a particular currency on either a spot or
forward basis to hedge against an anticipated decline in the dollar value of
securities it intends to or has contracted to sell. Although this strategy could
minimize the risk of loss due to a decline in the value of the hedged currency,
it could also limit any potential gain from an increase in the value of the
currency.
FUTURES CONTRACTS provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a price, date, and
time specified when the contract is made. Futures contracts traded OTC are
frequently referred to as "forward contracts". Entering into a contract to buy
is commonly referred to as buying or purchasing a contract or holding a long
position. Entering into a contract to sell is commonly referred to as selling a
contract or holding a short position. Futures are considered to be commodity
contracts.
The Fund may buy and sell interest rate or financial futures, futures on
indices, foreign currency exchange contracts, forward foreign currency exchange
contracts, foreign currency options, and foreign currency futures contracts.
INTEREST RATE OR FINANCIAL FUTURES CONTRACTS. The Fund may invest in
interest rate or financial futures contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures markets, a contract is made to purchase or sell a bond in the future for
a set price on a certain date. Historically, the prices for bonds established in
the futures markets have generally tended to move in the aggregate in concert
with cash market prices, and the prices have maintained fairly predictable
relationships.
The sale of an interest rate or financial future sale by a Fund obligates
the Fund, as seller, to deliver the specific type of financial instrument called
for in the contract at a specific future time for a specified price. A futures
contract purchased by a Fund obligates the Fund, as purchaser, to take delivery
of the specific type of financial instrument at a specific future time at a
specific price. The specific securities delivered or taken, respectively, at
settlement date, would not be determined until at or near that date. The
determination would be in accordance with the rules of the exchange on which the
futures contract sale or purchase was made.
Although interest rate or financial futures contracts by their terms call
for actual delivery or acceptance of securities, in most cases the contracts are
closed out before the settlement date without delivery of securities. A Fund
closes out a futures contract sale by entering into a futures contract purchase
for the same aggregate amount of the specific type of financial instrument and
the same delivery date. If the price in the sale exceeds the price in the
offsetting purchase, the Fund receives the difference and thus realizes a gain.
If the offsetting purchase price exceeds the sale price, the Fund pays the
difference and realizes a loss. Similarly, a Fund closes out a futures contract
purchase by entering into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the Fund realizes a gain, and if the purchase price
exceeds the offsetting sale price, the Fund realizes a loss.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase options on the futures
contracts it can purchase or sell, as describe above. A futures option gives the
holder, in return for the premium paid, the right to buy (call) from or sell
(put) to the writer of the option a futures contract at a specified price at any
time during the period of the option. Upon exercise, the writer of the option is
obligated to pay the difference between the cash value of the futures contract
and the exercise price. Like the buyer or seller of a futures contract, the
holder or writer of an option has the right to terminate its position prior to
the scheduled expiration of the option by selling, or purchasing an option of
the same series, at which time the person entering into the closing transaction
will realize a gain or loss. There is no guarantee that such closing
transactions can be effected.
Investments in futures options involve some of the same considerations as
investments in futures contracts (for example, the existence of a liquid
secondary market). In addition, the purchase of an option also entails the risk
that changes in the value of the underlying futures contract will not be fully
reflected in the value of the option. Depending on the pricing of the contract
will note be fully reflected in the value of the option. Depending on the
pricing of the option compared to either the futures contract upon which it is
based, or upon the price of the securities being hedged, an option may or may
not be less risky than ownership of the futures contract or such securities. In
general, the market prices of options are more volatile than the market prices
on the underlying futures contracts. Compared to the purchase or sale of futures
contracts, however, the purchase of call or put options on futures contracts may
frequently involve less potential risk to the Fund because the maximum amount at
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risk is limited to the premium paid for the options (plus transaction costs).
Investments in futures options involve some of the same considerations as
investments in futures contracts (for example, the existence of a liquid
secondary market). In addition, the purchase of an option also entails the risk
that changes in the value of the underlying futures contact will not be fully
reflected in the value of the option. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or upon the
price of the securities being hedged, an option may or may not be less risky
than ownership of the futures contract or such securities. In general, the
market prices of options are more volatile than the market prices on the
underlying futures contracts. Compared to the purchase or sale of futures
contracts, however, the purchase of call or put options on futures contracts may
frequently involve less potential risk to the Fund because the maximum amount at
risk is limited to the premium paid for the options (plus transaction costs).
RISKS OF TRANSACTIONS IN OPTIONS AND FUTURES CONTRACTS. There are several
risks related to the use of futures as a hedging device. One risk arises because
of the imperfect correlation between movements in the price of the options or
futures contract and movements in the price of the securities which are the
subject of the hedge. The price of the contract may move more or less than the
price of the securities being hedged. If the price of the contract moves less
than the price of the securities which are the subject of the hedge, the hedge
will not be fully effective, but if the price of the securities being hedged has
moved in an unfavorable direction, a Fund would be in a better position than if
it had not hedged at all. If the price of the security being hedged has moved in
a favorable direction, this advantage will be partially offset by the loss on
the contract. If the price of the future moves more than the price of the hedged
securities, the Fund will experience either a loss or a gain on the contract
which will not be completely offset by movements in the price of the securities
which are subject to the hedge.
When contracts are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead. If a Fund then decides not to invest in
securities or options at that time because of concern as to possible further
market decline or for other reasons, it will realize a loss on the contract that
is not offset by a reduction in the price of securities purchased.
Although the Fund intends to purchase or sell contracts 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. In such event,
it may not be possible to close a futures position, and in the event of adverse
price movements, the Fund would continue to be required to make daily cash
payments of variation margin.
Most United States futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of
the trading session. Once the daily limit has been reached in a particular type
of futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
Successful use of futures by the Fund depends on the Sub-Adviser's ability
to predict correctly movements in the direction of the market. For example, if
the Fund hedges against the possibility of a decline in the market adversely
affecting stocks held in its portfolio and stock prices increase instead, the
Fund will lose part or all of the benefit of the increased value of the stocks
which it has hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if the Fund has insufficient cash,
it may have to sell securities to meet daily variation margin requirements. Such
sales of securities may be, but will not necessarily be, at increased prices
which reflect the rising market. The Fund may have to sell securities at a time
when it may be disadvantageous to do so.
In the event of the bankruptcy of a broker through which a Fund engages in
transactions in futures contracts or options, the Fund could experience delays
and losses in liquidating open positions purchased or sold through the broker,
and incur a loss of all or part of its margin deposits with the broker.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND RELATED OPTIONS
Except as described below under "Non Hedging Strategic Transactions", the
Fund will not engage in transactions in futures contracts or related options for
speculation, but only as a hedge against changes resulting from market
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conditions in the values of securities held in the Fund's portfolio or which it
intends to purchase and where the transactions are economically appropriate to
the reduction of risks inherent in the ongoing management of the Fund. The Fund
may not purchase or sell futures or purchase related options if, immediately
thereafter, more than 25% of its net assets would be hedged. The Fund also may
not purchase or sell futures or purchase related options if, immediately
thereafter, the sum of the amount of margin deposits on the Fund's existing
futures positions and premiums paid for such options would exceed 5% of the
market value of the Fund's net assets.
Upon the purchase of futures contracts, the Fund will deposit an amount of
cash or liquid debt or equity securities, equal to the market value of the
futures contracts, in a segregated account with the Custodian or in a margin
account with a broker to collateralize the position and thereby insure that the
use of such futures is unleveraged.
These restrictions, which are derived from current federal and state
regulations regarding the use of options and futures by mutual funds, are not
"fundamental restrictions" and the Trustees of the Trust may change them if
applicable law permits such a change and the change is consistent with the
overall investment objective and policies of the Fund.
INTEREST RATE AND CURRENCY SWAPS:
For hedging purposes, the Fund may enter into interest rate and currency
swap transactions and purchase or sell interest rate and currency caps and
floors. An interest rate or currency swap involves an agreement between a Fund
and another party to exchange payments calculated as if they were interest on a
specified ("notional") principal amount (e.g., an exchange of floating rate
payments by one party for fixed rate payments by the other). An interest rate
cap or floor entitles the purchaser, in the exchange for a premium, to receive
payments of interest on a notional principal amount from the seller of the cap
or floor, to the extent that a specified reference rate exceeds or falls below a
predetermined level.
CROSS-CURRENCY SWAPS. A cross-currency swap is a contract between two
counterparties to exchange interest and principal payments in different
currencies. A cross-currency swap normally has an exchange of principal at
maturity (the final exchange); and exchange of principal at the start of the
swap (the initial exchange) is optional. An initial exchange of notional
principal amounts at the spot exchange rate serves the same function as a spot
transaction in the foreign exchange market (for an immediate exchange of foreign
exchange risk). An exchange at maturity of notional principal amounts at the
spot exchange rate serves the same function as a forward transaction in the
foreign exchange market (for a future transfer of foreign exchange risk). The
currency swap market convention is to use the spot rate rather than the forward
rate for the exchange at maturity. The economic difference is realized through
the coupon exchanges over the life of the swap. In contrast to single currency
interest rate swaps, cross-currency swaps involve both interest rate risk and
foreign exchange risk.
SWAP OPTIONS. The Fund may invest in swap options. A swap option is a
contract that gives a counterparty the right (but not the obligation) to enter
into a new swap agreement or to shorten, extend, cancel or otherwise change an
existing swap agreement, at some designated future time on specified terms. It
is different from a forward swap, which is a commitment to enter into a swap
that starts at some future date with specified rates. A swap option may be
structured European-style (exercisable on the pre-specified date) or
American-style (exercisable during a designated period). The right pursuant to a
swap option must be exercised by the right holder. The buyer of the right to
receive fixed pursuant to a swap option is said to own a call.
SECURITIES SWAPS. The Fund may enter into securities swaps, a technique
primarily used to indirectly participate in the securities market of a country
from which a Fund would otherwise be precluded for lack of an established
securities custody and safekeeping system. The fund deposits an amount of cash
with its custodian (or the broker, if legally permitted) in an amount equal to
the selling price of the underlying security. Thereafter, the Fund pays or
receives cash from the broker equal to the change in the value of the underlying
security.
INTEREST RATE SWAPS. As indicated above, an interest rate swap is a
contract between two entities ("counterparties") to exchange interest payments
(of the same currency) between the parties. In the most common interest rate
swap structure, one counterparty agrees to make floating rate payments to the
other counterparty, which in turn makes fixed rate payments to the first
counterparty. Interest payments are determined by applying the respective
interest rates to an agreed upon amount, referred to as the "notional principal
amount." In most such transactions, the floating rate payments are tied to the
London Interbank Offered Rate, which is the offered rate for short-term
Eurodollar deposits between major international banks. As there is no exchange
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of principal amounts, an interest rate swap is not in investment or a borrowing.
RISKS ASSOCIATED WITH SWAPS. The risks associated with interest rate and
currency swaps and interest rate caps and floors are similar to those described
above with respect to dealer options. In connection with such transactions, a
Fund relies on the other party to the transaction to perform its obligations
pursuant to the underlying agreement. If there were a default by the other party
to the transaction, the Fund would have contractual remedies pursuant to the
agreement, but could incur delays in obtaining the expected benefit of the
transaction or loss of such benefit. In the event of insolvency of the other
party, the Fund might be unable to obtain its expected benefit. In addition,
while the Fund will seek to enter into such transactional only with parties
which are capable of entering into closing transactions with the Fund, there can
be no assurance that the Fund will be able to close out such a transaction with
the other party, or obtain an offsetting position with any other party, at any
time prior to the end of the term of the underlying agreement. This may impair
the Fund's ability to enter into other transactions at a time when doing so
might be advantageous.
The Fund usually enter into such transactions on a "net" basis, with the
Fund receiving or paying, as the case may be, only the net amount of the two
payment streams. The net amount of accrued on a daily basis, and an amount of
cash or high-quality liquid securities having an aggregate net asset value at
least equal to the accrued excess is maintained in a segregated account by the
Trust's custodian. If the Fund enters into a swap on other than a net basis, or
sells caps or floors, the Fund maintains a segregated account of the full amount
accrued on a daily basis of the fund's obligations with respect to the
transaction. Such segregated accounts are maintained in accordance with
applicable regulations of the Commission.
The Fund will not enter into any of these transactions unless the unsecured
senior debt or the claims paying ability of the other party to the transaction
is rated at least "high quality" at the time of the purchase by at least one of
the established rating agencies (e.g., AAA or AA by S&P).
SPECIAL TRANSACTIONS
TEMPORARY INVESTMENTS. The Fund may temporarily depart from its principal
investment strategies in response to adverse market, economic, political or
other conditions by investing their assets in cash, cash items, and short-term,
higher quality debt securities. The Fund may do this to minimize potential
losses and maintain liquidity to meet shareholder redemptions during adverse
market conditions. A defensive posture taken by the Fund may result in the Fund
failing to achieve its investment objective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest
its assets in securities of other investment companies, including the securities
of affiliated money market funds, as an efficient means of carrying out its
investment policies and managing its uninvested cash. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.
"ROLL" TRANSACTIONS. The Fund may enter into "roll" transactions, which are
the sale of GNMA certificates and other securities together with a commitment to
purchase similar, but not identical, securities at a later date from the same
party. During the roll period, a Fund forgoes principal and interest paid on the
securities. The Fund is compensated by the difference between the current sales
price and the forward price for the future purchase, as well as by the interest
earned on the cash proceeds of the initial sale. Like when-issued securities or
firm commitment agreements, roll transactions involve the risk that the market
value of the securities sold by the Fund may decline below the price at which
the Fund is committed to purchase similar securities. Additionally, in the even
the buyer of securities under a roll transaction files for bankruptcy or becomes
insolvent, the Fund's use of the proceeds of the transactions may be restricted
pending a determination by the other party, or its trustee or receiver, whether
to enforce the Fund's obligation to repurchase the securities.
The Fund will engage in roll transactions for the purpose of acquiring
securities for its portfolio consistent with its investment objective and
policies and not for investment leverage. Nonetheless, roll transactions are
speculative techniques and are considered to be the economic equivalent of
borrowings by the Fund. To avoid leverage, the Fund will establish a segregated
account with its custodian in which it will maintain liquid assets in an amount
sufficient to meet is payment obligations with respect to these transactions.
The Fund will not enter into roll transactions if, as a result, more than 15% of
the fund's net assets would be segregated to cover such contracts.
NON-HEDGING STRATEGIC TRANSACTIONS
The Fund's options, futures and swap transactions will generally be entered
into for hedging purposes--to protect against possible changes in the market
values of securities held in or to be purchased for the Fund's portfolio
<PAGE>
resulting from securities markets, currency or interest rate fluctuations, to
protect the Fund's unrealized gains in the values of its portfolio securities,
to facilitate the sale of such securities for investment purposes, to manage the
effective maturity or duration of the Fund's portfolio, or to establish a
position in the derivatives markets as a temporary substitute for purchase or
sale of particular securities. However, in addition to the hedging transactions
referred to above, the Fund may enter into options, futures and swap
transactions to enhance potential gain in circumstances where hedging is not
involved. The Fund's net loss exposure resulting from transactions entered into
for each purpose will not exceed 5% of the Fund's net assets at any one time
and, to the extent necessary, the Fund will close out transactions in order to
comply with this limitation. Such transactions are subject to the limitations
described above under "Options," "Futures Contracts," and "Interest Rate and
Currency Swaps".
REPURCHASE AGREEMENTS are agreements are transactions in which a Fund buys
a security from a dealer or bank and agrees to sell the security back at a
mutually agreed upon time and price. Pursuant to such agreements, the Fund
acquires securities from financial institutions as are deemed to be creditworthy
by the Sub-Adviser, subject to the seller's agreement to repurchase and the
Fund's agreement to resell such securities at a mutually agreed upon date and
price. The repurchase price generally equals the price paid by the Fund plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the underlying portfolio security). Securities subject
to repurchase agreements will be held by the Fund's custodian or in the Federal
Reserve/Treasury Book-Entry System or an equivalent foreign system. The seller
under a repurchase agreement will be required to maintain the value of the
underlying securities at not less than 102% of the repurchase price under the
agreement. If the seller defaults on its repurchase obligation, the Fund holding
the repurchase agreement will suffer a loss to the extent that the proceeds from
a sale of the underlying securities is less than the repurchase price under the
agreement. Bankruptcy or insolvency of such a defaulting seller may cause the
Fund's rights with respect to such securities to be delayed or limited.
Repurchase agreements may be considered to be loans under the Investment Company
Act.
The Fund's custodian is required to take possession of the securities
subject to repurchase agreements. The Sub-Adviser or the custodian will monitor
the value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements, which involve the sale of a security to a Fund and its agreement to
repurchase the security (or, in the case of mortgage-backed securities,
substantially similar but not identical securities) at a specified time and
price. A Fund will maintain in a segregated account with its custodian cash,
U.S. Government securities or other appropriate liquid securities in an amount
sufficient to cover its obligations under these agreements with broker-dealers
(no such collateral is required on such agreements with banks). Under the
Investment Company Act, these agreements may be considered borrowings by the
Funds, an are subject to the percentage limitations on borrowings describe
below. The agreements are subject to the same types of risks as borrowings.
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS. The
Fund may purchase securities on a "when-issued," forward commitment or delayed
settlement basis. In this event, the Fund's custodian will set aside cash or
liquid portfolio securities equal to the amount of the commitment in a separate
account. Normally, the custodian will set aside portfolio securities to satisfy
a purchase commitment. In such a case, a Fund may be required subsequently to
place additional assets in the separate account in order to assure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that a Fund's net assets will fluctuate to a greater degree when
it sets aside portfolio securities to cover such purchase commitments than when
it sets aside cash.
The Fund does not intend to engage in these transactions for speculative
purposes but only in furtherance of their investment objectives. Because the
Fund will set aside cash or liquid portfolio securities to satisfy its purchase
commitments in the manner described, the Fund's liquidity and the ability of the
Sub-Adviser to manage it may be affected in the event the Fund's forward
commitments, commitments to purchase when-issued securities and delayed
settlements ever exceed 15% of the value of its net assets.
When a Fund engages in when-issued, forward commitments and delayed
settlement transactions, it relies on the other party to consummate the trade.
Failure of such party to do so may result in a Fund's incurring a loss or
missing an opportunity to obtain a price credited to be advantageous.
BORROWING. The use of borrowing by a Fund involves special risk
considerations that may not be associated with other funds having similar
objectives and policies. Since substantially all of a Fund's assets fluctuate in
<PAGE>
value, whereas the interest obligation resulting form a borrowing remain fixed
by the terms of the Fund's agreement with its lender, the asset value per share
of the Fund tends to increase more when its portfolio securities increase in
value and to decrease more when its portfolio assets decrease in value than
would otherwise be the case if the Fund did not borrow funds. In addition,
interest costs on borrowings may fluctuate with changing market rates of
interest and may partially offset or exceed the return earned on borrowed funds.
Under adverse market conditions, the Fund might have to sell portfolio
securities to meet interest or principal payments at a time when fundamental
investment considerations would not favor such sales.
SHORT SALES. The Fund may make short sales of securities they own or have
the right to acquire at no added cost through conversion or exchange or other
securities they own (referred to as short sales "against the box") and short
sales of securities which they do not own or have the right to acquire.
In a short sale that is not "against the box," a Fund sells a security
which it does not own, in anticipation of a decline in the market value of the
security. To complete the sale, the Fund must borrow the security (generally
from the broker through which the short sale is made) in order to make delivery
to the buyer. The Fund must replace the security borrowed by purchasing it at
the market price at the time of replacement. The Fund is said to have a "short
position" in the securities sold until it delivers them to the broker. The
period during which the Fund has a short position can range from one day to more
than a year. Until the Fund replaces the security, the proceeds of the short
sale are retained by the broker, and the Fund must pay to the broker a
negotiated portion of any dividends or interest which accrue during the period
of the loan. To meet current margin requirements, the Fund must deposit with the
broker additional cash or securities so that it maintains with the broker a
total deposit equal to 150% of the current market value of the securities sold
short (100% of the current market value if a security is held in the account
that is convertible or exchangeable into the security sold short within 90 days
without restriction other than the payment of money).
Since a Fund in effect profits from a decline in the price of the
securities sold short without the need to invest the full purchase price of the
securities on the date of the short sale, the Fund's net asset value per share
tends to increase more when the securities it has sold short increase in value,
than would otherwise be the case if it had not engage in such short sale. The
amount of any gain will be decreased, and the amount of any loss increased, by
the amount of any premium, dividends or interest the Fund may be required to pay
in connection with the short sale. Short sales theoretically involve unlimited
loss potential, as the market price of securities sold short may continually
increase, although a Fund may mitigate such losses by replacing the securities
sold short before the market price has increased significantly. Under adverse
market conditions the Fund might have difficulty purchasing securities to meet
its short sale delivery obligations, and might have to sell portfolio securities
to raise the capital necessary to meet its short sale obligations at a time when
fundamental investment considerations would not favor such sales.
As a matter of policy, the Fund will not make short sales of securities or
maintain a short position if to do so could create liabilities or require
collateral deposits and segregation of assets aggregating more than 25% of the
Fund's total assets, taken at market value.
ILLIQUID SECURITIES. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), securities which are otherwise not readily marketable and
repurchase agreements having a maturity of longer than seven days. Limitations
on resale may have an adverse effect on the marketability of portfolio
securities and the Fund night be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might thereby
experience difficulty satisfying redemption within seven days. The Fund might
also have to register such restricted securities in order to dispose of them,
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the Commission under the Securities
Act, the Trust's Board of Trustees has determined that such securities are not
illiquid securities notwithstanding their legal or contractual restrictions on
resale. In all other cases, however, securities subject to restrictions on
<PAGE>
resale will be deemed illiquid. Investing in restricted securities eligible for
resale under Rule 144A could have the effect of increasing the level of
illiquidity in the Fund to the extent that qualified institutional buyers become
uninterested in purchasing such securities.
The Fund may invest in foreign securities that are restricted against
transfer within the United States or to United States persons. Although
securities subject to such transfer restrictions may be marketable abroad, they
may be less liquid than foreign securities of the same class that are not
subject to such restrictions. Unless these securities are acquired directly from
the issuer or its underwriter, the Fund treats foreign securities whose
principal market is abroad as not subject to the investment limitation on
securities subject to legal or contractual restrictions on resale.
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
Subject to policies established by the Trust's Board of Trustees, the
Sub-Adviser executes the Fund's portfolio transactions and allocates the
brokerage business. In executing such transactions, the Sub-Adviser seeks to
obtain the best price and execution for the Fund, taking into account such
factors as price, size of order, difficulty and risk of execution and
operational facilities of the firm involved. Securities in which the Fund
invests may be traded in the over-the-counter markets, and the Fund deals
directly with the dealers who make the markets in such securities except in
those circumstances where better prices and execution are available elsewhere.
The Sub-Adviser negotiates commission rates with brokers or dealers based on the
quality or quantity of services provided in light of generally prevailing rates,
and while the Sub-Adviser generally seeks reasonably competitive commission
rates, the Fund does not necessarily pay the lowest commissions available. The
Board of Trustees of the Trust periodically reviews the commission rates and
allocation of orders.
The Fund has no obligation to deal with any broker or group of brokers in
executing transactions in portfolio securities. Subject to obtaining the best
price and execution, brokers who sell shares of the Fund or provide supplemental
research, market and statistical information and other research services and
products to the Sub-Adviser may receive orders for transactions by the Fund.
Such information, services and products are those which brokerage houses
customarily provide to institutional investors, and include items such as
statistical and economic data, research reports on particular companies and
industries, and computer software used for research with respect on investment
decisions. Information, services and products so received are in addition to and
not in lieu of the services required to be performed by the Sub-Adviser under
the Sub-Advisory Agreement, and the expenses of the Sub-Adviser are not
necessary reduced as a result to the receipt of such supplemental information,
service and products. Such information, services and products may be useful to
the Sub-Adviser in providing services to clients other than the Trust, and not
all such information, services and products are used by the Sub-Adviser, in
connection with the Fund. Similarly, such information, services and products
provided to the Sub-Adviser by brokers and dealers through whom other clients of
the Investment Adviser effect securities transactions may be useful to the
Sub-Adviser in providing services to the Fund. The Sub-Adviser may pay higher
commissions on brokerage transactions for the Fund to brokers in order to secure
the information, services and products described above, subject to review by the
Trust's Board of Trustees from time to time as to the extent and continuation of
this practice.
Although the Sub-Adviser makes investment decisions for the Trust
independently from those of its other accounts, investment of the kind made by
the Fund may often also be made by such other accounts. When the Sub-Adviser
buys and sells the same security at substantially the same time on behalf of the
Fund and one or more other accounts managed by the Sub-Adviser, the Sub-Adviser
allocates available investments by such means as, in its judgment, result in
fair treatment. The Sub-Adviser aggregates orders for purchases and sales of
securities of the same issuer on the same day among the Fund and its other
managed accounts, and the price paid to or received by the Fund and those
accounts is the average obtained in those orders. In some cases, such
aggregation and allocation procedures may affect adversely the price paid or
received by the Fund or the size of the position purchased or sold by the Fund.
Securities trade in the over-the-counter market on a "net" basis with dealers
acting as principal for their own accounts without a stated commission, although
the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's commission or discount. On occasion, certain money market
instruments and agency securities may be purchased directly from the issuer, in
which case no commissions or discounts are paid.
<PAGE>
PRINCIPAL SHAREHOLDERS
- --------------------------------------------------------------------------------
Amway Corporation ("Amway") indirectly, as of August 30, 1999, owned
_________ shares of beneficial interest, which constitutes all of the
outstanding shares of the Fund. Jay Van Andel and Richard M. DeVos are
controlling persons of Amway since they own, together with their spouses,
substantially all of its outstanding securities. Amway is a Michigan
manufacturer and direct selling distributor of home care and personal care
products. If Amway were to substantially reduce its investment in the Fund, it
could have an adverse effect on the Fund by decreasing the size of the fund and
by causing the Fund to incur brokerage charges in connection with the redemption
of Amway's shares. Amway has advised the Fund that it has no present intention
of reducing its investment in the Fund; however, there can be no assurance that
Amway will not reduce its investment in the Fund at some time in the future.
OFFICERS AND TRUSTEES OF THE FUND
- --------------------------------------------------------------------------------
The business affairs of the fund are managed and under the direction of the
Board of Trustees. The following are the Officers and Trustees of the Fund or
the Advisor or both, together with their principal occupations during the past
five years:
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE OFFICE HELD PRINCIPAL OCCUPATION LAST FIVE YEARS
- ---------------- --- ------------------- ------------------------------------
<S> <C> <C> <C>
Richard A. DeWitt 85 Trustee of the Fund President, DeWitt Land and
10001 Buttonwood Way Cattle Company (investments
Tequesta, Florida 33469 in land and cattle)
Allan D. Engel* 47 Trustee, Vice Sr. Manager, Investments and
2905 Lucerne SE President, Secretary Real Estate, Amway Corporation.
Grand Rapids, Michigan and Assistant Treasurer Director, President and
49546 of the Fund; President, Secretary of Amway Management
and Secretary of the Company (1981-1999). Trustee,
Investment Advisor. Vice President and Secretary,
Amway Mutual Fund (1981-1999).
Donald H. Johnson 69 Trustee of the Fund Retired, Former Vice
19017 Vintage Trace Circle President-Treasurer, SPX
Fort Myers, Florida Corporation (Designs,
33912 manufactures and markets
products and services for the
motor vehicle industry), 1986
to 1994.
Walter T. Jones 57 Trustee of the Fund Retired, Former Senior Vice
936 Sycamore Ave. President-Chief Financial
Holland, Michigan Officer, Prince Corporation
49424
<PAGE>
NAME AND ADDRESS AGE OFFICE HELD PRINCIPAL OCCUPATION LAST FIVE YEARS
- ---------------- --- ---------- ------------------------------------
James J. Rosloniec* 54 Trustee, President and Vice President-Audit and
2905 Lucerne SE Treasurer of the Fund; Control, Amway Corporation,
Grand Rapids, Michigan and Director, 1991 to present. Director, Vice
49546 Vice-President and President and Treasurer of
Treasurer of the Amway Management Company
Investment Advisor. (1984-1999). Trustee,
President and Treasurer, Amway
Mutual Fund (1981-1999).
Richard E. Wayman 64 Trustee of the Fund Retired, Former Finance
24578 Rutherford Director, Amway Corporation,
Ramona, California 1976 to 1996
92065
</TABLE>
*These Trustees are interested persons under the Investment Company Act of
1940, as amended.
All Officers and certain Trustees of the Fund and the Investment Advisor are
affiliated with Amway Corporation. The Officers serve without compensation from
the Fund. Fees paid to all Trustees during the year ended December 31, 1998,
amounted to $29,500. Under the Administrative Agreement, the Investment Advisor
pays the fees of the Trustees of the Fund. The Trustees and Officers of the Fund
owned, as a group, less than 1% of the outstanding shares of the Fund. The
Advisor also serves as the Fund's principal underwriter (see "Distribution of
Shares").
INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
The Fund has entered into an Investment Advisory Contract ("Contract") with
Activa Asset Management LLC (the "Investment Adviser"). Under the Contract, the
Investment Adviser sets overall investment strategies for the Fund and monitors
and evaluates the investment performance of the Fund's Sub-Adviser, including
compliance with the investment objectives, policies and restrictions of the
Fund. If the Investment Adviser believes it is in the Fund's best interests, it
may recommend that additional or alternative Sub-Advisers be retained on behalf
of the Fund. If more than one Sub-Adviser is retained, the Investment Adviser
will recommend to the Fund's Trustees how the Fund's assets should be allocated
or reallocated from time to time, among the Sub-Advisers.
The Investment Adviser and the Fund have received an exemptive order from the
Securities and Exchange Commission with respect to certain provisions of the
Investment Company Act. Absent the exemptive order, these provisions would
require that any change of Sub-Advisers be submitted to the Fund's shareholders
for approval. Pursuant to the exemptive order, any change in the Fund's
Sub-Advisers must be approved by the Fund's Trustees, including a majority of
the Fund's independent Trustees. If the Fund hires a new or an additional
Sub-Adviser, information about the new Sub-Adviser will be provided to the
Fund's shareholders within 90 days.
The Investment Advisory Agreement between the Fund and AAM became effective
on June 11, 1999. For providing services under this contract, AAM is to
receive compensation payable quarterly, at the annual rate of .85 of 1% on the
average of the daily aggregate net asset value of the Fund on the first
$50,000,000 of assets and .75% on the assets in excess of $50,000,000. Activa
also provides certain administrative services for the Fund pursuant to a
separate agreement. See "Administrative Services Agreement."
Members of the families of Jay Van Andel and Richard M. DeVos indirectly own
substantially all of the outstanding ownership interests of AAM. Jay Van Andel
and Richard M. DeVos are also controlling persons of Amway Corporation which, as
of August 30, 1999, owned all of the outstanding shares of the Fund. See
"Principal Shareholders."
SUB-ADVISOR
- --------------------------------------------------------------------------------
A Sub-Advisory Agreement has been entered into between the Investment Advisor
and Nicholas-Applegate Capital Management, 600 West Broadway, 30th Floor, San
Diego, California 92101 (Sub Advisor). Under the Sub-Advisory Agreement, the
Advisor employes the Sub-Advisor to furnish investment advice and manage on a
regular basis the investment portfolio of the Fund, subject to the direction of
the Advisor, the Board of Directors of the Fund, and to the provisions of the
Fund's current Prospectus. The Sub-Advisor will make investment decisions on
<PAGE>
behalf of the Fund and place all orders for the purchase or sale of portfolio
securities for the Fund's account, except when otherwise specifically directed
by the Fund or the Advisor. The fees of the Sub-Adviser are paid by the
Investment Adviser, not the Fund.
As compensation for the services rendered under the Sub-Advisory Agreement,
the Investment Adviser has agreed to pay the Sub-Adviser a fee, which is
computed daily and may be paid quarterly, equal to the annual rates of .65 of 1%
of the average of the daily aggregate net asset value of the Fund on the first
$50,000,000 of assets and .55% on the assets in excess of $50,000,000.
The Sub-Advisory Agreement provides that it will continue in effect for a
period two years after execution only if specifically approved thereafter
annually in the same manner as the Investment Advisory Agreement. See
"Investment Advisory" above. The Sub-Advisory Agreement will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Fund's Trustees, or by a vote of the holders of a
majority of the Fund's outstanding voting securities, on 60 days' written notice
to the Sub-Adviser and by the Sub-Adviser on 60 days' written notice to the
Fund. See "Additional Information."
PLAN OF DISTRIBUTION & PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------
The Trust has adopted a Plan and Agreement of Distribution ("Distribution
Plan"). Under the Distribution Plan, the Advisor provides shareholder services
and services in connection with the sale and distribution of the Fund's shares
and is compensated at a maximum annual rate of 0.25 of 1% of the average daily
net assets of the Fund. The maximum amount presently authorized by the Fund's
Board of Trustees is 0.15 of 1% of the average daily net assets of the Fund.
Since these fees are paid from Fund assets, over time these fees will increase
the cost of your investment and may cost you more than paying other types of
sales charges.
Amounts received by the Advisor pursuant to the Distribution Plan may be
retained by the Advisor as compensation for its services, or paid to other
investment professionals who provide services in connection with the
distribution of Fund shares. The Trustees will review the services provided and
compensation paid pursuant to the Distribution Plan no less often than
quarterly.
The Advisor acts as the exclusive agent for sales of shares of the Fund
pursuant to a Principal Underwriting Agreement. The only compensation currently
received by the Advisor in connection with the sale of Fund shares is pursuant
to the Distribution Plan.
ADMINISTRATIVE AGREEMENT
- --------------------------------------------------------------------------------
Pursuant to the Administrative Agreement between the Fund and AAM, AAM
provides specified assistance to the Fund with respect to compliance matters,
taxes and accounting, the provision of legal services, meetings of the Fund's
Trustees and shareholders, and preparation of the Fund's registration statement
and other filings with the Securities and Exchange Commission. In addition, AAM
pays the fees of the Fund's Trustees, and the salaries and fees of all of the
Fund's Trustees and officers who devote part or all of their time to the affairs
of AAM. For providing these services AAM receives a fee, payable quarterly, at
the annual rate of 0.15% of the Fund's average daily assets.
The Administrative Agreement provides that AAM is only responsible for paying
such fees and expenses and providing such services as are specified in the
agreement. The Fund is responsible for all other expenses including (i) expenses
of maintaining the Fund and continuing its existence; (ii) registration of the
Trust under the Investment Company Act of 1940; (iii) commissions, fees and
other expenses connected with the acquisition, disposition and valuation of
securities and other investments; (iv) auditing, accounting and legal expenses;
(v) taxes and interest; (vi) government fees; (vii) expenses of issue, sale,
repurchase and redemption of shares; (viii) expenses of registering and
qualifying the Trust, the Fund and its shares under federal and state securities
laws and of preparing and printing prospectuses for such purposes and for
distributing the same to shareholders and investors; (ix) expenses of reports
and notices to stockholders and of meetings of stockholders and proxy
solicitations therefore; (x) expenses of reports to governmental officers and
commissions; (xi) insurance expenses; (xii) association membership dues; (xiii)
fees, expenses and disbursements of custodians and sub-custodians for all
services to the Trust (including without limitation safekeeping of funds and
securities, and keeping of books and accounts); (xiv) fees, expenses and
disbursement of transfer agents, dividend disbursing agents, stockholder
servicing agents and registrars for all services to the Trust; (xv) expenses for
servicing shareholder accounts; (xvi) any direct charges to shareholders
approved by the Trustees of the Trust; and (xvii) such non-recurring items as
may arise, including expenses incurred in connection with litigation,
proceedings and claims and the obligation of the Trust to indemnify its Trustees
and officers with respect thereto.
The Fund has entered into an agreement with Bisys Fund Services Ohio, Inc.
("Bisys") whereby Bisys provides a portfolio accounting and information system
for portfolio management for the maintenance of records and processing of
information which is needed daily in the determination of the net asset value
of the Fund.
<PAGE>
TRANSFER AGENT
- --------------------------------------------------------------------------------
Under a separate contract, the functions of the Transfer Agent and Dividend
Disbursing Agent are performed by Activa Asset Management LLC, Grand Rapids,
Michigan, which acts as the Fund's agent for transfer of the Fund's shares and
for payment of dividends and capital gain distributions to shareholders.
In return for its services, the Fund pays the Transfer Agent, a fee of $1.167
per account in existence during the month, payable monthly, less earnings in the
redemption liquidity account after deducting bank fees, if any. The fee schedule
is reviewed annually by the Board of Trustees.
CUSTODIAN
- --------------------------------------------------------------------------------
The portfolio securities of the Fund are held, pursuant to a Custodian
Agreement, by Northern Trust Company, 50 South LaSalle, Chicago, Illinois, as
Custodian. The Custodian performs no managerial or policymaking functions for
the Fund.
AUDITORS
- --------------------------------------------------------------------------------
BDO Seidman, LLP, 99 Monroe Avenue, N.W., Suite 800, Grand Rapids, Michigan,
are the independent certified public accountants for the Fund. Services include
an annual audit of the Fund's financial statements, tax return preparation, and
review of certain filings with the SEC.
PRICING OF FUND SHARES
- --------------------------------------------------------------------------------
The net asset value of the Fund's shares is determined by dividing the
total current value of the assets of the Fund, less its liabilities, by the
number of shares outstanding at that time. This determination is made at the
close of business of the New York Stock Exchange, usually 4:00 P.M. Eastern
time, on each business day on which that Exchange is open. Shares will not be
priced on national holidays or other days on which the New York Stock Exchange
is closed for trading.
The Fund's investments are generally valued at current market value. If
market quotations are not readily available, the Fund's investments will be
valued at fair value as determined by the Fund's Board of Trustees.
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
In order to purchase shares for a new account, the completion of an
application form is required. The minimum initial investment is $500 or more.
Additional investments of $50 or more can be made at any time by using the lower
portion of your account statement. Checks should be made payable to "Activa
Asset Management LLC" and mailed to 2905 Lucerne SE, Grand Rapids, Michigan
49355-7150. Third party checks will not be accepted.
All purchases will be made at the Net Asset Value per share net calculated
after the Fund receives your investment and application in proper form.
HOW SHARES ARE REDEEMED
- --------------------------------------------------------------------------------
Each Fund will redeem your shares at the net asset value next determined
after your redemption request is received in proper form. There is no redemption
charge by the Fund. However, if a shareholder uses the services of a
broker-dealer for the redemption, there may be a charge by the broker-dealer to
the shareholder for such services. Shares can be redeemed by the mail, telephone
or telegram. If the value of your account is $10,000 or more, you may arrange to
receive periodic cash payments. Please contact the Fund for more information.
Redemption proceeds may be delayed until investments credited to your account
have been received and collected.
BY MAIL:
- --------
When redeeming by mail, when no certificates have been issued, send a written
request for redemption to Activa Asset Management LLC, 2905 Lucerne S.E., Grand
Rapids, Michigan 49355-7150. The request must state the dollar amount or shares
to be redeemed, including your account number and the signature of each account
owner, signed exactly as your name appears on the records of the Fund. If a
certificate has been issued to you for the shares being redeemed, the
certificate (endorsed or accompanied by a signed stock power) must accompany
your redemption request, with your signature by a bank, broker, or other
acceptable financial institution. Additional documents will be required for
corporations, trusts, partnerships, retirement plans, individual retirement
accounts and profit sharing plans.
BY PHONE:
- ---------
At the time of your investment in the Fund, or subsequently, you may elect on
the Fund's application to authorize the telephone or telegram exchange or
redemption option. You may redeem shares under this option by calling the Fund
<PAGE>
at the number indicated on the front of this Prospectus on any business day.
Requests received after 4:00 p.m. when the market has closed will receive the
next day's price. By establishing the telephone or telegram exchange or
redemption option, you authorize the Transfer Agent to honor any telephone or
telegram exchange or redemption request from any person representing themselves
to be the investor. Procedures required by the Fund to ensure that a
shareholder's requested telephone or telegram transaction is genuine include
identification by the shareholder of the account by number, recording of the
requested transaction and sending a written confirmation to shareholders
reporting the requested transaction. The Fund is not responsible for
unauthorized telephone or telegram exchanges or redemptions unless the Fund
fails to follow these procedures. Shares must be owned for 15 days before
redeeming by the telephone and telegram exchange and cannot be in certificate
form unless the certificate is tendered with the request for redemption.
Certificated shares cannot be redeemed by the telephone and telegram exchange.
All redemption proceeds will be forwarded to the address of record or bank
designated on the account application.
The Transfer Agent and the Fund have reserved the right to change, modify, or
terminate the telephone or telegram exchange or redemption option at any time.
Before this option is effective for a corporation, partnership, or other
organizations, additional documents may be required. This option is not
available for Profit-Sharing Trust and Individual Retirement Accounts. The Fund
and the Transfer Agent disclaim responsibility for verifying the authenticity of
telephone and telegram exchange or redemption requests which are made in
accordance with the procedures approved by shareholders. SPECIAL CIRCUMSTANCES:
In some circumstances a signature guarantee may be required before shares are
redeemed. These circumstances include a change in the address for an account
within the last 30 days, a request to send the proceeds to a different payee or
address from that listed for the account, or a redemption request for $100,000
or more. A signature guarantee may be obtained from a bank, broker, or other
acceptable financial institution. If a signature guarantee is required, we
suggest that you call us to ensure that the signature guarantee and redemption
request will be processed correctly.
Payment for redeemed shares is normally made by check and mailed within three
days thereafter. However, under the Investment Company Act of 1940, the right of
redemption may be suspended or the date of payment postponed for more than seven
days: (1) for any period during which the New York Stock Exchange is closed,
other than for customary weekend and holiday closings; (2) when trading on the
New York Stock Exchange is restricted, as determined by the SEC; (3) when an
emergency exists, as determined by the SEC, as a result of which it is not
reasonably practicable for the Fund to dispose of its securities or determine
the value of its net assets; or (4) for such other period as the SEC may by
order permit for the protection of the shareholders. During such a period, a
shareholder may withdraw his request for redemption or receive the net asset
value next computed when regular trading resumes.
The Fund has filed with the SEC an election to pay for all redeemed shares in
cash up to a limit, as to any one shareholder during any 90-day periods, of
$250,000 or 1% of the net asset value of the Fund, whichever is less. Beyond
that limit, the Fund is permitted to pay the redemption price wholly or partly
"in kind," that is, by distribution of portfolio securities held by the Fund.
This would occur only upon specific authorization by the Board of Trustees when,
in their judgment, unusual circumstances make it advisable. It is unlikely that
this will ever happen, but if it does, you will incur a brokerage charge in
converting the securities received in this manner into cash. Portfolio
securities distributed "in kind" will be valued as they are valued for the
determination of the net asset value of the Fund's shares.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shares of each Fund may be exchanged for shares of any other Activa Fund.
The above described Exchange Privilege may be exercised by sending written
instruction to the Transfer Agent. See "How Shares Are Redeemed" for applicable
signatures and signature guarantee requirements. Shareholders may authorize
telephone or telegram exchanges or redemptions by making an election on your
application. Procedures required by the Fund to ensure that a shareholder's
requested telephone or telegram transaction is genuine include identification by
the shareholder of the account by number, recording of the requested transaction
and sending a written confirmation to shareholders reporting the requested
transaction. The Fund is not responsible for unauthorized telephone or telegram
exchanges unless the Fund fails to follow these procedures. Shares must be owned
for 15 days before exchanging and cannot be in certificate form unless the
certificate is tendered with the request for exchange. Exchanges will be
accepted only if the registration of the two accounts is identical. Exchange
<PAGE>
redemptions and purchases are effected on the basis of the net asset value next
determined after receipt of the request in proper order by the Fund. In the case
of exchanges into the Money Market Fund, dividends generally commence on the
following business day. For federal and state income tax purposes, an exchange
is treated as a sale and may result in a capital gain or loss.
ADDITIONAL ACCOUNT POLICIES
- --------------------------------------------------------------------------------
If the value of your account falls below $100, the Fund may mail you a notice
asking you to bring the account back to $100 or close it out. If you do not take
action within 60 days, the Fund may sell your shares and mail the proceeds to
you at the address of record.
The Fund does not permit market-timing or other abusive trading practices.
Excessive, short-term (market-timing) and other abusive trading practices may
disrupt portfolio trading strategies and harm Fund performance. To minimize harm
to the Fund and its shareholders, each Fund reserves the right to reject any
purchase order (including exchanges) from any investor we believe has a history
of abusive trading.
INTERNET ADDRESS
- --------------------------------------------------------------------------------
Activa's Web site is located at activafunds.com. Our Web site offers further
information about the Activa Funds as well as consumer information and the
ability to make certain transactions on-line.
FEDERAL INCOME TAX
- --------------------------------------------------------------------------------
The Fund intends to comply with the provisions of Subchapter M of the
Internal Revenue Code applicable to investment companies. As the result of
paying to its shareholders as dividends and distributions substantially all net
investment income and realized capital gains, the Fund will be relieved of
substantially all Federal income tax.
For Federal income tax purposes, distributions of net investment income and
any capital gains will be taxable to shareholders. Distributions of net
investment income will normally qualify for the 70% deduction for dividends
received by corporations. After the last dividend and capital gains distribution
in each year, the Fund will send you a statement of the amount of the income and
capital gains which you should report on your Federal income tax return.
Dividends derived from net investment income and net short-term capital gains
are taxable to shareholders as ordinary income and long-term capital gain
dividends are taxable to shareholders as long-term capital gain regardless of
how long the shares have been held and whether received in cash or reinvested in
additional shares of the Fund. Qualified long-term capital gain dividends
received by individual shareholders are taxed a maximum rate of 20%.
In addition, shareholders may realize a capital gain or loss when shares are
redeemed. For most types of accounts, the Fund will report the proceeds of
redemptions to shareholders and the IRS annually. However, because the tax
treatment also depends on the purchase price and a shareholder's personal tax
position, you should also keep your regular account statements to use in
determining your tax.
On the record date for a distribution, the Fund's share value is reduced by
the amount of the distribution. If a shareholder buys shares just before the
record date ("buying a dividend"), they will pay the full price for the shares,
and then receive a portion of the price back as a taxable distribution.
