Registration No. 2-90309
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ____
Post-Effective Amendment No 30 X
and ----
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 31 X
---- ----
SUMMIT MUTUAL FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
1876 Waycross Road, Cincinnati, Ohio 45240
(Address of Principal Executive Offices)
(513) 595-2600
(Registrant's Telephone Number)
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<C> <C>
John F. Labmeier, Esq. Copy to:
The Union Central Life Insurance Company Jones and Blouch L.L.P.
P.O. Box 40888 Suite 410 East
Cincinnati, Ohio 45240 1025 Thomas Jefferson St., N.W.
Washington, D.C. 20007
</TABLE>
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box)
___ immediately upon filing pursuant to paragraph (b) of Rule 485
___ on (date) pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
___ on (date) pursuant to paragraph (a)(1) of Rule 485
X 75 days after filing pursuant to paragraph (a)(2) of Rule 485
---
___ on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
___ This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE>
This amendment No. 30 under the Securities Act of 1933, and
Amendment No. 31 under the Investment Company Act of 1940, to the
Registration Statement on Form N-1A of Summit Mutual Funds, Inc.
is filed solely to add a prospectus and statement of additional
information for the newly-created EAFE International Equity Index
Fund and EAFE International Equity Index Portfolio and does not
otherwise delete, amend, or supersede any prospectus, statement
of additional information, exhibit, undertaking, or other
information contained in the Registration Statement.
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
EAFE INTERNATIONAL INDEX FUND
PROSPECTUS
DECEMBER 26, 2000
SUMMIT MUTUAL FUNDS, INC.
SUMMIT APEX SERIES
SMFI XXX APEX EAFE 12/00
<PAGE>
December 26, 2000
SUMMIT MUTUAL FUNDS, INC.
TABLE OF CONTENTS
INTRODUCTION................................................
FUND PROFILE
EAFE INTERNATIONAL INDEX FUND PROFILE...................
FEES AND EXPENSES OF THE FUND...............................
OTHER INVESTMENT POLICIES, STRATEGIES AND RISKS.............
FOREIGN SECURITIES......................................
FOREIGN CURRENCY TRANSACTIONS...........................
REPURCHASE AGREEMENTS...................................
REVERSE REPURCHASE AGREEMENTS...........................
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS......
OPTIONS ON SECURITIES INDICES...........................
LENDING FUND SECURITIES.................................
OTHER INFORMATION.......................................
FUND MANAGEMENT.............................................
INVESTMENT ADVISER......................................
ADVISORY FEE............................................
SUBADVISER..............................................
EXPENSES................................................
CAPITAL STOCK...........................................
SHAREHOLDER INFORMATION.....................................
PRICING OF FUND SHARES..................................
PURCHASE OF SHARES......................................
REDEMPTION OF SHARES....................................
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS..................
FEDERAL TAXES...............................................
STATE AND LOCAL TAXES.......................................
DISCLAIMER..................................................
FINANCIAL HIGHLIGHTS........................................
APPENDIX A: EAFE INTERNATIONAL INDEX RETURNS................
These securities have not been approved or disapproved by the
Securities and Exchange Commission ("SEC") nor any state.
Neither the SEC or any state has determined whether this
prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
<PAGE>
INTRODUCTION
This prospectus explains the objectives, risks and strategies of
one of the twenty-four funds comprising Summit Mutual Funds, Inc.
("Summit Mutual Funds") - the EAFE International Index Fund
("Fund"). The 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 Fund's investment policies and strategies is
provided after the Profile, along with information about Fund
expenses.
The Fund included in this Prospectus is 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.
EAFE INTERNATIONAL INDEX FUND PROFILE
Investment Objective
The Summit Apex EAFE International Index Fund seeks investment
results that correspond to the total return performance of common
stocks as represented by the Morgan Stanley Capital International
("MSCI") EAFE Index ("Index"). The EAFE Index emphasizes the
stocks of companies in major markets in Europe, Australasia, and
the Far East.
Investment Strategies
The Fund will invest primarily in common stocks of the companies
that compose the EAFE Index. The EAFE Index is capitalization-
weighted, meaning that a company whose securities have a high
market capitalization will contribute more to the Index's value
than a company whose securities have a low market capitalization.
The Fund will typically not hold all of the companies in the EAFE
Index. The Fund will typically choose to hold the stocks that
make up the largest portion of the Index's value in the same
proportion as the Index. When choosing the smaller stocks, the
Fund will attempt to select a sampling of stocks that will match
the industry and risk characteristics of all of the smaller
companies in the EAFE Index without buying all of those stocks.
This attempts to maximize liquidity while minimizing costs.
The Adviser will adopt the above "Sampling" strategy until such
time as the Adviser believes the Fund has achieved sufficient
size to attempt to fully replicate the Index. Full replication
would be achieved when the Fund holds all of the securities in
the Index in the exact weightings as the Index. Although the
Adviser will attempt to invest as much of the Fund's assets as is
practical in stocks included among the EAFE 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.
The Fund may invest up to 20% of its assets in futures contracts
and options that provide exposure to the stocks in the Index. 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 Adviser may choose to invest in a foreign security indirectly
by purchasing American Depository Receipts ("ADRs"). ADRs are
U.S. dollar-denominated receipts representing shares of foreign
corporations. ADRs are issued by U.S. banks or trust companies
and entitle the holder to all dividends and capital gains on the
underlying shares. ADRs offer the exposure to the foreign
security while reducing transaction, custody, and other expenses.
Primary Risks
- Market Risk: Deteriorating market conditions might cause an
overall decline in the prices of stocks in the market,
including those held by the Fund.
- Tracking Error Risk: The Fund may not track the performance
of the Index for the various reasons, including, but not
limited the following:
- The Fund incurs administrative expenses and trading
costs. The EAFE Index does not.
- The Fund may not hold all of the stocks in the Index or
may weight them differently than the Index.
- The composition of the Index and Fund may diverge.
- The timing and magnitude of cash inflows and outflows
from investor's purchases and redemptions may create
balances of uninvested cash.
- Foreign Stock Market Risk: Foreign stock markets may
exhibit periods of higher volatility than those in the
United States. Trading stocks on many foreign exchanges can
be more difficult, and costly, than trading stocks in the
United States. Taxes can also be imposed by foreign
governments.
- Political Risk: Foreign governments have occasionally
limited the outflows of capital or profits to investors
abroad.
- Information Risk: Financial reporting and accounting
standards for companies in many foreign markets differ from
those of the United States and may present an incomplete, or
inaccurate picture of a foreign company.
- Liquidity Risk: On the whole, foreign exchanges are smaller
and less liquid than the U.S. markets. Stocks that trade
infrequently, or in lower volumes, can be more difficult or
costly to buy or sell. Relatively small transactions can
have a disproportionately large affect on the price of
stocks. In some situations, it may be impossible to sell a
stock in an orderly fashion.
- Regulatory Risk: There is typically less
regulation of foreign markets, companies, and securities.
- Currency Risk: The Fund invests in foreign securities
denominated in foreign currencies. Thus, changes in foreign
exchange rates will affect the value of foreign securities
denominated in U.S. dollars.
- Derivatives Risk: The Fund may invest in stock futures and
options, and stock index futures and options. The Fund will
not use these investments for speculative purposes or as
leveraged investments that might exacerbate gains or
losses. The Fund will invest in derivatives solely to meet
shareholder redemptions or to invest shareholder purchases
while maintaining exposure to the market. The principal
risks to derivatives used in this context is that it might
not be highly correlated with the security for which it is
being used as a substitute.
Since this is a new Fund, there is no bar chart or performance
table.
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 Fund.
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
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Total Annual
Management Other Fund Operating
Fees Expenses** Expenses**
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<S> <C> <C> <C>
EAFE International Index Fund .45% .80% 1.25%*
</TABLE>
* Total Annual Fund Operating Expenses in excess of 1.25% for
the Fund are paid by the Adviser.
** "Other Expenses" are based on estimates.
Example
This Example is intended to help you compare the cost of
investing in the Fund 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 Fund's
operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs
would be:
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1 Year 3 Years
<S> <C> <C>
EAFE International Index Fund $128 $399
</TABLE>
This table should not be considered a representation of past or
future expenses. Actual expenses may be more or less than those
shown.
OTHER INVESTMENT POLICIES, STRATEGIES AND RISKS
FOREIGN SECURITIES
The Fund may invest in foreign securities that are suitable for
the Fund's investment objectives and policies.
The Fund is limited to investing in those foreign securities
included in the EAFE Index.
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 Fund 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 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.
The Fund 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.
REPURCHASE AGREEMENTS
The 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. The Fund does not
engage extensively in repurchase agreements, but may engage in
them from time to time. The Adviser reviews the creditworthiness
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, the 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
The 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
The Fund 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. The 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
its 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 the 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.
The Fund 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). The Fund may purchase call option
contracts to close out a position acquired through the sale of a
call option. The Fund will only write options that are traded on
a domestic exchange or board of trade.
The Fund may write and purchase covered put and call options on
securities in which it may directly invest. Option transactions
of the Fund 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).
<PAGE>
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 Fund may purchase or sell options on the EAFE 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.
LENDING FUND SECURITIES
The Fund 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, the
Fund's investment program is subject to further restrictions
which are described in the Statement of Additional Information.
