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. 49 /x/
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT /x/
COMPANY ACT OF 1940 (File No. 811-2168)
Amendment No. 29 / /
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(Check appropriate box or boxes)
ACTIVA MUTUAL FUND TRUST
(Exact Name of Registrant as Specified in Charter)
2905 Lucerne Dr SE, Suite 200, 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, Suite 200
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 (date) pursuant to paragraph (b)
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/x/ 60 days after filing pursuant to paragraph (a) (1)
/ / on (date) pursuant to paragraph (a) (1)
/ / 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.
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ACTIVA MUTUAL FUND
FORM N-1A
PART A
Information Required in a Prospectus for Class A
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ACTIVA MUTUAL FUNDS LOGO
ACTIVA MUTUAL FUNDS
2905 LUCERNE SE, SUITE 200 PROSPECTUS
GRAND RAPIDS MICHIGAN 49546
(616) 787-6288 ACTIVA MUTUAL FUNDS.
(800) 346-2670
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Contents Page
Facts at a Glance ACTIVA MONEY MARKET FUND
Activa Money Market Fund Sub-Adviser: JP Morgan Investment
Activa Intermediate Bond Fund Management Inc.
Activa Value Fund ACTIVA INTERMEDIATE BOND FUND
Activa Growth Fund Sub-Adviser: Van Kampen Management Inc.
ACTIVA VALUE FUND
Activa International Fund Sub-Adviser: Wellington Management Co. LLP
Expenses
Organization and Management ACTIVA GROWTH FUND
Organization of the Funds Sub-Adviser: State Street Research &
Investment Management Management Company
The Sub-Advisers ACTIVA INTERNATIONAL FUND
Fundamental Investment Policies Sub-Adviser: Nicholas-Applegate Capital
Pricing of Fund Shares Management
Purchase of Fund Shares
How Shares are Redeemed A selection of stock, bond, and money market
Exchange Privilege funds, managed by professional advisers, which are
Additional Account Policies designed to help investors meet their financial
Internet Address goals.
Retirement Plans As with all mutual funds, the Securities and
Dividend & Capital Gain Exchange Commission has not approved or disapproved
Distributions to Shareholders these securities or passed upon the accuracy of
Tax Consequences this Prospectus. Any representation to the
Distribution Plan contrary is a criminal offense.
Shareholder Inquiries
Sub-Advisers Historical
Performance
Risk Factors and Special Consideration
General Investment Risks
and Considerations
International Investment Risks
and Considerations
General Fixed Income
Securities Risks
Other Risks
Financial Highlights
The date of this Prospectus is April 29, 2000.
Printed in U.S.A.
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ACTIVA MUTUAL FUNDS
FACTS AT A GLANCE
INVESTMENT OBJECTIVE
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Each of the five Activa mutual funds (the "Funds") seeks a high 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 long-term growth of capital. The
Fund invests primarily in stocks believed by the Fund to be undervalued by the
marketplace with above-average potential for capital appreciation. 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 long-term growth of capital
appreciation. The Fund invests primarily in stocks believed by the Fund to have
long-term growth potential. 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.
INVESTMENT MANAGEMENT
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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.
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ACTIVA MUTUAL FUNDS
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.
The Fund's Sub-Adviser, J.P. Morgan Investment Management Inc., analyzes a
range of factors, including current yields, economic forecasts, and anticipated
fiscal and monetary policies, in order to establish the desired dollar weighted
average maturity for the Fund. Investments are made across differenct sectors
for diversification and to take advantage of yield spreads.
RISK FACTORS
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Like any investment, an investment in the Fund is subject to risk. For
example, the issuer or guarantor of a portfolio security could default on its
obligation. Or an unexpected rise in interest rates could 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 additional information
regarding risk factors, please see "Risk 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.
The Fund's Sub-Adviser, Van Kampen Management Inc., analyzes of a range of
factors, including current yields, economic forecasts, and anticipated fiscal
and monetary policies, in order to establish the desired average maturity for
the Fund. Investments are made across different sectors for diversification and
to take advantage of yield spreads.
RISK FACTORS
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Like any investment, an investment in the Fund is subject to risk. For
example, the issuer of a portfolio security could default on its obligation. Or
an unexpected rise in interest rates could lead to a loss in share price. For
additional information regarding risk factors, please see "Risk 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.
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ACTIVA MUTUAL FUNDS
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 primarily in common stocks of large and medium-size U.S.
companies which the Fund's Sub-Adviser believes are undervalued by the
marketplace.
The Fund's Sub-Adviser, Wellington Management Company, LLP, implements the
construction of the Fund's portfolio based upon the analysis and input of the
firm's industry analysts. These analysts often spend their entire careers
covering a single industry. Their in-depth knowledge and broad perspective makes
them well positioned to recognize change early, enabling them to identify
companies which appear to have potential for long-term growth, but which are
trading at low valuations relative to intrinsic worth and/or historical market
levels. Such stocks are typically called "value stocks". Diversification is
achieved by investing in a number of different industries and companies.
RISK FACTORS
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Like any investment, an investment in the Fund is subject to risk. 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.
While investments are selected which the Sub-Adviser believes have potential for
long-term appreciation, their value could decline. For further information about
risk factors, please see "Risk Factors and Special Considerations" starting on
page 12.
PAST PERFORMANCE
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The two tables below 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").
As with all mutual funds, past performance is not a prediction of future
results.
YEAR-TO-YEAR PERFORMANCE
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Chart and Bar Table Disclosure
Year-by-Year Performance
Exclusive of Sales Charges
1990 1.01%
1991 41.81%
1992 1.77%
1993 10.85%
1994 -5.87%
1995 30.55%
1996 23.18%
1997 22.47%
1998 10.17%
1999 -6.70%
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, 1999). * Wellington Management
Company, LLP, has been the Fund's Sub-Adviser since December 30, 1999.
Average Annual Return For
The Periods Ended December 31, 1999*
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PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
ACTIVA VALUE FUND -6.70% 15.15% 11.90%
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RUSSELL 1000 VALUE* 7.35% 28.54% 15.60%
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S&P 500* 21.04% 28.54% 18.20%
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*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.
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ACTIVA GROWTH FUND
INVESTMENT OBJECTIVE
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The Fund seeks long-term growth of capital.
INVESTMENT APPROACH
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The Fund invests primarily in stocks believed by the investment manager to
have long-term growth potential. In selecting stocks, the Fund's Sub-Adviser,
State Street Research & Management Company, seeks to identify large
capitalization stocks with sustainable above average earnings growth,
competitive advantages and leadership positions. Generally, the Fund invests in
a diversified portfolio of stocks, consistent with the Sub-Adviser's general
outlook and fundamental research on particular companies. Diversification is
achieved by investing in a number of different industries and companies.
Additionally, the Fund attempts to manage risk by employing fundamental and
quantitative analysis. While the Fund emphasizes established companies, it may
also invest in other types of companies.
RISK FACTORS
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Like any investment, an investment in the Fund is subject to risk. 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.
While investments are selected which the Sub-Adviser believes have long-term
growth potential, their value could decline. For further information about risk
factors, please see "Risk Factors and Special Considerations" starting on page
12.
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.
The Fund's Sub-Adviser, Nicholas-Applegate Capital Management, analyzes the
financial conditions and competitiveness of individual companies worldwide. The
Sub-Adviser uses a blend of fundamental and computer-assisted research to
uncover signs of positive business developments which are not fully reflected in
a company's stock price. Diversification is achieved by investing in a number of
different countries, industries, and companies.
RISK FACTORS
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Like any investment, an investment in the Fund is subject to risk. 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. While investments are selected which the Sub-Adviser believes have
long-term rowth potential, their value could decline. For further information
about risk factors, please see "Risk Factors and Special Considerations"
starting on page 12.
EXPENSES
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF EACH OF THE FUNDS.
Shareholder Transaction Expenses (Fees Paid Directly from Your Investment)
for each Fund.
Maximum Sales Charge Imposed on Purchases None
Maximum Deferred Sales Charge None
Maximum Sales Charge Imposed on None
Reinvested Dividends
Exchange Fee None
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Annual Fund Operating Expenses Paid by the Fund
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Money Market Bond Value Growth International
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Management Fees 0.39% 0.34% 0.55% 0.69% 0.83%
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Distribution & Service (12b-1) Fees 0.00% 0.15% 0.22% 0.15% 0.15%
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Other Expenses 0.26% 0.23% 0.35% 0.44% 0.43%
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0.65% 0.72% 1.12% 1.28% 1.41%
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Total Fund Operating Expenses for all Funds, other than the Value Fund, are
based upon estimated total annualized expenses to be incurred by each of the
Funds for the year ended December 31, 2000. The Value Fund Operating Expenses
are based upon total expenses incurred by the Fund for Class A for the year
ended December 31, 1999. Adjustments have been made to reflect the Trust's 12b-1
distribution plan which allows a maximum annual rate of 0.25 of 1% of the
average daily net assets of each Fund. The maximum amount presently authorized
by the Trustees is 0.15 of 1% for each Fund except the Money Market 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 the Funds 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:
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1 Year 3 Years 5 Years 10 Years
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Money Market Fund $65.40 $204.86 $356.76 $798.38
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Bond Fund 73.54 230.20 400.56 894.49
Value Fund 114.17 355.98 616.92 1363.17
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Growth Fund 130.38 102.70 699.07 1542.02
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International Fund $143.53 $446.24 $771.07 $1690.84
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ORGANIZATION AND MANAGEMENT
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, SUITE 200, 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 advice
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.
Activa has ultimate responsibility for the investment performance of the
Funds due to its responsibility, subject to oversight by the Board of Trustees,
to oversee the Sub-Advisers and recommend their hiring, termination, and
replacement.
THE SUB-ADVISERS
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The Sub-Adviser of Activa Money Market Fund is J.P. Morgan Investment
Management Inc., 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 approximately $349 billion for
individual and institutional investors. A team of portfolio managers and traders
of the Sub-Adviser are responsible for the day-to-day management of Activa Money
Market Fund.
<PAGE>
The Sub-Adviser of Activa Intermediate Bond Fund is Van Kampen Management
Inc., a wholly-owned subsidiary of Van Kampen Investments Inc. of Oakbrook
Terrace, Illinois. Together with its affiliates, Van Kampen Management Inc.
currently manages and/or supervises over $75 billion for institutional and
individual investors. A team of officers of the Sub-Adviser is responsible for
the day-to-day management of Activa Intermediate Bond Fund.
The Sub-Adviser of Activa Value Fund is Wellington Management Company, LLP,
Boston, Massachusetts. Wellington Management currently manages over $230 billion
for institutional and individual investors. Doris Dwyer Chu, Vice President, is
primarily responsible for the day-to-day management of Activa Value Fund. Ms.
Chu joined Wellington Management in 1998. she was previously a partner and
portfolio manager with Grantham, Mayo, Van Otterloo & Company (1985-1998).
The Sub-Adviser of Activa Growth Fund is State Street Research & Management
Company, Boston, Massachusetts. State Street Research currently manages over $50
billion for individual and institutional investors. The Large Cap Growth Team of
State Street Research is responsible for the day-to-day management of Activa
Growth Fund.
The Sub-Adviser of Activa International Fund is Nicholas-Applegate Capital
Management, San Diego, California. Nicholas-Applegate currently manages over $30
billion for individual and institutional investors. The International/Global
management team of Nicholas-Applegate is responsible for the day-to-day
management of Activa International Fund.
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, Suite 200, Grand
Rapids, Michigan 48546. 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:
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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., Suite
200, Grand Rapids, Michigan 49546. 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, limited liability companies, retirement
plans, individual retirement accounts and profit sharing plans.
<PAGE>
BY PHONE:
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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 10 business 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
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Shares of each Fund may be exchanged for shares of any other Activa Fund.
The 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 10 business 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.
<PAGE>
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.
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
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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-deferred account such as an
IRA. You should consult your tax adviser about the tax consequences of an
investment in the Fund.
DISTRIBUTION PLAN
- --------------------------------------------------------------------------------
The Trust has adopted a Plan and Agreement of Distribution ("Distribution
Plan"). Under the Distribution Plan, the Adviser 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 each Fund
except the Money Market 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 Adviser pursuant to the Distribution Plan may be
retained by the Adviser 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.
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.
<PAGE>
SUB-ADVISERS HISTORICAL PERFORMANCE
- --------------------------------------------------------------------------------
The following tables set forth historical performance information for the
Sub-Adviser for each Fund. The performance information for each Sub-Adviser,
other than the Sub-Adviser of Activa Money Market Fund, is based upon the
performance of a composite of accounts managed by each of the Sub-Advisers which
have substantially equivalent investment objectives, policies, strategies and
restrictions as each of the respective Funds. The performance information for
the Sub-Adviser of Activa Money Market Fund represents the performance of a
money market fund managed by the Sub-Adviser which has substantially equivalent
investment objectives, policies, strategies and restrictions as the Activa Money
Market Fund. All performance information has been adjusted to reflect the
expenses which are expected to be borne by the investors in each of the Activa
Funds.
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. The historical performance information is that
of the Sub-Advisers, not the Activa Funds, and the performance of the Funds may
differ materially from the results shown below.
<TABLE>
Average Annual Returns for
The Periods Ended December 31, 1999*
-----
<CAPTION>
Past 1 Year Past 5 Years Past 10 Years
<S> <C> <C> <C>
JP Morgan Investment Management Inc. 4.59% 4.75% 5.21%
---- ---- ----
IBC First Tier Money Fund Average** 4.48% 4.94% N/A
---- ----
Van Kampen Management Inc. -1.26% 7.30% 7.33%
----- ---- ----
Lehman Brother Aggregate Bond Index** -0.82% 7.73% 7.68%
----- ---- ----
Wellington Management Company, LLP 12.13% N/A*** N/A
----- ------ ---
Russell 1000 Value** 7.35% 23.07% 15.60%
---- ----- -----
S&P 500** 21.00% 28.60% 18.20%
----- ----- -----
State Street Research & Management Co. 20.12% 28.07% 17.08%
----- ----- -----
S&P 500** 21.00% 28.60% 18.20%
----- -----
Nicholas-Applegate Capital Management 67.89% 27.51% N/A
----- -----
MSCI EAFE** 27.22% 12.98% 7.08%
----- ----- ----
</TABLE>
*All Sub-Adviser performance information has been adjusted to reflect the
expenses which are expected to be borne by the investors in each of the Activa
Funds.
**IBC's first tier money fund average is an average of all major first
tier money fund returns. The Lehman Brothers Aggregate Bond Index represents an
unmanaged total return Index and includes U.S. Treasury and agency obligations,
U.S. dollar denominated foreign obligations and U.S. investment grade corporate
debt. 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. The MSCI EAFE (Morgan
Stanley Capital International Europe, Australia and Far East Index) represents
an unmanaged index of over 1000 foreign common stock prices. Indices are not
impacted by Fund operating expenses
***Since inception on July 31, 1995, the average annual return for Wellington
Management Company, LLP, for the past 4 years has been 20.77% vs. 27.50 for the
S&P 500, and 18.83% for the Russell 1000 Value Index.
RISK FACTORS AND SPECIAL CONSIDERATIONS
- --------------------------------------------------------------------------------
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.
<PAGE>
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 or less 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, except the Intermediate Bond Fund, 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
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.
<PAGE>
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.
OTHER RISKS
- --------------------------------------------------------------------------------
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 Fund and its Sub-Advisers.
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.
DERIVATIVE TRANSACTIONS RISKS. Each of the Funds, except the Money Market
Fund, may trade in derivative contracts to hedge portfolio holdings and for
investment purposes. 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.
<PAGE>
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.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table presents financial highlights for the Activa Funds.
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years or since inception. 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.
<PAGE>
ACTIVA Financial Highlights
<TABLE>
<CAPTION>
MONEY INTERMEDIATE
MARKET BOND
FUND** FUND* VALUE FUND - CLASS A
---------- ---------- --------------------------
Per share outstanding throughout the year or
period ended December 31, 1999 1999 1999*** 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Asset Value, beginning of period 1.00 10.00 7.18 7.73
Income from investment operations:
Net investment income (loss) 0.02 0.19 0.09 0.08
Net realized and unrealized gains (losses)
on securities -- (0.13) (0.57) 0.68
---------- ---------- ---------- ----------
Total from investment operations 0.02 0.06 (0.48) 0.76
Less Distributions:
Dividends from net investment income 0.02 0.19 0.09 0.08
Dividends in excess of net investment income -- -- -- --
Distributions from capital gains -- -- -- 1.23
---------- ---------- ---------- ----------
Total Distributions 0.02 0.19 0.09 1.31
---------- ---------- ---------- ----------
Net Asset Value, end of period 1.00 9.87 6.61 7.18
Total Return **** 1.83% 0.63% -6.70% 10.17%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period 122,058,717 162,078,588 178,437,477 179,820,020
Ratio of expenses to average net assets***** 0.6% 0.7% 1.1% 1.0%
Ratio of net income (loss) to average net assets 5.4% 5.7% 1.2% 1.0%
Portfolio turnover rate N/A 64.6% 144.5% 101.1%
Average commission rate paid per share for
portfolio transactions N/A N/A 0.0481 0.0521
</TABLE>
* Period from August 30, 1999 (inception) to December 31, 1999
** Period from August 19, 1999 (inception) to December 31, 1999
*** Effective December 30, 1999, Wellington Management Company, LLP entered
into a Sub-Advisory Agreement with the Fund.
**** Total return does not reflect the effect of the sales charge in the years
before 1998
***** Ratio includes fees paid with brokerage commissions for fiscal years
ending after September 1, 1995; 1999 ratio includes a one time organization
expense.
****** The inception date for Value Fund - Class R was 11/1/98
<PAGE>
<TABLE>
<CAPTION>
VALUE FUND - CLASS A
-------------------------------------------
Per share outstanding throughout the year or
period ended December 31, 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net Asset Value, beginning of period 7.62 7.43 6.88
Income from investment operations:
Net investment income (loss) 0.09 0.10 0.10
Net realized and unrealized gains (losses)
on securities 1.62 1.59 1.98
---------- ---------- ----------
Total from investment operations 1.71 1.69 2.08
Less Distributions:
Dividends from net investment income 0.10 0.09 0.11
Dividends in excess of net investment income -- -- --
Distributions from capital gains 1.50 1.41 1.42
---------- ---------- ----------
Total Distributions 1.60 1.50 1.53
---------- ---------- ----------
Net Asset Value, end of period 7.73 7.62 7.43
Total Return **** 22.50% 23.18% 30.55%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period 139,163,575 113,327,402 77,248,295
Ratio of expenses to average net assets***** 0.9% 1.0% 1.1%
Ratio of net income (loss) to average net assets 1.1% 1.2% 1.2%
Portfolio turnover rate 103.1% 100.4% 173.3%
Average commission rate paid per share for
portfolio transactions 0.0574 0.0600 0.0598
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GROWTH INTERNATIONAL
FUND* FUND*
---------- ----------
Per share outstanding throughout the year or
period ended December 31, 1999 1999
---------- ----------
<S> <C> <C>
Net Asset Value, beginning of period 10.00 10.00
Income from investment operations:
Net investment income (loss) (0.02) (0.03)
Net realized and unrealized gains (losses)
on securities 1.41 4.23
---------- ----------
Total from investment operations 1.39 4.20
Less Distributions:
Dividends from net investment income -- --
Dividends in excess of net investment income -- --
Distributions from capital gains -- --
---------- ----------
Total Distributions -- --
---------- ----------
Net Asset Value, end of period 11.39 14.20
Total Return **** 13.80% 42.00%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period 33,494,414 41,359,176
Ratio of expenses to average net assets***** 1.3% 1.4%
Ratio of net income (loss) to average net assets -0.5% -0.9%
Portfolio turnover rate 32.1% 87.6%
Average commission rate paid per share for
portfolio transactions 0.0332 0.0258
</TABLE>
<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 April 29, 2000. 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.
April 29, 2000
---------------
ACTIVA MUTUAL FUNDS LOGO
================================================================================
ACTIVA MUTUAL FUNDS
2905 Lucerne SE, Suite 200
Grand Rapids Michigan 49546
(616) 787-6288
(800) 346-2670
Investment Company Act File #811-2168
<PAGE>
ACTIVA MUTUAL FUND
FORM N-1A
PART A
Information Required in a Prospectus for Class R
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ACTIVA VALUE FUND ACTIVA MUTUAL FUND LOGO
2905 LUCERNE SE,
GRAND RAPIDS, MICHIGAN 49546 CLASS R
(616) 787-6288 PROSPECTUS
(800) 346-2670
The Fund's primary investment objective is
Contents Page capital appreciation. The Fund will attempt to
Investment Objective meet its objective by investing in common stocks
Investment Approach that it believes are undervalued. Income may be a
Management/Investment Managers factor in portfolio selection, but is secondary to
Risk Factors the principal objective.
Past Performance This Prospectus contains information with respect
Expenses to Class R shares of Activa Value Fund. Class R is
Financial Highlights offered only to tax exempt retirement and benefit
Organization of the Fund plans of Amway Corporation and its affiliates. The
Investment Management Fund also offers Class A shares, which are
The Sub-Advisers available to members of the general public.
Fundamental Investment Policies Information about Class A is contained in the
Pricing of Fund Shares Activa Funds Prospectus dated April 29, 2000 which
Purchase of Fund Shares is available upon request.
How Shares are Redeemed As with all mutual funds, the Securities and
Retirement Plans Exchange Commission has not approved or disapproved
Dividend & Capital Gain these securities or passed upon the adequacy of
Distributions to Shareholders this Prospectus. Any representation to the contrary
Tax Consequences is a criminal offense.
Year 2000 Problem
General Investment Risks
Other Risks
Shareholder Inquiries
The date of this Prospectus is April 29, 2000.
---------------
Printed in U.S.A.
</TABLE>
<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 primarily in common stocks of large and medium-sized U.S.
companies which the Fund's Sub-Adviser believes are undervalued by the
marketplace.
The Fund's Sub-Adviser, Wellington Management Company, LLP, implements the
construction of the Fund's portfolio based upon the analysis and input of the
firm's industry analysts. These analysts often spend their entire careers
covering a single industry. Their in-depth knowledge and broad perspective makes
them well positioned to recognize change early, enabling them to identify
companies which appear to have potential for long-term growth, but which are
trading at low valuations relative to intrinsic worth and/or historical market
levels. Such stocks are typically called "value stocks". Diversification is
achieved by investing in a number of different industries and companies.
RISK FACTORS
- --------------------------------------------------------------------------------
Like any investment, an investment in the Fund is subject to risk. 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.
While investments are selected which the Sub-Adviser believes have potential for
long-term appreciation, their value could decline. For further information about
risk factors, please see "Risk Factors and Special Considerations" starting on
page 12.
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 500aaaaaaaa')
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
Year-by-Year Performance
Exclusive of Sales Charges
1990 1.01%
1991 41.81%
1992 1.77%
1993 10.85%
1994 -5.87%
1995 30.55%
1996 23.18%
1997 22.47%
1998 10.17%
1999 -6.70%
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, 1999).
AVERAGE ANNUAL TOTAL
RETURN FOR THE PERIODS PAST PAST PAST
ENDED DECEMBER 31, 1998 1 YEAR 5 YEARS 10 YEARS
---------------------------------------------------------------------------
ACTIVA VALUE FUND* -6.70% 15.15% 11.90%
----- ----- -----
RUSSELL 1000 VALUE** 7.35% 23.07% 15.60%
---- ----- -----
S&P 500** 21.04% 28.54% 18.20%
----- ----- -----
*Wellington Management Company, LLP, has been the Fund's Sub-Adviser since
December 30, 1999.
**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>
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 .64%
Distribution & Service (12b-1) Fees None
Other Expenses .46%
-----
Total Fund Operating Expenses* 1.10%
=====
*Total 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 Fund's current investment advisory and administrative fees,
the Class R Transfer Agent and Shareholder Servicing Agreement, the fact that
the Fund's Rule 12b-1 distribution plan does not apply to Class R.
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
------ ------- ------- --------
Value Fund $112.15 $349.73 $606.20 $1340.20
------ ------ ------ -------
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>
<TABLE>
<CAPTION>
Value Fund - Class R
<S> <C> <C>
Per share outstanding throughout the year or
Period ended December 31, 1999* 1998****
------ --------
Net Asset Value, beginning of period 7.16 8.42
Income from investment operations:
Net investment income (loss) 0.10 0.09
Net realized and unrealized gains (losses)
on securities (0.56) (0.02)
---------- ----------
Total from investment operations (0.46) 0.07
------ ----
Less Distributions:
Dividends from net investment income 0.10 0.10
Dividends in excess of net investment income 0.00 0.00
Distributions from capital gains 0.00 1.23
--------- ---------
Total Distributions 0.10 1.33
--------- ---------
Net Asset Value, end of period 6.60 7.16
--------- ---------
Total Return** -6.43% 7.08%
Ratios and Supplemental Data
Net assets, end of period 703,962 135,385
Ratio of expenses to average net assets*** 1.1% 1.0%
Ratio of net income (loss) to average net assets 1.3% 1.8%
Portfolio turnover rate 144.5% 101.1%
Average commission rate paid per share for
portfolio transactions 0.0481 0.0521
* Effective December 30, 1999, Wellington Management Company, LLP entered into
a Sub-Advisory Agreement with the Fund.
** Total return does not reflect the effect of the sales charge in the years
before 1998.
*** Ratio includes fees paid with brokerage commissions for fiscal years ending
after September 1, 1995; 1999 ratio includes a one time organization
expense.
**** The inception date for Value Fund - Class R was 11/1/98.
</TABLE>
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
the Fund. Activa's offices are located at 2905 Lucerne SE, Suite 200, Grand
Rapids, Michigan 49546. Subject to the direction of the Board of Trustees,
Activa provides overall investment strategy for the Fund and furnishes all
office space, facilities, equipment and personnel which is necessary for
servicing the investments of the Fund.
Activa, together with the Board of Trustees, is responsible for selecting one
or more Sub-Advisers for the Fund. The Sub-Advisers furnish investment advice
and manage on a regular basis the investment portfolio of the Fund. The
Sub-Advisers make investment decisions on behalf of the Fund and place all
orders for the purchase or sale of portfolio securities. The Sub-Advisers are
employed by Activa and Activa, not the Fund, is responsible for paying their
fees.
Activa monitors and evaluates the investment performance of each Sub-Adviser.
If Activa believes it is in the 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
the 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.
Activa has ultimate responsibility for the investment performance of the
Funds due to its responsibility, subject to oversight by the Board of Trustees,
to oversee the Sub-Advisers and recommend their hiring, termination, and
replacement.
<PAGE>
THE SUB-ADVISER
- --------------------------------------------------------------------------------
The Sub-Adviser of Activa Value Fund is Wellington Management Company, LLP,
Boston, Massachusetts. Wellington Management currently manages over $230 billion
for institutional and individual investors. Doris Dwyer Chu, Vice President, is
primarily responsible for the day-to-day management of Activa Value Fund. Ms.
Chu joined Wellington Management in 1998. She was previously a partner and
portfolio manager with Grantham, Mayo, Van Otterloo & Company (1985-1998).
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 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 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.
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.
<PAGE>
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 advisers, for
information about the tax consequences associated with participating in the
plans.
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.
OTHER RISKS
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS AND RISK. 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. 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.
DERIVATIVE 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.
<PAGE>
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 April 29, 2000, 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.
April 29, 2000
--------------
<PAGE>
ACTIVA MUTUAL FUND
FORM N-1A
PART B
Information Required in a Statement of Additional Information for Class A
<PAGE>
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 APRIL 29, 2000.
The date of this Statement of Additional
Information is APRIL 29, 2000.
ACTIVA MONEY MARKET FUND
(a series of Activa Mutual Fund Trust)
2905 Lucerne SE, Suite 200
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 Adviser
Sub-Adviser
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
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 Sub-Adviser 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 Sub-Adviser 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 Sub-Adviser 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."
