S&P 500 INDEX FUND
S&P MIDCAP 400 INDEX FUND
RUSSELL 2000 SMALL CAP INDEX FUND
NASDAQ 100 INDEX FUND
BALANCED INDEX FUND
LEHMAN AGGREGATE BOND INDEX FUND
EVEREST FUND
BOND FUND
SHORT-TERM GOVERNMENT FUND
PROSPECTUSES
DECEMBER 27, 1999
(as supplemented March 20, 2000)
SUMMIT MUTUAL FUNDS, INC.
SUMMIT APEX SERIES
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December 27, 1999
SUMMIT MUTUAL FUNDS, INC.
TABLE OF CONTENTS
Introduction...................................................1
Fund Profiles .................................................2
S&p 500 Index Fund Profile................................2
S&p Midcap 400 Index Fund Profile.........................2
Russell 2000 Small Cap Index Fund Profile.................3
Nasdaq 100 Index Fund Profile.............................4
Balanced Index Fund Profile...............................5
Lehman Aggregate Bond Index Fund Profile..................7
Everest Fund Profile......................................8
Bond Fund Profile....................................... .9
Short-term Government Fund Profile.......................10
Fees And Expenses of The Fund.................................12
Other Investment Policies, Strategies And Risks...............13
Foreign Securities.......................................13
Foreign Currency Transactions............................13
High Yield Bonds.........................................14
Repurchase Agreements....................................14
Reverse Repurchase Agreements............................14
Futures Contracts And Options on Futures
Contracts...........................................14
Options on Securities Indices............................15
Collateralized Mortgage Obligations..................... 16
Asset-backed And Mortgage-backed Securities..............16
Lending Fund Securities..................................16
Other Information........................................17
Fund Management...............................................18
Investment Adviser.......................................18
Advisory Fee.............................................18
Expenses.................................................19
Capital Stock............................................19
Shareholder Information.......................................20
Pricing of Fund Shares...................................20
Purchase of Shares.......................................20
Redemption of Shares.....................................22
Dividends And Capital Gains Distributions....................25
Federal Taxes.................................................26
State And Local Taxes.........................................26
S&P, Frank Russell And Nasdaq Disclaimers....................27
Financial Highlights..........................................27
Appendix A: Ratings..........................................28
Corporate Bond Ratings...................................28
Commercial Paper Ratings.................................29
Appendix B: S&p 500, S&p Midcap 400, Russell 2000
And Nasdaq 100 Index Returns................................30
These securities have not been approved or disapproved by the
Securities and Exchange Commission ("SEC") nor any state.
Neither the SEC nor any state has determined whether this
prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
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INTRODUCTION
This prospectus explains the objectives, risks and strategies of
nine of the twenty-two Funds comprising Summit Mutual Funds, Inc.
("Summit Mutual Funds"), formerly known as Carillon Fund, Inc.
Each Fund Profile below summarizes important facts about the
Fund, including its investment objective, strategy, risks and
past investment performance. More detailed information about
some of the Funds' investment policies and strategies is provided
after the Profiles, along with information about Fund expenses
for each Fund.
The nine Funds included in this Prospectus are part of the Summit
Mutual Funds' Summit Apex Series, whose shares are offered
without sales charge to institutional and retail investors. These
Funds are also offered to The Union Central Life Insurance
Company ("Union Central") and its exempt separate accounts. It
is anticipated that Union Central will have voting control of
Summit Mutual Funds. With voting control, Union Central could
make fundamental and substantial changes (such as electing a new
Board of Directors, changing the investment adviser or advisory
fee, changing a Fund's fundamental investment objectives and
policies, etc.) regardless of the views of other shareholders.
INDEX FUNDS
The S&P 500 Index Fund seeks investment results that
correspond to the total return performance of U.S. common
stocks, as represented by the S&P 500 Index.
The S&P MidCap 400 Index Portfolio seeks investment results
that correspond to the total return performance of U.S.
common stocks, as represented by the S&P MidCap 400 Index.
The Russell 2000 Small Cap Index Fund seeks investment
results that correspond to the investment performance of
U.S. common stocks, as represented by the Russell 2000
Index.
The Nasdaq 100 Index Fund seeks investment results that
correspond to the investment performance of U.S. common
stocks, as represented by the Nasdaq-100 Index.
The Balanced Index Fund seeks investment results, with
respect to 60% of its assets, that correspond to the total
return performance of U.S. common stocks, as represented by
the S&P 500 Index and, with respect to 40% of its assets,
that correspond to the total return performance of
investment grade bonds, as represented by the Lehman
Brothers Aggregate Bond Index.
The Lehman Aggregate Bond Index Fund seeks investment
results that correspond to the total return performance of
the bond market, as represented by the Lehman Brothers
Aggregate Bond Index ("Lehman Bond Index").
MANAGED FUNDS
The Everest Fund seeks primarily long-term appreciation of
capital, without incurring unduly high risk, by investing
primarily in common stocks and other equity securities.
Current income is a secondary objective.
The Bond Fund seeks as high a level of current income as is
consistent with reasonable investment risk, by investing
primarily in long-term, fixed-income, investment-grade
corporate bonds.
The Short-term Government Fund seeks to provide a high level
of current income and preservation of capital by investing
100% of its total assets in bonds issued by the U.S.
government and its agencies.
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FUND PROFILES
S&P 500 INDEX FUND PROFILE
Investment Objective
The S&P 500 Index Fund seeks investment results that correspond
to the total return performance of U.S. common stocks, as
represented by the S&P 500 Index.
Investment Strategies
The S&P 500 Index Fund seeks to substantially replicate the total
return of the securities comprising the S&P 500 Index, taking
into consideration redemptions, sales of additional shares, and
other adjustments described below. Precise replication of the
capitalization weighting of the securities in the S&P 500 Index
is not feasible. The Index Fund will attempt to achieve, in both
rising and falling markets, a correlation of at least 95% between
the total return of its net assets before expenses and the total
return of the S&P 500. A correlation of 100% would represent
perfect correlation between the Fund and index performance. The
correlation of the Fund's performance to that of the S&P 500
should increase as the Fund grows. There can be no assurance
that the Fund will achieve a 95% correlation.
The S&P 500 Index Fund may invest up to 5% of its assets in
Standard & Poor's Depositary Receipts ("SPDRs "). SPDRs are
units of beneficial interest in a unit investment trust,
representing proportionate undivided interests in a portfolio of
securities in substantially the same weighting as the common
stocks that comprise the S&P 500 Index .
The Fund may invest up to 20% of its assets in S&P 500 Index
futures contracts and options in order to invest uncommitted cash
balances, to maintain liquidity to meet shareholder redemptions,
or minimize trading costs. The Fund may also sell covered calls
on futures contracts or individual securities held in the Fund.
Although the Adviser will attempt to invest as much of the S&P
500 Index Fund's assets as is practical in stocks included among
the S&P 500 Index and futures contracts and related options, a
portion of the Fund may be invested in money market instruments
pending investment or to meet redemption requests or other needs
for liquid assets. In addition, for temporary defensive
purposes, the Fund may invest in government securities, money
market instruments, or other fixed-income securities, or retain
cash or cash equivalents.
Primary Risks
- - Market risk: The S&P 500 Index Fund's total return, like
stock prices generally, will fluctuate within a wide range
in response to stock market trends, so a share of the Fund
could drop in value over short or even long periods. Stock
markets tend to move in cycles, with periods of rising prices
and periods of falling prices.
- - Investment style risk: Stocks of large companies, such as
those listed among the S&P 500 Index occasionally go through
cycles of doing worse (or better) than the stock markets in
general or other types of investments.
- - Correlation risk: Because the S&P Index Fund has expenses,
and the S&P 500 Index does not, the Fund may be unable to
replicate precisely the performance of the Index. While the
Fund remains small, it may have a greater risk that its
performance will not match that of the Index.
Since this is a new Fund, there is no bar chart or performance
table.
S&P MIDCAP 400 INDEX FUND PROFILE
Investment Objective
The S&P MidCap 400 Index Fund seeks investment results that
correspond to the total return performance of U.S. common stocks,
as represented by the S&P MidCap 400 Index.
Investment Strategies
The S&P MidCap 400 Index Fund seeks to substantially replicate
the total return of the securities comprising the S&P MidCap 400
Index, taking into consideration redemptions, sales of additional
shares, and other adjustments described below. Precise
replication of the capitalization weighting of the securities in
the S&P MidCap 400 Index is not feasible. The S&P MidCap 400
Index Fund will attempt to achieve, in both rising and falling
markets, a correlation of at least 95% between the total return
of its net assets before expenses and the total return of the S&P
MidCap 400 Index. A correlation of 100% would represent perfect
correlation between the Fund and index performance. The
correlation of the Fund's performance to that of the S&P MidCap
400 Index should increase as the Fund grows. There can be no
assurance that the Fund will achieve a 95% correlation.
The S&P MidCap 400 Index Fund may invest up to 5% of its assets
in Standard & Poor's MidCap Depositary Receipts(R) ("MidCap
SPDR's (R)"). MidCap SPDR's are units of beneficial interest in
a unit investment trust, representing proportionate undivided
interests in a portfolio of securities in substantially the same
weighting as the common stocks that comprise the S&P MidCap 400
Index.
The Fund may invest up to 20% of its assets in S&P MidCap 400
Index futures contracts and options in order to invest
uncommitted cash balances, to maintain liquidity to meet
shareholder redemptions, or minimize trading costs. The Fund may
also sell covered calls on futures contracts or individual
securities held in the Fund. As a temporary investment strategy,
until the Fund reaches $50 million in net assets, the Fund may
invest up to 100% of its assets in such futures and/or options
contracts.
Although the Adviser will attempt to invest as much of the S&P
MidCap 400 Index Fund's assets as is practical in stocks included
among the S&P MidCap 400 Index and futures contracts and options
relating thereto, a portion of the Fund may be invested in money
market instruments pending investment or to meet redemption
requests or other needs for liquid assets. In addition, for
temporary defensive purposes, the Fund may invest in government
securities, money market instruments, or other fixed-income
securities, or retain cash or cash equivalents.
Primary Risks
- - Market risk: The S&P MidCap 400 Index Fund's total return,
like stock prices generally, will fluctuate within a wide
range in response to stock market trends, so a share of the
Fund could drop in value over short or even long periods.
Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
- - Investment style risk: Stocks of medium sized (mid-cap)
companies, such as those listed among the S&P MidCap 400
Index occasionally go through cycles of doing worse (or
better) than the stock markets in general or other types of
investments.
- - Correlation risk: Because the S&P MidCap 400 Index Fund has
expenses, and the S&P MidCap 400 Index does not, the Fund
may be unable to replicate precisely the performance of the
Index. While the Fund remains small, it may have a greater
risk that its performance will not match that of the Index.
Since this is a new Fund, there is no bar chart or performance
table.
RUSSELL 2000 SMALL CAP INDEX FUND PROFILE
Investment Objective
The Russell 2000 Small Cap Index Fund seeks investment results
that correspond to the investment performance of U.S. commons
stocks, as represented by the Russell 2000 Index.
Investment Strategies
The Russell 2000 Small Cap Index Fund seeks to substantially
replicate the total return of the securities comprising the
Russell 2000 Index, taking into consideration redemptions, sales
of additional shares, and other adjustments described below.
Precise replication of the capitalization weighting of the
securities in the Russell 2000 Index is not feasible. The
Russell 2000 Small Cap Index Fund will attempt to achieve, in
both rising and falling markets, a correlation of at least 95%
between the total return of its net assets before expenses and
the total return of the Russell 2000 Small Cap Index. A
correlation of 100% would represent perfect correlation between
the Fund and index performance. The correlation of the Fund's
performance to that of the Russell 2000 Small Cap Index should
increase as the Fund grows. There can be no assurance that the
Fund will achieve a 95% correlation.
Although the Adviser will attempt to invest as much of the
Russell 2000 Small Cap Index Fund's assets as is practical in
stocks included among the Russell 2000 Small Cap Index and
futures contracts and options relating thereto, a portion of the
Fund may be invested in money market instruments pending
investment or to meet redemption requests or other needs for
liquid assets. The Fund may also temporarily invest in S&P 500
Index futures and/or S&P MidCap 400 futures if, in the opinion of
the Adviser, it is not practical to invest in Russell 2000 Small
Cap Index futures at a particular time due to liquidity or price
considerations. In addition, for temporary defensive purposes,
the Fund may invest in government securities, money market
instruments, or other fixed-income securities, or retain cash or
cash equivalents.
The Fund may invest up to 20% of its assets in Russell 2000 Small
Cap Index futures contracts or options (or S&P MidCap 400 or S&P
500 Index futures contracts and options if, in the opinion of the
Adviser, it is not practical to invest in Russell 2000 Small Cap
Index futures at a particular time due to liquidity or price
considerations) in order to invest uncommitted cash balances, to
maintain liquidity to meet shareholder redemptions, or minimize
trading costs. The Fund may also sell covered calls on futures
contracts or individual securities held in the Fund. As a
temporary investment strategy, until the Fund reaches $50 million
in net assets, the Fund may invest up to 100% of its assets in
such futures and/or options contracts.
Primary Risks
- - Market risk: The Russell 2000 Small Cap Index Fund's total
return, like stock prices generally, will fluctuate within a
wide range in response to stock market trends, so a share of
the Fund could drop in value over short or even long
periods. Stock markets tend to move in cycles, with periods
of rising prices and periods of falling prices.
- - Investment style risk: Stocks of small sized (small-cap)
companies, such as those listed among the Russell 2000 Index
occasionally go through cycles of doing worse (or better)
than the stock markets in general or other types of
investments.
- - Correlation risk: Because the Russell 2000 Small Cap Index
Fund has expenses, and the Russell 2000 Index does not, the
Fund may be unable to replicate precisely the performance of
the Index. While the Fund remains small, it may have a
greater risk that its performance will not match that of the
Index.
Since this is a new Fund, there is no bar chart or performance
table.
Nasdaq 100 INDEX FUND PROFILE
Investment Objective
The Nasdaq 100 Index Fund seeks investment results that
correspond to the investment performance of U.S. common stocks,
as represented by the Nasdaq 100 Index.
Investment Strategies
The Nasdaq 100 Index Fund seeks to substantially replicate the
total return of the securities comprising the Nasdaq 100 Index,
taking into consideration redemptions, sales of additional
shares, and other adjustments described below. Precise
replication of the capitalization weighting of the securities in
the Nasdaq 100 Index is not feasible. The Nasdaq 100 Index Fund
will attempt to achieve, in both rising and falling markets, a
correlation of at least 95% between the total return of its net
assets before expenses and the total return of the Nasdaq 100
Index. A correlation of 100% would represent perfect correlation
between the Fund and index performance. The correlation of the
Fund's performance to that of the Nasdaq 100 Index should
increase as the Fund grows. There can be no assurance that the
Fund will achieve a 95% correlation.
The Nasdaq 100 Index Fund may invest up to 5% of its assets in
Nasdaq 100 Shares(R). Nasdaq 100 Shares are units of beneficial
interest in a unit investment trust, representing proportionate
undivided interests in a portfolio of securities in substantially
the same weighting as the common stocks that comprise the Nasdaq
100 Index.
The Fund may invest up to 20% of its assets in Nasdaq 100 Index
futures contracts and options in order to invest uncommitted cash
balances, to maintain liquidity to meet shareholder redemptions,
or minimize trading costs. The Fund may also sell covered calls
on futures contracts or individual securities held in the Fund.
As a temporary investment strategy, until the Fund reaches $50
million in net assets, the Fund may invest up to 100% of its
assets in such futures and/or options contracts.
Although the Adviser will attempt to invest as much of the Nasdaq
100 Index Fund's assets as is practical in stocks included among
the Nasdaq 100 Index and futures contracts and options relating
thereto, a portion of the Fund may be invested in money market
instruments pending investment or to meet redemption requests or
other needs for liquid assets. In addition, for temporary
defensive purposes, the Fund may invest in government securities,
money market instruments, or other fixed-income securities, or
retain cash or cash equivalents.
Primary Risks
- - Market risk: The Nasdaq 100 Index Fund's total return,
like stock prices generally, will fluctuate within a wide
range in response to stock market trends, so a share of the
Fund could drop in value over short or even long periods.
Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
- - Investment style risk: Stocks of companies or industries
that are heavily weighted in the Nasdaq 100 Index, such as
technology, telecommunications, internet and biotechnology
companies, occasionally go through cycles of doing worse (or
better) than the stock markets in general, as measured by
other more broad-based stock indexes, or other types of
investments.
- - Concentration risk: The Nasdaq 100 Index Fund is subject
to the risk of an investment portfolio that may be highly
concentrated in a particular industry (e.g., Technology)
and, due to concentration in sectors characterized by
relatively higher volatility in price performance, may be
more volatile when compared to other broad-based stock
indexes. The Nasdaq 100 Index Fund is also subject to the
risks specific to the performance of a few individual
component securities that currently represent a highly
concentrated weighting in the Index (e.g. Microsoft
Corporation, Intel Corporation, Cisco Systems Inc., etc.).
- - Correlation risk: Because the Nasdaq 100 Index Fund has
expenses, and the Nasdaq 100 Index does not, the Fund may be
unable to replicate precisely the performance of the Index.
While the Fund remains small, it may have a greater risk
that its performance will not match that of the Index.
- - Nondiversification risk: Under securities laws, the Fund is
considered a "nondiversified investment company." The Fund
is, however, subject to diversification limits under federal
tax law that permit it to invest more than 5%, but not more
than 25%, of its assets in a single issuer with respect to
up to 50% of its total assets as of the end of each of the
Fund's tax quarters.
In an effort to closely replicate the performance of the
Nasdaq 100 Index, the Fund will invest its assets in the
individual stocks comprised in the Nasdaq 100 Index.
Furthermore, the investment in the individual stocks in the
Fund will be weighted so that their percentage weighting in
the Fund is approximately the same as their percentage
weighting in the underlying Nasdaq 100 Index. As a result
of this investment strategy, the Nasdaq 100 Index Fund is a
nondiversified Fund.
Notwithstanding the above, the Nasdaq 100 Index Fund intends
to qualify as a Registered Investment Company ("RIC") under
federal tax law. At any point in time, if following the
investment strategy outlined above, of properly weighting
the Fund's investments in individual securities to
substantially replicate the performance of the Nasdaq 100
Index, would put the Fund in jeopardy of failing the RIC
rule on diversification, the Fund intends to immediately
alter its investment strategy to comply with the RIC rules.
Such alteration would include reducing investment exposure,
pro-rata, to those investments causing the Fund to be in
jeopardy of violating the RIC rules.
Since this is a new Fund, there is no bar chart or performance
table.
BALANCED INDEX FUND PROFILE
Investment Objective
The Balanced Index Fund seeks investment results, with respect to
60% of its assets, that correspond to the total return
performance of U.S. common stocks, as represented by the S&P 500
Index and, with respect to 40% of its assets, that correspond to
the total return performance of investment grade bonds, as
represented by the Lehman Brothers Aggregate Bond Index.
Investment Strategies
The Fund will invest approximately 60% of its net assets in a
Fund of common stocks, futures (in combination with the
appropriate amount of U.S. Treasury securities as collateral),
and Standard & Poor's Depositary Receipts(R) ("SPDR's") to track
the S&P 500 Index and approximately 40% of its net assets in a
portfolio of investment grade bonds designed to track the Lehman
Brothers Aggregate Bond Index (the "Lehman Brothers Index"). The
Fund may also hold cash or cash equivalent securities, although
the amount of cash and cash equivalent securities is expected to
represent a small percentage of the Fund's assets.
The Fund's common stock portfolio seeks to substantially
replicate the total return of the securities comprising the S&P
500 Index, taking into consideration redemptions, sales of
additional shares, and other adjustments described below.
Precise replication of the S&P 500 Index is not feasible. The
Fund will attempt to achieve, in both rising and falling markets,
a correlation of at least 95% between the total return of its
common stock portfolio before expenses and the total return of
the S&P 500. A correlation of 100% would represent perfect
correlation between the Fund and index performance. There can be
no assurance that the Fund will achieve a 95% correlation.
The Fund may invest up to 5% of its assets in Standard & Poor's
Depositary Receipts ("SPDRs(R)"). SPDR's are units of
beneficial interest in a unit investment trust, representing
proportionate undivided interests in a portfolio of securities in
substantially the same weighting as the common stocks that
comprise the S&P 500 Index .
The Fund's bond portfolio seeks to substantially replicate the
total return of the securities comprising the Lehman Brothers
Aggregate Bond Index taking into consideration redemptions, sales
of additional shares, and other adjustments described below.
Precise replication of the Lehman Aggregate Bond Index is not
feasible due to the large number of securities in the index. The
Fund will invest in a representative sample of fixed income
securities, which, taken together, are expected to perform
similarly to the Lehman Brothers Aggregate Index. The Fund will
attempt to achieve, in both rising and falling markets, a
correlation of at least 95% between the total return of its bond
portfolio before expenses and the total return of the Lehman
Brothers Aggregate Bond Index. A correlation of 100% would
represent perfect correlation between the Fund and index
performance. There can be no assurance that the Fund will
achieve a 95% correlation.
The Fund may invest up to 20% of its assets in financial futures
contracts and options and S&P 500 Index futures and options
contracts in order to invest uncommitted cash balances, to
maintain liquidity to meet shareholder redemptions, or minimize
trading costs. The Fund may also sell covered calls on futures
contracts or individual securities held in the Fund. As a
temporary investment strategy, until the Fund reaches $50 million
in net assets, the Fund may invest up to 100% of its assets in
such futures and/or options contracts.
Primary Risks
- - Stock market risk: The Fund's common stock portfolio, like
stock prices generally, will fluctuate within a wide range
in response to stock market trends, so a share of the Fund
could drop in value over short or even long periods. Stock
markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
- - Investment style risk: Stocks of large companies, such as
those listed among the S&P 500 Index occasionally go through
cycles of doing worse (or better) than the stock markets in
general or other types of investments.
- - Interest rate risk: The Fund's bond portfolio is subject to
interest rate risk. Interest rate risk is the potential for
fluctuation in bond prices due to changing interest rates.
Bond prices generally rise when interest rates fall.
Likewise, bond prices generally fall when interest rates
rise. Furthermore, the price of bonds with a longer
maturity generally fluctuates more than bonds with a shorter
maturity. To compensate investors for larger fluctuations,
longer maturity bonds usually offer higher yields than
shorter maturity bonds. Interest rate risk is a risk
inherent in all bonds, regardless of credit quality. The
Fund's bond portfolio has an intermediate-term average
maturity (5 to 15 years), and is therefore expected to have
moderate to high level of interest rate risk.
- - Credit risk: The Fund's bond portfolio is subject to credit
risk. Credit risk is the risk that an issuer of a security
will be unable to make payments of principal and/or interest
on a security held by the Fund. When an issuer fails to
make a scheduled payment of principal or interest on a
security, or violates other terms and agreements of a
security, the issuer and security are in default. A default
by the issuer of a security generally has a severe negative
affect on the market value of that security.
The credit risk of the Fund is a function of the credit
quality of its underlying securities. The average credit
quality of the Fund is expected to be very high. Therefore,
the credit risk of the Fund is expected to be low. The
average quality of the Lehman Brothers Aggregate Bond Index,
which the Fund attempts to replicate, was AA2 using Moody's
Investors Service (See Appendix A: Ratings - Corporate Bond
Ratings). Other factors, including interest rate risk and
prepayment risk cause fluctuation in bond prices.
- - Income risk: The Fund's bond portfolio is subject to income
risk. Income risk is the risk of a decline in the Fund's
income due to falling market interest rates. Income risk is
generally higher for portfolios with short term average
maturities and lower for portfolios with long term average
maturities. Income risk is also generally higher for
portfolios that are actively traded and lower for portfolios
that are less actively traded. The Fund's bond portfolio is
expected to maintain an intermediate average maturity and
have moderate trading activity. Therefore, income risk is
expected to be moderate.
- - Prepayment risk: Prepayment risk is the risk that, during
periods of declining interest rates, the principal of
mortgage-backed securities and callable bonds will be repaid
earlier than scheduled, and the portfolio manager will be
forced to reinvest the unanticipated repayments at generally
lower interest rates. The Fund's exposure to mortgage-
backed securities and currently callable bonds is generally
low to moderate. Therefore, the prepayment risk of the Fund
is expected to be low to moderate.
- - Correlation risk: Because the Balanced Index Fund has
expenses, and the S&P 500 Index and Lehman Brothers
Aggregate Bond Index do not, the Fund may be unable to
replicate precisely the performance of the Index. In
addition, the Fund intends to hold a sampling of both the
stocks in the S&P 500 Index and the bonds in the Lehman
Brothers Aggregate Bond Index, rather than exactly matching
the market weighting of each security in its respective
index. While the Fund remains small, it may have a greater
risk that its performance will not match that of the Index.
Since this is a new Fund, there is no bar chart or performance
table.
LEHMAN AGGREGATE BOND INDEX FUND PROFILE
Investment Objective
The Lehman Aggregate Bond Index Fund seeks investment results
that correspond to the total return performance of the bond
market, as represented by the Lehman Brothers Aggregate Bond
Index ("Lehman Bond Index").
The Lehman Bond Index is a market-weighted, intermediate-term
bond index which encompasses U.S. Treasury and agency securities
and investment grade corporate and international (dollar
denominated) bonds.
Investment Strategies
The Lehman Aggregate Bond Index Fund normally will invest at
least 80% of the value of its assets in:
- - Obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities; or
- - Publicly-traded or 144a debt securities rated BBB- or BAA3
or higher by a nationally recognized rating service such as
Standard & Poors or Moody's; or
- - Cash and cash equivalents.
The Fund may invest up to 20% of its assets in financial futures
contracts or options in order to invest uncommitted cash
balances, to maintain liquidity to meet shareholder redemptions,
or minimize trading costs. The Fund may also sell covered calls
on futures contracts or individual securities held in the Fund.
As a temporary investment strategy, until the Fund reaches $50
million in net assets, the Fund may invest up to 100% of its
assets in such futures and/or options contracts.
The Fund will not purchase bonds rated below investment grade,
commonly known as junk bonds. However, if a bond held in the
Fund is downgraded to a rating below investment grade, the Fund
may continue to hold the security until such time as the Adviser
deems it most advantageous to dispose of the security.
The Fund will not directly purchase common stocks. However, it
may retain up to 5% of the value of its total assets in common
stocks acquired either by conversion of fixed-income securities
or by the exercise of warrants attached thereto. The Fund may
also write covered call options on U.S. Treasury Securities and
options on futures contracts for such securities. A description
of the corporate bond ratings assigned by Standard & Poor's and
Moody's is included in the Appendix.