Unless otherwise specified, the 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.
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
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. Prior thereto, Mr. Weisenburger was a
general securities trader for Ohio National Equity Sales Corp.
and a registered representative for Fidelity Investments.
ADVISORY FEE
The Fund pays the Adviser, as full compensation for all
facilities and services furnished, a monthly fee computed on a
daily basis, at an annual rate of .45% of the current value of
the Fund's net assets.
The effective rates paid by the Fund are set forth in the "Fees
and Expenses of the Fund" section on page xx.
SUBADVISER
World Asset Management, L.L.C., 255 E. Brown Street, Suite 250,
Birmingham, Michigan 48009, is the investment Subadviser to the
Fund. An investment adviser since 1994, World Asset Management
is a wholly-owned subsidiary of Munder Capital Management.
Munder Capital is a general partnership with Munder Capital
employees owning a minority interest and Comerica Bank owning the
majority interest.
The Subadviser provides, subject to the Adviser's direction, a
portion of the investment advisory services for which the Adviser
is responsible. The services include investment research and
advice with respect to securities, investments and cash
equivalents in the Fund. As compensation for its services, the
Subadviser receives a monthly fee computed on a daily basis, at
an annual rate, equal to .10% of the current value of the Fund's
net assets; provided, however, that the Subadviser has agreed to
waive its fee for the first six months of operations. The fee is
paid by the Adviser, not the Fund.
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 Fund, other than the
advisory fee for the Fund, to the extent that such expenses
exceed .80% of the Fund's net assets.
CAPITAL STOCK
Summit Mutual Funds currently has twenty-four classes of stock,
one for each fund, one of which is 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.
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
The net asset value of the Fund's 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 the 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
using the amortized cost method.
Sometimes foreign securities markets are open on days when U.S.
markets are closed. Because the Fund 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 Fund 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 the
Fund which are received by the transfer agent before 4:00 p.m.
Eastern Time on a business day for the Fund 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.
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OPENING AN ACCOUNT ADDING TO AN ACCOUNT
<C> <C>
BY MAIL BY MAIL
Complete an application and Make your check payable to
mail it along with a check Summit Mutual Funds. Please
payable to Summit Mutual include your sixteen-digit
Funds, to: account number on your check
The Summit Mutual Funds and mail it to the address
c/o Firstar Mutual Fund on the left.
Services, LLC
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 purchase Complete a Periodic Investment
application, which includes Plan Application to
information for a Periodic automatically purchase more
Investment Plan. shares.
BY WIRE BY WIRE
Call 1-888-259-7565 prior Call 1-888-259-7565 prior
to sending the wire in order to sending the wire in order
to obtain a confirmation number to obtain a confirmation number
and to ensure prompt and and to ensure prompt and
accurate handling of funds. accurate handling of funds.
Ask your bank to transmit Ask your bank to transmit
immediately available funds immediately available funds
by wire in the amount of your by wire as described at the
purchase to: left.
Firstar Bank, N.A.
777 East Wisconsin Avenue Please include your sixteen-
Milwaukee, WI 53202 digit account number.
ABA Number: 075000022
Credit to: Firstar Mutual Fund The Summit Mutual Funds and
Services, LLC its transfer agent are not
Account Number: 112-952-137 responsible for the conse-
Further credit to: Summit quences of delays resulting
Mutual Funds from the banking or Federal
(account name and account Reserve Wire system, or from
number) incomplete wiring instructions.
Summit Mutual Funds and its
transfer 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 Call 1-888-259-7565 to
exchange from another exchange from another
Summit Mutual Funds account Summit Mutual Funds account
with the same registration with the same registration
including name, address and including name, address and
taxpayer ID number. taxpayer 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 Fund's 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 the 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 Fund 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 Fund reserves
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 the 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 Fund.
REDEMPTION OF SHARES
SELLING SHARES
Redemption requests for the Fund received by the transfer agent
before 4:00 p.m. Eastern Time on a business day for the Fund
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 Fund 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 Fund may request further documentation from
corporations, executors, administrators, trustees and guardians.
The Fund reserves the right to refuse a telephone redemption if
it believes it is advisable to do so. Procedures for redeeming
shares by telephone may be modified or terminated by the Fund 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 Fund 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 Fund 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
The 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 the 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 the Fund for
shares of another fund within Summit Mutual Funds. 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
the 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 the Fund. You can
move substantial assets from the 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 if the Fund is held in brokerage, retirement or other
similar accounts.
AUTOMATED TELERESPONSE SERVICE
Shareholders using a touch-tone telephone can access information
on the Fund 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.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Dividends from net investment income of the Fund is 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.
FEDERAL TAXES
The 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 the 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 the 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.
DISCLAIMER
This fund is not sponsored, endorsed, sold or promoted by MSCI or
any affiliate of MSCI. Neither MSCI nor any other party makes
any representation or warranty, express or implied, to the owners
of this fund or any member of the public regarding the
advisability of investing in funds generally or in this fund
particularly or the ability of the EAFE index to track general
stock market performance. MSCI is the licensor of certain
trademarks, service marks and trade names of MSCI and of the EAFE
index which is determined, composed and calculated by MSCI
without regard to the issuer of this fund. MSCI has no
obligation to take the needs of the issuer of this fund or the
owners of this fund into consideration in determining, composing
or calculating the EAFE index. MSCI is not responsible for and
has not participated in the determination of the timing of,
prices at, or quantities of this fund to be issued or in the
determination or calculation of the equation by which this fund
is redeemable for cash. Neither MSCI nor any other party has any
obligation or liability to owners of this fund in connection with
the administration, marketing or trading of this fund.
ALTHOUGH MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR
USE IN THE CALCULATION OF THE INDEXES FROM SOURCES WHICH MSCI
CONSIDERS RELIABLE, NEITHER MSCI NOR ANY OTHER PARTY GUARANTEES
THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEXES OR ANY DATA
INCLUDED THEREIN. NEITHER MSCI NOR ANY OTHER PARTY MAKES ANY
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY
LICENSEE, LICENSEE'S CUSTOMERS AND COUNTERPARTIES, OWNERS OF THE
FUNDS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEXES
OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS
LICENSED HEREUNDER OR FOR ANY OTHER USE. NEITHER MSCI NOR ANY
OTHER PARTY MAKES ANY EXPRESS OR IMPLIED WARRANTIES, AND MSCI
HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE INDEXES OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING,
IN NO EVENT SHALL MSCI OR ANY OTHER PARTY HAVE ANY LIABILITY FOR
ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY
OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
FINANCIAL HIGHLIGHTS
Since this is a new fund, no financial highlights are available.
<PAGE>
Appendix A: MSCI EAFE International Index Returns
<TABLE>
<CAPTION>
MSCI EAFE Index Returns (1969-Sept.1999)
Over Various Time Horizons
1 Year 3 Years
<S> <C> <C>
Best % %
Worst % %
Average % %
</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 MSCI EAFE
Index and NOT of our MSCI EAFE International Index Fund. There
is no assurance that the Fund will be able to replicate the
performance of the Index.
<PAGE>
(back cover)
A Statement of Additional Information dated December 26, 2000,
which contains further information about the Fund, has been filed
with the Securities and Exchange Commission and is incorporated
by reference into this Prospectus. Additional information about
the Fund's 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 Fund's 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
Fund 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 Fund are
also available without charge at the SEC's web site:
http://www.sec.gov.
File 811-04000
<PAGE>
December 26, 2000
Summit Mutual Funds, Inc.
----------------------------------------------------------------
Summit Mutual Funds, Inc., formerly known as Carillon Fund, Inc.,
is a mutual fund with twenty-four separate Portfolios, each with
its own investment objective. We cannot assure you that any
Portfolio will meet its objective. This Prospectus offers one of
the Portfolios within the Summit Pinnacle Series - the EAFE
International Index Portfolio.
The investment objective of the EAFE International Index
Portfolio is to seek investment results that correspond to the
total return performance of common stocks as represented by the
Morgan Stanley Capital International EAFE Index. The EAFE Index
emphasizes the stocks of companies in major markets in Europe,
Australia, and the Far East.
This prospectus contains information you should know before
allocating your contract values to the EAFE International Index
Portfolio. We suggest that you read it and keep it for future
reference.
These securities have not been approved or disapproved by the
Securities and Exchange Commission ("SEC") nor any state.
Neither the SEC or any state has determined whether this
prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
SMFI xxx PINNACLE-EAFE 12-00
<PAGE>
TABLE OF CONTENTS
INTRODUCTION TO THE FUND......................................
PORTFOLIO PROFILE.............................................
EAFE INTERNATIONAL INDEX PORTFOLIO.......................
PORTFOLIO OPERATING EXPENSES..................................
OTHER INVESTMENT POLICIES, STRATEGIES AND RISKS...............
FOREIGN SECURITIES.......................................
FOREIGN CURRENCY TRANSACTIONS............................
JUNK BONDS...............................................
REPURCHASE AGREEMENTS....................................
REVERSE REPURCHASE AGREEMENTS............................
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS.......
OPTIONS ON SECURITIES INDICES............................
COLLATERALIZED MORTGAGE OBLIGATIONS......................
LENDING PORTFOLIO SECURITIES.............................
MIXED FUNDING............................................
OTHER INFORMATION........................................
FUND MANAGEMENT...............................................