<PAGE>
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."
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 Sub-Adviser, 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 the Sub-Adviser acting as agent, for no additional fee. The
monies loaned to the borrower come from accounts managed by the Sub-Adviser or
its affiliates, pursuant to arrangements with such accounts. Interest and
principal payments are credited to such accounts. The Sub-Adviser 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 the Sub-Adviser. 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 the Sub-Adviser 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 to whom the Sub-Adviser's affiliate,
Morgan Guaranty Trust Company of New York, in its capacity as a commercial bank,
has made a loan.
<PAGE>
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.
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.
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.
<PAGE>
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
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 the Fund with respect to
borrowers of its portfolio securities are similar to the risks to the Fund with
respect to sellers in repurchase agreement transactions. See "Repurchase
Agreements". The Fund will not lend its securities to any officer, Trustee,
Director, employee or other affiliate of the Fund, the Adviser , the
Sub-Adviser, 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. The Fund may not acquire any illiquid holdings if, as a
result thereof, more than 10% of the Fund's net assets would be in illiquid
investments. Subject to this non-fundamental policy limitation, the Fund 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 Fund. The price the Fund pays for illiquid securities or receives upon
resale may be lower than the price paid or received for similar securities with
a more liquid market. Accordingly the valuation of these securities will reflect
any limitations on their liquidity.
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 Adviser
and approved by the Trustees. The Trustees will monitor the Sub-Adviser'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-Adviser 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.
<PAGE>
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 the Sub-Adviser'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,
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-Adviser 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-Adviser
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-Adviser may allocate a portion of the Fund's brokerage transactions to
affiliates of the Sub-Adviser. In order for affiliates of the Sub-Adviser 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-Adviser or any other "affiliated person" (as defined in the 1940
Act) of the Sub-Adviser 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-Adviser or an affiliate of the Sub-Adviser is a member, except to the extent
permitted by law.
<PAGE>
On those occasions when the Sub-Adviser deems the purchase or sale of a
security to be in the best interests of the Fund as well as other customers, the
Sub-Adviser 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-Adviser 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.
PRINCIPAL SHAREHOLDERS
- --------------------------------------------------------------------------------
Amway Corporation ("Amway") indirectly, as of February 18, 2000, owned
101,937,554 Shares, or 90.72%, 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 Adviser 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 86 Trustee of the Fund President, DeWitt Land and
10001 Buttonwood Way -- Cattle Company (investments
Tequesta, Florida in land and cattle)
33469
Allan D. Engel* 48 Trustee, Vice President, Vice President, Real Estate
2905 Lucerne SE, -- Secretary and Assistant Operations - Enterprise Capital,
Suite 200 Treasurer of the Fund; Inc. Formerly, Sr. Manager,
Grand Rapids, Michigan President, and Secretary Investments and Real Estate,
49546 of the Investment Amway Corporation. Director,
President and Secretary of
Amway Management Company
(1981-1999). Trustee, Vice
President and Secretary,
Amway Mutual Fund (1981-1999).
Donald H. Johnson 70 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 58 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* 55 Trustee, President and President & Chief Operating
2905 Lucerne SE -- Treasurer of the Fund. Officer, JVA Enterprises, LLC.
Suite 200 President, Chief Executive
Grand Rapids, Michigan Officer and Director,
49546 Enterprise Capital, Inc.
Formerly, Vice President-Audit
and Control, Amway Corporation
(1991-2000). Director, Vice
President and Treasurer of
Amway Management Company
(1984-1999). Trustee, President
and Treasurer, Amway Mutual
Fund, (1981-1999).
Richard E. Wayman 65 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 Adviser 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 $48,000. Under the Administrative Agreement, the Investment Adviser
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
Adviser also serves as the Fund's principal underwriter (see "Distribution of
Shares").
<TABLE>
<CAPTION>
PENSION OR TOTAL
NAME OF PERSON, TRUSTEE RETIREMENT ESTIMATED ANNUAL COMPENSATION
POSITION COMPENSATION BENEFITS ACCRUED AS BENEFITS PAID TO TRUSTEES
PART OF FUND UPON RETIREMENT
EXPENSES
<S> <C> <C> <C> <C>
Richard A. DeWitt $8,000 -0- -0- $8,000
----- -----
Trustee
Allan D. Engel* $8,000 -0- -0- $8,000
----- -----
Trustee
Donald H. Johnson $8,000 -0- -0- $8,000
----- -----
Trustee
Walter T. Jones $8,000 -0- -0- $8,000
----- -----
Trusstee
James J. Rosloniec $8,000 -0- -0- $8,000
----- -----
Trustee
Richard E. Wayman $8,000 -0- -0- $8,000
----- -----
Trustee
*These Trustees are interested persons under the Investment Company Act of 1940, as amended.
</TABLE>
<PAGE>
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
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 Investment Adviser
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. The Fees
Paid by the Fund to the Investment Adviser During the Year Ended December 31,
1999 were $156,807.
Members of the families of Jay Van Andel and Richard M. DeVos indirectly own
substantially all of the outstanding ownership interests of Investment Adviser.
Jay Van Andel and Richard M. DeVos are also controlling persons of Amway
Corporation which, as of February 18, 2000, owned 101,937,554 Shares, or 90.72%,
of the outstanding shares of the Fund. See "Principal Shareholders."
SUB-ADVISER
- --------------------------------------------------------------------------------
A Sub-Advisory Agreement has been entered into between the Investment Adviser
and J.P. Morgan Investment Management, Inc. ("JPMIM"), 522 Fifth Avenue, New
York, New York 10036 (Sub-Adviser). Under the Sub-Advisory Agreement, the
Investment Adviser employs the Sub-Adviser to furnish investment advice and
manage on a regular basis the investment portfolio of the Fund, subject to the
direction of the Investment Adviser, the Board of Trustees of the Fund, and to
the provisions of the Fund's current Prospectus. The 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, except when otherwise
specifically directed by the Fund or the Adviser. The fees of the Sub-Adviser
are paid by the Investment Adviser, not the Fund.
The Fund's Sub-Adviser is 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.
J.P. Morgan, through the Sub-Adviser and other subsidiaries, acts as
investment adviser 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 advisers, underwriters and
lender to an extensive roster of major companies and as a financial adviser to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
<PAGE>
The basis of the Sub-Adviser'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 OVER 300 capital
market researchers, portfolio managers and traders. The Sub-Adviser'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-Adviser provides to the Fund are not
exclusive under the terms of the Sub-Advisory Agreement. The Sub-Adviser is free
to and does render similar investment advisory services to others. The
Sub-Adviser and its affiliate companies serve as investment adviser to personal
investors and other investment companies and acts as fiduciary for trusts,
estates and employee benefit plans. The accounts which are managed or advised by
the Sub-Adviser have varying investment objectives and the Sub-Adviser 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-Adviser 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.
The Fund is managed by officers of the Sub-Adviser who, in acting for their
customers, including the Fund, do not discuss their investment decisions with
any personnel of J.P. Morgan or 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-Adviser 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 fees
paid by the Investment Adviser to the sub-adviser during the year ended December
31, 1999 were $68,238.
The Glass-Steagall Act and other applicable laws generally prohibit banks and
their subsidiaries, such as the Sub-Adviser, 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 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 adviser and custodian
to such an investment company. The Sub-Adviser 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. On november 12, 1999, the gramm-leach-bliley act was signed into
law, the relevant provisions of which go into effect march 11, 2000. Until March
11, 2000, federal banking law, specifically the Glass-Steagall Act and the Bank
Holding Company Act, generally prohibits banks and bank holding companies and
their subsidiaries, such as the sub-adviser, from engaging in the business of
underwriting or distributing securities. Pursuant to interpretations issued
under these laws by the Board of Governors of the Federal Reserve System, such
entitites also may not sponsor, organize or control a registered open-end
investment company continuously engaged in the issuance of its shares (together
with underwriting and distributing securities, the "prohibited activities"),
such as the fund. these laws and interpretations do not prohibit a bank holding
company or a subsidiary thereof from acting as investor adviser and custodian to
such an investment company. The sub-adviser believes that it may perform the
services for the fund contemplated by the sub-advisory agreement without
violation of the laws in effect until March 11, 2000. Effective March 11, 2000,
the sections of the Glass-Steagall Act which prohibited the prohibited
activities are repealed, and the Bank Holding Company Act is amended to permit
bank holding, companies which satisfy certaincapitalization, managerial and
other criteria (the "criteria") to engage in the prohibited activities; bank
holding companies which do not satisfy the criteria may continue to engage in
any activity that was permissible for a bank holding company under the Bank
Holding Company Act as of November 11, 1999. Because the services to be
performed for the fund udner the sub-advisory agreement were permissiable for a
bank holding company as of November 11, 1999, the sub-adviser believes that it
also may perform such services after March 11, 2000 whether or not the
sub-adviser's parent satisfies the criteria. State laws 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.
If the Sub-Adviser were prohibited from acting as investment adviser to the
Fund, it is expected that the Trustees of the Fund would select another
qualified sub-adviser.
<PAGE>
PLAN OF DISTRIBUTION & PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------
The Trust has adopted a Plan and Agreement of Distribution ("Distribution
Plan"). Under the Distribution Plan, the Adviser provides shareholder services
and services in connection with the sale and distribution of the shares of
certain series of the Trust and is compensated at a maximum annual rate of 0.25
of 1% of the average daily net assets of each such series. The Adviser is not
presently providing services under the distribution plan on behalf of the Fund
and is receiving no such compensation.
The Adviser 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 Adviser 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 the Investment
Adviser, the Investment Adviser 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, the Investment Adviser 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 the Investment
Adviser. For providing these services Activa receives a fee, payable quarterly,
at the annual rate of 0.15% of the Fund's average daily assets. During the year
ended December 31, 1999, total payments were $67,204.
The Administrative Agreement provides that the Investment Adviser 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, Suite 200, Grand Rapids,
Michigan 49546. 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
- --------------------------------------------------------------------------------
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 SE, Suite
200, Grand Rapids, Michigan 49546. 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, limited liability companies, 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 10 business 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.
<PAGE>
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 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 10 business 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.
<PAGE>
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
adviser 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 adviser 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>
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
ACTIVA MONEY MARKET FUND MARKET
(a Series of Activa Mutual Fund Trust) FUND
2905 Lucerne SE, Suite 200
Grand Rapids, Michigan 49546
(616) 787-6288
(800) 346-2670
STATEMENT OF
ADDITIONAL INFORMATION
APRIL 29, 2000
ACTIVA MUTUAL FUND LOGO
Printed in U.S.A.
=====================================================
<PAGE>
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 APRIL 29, 2000.
The date of this Statement of Additional Information
is APRIL 29, 2000.
ACTIVA INTERMEDIATE BOND FUND
(a series of Activa Mutual Fund Trust)
2905 Lucerne SE, Suite 200
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 Adviser
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
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
<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.
INCOME SECURITIES
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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
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
<PAGE>
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
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
<PAGE>
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 based 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.
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.
<PAGE>
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
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
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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.
<PAGE>
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.
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.
<PAGE>
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
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 currently paying.
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>
1. 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.
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
<PAGE>
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.
During the calendar year ended December 31, 1999, the portfolio turnover rate
was 64.6%.
The Fund may acquire securities of brokers who execute the Fund's portfolio
transactions. As of December 31, 1999, the Fund owned no such securities.
PRINCIPAL SHAREHOLDERS
- --------------------------------------------------------------------------------
Amway Corporation ("Amway") indirectly, as of February 18, 2000, owned
16,465,185 shares, OR 99.15%, 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 Adviser 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 86 Trustee of the Fund President, DeWitt Land and
10001 Buttonwood Way -- Cattle Company (investments
Tequesta, Florida 33469 in land and cattle)
Allan D. Engel* 48 Trustee, Vice Vice President, Real Estate
2905 Lucerne SE, -- President, Secretary Operations - Enterprise
Suite 200 and Assistant Treasurer Capital, Inc. Formerly, Sr.
Grand Rapids, Michigan of the Fund; President, Manager, Investments and Real
49546 and Secretary of the Estate, Amway Corporation.
Investment Adviser. Director, President and
Secretary of Amway Management
Company (1981-1999). Trustee,
Vice President and Secretary,
Amway Mutual Fund (1981-1999).
Donald H. Johnson 70 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 58 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
- ---------------- --- ----------- ------------------------------------
<S> <C> <C> <C>
James J. Rosloniec* 55 Trustee, President and President & Chief Operating
2905 Lucerne SE -- Treasurer of the Fund. Officer, JVA Enterprises, LLC.
Suite 200 President, Chief Executive
Grand Rapids, Michigan Officer and Director,
49546 Enterprise Capital, Inc.
Formerly, Vice President-Audit
and Control, Amway Corporation
(1991-2000). Director, Vice
President and Treasurer of
Amway Management Company
(1984-1999). Trustee, President
and Treasurer, Amway Mutual
Fund, (1981-1999).
Richard E. Wayman 65 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.
<TABLE>
<CAPTION>
PENSION OR
NAME OF PERSON, TRUSTEE RETIREMENT ESTIMATED ANNUAL TOTAL
POSITION COMPENSATION BENEFITS ACCRUED AS BENEFITS COMPENSATION
PART OF FUND UPON RETIREMENT PAID TO TRUSTEES
EXPENSES
<S> <C> <C> <C> <C>
Richard A. DeWitt $8,000 -0- -0- $8,000
----- -----
Trustee
Allan D. Engel* $8,000 -0- -0- $8,000
----- -----
Trustee
Donald H. Johnson $8,000 -0- -0- $8,000
----- -----
Trustee
Walter T. Jones $8,000 -0- -0- $8,000
----- -----
Trusstee
James J. Rosloniec $8,000 -0- -0- $8,000
----- -----
Trustee
Richard E. Wayman $8,000 -0- -0- $8,000
----- -----
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 Adviser are
affiliated with Amway Corporation. The Officers serve without compensation from
the Fund. Fees paid to all Trustees during the year ended December 31, 1999,
amounted to $48,000. Under the Administrative Agreement, the Investment Adviser
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
Adviser also serves as the Fund's principal underwriter (see "Distribution of
Shares").
<PAGE>
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
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 the Investment Adviser
became effective on June 11, 1999 and amended on March 1, 2000. 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;
.12 of 1% on the next $100,000,000 of assets in excess of $50,000,000; and .04
of 1% on assets in excess of $150,000,000. The fees paid by the Fund to the
investment adviser during the year ended December 31, 1999 was $188,433.
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 FEBRUARY 18, 2000, owned 16,465,185 SHARES, OR 99.15%, of the
outstanding shares of the Fund. See "Principal Shareholders."
SUB-ADVISER
- --------------------------------------------------------------------------------
A Sub-Advisory Agreement has been entered into between the Investment Adviser
and Van Kampen Management Inc., 1 Parkview Plaza, Oakbrook Terrace, Illinois
60181-5555 (Sub-Adviser). Under the Sub-Advisory Agreement, the Adviser employs
the Sub-Adviser to furnish investment advice and manage on a regular basis the
investment portfolio of the Fund, subject to the direction of the Adviser, the
Board of Directors of the Fund, and to the provisions of the Fund's current
Prospectus. The 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, except when otherwise specifically directed by the Fund or the
Adviser. The fees of the Sub-Adviser are paid by the Investment Adviser, not the
Fund.
The compensation schedule under an amended fee schedule for the Sub-Advisory
agreement, which is further described below, provides for a reduction in
Sub-Advisory fees as the size of the Fund's assets increases. The amended fee
schedule, compared to the prior fee schedule, provides for lower sub-advisory
fees so long as the Fund's assets exceed $150,000,000. In order to give the Fund
the benefit of this reduction in fees, the Investment Adviser has agreed to
waiver its Investment Advisory fees to the extent necessary so that its fees
equal the lesser of (a) the amount otherwise payable under the Investment
Advisory Agreement, and (b) the amount payable under the new Sub-Advisory
Agreement, plus 0.20% Of average net assets. 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 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; .12% OF 1% on the
next $100,000,000 of assets in excess of $50,000,000; and .04 of 1% on assets in
excess of $150,000,000. Fees paid by the Investment Adviser to the Sub-Adviser
during the year ended December 31, 1999 were $79,141.
PLAN OF DISTRIBUTION & PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------
The Trust has adopted a Plan and Agreement of Distribution ("Distribution
Plan"). Under the Distribution Plan, the Adviser 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 Adviser pursuant to the Distribution Plan may be
retained by the Adviser 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 Adviser 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 Adviser 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 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. During the year ended December 31, 1999, total
payments were $82,010.
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
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.
<PAGE>
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, Suite 200, Grand Rapids,
Michigan 49546. 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 SE, Suite
200, Grand Rapids, Michigan 49546. 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 10 business 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.
<PAGE>
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 10 business 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.
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.
<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
adviser 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 adviser 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
ACTIVA INTERMEDIATE BOND FUND BOND
(a Series of Activa Mutual Fund Trust) FUND
2905 Lucerne SE, Suite 200
Grand Rapids, Michigan 49546
(616) 787-6288
(800) 346-2670
STATEMENT OF
ADDITIONAL INFORMATION
APRIL 29, 2000
ACTIVA MUTUAL FUND LOGO
Printed in U.S.A.
=====================================================
<PAGE>
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 APRIL 29, 2000.
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 APRIL 29, 2000,
which is available upon request.
The date of this Statement of Additional
Information is APRIL 29, 2000.
ACTIVA VALUE FUND
(a series of Activa Mutual Fund Trust)
2905 Lucerne SE, Suite 200
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 Adviser
Sub-Adviser
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
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
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.
<PAGE>
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 not 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
<PAGE>
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
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
<PAGE>
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
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
<PAGE>
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.
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
<PAGE>
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.
-------------------------
For purposes of fundamental investment restrictions regarding industry
concentration, the Sub-Adviser may classify by industry in accordance with
classification 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 Sub-Adviser 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
Sub-Adviser 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 the parents.
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,
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
<PAGE>
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.
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
<PAGE>
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 Adviser"), or the
Sub-Advisers will select the brokers and resulting allocation of brokerage
commission; but, the Investment Adviser'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 Adviser and Sub-Adviser, 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, Adviser, and the Sub-Adviser. Any research benefits
derived by the Sub-Adviser are available to all clients of the Sub-Adviser.
Since research information, statistical and other services are only
supplementary to the research efforts of the Sub-Adviser 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-Adviser 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, 1999, 1998, and 1997, the Fund paid total
brokerage commissions on purchase and sale of portfolio securities of $730,824,
$358,825, and $301,990, respectively. Transactions in the amount of
$113,640,730, involving commissions of approximately $142,616, were directed to
brokers because of research services provided during 1999. DURING THE CALENDAR
YEAR ENDED DECEMBER 31, 1999 THE PORTFOLIO TURNOVER RATE WAS 144.5% WHICH WAS AN
INCREASE OVER THE PREVIOUS YEAR'S RATE OF 101.1% RESULTING FROM THE CHANGE IN
THE FUND'S SUB-ADVISER AND THE RESTRUCTURING OF THE FUND'S PORTFOLIO.
The Sub-Adviser 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-Adviser'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, 1999, the Fund owned no such securities.
<PAGE>
PRINCIPAL SHAREHOLDERS
- --------------------------------------------------------------------------------
Amway Corporation indirectly, as of February 18, 2000, owned 842,738
Shares, or 3.43%, 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 February 18, 2000, 7,477,289
shares, or 30.43%, of the outstanding shares of the Fund. The Jay and Betty Van
Andel Foundation, as of February 18, 2000 owns 1,919,507 shares, OR 7.81%, 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 Adviser 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 86 Trustee of the Fund President, DeWitt Land and
10001 Buttonwood Way -- Cattle Company (investments
Tequesta, Florida 33469 in land and cattle)
Allan D. Engel* 48 Trustee, Vice Vice President, Real Estate
2905 Lucerne SE, -- President, Secretary Operations - Enterprise
Suite 200 and Assistant Treasurer Capital, Inc. Formerly, Sr.
Grand Rapids, Michigan of the Fund; President, Manager, Investments and Real
49546 and Secretary of the Estate, Amway Corporation.
Investment Adviser. Director, President and
Secretary of Amway Management
Company (1981-1999). Trustee,
Vice President and Secretary,
Amway Mutual Fund (1981-1999).
Donald H. Johnson 70 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 58 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* 55 Trustee, President and President & Chief Operating
2905 Lucerne SE -- Treasurer of the Fund. Officer, JVA Enterprises, LLC.
Suite 200 President, Chief Executive
Grand Rapids, Michigan Officer and Director,
49546 Enterprise Capital, Inc.
Formerly, Vice President-Audit
and Control, Amway Corporation
(1991-2000). Director, Vice
President and Treasurer of
Amway Management Company
(1984-1999). Trustee, President
and Treasurer, Amway Mutual
Fund, (1981-1999).
Richard E. Wayman 65 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
POSITION COMPENSATION BENEFITS ACCRUED AS BENEFITS COMPENSATION
PART OF FUND UPON RETIREMENT PAID TO TRUSTEES
EXPENSES
<S> <C> <C> <C> <C>
Richard A. DeWitt $8,000 -0- -0- $8,000
----- -----
Trustee
Allan D. Engel* $8,000 -0- $8,000
----- -----
Trustee
Donald H. Johnson $8,000 -0- -0- $8,000
----- -----
Trustee
Walter T. Jones $8,000 -0- -0- $8,000
----- -----
Trusstee
James J. Rosloniec $8,000 -0- -0- $8,000
----- -----
Trustee
Richard E. Wayman $8,000 -0- -0- $8,000
----- -----
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 Adviser are
affiliated with Amway Corporation. The Officers serve without compensation from
the Fund. Fees paid to all Trustees during the year ended December 31, 1999,
amounted to $48,000. Under the Administrative Agreement, the Investment Adviser
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
Adviser also serves as the Fund's principal underwriter (see "Distribution of
Shares").
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
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.
<PAGE>
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 0.50% of the first $350 million of average daily net
assets of the Fund, and 0.45% of the assets in excess of $350 million; the
minimum annual fee shall be $350,000 plus .20% of the assets. The fees paid by
the Fund to the Investment Adviser during the year ended December 31, 1999 were
$391,047.
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 ENDED
December 31, 1999, 1998, and 1997, were $671,045, $864,715, and $727,102,
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 substantially all of the
outstanding securities of AMC.
SUB-ADVISER
- --------------------------------------------------------------------------------
A Sub-Advisory Agreement has been entered into between the Investment Adviser
and Wellington Management Company, LLP, 75 State Street, Boston, Massachusetts
(Sub-Adviser). Under the Sub-Advisory Agreement, the Adviser employs the
Sub-Adviser to furnish investment advice and manage on a regular basis the
investment portfolio of the Fund, subject to the direction of the Adviser, the
Board of Trustees of the Fund, and to the provisions of the Fund's current
Prospectus. The 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, except when otherwise specifically directed by the Fund or the
Adviser. The fees of the Sub-Adviser are paid by the Investment Adviser, not the
Fund.
Effective December 30, 1999, Wellington Management Company, LLP became the
Fund's new Sub-Adviser. The compensation schedule under the new Sub-Advisory
Agreement, which is further described below, provides for a reduction in
Sub-Advisory fees as the size of the Fund's assets increases. The new
Sub-Advisory agreement, compared to the Fund's prior sub-advisory agreement,
provides for lower sub-advisory fees so long as the Fund's assets exceed
approximately $78,000,000. In order to give the Fund the benefit of this
reduction in fees, the Investment Adviser has agreed to waiver its Investment
Advisory fees to the extent necessary so that its fees equal the lesser of (a)
the amount otherwise payable under the Investment Advisory Agreement, and (b)
the amount payable under the new Sub-Advisory Agreement, plus .20% of average
net assets.
As compensation for its services as the Fund's new Sub-Adviser, Wellington
Management will receive a fee from the Fund's investment adviser at the annual
rate of 0.30% of the first $350 million of average daily net assets of the Fund,
and 0.25% of the assets in excess of $350 million; the minimum annual fee shall
be $350,000. The annual compensation formerly paid by the Investment Adviser to
Ark Asset Management Co., Inc. was 0.35% of Fund assets in excess of $200
million; larger percentage fees (up to a maximum of 0.45%) were paid if the
Fund's assets were less than $200 million. The fees paid by the Investment
Adviser to the Sub-Adviser during the year ended December 31, 1999 were
$806,398.
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 1999 and 1998 the Fund paid $428,188 and $285,016,
respectively, under the Distribution Plan for compensation. The services
provided under the Distribution Plan during 1999 included printing and mailing
of prospectuses $103,570 and general and administrative services $333,756 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.
<PAGE>
Activa serves as the exclusive agent for sales of the Fund's shares pursuant
to a Principal Underwriting Agreement. Previously Amway Management Company
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 and 1997, AMC
received sales commissions of $473,151 and $513,417, respectively. The only
compensation currently received by the Adviser 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 the Investment
Adviser, the Investment Adviser 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, the Investment Adviser 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 the Investment
Adviser. For providing these services the Investment Adviser receives a fee,
payable quarterly, at the annual rate of 0.15% of the Fund's average daily
assets beginning September 1, 1999. During the year ended December 31, 1999,
total payments weRE $97,811.
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
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
Adviser."
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.
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, Suite 200, Grand
Rapids, Michigan 49546. 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 SE, Suite
200, Grand Rapids, Michigan 49546. 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 10 business 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 10 business 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.
<PAGE>
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
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
adviser 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 adviser regarding the
treatment of distributions to him under various state and local income tax laws.
<PAGE>
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, 1999.
AVERAGE ANNUAL TOTAL
RETURN FOR THE PERIODS PAST PAST PAST
ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
ACTIVA VALUE FUND -6.70% 15.15% 11.90%
----- ----- -----
RUSSELL 1000 VALUE 7.35% 23.07% 15.60%
---- ----- -----
S&P 500* 21.04% 28.54% 18.20%
----- ----- -----
*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.
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
ACTIVA VALUE FUND FUND
(a Series of Activa Mutual Fund Trust)
2905 Lucerne SE, Suite 200
Grand Rapids, Michigan 49546
(616) 787-6288
(800) 346-2670
STATEMENT OF
ADDITIONAL INFORMATION
APRIL 29, 2000
ACTIVA MUTUAL FUND LOGO
Printed in U.S.A.
=====================================================
<PAGE>
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 April 29, 2000.
----------------
The date of this Statement of Additional
Information is April 29, 2000.
--------------
ACTIVA GROWTH FUND
(a series of Activa Mutual Fund Trust)
2905 Lucerne SE, Suite 200
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 and Information
Concerning Certain Investment
Techniques
Brokerage Allocation
Principal Shareholders
Officers and Trustees of the Fund
Investment Adviser
Sub-Adviser
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
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, shareholder
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 long-term growth of capital.
The Fund will attempt to meet its objectives by investing primarily in stocks
that the Fund believes have long term growth potential. The Fund seeks to
identify large capitalization stocks with sustainable above average earnings to
growth.
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 15% 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, or short sales against the box; (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 other open-end
registered investment companies.
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 long-term growth of capital,
the Fund intends to purchase securities for long-term or short-term profits, as
appropriate. Securities will be disposed of in situations where appropriate, in
management's opinion. 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
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
<PAGE>
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 not 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
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
<PAGE>
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.
REVERSE REPURCHASE AGREEMENTS.
------------------------------
The Fund may enter into reverse repurchase agreements. 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.
<PAGE>
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
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.
<PAGE>
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.
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.