Also, under the Code, a 4% excise tax is imposed on the excess of the
required distribution for a calendar year over the distributed amount for such
calendar year. The required distribution is the sum of 98% of the Fund's net
investment income for the calendar year plus 98% of its capital gain net income
for the one-year period ended December 31, plus any undistributed net investment
income from the prior calendar year, plus any undistributed capital gain net
income from the prior calendar year, minus any overdistribution in the prior
calendar year. The Fund intends to declare or distribute dividends during the
appropriate periods of an amount sufficient to prevent imposition of the 4%
excise tax.
Under certain circumstances, the Fund will be required to withhold 31% of a
shareholder's distribution or redemption from the Fund. These circumstances
include failure by the shareholder to furnish the Fund with a proper taxpayer
identification number; notification of the Fund by the Secretary of the Treasury
that a taxpayer identification number is incorrect, or that withholding should
commence as a result of the shareholder's failure to report interest and
dividends; and failure of the shareholder to certify, under penalties of
perjury, that he is not subject to withholding. In this regard, failure of a
shareholder who is a foreign resident to certify that he is a nonresident alien
may result in 31% of his redemption proceeds and 31% of his capital gain
distribution being withheld. In addition, such a foreign resident may be subject
to a 30% or less, as prescribed by an applicable tax treaty, withholding tax on
ordinary income dividends distributed unless he qualifies for relief under an
applicable tax treaty.
<PAGE>
Trustees of qualified retirement plans are required by law to withhold 20% of
the taxable portion of any distribution that is eligible to be "rolled over."
The 20% withholding requirement does not apply to distributions from IRA's or
any part of a distribution that is transferred directly to another qualified
retirement plan, 403(b)(7) account or IRA. Shareholders should consult their tax
advisor regarding the 20% withholding requirement.
Prior to purchasing shares of the Fund, the impact of any dividends or
capital gain distributions which are about to be declared should be carefully
considered. Any such dividends and capital gain distributions declared shortly
after you purchase shares will have the effect of reducing the per share net
asset value of your shares by the amount of dividends or distributions on the
ex-dividend date. All or a portion of such dividends or distributions, although
in effect a return of capital, are subject to taxes which may be at ordinary
income tax rates.
Each shareholder is advised to consult with his tax advisor regarding the
treatment of distributions to him under various state and local income tax laws.
REPORTS TO SHAREHOLDERS AND ANNUAL AUDIT
- --------------------------------------------------------------------------------
The Fund's year begins on January 1 and ends on December 31. At least
semiannually, the shareholders of the Fund receive reports, pursuant to
applicable laws and regulations, containing financial information. The annual
shareholders report is incorporated by reference into the Statement of
Additional Information. The cost of printing and distribution of such reports to
shareholders is borne by the Fund.
At least once each year, the Fund is audited by independent certified public
accountants appointed by resolution of the Board and approved by the
shareholders. The fees and expenses of the auditors are paid by the Fund.
<PAGE>
ACTIVA INTERNATIONAL FUND
(a Series of Activa Mutual Fund Trust)
2905 Lucerne SE
Grand Rapids, Michigan 49546
(616) 787-6288
(800) 346-2670
=====================================================
ACTIVA
INTERNATIONAL
FUND
Statement of
Additional Information
September 1, 1999
ACTIVA MUTUAL FUND LOGO
=====================================================
Printed in U.S.A.
<PAGE>
AMWAY MUTUAL FUND
FORM N-1A
PART B
Information Required in a Statement of Additional Information for Class R
<PAGE>
ACTIVA VALUE FUND
(a series of Activa Mutual Fund Trust)
2905 Lucerne SE
Grand Rapids, Michigan 49546
(616) 787-6288
(800) 346-2670
Contents Page
Organization of the Fund
Objectives, Policies, and
Restrictions on the Fund's
Investments
Additional Risks & Information
Concerning Certain Investment
Techniques
Portfolio Transactions and
Brokerage
Principal Shareholders
Officers and Trustees of the Fund
Investment Advisor
Administrative Agreement
Transfer Agent
Custodian
Auditors
Pricing of Fund Shares
Purchase of Shares
How Shares are Redeemed
Federal Income Tax
Investment Performance Information
Reports to Shareholders and Annual Audit
ACTIVA MUTUAL FUND LOGO
CLASS R
STATEMENT OF ADDITIONAL
INFORMATION
This Statement of Additional Information is not
a prospectus. Therefore, it should be read only in
conjunction with the Class R Prospectus, which can
be requested from the Fund by writing or
telephoning as indicated above. This Statement of
Additional Information relates to the Class R
Prospectus for the Fund dated September 1, 1999.
Class R shares are available only to tax-exempt
retirement and benefits plans of Amway Corporation
and its affiliates. The Fund also offers Class A
shares, which are available to members of the
general public. Information about Class A is
contained in the Class A prospectus dated September
1, 1999, which is available upon request.
The date of this Statement of Additional
Information is September 1, 1999.
1
Printed in U.S.A.
<PAGE>
ACTIVA MUTUAL FUND
ORGANIZATION OF THE FUND
- --------------------------------------------------------------------------------
The Fund is a series of Activa Mutual Fund Trust, an open-end diversified
management investment company which was organized as a Delaware business trust
on February 2, 1998. The Fund is the successor of Amway Mutual Fund, Inc., which
was organized as a Delaware corporation on February 13, 1970.
The Declaration of Trust authorizes the Trustees to create additional series
and to issue an unlimited number of units of beneficial interest, or "shares."
The Trustees are also authorized to issue different classes of shares of any
series. No series which may be issued by the Trust is entitled to share in the
assets of any other series or is liable for the expenses or liabilities of any
other series.
Shares of beneficial interest of Class A are offered to members of the
general public. When issued, shares of Class A will be fully paid and
non-assessable. The Board of Trustees of the Fund has authorized Class R, which
is offered to tax-exempt retirement and benefit plans of Amway Corporation and
its affiliates. Each share of Class A and Class R will represent an equal
proportionate interest in the Fund and, generally, will have identical voting,
dividend, liquidation, and other rights and the same terms and conditions,
except that (a) expenses allocated to a particular Class ("Class Expenses") will
be borne solely by that Class, and (b) each Class will have exclusive voting
rights with respect to matters affecting only that Class. Examples of Class
Expenses include: (1) Rule 12b-1fees, (2) transfer agent and shareholder
services fees attributable to a specified Class, (3) stationary, printing,
postage, and delivery expenses related to preparing and distributing materials
such as shareholder reports, prospectuses, and proxy statements to current
shareholders of a Class, (4) Blue Sky registration fees incurred by a Class, (5)
SEC registration fees incurred by a Class, (6) trustees' fees or expenses
incurred as a result of issues relating to one Class, (8) accounting fees
relating solely to one Class, (9) litigation expenses and legal fees and
expenses relating to a particular Class, and (10) expenses incurred in
connection with shareholders meetings as a result of issues relating to one
Class. Shares are freely transferable and have no preemptive, subscription or
conversion rights.
The Trust is not required to hold annual meetings of shareholders and does
not intend to hold such meetings. Shareholders of the Trust will have voting
rights only with respect to the limited number of matters specified in the
Declaration of Trust, and such other matters as may be determined or as may be
required by law. A meeting will be called for the purpose of voting on the
removal of a Trustee at the written request of holders of 10% of the Trust's
outstanding shares. In the event a meeting of shareholders is held, shareholders
will be entitled to one vote for each dollar of net asset value (or a
proportionate fractional vote with respect to fractional dollar amounts) on all
matters presented to shareholders, including the election of Trustees.
OBJECTIVES, POLICIES AND RESTRICTIONS ON THE FUND'S INVESTMENTS
- --------------------------------------------------------------------------------
The primary investment objective of the Fund is capital appreciation. The
Fund will attempt to meet its objectives by investing primarily in stocks and
convertible securities that the Fund believes have long term gorwth potential.
Income may be a factor in portfolio selection but is secondary to the principal
objective. The Fund's policy is to invest in a broadly diversified portfolio and
not to concentrate investments in a particular industry or group of industries.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The investment restrictions below have been adopted by the Fund. Except where
otherwise noted, these investment restrictions are "fundamental" policies which,
under the 1940 Act, may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as the case may be. A "majority of
the outstanding voting securities" is defined in the 1940 Act as the lesser of
(a) 67% or more of the voting securities present at a meeting if the holders of
more than 50% of the outstanding voting securities are present or represented by
proxy, or (b) more than 50% of the outstanding voting securities. The percentage
limitations contained in the restrictions below apply at the time of the
purchase of securities.
The Fund :
1. May not make any investment inconsistent with the Fund's classification
as a diversified investment company under the Investment Company Act of
1940.
<PAGE>
2. May not purchase any security which would cause the Fund to concentrate
its investments in the securities of issuers primarily engaged in any
particular industry except as permitted by the SEC. This restriction
does not apply to instruments considered to be domestic bank money
market instruments.
3. May not issue senior securities, except as permitted under the
Investment Company Act of 1940 or any rule, order or interpretation
thereunder;
4. May not borrow money, except to the extent permitted by applicable law;
5. May not underwrite securities or other issues, except to the extent
that the Fund, in disposing of portfolio securities, may be deemed an
underwriter within the meaning of the 1933 Act;
6. May not purchase or sell real estate, except that, to the extent
permitted by applicable law, the Fund may (a) invest in securities or
other instruments directly or indirectly secured by real estate, and
(b) invest in securities or other instruments issued by issuers that
invest in real estate;
7. May not purchase or sell commodities or commodity contracts unless
acquired as a result of ownership of securities or other instruments
issued by persons that purchase or sell commodities or commodities
contracts; but this shall not prevent the Fund from purchasing,
selling and entering into financial futures contracts (including
futures contracts on indices of securities, interest rates and
currencies), options on financial futures contracts (including futures
contracts on indices of securities, interests rates and currencies),
warrants, swaps, forward contracts, foreign currency spot and forward
contracts or other derivative instruments that are not related to
physical commodities; and
<PAGE>
8. May make loans to other persons, in accordance with the Fund's
investment objective and policies and to the extent permitted by
applicable law.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
The investment restrictions described below are not fundamental policies of
the Fund and may be changed by the Fund's Trustees. These non-fundamental
investment policies require that the Fund: (i) may not acquire any illiquid
securities, if as a result thereof, more than 10% of the market value of the
Fund's total assets would be in investments which are illiquid; (ii) may not
purchase securities on margin, make short sales of securities, or maintain a
short position, provided that this restriction shall not be deemed to be
applicable to the purchase or sale of when-issued or delayed delivery
securities; (iii) may not acquire securities of other investment companies,
except as permitted by the 1940 Act or any order pursuant thereto; (iv) may not
enter into reverse repurchase agreements or borrow money, except from banks for
extraordinary or emergency purposes, if such obligations exceed in the aggregate
one-third of the market value of the Fund's total assets, less liabilities other
than obligations created by reverse repurchase agreements and borrowings.
Not withstanding any other fundamental or non-fundamental investment
restriction or policy, the Fund reserves the right, without the approval of
shareholders, to invest all of its assets in the securities of a single open-end
registered investment company with substantially the same investment objective,
restrictions and policies as the Fund.
There will be no violation of any investment restriction if that restriction
is complied with at the time the relevant action is taken notwithstanding a
later change in market value of an investment, in net or total assets, in the
securities rating of the investment, or any other later change.
In view of the Fund's investment objective of capital appreciation, with
income as a secondary objective, the Fund intends to purchase securities for
long-term or short-term profits, as appropriate. Securities will be disposed of
in situations where, in management's opinion, such potential is no longer
feasible or the risk of decline in the market price is too great. Therefore, in
order to achieve the Fund's objectives, the purchase and sale of securities will
be made without regard to the length of time the security is to be held.
Higher portfolio turnover rates can result in corresponding increases in
brokerage commissions.
<PAGE>
ADDITIONAL RISKS AND INFORMATION CONCERNING CERTAIN INVESTMENT TECHNIQUES
- --------------------------------------------------------------------------------
DERIVATIVES.
------------
The Fund may buy and sell certain types of derivatives, such as options,
futures contracts, options on futures contracts, and swaps under circumstances
in which such instruments are expected by Ark Asset Management Company (the
"Sub-Adviser") to aid in achieving the Fund's investment objective. The Fund may
also purchase instruments with characteristics of both futures and securities
(e.g., debt instruments with interest and principal payments determined by
reference to the value of a commodity or a currency at a future time) and which,
therefore, possess the risks of both futures and securities investments.
Derivatives, such as options, futures contracts, options on futures
contracts, and swaps enable the Fund to take both "short" positions (positions
which anticipate a decline in the market value of a particular asset or index)
and "long" positions (positions which anticipate an increase in the market value
of a particular asset or index). The Fund may also use strategies which involve
simultaneous short and long positions in response to specific market conditions,
such as where the Sub-Adviser anticipates unusually high or low market
volatility.
The Sub-Adviser may enter into derivative positions for the Fund for either
hedging or non-hedging purposes. The term hedging is applied to defensive
strategies designed to protect the Fund from an expected decline in the market
value of an asset or group of assets that the Fund owns (in the case of a short
hedge) or to protect the Fund from an expected rise in the market value of an
asset or group of assets which it intends to acquire in the future (in the case
of a long or "anticipatory" hedge). Non-hedging strategies include strategies
designed to produce incremental income (such as the option writing strategy
described below) or "speculative" strategies, which are undertaken to profit
from (i) an expected decline in the market value of an asset or group of assets
which the Fund does not own or (ii) expected increases in the market value of an
asset which it does not plan to acquire. Information about specific types of
instruments is provided below.
FUTURE CONTRACTS.
-----------------
Futures contracts are publicly traded contracts to buy or sell an underlying
asset or group of assets, such as a currency or an index of securities, at a
future time at a specified price. A contract to buy establishes a long position
while a contract to sell establishes a short position.
The purchase of a futures contract on an equity security or an index of
equity securities normally enables a buyer to participate in the market movement
of the underlying asset or index after paying a transaction charge and posting
margin in an amount equal to a small percentage of the value of the underlying
asset or index. The Fund will initially be required to deposit with the Trust's
custodian or the futures commission merchant effecting the futures transaction
an amount of "initial margin" in cash or securities, as permitted under
applicable regulatory policies.
Initial margin in futures transactions is different from margin in securities
transactions in that the former does not involve the borrowing of funds by the
customer to finance the transaction. Rather, the initial margin is like a
performance bond or good faith deposit on the contract. Subsequent payments
(called "maintenance margin") to and from the broker will be made on a daily
basis as the price of the underlying asset fluctuates. This process is known as
"marking to market." For example, when the Fund has taken a long position in a
futures contract and the value of the underlying asset has risen, that position
will have increased in value and the Fund will receive from the broker a
maintenance margin payment equal to the increase in value of the underlying
asset. Conversely, when the Fund has taken a long position in a futures contract
and the value of the underlying instrument has declined, the position would be
less valuable, and the Fund would be required to make a maintenance margin
payment to the broker.
At any time prior to expiration of the futures contract, the Fund may elect
to close the position by taking an opposite position which will terminate the
Fund's position in the futures contract. A final determination of maintenance
margin is then made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or a gain. While futures contracts with
respect to securities do provide for the delivery and acceptance of such
securities, such delivery and acceptance are seldom made.
In transactions establishing a long position in a futures contract, assets
equal to the face value of the futures contract will be identified by the Fund
to the Trust's custodian for maintenance in a separate account to insure that
the use of such futures contracts is unleveraged. Similarly, assets having a
value equal to the aggregate face value of the futures contract will be
identified with respect to each short position. The Fund will utilize such
assets and methods of cover as appropriate under applicable exchange and
regulatory policies.
OPTION
------
The Fund may use options to implement its investment strategy. There are two
basic types of options: "puts" and "calls." Each type of option can establish
either a long or a short position, depending upon whether the Fund is the
purchaser or the writer of the option. A call option on a security, for example,
gives the purchaser of the option the right to buy, and the writer the
obligation to sell, the underlying asset at the exercise price during the option
period. Conversely, a put option on a security gives the purchaser the right to
sell, and the writer the obligation to buy, the underlying asset at the exercise
price during the option period.
Purchased options have defined risk, that is, the premium paid for the
option, no matter how adversely the price of the underlying asset moves, while
affording an opportunity for gain corresponding to the increase or decrease in
the value of the optioned asset. In general, a purchased put increases in value
as the value of the underlying security falls and a purchased call increases in
value as the value of the underlying security rises.
The principal reason to write options is to generate extra income (the
premium paid by the buyer). Written options have varying degrees or risk. An
uncovered written call option theoretically carries unlimited risk, as the
market price of the underlying asset could rise far above the exercise price
before its expiration. This risk is tempered when the call option is covered,
that is when the option writer owns the underlying asset. In this case, the
writer runs the risk of the lost opportunity to participate in the appreciation
in value of the asset rather than the risk of an out-of-pocket loss. A written
put option has defined risk, that is, the difference between the agreed-upon
price that the Fund must pay to the buyer upon exercise of the put and the
value, which could be zero, of the asset at the time of exercise.
The obligation of the writer of an option continues until the writer effects
a closing purchase transaction or until the option expires. To secure its
obligation to deliver the underlying asset in the case of a call option, or to
pay for the underlying asset in the case of a put option, a covered writer is
required to deposit in escrow the underlying security or other assets in
accordance with the rules of the applicable clearing corporation and exchanges.
Among the options which the Fund may enter are options on securities indices.
In general, options on indices of securities are similar to options on the
securities themselves except that delivery requirements are different. For
example, a put option on an index of securities does not give the holder the
right to make actual delivery of a basket of securities but instead gives the
holder the right to receiver an amount of cash upon exercise of the option if
the value of the underlying index has fallen below the exercise price. The
amount of cash received will be equal to the difference between the closing
price of the index and the exercise price of the option expressed in dollars
times a specified multiple. As with options on equity securities, or futures
contracts, a Fund may offset its position in index options prior to expiration
by entering into a closing transaction on an exchange or it may let the option
expire unexercised.
A securities index assigns relative values to the securities included in the
index and the index options are based on a broad market index. In connection
with the use of such options, the Fund may cover its position by identifying
assets having a value equal to the aggregate face value of the option position
taken.
OPTIONS ON FUTURES CONTRACTS
----------------------------
An option on a futures contract gives the purchaser the right, in return for
the premium paid, to assume a position in a future 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.
Limitations and Risks of Options and Futures Activity
The Fund may no establish a position in a commodity futures contract or
purchase or sell a commodity option contract for other than bona fide hedging
purposes if immediately thereafter the sum of the amount of initial margin
deposits and premiums required to establish such positions for such nonhedging
purposes would exceed 5% of the market value of the Fund's net assets. The Fund
applies a similar policy to options that are not commodities.
As noted above, the Fund may engage in both hedging and nonhedging
strategies. Although effective hedging can generally capture the bulk of a
desired risk adjustment, no hedge is completely effective. The Fund's ability to
hedge effectively through transactions in futures and options depends on the
degree to which price movements in its holdings correlate with price movements
of the futures and options.
<PAGE>
Nonhedging strategies typically involve special risks. The profitability of
the Fund's nonhedging strategies will depend of the Sub-Adviser to analyze both
the applicable derivatives market and the market for the underlying asset or
group of assets. Derivatives markets are often more volatile than corresponding
securities markets and a relatively small change in the price of the underlying
asset or group of assets can have a magnified effect upon the price of a related
derivative instrument.
Derivatives markets also are often less liquid than the market for the
underlying asset or group of assets. Some positions in futures and options may
be closed out only on an exchange which provides a secondary market thereof.
There can be no assurance that a liquid secondary market will exist for any
particular futures contract or option at any specific time. Thus, it may not be
possible to close such an option or futures positions prior to maturity. The
inability to close options and futures positions also could have an adverse
impact on the Fund's ability to effectively carry out their derivative
strategies and might, in some cases, require a Fund to deposit cash to meet
applicable margin requirements. The Fund will enter into an option or futures
position only if it appears to be a liquid investment.
SHORT SALES AGAINST THE BOX
---------------------------
The Fund may effect short sales, but only if such transactions are short sale
transactions known as short sales "against the box." A short sale is a
transaction in which the Fund sells a security it does not own by borrowing it
from a broker, and consequently becomes obligated to replace that security. A
short sale against the box is a short sale where the Fund owns the security sold
short or has an immediate and unconditional right to acquire that security
without additional cash consideration upon conversion, exercise or exchange of
options with respect to securities held in its portfolio. The effect of selling
a security short against the box is to insulate that security against any future
gain or loss.
SWAP ARRANGEMENTS
-----------------
The Fund may enter into various forms of swap arrangements with
counterparties with respect to interest rates, currency rates or indices,
including purchase of caps, floors and collars as described below. In an
interest rate swap the Fund could agree for a specified period to pay a bank or
investment banker the floating rate of interest on a so-called notional
principal amount (i.e., an assumed figure selected by the parties for this
purpose) in exchange for agreement by the bank or investment banker to pay the
Fund a fixed rate of interest on the notional principal amount. In a currency
swap the Fund would agree with the other party to exchange cash flows based on
the relative differences in values of a notional amount of two (or more)
currencies; in an index swap, the Fund would agree to exchange cash flows on a
notional amount based on changes in the values of the selected indices. Purchase
of a cap entitles the purchaser to receive payments from the seller on a
notional amount to the extent that the selected index exceeds an agreed upon
interest rate or amount whereas purchase of a floor entitles the purchaser to
receive such payments to the extent the selected index falls below an agreed
upon interest rate or amount. A collar combines a cap and a floor.
The Fund may enter credit protection swap arrangements involving the sale by
the Fund of a put option on a debt security which is exercisable by the buyer
upon certain events, such as a default by the referenced creditor on the
underlying debt or a bankruptcy event of the creditor.
Most swaps entered into by the Fund will be on a net basis; for example, in
an interest rate swap, amounts generated by application of the fixed rate and
the floating rate to the notional principal amount would first offset one
another, with the Fund either receiving or paying the difference between such
amounts. In order to be in a position to meet any obligations resulting from
swaps, the Fund will set up a segregated custodial account to hold appropriate
liquid assets, including cash; for swaps entered into on a net basis, assets
will be segregated having a daily net asset value equal to any excess of the
Fund's accrued obligations over the accrued obligations of the other party,
while for swaps on other than a net basis assets will be segregated having a
value equal to the total amount of the Fund's obligations.
These arrangements will be made primarily for hedging purposes, to preserve
the return on an investment or on a portion of the Fund's portfolio. However,
the Fund may, as noted above, enter into such arrangements for income purposes
to the extent permitted by the Commodities Futures Trading Commission for
entities which are not commodity pool operators, such as the Fund. In entering a
swap arrangement, the Fund is dependent upon the creditworthiness and good faith
of the counterparty. The Fund attempts to reduce the risks of nonperformance by
the counterparty by dealing only with established, reputable institutions. The
swap market is still relatively new and emerging; positions in swap arrangements
may become illiquid to the extent that nonstandard arrangements with one
counterparty are not readily transferable to another counterparty or if a market
<PAGE>
for the transfer of swap positions does not develop. The use of interest rate
swaps is a highly specialized activity which involves investment techniques and
risks different from those associated with ordinary portfolio securities
transactions. If the Sub-Adviser is incorrect in its forecasts of market values,
interest rates and other applicable factors, the investment performance of the
Fund would diminish compared with what it would have been if these investment
techniques were not used. Moreover, even if the Sub-Adviser is correct in its
forecasts, there is a risk that the swap position may correlate imperfectly with
the price of the asset or liability being hedged.
REPURCHASE AGREEMENTS.
----------------------
The Fund may enter into repurchase agreements. Repurchase agreements occur
when the Fund acquires a security and the seller, which may be either (i) a
primary dealer in U.S. Government securities or (ii) an FDIC-insured bank having
gross assets in excess of $500 million, simultaneously commits to repurchase it
at an agreed-upon price on an agreed-upon date within a specified number of days
(usually not more than seven) from the date of purchase. The repurchase price
reflects the purchase price plus an agreed-upon market rate of interest which is
unrelated to the coupon rate or maturity of the acquired-security. The Fund will
only enter into repurchase agreements involving U.S. Government securities.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the other party, including possible delays or restrictions upon
the Fund's ability to dispose of the underlying securities. Repurchase
agreements will be limited to 30% of the Fund's net assets, except that
repurchase agreements extending for more than seven days when combined with any
other illiquid securities held by the Fund will be limited to 15% of the Fund's
net assets. To the extent excludable under relevant regulatory interpretations,
repurchase agreements involving U.S. Government securities are not subject to
the Fund's investment restrictions which otherwise limit the amount of the
Fund's total assets which may be invested in one issuer or industry.
REVERSE REPURCHASE AGREEMENTS.
------------------------------
The Fund may enter into reverse repurchase agreements. However, the Fund may
not engage in reverse repurchase agreements in excess of 5% of the Fund's total
assets. In a reverse repurchase agreement the Fund transfers possession of a
portfolio instrument to another person, such as a financial institution, broker
or dealer, in return for a percentage of the instrument's market value in cash,
and agrees that on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest at an
agreed-upon rate. The ability to use reverse repurchase agreements may enable,
but does not ensure the ability of, the Fund to avoid selling portfolio
instruments at a time when a sale may be deemed to be disadvantageous.
When effecting reverse repurchase agreements, assets of the Fund in a dollar
amount sufficient to make payment of the obligations to be purchased are
segregated on the Fund's records at the trade date and maintained until the
transaction is settled.
WHEN-ISSUED SECURITIES.
-----------------------
The Fund may purchase "when-issued" securities, which are traded on a price
or yield basis prior to actual issuance. Such purchases will be made only to
achieve the Fund's investment objective and not for leverage. The when-issued
trading period generally lasts from a few days to months, or over a year or
more; during this period dividends or interest on the securities are not
payable. A frequent form of when-issued trading occurs when corporate securities
to be created by a merger of companies are traded prior to the actual
consummation of the merger. Such transactions may involve a risk of loss if the
value of the securities falls below the price committed to prior to actual
issuance. The Trust's custodian will establish a segregated account when the
Fund purchases securities on a when-issued basis consisting of cash or liquid
securities equal to the amount of the when-issued commitments. Securities
transactions involving delayed deliveries or forward commitments are frequently
characterized as when-issued transactions and are similarly treated by the Fund.
RESTRICTED SECURITIES.
----------------------
It is the Fund's policy not to make an investment in restricted securities,
including restricted securities sold in accordance with Rule 144A under the
Securities Act of 1933 ("Rule 144A Securities") if, as a result, more than 35%
of the Fund's total assets are invested in restricted securities, provided not
more than 10% of the Fund's total assets are invested in restricted securities
other than Rule 144A Securities.
Securities may be resold pursuant to Rule 144A under certain circumstances
only to qualified institutional buyers as defined in the rule, and the markets
and trading practices for such securities are relatively new and still
<PAGE>
developing; depending on the development of such markets, Rule 144A Securities
may be deemed to be liquid as determined by or in accordance with methods
adopted by the Trustees. Under such methods the following factors are
considered, among others: the frequency of trades and quotes for the security,
the number of dealers and potential purchasers in the market, market making
activity, and the nature of the security and marketplace trades. Investments in
Rule 144A Securities could have the effect of increasing the level of the Fund's
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing such securities. Also, the Fund may be
adversely impacted by the subjective valuation of such securities in the absence
of a market for them. Restricted securities that are not resalable under Rule
144A may be subject to risks of illiquidity and subjective valuations to a
greater degree than Rule 144A Securities.
FOREIGN INVESTMENTS.
--------------------
The Fund reserves the right to invest without limitation in securities of
non-U.S. issuers directly, or indirectly in the form of American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs"). Under current
policy, however, the Fund limits such investments, including ADRs and EDRs, to a
maximum of 35% of its total assets.
ADRs are receipts, typically issued by a U.S. bank or trust company, which
evidence ownership of underlying securities issues by a foreign corporation or
other entity. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. Generally, ADRs in registered form are designed for use
in U.S. securities markets and EDRs are designed for use in European securities
markets. The underlying securities are not always denominated in the same
currency as the ADRs or EDRs. Although investment in the form of ADRs or EDRs
facilitates trading in foreign securities, it does not mitigate all the risks
associated with investing in foreign securities.
ADRs are available through facilities which may be either "sponsored" or
"unsponsored." In a sponsored arrangement, the foreign issuer establishes the
facility, pays some or all of the depository's fees, and usually agrees to
provide shareholder communications. In an unsponsored arrangement, the foreign
issuer is not involved, and the ADR holders pay the fees of the depository.
Sponsored ADRs are generally more advantageous to the ADR holders and the issuer
than are unsponsored ADRs. More and higher fees are generally charged in an
unsponsored program compared to a sponsored facility. Only sponsored ADRs may be
listed on the New York or American Stock Exchanges. Unsponsored ADRs may prove
to be more risky due to (a) the additional costs involved to the Fund; (b) the
relative illiquidity of the issue in U.S. markets; and (c) the possibility of
higher trading costs in the over-the-counter market as opposed to exchange based
tradings. The Fund will take these and other risk considerations into account
before making an investment in an unsponsored ADR.
The risks associated with investments in foreign securities include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments, including the risks of
nationalization or exporpriation, the possible imposition of currency exchange
blockages, higher operating expenses, foreign withholding and other taxes which
may reduce investment return, reduced availability of public information
concerning issuers, the difficulties in obtaining and enforcing a judgment
against a foreign issuer and the fact that foreign issuers are not generally
subject to uniform accounting, auditing and financial reporting standards or to
other regulatory practices and requirements comparable to those applicable to
domestic issuers. Moreover, securities of many foreign issuers may be less
liquid and their prices more volatile than those of securities of comparable
domestic issuers.
These risks are usually higher in less-develop countries. Such countries
include countries that have an emerging stock market on which trade a small
number of securities and/or countries with economics that are based on only a
few industries. The Fund may invest in the securities of issuers in countries
with less developed economics as deemed appropriate by the Sub-Adviser. However,
it is anticipated that a majority of the foreign investments by the Fund will
consist of securities of issuers in countries with developed economics.
CURRENCY TRANSACTIONS.
----------------------
The Fund may engage in currency exchange transactions in order to protect
against the effect of uncertain future exchange rates on securities denominated
in foreign currencies. The Fund will conduct its currency exchange transactions
either on a spot (i.e., cash) basis at the rate prevailing in the currency
exchange market, or by entering into forward contracts to purchase or sell
currencies. The Fund's dealings in forward currency exchange contracts will be
limited to hedging involving either specific transactions or aggregate portfolio
<PAGE>
positions. A forward 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 agreed upon by the parties, at a price set at the
time of the contract. These contracts are not commodities and are entered into
in the interbank market conducted directly between currency traders (usually
large commercial banks) and their customers. In entering a forward currency
contract, the Fund is dependent upon the creditworthiness and good faith of the
counterparty. The Fund attempts to reduce the risks of nonperformance by the
counterparty by dealing only with established, reputable institutions. Although
spot and forward contracts will be used primarily to protect the Fund from
adverse currency movements, they also involve the risk that anticipated currency
movements will not be accurately predicted, which may result in losses to the
Fund. This method of protecting the value of the Fund's portfolio securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange that can be achieved at some future point in time. Although such
contracts tend to minimize the risk of loss due to a decline in the value of
hedged currency, they tend to limit any potential gain that might result should
the value of such currency increase.
SECURITIES LENDING.
-------------------
The Fund may lend portfolio securities with a value of up to 33 1/3% of its
total assets. The Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as collateral in an amount equal to at least 100% of the
current market value of any loaned securities plus accrued interest. Collateral
received by the Fund will generally be held in the form tendered, although cash
may be invested in unaffiliated mutual funds with quality short-term portfolios,
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities or certain unaffiliated mutual funds, irrevocable stand-by
letters of credit issued by a bank, or repurchase agreements, or other similar
investments. The investment of cash collateral received from loaning portfolio
securities involves leverage which magnifies the potential for gain or loss on
monies invested and, therefore, results in an increase in the volatility of the
Fund's outstanding securities. Such loans may be terminated at any time.
The Fund may receive a lending fee and will retain rights to dividends,
interest or other distributions, on the loaned securities. Voting rights pass
with the lending, although the Fund may call loans to vote proxies if desired.
Should the borrower of the securities fail financially, there is a risk of delay
in recovery which are deemed by the Sub-Adviser or its agents to be of good
financial standing.
SHORT-TERM TRADING.
-------------------
The Fund may engage in short-term trading of securities and reserves full
freedom with respect to portfolio turnover. In periods where there are rapid
changes in economic conditions and security price levels or when reinvestment
strategy changes significantly, portfolio turnover may be higher than during
times of economic and market price stability or when investment strategy remains
relatively constant. The Fund's portfolio turnover rate may involve greater
transaction costs, relative to other funds in general, and may have tax and
other consequences.
TEMPORARY AND DEFENSIVE INVESTMENTS.
------------------------------------
The Fund may hold up to 100% of its assets in cash or short-term debt
securities for temporary defensive purposes. The Fund will adopt a temporary
defensive position when, in the opinion of the Sub-Adviser, such a position is
more likely to provide protection against adverse market conditions than
adherence to the Fund's other investment policies. The types of short-term
instruments in which the Fund may invest for such purposes include short-term
money market securities, such as repurchase agreements, and securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
certificates of deposit, time deposits and bankers' acceptances of certain
qualified financial institutions and corporate commercial paper, which at the
time of purchase are rated at least within the "A" major rating category by
Standard & Poor's Corporation ("S&P") or the "Prime" major rating category by
Moody's Investor's Service, Inc. ("Moody's"), or if not rated, issued by
companies having an outstanding long-term unsecured debt issued rated at least
within the "A" category by S&P or Moody's.
INDUSTRY CLASSIFICATIONS.
-------------------------
In determining how much of the portfolio is invested in a given industry, the
following industry classifications are currently used. Securities issued or
guaranteed as to principal or interest by the U.S. Government or its agencies or
instrumentalities or mixed-ownership Government corporations or sponsored
enterprises (including repurchase agreements involving U.S. Government
securities to the extent excludable under relevant regulatory interpretations)
are excluded. Securities issued by foreign governments are also excluded.
<PAGE>
Companies engaged in the business of financing may be classified according to
the industries of their parent or sponsor companies, or industries that
otherwise most affect such financing companies. Issuers of asset-backed pools
will be classified as separate industries based on the nature of the underlying
assets, such as mortgages and credit card receivables.
"Asset-backed-Mortgages" includes privates pools of nongovernment backed
mortgages.
<TABLE>
<CAPTION>
AUTOS & TRANSPORTATION CONSUMER PRODUCTS FINANCIAL SERVICES
---------------------- ----------------- ------------------
<S> <C> <C>
Air Transport Consumer Services Banks & Savings and Loans
Auto parts Household Furnishings Financial Data Processing
Automobiles Leisure Time Services & Systems
Miscellaneous Photography Insurance
Transportation Printing & Publishing Miscellaneous Financial
Railroad Equipment Restaurants Real Estate Investment
Railroads Retail Trusts
Recreational Vehicles & Shoes Rental & Leasing Services:
Boats Textile Apparel Commercial
Tires & Rubber Manufacturers Securities Brokerage &
Truckers Toys Services
CONSUMER DISCRETIONARY CONSUMER STAPLES HEALTH CARE
--------------------- ---------------- -----------
Advertising Agencies Beverages Drugs & Biotechnology
Casino/Gambling, Drug & Grocery Store Health Care Facilities
Hotel/Motel Chains Health Care Services
Commercial Services Foods Hospital Supply
Communications, Media & Household Products Service Miscellaneous
Entertainment Tobacco
Consumer Electronics
INTEGRATED OILS OTHER ENERGY TECHNOLOGY
--------------- ------------ ----------
Oil: Integrated Domestic Gas Pipelines Communications Technology
Oil: Integrated International Miscellaneous Energy Computer Software
Offshore Drilling Computer Technology
MATERIALS & PROCESSING Oil & Gas Producers Electronics
---------------------
Agriculture Oil Well Equipment & Electronics: Semi-
Building & Construction Services Conductors/Components
Chemicals Miscellaneous Technology
Containers & Packaging PRODUCER DURABLES
-----------------
Diversified Manufacturing Aerospace UTILITIES
---------
Engineering & Contracting Electrical Equipment & Miscellaneous Utilities
Services Components Utilities: Cable TV & Radio
Fertilizers Electronics: Industrial Utilities: Electrical
Forest Products Components Utilities: Gas Distribution
Gold & Precious Metals Industrial Products Utilities: Telecommunications
Miscellaneous Materials & Machine Tools Utilities: Water
Processing Machinery
Non-Ferrous Metals Miscellaneous Equipment
Office Supplies Miscellaneous Producer
Paper & Forest Products Durables
Real Estate & Construction Office Furniture & Business
Steel Equipment
Textile Products Pollution Control and
Environmental Services
</TABLE>
<PAGE>
OTHER PRODUCER DURABLES
- ----- -----------------
Trust Certificates - (continued)
Government Related Production Technology
Lending Equipment
Asset-backed-Mortgages Telecommunications
Asset-backed-Credit Card Equipment
Receivables
Miscellaneous
Multi-Sector Companies
COMPUTER-RELATED RISKS
----------------------
Many mutual funds and other companies that issue securities, as well as
government entities upon whom those mutual funds and companies depend, may be
adversely affected by computer systems (whether their own systems or systems of
their service providers) that do not properly process dates beginning with
January 1, 2000 and information related to those dates.
The Sub-Adviser currently is in the process of reviewing its internal
computer systems as they related to the Fund, as well as the computer systems of
those service providers upon which the Fund relies, in order to obtain
reasonable assurances that the Fund will not experience a material adverse
impact related to the problem. The Fund does not currently anticipate that the
problem will have a material adverse impact on its portfolio investments, taken
as a whole. There can be no assurances in the area, however, including the
possibility that the problem could negatively affect the investment markets or
the economy generally.
OTHER INVESTMENT COMPANIES
--------------------------
The Fund may invest in securities of other investment companies, including
affiliated investment companies, such as open- or closed-end management
investment companies, hub and spoke (master/feeder) funds, pooled accounts or
other similar, collective investment vehicles. As a shareholder of an investment
company, the Fund may indirectly bear service and other fees in addition to the
fees the Fund pays its service providers. Similarly, other investment companies
may invest in the Fund. Other investment companies that invest in the Fund may
hold significant portions of the Fund and materially affect the sale and
redemption of Fund shares and the Fund's portfolio transactions.
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS
-----------------------------------------------
The Fund may invest in long-term and short-term debt securities. Certain debt
securities and money market instruments in which the Fund may invest are
described below.
U.S. GOVERNMENT AND RELATED SECURITIES. U.S. Government securities are
securities which are issued or guaranteed as to principal or interest by the
U.S. Government, a U.S. Government agency or instrumentality, or certain
mixed-ownership Government corporations as described herein. The U.S. Government
securities in which the Fund invests include, among others:
o direct obligations of the U.S. Treasury, i.e., U.S. Treasury bills, notes,
certificates and bonds;
o obligations of U.S. Government agencies or instrumentalities, such as the
Federal Home Loan Banks, the Federal Farm Credit Banks, the Federal
National Mortgage Association, the Government National Mortgage
Association and the Federal Home Loan Mortgage Corporation; and
o obligations of mixed-ownership Government corporations such as Resolution
Funding Corporation.
U.S. Government Securities which the Fund may buy are backed in a variety of
ways by the U.S. Government, its agencies or instrumentalities. Some of these
obligations, such as Government National Mortgage Association mortgage-backed
securities, are backed by the full faith and credit of the U.S. Treasury. Other
obligations, such as those of the Federal National Mortgage Association, are
backed by the discretionary authority of the U.S. Government to purchase certain
obligations of agencies or instrumentalities, although the U.S. Government has
no legal obligation to do so. Obligations such as those of the Federal Home Loan
Bank, the Federal Farm Credit Bank, the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation are backed by the credit of the
agency or instrumentality issuing the obligations. Certain obligations of
Resolution Funding Corporation, a mixed-ownership Government corporation, are
backed with respect to interest payments by the U.S. Treasury, and with respect
to principal payments by U.S. Treasury obligations held in a segregated account
with a Federal Reserve Bank. Except for certain mortgage-related securities, the
Fund will only invest in obligations issued by mixed-ownership Government
corporations where such securities are guaranteed as to payment of principal or
<PAGE>
interest by the U.S. Government or a U.S. Government agency or instrumentality,
and any unguaranteed principal or interest is otherwise supported by U.S.
Government obligations held in a segregated account.
U.S. Government securities may be acquired by the Fund in the form of
separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury. The principal and interest components of
selected securities are traded independently under the Separate Trading of
Registered Interest and Principal of Securities ("STRIPS") program. Under the
STRIPS program, the principal and interest components are individually numbered
and separately issued by the U.S. Treasury at the request of depository
financial institutions, which then trade the component parts independently.
Obligations of Resolution Funding Corporation are similarly divided into
principal and interest components and maintained as such on the book entry
records of the Federal Reserve Banks.
In addition, the Fund may invest in custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Treasury notes or bonds in connection with programs sponsored by banks and
brokerage firms. Such notes and bonds are held in custody by a bank on behalf of
the owners of the receipts. These custodial receipts are known by various names,
including "Treasury Receipts" ("TRs"), "Treasury Investment Growth Receipts"
(TIGRs") and "Certificates of Accrual on Treasury Securities ("CATS"), and may
be deemed U.S. Government securities.
The Fund may also invest from time to time in collective investment vehicles,
the assets of which consist principally of U.S. Government securities or other
assets substantially collateralized or supported by such securities, such as
Government trust certificates.
BANK MONEY INVESTMENTS
----------------------
Bank money investments include, but are not limited to, certificates of
deposit, bankers' acceptances and time deposits. Certificates of deposit are
generally short-term (i.e., less than one year), interest-bearing negotiable
certificates issued by commercial banks or savings and loan associations against
funds deposited in the issuing institution. A banker's acceptance is a time
draft drawn on a commercial bank by a borrower, usually in connection with an
international commercial transaction (to finance the import, export, transfer or
storage of goods). A banker's acceptance may be obtained from a domestic or
foreign bank, including a U.S. branch or agency of a foreign bank. The borrower
is liable for payment as well as the bank, which unconditionally guarantees to
pay the draft at its face amount on the maturity date. Most acceptances have
maturities of six months or less and are traded in secondary markets prior to
maturity. Time deposits are nonnegotiable deposits for a fixed period of time at
a stated interest rate. The Fund will not invest in any such bank money
investment unless the investment is issued by a U.S. bank that is a member of
the Federal Deposit Insurance Corporation ("FDIC"), including any foreign branch
thereof, a U.S. branch or agency of a foreign bank, a foreign branch of a
foreign bank, or a savings bank or savings and loan association that is a member
of the FDIC and which at the date of investment has capital, surplus and
undivided profits (as of the date of its most recently published financial
statements) in excess of $50 million. The Fund will not invest in time deposits
maturing in more than seven days and will not invest more than 10% of its total
assets in time deposits maturing in two to seven days.
U.S. branches and agencies of foreign banks are offices of foreign banks and
are not separately incorporated entities. They are chartered and regulated
either federally or under state law. U.S. federal branches or agencies of
foreign banks are chartered and regulated by the Comptroller of the Currency,
while state branches and agencies are chartered and regulated by authorities of
the respective states or the District of Columbia. U.S. branches of foreign
banks may accept deposits and thus are eligible for FDIC insurance; however, not
all such branches elect FDIC insurance. Unlike U.S. branches of foreign banks,
U.S. agencies of foreign banks may not accept deposits and thus are not eligible
for FDIC insurance. Both branches and agencies can maintain credit balances,
which are funds received by the office incidental to or arising out of the
exercise of their banking powers and can exercise other commercial functions,
such as lending activities.
SHORT-TERM CORPORATE DEBT INSTRUMENTS
-------------------------------------
Short-term corporate debt instruments include commercial paper to finance
short-term credit needs (i.e., short-term, unsecured promissory notes) issued by
corporations including but not limited to (a) domestic or foreign bank holding
companies or (b) their subsidiaries or affiliates where the debt instrument is
guaranteed by the bank holding company or an affiliated bank or where the bank
<PAGE>
holding company or the affiliated bank is unconditionally liable for the debt
instrument. Commercial paper is usually sold on a discounted basis and has a
maturity at the time of issuance not exceeding nine months.
ZERO AND STEP COUPON SECURITIES
-------------------------------
Zero and step coupon securities are debt securities that may pay no interest
for all or a portion of their life but are purchased at a discount to face value
at maturity. Their return consist of the amortization of the discount between
their purchase price and their maturity value, plus in the case of a step
coupon, any fixed rate interest income. Zero coupon securities pay no interest
to holders prior to maturity even though interest on these securities is
reported as income to the Fund. The Fund will be required to distribute all or
substantially all of such amounts annually to its shareholders. These
distributions may cause the Fund to liquidate portfolio assets in order to make
such distributions at a time when the Fund may have otherwise chosen not to sell
such securities. The market value of such securities may be more volatile than
that of securities which pay interest at regular intervals.
COMMERCIAL PAPER RATINGS
------------------------
Commercial paper investments at the time of purchase will be rated within the
"A" major rating category by S&P or within the "Prime" major rating category by
Moody's, or, if not rated, issued by companies having an outstanding long-term
unsecured debt issue rated at least within the "A" category by S&P or by
Moody's. The money market investments in corporate bonds and debentures (which
must have maturities at the date of settlement of one year or less) must be
rated at the time of purchase at least within the "A" category by S&P or within
the "Prime" category by Moody's, within comparable categories of other rating
agencies or considered to be of comparable quality by the Sub-Adviser.
Commercial paper rated within the "A" category (highest quality) by S&P is
issued by entities which have liquidity ratios which are adequate to meet cash
requirements. Long-term senior debt is rated within the "A" category or better,
although in some cases credits within the "BBB" category may be allowed. The
issuer has access to at least two additional channels of borrowing. Basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances. Typically, the issuer's industry is well established and the
issuer has a strong positions within the industry. The reliability and quality
of management are unquestioned. The relative strength or weakness of the above
factors determines whether the issuer's commercial paper is rated A-1, A-2 or
A-3. (Those A-1 issues determined to possess overwhelming safety characteristics
are denoted with a plus (+) sign: A-1+.)