The Fund will be unable to hold all of the individual securities
which comprise the Lehman Bond Index because of the large number
of securities involved. Therefore, the Fund will hold a
representative sample of the securities designed to replicate the
total return performance of the Lehman Bond Index. The Fund
will attempt to achieve, in both rising and falling markets, a
correlation of at least 95% between the total return of its net
assets before expenses and the total return of the Lehman Bond
Index. A correlation of 100% would represent perfect correlation
between the Fund and index performance. The correlation of the
Fund's performance to that of the Lehman Bond Index should
increase as the Fund grows. There can be no assurance that the
Fund will achieve a 95% correlation.
Although the Adviser will attempt to invest as much of the Fund's
assets as is practical in bonds included in the Lehman Bond
Index, futures contracts and options relating thereto, a portion
of the Fund may be retained in cash or cash equivalents, or
invested in money market instruments pending investment or to
meet redemption requests or other needs for liquid assets.
Primary Risks
- - Interest rate risk: Interest rate risk is the potential
for fluctuation in bond prices due to changing interest
rates. Bond prices generally rise when interest rates fall.
Likewise, bond prices generally fall when interest rates
rise. Furthermore, the price of bonds with a longer
maturity generally fluctuates more than bonds with a shorter
maturity. To compensate investors for larger fluctuations,
longer maturity bonds usually offer higher yields than
shorter maturity bonds. Interest rate risk is a risk
inherent in all bonds, regardless of credit quality. Since
the Fund is an intermediate term bond portfolio, the
interest rate risk is expected to be moderate.
- - Credit risk: Credit risk is the risk that an issuer of a
security will be unable to make payments of principal and/or
interest on a security held in the Fund. When an issuer
fails to make a scheduled payment of principal or interest
on a security, or violates other terms and agreements of a
security, the issuer and the security are in default. A
default by the issuer of a security generally has severe
negative affect on the market value of that security. The
credit risk of the Fund is a function of the credit quality
of its underlying securities. The average credit quality of
the Fund is expected to be very high. Therefore, the credit
risk of the Fund is expected to be low.
- - Income risk: Income risk is the risk of a decline in the
Fund's income due to falling market interest rates. Income
risk is generally higher for portfolios with short term
average maturities and lower for portfolios with long term
average maturities. Income risk is also generally higher
for portfolios that are actively traded and lower for
portfolios that are less actively traded. The Fund
maintains an intermediate average maturity and is expected
to be less actively traded. Therefore, its income risk is
expected to be moderate-to-low.
- - Prepayment risk: Prepayment risk is the risk that, during
periods of declining interest rates, the principal of
mortgage-backed securities and callable bonds will be repaid
earlier than scheduled, and the portfolio manager will be
forced to reinvest the unanticipated repayments at generally
lower interest rates. The Fund's exposure to mortgage-
backed securities and callable bonds is expected to be
moderate. Therefore, the prepayment risk of the Fund is
expected to be moderate.
- - Correlation risk: Because the Fund has expenses, and the
Lehman Bond Index does not, the Fund may be unable to
replicate precisely the performance of the Index. While the
Fund remains small, it may have a greater risk that its
performance will not match that of the Index.
Since this is a new Fund, there is no bar chart or performance
table.
EVEREST FUND PROFILE
Investment Objective
The Everest Fund seeks primarily long-term appreciation of
capital, without incurring unduly high risk, by investing
primarily in common stocks and other equity securities. Current
income is a secondary objective.
Investment Strategies
A major portion of the Everest Fund will be invested in common
stocks. The Fund seeks special opportunities in securities that
are selling at a discount from theoretical price/earnings ratios
and that seem capable of recovering from their temporary out-of-
favor status (a "value" investment style). The Fund may invest
all or a portion of its assets in preferred stocks, bonds, con-
vertible preferred stocks, convertible bonds, and convertible
debentures. When market conditions for equity securities are
adverse, and for temporary defensive purposes, the Fund may
invest in Government securities, money market instruments, or
other fixed-income securities, or retain cash or cash
equivalents. However, the Fund normally will remain primarily
invested in common stocks.
The Everest Fund's investment strategy is based upon the belief
of the Fund's Adviser that the pricing mechanism of the
securities market lacks total efficiency and has a tendency to
inflate prices of some securities and depress prices of other
securities in different market climates. The Adviser believes
that favorable changes in market prices are more likely to begin
when:
- securities are out-of-favor,
- price/earnings ratios are relatively low,
- investment expectations are limited, and
- there is little interest in a particular security or
industry.
The Adviser believes that securities with relatively low
price/earnings ratios in relation to their profitability are
better positioned to benefit from favorable but generally
unanticipated events than are securities with relatively high
price/earnings ratios which are more susceptible to unexpected
adverse developments.
The Fund may invest up to 20% of its assets in financial futures
contracts and options and stock index futures contracts and
options in order to invest uncommitted cash balances, to maintain
liquidity to meet shareholder redemptions, or minimize trading
costs. As a temporary investment strategy, until the Fund
reaches $50 million in net assets, the Fund may invest up to 100%
of its assets in such futures and/or options contracts. The Fund
may also sell covered calls on futures contracts or individual
securities held in the Fund.
Primary Risks
- - Market risk: The Fund's total return, like stock prices
generally, will fluctuate within a wide range in response to
stock market trends. As a result, shares of the Fund could
drop in value over short or even long periods. Stock
markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
- - Financial risk: The Fund's total return will fluctuate with
fluctuations in the earnings stability or overall financial
soundness of the companies whose stock the Fund purchases.
- - Investment style risk: The Fund's investment style risks
that returns from "value" stocks it purchases will trail
returns from other asset classes or the overall stock
market.
Since this is a new Fund, there is no bar chart or performance
table.
BOND FUND PROFILE
Investment Objective
The Bond Fund seeks as high a level of current income as is
consistent with reasonable investment risk, by investing
primarily in long-term, fixed-income, investment-grade corporate
bonds.
Investment Strategies
The Bond Fund normally will invest at least 75% of the value of
its assets in:
- publicly-traded or 144a debt securities rated BBB or
BAA3 or higher by a nationally recognized rating
service such as Standard & Poor's or Moody's,
- obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities, or
- cash and cash equivalents.
Up to 25% of the Bond Fund's total assets may be invested in:
- debt securities that are unrated or below investment-
grade bonds ("high yield" or "junk" bonds),
- convertible debt securities,
- convertible preferred and preferred stocks, or
- other securities.
The Bond Fund will not directly purchase common stocks. However,
it may retain up to 10% of the value of its total assets in
common stocks acquired either by conversion of fixed-income
securities or by the exercise of warrants attached thereto.
The Fund may invest up to 20% of its assets in financial futures
contracts or options in order to invest uncommitted cash
balances, to maintain liquidity to meet shareholder redemptions,
or minimize trading costs. The Fund may also sell covered calls
on futures contracts or individual securities held in the Fund.
A description of the corporate bond ratings assigned by Standard
& Poor's and Moody's is included in the Appendix.
Primary Risks
- - Interest rate risk: Interest rate risk is the potential for
fluctuation in bond prices due to changing interest rates.
Bond prices generally rise when interest rates fall.
Likewise, bond prices generally fall when interest rates
rise. Furthermore, the price of bonds with a longer
maturity generally fluctuates more than bonds with a shorter
maturity. To compensate investors for larger fluctuations,
longer maturity bonds usually offer higher yields than
shorter maturity bonds. Interest rate risk is a risk
inherent in all bonds, regardless of credit quality.
The Fund maintains an intermediate-term average maturity,
and is therefore subject to a moderate level of interest
rate risk.
- - Credit risk: Credit risk is the risk that an issuer of a
security will be unable to make payments of principal and/or
interest on a security held by the Fund. When an issuer
fails to make a scheduled payment of principal or interest
on a security, or violates other terms and agreements of a
security, the issuer and security are in default. A default
by the issuer of a security generally has a severe negative
affect on the market value of that security.
The credit risk of the Fund is a function of the credit
quality of its underlying securities. The average credit
quality of the Fund is expected to be very high. Therefore,
the credit risk of the Fund is expected to be low. However,
certain individual securities held in the Fund may have
substantial credit risk. The Fund may contain up to 25% of
securities rated below investment grade. Securities rated
below investment grade generally have substantially more
credit risk than securities rated investment grade.
Securities rated below investment grade are defined as
having a rating below Baa by Moody's Investors Services and
below BBB by Standard & Poor's Corporation (See Appendix A:
Ratings - Corporate Bond Ratings).
- - Income risk: Income risk is the risk of a decline in the
Fund's income due to falling market interest rates. Income
risk is generally higher for portfolios with short term
average maturities and lower for portfolios with long term
average maturities. Income risk is also generally higher
for portfolios that are actively traded and lower for
portfolios that are less actively traded. The Fund
maintains an intermediate average maturity and is actively
traded. Therefore, income risk is expected to be moderate to
high.
- - Prepayment risk: Prepayment risk is the risk that, during
periods of declining interest rates, the principal of
mortgage-backed securities and callable bonds will be repaid
earlier than scheduled, and the Adviser will be forced to
reinvest the unanticipated repayments at generally lower
interest rates. The Fund's exposure to mortgage-backed
securities and currently callable bonds is generally low to
moderate. Therefore, the prepayment risk of the Fund is
expected to be low to moderate. Other factors, including
interest rate risk and credit risk can cause fluctuation in
bond prices.
Since this is a new Fund, there is no bar chart or performance
table.
SHORT-TERM GOVERNMENT FUND PROFILE
Investment Objective
The Short-term Government Fund seeks to provide a high level of
current income and preservation of capital by investing 100% of
its total assets in bonds issued by the U.S. government and its
agencies.
Investment Strategies
The Fund will invest 100% of its total assets in bonds issued by,
or derivatives related to, the U.S. government and its agencies.
The majority of the Fund's holdings will have a maturity or
average life of five years or less. The Fund will maintain a
dollar-weighed average maturity of less than three years. The
Fund may invest up to 20% of its total assets in financial
futures contracts and options in order to invest uncommitted cash
balances, to maintain liquidity to meet shareholder redemptions,
or minimize trading costs. The Fund will not use these
instruments for speculative purposes. The reasons the Fund will
invest in derivatives is to reduce transaction costs, for hedging
purposes, or to add value when these instruments are favorably
priced.
Primary Risks
- - Interest rate risk: Interest rate risk is the potential for
fluctuation in bond prices due to changing interest rates.
Bond prices generally rise when interest rates fall.
Likewise, bond prices generally rise when interest rates
rise. Furthermore, the price of bonds with a longer
maturity generally fluctuates more than bonds with a shorter
maturity. The Fund will maintain a short average maturity
and is therefore subject to a low level of interest rate
risk.
- - Credit risk: Credit risk is the risk that an issuer of a
security will be unable to make payments of principal
and/or interest on a security held by the Fund. Given that
100% of the assets held by the Fund are issued by the U.S.
government and its agencies, the credit risk to the Fund is
very low.
- - Income risk: Income risk is the risk of a decline in the
Fund's income due to falling market interest rates. Income
risk is generally higher for short-term bonds.
- - Prepayment risk: Prepayment risk is the risk that, during
periods of declining interest rates, the principal of
mortgage-backed securities and callable bonds will be repaid
earlier than scheduled, resulting in reinvestment of the
unanticipated repayments at generally lower interest rates.
The Fund's exposure to mortgage-backed securities and
callable bonds will be low to moderate.
Since this is a new Fund, there is no bar chart or performance
table.
<PAGE>
FEES AND EXPENSES OF THE FUNDS
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Funds.
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
<TABLE>
<CAPTION>
Total
Annual
Fund
Management Other Operating
Fees Expenses** Expenses**
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
S&P 500 Index Fund .30%*** .09% .39%
S&P MidCap 400 Fund .30% .30% .60%*
Russell 2000 Small Cap Index Fund .35% .40% .75%*
Nasdaq 100 Index Fund .35% .30% .65%*
Balanced Index Fund .30% .30% .60%*
Lehman Aggregate Bond Index Fund .30% .30% .60%*
Everest Fund .63%*** .14% .77%
Bond Fund .48%*** .13% .61%
Short-term Government Fund .45% .28% .73%*
</TABLE>
* Total Annual Fund Operating Expenses in excess of .75% for
the Russell 2000 Small Cap Index Fund, in excess of .73% for
the Short-term Government Fund, in excess of .65% for the
Nasdaq 100 Fund, and in excess of .60% for the S&P MidCap 400
Index, Balanced Index and Lehman Aggregate Bond Index Funds
are paid by the investment adviser.
** "Other Expenses" are based on estimates.
*** The Adviser has agreed to reduce its fee from those shown in
the table for a period of one year from the commencement of
operations by .02, .04 and .02 percentage points for the S&P
500 Index Fund, the Everest Fund, and the Bond Fund,
respectively. The Adviser may not revise or cancel these
waivers during the one year period.
Example
This Example is intended to help you compare the cost of
investing in the Funds with the cost of investing in other mutual
funds.
The 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 those periods. The Example also assumes that your
investment has a 5% return each year and that the Funds'
operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 Year 3 Years
<S> <C> <C>
S&P 500 Index Fund $40 $126
S&P MidCap 400 Fund $62 $193
Russell 2000 Small Cap Index Fund $77 $241
Nasdaq 100 Index Fund $67 $209
Balanced Index Fund $62 $193
Lehman Aggregate Bond Index Fund $62 $193
Everest Fund $62 $193
Bond Fund $63 $196
Short-term Government Fund $75 $234
</TABLE>
This table should not be considered a representation of past or
future expenses. Actual expenses may be more or less than those
shown.
<PAGE>
OTHER INVESTMENT POLICIES, STRATEGIES AND RISKS
FOREIGN SECURITIES
Each Fund may invest in foreign securities that are suitable for
the Fund's investment objectives and policies.
Foreign securities investments are limited to 25% of net assets
for the Everest and Bond Funds. The S&P 500 Index Fund, S&P
MidCap 400 Index Fund, Russell 2000 Small Cap Index Fund, Nasdaq
100 Index Fund, Balanced Index Fund and Lehman Aggregate Bond
Index Fund are limited to investing in those foreign securities
included in the respective Indexes. Each Fund that invests in
foreign securities limits not only its total purchases of foreign
securities, but also its purchases for any single country. For
"major countries," the applicable limit is 10% of Fund net
assets; for other countries, the applicable limit is 5% for each
Fund. "Major countries" currently include: The United Kingdom,
Germany, France, Italy, Switzerland, Netherlands, Spain, Belgium,
Canada, Mexico, Argentina, Chile, Brazil, Australia, Japan,
Singapore, New Zealand, Hong Kong, Sweden and Norway.
Investing in foreign securities involves risks which are not
ordinarily associated with investing in domestic securities,
including:
- political or economic instability in the foreign country;
- diplomatic developments that could adversely affect the
value of the foreign security;
- foreign government taxes;
- costs incurred by a Fund in converting among various
currencies;
- fluctuation in currency exchange rates;
- the possibility of imposition of currency controls,
expropriation or nationalization measures or withholding
dividends at the source;
- in the event of a default on a foreign debt security,
possible difficulty in obtaining or enforcing a judgment
against the issuer;
- less publicly available information about foreign issuers
than domestic issuers;
- foreign accounting and financial reporting requirements
are generally less extensive than those in the U.S.;
- securities of foreign issuers are generally less liquid
and more volatile than those of comparable domestic
issuers;
- there is often less governmental regulation of exchanges,
broker-dealers and issuers and brokerage costs may be
higher than in the United States.
Foreign securities purchased by the Funds may include securities
issued by companies located in countries not considered to be
major industrialized nations. Such countries are subject to more
economic, political and business risk than major industrialized
nations, and the securities they issue may be subject to abrupt
or erratic price fluctuations, and are expected to be more
volatile and more uncertain as to payments of interest and
principal. Developing countries may have relatively unstable
governments, economies based only on a few industries, and
securities markets that trade only a small number of securities.
The secondary market for such securities is expected to be less
liquid than for securities of major industrialized nations.
FOREIGN CURRENCY TRANSACTIONS
The Everest Fund and Bond Fund may engage in forward foreign
currency contracts ("forward contracts") in connection with the
purchase or sale of a specific security. A forward contract
involves an obligation to purchase or sell a specific foreign
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.
Funds will not enter into forward contracts for longer-term
hedging purposes. The possibility of changes in currency
exchange rates will be incorporated into the long-term investment
considerations when purchasing the investment and subsequent
considerations for possible sale of the investment.
HIGH YIELD BONDS
The Bond Fund may invest up to 25% of its assets in bonds rated
below the four highest grades used by Standard & Poor's or
Moody's (frequently referred to as "junk" bonds). These bonds
present greater credit and market risks than higher rated bonds.
Such risks relate not only to the greater financial weakness of
the issuers of such securities but also to other factors
including:
- greater likelihood that an economic downturn or rising
interest rates could create financial stress on the
issuers of such bonds, possibly resulting in their
defaulting on their obligations than is the case with
higher-rated bonds;
- greater likelihood that redemption or call provisions,
if exercised in a period of lower interest rates, would
result in the bonds being replaced by lower yielding
securities;
- limited trading markets that may make it more difficult
to dispose of the bonds and more difficult to determine
their fair value.
REPURCHASE AGREEMENTS
Each Fund may invest in Repurchase Agreements. A repurchase
agreement is a transaction where a Fund buys a security at one
price and simultaneously agrees to sell that same security back
to the original owner at a higher price. None of the Funds
engage extensively in repurchase agreements, but each may engage
in them from time to time. The Adviser reviews the credit-
worthiness of the other party to the agreement and must find it
satisfactory before engaging in a repurchase agreement. A
majority of these agreements will mature in seven days or less.
In the event of the bankruptcy of the other party, a Fund could
experience delays in recovering its money, may realize only a
partial recovery or even no recovery, and may also incur
disposition costs.
REVERSE REPURCHASE AGREEMENTS
Each Fund may enter into reverse repurchase agreements. Under
reverse repurchase agreements, the Fund transfers possession of
Fund securities to banks in return for cash in an amount equal to
a percentage of the Fund securities' market value and agrees to
repurchase the securities at a future date by repaying the cash
with interest. The Fund retains the right to receive interest
and principal payments from the securities while they are in the
possession of the financial institutions. While a reverse
repurchase agreement is in effect, the Custodian will segregate
from other Fund assets an amount of cash or liquid high quality
debt obligations equal in value to the repurchase price
(including any accrued interest).
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
All Funds may enter into futures contracts for hedging purposes,
including protecting the price or interest rate of securities
that the Fund intends to buy, that relate to securities in which
it may directly invest and indices comprised of such securities
and may purchase and write call and put options on such
contracts. Each eligible Fund may invest up to 20% of its assets
in such futures and/or options contracts.
A financial futures contract is a contract to buy or sell a
specified quantity of financial instruments (such as U.S.
Treasury bills, notes and bonds, commercial paper and bank
certificates of deposit or the cash value of a financial
instrument index at a specified future date at a price agreed
upon when the contract is made). A stock index futures contract
is a contract to buy or sell specified units of a stock index at
a specified future date at a price agreed upon when the contract
is made. The value of a unit is based on the current value of
the contract index. Under such contracts no delivery of the
actual stocks making up the index takes place. Rather, upon
expiration of the contract, settlement is made by exchanging cash
in an amount equal to the difference between the contract price
and the closing price of the index at expiration, net of
variation margin previously paid.
Substantially all futures contracts are closed out before
settlement date or called for cash settlement. A futures
contract is closed out by buying or selling an identical
offsetting futures contract. Upon entering into a futures
contract, the Fund is required to deposit an initial margin with
the Custodian for the benefit of the futures broker. The initial
margin serves as a "good faith" deposit that the Fund will honor
their futures commitments. Subsequent payments (called
"variation margin") to and from the broker are made on a daily
basis as the price of the underlying investment fluctuates. In
the event of the bankruptcy of the futures broker that holds
margin on behalf of the Fund, the Fund may be entitled to return
of margin owed to it only in proportion to the amount received by
the broker's other customers. The Adviser will attempt to
minimize this risk by monitoring the creditworthiness of the
futures brokers with which the Fund does business.
Because the value of an index future depends primarily on the
value of its underlying index, the performance of the broad-based
contracts will generally reflect broad changes in market prices.
However, because a particular Fund may not be invested in
precisely the same proportion as a particular Index, it is likely
that the price changes of the Fund's index futures positions will
not match the price changes of the Fund's other investments.
Options on futures contracts give the purchaser the right to
assume a position at a specified price in a futures contract at
any time before expiration of the option contract.
All Funds may engage in certain limited options strategies as
hedging techniques as it relates to options on futures contracts.
These options strategies are limited to selling/writing call
option contracts on futures contracts on such securities held by
the Fund (covered calls). These Funds may purchase call option
contracts to close out a position acquired through the sale of a
call option. These Funds will only write options that are traded
on a domestic exchange or board of trade.
All Funds may write and purchase covered put and call options on
securities in which it may directly invest. Option transactions
of the eligible Funds will be conducted so that the total amount
paid on premiums for all put and call options outstanding will
not exceed 5% of the value of the Fund's total assets. Further,
the Fund will not write put or call options or combination
thereof if, as a result, the aggregate value of all securities or
collateral used to cover its outstanding options would exceed 25%
of the value of the Fund's total assets.
A call option is a short-term contract (generally nine months or
less) which gives the purchaser of the option the right to
purchase from the seller of the option (the Fund) the underlying
security or futures contract at a fixed exercise price at any
time prior to the expiration of the option period regardless of
the market price of the underlying instrument during the period.
A futures contract obligates the buyer to purchase and the seller
to sell a predetermined amount of a security at a predetermined
price at a selected time in the future. A call option on a
futures contract gives the purchaser the right to assume a "long"
position in a futures contract, which means that if the option is
exercised the seller of the option (the Fund) would have the
legal right (and obligation) to sell the underlying security to
the purchaser at the specified price and future time.
As consideration for the call option, the buyer pays the seller
(the Fund) a premium, which the seller retains whether or not the
option is exercised. The selling of a call option will benefit
the Fund if, over the option period, the underlying security or
futures contract declines in value or does not appreciate to a
price higher than the total of the exercise price and the
premium. The Fund risks an opportunity loss of profit if the
underlying instrument appreciates to a price higher than the
exercise price and the premium. When the Adviser anticipates that
interest rates will increase, the Fund may write call options in
order to hedge against an expected decline in value of Fund
securities.
The Fund may close out a position acquired through selling a call
option by buying a call option on the same security or futures
contract with the same exercise price and expiration date as the
option previously sold. A profit or loss on the transaction will
result depending on the premium paid for buying the closing call
option. If a call option on a futures contract is exercised, the
Fund intends to close out the position immediately by entering
into an offsetting transaction or by delivery of the underlying
security (or other related securities).
Options transactions may increase the Fund's portfolio turnover
rate and attendant transaction costs, and may be somewhat more
speculative than other investment strategies. It may not always
be possible to close out an options position, and with respect to
options on futures contracts there is a risk of imperfect
correlation between price movements of a futures contract (or
option thereon) and the underlying security.
OPTIONS ON SECURITIES INDICES
The S&P 500 Index Fund, S&P MidCap 400 Index Fund, Russell 2000
Small Cap Index Fund and Nasdaq 100 Index Fund may purchase or
sell options on their respective Indexes, subject to the
limitations set forth above and provided such options are traded
on a national securities exchange or in the over-the-counter
market. The Balanced Index Fund may purchase or sell options on
the S&P 500 Index, subject to the limitations set forth above and
provided such options are traded on a national securities
exchange or in the over-the-counter market. Options on
securities indices are similar to options on securities except
there is no transfer of a security and settlement is in cash. A
call option on a securities index grants the purchaser of the
call, for a premium paid to the seller, the right to receive in
cash an amount equal to the difference between the closing value
of the index and the exercise price of the option times a
multiplier established by the exchange upon which the option is
traded.
COLLATERALIZED MORTGAGE OBLIGATIONS
The Funds other than the S&P 500 Index Fund, S&P MidCap 400 Index
Fund, Russell 2000 Small Cap Index Fund and Nasdaq 100 Index Fund
may invest in collateralized mortgage obligations ("CMOs") or
mortgage-backed bonds issued by financial institutions such as
commercial banks, savings and loan associations, mortgage banks
and securities broker-dealers (or affiliates of such institutions
established to issue these securities). To a limited extent, the
Funds may also invest in a variety of more risky CMOs, including
interest only, principal only, inverse floaters, or a combination
of these securities.
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES
Each Fund, except the S&P 500 Index Fund, the S&P MidCap 400
Index Fund, the Russell 2000 Small Cap Index Fund, the Nasdaq 100
Index Fund and the Short-term Government Fund may invest in
asset-backed securities. Asset-backed securities may be
classified either as pass-through certificates or collateralized
obligations. Pass-through certificates are asset-backed
securities which represent an undivided fractional ownership
interest in an underlying pool of assets. Asset-backed
securities issued in the form of debt instruments, also known as
collateralized obligations, are generally issued as the debt of a
special purpose entity organized solely for the purpose of owning
such assets and issuing such debt. Asset-backed securities may
be of short maturity, such as commercial paper, or longer, such
as bonds, and may be issued with only one class of security or
have more than one class with some classes having rights to
payments on the asset-backed security subordinate to the rights
of the other classes. These subordinated classes will take the
risk of default before the classes to which they are
subordinated.
The Balanced Index Fund, Lehman Aggregate Bond Index Fund,
Everest Fund and Bond Fund may invest without limitation in
asset-backed securities whose characteristics are consistent with
the Fund's investment program and are not further limited below.
The credit quality of most asset-backed securities depends
primarily on the credit quality of the assets underlying such
securities, how well the entity issuing the security is insulated
from the credit risk of the originator of the debt obligations or
any other affiliated entities and the amount and quality of any
credit support provided to the securities. The rate of principal
payment on asset-backed securities generally depends on the rate
of principal payments received on the underlying assets which in
turn may be affected by a variety of economic and other factors.
As a result, the yield on any asset-backed security is difficult
to predict with precision and actual yield to maturity may be
more or less than the anticipated yield to maturity. In
addition, for asset-backed securities purchased at a premium, the
premium may be lost in the event of early pre-payment which may
result in a loss to the Fund.
Each Fund, except the S&P 500 Index Fund, the S&P MidCap 400
Index Fund, the Russell 2000 Small Cap Index Fund and the
Nasdaq-100 Index Fund may invest in mortgage-backed securities.