<PAGE>
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 Discretionary Financial Services
---------------------- ---------------------- ------------------
<S> <C> <C>
Air Transport Advertising Agencies Banks & Savings and Loans
Auto parts Casino/Gambling Financial Data Processing
Automobiles Hotel/Motel Services & Systems
Miscellaneous Commercial Services Insurance
Transportation Communications, Media & Miscellaneous Financial
Railroad Equipment Entertainment Real Estate Investment
Railroads Consumer Electronics Trusts
Recreational Vehicles & Consumer Products Rental & Leasing Services:
Boats Consumer Services Commercial
Tires & Rubber Household Furnishings Securities Brokerage &
Truckers Leisure Time Services
Photography
Integrated Oils Printing & Publishing Health Care
--------------- -----------
Oil: Integrated Domestic Restaurants Drugs & Biotechnology
Oil: Integrated International Retail Health Care Facilities
Shoes Health Care Services
Textile Apparel Hospital Supply
Manufacturers Service Miscellaneous
Toys
Consumer Staples Financial Services Technology
- ---------------- ------------------ ----------
Beverages Banks & Savings and Loans Communications Technology
Drug & Grocery Store Financial Data Processing Computer Software
Chains Services & Systems Computer Technology
Foods Insurance Electronics
Household Products Miscellaneous Financial Electronics: Semi-
Tobacco Real Estate Investment Conductors/Components
Trusts Miscellaneous Technology
Materials & Processing
- ----------------------
Agriculture Other Energy Utilities
Building & Construction ------------ ---------
Chemicals Gas Pipelines Miscellaneous Utilities
Containers & Packaging Miscellaneous Energy Utilities: Cable TV & Radio
Diversified Manufacturing Offshore Drilling Utilities: Electrical
Engineering & Contracting Oil & Gas Producers Utilities: Gas Distribution
Services Oil Well Equipment & Utilities: Telecommunications
Services Utilities: Water
Fertilizers
Forest Products Producer Durables
Gold & Precious Metals ------------------
Miscellaneous Materials & Aerospace
Processing Electrical Equipment &
Non-Ferrous Metals Components
Office Supplies Electronics: Industrial
Paper & Forest Products Components
Industrial Products
</TABLE>
<PAGE>
Real Estate & Construction Machine Tools
Steel Machinery
Textile Products Miscellaneous Equipment
Miscellaneous Producer
Other Durables
- -----
Trust Certificates - Office Furniture & Business
Government Related Equipment
Lending Pollution Control and
Asset-backed Mortgages Environmental Services
Asset-backed-Credit Card Production Technology
Receivables Equipment
Miscellaneous Telecommunications
Multi-Sector Companies Equipment
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.
<PAGE>
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.
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.
<PAGE>
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
the investment companies to fulfill their responsibility to oversee the quality
of the Sub-Adviser'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.
<PAGE>
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
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.
During the year ended December 31, 1999, the Fund paid total brokerage
commissions on purchase and sale of portfolio securities of $23,924.
Transactions in the amount of $18,574,261, involving commissions of
approximately $10,718, were directed to brokers because of research services
provided during 1999. During the calendar year ended December 31, 1999 the
portfolio turnover rate was 32.1%.
The Fund may acquire securities of brokers who execute the Fund's portfolio
transactions. As of December 31, 1999, the Fund owned no such securities.
PRINCIPAL SHAREHOLDERS
- --------------------------------------------------------------------------------
Amway Corporation ("Amway") indirectly, as of February 18, 2000, owned
2,897,624 shares, or 91.22% 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 Adviser 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 86 Trustee of the Fund President, DeWitt Land and
10001 Buttonwood Way -- Cattle Company (investments
Tequesta, Florida 33469 in land and cattle)
<PAGE>
NAME AND ADDRESS AGE OFFICE HELD PRINCIPAL OCCUPATION LAST FIVE YEARS
- ---------------- --- ----------- ------------------------------------
<S> <C> <C> <C>
Allan D. Engel* 48 Trustee, Vice Vice President, Real Estate
--
2905 Lucerne SE, President, Secretary Operations - Enterprise
Suite 200 and Assistant Treasurer Capital, Inc. Formerly, Sr.
Grand Rapids, Michigan of the Fund; President, Manager, Investments and Real
49546 and Secretary of the Estate, Amway Corporation.
Investment Adviser. Director, President and
Secretary of Amway Management
Company (1981-1999). Trustee,
Vice President and Secretary,
Amway Mutual Fund (1981- 1999).
Donald H. Johnson 70 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 58 Trustee of the Fund Retired, Former Senior Vice
936 Sycamore Ave. -- President-Chief Financial
Holland, Michigan Officer, Prince Corporation.
49424
James J. Rosloniec* 55 Trustee, President and President & Chief Operating
2905 Lucerne SE -- Treasurer of the Fund. Officer, JVA Enterprises, LLC.
Suite 200 President, Chief Executive
Grand Rapids, Michigan Officer and Director, Enterprise
49546 Capital, Inc. Formerly, Vice
President-Audit and Control,
Amway Corporation (1991-2000).
Director, Vice President and
Treasurer of Amway Management
Company (1984-1999). Trustee,
President and Treasurer, Amway
Mutual Fund, (1981-1999).
Richard E. Wayman 65 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
POSITION COMPENSATION BENEFITS ACCRUED AS BENEFITS COMPENSATION
PART OF FUND UPON RETIREMENT PAID TO TRUSTEES
EXPENSES
<S> <C> <C> <C> <C>
Richard A. DeWitt $8,000 -0- -0- $8,000
----- -----
Trustee
Allan D. Engel* $8,000 -0- -0- $8,000
----- -----
Trustee
Donald H. Johnson $8,000 -0- -0- $8,000
----- -----
Trustee
Walter T. Jones $8,000 -0- -0- $8,000
----- -----
Trusstee
James J. Rosloniec $8,000 -0- -0- $8,000
----- -----
Trustee
Richard E. Wayman $8,000 -0- -0- $8,000
----- -----
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 Adviser are
affiliated with Amway Corporation. The Officers serve without compensation from
the Fund. Fees paid to all Trustees during the year ended December 31, 1999,
amounted to $48,000. Under the Administrative Agreement, the Investment Adviser
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
Adviser also serves as the Fund's principal underwriter (see "Distribution of
Shares").
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
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 the Investment Adviser
became effective on September 1, 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. The fees paid by the
Fund to the Investment Adviser during the year ended December 31, 1999 were
$69,526.
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 February 18, 2000, owned 2,897,624 shares, or 91.22%, of the
outstanding shares of the Fund. See "Principal Shareholders."
<PAGE>
SUB-ADVISER
- --------------------------------------------------------------------------------
A Sub-Advisory Agreement has been entered into between the Investment Adviser
and State Street Research & Management Company, One Financial Center, Boston,
Massachusetts 02111-2690 (Sub-Adviser). Under the Sub-Advisory Agreement, the
Adviser employs the Sub-Adviser to furnish investment advice and manage on a
regular basis the investment portfolio of the Fund, subject to the direction of
the Adviser, the Board of Trustees of the Fund, and to the provisions of the
Fund's current Prospectus. The 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, except when otherwise specifically directed
by the Fund or the Adviser. 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 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 fees paid by the Investment Adviser to the
Sub-Adviser during the year ended December 31, 1999 were $49,430.
PLAN OF DISTRIBUTION & PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------
The Trust has adopted a Plan and Agreement of Distribution ("Distribution
Plan"). Under the Distribution Plan, the Adviser 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 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 Adviser pursuant to the Distribution Plan may be
retained by the Adviser 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 Adviser 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 Adviser 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 the Investment
Adviser, the Investment Adviser 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, the Investment Adviser 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 the Investment
Adviser. For providing these services the Investment Adviser receives a fee,
payable quarterly, at the annual rate of 0.15% of the Fund's average daily
assets. During the year ended December 31, 1999, total payments were $15,073.
The Administrative Agreement provides that the Investment Adviser 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, Suite 200, Grand Rapids,
Michigan 49546. 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 SE, Suite
200, Grand Rapids, Michigan 49546. 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, limited liability companies, retirement
plans, individual retirement accounts and profit sharing plans.
<PAGE>
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 10 business 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, limited
liability companies, 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 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 10 business 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.
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
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.
<PAGE>
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
adviser 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 adviser 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
GROWTH
ACTIVA GROWTH FUND FUND
(a Series of Activa Mutual Fund Trust)
2905 Lucerne SE, Suite 200
Grand Rapids, Michigan 49546
(616) 787-6288
(800) 346-2670
STATEMENT OF
ADDITIONAL INFORMATION
April 29, 2000
ACTIVA MUTUAL FUND LOGO
Printed in U.S.A.
=====================================================
<PAGE>
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 April 29, 2000.
---------------
The date of this Statement of Additional
Information is April 29, 2000.
--------------
ACTIVA INTERNATIONAL FUND
(a series of Activa Mutual Fund Trust)
2905 Lucerne SE, Suite 200
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 Adviser
Sub-Adviser
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
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, shareholder
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 stock
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 wher
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 b
proxy, or (b) more than 50% of the outstanding voting securities. The percentag
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 classificatio
as a diversified investment company under the Investment Company Act o
1940.
2. May not purchase any security which would cause the Fund to concentrat
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 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
<PAGE>
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, 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
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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.
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.
<PAGE>
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.
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
<PAGE>
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.
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
- --------------------------------------------------------------------------------
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.
<PAGE>
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
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.
<PAGE>
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.
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.
<PAGE>
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
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.
<PAGE>
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
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.
<PAGE>
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
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
of principal amounts, an interest rate swap is not in investment or a borrowing.
<PAGE>
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
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".
<PAGE>
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
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
<PAGE>
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
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
<PAGE>
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.
During the year ended December 31, 1999, the Fund paid total brokerage
commissions on purchase and sale of portfolio securities of $124,096.
Transactions in the amount of $1,340,809, involving commissions of approximately
$2,790, were directed to brokers because of research services provided during
1999. During the calendar year ended December 31, 1999, the portfolio turnover
rate was 87.6%.
The Sub-Adviser 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-Adviser'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, 1999, the Fund owned no such securities.
PRINCIPAL SHAREHOLDERS
- --------------------------------------------------------------------------------
Amway Corporation ("Amway") indirectly, as of February 18, 2000, owned
2,897,624 shares, or 96.48%, 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 Adviser 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 86 Trustee of the Fund President, DeWitt Land and
10001 Buttonwood Way -- Cattle Company (investments
Tequesta, Florida 33469 in land and cattle)
<PAGE>
NAME AND ADDRESS AGE OFFICE HELD PRINCIPAL OCCUPATION LAST FIVE YEARS
- ---------------- --- ----------- ------------------------------------
Allan D. Engel* 48 Trustee, Vice Vice President, Real Estate
2905 Lucerne SE, -- President, Secretary Operations - Enterprise
Suite 200 and Assistant Treasurer Capital, Inc. Formerly, Sr.
Grand Rapids, Michigan of the Fund; President, Manager, Investments and Real
49546 and Secretary of the Estate, Amway Corporation.
Investment Adviser. Director, President and
Secretary of Amway Management
Company (1981-1999). Trustee,
Vice President and Secretary,
Amway Mutual Fund (1981- 1999).
Donald H. Johnson 70 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 58 Trustee of the Fund Retired, Former Senior Vice
936 Sycamore Ave. -- President-Chief Financial
Holland, Michigan Officer, Prince Corporation
49424
James J. Rosloniec* 55 Trustee, President and President & Chief Operating
2905 Lucerne SE -- Treasurer of the Fund. Officer, JVA Enterprises, LLC.
Suite 200 President, Chief Executive
Grand Rapids, Michigan Officer and Director, Enterprise
49546 Capital, Inc. Formerly, Vice
President-Audit and Control,
Amway Corporation (1991-2000).
Director, Vice President and
Treasurer of Amway Management
Company (1984-1999). Trustee,
President and Treasurer, Amway
Mutual Fund, (1981-1999).
Richard E. Wayman 65 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
POSITION COMPENSATION BENEFITS ACCRUED AS BENEFITS COMPENSATION
PART OF FUND UPON RETIREMENT PAID TO TRUSTEES
EXPENSES
<S> <C> <C> <C> <C>
Richard A. DeWitt $8,000 -0- -0- $8,000
----- -----
Trustee
Allan D. Engel* $8,000 -0- -0- $8,000
----- -----
Trustee
Donald H. Johnson $8,000 -0- -0- $8,000
----- -----
Trustee
Walter T. Jones $8,000 -0- -0- $8,000
----- -----
Trusstee
James J. Rosloniec $8,000 -0- -0- $8,000
----- -----
Trustee
Richard E. Wayman $8,000 -0- -0- $8,000
----- -----
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 Adviser are
affiliated with Amway Corporation. The Officers serve without compensation from
the Fund. Fees paid to all Trustees during the year ended December 31, 1999,
amounted to $48,000. Under the Administrative Agreement, the Investment Adviser
pays the fees of the Trustees of the Fund. The Trustees and Officers of the Fund
own, as a group, less than 1% of the outstanding shares of the Fund. The Adviser
also serves as the Fund's principal underwriter (see "Distribution of Shares").
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
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 Advisor
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 .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. The fees paid by the Fund to the Investment Adviser during
the year ended December 31, 1999 were $92,574.
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 February 18, 2000, owned 2,897,624 shares, or 96.48%, of the
outstanding shares of the Fund. See "Principal Shareholders."
<PAGE>
SUB-ADVISER
- --------------------------------------------------------------------------------
A Sub-Advisory Agreement has been entered into between the Investment Adviser
and Nicholas-Applegate Capital Management, 600 West Broadway, 30th Floor, San
Diego, California 92101 (Sub Adviser). Under the Sub-Advisory Agreement, the
Adviser employes the Sub-Adviser to furnish investment advice and manage on a
regular basis the investment portfolio of the Fund, subject to the direction of
the Adviser, the Board of Trustees of the Fund, and to the provisions of the
Fund's current Prospectus. The 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, except when otherwise specifically directed
by the Fund or the Adviser. 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 fees
paid by the Investment Adviser to the Sub-Adviser during the year ended December
31, 1999 were $70,092.
PLAN OF DISTRIBUTION & PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------
The Trust has adopted a Plan and Agreement of Distribution ("Distribution
Plan"). Under the Distribution Plan, the Adviser 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 Adviser pursuant to the Distribution Plan may be
retained by the Adviser 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 Adviser 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 Adviser 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 the Investment
Adviser, the Investment Adviser 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, the Investment Adviser 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 the Investment
Adviser. For providing these services the Investment Adviser receives a fee,
payable quarterly, at the annual rate of 0.15% of the Fund's average daily
assets. DURING THE YEAR ENDED DECEMBER 31, 1999, TOTAL PAYMENTS WERE $92,574.
The Administrative Agreement provides that the Investment Adviser 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.
<PAGE>
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, Suite 200, Grand Rapids,
Michigan 49546. 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 SE, Suite
200, Grand Rapids, Michigan 49546. 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, limited liability companies, 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
<PAGE>
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 10 business 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, limited
liability company, 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 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 10 business 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.
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
adviser 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 adviser 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
ACTIVA INTERNATIONAL FUND FUND
(a Series of Activa Mutual Fund Trust)
2905 Lucerne SE, Suite 200
Grand Rapids, Michigan 49546
(616) 787-6288
(800) 346-2670
STATEMENT OF
ADDITIONAL INFORMATION
April 29, 2000
ACTIVA MUTUAL FUND LOGO
Printed in U.S.A.
=====================================================
<PAGE>
ACTIVA MUTUAL FUND
FORM N-1A
PART B
Information Required in a Statement of Additional Information for Class R
<PAGE>
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 April 29, 2000.
---------------
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 April 29,
2000, which is available upon request. ----------
-----
The date of this Statement of Additional
Information is April 29, 2000.
--------------
ACTIVA VALUE FUND
(a series of Activa Mutual Fund Trust)
2905 Lucerne SE, Suite 200
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 Adviser
Sub-Adviser
Principal Underwriter
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
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
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.
<PAGE>
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.
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
<PAGE>
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
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
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.
<PAGE>
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.
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.
<PAGE>
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.
-------------------------
For purposes of fundamental investment restrictions regarding industry
concentration, the Sub-Adviser may classify by industry in accordance with
classification 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 Sub-Adviser 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
Sub-Adviser 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 the parents.
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,
and any unguaranteed principal or interest is otherwise supported by U.S.
Government obligations held in a segregated account.
<PAGE>
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.
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.
<PAGE>
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 Adviser"), or the
Sub-Advisers will select the brokers and resulting allocation of brokerage
commission; but, the Investment Adviser'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 Adviser and Sub-Adviser, 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, Adviser, and the Sub-Adviser. Any research benefits
derived by the Sub-Adviser are available to all clients of the Sub-Adviser.
Since research information, statistical and other services are only
supplementary to the research efforts of the Sub-Adviser 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-Adviser 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, 1999, 1998 and 1997, the Fund paid total
brokerage commissions on purchase and sale of portfolio securities of $730,824,
$358,825, and $301,990, respectively. Transactions in the amount of
$113,640,730, involving commissions of approximately $142,616, were directed to
brokers because of research services provided during 1998. During the calendar
year ended December 31, 1999 the portfolio turnover rate was 144.5% which was an
increase over the previous year's rate of 101.1% resulting from the change in
the Fund's sub-adviser and the restructuring of the Fund's portfolio.
<PAGE>
The Sub-Adviser 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-Adviser'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, 1999, the Fund owned no such securities.
PRINCIPAL SHAREHOLDERS
- --------------------------------------------------------------------------------
Amway Corporation indirectly, as of February 18, 2000, owned 842,738
shares, or 3.43%, 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 February 18, 2000, 7,477,289
shares, or 30.43%, of the outstanding shares of the Fund. The Jay and Betty Van
Andel Foundation, as of February 18, 2000, owns 1,919,507 shares, or 7.81%, 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 Adviser 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 86 Trustee of the Fund President, DeWitt Land and
10001 Buttonwood Way -- Cattle Company (investments
Tequesta, Florida 33469 in land and cattle)
Allan D. Engel* 48 Trustee, Vice Vice President, RealEstate
2905 Lucerne SE, -- President, Secretary Operations - Enterprise
Suite 200 and Assistant Treasurer Capital, Inc. Formerly, Sr.
Grand Rapids, Michigan of the Fund; President, Manager, Investments and Real
49546 and Secretary of the Estate, Amway Corporation.
Investment Adviser. Director, President and
Secretary of Amway Management
Company (1981-1999). Trustee,
Vice President and Secretary,
Amway Mutual Fund (1981- 1999).
Donald H. Johnson 70 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 58 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
- ---------------- --- ----------- -------------------------------------
<S> <C> <C> <C>
James J. Rosloniec* 55 Trustee, President and President & Chief Operating
2905 Lucerne SE -- Treasurer of the Fund. Officer, JVA Enterprises, LLC.
Suite 200 President, Chief Executive
Grand Rapids, Michigan Officer and Director, Enterprise
49546 Capital, Inc. Formerly, Vice
President-Audit and Control,
Amway Corporation (1991-2000).
Director, Vice President and
Treasurer of Amway Management
Company (1984-1999). Trustee,
President and Treasurer, Amway
Mutual Fund, (1981-1999).
Richard E. Wayman 65 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 $8,000 -0- -0- $8,000
----- -----
Trustee
Allan D. Engel* $8,000 -0- -0- $8,000
----- -----
Trustee
Donald H. Johnson $8,000 -0- -0- $8,000
----- -----
Trustee
Walter T. Jones $8,000 -0- -0- $8,000
----- -----
Trusstee
James J. Rosloniec $8,000 -0- -0- $8,000
----- -----
Trustee
Richard E. Wayman $8,000 -0- -0- $8,000
----- -----
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 Adviser are
affiliated with Amway Corporation. The Officers serve without compensation from
the Fund. Fees paid to all Trustees during the year ended December 31, 1999,
amounted to $48,000. Under the Administrative Agreement, the Investment Adviser
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
Adviser also serves as the Fund's principal underwriter (see "Distribution of
Shares").
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
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.
<PAGE>
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 0.50% of the first $350 million of average daily net
assets of the Fund, and 0.45% of the assets in excess of $350 million; the
minimum annual fee shall be $350,000 plus .20% of the assets. The fees paid by
the Fund to the Investment Adviser during the year ended December 31, 1999 were
$391,047.
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 ended
December 31, 1999, 1998, and 1997, were $671,045, $864,715, and $727,102,
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 substantially all of the outstanding
securities of AMC.
SUB-ADVISER
- --------------------------------------------------------------------------------
A Sub-Advisory Agreement has been entered into between the Investment Adviser
and Wellington Management Company, LLP, 75 State Street, Boston, Massachusetts
(Sub-Adviser). Under the Sub-Advisory Agreement, the Adviser employs the
Sub-Adviser to furnish investment advice and manage on a regular basis the
investment portfolio of the Fund, subject to the direction of the Adviser, the
Board of Trustees of the Fund, and to the provisions of the Fund's current
Prospectus. The 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, except when otherwise specifically directed by the Fund or the
Adviser. The fees of the Sub-Adviser are paid by the Investment Adviser, not the
Fund.
Effective December 30, 1999, Wellington Management Company, LLP became the
Fund's new Sub-Adviser. The compensation schedule under the new Sub-Advisory
Agreement, which is further described below, provides for a reduction in
Sub-Advisory fees as the size of the Fund's assets increases. The new
Sub-Advisory agreement, compared to the Fund's prior sub-advisory agreement,
provides for lower sub-advisory fees so long as the Fund's assets exceed
approximately $78,000,000. In order to give the Fund the benefit of this
reduction in fees, the Investment Adviser has agreed to waiver its Investment
Advisory fees to the extent necessary so that its fees equal the lesser of (a)
the amount otherwise payable under the Investment Advisory Agreement, and (b)
the amount payable under the new Sub-Advisory Agreement, plust .20% of average
net assets.
As compensation for its services as the Fund's new Sub-Adviser, Wellington
Management will receive a fee from the Fund's Investment Adviser at the annual
rate of 0.30% of the first $350 million of average daily net assets of the Fund,
and 0.25% of the assets in excess of $350 million; the minimum annual fee shall
be $350,000. The annual compensation formerly paid by the Investment Adviser to
Ark Asset Managemetn Co., Inc. was 0.35% of Fund assets in excess of $200
million; larger percentage fees (up to a maximum of 0.45%) were paid if the
Fund's assets were less than $200 million. The fees paid by the Investment
Adviser to the Sub-Adviser during the year ended December 31, 1999 were
$806,398.
PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------
Activa will serve as the exclusive agent for sales of the Fund's shares
pursuant to a Principal Underwriting Agreement. Previously, Amway Management
Company 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 and 1997, AMC
received sales commissions of $473,151 and $513,417, respectively. The only
compensation currently received by the Adviser 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.
During the year ended December 31, 1999, total payments were $97,811.
<PAGE>
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
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. See
"Investment Adviser."
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 monthly, a fee
of .20% of the average daily net assets of the Fund 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
- --------------------------------------------------------------------------------
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.
<PAGE>
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 advisers, 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.
AVERAGE ANNUAL TOTAL
RETURN FOR THE PERIODS PAST PAST PAST
ENDED DECEMBER 31, 1998 1 YEAR 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
ACTIVA VALUE FUND* -6.70% 15.15% 11.90%
RUSSELL 1000 VALUE** 7.35% 23.07% 15.60%
S&P 500** 21.04% 28.54% 18.20%
*WELLINGTON MANAGEMENT COMPANY, LLP, HAS BEEN THE FUND'S SUB-ADVISER SINCE
DECEMBER 30, 1999.
**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.
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.
<PAGE>
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
ACTIVA VALUE FUND FUNDS
(a Series of Activa Mutual Fund Trust)
2905 Lucerne SE, Suite 200
Grand Rapids, Michigan 49546
(616) 787-6288
(800) 346-2670
CLASS R
STATEMENT OF
ADDITIONAL INFORMATION
April 29, 2000
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 incorporated by reference to the Registration Statement
under the Securities Act of 1933, Post Effective Amendment
No. 47, Part C, Pages C-9 through C-34, as filed on June
17, 1999.
(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. 47, Part C, Pages C-9 through C-34, and Pages C-25
through C-26, respectively, as filed on June 17, 1999 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
incorpoarted by reference to the Registration
Statement under the Securities Act of 1933, Post
Effective Amendment No. 47, Part C, Pages C-5 through
C-39, as filed on June 17, 1999.
C-1
<PAGE>
ACTIVA MUTUAL FUND TRUST
FORM N-1A
PART C
OTHER INFORMATION
ITEM 23. Exhibits (Continued)
(2) Sub-Advisory Agreements
(a) The Sub-Advisory Agreement between Activa Asset
Management, LLC and J.P. Morgan is incorporated
by reference to the Registration Statement under
the Securities Act of 1933, Post Effective
Amendment No. 48, Part C, Pages C-9 through C-12.
(b) The Sub-Advisory Agreement between Activa Asset
Management LLC and Van Kampen Management, Inc. is
incorporated by reference to the Registration
Statement under the Securities Act of 1933, Post
Effective Amendment No. 48, Part C, Pages C-13
through C-16 as filed on September 1, 1999 except
for the First Amendment dated February 15, 2000
which is included on Page C-9.
(c) The Sub-Advisory Agreement between Activa Asset
Management LLC and Wellington Management Company,
LLP is included on Pages C-10 through C-12.
(d) The Sub-Advisory Agreement between Activa Asset
Management LLC and State Street Research is
incorporated by reference to the Registation
Statement under the Securities Act of 1933, Post
Effective Amendment No. 48, Part C, Pages C-21
through C-24.
(e) The Sub-Advisory Agreement between Activa Asset
Management LLC and Nicholas-Applegate is
incorporated by reference to the Registration
Statement under the Securities Act of 1933, Post
Effective Amendment No. 48, Part C, Pages C-25
through C-28.
(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 incorporated by reference to the
Registration Statement under the Securities Act of
1933, Post Effective Amendment No. 47, Part C,
Pages C-55 through C-60, as filed on June 17, 1999.
(f) Bonus or Profit Sharing Contracts
There are no bonus or profit sharing contracts
for the Board of Trustees.
C-2
<PAGE>
ACTIVA MUTUAL FUND TRUST
FORM N-1A
PART C
OTHER INFORMATION
ITEM 23. Exhibits (Continued)
(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 except for the First Amendment
dated October 29, 1999 which is included on Pages
C-13 through C-16.
(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 incorporated by reference
to the Registration Statement under the
Securites Act of 1933, Post Effective
Amendment No. 47, Part C, Pages C-61 through
C-63 and the Class R Transfer Agent and
Shareholder Services Agreement between
Activa Mutual Fund Trust and Activa Asset
Management, LLC is incorporated by reference
to the Registration Statement under the
Securities Act of 1933, Post Effective
Amendment No. 48, Part C, Pages C-29 through
C-35.
(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 incorporated by reference
to the Registration Statement under the
Securities Act of 1933, Post Effective
Amendment No. 48, Part C, Pages C-36 through
C-41.
(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 incorporated by reference to the
Registration Statement under the Securities
Act of 1933, Post Effective Amendment No.
48, Part C, Pages C-42 through C-53.
(i) Legal Opinion
Not Applicable.
C-3
<PAGE>
ACTIVA MUTUAL FUND TRUST
FORM N-1A
PART C
OTHER INFORMATION
ITEM 23. Exhibits (Continued)
(j) Other Opinions
The Consent of Independent Certified Public
Accountants is included on Page C-17. 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.
(k) Omitted Financial Statements
The Annual Report for Activa Mutual Fund
Trust is included on Pages C-18 through C-56.
(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,
Adviser, 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 incorporated by reference to the
Registation Statement under the Securities Act of
1933, Post Effective Amendment No. 48, Part C,
Pages C-55 through C-58.
(n) Financial Data Schedule
Financial Data Schedule meeting the
requirement of Rule 483 under the Securities Act is
included on Pages C-57 through C-68.
(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.
C-4
<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 Adviser
ITEM 27. Principal Underwriter C-7
ITEM 28. Location of Accounts
and Records C-8
ITEM 29. Management Services C-8
ITEM 30. Undertakings C-8
C-5
<PAGE>
ACTIVA MUTUAL FUND TRUST
FORM N-1A
PART C
OTHER INFORMATION
ITEM 24. Persons Controlled by or under Common Control with the Fund.