INVESTMENT ADVISER.......................................
ADVISORY FEE.............................................
EXPENSES.................................................
CAPITAL STOCK............................................
VALUATION OF PORTFOLIO SHARES............................
DIVIDENDS AND DISTRIBUTIONS...................................
TAXES.........................................................
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT.............
DISCLAIMER....................................................
FINANCIAL HIGHLIGHTS..........................................
<PAGE>
INTRODUCTION TO THE FUND
This prospectus explains the objectives, risks and strategies of
one of the Portfolios within the Summit Pinnacle Series of Summit
Mutual Funds, Inc. (the "Fund"). The Portfolios are mutual funds
used solely as investment options for variable annuity or
variable life insurance contracts offered by The Union Central
Life Insurance Company ("Union Central"). Although you cannot
purchase shares of the Portfolios directly, you can instruct
Union Central how to allocate your contract's values among the
Portfolios. The Portfolio Profile below summarizes important
facts about the Portfolio, including its investment objective,
strategy, risks and past investment performance. More detailed
information about the Portfolio's investment policies and
strategies is provided after the Profile, along with information
about Portfolio expenses, share pricing and Financial Highlights
for the Portfolio.
PORTFOLIO PROFILE
EAFE INTERNATIONAL INDEX PORTFOLIO
Investment Objective
The Summit Pinnacle EAFE International Index Portfolio
("Portfolio") seeks investment results that correspond to the
total return performance of common stocks as represented by the
Morgan Stanley Capital International ("MSCI") EAFE Index
("Index"). The EAFE Index emphasizes the stocks of companies in
major markets in Europe, Australia, and the Far East.
Investment Strategies
The Portfolio will invest primarily in common stocks of the
companies that compose the EAFE Index. The EAFE Index is
capitalization-weighted, meaning that a company whose securities
have a high market capitalization will contribute more to the
Index's value than a company whose securities have a low market
capitalization.
The Portfolio will typically not hold all of the companies in the
EAFE Index. The Portfolio will typically choose to hold the
stocks that make up the largest portion of the Index's value in
the same proportion as the Index. When choosing the smaller
stocks, the Portfolio will attempt to select a sampling of stocks
that will match the industry and risk characteristics of all of
the smaller companies in the EAFE Index without buying all of
those stocks. This attempts to maximize liquidity while
minimizing costs.
The Adviser will adopt the above "Sampling" strategy until such
time as the Adviser believes the Portfolio has achieved
sufficient size to attempt to fully replicate the Index. Full
replication would be achieved when the Portfolio holds all of the
securities in the Index in the exact weightings as the Index.
Although the Adviser will attempt to invest as much of the
Portfolio's assets as is practical in stocks included among the
EAFE Index and futures contracts and options relating thereto, a
portion of the Portfolio 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 Portfolio may invest in government
securities, money market instruments, or other fixed-income
securities, or retain cash or cash equivalents.
The Portfolio may invest up to 20% of its assets in futures
contracts and options that provide exposure to the stocks in the
Index. The Portfolio may also sell covered calls on futures
contracts or individual securities held in the Portfolio. As a
temporary investment strategy, until the Portfolio reaches $50
million in net assets, the Portfolio may invest up to 100% of its
assets in such futures and/or options contracts.
The Adviser may choose to invest in a foreign security indirectly
by purchasing American Depository Receipts ("ADRs"). ADRs are
U.S. dollar-denominated receipts representing shares of foreign
corporations. ADRs are issued by U.S. banks or trust companies
and entitle the holder to all dividends and capital gains on the
underlying shares. ADRs offer the exposure to the foreign
security while reducing transaction, custody, and other expenses.
Primary Risks
. Market Risk: Deteriorating market conditions might cause an
overall decline in the prices of stocks in the market,
including those held by the Portfolio.
. Tracking Error Risk: The Portfolio may not track the
performance of the Index for the various reasons, including,
but not limited the following:
- The Portfolio incurs administrative expenses and trading
costs. The EAFE Index does not.
or may weight them differently than the Index.
- The composition of the Index and Portfolio may diverge.
- The timing and magnitude of cash inflows and outflows from
investor's purchases and redemptions may create balances
of uninvested cash.
. Foreign Stock Market Risk: Foreign stock markets may exhibit
periods of higher volatility than those in the United States.
Trading stocks on many foreign exchanges can be more
difficult, and costly, than trading stocks in the United
States. Taxes can also be imposed by foreign governments.
. Political Risk: Foreign governments have occasionally limited
the outflows of capital or profits to investors abroad.
. Information Risk: Financial reporting and accounting
standards for companies in many foreign markets differ from
those of the United States and may present an incomplete, or
inaccurate picture of a foreign company.
. Liquidity Risk: On the whole, foreign exchanges are smaller
and less liquid than the U.S. markets. Stocks that trade
infrequently, or in lower volumes, can be more difficult or
costly to buy or sell. Relatively small transactions can have
a disproportionately large affect on the price of stocks. In
some situations, it may be impossible to sell a stock in an
orderly fashion.
. Regulatory Risk: There is typically less government
regulation of foreign markets, companies, and securities.
. Currency Risk: The Portfolio invests in foreign securities
denominated in foreign currencies. Thus, changes in foreign
exchange rates will affect the value of foreign securities
denominated in U.S. dollars.
. Derivatives Risk: The Portfolio may invest in stock futures
and options, and stock index futures and options. The
Portfolio will not use these investments for speculative
purposes or as leveraged investments that might exacerbate
gains or losses. The Portfolio will invest in derivatives
solely to meet shareholder redemptions or to invest
shareholder purchases while maintaining exposure to the
market. The principal risks to derivatives used in this
context is that it might not be highly correlated with the
security for which it is being used as a substitute.
Since this is a new Portfolio, there is no bar chart or
performance table.
PORTFOLIO OPERATING EXPENSES
This table describes fees and expenses of the Portfolio:
EXPENSES (as a percentage of average net assets)
<TABLE>
<CAPTION>
EAFE International
Index Portfolio
---------------
<S> <C>
Management Fees .45%
Other Expenses* .80%
-----
Total Operating Expenses** 1.25%
</TABLE>
** Total Operating Expenses in excess of 1.25% for the
Portfolio are paid by the Adviser.
* "Other Expenses" are based on estimates.
EXAMPLE
The table below shows the amount of expenses a Shareholder would
pay on a $10,000 investment assuming a 5% annual return.+
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
EAFE International
Index Portfolio $128 $399 N/A N/A
</TABLE>
The purpose of this table is to help you understand the Fund
expenses that you may bear indirectly through your purchase of a
Union Central contract. This table does NOT include any contract
or variable account charges. Those charges, along with the
Fund's expenses, are contained in the prospectus for your
contract.
This table should not be considered a representation of past or
future expenses. Actual expenses may be more or less than those
shown.
-------------
+ The 5% annual return is a standardized rate prescribed for the
purpose of this example and does not represent the past or
future return of the Fund.
OTHER INVESTMENT POLICIES, STRATEGIES AND RISKS
FOREIGN SECURITIES
The Portfolio may invest in foreign securities that are suitable
for the Portfolio's investment objectives and policies.
The Portfolio is limited to investing in those foreign
securities included in the EAFE Index.
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 the Portfolio 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 Portfolio 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 Portfolio 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.
The Portfolio 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.
REPURCHASE AGREEMENTS
The Portfolio may invest in repurchase agreements. A repurchase
agreement is a transaction where a Portfolio buys a security at
one price and simultaneously agrees to sell that same security
back to the original owner at a higher price. The Portfolio does
not engage extensively in repurchase agreements, but 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, the Portfolio
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
The Portfolio may enter into reverse repurchase agreements.
Under reverse repurchase agreements, the Portfolio transfers
possession of portfolio securities to banks in return for cash in
an amount equal to a percentage of the portfolio securities'
market value and agrees to repurchase the securities at a future
date by repaying the cash with interest. The Portfolio 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 Portfolio 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
For hedging purposes, including protecting the price or interest
rate of securities that the Portfolio intends to buy, the
Portfolio may enter into 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. The Portfolio 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 Portfolio 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
Portfolio 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 Portfolio, the Portfolio 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 Portfolio
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 particular Portfolio may not be
invested in precisely the same proportion as the particular
Index, it is likely that the price changes of the Portfolio's
index futures positions will not match the price changes of the
Portfolio'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 Portfolio may write and purchase covered put and call options
on securities in which it may directly invest. Option
transactions of the Portfolio 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 Portfolio's total assets.
Further, the Portfolio 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 Portfolio'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 Portfolio) 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 Portfolio) 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 Portfolio) a premium, which the seller retains whether or
not the option is exercised. The selling of a call option will
benefit the Portfolio 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 Portfolio 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 Portfolio may
write call options in order to hedge against an expected decline
in value of portfolio securities.
The Portfolio 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 Portfolio 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 Portfolio'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 Portfolio may purchase or sell options on the EAFE 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.
LENDING PORTFOLIO SECURITIES
The Portfolio may lend portfolio securities with a value up to
10% of its total assets. Such loans may be terminated at any
time. The Portfolio 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 Portfolio 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 Portfolio 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.