The rating Prime is the highest commercial paper rating category assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: evaluation of the management of the issuer; economic evaluation of
the issuer's industry or industries and an appraisal of speculative-type risks
which may be inherent in certain areas; evaluation of the issuer's products in
relation to competition and customer acceptance; liquidity; amount and quality
of long-term debt; trend of earnings over a period of 10 years; financial
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations. These
factors are all considered in determining whether the commercial paper is rated
Prime-1, Prime-2 or Prime-3.
In the event the lowering of ratings of debt instruments held by the Fund by
applicable rating agencies results in a material decline in the overall quality
of the Fund's portfolio, the Trustees of the Trust will review the situation and
take such action as they deem in the best interests of the Fund's shareholders,
including, if necessary, changing the composition of the portfolio.
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
It is the policy of the Fund when purchasing and selling portfolio securities
to obtain the highest possible price on sales and the lowest possible price on
purchases of securities, consistent with the best execution of portfolio
transactions. Activa Asset Management, LLC, the ("Investment Advisor"), or the
Sub-Advisors will select the brokers and resulting allocation of brokerage
commission; but, the Investment Advisor's practice is subject to review by the
Board of Trustees of the Fund, which has the primary responsibility in this
regard, and must be consistent with the policies stated above.
The Investment Advisor and Sub-Advisor, in effecting purchases and sales of
portfolio securities for the account of the Fund, will implement the Fund's
policy of seeking best execution of orders, which includes best net prices.
Consistent with this policy, orders for portfolio transactions are placed with
broker-dealer firms giving consideration to the quality, quantity, and nature of
each firm's professional services which include execution, clearance procedures,
wire service quotations, research information, statistical, and other services
<PAGE>
provided to the Fund, Advisor, and the Sub-Advisor. Any research benefits
derived by the Sub-Advisor are available to all clients of the Sub-Advisor.
Since research information, statistical and other services are only
supplementary to the research efforts of the Sub-Advisor and still must be
analyzed and reviewed by its staff, the receipt of research information is not
expected to materially reduce expenses.
Also, subject to the policy of seeking best price and execution of orders,
certain Fund expenses may be paid through the use of directed brokerage
commissions. While the Sub-Advisor will be primarily responsible for the
placement of the Fund's business, the policies and practices in this regard must
be consistent with the foregoing and will at all times be subject to review by
the Trustees of the Fund.
During the years ended December 31, 1998, 1997, and 1996, the Fund paid total
brokerage commissions on purchase and sale of portfolio securities of $358,825,
$301,990, and $250,136, respectively. Transactions in the amount of $58,297,046,
involving commissions of approximately $59,629, were directed to brokers because
of research services provided during 1998.
The Sub-Advisor furnishes investment advice to other clients. The other
accounts may also make investments in the same investment securities and at the
same time as the Fund. When two or more of such clients are simultaneously
engaged in the purchase or sale of the same security, the transactions are
allocated as to amount and price in a manner considered equitable to each, so
that each receives, to the extent practicable, the average price of such
transactions, which may or may not be beneficial to the Fund. The Board of
Trustees of the Fund believes that the benefits of the Sub-Advisor's
organization outweigh any limitations that may arise from simultaneous
transactions.
The Fund may acquire securities of brokers who execute the Fund's portfolio
transactions. As of December 31, 1998, the Fund owned no such securities.
PRINCIPAL SHAREHOLDERS
- --------------------------------------------------------------------------------
Amway Corporation indirectly, as of June 30, 1999, owned __________
shares, or ___%, of the outstanding shares of the Fund. Jay Van Andel and
Richard M. DeVos are controlling persons of Amway Corporation since they own,
together with their spouses, substantially all of its outstanding securities.
Amway Corporation is a Michigan manufacturer and direct selling distributor of
home care and personal care products. Jay Van Andel owns all the outstanding
securities of JVA Properties Corporation, the General Partner for JVA
Enterprises Limited Partnership, which owns, as of June 30, 1999,
____________ shares, or ____%, of the outstanding shares of the Fund. The Jay
and Betty Van Andel Foundation, as of June 30, 1999 owns ______________
shares, or ____%, of the outstanding shares of the Fund. No other person is
known by the Fund to own of record or beneficially 5% or more of the Fund's
shares.
As noted above, Jay Van Andel together with his spouse beneficially owns more
than 25% of the Fund's voting securities. Accordingly, he may be deemed to
control the Fund.
If any of the Fund's principal shareholders were to substantially reduce its
investment in the Fund, it could have an adverse effect on
the Fund by decreasing the size of the Fund and by causing the Fund to incur
brokerage charges in connection with the redemption of the Fund's shares.
OFFICERS AND TRUSTEES OF THE FUND
- --------------------------------------------------------------------------------
The business affairs of the fund are managed and under the direction of the
Board of Trustees. The following are the Officers and Trustees of the Fund or
the Advisor or both, together with their principal occupations during the past
five years:
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE OFFICE HELD PRINCIPAL OCCUPATION LAST FIVE YEARS
- ---------------- ---- ------------- ------------------------------------
<S> <C> <C> <C>
Richard A. DeWitt 85 Trustee of the Fund President, DeWitt Land and
10001 Buttonwood Way Cattle Company (investments
Tequesta, Florida 33469 in land and cattle)
Allan D. Engel* 47 Trustee, Vice Sr. Manager, Investments and
2905 Lucerne SE President, Secretary Real Estate, Amway Corporation.
Grand Rapids, Michigan and Assistant Treasurer Director, President and
49546 of the Fund; President, Secretary of Amway Management
and Secretary of the Company (1981-1999). Trustee,
Investment Advisor. Vice President and Secretary,
Amway Mutual Fund, successor to
Activa Value Fund (1981-1999).
<PAGE>
Donald H. Johnson 69 Trustee of the Fund Retired, Former Vice
19017 Vintage Trace Circle President-Treasurer, SPX
Fort Myers, Florida Corporation (Designs,
33912 manufactures and markets
products and services for the
motor vehicle industry), 1986
to 1994.
Walter T. Jones 57 Trustee of the Fund Retired, Former Senior Vice
936 Sycamore Ave. President-Chief Financial
Holland, Michigan Officer, Prince Corporation.
49424
James J. Rosloniec* 54 Trustee, President and Vice President-Audit and
2905 Lucerne SE Treasurer of the Fund; Control, Amway Corporation,
Grand Rapids, Michigan and Director, 1991 to present. Director, Vice
49546 Vice-President and President and Treasurer of
Treasurer of the Amway Management Company
Investment Advisor. (1984-1999). Trustee,
President and Treasurer, Amway
Mutual Fund, successor to
Activa Value Fund (1981-1999).
Richard E. Wayman 64 Trustee of the Fund Retired, Former Finance
24578 Rutherford Director, Amway Corporation,
Ramona, California 1976 to 1996
92065
</TABLE>
<TABLE>
<CAPTION>
PENSION OR
NAME OF PERSON, TRUSTEE RETIREMENT ESTIMATED ANNUAL TOTAL COMPENSATION
POSITION COMPENSATION BENEFITS ACCRUED AS BENEFITS PAID TO TRUSTEES
PART OF FUND UPON RETIREMENT
EXPENSES
-------- ------------ ------------------- -------- ----------------
<S> <C> <C> <C> <C>
Richard A. DeWitt $5,000 -0- -0- $5,000
Trustee
Allan D. Engel* $5,000 -0- -0- $5,000
Trustee
Donald H. Johnson $5,000 -0- -0- $5,000
Trustee
Walter T. Jones $5,000 -0- -0- $5,000
Trusstee
James J. Rosloniec $5,000 -0- -0- $5,000
Trustee
Richard E. Wayman $4,500 -0- -0- $4,500
Trustee
</TABLE>
*These Trustees are interested persons under the Investment Company Act of
1940, as amended.
<PAGE>
All Officers and certain Trustees of the Fund and the Investment Advisor are
affiliated with Amway Corporation. The Officers serve without compensation from
the Fund. Fees paid to all Trustees during the year ended December 31, 1998,
amounted to $29,500. Under the Administrative Agreement, the Investment Advisor
pays the fees of the Trustees of the Fund. The Trustees and Officers of the Fund
owned, as a group, less than 1% of the outstanding shares of the Fund. The
Advisor also serves as the Fund's principal underwriter (see "Distribution of
Shares").
INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
The Fund has entered into an Investment Advisory Contract ("Contract") with
Activa Asset Management, LLC (the "Investment Adviser or Activa"). Under the
Contract, the Investment Adviser sets overall investment strategies for the Fund
and monitors and evaluates the investment performance of the Fund's Sub-Adviser,
including compliance with the investment objectives, policies and restrictions
of the Fund. If the Investment Adviser believes it is in the Fund's best
interests, it may recommend that additional or alternative Sub-Advisers be
retained on behalf of the Fund. If more than one Sub-Adviser is retained, the
Investment Adviser will recommend to the Fund's Trustees how the Fund's assets
should be allocated or reallocated from time to time, among the Sub-Advisers.
The Investment Adviser and the Fund have received an exemptive order from the
Securities and Exchange Commission with respect to certain provisions of the
Investment Company Act. As sent the exemptive order these provisions would
require that any change of Sub-Advisers be submitted to the Fund's shareholders
for approval. Pursuant to the exemptive order, any change in the Fund's
Sub-Advisers must be approved by the Fund's Trustees, including a majority of
the Fund's independent Trustees. If the Fund hires a new or an additional
Sub-Adviser, information about the new Sub-Adviser will be provided to the
Fund's shareholders within 90 days.
The Investment Advisory Agreement between the Fund and the Investment Adviser
became effective on September 1, 1999. For providing services under this
contract, the Investment Adviser is to receive compensation payable quarterly,
at the annual rate of .65 of 1% on the first $100,000,000 of average daily net
assets of the Fund, .60% on the next $50,000,000 in assets, and .55% on the next
$50,000,000 in assets. When the Fund's assets reach $200,000,000, the rate shall
be .60% on assets up to $200,000,000 and .55% on assets in excess of
$200,000,000 so long as the Fund continues to have at least $200,000,000 in
assets. Activa also provides certain administrative services for the Fund
pursuant to a separate agreement. See "Administrative Services Agreement."
Prior to September 1, 1999, Amway Management Company ("AMC") served as the
Fund's investment adviser. Pursuant to an Advisory and Service Contract between
the Fund and AMC, AMC provided certain administrative services to the Fund. The
fees paid by the Fund to AMC pursuant to this contract during the years December
31, 1998, 1997, and 1996, were $864,715, $727,102, and $524,637, respectively.
Members of the families of Jay Van Andel and Richard M. DeVos indirectly own
substantially all of the outstanding ownership interests of Activa. Members of
these families also indirectly own[ed] substantially all of the outstanding
securities of AMC.
SUB-ADVISOR
- --------------------------------------------------------------------------------
A Sub-Advisory Agreement has been entered into between the Investment Advisor
and Ark Asset Management Co., Inc., One New York Plaza, 29th Floor, New York, NY
10004 (Sub-Advisor). Under the Sub-Advisory Agreement, the Advisor employs the
Sub-Advisor to furnish investment advice and manage on a regular basis the
investment portfolio of the Fund, subject to the direction of the Advisor, the
Board of Directors of the Fund, and to the provisions of the Fund's current
Prospectus. The Sub-Advisor will make investment decisions on behalf of the Fund
and place all orders for the purchase or sale of portfolio securities for the
Fund's account, except when otherwise specifically directed by the Fund or the
Advisor. The fees of the Sub-Advisor are paid by the Investment Adviser, not the
Fund. During the years ended December 31, 1998, 1997, and 1996, these fees were
$702,560, $594,901, and $428,905, respectively.
PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------
Since September 1, 1999, Activa has acted as the exclusive agent for sales of
the Fund's shares pursuant to a Principal Underwriting Agreement. Prior to
September 1, 1999, AMC served as the Fund's Principal Underwriter. Prior to
April 22, 1998, the Principal Underwriter received a sales commission of 3% of
the offering price of the Fund's shares. The sales commission was eliminated
when the Fund adopted the Distribution Plan. During the years ended December 31,
1998, 1997 and 1996, AMC received sales commissions of $473,151, $513,417 and
$475,319, respectively. The only compensation currently received by the Advisor
in connection with the sale of Fund shares is pursuant to the Distribution Plan.
<PAGE>
ADMINISTRATIVE AGREEMENT
- --------------------------------------------------------------------------------
Pursuant to the Administrative Agreement between the Fund and AAM, AAM
provides specified assistance to the Fund with respect to compliance matters,
taxes and accounting, the provision of legal services, meetings of the Fund's
Trustees and shareholders, and preparation of the Fund's registration statement
and other filings with the Securities and Exchange Commission. In addition, AAM
pays the fees of the Fund's Trustees, and the salaries and fees of all of the
Fund's Trustees and officers who devote part or all of their time to the affairs
of AAM. For providing these services AAM receives a fee, payable quarterly, at
the annual rate of 0.15% of the Fund's average daily assets.
The Administrative Agreement provides that AAM is only responsible for paying
such fees and expenses and providing such services as are specified in the
agreement. The Fund is responsible for all other expenses including (i) expenses
of maintaining the Fund and continuing its existence; (ii) registration of the
Trust under the Investment Company Act of 1940; (iii) commissions, fees and
other expenses connected with the acquisition, disposition and valuation of
securities and other investments; (iv) auditing, accounting and legal expenses;
(v) taxes and interest; (vi) government fees; (vii) expenses of issue, sale,
repurchase and redemption of shares; (viii) expenses of registering and
qualifying the Trust, the Fund and its shares under federal and state securities
laws and of preparing and printing prospectuses for such purposes and for
distributing the same to shareholders and investors; (ix) expenses of reports
and notices to stockholders and of meetings of stockholders and proxy
solicitations therefore; (x) expenses of reports to governmental officers and
commissions; (xi) insurance expenses; (xii) association membership dues; (xiii)
fees, expenses and disbursements of custodians and sub-custodians for all
services to the Trust (including without limitation safekeeping of funds and
securities, and keeping of books and accounts); (xiv) fees, expenses and
disbursement of transfer agents, dividend disbursing agents, stockholder
servicing agents and registrars for all services to the Trust; (xv) expenses for
servicing shareholder accounts; (xvi) any direct charges to shareholders
approved by the Trustees of the Trust; and (xvii) such non-recurring items as
may arise, including expenses incurred in connection with litigation,
proceedings and claims and the obligation of the Trust to indemnify its Trustees
and officers with respect thereto.
Activa has provided certain administrative to the Fund since September 1,
1999. Administrative services were previously provided to the Fund by AMC
pursuant to the Advisory and Service Agreement between the Fund and AMC.
The Fund has entered into an agreement with Bisys Fund Services Ohio, Inc.
("Bisys") whereby Bisys provides a portfolio accounting and information system
for portfolio management for the maintenance of records and processing of
information which is needed daily in the determination of the net asset value of
the Fund.
TRANSFER AGENT
- --------------------------------------------------------------------------------
Under a separate contract, the functions of the Transfer Agent and Dividend
Disbursing Agent are performed by Activa Asset Management LLC, Grand Rapids,
Michigan, which acts as the Fund's agent for transfer of the Fund's shares and
for payment of dividends and capital gain distributions to shareholders.
In return for its services, the Fund pays the Transfer Agent, a fee of $1.167
per account in existence during the month, payable monthly, less earnings in the
redemption liquidity account after deducting bank fees, if any. The fee schedule
is reviewed annually by the Board of Trustees.
CUSTODIAN
- --------------------------------------------------------------------------------
The portfolio securities of the Fund are held, pursuant to a Custodian
Agreement, by Northern Trust Company, 50 South LaSalle, Chicago, Illinois, as
Custodian. The Custodian performs no managerial or policymaking functions for
the Fund.
AUDITORS
- --------------------------------------------------------------------------------
BDO Seidman, LLP, 99 Monroe Avenue, N.W., Suite 800, Grand Rapids, Michigan,
are the independent certified public accountants for the Fund. Services include
an annual audit of the Fund's financial statements, tax return preparation, and
review of certain filings with the SEC.
<PAGE>
PRICING OF FUND SHARES
- --------------------------------------------------------------------------------
The net asset value of the Fund's shares is determined by dividing the
total current value of the assets of the Fund, less its liabilities, by the
number of shares outstanding at that time. This determination is made at the
close of business of the New York Stock Exchange, usually 4:00 P.M. Eastern
time, on each business day on which that Exchange is open. Shares will not be
priced on national holidays or other days on which the New York Stock Exchange
is closed for trading.
The Fund's investments are generally valued at current market value. If
market quotations are not readily available, the Fund's investments will be
valued at fair value as determined by the Fund's Board of Trustees.
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Class R Shares are offered to tax-exempt retirement and benefit plans of
Amway Corporation and its affiliates. There are no minimum investment
requirements for shares of Class R. Participants in the tax-exempt retirement
and benefits plans of Amway Corporation and its affiliates should contact the
Plan Administrator for information about particular procedures or requirements
which may apply to Plan Participants.
All purchases will be made at the Net Asset Value per share net calculated
after the Fund receives your investment and application in proper form.
HOW SHARES ARE REDEEMED
- --------------------------------------------------------------------------------
The Fund will redeem your shares at the net asset value next determined after
your redemption request is received in proper form.
Payment for redeemed shares is normally made by check and mailed within three
days thereafter. However, under the Investment Company Act of 1940, the right of
redemption may be suspended or the date of payment postponed for more than seven
days: (1) for any period during which the New York Stock Exchange is closed,
other than for customary weekend and holiday closings; (2) when trading on the
New York Stock Exchange is restricted, as determined by the SEC; (3) when an
emergency exists, as determined by the SEC, as a result of which it is not
reasonably practicable for the Fund to dispose of its securities or determine
the value of its net assets; or (4) for such other period as the SEC may by
order permit for the protection of the shareholders. During such a period, a
shareholder may withdraw his request for redemption or receive the net asset
value next computed when regular trading resumes.
The Fund has filed with the SEC an election to pay for all redeemed shares in
cash up to a limit, as to any one shareholder during any 90-day periods, of
$250,000 or 1% of the net asset value of the Fund, whichever is less. Beyond
that limit, the Fund is permitted to pay the redemption price wholly or partly
"in kind," that is, by distribution of portfolio securities held by the Fund.
This would occur only upon specific authorization by the Board of Trustees when,
in their judgment, unusual circumstances make it advisable. It is unlikely that
this will ever happen, but if it does, you will incur a brokerage charge in
converting the securities received in this manner into cash. Portfolio
securities distributed "in kind" will be valued as they are valued for the
determination of the net asset value of the Fund's shares.
Participants in the tax-exempt retirement and benefit plans of Amway
Corporation and its affiliates should contact the Plan Administrator for
information about particular redemption procedures or requirements which may
apply to Plan Participants.
FEDERAL INCOME TAX
- --------------------------------------------------------------------------------
The Fund will make distributions of ordinary income and capital gains that
will relieve the Fund of all federal income taxes.
Shares of Class R will be held by the qualified retirement and benefit plans
of Amway Corporation and its affiliates ("the plans") for the benefit of plan
participants. The plans do not pay federal income taxes. Plan participants
should consult the plans' governing documents, and their own tax advisors, for
information about the tax consequences associated with participating in the
plans.
INVESTMENT PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
Following is the average annual total return percentages for one, five and
ten years for the Fund for annual periods ended December 31, 1998 for Class A.
The investment performance of Class R is expected to be substantially similar to
Class A because both Classes invest in the same portfolio of securities and
investment performance will differ only to the extent that the classes do not
have the same expenses. The estimated expenses for Class R, which are lower than
the expenses for Class A, are disclosed in the Fee Expense Table.
<PAGE>
AVERAGE ANNUAL TOTAL
RETURN FOR THE PERIODS PAST PAST PAST
ENDED DECEMBER 31, 1998 1 YEAR 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
ACTIVA VALUE FUND* 10.17% 15.36% 15.93%
RUSSELL 1000 VALUE** 15.63% 20.85% 17.39%
S&P 500** 28.58% 24.06% 19.21%
*Ark Asset Management Company has been subadvisor since May 1, 1995. Since
that time, the Fund's average annual total return has been 22.1%. Also, the S&P
500's and the Russell 1000 Value's average annual total return has been 29.3%
and 25.9%, respectively.
**The S&P 500 Index represents an unmanaged index generally representative of
the U.S. stock market. The Value Index represents a composite of value stocks
representative of the Fund's investment objectives and strategies which is
compiled independently by the Frank Russell Companies. Neither index is impacted
by Fund operating expenses.
Activa Asset Management LLC has served as the Fund's investment adviser since
September 1, 1999. The Fund's previous investment adviser was Amway Management
Company. See "Investment Adviser."
Total return performance for the Fund is calculated by making an initial
investment of $1,000 at the beginning of the period, in the Fund's shares at the
net asset value (without sales charge) and reinvesting all ordinary income
dividends and capital gain distributions paid during the period in additional
shares at net asset value per share on the reinvestment dates. The illustration
includes recurring expenses incurred by all shareholder accounts and not those
incurred for specific shareholder purposes such as bank fees for wire transfers,
Individual Retirement Accounts, or Profit-Sharing Trusts.
The average annual total return for the Fund for a specific period is found
by dividing the ending total value by the cost of the initial investment for the
period and taking this quotient to the Nth root, then subtracting 1 (N
represents the number of years in the period). The average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if the Fund's performance had been constant
over the entire period. Such calculation is with all ordinary income dividends
and capital gain distributions reinvested at net asset value exclusive of sales
charges. No adjustment has been made for any income taxes payable by
shareholders on ordinary income dividends and capital gain distributions
accepted in shares which are payable by shareholders in the tax year received.
Average annual total return percentages of the Fund will vary and the
publication of performance results is not a representation as to future
investment performance. Factors affecting the Fund's performance include general
market conditions, operating expenses and investment management. Net asset
values of the Fund will fluctuate. Additional information about the performance
of the Fund is contained in the Annual Shareholders Report which can be obtained
without charge.
REPORTS TO SHAREHOLDERS AND ANNUAL AUDIT
- --------------------------------------------------------------------------------
The Fund's year begins on January 1 and ends on December 31. At least
semiannually, the shareholders of the Fund receive reports, pursuant to
applicable laws and regulations, containing financial information. The annual
shareholders report is incorporated by reference into the Statement of
Additional Information. The cost of printing and distribution of such reports to
shareholders is borne by the Fund.
At least once during each year, the Fund is audited by independent certified
public accountants appointed by resolution of the Board and approved by the
shareholders. The fees and expenses of the auditors are paid by the Fund.
The financial statements for the Fund are contained in the Fund's 1998 Annual
Report to Shareholders along with additional information about the performance
of the Fund, which is incorporated herein by reference and may be obtained by
writing or calling the Fund.
<PAGE>
ACTIVA VALUE FUND
(a Series of Activa Mutual Fund Trust)
2905 Lucerne SE
Grand Rapids, Michigan 49546
(616) 787-6288
(800) 346-2670
=====================================================
ACTIVA
VALUE
FUND
Class R
Statement of
Additional Information
September 1, 1999
ACTIVA MUTUAL FUND LOGO
=====================================================
Printed in U.S.A.
<PAGE>
ACTIVA MUTUAL FUND TRUST
FORM N-1A
PART C
OTHER INFORMATION
ITEM 23. Exhibits
(a) DECLARATION OF TRUST
The Declaration of Trust for Amway Mutual Fund Trust,
renamed the Activa Mutual Fund Trust, (a Delaware Trust)
is included on Pages C-9 through C-34.
(b) BY-LAWS
The By-Laws of Amway Mutual Fund Trust, renamed the
Activa Mutual Fund Trust, (a Delaware trust), are
incorporated by reference to the Registration Statement
under the Securities Act of 1933, Post Effective Amendment
No. 43, Part C, Pages C-83 through C-97, as filed on
February 27, 1998.
(c) INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS
Reference is made to the Declaration of Trust,
Exhibit 23(a), including, in particular, Article III
(Units) and Article V (Unitholders Voting Powers and
Meetings), and to the By-Laws, Exhibit 23(b), including,
in particular, Article II (Meetings of Shareholders) and
Article V (Inspection of Records and Reports) which are
incorporated by reference to the Registration Statement
under the Securities Act of 1933, Post Effective Amendment
No. 44, Part C, Pages C-13 through C-17, and Pages C-25
through C-26, respectively, as filed on April 28, 1998 and
to Post Effective Amendment No. 43, Part C, Pages C-83
through C-97, as filed on February 27, 1998.
(d) INVESTMENT ADVISORY CONTRACT
(1) ADVISORY AND SERVICE CONTRACT BETWEEN ACTIVA MUTUAL
FUND TRUST AND ACTIVA ASSET MANAGEMENT, LLC
The Advisory and Service Contract between Activa
Mutual Fund Trust and Activa Asset Management, LLC is
included on Pages C- 5 through C-39.
(2) SUB-ADVISORY AGREEMENTS
(a) The Sub-Advisory Agreement between Activa Asset
Management, LLC and J.P. Morgan is included on
Pages C-40 through C-42.
<PAGE>
ACTIVA MUTUAL FUND TRUST
FORM N-1A
PART C
OTHER INFORMATION
ITEM 23. Exhibits (Continued)
(b) The Sub-Advisory Agreement between Activa Asset
Management, LLC and Van Kampen Management, Inc.
is included on Pages C-43 through C-45.
(c) The Sub-Advisory Agreement between Activa Asset
Management, LLC and ARK Asset Management Company,
Inc. is included on Pages C-46 through C-48.
(d) The Sub-Advisory Agreement between Activa Asset
Management, LLC and State Street Research is
included on Pages C-49 through C-51.
(e) The Sub-Advisory Agreement between Activa Asset
Management, LLC and Nicholas-Applegate is
included on Pages C-52 through C-54.
(e) PRINCIPAL UNDERWRITER AGREEMENT BETWEEN ACTIVA
MUTUAL FUND TRUST AND ACTIVA ASSET MANAGEMENT, LLC
The Principal Underwriter Agreement between
Activa Mutual Fund Trust and Activa Asset
Management, LLC is included on Pages C-55 through
C-60.
(f) BONUS OR PROFIT SHARING CONTRACTS
There are no bonus or profit sharing
contracts for the Board of Trustees.
(g) CUSTODIAN AGREEMENT
The Custody Agreement between Amway Mutual
Fund Trust, renamed the Activa Mutual Fund Trust,
and Northern Trust Company is incorporated by
reference to the Registration Statement under the
Securities Act of 1933, Post Effective Amendment
No. 46, Part C, Pages C-14 through C-35, as filed
on March 1, 1999.
<PAGE>
ACTIVA MUTUAL FUND TRUST
FORM N-1A
PART C
OTHER INFORMATION
ITEM 23. Exhibits (Continued)
(h) OTHER MATERIAL CONTRACTS
(1) TRANSFER AGENT AND SHAREHOLDER SERVICES
AGREEMENT BETWEEN ACTIVA MUTUAL FUND TRUST.
AND ACTIVA ASSET MANAGEMENT, LLC
The Class A Transfer Agency and Dividend
Disbursing Agency Agreement between Activa
Mutual Fund Trust and Activa Asset
Management, LLC is included on Pages C-61
through C-63 and the Class R Transfer Agent
and Administration Agreement between Activa
Mutual Fund Trust and Active Asset
Management, LLC is included on Pages C-64
through C-70.
(2) ADMINISTRATIVE AGREEMENT BETWEEN ACTIVA
MUTUAL FUND TRUST AND ACTIVA ASSET
MANAGEMENT, LLC
The Adminsitrative Agreement between
Activa Mutual Fund Trust and Activa Asset
Management, LLC is included on Pages C-71
through C-77.
(3) PORTFOLIO ACCOUNTING AND RESEARCH
INFORMATION SYSTEM
The Portfolio Accounting and Research
Information System Agreement between Activa
Asset Management, LLC and Bisys Securities,
Inc. is included on Pages C-78 through C-91.
(i) LEGAL OPINION
The legal opinion will be filed by
amendment.
(j) OTHER OPINIONS
The Consent of Independent Certified Public
Accountants is included on Page C-92. There are no
other opinions, appraisals or rulings, and related
consents relied on in preparing the registration
statement and required by Section 7 of the
Securities Act.
<PAGE>
ACTIVA MUTUAL FUND TRUST
FORM N-1A
PART C
OTHER INFORMATION
ITEM 23. Exhibits (Continued)
(k) OMITTED FINANCIAL STATEMENTS
The Annual Report for Amway Mutual Fund,
renamed Activa Mutual Fund Trust, is incorporated
by reference to the Registration Statement under
the Securities Act of 1933, Post Effective
Amendment No. 46, Part C, Pages C-37 through C-50
as filed on March 1, 1999.
(l) INITIAL CAPITAL AGREEMENTS
There are no agreements or understandings
made in consideration for providing the initial
capital between or among the Fund, the Underwriter,
Advisor, Promoter or initial shareholders.
(m) 12B-1 PLAN FOR DISTRIBUTION
The 12b-1 Plan for Distribution between
Activa Mutual Fund Trust and Activa Asset
Management, LLC is included on Pages C-93 through
C-96.
(n) FINANCIAL DATA SCHEDULE
Financial Data Schedule meeting the
requirement of Rule 483 under the Securities Act is
included on Pages C-132 through C-135.
(o) RULE 18F-3
The Rule 18f-3 Plan of Amway Mutual Fund,
renamed Activa Mutual Fund Trust, is incorporated
by reference to the Registration Statement under
the Securities Act of 1933, Post Effective
Amendment No. 45, Part C, Pages C-16 through C-17,
as filed on September 2, 1998.
<PAGE>
ACTIVA MUTUAL FUND TRUST
FORM N-1A
PART C
OTHER INFORMATION
LOCATION IN REGISTRATION STATEMENT
Part C
Page No.
------------
ITEM 24. Persons Controlled by
or under Common Control C-6
with the Fund
ITEM 25. Indemnification C-6
ITEM 26. Business and Other
Connections of C-7
Investment Advisor
ITEM 27. Principal Underwriter C-7
ITEM 28. Location of Accounts
and Records C-7
ITEM 29. Management Services C-8
ITEM 30. Undertakings C-8
<PAGE>
ACTIVA MUTUAL FUND TRUST
FORM N-1A
PART C
OTHER INFORMATION
ITEM 24. Persons Controlled by or under Common Control with the Fund.
Amway Corporation indirectly owns all of the outstanding
shares of Amway Investment, Inc., which, as of June 11, 1999,
owned 723,937 shares, or 2.6%, of the outstanding shares of
the Fund and all of the initial shares to be issued of Activa
Money Market Fund, Activa Intermediate Bond Fund, Activa
Growth Fund and Activa International Fund. Jay Van Andel and
Richard M. DeVos are controlling persons of Amway Corporation
since they own, together with their spouses, substantially all
of its outstanding securities.
Jay Van Andel owns all the outstanding securities of JVA
Properties Corporation, the General Partner for JVA
Enterprises Limited Partnership, which owns, as of June 11,
1999, 6,137,283 shares, or 22.4%, of the outstanding shares of
the Activa Value Fund Fund. The Jay and Betty Van Andel
Foundation, as of June 11, 1999, owns 1,894,122 shares, or
6.9%, of the outstanding shares of the Activa Value Fund.
Accordingly, Jay Van Andel, together with his spouse,
beneficially owns more than 25% of the Fund's voting
securities and he may be deemed to control the Fund.
Organizations controlled by the DeVos and Van Andel families
that have transactions with the Funds include Activa Asset
Management, LLC, the Fund's Advisor, Principal Underwriter,
Administration Service Agent Agreement and Transfer Agent, and
Amway Investment, Inc., which has an investment in the Funds
as disclosed above.
ITEM 25. Indemnification
Indemnification is covered in Section 9 of the Principal
Underwriter Agreement between Activa Mutual Fund Trust and
Activa Asset Management, LLC, which is filed as an exhibit
hereto. Also, a Joint Directors and Officers Liability
Insurance Policy for Activa Asset Management, LLC and Activa
Mutual Fund Trust is provided by those entities. The Sixth
Article of the Agreement and Declaration of Trust of Activa
Mutual Fund Trust, which is filed as an exhibit hereto,
provides for indemnification for any person to the extent
permitted by law.
<PAGE>
ITEM 26. Business and Other Connections of Investment Advisor.
Activa Asset Management, LLC acts as the investment advisor,
principal underwriter, and transfer agent for Activa Mutual
Fund Trust and as a servicing agent for the Cash Equivalent
Fund.
Business histories of each Director and Officer of the
Investment Advisor of the Registrant are included on Pages
C-97 through C-100.
Business histories of the Sub-Advisors for the Registrant and
of each of its Directors and Officers are included on Pages
C-101 through C-131.
ITEM 27. Principal Underwriter
(a) The principal underwriter, Activa Asset Management, LLC, acts
as such only for Activa Mutual Fund Trust. Listed below is the
information required pertaining to the individual Directors
and Officers of the principal underwriter.
There is no other principal underwriter.
<TABLE>
<CAPTION>
(b) Name and Principal Positions and Office Position and Offices
Business Address With Underwriter With Registrant
------------------ --------------------- ---------------------
<S> <C> <C>
James J. Rosloniec Vice President and President, Treasurer
7575 Fulton Street, East Treasurer and Trustee
Ada, MI 49355-0001
Allan D. Engel President and Secretary Vice President,
7575 Fulton Street, East Secretary, Assistant
Ada, MI 49355-7150 Treasurer and Trustee
</TABLE>
(c) Not Applicable.
ITEM 28. Location of Accounts and Records
With respect to each account, book, or other document required
to be maintained by Section 31(a) of the 1940 Act and the
Rules (17 CFR 270.31a-1 to 31a-3) promulgated thereunder, all
transfer agent and shareholder records are in the custody and
control of Activa Asset Management, LLC, Grand Rapids,
Michigan, pursuant to the Administrative Agreement All
portfolio securities held or in transfer are under the control
of the Custodian, Northern Trust, Chicago, Illinois; all
portfolio security records and brokerage records related
thereto are in the custody and control of Activa Asset
Management, LLC, Grand Rapids, Michigan, or the Sub-Advisors,
pursuant to the Sub-Advisory Agreements; and all remaining
records are in the custody and control of Activa Mutual Fund
Trust, Grand Rapids, Michigan.
<PAGE>
ITEM 29. Management Services
Activa Asset Management, LLC has entered into a contract with
DST, Inc. and Bisys which provides access to a data processing
recordkeeping system for stockholder accounting. The system
provides and supports remote terminal access to the providers
facilities for the maintenance of stockholder records,
processing of information, and the generation of output with
respect thereto. Pursuant to this agreement, Activa Asset
Management, LLC has paid to DST, including equipment costs,
telephone lines, and service fees for the three years ending
August 31, 1998, the fiscal year-end, a total of $287,490.
ITEM 30. Undertakings
Not applicable.
AGREEMENT AND DECLARATION OF TRUST
ACTIVA MUTUAL FUND TRUST
THIS AGREEMENT AND DECLARATION OF TRUST is made and entered into as of
the date set forth below by the Trustees named hereunder for the purpose of
forming a Delaware business trust in accordance with the provisions hereinafter
set forth.
NOW, THEREFORE, the Trustees hereby direct that the Certificate of Trust
be filed with the Office of the Secretary of State of the State of Delaware and
do hereby declare that the Trustees will hold IN TRUST all cash, securities, and
other assets which the Trust now possesses or may hereafter acquire from time to
time in any manner and manage and dispose of the same upon the following terms
and conditions for the benefit of the holders of Shares of this Trust.
ARTICLE I
Name and Definitions
Section 1. Name. This Trust shall be known as Activa Mutual Fund Trust
and the Trustees shall conduct the business of the Trust under that name or any
other name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise required
by the context or specifically provided:
(a) "Adviser(s)" means a party or parties furnishing services to the
Trust pursuant to any investment advisory or investment management contract
described in Article IV, Section 6(a) hereof;
(b) "By-Laws" shall mean the By-Laws of the Trust as amended from time
to time, which By-Laws are expressly herein incorporated by reference as part of
the "governing instrument" within the meaning of the Delaware Act;
(c) "Certificate of Trust" means the certificate of trust, as amended or
restated from time to time, filed by the Trustees in the Office of the Secretary
of State of the State of Delaware in accordance with the Delaware Act;
(d) "Class" means a class of Shares of a Series of the Trust established
in accordance with the provisions of Article III hereof;
(e) "Commission" shall have the meaning given such term in the 1940 Act;
(f) "Declaration of Trust" means this Agreement and Declaration of
Trust, as amended or restated from time to time;
(g) "Delaware Act" means the Delaware Business Trust Act, 12 Del. C.
ss.ss. 3801 et seq., as amended from time to time;
(h) "Interested Person" shall have the meaning given it in Section
2(a)(19) of the 1940 Act;
(i) "1940 Act" means the Investment Company Act of 1940 and the rules
and regulations thereunder, all as amended from time to time;
(j) "Person" means and includes individuals, corporations, partnerships,
trusts, associations, joint ventures, estates, and other entities, whether or
not legal entities, and governments and agencies and political subdivisions
thereof, whether domestic or foreign;
(k) "Principal Underwriter" shall have the meaning given such term in
the 1940 Act;
(l) "Series" means each Series of Shares established and designated
under or in accordance with the provisions of Article III hereof; and where the
context requires or where appropriate, shall be deemed to include "Class" or
"Classes";
(m) "Shareholder" means a record owner of outstanding shares;
(n) "Shares" means the units of beneficial interest into which the
beneficial interest in the Trust shall be divided from time to time and includes
fractions of Shares as well as whole Shares;
(o) "Trust" means the Delaware Business Trust established under the
Delaware Act by this Declaration of Trust and the filing of the Certificate of
Trust in the Office of the Secretary of State of the State of Delaware;
(p) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is from time to time owned or held by or for the
account of the Trust; and
(q) "Trustees" means the Person or Persons who have signed this
Declaration of Trust and all other Persons who may from time to time be duly
elected or appointed to serve as Trustees in accordance with the provisions
hereof, in each case so long as such Person shall continue in office in
accordance with the terms of this Declaration of Trust, and reference herein to
a Trustee or the Trustees shall refer to such Person or Persons in his or her or
their capacity as Trustees hereunder.
<PAGE>
ARTICLE II
Purpose of Trust
The purpose of the Trust is to conduct, operate and carry on the
business of an investment company registered under the 1940 Act through one or
more Series and to carry on such other business as the Trustees may from time to
time determine. The Trustees shall not be limited by any law limiting the
investments which may be made by fiduciaries.
ARTICLE III
Shares
Section 1. Division of Beneficial Interest. The beneficial interest in
the Trust shall be divided into one or more Series. The Trustees may divide each
Series into Classes. Subject to the further provisions of this Article III and
any applicable requirements of the 1940 Act, the Trustees shall have full power
and authority, in their sole discretion, and without obtaining any authorization
or vote of the Shareholders of any Series or Class thereof, (i) to divide the
beneficial interest in each Series or Class thereof into Shares, with or without
par value as the Trustees shall determine, (ii) to issue Shares without
limitation as to number (including fractional Shares) to such Persons and for
such amount and type of consideration, including cash or securities, subject to
any restriction set forth in the By-Laws, at such time or times and on such
terms as the Trustees may deem appropriate, (iii) to establish and designate and
to change in any manner any Series or Class thereof and to fix such preferences,
voting powers, rights, duties and privileges and business purpose of each Series
or Class thereof as the Trustees may from time to time determine, which
preferences, voting powers, rights, duties and privileges may be senior or
subordinate to (or in the case of business purpose, different from) any existing
Series or Class thereof and may be limited to specified property or obligations
of the Trust or profits and losses associated with specified property or
obligations of the Trust, (iv) to divide or combine the Shares of any Series or
Class thereof into a greater or lesser number without thereby materially
changing the proportionate beneficial interest of the Shares of such Series or
Class thereof in the assets held with respect to that Series, (v) to classify or
reclassify any issued Shares of any Series or Class thereof into shares of one
or more Series or Classes thereof; (vi) to change the name of any Series or
Class thereof; (vii) to abolish or terminate any one or more Series or Classes
thereof; (viii) to refuse to issue Shares to any Person or class of Persons; and
(ix) to take such other action with respect to the Shares as the Trustees may
deem desirable.
<PAGE>
Subject to the distinctions permitted among Classes of the same Series
as established by the Trustees, consistent with the requirements of the 1940
Act, each Share of a Series of the Trust shall represent an equal beneficial
interest in the net assets of such Series, and each holder of Shares of a Series
shall be entitled to receive such Shareholder's pro rata share of distributions
of income and capital gains, if any, made with respect to such Series and upon
redemption of the Shares of any Series, such Shareholder shall be paid solely
out of the funds and property of such Series of the Trust.
All references to Shares in this Declaration of Trust shall be deemed to
be Shares of any or all Series or Classes thereof, as the context may require.
All provisions herein relating to the Trust shall apply equally to each Series
of the Trust and each Class thereof, except as the context otherwise requires.
All Shares issued hereunder, including, without limitation, Shares
issued in connection with a dividend or other distribution in Shares or a split
or reverse split of Shares, shall be fully paid and nonassessable. Except as
otherwise provided by the Trustees, Shareholders shall have no preemptive or
other right to subscribe to any additional Shares or other securities issued by
the Trust.
Section 2. Ownership of Shares. The ownership of Shares shall be
recorded on the books of the Trust or those of a transfer or similar agent for
the Trust, which books shall be maintained separately for the Shares of each
Series or Class of the Trust. No certificates certifying the ownership of Shares
shall be issued except as the Trustees may otherwise determine from time to
time. The Trustees may make such rules as they consider appropriate for the
issuance of Share certificates, the transfer of Shares of each Series or Class
of the Trust and similar matters. The record books of the Trust as kept by the
Trust or any transfer or similar agent, as the case may be, shall be conclusive
as to the identity of the Shareholders of each Series or Class of the Trust and
as to the number of Shares of each Series or Class of the Trust held from time
to time by each Shareholder.
Section 3. Transfer of Shares. Except as otherwise provided by the
Trustees, Shares shall be transferable on the books of the Trust only by the
record holder thereof or by his or her duly authorized agent upon delivery to
the Trustees or the Trust's transfer agent of a duly executed instrument of
transfer, together with a Share certificate if one is outstanding, and such
evidence of the genuineness of each such execution and authorization and of such
other matters as may be required by the Trustees. Upon such delivery, and
subject to any further requirements specified by the Trustees or contained in
the By-Laws, the transfer shall be recorded on the books of the Trust. Until a
transfer is so recorded, the holder of record of Shares shall be deemed to be
the holder of such Shares for all purposes hereunder and neither the Trustees
nor the Trust, nor any transfer agent or registrar or any officer, employee, or
agent of the Trust, shall be affected by any notice of a proposed transfer.
<PAGE>
Section 4. Investments in the Trust. Investments may be accepted by the
Trust from Persons, at such times, on such terms, and for such consideration as
the Trustees from time to time may authorize.
Section 5. Status of Shares and Limitation of Personal Liability. Shares
shall be deemed to be personal property giving only the rights provided in this
instrument. Every Shareholder by virtue of having become a Shareholder shall be
held to have expressly assented and agreed to the terms hereof. The death,
incapacity, dissolution, termination, or bankruptcy of a Shareholder during the
existence of the Trust shall not operate to terminate the Trust, nor entitle the
representative of any such Shareholder to an accounting or to take any action in
court or elsewhere against the Trust or the Trustees, but shall entitle such
representative only to the rights of such Shareholder under this Trust.
Ownership of Shares shall not entitle the Shareholder to any title in or to the
whole or any part of the Trust Property or any right to call for a participation
or division of the same or for an accounting, nor shall the ownership of Shares
constitute the Shareholders as partners. No Shareholder shall be personally
liable for the debts, liabilities, obligations and expenses incurred by,
contracted for, or otherwise existing with respect to, the Trust or any Series.
Neither the Trust nor the Trustees, nor any officer, employee, or agent of the
Trust shall have any power to bind personally any Shareholder, nor, except as
specifically provided herein, to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as the Shareholder may
at any time personally agree to pay.
Section 6. Establishment, Designation, Abolition or Termination etc. of
Series or Class. The establishment and designation of any Series or Class of
Shares of the Trust shall be effective upon the adoption by a majority of the
Trustees then in office of a resolution that sets forth such establishment and
designation and the relative rights and preferences of such Series or Class of
the Trust, whether directly in such resolution or by reference to another
document including, without limitation, any registration statement of the Trust,
or as otherwise provided in such resolution. The abolition or termination of any
Series or Class of Shares of the Trust shall be effective upon the adoption by a
majority of the Trustees then in office of a resolution that abolishes or
terminates such Series or Class.
Shares of each Series or Class of the Trust established pursuant to this
Article III, unless otherwise provided in the resolution establishing such
Series or Class, shall have the following relative rights and preferences:
(a) Assets Held with Respect to a Particular Series. All consideration
received by the Trust for the issue or sale of Shares of a particular Series,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof from whatever source derived
(including, without limitation, any proceeds derived from the sale, exchange or
liquidation of such assets and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be) shall
<PAGE>
irrevocably be held separate with respect to that Series for all purposes, and
shall be so recorded upon the books of account of the Trust. Such consideration,
assets, income, earnings, profits and proceeds thereof, from whatever source
derived, (including, without limitation, any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments derived from
any reinvestment of such proceeds), in whatever form the same may be, are herein
referred to as "assets held with respect to" that Series. In the event that
there are any assets, income, earnings, profits and proceeds thereof, funds or
payments which are not readily identifiable as assets held with respect to any
particular Series (collectively "General Assets"), the Trustees shall allocate
such General Assets to, between or among any one or more of the Series in such
manner and on such basis as the Trustees, in their sole discretion, deem fair
and equitable, and any General Assets so allocated to a particular Series shall
be held with respect to that Series. Each such allocation by the Trustees shall
be conclusive and binding upon the Shareholders of all Series for all purposes.
Separate and distinct records shall be maintained for each Series and the assets
held with respect to each Series shall be held and accounted for separately from
the assets held with respect to all other Series and the General Assets of the
Trust not allocated to such Series.