Following is a table disclosing ownership as of February 18,
2000, by persons controlled or under common control for each
series of Activa Mutual Fund Trust. Amway Corporation
indirectly owns all of the outstanding shares of Amway
Investment, Inc. 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. The Jay and Betty Van Andel
Foundation is controlled by Jay Van Andel. 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 Adviser, Principal Underwriter,
Administration Service Agent Agreement and Transfer Agent, and
Amway Investment, Inc., which has an investment in the Funds
as disclosed below.
<TABLE>
<CAPTION>
Money Market Intermediate
Fund Bond Value Growth International
Entity shs % shs % shs % shs % shs %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amway Corp. & Affiliates 101,937,554 90.72 16,465,185 99.15 842,738 3.43 2,897,624 91.22 2,897,624 96.48
JVA Enterprise Limited ----------- ----- ---------- ----- ------- ---- --------- ----- --------- -----
Parnership 7,477,289 30.43
Jay & Betty Van Andel --------- -----
Foundation 1,919,534 41.67
--------- -----
</TABLE>
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.
C-6
<PAGE>
ITEM 26. Business and Other Connections of Investment Adviser.
Activa Asset Management, LLC acts as the investment adviser,
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 Adviser of the Registrant are included on Pages
C-69 through C-71.
Business histories of the Sub-Advisers for the Registrant and
of each of its Directors and Officers are included on Pages
C-72 through C-103.
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>
Allan D. Engel President and Secretary Vice President,
2905 Lucerne SE, Suite 200 Secretary, Assistant
Grand Rapids MI 49546 Treasurer and Trustee
Kathleen B. Vogelsang Assistant Secretary None
2905 Lucerne SE, Suite 200
Grand Rapids MI 49546
</TABLE>
(c) Not Applicable.
C-7
<PAGE>
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-Advisers,
pursuant to the Sub-Advisory Agreements; and all remaining
records are in the custody and control of Activa Mutual Fund
Trust, Grand Rapids, Michigan.
ITEM 29. Management Services
Activa Asset Management, LLC has entered into a contract with
Bisys which provides access to a data processing recordkeeping
system for stockholder accounting. The system provides and
supports remote terminal access to the provider's 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 Bisys, including equipment costs, telephone
lines, and service fees for the three years ending, or since
inception if less than three years, a total of $393,381.
ITEM 30. Undertakings
Not applicable.
C-8
<PAGE>
FIRST AMENDMENT TO
SUB-ADIVOSRY AGREEMENT
BETWEEN
ACTIVA ASSET MANAGEMENT, LLC
AND
VAN KAMPEN MANAGEMENT, INC.
THIS FIRST AMENDMENT to the Sub-Advisory Agreement dated June 11, 1999
between Activa Asset Management, LLC, 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 Terrace, Illinois, is effective March 1, 2000. AAM and
Sub-Adviser hereby agree to amend Section 2 of the Agreement as follows:
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; .12 of 1% on the next
$100,000,000 of assets in excess of $50,000,000; and .04 of 1% on
assets in excess of $150,000,000. The Fund's assets shall be determined
as of the close of each business day through 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.
All other sections of the Agreement dated June 11, 1999 between AAM and
Sub-Adviser are hereby ratified.
IN WITNESS WHEREOF, AAM and Sub-Adviser have caused this First Amendment
to be signed, as of the 15th day of February, 2000.
ACTIVA ASSET MANAGEMENT, LLC
By: /s/ Allan D. Engel
----------------------
Allan D. Engel
President
VAN KAMPEN MANAGEMENT, INC.
By: /s/ Edward A. Treichel
----------------------
Edward A. Treichel
Senor Vice President
This Agreement is hereby accepted and approved as of the day and year
first above written.
ACTIVA MUTUAL FUND TRUST
By: /s/ James J. Rosloniec
----------------------
James J. Rosloniec
President
C-9
<PAGE>
SUB-ADVISORY AGREEMENT
BETWEEN
ACTIVA ASSET MANAGEMENT LLC
AND
WELLINGTON MANAGEMENT COMPANY, LLP
AGREEMENT made as of the 30th day of December 1999 between ACTIVA ASSET
MANAGEMENT LLC, a Michigan LLC having its principal place of business in Grand
Rapids, Michigan (hereinafter called "AAM"), and Wellington Management Company,
LLP (hereinafter called "Sub-adviser"), having its principal place of business
in Boston, Massachusetts.
WHEREAS, AAM is the investment adviser to Activa Value Fund (the
"Fund") a series of Activa Mutual 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 Sub-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 (the "Trustees"),
and to the provisions of the Fund's current Prospectus and Statement of
Additional Information, copies of which have been provided to Sub-adviser.
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 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. Sub-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 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. Sub-adviser and its affiliates shall be free to render
similar services or other services to others. Likewise, AAM shall be free to
utilize other persons to perform similar or unrelated services.
C-10
<PAGE>
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
.30% on the first $350,000,000 of average daily net assets of the Fund, and .25%
on the assets in excess of $350,000,000 provided that the minimum annual fee
shall be $350,000. 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 Sub-adviser in the performance of
its obligations and duties, or by reason of its reckless disregard of its
obligations and duties under this agreement. Sub-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 Trustees 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. Neither the Trust nor AAM shall, without the prior written consent
of the Sub-adviser, make representations regarding or reference to the
Sub-adviser or any affiliates in any disclosure document, advertisement, sales
literature or other promotional materials.
7. 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
Trust 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.
C-11
<PAGE>
8. 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: /s/ Allan D. Engel
---------------------
Allan D. Engel
President
WELLINGTON MANAGEMENT COMPANY, LLP
By: /s/ Duncan M. McFarland
This Agreement is hereby accepted and approved as of this day and year
first above written.
ACTIVA MUTUAL FUND TRUST
By: /s/ James J. Rosloniec
---------------------
James J. Rosloniec
President
C-12
<PAGE>
FIRST AMENDMENT
TO CUSTODY AGREEMENT
This instrument dated October 29, 1999, is a First Amendment to that
certain Custody Agreement dated December 1, 1998, by and between AMWAY MUTUAL
FUND, a business trust organized under the laws of the State of Delaware, having
its principal office and place of business at 7575 Fulton Road East, Ada,
Michigan 49355 (the "Fund"), and THE NORTHERN TRUST COMPANY (the "Custodian"),
an Illinois company with its principal place of business at 50 South LaSalle
Street, Chicago, Illinois 60675.
WHEREAS, the Fund is a registered open-end management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Fund has retained Custodian to furnish custodial services;
WHEREAS, the Board of Directors of the Fund wishes to delegate to
Custodian certain responsibilities of managing the Fund's foreign custody
arrangements as provided in Rule 17f-5 under the 1940 Act, except with respect
to central depositories and clearing agencies or with respect to custody
arrangements in the countries listed on Schedule I, attached, as that Schedule
may be amended from time to time by written notice to the Fund;
WHEREAS, the Board of Directors of the Fund has determined that it is
reasonable to rely on Custodian to perform the responsibilities delegated to it
under this Amendment; and
WHEREAS, effective September 1, 1999, the Fund changed its name to the
Activa Mutual Fund, as evidenced by a copy of the certificate of amendment to
the Deed of Trust filed with the Secretary of the State of Delaware attached
hereto.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. Section I(I) of the Custody Agreement is amended to read as follows:
(I) "Sub-Custodian" shall mean and include (i) any branch of the
Custodian, (ii) any "eligible foreign custodian," as that term is
defined in Rule 17f-5 under the 1940 Act, approved by the Fund or a
Delegate of the Fund in the manner required by Rule 17f-5, and (iii) any
securities depository or clearing agency, incorporated or organized
under the laws of a country other than the United States, which
securities depository or clearing agency has been approved by the Fund
or a Delegate of the Fund in the manner required by Rule 17f-5; provided
that the Custodian or a Sub-Custodian has entered into an agreement with
such securities or clearing agency.
2. The following is added as Section 1(n):
(n) "Delegate of the Fund" shall mean and include any entity to whom the
Board of Directors of the Fund has delegated any responsibility under
Rule 17f-5 of the 1940 Act.
C-13
<PAGE>
3. Section 3 of the Custody Agreement is amended to read as follows:
"3. Appointment and Removal of Sub-Custodians.
(a) The Custodian may appoint one or more Sub-Custodians to act as
Depository or Depositories or as sub-custodian or sub-custodians of
Securities and moneys at any time held in any Portfolio, upon the terms
and conditions specified in this Agreement. The Custodian shall oversee
the maintenance by any Sub-Custodian of any Securities or moneys of any
Portfolio.
(b) The Agreement between the Custodian and each Sub-Custodian described
in clause (ii) or (iii) of Section 1(1) and acting hereunder shall
contain any provisions necessary to comply with Rule 17f-5 under the
1940 Act.
(c) Prior to the Custodian's use of any Sub-Custodian described in
clause (ii) of Paragraph 1(1), a Delegate of the Fund must approve such
Sub-Custodian in the manner required by Rule 17f-5 and provide the
Custodian with satisfactory evidence of such approval.
(c) Prior to the Custodian's use of any Sub-Custodian described in
clause (iii) of Paragraph 1(1) the Fund or a Delegate of the Fund must
approve such Sub-Custodian in the manner required by Rule 17f-5 and
provide the Custodian with satisfactory evidence of such approval.
(e) The Custodian shall promptly take such steps as may be required to
remove any Sub-Custodian that has ceased to be an "eligible foreign
custodian" or has otherwise ceased to meet the requirements under Rule
17f-5. If the Custodian intends to remove any Sub-Custodian previously
approved by a Delegate of the Fund pursuant to paragraph 3(c), and the
Custodian proposes to replace such Sub-Custodian with a Sub-Custodian
that has not yet been approved by a Delegate of the Fund, it will so
notify a Delegate of the Fund and provide it with information reasonably
necessary to determine such proposed Sub-Custodian's eligibility under
Rule 17f-5, including a copy of the proposed agreement with such
Sub-Custodian. The Delegate of the Fund shall promptly determine whether
to approve the proposed Sub-Custodian and will promptly thereafter give
written notice of the approval or disapproval of the proposed action.
(f) The Custodian hereby warrants to the Fund that in its opinion, after
due inquiry, the established procedures to be followed by each
Sub-Custodian (that is not a foreign securities depository or clearing
agency) in connection with the safekeeping of property of a Portfolio
pursuant to this Agreement afford reasonable care for the safekeeping of
such property based on the standards applicable in the relevant market.
4. The following is added as Section 3A to the Custody Agreement:
"3A. Delegation of Foreign Custody Management.
(a) The Fund hereby delegates to Custodian the responsibilities
set forth in subparagraph (b) below of this Section 3A, in
accordance with Rule 17f-5 under the 1940 Act, with respect to
foreign custody arrangements for the Fund's existing and future
investment portfolios, except that the Custodian shall not have
such responsibility with respect to central depositories and
clearing agencies or with respect to custody arrangements in the
countries listed on Schedule I, attached hereto, as that Schedule
may be amended from time to time by notice to the Fund.
(b) With respect to each foreign custodiay arrangement regarding
the assets of any investment portfolio of the Fund for which
Custodian has responsibility under this Section 3A, Custodian
shall:
C-14
<PAGE>
(i) determine that the Fund's assets will be subject to
reasonable care, based on the standards applicable to custodians
in the relevant market, if maintained with an "eligible foreign
custodian", as the term is defined in Rule 17f-5 under the 1940
Act, after considering all factors relevant to the safekeeping of
such assets;
(ii) determine that the written contract with such foreign
custodian governing the foreign custody arrangements will provide
reasonable care for the Fund's assets;
(iii) establish a system to monitor the appropriateness of
maintaining the Fund's assets with such foreign custodian and the
contract governing the Fund's foreign custody arrangements;
(iv) provide to the Fund's Board of Directors, at least annually,
written reports notifying the Board of the placement of the Fund's
assets with a particular foreign custodian and periodic reports of
any material changes to the Fund's foreign custodian arrangements;
and
(v) withdraw the Fund's assets from any foreign custodian as soon
as reasonably practicable, if the foreign custody arrangement no
longer meets the requirement of Rule 17f-5.
5. Sections 16(b) and 16(b)2 of the Custody Agreement are amended to
read as follows:
"1. The Custodian will use reasonable care with respect to its
obligations under this Agreement and the safekeeping of property of the
Portfolios. The Custodian shall be liable to, and shall indemnify and
hold harmless the Fund from and against any loss which shall occur as
the result of the failure of the Custodian or a Sub-Custodian (other
than a foreign securities depository or clearing agency) to exercise
reasonable care with respect to their respective obligations under this
Agreement and the safekeeping of such property. The determination of
whether the Custodian or Sub-Custodian has exercised reasonable care in
connection with their obligations under this Agreement shall be made in
light of prevailing standards applicable to professional custodians in
the jurisdiction in which such custodial services are performed. In the
event of any loss to the Fund by reason of the failure of the Custodian
or a Sub-Custodian (other than a foreign securities depository or
clearing agency) to exercise reasonable care, the Custodian shall be
liable to the Fund only to the extent of the Fund's direct damages and
expenses, which damages, for purposes of property only, shall be
determined based on the market value of the property which is the
subject of the loss at the date of discovery of such loss and without
reference to any special condition or circumstances.
2. The Custodian will not be responsible for any act, omission,
or default of, or for the solvency of, any foreign securities depository
or clearning agency approved by the Board of Directors or a Delegate of
the Fund pursuant to Section (1)(1) or Section 3 hereof."
6. The name of the Fund is changed to the Activa Mutual Fund, and
the Custodian's records shall be changed to reflect such name change.
Except as set forth above, all terms of the Custody Agrement as in effect
immediately prior to this amendment shall remain in full force and effect.
Executed this 29th day of October, 1999.
THE NORTHERN TRUST COMPANY CUSTOMER
By: /s/ Michael J. Nutt By: /s/ James J. Rosloniec
------------------------------------ --------------------------
Print Name: Michael J. Nutt Print Name: James J. Rosloniec
---------------------------- ------------------
Its: Vice President Its: President
----------------------------------- -------------------------
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<PAGE>
SCHEDULE I
(Countries for which Custodian shall not have responsibility under
Section 3A for management of foreign custody arrangements)
Russia
Lithuania
Taiwan
Croatia
C-16
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Amway Mutual Fund Trust
Grand Rapids, 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 28, 2000, relating to the financial statements, schedules
and financial highlights of Activa Mutual Fund Trust appearing in the Fund's
Annual Shareholders Report for the year ended December 31, 1999.
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
February 29, 2000
C-17
<PAGE>
ACTIVA
(LOGO: ACTIVA LOGO)
ANNUAL REPORT
DECEMBER 31, 1999
ACTIVA MONEY MARKET FUND
Sub-Adviser: JP Morgan Investment
Management, Inc.
ACTIVA INTERMEDIATE BOND FUND
Sub-Adviser: Van Kampen Management, Inc.
ACTIVA VALUE FUND
Sub-Adviser: Wellington Asset Management, LLP
ACTIVA GROWTH FUND
Sub-Adviser: State Street Research &
Management Company
ACTIVA INTERNATIONAL FUND
Sub-Adviser: Nicholas-Applegate
Capital Management
A selection of stock, bond, and money market funds, managed by professional
advisers, which are designed to help investors meet their financial goals.
C-18
<PAGE>
ACTIVA Mutual Funds Annual Report
Contents
Page
SHAREHOLDER LETTER 1
ACTIVA MONEY MARKET FUND 2
ACTIVA INTERMEDIATE BOND FUND 3
ACTIVA VALUE FUND 4
ACTIVA GROWTH FUND 6
ACTIVA INTERNATIONAL FUND 7
SCHEDULE OF INVESTMENTS
Activa Money Market Fund 8
Activa Intermediate Bond Fund 10
Activa Value Fund 13
Activa Growth Fund 19
Activa International Fund 22
Page
STATEMENT OF ASSETS AND LIABILITIES 27
STATEMENT OF OPERATIONS 28
STATEMENT OF CHANGES IN NET ASSETS 29
NOTES TO FINANCIAL STATEMENTS 30
FINANCIAL HIGHLIGHTS 34
INDEPENDENT AUDITORS' REPORT 36
ACTIVA Mutual Funds
2905 Lucerne SE, Suite 200
Grand Rapids, Michigan 49546
(616) 787-6288 (800) 346-2670
WWW.ACTIVAFUNDS.COM
C-19
<PAGE>
ANNUAL REPORT
Dear Shareholder
I am pleased to provide you with the Annual Report to Shareholders for the
Activa Mutual Funds for the period ending December 31, 1999. Please review the
following pages which include the sub-advisers' management discussion and
performance review of the funds.
The second half of 1999 brought many changes to the Activa Funds. The launch of
our new funds was very successful, and we are excited about our new investment
managers. One of the reasons we were eager to bring you a new family of funds
was to give our shareholders the opportunity to diversify their investments, a
strategy known as asset allocation.
Asset allocation is an investment strategy that involves combining different
asset classes such as stocks, bonds, international investments and cash into one
portfolio. This is a strategy used by major pension funds to obtain their
investment objectives. Individual investors can also use this same strategy by
investing in a variety of mutual funds. Diversifying among different types of
mutual funds alleviates the risk of having all your eggs in one basket.
The reason diversification reduces risk is because different asset classes, such
as stocks and bonds, rise and fall independent of each other. In addition to
different asset classes, your portfolio can be further diversified over
different equity investment "styles". Managers use different strategies or
styles to manage their equity funds. Management styles such as growth and value
give you another dimension of diversification, as various styles fall in and out
of favor periodically and performance between styles can vary dramatically.
An asset allocation strategy works best when the investments are held over
longer periods of time. Over longer time periods, the gains in one asset class
tend to offset losses in another asset class, reducing the volatility in your
portfolio. Keep in mind that the asset allocation decision is one of the most
important decisions you will make as an investor, as a portfolio's asset
allocation typically drives over 90% of a portfolio's performance.
As we have communicated to you recently, we have enhanced our services to
provide you with more information on your investment in the Activa Funds, such
as our web site and quarterly statements. We have also provided you with greater
ease to communicate with us by expanding our phone hours and adding e-mail. We
hope you have found our new services helpful. We here at the Activa Funds
continue to explore ways to make investing with us convenient. Be sure to look
for our new telephone exchange options coming later this year.
As markets continue to be volatile into the Year 2000, we believe an asset
allocation strategy will be your best defense in reducing the risk of your
portfolio. Be sure to visit our web site at www.activafunds.com, or call our
toll-free number to see how using the Activa Mutual Funds can help you achieve
an asset allocation strategy suited to your investment goals.
Sincerely,
/s/ James J. Rosloniec
James J. Rosloniec
ACTIVA Mutual Funds Annual Report 1
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<PAGE>
ACTIVA Money Market Fund-- JP Morgan Investment Management, Inc.
The Activa Money Market Fund returned 1.83% for the period since inception on
August 19, 1999 through December 31, 1999.
Although inflation has remained benign and wage pressures are still subdued, the
Federal Reserve has embarked on a path of incremental tightening in a proactive
attempt to keep inflation at bay. At mid-year, when the Fed began tightening,
credit and swap spreads both widened and the equity market tumbled. Since
October, however, spreads have narrowed and the equity market has rebounded
largely due to the vigilance of the Federal Reserve, and its adoption of a
neutral stance. As expected, we finished the year with higher yields due to the
lingering probability of additional Fed action, global synchronized growth, and
uncertainty about when the previous moves will begin to slow U.S. growth.
Over the past four months, the Fund maintained a barbell strategy, meaning we
invested at the very short end of the yield curve for liquidity while at the
same time invested farther out on the yield curve (though still less than
1-year), to capture higher yields. In addition, our significant allocation to
floating-rate notes added to performance. These securities reset regularly
(usually quarterly), therefore we benefit in a rising rate environment. Because
of the barbell structure and the floating-rate note allocation, the Fund has
performed very well versus its peer group.
Conversely, the need to maintain liquidity by investing a large percentage of
the Fund in overnight maturing securities to prepare for the unforeseen Y2K
events, detracted from performance. Investor caution and the accommodative
measures of the Federal Reserve resulted in a flood of cash into money market
instruments, which drove short-term yields down dramatically in the last week of
December. Money market rates into early January traded as low as 2% for Fed
funds and below 1.5% for agency issuance.
We expect the rising rate environment to continue, with a quarter percentage
point hike from the Federal Reserve at its February meeting. Eventually, these
incremental steps will bring about the desired slow down and "soft landing." We
think that the current strength in oil prices will translate into increasing
headline inflation, noticeable as early as the first quarter of 2000. Global
synchronized growth and central bank activity in response will be a significant
theme for 2000. As such, we will keep the fund barbelled to maintain liquidity,
yet opportunistically capture higher yields along the yield curve.
2 ACTIVA Mutual Funds Annual Report
C-21
<PAGE>
ACTIVA Intermediate Bond Fund-- Van Kampen Management, Inc.
Unfortunately for bond market participants, 1999 proved to be a difficult year
for the U.S. fixed-income market. At year-end, the 30-year U.S. Treasury yield
stood at 6.48% versus 5.09% at year-end 1998.
During the fourth quarter, the U.S. economy continued to be characterized by
solid growth and modest inflation. U.S. consumer demand remained strong despite
concerns about rising trade deficits and rising interest rates. The higher
interest rate environment will increase the financial cost of doing business and
may contribute to a slowing in economic growth.
The Lehman Brothers Aggregate Bond Index returned 1.04% for the four months
ended December 31, 1999 or since inception of the Activa Intermediate Bond Fund.
For the same four-month period, U.S. Treasuries returned .01%.
Non-Treasuries outperformed U.S. Treasuries as higher
yields contributed to higher returns. The best performing sector was the
mortgage-backed sector, which returned 2.01%, while asset-backed securities
followed with a 1.29% total return. Finally, investment-grade corporate bonds
returned 1.12% and U.S. government agency securities returned .83%.
As of December 31, 1999, the Activa Intermediate Bond Fund had a duration of 4.9
years, which was comparable to the 4.9-year duration of the Fund's benchmark,
the Lehman Brothers Aggregate Bond Index. With respect to relative sector
weightings, the Fund held overweight positions in the asset-backed sector and an
underweight position in the U.S. Treasury sector. We anticipate maintaining the
current posture as we enter the new year. Yield premiums in the non-treasury
sector remain attractive and present attractive total return opportunities. The
Fund generated total returns of .63% since inception.
We expect economic expansion to continue despite the higher interest rate
environment. Looking ahead, the market appears to be anticipating at least
another .50% federal funds rate increase, as the Fed attempts to maintain a
balance between economic growth and low inflation.
We believe the Year 2000 will continue to present challenges for fixed-income
portfolios. We expect to continue to meet these challenges through appropriate
risk management and our disciplined investment style.
ACTIVA Mutual Funds Annual Report 3
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<PAGE>
ACTIVA Value Fund-- Wellington Asset Management, LLP
1999 was another difficult year for value stocks. Growth stocks, especially
technology stocks, continued to dominate the markets returns. Uncertainty
surrounding Y2K as well as rising energy prices and gold prices caused fears of
higher interest rates. Investors gravitated towards a narrow list of large cap
names led by technology. While the S&P 500 returned 21.04% in 1999, only eight
stocks contributed more than 50% of the return.
Your fund underperformed its benchmark, the Russell 1000 Value Index, for the
year ended December 31, 1999 with a return of minus 6.70% versus 7.35%. During
the first half of 1999, value stocks had an advantage over growth stocks as
gains in the equity markets broadened beyond technology stocks. The Value Fund
was up 12.1% at the end of June 1999 versus 12.8% for the Russell 1000 Value.
Towards the end of the third quarter of 1999, growth stocks once again took the
lead in the market and the Fund's performance began to deteriorate relative to
its benchmark. Most of the Fund's underperformance occurred in the fourth
quarter, leading to the negative return for 1999. This led to the Fund replacing
the sub-advisor in December, as discussed in more detail below.
The bulk of the Value Fund's underperformance occurred in four sectors: Capital
Goods, Consumer Cyclicals, Financial Services and Technology. Within the Capital
Goods sector, underperformance was compounded by the poor performance of
Lockheed Martin, whose shares lost half their value in the second half of the
year due to several profit warnings issued by the company.
The Value Fund, compared to its benchmark, was underweight in technology, which
negatively impacted relative performance. Most of the gains in the technology
sector were in high growth stocks with high P/Es multiples, too high for the
Fund's value discipline. Technology stocks held in the fund included Compaq,
Raytheon and Seagate, which did not participate in the huge gains of the sector.
However, we believe these stocks have attractive relative valuations along with
strong return potential.
The Consumer Cyclical sector had strong performance in the fourth quarter,
however, the Fund underperformed in this sector. Performance was negatively
impacted by Dana Corporation, which was severely penalized after announcing
earnings despite meeting consumer's estimates. In the Financial Services sector,
the Fund's overweighting in insurance companies hurt performance. Fund holdings
Aetna and Chubb had large negative returns due to potential class action
lawsuits against HMOs. Allstate, another insurance holding, also had a negative
return due to several large natural catastrophes posing a threat to earnings.
Overweight positions in the energy and transportation sectors, which sectors
lagged the market, also negatively impacted performance.
The Fund outperformed its benchmark in the Communications sector, with strong
fourth quarter returns from holdings AT&T and US West, Inc. These holdings were
buoyed by strong sales of wireless telephone service and high speed internet
connections.
The Value Fund changed sub-advisers on December 30th, replacing Ark Asset
Management Co., Inc. with Wellington Asset Management, LLP. This report has been
prepared by Activa Asset Management, LLC. As a result of the change in
sub-advisers, 95% of the portfolio's holdings were sold and replaced in the last
week of December. Wellington Asset Management, LLP uses a sector-neutral style.
A sector-neutral strategy keeps the Fund's portfolio sector weightings within 2%
of the sector weightings in the Russell 1000 Value Index, allowing the Fund's
sub-adviser to add value through stock selection.
Although value stocks have been out of favor during the past few years, they
tend to move in and out of favor over different market cycles. Because of their
style rotation with growth stocks over long periods of time, we believe value
stocks are an important part of an overall asset allocation strategy.
4 ACTIVA Mutual Funds Annual Report
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<PAGE>
ACTIVA Value Fund continued
Average Annual Total Return*
Period Ended December 31, 1999*
- --------------------------------------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
ACTIVA VALUE FUND** -6.70% 15.15% 11.90%
RUSSELL 1000 VALUE*** 7.35% 23.07% 15.60%
S&P 500**** 21.04% 28.54% 18.20%
Year-by-Year Performance
AVERAGE ANNUAL RETURN OF THE ACTIVA VALUE FUND
Growth of an assumed $10,000 investment in Activa Value Fund from 12/31/89
through 12/31/99: includes all fees
Date RUSSELL 1000 VALUE S&P 500 ACTIVA VALUE FUND
12/89 10000 10000 10000
12/90 9191 9688 10100
12/91 11454 12640 14323
12/92 13035 13604 14576
12/93 15398 14972 16157
12/94 15091 15170 15209
12/95 20879 20863 19857
12/96 25391 25654 24459
12/97 34332 34212 31813
12/98 39698 43997 36685
12/99 42616 53254 34232
* The illustrations include recurring expenses incurred by all shareholder
accounts, and all ordinary income dividends and capital gain distributions
reinvested at net asset value (without sales charge). Prior to 1991 and
1998, the Fund had a maximum sales charge of 6% and 3% respectively, based
upon amount of shares purchased. Performance prior to April 22, 1998 does
not reflect the Fund's 12b-1 fee of 0.25% which was reduced to 0.15% on
September 1, 1999. No adjustments have 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. Past performance is not predictive of future
performance. Returns and net asset value fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original
investment. For additional information, see the Prospectus, Statement of
Additional Information, and the Financial Highlights at the end of this
report.