Mortgage-backed securities are securities representing interests
in a pool of mortgages. Principal and interest payments made on
the mortgages in the underlying mortgage pool are passed through
to the Fund. The Balanced Index Fund, Lehman Aggregate Bond
Index Fund, Everest Fund, Bond Fund and Short-term Government
Fund may invest without limitation in mortgage-backed securities
whose characteristics are consistent with the Fund's investment
program and are not further limited below. The actual prepayment
experience of a pool of mortgage loans or other obligations may
cause the yield realized by the Fund to differ from the yield
calculated on the basis of the average life of the pool. (When a
mortgage in the underlying mortgage pool is prepaid, an
unscheduled principal prepayment is passed through to the Fund.
This principal is returned to the Fund at par. As a result, if a
mortgage security were trading at a premium, its total return
would be lowered by prepayments, and if a mortgage security were
trading at a discount, its total return would be increased by
prepayments.) The value of these securities also may change
because of changes in the market's perception of the
creditworthiness of the federal agency that issued them. In
addition, the mortgage securities market in general may be
adversely affected by changes in governmental regulation or tax
policies. In addition, for mortgage-backed securities purchased
at a premium, the premium may be lost in the event of early
prepayment which may result in a loss to the Fund.
LENDING FUND SECURITIES
All Funds may lend portfolio securities with a value up to 10% of
its total assets. Such loans may be terminated at any time. The
Fund will continuously maintain as collateral cash or obligations
issued by the U.S. government, its agencies or instrumentalities
in an amount equal to not less than 100% of the current market
value (on a daily marked-to-market basis) of the loaned
securities plus declared dividends and accrued interest.
The Fund will retain most rights of beneficial ownership,
including the right to receive dividends, interest or other
distributions on loaned securities. Should the borrower of the
securities fail financially, the Fund may experience delay in
recovering the securities or loss of rights in the collateral.
Loans will be made only to borrowers that the Adviser deems to be
of good financial standing.
OTHER INFORMATION
In addition to the investment policies described above, each
Fund's investment program is subject to further restrictions
which are described in the Statement of Additional Information.
Unless otherwise specified, each Fund's investment objectives,
policies and restrictions are not fundamental policies and may be
changed without shareholder approval. Shareholder inquiries and
requests for the Fund's annual report should be directed to
Summit Mutual Funds, c/o Firstar Mutual Fund Services, LLC, (888)
259-7565, or at P.O. Box 701, Milwaukee, WI 53201-0701.
<PAGE>
FUND MANAGEMENT
INVESTMENT ADVISER
The Adviser is Summit Investment Partners, Inc. (formerly
Carillon Advisers, Inc.), 312 Elm Street, Suite 2525, Cincinnati,
Ohio 45202. The Adviser was incorporated under the laws of Ohio
on August 18, 1986, as successor to the advisory business of
Carillon Investments, Inc., the investment adviser for Summit
Mutual Funds since 1984. The Adviser is a wholly-owned subsidiary
of The Union Central Life Insurance Company ("Union Central"), a
mutual life insurance company organized in 1867 under the laws of
Ohio. Subject to the direction and authority of Summit Mutual
Funds' board of directors, the Adviser manages the investment and
reinvestment of the assets of each Fund and provides
administrative services and manages Summit Mutual Funds' business
affairs.
Gary R. Rodmaker, CFA and David M. Weisenburger, CFA lead the
team primarily responsible for the day-to-day management of the
S&P 500 Index Fund, S&P 400 MidCap 400 Index Fund, Russell 2000
Small Cap Index Fund, Nasdaq 100 Index Fund, Balanced Index Fund,
Lehman Aggregate Bond Index Fund.
Mr. Rodmaker is Managing Director - Fixed Income of the Adviser
and has been affiliated with the Adviser and Union Central since
1989. Mr. Weisenburger is the Assistant Fund Manager of the
Adviser and has been affiliated with the Adviser and Union
Central since July, 1996.
James R. McGlynn leads the team primarily responsible for the
day-to-day management of the Everest Fund. Mr. McGlynn, prior to
joining the Adviser and Union Central on December 1, 1999, was
employed by Tom Johnson Investment Management in Oklahoma, where
he served since May, 1991, as Vice President and Co-Portfolio
Manager for the UAM TJ Core Equity Fund.
Mr. Rodmaker and Michael J. Schultz lead the team primarily
responsible for the day-to-day management of the Bond Fund.
Mr. Schultz leads the team primarily responsible for the day-to-
day management of the Short-term Government Fund.
Mr. Schultz is Managing Director - Fixed Income of the Adviser
and has been affiliated with the Adviser and Union Central since
1992.
ADVISORY FEE
The Fund pays the Adviser, as full compensation for all
facilities and services furnished, a monthly fee computed
separately for each Fund on a daily basis, at an annual rate, as
follows:
<TABLE>
<CAPTION>
Fund Advisory Fee
<S> <C>
S&P 500 Index Fund .30% of the current value of the net assets.
S&P MidCap 400 Fund .30% of the current value of the net assets.
Russell 2000 Small Cap
Index Fund .35% of the current value of the net assets
Nasdaq 100 Index Fund .35% of the current value of the net assets
Balanced Index Fund .30% of the current value of the net assets.
Lehman Aggregate Bond
Index Fund .30% of the current value of the net assets.
Everest Fund .65% of the first $50,000,000,
.60% of the next $100,000,000,
and .50% of all over $150,000,000 of the
current value of the net assets.
Bond Fund .50% of the first $50,000,000,
.45% of the next $100,000,000,
and .40% of all over $150,000,000 of the
current value of the net assets.
Short-term Government
Fund .45% of the current value of the net assets.
</TABLE>
The effective rates paid by each Fund are set forth in the "Fees
and Expenses of the Fund" section on page 18.
EXPENSES
The Fund's expenses are deducted from total income before
dividends are paid. These expenses, which are accrued daily,
include: the fee of the Adviser; taxes; legal, dividend
disbursing, bookkeeping and transfer agent, custodian and
auditing fees; and printing and other expenses relating to the
Fund's operations which are not expressly assumed by the Adviser
under its investment advisory agreement with the Fund. Certain
expenses are paid by the particular Fund that incurs them, while
other expenses are allocated among the Funds on the basis of
their relative size (i.e., the amount of their net assets). The
Adviser will pay any expenses of the Short-term Government Fund,
other than the advisory fee for that Fund, to the extent that
such expenses exceed .28% of that Fund's net assets. The Adviser
will pay any expenses of the S&P 500 Index Fund, the S&P MidCap
400 Index Fund, the Balanced Index Fund, the Nasdaq 100 Fund and
the Lehman Aggregate Bond Index Fund, other than the advisory fee
for that Fund, to the extent that such expenses exceed .30% of
that Fund's net assets. The Adviser will pay any expenses of the
Russell 2000 Small Cap Index Fund, other than the advisory fee
for that Fund, to the extent that such expenses exceed .40% of
that Fund's net assets.
CAPITAL STOCK
Summit Mutual Funds currently has twenty-one classes of stock,
one for each fund, nine of which are offered pursuant to this
prospectus. Shares (including fractional shares) of each fund
have equal rights with regard to voting, redemptions, dividends,
distributions, and liquidations with respect to that fund. When
issued, shares are fully paid and nonassessable and do not have
preemptive or conversion rights or cumulative voting rights.
<PAGE>
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
The net asset value of the Funds' shares is determined once
daily, Monday through Friday at 4:00 p.m. Eastern Time, on days
there are purchases or redemptions of Fund shares. The net asset
value will not be determined when the New York Stock Exchange is
closed (for example, on national holidays), or on any day on
which changes in the value of the portfolio securities of the
Funds are immaterial. The net asset value is calculated by
adding the values of all securities and other assets of a Fund,
subtracting liabilities and expenses, and dividing the resulting
figure by the number of the Fund's outstanding shares. Expenses,
including the advisory fee payable to the Adviser, are charged to
each Fund daily.
Securities held by each Fund are valued at market price.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith
by, or under procedures adopted by, the Board of Directors.
Money market instruments maturing in 60 days or less are valued
at the amortized cost method.
Sometimes foreign securities markets are open on days when U.S.
markets are closed. Because some Funds holds foreign securities,
there may be days when the net asset value of Fund shares changes
even when the shares are not priced, and Fund shareholders cannot
purchase or redeem shares.
PURCHASE OF SHARES
Shares of the Funds are offered and sold on a continuous basis by
the distributor for the Funds, Carillon Investments, Inc. (the
"Distributor"), which is affiliated with the Adviser. The
Distributor is a registered broker-dealer with offices at 1876
Waycross Road, Cincinnati, Ohio 45240.
MINIMUM INVESTMENTS
The minimum initial investment for shares in a Fund is
1) $5,000; or
2) $1,000 ($500 in the case of an Individual Retirement
Account) if the purchaser of shares is any one of the
following:
a) Directors, officers, current or retired employees
("employees"), or agents of The Union Central Life
Insurance Company ("Union Central"), or affiliates
thereof, or their spouses or dependents; or
b) Directors, officers, employees, or agents of broker-
dealers that have entered into selling agreements with
the Distributor relating to the Funds, or their
spouses or dependents; or
c) Directors, officers, employees, or affiliates of
Summit Mutual Funds or investment advisers or sub-
advisers or distributors thereof, or their spouses or
dependents.
The minimum subsequent investment is $50.
BUYING SHARES
Purchase requests accompanied by a check or wire payment for any
Fund which are received by the transfer agent before 4:00 p.m.
Eastern Time on a business day for the Funds will be
executed the same day, at that day's closing price, provided that
payment is received by the close of regular trading hours. Orders
received after 4:00 p.m. Eastern Time and orders for which
payment is not received by the close of regular trading hours on
the New York Stock Exchange will be executed on the next business
day after receipt of both order and payment in proper form.
<TABLE>
<C> <C>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
BY MAIL BY MAIL
Complete an application and mail it Make your check payable to Summit
along with a check payable to Summit Mutual Funds. Please include your
Mutual Funds, to: sixteen-digit account number on your
The Summit Mutual Funds check and mail it to the address at
c/o Firstar Mutual Fund Services, LLC the left.
P.O. Box 701
Milwaukee, WI 53201-0701.
For overnight or express delivery,
mail to:
The Summit Mutual Funds
c/o Firstar Mutual Fund Services, LLC
615 East Michigan Street, 3rd Floor
Milwaukee, WI 53202-5207.
AUTOMATICALLY AUTOMATICALLY
Call 1-888-259-7565 to obtain a Complete a Periodic Investment Plan
purchase application, which includes Application to automatically purchase
information for a Periodic Investment more shares.
Plan.
BY WIRE BY WIRE
Call 1-888-259-7565 prior to sending Call 1-888-259-7565 prior to sending
the wire in order to obtain a the wire in order to obtain a
confirmation number and to ensure confirmation number and to ensure
prompt and accurate handling of funds. prompt and accurate handling of funds.
Ask your bank to transmit immediately Ask your bank to transmit immediately
available funds by wire in the amount available funds by wire as descrobed
of your purchase to: at the left.
Firstar Bank, N.A.
777 East Wisconsin Avenue Please include your sixteen-digit
Milwaukee, WI 53202 account number.
ABA Number: 075000022
Credit to: Firstar Mutual Fund The Summit Mutual Funds and its
Services, LLC transfer agent are not responsible for
Account Number: 112-952-137 the consequences of delays resulting
Further credit to: Summit Mutual Funds from the banking or Federal Reserve
(account name and account number) Wire system, or from incomplete
Summit Mutual Funds and its transfer wiring instructions.
agent are not responsible for the
consequences of delays resulting from
the banking or Federal Reserve Wire
system, or from incomplete wiring
instructions.
INTERNET INTERNET
Not available at this time Not available at this time
BY TELEPHONE EXCHANGE BY TELEPHONE EXCHANGE
Call 1-888-259-7565 to exchange Call 1-888-259-7565 to exchange
from another Summit Mutual Funds from another Summit Mutual Funds
account with the same registration account with the same registration
including name, address and taxpayer including name, address and taxpayer
ID number. ID number.
</TABLE>
- ---------------------------------------------------------------
PLEASE NOTE: All checks must be drawn on a bank located within
the United States and must be payable in U.S. dollars to Summit
Mutual Funds. A $25 fee will be imposed by the Funds' transfer
agent if any check used for investment in an account does not
clear, and the investor involved will be responsible for any loss
incurred by a Fund. Prior to the transfer agent receiving a
completed application, investors may make an initial investment.
However, redemptions will not be paid until the transfer agent
has received the completed application.
- ---------------------------------------------------------------
ADDITIONAL INFORMATION ON BUYING SHARES
The Funds will not accept payment in cash or third party
checks for the purchase of shares.
Federal regulations require that each investor provide a
Social Security number or other certified taxpayer identification
number upon opening or reopening an account. The Funds reserve
the right to reject applications without such a number or an
indication that a number has been applied for. If a number has
been applied for, the number must be provided and certified
within sixty days of the date of the application. Any accounts
opened without a proper number will be subject to backup
withholding at a rate of 31% on all liquidations and dividend and
capital gain distributions.
Payment for shares of a Fund in the amount of $1,000,000 or
more may, at the discretion of the Adviser, be made in the form
of securities that are permissible investments for the respective
Fund.
REDEMPTION OF SHARES
SELLING SHARES
Redemption requests for any of the Funds received by the transfer
agent before 4:00 p.m. Eastern Time on a business day for the
Funds will be executed the same day, at that day's closing price.
Orders received after 4:00 p.m. Eastern Time will be executed on
the next business day.
BY TELEPHONE
Call 1-888-259-7565 with your account name, sixteen-digit account
number and amount of redemption (minimum $500). Redemption
proceeds will only be sent to a shareholder's address or bank
account of a commercial bank located within the United States as
shown on the transfer agent's records. (Available only if
telephone redemptions have been authorized on the account
application and if there has been no change of address by
telephone within the preceding 15 days).
BY MAIL
Mail your instructions to Summit Mutual Funds, P.O. Box 3011,
Milwaukee, WI 53201-3011 (via overnight delivery to 615 E.
Michigan Street, Milwaukee, WI 53202). Include the number of
shares or the amount to be redeemed, your sixteen-digit account
number and Social Security number or other taxpayer
identification number. Your instructions must be signed by all
persons required to sign for transactions exactly as their names
appear on the account. If the redemption amount exceeds $50,000,
or if the proceeds are to be sent elsewhere than the address of
record, or the address of record has been changed by telephone
within the preceding 15 days, each signature must be guaranteed
in writing by either a commercial bank that is a member of the
FDIC, a trust company, a credit union, a savings association, a
member firm of a national securities exchange or other eligible
guarantor institution.
INTERNET
Not available at this time.
AUTOMATICALLY
Call 1-888-259-7565 for a Systematic Withdrawal Plan application
($5,000 account minimum and $50 minimum per transaction).
- ---------------------------------------------------------------
Guarantees must be signed by an eligible guarantor institution
and "Signature Guaranteed" must appear with the signature.
- ---------------------------------------------------------------
The Funds may require additional supporting documents for
redemptions made by corporations, executors, administrators,
trustees and guardians. A redemption request will not be deemed
to be properly received until the transfer agent receives all
required documents in proper form.
- ---------------------------------------------------------------
ADDITIONAL TRANSACTION INFORMATION
TELEPHONE REQUESTS
In order to arrange for telephone redemptions after you have
opened your account or to change the bank or account designated
to receive redemption proceeds, send a written request to the
Firstar Mutual Fund Services, LLC or contact your registered
representative. Each shareholder of the account must sign the
request. The Funds may request further documentation from
corporations, executors, administrators, trustees and guardians.
The Funds reserve the right to refuse a telephone redemption if
they believe it is advisable to do so. Procedures for redeeming
shares by telephone may be modified or terminated by the Funds at
any time upon notice to shareholders.
During periods of substantial economic or market change,
telephone redemptions may be difficult to implement. If a
shareholder is unable to contact the transfer agent by telephone,
shares may also be redeemed by delivering the redemption request
to the transfer agent.
In an effort to prevent unauthorized or fraudulent purchase and
redemption requests by telephone, Firstar employs reasonable
procedures to confirm that such instructions are genuine. Among
the procedures used to determine authenticity, investors electing
to transact by telephone will be required to provide their
account number (unless opening a new account). All telephone
transactions will be recorded and confirmed in writing.
Statements of accounts shall be conclusive if not objected to in
writing within 10 days after transmitted by mail. Summit Mutual
Funds may implement other procedures from time to time. If
reasonable procedures are not implemented, Summit Mutual Funds
may be liable for any loss due to unauthorized or fraudulent
transactions. In all other cases, the shareholder is liable for
any loss for unauthorized transactions.
ADDITIONAL REDEMPTION INFORMATION
The Funds will make payment for redeemed shares typically within
one or two business days, but no later than the seventh day after
receipt by the transfer agent of a request in proper form, except
as provided by SEC rules. However, if any portion of the shares
to be redeemed represents an investment made by check, the funds
will delay the payment of the redemption proceeds until the
transfer agent is reasonably satisfied that the check has been
collected, which may take twelve days from the purchase date. An
investor must have filed a purchase application before any
redemption requests can be paid.
ACCOUNTS BELOW THE MINIMUM BALANCE
If your account falls below $1,000, the Funds may redeem your
account. The Fund will impose no charge and will give you sixty
days' written notice prior to any redemption.
REDEMPTION IN KIND
Each Fund intends to pay cash for all shares redeemed, unless the
redemption request is for more than $250,000 or 1% of the net
assets of a Fund by a single shareholder over any 90-day period.
If such a redemption request is presented and the Fund deems it
to be detrimental to existing shareholders, to pay the redemption
in cash, the Fund may pay all or part of the redemption in the
Fund's portfolio securities at their then-current market value
equal to the redemption price. If you received securities in kind
and converted them to cash, you would incur brokerage costs.
Redemptions in kind are taxable transactions.
EXCHANGE OF SHARES
Without a sales charge, you may exchange shares of a Fund for
shares of another Fund.
Telephone exchange privileges automatically apply to each
shareholder of record unless the transfer agent receives written
instructions canceling the privilege.
For federal income tax purposes, an exchange of shares is a
taxable event and, accordingly, an investor may realize a capital
gain or loss. Before making an exchange request, an investor
should consult a tax or other financial adviser to determine the
tax consequences of a particular exchange. No exchange fee is
currently imposed by Summit Mutual Funds on exchanges. However,
Summit Mutual Funds reserves the right to impose a charge in the
future. Summit Mutual Funds reserves the right to reject any
exchange request with prior notice to a shareholder and the
exchange privilege may be modified or terminated at any time. At
least sixty days' notice will be given to shareholders of any
material modification or termination except where notice is not
required under SEC regulations. Also keep in mind:
Exchanges are available only in states where exchanges may
be legally made.
The minimum amount which may be exchanged is the lesser of
$1,000 or all the shares of that Fund.
If any portion of the shares to be exchanged represents an
investment made by check, a Fund will delay the acquisition
of new shares in an exchange until the transfer agent is
reasonably satisfied that the check has been collected,
which may take up to twelve days from the purchase date.
It may be difficult to make telephone exchanges in times of
drastic economic or market changes.
EXCESSIVE TRADING
The Adviser may bar excessive traders from purchasing shares of a
Fund. Frequent trades, involving either substantial Fund assets
or a substantial portion of your account or accounts controlled
by you, can disrupt management of the Fund and raise its
expenses. The Fund defines "excessive trading" as exceeding one
purchase and sale involving the Funds within any 120-day period.
For example, assume you are invested in a Fund. You can move
substantial assets from that Fund to another Fund and, within the
next 120 days, sell your shares in that Fund to return to the
first Fund. If you exceed the number of trades described above,
you may be barred indefinitely from further purchases of shares
of the Funds. Two types of transactions are exempt from the
excessive trading guidelines: (1) redemptions that are not part
of exchanges; and (2) systematic purchases or redemptions made
through an automatic investment plan or an automatic withdrawal
plan.
SHAREHOLDER REPORTS
Shareholders will be provided with a report showing portfolio
investments and other information at least semiannually; and
after the close of a Fund's fiscal year with an annual report
containing audited financial statements. To eliminate unnecessary
duplication, only one copy of shareholder reports will be sent to
shareholders with the same mailing address. Shareholders may
request duplicate copies free of charge.
Account statements will be mailed after each purchase,
reinvestment of dividends and redemption. Statements of accounts
shall be conclusive if not objected to in writing within 10 days
after transmitted by mail. Generally, the Fund does not send
statements for Funds held in brokerage, retirement or other
similar accounts.
AUTOMATED TELERESPONSE SERVICE
Shareholders using a touch-tone telephone can access information
on the Funds twenty four hours a day, seven days a week. When
calling Firstar Mutual Fund Services, LLC at 1-888-259-7565,
shareholders may choose to use the automated information feature
or, during regular business hours (8:00 a.m. to 7:00 p.m. Central
time, Monday through Friday), speak with a Firstar
representative.
RETIREMENT PLANS
The Fund offers individual retirement accounts including SIMPLE
and SEP IRAs. For details concerning Retirement Accounts
(including service fees), please call Firstar Mutual Fund
Services, LLC at 1-888-259-7565.
<PAGE>
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Dividends from net investment income of all of the Funds are
declared and paid quarterly.
Any capital gains are distributed annually. Your dividends and
capital gains distributions will be reinvested automatically in
additional shares unless you notify Summit Mutual Funds that you
elect to receive distributions in cash.
If you have elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service is
unable to deliver checks to your address of record, your
distribution option will automatically be converted to having all
dividend and other distributions reinvested in additional shares.
No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
<PAGE>
FEDERAL TAXES
Each Fund contemplates declaring as dividends each year all, or
substantially all, of its taxable income, including its net
capital gain (the excess of long-term capital gain over
short-term capital loss). You will be subject to income tax on
these distributions regardless of whether they are paid in cash
or reinvested in additional Fund shares. Distributions
attributable to the net capital gain of a Fund will be taxable to
you as long-term capital gain, regardless of how long you have
held your Fund shares. Other Fund distributions will generally be
taxable as ordinary income. You will be notified annually of the
tax status of distributions to you.
You should note that if you purchase Fund shares just prior to a
capital gain distribution, the purchase price will reflect the
amount of the upcoming distribution, but you will be taxable on
the entire amount of the distribution received, even though, as
an economic matter, the distribution simply constitutes a return
of capital. This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale, exchange or
redemption of your Fund shares, including an exchange for Fund
shares of another Fund, based on the difference between your tax
basis in the Fund shares and the amount you receive for them. (To
aid in computing your tax basis, you generally should retain your
account statements for the periods during which you held Fund
shares.) Any loss realized on Fund shares held for six months or
less will be treated as a long-term capital loss to the extent of
any capital gain dividends that were received on the Fund shares.
The one major exception to these tax principles is that
distributions on, and sales, exchanges and redemptions of, Fund
shares held in an IRA (or other tax-qualified plan) will not be
currently taxable.
The foregoing is only a summary of certain tax considerations
under current law, which may be subject to change in the future.
You should consult your tax adviser for further information
regarding federal, state, local and/or foreign tax consequences
relevant to your specific situation.
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on
distributions and redemptions. State income taxes may not apply,
however, to the portions of each Fund's distributions, if any,
that are attributable to interest on Federal securities or
interest on securities of the particular state. Shareholders
should consult their tax advisers regarding the tax status of
distributions in their state and locality.
<PAGE>
S&P, FRANK RUSSELL AND NASDAQ DISCLAIMER
The S&P 500 is an unmanaged index of common stocks comprised of
500 industrial, financial, utility and transportation companies.
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard &
Poor's 500", "500", "S&P MidCap 400 Index", and "Standard &
Poor's MidCap 400 Index" are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use by Summit Mutual
Funds. Summit Mutual Funds is not sponsored, endorsed, sold or
promoted by Standard & Poor's ("S&P"). S&P makes no
representation or warranty, express or implied, to the beneficial
owners of Summit Mutual Funds or any member of the public
regarding the advisability of investing in securities generally
or in Summit Mutual Funds particularly or the ability of the S&P
500 Index or the S&P MidCap 400 Index to track general stock
market performance. S&P's only relationship to Summit Mutual
Funds is the licensing of certain trademarks and trade names of
S&P and of the S&P 500 Index and the S&P MidCap 400 Index which
is determined, composed and calculated by S&P without regard to
Summit Mutual Funds or the Funds. S&P has no obligation to take
the needs of Summit Mutual Funds or the beneficial owners of the
Funds into consideration in determining, composing or calculating
the S&P 500 Index and the S&P MidCap 400 Index. S&P is not
responsible for and has not participated in the determination of
the prices and amount of the Funds or the timing of the issuance
or sale of the Funds or in the determination or calculation of
the equation by which the Funds are to be converted into cash.
S&P has no obligation or liability in connection with the
administration, marketing or trading of Summit Mutual Funds.
The Russell 2000 Index is a trademark/service mark of the Frank
Russell Company. Russell is a trademark of the Frank Russell
Company. Summit Mutual Funds and the Russell 2000 Small Cap
Index Fund are not promoted, sponsored or endorsed by, nor in any
way affiliated with Frank Russell Company. Frank Russell is not
responsible for and has not reviewed the Prospectus, and Frank
Russell makes no representation or warranty, express or implied,
as to its accuracy, or completeness, or otherwise.
Frank Russell Company reserves the right, at any time and without
notice, to alter, amend, terminate or in any way change its
Index. Frank Russell has no obligation to take the needs of any
particular fund or its participants or any other product or
person into consideration in determining, composing or
calculating the Index.
Frank Russell Company's publication of the Index in no way
suggests or implies an opinion by Frank Russell Company as to the
attractiveness or appropriateness of the investment in any or all
securities upon which the Index is based. FRANK RUSSELL COMPANY
MAKES NO REPRESENTATION, WARRANTY, OR GUARANTEE AS TO THE
ACCURACY, COMPLETENESS, RELIABILITY, OR OTHERWISE OF THE INDEX OR
DATA INCLUDED IN THE INDEX. FRANK RUSSELL COMPANY MAKES NO
REPRESENTATION OR WARRANTY REGARDING THE USE, OR THE RESULTS OF
USE, OF THE INDEX OR ANY DATA INCLUDED THEREIN, OR ANY SECURITY
(OR COMBINATION THEREOF) COMPRISING THE INDEX. FRANK RUSSELL
COMPANY MAKES NO OTHER EXPRESS OR IMPLIED WARRANTY, AND EXPRESSLY
DISCLAIMS ANY WARRANTY OF ANY KIND, INCLUDING, WITHOUT MEANS OF
LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT TO THE INDEX OR ANY DATA OR ANY
SECURITY (OR COMBINATION THEREOF) INCLUDED THEREIN.