(b) Liabilities Held with Respect to a Particular Series. The assets of
the Trust held with respect to each particular Series shall be charged against
the liabilities of the Trust held with respect to that Series and all expenses,
costs, charges, and reserves attributable to that Series, except that
liabilities and expenses allocated solely to a particular Class shall be borne
by that Class. Any general liabilities of the Trust which are not readily
identifiable as being held with respect to any particular Series or Class shall
be allocated and charged by the Trustees to and among any one or more of the
Series or Classes in such manner and on such basis as the Trustees in their sole
discretion deem fair and equitable. All liabilities, expenses, costs, charges,
and reserves so charged to a Series or Class are herein referred to as
"liabilities held with respect to" that Series or Class. Each allocation of
liabilities, expenses, costs, charges, and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all Series or Classes for all
purposes. Without limiting the foregoing, but subject to the right of the
Trustees to allocate general liabilities, expenses, costs, charges or reserves
as herein provided, the debts, liabilities, obligations and expenses incurred,
contracted for or otherwise existing with respect to a particular Series shall
be enforceable against the assets held with respect to such Series only and not
against the assets of the Trust generally or against the assets held with
respect to any other Series. Notice of this contractual limitation on
liabilities among Series may, in the Trustees' discretion, be set forth in the
Certificate of Trust and upon the giving of such notice in the Certificate of
Trust, the statutory provisions of Section 3804 of the Delaware Act relating to
limitations on liabilities among Series (and the statutory effect under Section
3804 of setting forth such notice in the certificate of trust) shall become
applicable to the Trust and each Series. Any person extending credit to,
contracting with or having any claim against any Series may look only to the
<PAGE>
assets of that Series to satisfy or enforce any debt with respect to that
Series. No Shareholder or former Shareholder of any Series shall have a claim on
or any right to any assets allocated or belonging to any other Series.
(c) Dividends, Distributions, Redemptions, and Repurchases.
Notwithstanding any other provisions of this Declaration of Trust, including,
without limitation, Article Vl, no dividend or distribution, including, without
limitation, any distribution paid upon termination of the Trust or of any Series
or Class with respect to, nor any redemption or repurchase of, the Shares of any
Series or Class, shall be effected by the Trust other than from the assets held
with respect to such Series, nor shall any Shareholder or any particular Series
or Class otherwise have any right or claim against the assets held with respect
to any other Series except to the extent that such Shareholder has such a right
or claim hereunder as a Shareholder of such other Series. The Trustees shall
have full discretion, to the extent not inconsistent with the 1940 Act, to
determine which items shall be treated as income and which items as capital, and
each such determination and allocation shall be conclusive and binding upon the
Shareholders.
(d) Equality. All the Shares of each particular Series shall represent
an equal proportionate interest in the assets held with respect to that Series
(subject to the liabilities held with respect to that Series or Class thereof
and such rights and preferences as may have been established and designated with
respect to any Class within such Series), and each Share of any particular
Series shall be equal to each other Share of that Series. With respect to any
Class of a Series, each such Class shall represent interests in the assets held
with respect to that Series and shall have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that
expenses allocated to a Class may be borne solely by such Class as determined by
the Trustees and a Class may have exclusive voting rights with respect to
matters affecting only that Class.
(e) Fractions. Any fractional Share of a Series or Class thereof shall
carry proportionately all the rights and obligations of a whole Share of that
Series or Class, including rights with respect to voting, receipt of dividends
and distributions, redemption of Shares and termination of the Trust.
(f) Exchange Privilege. The Trustees shall have the authority to provide
that the holders of Shares of any Series or Class shall have the right to
exchange said Shares for Shares of one or more other Series of Shares or Class
of Shares of the Trust or of other investment companies registered under the
1940 Act in accordance with such requirements and procedures as may be
established by the Trustees.
(g) Combination of Series. The Trustees shall have the authority,
without the approval of the Shareholders of any Series or Class unless otherwise
required by applicable law, to combine the assets and liabilities held with
respect to any two or more Series or Classes into assets and liabilities held
with respect to a single Series or Class.
<PAGE>
ARTICLE IV
Trustees
Section 1. Number, Election and Tenure. The number of Trustees shall
initially be 5 who shall be Richard A. DeWitt, Allan D. Engel, Donald H.
Johnson, Walter T. Jones, and James J. Rosloniec. Thereafter, the number of
Trustees shall at all times be at least one and no more than such number as
determined, from time to time, by the Trustees pursuant to Section 3 of this
Article IV. Each Trustee shall serve during the lifetime of the Trust until he
or she dies, resigns, has reached any mandatory retirement age as set by the
Trustees, is declared bankrupt or incompetent by a court of appropriate
jurisdiction, or is removed, or, if sooner, until the next meeting of
Shareholders called for the purpose of electing Trustees and until the election
and qualification of his or her successor. In the event that less than a
majority of the Trustees holding office have been elected by the Shareholders,
the Trustees then in office shall take such actions as may be necessary under
applicable law for the election of Trustees. Any Trustee may resign at any time
by written instrument signed by him or her and delivered to any officer of the
Trust or to a meeting of the Trustees. Such resignation shall be effective upon
receipt unless specified to be effective at some other time. Except to the
extent expressly provided in a written agreement with the Trust, no Trustee
resigning and no Trustee removed shall have any right to any compensation for
any period following his or her resignation or removal, or any right to damages
on account of such removal. The Shareholders may elect Trustees at any meeting
of Shareholders called by the Trustees for that purpose. Any Trustee may be
removed (a) at any meeting of Shareholders by a vote of two-thirds of the
outstanding Shares of the Trust, or (b) by a written instrument signed by at
least two-thirds of the number of Trustees prior to such removal.
Section 2. Effect of Death. Resignation. etc. of a Trustee. The death,
declination to serve, resignation, retirement, removal or incapacity of one or
more Trustees, or all of them, shall not operate to annul the Trust or to revoke
any existing agency created pursuant to the terms of this Declaration of Trust.
Whenever there shall be fewer than the designated number of Trustees, until
additional Trustees are elected or appointed as provided herein to bring the
total number of Trustees equal to the designated number, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by this Declaration
of Trust. As conclusive evidence of such vacancy, a written instrument
certifying the existence of such vacancy may be executed by an officer of the
Trust or by a majority of the Trustees. In the event of the death, declination,
resignation, retirement, removal, or incapacity of all the then Trustees within
a short period of time and without the opportunity for at least one Trustee
being able to appoint additional Trustees to replace those no longer serving,
the Trust's Adviser(s) are empowered to appoint new Trustees subject to the
provisions of the 1940 Act.
<PAGE>
Section 3. Powers. Subject to the provisions of this Declaration of
Trust, the business of the Trust shall be managed by the Trustees, and the
Trustees shall have all powers necessary or convenient to carry out that
responsibility including the power to engage in transactions of all kinds on
behalf of the Trust as described in this Declaration of Trust. Without limiting
the foregoing, the Trustees may: adopt By-Laws not inconsistent with this
Declaration of Trust providing for the management of the affairs of the Trust
and may amend and repeal such By-Laws to the extent that such By-Laws do not
reserve that right to the Shareholders; enlarge or reduce the number of
Trustees; remove any Trustee with or without cause at any time by written
instrument signed by at least two-thirds of the number of Trustees prior to such
removal, specifying the date when such removal shall become effective, and fill
vacancies caused by enlargement of their number or by the death, resignation,
retirement or removal of a Trustee; elect and remove, with or without cause,
such officers and appoint and terminate such agents as they consider
appropriate; appoint from their own number and establish and terminate one or
more committees, consisting of two or more Trustees, that may exercise the
powers and authority of the Board of Trustees to the extent that the Trustees so
determine; employ one or more custodians of the assets of the Trust and may
authorize such custodians to employ subcustodians and to deposit all or any part
of such assets in a system or systems for the central handling of securities or
with a Federal Reserve Bank; employ an administrator for the Trust and may
authorize such administrator to employ subadministrators; employ an investment
adviser or investment advisers to the Trust and may authorize such Advisers to
employ subadvisers; retain a transfer agent or a shareholder servicing agent, or
both; provide for the issuance and distribution of Shares by the Trust directly
or through one or more Principal Underwriters or otherwise; redeem, repurchase
and transfer Shares pursuant to applicable law; set record dates for the
determination of Shareholders with respect to various matters; declare and pay
dividends and distributions to Shareholders of each Series from the assets of
such Series; and in general delegate such authority as they consider desirable
to any officer of the Trust, to any committee of the Trustees and to any agent
or employee of the Trust or to any such custodian, transfer or shareholder
servicing agent, or Principal Underwriter. Any determination as to what is in
the interests of the Trust made by the Trustees in good faith shall be
conclusive. In construing the provisions of this Declaration of Trust, the
presumption shall be in favor of a grant of power to the Trustees. Unless
otherwise specified herein or in the By-Laws or required by law, any action by
the Trustees shall be deemed effective if approved or taken by a majority of the
Trustees present at a meeting of Trustees at which a quorum of Trustees is
present, within or without the State of Delaware.
<PAGE>
Without limiting the foregoing, the Trustees shall have the power and
authority to cause the Trust (or to act on behalf of the Trust):
(a) To invest and reinvest cash, to hold cash uninvested, and to
subscribe for, invest in, reinvest in, purchase or otherwise acquire, own, hold,
pledge, sell, assign, transfer, exchange, distribute, write options on, lend or
otherwise deal in or dispose of contracts for the future acquisition or delivery
of fixed income or other securities, and securities of every nature and kind,
including, without limitation, all types of bonds, debentures, stocks,
negotiable or non-negotiable instruments, obligations, evidences of
indebtedness, certificates of deposit or indebtedness, commercial papers,
repurchase agreements, bankers' acceptances, and other securities of any kind,
issued, created, guaranteed, or sponsored by any and all Persons, including
without limitation, states, territories, and possessions of the United States
and the District of Columbia and any political subdivision, agency, or
instrumentality thereof, any foreign government or any political subdivision of
the United States Government or any foreign government, or any international
instrumentality, or by any bank or savings institution, or by any corporation or
organization organized under the laws of the United States or of any state,
territory, or possession thereof, or by any corporation or organization
organized under any foreign law, or in "when issued" contracts for any such
securities, to change the investments of the assets of the Trust; and to
exercise any and all rights, powers, and privileges of ownership or interest in
respect of any and all such investments of every kind and description,
including, without limitation, the right to consent and otherwise act with
respect thereto, with power to designate one or more Persons to exercise any of
said rights, powers, and privileges in respect of any of said instruments;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or
write options (including, options on futures contracts) with respect to or
otherwise deal in any property rights relating to any or all of the assets of
the Trust or any Series;
(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such Person or Persons as the Trustees shall
deem proper, granting to such Person or Persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
(d) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, or in its own
name or in the name of a custodian or subcustodian or a nominee or nominees or
otherwise;
<PAGE>
(f) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security which is
held in the Trust; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;
(g) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees shall deem
proper;
(h) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including, but not limited to,
claims for taxes;
(i) To enter into joint ventures, general or limited partnerships and
any other combinations or associations;
(j) To borrow funds or other property in the name of the Trust
exclusively for Trust purposes and in connection therewith to issue notes or
other evidences of indebtedness; and to mortgage and pledge the Trust Property
or any part thereof to secure any or all of such indebtedness;
(k) To endorse or guarantee the payment of any notes or other
obligations of any Person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof; and to mortgage and pledge the
Trust Property or any part thereof to secure any of or all of such obligations;
(l) To purchase and pay for entirely out of Trust Property such
insurance as the Trustees may deem necessary or appropriate for the conduct of
the business, including, without limitation, insurance policies insuring the
assets of the Trust or payment of distributions and principal on its portfolio
investments, and insurance polices insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers, principal underwriters, or
independent contractors of the Trust, individually against all claims and
liabilities of every nature arising by reason of holding, being or having held
any such office or position, or by reason of any action alleged to have been
taken or omitted by any such Person as Trustee, officer, employee, agent,
investment adviser, principal underwriter, or independent contractor, including
any action taken or omitted that may be determined to constitute negligence,
whether or not the Trust would have the power to indemnify such Person against
liability;
<PAGE>
(m) To adopt, establish and carry out pension, profit-sharing, share
bonus, share purchase, savings, thrift and other retirement, incentive and
benefit plans and trusts, including the purchasing of life insurance and annuity
contracts as a means of providing such retirement and other benefits, for any or
all of the Trustees, officers, employees and agents of the Trust;
(n) To operate as and carry out the business of an investment company,
and exercise all the powers necessary or appropriate to the conduct of such
operations;
(o) To enter into contracts of any kind and description;
(p) To employ as custodian of any assets of the Trust one or more banks,
trust companies or companies that are members of a national securities exchange
or such other entities as the Commission may permit as custodians of the Trust,
subject to any conditions set forth in this Declaration of Trust or in the
By-Laws;
(q) To employ auditors, counsel or other agents of the Trust, subject to
any conditions set forth in this Declaration of Trust or in the By-Laws;
(r) To interpret the investment policies, practices, or limitations of
any Series or Class;
(s) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes, and with
separate Shares representing beneficial interests in such Series, and to
establish separate Classes, all in accordance with the provisions of Article
III;
(t) To the full extent permitted by the Delaware Act, to allocate
assets, liabilities and expenses of the Trust to a particular Series and Class
or to apportion the same between or among two or more Series or Classes,
provided that any liabilities or expenses incurred by a particular Series or
Class shall be payable solely out of the assets belonging to that Series or
Class as provided for in Article III;
(u) To invest all of the assets of the Trust, or any Series or any Class
thereof in a single investment company;
(v) Subject to the 1940 Act, to engage in any other lawful act or
activity in which a business trust organized under the Delaware Act may engage.
<PAGE>
The Trust shall not be limited to investing in obligations maturing
before the possible termination of the Trust or one or more of its Series. The
Trust shall not in any way be bound or limited by any present or future law or
custom in regard to investment by fiduciaries. The Trust shall not be required
to obtain any court order to deal with any assets of the Trust or take any other
action hereunder.
Section 4. Payment of Expenses by the Trust. The Trustees are authorized
to pay or cause to be paid out of the principal or income of the Trust, or
partly out of the principal and partly out of income, as they deem fair, all
expenses, fees, charges, taxes and liabilities incurred or arising in connection
with the Trust, or in connection with the management thereof, including, but not
limited to, the Trustees' compensation and such expenses and charges for the
services of the Trust's officers, employees, Advisers, Principal Underwriter,
auditors, counsel, custodian, transfer agent, shareholder servicing agent, and
such other agents or independent contractors and such other expenses and charges
as the Trustees may deem necessary or proper to incur, which expenses, fees,
charges, taxes and liabilities shall be allocated in accordance with Article
III, Section 6 hereof.
Section 5. Payment of Expenses by Shareholders. The Trustees shall have
the power, as frequently as they may determine, to cause each Shareholder, or
each Shareholder of any particular Series, to pay directly, in advance or
arrears, expenses of the Trust as described in Section 4 of this Article IV
("Expenses"), in an amount fixed from time to time by the Trustees, by setting
off such Expenses due from such Shareholder from declared but unpaid dividends
owed such Shareholder and/or by reducing the number of Shares in the account of
such Shareholder by that number of full and/or fractional Shares which
represents the outstanding amount of such Expenses due from such Shareholder,
provided that the direct payment of such Expenses by Shareholders is permitted
under applicable law.
Section 6. Ownership of Assets of the Trust. Title to all of the assets
of the Trust shall at all times be considered as vested in the Trust, except
that the Trustees shall have power to cause legal title to any Trust Property to
be held by or in the name of one or more of the Trustees, or in the name of the
Trust, or in the name of any other Person as nominee, on such terms as the
Trustees may determine. The right, title and interest of the Trustees in the
Trust Property shall vest automatically in each Person who may hereafter become
a Trustee. Upon the resignation, removal or death of a Trustee, he or she shall
automatically cease to have any right, title or interest in any of the Trust
Property, and the right, title and interest of such Trustee in the Trust
property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered.
<PAGE>
Section 7. Service Contracts.
(a) Subject to such requirements and restrictions as may be set forth
under federal and/or state law and in the By-Laws, including, without
limitation, the requirements of Section 15 of the 1940 Act, the Trustees may, at
any time and from time to time, contract for exclusive or nonexclusive advisory,
management and/or administrative services for the Trust or for any Series (or
Class thereof) with any Person and any such contract may contain such other
terms as the Trustees may determine, including, without limitation, authority
for the Adviser(s) or administrator to delegate certain or all of its duties
under such contracts to other qualified investment advisers and administrators
and to determine from time to time without prior consultation with the Trustees
what investments shall be purchased, held, sold or exchanged and what portion,
if any, of the assets of the Trust shall be held uninvested and to make changes
in the Trust's investments, or such other activities as may specifically be
delegated to such party.
(b) The Trustees may also, at any time and from time to time, contract
with any Person, appointing such Person exclusive or nonexclusive distributor or
Principal Underwriter for the Shares of one or more of the Series (or Classes)
or other securities to be issued by the Trust.
(c) The Trustees are also empowered, at any time and from time to time,
to contract with any Person, appointing such Person or Persons the custodian,
transfer agent and/or shareholder servicing agent for the Trust or one or more
of its Series.
(d) The Trustees are further empowered, at any time and from time to
time, to contract with any Person to provide such other services to the Trust or
one or more of the Series, as the Trustees determine to be in the best interests
of the Trust and the applicable Series.
(e) The fact that:
(i) any of the Shareholders, Trustees, or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, Adviser, Principal
Underwriter, distributor, or affiliate or agent of or for any Person, or for any
parent or affiliate of any Person with which an advisory, management, or
administration contract, or Principal Underwriter's or distributor's contract,
or transfer agent, shareholder servicing agent or other type of service contract
may have been or may hereafter be made, or that any such organization, or any
parent or affiliate thereof, is a Shareholder or has an interest in the Trust;
or that
<PAGE>
(ii) any Person with which an advisory, management, or administration
contract or Principal Underwriter's or distributor's contract, or transfer agent
or shareholder servicing agent contract may have been or may hereafter be made
also has an advisory, management, or administration contract, or Principal
Underwriter's or distributor's or other service contract with one or more other
Persons, or has other business or interests, shall not affect the validity of
any such contract or disqualify any Shareholder, Trustee or officer of the Trust
from voting upon or executing the same, or create any liability or
accountability to the Trust or its shareholders.
Section 8. Trustees and Officers as Shareholders. Any Trustee, officer
or agent of the Trust may acquire, own and dispose of Shares to the same extent
as if he or she were not a Trustee, officer or agent; and the Trustees may issue
and sell and cause to be issued and sold Shares to, and redeem such Shares from,
any such Person or any firm or company in which such Person is interested,
subject only to the general limitations contained herein or in the By-Laws
relating to the sale and redemption of such Shares.
Section 9. Compensation. The Trustees in such capacity shall be entitled
to reasonable compensation from the Trust and they may fix the amount of such
compensation. Nothing herein shall in any way prevent the employment of any
Trustee for advisory, management, legal, accounting, investment banking or other
services and payment for such services by the Trust.
ARTICLE V
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. Meetings. Notice. and Record Dates. The
Shareholders shall have power to vote only: (i) for the election or removal of
Trustees as provided in Article IV, Section 1 hereof, and (ii) with respect to
such additional matters relating to the Trust as may be required by applicable
law, this Declaration of Trust, the By-Laws or any registration statement of the
Trust with the Commission (or any successor agency) or as the Trustees may
consider necessary or desirable. Shareholders shall be entitled to one vote for
each dollar of net asset value, and a proportionate fractional vote with respect
to fractional dollar amounts, as to any matter on which the Share is entitled to
vote. Notwithstanding any other provision of this Declaration of Trust, on any
matters submitted to a vote of the Shareholders, all shares of the Trust then
entitled to vote shall be voted in aggregate, except: (i) when required by the
1940 Act, Shares shall be voted by individual Series; (ii) when the matter
involves any action that the Trustees have determined will affect only the
interests of one or more Series, then only Shareholders of such Series shall be
entitled to vote thereon; and (iii) when the matter involves any action that the
Trustees have determined will affect only the interests of one or more Classes,
then only the Shareholders of such Class or Classes shall be entitled to vote
thereon. There shall be no cumulative voting in the election of Trustees. Shares
may be voted in person or by proxy. A proxy may be given in writing. The By-Laws
<PAGE>
may provide that proxies may also, or may instead, be given by an electronic or
telecommunications device or in any other manner. Until Shares are issued, the
Trustees may exercise all rights of Shareholders and may take any action
required by law, this Declaration of Trust or the By-Laws to be taken by the
Shareholders. Meetings of the Shareholders shall be called and notice thereof
and record dates therefor shall be given and set as provided in the By-Laws.
Section 2. Quorum and Required Vote. Except when a larger quorum is
required by applicable law, by the By-Laws or by this Declaration of Trust,
twenty-five percent (25%) of the Shares issued and outstanding shall constitute
a quorum at a Shareholders' meeting but any lesser number shall be sufficient
for adjourned sessions. When any one or more Series (or Classes) is to vote as a
single Series (or Class) separate from any other Shares, twenty-five percent
(25%) of the Shares of each such Series (or Class) issued and outstanding shall
constitute a quorum at a Shareholders' meeting of that Series (or Class). Except
when a larger vote is required by any provision of this Declaration of Trust or
the By-Laws or by applicable law, when a quorum is present at any meeting, a
majority of the Shares voted shall decide any questions and a plurality of the
Shares voted shall elect a Trustee, provided that where any provision of law or
of this Declaration of Trust requires that the holders of any Series shall vote
as a Series (or that holders of a Class shall vote as a Class), then a majority
of the Shares of that Series (or Class) voted on the matter (or a plurality with
respect to the election of a Trustee) shall decide that matter insofar as that
Series (or Class) is concerned.
Section 3. Record Dates. For the purpose of determining the Shareholders
of any Series (or Class) who are entitled to receive payment of any dividend or
of any other distribution, the Trustees may from time to time fix a date, which
shall be before the date for the payment of such dividend or such other payment,
as the record date for determining the Shareholders of such Series (or Class)
having the right to receive such dividend or distribution. Without fixing a
record date, the Trustees may for distribution purposes close the register or
transfer books for one or more Series (or Classes) at any time prior to the
payment of a distribution. Nothing in this Section shall be construed as
precluding the Trustees from setting different record dates for different Series
(or Classes).
Section 4. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.
<PAGE>
ARTICLE VI
Net Asset Value, Distributions and Redemptions
Section 1. Determination of Net Asset Value, Net Income and
Distributions. Subject to applicable law and Article III, Section 6 hereof, the
Trustees, in their absolute discretion, may prescribe and shall set forth in the
By-Laws or in a duly adopted vote of the Trustees such bases and time for
determining the per Share or net asset value of the Shares of any Series or
Class or net income attributable to the Shares of any Series or Class, or the
declaration and payment of dividends and distributions on the Shares of any
Series or Class, as they may deem necessary or desirable.
Section 2. Redemptions and Repurchases.
(a) The Trust shall purchase such Shares as are offered by any
Shareholder for redemption, upon the presentation of a proper instrument of
transfer together with a request directed to the Trust, or a Person designated
by the Trust, that the Trust purchase such Shares or in accordance with such
other procedures for redemption as the Trustees may from time to time authorize;
and the Trust will pay therefor the net asset value thereof as determined by the
Trustees (or on their behalf), in accordance with any applicable provisions of
the By-Laws, any registration statement of the Trust and applicable law. Unless
extraordinary circumstances exist, payment for said Shares shall be made by the
Trust to the Shareholder in accordance with the 1940 Act and any rules and
regulations thereunder or as otherwise required by the Commission. The
obligation set forth in this Section 2(a) is subject to the provision that,
during any emergency which makes it impracticable for the Trust to dispose of
the investments of the applicable Series or to determine fairly the value of the
net assets held with respect to such Series, such obligation may be suspended or
postponed by the Trustees. In the case of a suspension of the right of
redemption as provided herein, a Shareholder may either withdraw the request for
redemption or receive payment based on the net asset value per share next
determined after the termination of such suspension.
(b) The redemption price may in any case or cases be paid wholly or
partly in kind if the Trustees determine that such payment is advisable in the
interest of the remaining Shareholders of the Series or Class thereof for which
the Shares are being redeemed. Subject to the foregoing, the fair value,
selection and quantity of securities or other property so paid or delivered as
all or part of the redemption price may be determined by or under authority of
the Trustees. In no case shall the Trust be liable for any delay of any Adviser
or other Person in transferring securities selected for delivery as all or part
of any payment-in-kind.
<PAGE>
(c) If the Trustees shall, at any time and in good faith, determine that
direct or indirect ownership of Shares of any Series or Class thereof has or may
become concentrated in any Person to an extent that would disqualify any Series
as a regulated investment company under the Internal Revenue Code of 1986, as
amended (or any successor statute thereof), then the Trustees shall have the
power (but not the obligation) by such means as they deem equitable (i) to call
for the redemption by any such Person of a number, or principal amount, of
Shares sufficient to maintain or bring the direct or indirect ownership of
Shares into conformity with the requirements for such qualification, (ii) to
refuse to transfer or issue Shares of any Series or Class thereof to such Person
whose acquisition of the Shares in question would result in such
disqualification, or (iii) to take such other actions as they deem necessary and
appropriate to avoid such disqualification. Any such redemption shall be
effected at the redemption price and in the manner provided in this Article VI.
(d) The holders of Shares shall upon demand disclose to the Trustees in
writing such information with respect to direct and indirect ownership of Shares
as the Trustees deem necessary to comply with the provisions of the Internal
Revenue Code of 1986, as amended (or any successor statute thereto), or to
comply with the requirements of any other taxing authority.
ARTICLE VII
Limitation of Liability; Indemnification
Section 1. Trustees, Shareholders, etc. Not Personally Liable; Notice.
The Trustees, officers, employees and agents of the Trust, in incurring any
debts, liabilities or obligations, or in taking or omitting any other actions
for or in connection with the Trust, are or shall be deemed to be acting as
Trustees, officers, employees or agents of the Trust and not in their own
capacities. No Shareholder shall be subject to any personal liability whatsoever
in tort, contract or otherwise to any other Person or Persons in connection with
the assets or the affairs of the Trust or of any Series, and subject to Section
4 of this Article VII, no Trustee, officer, employee or agent of the Trust shall
be subject to any personal liability whatsoever in tort, contract, or otherwise,
to any other Person or Persons in connection with the assets or affairs of the
Trust or of any Series, save only that arising from his or her own willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office or the discharge of his or her
functions. The Trust (or if the matter relates only to a particular Series, that
Series) shall be solely liable for any and all debts, claims, demands,
judgments, decrees, liabilities or obligations of any and every kind, against or
with respect to the Trust or such Series in tort, contract or otherwise in
connection with the assets or the affairs of the Trust or such Series, and all
Persons dealing with the Trust or any Series shall be deemed to have agreed that
resort shall be had solely to the Trust Property of the Trust (or if the matter
relates only to a particular Series, that of such Series), for the payment or
performance thereof.
<PAGE>
The Trustees may provide that every note, bond, contract, instrument,
certificate or undertaking made or issued by the Trustees or by any officers or
officer shall give notice that a Certificate of Trust in respect of the Trust is
on file with the Secretary of State of the State of Delaware and may recite to
the effect that the same was executed or made by or on behalf of the Trust or by
them as Trustees or Trustee or as officers or officer, and not individually, and
that the obligations of any instrument made or issued by the Trustees or by any
officer of officers of the Trust are not binding upon any of them or the
Shareholders individually but are binding only upon the assets and property of
the Trust, or the particular Series in question, as the case may be. The
omission of any statement to such effect from such instrument shall not operate
to bind any Trustees or Trustee or officers or officer or Shareholders or
Shareholder individually, or to subject the assets of any Series to the
obligations of any other Series.
Section 2. Trustees' Good Faith Action; Expert Advice; No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. Subject to Section 4 of this Article
VII, a Trustee shall be liable for his or her own willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee, and for nothing else, and shall not be liable
for errors of judgment or mistakes of fact or law. Subject to the foregoing, (i)
the Trustees shall not be responsible or liable in any event for any neglect or
wrongdoing of any officer, agent, employee, consultant, Adviser, administrator,
distributor or Principal Underwriter, custodian or transfer agent, dividend
disbursing agent, shareholder servicing agent or accounting agent of the Trust,
nor shall any Trustee be responsible for the act or omission of any other
Trustee; (ii) the Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust and their
duties as Trustees, and shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice; and (iii) in
discharging their duties, the Trustees, when acting in good faith, shall be
entitled to rely upon the books of account of the Trust and upon written reports
made to the Trustees by any officer appointed by them, any independent public
accountant, and (with respect to the subject matter of the contract involved)
any officer, partner or responsible employee of a contracting party employed by
the Trust. The Trustees as such shall not be required to give any bond or surety
or any other security for the performance of their duties.
Section 3. Indemnification of Shareholders. If any Shareholder (or
former Shareholder) of the Trust shall be charged or held to be personally
liable for any obligation or liability of the Trust solely by reason of being or
having been a Shareholder and not because of such Shareholder's acts or
omissions or for some other reason, the Trust (upon proper and timely request by
the Shareholder) may assume the defense against such charge and satisfy any
judgment thereon or may reimburse the Shareholders for expenses, and the
Shareholder or former Shareholder (or the heirs, executors, administrators or
other legal representatives thereof, or in the case of a corporation or other
entity, its corporate or other general successor) shall be entitled (but solely
<PAGE>
out of the assets of the Series of which such Shareholder or former Shareholder
is or was the holder of Shares) to be held harmless from and indemnified against
all loss and expense arising from such liability.
Section 4. Indemnification of Trustees, Officers, etc. Subject to the
limitations, if applicable, hereinafter set forth in this Section 4, the Trust
shall indemnify (from the assets of one or more Series to which the conduct in
question relates) each of its Trustees, officers, employees and agents
(including Persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise (hereinafter, together with such Person's
heirs, executors, administrators or personal representative, referred to as a
"Covered Persons") against all liabilities, including but not limited to amounts
paid in satisfaction of judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees, incurred by any
Covered Person in connection with the defense or disposition of any action, suit
or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such Covered Person may
be or may have been threatened, while in office or thereafter, by reason of
being or having been such a Trustee or officer, director or trustee, except with
respect to any matter as to which it has been determined that such Covered
Person (i) did not act in good faith in the reasonable belief that such Covered
Person's action was in or not opposed to the best interests of the Trust; or
(ii) had acted with willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered Person's office;
and (iii) for a criminal proceeding, had reasonable cause to believe that his or
her conduct was unlawful (the conduct described in (i), (ii) and (iii) being
referred to hereafter as "Disabling Conduct"). A determination that the Covered
Person is entitled to indemnification may be made by (i) a final decision on the
merits by a court or other body before whom the proceeding was brought that the
Covered Person to be indemnified was not liable by reason of Disabling Conduct,
(ii) dismissal of a court action or an administrative proceeding against a
Covered Person for insufficiency of evidence of Disabling Conduct, or (iii) a
reasonable determination, based upon a review of the facts, that the indemnitee
was not liable by reason of Disabling Conduct by (a) a vote of a majority of a
quorum of the Trustees who are neither "interested persons" of the Trust as
defined in the 1940 Act nor parties to the proceeding (the "Disinterested
Trustees"), or (b) an independent legal counsel in a written opinion. Expenses,
including accountants' and counsel fees so incurred by any such Covered Person
(but excluding amounts paid in satisfaction of judgments, in compromise or as
fines or penalties), may be paid from time to time by one or more Series to
which the conduct in question related in advance of the final disposition of any
such action, suit or proceeding; provided that the Covered Person shall have
undertaken to repay the amounts so paid to such Series if it is ultimately
determined that indemnification of such expenses is not authorized under this
Article VII and (i) the Covered Person shall have provided security for such
undertaking, (ii) the Trust shall be insured against losses arising by reason of
any lawful advances, or (iii) a majority of a quorum of the Disinterested
Trustees, or an independent legal counsel in a written opinion, shall have
<PAGE>
determined, based on a review of readily available facts (as opposed to a full
trial type inquiry), that there is reason to believe that the Covered Person
ultimately will be found entitled to indemnification.
Section 5. Compromise Payment. As to any matter disposed of by a
compromise payment by any such Covered Person referred to in Section 4 of this
Article VII, pursuant to a consent decree or otherwise, no such indemnification
either for said payment or for any other expenses shall be provided unless such
indemnification shall be approved (i) by a majority of a quorum of the
Disinterested Trustees or (ii) by an independent legal counsel in a written
opinion. Approval by the Trustees pursuant to clause (i) or by independent legal
counsel pursuant to clause (ii) shall not prevent the recovery from any Covered
Person of any amount paid to such Covered Person in accordance with either of
such clauses as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction not to have acted in good faith
in the reasonable belief that such Covered Person's action was in or not opposed
to the best interests of the Trust or to have been liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the Covered Person's
office.
Section 6. Indemnification Not Exclusive, etc. The right of
indemnification provided by this Article VII shall not be exclusive of or affect
any other rights to which any such Covered Person or shareholder may be
entitled. As used in this Article VII, a "disinterested" Person is one against
whom none of the actions, suits or other proceedings in question, and no other
action, suit or other proceeding on the same or similar grounds is then or has
been pending or threatened. Nothing contained in this Article VII shall affect
any rights to indemnification to which personnel of the Trust, other than
Trustees and officers, and other Persons may be entitled by contract or
otherwise under law, nor the power of the Trust to purchase and maintain
liability insurance on behalf of any such Person.
Section 7. Liability of Third Persons Dealing with Trustees. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
Section 8. Insurance. The Trustees shall be entitled and empowered to
the fullest extent permitted by law to purchase with Trust assets insurance for
liability and for all expenses reasonably incurred or paid or expected to be
paid by a Trustee, officer, employee, or agent of the Trust in connection with
any claim, action, suit, or proceeding in which he or she may become involved by
virtue of his or her capacity or former capacity as a Trustee of the Trust.
<PAGE>
ARTICLE VIII
Miscellaneous
Section 1. Termination of the Trust or Any Series or Class.
(a) Unless terminated as provided herein, the Trust shall continue
without limitation of time. The Trustees in their sole discretion may terminate
the Trust.
(b) Upon the requisite action by the Trustees to terminate the Trust or
any one or more Series of Shares or any Class thereof, after paying or otherwise
providing for all charges, taxes, expenses, and liabilities, whether due or
accrued or anticipated, of the Trust or of the particular Series or any Class
thereof as may be determined by the Trustees, the Trust shall in accordance with
such procedures as the Trustees may consider appropriate reduce the remaining
assets of the Trust or of the affected Series or Class to distributable form in
cash or Shares (if any Series remain) or other securities, or any combination
thereof, and distribute the proceeds to the Shareholders of the Series or
Classes involved, ratably according to the number of Shares of such Series or
Class held by the Shareholders of such Series or Class on the date of
distribution. Thereupon, the Trust or any affected Series or Class shall
terminate and the Trustees and the Trust shall be discharged from any and all
further liabilities and duties relating thereto or arising therefrom, and the
right, title, and interest of all parties with respect to the Trust or such
Series or Class shall be canceled and discharged.
(c) Upon termination of the Trust, following completion of winding up of
its business, the Trustees shall cause a certificate of cancellation of the
Trust's Certificate of Trust to be filed in accordance with the Delaware Act,
which certificate of cancellation may be signed by any one Trustee.
Section 2. Reorganization.
(a) Notwithstanding anything else herein, the Trustees may, without
Shareholder approval unless such approval is required by applicable law, (i)
cause the Trust to merge or consolidate with or into or transfer its assets and
any liabilities to one or more trusts (or series thereof to the extent permitted
by law), partnerships, associations, corporations or other business entities
(including trusts, partnerships, associations, corporations or other business
entities created by the Trustees to accomplish such merger or consolidation or
transfer of assets and any liabilities) so long as the surviving or resulting
entity is an investment company as defined in the 1940 Act, or is a series
thereof, that will succeed to or assume the Trust's registration under the 1940
Act and that is formed, organized, or existing under the laws of the United
States or of a state, commonwealth, possession or colony of the United States,
unless otherwise permitted under the 1940 Act, (ii) cause any one or more Series
(or Classes) of the Trust to merge or consolidate with or into or transfer its
<PAGE>
assets and any liabilities to any one or more other Series (or Classes) of the
Trust, one or more trusts (or series or classes thereof to the extent permitted
by law), partnerships, associations, corporations, (iii) cause the Shares to be
exchanged under or pursuant to any state or federal statute to the extent
permitted by law or (iv) cause the Trust to reorganize as a corporation, limited
liability company or limited liability partnership under the laws of Delaware or
any other state or jurisdiction.
(b) Pursuant to and in accordance with the provisions of Section 3815(f)
of the Delaware Act, and notwithstanding anything to the contrary contained in
this Declaration of Trust, an agreement of merger or consolidation or exchange
or transfer of assets and liabilities approved by the Trustees in accordance
with this Section 2 may (i) effect any amendment to the governing instrument of
the Trust or (ii) effect the adoption of a new governing instrument of the Trust
if the Trust is the surviving or resulting trust in the merger or consolidation.
(c) The Trustees may create one or more business trusts to which all or
any part of the assets, liabilities, profits, or losses of the Trust or any
Series or Class thereof may be transferred and may provide for the conversion of
Shares in the Trust or any Series or Class thereof into beneficial interests in
any such newly created trust or trusts or any series or classes thereof.
Section 3. Amendments. Except as specifically provided in this Section
3, the Trustees may, without Shareholder vote, restate, amend, or otherwise
supplement this Declaration of Trust. Shareholders shall have the right to vote
on (i) any amendment that would affect their right to vote granted in Article V,
Section 1 hereof, (ii) any amendment to this Section 3 of Article VIII; (iii)
any amendment that may require their vote under applicable law or by the Trust's
registration statement, as filed with the Commission, and (iv) any amendment
submitted to them for their vote by the Trustees. Any amendment required or
permitted to be submitted to the Shareholders that, as the Trustees determine,
shall affect the Shareholders of one or more Series shall be authorized by a
vote of the Shareholders of each Series affected and no vote of Shareholders of
a Series not affected shall be required. Notwithstanding anything else herein,
no amendment hereof shall limit the rights to insurance provided by Article VII
hereof with respect to any acts or omissions of Persons covered thereby prior to
such amendment nor shall any such amendment limit the rights to indemnification
referenced in Article VII hereof as provided in the By-Laws with respect to any
actions or omissions of Persons covered thereby prior to such amendment. The
Trustees may, without Shareholder vote, restate, amend, or otherwise supplement
the Certificate of Trust as they deem necessary or desirable.
<PAGE>
Section 4. Filing of Copies; References; Headings. The original or a
copy of this instrument and of each restatement and/or amendment hereto shall be
kept at the office of the Trust where it may be inspected by any Shareholder.
Anyone dealing with the Trust may rely on a certificate by an officer of the
Trust as to whether or not any such restatements and/or amendments have been
made and as to any matters in connection with the Trust hereunder; and, with the
same effect as if it were the original, may rely on a copy certified by an
officer of the Trust to be a copy of this instrument or of any such restatements
and/or amendments. In this instrument and in any such restatements and/or
amendments, references to this instrument, and all expressions such as "herein,"
"hereof," and "hereunder," shall be deemed to refer to this instrument as
amended or affected by any such restatements and/or amendments. Headings are
placed herein for convenience of reference only and shall not be taken as a part
hereof or control or affect the meaning, construction or effect of this
instrument. Whenever the singular number is used herein, the same shall include
the plural; and the neuter, masculine and feminine genders shall include each
other, as applicable. This instrument may be executed in any number of
counterparts each of which shall be deemed an original.
Section 5. Applicable Law.
(a) The Trust is created under, and this Declaration of Trust is to be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware. The Trust shall be of the type commonly called a business
trust, and without limiting the provisions hereof, the Trust specifically
reserves the right to exercise any of the powers or privileges afforded to
business trusts or actions that may be engaged in by business trusts under the
Delaware Act, and the absence of a specific reference herein to any such power,
privilege, or action shall not imply that the Trust may not exercise such power
or privilege or take such actions.
(b) Notwithstanding the first sentence of Section 5(a) of this Article
VIII, there shall not be applicable to the Trust, the Trustees, or this
Declaration of Trust either the provisions of Section 3540 of Title 12 of the
Delaware Code or any provisions of the laws (statutory or common) of the State
of Delaware (other than the Delaware Act) pertaining to trusts that relate to or
regulate: (i) the filing with any court or governmental body or agency of
Trustee accounts or schedules of trustee fees and charges; (ii) affirmative
requirements to post bonds for trustees, officers, agents, or employees of a
trust; (iii) the necessity for obtaining a court or other governmental approval
concerning the acquisition, holding, or disposition of real or personal
property; (iv) fees or other sums applicable to trustees, officers, agents or
employees of a trust; (v) the allocation of receipts and expenditures to income
or principal; (vi) restrictions or limitations on the permissible nature,
amount, or concentration of trust investments or requirements relating to the
titling, storage, or other manner of holding of trust assets; or (vii) the
establishment of fiduciary or other standards or responsibilities or limitations
on the acts or powers or liabilities or authorities and powers of trustees that
<PAGE>
are inconsistent with the limitations or liabilities or authorities and powers
of the Trustees set forth or referenced in this Declaration of Trust; or (viii)
activities similar to those referenced in the foregoing items (i) through (vii).
Section 6. Provisions in Conflict with Law or Regulations.
(a) The provisions of this Declaration of Trust are severable, and if
the Trustees shall determine, with the advice of counsel, that any such
provision is in conflict with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code of 1986, as amended (or any successor
statute thereto), and the regulations thereunder, the Delaware Act or with other
applicable laws and regulations, the conflicting provision shall be deemed never
to have constituted a part of this Declaration of Trust; provided, however, that
such decision shall not affect any of the remaining provisions of this
Declaration of Trust or render invalid or improper any action taken or omitted
prior to such determination.
(b) If any provision of this Declaration of Trust shall be held invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall, not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration of Trust in any jurisdiction.
Section 7. Business Trust Only. It is the intention of the Trustees to
create a business trust pursuant to the Delaware Act. It is not the intention of
the Trustees to create a general partnership, limited partnership, joint stock
association, corporation, bailment, or any form of legal relationship other than
a business trust pursuant to the Delaware Act. Nothing in this Declaration of
Trust shall be construed to make the Shareholders, either by themselves or with
the Trustees, partners, or members of a joint stock association.
<PAGE>
IN WITNESS WHEREOF, the Trustees named below do hereby make and enter
into this Agreement and Declaration of Trust as of the 11th day of June, 1999.
/S/ RICHARD A. DEWITT /S/ JAMES J. ROSLONIEC
Richard A. DeWitt James J. Rosloniec
Trustee and not individually Trustee and not individually
/S/ ALLAN D. ENGEL /S/ WALTER T. JONES
Allan D. Engel Walter T. Jones
Trustee and not individually Trustee and not individually
/S/ DONALD H. JOHNSON /S/ RICHARD E. WAYMAN
Donald H. Johnson Richard E. Wayman
Trustee and not individually Trustee and not individually
THE PRINCIPAL PLACE OF BUSINESS
OF THE TRUST IS:
2905 Lucerne SE
Grand Rapids, Michigan 49546
ADVISORY AND SERVICE CONTRACT
BETWEEN
ACTIVA MUTUAL FUND TRUST
AND
ACTIVA ASSET MANAGEMENT, LLC
AGREEMENT made as of the 11th day of June 1999 between the ACTIVA
MUTUAL FUND TRUST, a Delaware business trust (hereinafter called the "Trust") on
behalf of each fund series ("Fund") identified on Schedule A, and ACTIVA ASSET
MANAGEMENT, a Michigan LLC (hereinafter called the "Adviser");
WITNESSETH:
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by the parties hereto as follows:
1. DUTIES OF THE ADVISER. The Trust hereby employs the Adviser to
provide investment management services on a regular basis to each Series of the
Trust set forth on Exhibit A hereto ("Fund"). Such services shall be subject to
the review and approval of the Board of Trustees of the Trust, and to the
provisions of the Fund's current prospectus, and shall include (i) managing the
Fund's portfolio; (ii) setting the overall investment strategies of the Fund;
(iii) allocating and, when appropriate, reallocating the assets of the Fund
among Sub-Advisers in those cases where a Fund has more than one Sub-Adviser;
(iv) recommending Sub-Advisers when appropriate; and (v) monitoring and
evaluating the investment performance of the Sub-Advisers of the Funds,
including their compliance with the investment objectives, policies and
restrictions of the Funds. The Adviser will, from time to time, discuss with the
Trust economic investment developments which may affect the Fund's portfolio and
furnish such information as the Adviser may believe appropriate for this
purpose. The Adviser will maintain such statistical and analytical information
with respect to the Fund's portfolio securities as the Adviser may believe
appropriate, and shall make such materials available for inspection by the
Trust, as may be reasonable. The Adviser, for all purposes herein provided,
shall be deemed to be an independent contractor and, unless otherwise expressly
provided or authorized, shall have no authority to act for or represent the
Trust in any way or otherwise be deemed an agent of the Trust. The Adviser shall
be free to render similar services or other services to others so long as its
<PAGE>
services hereunder shall not be impaired thereby. The Adviser shall be permitted
to enter into an agreement with another investment advisory organization whereby
the other organization will provide all or a part of the investment advice and
the services required to manage the Trust's investment portfolio. The fees for
such services shall be paid by the Adviser, not the Trust or the Funds. Any such
agreement will be subject to approval as required in Section 5 herein.
2. FEES AND EXPENSES. For the services and facilities to be rendered,
as provided herein, during any fiscal quarter by the Adviser hereunder, the
Trust shall pay the Adviser a fee, payable quarterly, at the annual rate for
each Fund as set forth in Exhibit A. Each Fund's assets shall be determined as
of the close of each business day throughout the quarter. For the month and year
in which this agreement become effective or terminates, there shall be an
appropriate proration on the basis of the number of days that the agreement is
in effect during the month and year, respectively.