** Wellington Asset Management, LLP became the Fund's sub-adviser on December
30, 1999. Ark Asset Management Co., Inc. was the Fund's sub-adviser from
May 1, 1995 until December 30, 1999.
*** The Russell 1000 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 Company, and is not impacted by
the Fund's operating expenses.
**** The Standard and Poor's 500 Stock Index represents an unmanaged index
generally representative of the U.S. stock market and is not impacted by
the Fund's operating expenses.
ACTIVA Mutual Funds Annual Report 5
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<PAGE>
ACTIVA Growth Fund -- State Street Research & Management Company
During the fourth quarter the stock market staged a powerful rally which brought
the annual total return performance for the S&P 500 above 20% for the fifth year
in a row. Your portfolio outperformed the S&P 500 since inception with a return
of 13.8% versus 9.4%. Far and away the biggest contributor to both the quarter's
and the year's return was the stellar performance of the Technology sector. The
three other sectors which outperformed the index in the quarter were Basic
Materials, Capital Goods and Consumer Discretionary. Your fund, compared to the
S&P 500, held overweighted positions in Consumer Discretionary, Capital Goods
and Technology. The Fund held underweighted positions in Health Care and
Consumer Staples which underperformed the index during the quarter. There were
several individual stock holdings that negatively affected performance and those
will be addressed below.
Technology contributed a large portion of the gain seen in the quarter due to
both our overweighted position versus the S&P 500 and also due to our individual
stock selection. Outstanding performers included CISCO Systems, Microsoft, EMC
Corp., Sun Microsystems and Teradyne. The participation across industries in
technology was broad as evidenced by the above-mentioned companies: networking,
software, storage, enterprise hardware and semiconductor capital equipment.
The Consumer Discretionary sector's strong showing was bolstered by the ongoing
consolidation in media and entertainment as well as healthy advertising spending
and a healthy environment for consumer spending. We had several winners in this
category including Omnicom, CBS, America Online and Wal-Mart and also several
underperformers including Best Buy and Staples.
The Capital Goods (or Other category) turned in a strong return primarily due to
the strength of General Electric. We also owned Tyco International that had a
negative return in the fourth quarter due to the company being the subject of
what we believe to be unfounded allegations of accounting irregularities. We
continue to hold both our positions in General Electric and Tyco International.
On the Health Care front several names, which we believe have strong
fundamentals, performed well below the market including Bristol Myers, Pfizer
and Guidant. We underweighted the sector consistently throughout 1999 and will
continue with that posture heading into the new year. One company's stock that
did particularly well in the quarter was Amgen and we continue to hold that
position as well as a position in Biogen, another biotechnology company where we
see opportunity for growth going forward.
The Consumer Staples sector continued its record of underperformance relative to
the S&P 500 for the year in the fourth quarter. Your fund's exposure to this
sector had been underweight which helped performance, as did the fact that
several individual stocks in the Fund's portfolio had strong upside performance
in the last three months of the year. More indicative of the overall sector's
performance was that of drugstore operator CVS, which negatively affected
returns.
Given the powerful finish for the stock market at the end of December, many
stocks, particularly those in technology and related industries, are up very
sharply for the quarter and the year. Valuations among the market leaders are
stretched and overall stock returns for 2000 are more likely to mirror profit
returns which we believe should be in the 8%-10% range. It seems unlikely that
we will see any meaningful valuation or price earnings multiple expansion as
long as the trend in interest rates is up and the rate increases are at the top
of investors' minds. We will be monitoring market and economic developments
closely and will continue to focus our efforts on investing in companies with
above-average earnings growth prospects and real competitive advantages.
6 ACTIVA Mutual Funds Annual Report
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<PAGE>
ACTIVA International Fund -- Nicholas Applegate Capital Management
Around the world, stocks soared in the fourth quarter of 1999. Among the factors
contributing to 1999's worldwide equity market surge were stronger economies in
Japan, Europe, and emerging markets, exceptional returns for technology stocks,
and a heightened focus by corporate management on enhancing shareholder value.
Developed non-U.S. markets benefited from improving economies and an increased
focus among corporate management on enhancing shareholder value. As a result,
restructuring and record levels of merger and acquisition activity characterized
European markets. Japan's economic rebound catalyzed global growth, and its
expectation for increased imports improved prospects for neighboring Asian
emerging countries.
Since inception, the Fund's portfolio advanced 42.14% versus 18.23% for its
benchmark, the MSCI EAFE Index. Stock selection in Japan, France, the UK and the
Netherlands boosted the portfolio's performance during this period, as did
holdings in the Technology and Business Services sectors. Strong companies
posting robust gains during this quarter include UK-based ARM Holdings PLC, a
designer of reduced instruction set computing (RISC) microprocessors. In the
Netherlands, KPNQwest, a telecommunications services company posted excellent
gains. Another strong contributor was Softbank Corporation, who invests in
Internet, software, finance and networking companies such as Yahoo! Inc.,
E-Trade Group Inc. and Softbank Commerce Corporation.
Also contributing to the performance of the portfolio was an overweighted
position in Japan and France relative to the benchmark. During the fourth
quarter, we increased our exposure in emerging Asia, as well as Europe and Latin
America. Economic recoveries, as many emerging countries moved to speed up the
pace of reform and pick-up in economic growth in many parts of the world,
resulted in renewed investor interest for emerging market stocks. Also, we are
finding excellent opportunities on a stock-by-stock basis in the Technology
sector. As in the United States, technology stocks overseas delivered impressive
gains and we increased our weighting in the semiconductor/electronic component
industry.
Looking ahead, ongoing deregulation, privatization, stronger competition and
merger and acquisition activity inspire optimism for additional gains. Applying
our bottom-up approach, we continue to find exceptional companies meeting our
strict investment criteria around the world.
ACTIVA Mutual Funds Annual Report 7
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<PAGE>
ACTIVA Schedule of Investments
MONEY MARKET FUND 12/31/99
<TABLE>
<CAPTION>
% OF SHARES OR MARKET
SECURITY DESCRIPTION INVESTMENTS PAR VALUE VALUE
------------ ----------- --------------
<S> <C> <C> <C>
CERTIFICATES OF DEPOSIT 17.20%
5TH 3RD BK 5.98% 1/28/00 3,500,000 3,500,114
BANC ONE CD 5.93% 10/2/00 2,500,000 2,498,726
BYRSCHE YCD 5.93% 10/2/00 1,000,000 998,683
DETCHBK YCD 6.19% 12/1/00 5,000,000 4,996,938
DRSDNR YCD 5.85% 2/2/00 2,500,000 2,500,000
BYRSCHE YCD MTHY 6.45% 12/15/00 3,000,000 2,997,569
UNION BK YANKEE 6.34% 12/4/00 2,000,000 1,998,677
UNION BK YANKEE 6.39% 12/21/00 1,500,000 1,499,306
--------------
20,990,013
--------------
COMMERCIAL PAPER 59.00%
ALPINE SEC. DCP 5.96% 2/29/00 1,500,000 1,485,348
ASPEN FDING 5.95% 1/19/00 1,000,000 997,025
ASPEN FUNDING 5.95% 1/14/00 3,000,000 2,993,554
ASSET SECUR 5.93% 1/28/00 2,000,000 1,991,105
ASSOCIATES 4.0% 1/3/00 5,000,000 4,998,889
BANK AMER 5.87% 1/24/00 2,500,000 2,500,000
BANK AMERICA 5.99% 3/13/00 1,000,000 988,020
BANK OF NY DCP 5.75% 2/22/00 2,000,000 1,983,389
BELLSOUTH FDG CP 5.68% 2/10/00 2,000,000 1,987,378
BRITISH TELE.PLC 5.85% 2/16/00 3,000,000 2,977,575
CITIBANK CAP MKT 5.88% 2/9/00 3,000,000 2,980,890
CREGEM N. AMERICA 5.88% 1/21/00 3,000,000 2,990,200
CXC INC. 5.85% 2/2/00 3,000,000 2,984,400
ENTERPRISE FDG 6.55% 1/18/00 3,000,000 2,990,721
FHLB 1.5% 1/3/00 6,667,000 6,666,444
FLEET FIN. VRN 6.24% 10/13/00 2,000,000 1,999,069
FRANCE TCOM 5.9% 2/7/00 3,500,000 3,478,776
GENERAL ELEC DCP 5.76% 2/18/00 3,000,000 2,976,960
GMAC D/C/P 5.72% 3/17/00 2,000,000 1,975,849
NAT'L AUSTRL DCP 5.77% 1/19/00 3,000,000 2,991,345
NEWPORT FUNDING 5.69% 1/20/00 1,000,000 996,996
NEWPORT FUNDING 6.01% 1/14/00 3,500,000 3,492,404
PARTHENON REC. 6.55% 1/18/00 1,000,000 996,907
REC CAP CORP 5.95% 1/26/00 1,000,000 995,868
RECEIVABLES CAP. 6.12% 1/14/00 2,500,000 2,494,475
SALOMON SMITH 6.49% 1/27/00 1,000,000 995,313
SOUTHERN CO. C/P 5.75% 2/9/00 3,000,000 2,981,313
UBS FIN. 4.25% 1/3/00 1,000,000 999,764
WINDMILL FUNDING 6.11% 1/18/00 3,500,000 3,489,894
--------------
72,379,871
--------------
US TREASURY BILLS 4.90%
U.S. T-BILL 3.0% 1/6/00 6,000,000 5,997,500
--------------
FEDERAL HOME LOAN BANK 8.60%
FHLB VRN 5.92% 10/4/00 5,000,000 4,997,398
FHLB DN 1.95% 1/3/00 5,500,000 5,499,404
--------------
10,496,802
--------------
8 ACTIVA Mutual Funds Annual Report
The accompanying notes are an integral part of these financial statements.
C-27
<PAGE>
ACTIVA Schedule of Investments continued
MONEY MARKET FUND 12/31/99
% OF SHARES OR MARKET
SECURITY DESCRIPTION INVESTMENTS PAR VALUE VALUE
------------ ----------- --------------
CORPORATE BONDS 7.80%
AM. EXP. FLOATER 5.72% 7/12/00 2,500,000 2,499,238
KEY BANK VRN 6.38% 4/28/00 2,000,000 2,000,619
KEY CORP QTY FLT 6.31% 8/7/00 2,000,000 2,001,719
MORGAN STAN. DW 5.51% 1/19/00 3,000,000 3,000,000
--------------
9,501,576
--------------
MEDIUM TERM NOTE 2.50%
AT&T QTLY 7.77% 6/14/00 3,000,000 3,018,716
--------------
TOTAL SHORT TERM OBLIGATIONS - 100% (Cost $121,810,975) 122,384,478
==============
</TABLE>
ACTIVA Mutual Funds Annual Report 9
The accompanying notes are an integral part of these financial statements.
C-28
<PAGE>
ACTIVA Schedule of Investments
INTERMEDIATE BOND FUND - 12/31/99
<TABLE>
<CAPTION>
% OF SHARES OR MARKET
SECURITY DESCRIPTION INVESTMENTS PAR VALUE VALUE
------------ ----------- --------------
<S> <C> <C> <C>
BANKERS ACCEPTANCES 0.90%
CANADA-GOV 6.375% 11/30/04 1,480,000 1,446,700
--------------
US TREASURY NOTES 7.30%
US T-NOTES 6.25% 2/15/03 9,000,000 8,976,597
US T-NOTES 6.25% 4/30/01 2,500,000 2,502,225
--------------
11,478,822
--------------
US TREASURY STRIPS 0.50%
UST-STRIP PO 9.13% 5/15/18 2,500,000 720,500
--------------
FEDERAL HOME LOAN MORTGAGE 12.50%
FHLMC GOLD 6.5% 6/1/29 6,975,650 6,583,270
FHLMC GOLD 6.00% 6/1/29 4,984,186 4,568,305
FHLMC GOLD 6.50% 6/1/29 4,974,250 4,694,449
FHLMC 6.5% 8/15/24 4,000,000 3,832,640
--------------
19,678,664
--------------
FEDERAL NATL MORTGAGE ASSOC 27.40%
FNMA D/N 5/18/00 5,000,000 4,892,100
FNMA 6.00% 5/15/08 4,500,000 4,212,765
FNMA 4.625% 10/15/01 2,500,000 2,422,425
FNMA NT 5.125% 2/13/04 2,270,000 2,134,640
FNMA 6.625% 9/15/09 5,500,000 5,348,750
FNMA CMO 6.50% 9/25/23 5,000,000 4,818,025
FNMA 6.5% 9/18/24 2,800,000 2,681,980
FNMA #252715 6.5% 9/1/29 2,493,366 2,350,771
FNMA 6% #481427 1/1/29 4,946,473 4,529,090
FNMA #481473 6.0% 2/1/29 3,478,551 3,185,031
FNMA #490080 6.5% 3/1/29 2,396,971 2,259,888
FNMA #490179 6.5% 3/1/29 2,365,746 2,230,449
FNMA #496567 6.0% 4/1/14 2,511,975 2,385,573
--------------
43,451,487
--------------
GOVERNMENT NATL MORTGAGE ASSOC 6.00%
GNMA 6.5% 470387 5/15/29 4,985,125 4,682,877
GNMA 7% #490240 9/15/29 4,946,153 4,779,220
--------------
9,462,097
--------------
AIRLINES 0.70%
DELTA 10.125% 5/15/10 925,000 1,032,531
--------------
AUTOMOTIVE 4.00%
BWA 8% 10/1/19 1,810,000 1,760,225
DAIMLER 7.20% 9/1/09 2,000,000 1,967,500
DANA CORP 7% 3/15/28 1,743,000 1,522,946
DELPHI 7.125% 5/1/29 1,250,000 1,096,875
--------------
6,347,546
--------------
</TABLE>
10 ACTIVA Mutual Funds Annual Report
The accompanying notes are an integral part of these financial statements.
C-29
<PAGE>
<TABLE>
<CAPTION>
ACTIVA Schedule of Investments continued
INTERMEDIATE BOND FUND - 12/31/99
% OF SHARES OR MARKET
SECURITY DESCRIPTION INVESTMENTS PAR VALUE VALUE
------------ ----------- --------------
<S> <C> <C> <C>
BANKING 7.60%
BSCH ISS 7.625% 11/3/09 1,000,000 991,250
BANK ONE 6.00% 2/17/09 1,000,000 891,250
BAC 6.25% 4/1/08 2,000,000 1,862,500
CHASE 6.66% 1/15/07 5,000,000 4,918,125
CHASE 7.125% 6/15/09 1,400,000 1,366,750
FIRST UNION 6.4% 4/1/08 1,400,000 1,288,000
NATL WEST 7.375% 10/1/09 650,000 636,188
--------------
11,954,063
--------------
BEVERAGES 0.60%
J SEAGRAM 7.6% 12/15/28 1,000,000 941,250
--------------
CHEMICALS 0.90%
DUPONT 6.875% 10/15/09 1,500,000 1,460,625
--------------
ELECTRIC UTILITY 7.30%
PP&L TRANS 6.60% 3/25/05 4,000,000 3,975,300
PECO 1999-A 5.80% 3/1/07 5,500,000 5,208,500
S.CAR E&G 6.125% 3/1/09 1,500,000 1,366,875
WPS RESOURCES 7% 11/1/09 1,000,000 963,750
--------------
11,514,425
--------------
ENTERTAINMENT 0.70%
DISNEY 5.8% 10/27/08 200,000 179,750
VIACOM 7.75% 6/1/05 950,000 958,313
--------------
1,138,063
--------------
FINANCIAL SERVICES 17.30%
ASSOCIATES CORP 4/20/04 3,500,000 3,320,625
CCIMT 6.65% 11/15/06 4,450,000 4,366,563
FINOVA 7.25% 11/8/04 560,000 553,700
FNCC 6.15% 9/15/04 1,250,000 1,224,950
FORD 6.4% 10/15/02 5,250,000 5,222,569
GMAC NT 5.75% 11/10/03 1,500,000 1,426,875
HALT 6.65% 7/15/05 5,000,000 4,964,650
SCAMT 6.35% 2/16/07 5,000,000 4,929,100
US WEST 6.375% 7/15/08 1,400,000 1,282,750
--------------
27,291,782
--------------
FOOD SERVICE 2.00%
KROGER 8% 9/15/29 1,650,000 1,608,750
SAFEWAY 7.5% 9/15/09 1,550,000 1,528,688
--------------
3,137,438
--------------
GAS UTILITY 0.70%
SOUTH UNION 8.25% 11/15/29 1,025,000 1,027,563
--------------
</TABLE>
ACTIVA Mutual Funds Annual Report 11
The accompanying notes are an integral part of these financial statements.
C-30
<PAGE>
<TABLE>
<CAPTION>
ACTIVA Schedule of Investments continued
INTERMEDIATE BOND FUND - 12/31/99
% OF SHARES OR MARKET
SECURITY DESCRIPTION INVESTMENTS PAR VALUE VALUE
------------ ----------- --------------
<S> <C> <C> <C>
OIL & EXPLOR PROD & SER 2.00%
CHEVRON 6.625% 10/1/04 2,000,000 1,972,500
CONOCO INC. 6.95% 4/15/29 1,250,000 1,132,813
--------------
3,105,313
--------------
TELECOMMUNICATIONS 1.60%
MCI CORP. 6.50% 4/15/10 1,500,000 1,395,000
SPRINT CAP 6.875% 11/15/28 1,250,000 1,114,063
--------------
2,509,063
--------------
TOTAL FIXED INCOME - 100% (Cost $159,263,177) 157,697,931
==============
</TABLE>
12 ACTIVA Mutual Funds Annual Report
The accompanying notes are an integral part of these financial statements.
C-31
<PAGE>
ACTIVA Schedule of Investments
VALUE FUND - 12/31/99
<TABLE>
<CAPTION>
% OF SHARES OR MARKET
SECURITY DESCRIPTION INVESTMENTS PAR VALUE VALUE
------------ ----------- --------------
<S> <C> <C> <C>
AEROSPACE 2.10%
NORTHROP GRUMMAN CORP. 5,300 286,531
UNITED TECHNOLOGIES 34,000 2,210,000
--------------
2,496,531
--------------
AIRCRAFT ENGINES & ENGINE PARTS 1.10%
HONEYWELL INTERNATIONAL 23,400 1,349,888
--------------
AIRLINES 0.90%
AMR CORP/DEL 1,800 120,600
MESABA HOLDINGS, INC. *31,500 360,281
SKYWEST INC. 20,100 562,800
--------------
1,043,681
--------------
AUTOMOTIVE 2.10%
DELPHI AUTOMOTIVE SYSTEMS 35,300 555,975
FORD MOTOR CO DEL 20,500 1,095,469
GENERAL MOTORS CORP. 11,200 814,100
TRW INC. 1,900 98,681
--------------
2,564,225
--------------
AUTOMOTIVE PARTS & EQUIPMENT 0.60%
FEDERAL- MOGUL CORP. 34,100 686,263
--------------
BANKING 12.00%
BANK ONE CORP. 93,100 2,985,019
CITIGROUP INC. 158,200 8,789,977
MERCANTILE BANKSHARES 14,300 456,706
PACIFIC CENTURY FINANCIAL 8,500 158,844
PEOPLE'S BANK 30,500 644,313
US BANCORP 17,600 419,100
UNIONBANCAL CORPORATION 40,900 1,612,994
WACHOVIA CORP. 2,200 149,600
--------------
15,216,553
--------------
BEVERAGES - DOMESTIC 0.90%
PEPSICO INC. 29,600 1,043,400
--------------
BROADCASTING 3.10%
AT&T CORP.- LIBERTY MEDIA *40,300 2,287,025
CLEAR CHANNEL COMM. 6,200 553,350
SCRIPPS CO. CL-A 20,400 914,175
--------------
3,754,550
--------------
BUSINESS SERVICES 1.60%
FIRST DATA CORP. 38,300 1,888,669
--------------
</TABLE>
ACTIVA Mutual Funds Annual Report 13
The accompanying notes are an integral part of these financial statements.
C-32
<PAGE>
<TABLE>
<CAPTION>
ACTIVA Schedule of Investments continued
VALUE FUND - 12/31/99
% OF SHARES OR MARKET
SECURITY DESCRIPTION INVESTMENTS PAR VALUE VALUE
------------ ----------- --------------
<S> <C> <C> <C>
CHEMICALS 2.10%
AIR PRODUCTS & CHEMICALS 18,800 630,975
CABOT CORP. 5,100 103,913
DU PONT E I DE NEMOURS 25,400 1,673,225
GREAT LAKES CHEM CORP. 3,700 141,294
--------------
2,549,407
--------------
COMMUNICATIONS EQUIPMENT 1.30%
AMERICAN TOWER CORP. 49,200 1,503,675
GENERAL CABLE CORP. 4,900 37,056
--------------
1,540,731
--------------
COMMERCIAL SERVICES 0.20%
CONVERGYS CORP. *9,200 282,900
--------------
COMPUTERS 1.80%
ADAPTEC, INC. *16,100 802,988
COMPAQ COMPUTER CORP. 25,700 695,506
QUANTUM CORPORATION *12,000 181,500
UNISYS CORP. *14,300 456,706
--------------
2,136,700
--------------
CONTAINERS & PACKAGING 0.70%
SMURFIT-STONE CONTAINER *36,800 901,600
--------------
DIVERSIFIED 0.30%
SPIEKER PROPERTIES 10,200 371,663
--------------
ELECTRIC UTILITY 4.10%
CALPINE CORP. *10,000 640,000
DUKE ENERGY CORP. 10,700 536,338
EDISON INTERNATIONAL 9,000 235,688
MONTANA POWER CO. 14,700 530,119
PECO ENERGY CO. 17,200 597,700
PINNACLE WEST CAP 39,800 1,216,388
UNICOM CORPORATION 34,900 1,169,150
--------------
4,925,383
--------------
ELECTRICAL & ELECTRONIC 0.10%
ENDESA 4,300 86,806
--------------
ELECTRONICS 3.20%
ANALOG DEVICES INC. *5,200 483,600
MOTOROLA, INC. 18,600 2,738,850
3COM CORP. *15,000 705,000
--------------
3,927,450
--------------
</TABLE>
14 ACTIVA Mutual Funds Annual Report
The accompanying notes are an integral part of these financial statements.
C-33
<PAGE>
<TABLE>
<CAPTION>
ACTIVA Schedule of Investments continued
VALUE FUND - 12/31/99
% OF SHARES OR MARKET
SECURITY DESCRIPTION INVESTMENTS PAR VALUE VALUE
------------ ----------- --------------
<S> <C> <C> <C>
ENERGY 0.20%
DQE INC. 5,600 193,900
SUNCOR ENERGY INC. 800 33,400
--------------
227,300
--------------
ENTERTAINMENT 0.20%
VIACOM INC. - CLASS B *3,000 181,313
--------------
FINANCIAL SERVICES 0.70%
EDWARDS (A.G.), INC. 3,100 99,394
FANNIE MAE 12,300 767,981
--------------
867,375
--------------
FOOD & BEVERAGE 0.10%
SARA LEE COMMON STOCK 5,500 121,344
--------------
FOOD PRODUCTS 0.10%
MCCORMICK & CO., INC. 4,900 145,775
--------------
GAS UTILITY 0.40%
COLUMBIA GAS SYSTEM 7,300 461,725
--------------
HOTELS & LODGING 0.20%
STARWOOD HOTELS & RESORTS 8,100 190,350
--------------
INDUSTRIAL GOODS & SERVICES 1.40%
CLOROX COMPANY 20,000 1,007,500
WERNER ENTERPRISES, INC. 44,800 630,000
--------------
1,637,500
--------------
INFORMATIONAL SERVICES 0.10%
AFFILIATED COMPUTER SVCS *1,800 82,800
--------------
INSURANCE 5.00%
XL CAPITAL LTD. CLASS-A 2,000 103,750
AMER INT'L GROUP 31,200 3,373,500
CIGNA CORP. 19,900 1,603,194
CONSECO 29,000 518,375
MARSH MCLENNAN COS COM 4,600 440,163
--------------
6,038,982
--------------
INTERNET CONTENT 0.60%
REDBACK NETWORKS, INC. *4,000 710,000
--------------
INVESTMENT COMPANY 0.30%
LEGG MASON, INC. 8,400 304,500
--------------
</TABLE>
ACTIVA Mutual Funds Annual Report 15
The accompanying notes are an integral part of these financial statements.
C-34
<PAGE>
<TABLE>
<CAPTION>
ACTIVA Schedule of Investments continued
VALUE FUND - 12/31/99
% OF SHARES OR MARKET
SECURITY DESCRIPTION INVESTMENTS PAR VALUE VALUE
------------ ----------- --------------
<S> <C> <C> <C>
MACHINERY & EQUIPMENT 1.10%
CATERPILLAR, INC. 6,600 310,613
INGERSOLL - RAND CO. 17,900 985,619
--------------
1,296,232
--------------
MANUFACTURING-CAPITAL GOODS 1.10%
EATON CORP. 17,900 1,299,988
--------------
MANUFACTURING-CONSUMER GOODS 2.10%
MATTEL INC. 96,500 1,266,563
MINN. MINING & MANUFACTURING 13,000 1,272,375
--------------
2,538,938
--------------
MANUFACTURING - MISCELLANEOUS 1.60%
EASTMAN KODAK CO. 10,400 689,000
KIMBERLY-CLARK CORP. 18,400 1,200,600
--------------
1,889,600
--------------
MEDICAL EQUIPMENT & SUPPLIES 1.00%
BAXTER INTERNATIONAL 18,500 1,162,031
--------------
MEDICAL SERVICES 0.50%
COLUMBIA HCA HEALTHCARE 20,100 589,181
--------------
METALS & MINING 1.80%
ALCOA INC. 25,600 2,124,800
--------------
OFFICE/BUSINESS EQUIP & SUPPLIES 1.90%
DANKA BUSINESS SYSTEMS *27,000 342,563
I B M 18,200 1,965,600
--------------
2,308,163
--------------
OIL & GAS EQUIPMENT/SERVICES 0.30%
SANTA FE INTERNATIONAL 1,500 38,813
ENRON CORP. 6,000 266,250
--------------
305,063
--------------
OIL & GAS EXPLOR PROD & SER 10.20%
TRANSOCEAN OFFSHR *49,500 1,630,406
CHEVRON CORP. 25,800 2,234,925
CONOCO INC. 152,600 3,795,925
QUAKER STATE CO. 216,600 2,206,613
REPSOL S.A. ADR 106,900 2,485,425
--------------
12,353,294
==============
</TABLE>
16 ACTIVA Mutual Funds Annual Report
The accompanying notes are an integral part of these financial statements.
C-35
<PAGE>
<TABLE>
<CAPTION>
ACTIVA Schedule of Investments continued
VALUE FUND - 12/31/99
% OF SHARES OR MARKET
SECURITY DESCRIPTION INVESTMENTS PAR VALUE VALUE
------------ ----------- --------------
<S> <C> <C> <C>
OIL & GAS TRANSMISSION 1.00%
EL PASO ENERY CORP. 32,000 1,242,000
--------------
PAPER PRODUCTS 1.80%
BOWATER, INC. 2,500 135,781
TEMPLE - INLAND INC. 9,900 652,781
WEYERHAUESER 18,600 1,335,713
--------------
2,124,275
--------------
PHARMACEUTICALS 2.80%
ABBOTT LABS 27,400 994,963
AMERICAN HOME PRODUCTS 24,400 962,275
PHARMACIA & UPJOHN 32,100 1,444,500
--------------
3,401,738
--------------
PRINTING & PUBLISHING 1.00%
GANNETT COMPANY, INC. 15,100 1,231,594
--------------
PUBLISHING 0.10%
A.H. BELO CORPORATION 3,500 66,719
--------------
RAILROADS 0.00%
CANADIAN NATIONAL RAILWAY 1,900 50,350
--------------
RESTAURANTS 1.20%
MCDONALD'S CORP. 36,200 1,459,313
--------------
RETAIL STORES 2.20%
DAYTON-HUDSON CORP. 31,500 2,313,281
INTIMATE BRANDS INC. 8,000 345,000
--------------
2,658,281
--------------
TOBACCO 0.70%
PHILIP MORRIS COS., INC. 38,200 885,763
--------------
TELECOMMUNICATIONS 15.50%
AT&T CORP. 123,100 6,247,325
ASSOCIATES FIRST CAPITAL 54,400 1,492,600
MCI WORLDCOM INC. *53,850 2,857,416
SBC COMMUNICATIONS INC. 82,800 4,036,500
SPRINT CORP. 44,500 2,995,406
SPRINT CORP. PCS *14,300 1,465,750
--------------
19,094,997
--------------
</TABLE>
ACTIVA Mutual Funds Annual Report 17
The accompanying notes are an integral part of these financial statements.