MIXED FUNDING
The Fund offers its Pinnacle Series shares, without sales charge,
only for purchase by Union Central and its separate accounts to
fund benefits under both variable annuity contracts and variable
universal life insurance policies. The Fund's Board of Directors
will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of variable annuity
contractowners investing in the Fund and interests of holders of
variable universal life insurance policies investing in the Fund.
Union Central will report any potential or existing conflicts to
the Directors of the Fund. If a material irreconcilable conflict
arises, Union Central will, at its own cost, remedy such conflict
up to and including establishing a new registered management
company and segregating the assets underlying the variable
annuity contracts and variable universal life insurance policies.
It is possible that at some later date the Fund may offer shares
to other investors. The Fund continuously offers shares in each
of its Portfolios at prices equal to the respective net asset
values of the shares of each Portfolio.
OTHER INFORMATION
In addition to the investment policies described above, the
Portfolio's investment program is subject to further restrictions
which are described in the Statement of Additional Information.
Unless otherwise specified, the Portfolio'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 the Fund at (513) 595-2600, or at P.O. Box
40409, Cincinnati, Ohio 45240-0409.
FUND MANAGEMENT
INVESTMENT ADVISER
The Adviser is Summit Investment Partners, Inc. (formerly known
as 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 the Fund since 1984. The Adviser is a wholly-owned subsidiary
of Union Central, a mutual life insurance company organized in
1867 under the laws of Ohio. Subject to the direction and
authority of the Fund's board of directors, the Adviser manages
the investment and reinvestment of the assets of each Portfolio
and provides administrative services and manages the Fund's
business affairs.
Gary R. Rodmaker, CFA and David M. Weisenburger, CFA lead the
team primarily responsible for the day-to-day management of the
Portfolio.
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. Prior thereto, Mr. Weisenburger was a
general securities trader for Ohio National Equity Sales Corp.
and a registered representative for Fidelity Investments.
ADVISORY FEE
The Portfolio pays the Adviser, as full compensation for all
facilities and services furnished, a monthly fee computed on a
daily basis, at an annual rate of .45% of the current value of
the Portfolio's net assets.
The effective rates paid by the Portfolio are set forth in the
"Portfolio Operating Expenses" section on page xx.
SUBADVISER
World Asset Management, L.L.C., 255 E. Brown Street, Suite 250,
Birmingham, Michigan 48009, is the investment Subadviser to the
Portfolio. An investment adviser since 1994, World Asset
Management is a wholly-owned subsidiary of Munder Capital
Management. Munder Capital is a general partnership with Munder
Capital employees owning a minority interest and Comerica Bank
owning the majority interest.
The Subadviser provides, subject to the Adviser's direction, a
portion of the investment advisory services for which the Adviser
is responsible. The services include investment research and
advice with respect to securities, investments and cash
equivalents in the Portfolio. As compensation for its services,
the Subadviser receives a monthly fee computed on a daily basis,
at an annual rate, equal to .10% of the current value of the
Portfolio's net assets; provided, however, that the Subadviser
has agreed to waive its fee for the first six months of
operations. The fee is paid by the Adviser, not the Portfolio.
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 Portfolio that incurs them,
while other expenses are allocated among the Portfolios on the
basis of their relative size (i.e., the amount of their net
assets). The Adviser will pay any expenses of the Portfolio,
other than the advisory fee for the Portfolio, to the extent that
such expenses exceed .80% of the Portfolio's net assets.
CAPITAL STOCK
The Fund currently has twenty-four classes of stock, one for each
Portfolio, one of which is offered pursuant to this prospectus.
Shares (including fractional shares) of each Portfolio have equal
rights with regard to voting, redemptions, dividends,
distributions, and liquidations with respect to that Portfolio.
When issued, shares are fully paid and nonassessable and do not
have preemptive or conversion rights or cumulative voting rights.
Union Central, the sole shareholder of the Summit Pinnacle Series
of Funds, will vote Fund shares allocated to its registered
separate accounts in accordance with instructions received from
its contract owners. It is anticipated that Union Central will
have voting control of the Fund by virtue of the shares of the
Summit Apex Series of Funds allocated to its exempt separate
accounts. With voting control, Union Central can make
fundamental changes regardless of the voting instructions
received from its contract owners.
VALUATION OF PORTFOLIO SHARES
The net asset value of the shares of each Portfolio 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:
- when the New York Stock Exchange is closed and
- any day on which changes in the value of the Portfolio
securities of the Fund will not materially affect the
current net asset value of the shares of a Portfolio.
Portfolio shares are valued by:
- adding the values of all securities and other assets of the
Portfolio,
- subtracting liabilities and expenses, and
- dividing by the number of shares of the Portfolio
outstanding.
Expenses, including the investment advisory fee payable to the
Adviser, are accrued daily.
Securities held by the Portfolios, except for money market
instruments maturing in 60 days or less, are valued at their
market value if market quotations are readily available. Other-
wise, such securities are valued at fair value as determined in
good faith by the Fund's board of directors, although the actual
calculations may be made by persons acting pursuant to the
direction of the board. All money market instruments with a
remaining maturity of 60 days or less are valued on an amortized
cost basis.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute substantially all of the net
investment income, if any, of each Portfolio. For dividend
purposes, net investment income of each Portfolio consists of
all dividends or interest earned by that Portfolio, minus
estimated expenses (including the investment advisory fee). All
net realized capital gains, if any, of each Portfolio are
distributed periodically, no less frequently than annually. All
dividends and distributions of a Portfolio are reinvested in
additional shares of the Portfolio at net asset value.
TAXES
Each Portfolio 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 Portfolio qualifies as a "regulated investment company" and
complies with the appropriate provisions of the Code, the
Portfolio will pay no federal income taxes on the amounts
distributed.
Because the sole shareholder of the Fund is Union Central, no
discussion is included herein as to the federal income tax
consequences to shareholders. For information about the federal
tax consequences of purchasing the contracts, see the prospectus
for your contract.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
Firstar Mutual Fund Services, LLC, P.O. Box 701, Milwaukee,
Wisconsin 53201-0701, acts as Custodian of the Fund's assets, and
is its bookkeeping, transfer and dividend disbursing agent.
DISCLAIMER
This fund is not sponsored, endorsed, sold or promoted by MSCI or
any affiliate of MSCI. Neither MSCI nor any other party makes
any representation or warranty, express or implied, to the owners
of this fund or any member of the public regarding the
advisability of investing in funds generally or in this fund
particularly or the ability of the EAFE index to track general
stock market performance. MSCI is the licensor of certain
trademarks, service marks and trade names of MSCI and of the EAFE
index which is determined, composed and calculated by MSCI
without regard to the issuer of this fund. MSCI has no
obligation to take the needs of the issuer of this fund or the
owners of this fund into consideration in determining, composing
or calculating the EAFE index. MSCI is not responsible for and
has not participated in the determination of the timing of,
prices at, or quantities of this fund to be issued or in the
determination or calculation of the equation by which this fund
is redeemable for cash. Neither MSCI nor any other party has any
obligation or liability to owners of this fund in connection with
the administration, marketing or trading of this fund.
ALTHOUGH MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR
USE IN THE CALCULATION OF THE INDEXES FROM SOURCES WHICH MSCI
CONSIDERS RELIABLE, NEITHER MSCI NOR ANY OTHER PARTY GUARANTEES
THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEXES OR ANY DATA
INCLUDED THEREIN. NEITHER MSCI NOR ANY OTHER PARTY MAKES ANY
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY
LICENSEE, LICENSEE'S CUSTOMERS AND COUNTERPARTIES, OWNERS OF THE
FUNDS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEXES
OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS
LICENSED HEREUNDER OR FOR ANY OTHER USE. NEITHER MSCI NOR ANY
OTHER PARTY MAKES ANY EXPRESS OR IMPLIED WARRANTIES, AND MSCI
HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE INDEXES OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING,
IN NO EVENT SHALL MSCI OR ANY OTHER PARTY HAVE ANY LIABILITY FOR
ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY
OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
<PAGE>
A Statement of Additional Information dated December 26, 2000,
which contains further information about the Fund, has been filed
with the Securities and Exchange Commission and is incorporated
by reference into this Prospectus. Additional information about
the Fund's 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 Fund's 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
Fund 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 Fund are
also available without charge at the SEC's web site:
http://www.sec.gov.
File 811-04000
<PAGE>
PART B
INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
SUMMIT MUTUAL FUNDS, INC.
Summit Apex Series
---------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
EAFE INTERNATIONAL INDEX FUND
December 26, 2000
This Statement of Additional Information regarding one of the
twenty-four funds of Summit Mutual Funds, Inc. ("Summit Mutual
Funds") 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 for the EAFE International Index Fund ("Fund"), dated
December 26, 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 ( )........................................
Money Market Instruments, Other Securities
and Investment Techniques..................................
Investments in Foreign Securities..............................
Futures Contracts...........................................
Options.....................................................
Lending Portfolio Securities................................
Investment Restrictions........................................
Portfolio Turnover.............................................
Management of the Fund ( ).....................................
Directors and Officers......................................
Investment Adviser..........................................
Payment of Expenses.........................................
Advisory Fee................................................
Investment Advisory Agreement...............................
Investment Subadvisory Agreement............................
Service Agreement...........................................
Securities Activities of Adviser............................
Code of Ethics..............................................
Determination of Net Asset Value ( )..........................
Purchase and Redemption of Shares ( ).........................