"Nasdaq" and related marks are trademarks or service marks of The
Nasdaq Stock Market, Inc. "Nasdaq" and have been licensed for use
for certain purposes by Summit Mutual Funds, Inc. and the Nasdaq
100 Index Fund. The Nasdaq 100 Index is composed and calculated
by Nasdaq without regard to Summit Mutual Funds. Nasdaq makes no
warranty, express or implied, and bears no liability with respect
to the Nasdaq 100 Index Fund. Nasdaq makes no warranty, express
or implied, and bears no liability with respect to Summit Mutual
Funds, its use, or any data included therein.
FINANCIAL HIGHLIGHTS
Since these are new funds, no financial highlights are available.
<PAGE>
APPENDIX A: RATINGS
CORPORATE BOND RATINGS
Moody's Investors Services, Inc.
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-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 Aaa group they
comprise what are generally known as high-grade bonds. They are
rated lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium-grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which suggest
a susceptibility to impairment sometime in the future.
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.
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 and 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.
Standard & Poor's Rating Services
AAA This is the highest rating assigned by Standard &
Poor's to a debt obligation and indicates an extremely strong
capacity to pay principal and interest.
AA Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very
strong, and in the majority of instances they differ from AAA
issues only in a small degree.
A Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the
adverse effect of changes in circumstances and economic
conditions.
BBB Bonds rated BBB are regarded as having an adequate
capacity to pay principal and interest. Whereas they normally
exhibit protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB, B, CCC, CC Bonds rated BB, B, CCC, and CC are regarded,
on balance, as predominately speculative with respect to the
issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
COMMERCIAL PAPER RATINGS
Moody's Investors Services, Inc.
A Prime rating is the highest commercial paper rating assigned by
Moody's Investors Services, Inc. Issuers rated Prime are further
referred to by use of numbers 1, 2 and 3 to denote relative
strength within this highest classification. Among the factors
considered by Moody's in assigning ratings for an issuer are the
following:
- management;
- economic evaluation of the industry and an appraisal of
speculative type risks which may be inherent in certain
areas;
- competition and customer acceptance of products;
- liquidity;
- amount and quality of long-term debt;
- ten-year earnings trends;
- financial strength of a parent company and the
relationships which exist with the issuer; and
- recognition by management of obligations which may be
present or may arise as a result of public interest
questions and preparations to meet such obligations.
Standard & Poor's Rating Services
Commercial paper rated A by Standard & Poor's Rating Services has
the following characteristics:
- Liquidity ratios are better than the industry average.
- Long-term senior debt rating is "A" or better. In some
cases, BBB credits may be acceptable.
- 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, the
issuer has a strong position within its industry and the
reliability and quality of management is unquestioned.
Issuers rated A are further referred to by use of numbers 1, 2
and 3 to denote relative strength within this classification.
<PAGE>
Appendix B: S&P 500, S&P MidCap 400, Russell 2000 Small Cap and
Nasdaq 100 Index Returns
S&P 500 Index Returns
To illustrate the market risks relating to changes in stock
prices, the following table shows the average returns of the S&P
500 Index for the period from 1926 to 1998:
<TABLE>
<CAPTION>
S&P 500 Index Returns (1926-1998)
Over Various Time Horizons
1 Year 5 Years 10 Years 20 Years
<S> <C> <C> <C> <C>
Best 54.0% 24.1% 20.1% 17.6%
Worst -43.3% -12.5% -0.9% 3.1%
Average 13.2% 10.7% 11.0% 11.1%
</TABLE>
Average return may not be useful for forecasting future returns
in any particular period, as stock returns are quite volatile
from year to year. These returns are those of the S&P 500 Index
and not of our S&P 500 Index Fund. There is no assurance that
the Fund will be able to replicate the performance of the Index.
S&P MidCap 400 Index Returns
To illustrate the market risks relating to changes in stock
prices, the following table shows the average returns of the S&P
MidCap 400 Index for the period from the inception date of the
Index (July, 1991) to 1998:
<TABLE>
<CAPTION>
S&P MidCap 400 Index Returns (July, 1991-1998)
Over Various Time Horizons
1 Year 5 Years
<S> <C> <C>
Best 32.3% 32.3%
Worst -3.6% -3.6%
Average 17.7% 19.6%
</TABLE>
Average return may not be useful for forecasting future returns
in any particular period, as stock returns are quite volatile
from year to year. These returns are those of the S&P MidCap 400
Index and not of our S&P MidCap 400 Index Fund. There is no
assurance that the Fund will be able to replicate the performance
of the Index. Further, for almost the entire period of the
existence of the S&P MidCap 400 Index, there has been a bull
market. There can be no assurance that these market conditions
will continue.
Russell 2000 Small Cap Index Returns
<TABLE>
<CAPTION>
Russell 2000 Small Cap Returns (1995-Sept 99)
Over Various Time Horizons
1 Year 3 Years
<S> <C> <C>
Best 46.05% 28.15%
Worst -27.15% 4.81%
Average 13.63% 13.77%
</TABLE>
Average return may not be useful for forecasting future returns
in any particular period, as stock returns are quite volatile
from year to year. These returns are those of the Russell 2000
Small Cap Index and not of our Russell 2000 Small Cap Index Fund.
There is no assurance that the Fund will be able to replicate the
performance of the Index.
Nasdaq 100 Index Returns
<TABLE>
<CAPTION>
Nasdaq 100 Index Returns (1995-Sept.1999)
Over Various Time Horizons
1 Year 3 Years
<S> <C> <C>
Best 85.47% 51.36%
Worst 20.77% 32.19%
Average 46.55% 42.40%
</TABLE>
Average return may not be useful for forecasting future returns
in any particular period, as stock returns are quite volatile
from year to year. These returns are those of the Nasdaq 100
Index and not of our Nasdaq 100 Index Fund. There is no
assurance that the Fund will be able to replicate the performance
of the Index.
<PAGE>
[Back Cover Page]
A Statement of Additional Information dated December 27, 1999 as
supplemented March 20, 2000, which contains further information
about the Funds, has been filed with the Securities and Exchange
Commission and is incorporated by reference into this Prospectus.
Additional information about the Funds' investments is available
in Summit Mutual Funds' annual and semi-annual reports to
shareholders. In Summit Mutual Funds' annual report, you will
find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance
during its last fiscal year. A copy of the Statement of
Additional Information or its annual and semi-annual reports may
be obtained without charge by calling Summit Mutual Funds, c/o
Firstar Mutual Fund Services, LLC, (888) 259-7565, or by writing
Summit Mutual Funds, c/o Firstar Mutual Fund Services, LLC, at
P.O. Box 701, Milwaukee, WI 53201-0701.
Summit Mutual Funds' Statement of Additional Information, annual
and semi-annual reports and certain other information about the
Funds can be reviewed and copied at the SEC's public reference
room (which will send copies of these documents upon request and
for a fee). Information about the operation of the SEC's public
reference room may be obtained by calling the SEC at 1-800-SEC-0330.
Copies of Fund documents may be requested by writing to
the Public reference Section of the SEC, Washington, D.C. 20549-6009.
These fund Documents and other information about the Funds are
also available without charge at the SEC's web site:
http://www.sec.gov.
File 811-04000
SMFI 514APEX 3/00
<PAGE>
<PAGE> - NEW DOCUMENT
SUMMIT MUTUAL FUNDS, INC.
Summit Apex Series
- ----------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
December 27, 1999 (as supplemented March 20, 2000)
This Statement of Additional Information regarding twelve of
the twenty-two Funds of Summit Mutual Funds, Inc. ("Summit Mutual
Funds"), formerly Carillon Fund, Inc. is not a prospectus. Much
of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectus.
Accordingly, this Statement should be read in conjunction with
Summit Mutual Funds' current Prospectus, dated December 27, 1999
(as supplemented March 20, 2000), which may be obtained by
calling Summit Mutual Funds, c/o Firstar Mutual Fund Services,
LLC, (888) 259-7565, or by writing Summit Mutual Funds, c/o
Firstar Mutual Fund Services, LLC, at P.O. Box 701, Milwaukee, WI
53201-0701.
Summit Mutual Funds is an open-end management investment
company.
TABLE OF CONTENTS
Page
Investment Policies (13)...................................... 2
Money Market Instruments, Other Securities
and Investment Techniques ............................... 2
Certain Risk Factors Relating to HighYield,
High Risk Bonds and Emerging Markets Securities..........12
Investments in Foreign Securities .......................14
Futures Contracts .......................................20
Options..................................................24
Warrants.....................................................28
Loan Participations and Assignments......................28
Short Sales..............................................29
Lending Portfolio Securities.............................30
Hybrid Instruments.......................................30
Investment Restrictions.......................................31
Portfolio Turnover............................................35
Management of the Fund (18)...................................36
Directors and Officers...................................38
Investment Adviser.......................................39
Payment of Expenses......................................39
Advisory Fee.............................................39
Investment Advisory Agreement............................40
Administration...........................................40
Service Agreement........................................41
Securities Activities of Adviser.........................41
Determination of Net Asset Value (20).........................41
Purchase and Redemption of Shares (20)........................42
Taxes (26)....................................................42
Fund Transactions and Brokerage...............................43
Distributor...................................................43
General Information (1).......................................44
Capital Stock............................................44
Voting Rights............................................44
Additional Information...................................45
Independent Auditors..........................................45
Appendix A: S&P, Frank Russell and NASDAQ Disclaimer..........46
________
( ) indicates page on which the corresponding section appears in
the Prospectus.
________________________________________________________________
SMFI 515 APEX 3/00
<PAGE>
SUMMIT MUTUAL FUNDS, INC.
________________________________________________________________
INVESTMENT POLICIES
The following specific policies supplement the Fund's
"Investment Objectives and Policies" set forth in the Prospectus.
Money Market Instruments, Other Securities and Investment
Techniques
Each Fund may invest in money market instruments whose
characteristics are consistent with the Fund's investment program
and are described below unless explicitly excluded in the text.
Small Bank Certificates of Deposit. Each Fund, except for the
Short-term Government Fund, may invest in certificates of deposit
issued by commercial banks, savings banks, and savings and loan
associations having assets of less than $1 billion, provided that
the principal amount of such certificates is insured in full by
the Federal Deposit Insurance Corporation ("FDIC"). The FDIC
presently insures accounts up to $100,000, but interest earned
above such amount is not insured by the FDIC.
Repurchase Agreements. A repurchase agreement is an instrument
under which the purchaser (i.e., one of the Funds) acquires
ownership of the obligation (the underlying security) and the
seller (the "issuer" of the repurchase agreement) agrees, at the
time of sale, to repurchase the obligation at a mutually agreed
upon time and price, thereby determining the yield during the
purchaser's holding period. This results in a fixed rate of
return insulated from market fluctuations during such period.
Repurchase agreements usually are for short periods, normally
under one week, and are considered to be loans under the
Investment Company Act of 1940. Funds will not enter into a
repurchase agreement which does not provide for payment within
seven days if, as a result, more than 15% of the value of each
Fund's net assets would then be invested in such repurchase
agreements and other illiquid securities. The Funds will enter
into repurchase agreements only where: (i) the underlying
securities are of the type (excluding maturity limitations) which
the Funds' investment guidelines would allow it to purchase
directly, either in normal circumstances or for temporary
defensive purposes; (ii) the market value of the underlying
securities, including interest accrued, will at all times equal
or exceed the value of the repurchase agreement; and (iii)
payment for the underlying security is made only upon physical
delivery or evidence of book-entry transfer to the account of the
custodian or a bank acting as agent. The investments by a Fund in
repurchase agreements may at times be substantial when, in the
view of the Adviser, unusual market, liquidity, or other
conditions warrant.
If the issuer of the repurchase agreement defaults and does not
repurchase the underlying security, the Fund might incur a loss
if the value of the underlying security declines, and the Fund
might incur disposition costs in liquidating the underlying
security. In addition, if the issuer becomes involved in
bankruptcy proceedings, the Fund may be delayed or prevented from
obtaining the underlying security for its own purposes. In order
to minimize any such risk, the Fund will only engage in
repurchase agreements with recognized securities dealers and
banks determined to present minimal credit risk by the Adviser,
under the direction and supervision of the Board of Directors.
Reverse Repurchase Agreements
Each Fund may enter into reverse repurchase agreements. Under
reverse repurchase agreements, the Fund transfers possession of
Fund securities to banks in return for cash in an amount equal to
a percentage of the Fund securities' market value and agrees to
repurchase the securities at a future date by repaying the cash
with interest. The Fund retains the right to receive interest
and principal payments from the securities while they are in the
possession of the financial institutions. While a reverse
repurchase agreement is in effect, the Custodian will segregate
from other Fund assets an amount of cash or liquid high quality
debt obligations equal in value to the repurchase price
(including any accrued interest).
U.S. Government Obligations. Securities issued and guaranteed as
to principal and interest by the United States Government include
a variety of Treasury securities, which differ only in their
interest rates, maturities and times of issuance. Treasury bills
have a maturity of one year or less. Treasury notes have
maturities of one to ten years at the time they are issued and
Treasury bonds generally have a maturity of greater than ten
years at the time they are issued.
Government Agency Securities. Government agency securities that
are permissible investments consist of securities either issued
or guaranteed by agencies or instrumentalities of the United
States Government. Agencies of the United States Government
which issue or guarantee obligations include, among others,
Export-Import Banks of the United States, Farmers Home
Administration, Federal Housing Administration, Government
National Mortgage Association ("GNMA"), Maritime Administration,
Small Business Administration and The Tennessee Valley Authority.
Obligations of instrumentalities of the United States Government
include securities issued or guaranteed by, among others, the
Federal National Mortgage Association ("FNMA"), Federal Home Loan
Banks, Federal Home Loan Mortgage Corporation ("FHLMC"), Federal
Intermediate Credit Banks, Banks for Cooperatives, and the U.S.
Postal Service. Some of these securities, such as those
guaranteed by GNMA, are supported by the full faith and credit of
the U.S. Treasury; others, such as those issued by The Tennessee
Valley Authority, are supported by the right of the issuer to
borrow from the Treasury; while still others, such as those
issued by the Federal Land Banks, are supported only by the
credit of the instrumentality. The Fund's primary usage of these
types of securities will be GNMA certificates and FNMA and FHLMC
mortgage-backed obligations which are discussed in more detail
below.
Certificates of Deposit. Each Fund, except for the Short-term
Government Fund, may invest in certificates of deposit.
Certificates of deposit are generally short-term, interest-
bearing negotiable certificates issued by banks or savings and
loan associations against funds deposited in the issuing
institution.
Time Deposits. Each Fund, except for the Short-term Government
Fund, may invest in time deposits. Time Deposits are deposits in
a bank or other financial institution for a specified period of
time at a fixed interest rate for which a negotiable certificate
is not received.
Bankers' Acceptance. Each Fund, except for the Short-term
Government Fund, may invest in bankers' acceptances. A bankers'
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). 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.
Commercial Paper. Each Fund, except for the Short-term
Government Fund, may invest in commercial paper. Commercial
paper refers to short-term, unsecured promissory notes issued by
corporations to finance short-term credit needs. Commercial
paper is usually sold on a discount basis and has a maturity at
the time of issuance not exceeding nine months.
Short Term Corporate Debt Securities. Each Fund, except for the
Short-term Government Fund, may invest in investment grade short
term corporate debt securities with a remaining maturity of one
year or less. The High Yield Bond Fund, the Bond Fund and the
Emerging Markets Bond Fund may invest in below investment grade
("junk") corporate debt securities. Corporate debt securities
with a remaining maturity of less than one year tend to become
extremely liquid and are traded as money market securities. Such
issues tend to have greater liquidity and considerably less
market value fluctuations than longer-term issues.
When-issued and Delayed-delivery Securities. From time to time,
in the ordinary course of business, each Fund may purchase
securities on a when-issued or delayed-delivery basis i.e.,
delivery and payment can take place a month or more after the
date of the transactions. The securities so purchased are
subject to market fluctuation and no interest accrues to the
purchaser during this period. At the time a Fund makes the
commitment to purchase securities on a when-issued or delayed-
delivery basis, the Fund will record the transaction and
thereafter reflect the value, each day, of such security in
determining the net asset value of such Fund. At the time of
delivery of the securities, the value may be more or less than
the purchase price. Each Fund will also establish a segregated
account with the Summit Mutual Funds' custodian bank in which it
will maintain cash or cash equivalents or other Fund securities
equal in value to commitments for such when-issued or delayed-
delivery securities.
Asset-Backed Securities. Each Fund, except the S&P 500 Index
Fund, the S&P MidCap 400 Index Fund, the Russell 2000 Small Cap
Index Fund, the Nasdaq 100 Index Fund and the Short-term
Government Fund may invest in asset-backed securities. Asset-
backed securities may be classified either as pass-through
certificates or collateralized obligations. Pass-through
certificates are asset-backed securities which represent an
undivided fractional ownership interest in an underlying pool of
assets. Asset-backed securities issued in the form of debt
instruments, also known as collateralized obligations, are
generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and
issuing such debt. Asset-backed securities may be of short
maturity, such as commercial paper, or longer, such as bonds, and
may be issued with only one class of security or have more than
one class with some classes having rights to payments on the
asset-backed security subordinate to the rights of the other
classes. These subordinated classes will take the risk of
default before the classes to which they are subordinated.
The High Yield Bond Fund and Emerging Markets Bond Fund may each
invest up to 10% of its total assets in asset-backed securities.
The Balanced Index Fund, Lehman Aggregate Bond Index Fund,
Everest Fund, Micro-Cap Fund and Bond Fund may invest without
limitation in asset-backed securities whose characteristics are
consistent with the Fund's investment program and are not further
limited below. The credit quality of most asset-backed
securities depends primarily on the credit quality of the assets
underlying such securities, how well the entity issuing the
security is insulated from the credit risk of the originator of
the debt obligations or any other affiliated entities and the
amount and quality of any credit support provided to the
securities. The rate of principal payment on asset-backed
securities generally depends on the rate of principal payments
received on the underlying assets which in turn may be affected
by a variety of economic and other factors. As a result, the
yield on any asset-backed security is difficult to predict with
precision and actual yield to maturity may be more or less than
the anticipated yield to maturity. In addition, for asset-backed
securities purchased at a premium, the premium may be lost in the
event of early pre-payment which may result in a loss to the
Fund.
Pass-through certificates usually provide for payments of
principal and interest received to be passed through to their
holders, usually after deduction for certain costs and expenses
incurred in administering the pool. Because pass-through
certificates represent an ownership interest in the underlying
assets, the holders thereof bear directly the risk of any
defaults by the obligors on the underlying assets not covered by
any credit support. See "Types of Credit Support" below.
Collateralized obligations are most often trade, credit card or
automobile receivables. The assets collateralizing such asset-
backed securities are pledged to a trustee or custodian for the
benefit of the holders thereof. Such issuers generally hold no
assets other than those underlying the asset-backed securities
and any credit support provided. As a result, although payments
on such asset-backed securities are obligations of the issuers,
in the event of defaults on the underlying assets not covered by
any credit support (see "Types of Credit Support" below), the
issuing entities are unlikely to have sufficient assets to
satisfy their obligations on the related asset-backed securities.
Mortgage-Backed Securities. Each Fund, except the S&P 500 Index
Fund, the S&P MidCap 400 Index Fund, the Russell 2000 Small Cap
Index Fund and the Nasdaq-100 Index Fund may invest in mortgage-
backed securities. Mortgage-backed securities are securities
representing interests in a pool of mortgages. Principal and
interest payments made on the mortgages in the underlying
mortgage pool are passed through to the Fund. The High Yield
Bond Fund and Emerging Markets Bond Fund may invest up to 10% of
their total assets in mortgage-backed securities. The Balanced
Index Fund, Lehman Aggregate Bond Index Fund, Everest Fund,
Micro-Cap Fund, Bond Fund and Short-term Government Fund may
invest without limitation in mortgage-backed securities whose
characteristics are consistent with the Fund's investment program
and are not further limited below. The actual prepayment
experience of a pool of mortgage loans or other obligations may
cause the yield realized by the Fund to differ from the yield
calculated on the basis of the average life of the pool. (When a
mortgage in the underlying mortgage pool is prepaid, an
unscheduled principal prepayment is passed through to the Fund.
This principal is returned to the Fund at par. As a result, if a
mortgage security were trading at a premium, its total return
would be lowered by prepayments, and if a mortgage security were
trading at a discount, its total return would be increased by
prepayments.) The value of these securities also may change
because of changes in the market's perception of the
creditworthiness of the federal agency that issued them. In
addition, the mortgage securities market in general may be
adversely affected by changes in governmental regulation or tax
policies. In addition, for mortgage-backed securities purchased
at a premium, the premium may be lost in the event of early
prepayment which may result in a loss to the Fund.
Methods Of Allocating Cash Flows. While many asset-backed
securities are issued with only one class of security, many
asset-backed securities are issued in more than one class, each
with different payment terms. Multiple class asset-backed
securities are issued for two main reasons. First, multiple
classes may be used as a method of providing credit support.
This is accomplished typically through creation of one or more
classes whose right to payments on the asset-backed security is
made subordinate to the right to such payments of the remaining
class or classes. See "Types of Credit Support." Second,
multiple classes may permit the issuance of securities with
payment terms, interest rates or other characteristics differing
both from those of each other and from those of the underlying
assets. Examples include so-called "strips" (asset-backed
securities entitling the holder to disproportionate interests
with respect to the allocation of interest and principal of the
assets backing the security), and securities with class or
classes having characteristics which mimic the characteristics of
non-asset-backed securities, such as floating interest rates
(i.e., interest rates which adjust as a specified benchmark
changes) or scheduled amortization of principal.
Asset-backed securities in which the payment streams on the
underlying assets are allocated in a manner different than those
described above may be issued in the future. A Fund may invest
in such asset-backed securities if such investment is otherwise
consistent with its investment objective and policies and with
the investment restrictions of the Fund.
Types Of Credit Support. Asset-backed securities are often
backed by a pool of assets representing the obligations 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 classes: liquidity protection and protection
against 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 scheduled payments on the underlying pool are made in
a timely fashion. Protection against 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 from
third parties, through various means of structuring the
transaction or through a combination of such approaches.
Examples of asset-backed securities with credit support arising
out of the structure of the transaction include "senior-
subordinated securities" (multiple class asset-backed securities
with certain classes subordinate to other classes as to the
payment of principal thereon, with the result that defaults on
the underlying assets are borne first by the holders of the
subordinated class) and asset-backed securities that have
"reserve funds" (where cash or investments, sometimes funded from
a portion of the initiating payments on the underlying assets,
are held in reserve against future losses) or that have been
"over-collateralized" (where the scheduled payments on, or the
principal amount of, the underlying assets substantially exceeds
that required to make payment of the asset-backed securities and
pay any servicing or other fees). The degree of credit support
provided on each issue is based generally on historical
information respecting the level of credit risk associated with
such payments. Delinquency or loss in excess of that anticipated
could adversely affect the return on an investment in an asset-backed security.
Automobile Receivable Securities. Each Fund, except the S&P 500
Index Fund, the S&P MidCap 400 Index Fund, the Russell 2000 Small
Cap Index Fund, the Nasdaq-100 Index Fund and the Short-term
Government Fund may invest in automobile receivable securities.
Automobile receivable securities are asset-backed securities
which are backed by receivables from motor vehicle installment
sales contracts or installment loans secured by motor vehicles
("Automobile Receivable Securities"). Since installment sales
contracts for motor vehicles or installment loans related thereto
("Automobile Contracts") typically have shorter durations and
lower incidences of prepayment, Automobile Receivable Securities
generally will exhibit a shorter average life and are less
susceptible to prepayment risk.
Most entities that issue Automobile Receivable Securities create
an enforceable interest in their respective Automobile Contracts
only by filing a financing statement and by having the servicer
of the Automobile Contracts, which is usually the originator of
the Automobile Contracts, take custody thereof. In such
circumstances, if the servicer of the Automobile Contracts were
to sell the same Automobile Contracts to another party, in
violation of its obligation not to do so, there is a risk that
such party could acquire an interest in the Automobile Contracts
superior to that of the holders of Automobile Receivable
Securities. Also, although most Automobile Contracts grant a
security interest in the motor vehicle being financed, in most
states the security interest in a motor vehicle must be noted on
the certificate of title to create an enforceable security
interest against competing claims of other parties. Due to the
large number of vehicles involved, however, the certificate of
title to each vehicle financed, pursuant to the Automobile
Contracts underlying the Automobile Receivable Security, usually
is not amended to reflect the assignment of the seller's security
interest for the benefit of the holders of the Automobile
Receivable Securities. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be
available to support payments on the securities. In addition,
various state and federal laws give the motor vehicle owner the
right to assert against the holder of the owner's Automobile
Contract certain defenses such owner would have against the
seller of the motor vehicle. The assertion of such defenses
could reduce payments on the Automobile Receivable Securities.
Credit Card Receivable Securities. Each Fund, except the S&P 500
Index Fund, the S&P MidCap 400 Index Fund, the Russell 2000 Small
Cap Index Fund, the Nasdaq-100 Index Fund and the Short-term
Government Fund may invest in credit card receivable securities.
Credit card receivable securities are asset-backed securities
backed by receivables from revolving credit card agreements
("Credit Card Receivable Securities"). Credit balances on
revolving credit card agreements ("Accounts") are generally paid
down more rapidly than are Automobile Contracts. Most of the
Credit Card Receivable Securities issued publicly to date have
been pass-through certificates. In order to lengthen the
maturity of Credit Card Receivable Securities, most such
securities provide for a fixed period during which only interest
payments on the underlying Accounts are passed through to the
security holder and principal payments received on such Accounts
are used to fund the transfer to the pool of assets supporting
the related Credit Card Receivable Securities of additional
credit card charges made on an Account. The initial fixed period
usually may be shortened upon the occurrence of specified events
which signal a potential deterioration in the quality of the
assets backing the security, such as the imposition of a cap on
interest rates. The ability of the issuer to extend the life of
an issue of Credit Card Receivable Securities thus depends upon
the continued generation of additional principal amounts in the
underlying accounts during the initial period and the non-
occurrence of specified events. An acceleration in cardholders'
payment rates or any other event which shortens the period during
which additional credit card charges on an Account may be
transferred to the pool of assets supporting the related Credit
Card Receivable Security could shorten the weighted average life
and yield of the Credit Card Receivable Security.
Credit cardholders are entitled to the protection of a number of
state and federal consumer credit laws, many of which give such
holder the right to set off certain amounts against balances owed
on the credit card, thereby reducing amounts paid on Accounts.
In addition, unlike most other asset-backed securities, Accounts
are unsecured obligations of the cardholder.