C-36
<PAGE>
<TABLE>
<CAPTION>
ACTIVA Schedule of Investments continued
VALUE FUND - 12/31/99
% OF SHARES OR MARKET
SECURITY DESCRIPTION INVESTMENTS PAR VALUE VALUE
------------ ----------- --------------
<S> <C> <C> <C>
TELECOMMUNICATIONS-SRVS & EQUIP 2.50%
ECHOSTAR COMMUNICATIONS *30,500 2,973,750
--------------
UTILITIES - TELECOMMUNICATIONS 1.90%
BELL ATLANTIC 36,400 2,240,875
--------------
WASTE MANAGEMENT 0.20%
REPUBLIC SERVICES, INC. *14,000 201,250
--------------
TOTAL COMMON STOCK - 100% (Cost $120,425,644) 121,233,559
==============
</TABLE>
* Non-dividend producing as of December 31, 1999
18 ACTIVA Mutual Funds Annual Report
The accompanying notes are an integral part of these financial statements.
C-37
<PAGE>
ACTIVA Schedule of Investments
GROWTH FUND - 12/31/99
<TABLE>
<CAPTION>
% OF SHARES OR MARKET
SECURITY DESCRIPTION INVESTMENTS PAR VALUE VALUE
------------ ----------- --------------
<S> <C> <C> <C>
COMMERCIAL PAPER - 2.70%
FINANCIAL SERVICES 2.70%
AMER EXP 3.25% 01/06/00 900,000 900,000
--------------
TOTAL COMMERCIAL PAPER (Cost $900,000) 900,000
--------------
COMMON STOCK - 97.30%
AIRCRAFT ENGINES & ENGINE PARTS 2.20%
HONEYWELL INTERNATIONAL 12,900 744,169
--------------
BANKING 5.10%
CHASE MANHATTAN CORP. 8,600 668,113
CITIGROUP INC. 19,000 1,055,688
--------------
1,723,801
--------------
BEVERAGES - DOMESTIC 1.10%
COCA-COLA CO. 5,600 326,200
COCA-COLA ENTERPRISES 1,600 32,200
--------------
358,400
--------------
BREWERY 1.30%
ANHEUSER-BUSCH 6,200 439,425
--------------
BROADCASTING 3.40%
CBS CORPORATION *17,800 1,138,088
--------------
BUSINESS SERVICES 1.00%
FIRST DATA CORP. 6,500 320,531
--------------
CHEMICALS 1.80%
DOW CHEMICAL COMPANY 4,600 614,675
--------------
COMPUTER SOFTWARE 7.90%
CITRIX SYSTEMS INC. *1,300 159,900
ELECTRONIC DATA SERVICES 10,400 696,150
MICROSOFT *13,500 1,576,125
ORACLE CORP. *2,000 224,125
--------------
2,656,300
--------------
COMPUTERS 10.10%
CISCO SYSTEMS *14,900 1,596,155
DELL COMPUTER CORP. *9,300 474,300
INTEL CORPORATION 8,500 699,656
SUN MICROSYSTEMS *5,200 402,675
VERITAS SOFTWARE *1,900 271,938
--------------
3,444,724
--------------
</TABLE>
ACTIVA Mutual Funds Annual Report 19
The accompanying notes are an integral part of these financial statements.
C-38
<PAGE>
<TABLE>
<CAPTION>
ACTIVA Schedule of Investments continued
GROWTH FUND - 12/31/99
% OF SHARES OR MARKET
SECURITY DESCRIPTION INVESTMENTS PAR VALUE VALUE
------------ ----------- --------------
<S> <C> <C> <C>
CONSUMER GOODS & SERVICES 3.50%
BLACK & DECKER 7,700 402,325
COLGATE-PALMOLIVE CO. 14,000 910,000
--------------
1,312,325
--------------
DRUGS 1.40%
BIOGEN, INC. *5,400 456,300
--------------
ELECTRICAL & ELECTRONIC 2.60%
TERADYNE INC. *13,300 877,800
--------------
ELECTRICAL EQUIPMENT 4.00%
GENERAL ELECTRIC CO. 8,700 1,346,325
--------------
ELECTRONICS 6.60%
EMC CORP/MASS 8,500 928,625
SOLECTRON CORP. *4,700 447,088
TEXAS INSTRUMENTS INC. 8,500 823,438
--------------
2,199,151
--------------
ENTERTAINMENT 2.90%
DISNEY WALT COMPANY 10,300 301,275
USA NETWORKS INC. *5,600 309,400
VIACOM INC - CLASS B *5,700 344,494
--------------
955,169
--------------
FINANCIAL SERVICES 1.10%
MORGAN ST DEAN WITTER 2,500 356,875
--------------
FOOD PRODUCTS 0.90%
PROCTER & GAMBLE CO. 2,800 306,775
--------------
INFORMATIONAL SERVICES 1.00%
AMERICA ONLINE, INC. 4,300 324,381
--------------
INSURANCE 4.30%
ACE LIMITED 18,900 315,394
AMER INT'L. GROUP 7,900 854,188
MARSH MCLENNAN COS COM 3,000 287,063
--------------
1,456,645
--------------
LEISURE & TOURISM 0.90%
HARLEY-DAVIDSON INC. 5,400 345,938
--------------
MANUFACTURING-CAPITAL GOODS 0.80%
DANAHER CORP. 5,600 270,200
--------------
</TABLE>
20 ACTIVA Mutual Funds Annual Report
The accompanying notes are an integral part of these financial statements.
C-39
<PAGE>
<TABLE>
<CAPTION>
ACTIVA Schedule of Investments continued
GROWTH FUND - 12/31/99
% OF SHARES OR MARKET
SECURITY DESCRIPTION INVESTMENTS PAR VALUE VALUE
------------ ----------- --------------
<S> <C> <C> <C>
MEDICAL EQUIPMENT & SUPPLIES 4.90%
BAXTER INTERNATIONAL 5,900 370,594
GUIDANT CORP COMMON STOCK *6,900 324,300
TYCO INTERNATIONAL 24,300 944,663
--------------
1,639,557
--------------
MERCHANDISING 1.90%
OMNICOM GROUP COM 6,200 620,000
--------------
OIL & GAS EQUIPMENT/SERVICES 1.30%
HALLIBURTON CO. 10,800 434,700
--------------
OIL & GAS EXPLOR PROD & SER 5.00%
CONOCO INC. 24,800 616,900
EXXON MOBIL CORP. COM 3,900 314,194
TOTAL FINA SA - SPON ADR 13,000 900,250
--------------
1,831,344
--------------
PHARMACEUTICALS 5.20%
AMGEN INC. 8,400 504,525
BRISTOL MYERS SQUIBB CO. 8,200 526,338
PFIZER INC. 10,900 353,569
WARNER LAMBERT CO. 4,400 360,525
--------------
1,744,957
--------------
RETAIL STORES 6.10%
BEST BUY COMPANY, INC. *8,900 446,669
CVS CORP. 11,000 439,313
HOME DEPOT INC. 1,500 102,844
STAPLES, INC. *21,000 435,750
WAL-MART STORES, INC. 8,800 608,300
--------------
2,032,876
--------------
TELECOMMUNICATIONS 7.40%
MCI WORLDCOM INC. *16,050 851,653
NOKIA CORP ADR 6,900 1,311,000
VOICESTREAM WIRELESS CORP. *3,600 512,325
--------------
2,674,978
--------------
TELECOMMUNICATIONS-SRVS & EQUIP 1.80%
LUCENT TECHNOLGIES 4,400 329,175
NORTEL NETWORKS CORP. 2,600 262,600
--------------
591,775
--------------
TOTAL COMMON STOCK (Cost $28,605,806) 33,218,184
--------------
--------------
TOTAL INVESTMENTS - 100% (Cost $29,505,806) 34,118,184
==============
</TABLE>
*Non-dividend producing as of December 31, 1999
ACTIVA Mutual Funds Annual Report 21
The accompanying notes are an integral part of these financial statements.
C-40
<PAGE>
ACTIVA Schedule of Investments
INTERNATIONAL FUND - 12/31/99
<TABLE>
<CAPTION>
% OF SHARES OR MARKET
SECURITY DESCRIPTION INVESTMENTS PAR VALUE VALUE
------------ ----------- --------------
<S> <C> <C> <C>
ADVERTISING 1.50%
SAATCHI & SAATCHI PLC 40,800 245,463
ASATSU, INC. 5,200 350,596
--------------
596,059
--------------
AEROSPACE 0.20%
BPS BRITISH AEROSPACE PLC 10,291 68,146
--------------
AUTOMOTIVE 0.90%
BAYERISCHE MOTOREN WERKE 11,700 357,293
--------------
BANKING 3.00%
DEM BAYER HYPO VEREINS 4,700 321,162
ESP BANCO SANTANDER 30,000 339,847
FFR CREDIT LYONNAIS 6,100 279,114
DEM DEUTSCHE BANK AG-REG 3,200 270,426
--------------
1,210,549
--------------
BANKING & FINANCIAL SERVICES 0.60%
YEN - DAI-ICHI BANK 18,000 167,970
SAKURA BANK LTD. 15,000 86,770
--------------
254,740
--------------
BROADCASTING 3.60%
ADR GRUPO TELEVISA SA 1,800 122,850
FFR TV FRANCAISE 1,500 786,123
ITL MEDIA SET 17,000 264,541
EM.TV & MERCHANDISING AG 4,200 277,260
--------------
1,450,774
--------------
BUILDING PRODUCTS 0.50%
BPS HANSON PLC 22,100 185,250
--------------
BUSINESS SERVICES 0.70%
FFR VIVENDI 3,200 289,132
--------------
CHEMICALS 0.20%
HKD YIZHENG CHEMICAL 342,000 95,680
--------------
COMMERCIAL SERVICES 0.60%
FFR BOUYGUES 400 254,381
--------------
COMPUTER SOFTWARE 2.50%
BPS - EIDOS PLC 3,400 299,278
SAP AG 500 305,127
INTERSHOP COMMUNICATIONS 900 257,607
YEN - FUJI SOFT ABC CORP. 1,700 132,890
--------------
994,902
--------------
</TABLE>
22 ACTIVA Mutual Funds Annual Report
The accompanying notes are an integral part of these financial statements.
C-41
<PAGE>
<TABLE>
<CAPTION>
ACTIVA Schedule of Investments continued
INTERNATIONAL FUND - 12/31/99
% OF SHARES OR MARKET
SECURITY DESCRIPTION INVESTMENTS PAR VALUE VALUE
------------ ----------- --------------
<S> <C> <C> <C>
COMPUTERS 4.70%
ASM LITHOGRAPHY - ADR *6,000 682,500
CMG PLC 4,400 325,901
EQUANT NV-NY REG. SHRS *1,600 179,200
NLG EQUANT N.V. 3,800 431,622
YEN - FUJITSU LTD. 5,800 264,100
--------------
1,883,323
--------------
DIVERSIFIED 2.90%
BILLITON PLC 62,800 367,170
BPS INVENSYS PLC 71,700 390,255
YEN - RYOHIN KEIKAKU CO. 2,100 420,862
--------------
1,178,287
--------------
ELECTRICAL & ELECTRONIC 2.80%
BPS MARCONIN PLC 24,000 424,060
YEN HITACHI 12,000 192,300
OMRON CORP. 7,000 161,081
TAIWAN SEMICONDUCTOR-ADR *7,600 342,000
--------------
1,119,441
--------------
ELECTRICAL EQUIPMENT 1.20%
KEYENCE CORP. 1,200 486,613
--------------
ELECTRONICS 16.60%
BPS ARM HOLDINGS 15,000 1,002,973
SAMSUNG ELEC. GDR - 144A 1,900 232,275
ROYAL PHILIPS ELECTRNICS 4,000 540,000
EPCOS AG 4,200 313,240
SGD CHARTERED SEMI 50,000 273,216
FANUC, LTD. 6,100 775,464
YEN KYOCERA CORPORATION 3,100 802,716
MURATA MANUFACTURING CO. 4,000 938,050
YEN SONY CORP. 3,200 947,430
YEN TOKYO ELECTRON 2,000 273,598
STMICROELECTRONICS NV-NY 4,000 605,750
--------------
6,704,712
--------------
ENERGY 1.00%
BPS SHELL TRNSPORT/TRADNG 49,400 410,299
--------------
FINANCIAL SERVICES 2.80%
FORTIS (B) 9,400 339,351
YEN NOMURA SECURITIES 21,000 378,591
ADR ORIX CORP. 3,700 419,719
--------------
1,137,661
--------------
</TABLE>
ACTIVA Mutual Funds Annual Report 23
The accompanying notes are an integral part of these financial statements.
C-42
<PAGE>
<TABLE>
<CAPTION>
ACTIVA Schedule of Investments continued
INTERNATIONAL FUND - 12/31/99
% OF SHARES OR MARKET
SECURITY DESCRIPTION INVESTMENTS PAR VALUE VALUE
------------ ----------- --------------
<S> <C> <C> <C>
FOREST PRODUCTS 0.50%
STORA ENSO OYJ R SHARES 11,500 200,628
--------------
HEALTH CARE 0.90%
FFR RHODIA 15,800 357,335
--------------
INSURANCE 2.50%
FFR AXA 2,500 348,716
SKANDIA FORSAKRINGS AB 10,900 329,735
AEGON NV 3,500 338,285
--------------
1,016,736
--------------
LEISURE TIME 0.40%
YEN ROUND ONE CORP. 11 148,329
--------------
MACHINERY & EQUIPMENT 2.70%
DEM MANNESMANN AG 3,600 868,968
THK CO. LTD. 5,400 217,921
--------------
1,086,889
--------------
MANUFACTURING - MISCELLANEOUS 1.20%
FLEXTRONICS *6,000 276,000
DEM THYSSEN KRUPP AG 6,200 189,022
--------------
465,022
--------------
MEDICAL EQUIPMENT & SUPPLIES 2.50%
BPS SMITH & NEPHEW 63,000 211,643
BIOVAIL CORP INT'L. *4,100 384,375
FRESENIUS MEDICAL CARE AG 4,600 393,606
--------------
989,624
--------------
METAL-ALUMINUM 0.90%
PECHINEY SA 5,000 357,535
--------------
METALS & MINING 0.50%
CAD FALCONBRIDGE LTD. 10,100 179,810
--------------
OIL & GAS EQUIPMENT/SERVICES 0.90%
SCHLUMBERGER LTD. ADR 6,600 371,250
--------------
OIL & GAS EXPLOR PROD & SERVICES 2.20%
TRANSOCEAN SEDCO FOREX 1,278 43,045
ANDERSON EXPLORATION LTD. *15,000 178,547
ITL ENTE NAZ IDROC 24,700 135,921
FFR TOTAL S.A. 'B' 2,748 366,968
PRECISION DRILLING CORP. *7,000 179,813
--------------
904,294
--------------
</TABLE>
24 ACTIVA Mutual Funds Annual Report
The accompanying notes are an integral part of these financial statements.
C-43
<PAGE>
<TABLE>
<CAPTION>
ACTIVA Schedule of Investments continued
INTERNATIONAL FUND - 12/31/99
% OF SHARES OR MARKET
SECURITY DESCRIPTION INVESTMENTS PAR VALUE VALUE
------------ ----------- --------------
<S> <C> <C> <C>
PAPER PRODUCTS 0.30%
ARACRUZ CELULOSE S.A. 3,800 99,750
--------------
PETROLEUM-RETAIL 0.60%
PETROLEO BRASILEIRO - ADR 9,600 246,221
--------------
PHARMACEUTICALS 0.40%
SHIRE PHARMACEUTICALS *5,000 145,625
--------------
RETAIL STORES - GROCERY 2.70%
FFR CARREFOUR SA 2,400 442,890
YEN - SEVEN ELEVEN JAPAN 4,000 633,184
--------------
1,076,074
--------------
STEEL 1.20%
CORUS GROUP PLC 178,200 464,814
--------------
TRANSPORTATION & SHIPPING 2.20%
TNT POST GROUP NV 12,000 344,080
CHINA SHIPPING DEV. CO. 540,000 106,967
YAMATO TRANSPORT CO., LTD. 11,000 425,640
--------------
876,687
--------------
TELECOMMUNICATIONS 20.20%
BPS BRIT TELECOM 10,300 249,533
COLT TELECOM GROUP PLC 5,900 304,454
BPS VODAFONE 34,900 172,060
CHINA TELECOM - ADR *2,000 257,125
USD GLOBAL TELESYSTEMS 13,600 470,900
ITL TELECOM ITALIA 41,000 458,259
KOREA TELECOM CORP. 4,200 313,950
DEM DEUTSCHE TELEKOM 6,000 427,530
EUR - SONERA GROUP PLC 7,200 493,806
MAGYAR TAVKOZLESI RT, ADR 5,400 194,400
DAK TELE DANMANK 'B' 5,000 371,858
NTT DATA CORPORATION 28 642,955
YEN NTT MOBILE COMM. 18 691,225
NTL INCORPORATED *1,700 212,075
YEN HIKARI TSUSHIN, INC. 100 200,313
KDD CORP.- TOKYO SHRS. 4,100 567,286
NOKIA CORP.- ADR 4,800 912,000
YEN NIPPON TELEGRAPH TELE 35 598,495
OKI ELECTRIC INDUSTRY CO. 28,000 164,706
PARTNER COMM. CO. - ADR *3,600 93,150
TELE NORTE LESTE - ADR 4,500 114,750
TELEFONOS DE MEXICO 3,500 393,750
--------------
8,304,580
--------------
</TABLE>
ACTIVA Mutual Funds Annual Report 25
The accompanying notes are an integral part of these financial statements.
C-44
<PAGE>
<TABLE>
<CAPTION>
ACTIVA Schedule of Investments continued
INTERNATIONAL FUND - 12/31/99
% OF SHARES OR MARKET
SECURITY DESCRIPTION INVESTMENTS PAR VALUE VALUE
------------ ----------- --------------
<S> <C> <C> <C>
TELECOMMUNICATIONS-SERVICES & EQUIPMENT 7.60%
THUS PLC 22,400 140,372
ERICSSON TEL-SP ADR 14,200 932,763
KONINKLIJKE KPN NV 4,300 419,941
UNITED PAN-EUROPE COMM. 1,900 243,194
KPNQWEST NV 3,600 239,828
NORTEL NETWORKS CORP. 6,000 606,000
MATSUSHITA COMM. IND. 1,800 474,888
--------------
3,056,986
--------------
WHOLESALE DISTRIBUTION 3.30%
YEN - SOFTBANK CORP. 1,400 1,337,893
--------------
TOTAL COMMON STOCK - 100% (Cost $27,677,077) 40,363,324
==============
</TABLE>
* Non-dividend producing as of December 31, 1999
26 ACTIVA Mutual Funds Annual Report
The accompanying notes are an integral part of these financial statements.
C-45
<PAGE>
ACTIVA Statement of Assets and Liabilities
<TABLE>
<CAPTION>
MONEY MARKET INTERMEDIATE INTERNATIONAL
As of December 31, 1999 FUND BOND FUND VALUE FUND GROWTH FUND FUND
------------- ------------- ------------- ------------- -------------
ASSETS
<S> <C> <C> <C> <C> <C>
Investments at value $122,384,478 $157,697,931 $121,233,559 $34,118,184 $40,363,324
Cash 1,077 3,059,828 164,087,156 29,695 994,219
Receivables:
Investments sold -- -- -- 69,469 300,030
Investment income 397,195 1,595,307 473,729 13,408 10,836
Other assets -- -- 107,288 -- 10
Foreign currency holdings -- -- -- -- 54
------------- ------------- ------------- ------------- -------------
Total Assets 122,782,750 162,353,066 285,901,732 34,230,756 41,668,473
------------- ------------- ------------- ------------- -------------
LIABILITIES
Payables:
Investments purchased -- -- 106,245,261 655,355 206,357
Income payable 566,380 -- -- -- --
Advisory fees 103,802 141,053 289,819 52,406 71,559
Transfer agent fees 264 41 63,471 198 100
12b-1 fees -- 61,393 72,211 11,367 12,628
Service fees 44,487 61,393 72,461 11,367 12,628
Accrued expenses 9,100 10,600 17,070 5,650 6,025
------------- ------------- ------------- ------------- -------------
Total Liabilities 724,033 274,480 106,760,293 736,343 309,297
------------- ------------- ------------- ------------- -------------
NET ASSETS $122,058,717 $162,078,586 $179,141,439 $33,494,413 $41,359,176
============= ============= ============= ============= =============
SHARES OUTSTANDING 122,060,187 16,418,415 27,085,682 2,941,725 2,911,935
============= ============= ============= ============= =============
NET ASSET VALUE PER SHARE $1.00 $9.87 $11.39 $14.20
Class A based on net assets of
$178,437,477 and 26,978,952
shares outstanding $6.61
Class R based on net assets of
$703,962 and 106,730
shares outstanding
$6.60
</TABLE>
ACTIVA Mutual Funds Annual Report 27
The accompanying notes are an integral part of these financial statements.
C-46
<PAGE>
ACTIVA Statement of Operations
For the year or period ended December 31, 1999
<TABLE>
<CAPTION>
MONEY MARKET INTERMEDIATE INTERNATIONAL
FUND** BOND FUND* VALUE FUND GROWTH FUND* FUND*
------------- ------------- ------------- ------------- ------------
INVESTMENT INCOME
<S> <C> <C> <C> <C> <C>
Interest $2,481,410 $3,528,866 $337,360 $21,388 $47,710
Dividends -- -- 4,131,443 71,774 24,054
Miscellaneous 251 9,774 5,698 291 300
------------- ------------- ------------- ------------- -------------
Total Investment Income 2,481,661 3,538,640 4,474,501 93,453 72,064
------------- ------------- ------------- ------------- -------------
EXPENSES
Advisory fees 156,807 188,433 1,062,092 69,526 92,574
12b-1 fees -- 82,010 428,188 15,073 16,337
Service fees 67,204 82,010 97,811 15,073 16,337
Shareholder report 628 633 73,048 633 633
Fund accounting fees 16,183 19,044 48,901 12,649 13,600
Audit fees 1,623 1,639 26,798 1,639 1,639
Custodian fees 4,914 6,480 35,388 2,152 2,310
Insurance 1,337 2,200 12,102 393 391
Legal fees 5,586 5,593 67,270 5,593 5,593
Organization expense 21,391 21,391 30,692 21,391 21,391
Registration fees 109 116 25,011 116 116
Transfer agent fees 312 46 256,331 203 105
Transfer agent fees - Class R -- -- 1,046 -- --
------------- ------------- ------------- ------------- ------------
Total Expenses 276,094 409,595 2,164,678 144,441 171,026
Fees paid indirectly -- -- (18,150) -- --
------------- ------------- ------------- ------------- ------------
Net Expenses 276,094 409,595 2,146,528 144,441 171,026
------------- ------------- ------------- ------------- ------------
Net Investment Income (Loss) 2,205,567 3,129,045 2,327,973 (50,988) (98,962)
------------- ------------- ------------- ------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) on
security transactions (1,470) (520,543) (16,305,655) (507,647) (422,122)
Net realized gain (loss) on
foreign currency transactions -- -- -- -- 48,032
Changes in net unrealized
appreciation or depreciation
of investments
and foreign currency -- (1,565,246) (1,651,637) 4,612,378 12,686,197
------------- ------------- ------------- ------------- ------------
Net Gain (Loss) on Investments (1,470) (2,085,789) (17,957,292) 4,104,731 12,312,107
------------- ------------- ------------- ------------- ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS $2,204,097 $1,043,256 ($15,629,319) $4,053,743 $12,213,145
============= ============= ============= ============= ============
</TABLE>
* Period from August 30, 1999 (inception) to December 31, 1999
** Period from August 19, 1999 (inception) to December 31, 1999
28 ACTIVA Mutual Funds Annual Report
The accompanying notes are an integral part of these financial statements.
C-47
<PAGE>
ACTIVA Statement of Changes in Net Assets
<TABLE>
<CAPTION>
MONEY MARKET INTERMEDIATE INTERNATIONAL
FUND** BOND FUND* VALUE FUND GROWTH FUND* FUND*
For the year or period ended December 31, 1999 1999 1999 1998 1999 1999
----------- ----------- -------------------------- ----------- -----------
NET ASSETS FROM OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income $2,205,567 $3,129,045 $2,327,973 $1,665,189 ($50,988) ($98,962)
Net realized gain (loss) on investments (1,470) (520,543) (16,305,655) 25,406,792 (507,647) (374,090)
Net increase (decrease) in unrealized
appreciation -- (1,565,246) (1,651,637) (10,357,465) 4,612,378 12,686,197
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations 2,204,097 1,043,256 (15,629,319) 16,714,516 4,053,743 12,213,145
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income:
Class A (2,205,567) (3,135,031) (2,385,633) (1,662,878) -- --
Class R -- -- (9,561) (1,625) -- --
Net realized gain from investment transactions:
Class A -- -- -- (25,670,393) -- --
Class R -- -- -- (19,517) -- --
----------- ----------- ----------- ----------- ----------- -----------
Total distributions to shareholders (2,205,567) (3,135,031) (2,395,194) (27,354,413) -- --
CAPITAL SHARE TRANSACTIONS
Net proceeds from sale of shares:
Class A 385,892,878 161,036,335 43,711,117 65,648,672 29,440,970 29,159,031
Class R -- -- 761,794 135,152 -- --
Net asset value of shares issued to shareholders in
reinvestment of investment income and realized gain
from security transactions:
Class A 1,640,409 3,135,026 2,333,242 25,976,297 -- --
Class R -- -- 9,566 21,142 -- --
Payment for shares redeemed:
Class A (265,473,100) (1,000) (29,493,812) (40,349,536) (300) (13,000)
Class R -- -- (111,360) -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets derived
from capital share transactions 122,060,187 164,170,361 17,210,547 51,431,727 29,440,670 29,146,031
----------- ----------- ----------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets 122,058,717 162,078,586 (813,966) 40,791,830 33,494,413 41,359,176
Net Assets, beginning of year or period -- -- 179,955,405 139,163,575 -- --
----------- ----------- ----------- ----------- ----------- -----------
Net Assets, end of year or period $122,058,717 $162,078,586 $179,141,439 $179,955,405 $33,494,413 $41,359,176
=========== =========== =========== =========== =========== ===========
Net Assets Consist of:
Capital $122,060,187 $164,170,361 $195,278,066 $178,067,593 $29,440,670 $29,146,031
Undistributed net investment
income (loss) -- -- -- 6,548 (50,988) (98,962)
Return of capital -- (5,986) (60,670) -- -- --
Undistributed net realized
loss from investments (1,470) (520,543) (16,883,872) (578,288) (507,647) (374,090)
Unrealized appreciation (depreciation) of
investments and foreign currency -- (1,565,246) 807,915 2,459,552 4,612,378 12,686,197
----------- ----------- ----------- ----------- ----------- -----------
$122,058,717 $162,078,586 $179,141,439 $179,955,405 $33,494,413 $41,359,176
TRANSACTIONS IN FUND SHARES
Shares sold
Class A 385,892,878 16,103,631 5,644,826 8,659,484 2,941,753 2,912,903
Class R -- -- 101,720 15,908 -- --
Reinvested distributions -- -- -- -- -- --
Class A 1,640,409 314,884 352,454 3,684,581 -- --
Class R -- -- 1,449 3,008 -- --
Shares redeemed
Class A (265,473,100) (100) (4,054,442) (5,307,166) (28) (969)
Class R -- -- (15,356) -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net increase in fund shares 122,060,187 16,418,415 2,030,651 7,055,815 2,941,725 2,911,934
Shares outstanding, beginning of
year or period -- -- 25,055,031 17,999,216 -- --
----------- ----------- ----------- ----------- ----------- -----------
Shares outstanding, end of
year or period 122,060,187 16,418,415 27,085,682 25,055,031 2,941,725 2,911,934
</TABLE>
* Period from August 30, 1999 (inception) to December 31, 1999
** Period from August 19, 1999 (inception) to December 31, 1999
ACTIVA Mutual Funds Annual Report 29
The accompanying notes are an integral part of these financial statements.