Taxes ( ).....................................................
Fund Transactions and Brokerage................................
Distributor....................................................
General Information ( )........................................
Capital Stock...............................................
Voting Rights...............................................
Additional Information......................................
Independent Auditors...........................................
Appendix A: Disclaimer.........................................
-----------
( ) indicates page on which the corresponding section appears in
the Prospectus.
----------------------------------------------------------------
SMFI xxx APEX-EAFE 12/00
<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
The 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. The 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., the Fund) 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. The Fund will not enter into a repurchase agreement
which does not provide for payment within seven days if, as a
result, more than 10% of the value of each Fund's net assets
would then be invested in such repurchase agreements and other
illiquid securities. The Fund will enter into repurchase
agreements only where: (i) the underlying securities are of the
type (excluding maturity limitations) which the Fund's 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 the 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
The 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. The 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. The 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. The 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. The 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. The Fund may invest in
investment grade short term corporate debt securities with a
remaining maturity of one year or less. 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, the 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 the 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 the Fund. At the time of
delivery of the securities, the value may be more or less than
the purchase price. The 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 portfolio
securities equal in value to commitments for such when-
issued or delayed-delivery securities.
Equity Securities. The Fund may invest in equity securities
without restriction.
Unit Investment Trusts. The Fund may invest in a unit investment
trust ("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 EAFE Index, there can be no assurance that this investment
objective will be met fully. As UITs are securities issued by an
investment company, non-fundamental restriction (5) below
restricts their purchases to 10% of the Fund's assets.
Investments in Foreign Securities
Emerging Markets. The economies, markets, and political
structures of a number of the countries in which the 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.
American Depositary Receipts. The 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 Fund may invest
indirectly in securities of emerging market issuers through
sponsored or unsponsored European Depositary Receipts ("EDRs")
or Global Depositary Receipts ("GDRs"). EDRs represent
securities of foreign issuers and are designed for use in
European markets. GDRs 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 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. The Fund may engage in
foreign currency exchange transactions 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 the 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 Fund may enter into forward foreign currency exchange
contracts under the following circumstances. First, when the
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 the Fund's
portfolio securities denominated in such foreign currency.
Alternatively, where appropriate, the 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 Fund 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 the 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, the 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, the 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. The
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 Fund will be served.
At the maturity of a forward contract, the 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 the 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 Fund 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 the 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 the 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 the 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, the 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.
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 the
Fund is uninvested and no return is earned thereon. The inability
of the 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 the 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. The 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 Securities. The Fund may invest 100% of its net assets
in foreign securities. Because the Fund may invest in foreign
securities, investments in the Fund 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.
Futures Contracts
For hedging purposes, including protecting the price or interest
rate of securities that the Fund intends to buy, the 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 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.
Thereafter, the Fund may invest up to 20% of the Fund's assets in
such futures and/or options contracts. The Fund does 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 the 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 Fund 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 Fund 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
Fund, 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 Fund's
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
Fund's 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 Fund 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, the 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 the 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. The Fund may elect to close some or all of its
futures positions at any time prior to their expiration. The
Fund would do so to reduce exposure represented by long futures
positions or increase exposure represented by short futures
positions. The 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 the
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, the Fund would continue to be required to make daily
cash payments of variation margin. However, in the event futures
contracts have been used to hedge the underlying instruments, the
Fund 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 Fund 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 the
Fund's underlying instruments sought to be hedged.
Successful use of futures contracts by the Fund 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 the 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 the 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 the 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 Fund 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 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, the Fund 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 Fund 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
Fund 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 Fund may write call options on futures contracts on the EAFE
Index, 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 Fund 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 EAFE 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 Fund 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 Fund 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 the 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 the
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.
Lending Portfolio Securities
The Fund 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. 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.
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 the Fund may borrow
money as described in restriction [9] below).
(2) With respect to 75% of the value of its total assets,
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) 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 such restrictions shall not apply to securities issued
or guaranteed by the United States Government or its
agencies or instrumentalities.
(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.
(5) Purchase or sell commodities, commodity contracts, or real
estate, except that the Fund may purchase securities of
issuers which invest or deal in any of the above, and
except that the 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 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.
(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 Fund may lend
securities in compliance with non-fundamental restriction
[6] below.
(9) Borrow amounts in excess of 10% of its total assets, 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 the 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.
(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.
(3) Purchase or sell interests in oil, gas, or other mineral
exploration or development programs, or real estate
mortgage loans, except that the Fund may purchase
securities of issuers which invest or deal in any of the
above, and except that the 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 the EAFE Index and
only if immediately thereafter not more than 10% of the
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 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.
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
The annual rate of portfolio turnover 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 the 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 the Fund.
Higher portfolio turnover can result in corresponding increases
in brokerage costs to the Fund and its 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. The annual
portfolio turnover rate of the Fund is expected to be 25%.
MANAGEMENT OF THE FUND
Directors and Officers
The directors and executive officers of Summit Mutual Funds 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, University
3021 Erie Avenue of Cincinnati
Cincinnati, Ohio 45208
(Age 66)
Theodore H. Emmerich Director Consultant; former Partner, Ernst &
1201 Edgecliff Place Whinney, Accountants
Cincinnati, Ohio 45206
(73)
Richard H. Finan Director Attorney at Law; President of the Ohio
11137 Main Street State Senate
Cincinnati, Ohio 45241
(65)
Yvonne L. Gray Director Chief Operating Officer, United Way and
1400 Reading Road and Community Chest; prior thereto, Vice
Cincinnati, Ohio 45202 President/Trust Operations Officer, Fifth
(49) Third Bank
Jean Patrice Director Former Interim President, Cincinnati State
Harrington, S.C. Technical and Community College; Former
3217 Whitfield Avenue Executive Director, Cincinnati Youth
Cincinnati, Ohio 45220 Collaborative; President Emeritus (formerly
(77) President) College of Mount St. Joseph
Charles W. McMahon Director Retired Senior Vice President and Director,
19 Iron Woods Drive Union Central
Cincinnati, Ohio 45239
(80)
Harry Rossi* Director Director Emeritus, Union Central; Director,
8548 Wyoming Club Drive Adviser and Carillon Investments; former
Cincinnati, Ohio 45215 Chairman, President and Chief Executive
(80) Officer, Union Central
Steven R. Sutermeister* Director, Senior Vice President, Union Central;
(47) President President, Director and Chief Executive
and Chief Officer, Adviser; Director, Carillon
Executive Investments, Inc.
Officer
John F. Labmeier Vice President Vice President, Associate General Counsel
(51) and Secretary and Assistant Secretary, Union Central;
Vice President and Secretary, Carillon
Investments, Inc.; Secretary, Adviser
Thomas G. Knipper Controller Treasurer, Adviser
(43)
John M. Lucas Assistant Second Vice President, Counsel and
(49) Secretary Assistant Secretary, Union Central
</TABLE>
-------------------
* Messrs. Rossi and Sutermeister are considered to be "interested
persons" of the Fund (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, no
officers or directors of Summit Mutual Funds owned 5% or more of
any of the outstanding shares of any fund of Summit Mutual Funds.
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.
Compensation Table
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Pension or
Retirement Estimated
Aggregate Benefits Annual Total Compensation
Compensation Accrued As Benefits From Registrant
Name of Person, From Part of Fund Upon and Fund Complex
Position Registrant Expenses Retirement Paid to Directors
-------------- ------------ ------------ ---------- -----------------
<S> <C> <C> <C> <C>
George M. Callard, M.D.* $14,800 0 0 $14,800
Director
Theodore H. Emmerich $15,900 0 0 $15,900
Director
James M. Ewell $15,300 0 0 $15,300
Director
Richard H. Finan $15,300 0 0 $15,300
Director
Jean Patrice Harrington, S.C. $15,500 0 0 $15,500
Director
John H. Jacobs N/A N/A N/A N/A
Director
Charles W. McMahon* $14,800 0 0 $14,800
Director
Harry Rossi N/A N/A N/A N/A
Director
</TABLE>
* Messrs. Callard and McMahon have deferred their compensation
in past years. As of December 31, 1999, the total amount
deferred including interest, was as follows: Dr. Callard -
$100,978; Mr. McMahon - $29,371.
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;
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 Fund, other than the advisory fees for
the Fund, to the extent that such expenses exceed .80% of the
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 9 of the Prospectus.
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 February 25, 2000 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 May 8, 2000, the Board of Directors took steps to activate the
Fund by authorizing the issuance of shares of those Funds. On
November 10, 2000, the Board of Directors also approved an
amendment to the Investment Advisory Agreement making the
Agreement applicable to the Fund, 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 Fund and that therefore only the
holders of shares of the Fund were entitled to vote on the
amendment. It is anticipated that the sole shareholder of the
Fund will approve the Agreement as amended on or about December
21, 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.
Investment Subadvisory Agreement
The agreement between the Adviser and World Asset Management,
L.L.C. as subadviser for the Fund was approved by the Summit
Mutual Fund's Board of Directors on November 10, 2000, including
an affirmative vote of a majority of the disinterested directors.