Other Assets. The Adviser anticipates that asset-backed
securities backed by assets other than those described above will
be issued in the future. Each Fund, except the S&P 500 Index
Fund, the S&P MidCap 400 Index Fund, the Russell 2000 Small Cap
Index Fund, the Nasdaq-100 Index Fund and the Short-term
Government Fund may invest in such securities in the future if
such investment is otherwise consistent with its investment
objective, policies and restrictions. There are, of course,
other types of securities that are, or may become, available,
which are similar to the foregoing.
GNMA Certificates GNMA certificates are mortgage-backed
securities representing part ownership of a pool of mortgage
loans on which timely payment of interest and principal is
guaranteed by the full faith and credit of the U.S. government.
GNMA certificates differ from typical bonds because principal is
repaid monthly over the term of the loan rather than returned in
a lump sum at maturity. Because both interest and principal
payments (including prepayments) on the underlying mortgage loans
are passed through to the holder of the certificate, GNMA
certificates are called "pass-through" securities.
Although the mortgage loans in the pool have maturities of up to
30 years, the actual average life of the GNMA certificates
typically will be substantially less because the mortgages are
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 GNMA certificates.
Conversely, when interest rates are rising, the rate of
prepayment tends to decrease, thereby lengthening the actual
average life of the GNMA certificates. Accordingly, it is not
possible to predict accurately the average life of a particular
pool. Reinvestment of prepayments may occur at higher or lower
rates that the original yield on the certificates. Due to the
prepayment feature and the need to reinvest prepayments of
principal at current rates, GNMA certificates can be less
effective than typical bonds of similar maturities at "locking-
in" yields during periods of declining interest rates, although
they may have comparable risks of decline in value during periods
of rising interest rates.
FNMA and FHLMC Mortgage-Backed Obligations Each Fund, except
for the Short-term Government Fund, may invest in FNMA and FHLMC
mortgage-backed obligations. The Federal National Mortgage
Association ("FNMA"), a federally chartered and privately owned
corporation, issues pass-through securities representing an
interest in a pool of conventional mortgage loans. FNMA
guarantees the timely payment of principal and interest but this
guarantee is not backed by the full faith and credit of the U.S.
government. The Federal Home Loan Mortgage Corporation ("FHLMC"),
a corporate instrumentality of the United States, issues
participation certificates that represent an interest in a pool
of conventional mortgage loans. FHLMC guarantees the timely
payment of interest and the ultimate collection of principal and
maintains reserves to protect holders against losses due to
default, but the certificates are not backed by the full faith
and credit of the U.S. government. As is the case with GNMA
certificates, the actual maturity of and realized yield on
particular FNMA and FHLMC pass-through securities will vary based
on the prepayment experience of the underlying pool of mortgages.
Collateralized Mortgage Obligations ("CMO's") Each Fund other
than the S&P 500 Index, the S&P MidCap 400 Index, the Russell
2000 Small Cap Index, the Nasdaq-100 Index and the Short-term
Government Fund, may invest in collateralized mortgage
obligations ("CMOs") or mortgage-backed bonds issued by financial
institutions such as commercial banks, savings and loan
associations, mortgage banks and securities broker-dealers (or
affiliates of such institutions established to issue these
securities). CMOs are obligations fully collateralized directly
or indirectly by a pool of mortgages on which payments of
principal and interest are dedicated to payment of principal and
interest on the CMOs. Payments on the underlying mortgages (both
interest and principal) are passed through to the holders,
although not necessarily on a pro rata basis, on the same
schedule as they are received. Mortgage-backed bonds are general
obligations of the issuer fully collateralized directly or
indirectly by a pool of mortgages. The mortgages serve as
collateral for the issuer's payment obligations on the bonds, but
interest and principal payments on the mortgages are not passed
through either directly (as with GNMA certificates and FNMA and
FHLMC pass-through securities) or on a modified basis (as with
CMOs). Accordingly, a change in the rate of prepayments on the
pool of mortgages could change the effective maturity of a CMO
but not that of a mortgage-backed bond (although, like many
bonds, mortgage-backed bonds may be callable by the issuer prior
to maturity).
Each Fund other than the S&P 500 Index, the S&P MidCap 400 Index,
the Russell 2000 Small Cap Index, the Nasdaq-100 Index and the
Short-term Government Fund, may also invest in a variety of more
risky CMOs, including interest only ("IOs"), principal only
("POs"), inverse floaters, or a combination of these securities.
Stripped mortgage-backed securities ("SMBS") are usually
structured with several classes that receive different
proportions of the interest and principal distributions from a
pool of mortgage assets. A common type of SMBS will have one
class receiving all of the interest from the mortgage assets (an
IO), while the other class will receive all of the principal (a
PO). However, in some instances, one class will receive some of
the interest and most of the principal while the other class will
receive most of the interest and the remainder of the principal.
If the underlying mortgage assets experience greater-than-
anticipated or less-than-anticipated prepayments of principal,
the Fund may fail to fully recoup its initial investment or
obtain its initially assumed yield on some of these securities.
The market value of the class consisting entirely of principal
payments generally is unusually volatile in response to changes
in interest rates. The yields on classes of SMBS that have more
uncertain timing of cash flows are generally higher than
prevailing market yields on other mortgage-backed securities
because there is a greater risk that the initial investment will
not be fully recouped or received as planned over time.
Each Fund other than the S&P 500 Index, the S&P MidCap 400 Index,
the Russell 2000 Small Cap Index, the Nasdaq-100 Index and the
Short-term Government Fund, may invest in another CMO class known
as leveraged inverse floating rate debt instruments ("inverse
floaters"). The interest rate on an inverse floater resets in the
opposite direction from the market rate of interest to which the
inverse floater is indexed. An inverse floater may be considered
to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index
rate of interest. The higher degree of leverage inherent in
inverse floaters is associated with greater volatility in their
market values. Accordingly, the duration of an inverse floater
may exceed its stated final maturity.
The staff of the Securities and Exchange Commission ("SEC" or the
"Commission") has taken the position that IOs and POs, other than
government-issued IOs or POs backed by fixed-rate mortgages,
should be treated as illiquid securities and, accordingly, each
Fund, except for the High Yield Bond Fund and Emerging Markets
Bond Fund, will limit its investments in such securities,
together with all other illiquid securities, to 10% of the Fund's
net assets. The High Yield Bond Fund and Emerging Markets Bond
Fund, will limit its investments in such securities, together
with all other illiquid securities, to 15% of the Fund's net
assets. Furthermore, each Fund, other than the High Yield Bond
Fund and the Emerging Markets Bond Fund limits investments in
more risky CMOs (IOs, POs, inverse floaters) to no more than 5%
of its total assets. The Funds will treat non-government-issued
IOs and POs not backed by fixed-rate mortgages as illiquid unless
and until the SEC modifies its position. Under the staff's
position, the determination of whether a particular government-
issued IO and PO backed by fixed-rate mortgages is liquid may be
made on a case by case basis under guidelines and standards
established by the Board of Directors. The Trustees have
delegated to the Adviser the authority to determine the liquidity
of these investments based on the following guidelines: the type
of issuer; type of collateral, including age and prepayment
characteristics; rate of interest on coupon relative to current
market rates and the effect of the rate on the potential for
prepayments; complexity of the issue's structure, including the
number of tranches; size of the issue and the number of dealers
who make a market in the IO or PO.
Zero-Coupon and Pay-In-Kind Bonds Each Fund, other than the S&P
500 Index, the S&P MidCap 400 Index, the Russell 2000 Small Cap
Index, the Nasdaq-100 Index and the Short-term Government Fund,
may invest in zero-coupon and Pay-In-Kind bonds. The High Yield
Bond Fund and Emerging Markets Bond Fund may invest up to 25% of
its total assets in zero-coupon bonds. A zero-coupon bond is a
security that has no cash coupon payments. Instead, the issuer
sells the security at a substantial discount from its maturity
value. The interest received by the investor from holding this
security to maturity is the difference between the maturity value
and the purchase price. The advantage to the investor is that
reinvestment risk of the income received during the life of the
bond is eliminated. However, zero-coupon bonds, like other
bonds, retain interest rate and credit risk and usually display
more price volatility than those securities that pay a cash
coupon. Since there are no periodic interest payments made to
the holder of a zero-coupon security, when interest rates rise,
the value of such a security will fall more dramatically than a
bond paying out interest on a current basis. When interest rates
fall, however, zero-coupon securities rise more rapidly in value
because the bonds have locked in a specific rate of return which
becomes more attractive the further interest rates fall.
Each Fund other than the S&P 500 Index, the S&P MidCap 400 Index,
the Russell 2000 Small Cap Index, the Nasdaq-100 Index and the
Short-term Government Fund, may invest in pay-in-kind bonds. The
High Yield Fund and Emerging Markets Fund may invest up to 25% of
its total assets in pay-in-kind bonds. Pay-in-kind ("PIK") bonds
are securities that pay interest in either cash or additional
securities, at the issuer's option, for a specified period.
PIKs, like zero-coupon bonds, are designed to give an issuer
flexibility in managing cash flow. PIK bonds can be either
senior or subordinated debt and trade flat (i.e., without accrued
interest). The price of PIK bonds is expected to reflect the
market value of the underlying debt plus an amount representing
accrued interest since the last payment. PIKs are usually less
volatile than zero-coupon bonds, but more volatile than
securities paid in cash.
Convertible Bonds Each Fund, except the S&P 500 Index Fund, S&P
400 MidCap Index Fund, Russell 2000 Small Cap Index Fund, Nasdaq
100 Index Fund, Balanced Index Fund, Lehman Aggregate Bond Index
Fund, and Short-term Government Fund, may invest in convertible
bonds. The High Yield Bond Fund and Emerging Markets Bond Fund
may invest up to 10% of its assets in convertible bonds. The
Bond Fund may invest up to 25% of its assets in convertible bonds
and other securities. Convertible bonds are debt instruments
convertible into equity of the issuing company at certain times
in the future and according to a certain exchange ratio.
Typically, convertible bonds are callable by the issuing company,
which may, in effect, force conversion before the holder would
otherwise choose.
While the High Yield Fund and Emerging Market Bond Fund intend to
invest primarily in debt securities, they may invest in
convertible bonds. While some countries or companies may be
regarded as favorable investments, pure fixed income
opportunities may be unattractive or limited due to insufficient
supply, or legal or technical restrictions. In such cases, the
High Yield Fund and Emerging Markets Fund may consider
convertible bonds to gain exposure to such markets.
Equity Securities. The S&P 500 Index Fund, S&P MidCap 400 Index
Fund, Nasdaq 100 Index Fund, Russell 2000 Small Cap Index Fund,
Everest Fund and Micro-Cap Fund may invest in equity securities
without restriction. The Balanced Index Fund generally invests
60% of the Fund in equity securities. The Bond Fund, High Yield
Bond Fund and Emerging Markets Bond Fund may invest up to 25% of
their assets in equities. The Lehman Aggregate Bond Index Fund
and the Short-term Government Fund may not invest in equity
securities.
Unit Investment Trusts. The S&P 500 Index Fund and the Balanced
Index Fund may invest in Standard & Poor's Depositary Receipts(R)
("SPDRs(R)"), the S&P MidCap 400 Index Fund may invest in
Standard & Poor's MidCap Depositary Receipts ("MidCap SPDRs(R)")
and the Nasdaq 100 Index Fund may invest in shares of the Nasdaq-
100 Trust ("Nasdaq-100 Trust(R)"). SPDRs, MidCap SPDRs and
Nasdaq-100 Trust Shares are units of beneficial interest in a
unit investment trust ("UIT"), representing proportionate
undivided interests in a portfolio of securities in substantially
the same weighting as the component common stocks of the S&P 500
Index, S&P MidCap 400 Index and the Nasdaq 100 Index,
respectively. In addition, any other Index-based Fund may invest
in a UIT, which is currently in existence or is created in the
future, that is designed to track the performance of the Fund's
underlying Index. While the investment objective of such a UIT
is to provide investment results that generally correspond to the
price and yield performance of the component common stocks of the
S&P 500 Index, the S&P MidCap 400 Index and the Nasdaq 100 Index
or other Index, there can be no assurance that this investment
objective will be met fully. As SPDRs, MidCap SPDRs and Nasdaq-
100 Trust Shares and other UITs are securities issued by an
investment company, non-fundamental restriction (5) below
restricts their purchases to 10% of the Portfolio's assets.
Private Placements (Restricted Securities) Each Fund other than
the S&P 500 Index, the S&P MidCap 400 Index, the Russell 2000
Small Cap Index, the Nasdaq 100 Index and the Short-term
Government Fund, may invest in securities, including restricted
securities (privately-placed debt securities), which are not
readily marketable. The High Yield Bond Fund and Emerging
Markets Bond Fund will not acquire such securities if, as a
result, they would comprise, together with all other illiquid
securities, more than 15% of the value of each Fund's net assets.
Certain restricted securities may be sold only in privately
negotiated transactions or in a public offering with respect to
which a registration statement is in effect under the Securities
Act of 1933, as amended (the "1933 Act"). Where registration is
required, a 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.
Restricted securities without readily available market quotations
will be priced at fair value as determined in good faith by the
Board of Directors.
Some restricted securities are eligible for purchase and sale
under Rule 144A under the 1933 Act. This rule permits certain
qualified institutional buyers, such as the Funds, to trade in
privately-placed securities, including various debt securities,
even though such securities are not registered under the 1933
Act. Securities purchased under Rule 144A, although restricted,
may nevertheless be liquid, and the Adviser, under the
supervision of the Directors, on a case-by-case basis will make
this determination. In making this determination, the Adviser
will consider the trading markets for the specific security,
taking into account the unregistered nature of a Rule 144A
security. In addition, the Adviser could consider the: (i)
frequency of trades and quotes; (ii) number of dealers and
potential purchasers; (iii) dealer undertakings to make a market;
and (iv) nature of the security and of marketplace trades (e.g.,
the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). The liquidity
of Rule 144A securities will be monitored, and if, as a result of
changed conditions, it is determined that a 144A security held in
the High Yield Bond Fund or the Emerging Markets Bond Fund is no
longer liquid, the affected Fund's holdings of illiquid
securities will be reviewed to determine what, if any, steps are
required, to assure that the High Yield Bond Fund or Emerging
Markets Bond Fund does not invest more than 15% of its net assets
in illiquid securities. Investing in Rule 144A securities could
have the effect of increasing the amount of a Fund's assets
invested in illiquid securities if qualified institutional buyers
are unwilling to purchase such securities.
Certain Risk Factors Relating to High Yield, High Risk Bonds
and Emerging Markets Securities
The descriptions below are intended to supplement the material in
the Prospectus regarding high-yield, high-risk bonds and emerging
markets securities. Because of their investment policies, the
High Yield Fund and Emerging Markets Bond Fund may not be
suitable or appropriate for all investors. The Funds are
designed for intermediate to long-term investors who can accept
the risks entailed in seeking a high level of current income
available from investments in intermediate to long-term, high
yield, high risk, medium- and lower-quality, fixed-income
securities (in the case of the High Yield Bond Fund and the
Emerging Markets Bond Fund) and in emerging market securities (in
the case of the Emerging Markets Bond Fund). Consistent with an
intermediate to long-term investment approach, investors in these
Funds should not rely on these Funds for their short-term
financial needs. The principal value of the lower-quality
securities in which these Funds invest will be affected by
interest rate levels, general economic conditions, specific
industry conditions (in the case of the High Yield Bond Fund) and
the creditworthiness of the individual issuer. In addition, the
principal value of the lower-quality securities in which the
Emerging Markets Bond Fund invests will be affected by social,
economic and political conditions of emerging market nations in
which the Fund invests. Although these Funds seek to reduce risk
by portfolio diversification, credit analysis and attention to
trends in the economy, industries and financial markets, such
efforts will not eliminate all risk. There can, of course, be no
assurance that these Funds will achieve these results.
The Funds' prospectus, for the Bond Fund, the High Yield Bond
Fund and the Emerging Markets Bond Fund, in the sections entitled
"Investment Strategies" and "Primary Risks", describe the special
considerations and additional risk factors associated with each
Fund's investments in lower-rated debt securities commonly
referred to as "junk bonds," and investing abroad in emerging
market nations (in the case of the Emerging Markets Bond Fund).
EMERGING MARKETS
The economies, markets, and political structures of a number of
the countries in which the Emerging Markets Bond Fund can invest
do not compare favorably with the U.S. and other mature economies
in terms of wealth and stability. Therefore, investments in
these countries will be riskier and more subject to erratic and
abrupt price movements. This is particularly true for emerging
market nations.
Some economies are less well developed, overly reliant on
particular industries, and more vulnerable to the ebb and flow of
international trade, trade barriers, and other protectionist or
retaliatory measures. Certain countries have histories of
political instability and upheaval that could cause their
governments to act in a detrimental or hostile manner toward
private enterprise or foreign investment. Actions such as
nationalizing a company or industry, expropriating assets, or
imposing punitive taxes could have a severe effect on security
prices and impair the Fund's ability to repatriate capital or
income. Significant external risks, including war, currently
affect some countries.
Additional factors which may influence the ability or willingness
of a country to service debt include, but are not limited to, the
country's cash flow situation, the availability of sufficient
foreign exchange on the date payment is due, the relative size of
the country's debt service burden to the economy as a whole, its
government policy toward particular international agencies and
any political restrictions that may be imposed.
HIGH YIELD/HIGH RISK SECURITIES
Larger bond issues are evaluated by nationally recognized
statistical rating organizations (each, an "NRSRO") such as
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's
Ratings Group ("Standard & Poor's") on the basis of the issuer's
ability to meet all required interest and principal payments.
The highest ratings are assigned to issuers perceived to be the
best credit risks. The Adviser's research analysts also evaluate
all portfolio holdings of the Funds, including those rated by an
NRSRO. Other things being equal, lower-rated bonds generally
have higher yields due to greater risk. High yield, high risk
securities are those rated below "Baa" by Moody's or "BBB" by
Standard & Poor's or those that are not rated but judged by the
Adviser to be of comparable quality. While the Funds are
permitted to purchase defaulted bonds, the Adviser will acquire
such securities only if the portfolio manager foresees the
potential for significant capital appreciation.
Sensitivity to Interest Rates and Economic Changes. High-yield
bonds are very sensitive to adverse economic changes and
corporate developments and their yields will fluctuate over time.
During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may experience financial
stress that would adversely affect their ability to service their
principal and interest payment obligations, to meet projected
business goals, and to obtain additional financing. If the
issuer of a bond defaulted on its obligations to pay interest or
principal or entered into bankruptcy proceedings, the Fund may
incur losses or expenses in seeking recovery of amounts owed to
it. In addition, periods of economic uncertainty and changes can
be expected to result in increased volatility of market prices of
high-yield bonds and the Portfolio's net asset value.
Payment Expectations. High-yield bonds may contain redemption or
call provisions. If an issuer exercised these provisions in a
declining interest rate market, the Fund would have to replace
the security with a lower-yielding security, resulting in a
decreased return for investors. Conversely, a high-yield bond's
value will decrease in a rising interest rate market, as will the
value of the Fund's assets. If the Fund experiences unexpected
net redemptions, this may force it to sell high-yield bonds
without regard to their investment merits, thereby decreasing the
asset base upon which expenses can be spread and possibly
reducing the Fund's rate of return.
Liquidity and Valuation. There may be little trading in the
secondary market for particular bonds, which may affect adversely
the Fund's ability to value accurately or dispose of such bonds.
Adverse publicity and investor perceptions, whether or not based
on fundamental analysis, may decrease the values and liquidity of
high-yield bonds, especially in a thin market.
Investments in Foreign Securities
American Depositary Receipts. All Funds, except the Short-term
Government Fund and the Lehman Aggregate Bond Index Fund, may
invest in American Depository Receipts. American Depositary
Receipts ("ADRs") may be issued in sponsored or unsponsored
programs. In sponsored programs, the issuer makes arrangements to
have its securities traded in the form of ADRs; in unsponsored
programs, the issuer may not be directly involved in the creation
of the program. Although the regulatory requirements with respect
to sponsored and unsponsored programs are generally similar, the
issuers of unsponsored ADRs are not obligated to disclose
material information in the United States and, therefore, such
information may not be reflected in the market value of the ADRs.
European and Global Depository Receipts The High Yield Bond
Fund and Emerging Markets Bond Fund may invest indirectly in
securities of emerging market issuers through sponsored or
unsponsored European Depositary Receipts ("DRs") or Global
Depositary Receipts ("GDRs"). EDRs represent securities of
foreign issuers and are designed for use in European markets.
GDR's represents ownership in a non-U.S. company's publicly
traded securities that are traded on foreign stock exchanges or
foreign over-the-counter markets. Holders of unsponsored EDRs or
GDRs generally bear all the costs of such facilities and the
depository of an unsponsored facility frequently is under no
obligation to distribute investor communications received from
the issuer of the deposited security or to pass through voting
rights to the holders of such receipts in respect of the
deposited securities.
Foreign Sovereign Debt Securities The Bond Fund, the High Yield
Bond Fund and the Emerging Markets Bond Fund may invest in
foreign sovereign debt securities, including those of emerging
market nations, and Brady Bonds, and the Emerging Markets Bond
Fund may invest substantially all of its assets in such
securities. Sovereign obligors in emerging market nations are
among the world's largest debtors to commercial banks, other
governments, international financial organizations and other
financial institutions. Some of these obligors have in the past
experienced substantial difficulties in servicing their external
debt obligations, leading to defaults on certain obligations and
the restructuring of certain indebtedness. Restructuring
arrangements have included, among other things, reducing and
rescheduling interest and principal payments by negotiating new
or amended credit agreements or converting outstanding principal
and unpaid interest to Brady Bonds, and obtaining new credit to
finance interest payments. Holders of certain foreign sovereign
debt securities may be requested to participate in the
restructuring of such obligations and to extend further loans to
their issuers. There can be no assurance that the Brady Bonds
and other foreign sovereign debt securities in which the Funds
may invest will not be subject to similar restructuring
arrangements or to requests for new credit which may adversely
affect the Funds' holdings. Furthermore, certain participants in
the secondary market for such debt may be directly involved in
negotiating the terms of these arrangements and may therefore
have access to information not available to other market
participants.
Brady Bonds are debt securities issued under the framework of the
Brady Plan, an initiative announced by U.S. Treasury Secretary
Nicholas F. Brady in 1989 as a mechanism for debtor nations to
restructure their outstanding external indebtedness. In
restructuring external debt under the Brady Plan framework, a
debtor nation negotiates with its existing bank lenders as well
as multilateral institutions such as the International Bank for
Reconstruction and Development (the "World Bank") and the
International Monetary Fund (the "IMF"). The Brady Plan
framework, as it has developed, contemplates the exchange of
commercial bank debt for newly-issued bonds. The World Bank
and/or the IMF support the restructuring by providing funds
pursuant to loan agreements or other arrangements which enable
the debtor nation to collateralize the new Brady Bonds or to
repurchase outstanding bank debt at a discount. Under these
arrangements with the World Bank or the IMF, debtor nations have
been required to agree to implement certain domestic monetary and
fiscal reforms. Such reforms have included liberalization of
trade and foreign investment, privatization of state-owned
enterprises and setting targets for public spending and
borrowing. These policies and programs seek to promote the
debtor country's economic growth and development. Investors
should recognize that the Brady Plan only sets forth general
guiding principles for economic reform and debt reduction,
emphasizing that solutions must be negotiated on a case-by-case
basis between debtor nations and their creditors. The Adviser
believes that economic reforms undertaken by countries in
connection with the issuance of Brady Bonds make the debt of
countries which have issued or have announced plans to issue
Brady Bonds an attractive opportunity for investment.
Investors should recognize that Brady Bonds have been issued
somewhat recently and, accordingly, do not have a long payment
history. The financial packages offered by each country differ.
The types of options have included the exchange of outstanding
commercial bank debt for bonds issued at 100% of face value of
such debt, which carry a below-market stated rate of interest
(generally known as par bonds), bonds issued at a discount of
face value of such debt (generally known as discount bonds), and
bonds bearing an interest rate which increases over time and the
advancement of new money by existing lenders. The principal of
certain Brady Bonds has been collateralized by U.S. Treasury
zero-coupon bonds with a maturity equal to the final maturity of
such Brady Bonds. Collateral purchases are financed by the IMF,
the World Bank and the debtor nations' reserves. In addition,
the first two or three interest payments on certain types of
Brady Bonds may be collateralized by cash or securities agreed
upon by creditors. Subsequent interest payments may be
uncollateralized or may be collateralized over specified periods
of time. The Funds may purchase Brady Bonds with no or limited
collateralization, and will be relying for payment of interest
and principal primarily on the willingness of the foreign
government to make payment in accordance with the terms of the
Brady Bonds. Brady Bonds issued to date are generally purchased
and sold in secondary markets through U.S. securities dealers and
maintained through European transnational securities
depositories. A substantial portion of Brady Bonds and other
sovereign debt securities in which the Funds may invest are
likely to be acquired at a discount.
Investing in foreign sovereign debt securities will expose the
Funds to the direct or indirect consequences of political, social
or economic changes in the emerging market nations that issue the
securities. The ability and willingness of sovereign obligors in
emerging market nations or the governmental authorities that
control repayment of their external debt to pay principal and
interest on such debt when due may depend on general economic and
political conditions within the relevant country. Countries such
as those in which the Funds, particularly the Emerging Markets
Bond Fund, may invest have historically experienced, and may
continue to experience, high rates of inflation, high interest
rates, exchange rate trade difficulties and extreme poverty and
unemployment. Many of these countries are also characterized by
political uncertainty or instability. Additional factors which
may influence the ability or willingness to service debt include,
but are not limited to, a country's cash flow situation, the
availability of sufficient foreign exchange on the date a payment
is due, the size of its debt service burden relative to the
economy as a whole, and its government's policy towards the IMF,
the World Bank and other international agencies.