C-48
<PAGE>
ACTIVA Notes to Financial Statements
1. ORGANIZATION
Activa Mutual Fund Trust (Trust) was organized as a Delaware business trust on
February 2, 1998. The Trust consists of five funds, each open-end management
investment companies registered under the Investment Company Act of 1940. The
funds are: the Activa Money Market Fund (Money Market Fund), the Activa
Intermediate Bond Fund (Intermediate Bond Fund), the Activa Value Fund (Value
Fund), the Activa Growth Fund (Growth Fund) and the Activa International Fund
(International Fund) collectively referred to as the Funds. The Value Fund is
the successor to Amway Mutual Fund.
2. SIGNIFICANT ACCOUNTING POLICIES
Investment Objectives
The Money Market Fund's investment objective is to seek a high level of current
income as is consistent with preservation of capital and liquidity. The Money
Market Fund invests in a broad spectrum of high quality U.S. dollar-denominated
money market securities, with the average weighted maturity of the securities
held not to exceed 90 days.
The Intermediate Bond Fund's investment objective is to seek a high level of
current income as is consistent with moderate risk of capital and maintenance of
liquidity. The Intermediate Bond Fund invests primarily in investment-grade debt
securities, with average maturity of three to ten years.
The Value Fund's investment objective is to maximize long-term capital
appreciation, and invests primarily in common stocks of large and medium size
U.S. companies which are considered by the investment manager to be undervalued.
The Growth Fund seeks long-term growth of capital, and invests primarily in
common stocks believed by the investment manager to have long-term growth
potential.
The International Fund seeks maximum long-term capital appreciation. The
International Fund invests primarily in common stocks of large and medium size
non-U.S. companies which are believed by the investment manager to have
potential for above-average growth of earnings.
Classes of Shares
The Value Fund offers two classes of shares (Class A and Class R). The Class R
shares are offered to tax-exempt retirement and benefit plans of Amway
Corporation and its affiliates, and are not subject to any sales charges or
12b-1 distribution fees. Each share of Class A and Class R represents an equal
proportionate interest in the Value Fund and, generally, will have identical
voting, dividend, liquidation, and other rights and the same terms and
conditions. Each class will have exclusive voting rights with respect to matters
affecting only that class. Each class bears different distribution, shareholder
servicing and transfer agent expenses. Income, non-class specific expenses, and
realized and unrealized gains or losses on investments are allocated to each
class of shares based upon its relative net assets.
Security Valuation
Investments in securities listed or admitted to trading on a national securities
exchange are valued at their last reported sale price before the time of
valuation. If a security is traded only in the over-the-counter market, or if no
sales have been reported for a listed security on that day, it is valued at the
mean between the current closing bid and ask prices. Short-term securities
maturing within 60 days are valued at amortized cost, which approximates fair
value. Portfolio debt securities with remaining maturities greater than 60 days
are valued by pricing agents approved by the Board of Trustees. Foreign
securities are converted to U.S. dollars using exchange rates at the close of
the New York Stock Exchange. Securities for which market quotations are not
readily available, including any restricted securities (none at December 31,
1999), and other assets of the Funds, are valued at fair market value as
determined by the Fund's Board of Trustees.
Derivative Transactions
The Funds (except the Money Market Fund) may trade in derivative contracts to
hedge portfolio holdings and for investment purposes. Hedging activities are
intended to reduce various risks associated with fluctuations in foreign
currency exchange rates. When entering into a forward currency contract, the
fund agrees to receive or deliver a fixed
30 ACTIVA Mutual Funds Annual Report
C-49
<PAGE>
ACTIVA Notes to Financial Statements continued
quantity of foreign currency for an agreed-upon price on an agreed future date.
These contracts are valued daily. The Fund's net equity in the contracts is
included as unrealized gains or losses in the statement of assets and
liabilities. This unrealized gain or loss is the difference between the forward
foreign exchange rates at the dates of entry into the contracts and the forward
rates at the reporting date. The current year change in unrealized gains and
losses and realized gains and losses are included in the statement of
operations.
Security Transactions
Security transactions are accounted for on the trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis. Original issue discounts are accreted and premium is amortized on debt
securities to interest income over the life of a security with a corresponding
adjustment in the cost basis. Realized gains and losses from security
transactions and unrealized appreciation and depreciation of investments are
reported on a specific identification basis. Dividends and distributions to
shareholders are recorded by the Funds on the ex-dividend date.
Foreign Currency Translation
Investment securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at date of valuation.
Purchases and sales of investment securities and income and expense items
denominated in foreign currencies are translated into U.S. dollar amounts on the
respective dates of such transactions.
Net realized gains and losses from foreign currency and investment transactions
disclosed in the Statement of Operations consist of net gains and losses on
disposition of foreign currency, currency gains and losses realized between
trade and settlement dates on security transactions, and the difference between
the amount of net investment income accrued and the amount actually received in
U.S. dollars. Net unrealized foreign exchange gains and losses arise from
changes in fair values of assets and liabilities other than investments in
securities at period-end, resulting from changes in exchange rates. The effects
of foreign currency exchange rates on foreign securities held are included in
net realized and unrealized gain or loss on investments.
Reorganization Costs
Reorganization costs incurred prior to June 30, 1998 in connection with the
reorganization of Amway Mutual Fund and the issuance of Class R shares are being
amortized over a period of 60 months using the straight-line method in the Value
Fund.
Federal Income Taxes
It is the Funds' policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to make distributions of
income and capital gains sufficient to relieve it from substantially all federal
income taxes.
Dividend Distributions
The Money Market Fund and Intermediate Bond Fund declare dividends daily and
monthly respectively, and distribute dividends monthly, and capital gains (if
any) are distributed annually. The Value Fund, Growth Fund and International
Fund declare and distribute dividends and capital gains (if any) annually.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could differ
from those estimates.
3. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
The Funds have entered into investment advisory agreements with Activa Asset
Management LLC (the Adviser), effective June 11, 1999. The Funds employ the
investment adviser to provide investment advice and manage on a regular basis
the investment portfolios for the Funds. Except when otherwise specifically
directed by the Funds, the Adviser will make investment decisions on behalf of
the Funds and place all orders for the purchase and sale of portfolio securities
for the
ACTIVA Mutual Funds Annual Report 31
C-50
<PAGE>
ACTIVA Notes to Financial Statements continued
Funds' accounts. The Adviser shall be permitted to enter into an agreement with
another advisery organization (sub-adviser), whereby the sub-adviser will
provide all or part of the investment advice and services required to manage the
Funds' investment portfolios as provided for in these agreements. In return for
these services, the Funds pay the adviser an annual rate as follows:
FUND % OF AVERAGE NET ASSETS
- ---- -----------------------
MONEY MARKET .35% until assets total $500 million; when assets reach
$500 million, .35% on first $100 million; .325% on next
$100 million; .30% on assets in excess of $200 million
Intermediate Bond .40% on first $50 million; .32% on assets in excess of
$50 million
Value .65% on first $100 million; .60% on next $50 million, .55%
on next $50 million; when assets reach $200 million, .60%
on first $200 million, .55% on assets in excess of $200
million
Growth .70% on first $25 million; .65% on next $25 million; .60%
on assets in excess of $50 million
International .85% on first $50 million; .75% on assets in excess of $50
million
As permitted by the above agreements, the Adviser has retained the following
sub-advisers:
FUND SUB-ADVISER
- ---- -----------
Money Market JP Morgan Investment Management, Inc.
Intermediate Bond Van Kampen Management, Inc.
Value Ark Asset Management Co., Inc.*
Growth State Street Research & Management Company
International Nicholas-Applegate Capital
Management
* Wellington Management Company, LLP became sub-adviser for the Value Fund
effective December 30, 1999. Prior to that agreement, sub-advisery services
were provided by Ark Asset Management Co., Inc. as disclosed above.
Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Value Fund,
Intermediate Bond Fund, Growth Fund and International Fund have entered into a
Plan and Agreement of Distribution with Activa Asset Management LLC. Under the
terms of the agreement, Activa Asset Management LLC provides services in
connection with distributing the Funds' shares (except the Money Market Fund and
Value Fund Class R). For these services rendered, the Funds compensate Activa
Asset Management LLC monthly at a maximum annual rate of .25 of 1% of the
average net assets of the Fund. For the year or period ended December 31, 1999,
the Board of Trustees approved an annual rate of .15 of 1%.
The Funds have a transfer agency and dividend disbursing agency agreement with
Activa Asset Management LLC. Under these agreements, Activa Asset Management LLC
is the agent for transfer of the Funds' shares and disbursement of the Funds'
distributions. For these services, the Money Market, Intermediate Bond, Value
(Class A), Growth and International Funds pay a monthly fee based upon $1.167
per account in existence during the month (less earnings in the redemption
liquidity account in excess of wire transfer fees). The transfer agent is
compensated by the Value Fund (Class R) at a monthly rate of 1/12 of .20% (.20%
annually) of average net assets.
On June 11, 1999, the Trust entered into an administrative agreement with Activa
Asset Management LLC. Under the terms of the agreement, Activa Asset Management
LLC will act as administrator for the Funds. As administrator of the Funds,
Activa Asset Management LLC will furnish office space and office facilities,
equipment and personnel, pay the fees of all Trustees of the Trust, as well as
providing services relating to compliance, tax and financial service
requirements. For these services, the administrator will be compensated
quarterly by each fund at an annual rate of .15% of average daily net assets.
On July 9, 1999, the Trust entered into a Fund Accounting Agreement with Bisys
Fund Services Ohio, Inc. (Fund Accountant). As stated in the agreement, the Fund
Accountant is responsible for the maintenance of books and records, performance
of daily accounting services, providing the Funds' management with monthly
financial statements and certain information necessary for meeting compliance
requirements. The Fund Accountant is compensated by each
32 ACTIVA Mutual Funds Annual Report
C-51
<PAGE>
ACTIVA Notes to Financial Statements continued
fund based upon an annual fee of $35,000 for assets up to $100 million; $50,000
for assets between $100 million and $1 billion; and $75,000 for assets in excess
of $1 billion. In addition, each fund will pay the Fund Accountant an annual fee
of $2,500 for portfolio accounting reports provided to investment adviser
personnel through internet access.
On August 28, 1999, the Trust entered into a Sub-Transfer Agency Agreement with
Bisys Fund Services Ohio, Inc. For certain sub-transfer agency services
provided, Bisys will be compensated by each fund an annual fee of $12,000 plus
additional fees based upon the number of accounts opened and closed during the
year.
Prior to June 11, 1999, the Value Fund had substantially the same agreements for
all of the above services provided by Amway Management Company, the former
Adviser, Transfer Agent, Distributor and Underwriter.
4. INVESTMENT TRANSACTIONS
At December 31, 1999, the cost of investments owned by the Value Fund was
$120,638,555 for federal income tax purposes. Aggregate gross unrealized gains
on securities in which there was an excess of market value over tax cost were
$1,402,343. Aggregate gross unrealized losses on securities in which there was
an excess of tax cost over market value were $807,338. Net unrealized gains for
tax purposes were $595,004, at December 31, 1999.
The unrealized appreciation (depreciation) based upon cost of both long-term and
short-term securities for the funds that have elected an October 31st year-end
for federal income tax purposes were as follows:
Cost for
Gross Gross Net federal
unrealized unrealized unrealized income tax
Fund appreciation depreciation appreciation purposes
----------- ----------- ----------- ----------
Growth 1,966,675 1,105,436 861,239 28,421,205
Intermediate
Bond 895,305 137,758 757,547 167,106,728
Money Market N/A N/A N/A 98,915,906
International 3,133,444 726,960 2,406,484 27,761,426
For the year or period ended December 31, 1999, cost of purchases and proceeds
from sales of investments, other than short term securities, were as follows:
Fund Gross Purchases Gross Sales
- ----- -------------- ----------
Money Market 12,491,535 --
Intermediate Bond 219,949,287 65,102,512
Value 267,192,171 301,011,480
Growth 34,899,910 6,376,226
International 47,801,654 19,238,777
5. SUBSEQUENT EVENTS
A certain class of Independent Business Owners of Amway Corporation and Amway
Canada, Ltd. (Corporations) received from each corporation part of its Emerald
profit-sharing bonus in common stock shares of the Value Fund. On January 13,
2000, the Corporations purchased 336,807 Value Fund shares valued at $2,222,925
(based upon the net asset value of $6.60 per share) and transferred the shares
to these Independent Business Owners.
On January 20, 2000, the Intermediate Bond Fund declared and paid a dividend of
$.031157 per share, to shareholders of record on January 19, 2000. The amount
distributed was $511,558.
ACTIVA Mutual Funds Annual Report 33
C-52
<PAGE>
ACTIVA Financial Highlights
<TABLE>
<CAPTION>
MONEY INTERMEDIATE
MARKET BOND
FUND** FUND* VALUE FUND - CLASS A
---------- ---------- --------------------------
Per share outstanding throughout the year or
period ended December 31, 1999 1999 1999*** 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Asset Value, beginning of period 1.00 10.00 7.18 7.73
Income from investment operations:
Net investment income (loss) 0.02 0.19 0.09 0.08
Net realized and unrealized gains (losses)
on securities -- (0.13) (0.57) 0.68
---------- ---------- ---------- ----------
Total from investment operations 0.02 0.06 (0.48) 0.76
Less Distributions:
Dividends from net investment income 0.02 0.19 0.09 0.08
Dividends in excess of net investment income -- -- -- --
Distributions from capital gains -- -- -- 1.23
---------- ---------- ---------- ----------
Total Distributions 0.02 0.19 0.09 1.31
---------- ---------- ---------- ----------
Net Asset Value, end of period 1.00 9.87 6.61 7.18
Total Return **** 1.83% 0.63% -6.70% 10.17%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period 122,058,717 162,078,588 178,437,477 179,820,020
Ratio of expenses to average net assets***** 0.6% 0.7% 1.1% 1.0%
Ratio of net income (loss) to average net assets 5.4% 5.7% 1.2% 1.0%
Portfolio turnover rate N/A 64.6% 144.5% 101.1%
Average commission rate paid per share for
portfolio transactions N/A N/A 0.0481 0.0521
</TABLE>
* Period from August 30, 1999 (inception) to December 31, 1999
** Period from August 19, 1999 (inception) to December 31, 1999
*** Effective December 30, 1999, Wellington Management Company, LLP entered
into a Sub-Advisory Agreement with the Fund.
**** Total return does not reflect the effect of the sales charge in the years
before 1998
***** Ratio includes fees paid with brokerage commissions for fiscal years
ending after September 1, 1995; 1999 ratio includes a one time organization
expense.
****** The inception date for Value Fund - Class R was 11/1/98
34 ACTIVA Mutual Funds Annual Report
C-53
<PAGE>
<TABLE>
<CAPTION>
VALUE FUND - CLASS A
-------------------------------------------
Per share outstanding throughout the year or
period ended December 31, 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net Asset Value, beginning of period 7.62 7.43 6.88
Income from investment operations:
Net investment income (loss) 0.09 0.10 0.10
Net realized and unrealized gains (losses)
on securities 1.62 1.59 1.98
---------- ---------- ----------
Total from investment operations 1.71 1.69 2.08
Less Distributions:
Dividends from net investment income 0.10 0.09 0.11
Dividends in excess of net investment income -- -- --
Distributions from capital gains 1.50 1.41 1.42
---------- ---------- ----------
Total Distributions 1.60 1.50 1.53
---------- ---------- ----------
Net Asset Value, end of period 7.73 7.62 7.43
Total Return **** 22.50% 23.18% 30.55%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period 139,163,575 113,327,402 77,248,295
Ratio of expenses to average net assets***** 0.9% 1.0% 1.1%
Ratio of net income (loss) to average net assets 1.1% 1.2% 1.2%
Portfolio turnover rate 103.1% 100.4% 173.3%
Average commission rate paid per share for
portfolio transactions 0.0574 0.0600 0.0598
</TABLE>
<TABLE>
<CAPTION>
GROWTH INTERNATIONAL
VALUE FUND - CLASS R FUND* FUND*
------------------------- ---------- ----------
Per share outstanding throughout the year or
period ended December 31, 1999 1998****** 1999 1999
------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Net Asset Value, beginning of period 7.16 8.42 10.00 10.00
Income from investment operations:
Net investment income (loss) 0.10 0.09 (0.02) (0.03)
Net realized and unrealized gains (losses)
on securities (0.56) (0.02) 1.41 4.23
------- ------- ---------- ----------
Total from investment operations (0.46) 0.07 1.39 4.20
Less Distributions:
Dividends from net investment income 0.10 0.10 -- --
Dividends in excess of net investment income -- -- -- --
Distributions from capital gains -- 1.23 -- --
------- ------- ---------- ----------
Total Distributions 0.10 1.33 -- --
------- ------- ---------- ----------
Net Asset Value, end of period 6.60 7.16 11.39 14.20
Total Return **** -6.43% 7.08% 13.80% 42.00%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period 703,962 135,385 33,494,414 41,359,176
Ratio of expenses to average net assets***** 1.1% 1.0% 1.3% 1.4%
Ratio of net income (loss) to average net assets 1.3% 1.8% -0.5% -0.9%
Portfolio turnover rate 144.5% 101.1% 32.1% 87.6%
Average commission rate paid per share for
portfolio transactions 0.0481 0.0521 0.0332 0.0258
</TABLE>
* Period from August 30, 1999 (inception) to December 31, 1999
** Period from August 19, 1999 (inception) to December 31, 1999
*** Effective December 30, 1999, Wellington Management Company, LLP entered
into a Sub-Advisory Agreement with the Fund.
**** Total return does not reflect the effect of the sales charge in the years
before 1998
***** Ratio includes fees paid with brokerage commissions for fiscal years
ending after September 1, 1995; 1999 ratio includes a one time organization
expense.
****** The inception date for Value Fund - Class R was 11/1/98
ACTIVA Mutual Funds Annual Report 35
C-54
<PAGE>
ACTIVA Independent Auditors' Report
To the Shareholders and Board of Trustees
Activa Mutual Fund Trust
Grand Rapids, Michigan
We have audited the statements of assets and liabilities, including the
schedules of investments, of Activa Mutual Fund Trust (comprising, respectively,
Money Market, Intermediate Bond, Value, Growth and International Funds) as of
December 31, 1999, and the related statements of operations, the statements of
changes in net assets, and the financial highlights for each of the periods
indicated. These financial statements and financials highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds constituting the Activa Mutual Fund Trust, as of
December 31, 1999, the results of their operations, the changes in their net
assets, and their financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles.
/s/ BDO SEIDMAN, LLP
Grand Rapids, Michigan
January 28, 2000
36 ACTIVA Mutual Funds Annual Report
C-55
<PAGE>
(LOGO: ACTIVA Mutual Funds)
Activa Mutual Funds
2905 Lucerne SE, Suite 200
Grand Rapids, Michigan 49546
(616) 787-6288 (800) 346-2670
WWW.ACTIVAFUNDS.COM
PRESORTED
STANDARD A
U.S. POSTAGE PAID
SOUTH SUBURBAN, IL PERMIT #3602
PRINTED IN U.S.A.
C-56
<PAGE>
The index for the financial data schedule required by Rule 483 for the Money
Market Fund follows:
Item No. Item Description Response
-------- ---------------- --------
6-03 Investments - cost 121,810,975
6-04-04 Investments 122,384,478
6-04-6 Receivables. 397,195
6-04-8 Other assets. 1,077
Balancing amount to total assets. 0
6-04-9 Total assets. 122,782,750
6-04 Accounts payable for securities. 0
6-04-13 Senior long-term debt. 0
Balancing amount to total liabilities. 724,033
6-04-14 Total Liabilities. 724,033
6-04-16 Senior equity securities. 0
6-06-16 Paid-in-capital - common shareholders. 122,060,187
6-04-16 Number of shares or units - current period. 122,060,187
6-04-16 Number of shares or units - prior period. 0
6-04-17(a) Accumulated undistributed net investment
income (current year) 0
Overdistribution of net investment income. 0
6-04-17(b) Accumulated undistributed net realized
gains (losses) (1,470)
Overdistribution of realized gains. 0
6-04-17(c) Accumulated net unrealized appreciation
(depreciation). 0
6-04-19 Net assets. 122,058,717
6-07-1(a) Dividend income. 0
6-07-1(b) Interest income. 2,481,410
6-07-1(c) Other income. 251
6-07-2 Expenses - net. 276,094
6-07-6 Net investment income (loss). 2,205,567
6-07-7(a) Realized gains (losses) on investments. (1,470)
6-07-7(d) Net increased (decrease) in appreciation
(depreciation). 0
6-07-9 Net increase (decrease) in net assets resulting
from operations. 2,204,097
6-09-2 Net equalization charges and credits. 0
6-09-3(a) Distributions from net investment income. 2,205,567
6-09-3(b) Distributions from realized gains. 0
6-09-3(c) Distributions from other sources. 0
6-09-4(b) Number of shares sold. 385,892,878
6-09-4(b) Number of shares redeemed. 265,473,100
6-09-4(b) Number of shares issued - reinvestment. 1,640,409
6-09-5 Total increase (decrease). 122,058,717
6-09-6 Accumulated undistributed net investment
income (prior year). 0
6-04-17(b) Accumulated undistributed net realized gains
(prior year). 0
Overdistribution of net investment income.
(prior year). 0
Overdistribution of net realized gains
(prior year). 0
C-57
<PAGE>
Item No. Item Description Response
-------- ---------------- --------
FORM N-SAR
72F Gross advisory fees. 156,807
72P Interest Expense. 0
72X Total expenses (gross). 276,094
75 Average net assets. 121,189,100
FORM N-1A
9 Net asset value per share - beginning of period. 1.00
9 Net investment income (loss) per share. 0.02
9 Net realized and unrealized gain (loss) per share. 0
9 Dividends per share from net investment income. 0.02
9 Distributions per share from realized gains. 0
9 Per share returns of capital and distributions from
other sources. 0
9 Net asset value per share - end of period. 1.00
9 Ratio of expenses to average net assets. 0.7
4(b) Average debt outstanding during period. 0
4(b) Average debt outstanding per share. 0
C-58
<PAGE>
The index for the financial data schedule required by Rule 483 for the
Intermediate Bond Fund follows:
Item No. Item Description Response
-------- ---------------- --------
6-03 Investments - cost 159,263,177
6-04-04 Investments 157,697,931
6-04-6 Receivables. 1,595,307
6-04-8 Other assets. 3,059,828
Balancing amount to total assets. 0
6-04-9 Total assets. 162,353,066
6-04 Accounts payable for securities. 0
6-04-13 Senior long-term debt. 0
Balancing amount to total liabilities. 274,480
6-04-14 Total Liabilities. 274,480
6-04-16 Senior equity securities. 0
6-06-16 Paid-in-capital - common shareholders. 164,170,361
6-04-16 Number of shares or units - current period. 16,418,415
6-04-16 Number of shares or units - prior period. 0
6-04-17(a) Accumulated undistributed net investment
income (current year) 0
Overdistribution of net investment income. 6
6-04-17(b) Accumulated undistributed net realized
gains (losses) (520,543)
Overdistribution of realized gains. 0
6-04-17(c) Accumulated net unrealized appreciation
(depreciation). (1,565,246)
6-04-19 Net assets. 162,078,586
6-07-1(a) Dividend income. 0
6-07-1(b) Interest income. 3,528,866
6-07-1(c) Other income. 9,744
6-07-2 Expenses - net. 409,595
6-07-6 Net investment income (loss). 3,129,045
6-07-7(a) Realized gains (losses) on investments. (520,543)
6-07-7(d) Net increased (decrease) in appreciation
(depreciation). (1,565,246)
6-07-9 Net increase (decrease) in net assets resulting
from operations. 1,043,256
6-09-2 Net equalization charges and credits. 0
6-09-3(a) Distributions from net investment income. 3,135,031
6-09-3(b) Distributions from realized gains. 0
6-09-3(c) Distributions from other sources. 0
6-09-4(b) Number of shares sold. 16,103,631
6-09-4(b) Number of shares redeemed. 100
6-09-4(b) Number of shares issued - reinvestment. 314,884
6-09-5 Total increase (decrease). 162,078,586
6-09-6 Accumulated undistributed net investment
income (prior year). 0
6-04-17(b) Accumulated undistributed net realized gains
(prior year). 0
Overdistribution of net investment income.
(prior year). 0
Overdistribution of net realized gains
(prior year). 0
C-59
<PAGE>
Item No. Item Description Response
-------- ---------------- --------
FORM N-SAR
72F Gross advisory fees. 188,433
72P Interest Expense. 0
72X Total expenses (gross). 409,595
75 Average net assets. 162,027,819
FORM N-1A
9 Net asset value per share - beginning of period. 10.00
9 Net investment income (loss) per share. 0.19
9 Net realized and unrealized gain (loss) per share. (0.13)
9 Dividends per share from net investment income. 0.19
9 Distributions per share from realized gains. 0
9 Per share returns of capital and distributions from 0
other sources
9 Net asset value per share - end of period. 9.87
9 Ratio of expenses to average net assets. 0.6
4(b) Average debt outstanding during period. 0
4(b) Average debt outstanding per share. 0
C-60
<PAGE>
The index for the financial data schedule required by Rule 483 for Value Fund -
Class A follows:
Item No. Item Description Response
-------- ---------------- --------
6-03 Investments - cost 120,425,644
6-04-04 Investments 121,233,559
6-04-6 Receivables. 473,729
6-04-8 Other assets. 164,194,444
Balancing amount to total assets. 0
6-04-9 Total assets. 285,901,732
6-04 Accounts payable for securities. 106,245,261
6-04-13 Senior long-term debt. 0
Balancing amount to total liabilities. 515,032
6-04-14 Total Liabilities. 106,760,293
6-04-16 Senior equity securities. 0
6-06-16 Paid-in-capital - common shareholders. 195,278,066
6-04-16 Number of shares or units - current period. 26,978,952
6-04-16 Number of shares or units - prior period. 25,036,115
6-04-17(a) Accumulated undistributed net investment
income (current year) 0
Overdistribution of net investment income. 60,670
6-04-17(b) Accumulated undistributed net realized
gains (losses) (16,883,872)
Overdistribution of realized gains. 0
6-04-17(C) Accumulated net unrealized appreciation
(depreciation). 807,915
6-04-19 Net assets. 178,437,477
6-07-1(a) Dividend income. 4,131,443
6-07-1(b) Interest income. 337,360
6-07-1(C) Other income. 5,698
6-07-2 Expenses - net. 2,146,528
6-07-6 Net investment income (loss). 2,327,973
6-07-7(a) Realized gains (losses) on investments. (16,305,655)
6-07-7(d) Net increased (decrease) in appreciation
(depreciation). (1,651,637)
6-07-9 Net increase (decrease) in net assets resulting
from operations. (15,629,319)
6-09-2 Net equalization charges and credits. 0
6-09-3(a) Distributions from net investment income. 2,385,633
6-09-3(b) Distributions from realized gains. 0
6-09-3(C) Distributions from other sources. 0
6-09-4(b) Number of shares sold. 5,644,826
6-09-4(b) Number of shares redeemed. 4,054,442
6-09-4(b) Number of shares issued - reinvestment. 352,454
6-09-5 Total increase (decrease). (813,966)
6-09-6 Accumulated undistributed net investment
income (prior year). 6,548
6-04-17(b) Accumulated undistributed net realized gains
(prior year). 0
Overdistribution of net investment income.