Although the Fund is not a party to this Subadvisory Agreement,
the Agreement provides that continuation and termination are
subject to the same requirements as the Investment Advisory
Agreement between the Adviser and the Fund. World Asset
Management is subject to the same control and supervision by
Summit Mutual Fund's Board of Directors as is the Adviser. The
Adviser will pay World Asset Management a monthly fee computed on
a daily basis, at an annual rate of .10% of the current value of
the Fund's net assets. The fee is paid by the Adviser, not the
Fund. It is anticipated that the sole shareholder of the Fund
will approve the Investment Subadvisory Agreement on or about
December 21, 2000.
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.
Code of Ethics
The Adviser, as well as Summit Mutual Funds, has adopted a code
of ethics under Rule 17j-1 of the Investment Company Act of 1940.
Employees of the Adviser are permitted to make personal
securities transactions, subject to the requirements and
restrictions set forth in the Adviser's code of ethics. The code
of ethics contains provisions and requirements designed to
identify and address certain conflicts of interest between
personal investment activities and the interests of investment
advisory clients such as the Funds. Among other things, the code
of ethics, which generally complies with standards recommended by
the Investment Company Institute's Advisory Group on Personal
Investing, prohibits certain types of transactions absent prior
approval, imposes time periods during which personal transactions
may not be made in certain securities, and requires the
submission of duplicate broker confirmations and monthly
reporting of securities transactions. Additional restrictions
apply to portfolio managers, traders, research analysts and
others involved in the investment advisory process. Exceptions
to these and other provisions of the code of ethics may be
granted in particular circumstances after review by appropriate
personnel.
DETERMINATION OF NET ASSET VALUE
As described on page 10 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 the Fund.
Securities held by the Fund, 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 the Fund is not
reasonably practicable; and the Securities and Exchange
Commission by order permits postponement for the protection of
shareholders.
TAXES
Each fund of Summit Mutual Funds 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 the 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. The Fund has no 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 Fund 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 Fund will not
necessarily be paying the lowest spread or commission available.
If the securities in which the Fund 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 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 Fund. 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 Fund 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 Fund's 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.
Carillon Investments has also entered into a shareholder services
agreement with the Adviser under which it supervises and monitors
shareholder fulfillment services provided by Firstar Mutual Fund
Services, LLC ("Firstar"), and provides certain shareholder
services relative to the Summit Apex Series of Funds. In
consideration for its services, the Adviser pays Carillon
Investments an annual fee of $12,000, and pays or reimburses it
for any actual out-of-pocket expenses, as well as for the fees
charged by Firstar for providing shareholder fulfillment
services.
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 four classes of stock, one for each fund. The authorized
capital stock of Summit Mutual Funds consists of 650,000,000
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
S&P 500 Index Portfolio 30,000,000 shares
Total Social Impact 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
MSCI EAFE International Index Portfolio 20,000,000 shares
Summit Apex Series
------------------
Money Market Fund 150,000,000 shares
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
Total Social Impact 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
MSCI EAFE International Index 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: DISCLAIMER
This fund is not sponsored, endorsed, sold or promoted by MSCI
or any affiliate of MSCI. Neither MSCI nor any other party makes
any representation or warranty, express or implied, to the owners
of this fund or any member of the public regarding the
advisability of investing in funds generally or in this fund
particularly or the ability of the EAFE index to track general
stock market performance. MSCI is the licensor of certain
trademarks, service marks and trade names of MSCI and of the EAFE
index which is determined, composed and calculated by MSCI
without regard to the issuer of this fund. MSCI has no
obligation to take the needs of the issuer of this fund or the
owners of this fund into consideration in determining, composing
or calculating the EAFE index. MSCI is not responsible for and
has not participated in the determination of the timing of,
prices at, or quantities of this fund to be issued or in the
determination or calculation of the equation by which this fund
is redeemable for cash. Neither MSCI nor any other party has any
obligation or liability to owners of this fund in connection with
the administration, marketing or trading of this fund.
ALTHOUGH MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR
USE IN THE CALCULATION OF THE INDEXES FROM SOURCES WHICH MSCI
CONSIDERS RELIABLE, NEITHER MSCI NOR ANY OTHER PARTY GUARANTEES
THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEXES OR ANY DATA
INCLUDED THEREIN. NEITHER MSCI NOR ANY OTHER PARTY MAKES ANY
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY
LICENSEE, LICENSEE'S CUSTOMERS AND COUNTERPARTIES, OWNERS OF THE
FUNDS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEXES
OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS
LICENSED HEREUNDER OR FOR ANY OTHER USE. NEITHER MSCI NOR ANY
OTHER PARTY MAKES ANY EXPRESS OR IMPLIED WARRANTIES, AND MSCI
HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE INDEXES OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL MSCI OR ANY OTHER PARTY HAVE ANY
LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE,
CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN
IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
<PAGE>
SUMMIT MUTUAL FUNDS, INC.
Summit Pinnacle Series
---------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
EAFE INTERNATIONAL INDEX PORTFOLIO
December 26, 2000
This Statement of Additional Information regarding one of the
twenty-four funds of Summit Mutual Funds, Inc. ("Summit Mutual
Funds") 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 for the EAFE International Index Portfolio ("Fund"),
dated December 26, 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 ( )........................................
Money Market Instruments, Other Securities
and Investment Techniques..................................
Investments in Foreign Securities..............................
Futures Contracts...........................................
Options.....................................................
Lending Portfolio Securities................................
Investment Restrictions........................................
Portfolio Turnover.............................................
Management of the Fund ( ).....................................
Directors and Officers......................................
Investment Adviser..........................................
Payment of Expenses.........................................
Advisory Fee................................................
Investment Advisory Agreement...............................
Investment Subadvisory Agreement............................
Service Agreement...........................................
Securities Activities of Adviser............................
Code of Ethics..............................................
Determination of Net Asset Value ( )..........................
Purchase and Redemption of Shares ( ).........................
Taxes ( ).....................................................
Fund Transactions and Brokerage................................
General Information ( )........................................
Capital Stock...............................................
Voting Rights...............................................
Additional Information......................................
Independent Auditors...........................................
Appendix A: Disclaimer.........................................
-----------
( ) indicates page on which the corresponding section appears in
the Prospectus.
-------------------------------------------------------------------
SMFI xxx PINNACLE-EAFE 12/00
<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
The 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. The 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., the Fund) 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. The Fund will not enter into a repurchase agreement
which does not provide for payment within seven days if, as a
result, more than 10% of the value of each Fund's net assets
would then be invested in such repurchase agreements and other
illiquid securities. The Fund will enter into repurchase
agreements only where: (i) the underlying securities are of the
type (excluding maturity limitations) which the Fund's 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 the 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
The 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. The 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. The 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. The 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. The 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. The Fund may invest in
investment grade short term corporate debt securities with a
remaining maturity of one year or less. 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, the 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 the 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 the Fund. At the time of
delivery of the securities, the value may be more or less than
the purchase price. The 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 portfolio
securities equal in value to commitments for such when-
issued or delayed-delivery securities.
Equity Securities. The Fund may invest in equity securities
without restriction.
Unit Investment Trusts. The Fund may invest in a unit investment
trust ("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 EAFE Index, there can be no assurance that this investment
objective will be met fully. As UITs are securities issued by an
investment company, non-fundamental restriction (5) below
restricts their purchases to 10% of the Fund's assets.
Investments in Foreign Securities
Emerging Markets. The economies, markets, and political
structures of a number of the countries in which the 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.
American Depositary Receipts. The 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 Fund may invest
indirectly in securities of emerging market issuers through
sponsored or unsponsored European Depositary Receipts ("EDRs")
or Global Depositary Receipts ("GDRs"). EDRs represent
securities of foreign issuers and are designed for use in
European markets. GDRs 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 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. The Fund may engage in
foreign currency exchange transactions 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 the 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 Fund may enter into forward foreign currency exchange
contracts under the following circumstances. First, when the
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 the Fund's
portfolio securities denominated in such foreign currency.
Alternatively, where appropriate, the 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 Fund 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 the 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, the 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, the 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. The
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 Fund will be served.
At the maturity of a forward contract, the 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 the 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 Fund 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 the 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 the 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 the 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, the 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.
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 the
Fund is uninvested and no return is earned thereon. The inability
of the 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 the 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. The 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 Securities. The Fund may invest 100% of its net assets
in foreign securities. Because the Fund may invest in foreign
securities, investments in the Fund 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.
Futures Contracts
For hedging purposes, including protecting the price or interest
rate of securities that the Fund intends to buy, the 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 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.
Thereafter, the Fund may invest up to 20% of the Fund's assets in
such futures and/or options contracts. The Fund does 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 the 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 Fund 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 Fund 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
Fund, 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 Fund's
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
Fund's 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 Fund 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, the 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 the 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. The Fund may elect to close some or all of its
futures positions at any time prior to their expiration. The
Fund would do so to reduce exposure represented by long futures
positions or increase exposure represented by short futures
positions. The 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 the
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, the Fund would continue to be required to make daily
cash payments of variation margin. However, in the event futures
contracts have been used to hedge the underlying instruments, the
Fund 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 Fund 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 the
Fund's underlying instruments sought to be hedged.
Successful use of futures contracts by the Fund 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 the 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 the 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 the 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 Fund 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 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, the Fund 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 Fund 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
Fund 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 Fund may write call options on futures contracts on the EAFE
Index, 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 Fund 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 EAFE 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 Fund 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 Fund 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 the 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 the
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.