It is understood that each Fund will pay all its expenses other than
those expressly stated to be payable by the Adviser hereunder. The expenses
payable by each Fund shall include, without implied limitation, (i) expenses of
maintaining the Fund and continuing its existence; (ii) registration of the
Trust under the Investment Company Act of 1940; (iii) commissions, fees and
other expenses connected with the acquisition, disposition and valuation of
securities and other investments; (iv) auditing, accounting and legal expenses;
(v) taxes and interest; (vi) government fees; (vii) expenses of issue, sale,
repurchase and redemption of shares; (viii) expenses of registering and
qualifying the Trust, the Fund and its shares under federal and state securities
laws and of preparing and printing prospectuses for such purposes and for
distributing the same to shareholders and investors, and fees and expenses of
registering and maintaining registrations of the Fund and of the Fund's
principal underwriters, if any, as broker-dealer or agent under state securities
laws; (ix) expenses of reports and notices to stockholders and of meetings of
stockholders and proxy solicitations therefore; (x) expenses of reports to
governmental officers and commissions; (xi) insurance expenses; (xii)
association membership dues; (xiii) fees, expenses and disbursements of
custodians and sub-custodians for all services to the Trust (including without
limitation safekeeping of funds and securities, and keeping of books and
accounts); (xiv) fees, expenses and disbursement of transfer agents, dividend
disbursing agents, stockholder servicing agents and registrars for all services
to the Trust; (xv) expenses for servicing shareholder accounts; (xvi) any direct
<PAGE>
charges to shareholders approved by the Trustees of the Trust; and (xvii) such
non-recurring items as may arise, including expenses incurred in connection with
litigation, proceedings and claims and the obligation of the Trust to indemnify
its Trustees and officers with respect thereto.
3. MUTUAL INTERESTS. Subject to applicable statutes and regulations, it
is understood that trustees, officers, beneficial shareholders, or agents of the
Trust or the Funds may be interested in the Adviser as directors, officers,
stockholders, agents, or otherwise; and that the directors, officers,
stockholders, and agents of the Adviser may be interested in the Trust or the
Funds otherwise than as directors, officers, or agents.
4. LIMITATION OF LIABILITY OF THE ADVISER. The Adviser shall not be
liable for any error of judgment or of law, or for any loss suffered by the
Trust, the Funds, or any stockholder in connection with the matters to which
this agreement relates, except loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Adviser in the performance of its
obligations and duties, or by reason of its reckless disregard of its
obligations and duties under this agreement.
5. DURATION AND TERMINATION OF THIS AGREEMENT. This agreement shall
become effective upon execution and shall remain in force for two years, unless
sooner terminated as hereinafter provided and shall continue in force from year
to year thereafter, but only so long as such continuance is specifically
approved, at least annually, by a majority vote of the Trustees of the Trust,
including a majority of the Trustees who are not parties to the agreement or
interested persons of any such party (other than as Trustees of the Trust) or by
a vote of a majority of the Trust's outstanding shares, but in either case by
the disinterested Trustees, in the manner required by the Investment Company Act
of 1940.
This agreement may be terminated by the Trust or by the Adviser at any
time without payment of any penalty by vote of the Trustees of the Trust, or by
the Adviser, or by vote of the holders of a majority of the outstanding shares
of the Fund on sixty (60) days' written notice to the other parties hereto.
Termination of this agreement shall not affect the right of the Adviser
to receive payments on any unpaid balance of the compensation described in
Section 2 earned prior to such termination.
<PAGE>
If any provision of this agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
This agreement shall automatically terminate in the event of its
assignment. The term "assignment" for this purpose has the meaning defined in
Section 2(a)4 of the Investment Company Act of 1940.
6. USE OF THE TRUST NAME. The Adviser hereby consents to the use by the
Fund of the Trust name "Activa" as part of the Fund's name; provided, however,
that such consent shall be conditioned upon the employment of the Adviser or any
one of its affiliates as the manager of the Fund. The Trust name "Activa" or any
variation thereof may be used from time to time in other connections and for
other purposes by the Adviser and its affiliates and other investment companies
that have obtained consent to the use of the Trust name "Activa." The Adviser
shall have the right to require the Fund to cease using the name "Activa" as
part of the Fund's name if the Fund ceases, for any reason, to employ the
Adviser or one of its affiliates as the Fund's adviser. Future names adopted by
the Fund itself, insofar as such names include identifying words requiring the
consent of the Adviser, shall be the property of the Adviser and shall be
subject to the same terms and conditions.
7. LIMITATION OF LIABILITY OF THE TRUSTEES, OFFICERS, AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Fund is on file with the
Secretary of State of The Commonwealth of Delaware and notice is hereby given
that this instrument is executed on behalf of the Trustees of the Fund as
Trustees and not individually and that the obligations of or arising out of this
instrument are not binding upon any of the Trustees, officers or shareholders
individually but are binding only upon the assets and property of the Fund.
8. WRITTEN NOTICE. Any notice under this agreement shall be in writing
addressed and delivered or mailed postage prepaid, to the other parties at such
address as such other parties may designate for the receipt of such notices.
<PAGE>
IN WITNESS WHEREOF, the Trust and the Adviser have caused this
agreement to be signed, as of the day and year first above written.
ACTIVA MUTUAL FUND TRUST
By: ________________________________
James J. Rosloniec
President
ACTIVA ASSET MANAGEMENT, LLC
By: ________________________________
Allan D. Engel
President
SUB-ADVISORY AGREEMENT
BETWEEN
ACTIVA ASSET MANAGEMENT, LLC
AND
J.P. MORGAN INVESTMENT MANAGEMENT, INC.
AGREEMENT made as of the 11th day of June 1999 between ACTIVA ASSET
MANAGEMENT, a Michigan LLC having its principal place of business in Grand
Rapids, Michigan (hereinafter called "AAM"), and J.P. Morgan Investment
Management, Inc. (hereinafter called "Sub-Adviser"), having its principal place
of business in New York, New York'
WHEREAS, AAM is the investment adviser to Activa Money Market Fund (the
"Fund") a series of Activa Fund Trust (the "Trust"), a Delaware business trust,
an investment company registered under the Investment Company Act of 1940, as
amended (hereinafter called "1940 Act"); and
WHEREAS, AAM wishes to retain Sub-Adviser to furnish the Fund with
investment advice and Adviser is willing to furnish such services to AAM.
WITNESSETH:
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by the parties hereto as follows:
1. AAM hereby employs Sub-Adviser to furnish investment advice and
manage on a regular basis the investment portfolio of the Fund, subject always
to the direction of AAM, the Board of Trustees of the Trust, and to the
provisions of the Fund's current Prospectus. Sub-Adviser shall provide
administrative facilities, including bookkeeping, clerical personnel and
equipment necessary for the management of the Fund's portfolio of investments
(excluding determination of net asset value and shareholder accounting
services). Sub-Adviser shall advise and assist AAM and the officers of the Trust
in taking such steps as are necessary or appropriate to carry out
the decisions of the Trust's Board of Trustees, in regard to the foregoing
matters and the supervision of the Fund's investment portfolio.
Sub-Adviser will, from time to time, discuss with AAM and the Fund
economic and investment developments which may affect the Fund's portfolio and
furnish such information as Sub-Adviser may believe appropriate for this
purpose. Adviser will maintain such statistical and analytical information with
respect to the Fund's portfolio securities as Sub-Adviser may believe
appropriate and shall make such material available for inspection by AAM as may
be reasonable from time to time.
Except when otherwise specifically directed by the Trust or AAM,
Sub-Adviser will make investment decisions on behalf of the Fund and place all
orders for the purchase or sale of portfolio securities for the Fund's account.
Sub-Adviser agrees that upon request from time to time one of its
representatives will attend as mutually agreed upon meetings of the Board of
Trustees or beneficial shareholders of the Trust in order to make reports on
investment strategy and results. Sub-Adviser accepts such employment and agrees
at its own expense to render the services and to assume the obligations herein
set forth for the compensation herein provided. Sub-Adviser shall, for all
purposes herein provided, be deemed to be an independent contractor and, unless
otherwise expressly provided or authorized, shall have no authority to act for
or represent AAM, the Trust, or the Fund in any way or otherwise be deemed an
<PAGE>
agent of AAM or the Trust. Adviser shall be free to render similar services or
other services to others so long as its services hereunder shall not be impaired
thereby. Likewise, AAM shall be free to utilize other persons to perform similar
or unrelated services.
2. For the services to be rendered by Sub-Adviser, as provided herein,
AAM shall pay to Sub-Adviser a fee, payable quarterly, at the annual rate of .15
of 1% of the average of the daily aggregate net asset value of the Fund until
aggregate assets total $500,000,000. When assets total $500,000,000 then the fee
will be .15 of 1% of the average of the daily aggregate net asset value of the
Fund on the first $100,000,000, .125% on the next $100,000,000 and .10% on the
assets in excess of $200,000,000. The Fund's assets shall be determined as of
the close of each business day throughout the quarter. For the month and year in
which the agreement becomes effective or terminates, there shall be an
appropriate proration on the basis of the number of days that the agreement is
in effect during the month and year, respectively.
3. Sub-Adviser shall not be liable for any error of judgment or of law,
or for any loss suffered by the Trust or the Fund in connection with the matters
to which this agreement relates, except loss resulting from willful misfeasance,
bad faith or gross negligence on the part of Adviser in the performance of its
obligations and duties, or by reason of its reckless disregard of its
obligations and duties under this agreement. Adviser shall not be liable for any
action undertaken at AAM's direction.
4. In compliance with the requirements of Rule 31a-3 under the 1940
Act, Sub-Adviser hereby agrees that all records which it maintains for the
Trust, as specifically agreed upon by Sub-Adviser and AAM, are the property of
the Trust and further agrees to surrender promptly to the Trust any of such
records upon the Trust's request. Sub-Adviser further agrees to preserve such
records for the periods prescribed by Rule 31a-2 under the 1940 Act and to make
such records available as requested by regulatory agencies for inspection.
5. This agreement shall become effective upon execution and shall
remain in force for two years, unless sooner terminated as hereinafter provided
and shall continue in force from year to year thereafter, but only so long as
such continuance is specifically approved, at least annually, by a majority of
the Trustees, including a majority of the Trustees who are not parties to the
agreement or interested persons of any such party (other than as Trustees of the
Trust) or by a vote of a majority of the Trust's outstanding shares, but in
either case by the disinterested Trustees, in the manner required by the 1940
Act.
This agreement may be terminated by AAM or by Sub-Adviser at any time
without the payment of any penalty on sixty (60) day's written notice to the
other party, and may also be terminated at any time without payment of any
penalty by vote of the Board of Trustees of the Trust or by vote of the holders
of a majority of the outstanding shares of the Fund on sixty (60) days' written
notice to the other parties hereto.
Termination of this agreement shall not affect the right of Sub-Adviser
to receive payments on any unpaid balance of the compensation described in
Section 2 earned prior to such termination.
If any provision of this agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
This agreement shall automatically terminate in the event of its
assignment. The term "assignment" for this purpose has the meaning defined in
Section 2(a)4 of the 1940 Act.
6. A copy of the Agreement and Declaration of Trust of the Fund is on
file with the Secretary of State of The Commonwealth of Delaware and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
<PAGE>
Fund as Trustees and not individually and that the obligations of or arising out
of this instrument are not binding upon any of the Trustees, officers or
shareholders individually but are binding only upon the assets and property of
the Fund.
7. Any notice under this agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other parties at such address as
such other parties may designate for the receipt of such notices.
IN WITNESS WHEREOF, AAM and Sub-Adviser have caused this agreement to
be signed, as of the day and year first above written.
ACTIVA ASSET MANAGEMENT, LLC
By:_______________________________
Allan D. Engel
President
J.P. MORGAN INVESTMENT
MANAGEMENT, INC.
By:_______________________________
This Agreement is hereby accepted and approved as of this day and year
first above written.
ACTIVA MUTUAL FUND TRUST
By:__________________________
James J. Rosloniec
President
SUB-ADVISORY AGREEMENT
BETWEEN
ACTIVA ASSET MANAGEMENT, LLC
AND
VAN KAMPEN MANAGEMENT, INC.
AGREEMENT made as of the 11th day of June 1999 between ACTIVA ASSET
MANAGEMENT, a Michigan LLC having its principal place of business in Grand
Rapids, Michigan (hereinafter called "AAM"), and Van Kampen Management, Inc.
(hereinafter called "Sub-Adviser"), having its principal place of business in
Oakbrook, Illinois.
WHEREAS, AAM is the investment adviser to Activa Intermediate Bond Fund
(the "Fund") a series of Activa Fund Trust (the "Trust"), a Delaware business
trust, an investment company registered under the Investment Company Act of
1940, as amended (hereinafter called "1940 Act"); and
WHEREAS, AAM wishes to retain Sub-Adviser to furnish the Fund with
investment advice and Adviser is willing to furnish such services to AAM.
WITNESSETH:
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by the parties hereto as follows:
1. AAM hereby employs Sub-Adviser to furnish investment advice and
manage on a regular basis the investment portfolio of the Fund, subject always
to the direction of AAM, the Board of Trustees of the Trust, and to the
provisions of the Fund's current Prospectus. Sub-Adviser shall provide
administrative facilities, including bookkeeping, clerical personnel and
equipment necessary for the management of the Fund's portfolio of investments
(excluding determination of net asset value and shareholder accounting
services). Sub-Adviser shall advise and assist AAM and the officers of the Trust
in taking such steps as are necessary or appropriate to carry out the decisions
of the Trust's Board of Trustees, in regard to the foregoing matters and the
supervision of the Fund's investment portfolio.
Sub-Adviser will, from time to time, discuss with AAM and the Fund
economic and investment developments which may affect the Fund's portfolio and
furnish such information as Sub-Adviser may believe appropriate for this
purpose. Adviser will maintain such statistical and analytical information with
respect to the Fund's portfolio securities as Sub-Adviser may believe
appropriate and shall make such material available for inspection by AAM as may
be reasonable from time to time.
Except when otherwise specifically directed by the Trust or AAM,
Sub-Adviser will make investment decisions on behalf of the Fund and place all
orders for the purchase or sale of portfolio securities for the Fund's account.
Sub-Adviser agrees that upon request from time to time one of its
representatives will attend as mutually agreed upon meetings of the Board of
Trustees or beneficial shareholders of the Trust in order to make reports on
investment strategy and results. Sub-Adviser accepts such employment and agrees
at its own expense to render the services and to assume the obligations herein
set forth for the compensation herein provided. Sub-Adviser shall, for all
purposes herein provided, be deemed to be an independent contractor and, unless
otherwise expressly provided or authorized, shall have no authority to act for
or represent AAM, the Trust, or the Fund in any way or otherwise be deemed an
agent of AAM or the Trust. Adviser shall be free to render similar services or
other services to others so long as its services hereunder shall not be impaired
<PAGE>
thereby. Likewise, AAM shall be free to utilize other persons to perform similar
or unrelated services.
2. For the services to be rendered by Sub-Adviser, as provided herein,
AAM shall pay to Sub-Adviser a fee, payable quarterly, at the annual rate of .20
of 1% of the average of the daily aggregate net asset value of the Fund on the
first $50,000,000 of assets and .12% on the assets in excess of $50,000,000. The
Fund's assets shall be determined as of the close of each business day
throughout the quarter. For the month and year in which the agreement becomes
effective or terminates, there shall be an appropriate proration on the basis of
the number of days that the agreement is in effect during the month and year,
respectively.
3. Sub-Adviser shall not be liable for any error of judgment or of law,
or for any loss suffered by the Trust or the Fund in connection with the matters
to which this agreement relates, except loss resulting from willful misfeasance,
bad faith or gross negligence on the part of Adviser in the performance of its
obligations and duties, or by reason of its reckless disregard of its
obligations and duties under this agreement. Adviser shall not be liable for any
action undertaken at AAM's direction.
4. In compliance with the requirements of Rule 31a-3 under the 1940
Act, Sub-Adviser hereby agrees that all records which it maintains for the
Trust, as specifically agreed upon by Sub-Adviser and AAM, are the property of
the Trust and further agrees to surrender promptly to the Trust any of such
records upon the Trust's request. Sub-Adviser further agrees to preserve such
records for the periods prescribed by Rule 31a-2 under the 1940 Act and to make
such records available as requested by regulatory agencies for inspection.
5. This agreement shall become effective upon execution and shall
remain in force for two years, unless sooner terminated as hereinafter provided
and shall continue in force from year to year thereafter, but only so long as
such continuance is specifically approved, at least annually, by a majority of
the Trustees, including a majority of the Trustees who are not parties to the
agreement or interested persons of any such party (other than as Trustees of the
Trust) or by a vote of a majority of the Trust's outstanding shares, but in
either case by the disinterested Trustees, in the manner required by the 1940
Act.
This agreement may be terminated by AAM or by Sub-Adviser at any time
without the payment of any penalty on sixty (60) day's written notice to the
other party, and may also be terminated at any time without payment of any
penalty by vote of the Board of Trustees of the Trust or by vote of the holders
of a majority of the outstanding shares of the Fund on sixty (60) days' written
notice to the other parties hereto.
Termination of this agreement shall not affect the right of Sub-Adviser
to receive payments on any unpaid balance of the compensation described in
Section 2 earned prior to such termination.
If any provision of this agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
This agreement shall automatically terminate in the event of its
assignment. The term "assignment" for this purpose has the meaning defined in
Section 2(a)4 of the 1940 Act.
6. A copy of the Agreement and Declaration of Trust of the Fund is on
file with the Secretary of State of The Commonwealth of Delaware and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
Fund as Trustees and not individually and that the obligations of or arising out
of this instrument are not binding upon any of the Trustees, officers or
shareholders individually but are binding only upon the assets and property of
the Fund.
<PAGE>
7. Any notice under this agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other parties at such address as
such other parties may designate for the receipt of such notices.
IN WITNESS WHEREOF, AAM and Sub-Adviser have caused this agreement to
be signed, as of the day and year first above written.
ACTIVA ASSET MANAGEMENT, LLC
By:_______________________________
Allan D. Engel
President
VAN KAMPEN MANAGEMENT, INC.
By:_______________________________
This Agreement is hereby accepted and approved as of this day and year
first above written.
ACTIVA MUTUAL FUND TRUST
By:__________________________
James J. Rosloniec
President
SUB-ADVISORY AGREEMENT
BETWEEN
ACTIVA ASSET MANAGEMENT, LLC
AND
ARK ASSET MANAGEMENT CO., INC.
AGREEMENT made as of the 1st day of September 1999 between ACTIVA ASSET
MANAGEMENT, a Michigan LLC having its principal place of business in Grand
Rapids, Michigan (hereinafter called "AAM"), and Ark Asset Management Co., Inc.
(hereinafter called "Sub-Adviser"), having its principal place of business in
New York, New York.
WHEREAS, AAM is the investment adviser to Activa Value Fund (the
"Fund") a series of Activa Fund Trust (the "Trust"), a Delaware business trust,
an investment company registered under the Investment Company Act of 1940, as
amended (hereinafter called "1940 Act"); and
WHEREAS, AAM wishes to retain Sub-Adviser to furnish the Fund with
investment advice and Adviser is willing to furnish such services to AAM.
WITNESSETH:
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by the parties hereto as follows:
1. AAM hereby employs Sub-Adviser to furnish investment advice and
manage on a regular basis the investment portfolio of the Fund, subject always
to the direction of AAM, the Board of Trustees of the Trust, and to the
provisions of the Fund's current Prospectus. Sub-Adviser shall provide
administrative facilities, including bookkeeping, clerical personnel and
equipment necessary for the management of the Fund's portfolio of investments
(excluding determination of net asset value and shareholder accounting
services). Sub-Adviser shall advise and assist AAM and the officers of the Trust
in taking such steps as are necessary or appropriate to carry out the decisions
of the Trust's Board of Trustees, in regard to the foregoing matters and the
supervision of the Fund's investment portfolio.
Sub-Adviser will, from time to time, discuss with AAM and the Fund
economic and investment developments which may affect the Fund's portfolio and
furnish such information as Sub-Adviser may believe appropriate for this
purpose. Adviser will maintain such statistical and analytical information with
respect to the Fund's portfolio securities as Sub-Adviser may believe
appropriate and shall make such material available for inspection by AAM as may
be reasonable from time to time.
Except when otherwise specifically directed by the Trust or AAM,
Sub-Adviser will make investment decisions on behalf of the Fund and place all
orders for the purchase or sale of portfolio securities for the Fund's account.
Sub-Adviser agrees that upon request from time to time one of its
representatives will attend as mutually agreed upon meetings of the Board of
Trustees or beneficial shareholders of the Trust in order to make reports on
investment strategy and results. Sub-Adviser accepts such employment and agrees
at its own expense to render the services and to assume the obligations herein
set forth for the compensation herein provided. Sub-Adviser shall, for all
purposes herein provided, be deemed to be an independent contractor and, unless
otherwise expressly provided or authorized, shall have no authority to act for
or represent AAM, the Trust, or the Fund in any way or otherwise be deemed an
agent of AAM or the Trust. Adviser shall be free to render similar services or
other services to others so long as its services hereunder shall not be impaired
<PAGE>
thereby. Likewise, AAM shall be free to utilize other persons to perform similar
or unrelated services.
2. For the services to be rendered by Sub-Adviser, as provided herein,
AAM shall pay to Sub-Adviser a fee, payable quarterly, at the annual rate of
0.45% on the first $100 million of average daily net assets of the Fund, 0.40%
on the next $50 million in assets, and 0.35% on the next $50 million in assets.
When the Fund's assets reach $200 million, the rate shall be 0.40% on assets up
to $200 million and 0.35% on assets in excess of $200 million, so long as the
Fund continues to have at least $200 million in assets. The Fund's assets shall
be determined as of the close of each business day throughout the quarter. For
the month and year in which the agreement becomes effective or terminates, there
shall be an appropriate proration on the basis of the number of days that the
agreement is in effect during the month and year, respectively.
3. Sub-Adviser shall not be liable for any error of judgment or of law,
or for any loss suffered by the Trust or the Fund in connection with the matters
to which this agreement relates, except loss resulting from willful misfeasance,
bad faith or gross negligence on the part of Adviser in the performance of its
obligations and duties, or by reason of its reckless disregard of its
obligations and duties under this agreement. Adviser shall not be liable for any
action undertaken at AAM's direction.
4. In compliance with the requirements of Rule 31a-3 under the 1940
Act, Sub-Adviser hereby agrees that all records which it maintains for the
Trust, as specifically agreed upon by Sub-Adviser and AAM, are the property of
the Trust and further agrees to surrender promptly to the Trust any of such
records upon the Trust's request. Sub-Adviser further agrees to preserve such
records for the periods prescribed by Rule 31a-2 under the 1940 Act and to make
such records available as requested by regulatory agencies for inspection.
5. This agreement shall become effective upon execution and shall
remain in force for two years, unless sooner terminated as hereinafter provided
and shall continue in force from year to year thereafter, but only so long as
such continuance is specifically approved, at least annually, by a majority of
the Trustees, including a majority of the Trustees who are not parties to the
agreement or interested persons of any such party (other than as Trustees of the
Trust) or by a vote of a majority of the Trust's outstanding shares, but in
either case by the disinterested Trustees, in the manner required by the 1940
Act.
This agreement may be terminated by AAM or by Sub-Adviser at any time
without the payment of any penalty on sixty (60) day's written notice to the
other party, and may also be terminated at any time without payment of any
penalty by vote of the Board of Trustees of the Trust or by vote of the holders
of a majority of the outstanding shares of the Fund on sixty (60) days' written
notice to the other parties hereto.
Termination of this agreement shall not affect the right of Sub-Adviser
to receive payments on any unpaid balance of the compensation described in
Section 2 earned prior to such termination.
If any provision of this agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
This agreement shall automatically terminate in the event of its
assignment. The term "assignment" for this purpose has the meaning defined in
Section 2(a)4 of the 1940 Act.
6. A copy of the Agreement and Declaration of Trust of the Fund is on
file with the Secretary of State of The Commonwealth of Delaware and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
Fund as Trustees and not individually and that the obligations of or arising out
of this instrument are not binding upon any of the Trustees, officers or
shareholders individually but are binding only upon the assets and property of
the Fund.
<PAGE>
7. Any notice under this agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other parties at such address as
such other parties may designate for the receipt of such notices.
IN WITNESS WHEREOF, AAM and Sub-Adviser have caused this agreement to
be signed, as of the day and year first above written.
ACTIVA ASSET MANAGEMENT, LLC
By:_______________________________
Allan D. Engel
President
ARK ASSET MANAGEMENT CO., INC.
By:_______________________________
This Agreement is hereby accepted and approved as of this day and year
first above written.
ACTIVA MUTUAL FUND TRUST
By:__________________________
James J. Rosloniec
President
SUB-ADVISORY AGREEMENT
BETWEEN
ACTIVA ASSET MANAGEMENT, LLC
AND
STATE STREET RESEARCH & MANAGEMENT COMPANY
AGREEMENT made as of the 11th day of June 1999 between ACTIVA ASSET
MANAGEMENT, a Michigan LLC having its principal place of business in Grand
Rapids, Michigan (hereinafter called "AAM"), and State Street Research &
Management Company (hereinafter called "Sub-Adviser"), having its principal
place of business in Boston, Massachusetts.
WHEREAS, AAM is the investment adviser to Activa Growth Fund (the
"Fund") a series of Activa Fund Trust (the "Trust"), a Delaware business trust,
an investment company registered under the Investment Company Act of 1940, as
amended (hereinafter called "1940 Act"); and
WHEREAS, AAM wishes to retain Sub-Adviser to furnish the Fund with
investment advice and Adviser is willing to furnish such services to AAM.
WITNESSETH:
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by the parties hereto as follows:
1. AAM hereby employs Sub-Adviser to furnish investment advice and
manage on a regular basis the investment portfolio of the Fund, subject always
to the direction of AAM, the Board of Trustees of the Trust, and to the
provisions of the Fund's current Prospectus. Sub-Adviser shall provide
administrative facilities, including bookkeeping, clerical personnel and
equipment necessary for the management of the Fund's portfolio of investments
(excluding determination of net asset value and shareholder accounting
services). Sub-Adviser shall advise and assist AAM and the officers of the Trust
in taking such steps as are necessary or appropriate to carry out the decisions
of the Trust's Board of Trustees, in regard to the foregoing matters and the
supervision of the Fund's investment portfolio.
Sub-Adviser will, from time to time, discuss with AAM and the Fund
economic and investment developments which may affect the Fund's portfolio and
furnish such information as Sub-Adviser may believe appropriate for this
purpose. Adviser will maintain such statistical and analytical information with
respect to the Fund's portfolio securities as Sub-Adviser may believe
appropriate and shall make such material available for inspection by AAM as may
be reasonable from time to time.
Except when otherwise specifically directed by the Trust or AAM,
Sub-Adviser will make investment decisions on behalf of the Fund and place all
orders for the purchase or sale of portfolio securities for the Fund's account.
Sub-Adviser agrees that upon request from time to time one of its
representatives will attend as mutually agreed upon meetings of the Board of
Trustees or beneficial shareholders of the Trust in order to make reports on
investment strategy and results. Sub-Adviser accepts such employment and agrees
at its own expense to render the services and to assume the obligations herein
set forth for the compensation herein provided. Sub-Adviser shall, for all
purposes herein provided, be deemed to be an independent contractor and, unless
otherwise expressly provided or authorized, shall have no authority to act for
or represent AAM, the Trust, or the Fund in any way or otherwise be deemed an
agent of AAM or the Trust. Adviser shall be free to render similar services or
other services to others so long as its services hereunder shall not be impaired
thereby. Likewise, AAM shall be free to utilize other persons to perform similar
or unrelated services.
2. For the services to be rendered by Sub-Adviser, as provided herein,
AAM shall pay to Sub-Adviser a fee, payable quarterly, at the annual rate of .50
of 1% of the average of the daily aggregate net asset value of the Fund on the
first $25,000,000 of assets; .45 of 1% on the next $25,000,000; and .40 of 1% on
assets in excess of $50,000,000. The Fund's assets shall be determined as of the
close of each business day throughout the quarter. For the month and year in
which the agreement becomes effective or terminates, there shall be an
appropriate proration on the basis of the number of days that the agreement is
in effect during the month and year, respectively.
3. Sub-Adviser shall not be liable for any error of judgment or of law,
or for any loss suffered by the Trust or the Fund in connection with the matters
to which this agreement relates, except loss resulting from willful misfeasance,
bad faith or gross negligence on the part of Adviser in the performance of its
obligations and duties, or by reason of its reckless disregard of its
obligations and duties under this agreement. Adviser shall not be liable for any
action undertaken at AAM's direction.
4. In compliance with the requirements of Rule 31a-3 under the 1940
Act, Sub-Adviser hereby agrees that all records which it maintains for the
Trust, as specifically agreed upon by Sub-Adviser and AAM, are the property of
the Trust and further agrees to surrender promptly to the Trust any of such
records upon the Trust's request. Sub-Adviser further agrees to preserve such
records for the periods prescribed by Rule 31a-2 under the 1940 Act and to make
such records available as requested by regulatory agencies for inspection.
5. This agreement shall become effective upon execution and shall
remain in force for two years, unless sooner terminated as hereinafter provided
and shall continue in force from year to year thereafter, but only so long as
such continuance is specifically approved, at least annually, by a majority of
the Trustees, including a majority of the Trustees who are not parties to the
agreement or interested persons of any such party (other than as Trustees of the
Trust) or by a vote of a majority of the Trust's outstanding shares, but in
either case by the disinterested Trustees, in the manner required by the 1940
Act.
This agreement may be terminated by AAM or by Sub-Adviser at any time
without the payment of any penalty on sixty (60) day's written notice to the
other party, and may also be terminated at any time without payment of any
penalty by vote of the Board of Trustees of the Trust or by vote of the holders
of a majority of the outstanding shares of the Fund on sixty (60) days' written
notice to the other parties hereto.
Termination of this agreement shall not affect the right of Sub-Adviser
to receive payments on any unpaid balance of the compensation described in
Section 2 earned prior to such termination.
If any provision of this agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
This agreement shall automatically terminate in the event of its
assignment. The term "assignment" for this purpose has the meaning defined in
Section 2(a)4 of the 1940 Act.
6. A copy of the Agreement and Declaration of Trust of the Fund is on
file with the Secretary of State of The Commonwealth of Delaware and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
Fund as Trustees and not individually and that the obligations of or arising out
of this instrument are not binding upon any of the Trustees, officers or
shareholders individually but are binding only upon the assets and property of
the Fund.
<PAGE>
7. Any notice under this agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other parties at such address as
such other parties may designate for the receipt of such notices.
IN WITNESS WHEREOF, AAM and Sub-Adviser have caused this agreement to
be signed, as of the day and year first above written.
ACTIVA ASSET MANAGEMENT, LLC
By:_______________________________
Allan D. Engel
President
STATE STREET RESEARCH & MANAGEMENT COMPANY
By:_______________________________
This Agreement is hereby accepted and approved as of this day and year
first above written.
ACTIVA MUTUAL FUND TRUST
By:__________________________
James J. Rosloniec
President
SUB-ADVISORY AGREEMENT
BETWEEN
ACTIVA ASSET MANAGEMENT, LLC
AND
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT, INC.
AGREEMENT made as of the 11th day of June 1999 between ACTIVA ASSET
MANAGEMENT, a Michigan LLC having its principal place of business in Grand
Rapids, Michigan (hereinafter called "AAM"), and Nicholas-Applegate Capital
Management, Inc. (hereinafter called "Sub-Adviser"), having its principal place
of business in San Diego, California.
WHEREAS, AAM is the investment adviser to Activa International Fund
(the "Fund") a series of Activa Fund Trust (the "Trust"), a Delaware business
trust, an investment company registered under the Investment Company Act of
1940, as amended (hereinafter called "1940 Act"); and
WHEREAS, AAM wishes to retain Sub-Adviser to furnish the Fund with
investment advice and Adviser is willing to furnish such services to AAM.
WITNESSETH:
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by the parties hereto as follows:
1. AAM hereby employs Sub-Adviser to furnish investment advice and
manage on a regular basis the investment portfolio of the Fund, subject always
to the direction of AAM, the Board of Trustees of the Trust, and to the
provisions of the Fund's current Prospectus. Sub-Adviser shall provide
administrative facilities, including bookkeeping, clerical personnel and
equipment necessary for the management of the Fund's portfolio of investments
(excluding determination of net asset value and shareholder accounting
services). Sub-Adviser shall advise and assist AAM and the officers of the Trust
in taking such steps as are necessary or appropriate to carry out the decisions
of the Trust's Board of Trustees, in regard to the foregoing matters and the
supervision of the Fund's investment portfolio.
Sub-Adviser will, from time to time, discuss with AAM and the Fund
economic and investment developments which may affect the Fund's portfolio and
furnish such information as Sub-Adviser may believe appropriate for this
purpose. Adviser will maintain such statistical and analytical information with
respect to the Fund's portfolio securities as Sub-Adviser may believe
appropriate and shall make such material available for inspection by AAM as may
be reasonable from time to time.
Except when otherwise specifically directed by the Trust or AAM,
Sub-Adviser will make investment decisions on behalf of the Fund and place all
orders for the purchase or sale of portfolio securities for the Fund's account.
Sub-Adviser agrees that upon request from time to time one of its
representatives will attend as mutually agreed upon meetings of the Board of
Trustees or beneficial shareholders of the Trust in order to make reports on
investment strategy and results. Sub-Adviser accepts such employment and agrees
at its own expense to render the services and to assume the obligations herein
set forth for the compensation herein provided. Sub-Adviser shall, for all
purposes herein provided, be deemed to be an independent contractor and, unless
otherwise expressly provided or authorized, shall have no authority to act for
<PAGE>
or represent AAM, the Trust, or the Fund in any way or otherwise be deemed an
agent of AAM or the Trust. Adviser shall be free to render similar services or
other services to others so long as its services hereunder shall not be impaired
thereby. Likewise, AAM shall be free to utilize other persons to perform similar
or unrelated services.
2. For the services to be rendered by Sub-Adviser, as provided herein,
AAM shall pay to Sub-Adviser a fee, payable quarterly, at the annual rate of .65
of 1% of the average of the daily aggregate net asset value of the Fund on the
first $50,000,000 of assets and .55% on the assets in excess of $50,000,000. The
Fund's assets shall be determined as of the close of each business day
throughout the quarter. For the month and year in which the agreement becomes
effective or terminates, there shall be an appropriate proration on the basis of
the number of days that the agreement is in effect during the month and year,
respectively.
3. Sub-Adviser shall not be liable for any error of judgment or of law,
or for any loss suffered by the Trust or the Fund in connection with the matters
to which this agreement relates, except loss resulting from willful misfeasance,
bad faith or gross negligence on the part of Adviser in the performance of its
obligations and duties, or by reason of its reckless disregard of its
obligations and duties under this agreement. Adviser shall not be liable for any
action undertaken at AAM's direction.
4. In compliance with the requirements of Rule 31a-3 under the 1940
Act, Sub-Adviser hereby agrees that all records which it maintains for the
Trust, as specifically agreed upon by Sub-Adviser and AAM, are the property of
the Trust and further agrees to surrender promptly to the Trust any of such
records upon the Trust's request. Sub-Adviser further agrees to preserve such
records for the periods prescribed by Rule 31a-2 under the 1940 Act and to make
such records available as requested by regulatory agencies for inspection.
5. This agreement shall become effective upon execution and shall
remain in force for two years, unless sooner terminated as hereinafter provided
and shall continue in force from year to year thereafter, but only so long as
such continuance is specifically approved, at least annually, by a majority of
the Trustees, including a majority of the Trustees who are not parties to the
agreement or interested persons of any such party (other than as Trustees of the
Trust) or by a vote of a majority of the Trust's outstanding shares, but in
either case by the disinterested Trustees, in the manner required by the 1940
Act.
This agreement may be terminated by AAM or by Sub-Adviser at any time
without the payment of any penalty on sixty (60) day's written notice to the
other party, and may also be terminated at any time without payment of any
penalty by vote of the Board of Trustees of the Trust or by vote of the holders
of a majority of the outstanding shares of the Fund on sixty (60) days' written
notice to the other parties hereto.
Termination of this agreement shall not affect the right of Sub-Adviser
to receive payments on any unpaid balance of the compensation described in
Section 2 earned prior to such termination.
If any provision of this agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
This agreement shall automatically terminate in the event of its
assignment. The term "assignment" for this purpose has the meaning defined in
Section 2(a)4 of the 1940 Act.
6. A copy of the Agreement and Declaration of Trust of the Fund is on
file with the Secretary of State of The Commonwealth of Delaware and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
Fund as Trustees and not individually and that the obligations of or arising out
of this instrument are not binding upon any of the Trustees, officers or
shareholders individually but are binding only upon the assets and property of
the Fund.
<PAGE>
7. Any notice under this agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other parties at such address as
such other parties may designate for the receipt of such notices.
IN WITNESS WHEREOF, AAM and Sub-Adviser have caused this agreement to
be signed, as of the day and year first above written.
ACTIVA ASSET MANAGEMENT, LLC
By:_______________________________
Allan D. Engel
President
NICHOLAS-APPLEGATE CAPITAL
MANAGEMENT COMPANY, INC.
By:_______________________________
This Agreement is hereby accepted and approved as of this day and year
first above written.
ACTIVA MUTUAL FUND TRUST
By:__________________________
James J. Rosloniec
President
PRINCIPAL UNDERWRITER AGREEMENT
BETWEEN
ACTIVA MUTUAL FUND TRUST
AND
ACTIVA ASSET MANAGEMENT, LLC
AGREEMENT made as of the 11th day of June, 1999, between ACTIVA MUTUAL
FUND TRUST, a Delaware business trust (hereinafter called the "TRUST"), and
ACTIVA ASSET MANAGEMENT, a Michigan LLC (hereinafter called the "Principal
Underwriter");
In consideration of the mutual promises and undertakings herein contained
the parties hereto agree as follows:
SECTION 1. GENERAL. The Trust hereby grants to Principal Underwriter
the right, during the term of this Agreement and subject to registration
requirements of the Securities Act of 1933 as amended (herein called the "1933
Act"), to purchase shares of beneficial interest ("Shares") of any series of the
Activa Mutual Fund Trust (the "Fund"), and to resell such Shares upon the terms
and conditions hereinafter set forth. Principal Underwriter shall have the right
to purchase from the Trust as principal at a price equal to the net asset value
during each period determined as described in the current prospectus the Shares
needed, but no more than the Shares needed (except for clerical errors and
errors of transmission), to fill unconditional orders for Shares of the Fund
received during such period by Principal Underwriter from dealers or investors.
Principal Underwriter shall resell such Shares purchased at a price equal to the
public offering price determined as described in the current prospectus less, in
the case of a sale to a dealer, the discount allowed the dealer, if any.
The foregoing right granted to Principal Underwriter to purchase Shares
from the Trust shall be exclusive, except that Shares may be issued by the Trust
(a) in connection with any merger or consolidation of the Trust with any other
investment company or trust or any personal holding company or the acquisition
by the fund, by purchase or otherwise, of any other investment company or trust
or any personal holding company or of the assets of any such entity, (b) in
connection with offers of exchange exempted from Section 22(d) of the Investment
Company Act of 1940 by reason of the fact that said offers are permitted by
Section 11 of said Act, (c) in connection with the reinvestment of any dividends
paid or capital gains distributed to shareholders in additional Shares of the
Fund at the net asset value per share, and (d) for cash at net asset value to
depositors, underwriters or sponsors of unit investment trusts or any similar
legal entities which acquires shares of the Fund.
SECTION 2. PUBLIC OFFERING PRICE; SALES CHARGE. The net asset value and
the public offering price and the decision of whether or not to impose a sales
charge upon a public offering of the shares of the Fund shall be determined by
the Trust. The net asset value and the public offering price shall be computed
in accordance with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and the current prospectus of the Fund and Principal
Underwriter shall be notified promptly thereof. The public offering price (being
the price at which Principal Underwriter or dealers may sell shares to the
public) shall be an amount equal to such net asset value plus a sales charge, if
any, varying with the size of the investment as described in the currently
effective offering prospectus of the Fund; and so long as this Agreement remains
in effect the sales charge, if any, and the method of determining net asset
<PAGE>
value and the public offering price shall not be changed without the written
consent of Principal Underwriter. The net asset value and the offering price
based thereon shall be subject to adjustment in the event of wide fluctuations
in market prices, subject to the provisions of the Investment Company Act of
1940 and state laws regulating the sales of securities, and any regulations of
the Securities and Exchange Commission, the National Association of Securities
Dealers, Inc. and state blue sky commissioners having jurisdiction.
SECTION 3. DEALER AGREEMENTS. If a sales charge is in effect, Principal
Underwriter shall have the right to enter into uniform sales agreements with
dealers of its choice for the sale of Shares of the Fund and fix therein the
portion of the sales charge which may be retained by dealers, provided that the
Trust shall approve the form of the dealer agreement and the dealer discounts
set forth therein and shall evidence such approval by filing said form of dealer
agreement and amendments thereto as an exhibit to its currently effective
registration statement on Form N-1A filed under the 1933 Act.
SECTION 4. PAYMENT AND DELIVERY OF SHARES. Upon receipt by the Trust at
its principal place of business, or by the Custodian of the Trust as such place
as the Custodian shall designate, of a written order from Principal Underwriter,
together with delivery instructions, the Trust shall, as promptly as
practicable, cause certificates for the Shares called for in such written order
to be delivered in such amounts and in such names as shall be specified by
Principal Underwriter, against payment thereof in such manner as may be
acceptable to the Trust, provided that Principal Underwriter shall pay for such
shares as soon as conveniently possible, but in no event later than the tenth
business day following the date on which Principal Underwriter shall have
contracted to purchase the shares.
SECTION 5. TAXES. The Trust shall pay for and affix any stock issue
stamps (or in the case of treasury shares transfer stamps) required for the
issue (or transfer) of Shares sold to Principal Underwriter as principal.
Principal Underwriter shall pay for and affix any stock transfer stamps required
in connection with the sale of Shares by Principal Underwriter as principal to
dealers or to investors.
SECTION 6. INFORMATION; PROSPECTUSES. The Trust shall furnish to
Principal Underwriter copies of all information, financial statements and other
papers which Principal Underwriter may reasonably request for use in connection
with the distribution of Shares of the Fund, and this shall include, but shall
not be limited to, one certified copy, upon request by Principal Underwriter, of
all financial statements prepared for the Fund by independent public
accountants. The Trust shall make available to Principal Underwriter such number
of copies of its currently effective prospectus as Principal Underwriter shall
request.
SECTION 7. INDEMNIFICATION BY FUND. The Trust agrees to indemnify and
hold harmless Principal Underwriter and each person, if any, who controls
Principal Underwriter within the meaning of Section 15 of the 1933 Act against
any loss, liability, claim, damages or expenses (including the reasonable cost
of investigating or defending any alleged loss, liability, claim, damages, or
expense and reasonable counsel fees incurred in connection therewith), arising
by reason of any person acquiring any Shares, which may be based upon the 1933
Act or on any other statute or at common law, on the ground that the
registration statement or prospectus, as from time to time amended and
supplemented, includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary in order to make the
statements therein not misleading, unless such statement or omission was made in
reliance upon, and in conformity with, information furnished to the Trust in
connection therewith by or on behalf of Principal Underwriter; provided,
<PAGE>
however, that in no case (i) is the indemnity of the Trust in favor of Principal
Underwriter and any such controlling person to be deemed to protect Principal
Underwriter or any such controlling person against any liability to the Trust or
its securities holders to which Principal Underwriter or any such controlling
person would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties under this Agreement, or (ii)
is the Trust to be liable under its indemnity agreement contained in this
paragraph with respect to any claim made against Principal Underwriter or any
such controlling person unless Principal Underwriter or such controlling person,
as the case may be, shall have notified the Trust in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon Principal Underwriter or such
controlling Person (or after Principal Underwriter or such controlling person
shall have received notice of such service on any designated agent), but failure
to notify the Trust of any such claim shall not relieve it from any liability
which it may have to the person against whom such action is brought otherwise
than on account of its indemnity agreement contained in this paragraph.
The Trust will be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if the Trust elects to assume the defense, such
defense shall be conducted by counsel chosen by it and satisfactory to Principal
Underwriter or such controlling person or persons, defendant or defendants in
the suit. In the event the Trust elects to assume the defense of any such suit
and retain such counsel, Principal Underwriter or such controlling person or
persons, defendant or defendants in the suit, shall bear the fees and expenses
of any additional counsel retained by them, but, in case the Trust does not
elect to assume the defense of any such suit, it will reimburse Principal
Underwriter or such controlling person or persons, defendant or defendants in
the suit, for the reasonable fees and expenses of any counsel retained by them.
The Trust agrees promptly to notify Principal Underwriter of the commencement of
any litigation or proceedings against it or any of its officers or directors,
employees or agents in connection with the issuance or sale of any of the
Shares.
SECTION 8. INDEMNIFICATION BY PRINCIPAL UNDERWRITER. Principal
Underwriter covenants and agrees that it will indemnify and hold harmless the
Trust and each of its directors, officers, employees or agents and each person,
if any, who controls the Trust within the meaning of Section 15 of the 1933 Act,
against any loss, liability, damages, claim or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, damages, claim
or expense and reasonable counsel fees incurred in connection therewith) arising
by reason of any person acquiring any Shares, which may be based upon the 1933
Act or any other statute or at common law, on account of any wrongful act of
Principal Underwriter or any of its employees or on the ground that the
registration statement or prospectus, as from time to time amended, included an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary in order to make the statements therein not
misleading, insofar as any such statement or omission was made in reliance upon,
and in conformity with, information furnished to the Trust in connection
therewith by or on behalf of Principal Underwriter, provided, however, that in
no case (i) is the indemnity of Principal Underwriter in favor of the Trust or
any person indemnified to be deemed to protect the Trust or any such person
against any liability to which the Trust or any such person would otherwise be
subject by reason or willful misfeasance, bad faith, or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement, or (ii) is Principal Underwriter to
<PAGE>
be liable under its indemnity agreement contained in this paragraph with respect
to any claim made against the Trust or any person indemnified unless the Trust
or such person, as the case may be, shall have notified Principal Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon the
Trust or upon such person (or after the Trust or such person shall have received
notice of such service on any designated agent), but failure to notify Principal
Underwriter of any such claim shall not relieve it from any liability which it
may have to the Trust of any person against whom such action if brought
otherwise than on account of its indemnity agreement contained in this
paragraph.