(prior year). 0
Overdistribution of net realized gains
(prior year). 578,288
C-61
<PAGE>
Item No. Item Description Response
-------- ---------------- --------
FORM N-SAR
72F Gross advisory fees. 1,062,092
72P Interest Expense. 0
72X Total expenses (gross). 2,164,678
75 Average net assets. 193,299,883
FORM N-1A
9 Net asset value per share - beginning of period. 7.18
9 Net investment income (loss) per share. 0.09
9 Net realized and unrealized gain (loss) per share. (0.57)
9 Dividends per share from net investment income. 0.09
9 Distributions per share from realized gains. 0
9 Per share returns of capital and distributions from 0
other sources.
9 Net asset value per share - end of period. 6.61
9 Ratio of expenses to average net assets. 1.1
4(b) Average debt outstanding during period. 0
4(b) Average debt outstanding per share. 0
C-62
<PAGE>
The index for the financial data schedule required by Rule 483 for Value Fund -
Class R follows:
Item No. Item Description Response
-------- ---------------- --------
6-03 Investments - cost 120,425,644
6-04-04 Investments 121,233,559
6-04-6 Receivables. 473,729
6-04-8 Other assets. 164,194,444
Balancing amount to total assets. 0
6-04-9 Total assets. 285,901,732
6-04 Accounts payable for securities. 106,245,261
6-04-13 Senior long-term debt. 0
Balancing amount to total liabilities. 515,032
6-04-14 Total Liabilities. 106,760,293
6-04-16 Senior equity securities. 0
6-06-16 Paid-in-capital - common shareholders. 195,278,066
6-04-16 Number of shares or units - current period. 106,730
6-04-16 Number of shares or units - prior period. 18,916
6-04-17(a) Accumulated undistributed net investment
income (current year) 0
Overdistribution of net investment income. 60,670
6-04-17(b) Accumulated undistributed net realized
gains (losses) (16,883,872)
Overdistribution of realized gains. 0
6-04-17(c) Accumulated net unrealized appreciation
(depreciation). 807,915
6-04-19 Net assets. 703,962
6-07-1(a) Dividend income. 4,131,443
6-07-1(b) Interest income. 337,360
6-07-1(c) Other income. 5,698
6-07-2 Expenses - net. 2,146,528
6-07-6 Net investment income (loss). 2,327,973
6-07-7(a) Realized gains (losses) on investments. (16,305,655)
6-07-7(d) Net increased (decrease) in appreciation
(depreciation). (1,651,637)
6-07-9 Net increase (decrease) in net assets resulting
from operations. (15,629,319)
6-09-2 Net equalization charges and credits. 0
6-09-3(a) Distributions from net investment income. 9,561
6-09-3(b) Distributions from realized gains. 0
6-09-3(c) Distributions from other sources. 0
6-09-4(b) Number of shares sold. 101,720
6-09-4(b) Number of shares redeemed. 15,356
6-09-4(b) Number of shares issued - reinvestment. 1,449
6-09-5 Total increase (decrease). (813,966)
6-09-6 Accumulated undistributed net investment
income (prior year). 6,548
6-04-17(b) Accumulated undistributed net realized gains
(prior year). 0
Overdistribution of net investment income.
(prior year). 0
Overdistribution of net realized gains
(prior year). 578,288
C-63
<PAGE>
Item No. Item Description Response
-------- ---------------- --------
FORM N-SAR
72F Gross advisory fees. 1,062,092
72P Interest Expense. 0
72X Total expenses (gross). 2,164,678
75 Average net assets. 407,821
FORM N-1A
9 Net asset value per share - beginning of period. 7.16
9 Net investment income (loss) per share. 0.10
9 Net realized and unrealized gain (loss) per share. (0.56)
9 Dividends per share from net investment income. 0.10
9 Distributions per share from realized gains. 0
9 Per share returns of capital and distributions from 0
other sources.
9 Net asset value per share - end of period. 6.60
9 Ratio of expenses to average net assets. 1.1
4(b) Average debt outstanding during period. 0
4(b) Average debt outstanding per share. 0
C-64
<PAGE>
The index for the financial data schedule required by Rule 483 for the Growth
Fund follows:
Item No. Item Description Response
-------- ---------------- --------
6-03 Investments - cost 29,505,806
6-04-04 Investments 34,118,184
6-04-6 Receivables. 82,877
6-04-8 Other assets. 29,695
Balancing amount to total assets. 0
6-04-9 Total assets. 34,230,756
6-04 Accounts payable for securities. 655,355
6-04-13 Senior long-term debt. 0
Balancing amount to total liabilities. 736,343
6-04-14 Total Liabilities. 736,343
6-04-16 Senior equity securities. 0
6-06-16 Paid-in-capital - common shareholders. 29,440,670
6-04-16 Number of shares or units - current period. 2,941,725
6-04-16 Number of shares or units - prior period. 0
6-04-17(a) Accumulated undistributed net investment
income (current year) (50,988)
Overdistribution of net investment income. 0
6-04-17(b) Accumulated undistributed net realized
gains (losses) (507,647)
Overdistribution of realized gains. 0
6-04-17(c) Accumulated net unrealized appreciation
(depreciation). 4,612,378
6-04-19 Net assets. 33,484,413
6-07-1(a) Dividend income. 71,774
6-07-1(b) Interest income. 21,388
6-07-1(c) Other income. 291
6-07-2 Expenses - net. 144,441
6-07-6 Net investment income (loss). (50,988)
6-07-7(a) Realized gains (losses) on investments. (507,647)
6-07-7(d) Net increased (decrease) in appreciation
(depreciation). 4,612,378
6-07-9 Net increase (decrease) in net assets resulting
from operations. 4,053,743
6-09-2 Net equalization charges and credits. 0
6-09-3(a) Distributions from net investment income. 0
6-09-3(b) Distributions from realized gains. 0
6-09-3(c) Distributions from other sources. 0
6-09-4(b) Number of shares sold. 2,941,753
6-09-4(b) Number of shares redeemed. 28
6-09-4(b) Number of shares issued - reinvestment. 0
6-09-5 Total increase (decrease). 33,494,413
6-09-6 Accumulated undistributed net investment
income (prior year). 0
6-04-17(b) Accumulated undistributed net realized gains
(prior year). 0
Overdistribution of net investment income.
(prior year). 0
Overdistribution of net realized gains
(prior year). 0
C-65
<PAGE>
Item No. Item Description Response
-------- ---------------- --------
FORM N-SAR
72F Gross advisory fees. 69,526
72P Interest Expense. 0
72X Total expenses (gross). 144,441
75 Average net assets. 29,914,991
FORM N-1A
9 Net asset value per share - beginning of period. 10.00
9 Net investment income (loss) per share. (0.02)
9 Net realized and unrealized gain (loss) per share. 1.41
9 Dividends per share from net investment income. 0
9 Distributions per share from realized gains. 0
9 Per share returns of capital and distributions from 0
other sources.
9 Net asset value per share - end of period. 11.39
9 Ratio of expenses to average net assets. 1.2
4(b) Average debt outstanding during period. 0
4(b) Average debt outstanding per share. 0
C-66
<PAGE>
The index for the financial data schedule required by Rule 483 for the
International Fund follows:
Item No. Item Description Response
-------- ---------------- --------
6-03 Investments - cost 27,677,077
6-04-04 Investments 40,363,324
6-04-6 Receivables. 310,866
6-04-8 Other assets. 994,283
Balancing amount to total assets. 0
6-04-9 Total assets. 41,668,473
6-04 Accounts payable for securities. 206,357
6-04-13 Senior long-term debt. 0
Balancing amount to total liabilities. 309,297
6-04-14 Total Liabilities. 309,297
6-04-16 Senior equity securities. 0
6-06-16 Paid-in-capital - common shareholders. 29,146,031
6-04-16 Number of shares or units - current period. 2,911,935
6-04-16 Number of shares or units - prior period. 0
6-04-17(a) Accumulated undistributed net investment
income (current year) (98,962)
Overdistribution of net investment income. 0
6-04-17(b) Accumulated undistributed net realized
gains (losses) (374,090)
Overdistribution of realized gains. 0
6-04-17(c) Accumulated net unrealized appreciation
(depreciation). 12,686,197
6-04-19 Net assets. 41,359,176
6-07-1(a) Dividend income. 24,054
6-07-1(b) Interest income. 47,710
6-07-1(c) Other income. 300
6-07-2 Expenses - net. 171,026
6-07-6 Net investment income (loss). (98,962)
6-07-7(a) Realized gains (losses) on investments. (374,090)
6-07-7(d) Net increased (decrease) in appreciation
(depreciation). 12,686,197
6-07-9 Net increase (decrease) in net assets resulting
from operations. 12,213,145
6-09-2 Net equalization charges and credits. 0
6-09-3(a) Distributions from net investment income. 0
6-09-3(b) Distributions from realized gains. 0
6-09-3(c) Distributions from other sources. 0
6-09-4(b) Number of shares sold. 2,912,903
6-09-4(b) Number of shares redeemed. 969
6-09-4(b) Number of shares issued - reinvestment. 0
6-09-5 Total increase (decrease). 41,359,176
6-09-6 Accumulated undistributed net investment
income (prior year). 0
6-04-17(b) Accumulated undistributed net realized gains
(prior year). 0
Overdistribution of net investment income.
(prior year). 0
Overdistribution of net realized gains
(prior year). 0
C-67
<PAGE>
Item No. Item Description Response
-------- ---------------- --------
FORM N-SAR
72F Gross advisory fees. 92,574
72P Interest Expense. 0
72X Total expenses (gross). 171,026
75 Average net assets. 32,365,246
FORM N-1A
9 Net asset value per share - beginning of period. 10.00
9 Net investment income (loss) per share. (0.03)
9 Net realized and unrealized gain (loss) per share. 4.23
9 Dividends per share from net investment income. 0
9 Distributions per share from realized gains. 0
9 Per share returns of capital and distributions from 0
other sources.
9 Net asset value per share - end of period. 14.20
9 Ratio of expenses to average net assets. 1.3
4(b) Average debt outstanding during period. 0
4(b) Average debt outstanding per share. 0
C-68
<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 Investment Inc., 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, Activa 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, Meadowbrooke Corp., 7575 East Fulton Road,
Ada, Michigan 49355, 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, Activa Mutual Fund Trust, 7575 East Fulton
Road, Ada, Michigan 49355, Vice President, Secretary, Assistant
Treasurer and Director.
C-69
<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 Investment, Inc., 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, Activa 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.
C-70
<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, Activa 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
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.
C-71
<PAGE>
SCHEDULE RE BUSINESS HISTORY AND EDUCATION
J.P. MORGAN INVESTMENT MANAGEMENT, INC.
Education and Business Background of the Directors and Principal Executive
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.
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 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.
C-72
<PAGE>
SCHEDULE RE BUSINESS HISTORY AND EDUCATION
J.P. MORGAN INVESTMENT MANAGEMENT, INC.
Education and Business Background of the Directors and Principal Executive
Officers:
ANDERSON, KENNETH W.
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.
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.
C-73
<PAGE>
SCHEDULE RE BUSINESS HISTORY AND EDUCATION
J.P. MORGAN INVESTMENT MANAGEMENT, INC.
Education and Business Background of the Directors and Principal Executive
Officers:
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.
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.
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.
C-74
<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)
Mr. Powers has served as:
Director, President and Chief Executive Officer of:
VK/AC Holding, Inc. (7/98-7/98)
President, Chief Executive Office and Chairman of:
River View International Inc. (8/98-09/99)
C-75
<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)
C-76
<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:
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)
River View International Inc. (8/98-09/99)
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)
C-77
<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)
C-78
<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 Officer 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)
C-79
<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)
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)
Director, Executive Vice President, General Counsel and Asst.
Secretary of:
River View International Inc. (2/99-09/99)
C-80
<PAGE>
SCHEDULE RE BUSINESS HISTORY AND EDUCATION
VAN KAMPEN MANAGEMENT INC.
KOCHEVAR, ANNE STEELE (1963)
Education:
Indiana University (BS-Business, 1985)
Business Background:
Currently:
Asst. Vice President & Compliance Director of:
Van Kampen Management Inc. (since 7/99)
Van Kampen Investments Inc. (since 6/92)
Van Kampen Investment Advisory Corp. (since 7/99)
Van Kampen Funds Inc. (since 7/99)
Van Kampen Asset Management Inc. (since 7/99)
Van Kampen Advisors Inc. (since 7/99)
C-81
<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)
C-82
<PAGE>
SCHEDULE RE BUSINESS HISTORY AND EDUCATION
VAN KAMPEN MANAGEMENT INC.
ANDREWS, DON JAMES (1958)
Education:
ITT/Chicago (JD, 1987)
Harvard University (MTS, 1982)
Elmhurst College (BA-English, 1979)
Business Background:
Currently:
Senior Vice President and Chief Compliance Officer of:
Van Kampen Investments Inc. (since 10/99)
Van Kampen Funds Inc. (since 10/99)
Van Kampen Investment Advisory Corp. (since 10/99)
Van Kampen Management Inc. (since 10/99)
Van Kampen Advisors Inc. (since 10/99)
Van Kampen Investor Services Inc. (since 10/99)
Van Kampen Insurance Agency of Illinois Inc. (since 10/99)
Van Kampen Record Keeping Services Inc. (since 10/99)
Mr. Andrews also served as:
Senior VP and Senior Attorney:
Everen Securities (9/93-10/99)
Sr. Trial Counsel
Securities & Exchange Commission (7/88-9/93)
C-83
<PAGE>
SCHEDULE RE BUSINESS HISTORY
WELLINGTON MANAGEMENT COMPANY, LLP
Abrams, Kenneth Lee
Education: Stanford University Business School MBA, 1986
Stanford University BA, 1982
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Adams, Nicholas Charles
Education: Princeton University BA, 1983
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Alexander, Rand Lawrence
Education: University of Pennsylvania - Wharton School MBA, 1976
Dartmouth College AB, 1972
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Alexander Capital Management (1990) Owner
Putnam Management Company (1989) Portfolio Manager
Allinson, Deborah Louise
Education: Tufts University BA, 1972
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Averill, James Halsey
Education: Columbia University MBA, 1985
Cornell University PhD, 1976
Yale University AB, 1969
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
C-84
<PAGE>
SCHEDULE RE BUSINESS HISTORY
WELLINGTON MANAGEMENT COMPANY, LLP
Bandtel, Karl Edward
Education: University of Wisconsin MS, 1990
University of Wisconsin BS, 1988
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Bernal, Marie Claude Petit
Education: University of Chicago MBA, 1971
Ecole De Haut Enseignement Commercial BS, 1967
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Booth, William Nicholas
Education: Trinity College BA, 1971
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Braverman, Paul
Education: Boston University School of Law JD, 1973
Boston University BS, 1970
Position(s): Wellington Management Company, LLP Sr. Vice
President, CFO and
Partner
Digital Equipment Corp. (1986) Corporate Pension
Manager
Bruno, Robert Anthony
Education: Babson College MBA, 1983
Babson College BS, 1977
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Fleet Bank (1993) Investment
Portfolio Manager
Bank of New England (1991) Investment
Portfolio
Manager/Trader
C-85
<PAGE>
SCHEDULE RE BUSINESS HISTORY
WELLINGTON MANAGEMENT COMPANY, LLP
Carroll, Maryann Evelyn
Education: Babson College MBA, 1994
Wheaton College BA, 1979
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Dippel, Pamela
Education: Harvard Business School MBA, 1984
Princeton University BA, 1978
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Freeman, Charles Townsend
Education: University of Pennsylvania MBA, 1969
University of Pennsylvania BS, 1966
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Gabriel, Laurie Allen
Education: Jackson College - Tufts University BA, 1976
Position(s): Wellington Management Company, LLP Sr. Vice President
and Managing
Partner
Gilday, Frank Joseph, III
Education: University of Baltimore BS, 1967
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
C-86
<PAGE>
SCHEDULE RE BUSINESS HISTORY
WELLINGTON MANAGEMENT COMPANY, LLP
Gooch, John Herrick
Education: Harvard Business School MBA, 1965
Columbia College BA, 1963
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Greville, Nicholas Peter
Education: Trinity College MA, 1967
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Citibank, NA/Citicorp. (1989) Division Executive
Hamel, Paul Joseph
Education: McGill University MBA, 1981
University of Massachusetts BS, 1977
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Putnam Investments (1996) Supervisor
Investment Systems
Textron Financial Corp. (1993) VP, Information
Systems, CIO
Hill, Lucius Tuttle, III
Education: Columbia Business School MBA, 1993
Yale College BA, 1983
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
First Boston Corporation (1990) Bond Trader
Dean Witter Reynolds (1986) Bond Trader
Kaplan, Paul David
Education: MIT Sloan School of Management MS, 1974
Dickinson College BA, 1968
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
C-87
<PAGE>
SCHEDULE RE BUSINESS HISTORY
WELLINGTON MANAGEMENT COMPANY, LLP
Keogh, John Charles
Education: Tufts University BA, 1979
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Lodge, George Cabot, Jr.
Education: Harvard Business School MBA, 1987
School of Foreign Service BSFS, 1980
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
McKinsey & Company (1993) Consulting
Lukitsh, Nancy Therese
Education: Harvard University Graduate School of MBA, 1980
Business Administration
Massachusetts Institute of Technology BS, 1978
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
McKinsey & Company, Inc. (1993) Partner
Lynch, Mark Thomas
Education: Harvard College AB, 1982
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Bear Stearns (1994) Broker/Dealer
Lehman Brothers (1992) Broker/Dealer
Manfredi, Christine Smith
Education: Bentley College BA, 1973
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Shawmut Bank, NA (1988) Sr. Vice President
-Securities
Division
C-88
<PAGE>
SCHEDULE RE BUSINESS HISTORY
WELLINGTON MANAGEMENT COMPANY, LLP
McCloskey, Patrick John
Education: St. Joseph's University N/A
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
McEvoy, Earl Edward
Education: Columbia University Business School MBA, 1972
Dartmouth College BA, 1970
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
McFarland, Duncan Mathieu
Education: Yale University BA, 1965
Position(s): Wellington Management Company, LLP CEO, President and
Managing Partner
Mecray, Paul Mulford, III
Education: University of Pennsylvania - Wharton School MBA, 1962
Princeton University AB, 1960
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Megargel, Matthew Edward
Education: University of Virginia - Darden School MBA, 1983
University of North Carolina - Chapel Hill BA, 1979
Position(s): Wellington Management Company, LLP Sr. Vice Presdient
and Partner
C-89
<PAGE>
SCHEDULE RE BUSINESS HISTORY
WELLINGTON MANAGEMENT COMPANY, LLP
Mordy, James Nelson
Education: University of Pennsylvania - Wharton School MBA, 1985
Stanford University BA, 1980
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Nordin, Diane Carol
Education: Wheaton College BA, 1980
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Fidelity Management Trust Company (1991) Assistant Vice
President
O'Brien, Stephen Thomas
Education: University of Pittsburgh MBA, 1970
Assumption College BA, 1969
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Owens, Edward Paul
Education: Harvard Business School MBA, 1974
University of Virginia BS, 1968
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Pannell, Saul Joseph
Education: Harvard Business School MBA, 1974
Harvard College BA, 1972
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
C-90
<PAGE>
SCHEDULE RE BUSINESS HISTORY
WELLINGTON MANAGEMENT COMPANY, LLP
Pappas, Thomas Louis
Education: MIT Sloan School of Management MS, 1987
Tufts University BS, 1983
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Payson, Jonathan Martin
Education: Yale University BA, 1979
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Pazuk, Stephen Michael
Education: LaSalle College BS, 1965
Position(s): Wellington Management Company, LLP Sr. Vice
President,
Treasurer and
Partner
Rands, Robert Douglas
Education: Unviersity of Pennsylvania - Wharton School MBA, 1966
Yale University BA, 1964
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Record, Eugene Edward, Jr.
Education: University of Pennsylvania - Wharton School MBA, 1968
University of North Carolina BA, 1963
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
C-91
<PAGE>
SCHEDULE RE BUSINESS HISTORY
WELLINGTON MANAGEMENT COMPANY, LLP
Rullo, James Albert
Education: Babson College MBA, 1985
Boston University BSBA, 1981
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
PanAgora Asset Management (1994) Portfolio Manager
Ryan, John Robert
Education: University of Virginia - Darden School MBA, 1981
Lehigh University BS, 1971
Position(s): Wellington Management Company, LLP Sr. Vice President
and Managing
Partner
Schwartz, Joseph Harold
Education: St. John's University MBA, 1972
St. John's University BA, 1970
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Shasta, Theodore Efthimion
Education: Harvard College BA, 1973
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Loomis, Sayles & Co. (1996) Vice President
Equity Research
Shorts, Binkley Calhoun
Education: Harvard Business School MBA, 1969
Pomona College BA, 1965
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
C-92
<PAGE>
SCHEDULE RE BUSINESS HISTORY
WELLINGTON MANAGEMENT COMPANY, LLP
Skramstad, Trond
Education: UCLA MBA, 1985
Mount St. Mary's College BS, 1983
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Scudder, Stevens & Clark, Inc. (1993) Principal
Smith Barney (1990) Analyst
Smith, Catherine Anne
Education: Harvard/Radcliffe College AB, 1983
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Soderberg, Stephen Albert
Education: Harvard Business School MBA, 1974
University of Pennsylvania BS, 1970
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Spidle, Lawrence James
Education: Suffolk University MBA, 1974
University of Massachusetts BS, 1968
Position(s): Wellington Management Company, LLP Vice President
Swords, Brendan James
Education: Harvard Business School MBA, 1989
College of the Holy Cross AB, 1983
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
McKinsey & Company, Inc. (1992) Consultant
C-93
<PAGE>
SCHEDULE RE BUSINESS HISTORY
WELLINGTON MANAGEMENT COMPANY, LLP
Taggart, Harriett Tee
Education: Massachusetts Institute of Technology PhD
Harvard University MBA
Smith College BA, 1970
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Traquina, Perry Marques
Education: Harvard Business School MBA, 1980
Brandeis University
London School of Economics BA, 1978
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Tremblay, Gene Roger
Education: Harvard Business School MBA, 1969
Newark College of Engineering BSEE, 1964
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Tyler, Michael Aaron
Education: Harvard Business School MBA, 1987
Princeton University BA, 1982
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Tynan, Mary Ann
Education: Smith College BA, 1967
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
C-94
<PAGE>
SCHEDULE RE BUSINESS HISTORY
WELLINGTON MANAGEMENT COMPANY, LLP
Villair, Clare
Education: University of Oregon Graduate School of MBA, 1980
Business Administration
Brooklyn College BA, 1974
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
von Metzsch, Ernst Hans
Education: Harvard University PhD, 1976
University of Leiden BSc/MSc, 1963
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Walters, James Leland
Education: Ohio State University Law School JD, 1966
Ohio State University BS, 1963
Position(s): Wellington Management Company, LLP Sr. Vice
President, Special
Counsel, and
Partner
Williams, Kim
Education: Quen Mary College - University of London MSc, 1979
Kingston Polytechnic BA, 1978
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
Wisneski, Francis Vincent, Jr.
Education: University of Pennsylvania - Wharton School
Yale University BA, 1968
Position(s): Wellington Management Company, LLP Sr. Vice President
and Partner
C-95
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE RE BUSINESS HISTORY
STATE STREET RESEARCH AND MANAGEMENT COMPANY
<S> <C> <C>
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
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
Clifford, Jr., Paul J. Vice President State Street Research & Management Co.
Vice President State Street Research Tax-Exempt Trust
Dillman, Thomas J. Sr. Vice President State Street Research & Management Co.
Vice President State Street Research Securities Trust
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
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
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
C-96
<PAGE>
<CAPTION>
SCHEDULE RE BUSINESS HISTORY
STATE STREET RESEARCH AND MANAGEMENT COMPANY
<S> <C> <C>
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
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
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
C-97
<PAGE>
<CAPTION>
SCHEDULE RE BUSINESS HISTORY
STATE STREET RESEARCH AND MANAGEMENT COMPANY
<S> <C> <C>
Maus, Gerard P. Treasurer State Street Research Exchange Trust
(continued) 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)
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.
Mulligan, JoAnne C. Sr. Vice President State Street Research & Management Co.
Peters, Kim M. Sr. Vice President State Street Research & Management Co.
Vice President State Street Research Securities Trust
Ragsdale, E.K. Easton Sr. Vice President State Street Research & Management Co.
Vice President State Street Research Financial Trust
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
Ryan, Michael J. Sr. Vice President State Street Research & Management Co.
Vice President Delaware Management
(until 1/98)
C-98
<PAGE>
<CAPTION>
SCHEDULE RE BUSINESS HISTORY
STATE STREET RESEARCH AND MANAGEMENT COMPANY
<S> <C> <C>
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)
Strelow, Dan R. Sr. Vice President State Street Research & Management Co.
Swanson, Sr. Vice President State Street Research & Management Co.
Amy McDermott
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
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
C-99
<PAGE>
<CAPTION>
SCHEDULE RE BUSINESS HISTORY
STATE STREET RESEARCH AND MANAGEMENT COMPANY
<S> <C> <C>
Verni, Ralph F. Chairman, President, State Street Research Portfolios, Inc.
(continued) 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.
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.
Westvold, Sr. Vice President State Street Research & Management Co.
Elizabeth McCombs Vice President State Street Research Securities Trust
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
C-100
<PAGE>
<CAPTION>
SCHEDULE RE BUSINESS HISTORY
STATE STREET RESEARCH AND MANAGEMENT COMPANY
<S> <C> <C>
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>
C-101
<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
C-102
<PAGE>
SCHEDULE RE BUSINESS HISTORY AND EDUCATION
NICHOLAS-APPLEGATE
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
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
C-103
<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(b) 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 February 29, 2000.
- --------------------------------------------------------------------------------
ACTIVA 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 February 29, 2000
- ---------------------
JAMES J. ROSLONIEC Financial Officer and
Trustee
/s/ Allan D. Engel Principal Accounting February 29, 2000
- ---------------------
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 February 29, 2000
--------------------------
JAMES J. ROSLONIEC
(Attorney-in-Fact)
<PAGE>
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 Activa
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;
NOW, 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 of 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
6th day of December 1999.
Richard A. DeWitt, Trustee /s/ Richard A. DeWitt
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.
COUNTY 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, WALTER T. JONES and RICHARD E. WAYMAN, of ACTIVA 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
6th day of December, 1999.
/s/ Patricia S. Grooters
--------------------
Patricia S. Grooters
<PAGE>
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
December 6, 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 February 2000 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 directors to James J. Rosloniec, President.
Following discussion by the Board, upon a motion by Mr. Jones, seconded
by Mr. Wayman, unanimously adopted the following resolutions:
RESOLVED: That the Board of Trustees hereby approve for filing the
Fund's Post Effective Amendment No. 49 and any subsequent amendment
relating to this filing pursuant to Rule 485 of the Securities Act of
1933 to reflect changes recommended by outside legal counsel;
FURTHER RESOLVED: That the Power of Attorney executed by the
disinterested Trustees of the Fund, dated December 6, 1999 is hereby
approved for use in conjunction with Post Effective Amendment No. 49
and any subsequent amendment relating to this filing; 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 6th day of December 1999.
/s/ Allan D. Engel
------------------------------------
Allan D. Engel
Secretary of Amway Mutual Fund Trust