The ability of a foreign sovereign obligor to make timely
payments on its external debt obligations will also be strongly
influenced by the obligor's balance of payments, including export
performance, its access to international credits and investments,
fluctuations in interest rates and the extent of its foreign
reserves. A country whose exports are concentrated in a few
commodities or whose economy depends on certain strategic imports
could be vulnerable to fluctuations in international prices of
these commodities or imports. To the extent that a country
receives payment for its exports in currencies other than
dollars, its ability to make debt payments denominated in dollars
could be adversely affected. If a foreign sovereign obligor
cannot generate sufficient earnings from foreign trade to service
its external debt, it may need to depend on continuing loans and
aid from foreign governments, commercial banks and multilateral
organizations, and inflows of foreign investment. The commitment
on the part of these foreign governments, multilateral
organizations and others to make such disbursements may be
conditioned on the government's implementation of economic
reforms and/or economic performance and the timely service of its
obligations. Failure to implement such reforms, achieve such
levels of economic performance or repay principal or interest
when due may result in the cancellation of such third parties'
commitments to lend funds, which may further impair the obligor's
ability or willingness to timely service its debts. The cost of
servicing external debt will also generally be adversely affected
by rising international interest rates, because many external
debt obligations bear interest at rates which are adjusted based
upon international interest rates. The ability to service
external debt will also depend on the level of the relevant
government's international currency reserves and its access to
foreign exchange. Currency devaluations may affect the ability
of a sovereign obligor to obtain sufficient foreign exchange to
service its external debt.
As a result of the foregoing, a governmental obligor may default
on its obligations. If such an event occurs, a Fund may have
limited legal recourse against the issuer and/or guarantor.
Remedies must, in some cases, be pursued in the courts of the
defaulting party itself, and the ability of the holder of foreign
sovereign debt securities to obtain recourse may be subject to
the political climate in the relevant country. In addition, no
assurance can be given that the holders of commercial bank debt
will not contest payments to the holders of other foreign
sovereign debt obligations in the event of default under their
commercial bank loan agreements.
Foreign Exchange. If a foreign country cannot generate
sufficient earnings from foreign trade to service its external
debt, it may need to depend on continuing loans and aid from
foreign governments, commercial banks, multilateral
organizations, and inflows of foreign investment. The cost of
servicing external debt will also generally be adversely affected
by rising international interest rates because many external debt
obligations bear interest at rates which are adjusted based upon
international interest rates. The ability to service external
debt will also depend on the level of the relevant government's
international currency reserves and its access to foreign
currencies. Currency devaluations may affect the ability of an
obligor to obtain sufficient foreign currencies to service its
external debt.
Foreign Currency Exchange Transactions. Each Fund that engages
in foreign currency exchange transactions may do so on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign
exchange currency market, or on a forward basis to "lock in" the
U.S. dollar price of the security. A forward foreign currency
exchange contract (a "forward 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 principally traded in the
interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward
contract generally has no deposit requirement, and no commissions
are charged at any stage for trades. Forwards will be used
primarily to adjust the foreign exchange exposure of a Fund with
a view to protecting the portfolios from adverse currency
movements, based on the Adviser's outlook. Forwards involve
other risks, including, but not limited to, significant
volatility in currency markets. In addition, currency movements
may not occur exactly as the Adviser expected, so the use of
forwards could adversely affect a Fund's total return.
The Funds may enter into forward foreign currency exchange
contracts under the following circumstances. First, when a Fund
enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock in" the
U.S. dollar price of the security. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars,
of the amount of foreign currency involved in the underlying
security transactions, the Fund will be able to protect itself
against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign
currency during the period between the date the security is
purchased or sold, and the date on which payment is made or
received.
Second, when the Adviser believes that the currency of a
particular foreign country may suffer or enjoy a substantial
movement against another currency, it may enter into a forward
contract to sell or buy the amount of the former foreign
currency, approximating the value of some or all of a Fund's
portfolio securities denominated in such foreign currency.
Alternatively, where appropriate, a Fund may hedge all or part of
its foreign currency exposure through the use of a basket of
currencies or a proxy currency where such currency or currencies
act as an effective proxy for other currencies. In such a case,
the Funds may enter into a forward contract where the amount of
the foreign currency to be sold exceeds the value of the
securities denominated in such currency. The use of this basket
hedging technique may be more efficient and economical than
entering into separate forward contracts for each currency held
in a Fund. The precise matching of the forward contract amounts
and the value of the securities involved will not generally be
possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in
the value of those securities between the date the forward
contract is entered into and the date it matures. The projection
of short-term currency market movement is extremely difficult,
and the successful execution of a short-term hedging strategy is
highly uncertain. The Adviser does not intend to enter into such
forward contracts under this second circumstance if, as result, a
Fund will have more than 20% of the value of its net assets
committed to the consummation of such contracts.
Other than as set forth above, and immediately below, a Fund will
not enter into such forward contracts or maintain a net exposure
to such contracts where the consummation of the contracts would
obligate the Fund to deliver an amount of foreign currency in
excess of the value of the Fund's portfolio securities or other
assets denominated in that currency. Each Fund, however, in
order to avoid excess transactions and transaction costs, may
maintain a net exposure to forward contracts in excess of the
value of the Fund's portfolio securities or other assets to which
the forward contracts relate (including accrued interest to the
maturity of the forward on such securities), provided the excess
amount is "covered" by liquid, high-grade debt securities,
denominated in any currency, at least equal at all times to the
amount of such excess. For these purposes "the securities or
other assets to which the forward contract relate" may be
securities or assets denominated in a single currency, or where
proxy forwards are used, securities denominated in more than one
currency. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the
longer term investment decisions made with regard to overall
diversification strategies. However, the Adviser believes that
it is important to have the flexibility to enter into such
forward contracts when it determines that the best interests of
the Funds will be served. At the maturity of a forward contract,
a Fund may either sell the portfolio security and make delivery
of the foreign currency, or it may retain the security and
terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating it to
purchase, on the same maturity date, the same amount of the
foreign currency. It is often not possible to effectively hedge
the currency risk associated with emerging market nation debt
securities because their currency markets are not sufficiently
developed.
As indicated above, it is impossible to forecast with absolute
precision the market value of portfolio securities at the
expiration of the forward contract. Accordingly, it may be
necessary for a Fund to purchase additional foreign currency on
the spot market (and bear the expense of such purchase) if the
market value of the security is less than the amount of foreign
currency the Fund is obligated to deliver and if a decision is
made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot
market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of
foreign currency the Fund is obligated to deliver. However, as
noted, in order to avoid excessive transactions and transaction
costs, the Funds may use liquid securities, denominated in any
currency, to cover the amount by which the value of a forward
contract exceeds the value of the securities to which it relates.
If a Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss (as
described below) to the extent that there has been movement in
forward contract prices. If a Fund engages in an offsetting
transaction, it may subsequently enter into a new forward
contract to sell the foreign currency. Should forward prices
decline during the period between a Fund's entering into a
forward contract for the sale of a foreign currency and the date
it enters into an offsetting contract for the purchase of the
foreign currency, the Fund will realize a gain to the extent the
price of the currency it has agreed to sell exceeds the price of
the currency it has agreed to purchase. Should forward prices
increase, a Fund will suffer a loss to the extent the price of
the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
Costs Of Hedging. When a Fund purchases a foreign bond with a
higher interest rate than is available on U.S. bonds of a similar
maturity, the additional yield on the foreign bond could be
substantially lost if the Fund were to enter into a direct hedge
by selling the foreign currency and purchasing the U.S. Dollar.
This is what is commonly referred to as the "cost" of hedging.
Proxy hedging attempts to reduce this cost through an indirect
hedge back to the U.S. Dollar. It is important to note that the
hedging costs are treated as capital transactions and are not,
therefore, deducted from the Fund's dividend distribution and are
not reflected in its yield. Instead, such costs will, over time,
be reflected in the Fund's net asset value.
Foreign Markets. Delays in settlement which may occur in
connection with transactions involving foreign securities could
result in temporary periods when a portion of the assets of a
Fund is uninvested and no return is earned thereon. The inability
of a Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due
to settlement problems could result in losses to a Fund due to
subsequent declines in values of the portfolio securities or, if
the Fund has entered into a contract to sell the security,
possible liability to the purchaser. Certain foreign markets,
especially emerging markets, may require governmental approval
for the repatriation of investment income, capital or the
proceeds of sales of securities by foreign investors. A Fund
could be adversely affected by delays in, or a refusal to grant,
any required governmental approval for repatriation of capital,
as well as by the application to the portfolio of any
restrictions on investments.
Foreign Debt Securities. Investing in foreign debt securities
will expose the Funds to the direct or indirect consequences of
political, social or economic changes in the industrialized
developing and emerging countries that issue the securities. The
ability and willingness of obligor or the governmental
authorities that control repayment of their external debt to pay
principal and interest on such debt when due may depend on
general economic and political conditions within the relevant
country. Additional country-related factors unique to foreign
issuers which may influence the ability or willingness to service
debt include, but are not limited to, a country's cash flow
situation, the availability of sufficient foreign exchange on the
date a payment is due, the relative size of its debt service
burden to the economy as a whole, and its government's
relationships with the International Monetary Fund, the World
Bank and other international agencies.
Foreign Securities. Subject to the Fund's quality and maturity
standards, the High Yield Bond Fund and Emerging Markets Bond
Fund may invest without limitation in the securities (payable in
U.S. dollars) of foreign issuers and in the securities of foreign
branches of U.S. banks such as negotiable certificates of deposit
(Eurodollars). The High Yield Bond Fund may invest up to 20% of
its net assets in non-U.S. dollar-denominated fixed-income
securities principally traded in financial markets outside the
United States, and the Emerging Markets Bond Fund may invest up
to 100% of its net assets in non-U.S. dollar-denominated fixed-
income securities principally traded in financial markets outside
the United States. Because the Funds may invest in foreign
securities, investments in the Funds involve risks that are
different in some respects from investments in a fund which
invests only in debt obligations of U.S. domestic issuers.
Foreign investments may be affected favorably or unfavorably by
changes in currency rates and exchange control regulations.
There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not
be subject to accounting, auditing and financial reporting
standards and requirements comparable to those applicable to U.S.
companies. There may be less governmental supervision of
securities markets, brokers and issuers of securities.
Securities of some foreign companies are less liquid or more
volatile than securities of U.S. companies, and foreign brokerage
commissions and custodian fees are generally higher than in the
United States. Settlement practices may include delays and may
differ from those customary in U.S. markets. Investments in
foreign securities may also be subject to other risks different
from those affecting U.S. investments, including local political
or economic developments, expropriation or nationalization of
assets, restrictions on foreign investment and repatriation of
capital, imposition of withholding taxes on dividend or interest
payments, currency blockage (which would prevent cash from being
brought back to the United States), and difficulty in enforcing
legal rights outside the United States.
In addition to the foreign securities listed above, the Funds may
invest in foreign sovereign debt securities which involve certain
additional risks. See "Foreign Sovereign Debt Securities" above.
Futures Contracts
For hedging purposes, including protecting the price or interest
rate of securities that the Fund intends to buy, all Funds except
the Micro-Cap Fund may enter into futures contracts that relate
to securities in which it may directly invest and indices
comprised of such securities and may purchase. As a temporary
investment strategy, until a Fund reaches $50 million in net
assets, the Everest, S&P MidCap 400, Russell 2000 Small Cap
Index, Nasdaq-100 Index, Lehman Aggregate Bond Index, Balanced
Index and Short-term Government Funds may invest up to 100% of
their assets in such futures and/or options contracts.
Thereafter, the above mentioned Funds may invest up to 20% of the
Fund's assets in such futures and/or options contracts. In
addition, the S&P 500 Index Fund and the Bond Fund may invest up
to 20% of the Fund's assets in such futures and/or options
contracts. There is not a temporary investment strategy for the
S&P 500 Index or the Bond Fund. Lastly, the High Yield Bond Fund
and Emerging Markets Bond Fund may invest in futures contracts or
options thereon as a bona-fide hedge if immediately thereafter
the sum of the amounts of initial margin deposits on the Fund's
existing futures and premiums paid for options on futures would
not exceed 5% of the market value of the Fund's total assets;
provided, however, that in the case of an option that is in-the-
money at the time of purchase, the in-the-money amount may be
excluded in the calculation of the 5% limitation. The Funds do
not intend to enter into futures contracts that are not traded on
exchanges or boards of trade.
A financial futures contract is a contract to buy or sell a
specified quantity of financial instruments such as U.S. Treasury
bills, notes and bonds, commercial paper and bank certificates of
deposit or the cash value of a financial instrument index at a
specified future date at a price agreed upon when the contract is
made. A stock index futures contract is a contract to buy or
sell specified units of a stock index at a specified future date
at a price agreed upon when the contract is made. The value of a
unit is based on the current value of the contract index. Under
such contracts no delivery of the actual stocks making up the
index takes place. Rather, upon expiration of the contract,
settlement is made by exchanging cash in an amount equal to the
difference between the contract price and the closing price of
the index at expiration, net of variation margin previously paid.
Substantially all futures contracts are closed out before
settlement date or called for cash settlement. A futures
contract is closed out by buying or selling an identical
offsetting futures contract. Upon entering into a futures
contract, the Fund is required to deposit an initial margin with
the Custodian for the benefit of the futures broker. The initial
margin serves as a "good faith" deposit that the Fund will honor
their futures commitments. Subsequent payments (called
"variation margin") to and from the broker are made on a daily
basis as the price of the underlying investment fluctuates. In
the event of the bankruptcy of the futures broker that holds
margin on behalf of the Fund, the Fund may be entitled to return
of margin owed to it only in proportion to the amount received by
the broker's other customers. The Adviser will attempt to
minimize this risk by monitoring the creditworthiness of the
futures brokers with which the Fund does business.
Because the value of index futures depends primarily on the value
of their underlying indexes, the performance of the broad-based
contracts will generally reflect broad changes in common stock
prices. However, because a Fund may not be invested in precisely
the same proportion as an Index, it is likely that the price
changes of the Fund's index futures positions will not match the
price changes of the Fund's other investments.
Options on futures contracts give the purchaser the right to
assume a position at a specified price in a futures contract at
any time before expiration of the option contract.
The Funds will enter into futures contracts which are traded on
national futures exchanges and are standardized as to maturity
date and underlying financial instrument. The principal
financial futures exchanges in the United States are the Board of
Trade of the City of Chicago, the Chicago Mercantile Exchange,
the New York Futures Exchange and the Kansas City Board of Trade.
Futures exchanges and trading in the United States are regulated
under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC"). Although techniques other than the sale and
purchase of futures contracts could be used for the above-
referenced purposes, futures contracts offer an effective and
relatively low cost means of implementing the Funds' objectives
in these areas.
Regulatory Limitations. The Funds will engage in transactions in
futures contracts and options thereon only for bona fide hedging,
risk management and other permissible purposes, in each case in
accordance with the rules and regulations of the CFTC, and not
for speculation.
In instances involving the purchase of futures contracts or call
options thereon or the writing of put options thereon by the
Funds, an amount of cash, U.S. Government securities or other
liquid securities, equal to the market value of the futures
contracts and options thereon (less any related margin deposits),
will be deposited in a segregated account with the Funds'
custodian to cover the position, or alternative cover will be
employed thereby insuring that the use of such futures contracts
and options is unleveraged.
In addition, CFTC regulations may impose limitations on the
Funds' ability to engage in certain yield enhancement and risk
management strategies. If the CFTC or other regulatory
authorities adopt different (including less stringent) or
additional restrictions, the Funds would comply with such new
restrictions.
SPECIAL RISKS OF FUTURES CONTRACTS
Volatility And Leverage. The prices of futures contracts are
volatile and are influenced, among other things, by actual and
anticipated changes in the market and interest rates, which in
turn are affected by fiscal and monetary policies and national
and international policies and economic events.
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 minimum 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 a 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.
Because of the low margin deposits required, futures trading
involves an extremely high degree of leverage. As a result, a
relatively small price movement in a futures contract may result
in immediate and substantial loss, as well as gain, to the
investor. For example, if at the time of purchase, 10% of the
value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract
would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then
closed out. A 15% decrease would result in a loss equal to 150%
of the original margin deposit, if the contract were closed out.
Thus, a purchase or sale of a futures contract may result in
losses in excess of the amount invested in the futures contract.
However, a Fund would presumably have sustained comparable losses
if, instead of the futures contract, it had invested in the
underlying instrument and sold it after the decline.
Furthermore, in the case of a futures contract purchase, in order
to be certain that a Fund has sufficient assets to satisfy its
obligations under a futures contract, the Fund earmarks to the
futures contract money market instruments equal in value to the
current value of the underlying instrument less the margin
deposit.
Liquidity. Each Fund that is eligible to use futures contracts
may elect to close some or all of its futures positions at any
time prior to their expiration. A Fund would do so to reduce
exposure represented by long futures positions or increase
exposure represented by short futures positions. A Fund may
close its positions by taking opposite positions which would
operate to terminate the Fund's position in the futures
contracts. Final determinations of variation margin would then
be made, additional cash would be required to be paid by or
released to the Fund, and the Fund would realize a loss or a
gain.
Futures contracts may be closed out only on the exchange or board
of trade where the contracts were initially traded. Although
each Fund intends to purchase or sell futures contracts only on
exchanges or boards of trade where there appears to be an active
market, there is no assurance that a liquid market on an exchange
or board of trade will exist for any particular contract at any
particular time. In such event, it might not be possible to
close a futures contract, and in the event of adverse price
movements, each Fund would continue to be required to make daily
cash payments of variation margin. However, in the event futures
contracts have been used to hedge the underlying instruments, the
Funds would continue to hold the underlying instruments subject
to the hedge until the futures contracts could be terminated. In
such circumstances, an increase in the price of the underlying
instruments, if any, might partially or completely offset losses
on the futures contract. However, as described below, there is
no guarantee that the price of the underlying instruments will in
fact correlate with the price movements in the futures contract
and thus provide an offset to losses on a futures contract.
Hedging Risk. A decision of whether, when, and how to hedge
involves skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of unexpected market
behavior, or market or interest rate trends. There are several
risks in connection with the use by the Funds of futures contract
as a hedging device. One risk arises because of the imperfect
correlation between movements in the prices of the futures
contracts and movements in the prices of the underlying
instruments which are the subject of the hedge. The Adviser
will, however, attempt to reduce this risk by entering into
futures contracts whose movements, in its judgment, will have a
significant correlation with movements in the prices of each
Fund's underlying instruments sought to be hedged.
Successful use of futures contracts by the Funds for hedging
purposes is also subject to the Adviser's ability to correctly
predict movements in the direction of the market. It is possible
that, when a Fund has sold futures to hedge its portfolio against
a decline in the market, the index, indices, or underlying
instruments on which the futures are written might advance and
the value of the underlying instruments held in the Fund's
portfolio might decline. If this were to occur, the Fund would
lose money on the futures and also would experience a decline in
value in its underlying instruments. However, while this might
occur to a certain degree, the Adviser believes that over time
the value of a Fund's portfolio will tend to move in the same
direction as the market indices which are intended to correlate
to the price movements of the underlying instruments sought to be
hedged. It is also possible that if a Fund were to hedge against
the possibility of a decline in the market (adversely affecting
the underlying instruments held in its portfolio) and prices
instead increased, the Fund would lose part or all of the benefit
of increased value of those underlying instruments that it has
hedged, because it would have offsetting losses in its futures
positions. In addition, in such situations, if a Fund had
insufficient cash, it might have to sell underlying instruments
to meet daily variation margin requirements. Such sales of
underlying instruments might be, but would not necessarily be, at
increased prices (which would reflect the rising market). The
Funds might have to sell underlying instruments at a time when it
would be disadvantageous to do so.
In addition to the possibility that there might be an imperfect
correlation, or no correlation at all, between price movements in
the futures contracts and the portion of the portfolio being
hedged, the price movements of futures contracts might not
correlate perfectly with price movements in the underlying
instruments due to certain market distortions. First, all
participants in the futures market are subject to margin deposit
and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors might close futures
contracts through offsetting transactions which could distort the
normal relationship between the underlying instruments and
futures markets. Second, the margin requirements in the futures
market are less onerous than margin requirements in the
securities markets, and as a result the futures market might
attract more speculators than the securities markets do.
Increased participation by speculators in the futures market
might also cause temporary price distortions. Due to the
possibility of price distortion in the futures market and also
because of the imperfect correlation between price movements in
the underlying instruments and movements in the prices of futures
contracts, even a correct forecast of general market trends by
the Adviser might not result in a successful hedging transaction
over a very short time period
Options
The Bond Fund, Balanced Index Fund, Lehman Aggregate Bond Index
Fund, Short-term Government Fund, High Yield Bond Fund and
Emerging Markets Bond Fund may sell (write) listed options on
U.S. Treasury Securities and options on contracts for the future
delivery of U.S. Treasury Securities as a means of hedging the
value of such securities owned by the Fund. The S&P 500 Index
Fund, S&P MidCap 400 Index Fund, Russell 2000 Small Cap Index
Fund, Nasdaq 100 Index Fund, Everest Fund and Balanced Index Fund
may enter into options on futures contracts that relate to
securities in which it may directly invest and indices comprised
of such securities and may purchase and write call and put
options on such contracts. In addition, each of the above Funds
may write covered call options on any security in which it is
eligible to invest.
As a writer of a call option, a Fund may terminate its obligation
by effecting a closing purchase transaction. This is
accomplished by purchasing an option of the same series as the
option previously written. However, once the Fund has been
assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction. There can be no assurance that a
closing purchase transaction can be effected when the Fund so
desires.
The Fund will realize a profit from a closing transaction if the
price of the transaction is less than the premium received from
writing the option; the Fund will realize a loss from a closing
transaction if the price of the transaction is more than the
premium received from writing the option. Since the market value
of call options generally reflects increases in the value of the
underlying security, any loss resulting from the closing
transaction may be wholly or partially offset by unrealized
appreciation of the underlying security. Conversely, any gain
resulting from the closing transaction may be wholly or partially
offset by unrealized depreciation of the underlying security.
The principal factors affecting the market value of call options
include supply and demand, the current market price and price
volatility of the underlying security, and the time remaining
until the expiration date.
Although the Funds will write only options and options on futures
contracts with respect to such securities which are traded on a
national exchange or Board of Trade, there is no assurance that a
liquid secondary market will exist for any particular option. In
the event it is not possible to effect a closing transaction, the
Funds will not be able to sell the underlying security, until the
option expires or the option is exercised by the holder.
Possible reasons for the absence of a liquid secondary market on
an exchange include the following: (a) insufficient trading
interest in certain options; (b) restrictions on transactions
imposed by an exchange; (c) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series
of options or underlying securities; (d) inadequacy of the
facilities of an exchange or the Clearing Corporation to handle
trading volume; or (e) a decision by one or more exchanges to
discontinue the trading of options or impose restrictions on
types of orders. There can be no assurance that higher than
anticipated trading activity or order flow or other unforeseen
events might not at times render the trading facilities
inadequate and thereby result in the institution of special
trading procedures or restrictions which could interfere with the
Fund's ability to effect closing transactions.
The Balanced Index Fund, Lehman Aggregate Bond Fund, Bond Fund,
Short-term Government Fund, High Yield Bond Fund and Emerging
Markets Bond Fund may write call options on futures contracts on
U.S. Treasury Securities as a hedge against the adverse effect of
expected increases in interest rates on the value of Portfolio
securities, in order to establish more definitely the effective
return on securities held by the Portfolio. The S&P 500 Index
Fund, S&P MidCap 400 Index Fund, Russell 2000 Small Cap Index
Fund, Balanced Index Fund and Everest Fund may write call options
on futures contracts on the S&P 500 Index, S&P MidCap 400 Index,
Russell 2000 Index, Nasdaq-100 Index in which they are eligible
to invest, or securities included therein, only for hedging
purposes to protect the price of securities it intends to buy and
when such transactions enable it to better meet its investment
objectives. The Funds will not write options on futures
contracts for speculative purposes.
A futures contract on a debt security is a binding contractual
commitment which will result in an obligation to make or accept
delivery, during a specified future time, of securities having
standardized face value and rate of return. Selling a futures
contract on debt securities (assuming a short position) would
give the Portfolio a legal obligation and right as seller to make
future delivery of the security against payment of the agreed
price.
Upon the exercise of a call option on a futures contract, the
writer of the option (the Fund) is obligated to sell the futures
contract (to deliver a long position to the option holder) at the
option exercise price, which will presumably be lower than the
current market price of the contract in the futures market.
However, as with the trading of futures, most participants in the
options markets do not seek to realize their gains or losses by
exercise of their option rights. Instead, the holder of an
option will usually realize a gain or loss by buying or selling
an offsetting option at a market price that will reflect an
increase or a decrease from the premium originally paid.
Nevertheless, if an option on a futures contract written by the
Fund is exercised, the Fund intends to either close out the
futures contract by purchasing an offsetting futures contract, or
deliver the underlying securities immediately, in order to avoid
assuming a short position. There can be no assurance that the
Fund will be able to enter into an offsetting transaction with
respect to a particular contract at a particular time, but it may
always deliver the underlying security.
As a writer of options on futures contracts, the Fund will
receive a premium but will assume a risk of adverse movement in
the price of the underlying futures contract. If the option is
not exercised, the Portfolio will gain the amount of the premium,
which may partially offset unfavorable changes in the value of
securities held in the Fund. If the option is exercised, the
Fund might incur a loss in the option transaction which would be
reduced by the amount of the premium it has received.
While the holder or writer of an option on a futures contract may
normally terminate its position by selling or purchasing an
offsetting option, the Fund's ability to establish and close out
options positions at fairly established prices will be subject to
the maintenance of a liquid market. The Fund will not write
options on futures contracts unless, in the Adviser's opinion,
the market for such options has sufficient liquidity that the
risks associated with such options transactions are not at
unacceptable levels.
Risks. While options will be sold in an effort to reduce certain
risks, those transactions themselves entail certain other risks.
Thus, while the Fund may benefit from the use of options,
unanticipated changes in interest rates or security price
movements may result in a poorer overall performance for the Fund
than if it had not entered into any options transactions. The
price of U.S. Treasury Securities futures are volatile and are
influenced, among other things, by changes in prevailing interest
rates and anticipation of future interest rate changes. The
price of S&P 500 Index, S&P 400 Index, Russell 2000 Index and
Nasdaq 100 Index futures are also volatile and are influenced,
among other things, by changes in conditions in the securities
markets in general.
In the event of an imperfect correlation between a futures
position (and a related option) and the Portfolio position which
is intended to be protected, the desired protection may not be
obtained. The correlation between changes in prices of futures
contracts and of the securities being hedged is generally only
approximate. The amount by which such correlation is imperfect
depends upon many different circumstances, such as variations in
speculative market demand for futures and for debt securities
(including technical influences in futures trading) and
differences between the financial instruments being hedged and
the instruments underlying the standard options on futures
contracts available for trading.
Due to the imperfect correlation between movements in the prices
of futures contracts and movements in the prices of the
underlying debt securities, the price of a futures contract may
move more than or less than the price of the securities being
hedged. If the price of the future moves less than the price of
the securities which are the subject of the hedge, the hedge will
not be fully effective and if the price of the securities being
hedged has moved in an unfavorable direction, the Fund would be
in a better position than if it had not hedged at all. If the
price of the futures moves more than the price of the security,
the Fund will experience either a gain or loss on the option on
the future which will not be completely offset by movements in
the price of the securities which are the subject of the hedge.