In the case of any such notice to Principal Underwriter, it shall be
entitled to participate, at its own expense, in the defense, or , if it so
elects, to assume the defense of any suit brought to enforce any such liability,
but, if Principal Underwriter elects to assume the defense, such defense shall
be conducted by counsel chosen by it and satisfactory to the Trust, to its
officers, directors, employees and agents, and to any controlling person or
persons, defendant or defendants in the suit. In the event that Principal
Underwriter elects to assume the defense of any such suit and retain such
counsel, the Trust or such controlling persons, defendant or defendants in the
suit, shall bear the fees and expenses of any additional counsel retained by
them, but in case Principal Underwriter does not elect to assume the defense of
any such suit, it will reimburse the Trust, such officers and directors or
controlling person or persons, defendant or defendants in such suit, for the
reasonable fees and expenses of any counsel retained by them. Principal
Underwriter agrees promptly to notify the Trust of the commencement of any
litigation or proceedings against it in connection with the issue and sale of
any of the shares.
SECTION 9. LIMITATION OF LIABILITY OF THE TRUSTEES, OFFICERS, AND
SHAREHOLDERS. A copy of the Agreement and Declaration of Trust of the Fund is on
file with the Secretary of State of The Commonwealth of Delaware and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
Fund as Trustees and not individually and that the obligations of or arising out
of this instrument are not binding upon any of the Trustees, officers or
shareholders individually but are binding only upon the assets and property of
the Fund.
SECTION 10. OTHER ACTIVITIES OF PRINCIPAL UNDERWRITER. Principal
Underwriter agrees to devote reasonable time and effort to effecting sales of
shares of the Fund, but, so long as it does so, nothing herein contained shall
prevent Principal Underwriter from entering into like arrangements with other
investment companies.
SECTION 11. AUTHORIZED INFORMATION; NO AGENCY. Principal Underwriter is
not authorized by the Trust to give any information, or to make any
representations, other than those contained in the registration statement or
prospectus filed with the Securities and Exchange Commission under the 1933 Act,
as amended (as said registration statement and prospectus may be amended from
time to time), covering the Shares of the Fund or such sales literature as may
be prepared by or on behalf of the Trust for Principal Underwriter's use. No
person is authorized to act as agent for the Fund in connection with the
offering or sale of Shares of the Fund to the public or otherwise.
SECTION 12. OTHER LIMITATIONS ON PRINCIPAL UNDERWRITER. Principal
Underwriter shall not take any long or short positions in Shares of the Fund
except as permitted by Paragraph 1 hereof, and, so far as it can reasonably
control the situation, Principal Underwriter will prevent any persons
financially interested in Principal Underwriter from taking any long or short
positions in Shares of the Fund. No portfolio securities of the Fund will be
bought or sold by or through Principal Underwriter, nor will Principal
<PAGE>
Underwriter participate in brokerage commissions or "spread" in respect of such
transactions.
SECTION 13. EXPENSES. Principal Underwriter agrees to bear all expenses
(a) of printing and distributing any prospectuses or reports, prepared for its
use other than (i) the expense of preparing and setting up in type any
prospectuses required under Federal law to be filed with the Securities and
Exchange Commission or (ii) the expense of preparing and setting up in type and
distributing any reports or other communication to Shareholders of the Fund in
their capacity as such, (b) of preparing, printing and distributing any other
literature used by Principal Underwriter or its dealers in connection with the
offering of the Shares for sale to the public, (c) of advertising in connection
with such offering, and (d) of qualification (other than auditing expenses) of
the Shares for the sale in such states as shall be selected by Principal
Underwriter and the fees payable to each such state for maintaining the
qualification therein until Principal Underwriter notifies the Trust that it
does not wish such qualification maintained.
SECTION 14. DISTRIBUTION PLAN. If the Trust adopts a distribution plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Principal
Underwriter shall be entitled to receive, in addition to the amounts specified
in Section 1 and 2 of this Agreement, such amounts as may be authorized by the
Trust's Board of Trustees pursuant to such plan.
SECTION 15. TERMINATION. This Agreement shall be effective upon the
execution thereof, and, unless terminated as hereinafter provided, this
Agreement shall continue in force for two years from the date hereof and
thereafter from year to year, provided such continuance for each successive year
after such two year period is approved in writing by Principal Underwriter and
the Trust at least three months before the beginning of the year for which this
Agreement is to be continued (unless a shorter period is agreed upon ), and
provided, further, that such continuance is specifically approved by the Trust's
Board of Trustees, or by the vote of the holders of a majority of the
outstanding voting securities (as defined in Section 2(a)(4) of said Act), of
the Trust. In addition, and in either event, the contract and its terms must be
approved at least annually by vote of a majority of the Trustees of the Trust
who are not parties to the contract or interested persons (as defined in Section
2(a)(19) of said Act) of any such party, cast in person at a meeting called for
the purpose of voting on such approve.
This Agreement shall automatically terminate in the event of its
assignment by Principal Underwriter. As used in the preceding sentence, the word
"assignment" shall have the meaning defined in Section 2(a)(4) of the Investment
Company Act of 1940.
In addition to termination by failure to approve continuance, this
Agreement may at any time be terminated by either party hereto upon not less
than six months' previous written notice to the other party.
SECTION 16. NOTICE. Any notice required or permitted to be given
hereunder by either party to the other shall be deemed sufficiently given if
sent by registered or certified mail, postage prepaid, addressed by the party
giving such notice to the other party at the last address furnished by such
other party to the party giving notice, and unless and until changed pursuant to
the foregoing provisions hereof, addressed, if to the Trust, at 2905 Lucerne SE,
Grand Rapids, Michigan 49546, or their current address, and if to Principal
Underwriter, 2905 Lucerne SE, Grand Rapids, Michigan 49546, or their current
address.
IN WITNESS WHEREOF, the Trust has caused this instrument to be executed
in its name and behalf, and its corporate seal to be hereunto affixed, by one of
its officers thereunto duly authorized, and Principal Underwriter has caused
this instrument to be executed in its name and behalf, and its corporate seal to
<PAGE>
be hereunto affixed, by one of its officers thereunto duly authorized, as of the
day and year first above written.
ACTIVA MUTUAL FUND TRUST
By___________________________________
James J. Rosloniec, President
ACTIVA ASSET MANAGEMENT, LLC
By___________________________________
Allan D. Engel, President
TRANSFER AGENT AND SHAREHOLDER SERVICES
AGREEMENT
THIS AGREEMENT is made and entered into on this 1st day of September,
1999, by and between Activa Mutual Fund Trust (the "Trust") on behalf of the
Activa Mutual Fund (the "Fund") and Activa Asset Management LLC, a business
trust, organized under the laws of the State of Michigan (hereinafter referred
to as the "Agent").
WHEREAS, the Agent is among other things, a transfer and dividend
disbursing agent; and
WHEREAS, the Trust desires to retain the Agent to be the Transfer Agent
and Shareholder Servicing Agent for the Fund's Class R series of units of
beneficial interest.
NOW, THEREFORE, the Trust and the Agent do mutually promise and agree
as follows:
1. Terms of Appointment; Duties of the Transfer Agent.
Subject to the terms and conditions set forth in this Agreement, the
Trust hereby employs and appoints the Agent to act as transfer agent and
dividend disbursing agent for the Fund's Class R series of units of beneficial
interest ("shares").
The Agent shall perform all of the customary services of a transfer
agent and dividend disbursing agent, and as relevant, agent in connection with
accumulation, open account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including but not
limited to:
A. Receive orders for the purchase of units of shares;
B. Process purchase orders and issue the appropriate number of
certificated or uncertificated shares with such uncertificated
shares being held in the appropriate shareholder account.
C. Process redemption requests received in good order;
D. Pay monies;
E. Process transfers of shares in accordance with the
shareowner's instructions;
F. Process exchanges between funds within the same family of
funds;
G. Issue and/or cancel certificates as instructed; replace lost,
stolen or destroyed certificates upon receipt of satisfactory
indemnification or surety bond;
<PAGE>
H. Prepare and transmit payments for dividends and distributions
declared by the Fund;
I. Make changes to shareholder records, including, but not
limited to, address changes in plans (i.e., systematic
withdrawal, automatic investment, dividend reinvestment,
etc.);
J. Record the issuance of shares of the Fund and maintain,
pursuant to Securities Exchange Act of 1934 Rule 17ad-10(e), a
record of the total number of shares of the Fund which are
authorized, issued and outstanding;
K. Prepare shareholder meeting lists and, if applicable, mail,
receive and tabulate proxies;
L. Provide shareholder account information upon request and
prepare and mail confirmations and statements of account to
shareholders for all purchases, redemptions and other
confirmable transactions as agreed upon with the Fund.
2. Terms of Appointment; Duties of Shareholder Services Agent.
The Trust hereby employs the Agent to be the Shareholder Services Agent
for the Fund's Class R shares for the period and on the terms set forth in this
Agreement. The Agent shall perform such services to the record and/or beneficial
owners of Class R shares as may be agreed to between the Agent and the Fund,
including but not limited to:
A. Mailing Fund prospectuses and periodic Fund reports to Class R
shareholders;
B. Mailing proxy materials to Class R shareholders;
C. Responding to inquiries from Class R shareholders with respect
to the Fund or their particular accounts;
D. Providing information to Class R shareholders about the Fund
and about retirement investments in general; and
E. Conducting financial seminars designed to assist in the
education of Class R shareholders with respect to mutual funds
generally and the Fund in particular.
3. Expenses.
The Agent, at its own expense and without reimbursement from the Trust, shall
furnish office space, and all necessary office facilities, equipment and
executive personnel for performing the services required to be performed by it
under the Agreement. The Agent shall not be required to pay any expenses of the
Fund. The expenses to be borne by the Fund include (but are not limited to) the
following: (i) expenses of issue, sale, repurchase and redemption of shares;
(ii) expenses of registering and qualifying the Fund and its shares under
<PAGE>
federal and state securities laws and of preparing and printing prospectuses for
such purposes and for distributing the same to stockholders and investors; (iii)
expenses of reports and notices to stockholders and of meetings of stockholders
and proxy solicitations therefore; and (iv) fees and expenses related to the
determination of the Fund's net asset value.
4. Compensation.
For the services to be rendered by the Agent hereunder, the Fund shall
pay to the Agent a fee, paid monthly, based on the average net assets of the
Fund, as determined by valuations made as of the close of each business day of
the month. The Agent fee shall be 1/12 of .35% (0.35% annually) of such average
net assets, however that for any month in which this Agreement is not in effect
for the entire month, such fee shall be reduced proportionately on the basis of
the number of calendar days during which it is in effect and the fee computed
upon the daily net assets of the business days during which it is so in effect.
5. Representations of Agent.
The Agent represents and warrants to the Trust that:
A. It is a corporation duly organized, existing and in good
standing under the laws of Michigan;
B. It is a registered transfer agent under the Securities
Exchange Act of 1934 as amended;
C. It is duly qualified to carry on its business in the state
of Michigan;
D. It is empowered under applicable laws and by its charter and
operating agreement to enter into and perform this Agreement;
E. All requisite company proceedings have been taken to authorize
it to enter and perform this Agreement;
F. It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement; and
G. It will comply with all applicable requirements of the
Securities Act of 1933 and the Securities Exchange Act of
1934, as amended, the Investment Company Act of 1940, as
amended, and any laws, rules, and regulations of governmental
authorities having jurisdiction.
<PAGE>
6. Representations of the Trust.
The Trust represents and warrants to the Agent that:
A. The Trust is an open-ended diversified investment company
under the Investment Company Act of 1940;
B. The Trust is a Trust organized, existing, and in good standing
under the laws of Delaware;
C. The Fund has been duly authorized as a Series of the Trust and
Class R has been duly authorized as a Class of the Fund;
D. The Trust is empowered under applicable laws and by its
Declaration of Trust and bylaws to enter into and perform this
Agreement;
E. All necessary proceedings required by the Declaration of Trust
have been taken to authorize the Trust to enter into and
perform this Agreement; and
F. The Trust and the Fund will comply with all applicable
requirements of the Securities and Exchange Acts of 1933 and
1934, as amended, the Investment Company Act of 1940, as
amended, and any laws, rules and regulations of governmental
authorities having jurisdiction.
7. Covenants of Fund and Agent.
The Agent shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended, and
the rules thereunder, the Agent agrees that all such records prepared or
maintained by the Agent relating to the services to be performed by the Agent
hereunder are the property of the Fund and will be preserved, maintained and
made available in accordance with such section and rules and will be surrendered
to the Fund on and in accordance with its request.
8. Indemnification; Remedies Upon Breach.
The Agent shall exercise reasonable care in the performance of its
duties under this Agreement. The Agent shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which this Agreement relates, including losses resulting from
mechanical breakdowns or the failure of communication or power supplies beyond
the Agent's control, except a loss resulting from the Agent's refusal or failure
to comply with the terms of this Agreement or from bad faith, negligence, or
willful misconduct on its part in the performance of its duties under this
Agreement. Notwithstanding any other provision of this Agreement, the Fund shall
indemnify and hold harmless the Agent from and against any and all claims,
<PAGE>
demands, losses, expenses, and liabilities (whether with or without basis in
fact or law) of any and every nature (including reasonable attorneys' fees)
which the Agent may sustain or incur or which may be asserted against the Agent
by any person arising out of any action taken or omitted to be taken by it in
performing the services hereunder (i) in accordance with the foregoing
standards, or (ii) in reliance upon any written or oral instruction provided to
the Agent by any duly authorized officer of the Fund, such duly authorized
officer to be included in a list of authorized officers furnished to the Agent
and as amended form time to time in writing by resolution of the Board of
Directors of the Fund.
Further, the Fund will indemnify and hold the Agent harmless against
any and all losses, claims, damages, liabilities or expenses (including
reasonable counsel fees and expenses) resulting from any claim, demand, action,
or suit as a result of the negligence of the Fund or principal underwriter
(unless contributed to by the Agent's breach of this Agreement or other
Agreements between the fund and the Agent, or the Agent's own negligence or bad
faith); or as a result of the Agent acting upon telephone instructions relating
to the exchange or redemption of shares received by the Agent and reasonably
believed by the Agent under a standard of care customarily used in the industry
to have originated from the record owner of the subject shares; or as a result
of acting in reliance upon any genuine instrument or stock certificates signed,
countersigned, or executed by any person or person authorized to sign,
countersign, or execute the same.
In the event of a mechanical breakdown or failure of communication or
power supplies beyond its control, the Agent shall take all reasonable steps to
minimize service interruptions for any period that such interruption continues
beyond the Agent's control. The Agent will make every reasonable effort to
restore any lost or damaged data and correct any errors resulting from such a
breakdown at the expense of the Agent. The Agent agrees that it shall, at all
times, have reasonable contingency plans with appropriate parties, making
reasonable provision for emergency use of electrical data processing equipment
to the extent appropriate equipment is available. Representatives of the Fund
shall be entitled to inspect the Agent's premises and operating capabilities at
any time during regular business hours of the Agent, upon reasonable notice to
the Agent.
Regardless of the above, the Agent reserves the right to reprocess and
correct administrative errors at its own expense.
In order that the indemnification provisions contained in this section
shall apply, it is understood that if in any case the Fund may be asked to
indemnify or hold the Agent harmless, the Fund shall be fully and promptly
advised of all pertinent facts concerning the situation in questions, and it is
further understood that the Agent will use all reasonable care to notify the
Fund promptly concerning any situation which presents or appears likely to
present the probability of such a claims for indemnification against the Fund.
The Fund shall have the option to defend the Agent against any claim which may
be the subject of this indemnification. In the event that the Fund so elects, it
will so notify the Agent and thereupon the Fund shall take over Complete defense
of the claim, and the Agent shall in such situation initiate no further legal or
other expenses for which it shall seek indemnification under this section. The
<PAGE>
Agent shall in no case confess any claim or make any compromise in any case in
which the Fund will be asked to indemnify the Agent except with the Fund's prior
written consent.
The Agent shall indemnify and hold the Fund harmless from and against
any and all claims, demands, losses, expenses, and liabilities (whether with or
without basis in fact or law) of any and every nature (including reasonable
attorneys' fees) which may be asserted against the Fund by any person arising
out of any action taken or omitted to be taken by the Agent as a result of the
Agent's refusal or failure to comply with the terms of this Agreement, its bad
faith, negligence, or willful misconduct.
9. Confidentiality.
The Agent agrees on behalf of itself and its employees to treat
confidentially all records and other information relative to the Fund and its
shareholders and shall not be disclosed to any other party, except after prior
notification to and approval in writing by the Fund, which approval shall not be
unreasonably withheld and may not be withheld where the Agent may be exposed to
civil or criminal contempt proceedings for failure to comply after being
requested to divulge such information by duly constituted authorities.
10. Exclusivity.
The services of the Agent to the Fund hereunder are not to be deemed
exclusive and the Agent shall be free to furnish similar services to others as
long as the services hereunder are not impaired thereby. During the period that
this Agreement is in effect, the Agent shall be the Fund's sole administrator.
11. Records.
The Agent shall keep records relating to the services to be performed
hereunder, in the form and manner, and for such period as it may deem advisable
and is agreeable to the Fund but not inconsistent with the rules and regulations
of appropriate government authorities, in particular, Section 31 of The
Investment Company Act of 1940 as amended (the "Investment Company Act"), and
the rules thereunder. The Agent agrees that all such records prepared or
maintained by The Agent relating to the services to be performed by The Agent
hereunder are the property of the Fund and will be preserved, maintained, and
made available with such section and rules of the Investment Company Act and
will be promptly surrendered to the Fund on and in accordance with its request.
12. Michigan Law to Apply.
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the state of Michigan.
<PAGE>
13. Amendment, Assignment, Termination and Notice.
A. This Agreement may be amended by the mutual consent of the
parties; provided, however, that in no event may it be amended
without the approval of the board of directors of the Fund in the
manner required by the Act.
B. This Agreement may be terminated upon sixty (60) day's written
notice given by one party to the other.
C. This Agreement and any right or obligation hereunder may not be
assigned by either party without the signed, written consent of
the other party.
D. Any notice required to be given by the parties to each other under
the terms of this Agreement shall be in writing, addressed and
delivered, or mailed to the principal place of business of the
other party.
E. In the event that the Trust gives to the Agent its written
intention to terminate and appoint a successor transfer agent, the
Agent agrees to cooperate in the transfer of its duties and
responsibilities to the successor, including any and all relevant
books, records and other data established or maintained by the
Agent under this Agreement.
F. Should the Trust exercise its rights to terminate, all
out-of-pocket expenses associated with the movement of records and
material will be paid by the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day first above written.
ACTIVA MUTUAL FUND TRUST ACTIVA ASSET MANAGEMENT, LLC
By: _________________________ By: ______________________________
James J. Rosloniec Allan D. Engel
President President
TRANSFER AGENCY AND DIVIDEND
DISBURSING AGENCY AGREEMENT
BETWEEN
ACTIVA MUTUAL FUND TRUST
AND
ACTIVA ASSET MANAGEMENT, LLC
AGREEMENT made this 11th day of June, 1999, between Activa Mutual Fund
Trust, a Delaware Business Trust ("the Trust") and Activa Asset Management, LLC,
a Michigan LLC (hereinafter called the "Agent").
In consideration of the mutual promises and undertakings herein
contained, the parties hereto agree as follows:
SECTION L. TRANSFER AGENT. The Agent shall be the transfer agent for
the Activa Mutual Funds ("Funds") which are series of the Trust and as such
shall:
(a) keep the units of beneficial interest ("shares") transfer books
and records of the Funds, including the names and addresses of
all shareholders, the number and date of issuance of shares and
fractional shares held by each shareholder, the number and date
of certificates issued for such shares, the number and date of
cancellation of redeemed shares, and the number and date of
cancellation of each certificate surrendered for cancellation;
(b) be responsible for the issuance and redemption of shares of the
(c) effect and record transfers of ownership of shares and changes
in Fund; the registration of shares; (d) cause all shareholder
reports and proxies for shareholders' meetings to be properly
addressed and mailed;
(e) tabulate all proxies; and (f) prepare and mail all required
federal, state and other income tax information to shareholders.
SECTION 2. DIVIDEND DISBURSING AGENT. The Agent shall be the dividend
disbursing agent of the Fund and as such shall,
in accordance with shareholders' instructions, disburse to shareholders the
ordinary dividends and capital gains distributions allocable to their shares in
the amounts directed by the Funds or, alternatively, cause such distributions to
be reinvested in additional shares of the Fund for shareholders.
SECTION 3. STAFF. The Agent shall at all times maintain a staff of
trained personnel for the purpose of performing its obligations under this
Agreement. The Agent assumes no responsibility under this Agreement other than
the services agreed to herein.
SECTION 4. FEES. For the services of the Agent agreed herein to be
rendered, the Funds shall pay to the Agent, quarterly, the fees provided in the
schedule attached hereto as Exhibit A and by this reference made a part hereof.
SECTION 5. CONFORMITY TO CORPORATE INSTRUMENTS AND STATUTES. The Agent
agrees that in all matters relating to the services to be performed by it
herein, it will use its best efforts to act in conformity with the terms of the
Certificate of Incorporation, By-Laws, Registration Statements and current
Prospectus of the Fund. Each of the parties agrees that in all matters relating
to the performance of this Agreement, it will use its best efforts to comply
<PAGE>
with the requirements of the Investment Company Act of 1940 and all other
applicable laws and regulations. Nothing herein contained shall be deemed to
relieve or deprive the Board of Trustees of the Fund of its responsibility for
the conduct of the affairs of the Fund.
SECTION 6. SERVICES TO OTHERS. The Agent shall be free to render
services of this or any other kind to any other person or organization,
including other investment companies, and to engage in any other business or
activity.
SECTION 7. RECORDS. The Agent shall keep records relating to the
services to be performed hereunder, in the form and manner, and for such period
as it may deem advisable and is agreeable to the Fund but not inconsistent with
the rules and regulations of appropriate government authorities, in particular,
Section 31 of The Investment Company Act of 1940 as amended (the "Investment
Company Act"), and the rules thereunder. The Agent agrees that all such records
prepared or maintained by the Agent relating to the services to be performed by
the Agent hereunder are the property of the Fund and will be preserved,
maintained, and made available with such section and rules of the Investment
Company Act and will be promptly surrendered to the Fund on and in accordance
with its request.
SECTION 8. AMENDMENT. This Agreement, including the schedule attached
hereto as Exhibit A, may be amended at any time by mutual written consent of the
parties.
SECTION 9. VALUE FUND CLASS R. This Agreement shall not apply to Class
R shares of the Activa Value Fund.
SECTION 10. EFFECTIVE DATE; TERMINATION. This Agreement shall be
effective on the date the Funds registration for the new series is effective,
and may be terminated by either party hereto upon sixty (60) days' written
notice to the other, provided that no such notice of termination given by the
Agent to the Fund shall be effective unless and until a substitute person or
entity has been engaged by the Fund to perform the services required hereunder
for the Fund, or the Fund has certified to the Agent that other arrangements
have been made by it to provide such services.
IN WITNESS WHEREOF the parties hereto have caused this instrument to be
signed in their behalf by their respective officers thereunto duly authorized,
and their respective seals to be hereunto affixed, all as of the date first
above written.
ACTIVA MUTUAL FUND TRUST
By ______________________________
James J. Rosloniec, President
ACTIVA ASSET MANAGEMENT, LLC
By ______________________________
Allan D. Engel, President
<PAGE>
TRANSFER AGENCY AND DIVIDEND
DISBURSING AGENCY AGREEMENT
EXHIBIT A
<TABLE>
<CAPTION>
FUNDS EFFECTIVE DATE FEES
------ -------------- -----
<S> <C> <C>
Activa Money Market Fund June 11, 1999 $1.167 per month per account in
in existence during the month,
payable monthly less earnings
in the redemption liquidity
account after reducing the
earnings by wire transfer fees,
if any.
Activa Intermediate Bond Fund June 11, 1999 $1.167 per month per account in
in existence during the month,
payable monthly less earnings
in the redemption liquidity
account after reducing the
earnings by wire transfer fees,
if any.
Activa Value Fund-Class A September 1, 1999 $1.167 per month per account in
in existence during the month,
payable monthly less earnings
in the redemption liquidity
account after reducing the
earnings by wire transfer fees,
if any.
Activa Growth Fund June 11, 1999 $1.167 per month per account in
in existence during the month,
payable monthly less earnings
in the redemption liquidity
account after reducing the
earnings by wire transfer fees,
if any.
Activa International Fund June 11, 1999 $1.167 per month per account in
in existence during the month,
payable monthly less earnings
in the redemption liquidity
account after reducing the
earnings by wire transfer fees,
if any.
</TABLE>
<PAGE>
ADMINISTRATIVE AGREEMENT
AGREEMENT made this 11th day of June 1999, between ACTIVA MUTUAL FUND
TRUST, a Delaware business trust (the "Trust") and each series of the Trust (the
"Funds") and ACTIVA ASSET MANAGEMENT, LLC, a Michigan LLC (the "Administrator").
IN CONSIDERATION of the mutual promises and undertakings herein
contained, the parties hereto agree with respect to each Fund:
1. DUTIES OF THE ADMINISTRATOR.
The Trust hereby employs the Administrator to act as
administrator of the Fund and to administer its affairs,
subject to the supervision of the Trustees of the Trust, for
the period and on the terms set forth in this Agreement.
The Administrator hereby accepts such employment, and
undertakes to afford to the Trust the advice and assistance of
the Administrator's organization in the administration of the
Fund as identified on Schedule A; to furnish for the use of
the Fund office space and office facilities, equipment and
personnel for providing the services specified in Schedule A
and to pay the salaries and fees of all Trustees of the Trust.
The Administrator shall for all purposes herein be deemed to
be an independent contractor and shall, except as otherwise
expressly provided or authorized, have no authority to act for
or represent the Trust in any way or otherwise be deemed an
agent of the Trust.
Notwithstanding the foregoing, the Administrator
shall not be deemed to have assumed any duties with respect
to, and shall not be responsible for, the management of the
Fund's assets or the rendering of investment advice and
supervision with respect thereto or the distribution of shares
of the Fund, nor shall the Administrator be deemed to have
assumed or have any responsibility with respect to functions
specifically assumed by any transfer agent, custodian or
shareholder servicing agent of the Trust or the Fund.
2. ALLOCATION OF CHARGES AND EXPENSES.
The Administrator shall pay the entire salaries and
fees of all of the Trust's Trustees and officers who devote
part or all of their time to the affairs of the Administrator,
and the salaries and fees of such persons shall not be deemed
to be expenses incurred by the Trust for purposes of this
Section 2. Except as provided in the foregoing sentence, the
Administrator shall not pay any expenses relating to the Trust
or the Fund including, without implied limitation,
(i) expenses of maintaining the Fund and continuing its
existence,
(ii) registration of the Trust under the Investment
Company Act of 1940,
(iii) commissions, fees and other expenses connected with
the acquisition, disposition and valuation of
securities and other investments,
<PAGE>
(iv) auditing, accounting and legal expenses,
(v) taxes and interest,
(vi) governmental fees,
(vii) expenses of issue, sale, repurchase and redemption
of shares,
(viii) expenses of registering and qualifying the
Trust, the Fund and its shares under federal
and state securities laws and of preparing and
printing prospectuses for such purposes and for
distributing the same to shareholders and investors,
expenses of reports and notices to shareholders and
of meetings of shareholders and proxy solicitations
therefore,
(ix) expenses of reports to governmental officers and
commissions,
(x) insurance expenses,
(xi) association membership dues,
(xii) fees, expenses and disbursements of
custodians and subcustodians for all
services to the Fund (including without
limitation safekeeping al funds, securities
and other investments, keeping of books and
accounts and determination of net asset values),
(xiii) fees, expenses and disbursements of transfer
agents, dividend disbursing agents,
shareholder servicing agents and registrars
for all services to the Fund,
(xiv) expenses for servicing shareholder accounts,
(xv) any direct charges to shareholders approved by the
Trustees of the Trust, and
(xvi) such nonrecurring items as may arise,
including expenses incurred in connection
with litigation, proceedings and claims and
the obligation of the Trust to indemnify its
Trustees and officers with respect thereto.
3. COMPENSATION OF THE ADMINISTRATOR.
For services to be rendered by the Administrator
provided herein, each series of the Trust shall pay to the
Administrator a fee, payable quarterly, at the annual rate of
.15% of average daily net assets. The fee for the Value series
shall be effective beginning September 1, 1999.
4. OTHER INTERESTS.
It is understood that Trustees and officers of the
Trust and shareholders of the Fund are or may be or become
interested in the Administrator as trustees, officers,
employees, shareholders or otherwise and that trustees,
officers, employees and shareholders of the Administrator are
or may be or become similarly interested in the Fund, and that
the Administrator may be or become interested in the Fund as
shareholder or otherwise. It is also understood that trustees,
officers, employees and shareholders of the Administrator may
be or become interested (as directors, trustees, officers,
employees, stockholders or otherwise) in other companies or
entities (including, without limitation, other investment
companies) which the Administrator may organize, sponsor or
acquire, or with which it may merge or consolidate or any
<PAGE>
combination thereof as part of their name, and that the
Administrator or its subsidiaries or affiliates may enter into
advisory or management or administration agreements or other
contracts or relationships with such other companies or
entities.
5. LIMITATION OF LIABILITY OF THE ADMINISTRATOR.
The services of the Administrator to the Trust and
the Fund are not to be deemed to be exclusive, the
Administrator being free to render services to others and
engage in other business activities. In the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard
of obligations or duties hereunder on the part of the
Administrator, the Administrator shall not be subject to
liability to the Trust or the Fund or to any shareholder of
the Fund for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses
which may be sustained in the acquisition, holding or
disposition of any security or other investment.
6. SUB-ADMINISTRATORS.
The Administrator may employ one or more
sub-administrators from time to time to perform such of the
acts and services of the Administrator and upon such terms and
conditions as may be agreed upon between the Administrator and
such sub-administrators and approved by the Trustees of the
Trust.
7. DURATION AND TERMINATION OF THIS AGREEMENT.
This Agreement shall become effective upon the date
of its execution, and, unless terminated as herein provided,
shall remain in full force and effect through and including
March 31, 2000 and shall continue in full force and effect
indefinitely thereafter, but only so long as such continuance
after March 31, 2000 is specifically approved at least
annually (i) by the Board of Trustees of the Trust and (ii) by
the vote of a majority of those Trustees of the Trust who are
not interested persons of the Administrator or the Trust.
Either party hereto may, at any time on sixty (60) days' prior
written notice to the other, terminate this Agreement without
the payment of any penalty, by action of Trustees of the Trust
or the trustee of the Administrator, as the case may be, and
the Trust may, at any time upon such written notice to the
Administrator, terminate this Agreement by vote of a majority
of the outstanding voting securities of the Fund. This
Agreement shall terminate automatically in the event of its
assignment.
8. LIMITATION OF LIABILITY OF THE TRUSTEES, OFFICERS, AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of
the Fund is on file with the Secretary of State of the
Commonwealth of Delaware and notice is hereby given that this
instrument is executed on behalf of the Trustees of the Fund
as Trustees and not individually and that the obligations of
or arising out of this instrument are not binding upon any of
the Trustees, officers or shareholders individually but are
binding only upon the assets and property of the Fund.
<PAGE>
9. AMENDMENTS OF THE AGREEMENT.
This Agreement may be amended by a writing signed by
both parties hereto, provided that no amendment to this
Agreement shall be effective until approved:
(i) by the vote of a majority of those Trustees of the
Trust who are not interested persons of the
Administrator or the Trust, and
(ii) by vote of the Board of Trustees of the Trust.
Additional series of the Trust, however, will become
a Fund hereunder upon approval by the Trustees of the
Trust and amendment of Schedule A.
10. LIMITATION OF LIABILITY.
The Fund shall not be responsible for the obligations
of any other series of the Trust. The Administrator expressly
acknowledges the provision in the Declaration of Trust of the
Trust limiting the personal liability of shareholders of the
Fund and of the officers and Trustees of the Trust, and the
Administrator hereby agrees that it shall have recourse to the
Trust or the Fund for payment of claims or obligations as
between the Trust or the Fund and the Administrator arising
out of this Agreement and shall not seek satisfaction from the
shareholders or any shareholder of the Fund or from the
officers or Trustees of the Trust.
11. CERTAIN DEFINITIONS.
The terms "assignment" and "interested persons" when
used herein shall have the respective meanings specified in
the Investment Company Act of 1940 s now in effect or as
hereafter amended subject, however, to such exemption as may
be granted by the Securities and Exchange Commission by any
rule, regulation or order. the term "vote of a majority of the
outstanding voting securities" shall mean the vote of the
lesser of (a) 67 per centum or more of the shares of the Fund
present or represented by proxy at the meeting if the holders
of more than 50 per centum of the outstanding shares of the
Fund are present or represented by proxy at the meeting, or
(b) more than 50 per centum of the outstanding shares of the
Fund.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
on the day and year first above written.
ACTIVA MUTUAL FUND TRUST
By ______________________________
James J. Rosloniec, President
ACTIVA ASSET MANAGEMENT, LLC
By ______________________________
Allan D. Engel, President
<PAGE>
SCHEDULE A
ADMINISTRATIVE AGREEMENT SERVICES
The following services will be provided to the Trust and each series of the
Trust:
COMPLIANCE
o Maintain and manage annual regulatory filing and compliance calendar.
o Obtain tax identification numbers from the IRS for each Fund portfolio.
o Maintain books and records on behalf of the Fund, as agreed upon by the
parties.
o Notify appropriate Fund officers of mark-to-market issues pursuant to
Board-approved procedures and of any security pricing issues.
o Provide appropriate assistance with respect to SEC inspections including
(i) rendering advice regarding proposed responses (ii) compiling data and
other information in response to SEC requests for information and (iii)
communicating with SEC staff members, as necessary.
o Provide appropriate assistance with respect to audits conducted by the
Fund's independent accountants including (i) compiling data and other
information and (ii) communicating with independent accountants, as
necessary.
o Consult with and advise, on a proactive basis, Fund portfolio managers with
respect to compliance matters.
o Prepare brokerage allocations and supporting documentation for use by
Trustees.
o Monitor compliance with Trust Code of Ethics policies.
o Prepare and file Form N-SAR.
TAX AND FINANCIAL SERVICES
o Assist Fund's Independent Accountants with 17f-2 audit process.
o Obtain Fund CUSIPs.
o Prepare and coordinate production of semi-annual/annual financial
statements.
o Validate/approve Fund expenses to be paid.
o Register Fund portfolios with NASDAQ.
o Prepare financial materials for Board of Trustees.
o Calculate declaration of income/capital gain distributions in compliance
with income/excise tax distribution requirements.
o Review all dividend declarations to ensure that such distributions are not
preferential under the Internal Revenue Code.
o Review and file federal and state income tax returns and federal excise tax
returns within statutory deadlines.
o Provide expense budgeting consulting to review expense ratios.
<PAGE>
LEGAL SERVICES
o Maintain files and coordinate with independent legal counsel the
preparation and review of registration statements, Fund contracts, Fund
proxies and other Fund legal documentation.
o Provide consultation with respect to product development issues.
o Provide assistance concerning matters pertaining to Federal securities
laws, bank regulatory issues, tax-related issues and ERISA issues.
o Provide information concerning current legal and regulatory development.
o Provide comments, as appropriate, concerning regulatory agency proposals.
o Maintain appropriate insurance coverage on behalf of the Fund in the form
of (i) a Directors & Officers/Errors & Omissions professional liability and
(ii) a Fidelity Bond.
BOARD & SHAREHOLDER MEETING MATTERS
o Prepare for and conduct shareholder meetings.
o Assist in the completion of trustee/officer questionnaires.
o Make available persons to serve as officers of the Fund.
o Maintain calendar and files for all Board of Trustees meetings, including
the maintenance of Fund minute books and corporate records (e.g.,
Declaration of Trust, Bylaws).
o Prepare quarterly Board of Trustees meeting responsibility chart.
o Provide appropriate personnel to attend Board of Trustees meetings.
o Prepare Board of Trustees agendas and relevant sections of Board of
Trustees materials.
o Produce and distribute Board of Trustees books.
o Record minutes of Board of Trustees meetings.
Registration Statements
o Manage the process of updating and filing registration statements by (i)
reviewing or recommending proposed disclosure changes, (ii) compiling data
for purposes of updating information, (iii) receiving disclosure comments
and communicating them to counsel to the Fund and the financial printer and
(iv) overseeing and approving revisions that are made by the financial
printer.
o Prepare periodic supplements to Fund prospectuses or, if the parties agree,
review such supplements that are prepared by counsel to the Fund.
FUND ACCOUNTING AGREEMENT
AGREEMENT made this ___ day of July 1999, between ACTIVA MUTUAL FUND
TRUST (the "Company"), a Delaware business trust having its principal place of
business at 2905 Lucerne SE, Grand Rapids, Michigan 49546 and BYSYS FUND
SERVICES OHIO, INC. ("Fund Accountant"), an Ohio corporation having its
principal place of business at 3435 Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Company desires that Fund Accountant perform certain fund
accounting services for each investment portfolio of the company, all as now or
hereafter may be established from time to time (individually referred to herein
as the "Fund" and collectively as the "Funds"); and
WHEREAS, Fund Accountant is willing to perform such services on the
terms and conditions set forth in this agreement.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. SERVICES AS FUND ACCOUNTANT.
(A) MAINTENANCE OF BOOKS AND RECORDS. Fund Accountant
will keep and maintain the following books and
records of each Fund pursuant to Rule 31a-1 under the
Investment Company Act of 1940 (the "Rule"):
(i) Journals containing an itemized daily record in detail
of all purchases and sales of securities, all receipts and
disbursements of cash and all other debits and credits, as
required by subsection (b)(1) of the Rule;
(ii) General and auxiliary ledgers reflecting all asset,
liability, reserve, capital, income and expense
accounts, including interest accrued and interest
received, as required by subsection (b)(2)(i) of the Rule;
(iii) Separate ledger accounts required by subsection (b)(2)(ii)
and (iii) of the Rule; and
(iv) A monthly trial balance of all ledger accounts (except
shareholder accounts) as required by subsection (b)(8)
of the Rule.
<PAGE>
(B) PERFORMANCE OF DAILY ACCOUNTING SERVICES. In addition to the
Maintenance of the books and records specified above, Fund Accountant shall
perform the following accounting services for each Fund:
(i) Calculate the net asset value per share utilizing prices
obtained from the sources described in
subsection 1 (b)(ii) below;
(ii) Obtain security prices from independent
pricing services, or if such quotes are
unavailable, then obtain such prices from
each Fund's investment adviser or its
designee, as approved by the Company's Board
of Trustees/Directors (hereafter referred to
as "Directors");
(iii) Verify and reconcile with the Funds' custodian all daily
trade activity;
(iv) Compute, as appropriate, each Fund's net
income and capital gains, dividend payables,
dividend factors, 7-day yields, 7-day
effective yields, 30-day yields, and
weighted average portfolio maturity;
(v) Review daily the net asset value calculation
and dividend factor (if any) for each Fund
prior to release to shareholders, check and
confirm the net asset values and dividend
factors for reasonableness and deviations,
and distribute net asset values and yields to NASDAQ;
(vi) Report to the Company the daily market
pricing of securities in any money market
Funds, with the comparison to the amortized cost basis;
(vii) Determine unrealized appreciation and depreciation on
securities held in variable net asset value Funds;
(viii) Amortize premiums and accrete discounts on securities
purchased at a price other than face value, if requested
by the Company;
(ix) Update fund accounting system to reflect rate changes,
as received from a Fund's investment adviser, on
variable interest rate instruments;
(x) Post Fund transactions to appropriate categories;
2
<PAGE>
(xi) Accrue expenses of each Fund according to instructions
received from the Company's Administrator;
(xii) Determine the outstanding receivables and payables for
all (1) security trades, (2) Fund share transactions
and (3) income and expense accounts;
(xiii) Provide accounting reports in connection with the
Company's regular annual audit and other audits and
examinations by regulatory agencies; and
(xiv) Provide such periodic reports as the parties shall agree
upon, as set forth in a separate schedule.
(c) SPECIAL REPORTS AND SERVICES.
(i) Fund Accountant may provide additional
special reports upon the request of the
Company or a Fund's investment adviser,
which may result in an additional charge,
the amount of which shall be agreed upon
between the parties.
(ii) Fund Accountant may provide such other
similar services with respect to a Fund as
may be reasonably requested by the Company,
which may result in an additional charge,
the amount of which shall be agreed upon
between the parties.
(d) ADDITIONAL ACCOUNTING SERVICES. Fund Accountant shall also perform the
following additional accounting services for each Fund:
(i) Provide monthly a download (and hard copy
thereof) of the financial statements
described below, upon request of the
Company. The download will include the
following items:
Statement of Assets and Liabilities,
Statement of Operations,
Statement of Changes in Net Assets, and
Condensed Financial Information;
3
<PAGE>
(iii) Provide accounting information for the following:
(A) federal and state income tax returns and
and federal excise tax returns;
(B) the Company's semi-annual reports with the
Securities and Exchange Commission ("SEC") on
Form N-SAR;
(C) the Company's annual, semi-annual and
quarterly (if any) shareholder reports;
(D) registration statements on Form N-1A and
other filings relating to the registration of
shares;
(E) the Administrator's monitoring if the
Company's status as a regulated investment
company under subchapter M of the Internal
Revenue Code, as amended;
(F) annual audit by the Company's auditors; and
(G) examinations performed by the SEC.
2. SUBCONTRACTING.
Fund Accountant may, at its expense, subcontract with any
entity or person concerning the provision of the services contemplated
hereunder; provided, however, that Fund Accountant shall not be relieved of any
of its obligations under this Agreement by the appointment of such subcontractor
and provided further, that Fund Accountant shall be responsible, to the extent
provided in Section 7 hereof, for all acts of such subcontractor as if such acts
were its own.
3. COMPENSATION.
The Company shall pay Fund Accountant for the services to be
provided by Fund Accountant under this agreement in accordance with, and in the
manner set forth in, Schedule A hereto, as such Schedule may be amended from
time to time.
4. REIMBURSEMENT OF EXPENSES.
In addition to paying Fund Accountant the fees described in
Section 3 hereof, the Trust agrees to reimburse Fund Accountant for its
out-of-pocket expenses in providing services hereunder, including without
limitation the following:
(a) All freight and other delivery and bonding
charges incurred by Fund Accountant in
delivering materials to and from the Company.
4
<PAGE>
(b) All direct telephone, telephone transmission and telecopy or
other Electronic transmission expenses incurred by Fund
Accountant in Communication with the Company, the Company's
investment adviser or custodian, dealers or others as required
for Fund Accountant to perform the services to be provided
hereunder;
(c) The cost of obtaining security market quotes pursuant to
Section 1(b)(ii) above;
(d) The cost of microfilm or microfiche of records or other
materials;
(e) All system-related expenses associated with the provision of
special reports and services pursuant to Section 1(c) herein;
(f) Any expenses Fund Accountant shall incur at the written
direction of an officer of the Company thereunto duly
authorized; and
(g) Any additional expenses reasonably incurred by Fund Accountant
In the performance of its duties and obligations under this
Agreement.
5. EFFECTIVE DATE.
This Agreement shall become effective with respect to a Fund
as of the date first written above (or, if a particular Fund is not in existence
on that date, on the date such Fund commences operation) (the "Effective Date").
6. TERM.
This Agreement shall continue in effect with respect to a Fund, unless Earlier
terminated by either party hereto as provided hereunder, until _____________,
(the "Initial Term"). Thereafter, unless otherwise terminated as provided
herein, this Agreement shall be renewed automatically for successive one-year
periods ("Rollover Periods"). This Agreement may be terminated without penalty
(I) by provision of a notice of nonrenewal in the manner set forth below, (ii)
by mutual agreement of the parties or (iii) for "cause" as defined below, upon
the provision of 60 days advance written notice by the party alleging cause.
Written notice of nonrenewal must be provided within 60 days of the end of the
Initial Term or any Rollover Period, as the cause may be.
5
<PAGE>
For purposes of this Agreement, "cause" shall mean (a) a
material breach of this Agreement that has not been remedied for thirty (30)
days following written notice of such breach from the non-breaching party; (b) a
final, unappealable judicial, regulatory or administrative ruling or order in
which the party to be terminated has been found guilty of criminal or unethical
behavior in the conduct of its business; or (c) financial difficulties on the
part of the party to be terminated which are evidenced by the authorization or
commencement of, or involvement by way of pleading, answer, consent or
acquiescence in, a voluntary or involuntary case under Title 11 of the United
States Code, as from time to time is in effect, or any applicable law other than
said Title 11, of any jurisdiction relating to the liquidation or reorganization
of debtors or to the modification or alteration of the rights of creditors.
After such termination for so long as Fund Accountant, with
the written consent of the Company, in fact continues to perform any one or more
of these services contemplated by this Agreement or any schedule or exhibit
hereto, the provisions of this Agreement, including without limitation the
provisions dealing with indemnification, shall continue in full force and
effect. Compensation due Fund Accountant and unpaid by the Company upon such
termination shall be immediately due and payable upon and notwithstanding such
termination. Fund Accountant shall be entitled to collect from the Company, in
addition to the compensation described under Section 3 and 4 hereof, the amount
of all of Fund Accountant's cash disbursements for services in connection with
Fund Accountant's activities in effecting such termination, including without
limitation, the delivery of the Company and/or its designees of the Company's
property, records, instruments and documents.