Lending Portfolio Securities
The Fund 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. 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.
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 the Fund may borrow
money as described in restriction [9] below).
(2) With respect to 75% of the value of its total assets,
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) 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 such restrictions shall not apply to securities
issued or guaranteed by the United States Government or
its agencies or instrumentalities.
(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.
(5) Purchase or sell commodities, commodity contracts, or real
estate, except that the Fund may purchase securities of
issuers which invest or deal in any of the above, and
except that the 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 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.
(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 Fund may lend
securities in compliance with non-fundamental restriction
[6] below.
(9) Borrow amounts in excess of 10% of its total assets, 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 the 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.
(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.
(3) Purchase or sell interests in oil, gas, or other mineral
exploration or development programs, or real estate
mortgage loans, except that the Fund may purchase
securities of issuers which invest or deal in any of the
above, and except that the 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 the EAFE Index and
only if immediately thereafter not more than 10% of the
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 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.
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.
In addition to the investment restrictions described above, the
Fund will comply with restrictions contained in any current
insurance laws in order that the assets of The Union Central Life
Insurance Company's separate accounts may be invested in Fund
shares.
PORTFOLIO TURNOVER
The annual rate of portfolio turnover 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 the 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 the Fund.
Higher portfolio turnover can result in corresponding increases
in brokerage costs to the Fund and its 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. The annual
portfolio turnover rate of the Fund is expected to be 25%.
MANAGEMENT OF THE FUND
Directors and Officers
The directors and executive officers of Summit Mutual Funds 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, University
3021 Erie Avenue of Cincinnati
Cincinnati, Ohio 45208
(Age 66)
Theodore H. Emmerich Director Consultant; former Partner, Ernst &
1201 Edgecliff Place Whinney, Accountants
Cincinnati, Ohio 45206
(73)
Richard H. Finan Director Attorney at Law; President of the Ohio
11137 Main Street State Senate
Cincinnati, Ohio 45241
(65)
Yvonne L. Gray Director Chief Operating Officer, United Way and
1400 Reading Road and Community Chest; prior thereto, Vice
Cincinnati, Ohio 45202 President/Trust Operations Officer, Fifth
(49) Third Bank
Jean Patrice Director Former Interim President, Cincinnati State
Harrington, S.C. Technical and Community College; Former
3217 Whitfield Avenue Executive Director, Cincinnati Youth
Cincinnati, Ohio 45220 Collaborative; President Emeritus (formerly
(77) President) College of Mount St. Joseph
Charles W. McMahon Director Retired Senior Vice President and Director,
19 Iron Woods Drive Union Central
Cincinnati, Ohio 45239
(80)
Harry Rossi* Director Director Emeritus, Union Central; Director,
8548 Wyoming Club Drive Adviser and Carillon Investments; former
Cincinnati, Ohio 45215 Chairman, President and Chief Executive
(80) Officer, Union Central
Steven R. Sutermeister* Director, Senior Vice President, Union Central;
(47) President President, Director and Chief Executive
and Chief Officer, Adviser; Director, Carillon
Executive Investments, Inc.
Officer
John F. Labmeier Vice President Vice President, Associate General Counsel
(51) and Secretary and Assistant Secretary, Union Central;
Vice President and Secretary, Carillon
Investments, Inc.; Secretary, Adviser
Thomas G. Knipper Controller Treasurer, Adviser
(43)
John M. Lucas Assistant Second Vice President, Counsel and
(49) Secretary Assistant Secretary, Union Central
</TABLE>
-------------------
* Messrs. Rossi and Sutermeister are considered to be "interested
persons" of the Fund (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, no
officers or directors of Summit Mutual Funds owned 5% or more of
any of the outstanding shares of any fund of Summit Mutual Funds.
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.
Compensation Table
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Pension or
Retirement Estimated
Aggregate Benefits Annual Total Compensation
Compensation Accrued As Benefits From Registrant
Name of Person, From Part of Fund Upon and Fund Complex
Position Registrant Expenses Retirement Paid to Directors
-------------- ------------ ------------ ---------- -----------------
<S> <C> <C> <C> <C>
George M. Callard, M.D.* $14,800 0 0 $14,800
Director
Theodore H. Emmerich $15,900 0 0 $15,900
Director
James M. Ewell $15,300 0 0 $15,300
Director
Richard H. Finan $15,300 0 0 $15,300
Director
Jean Patrice Harrington, S.C. $15,500 0 0 $15,500
Director
John H. Jacobs N/A N/A N/A N/A
Director
Charles W. McMahon* $14,800 0 0 $14,800
Director
Harry Rossi N/A N/A N/A N/A
Director
</TABLE>
* Messrs. Callard and McMahon have deferred their compensation
in past years. As of December 31, 1999, the total amount
deferred, including interest, was as follows: Dr. Callard -
$100,978; Mr. McMahon - $29,371.
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;
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 Fund, other than the advisory fees for
the Fund, to the extent that such expenses exceed .80% of the
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 9 of the Prospectus.
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 February 25, 2000 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 May 8, 2000, the Board of Directors took steps to activate the
Fund by authorizing the issuance of shares of those Funds. On
November 10, 2000, the Board of Directors also approved an
amendment to the Investment Advisory Agreement making the
Agreement applicable to the Fund, 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 Fund and that therefore only the
holders of shares of the Fund were entitled to vote on the
amendment. It is anticipated that the sole shareholder of the
Fund will approve the Agreement as amended on or about December
21, 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.
Investment Subadvisory Agreement
The agreement between the Adviser and World Asset Management,
L.L.C. as subadviser for the Fund was approved by the Summit
Mutual Fund's Board of Directors on November 10, 2000, including
an affirmative vote of a majority of the disinterested directors.
Although the Fund is not a party to this Subadvisory Agreement,
the Agreement provides that continuation and termination are
subject to the same requirements as the Investment Advisory
Agreement between the Adviser and the Fund. World Asset
Management is subject to the same control and supervision by
Summit Mutual Fund's Board of Directors as is the Adviser. The
Adviser will pay World Asset Management a monthly fee computed on
a daily basis, at an annual rate of .10% of the current value of
the Fund's net assets. The fee is paid by the Adviser, not the
Fund. It is anticipated that the sole shareholder of the Fund
will approve the Investment Subadvisory Agreement on or about
December 21, 2000.
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.
Code of Ethics
The Adviser, as well as Summit Mutual Funds, has adopted a code
of ethics under Rule 17j-1 of the Investment Company Act of 1940.
Employees of the Adviser are permitted to make personal
securities transactions, subject to the requirements and
restrictions set forth in the Adviser's code of ethics. The code
of ethics contains provisions and requirements designed to
identify and address certain conflicts of interest between
personal investment activities and the interests of investment
advisory clients such as the Funds. Among other things, the code
of ethics, which generally complies with standards recommended by
the Investment Company Institute's Advisory Group on Personal
Investing, prohibits certain types of transactions absent prior
approval, imposes time periods during which personal transactions
may not be made in certain securities, and requires the
submission of duplicate broker confirmations and monthly
reporting of securities transactions. Additional restrictions
apply to portfolio managers, traders, research analysts and
others involved in the investment advisory process. Exceptions
to these and other provisions of the code of ethics may be
granted in particular circumstances after review by appropriate
personnel.
DETERMINATION OF NET ASSET VALUE
As described on page 10 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 the Fund.
Securities held by the Fund, 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 shares of the Summit Pinnacle Series of
Portfolios, without sales charge, only to Union Central and its
separate accounts. It is possible that at some later date the
Fund may offer shares 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 the Fund is not
reasonably practicable; and the Securities and Exchange
Commission by order permits postponement for the protection of
shareholders.
TAXES
Each fund of Summit Mutual Funds 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. For a discussion of tax consequences to owners
of annuity contracts, see the Prospectus for those contracts.
FUND TRANSACTIONS AND BROKERAGE
The Adviser is primarily responsible for the investment decisions
of the 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. The Fund has no 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 Fund 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 Fund will not
necessarily be paying the lowest spread or commission available.
If the securities in which the Fund 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 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 Fund. 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 Fund 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.
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 four classes of stock, one for each fund. The authorized
capital stock of Summit Mutual Funds consists of 650,000,000
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
S&P 500 Index Portfolio 30,000,000 shares
Total Social Impact 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
EAFE International Index Portfolio 20,000,000 shares
Summit Apex Series
------------------
Money Market Fund 150,000,000 shares
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
Total Social Impact 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
EAFE International Index 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).
As noted in the Prospectus, Union Central currently has 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
Contract Owners. However, under current interpretations of
presently applicable law, Contract Owners are entitled to give
voting instructions with respect to Fund shares held in
registered separate accounts and therefore all Contract Owners
would receive advance notice before any such changes could be
made.
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.
APPENDIX A: DISCLAIMER
This fund is not sponsored, endorsed, sold or promoted by MSCI or
any affiliate of MSCI. Neither MSCI nor any other party makes
any representation or warranty, express or implied, to the owners
of this fund or any member of the public regarding the
advisability of investing in funds generally or in this fund
particularly or the ability of the EAFE index to track general
stock market performance. MSCI is the licensor of certain
trademarks, service marks and trade names of MSCI and of the EAFE
index which is determined, composed and calculated by MSCI
without regard to the issuer of this fund. MSCI has no
obligation to take the needs of the issuer of this fund or the
owners of this fund into consideration in determining, composing
or calculating the EAFE index. MSCI is not responsible for and
has not participated in the determination of the timing of,
prices at, or quantities of this fund to be issued or in the
determination or calculation of the equation by which this fund
is redeemable for cash. Neither MSCI nor any other party has any
obligation or liability to owners of this fund in connection with
the administration, marketing or trading of this fund.