The market prices of futures contracts and options thereon may be
affected by various factors. If participants in the futures
market elect to close out their contracts through offsetting
transactions rather than meet margin deposit requirements,
distortions in the normal relationship between the debt
securities and futures markets could result. Price distortions
could also result if investors in futures contracts make or take
delivery of underlying securities rather than engage in closing
transactions. This could occur, for example, if there is a lack
of liquidity in the futures market. From the point of view of
speculators, the deposit requirements in the futures markets are
less onerous than margins requirements in the securities markets;
accordingly, increased participation by speculators in the
futures market could cause temporary price distortions. A
correct forecast of interest rate trends by the adviser may still
not result in a successful hedging transaction because of
possible price distortions in the futures market and because of
the imperfect correlation between movements in the prices of debt
securities and movements in the prices of futures contracts. A
well-conceived hedge may be unsuccessful to some degree because
of market behavior or unexpected interest rate trends.
Limitations on the Use of Options on Futures. The Funds will
only write options on futures that are traded on exchanges and
are standardized as to maturity date and underlying financial
instrument. The principal exchanges in the United States for
trading options on Treasury Securities are the Board of Trade of
the City of Chicago and the Chicago Mercantile Exchange. These
exchanges and trading options on futures are regulated under the
Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC").
It is the Fund's opinion that it is not a "commodity pool" as
defined under the Commodity Exchange Act and in accordance with
rules promulgated by the CFTC.
The Funds will not write options on futures contracts for which
the aggregate premiums exceed 5% of the fair market value of the
Fund's assets, after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into
(except that, in the case of an option that is in-the-money at
the time of purchase, the in-the-money amount generally may be
excluded in computing the 5%).
All of the futures options transactions employed by a Fund will
be BONA FIDE hedging transactions, as that term is used in the
Commodity Exchange Act and has been interpreted and applied by
the CFTC. To ensure that its futures options transactions meet
this standard, the Fund will enter into such transactions only
for the purposes and with the intent that CFTC has recognized to
be appropriate.
Custodial Procedures and Margins. Summit Mutual Funds'
Custodian acts as its escrow agent as to securities on which a
Fund has written call options and with respect to margin which
the Fund must deposit in connection with the writing of call
options on futures contracts. The Clearing Corporation (CC) will
release the securities or the margin from escrow on the
expiration of the call, or when the Fund enters into a closing
purchase transaction. In this way, assets of the Fund will never
be outside the control of Summit Mutual Funds' custodian,
although such control might be limited by the escrow receipts
issued.
At the time the Fund sells a call option on a contract for future
delivery of U.S. Treasury Securities ("Treasury futures
contract"), it is required to deposit with its custodian, in an
escrow account, a specified amount of cash or U.S. Government
securities ("initial margin"). The account will be in the name
of the CC. The amount of the margin generally is a small
percentage of the contract amount. The margin required is set by
the exchange on which the contract is traded and may be modified
during the term of the contract. The initial margin is in the
nature of a performance bond or good faith deposit, and it is
released from escrow upon termination of the option assuming all
contractual obligations have been satisfied. The Fund will earn
interest income on its initial margin deposits.
In accordance with the rules of the exchange on which the option
is traded, it might be necessary for the Fund to supplement the
margin held in escrow. This will be done by placing additional
cash or U.S. Government securities in the escrow account. If the
amount of required margin should decrease, the CC will release
the appropriate amount from the escrow account.
The assets in the margin account will be released to the CC only
if the Fund defaults or fails to honor its commitment to the CC
and the CC represents to the custodian that all conditions
precedent to its right to obtain the assets have been satisfied.
Warrants
The High Yield Bond Fund and the Emerging Markets Bond Fund may
invest in warrants; however, not more than 5% of a Fund's total
assets (at the time of purchase) will be invested in warrants
other than warrants acquired in units or attached to other
securities. Of such 5%, not more than 2% may be invested at the
time of purchase in warrants that are not listed on the New York
or American Stock Exchanges. Warrants are pure speculation in
that they have no voting rights, pay no dividends and have no
rights with respect to the assets of the corporation issuing
them. Warrants basically are options to purchase equity
securities at a specific price valid for a specific period of
time. They do not represent ownership of the securities, but
only the right to buy them. Warrants differ from call options in
that warrants are issued by the issuer of the security which may
be purchased on their exercise, whereas call options may be
written or issued by anyone. The prices of warrants do not
necessarily move parallel to the prices of the underlying
securities.
Loan Participations and Assignments
The High Yield Bond Fund and the Emerging Markets Bond Fund may
invest in loan participations and assignments (collectively
"participations"). Such participations will typically be
participating interests in loans made by a syndicate of banks,
represented by an agent bank, which has negotiated and structured
the loan to corporate borrowers to finance internal growth,
mergers, acquisitions, stock repurchases, leveraged buy-outs and
other corporate activities. Such loans may also have been made
to governmental borrowers, especially governments of emerging
market nations. Emerging market nations debt securities or
obligations will involve the risk that the governmental entity
responsible for the repayment of the debt may be unable or
unwilling to do so when due. (For a discussion of risks
associated with investing in securities in emerging market
nations, see "Foreign Sovereign Debt Securities" above.) The
loans underlying such participations may be secured or unsecured,
and the Funds may invest in loans collateralized by mortgages on
real property or which have no collateral. The loan
participations themselves may extend for the entire term of the
loan or may extend only for short "strips" that correspond to a
quarterly or monthly floating rate interest period on the
underlying loan. Thus, a term or revolving credit that extends
for several years may be subdivided into shorter periods.
The loan participations in which the Funds will invest will also
vary in legal structure. Occasionally, lenders assign to another
institution both the lender's rights and obligations under a
credit agreement. Since this type of assignment relieves the
original lender of its obligations, it is called a novation.
More typically, a lender assigns only its right to receive
payments of principal and interest under a promissory note,
credit agreement or similar document. A true assignment shifts
to the assignee the direct debtor-creditor relationship with the
underlying borrower. Alternatively, a lender may assign only
part of its rights to receive payments pursuant to the underlying
instrument or loan agreement. Such partial assignments, which
are more accurately characterized as "participating interests,"
do not shift the debtor-creditor relationship to the assignee,
who must rely on the original lending institution to collect sums
due and to otherwise enforce its rights against the agent bank
which administers the loan or against the underlying borrower.
Because the Funds are allowed to purchase debt securities,
including debt securities in a private placement, the Funds will
treat loan participations as securities and not subject to their
fundamental investment restrictions prohibiting the Funds from
making loans.
There is not a recognizable, liquid public market for loan
participations. Hence, each Fund will consider loan
participations as illiquid securities and subject them to the
Fund's restrictions on investing no more than 15% of net assets
in illiquid securities.
Where required by applicable SEC positions, the High Yield Bond
Fund will treat both the corporate borrower and the bank selling
the participation interest as an issuer for purposes of its
fundamental investment restriction with respect to investing more
than 5% of Fund assets in the securities of a single issuer. The
Emerging Markets Bond Fund is not subject to such a restriction.
Short Sales
The High Yield Bond Fund and the Emerging Markets Bond Fund may
make short sales for hedging purposes to protect the Funds
against companies whose credit is deteriorating. Short sales are
transactions in which a Fund sells a security it does not own in
anticipation of a decline in the market value of that security.
The Funds' short sales will be limited to securities listed on a
national securities exchange and to situations where a Fund owns
a debt security of a company and will sell short the common or
preferred stock or another debt security at a different level of
the capital structure of the same company. No securities will be
sold short if, after the effect is given to any such short sale,
the total market value of all securities sold short would exceed
2% of the value of a Fund's net assets.
To complete a short sale transaction, a Fund must borrow the
security to make delivery to the buyer. The Fund then is
obligated to replace the security borrowed by purchasing it at
the market price at the time of replacement. The price at such
time may be more or less than the price at which the security was
sold by the Fund. Until the security is replaced, the Fund is
required to pay to the lender amounts equal to any dividends or
interest which accrue during the period of the loan. To borrow
the security, the Fund also may be required to pay a premium,
which would increase the cost of the security sold. The proceeds
of the short sale will be retained by the broker, to the extent
necessary to meet margin requirements, until the short position
is closed out.
Until a Fund replaces a borrowed security in connection with a
short sale, the Fund will: (a) maintain daily a segregated
account, containing cash, U.S. Government securities or other
liquid securities, at such a level that: (i) the amount
deposited in the account plus the amount deposited with the
broker as collateral will equal the current value of the security
sold short; and (ii) the amount deposited in the segregated
account plus the amount deposited with the broker as collateral
will not be less than the market value of the security at the
time it was sold short; or (b) otherwise cover its short
position.
A Fund will incur a loss as a result of the short sale if the
price of the security sold short increases between the date of
the short sale and the date on which the Fund replaces the
borrowed security. The Fund will realize a gain if the security
sold short declines in price between those dates. This result is
the opposite of what one would expect from a cash purchase of a
long position in a security. 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 a short sale. Any gain or loss on the
security sold short would be separate from a gain or loss on the
Fund security being hedged by the short sale.
Lending Portfolio Securities
The S&P 500 Index Fund, S&P MidCap 400 Index Fund, Russell 2000
Small Cap Index Fund, Nasdaq-100 Index Fund, Balanced Index Fund,
Lehman Aggregate Bond Index Fund, Bond Fund, Short-term
Government Fund, High Yield Bond Fund and Emerging Markets Bond
Fund may lend portfolio securities with a value up to 10% of
their total assets. Such loans may be terminated at any time.
The Fund will continuously maintain as collateral cash or
obligations issued by the U.S. government, its agencies or
instrumentalities in an amount equal to not less than 100% of the
current market value (on a daily marked-to-market basis) of the
loaned securities plus declared dividends and accrued interest.
While portfolio securities are on loan, the borrower will pay the
Fund any income accruing thereon, and the Fund may invest or
reinvest the collateral (depending on whether the collateral is
cash or U.S. Government securities) in portfolio securities,
thereby earning additional income. Loans are typically subject
to termination by the Fund in the normal settlement time,
currently five 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 shareholders. The Fund may pay
reasonable finders', borrowers', administrative, and custodial
fees in connection with a loan of its securities. The Adviser
will review and monitor the creditworthiness of such borrowers on
an ongoing basis.
Hybrid Instruments
The High Yield Bond Fund and the Emerging Markets Bond Fund may
invest in hybrid instruments. These instruments (a type of
potentially high-risk derivative) can combine the characteristics
of securities, futures, and options. For example, the principal
amount or interest rate of a hybrid could be tied (positively or
negatively) to the price of some commodity, currency, or
securities index or another interest rate (each a "benchmark").
Hybrids can be used as an efficient means of pursuing a variety
of investment goals, including currency hedging, duration
management, and increased total return. Hybrids may not bear
interest or pay dividends. The value of a hybrid or its interest
rate may be a multiple of a benchmark and, as a result, may be
leveraged and move (up or down) more steeply and rapidly than the
benchmark. These benchmarks may be sensitive to economic and
political events, such as commodity shortages and currency
devaluations, which cannot be readily foreseen by the purchaser
of a hybrid. Under certain conditions, the redemption value of a
hybrid could be zero. Thus, an investment in a hybrid may entail
significant market risks that are not associated with a similar
investment in a traditional, U.S. dollar-denominated debt
security that has a fixed principal amount and pays a fixed rate
or floating rate of interest. The purchase of hybrids also
exposes the Fund to the credit risk of the issuer of the hybrid.
These risks may cause significant fluctuations in the net asset
value of the Fund. Hybrids can have volatile prices and limited
liquidity and their use by the Fund may not be successful. Each
Fund may invest up to 10% of its total assets in hybrid
instruments.
INVESTMENT RESTRICTIONS
Summit Mutual Funds has adopted the following fundamental
restrictions relating to the investment of assets of the Funds
and other investment activities. These are fundamental policies
and may not be changed without the approval of holders of the
majority of the outstanding voting shares of each Fund affected
(which for this purpose means the lesser of: [I] 67% of the
shares represented at a meeting at which more than 50% of the
outstanding shares are represented, or [ii] more than 50% of the
outstanding shares). A change in policy affecting only one Fund
may be effected with the approval of the majority of the
outstanding voting shares of that Fund only. Summit Mutual
Funds' fundamental investment restrictions provide that no Fund
is allowed to:
(1) Issue senior securities (except that each Fund may
borrow money as described in restriction [9] below).
(2) With respect to 75% of the value of its total assets
(or with respect to 50% of the value of its total assets for the
Nasdaq 100 Index Fund and the Emerging Markets Bond Fund), invest
more than 5% of its total assets in securities (other than
securities issued or guaranteed by the United States Government
or its agencies or instrumentalities) of any one issuer.
(3) Purchase more than either: (i) except for the High
Yield Fund, 10% in principal amount of the outstanding debt
securities of an issuer, or (ii) 10% of the outstanding voting
securities of an issuer (except that up to 25% of the value of
the High Yield Fund may be invested without regard to this
restriction), except that such restrictions shall not apply to
securities issued or guaranteed by the United States Government
or its agencies or instrumentalities. This restriction does not
apply to the Emerging Markets Bond Fund.
(4) Invest more than 25% of its total assets in the
securities of issuers primarily engaged in the same industry.
For purposes of this restriction, gas, gas transmission,
electric, water, and telephone utilities each will be considered
a separate industry. This restriction does not apply to
obligations of banks or savings and loan associations or to
obligations issued or guaranteed by the United States Government,
its agencies or instrumentalities. This restriction does not
apply to the Nasdaq 100 Index Fund.
(5) Purchase or sell commodities, commodity contracts,
or real estate, except that each Fund may purchase securities of
issuers which invest or deal in any of the above, and except that
each Fund may invest in securities that are secured by real
estate. This restriction does not apply to obligations issued or
guaranteed by the United States Government, its agencies or
instrumentalities or to futures contracts or options purchased by
the S&P 500 Index Fund, S&P MidCap 400 Index Fund, Russell 2000
Small Cap Index Fund, Nasdaq-100 Index Fund, Balanced Index Fund,
Lehman Aggregate Bond Index Fund, Everest Fund, Bond Fund, Short-
term Government Fund, High Yield Bond Fund and Emerging Markets
Bond Fund in compliance with non-fundamental restrictions [7, 8,
10 and 11] below.
(6) Purchase any securities on margin (except that the
Fund may obtain such short-term credit as may be necessary for
the clearance of purchases and sales of portfolio securities) or
make short sales of securities or maintain a short position.
This restriction does not apply to the High Yield Bond Fund and
the Emerging Markets Bond Fund.
(7) Make loans, except through the purchase of
obligations in private placements or by entering into repurchase
agreements (the purchase of publicly traded obligations not being
considered the making of a loan).
(8) Lend its securities, except that the High Yield Fund
and Emerging Markets Bond Fund may lend portfolio securities
provided that no such loan may be made if, as a result, the
aggregate of such loans would exceed one-third of these Funds'
total assets; and except that the S&P 500 Index Fund, S&P 400
Index Fund, Russell 2000 Small Cap Index Fund, Nasdaq-100 Index
Fund, Balanced Index Fund, Lehman Aggregate Bond Index Fund and
Short-term Government Fund may lend securities in compliance with
non-fundamental restriction [6] below.
(9) Borrow amounts in excess of 10% of its total assets
(or 15% of the total assets of the High Yield Fund and 33% of the
total assets of the Emerging Markets Bond Fund), taken at market
value at the time of the borrowing, and then only from banks (and
by entering into reverse repurchase agreements) as a temporary
measure for extraordinary or emergency purposes, or to meet
redemption requests that might otherwise require the untimely
disposition of securities, and not for investment or leveraging.
The Fund will not purchase additional securities when money
borrowed exceeds 5% of total assets. For purposes of this
restriction, entering into futures contracts or reverse
repurchase agreements will not be deemed a borrowing.
(10) Underwrite securities of other issuers except
insofar as the Fund may be deemed an underwriter under the
Securities Act of 1933 in selling shares of each Fund and except
as it may be deemed such in a sale of restricted securities.
(11) Invest more than 10% of its total assets in
repurchase agreements maturing in more than seven days, "small
bank" certificates of deposit that are not readily marketable,
and other illiquid investments. This restriction does not apply
to the High Yield Bond Fund or the Emerging Markets Bond Fund.
(12) Enter into reverse repurchase agreements if the
total of such investments would exceed 5% of the total assets of
the Fund.
Summit Mutual Funds has also adopted the following additional
investment restrictions that are not fundamental and may be
changed by the Board of Directors without shareholder approval.
Under these restrictions, no Fund may:
(1) Participate on a joint (or a joint and several)
basis in any trading account in securities (but this does not
prohibit the "bunching" of orders for the sale or purchase of
Fund securities with the other Funds or with other accounts
advised or sponsored by the Adviser or any of its affiliates to
reduce brokerage commissions or otherwise to achieve best overall
execution).
(2) Purchase or retain the securities of any issuer, if,
to the knowledge of the Fund, officers and directors of the Fund,
the Adviser or any affiliate thereof each owning beneficially
more than 1/2% of one of the securities of such issuer, own in
the aggregate more than 5% of the securities of such issuer.
This restriction does not apply to the Emerging Markets Bond
Fund.
(3) Purchase or sell interests in oil, gas, or other
mineral exploration or development programs, or real estate
mortgage loans, except that each Fund may purchase securities of
issuers which invest or deal in any of the above, and except that
each Fund may invest in securities that are secured by real
estate mortgages. This restriction does not apply to obligations
or other securities issued or guaranteed by the United States
Government, its agencies or instrumentalities.
(4) Invest in companies for the purpose of exercising
control (alone or together with the other Funds).
(5) Purchase securities of other investment companies
with an aggregate value in excess of 5% of the Fund's total
assets, except in connection with a merger, consolidation,
acquisition or reorganization, or by purchase in the open market
of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than
customary broker's commission, is involved, or by purchase of
UITs designed to track an Index and only if immediately
thereafter not more than 10% of such Fund's total assets, taken
at market value, would be invested in such securities.
Summit Mutual Funds has also adopted the following additional
investment restrictions that are not fundamental and may be
changed by the Board of Directors without shareholder approval.
Under these restrictions:
The Everest Fund, S&P 500 Index Fund, S&P MidCap 400 Index Fund,
Russell 2000 Small Cap Index Fund, Nasdaq-100 Index Fund,
Balanced Index Fund, Lehman Aggregate Bond Index Fund and Short-
term Government Fund may not:
(6) Lend portfolio securities with an aggregate value of
more than 10% of its total assets.
(7) Invest more than 20% of its assets in futures
contracts and/or options on futures contracts, except as a
temporary investment strategy until the Fund reaches $50 million
in net assets, the Fund may invest up to 100% of its assets in
such futures and/or options contracts.
(8) Invest in options unless no more than 5% of its
assets is paid for premiums for outstanding put and call options
(including options on futures contracts) and unless no more than
25% of the Fund's assets consist of collateral for outstanding
options.
Summit Mutual Funds has also adopted the following additional
investment restrictions that are not fundamental and may be
changed by the Board of Directors without shareholder approval.
Under these restrictions:
The High Yield Bond Fund and the Emerging Markets Bond Fund may
not:
(9) Invest more than 10% of the Fund's total assets in
common stocks (including up to 5% in warrants.
(10) Enter into futures contracts or options thereon if,
as a result thereof, more than 5% of the Fund's total assets
(taken at market value at the time of entering into the contract)
would be committed to initial margin and premiums on such
contracts or options thereon, provided, however, that in the case
of an option that is in-the-money at the time of purchase, the
in-the-money amount, as defined in certain CFTC regulations, may
be excluded in computing such 5%.
(11) Invest in options except in furtherance of the
Fund's investment objective and policies, and in this connection
the Fund may: (i) buy and sell covered and uncovered put, call
and spread options on securities, securities and other financial
indices, and currencies; and (ii) purchase, hold, and sell
contracts for the future delivery of securities and currencies
and warrants where the grantor of the warrants is the issuer of
the underlying securities.
(12) Purchase securities on margin, except for use of
short-term credit necessary for clearance of purchases of
portfolio securities. For purposes of this restriction,
collateral arrangements with respect to options and futures
transactions shall not be deemed to involve the use of margin.
This restriction does not apply to the Emerging Markets Bond
Fund.
(13) Invest more than 15% of the value of its net assets
in illiquid securities.
(14) Purchase the securities of any issuer (other than
obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities) if, as a result, more than 5% of
the value of the Fund's total assets would be invested in the
securities of issuers which at the time of purchase had been in
operation for less than three years, including predecessors and
unconditional guarantors. This restriction does not apply to the
Emerging Markets Bond Fund.
(15) Sell securities short if, after giving effect to
such short sale, the total market value of all securities sold
short would exceed 2% of the Fund's net assets or sell securities
short unless the securities are listed on a national securities
exchange. This restriction does not apply to the Emerging
Markets Bond Fund.
If a percentage restriction (for either fundamental or
nonfundamental policies) is adhered to at the time of investment,
a later increase or decrease in percentage beyond the specified
limit resulting from a change in values of portfolio securities
or amount of net assets shall not be considered a violation.
PORTFOLIO TURNOVER
Each Fund has a different expected annual rate of portfolio
turnover, which is calculated by dividing the lesser of purchases
or sales of Fund securities during the fiscal year by the monthly
average of the value of the Fund's securities (excluding from the
computation all securities, including options, with maturities at
the time of acquisition of one year or less). A high rate of
portfolio turnover generally involves correspondingly greater
brokerage commission expenses, which must be borne directly by
the Fund. Turnover rates may vary greatly from year to year as
well as within a particular year and may also be affected by cash
requirements for redemptions of each Fund's shares and by
requirements which enable the Fund to receive certain favorable
tax treatments. The portfolio turnover rates will, of course,
depend in large part on the level of purchases and redemptions of
shares of each Fund. Higher portfolio turnover can result in
corresponding increases in brokerage costs to the Funds and their
shareholders. However, because rate of portfolio turnover is not
a limiting factor, particular holdings may be sold at any time,
if investment judgment or Fund operations make a sale advisable.
<TABLE>
<CAPTION>
EXPECTED TURNOVER
NAME OF FUND RATE
<S> <C>
S&P 500 Index Fund 20%
S&P MidCap 400 Index Fund 20%
Russell 2000 Small Cap Index Fund 20%
Nasdaq-100 Index Fund 20%
Balanced Index Fund 20%
Lehman Aggregate Bond Index Fund 20%
Everest Fund 65%
Micro-Cap Fund 100%
Bond Fund 65%
Short-term Government Fund 40%
High Yield Bond Fund 200%
Emerging Markets Bond Fund 60%
</TABLE>
MANAGEMENT OF THE FUND
Directors and Officers
The directors and executive officers of the Fund and their
principal occupations during the past five years are set forth
below. Unless otherwise noted, the address of each executive
officer and director is 1876 Waycross Road, Cincinnati, Ohio
45240.
Directors and Officers
The directors and executive officers of the Fund and their
principal occupations during the past five years are set forth
below. Unless otherwise noted, the address of each executive
officer and director is 1876 Waycross Road, Cincinnati, Ohio
45240.
<TABLE>
<CAPTION>
Position(s)
Name, Address with Principal Occupation(s)
and Age the Fund During Past Five Years
- ------------- ----------- -----------------------
<S> <C> <C>
George M. Callard, M.D. Director Professor of Clinical Surgery,
3021 Erie Avenue University of Cincinnati
Cincinnati, Ohio 45208
(Age 65)
Theodore H. Emmerich Director Consultant; former Partner, Ernst &
1201 Edgecliff Place Whinney, Accountants
Cincinnati, Ohio 45206
(72)
Richard H. Finan Director Attorney at Law; President of the
11137 Main Street Ohio State Senate
Cincinnati, Ohio 45241
(64)
Yvonne L. Gray Director Chief Operating Officer, United Way
2400 Reading Road and Community Chest; prior thereto,
Cincinnati, Ohio 45202 Vice President/Trust Operations
(48) Officer, Fifth Third Bank
Jean Patrice Director Former Interim President, Cincinnati
Harrington, S.C. State Technical and Community College;
3217 Whitfield Avenue Former Executive Director, Cincinnati
Cincinnati, Ohio 45220 Youth Collaborative; President
(76) Emeritus (formerly, President) College
of Mount St. Joseph
John H. Jacobs* Director President and Chief Operating Officer,
(52) Union Central; Director, Carillon
Advisers, Inc. ("Adviser") and
Carillon Investments, Inc.; prior to
July, 1998, Officer and employee,
Union Central
Charles W. McMahon Director Retired Senior Vice President and
19 Iron Woods Drive Director, Union Central
Cincinnati, Ohio 45239
(79)
Harry Rossi* Director Director Emeritus, Union Central;
8548 Wyoming Club Drive Director, Adviser and Carillon
Cincinnati, Ohio 45215 Investments, Inc.; former Chairman,
(79) President and Chief Executive Officer,
Union Central
Steven R. Sutermeister Director, Senior Vice President, Union Central;
(45) President President, Director and Chief
and Chief Executive Officer, Adviser;
Executive Director, Carillon Investments, Inc.
Officer
John F. Labmeier Vice President Vice President, Associate General
(50) and Secretary Counsel and Assistant Secretary, Union
Central; Vice President and Secretary,
Carillon Investments, Inc.; Secretary,
Adviser
Thomas G. Knipper Controller Treasurer, Adviser; prior to July,
(42) and Treasurer 1995, Treasurer of The Gateway Trust
and Vice President and Controller of
Gateway Advisers, Inc.
John M. Lucas Assistant Counsel and Assistant to Secretary,
(48) Secretary Union Central
</TABLE>
- ---------------
* Messrs. Jacobs, Rossi and Sutermeister are considered to be
"interested persons" of Summit Mutual Funds (within the meaning
of the Investment Company Act of 1940) because of their
affiliation with the Adviser.
All directors who are not "interested persons" of the Company are
members of the Audit Committee.
As of the date of this Statement of Additional Information,
officers and directors of Summit Mutual Funds do not own any of
the outstanding shares of any Fund. Directors who are not
officers or employees of Union Central or Adviser are paid a fee
plus actual out-of-pocket expenses by Summit Mutual Funds for
each meeting of the Board of Directors attended. Total fees and
expenses incurred for 1999 were $68,200.
<TABLE>
<CAPTION>
Compensation Table
------------------
(1) (2) (3) (4) (5)
Name of Person, Aggregate Pension or Estimated Total
Position Compensation Retirement Annual Compensation
From Benefits Benefits From
Registrant Accrued As Upon Registrant
Part of Fund Retirement and Fund
Expenses Complex*
Paid to
Directors
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
George M. Callard, $14,800** -- -- $14,800
M.D.