If, for any reason other than non-renewal, mutual agreement of
the parties or "cause", as defined above, Fund Accountant is replaced as fund
accountant, or if a third party is added to perform all or a part of the
services provided by Fund Accountant under this Agreement (excluding any
sub-accountant appointed by Fund Accountant as provided in Section 2 hereof),
then the Company shall make a one-time cash payment, in consideration of the fee
structure and services to be provided under this Agreement, and not as a
penalty, to Fund Accountant equal to the balance due Fund Accountant for the
remainder of the then-current term of this Agreement, assuming for purposes of
calculation of the payment that such balance shell be bases upon the average
amount of the Company's assets for the twelve months prior to the date Fund
Accountant is replaced or a third party is added.
In the event the Company is merged into another legal entity
in part or in whole pursuant to any form of business reorganization or is
liquidated in part or in whole prior to the expiration of then-current term of
this agreement, the parties acknowledge and agree that the liquidated damages
provision set forth above shall be applicable in those instances in which Fund
Accountant is not retained to provide fund accounting services consistent with
this Agreement. The one-time cash payment referenced above shall be due and
payable on the day prior to the first day in which Fund Accountant is replaced
or a third party is added.
6
<PAGE>
The parties further acknowledge and agree that, in the event
Fund Accountant is replaced, or a third party is added, as set forth above, (i)
a determination of actual damages incurred by Fund Accountant would be extremely
difficult, and (ii) the liquidated damages provision contained herein is
intended to adequately compensate Fund Accountant for damages incurred and is
not intended to constitute any form of penalty.
7. STANDARD OF CARE; RELIANCE ON RECORDS AND INSTRUCTIONS;
INDEMNIFICATION.
Fund Accountant shall use its best efforts to insure the
accuracy of all services performed under this Agreement, but shall not be liable
to the Company for any action taken or omitted by Fund Accountant in the absence
of bad faith, willful misfeasance, negligence or from reckless disregard by it
of its obligations and duties. A Fund agrees to indemnify and hold harmless Fund
Accountant, its employees, agents, directors, officers and nominees from and
against any and all claims, demands, actions and suits, whether groundless or
otherwise, and from and against any and all judgements, liabilities, losses,
damages, costs, charges, counsel fees and other expenses of every nature and
character arising out of or in any way relating to Fund Accountant's actions
taken or nonactions with respect to the performance of services under this
Agreement with respect to such Fund or based, if applicable, upon reasonable
reliance on information, records, instructions or requests with respect to such
Fund given or made to Fund Accountant by a duly authorized representative of the
Company; provided that this indemnification shall not apply to actions or
omissions of Fund Accountant in cases of its own bad faith, willful misfeasance,
negligence or from reckless disregard by it of its obligations and duties, and
further provided that prior to confessing any claim against it which may be the
subject of this indemnification, Fund Accountant shall give the
Company written notice of and reasonable opportunity to defend against said
claim in its own name or in the name of Fund Accountant.
8. RECORD RETENTION AND CONFIDENTIALITY.
Fund Account shall keep and maintain on behalf of the Company
all books and records which the Company and Fund Account is, or may be, required
to keep and maintain pursuant to any applicable statutes, rules and regulations,
including without limitation Rules 31a-1 and 31a-2 under the Investment Company
Act of 1940, as amended (the "1940 Act"), relating to the maintenance of books
and records in connection with the services to be provided hereunder. Fund
Accountant further agrees that all such books and records shall be the property
of the Company and to make such books and records available for inspection by
the Company or by the Securities and Exchange Commission at reasonable times and
otherwise to keep confidential all books and records and other information
relative to the Company and its shareholders; except when requested to divulge
such information by duly-constituted authorities or court process.
7
<PAGE>
9. UNCONTROLLABLE EVENTS.
Fund Accountant assumes no responsibility hereunder, and shall
not be liable, for any damage, loss of data, delay or any other loss whatsoever
caused by events beyond its reasonable control.
10. REPORTS.
Fund Accountant will furnish to the Company and to its
properly authorized auditors, investment advisers, examiners, distributors,
dealers, underwriters, salesmen, insurance companies and others designated by
the Company in writing, such reports and at such times as are prescribed
pursuant to the terms and the conditions of this Agreement to be provided or
completed by Fund Accountant, or as subsequently agreed upon by the parties
pursuant to an amendment hereto. The Company agrees to examine each such report
or copy promptly and will report or cause to be reported any errors or
discrepancies therein.
11. RIGHTS OF OWNERSHIP.
All computer programs and procedures developed to perform
services required to be provided by Fund Accountant under this Agreement are the
property of Fund Accountant. All records and other data except such computer
programs and procedures are the exclusive property of the Company and all such
other records and data will be furnished to the Company in appropriate form as
soon as practicable after termination of the Agreement for any reason.
12. RETURN OF RECORDS.
Fund Accountant may at its option at any time, and shall
promptly upon the Company's demand, turn over to the Company and cease to retain
Fund Accountant's files, records and documents created and maintained by Fund
Accountant pursuant to this Agreement which are no longer needed by Fund
Accountant in the performance of its services or for its legal protection. If
not so turned over to the Company, such documents and records will be retained
by Fund Accountant for six years from the year of creation. At the end of such
six-year period, such records and documents will be turned over to the Company
unless the Company authorizes in writing the destruction of such records and
documents.
8
<PAGE>
13. REPRESENTATIONS OF THE COMPANY.
The Company certifies to Fund Accountant that: (1) as of the
close of business on the Effective Date, each Fund that is in existence as of
the Effective Date has authorized unlimited shares, and (2) this Agreement has
been duly authorized by the Company and, when executed and delivered by the
Company, will constitute a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.
14. REPRESENTATIONS OF FUND ACCOUNTANT.
Fund Accountant represents and warrants that (1) the various
procedures and systems which Fund Accountant has implemented with regard to
safeguarding from loss or damage attributable to fire, theft, or any other cause
the records, and other data of the Company and Fund Accountant's records, data,
equipment facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes therein
from time to time as are required for the secure performance of its obligations
hereunder, and (2) this Agreement has been duly authorized by Fund Accountant
and, when executed and delivered by Fund Accountant, enforceable against Fund
Accountant in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors and secured parties.
15. INSURANCE.
Fund Accountant shall notify the Company should any of its
insurance coverage be canceled or reduced. Such notification shall include the
date of change and the reasons therefor. Fund Accountant shall notify the
Company of any material claims against it with respect to services performed
under this Agreement, whether or not they may be covered by insurance, and shall
notify the Company from time to time as may be appropriate of the total
outstanding claims made by Fund Accountant under its insurance coverage.
16. INFORMATION TO BE FURNISHED BY THE COMPANY AND FUNDS.
The Company has furnished to Fund Accountant the following:
(a) Copies of the Declaration of Trust or Articles of
Incorporation of the Company and of any amendments thereto,
certified by the proper official of the state in which such
document has been filed.
9
<PAGE>
(b) Copies of the following documents:
(i) The Company's Bylaws and any amendments thereto; and
(ii) Certified copies of resolutions of the Directors
covering the approval of this Agreement,
authorization of a specified officer of the Company
to execute and deliver this Agreement and
authorization for specified officers of the Company
to instruct Fund Accountant thereunder.
(c) A list of all the officers of the Company, together with
specimen signatures of those officers who are authorized to
instruct Fund Accountant in all matters.
(d) Two copies of the Prospectuses and Statements of Additional
Information for each Fund.
17. INFORMATION FURNISHED BY FUND ACCOUNTANT.
(a) Fund Accountant has furnished to the Company the following:
(i) Fund Accountant's Articles of Incorporation; and
(ii) Fund Accountant's Bylaws and any amendments thereto.
(b) Fund Accountant shall, upon request, furnish certified copies
of corporate actions covering the following matters:
(i) Approval of this Agreement, and authorization of a
specified officer of Fund Accountant to execute and
deliver this Agreement; and
(ii) Authorization of Fund Accountant to act as fund
accountant for the Company and to provide accounting
services for the Company.
18. AMENDMENTS TO DOCUMENTS.
The Company shall furnish Fund Accountant written
copies of any amendments to, or changes in, any of the items referred
to in Section 16 hereof forthwith upon such amendments or changes
becoming effective. In addition, the Company agrees that no amendments
will be made to the Prospectuses or Statements of Additional
Information of the Company which might have the effect of changing the
procedures employed by Fund Accountant in providing the services agreed
to hereunder or which amendment might affect the duties of Fund
Accountant hereunder unless the Company first obtains Fund Accountant's
approval of such amendments or changes.
10
<PAGE>
19. COMPLIANCE WITH LAW.
Except for the obligations of Fund Accountant set
forth in Section 8 hereof, the Company assumes full responsibility for
the preparation, contents and distribution of each prospectus of the
Company as to compliance with all applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act"), the 1940 Act
and any other laws, rules and regulations of governmental authorities
having jurisdiction. Fund Accountant shall have no obligation to take
cognizance of any laws relating to the sale of the Company's shares.
The Company represents and warrants that no shares of the Company will
be offered to the public until the Company's registration statement
under the Securities Act and the 1940 Act has been declared or becomes
effective.
20. NOTICES.
Any notice provided hereunder shall be sufficiently
given when sent by registered or certified mail to the party required
to be served with such notice, at the following address: if to the
Company, at ______________________________________; and if to Fund
Accountant, at 3435 Stelzer Road, Columbus, Ohio 43219, or at such
other address as such party may from time to time specify in writing to
the other party pursuant to this Section.
21. HEADINGS.
Paragraph headings in the Agreement are included for
convenience only and are not to be used to construe or interpret this
Agreement.
22. ASSIGNMENT.
This Agreement and the rights and duties hereunder shall
not be assignable with respect to a Fund by either of the parties
hereto except by the specific written consent of the other party. This
Agreement shall be binding upon, and shall inure to the benefits of,
the parties hereto and their respective successors and permitted
assigns.
11
<PAGE>
23. GOVERNING LAW.
This Agreement shall be governed by and provisions shall be construed in
accordance with the laws of the State of Ohio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed all as of the day and year first above written.
ACTIVA MUTUAL FUND TRUST
By: _______________________________
Title:_____________________________
BISYS FUND SERVICES OHIO, INC.
By: _______________________________
Title:_____________________________
12
<PAGE>
Dated: ________________________
SCHEDULE A
TO THE FUND ACCOUNTING AGREEMENT
BETWEEN
ACTIVA MUTUAL FUND TRUST
AND
BISYS FUND SERVICES OHIO, INC.
FEES
Fund Accountant shall be entitled to receive fees from each Fund in accordance
with the following schedule:
ANNUAL FEES:
Each Fund shall pay to fund Accountant on the first business day of each month,
or at such time(s) as Fund Accountant shall request and the parties hereto shall
agree, a per Fund fee computed daily based upon the following schedule:
ASSETS PER FUND FEE AMOUNT
--------------- ----------
0-$100 million $35,000
$100 million - $1 billion $50,000
over $1 billion $75,000
FEE FOR ADDITIONAL SHARE CLASSES
Classes of shares, which have different net asset values or pay different daily
dividends, will be treated as separate classes for purposes of this fee
schedule. An additional annual fee of $10,000 shall be charged for each separate
class of shares that is created following the Effective Date.
OUT-OF-POCKET EXPENSES
Fund Accountant shall be entitled to be reimbursed for out-of-pocket expenses
pursuant to Section 4 of Agreement.
A-1
<PAGE>
ADDITIONAL FEES
Fund Accountant has agreed to provide investment adviser personnel with Internet
access to portfolio accounting reports at such time that Fund Accountant has
completed the development of a computer system that will permit such access. An
Additional annual fee of $2,500 per Fund shall be charged for such Internet
access.
A-2
AMWAY MUTUAL FUND
FORM N-1A
PART C
OTHER INFORMATION
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Amway Mutual Fund
Ada, Michigan
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting a part of this Registration Statement of our
report dated January 14, 1999, relating to the financial statements, schedules
and selected per share data and ratios of Amway Mutual Fund appearing in the
Company's Annual Shareholders Report for the year ended December 31, 1998.
We also consent to the reference to us under the captions "Financial
Highlights" in the Prospectus and "Auditors" in the Statement of Additional
Information.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Grand Rapids, Michigan
June 17, 1999
PLAN AND AGREEMENT OF DISTRIBUTION PURSUANT TO RULE 12B-1
PLAN AND AGREEMENT made as of the 11th day of June, 1999, by and
between ACTIVA MUTUAL FUND TRUST, a Delaware business trust (hereinafter the
"Trust"), and ACTIVA ASSET MANAGEMENT, LLC, a Michigan LLC (hereinafter the
"Distributor").
WHEREAS, the Trust engages in business as an open-end management
investment company, and is registered as such under the Investment Company Act
of 1940, as amended (the "Act"); and
WHEREAS, the Trust desires to finance the distribution of the shares of
beneficial interest ("shares"), of the Activa Mutual Funds (series of the
Trust), except for the Money Market Fund, and for any additional such classes or
series that may hereafter be offered to the public in accordance with this Plan
and Agreement of Distribution pursuant to Rule 12b-1 under the Act (the "Plan
and Agreement"); and
WHEREAS, the Distributor desires to be retained to perform services in
accordance with such Plan and Agreement and on said terms and conditions; and
WHEREAS, this Plan and Agreement has been approved by a vote of the
Board of Trustees of the Trust, including a majority of the Trustees who are not
interested persons of the Trust, as defined in the Act, and who have no direct
or indirect financial interest in the operation of this Plan and Agreement (the
"Disinterested Trustees") cast in person at a meeting called for the purpose of
voting on this Plan and Agreement; and
NOW, THEREFORE, the Trust adopts the Plan set forth herein and the
Trust and the Distributor hereby enter into this Agreement pursuant to the Plan
in accordance with the requirements of Rule 12b-1 under the Act, and provide and
agree as follows:
1. The Plan is defined as those provisions of this document by
which the Trust adopts a Plan pursuant to Rule 12b-1 under the
Act and authorizes payments as described herein. The Plan
shall not apply to Class R shares of the Activa Value Fund.
The Agreement is defined as those provisions of this document
by which the Trust retains the Distributor to provide
distribution services as described herein. The Trust may
retain the Plan notwithstanding termination of the Agreement.
The Trust is hereby authorized to utilize the assets of the
Trust to finance certain activities in connection with
distribution of the Trust's shares.
2. Subject to the supervision of the Board of Trustees, the
Trust hereby retains the Distributor to promote the
distribution of shares of the Trust by providing services and
engaging in activities as specified herein. The activities and
services to be provided by the Distributor hereunder shall
include one or more of the following: (a) the payment of
compensation (including trail commissions and incentive
compensation) to securities dealers, financial institutions
and other organizations, which may include companies
affiliated with the Distributor, that render distribution and
administrative services in connection with the distribution of
the shares of the Trust; (b) the printing and distribution of
reports and prospectuses for the use of potential investors in
the Trust; (c) the preparing and distributing of sales
literature; (d) the providing of advertising and engaging in
other promotional activities, including direct mail
solicitation, and television, radio, newspaper and other media
advertisements; (e) the qualification (other than auditing
expenses) of the shares for sale in the states and
jurisdictions where Trust sales are sold and the fees payable
to each such state or jurisdiction for maintaining the
qualification therein; and (f) the providing of support
services in connection with the distribution of the Trust's
shares, including but not limited to, office space and
equipment, telephone facilities, answering routine inquires
regarding the Trust, processing shareholder transactions and
providing any other shareholder services not otherwise
provided by the Trust's transfer agent and other services and
activities as may from time to time be agreed upon by the
Distributor and the Trust. Such reports and prospectuses,
sales literature, advertising and promotional activities and
other services and activities may be prepared and/or conducted
either by companies affiliated with the Distributor or by
third parties.
3. The Distributor hereby undertakes to use its best efforts
to promote sales of shares of the Trust to investors by
engaging in those activities specified in paragraph (2) above
as may be necessary and as it from time to time believes will
best further sales of such shares.
4. The Trust is hereby authorized to expend, out of the
Trust's assets, on a monthly basis, and shall pay to the
Distributor a maximum amount computed at an annual rate of
0.25 of 1% of the average daily net assets of the Trust during
the month. The Trust's Board of Trustees shall from time to
time determine the amounts, within the foregoing maximum
amounts, that the Trust will pay the Distributor hereunder. No
payments will be made by the Trust hereunder after the date of
termination of the Plan and Agreement. Payment from the Value
Fund will begin on September 1, 1999.
5. To the extent that obligations incurred by the Distributor
out of its own resources to finance any activity primarily
intended to result in the sales of shares of the Trust,
pursuant to this Plan and Agreement or otherwise, may be
deemed to constitute the indirect use of Trust assets, such
indirect use of Trust assets is hereby authorized in addition
to, and not in lieu of, any other payments authorized under
this Plan and Agreement.
6. The Distributor shall provide to the Board of Trustees of
the Trust, at least quarterly, a written report of all moneys
spent by the Distributor on the activities and services
specified in paragraph (2) above pursuant to the Plan and
Agreement. Upon request, but no less frequently than annually,
the Distributor shall provide to the Board of Trustees of the
<PAGE>
Trust such information as may reasonably be required for it to
review the continuing appropriateness of the Plan and
Agreement.
7. This Plan and Agreement shall become effective immediately
upon approval by a majority of the outstanding voting
securities (as defined in the ___) of each Fund, and shall
continue in effect until June ___, 2000 unless terminated as
provided below. Thereafter, the Plan and Agreement shall
continue in effect from year to year, provided that the
continuance of each is approved at least annually by a vote of
the Board of Trustees of the Trust, including a majority of
the Disinterested Trustees, cast in person at a meeting called
for the purpose of voting on such continuance. The Plan may be
terminated at any time, without penalty, by the vote of a
majority of the Disinterested Trustees or by the vote of a
majority of the outstanding voting securities of the Trust.
The Distributor, or the Trust, by vote of a majority of the
Disinterested Trustees or of the holders of a majority of the
outstanding voting securities of the Trust, may terminate the
Agreement under this Plan, without penalty, upon 30 days'
written notice to the other party.
8. So long as the Plan remains in effect, the selection of
persons to serve as Trustees of the Trust who are not
"interested persons" of the Trust shall be committed to the
discretion of the directors then in office who are not
"interested persons" of the Trust. However, nothing contained
herein shall prevent the participation of other persons in the
selection and nomination process, provided that a final
decision on any such selection or nomination is within the
discretion of, and approved by, a majority of the Trustees of
the Trust then in office who are not "interested persons" of
the Trust.
9. This Plan may not be amended to increase the amount to be
spent by the Trust hereunder without approval of a majority of
the outstanding voting securities of the Trust. All material
amendments to the Plan and Agreement must be approved by the
vote of the Board of Trustees of the Trust including a
majority of the Disinterested Trustees, cast in person at a
meeting called for the purpose of voting on such amendment.
10. To the extent that this Plan and Agreement constitutes a
Plan of Distribution adopted pursuant to Rule 12b-1 under the
Act it shall remain in effect as such, so as to authorize the
use by the Trust of its assets in the amounts and for the
purposes set forth herein, notwithstanding the occurrence of
an "assignment," as defined by the Act and the rules
thereunder. To the extent it constitutes an agreement with the
Distributor pursuant to a plan, it shall terminate
automatically in the event of such "assignment." Upon a
termination of the agreement with the Distributor, the Trust
may continue to make payments pursuant to the Plan only upon
the approval of a new agreement under this Plan and Agreement,
which may or may not be with the Distributor, or the adoption
of other arrangements regarding the use of the amounts
authorized to be paid by the Trust hereunder, by the Trust's
Board of Trustees in accordance with the procedures set forth
in paragraph 7 above.
<PAGE>
11. The Trust shall preserve copies of this Plan and Agreement
and all reports made pursuant to paragraph 6 hereof, together
with minutes of all Board of Trustees meetings at which the
adoption, amendment of continuance of the Plan were considered
(describing the factors considered and the basis for
decision), for a period of not less than six years from the
date of this Plan and Agreement, or any such reports or
minutes, as the case may be, the first two years in an easily
accessible place.
12. This Plan and Agreement shall be construed in accordance
with the laws of the State of Michigan and applicable
provisions of the Act. To the extent the applicable laws of
the State of Michigan, or any provisions herein, conflict with
the applicable provisions of the Act, the latter shall
control.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Plan and Agreement on the 11th day of June, 1999.
ACTIVA MUTUAL FUND TRUST
By: ___________________________
ATTEST: ___________________________
ACTIVA ASSET MANAGEMENT, LLC
_______________________________
By:____________________________
ATTEST: ___________________________
<PAGE>
SCHEDULE RE EDUCATION AND BUSINESS HISTORY - ALLAN D. ENGEL
EDUCATION:
North High School, Omaha, Nebraska
Creighton University, Omaha, Nebraska, BSBA 1974
Creighton University, Omaha, Nebraska, JD 1976
POSITIONS:
April 18, 1988 continuing, Amway Management Company, 7575 East Fulton Road,
Ada, Michigan 49355, President, Secretary and Director.
October 1991 continuing, Amway Corporation, 7575 East Fulton Road, Ada,
Michigan 49355, Senior Manager-Investments & Real Estate.
December 1991 continuing, Amway Capital Corp., 7575 East Fulton Road, Ada,
Michgian 49355, Vice President, Secretary and Assistant Treasurer.
December 1991 continuing, H.I., Inc., c/o Amway Corporation, 7575 East
Fulton Road, Ada, Michigan 49355, Secretary and Assistant Treasurer.
December 1991 continuing, Ja-Ri Corporation, 7575 East Fulton Road, Ada,
Michigan 49355, Secretary and Assistant Treasurer.
November 1992 continuing, Amway Export VA, Co., 7575 East Fulton Road, Ada,
Michigan 49355, Secretary and Assistant Treasurer.
December 1992 continuing, Jay and Betty Van Andel Foundation, c/o Amway
Corporation, 7575 East Fulton Road, Ada, Michigan 49355, Secretary and
Assistant Treasurer.
September 1994 continuing, Plaza Towers Corp., 7575 East Fulton Road, Ada,
Michigan 49355, Vice President, Secretary, and Director.
September 1995 continuing, Amway Real Estate Corp., 7575 East Fulton Road,
Ada, Michigan 49355, Vice President, Secretary, Assistant Treasurer and
Director.
September 1995 continuing, Auric Corp., 7575 East Fulton Road, Ada,
Michigan 49355, Vice President, Secretary and Assistant Treasurer and
Director.
September 1995 continuing, Aviation, Inc., 7575 East Fulton Road, Ada,
Michigan 49355, Vice President, Secretary, Assistant Treasurer and
Director.
September 1995 continuing, Emerald Maritime Service, Inc., c/o Amway
Corporation, 7575 East Fulton Road, Ada, Michigan 49355, Vice President,
Secretary, Assistant Treasurer and Director.
September 1995 continuing, Enterprise, Inc., c/o Amway Corporation, 7575
East Fulton Road, Ada, Michigan 49355, Vice President, Secretary, Assistant
Treasurer and Director..
<PAGE>
SCHEDULE RE BUSINESS AND EDUCATION HISTORY - ALLAN D. ENGEL
-2-
September 1995 continuing, Magic Carpet Aviation, 7575 East Fulton Road,
Ada, Michigan 49355, Vice President, Secretary, Assistant Treasurer and
Director.
September 1995 continuing, Meadowbrooke Corp., 7575 East Fulton Road, Ada,
Michigan 49355, Vice President, Secretary, Assistant Treasurer and
Director.
September 1995 continuing, Peter Island Estate Ltd., c/o Amway Corporation,
7575 East Fulton Road, Ada, Michigan 49355, owns and operates Peter Island
Yacht Club, Vice President, Secretary, Assistant Treasurer and Director.
September 1995 continuing, Ultimate Marketing Corp., c/o Amway Corporation,
7575 East Fulton Road, Ada, Michigan 49355, Vice President, Secretary,
Assistant Treasurer and Director.
February 1998 continuing, Amway Mutual Fund Trust, 7575 East Fulton Road,
Ada, Michigan 49355, Vice President, Secretary, Assistant Treasurer and
Director.
<PAGE>
SCHEDULE RE BUSINESS AND EDUCATION HISTORY - JAMES J. ROSLONIEC
EDUCATION:
Catholic Central High School, Grand Rapids, Michigan
Davenport College, Grand Rapids, Michigan, AS Degree 1965
Central Michigan University, Mt. Pleasant, Michigan, BS Degree 1968
POSITIONS:
1968-1970 Staff Member of C.H. Vannatter, CPA, Grand Rapids, Michigan
1970-1972 Senior Internal Auditor of Gulf & Western Industries, Inc.,
Grand Rapids, Michigan
1972-1974 Controller of Furniture City Manufacturing (a Gulf & Western
subsidiary), Grand Rapids, Michigan
1974-1979 Manager of Internal Audit of Amway Corporation, Ada,
Michigan
1979-1991 Vice President-Finance and Treasurer of Amway Corporation,
Ada, Michigan
1991-Present Vice President-Audit and Control of Amway Corporation, Ada,
Michigan
September 18, 1989 continuing, H.I., Inc., c/o Amway Corporation, 7575 East
Fulton Road, Ada, Michgian 49355, Vice President and Treasurer.
December 13, 1991 continuing, Amway Capital Corporation, c/o Amway
Corporation, 7575 East Fulton Road, Ada, Michigan 49355, President and
Treasurer.
December 13, 1991 continuing, Ja-Ri Corporation, c/o Amway Corporation,
7575 East Fulton Road, Ada, Michigan 49355, Vice President and Treasurer.
August 31, 1992 continuing, Amway Export DV, Co., c/o Amway Corporation,
7575 East Fulton Road, Ada, Michgian 49355, Treasurer.
November 12, 1992 continuing, Amway Export VA, Co., c/o Amway Corporation,
7575 East Fulton Road, Ada, Michigan 49355, Vice President, Treasurer and
Director.
December 11, 1992 continuing, Jay and Betty Van Andel Foundation, c/o Amway
Corporation, 7575 East Fulton Road, Ada, Michigan 49355, Treasurer.
September 1, 1995 continuing, Amway Real Estate Corp., 7575 East Fulton
Road, Ada, Michigan 49355, President, Treasurer and Director.
September 1, 1995 continuing, Auric Corp., c/o Amway Corporation, 7575 East
Fulton Road, Ada, Michigan 49355, President, Treasurer and Director.
<PAGE>
SCHEDULE RE BUSINESS AND EDUCATION HISTORY - JAMES J. ROSLONIEC
-2-
September 1, 1995 continuing, Aviation, Inc., 7575 East Fulton Road, Ada,
Michigan 49355, President, Treasurer and Director.
September 1, 1995 continuing, Emerald Maritime Service, Inc., c/o Amway
Corporation, 7575 East Fulton Road, Ada, Michigan 49355, President and
Director.
September 1, 1995 continuing, Enterprise, Inc., c/o Amway Corporation, 7575
East Fulton Road, Ada, Michigan 49355, President, Treasurer and Director.
September 1, 1995 continuing, Magic Carpet Aviation, Inc., 7575 East Fulton
Road, Ada, Michigan 49355, President, Treasurer and Director.
September 1, 1995 continuing, Meadowbrooke Corp., c/o Amway Corporation,
7575 East Fulton Road, Ada, Michigan 49355, President, Treasurer and
Director.
September 1, 1995 continuing, Peter Island Estate Ltd., c/o Amway
Corporation, 7575 East Fulton Road, Ada, Michigan 49355, President,
Treasurer and Director.
September 1, 1995 continuing, Ultimate Marketing Corp., c/o Amway
Corporation, 7575 East Fulton Road, Ada, Michigan 49355, President,
Treasurer and Director.
February 1998 continuing, Amway Mutual Fund Trust, 7575 East Fulton Road,
Ada, Michigan 49355, President, Treasurer and Director..
PROFESSIONAL ACTIVITIES:
Member of Advisory Board to the Dean of Business Administration,
Central Michigan University
Board of Directors of the American Cancer Society, Kent County Unit
Chairman of Development Task Force with American Cancer Society -
Michigan Division
Member of Advisory Board to the Accounting School, Grand Valley State
University
Board of Directors of the Protection Mutual Insurance Co.
Member of Board at Blythefield Country Club.
<PAGE>
SCHEDULE RE BUSINESS HISTORY AND EDUCATION
J.P. MORGAN INVESTMENT MANAGEMENT, INC.
EDUCATION AND BUSINESS BACKGROUNDS OF INDIVIDUALS WHO DETERMINE
GENERAL INVESTMENT ADVICE GIVEN TO CLIENTS:
ANDERSON, KENNETH W. (1948)
EDUCATION:
Harvard Business College (MBA 1976)
Harvard College (BA 1970)
BUSINESS BACKGROUND:
Mr. Anderson joined the investment research department of Morgan Guaranty's
Trust and Investment Division in 1976. Named as an assistant vice president in
1978, he moved to the Equity and Balanced Investment Management Group and was
named vice president in 1980 and managing director in 1985. From 1987 to 1997,
he was head of the J.P. Morgan Investment Management, Inc.'s London office. Mr.
Anderson is currently co-head of global investments, a member of the Board of
Directors, Vice Chairman and a managing director of J.P. Morgan Investment
Management Inc.
AZELBY, JOSEPH K (1962)
EDUCATION:
New York University (MBA 1991)
Harvard University (BA 1984)
BUSINESS BACKGROUND:
Mr. Azelby is head of the Real Estate Group. Prior to assuming his current
responsibilities, Mr. Azelby led the Mortgage Investment Strategy Group where,
as a portfolio manager, he specialized in both public and private mortgages and
other asset backed securities. He joined Morgan in 1985 after playing in the
National Football League for the Buffalo Bills. Mr. Azelby is a Managing
Director of the J.P. Morgan Investment Management Inc.
BANKS, KEITH T. (1955)
EDUCATION:
The Stern School of New York University (MBA 1990)
Columbia College (BA 1985)
BUSINESS BACKGROUND:
Mr. Banks is a managing director of the J.P. Morgan Investment Management Inc.
and is the head of U.S. Equity. Previously, Mr. Banks had functional
responsibility for Global Research and served as Head of U.S. Equity Research.
Prior to joining Morgan in 1984, Mr. Banks held positions at The Home Insurance
Company and at Allstate Insurance Company.
<PAGE>
SCHEDULE RE BUSINESS HISTORY AND EDUCATION
J.P. MORGAN INVESTMENT MANAGEMENT, INC.
EDUCATION AND BUSINESS BACKGROUNDS OF INDIVIDUALS WHO DETERMINE
GENERAL INVESTMENT ADVICE GIVEN TO CLIENTS:
BOHRER, JOSEPH S. (1962)
EDUCATION:
The Stern School of New York University (MBA 1990)
Columbia College (BA 1985)
BUSINESS BACKGROUND:
Mr. Bohrer is a vice president of J.P. Morgan Investment Management Inc. and is
head of the Singapore office. Mr. Bohrer joined Morgan in New York in 1985 and
became a fixed income portfolio manager in 1988. He transferred to London
in1992, where he was a portfolio manager responsible for U.S. and global equity
portfolios. In September 1996, he moved to Singapore.
DURBIN, CHRISTOPHER J. (1952)
EDUCATION:
Georgetown University (BSA/BA 1974)
Mr. Durbin also attended Tulane University and has done graduate work at the New
York School for Social Research.
BUSINESS BACKGROUND:
Mr. Durbin is a managing director of J.P. Morgan Investment Management Inc. and
is the co-head of Global Investments, with additional functional responsibility
for Morgan's European Fixed Income business. Prior to assuming his current
responsibility, Mr. Durbin was the global head of Fixed Income. From 1994 to
1996, he was head of the U.S. Fixed Income Group, after spending 14 years as a
fixed income portfolio manager for institutional clients. Mr. Durbin joined
Morgan in 1975 in the portfolio management area and moved into fixed income
trading for four years.
LILLIS, GERARD W. (1956)
EDUCATION:
Cornell University (1977)
Graduate work at New York University
BUSINESS BACKGROUND:
Mr. Lillis is a managing director of J.P. Morgan Investment Management Inc. and
head of Global Fixed Income. Mr. Lillis is also co-chairman of the Americas
Management Team. Mr. Lillis moved to J.P. Morgan Investment Management in 1987
after spending nine years with J.P. Morgan's Corporate Finance Group. Starting
in active fixed income portfolio management, in 1990 he became head of the
private placement investment area.
<PAGE>
SCHEDULE RE BUSINESS HISTORY AND EDUCATION
J.P. MORGAN INVESTMENT MANAGEMENT, INC.
EDUCATION AND BUSINESS BACKGROUNDS OF INDIVIDUALS WHO DETERMINE
GENERAL INVESTMENT ADVICE GIVEN TO CLIENTS:
LUDDY, THOMAS M. (1952)
EDUCATION:
The Wharton School of the University of Pennsylvania (MBA 1976)
St. Peter's College (BS 1974)
BUSINESS BACKGROUND:
Mr. Luddy joined the Investment Research Department of Morgan Guaranty's Trust
and Investment Division in 1976 and was made a vice president in 1980. He moved
to the Division's equity group in 1982 as an equity portfolio manager. In 1984,
he returned to research as head of the Division's equity research group. Mr.
Luddy is currently global head of Equities and head of the macro-research group.
He is a managing director of J.P. Morgan Investment Management Inc.
PAUL, WESLEY I. (1957)
BUSINESS BACKGROUND:
Mr. Paul is a managing director of J.P. Morgan Investment Management Inc. and is
the head of the Emerging Markets Group and Global Functional Head of Currency.
He is also responsible for global currency management and the firm's
multi-markets and hedge fund activities. Prior to assuming these
responsibilities, Mr. Paul was Global Head of Investments. From 1994 to 1996, he
was the Global Functional Head of Fixed Income, after spending several years
responsible for the non-U.S. fixed income portfolio management activities of the
firm. He joined Morgan in 1975, becoming a portfolio manager in 1983.
SMITH, LAURENCE R. (1958)
EDUCATION:
UC Berkeley (MBA 1981)
University of Florida (BS 1979)
BUSINESS BACKGROUND:
Mr. Smith is global head of Asset Allocation and Balanced Account Management
worldwide, a position he assumed in 1994. Previously, he was co-head of the
Fixed Income group. Mr. Smith joined Morgan in 1981 as a member of the Research
Department, doing quantitative research on all asset classes. He is a Chartered
Financial Analyst. Mr. Smith is a managing director of J.P. Morgan Investment
Management Inc.
<PAGE>
SCHEDULE RE BUSINESS HISTORY AND EDUCATION
J.P. MORGAN INVESTMENT MANAGEMENT, INC.
EDUCATION AND BUSINESS BACKGROUNDS OF INDIVIDUALS WHO DETERMINE
GENERAL INVESTMENT ADVICE GIVEN TO CLIENTS:
TEATOM, ROBERT J. (1953)
EDUCATION:
Graduate work at New York University
State University of New York at Albany (1975)
BUSINESS BACKGROUND:
Mr. Teatom is a managing director of J.P. Morgan Investment Management Inc. and
is head of the U.S. Fixed Income Group. Mr. Teatom is responsible for U.S.
active fixed income strategy and the coordination of global fixed income
strategy for U.S. investors. He also has oversight responsibility for short-term
and intermediate fixed income products and the Stable Value Product. Mr. Teatom
joined Morgan Guaranty in 1975 as a trader of money market and U.S. Government
securities before becoming a portfolio manager. Moving to London in 1986, he
managed both dollar and non-dollar fixed income portfolios and returned to New
York in 1989.
UNREIN, LAWRENCE M. (1956)
EDUCATION:
Wharton School, University of Pennsylvania (MBA 1988)
State University of New York (BA 1979)
BUSINESS BACKGROUND:
Mr. Unrein is a managing director of J.P. Morgan Investment Management Inc. Mr.
Unrein joined J.P. Morgan Investment in 1997 as a Vice President. He is the Head
of the Private Equity Group. Prior to joining JPMIM in 1997, Mr. Unrein spent 17
years with AT&T Investment Management Corp. (ATTIMCO), an investment management
subsidiary of AT&T, where he was responsible for managing the public and private
equity and fixed income portion of $80 billion in corporate employee benefit
funds. He is also a Chartered Financial Analyst (CFA) and a Certified Public
Accountant (CPA). He serves on the Board of Directors at Hamilton Services Corp.
and Falcon Cable Corp. He is the Treasurer at Malcolm Baldridge, Quality Award
Foundation. He is also on numerous Private Equity Advisory Boards such as Morgan
Stanley Capital Partners, New Enterprises Associates, APA Excelsior, Accel,
Asian Infrastructrue, Butler Capital, Hellman & Friedman, TA Associates,
Saunders, Karp, Megrue, North Bridge Ventures and Prudential Asia.
<PAGE>
SCHEDULE RE BUSINESS HISTORY AND EDUCATION
J.P. MORGAN INVESTMENT MANAGEMENT, INC.
EDUCATION AND BUSINESS BACKGROUND OF MORGAN'S BOARD OF DIRECTORS AND
OTHER CHIEF OFFICERS:
ANDERSON, KENNETH W.
See previous discussion of individual who determine investment advice.
DELLA PIETRA, ANTHONY PAUL JR. (1960)
EDUCATION:
University of Virginia (JD 1985)
Boston College (BS 1982)
BUSINESS BACKGROUND:
Mr. Della Pietra is the global head of Legal for Asset Management Services,
incorporating J.P. Morgan Investment Management and the Private Client Group.
Prior to joining Morgan in 1994, Mr. Della Pietra was an Associate in the
Corporation Department of the law firm Davis Polk & Wardell. Mr. Dell Pietra
worked in the Legal Department in Hong Kong before moving to New York in 1998 to
head the Asset Management Legal Department. Mr. Della Pietra is a managing
director and the Secretary of J.P. Morgan Investment Management Inc.
GARRITY, JEFF MICHAEL (1952)
EDUCATION:
Columbia University (MBA 1981)
Harvard College (BS 1976)
BUSINESS BACKGROUND:
Mr. Garrity is head of Institutional Clients for the Americas and co-chair of
the America's Management team. Before assuming his current responsibilities, Mr.
Garrity was global head of Defined Contribution and Mutual Funds businesses.
Prior to moving to J.P. Morgan Investment Management in 1994, he held a variety
of positions with J.P. Morgan including head of private equity in UPMSI. Mr.
Garrity joined Morgan in 1981. Mr. Garrity is a member of the Board of Directors
and is a managing director or J.P. Morgan Investment Management Inc.
PFEFFER, DAVID M. (1959)
EDUCATION:
University of Delaware (BS 1981)
BUSINESS BACKGROUND:
Mr. Pfeffer is the Chief Financial Officer and controller of Morgan. Mr. Pfeffer
joined Morgan in 1984 after working in public accounting. Prior to assuming his
current responsibilities, Mr. Pfeffer served as the Controller of Morgan
Guaranty Trust Company in Sao Paolo, Brazil. Mr. Pfeffer is a Certified Public
Accountant. Mr. Pfeffer is a Vice President of J.P. Morgan Investment Management
Inc.
<PAGE>
SCHEDULE RE BUSINESS HISTORY AND EDUCATION
J.P. MORGAN INVESTMENT MANAGEMENT, INC.
EDUCATION AND BUSINESS BACKGROUND OF MORGAN'S BOARD OF DIRECTORS AND
OTHER CHIEF OFFICERS:
SCHAPPERT, KEITH M. (1951)
EDUCATION:
Harvard Business (BA 1973)
BUSINESS BACKGROUND:
Mr. Schappert joined Morgan Guaranty in 1973. He was named an assistant vice
president and fixed income manager in 1978, specializing in publicly traded
fixed income securities. Appointed a vice president in 1980, he became a senior
investment officer in 1982 and head of the fixed income group in 1983. Mr.
Schappert is the president and managing director of J.P. Morgan Investment
Management Inc. and a member of its Board of Directors.
SCHMIDLIN, JOHN WILLIAM (1947)
EDUCATION:
St. John's University (BS 1969)
BUSINESS BACKGROUND:
Mr. Schmidlin is head of Technology and Operations for Asset Management
Services, incorporating J.P. Morgan Investment Management and the Private Client
Group. He began his career at J.P. Morgan in 1969 in Stock Transfer, becoming
head of the department in 1985. In 1986, he was promoted from senior vice
president of Morgan Guaranty Trust Co. to president of Morgan Shareholder
Services Trust, formed that year as a wholly-owned subsidiary of J.P. Morgan &
Co. In 1988, Mr. Schmidlin was reassigned to head Treasury Operations in New
York. In 1991, he relocated to London to head Technology and Operations in
Global Technology Operations--Europe. In 1993, he returned to New York to become
Global Business Head of Securities Trust and Information Services, which
included all of the operating products. In 1997, he became head of Global
Technology and Operations for the newly-formed Asset Management Services. Mr.
Schmidlin is a member of the Board of Directors and is a managing director of
J.P. Morgan Investment Management Inc.
SLOANE, ISABEL HOYT (1950)
EDUCATION:
Smith College (BA 1973)
BUSINESS BACKGROUND:
Ms. Sloane is the global head of Human Resources for Asset Management Services,
incorporating J.P. Morgan Investment Management and the Private Client Group.
Prior to joining JPMIM, she was with the J.P. Morgan's Employee Relations,
Staffing and Technology Department from 1992-1995. She has held numerous
positions in Global Markets, including as Chief Operating Officer from
1989-1992. Ms. Sloane joined Morgan in 1973. Ms. Sloane is a member of the Board
of Directors and is a managing director of J.P. Morgan Investment Management
Inc.
<PAGE>
SCHEDULE RE BUSINESS HISTORY AND EDUCATION
J.P. MORGAN INVESTMENT MANAGEMENT, INC.
EDUCATION AND BUSINESS BACKGROUND OF MORGAN'S BOARD OF DIRECTORS AND
OTHER CHIEF OFFICERS:
VAN HASSEL, GILBERT (1957)
EDUCATION:
Catholic University of Louvain (Belgium) (MBA)
Purdue University (MA)
USFIA (Belgium) (BA)
BUSINESS BACKGROUND:
Mr. Van Hassel is head of AMS Asia and President and CEO of J.P. Morgan Trust
Bank in Japan. He joined J.P. Morgan in Brussels in 1983 and has undertaken
assignments with J.P. Morgan in Foreign Exchange, Corporate Finance, Securities
Clearing and Lending and Fixed Income Sales and Trading Management, with
assignments locations in Brussels, New York, Tokyo, and Singapore. Mr. Van
Hassel is a member of the Board of Directors and is a managing director of J.P.
Morgan Investment Management Inc.
VAN RIEL, HENDRIK GUILLAUME FRANCOIS (1950)
EDUCATION:
New York University (MBA 1974) (BA 1972)
BUSINESS BACKGROUND:
Mr. van Riel is head of Asset Management Services Europe, including J.P. Morgan
Investment Management Inc. Prior to assuming this responsibility, he was head of
the Investment Management European client group. He joined Morgan's Treasury
Operation in 1983 and held various positions in Brazil, Belgium, the UK, and
Italy before joining Investment Management in New York in 1995. Mr. van Riel is
a member of the Board of Directors and is a managing director of J.P. Morgan
Investment Management Inc.
<PAGE>
SCHEDULE RE BUSINESS HISTORY AND EDUCATION
VAN KAMPEN MANAGEMENT INC.
POWERS, RICHARD FRANCIS III (1946)
EDUCATION:
Columbia University (MBA-Finance & Accounting, 1972) Boston College (BS-Science
& Marketing, 1967)
BUSINESS BACKGROUND:
CURRENTLY:
Director, CEO, President and Chairman of:
Van Kampen System Inc. (since 6/98)
American Capital Contractual Services, Inc. (since 6/98)
Van Kampen Investments Inc. (since 6/98)
Van Kampen Exchange Corporation (since 6/98)
Director, CEO and Chairman of:
Van Kampen Recordkeeping Services Inc. (6/98)
Director and CEO of:
Van Kampen Management Inc. (since 6/98)
Van Kampen Advisors Inc. (since 6/98)
Van Kampen Asset Management Inc. (since 6/98)
Van Kampen Investment Advisory Corp. (since 6/98)
Van Kampen Funds Inc. (since 6/98)
Van Kampen Investor Services Inc. (since 6/98)
Director and CEO of:
Van Kampen Insurance Agency of Illinois Inc. (since 6/98)
Executive Vice President and Director of Marketing of:
Morgan Stanley Dean Witter & Co. (since 6/72)
President, Chief Executive Office and Chairman of:
River View International Inc. (since 8/98)
MR. POWERS HAS SERVED AS:
Director, President and Chief Executive Officer of:
VK/AC Holding, Inc. (7/98-7/98)
<PAGE>
SCHEDULE RE BUSINESS HISTORY AND EDUCATION
VAN KAMPEN MANAGEMENT INC.
MCDONNELL, DENNIS JOHN (1942)
EDUCATION:
University of California, Los Angeles (UCLA) (MA-Economic Theory, 1968)
Loyola University of Chicago (BS-Economics, 1965)
BUSINESS BACKGROUND:
CURRENTLY:
Director & Chairman of:
MCM Asia Pacific Co., LTD (since 10/88)
Director, President & COO of:
Van Kampen Management Inc. (since 1/92)
Van Kampen Investment Advisory Corp. (since 3/83)
Van Kampen Asset Management Inc. (since 6/95)
Van Kampen Advisors Inc. (since 6/95)
Director & Executive Vice President of:
Van Kampen Investments Inc. (since 2/93)
Director of:
Global Decisions Group LLC (since 4/85)
MCM Group, Inc. (since 8/96)
McCarthy, Crisanti & Maffei, S.A. (since 2/92)
McCarthy, Crisanti & Maffei, Inc. (since 5/85)
Agent of:
Van Kampen Funds Inc. (since 3/83)
MR. MCDONNELL HAS SERVED AS:
Director & Executive Vice President of:
VK/AC Holding, Inc. (2/93-7/98)
Director of:
Van Kampen Merritt Equity Holdings Corp. (4/92-4/97)
Director & President of:
Van Kampen Merritt Equity Advisors Corp. (4/92-5/98)
Director & Chairman of:
VSM Inc. (7/94-7/96)
Director, President & COO of:
VCJ Inc. (7/94-7/96)
<PAGE>
SCHEDULE RE BUSINESS HISTORY AND EDUCATION
VAN KAMPEN MANAGEMENT INC.
RYBAK, WILLIAM ROBERT (1951)
EDUCATION:
Lewis University (BA-Accounting, 1973)
BUSINESS BACKGROUND:
CURRENTLY:
Executive Vice President & CFO of:
Van Kampen Trust Company (since 12/94)
Van Kampen Investor Services Inc. (since 12/94)
Executive Vice President, CFO & Director of:
River View International Inc. (since 8/98)
Van Kampen Insurance Agency of Illinois Inc. (since 3/96)
Van Kampen Advisors Inc. (since 12/94)
American Capital Contractual Services, Inc. (since 12/94)
Van Kampen Exchange Corp. (since 12/94)
Van Kampen Investments Inc. (since 9/91)
Van Kampen Recordkeeping Services Inc. (since 1/97)
Van Kampen System Inc. (since 5/96)
Van Kampen Asset Management Inc. (since 12/94)
Van Kampen Management Inc. (since 1/92)
Van Kampen Investment Advisory Corp. (since 9/87)
Van Kampen Funds Inc. (since 7/86)
Chairman of the Board of:
Alliance Banc Corp. (since 7/90)
MR. RYBAK HAS SERVED AS:
Executive Vice President, Director, CFO and Treasurer of:
Van Kampen Merritt Equity Holdings Corp. (4/92-4/97)
Van Kampen Merritt Equity Advisors Corp. (4/92-5/98)
Executive Vice President, Director and CFO of:
VCJ Inc. (7/94-7/96)
VK/AC Holding, Inc. (2/93-7/98)
Executive Vice President, CFO and Treasurer of:
American Capital Shareholders, Inc. (12/94-7/96)
Executive Vice President & CFO of:
VSM Inc. (7/94-7/96)
Senior Vice President, CFO & Treasurer of:
American Capital Management and Research, Inc. (12/94-1/95)
American Capital T.A., Inc. (12/94-12/94)
<PAGE>
SCHEDULE RE BUSINESS HISTORY AND EDUCATION
VAN KAMPEN MANAGEMENT INC.
MR. RYBAK HAS SERVED AS - CONTINUED:
Vice President, CFO & Treasurer of:
Van Kampen American Capital Services, Inc. (12/94-4/97)
American Capital Partner, Inc. (12/94-12/94)
American Capital Custodial Services, Inc. (12/94-12/94)
Common Sense Investment Advisors (12/94-12/94)
Vice President & CFO of:
Van Kampen/American Capital Marketing, Inc. (12/94-1/95)
Vice President of:
Advantage Capital Credit Services, Inc. (12/94-4/97)
Advantage Capital Corp. (12/94-1/96)
Advantage Capital Insurance Agency, Inc. (12/94-1/96)
Advantage Capital Insurance Agency of Alabama, Inc.
(12/94-1/96)
Advantage Capital Insurance Agency of Hawaii, Inc.
(12/94-1/96)
Advantage Capital Insurance Agency of Massachusetts, Inc.
(12/94-1/96)
Advantage Capital Insurance Agency of Ohio, Inc. (12/94-1/96)
Advantage Capital Insurance Agency of Oklahoma, Inc.
(12/94-1/96)
Asst. Treasurer of:
McCarthy, Crisanti & Maffei, Inc. (6/95-8/96)
<PAGE>
SCHEDULE RE BUSINESS HISTORY AND EDUCATION
VAN KAMPEN MANAGEMENT INC.
SANTO, MICHAEL A. (1955)
EDUCATION:
St. John's University (MBA-Controllership, 1980)
Villanova University (BBA-Accounting, 1977)
BUSINESS BACKGROUND:
CURRENTLY:
Director, Executive Vice President and Chief Administrative Officers of:
Van Kampen Management Inc. (since 12/98)
Van Kampen Advisors Inc. (since 12/98)
Van Kampen Asset Management Inc. (since 12/98)
Van Kampen Investment Advisory Corp. (since 12/98)
Van Kampen Funds Inc. (since 12/98)
Van Kampen Investor Services Inc. (since 12/98)
Director of:
American Capital Contractual Service, Inc. (since 12/98)
Van Kampen Exchange Corporation Inc. (since 12/98)
Van Kampen Insurance Agency of Illinois, Inc.
Van Kampen Recordkeeping Services Inc. (since 12/98)
Van Kampen System Inc. (since 12/98)
Executive Vice President and Chief Administration Office of:
Van Kampen Investments Inc. (since 12/98)
MR. SANTO HAS SERVED AS:
First VP and Asst. Controller of:
Dean Witter Reynolds Inc. (4/84-11/98)
<PAGE>
SCHEDULE RE BUSINESS HISTORY AND EDUCATION
VAN KAMPEN MANAGEMENT INC.
SMITH, A. THOMAS III (1956)
EDUCATION:
St. Louis University Law School (JD, 1984)
St. Louis Business School (MBA, 1983)
Wabash College (BA-Religion & Philosophy)
BUSINESS BACKGROUND:
CURRENTLY:
Director, Executive Vice President, Gen. Coun. and Assistant Secretary of:
Van Kampen Management Inc. (since 2/99)
Van Kampen Advisors Inc. (since 2/99)
Van Kampen Asset Management Inc. (since 2/99)
American Capital Contractual Services, Inc. (since 2/99)
Van Kampen Exchange Corp. (since 2/99)
Van Kampen Insurance Agency of Illinois Inc. (since 2/99)
Van Kampen Investment Advisory Corp. (since 2/99)
Van Kampen Investor Services Inc. (since 2/99)
Van Kampen Recordkeeping Services Inc. (since 2/99)
River View International Inc. (since 2/99)
Van Kampen System Inc. (since 2/99)
Van Kampen Funds Inc. (since 2/99)
Director, Executive Vice President, Gen. Coun. and Secretary of:
Van Kampen Investments Inc. (since 2/99)
MR. SMITH HAS SERVED AS:
Vice President and Assoc. Gen. Counsel of:
New York Life Insurance Company 1/94-1/99)
<PAGE>
SCHEDULE RE BUSINESS HISTORY AND EDUCATION
VAN KAMPEN MANAGEMENT INC.
KOWALSKI, DAVID RICHARD (1957)
EDUCATION:
University of Illinois (Major in Design, 1975-1979)
BUSINESS BACKGROUND:
CURRENTLY:
Vice President & COO of:
Van Kampen Management Inc. (since 1/92)
Van Kampen Investments Inc. (since 9/91)
Van Kampen Investment Advisory Corp. (since 1/89)
Van Kampen Funds Inc. (since 5/85)
Van Kampen Asset Management Inc. (since 6/95)
Van Kampen Advisors Inc. (since 6/95)
Van Kampen Investor Services Inc. (since 6/95)
Van Kampen Insurance Agency of Illinois Inc. (since 3/96)
Van Kampen Recordkeeping Services Inc. (since 1/97)
CCO of:
McCarthy, Crisanti & Maffei, S.A. (since 12/92)
MR. KOWALSKI HAS SERVED AS:
Vice President & CCO of:
VSM Inc. (7/94-7/96)
VCJ Inc. (7/94-7/96)
CCO of:
Van Kampen Merritt Global Emerging Markets Advisor, L.P.
(7/94-1/96)
McCarthy, Crisanti & Maffei, Inc. (1/90-8/96)
Van Kampen Merritt Equity Advisors Corp. (4/92-5/98)
<PAGE>
SCHEDULE RE BUSINESS HISTORY AND EDUCATION
VAN KAMPEN MANAGEMENT INC.
TREICHEL, EDWARD ALLEN (1943)
EDUCATION:
University of Iowa (Ph.D.-Finance and Monetary Economics, 1976)
University of Iowa (MA-Finance and Monetary Economics, 1969)
University of Iowa (BBA-Finance and Monetary Economics, 1965)
BUSINESS BACKGROUND:
CURRENTLY:
Senior Vice President of:
Van Kampen Management Inc. (since 1/92)
Agent of:
Van Kampen Funds Inc. (since 4/87)
MR. TREICHEL ALSO SERVED AS:
Senior Vice President of:
Van Kampen American Capital Investment Advisory Corp.
(4/87-3/98)
<PAGE>
ARK ASSET MANAGEMENT CO., INC.
GROWTH-AT-A-REASONABLE PRICE (GARP) TEAM BIOGRAPHIES
CLIENT COMMUNICATIONS
Joseph P. Scanlon, Jr., Managing Director
B.S., M.B.A., Graduate Assistant-Economics, St John's University (1973)
Managing Director, Equity Portfolio Management Services, Ark Asset
management Co., Inc. (1989-Present)
Senior Vice President, Lehman management Co., Inc. (1983-1989)
Vice President, Director of New Business/Client Servicing, Institutional
Investment Division, Citibank (1978-1982)
Vice President, Director of Marketing, Asset Management Division, Loeb
Rhoades & Co., Inc. (1974-1978)
PORTFOLIO MANAGERS
C. Charles Hetzel, CFA, Vice-Chairman
B.S., University of Utah (1963)
M.B.A., Columbia Graduate School of Business Admin. (1965)
Vice-Chairman, Ark Asset Management Co., Inc. (1989-Present)
Vice-Chairman, Lehman Management Co., Inc. (1985-1989)
President, The Lehman Corporation
Vice-Chairman, The Lehman Investors Fund, Inc. (1984-1985)
Executive Vice President & Director, Lehman Management Co., Inc.
(1974-1984)
Managing Director, Lehman Brothers, Executive Vice President & Director,
The One William Street Fund (1973-1984) Vice President & Director of
Research, The Lehman Corporation (1970-1973) Security Analyst, The Lehman
Corporation (1965-1970)
John E. Bailey, CFA, Managing Director
B.A., University of Pennsylvania (1973-1976)
M.B.A., Harvard Business School (1978-1980)
Managing Director, Ark Asset Asset Management Co., Inc. (1993-Present)
Equity Portfolio Manager, Managing Partner (Pasadena Office),
Loomis, Sayles (1984-1993)
Equity Portfolio Manager, First Pacific Advisors (1980-1983)
Lending Representative, National Bank of North America (1976-1978)
<PAGE>
ARK ASSET MANAGEMENT CO., INC.
GROWTH-AT-A-REASONABLE PRICE (GARP) TEAM BIOGRAPHIES
-2-
PORTFOLIO MANAGERS
Steven M. Steiner, Managing Director
B.S., Pennsylvania State University (1965)
M.B.A., Northwestern Graduate School of Management (1966)
Managing Director, Ark Asset Management Co., Inc. (1990-Present)
Managing Director, Equitable Capital management Corp. (1986-1990)
Managing Director, Equitable Investment Management Corp. (1981-1986)
Portfolio Manager, Neuberger & Berman (1981)
Vice President, Equitable Life (1969-1980)
1st Lieutenant, U.S. Army (1966-1968)
William G. Steuernagel, CFA, Managing Director
B.S., M.B.A., Boston University (1972)
Managing Director, Ark Asset Management Co., Inc. (1993-Present)
Senior Manager & Portfolio Manager, Ark Asset Management Co., Inc.
(1989-1993)
First Vice President & Analyst/Portfolio Manager, Lehman Management Co.,
Inc. (1988-1989)
Vice President & Analyst/Portfolio Manager, Butler Capital (1987-1988)
First Vice President & Security Analyst, Lehman Management Co., Inc.
(1983-1987)
Senior Investment Officer, Mellon Bank East (1972-1983)
James G. Pontone, Senior Manager
B.A., Skidmore College (1982)
M.B.A., New York University, Stern School of Business (1989)
Portfolio Manager, Ark Asset Management Co., Inc. (1995-Present)
Portfolio Manager/Analyst, Mitchell Hutchins Institutional Investors (1994)
Vice President, Mitchell Hutchins Institutional Investors (1992-1994)
Associate, Morgan Stanley Asset Management (1991-1992)
Assistant Trader, Spear, Leeds & Kellogg, Inc. (1986-1987)
Investment Executive, Paine Webber, Inc. (1985-1986)
Registered Representative, Merrill Lynch & Co. (1983-1985)
<PAGE>
SCHEDULE RE BUSINESS HISTORY
STATE STREET RESEARCH AND MANAGEMENT COMPANY
<TABLE>
<CAPTION>
<S> <C> <C>
Arpiarian, Tanya Vice President State Street Research & Management Co.
Bangs, Linda L. Vice President State Street Research & Management Co.
Barnwell, Amy F. Vice President State Street Research & Management Co.
Beaudry, Matthew F. Vice President State Street Research & Management Co.
Bennett, Peter C. Director & Executive State Street Research & Management Co.
Vice President
Vice President State Street Research Capital Trust
Vice President State Street Research Exchange Trust
Vice President State Street Research Financial Trust
Vice President State Street Research Growth Trust
Vice President State Street Research Master Investment Trust
Vice President State Street Research Equity Trust
Director State Street Research Investment Services, Inc.
Director & Chairman Boston Private Bank & Trust Co.
of Exec. Comm.
Vice President State Street Research Income Trust
Vice President State Street Research Portfolios, Inc.
Vice President State Street Research Securities Trust
President & Director Christian Camps & Conferences, Inc.
Chairman & Trustee Gordon College
Bochman, Kathleen Vice President State Street Research & Management Co.
Borzilleri, John Sr. Vice President State Street Research & Management Co.
Vice President-4/98 State Street Research & Management Co.
(until 4/98)
Vice President Montgomery Securities
(until 6/97)
Bray, Michael J. Sr. Vice President State Street Research & Management Co.
Vice President State Street Research & Management Co.
(until 4/98)
Brezinski, Karen Vice President State Street Research & Management Co.
Brown, Susan H. Vice President State Street Research & Management Co.
Buffum, Andrea L. Vice President State Street Research & Management Co.
Burbank, John F. Sr. Vice President State Street Research & Management Co.
<PAGE>
Cabrera, Jesus A. Sr. Vice President State Street Research & Management Co.
Vice President State Street Research & Management Co.
(until 4/98)
Vice President State Street Research Capital Trust
Calame, Mara D. Vice President and State Street Research & Management Co.
and Assistant Secretary
Vice President and State Street Research Energy, Inc.
Assistant Counsel
Canavan, Joseph W. Sr. Vice President State Street Research & Management Co.
Vice President State Street Research & Management Co.
(until 4/98)
Assistant Treasurer State Street Research Equity Trust
Assistant Treasurer State Street Research Financial Trust
Assistant Treasurer State Street Research Income Trust
Assistant Treasurer State Street Research Money Market Trust
Assistant Treasurer State Street Research Tax-Exempt Trust
Assistant Treasurer State Street Research Capital Trust
Assistant Treasurer State Street Research Exchange Trust
Assistant Treasurer State Street Research Growth Trust
Assistant Treasurer State Street Research Master Investment Trust
Assistant Treasurer State Street Research Securities Trust
Assistant Treasurer State Street Research Portfolios, Inc.
Carstens, Linda C. Vice President State Street Research & Management Co.
Vice President State Street Research Investment Services, Inc.
Clifford, Jr., Paul J. Vice President State Street Research & Management Co.
Vice President State Street Research Tax-Exempt Trust
Coleman, Thomas J. Vice President State Street Research & Management Co.
Cullen, Terrence J. Vice President and State Street Research & Management Co.
Counsel, and Asst.
Secretary
Vice President and Keystone-Evergreen
Counsel (until 2/98)
D'Vari, Ronald Vice President State Street Research & Management Co.
Depp, Maureen G. Vice President State Street Research & Management Co.
Vice President Wellington Management Company
(until 9/97)
DeVeuve, Donald Vice President State Street Research & Management Co.
DiFazio, Susan M.W. Vice President State Street Research & Management Co.
Sr. Vice President State Street Research Investment Services, Inc.
<PAGE>
Dillman, Thomas J. Sr. Vice President State Street Research & Management Co.
Vice President State Street Research Securities Trust
Drake, Susan W. Vice President State Street Research & Management Co.
Dudley, Catherine Sr. Vice President State Street Research & Management Co.
Sr. Portfolio Manager Chancellor Capital Management
(until 2/98)
Duggan, Peter J. Sr. Vice President State Street Research & Management Co.
Even, Karen K. Vice President State Street Research & Management Co.
Federoff, Alex G. Vice President State Street Research & Management Co.
Fee, Richard E. Vice President State Street Research & Management Co.
Vice President CIGNA Retirement & Investment Services
(until 3/97)
Vice President State Street Research Investment Services, Inc.
Feliciano, Rosalina Vice President State Street Research & Management Co.
Ficco, Bonnie A. Vice President State Street Research & Management Co.
Fochtman, Jr., Leo Vice President State Street Research & Management Co.
Fromm, Stuart Vice President State Street Research & Management Co.
Vice President State Street Research Investment Services, Inc.
Gardner, Michael D. Sr. Vice President State Street Research & Management Co.
Geer, Bartlett R. Sr. Vice President State Street Research & Management Co.
Vice President State Street Research Equity Trust
Vice President State Street Research Income Trust
Vice President State Street Securities Trust
Giroux, June M. Vice President State Street Research & Management Co.
Govoni, Electra Vice President State Street Research & Management Co.
Grace, Evan Vice President State Street Research & Management Co.
Granger, Allison Vice President State Street Research & Management Co.
Haggerty, Bryan D. Vice President State Street Research & Management Co.
<PAGE>
Hamilton, Jr., William A. Sr. Vice President State Street Research & Management Co.
Treasurer & Director Ellis Memorial and Eldredge House
Treasurer & Director Nautical & Aviation Publishing Company, Inc.
Treasurer & Director North Conway Institute
Hanson, Phyllis Vice President State Street Research & Management Co.
Haverty, Jr., Lawrence J. Sr. Vice President State Street Research & Management Co.
Vice President State Street Research Capital Trust
Healy, Laura J. Vice President State Street Research & Management Co.
Heineke, George R. Vice President State Street Research & Management Co.
Hickman, Joanne Sr. Vice President State Street Research & Management Co.
Managing Director Zurich Investment Management
(until 1/98)
Sr. Vice President State Street Research Investment Services, Inc.
Huang, Jesse C. Vice President State Street Research & Management Co.
Jackson, Jr., F. Gardner Sr. Vice President State Street Research & Management Co.
Vice President State Street Research Equity Trust
Trustee Certain trusts of related and non-related
Individuals
Trustee & Chairman Vincent Memorial Hospital
of the Board
Jamieson, Frederick H. Sr. Vice President State Street Research & Management Co.
Vice President and State Street Research Investment Services, Inc.
Asst. Treasurer
Vice President and SSRM Holdings, Inc.
Asst. Treasurer
Vice President and Metlife Securities, Inc.
Controller (until 1/97)
Jodka, Richard Sr. Vice President State Street Research & Management Co.
Portfolio Manager Frontier Capital Management
(until 1/98)
Vice President State Street Research Capital Trust
<PAGE>
Kallis, John H. Sr. Vice President State Street Research & Management Co.
Vice President State Street Research Financial Trust
Vice President State Street Research Income Trust
Vice President State Street Research Money Market Trust
Vice President State Street Research Portfolios, Inc.
(until 11/98)
Vice President State Street Research Tax-Exempt Trust
Vice President State Street Research Securities Trust
Trustee 705 Realty Trust
Kasper, M. Katherine Vice President State Street Research & Management Co.
Vice President State Street Research Investment Services, Inc.
Kern, Stephen Vice President State Street Research & Management Co.
Kiessling, Dyann H. Vice President State Street Research & Management Co
Vice President State Street Research Money Market Trust
King, Stephen Vice President State Street Research & Management Co.
Vice President State Street Research Investment Services, Inc.
Kluiber, Rudolph K. Sr. Vice President State Street Research & Management Co.
Vice President State Street Research & Management Co.
(until 4/98)
Vice President State Street Research Capital Trust
Kuhn, Stephen P. Vice President State Street Research & Management Co.
Langholm, Knut Vice President State Street Research & Management Co.
Director State Street Research (Luxembourg)
Leary, Eileen M. Vice President State Street Research & Management Co.
Levanson, David E. Vice President State Street Research & Management Co.
Lomasney, Mary T. Vice President State Street Research & Management Co.
Business Analyst Fidelity Investments
Marinella, Mark A. Sr. Vice President State Street Research & Management Co.
Portfolio Manager STW Fixed Income Management, Ltd.
(until 9/98)
Maurer, Jacqueline J. Vice President State Street Research & Management Co.
<PAGE>
McNamara, III, Francis J. Executive Vice State Street Research & Management Co.
President, Secretary
and General Counsel
Executive Vice State Street Research Investment Services, Inc.
President, Clerk
General Counsel
Sec'y & Gen'l Counsel State Street Research Master Investment
Trust
Sec'y & Gen'l Counsel State Street Research Capital Trust
Sec'y & Gen'l Counsel State Street Research Exchange Trust
Sec'y & Gen'l Counsel State Street Research Growth Trust
Sec'y & Gen'l Counsel State Street Research Securities Trust
Sec'y & Gen'l Counsel State Street Research Equity Trust
Sec'y & Gen'l Counsel State Street Research Financial Trust
Sec'y & Gen'l Counsel State Street Research Income Trust
Sec'y & Gen'l Counsel State Street Research Money Market Trust
Sec'y & Gen'l Counsel State Street Research Tax-Exempt Trust
Sec'y & Gen'l Counsel State Street Research Portfolios, Inc.
Sec'y & Gen'l Counsel SSRM Holdings, Inc.
Maus, Gerard p. Director, Executive State Street Research & Management Co.
Vice President,
Treasurer, Chief
Financial Officer and
Chief Administrative
Officer
Treasurer State Street Research Equity Trust
Treasurer State Street Research Financial Trust
Treasurer State Street Research Income Trust
Treasurer State Street Research Money Market Trust
Treasurer State Street Research Tax-Exempt Trust
Treasurer State Street Research Capital Trust
Treasurer State Street Research Exchange Trust
Treasurer State Street Research Growth Trust
Treasurer State Street Research Master Investment Trust
Treasurer State Street Research Portfolios, Inc.
Treasurer State Street Research Securities Trust
Director, Executive State Street Research Investment Services, Inc.
Vice President,
Treasurer and Chief
Financial Officer
Director Metric Holdings, Inc.
Director Certain wholly-owned subsidiaries of
Metric Holdings, Inc.
Treasurer and Chief SSRM Holdings, Inc.
Financial Officer
Treasurer (until 1/97) MetLife Securities, Inc.
Director State Street Research (Luxembourg)
<PAGE>
Milder, Judith J. Sr. Vice President State Street Research & Management Co.
Miller, Joan D. Sr. Vice President State Street Research & Management Co.
Sr. Vice President State Street Research Investment Services, Inc.
(until 6/97)
Moore, Jr., Thomas P. Sr. Vice President State Street Research & Management Co.
Vice President State Street Research Capital Trust
(until 11/96)
Vice President State Street Research Exchange Trust
(until 2/97)
Vice President State Street Research Growth Trust
(until 2/97)
Vice President State Street Research Master Investment Trust
(until 2/97)
Vice President State Street Research Equity Trust
Director Hibernia Savings Bank
Governor on the Association for Investment Management &
Board of Governors Research
Vice President State Street Research Portfolios, Inc.
Morey, Andrew Vice President State Street Research & Management Co.
Mulligan, JoAnne C. Sr. Vice President State Street Research & Management Co.
Orr, Stephen C. Vice President State Street Research & Management Co.
Member Technology Analysts of Boston
Member Electro-Science Analysts (of NYC)
Paddon, Steven W. Vice President State Street Research & Management Co.
Pannell, James C. Sr. Vice President State Street Research & Management Co.
Vice President State Street Research & Management Co.
(until 4/97)
Peters, Kim M. Sr. Vice President State Street Research & Management Co.
Vice President State Street Research Securities Trust
Pierce, James D. Vice President State Street Research & Management Co.
Poritzky, Dean E. Vice President State Street Research & Management Co.
Portfolio Manager State Street Research & Management Co.
(unitl 4/97)
Pyle, David J. Vice President State Street Research & Management Co.
Analyst Oak Value Capital Management
(until 4/97)
Ragsdale, E.K. Easton Sr. Vice President State Street Research & Management Co.
Vice President State Street Research Financial Trust
<PAGE>
Ranson, Clifford Vice President State Street Research & Management Co.
Director of Special NatWest Markets
Situations
Rawlins, Jeffrey A. Sr. Vice President State Street Research & Management Co.
Rice III, Daniel Joseph Sr. Vice President State Street Research & Management Co.
Vice President State Street Research Equity Trust
Richards, Scott Vice President State Street Research & Management Co.
Vice President State Street Research Securities Trust
Romich, Douglas A. Sr. Vice President State Street Research & Management Co.
Vice President State Street Research & Management Co.
(until 4/98)
Assistant Treasurer State Street Research Equity Trust
Assistant Treasurer State Street Research Financial Trust
Assistant Treasurer State Street Research Income Trust
Assistant Treasurer State Street Research Money Market Trust
Assistant Treasurer State Street Research Tax-Exempt Trust
Assistant Treasurer State Street Research Capital Trust
Assistant Treasurer State Street Research Exchange Trust
Assistant Treasurer State Street Research Growth Trust
Assistant Treasurer State Street Research Master Investment Trust
Assistant Treasurer State Street Research Securities Trust
Assistant Treasurer State Street Research Portfolios, Inc.
Ryan, Michael J. Sr. Vice President State Street Research & Management Co.
Vice President Delaware Management
(until 1/98)
Sanderson, Derek Sr. Vice President State Street Research & Management Co.
Sr. Vice President Freedom Capital Management
(until 10/97)
Saperstone, Paul Vice President State Street Research & Management Co.
Schrage, Michael Vice President State Street Research & Management Co.
Schultz, David C. Executive Vice President State Street Research & Management Co.
Director & Treasurer Mafraq Hospital Association (Mafraq, Jordan)
Member Association of Investment Management Sales
Executives
Member, Investment Lexington Christian Academy
Committee
<PAGE>
Shaver, Jr., C. Troy Executive Vice President State Street Research & Management Co.
President, Chief State Street Research Investment Services, Inc.
Executive Officer
and Executive Vice
President
Shean, William G. Vice President State Street Research & Management Co.
Shively, Thomas A. Director and Executive State Street Research & Management Co.
Vice President
Vice President State Street Research Income Trust
Vice President State Street Research Financial Trust
Vice President State Street Research Money Market Trust
Vice President State Street Research Tax-Exempt Trust
Director State Street Research Investment Services, Inc.
Vice President State Street Research Securities Trust
Vice President State Street Research Portfolios, Inc.
(until 11/98)
Shoemaker, Richard D. Sr. Vice President State Street Research & Management Co.
Stambaugh, Kenneth Vice President State Street Research & Management Co.
Asst. Vice President State Street Research & Management Co.
(until 9/97)
Strelow, Dan R. Sr. Vice President State Street Research & Management Co.
Stolberg, Thomas Vice President State Street Research & Management Co.
Swanson, Sr. Vice President State Street Research & Management Co.
Amy McDermott
Trebino, Anne M. Sr. Vice President State Street Research & Management Co.
Vice President SSRM Holdings, Inc.
Verni, Ralph F. Chairman, President, State Street Research & Management Co.
Chief Executive
Officer and Director
Chairman, President, State Street Research Capital Trust
Chief Executive
Officer & Trustee
Chairman, President, State Street Research Exchange Trust
Chief Executive
Officer & Trustee
Chairman, President, State Street Research Growth Trust
Chief Executive
Officer & Trustee
Chairman, President, State Street Research Master Investment Trust
Chief Executive
Officer & Trustee
<PAGE>
Chairman, President, State Street Research Securities Trust
Chief Executive
Officer & Trustee
Chairman, President, State Street Research Equity Trust
Chief Executive
Officer & Trustee
Chairman, President, State Street Research Financial Trust
Chief Executive
Officer & Trustee
Chairman, President, State Street Research Income Trust
Chief Executive
Officer & Trustee
Chairman, President, State Street Research Money Market Trust
Chief Executive
Officer & Trustee
Chairman, President, State Street Research Portfolios, Inc.
Chief Executive
Officer & Trustee
Chairman, President, State Street Research Tax-Exempt Trust
Chief Executive
Officer & Trustee
Chairman & Director State Street Research Investment Services, Inc.
(President & Chief
Executive Officer
Until 2/96)
Chairman & Director Metric Holdings, Inc.
Director & Officer Certain wholly-owned subsidiaries of Metric
Holdings, Inc.
Chairman of the Board MetLife Securities, Inc.
and Director (until 1/97)
President, Chief SSRM Holdings, Inc.
Executive Officer
and Director
Director Colgate University
Director State Street Research (Luxembourg)
Chairman & Director SSR Realty Advisors, Inc.
Wade, Dudley Freeman Sr. Vice President State Street Research & Management Co.
Vice President State Street Research Growth Trust
Vice President State Street Research Master Investment Trust
Wallace, Julie K. Vice President State Street Research & Management Co.
Walsh, Tucker Vice President State Street Research & Management Co.
Watts, Evan D., Jr. Vice President State Street Research & Management Co.
Vice President State Street Research Investment Services, Inc.
<PAGE>
Weiss, James M. Executive Vice State Street Research & Management Co.
President
Sr. Vice President State Street Research & Management Co.
(until 6/98)
Vice President State Street Research Exchange Trust
Vice President State Street Research Financial Trust
Vice President State Street Research Growth Trust
Vice President State Street Research Securities Trust
Vice President State Street Research Capital Trust
Vice President State Street Research Equity Trust
Vice President State Street Research Income Trust
Vice President State Street Research Master Investment Trust
Vice President State Street Research Portfolios, Inc.
Welch, Timothy Vice President State Street Research & Management Co.
Westvold, Sr. Vice President State Street Research & Management Co.
Elizabeth McCombs Vice President State Street Research Securities Trust
Wilkins, Kevin Sr. Vice President State Street Research & Management Co.
Vice President State Street Research & Management Co.
(until 7/97)
Sr. Vice President State Street Research Investment Services, Inc.
(Vice President until 9/98)
Vice President Fidelity Investments
(until 7/97)
Wilson, John T. Sr. Vice President State Street Research & Management Co.
Vice President State Street Research & Management Co.
(until 4/98)
Vice President State Street Research Equity Trust
Vice President State Street Research Master Investment Trust
Wing, Darman A. Sr. Vice President, State Street Research & Management Co.
Assistant Secretary,
and Assistant General
Counsel
Vice President State Street Research & Management Co.
(until 4/98)
Sr. Vice President State Street Research Investment Services,
and Assistant Clerk Inc.
Asst. Secretary & State Street Research Capital Trust
Asst. General Counsel
Asst. Secretary & State Street Research Exchange Trust
Asst. General Counsel
Asst .Secretary & State Street Research Growth Trust
Asst. General Counsel
Asst. Secretary & State Street Research Master Investment
Asst. General Counsel Trust
Asst Secretary and State Street Research Securities Trust
<PAGE>
Asst. General Counsel
Asst Secretary and State Street Research Equity Trust
Asst. General Counsel
Asst Secretary and State Street Research Financial Trust
Asst. General Counsel
Asst Secretary and State Street Research Income Trust
Asst. General Counsel
Asst Secretary and State Street Research Money Market Trust
Asst. General Counsel
Asst Secretary and State Street Research Tax-Exempt Trust
Asst. General Counsel
Asst Secretary and State Street Research Portfolios, Inc.
Asst. General Counsel
Asst Secretary and SSRM Holdings, Inc.
Asst. General Counsel
Woodbury, Robert S. Vice President State Street Research & Management Co.
Woodworth, Jr., Kennard Sr. Vice President State Street Research & Management Co.
Vice President State Street Research Exchange Trust
Vice President State Street Research Growth Trust
Vice President State Street Research Securities Trust
Wu, Norman N. Sr. Vice President State Street Research & Management Co.
Partner Atlantic-Action Realty
Director Bond Analysts Society of Boston
Zuger, Peter A. Sr. Vice President State Street Research & Management Co.
Vice President State Street Research Equity Trust
Portfolio Manager American Century Investment Management
(until 9/98)
</TABLE>
<PAGE>
SCHEDULE RE BUSINESS HISTORY AND EDUCATION
NICHOLAS-APPLEGATE
NICHOLAS, ARTHUR EDWARD (1946)
EDUCATION:
San Diego State University (B.S. Finance & Economics 1972)
NASD Series 2, 3, 7, 24, 63, & 65
BUSINESS BACKGROUND:
Nicholas-Applegate Capital Mngmnt (6/84 to Present) - Managing Partner
Nicholas-Applegate Securities (5/96 to Present) - President Nicholas-Applegate
Securities (12/92 to Present) - Chairman Nicholas-Applegate Capital Management
(6/84 to Present) - Managing Partner;
CIO; President of General Partner
The Pacific Century Group & Security Pacific Bank (7/81 to 8/84) - Division VP &
Managing Director
San Diego Trust & Savings Bank (5/71 to 7/81) - Division VP
SOMHEGYI, CATHERINE C. (1959)
EDUCATION:
University of Southern California (M.B.A. Finance 1984, B.S. - Bus. Admin. 1981)
Richmond College of London (1981)
NASD Series 7, 63 & 65
BUSINESS BACKGROUND:
Nicholas-Applegate Capital Mngmnt (02/96 to Present) - Partner - CIO - Global
Equity Management
Nicholas-Applegate Capital Mngmnt (04/87 to Present) - Port. Manager
Professional Asset Securities, Inc. (04/86 to 04/87) - VP - Corporate Devel.
Pacific Century Group (02/86 to 03/86) - Account Executive
Unemployed (12/85 to 1/86)
Aaron Spelling Production, Inc. (06/84 to 11/85) - Mgr of Financial Planning &
Analysis
ROBERTSON, FREDERICK S. (1949)
EDUCATION:
Cornell University (B.S. 1972)
College of William & Mary (M.B.A. 1974)
NASD Series 2, 3 & 65
BUSINESS BACKGROUND:
Nicholas-Applegate Capital Management (07/96 to Present) - CIO - Fixed Income
Nicholas-Applegate Capital Management (05/95 to 07/96) - Sr Portfolio Manager
Criterion Rogge Global Advisers, Inc. (02/93 to Present) - VP
Criterion Investment Management Company (12/91 to 05/95) - Exec. VP
<PAGE>
MCDONNELL, JOHN J.P. (1952)
EDUCATION:
Watford College of Technology, England (FCCA, Financial Accounting 1980)
Harrow College of Technology, England (ACMA, Management Accounting 1976)
BUSINESS BACKGROUND:
Nicholas-Applegate Capital Management (08/98 to Present - COO American Express
Travel Related Services (04/78 to 06/98) - CFO
JORDON, JILL B. (1943)
EDUCATION:
New York University (M.B.A. Finance 1975)
Pennsylvania State University (B.S. Math 1965)
NASD Series 7, 26, 63 & 65
BUSINESS BACKGROUND:
Nicholas-Applegate Capital Management (09/97 to Present - Head of Global Sales
and Marketing
Nicholas-Applegate Securities (09/97 to Present) - Sr VP and Head of
Institutional Business
Smith Barney Inc. (01/89 to 09/97) - Managing Director
Matuschka Moser Partners (01/87 to 12/88) - Partner, Marketing & Client Services
<PAGE>
The index for the financial data schedule required by Rule
483 for Class A follows:
- --------------------------------------------------------------------------------
ITEM NO. ITEM DESCRIPTION RESPONSE
- --------------------------------------------------------------------------------
6-03 Investments - cost. 170,550,608
6-04-4 Investments. 173,010,160
6-04-6 Receivables. 494,219
6-04-8 Other assets. 6,895,769
Balancing amount to total assets. -0-
6-04-9 Total assets. 180,400,148
6-04 Accounts payable for securities. -0-
6-04-13 Senior long-term debt. -0-
Balancing amount to total liabilities. 444,743
6-04-14 Total Liabilities. 444,743
6-04-16 Senior equity securities. -0-
6-04-16 Paid-in-capital - common shareholders. 153,012,562
6-04-16 Number of shares or units - current period. 25,036,114
6-04-16 Number of shares or units - prior period. 17,999,216
6-04-17(a) Accumulated undistributed net investment 6,548
income (current year)
Overdistribution of net investment income. -0-
6-04-17(b) Accumulated undistributed net realized -0-
gains (losses).
Overdistribution of realized gains. 578,288
6-04-17(c) Accumulated net unrealized appreciation 2,459,552
(depreciation).
6-04-19 Net assets. 179,820,020
6-07-1(a) Dividend income. 3,040,736
6-07-1(b) Interest income. 200,443
6-07-1(c) Other income. 12,380
6-07-2 Expenses - net. 1,588,370
6-07-6 Net investment income (loss). 1,665,189
6-07-7(a) Realized gains (losses) on investments. 25,406,792
6-07-7(d) Net increase (decrease) in appreciation (10,357,465)
(depreciation).
6-07-9 Net increase (decrease) in net assets resulting 16,714,516
from operations.
6-09-2 Net equalization charges and credits. -0-
6-09-3(a) Distributions from net investment income. 1,662,878
6-09-3(b) Distributions from realized gains. 25,670,393
6-09-3(c) Distributions from other sources. -0-
6-09-4(b) Number of shares sold. 8,659,484
6-09-4(b) Number of shares redeemed. 5,307,166
6-09-4(b) Number of shares issued - reinvestment. 3,684,581
6-09-5 Total increase (decrease). 40,791,830
6-09-6 Accumulated undistributed net investment 5,862
income (prior year).
6-04-17(b) Accumulated undistributed net realized gains -0-
(prior year).
Overdistribution of net investment income -0-
(prior year).
Overdistribution of net realized gains 295,171
(prior year).
<PAGE>
- --------------------------------------------------------------------------------
FORM N-SAR
- --------------------------------------------------------------------------------
72F Gross advisory fees. 864,715
72P Interest Expense. -0-
72X Total expenses (gross). 1,619,676
75 Average net assets. 160,477,572
- --------------------------------------------------------------------------------
FORM N-1A
- --------------------------------------------------------------------------------
9 Net asset value per share - beginning of 7.73
period.
9 Net investment income (loss) per share. .08
9 Net realized and unrealized gain (loss) per share. .68
9 Dividends per share from net investment income. .08
9 Distributions per share from realized gains. 1.23
9 Per share returns of capital and distributions from -0-
other sources.
9 Net asset value per share - end of period. 7.18
9 Ratio of expenses to average net assets. 1.0
4(b) Average debt outstanding during period. -0-
4(b) Average debt outstanding per share. -0-
<PAGE>
The index for the financial data schedule required by Rule 483 for
Class R follows:
- --------------------------------------------------------------------------------
ITEM NO. ITEM DESCRIPTION RESPONSE
6-03 Investments - cost. 170,550,608
6-04-4 Investments. 173,010,160
6-04-6 Receivables. 494,219
6-04-10 Other assets. 6,895,769
Balancing amount to total assets. -0-
6-04-11 Total assets. 180,400,148
6-05 Accounts payable for securities. -0-
6-04-15 Senior long-term debt. -0-
Balancing amount to total liabilities. 444,743
6-04-16 Total Liabilities. 444,743
6-04-16 Senior equity securities. -0-
6-04-16 Paid-in-capital - common shareholders. 153,012,562
6-04-16 Number of shares or units - current period. 18,916
6-04-16 Number of shares or units - prior period. -0-
6-04-17(a) Accumulated undistributed net investment 6,548
income (current year)
Overdistribution of net investment income. -0-
6-04-17(b) Accumulated undistributed net realized -0-
gains (losses).
Overdistribution of realized gains. 578,288
6-04-17(c) Accumulated net unrealized appreciation 2,459,552
(depreciation).
6-04-20 Net assets. 135,385
6-07-1(a) Dividend income. 3,040,736
6-07-1(b) Interest income. 200,443
6-07-1(c) Other income. 12,380
6-07-2 Expenses - net. 1,588,370
6-07-7 Net investment income (loss). 1,665,189
6-07-7(a) Realized gains (losses) on investments. 25,406,792
6-07-7(d) Net increase (decrease) in appreciation (10,357,465)
(depreciation).
6-07-9 Net increase (decrease) in net assets resulting 16,714,516
from operations.
6-09-3 Net equalization charges and credits. -0-
6-09-3(a) Distributions from net investment income. 1,625
6-09-3(b) Distributions from realized gains. 19,517
6-09-3(c) Distributions from other sources. -0-
6-09-4(b) Number of shares sold. 15,908
6-09-4(b) Number of shares redeemed. -0-
6-09-4(b) Number of shares issued - reinvestment. 3,008
6-09-7 Total increase (decrease). 40,791,830
6-09-8 Accumulated undistributed net investment 5,862
income (prior year).
6-04-17(b) Accumulated undistributed net realized gains -0-
prior year).
Overdistribution of net investment income -0-
(prior year).
Overdistribution of net realized gains 295,171
(prior year).
<PAGE>
- --------------------------------------------------------------------------------
FORM N-SAR
- --------------------------------------------------------------------------------
72F Gross advisory fees. 864,715
72P Interest Expense. -0-
72X Total expenses (gross). 1 619,676
76 Average net assets. 98,870
- --------------------------------------------------------------------------------
FORM N-1A
- --------------------------------------------------------------------------------
10 Net asset value per share - beginning of 8.42
period.
10 Net investment income (loss) per share. .09
10 Net realized and unrealized gain (loss) per share. (.02)
10 Dividends per share from net investment income. .10
10 Distributions per share from realized gains. 1.23
10 Per share returns of capital and distributions from -0-
other sources.
10 Net asset value per share - end of period. 7.16
10 Ratio of expenses to average net assets. 1.0
4(b) Average debt outstanding during period. -0-
4(b) Average debt outstanding per share. -0-
<PAGE>
AMWAY MUTUAL FUND
FORM N-1A
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, the Registrant certifies that it meets
all of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(a) Under the Securities Act of 1933, and has duly caused
this Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized in the Township of Ada, and State of
Michigan, on the day of June 11, 1999.
- --------------------------------------------------------------------------------
AMWAY MUTUAL FUND TRUST
- --------------------------------------------------------------------------------
By /S/ JAMES J. ROSLONIEC
JAMES J. ROSLONIEC
President
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, this Amendment to the Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated:
- --------------------------------------------------------------------------------
Signature Title and Capacity Date
- --------------------------------------------------------------------------------
/S/JAMES J. ROSLONIEC Principal Executive and June 11, 1999
- ------------------------------
JAMES J. ROSLONIEC Financial Officer and
Trustee
/S/ ALLAN D. ENGEL Principal Accounting June 11, 1999
- ---------------------------------
ALLAN D. ENGEL Officer and Trustee
RICHARD A. DEWITT Trustee
DONALD H. JOHNSON Trustee
WALTER T. JONES Trustee
RICHARD E. WAYMAN Trustee
By /S/ JAMES J. ROSLONIEC June 11, 1999
JAMES J. ROSLONIEC
(Attorney-in-Fact)
POWER OF ATTORNEY
WHEREAS, ACTIVA MUTUAL FUND TRUST (herein referred to as the Trust),
files with the Securities and Exchange Commission, under the provisions of the
Securities Act of 1933, as amended, and of the Investment Company Act of 1940,
as amended, its Registration Statement relating to the sale of shares of
Beneficial Interest ("Common Stock") of Activa Money Market Fund, Activa
Intermediate Bond Fund, Activa Value Fund, Activa Growth Fund and Active
International Fund, Series of the Trust; and
WHEREAS, each of the undersigned holds the office or offices in the
Trust herein below set opposite his name, respectively;
WHEREAS, THEREFORE, each of the undersigned hereby constitutes and
appoints JAMES J. ROSLONIEC, individually, his attorney, with full power of
substitution and with full power to act for him and in his name, place, and
stead to sign his name, in the capacity or capacities set forth below, to the
Registration Statement, relating to the sale of shares of Common Stock in the
Funds, and to any and all amendments to such Registration Statement, and hereby
ratifies and confirms all that said attorney may or shall lawfully do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands this
11th day of June, 1999.
Richard A. DeWitt, Trustee /s/ Richard A. Wayman
Donald H. Johnson, Trustee /s/ Donald H. Johnson
Walter T. Jones, Trustee /s/ Walter T. Jones
Richard E. Wayman, Trustee /s/ Richard E. Wayman
STATE OF MICHIGAN}
}SS
COUNTRY OF KENT }
I, Patricia S. Grooters, a Notary Public in and for the County and
State aforesaid, do hereby certify that the above-named Trustees, RICHARD A. DE
WITT, DONALD H. JOHNSON, and WALTER T. JONES, of AMWAY MUTUAL FUND TRUST, known
to me and to be the same persons whose names are subscribed to the foregoing
instrument, appeared before me this day in person and acknowledged that he
executed the same instrument as his free and voluntary act and deed, for the
uses and purposes therein set forth.
IN WITNESS WHEREOF, I have hereto set my hand and notarial seal this
11th day of June, 1999.
/S/ PATRICIA S. GROOTERS
Patricia S. Grooters
CERTIFIED COPY OF CORPORATE RESOLUTION
I, Allan D. Engel, Secretary of Activa Mutual Fund Trust, a Delaware
business trust, having its principal place of business at 2905 Lucerne SE, Grand
Rapids, Michigan 49546, hereby certify that the following is an extract from the
minutes of a regular meeting of the Board of Trustees of said Trust held on June
11, 1999:
REGISTRATION STATEMENT AMENDMENT
Mr. Engel reviewed with members of the Board of Trustees the fact that
the Fund's Post-Effective Amendment would be filed during June 1999 and the
filing would be made pursuant to Rule 485 of the Securities Act of 1933. Also,
Mr. Engel indicated that the filing would be made utilizing the Power of
Attorney granted by the outside Trustees to James J. Rosloniec, President.
Following discussion by the Board, upon a motion by Mr. Johnson, seconded
by Mr. Jones, unanimously adopted the following resolutions:
RESOLVED: That the Board of Trustees hereby approve for filing the Fund's
Post-Effective Amendment No. 47, pursuant to Rule 485 of the Securities
Act of 1933;
FURTHER RESOLVED: That the Power of Attorney executed by the
disinterested Trustees of the Fund, dated June 11, 1999 is hereby
approved for use in conjunction with the Post-Effective Amendment No. 47;
and
FURTHER RESOLVED: That the Officers are hereby authorized to make all
appropriate filings with the Securities and Exchange Commission and State
Regulatory Authorities.
I further certify that the foregoing resolutions are still in full force
and effect.
Dated this 16th day of June 1999.
/S/ ALLAN D. ENGEL
Allan D. Engel
Secretary of Amway Mutual Fund Trust