Director
Theodore H. Emmerich $15,900 -- -- $15,900
Director
James M. Ewell $15,300 -- -- $15,300
Director
Richard H. Finan $15,300 -- -- $15,300
Director
Jean Patrice
Harrington, S.C. $15,500 -- -- $15,500
Director
John H. Jacobs N/A N/A N/A N/A
Director
Charles W. McMahon $14,800** -- -- $14,800
Director
Harry Rossi N/A N/A N/A N/A
Director
</TABLE>
* Messrs. Callard and McMahon have been deferring their
compensation each year. As of September 30, 1999, the
total amount deferred, including interest, was as
follows: Dr. Callard - $96,753; Mr. McMahon - $28,975.
Investment Adviser
Summit Mutual Funds has entered into an Investment Advisory
Agreement ("Agreement") with Summit Investment Partners, Inc.
("Adviser"), formerly known as Carillon Advisers, Inc., whose
principal business address is 312 Elm Street, Suite
2525,Cincinnati, Ohio 45202. The Adviser was incorporated under
the laws of Ohio on August 18, 1986, and is a wholly-owned
subsidiary of Union Central. Executive officers and directors of
the Adviser who are affiliated with the Fund are: Steven R.
Sutermeister, Director, President and Chief Executive Officer;
John H. Jacobs, Director; Harry Rossi, Director; Thomas G.
Knipper, Treasurer; and John F. Labmeier, Secretary. Pursuant to
the Agreement, Summit Mutual Funds has retained the Adviser to
manage the investment of each Fund's assets, including the
placing of orders for the purchase and sale of Fund securities.
The Adviser is at all times subject to the direction and
supervision of the Board of Directors of Summit Mutual Funds.
The Adviser continuously furnishes an investment program for each
Fund, is responsible for the actual management of each Fund and
has responsibility for making decisions to buy, sell or hold any
particular security. The Adviser obtains and evaluates such
information and advice relating to the economy, securities
markets, and specific securities as it considers necessary or
useful to continuously manage the assets of the Funds in a manner
consistent with their investment objectives, policies and
restrictions. The Adviser considers analyses from various
sources, makes necessary investment decisions and effects
transactions accordingly. The Adviser also performs certain
administrative functions for Summit Mutual Funds. The Adviser
may utilize the advisory services of subadvisers for one or more
of the Funds.
Payment of Expenses
Under the terms of the Agreement, in addition to managing Summit
Mutual Funds' investments, the Adviser, at its expense,
maintains certain of Summit Mutual Funds' books and records
(other than those provided by Firstar Mutual Fund Services, LLC,
by agreement) and furnishes such office space, facilities,
equipment, and clerical help as Summit Mutual Funds may
reasonably require in the conduct of business. In addition, the
Adviser pays for the services of all executive, administrative,
clerical, and other personnel, including officers of Summit
Mutual Funds, who are employees of Union Central. The Adviser
also bears the cost of telephone service, heat, light, power and
other utilities provided to Summit Mutual Funds. Expenses not
expressly assumed by the Adviser under the Agreement will be paid
by Summit Mutual Funds.
Each Fund pays all other expenses incurred in its operation and a
portion of Summit Mutual Funds' general administration expenses
allocated on the basis of the asset size of the respective Funds.
Expenses other than the Adviser's fee that are borne directly and
paid individually by a Fund include, but are not limited to,
brokerage commissions, dealer markups, expenses incurred in the
acquisition of Fund securities, transfer taxes, transaction
expenses of the custodian, royalty or license fees, pricing
services used by only one or more Funds, and other costs properly
payable by only one or more Funds. Expenses which are allocated
on the basis of size of the respective Funds include custodian
(portion based on asset size), dividend disbursing agent,
transfer agent, bookkeeping services (except annual per Fund base
charge), pricing, shareholder's and directors' meetings,
directors' fees, proxy statement and Prospectus preparation,
registration fees and costs, fees and expenses of legal counsel
not including employees of the Adviser, membership dues of
industry associations, postage, insurance premiums including
fidelity bond, and all other costs of Summit Mutual Funds'
operation properly payable by Summit Mutual Funds and allocable
on the basis of size of the respective Funds. The Adviser will
pay any expenses of the S&P 500 Index Fund, S&P MidCap 400 Index
Fund, Balanced Index Fund, Nasdaq-100 Index Fund, Lehman
Aggregate Bond Index Fund, and the Short-term Government Fund,
other than the advisory fees for those Funds, to the extent that
such expenses exceed .30% of that Fund's net assets. The Adviser
will pay any expenses of the Russell 2000 Small Cap Index Fund,
other than the advisory fees for the Fund, to the extent that
such expenses exceed .40% of that Fund's net assets. The Adviser
will also pay any expenses of the Micro-Cap Fund, other than the
advisory fee for the Fund, to the extent that such expenses
exceed 1.00% of that Fund's net assets.
Depending on the nature of a legal claim, liability or lawsuit,
litigation costs, payment of legal claims or liabilities and any
indemnification relating thereto may be directly applicable to a
Fund or allocated on the basis of the size of the respective
Funds. The directors have determined that this is an appropriate
method of allocation of expenses.
Advisory Fee
As full compensation for the services and facilities furnished to
the Funds and expenses of the Funds assumed by the Adviser, the
Funds pay the Adviser monthly compensation calculated daily as
described on page 25 of the Prospectus.
There is no assurance that the Funds will reach a net asset level
high enough to realize a reduction in the rate of the advisory
fee. Any reductions in the rate of advisory fee will be
applicable to each Fund separately in accordance with the
schedule of fees applicable to each Fund.
Investment Advisory Agreement
The Investment Advisory Agreement was initially approved by
Summit Mutual Funds' Board of Directors, including a majority of
the directors who are not interested persons of the Adviser, on
March 22, 1984. Unless earlier terminated as described below,
the Agreement will continue in effect from year to year if
approved annually: (a) by the Board of Directors of Summit Mutual
Funds or by a majority of the outstanding shares of Summit Mutual
Funds, including a majority of the outstanding shares of each
Fund; and (b) by a majority of the directors who are not parties
to such contract or interested persons (as defined by the
Investment Company Act of 1940) of any such party. The Agreement
is not assignable and may be terminated without penalty by Summit
Mutual Funds on 60 days notice, and by the Adviser on 90 days
notice. On March 19, 1999 the Agreement was approved for
continuance for one (1) year by the Board of Directors by
unanimous vote of those present, including a majority of the
directors who are not parties to such contract or interested
persons of any such party.
On August 30, 1999, the Board of Directors took steps to activate
twelve Funds, the S&P 500 Index Fund, S&P MidCap 400 Index Fund,
Russell 2000 Small Cap Index Fund, Nasdaq-100 Index Fund,
Balanced Index Fund, Lehman Aggregate Bond Index Fund, Equity
Fund, Micro-Cap Fund, Bond Fund, Short-term Government Fund, High
Yield Bond Fund and Emerging Markets Bond Fund, by authorizing
the issuance of shares of those Funds. On November 15, 1999, the
Board of Directors also approved an amendment to the Investment
Advisory Agreement making the Agreement applicable to these
Funds, and specifying the advisory fee payable by it. The board
determined that the amendment did not affect the interests of the
classes of Summit Mutual Funds shares other than the shares of
the twelve Funds and that therefore only the holders of shares of
the twelve Funds were entitled to vote on the amendment. It is
anticipated that the sole shareholder of the twelve Funds will
approve the Agreement as amended on or about January 5, 2000.
The Investment Advisory Agreement provides that the Adviser shall
not be liable to Summit Mutual Funds or to any shareholder for
any error of judgment or mistake of law or for any loss suffered
by Summit Mutual Funds or by any shareholder in connection with
matters to which the Investment Advisory Agreement relates,
except a loss resulting from willful misfeasance, bad faith,
gross negligence, or reckless disregard on the part of the
Adviser in the performance of its duties thereunder. In the case
of administration services, the Adviser will be held to a normal
standard of liability.
The Agreement in no way restricts the Adviser from acting as
investment manager or adviser to others.
If the question of continuance of the Agreement (or adoption of
any new Agreement) is presented to shareholders, continuance (or
adoption) with respect to a Fund shall be effective only if
approved by a majority vote of the outstanding voting securities
of that Fund. If the shareholders of any one or more of the
Funds should fail to approve the Agreement, the Adviser may
nonetheless serve as an adviser with respect to any Fund whose
shareholders approved the Agreement.
Administration
The Adviser is responsible for providing certain administrative
functions to Summit Mutual Funds and has entered into an
Administration Agreement with Carillon Investments, Inc. under
which Carillon Investments furnishes substantially all of such
services for an annual fee of .20% of the average net assets of
the Bond and Equity Funds, .10% of the average net assets of the
Micro-Cap Fund, Short-term Government Fund, High Yield Bond Fund
and Emerging Markets Bond Fund, and .05% of the average net
assets of the S&P 500 Index Fund, S&P MidCap 400 Index Fund,
Russell 2000 Small Cap Index Fund, Nasdaq-100 Index Fund, Lehman
Aggregate Bond Index Fund, and Balanced Index Fund. The fee is
borne by the Adviser, not the Funds. Under the Administration
Agreement, Carillon Investments is obligated to provide persons
for clerical, accounting, bookkeeping, administrative and other
similar services, to supply office space, stationery and office
supplies, and to prepare tax returns, reports to stockholders,
and filings with the Securities and Exchange Commission and state
securities authorities.
Service Agreement
Under a Service Agreement between the Adviser and Union Central,
Union Central has agreed to make available to the Adviser the
services of certain employees of Union Central on a part-time
basis for the purpose of better enabling the Adviser to fulfill
its obligations to Summit Mutual Funds under the Agreement.
Pursuant to the Service Agreement, the Adviser shall reimburse
Union Central for all costs allocable to the time spent on the
affairs of the Adviser by the employees provided by Union
Central. In performing their services for the Adviser pursuant
to the Service Agreement, the specified employees shall report
and be solely responsible to the officers and directors of the
Adviser or persons designated by them. Union Central shall have
no responsibility for the investment recommendations or decisions
of the Adviser. The obligation of performance under the
Agreement is solely that of the Adviser and Union Central
undertakes no obligation in respect thereto except as otherwise
expressly provided in the Service Agreement. The Service
Agreement was approved by the shareholders of the Funds on
January 5, 2000.
Securities Activities of Adviser
Securities held by Summit Mutual Funds may also be held by Union
Central or by other separate accounts or mutual funds for which
the Adviser acts as an adviser. Because of different investment
objectives or other factors, a particular security may be bought
by Union Central or by the Adviser or for one or more of its
clients, when one or more other clients are selling the same
security. If purchases or sales of securities for one or more of
the Funds or other clients of the Adviser or Union Central arise
for consideration at or about the same time, transactions in such
securities will be made, insofar as feasible, for the Funds,
Union Central, and other clients in a manner deemed equitable to
all. To the extent that transactions on behalf of more than one
client of the Adviser during the same period may increase the
demand for securities being purchased or the supply of securities
being sold, there may be an adverse effect on price.
On occasions when the Adviser deems the purchase or sale of a
security to be in the best interests of the Fund as well as other
accounts or companies, it may, to the extent permitted by
applicable laws and regulations, but will not be obligated to,
aggregate the securities to be sold or purchased for the Fund (or
for two or more Funds) with those to be sold or purchased for
other accounts or companies in order to obtain more favorable
execution and low brokerage commissions. In that event,
allocation of the securities purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Adviser
in the manner it considers to be most equitable and consistent
with its fiduciary obligations to the Fund(s) and to such other
accounts or companies. In some cases this procedure may
adversely affect the size of the position obtainable for a Fund.
DETERMINATION OF NET ASSET VALUE
As described on page 34 of the Prospectus, the net asset
value of shares of the Fund is determined once daily, Monday
through Friday as of the close of regular trading on the New York
Stock Exchange (normally 4:00 p.m., Eastern Time), when there are
purchases or redemptions of Fund shares, except: (i) when the New
York Stock Exchange is closed (currently New Year's Day,
President's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day); and (ii) any day
on which changes in the value of the Fund securities of the Fund
will not materially affect the current net asset value of the
shares of a Fund.
Securities held by the Funds, except for money market
instruments maturing in 60 days or less, will be valued as
follows: Securities which are traded on stock exchanges
(including securities traded in both the over-the-counter market
and on exchange), or listed on the Nasdaq National Market System,
are valued at the last sales price as of the close of the New
York Stock Exchange on the day the securities are being valued,
or, lacking any sales, at the closing bid prices. Securities
traded only in the over-the-counter market are valued at the last
bid prices quoted by brokers that make markets in the securities
at the close of trading on the New York Stock Exchange.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by
or under the direction of the Board of Directors.
Money market instruments with a remaining maturity of 60
days or less are valued on an amortized cost basis. Under this
method of valuation, the instrument is initially valued at cost
(or in the case of instruments initially valued at market value,
at the market value on the day before its remaining maturity is
such that it qualifies for amortized cost valuation); thereafter,
the Fund assumes a constant proportionate amortization in value
until maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the
instrument. While this method provides certainty in valuation,
it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price that would be
received upon sale of the instrument.
PURCHASE AND REDEMPTION OF SHARES
The Fund offers its shares, without sales charge, to Union
Central and its exempt separate accounts, as well as to other
investors.
Payment for shares redeemed will generally be made within
seven days after receipt of a proper notice of redemption. The
right to redeem shares or to receive payment with respect to any
redemption may only be suspended for any period during which: (a)
trading on the New York Stock Exchange is restricted as
determined by the Securities and Exchange Commission or such
exchange is closed for other than weekends and holidays; (b) an
emergency exists, as determined by the Securities and Exchange
Commission, as a result of which disposal of Fund securities or
determination of the net asset value of a Fund is not reasonably
practicable; and the Securities and Exchange Commission by order
permits postponement for the protection of shareholders.
TAXES
Each Fund of the Fund will be treated as a separate entity
for federal income tax purposes. Each Fund has qualified and has
elected to be taxed as a "regulated investment company" under the
provisions of Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"). If a Fund qualifies as a "regulated
investment company" and complies with the provisions of the Code
by distributing substantially all of its net income (both
ordinary income and capital gain), the Fund will be relieved from
federal income tax on the amounts distributed.
The discussion of "Taxes" in the Prospectus, in conjunction
with the foregoing, is a general and abbreviated summary of the
applicable provisions of the Code and Treasury Regulations
currently in effect as interpreted by the Courts and the Internal
Revenue Service.
FUND TRANSACTIONS AND BROKERAGE
The Adviser is primarily responsible for the investment
decisions of each Fund, including decisions to buy and sell
securities, the selection of brokers and dealers to effect the
transactions, the placing of investment transactions, and the
negotiation of brokerage commissions, if any. No Fund has any
obligation to deal with any dealer or group of dealers in the
execution of transactions in Fund securities. In placing orders,
it is the policy of the Funds to obtain the most favorable net
results, taking into account various factors, including price,
dealer spread or commission, if any, size of the transaction, and
difficulty of execution. While the Adviser generally seeks
reasonably competitive spreads or commissions, the Funds will not
necessarily be paying the lowest spread or commission available.
If the securities in which a particular Fund of Summit
Mutual Funds invests are traded primarily in the over-the-counter
market, where possible the Fund will deal directly with the
dealers who make a market in the securities involved unless
better prices and execution are available elsewhere. Such
dealers usually act as principals for their own account. On
occasion, securities may be purchased directly from the issuer.
Bonds and money market instruments are generally traded on a net
basis and do not normally involve either brokerage commissions or
transfer taxes. The cost of Fund securities transactions of each
Fund will consist primarily of brokerage commission or dealer or
underwriter spreads.
While the Adviser seeks to obtain the most favorable net
results in effecting transactions in the Fund securities, brokers
who provide supplemental investment research to the Adviser may
receive orders for transactions by the Funds. Such supplemental
research service ordinarily consists of assessments and analyses
of the business or prospects of a company, industry, or economic
sector. If, in the judgment of the Adviser, the Funds will be
benefited by such supplemental research services, the Adviser is
authorized to pay commissions to brokers furnishing such services
which are in excess of commissions which another broker may
charge for the same transaction. Information so received will be
in addition to and not in lieu of the services required to be
performed by the Adviser under its Investment Advisory Agreement.
The expenses of the Adviser will not necessarily be reduced as a
result of the receipt of such supplemental information. In some
cases, the Adviser may use such supplemental research in
providing investment advice to its other advisory accounts.
DISTRIBUTOR
Carillon Investments, Inc. serves as the Funds' Distributor
or principal underwriter pursuant to a Distribution Agreement
with Summit Mutual Funds dated February 25, 2000. Carillon
Investments is registered as a broker-dealer under the 1934 Act
and is a member of the NASD. The offering of Fund shares is
continuous. The Distribution Agreement provides that Carillon
Investments, as agent in connection with the distribution of Fund
shares, will use appropriate efforts to solicit orders for the
sale of Fund shares and undertake such advertising and promotion
as it deems reasonable, including, but not limited to,
advertising, compensation to underwriters, dealers and sales
personnel, printing and mailing prospectuses to persons other
than current Fund shareholders, and printing and mailing sales
literature. See the section entitled "Administration" for a
description of the compensation Carillon Investments receives
from the Adviser for providing certain administrative services to
Summit Mutual Funds.
GENERAL INFORMATION
Capital Stock
Summit Mutual Funds is a mutual fund. Its board of directors is
responsible for supervising its business affairs and investments,
which are managed on a daily basis by the Adviser. Summit Mutual
Funds was incorporated under the laws of the State of Maryland on
January 30, 1984. Summit Mutual Funds is a series fund with
twenty three classes of stock, one for each Fund. The authorized
capital stock of Summit Mutual Funds consists of 490,000,000
shares of common stock, par value ten cents ($0.10) per share.
The shares of the authorized capital stock are currently divided
into the following classes:
<TABLE>
<CAPTION>
Fund Authorized Capital Stock
<S> <C>
Summit Pinnacle Series
Zenith Portfolio 40,000,000 shares
Bond Portfolio 30,000,000 shares
Capital Portfolio 30,000,000 shares
S&P 500 Index Portfolio 30,000,000 shares
Micro-Cap Portfolio 20,000,000 shares
S&P MidCap 400 Index Portfolio 20,000,000 shares
Balanced Index Portfolio 20,000,000 shares
Lehman Aggregate Bond Index Portfolio 20,000,000 shares
Russell 2000 Small Cap Index Portfolio 20,000,000 shares
Nasdaq 100 Index Portfolio 20,000,000 shares
Summit Apex Series
S&P 500 Index Fund 20,000,000 shares
S&P MidCap 400 Index Fund 20,000,000 shares
Russell 2000 Small Cap Index Fund 20,000,000 shares
Balanced Index Fund 20,000,000 shares
Nasdaq 100 Index Fund 20,000,000 shares
Lehman Aggregate Bond Index Fund 20,000,000 shares
Bond Fund 20,000,000 shares
Everest Fund 20,000,000 shares
Micro-Cap Fund 20,000,000 shares
Short-term Government Fund 20,000,000 shares
High Yield Bond Fund 20,000,000 shares
Emerging Markets Bond Fund 20,000,000 shares
</TABLE>
The Board of Directors may change the designation of any Fund and
may increase or decrease the number of authorized shares of any
Fund, but may not decrease the number of authorized shares of any
Fund below the number of shares then outstanding.
Each issued and outstanding share is entitled to participate
equally in dividends and distributions declared by the respective
Fund and, upon liquidation or dissolution, in net assets of such
Fund remaining after satisfaction of outstanding liabilities.
Voting Rights
In accordance with an amendment to the Maryland General
Corporation Law, the Board of Directors of Summit Mutual Funds
has adopted an amendment to its Bylaws providing that unless
otherwise required by the Investment Company Act of 1940, Summit
Mutual Funds shall not be required to hold an annual shareholder
meeting unless the Board of Directors determines to hold an
annual meeting. Summit Mutual Funds intends to hold shareholder
meetings only when required by law and such other times as may be
deemed appropriate by its Board of Directors.
All shares of common stock have equal voting rights (regardless
of the net asset value per share) except that on matters
affecting only one Fund, only shares of the respective Fund are
entitled to vote. The shares do not have cumulative voting
rights. Accordingly, the holders of more than 50% of the shares
of Summit Mutual Funds voting for the election of directors can
elect all of the directors of Summit Mutual Funds if they choose
to do so and in such event the holders of the remaining shares
would not be able to elect any directors.
Matters in which the interests of all Funds are substantially
identical (such as the election of directors or the approval of
independent public accountants) will be voted on by all
shareholders without regard to the separate Funds. Matters that
affect all Funds but where the interests of the Funds are not
substantially identical (such as approval of the Investment
Advisory Agreement) would be voted on separately by each Fund.
Matters affecting only one Fund, such as a change in its
fundamental policies, are voted on separately by that Fund.
Matters requiring separate shareholder voting by Fund shall have
been effectively acted upon with respect to any Fund if a
majority of the outstanding voting securities of that Fund votes
for approval of the matter, notwithstanding that: (1) the matter
has not been approved by a majority of the outstanding voting
securities of any other Fund; or (2) the matter has not been
approved by a majority of the outstanding voting securities of
Summit Mutual Funds.
The phrase "a majority of the outstanding voting securities" of a
Fund (or of Summit Mutual Funds) means the vote of the lesser of:
(1) 67% of the shares of the Fund (or Summit Mutual Funds)
present at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy; or (2) more
than 50% of the outstanding shares of the Fund (or Summit Mutual
Funds).
It is anticipated that Union Central will have voting control of
the Fund. With voting control, Union Central could make
fundamental and substantial changes (such as electing a new Board
of Directors, changing the investment adviser or advisory fee,
changing a Fund's fundamental investment objectives and policies,
etc.) regardless of the views of shareholders.
Additional Information
This Statement of Additional Information and the Prospectus do
not contain all the information set forth in the registration
statement and exhibits relating thereto, which Summit Mutual
Funds has filed with the Securities and Exchange Commission,
Washington, D.C., under the Securities Act of 1933 and the
Investment Company Act of 1940, to which reference is hereby
made.
INDEPENDENT AUDITORS
The financial statements of Summit Mutual Funds have been
audited by Deloitte & Touche LLP, 1700 Courthouse Plaza NE,
Dayton, Ohio 45402.
<PAGE>
APPENDIX A: S&P, FRANK RUSSELL AND NASDAQ DISCLAIMER
S&P 500
The S&P 500 is an unmanaged index of common stocks comprised of
500 industrial, financial, utility and transportation companies.
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard &
Poor's 500", "500", "S&P Midcap 400 Index", and "Standard &
Poor's Midcap 400 Index" are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use by Summit Mutual
Funds. The Funds are not sponsored, endorsed, sold or promoted by
Standard & Poor's ("S&P"). S&P makes no representation or
warranty, express or implied, to the beneficial owners of the
Funds or any member of the public regarding the advisability of
investing in securities generally or in the Funds particularly or
the ability of the S&P 500 Index or the S&P Midcap 400 Index to
track general stock market performance. S&P's only relationship
to Summit Mutual Funds is the licensing of certain trademarks and
trade names of S&P and of the S&P 500 Index which is determined,
composed and calculated by S&P without regard to Summit Mutual
Funds or the Funds. S&P has no obligation to take the needs of
the Funds or the beneficial owners of the Funds into
consideration in determining, composing or calculating the S&P
500 Index and the S&P Midcap 400 Index. S&P is not responsible
for and has not participated in the determination of the prices
and amount of the Funds or the timing of the issuance or sale of
the Funds or in the determination or calculation of the equation
by which the Funds are to be converted into cash. S&P has no
obligation or liability in connection with the administration,
marketing or trading of the Funds.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF
THE S&P 500 OR S&P 400 INDEX OR ANY DATA INCLUDED THEREIN AND S&P
SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR
INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY SUMMIT MUTUAL FUNDS,
BENEFICIAL OWNERS OF THE FUNDS, OR ANY OTHER PERSON OR ENTITY
FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN.
S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 OR S&P 400
INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING
LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH
DAMAGES.
RUSSELL 2000
The Russell 2000 Index is a trademark/service mark of the Frank
Russell Company. Russell is a trademark of the Frank Russell
Company. Summit Mutual Funds and the Russell 2000 Small Cap
Index Fund are not promoted, sponsored or endorsed by, nor in any
way affiliated with Frank Russell Company. Frank Russell is not
responsible for and has not reviewed the Prospectus, and Frank
Russell makes no representation or warranty, express or implied,
as to its accuracy, or completeness, or otherwise.
Frank Russell Company reserves the right, at any time and without
notice, to alter, amend, terminate or in any way change its
Index. Frank Russell has no obligation to take the needs of any
particular fund or its participants or any other product or
person into consideration in determining, composing or
calculating the Index.
Frank Russell Company's publication of the Index in no way
suggests or implies an opinion by Frank Russell Company as to the
attractiveness or appropriateness of the investment in any or all
securities upon which the Index is based. FRANK RUSSELL COMPANY
MAKES NO REPRESENTATION, WARRANTY, OR GUARANTEE AS TO THE
ACCURACY, COMPLETENESS, RELIABILITY, OR OTHERWISE OF THE INDEX OR
DATA INCLUDED IN THE INDEX. FRANK RUSSELL COMPANY MAKES NO
REPRESENTATION OR WARRANTY REGARDING THE USE, OR THE RESULTS OF
USE, OF THE INDEX OR ANY DATA INCLUDED THEREIN, OR ANY SECURITY
(OR COMBINATION THEREOF) COMPRISING THE INDEX. FRANK RUSSELL
COMPANY MAKES NO OTHER EXPRESS OR IMPLIED WARRANTY, AND EXPRESSLY
DISCLAIMS ANY WARRANTY OF ANY KIND, INCLUDING, WITHOUT MEANS OF
LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT TO THE INDEX OR ANY DATA OR ANY
SECURITY (OR COMBINATION THEREOF) INCLUDED THEREIN.
NASDAQ
"Nasdaq" and related marks are trademarks or service marks of The
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for certain purposes by Summit Mutual Funds, Inc. and the Nasdaq
100 Index Fund. The Nasdaq 100 Index is composed and calculated
by Nasdaq without regard to Summit Mutual Funds. Nasdaq makes no
warranty, express or implied, and bears no liability with respect
to the Nasdaq 100 Index Fund. Nasdaq makes no warranty, express
or implied, and bears no liability with respect to Summit Mutual
Funds, its use, or any data included therein.