ALTHOUGH MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR
USE IN THE CALCULATION OF THE INDEXES FROM SOURCES WHICH MSCI
CONSIDERS RELIABLE, NEITHER MSCI NOR ANY OTHER PARTY GUARANTEES
THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEXES OR ANY DATA
INCLUDED THEREIN. NEITHER MSCI NOR ANY OTHER PARTY MAKES ANY
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY
LICENSEE, LICENSEE'S CUSTOMERS AND COUNTERPARTIES, OWNERS OF THE
FUNDS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEXES
OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS
LICENSED HEREUNDER OR FOR ANY OTHER USE. NEITHER MSCI NOR ANY
OTHER PARTY MAKES ANY EXPRESS OR IMPLIED WARRANTIES, AND MSCI
HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE INDEXES OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL MSCI OR ANY OTHER PARTY HAVE ANY
LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE,
CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN
IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
<PAGE>
PART C
OTHER INFORMATION
<PAGE>
SUMMIT MUTUAL FUNDS, INC.
PART C - OTHER INFORMATION
Item 23. Exhibits
All references are to Registrant's Registration Statement on Form
N-1A (Registration No. 2-90309)
(a) Articles of Incorporation of Summit Mutual Funds, Inc. -
previously filed (initial filing on April 3, 1984)
(b) By-laws of Summit Mutual Funds, Inc. - previously filed
(initial filing on April 3 1984)
(c) Not Applicable
(d) (1) Investment Advisory Agreement - previously filed
(initial filing on April 3, 1984)
(2) Amendment to Investment Advisory Agreement - previously
filed (Post-Effective Amendment No. 3 - May 1, 1987)
(3) Amendment to Investment Advisory Agreement - previously
filed (Post-Effective Amendment No. 15 - May 1, 1996)
(4) Subadvisory Agreement - filed herewith
(e) Distribution Agreement - previously filed (Post-Effective
Amendment No. 26 - April 12, 2000)
(f) Not Applicable
(g) (1) Custodian Agreement - previously filed (Post-Effective
Amendment No. 6 - May 1, 1990)
(2) Portfolio Accounting Agreement - previously filed
(Post-Effective Amendment No. 6 - May 1, 1990)
(h) (1) Transfer Agency Agreement - previously filed (Post-
Effective Amendment No. 6 - May 1, 1990)
(2) Service Agreement - previously filed (Post-Effective
Amendment No. 9 - May 1, 1992)
(i) Opinion and consent of counsel - previously filed
(Pre-Effective Amendment No. 1 - July 2 , 1984)
(j) Not applicable
(k) Not Applicable
(l) Letter regarding initial capital - previously filed (Pre-
Effective Amendment No. 1 - July 2, 1984)
(m) Not Applicable
(n) Not applicable
(o) Not Applicable
(p) Code of Ethics - previously filed (Post-Effective Amendment
No. 27 - April 28, 2000)
Item 24. Persons Controlled by or Under Common Control with
Registrant
The Union Central Life Insurance Company ("Union Central")
provided the initial investment in Summit Mutual Funds, Inc.
Union Central votes the shares of the Fund held with respect to
registered variable contracts in accordance with instructions
received from such variable contract owners. Shares of the Fund
held in unregistered separate accounts and in its general assets
are voted by Union Central in its discretion.
Set forth below is a chart showing the entities controlled by
Union Central, the jurisdictions in which such entities are
organized, and the percentage of voting securities owned by the
person immediately controlling each such entity.
THE UNION CENTRAL LIFE INSURANCE COMPANY,
its Subsidiaries and Affiliates
I. The Union Central Life Insurance Company (Ohio)
A. Carillon Investments, Inc. (Ohio) -100% owned
B. Carillon Marketing Agency, Inc. (Delaware) -100% owned
a. Carillon Marketing Agency of Alabama, Inc. (Alabama)-
100% owned
b. Carillon Marketing Agency of Idaho, Inc. (Idaho) -
100% owned
c. Carillon Marketing Agency of Kentucky, Inc. (Kentucky)
- 100 owned
d. Carillon Marketing Agency of Maine, Inc. (Maine) -
100% owned
e. Carillon Insurance Agency of Massachusetts, Inc.
(Massachusetts) 100% owned
f. Carillon Marketing Agency of New Mexico, Inc. (New
Mexico) - 100% owned
g. Carillon Marketing Agency of Ohio, Inc. (Ohio) -100%
owned
h. Carillon Marketing Agency of Pennsylvania, Inc.
(Pennsylvania) 100% owned
i. Carillon Marketing Agency of Texas, Inc. (Texas) -
100% owned
j. Carillon Marketing Agency of Wyoming, Inc. (Wyoming) -
100% owned
C. Summit Investment Partners, Inc. (Ohio) -100% owned
D. Family Enterprise Institute, Inc. (Delaware) -100% owned
E. PRBA, Inc. (California) - 100% owned
a. Price, Raffel & Browne Administrators, Inc. (Delaware)
- 100% owned
F. B&B Benefits Administration, Inc. (California) - 100%
owned
G. Summit Investment Partners, LLC (Ohio) - 100% owned
a. First Summit Capital Management (Ohio) - 51% owned
II. Summit Mutual Funds, Inc. (Maryland) - At September 30,
2000, The Union Central Life Insurance Company owned 99% of
the outstanding shares of Summit Mutual Funds, Inc.
III. Summit Investment Trust (Massachusetts) - a mutual fund
whose investment adviser is First Summit Capital Management.
Item 25. Indemnification
See Exhibits (a) and (b).
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant, the registrant has
been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the
registrant in the successful defense of any such action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
Item 26. Business and other Connections of Investment Adviser
Information regarding the officers and directors of Summit
Investment Partners, Inc. ("SIPI") and their business, profession
or employment of a substantial nature during the last two years
is set forth below. The address of all the persons listed below
is 1876 Waycross Road, Cincinnati, Ohio 45240.
<TABLE>
<CAPTION>
Name and Position with Principal Occupation(s)
Address the Adviser During Past Two Years
-------- ------------- -----------------------
<S> <C> <C>
Harry Rossi Director Director Emeritus, The Union Centra
Life Insurance Company ("Union
Central"); Director, Summit Group of
Mutual Funds
Steven R.
Sutermeister Director, Senior Vice President, Union Central;
President Director, President and Chief Executive
and Chief Officer, Summit Group of Mutual Funds;
Executive prior thereto, Vice President, Union
Officer Central
John H. Jacobs Director President and Chief Executive Officer,
Union Central; prior thereto, President
and Chief Operating Officer, Union
Central
D. Stephen Cole Vice President Vice President, Union Central
Thomas G. Knipper Treasurer Controller and Treasurer,
Summit Group of Mutual Funds
John F. Labmeier Secretary Vice President, Associate General
Counsel and Assistant Secretary, Union
Central; Vice President and Secretary,
Summit Group of Mutual Funds and
Carillon Investments, Inc.
John M. Lucas Assistant Second Vice President, Counsel and
Secretary Assistant Secretary, Union Central;
prior thereto, Counsel and Assistant to
Secretary, Union Central
</TABLE>
Item 27. Principal Underwriters
(a) Carillon Investments, Inc., the principal underwriter for
Summit Mutual Funds, Inc., also acts as principal underwriter
for Carillon Account and Carillon Life Account.
(b) The officers and directors of Carillon Investments, Inc. and
their positions, if any, with Registrant are shown below.
The business address of each is 1876 Waycross Road,
Cincinnati, Ohio 45240.
<TABLE>
<CAPTION>
Name and Position with
Carillon Investments, Inc. Position with Registrant
-------------------------- ------------------------
<S> <C>
Gary T. Huffman None
Director
Elizabeth G. Monsell None
Director and President
Harry Rossi Director
Director
Steven R. Sutermeister Director, President and Chief Executive
Director Officer
Kevin W. O'Toole None
Vice President
Connie S. Grosser None
Vice President, Operations
and Treasurer
Bernard A. Breton None
Vice President and
Compliance Officer
John F. Labmeier Vice President and Secretary
Vice President and Secretary
John M. Lucas Assistant Secretary
Assistant Secretary
John R. Feldman None
Assistant Vice President
Melissa A. MacKendrick None
Assistant Treasurer
</TABLE>
(c) Not applicable.
Item 28. Location of Accounts and Records
All accounts, books and other documents required to be maintained
by Section 31(a) of the 1940 Act and the Rules thereunder will be
maintained at the offices of the Fund or at Firstar Mutual Fund
Services, LLC, P.O. Box 701, Milwaukee, WI 53201-0701.
Item 29. Management Services
All management-related service contracts are discussed in Part A
or B of this Registration Statement.
Item 30. Undertakings
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of its latest annual report
to shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant, Summit Mutual
Funds, Inc., has duly caused this Post-effective Amendment to the
Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Cincinnati,
State of Ohio on the 11th day of October, 2000.
SUMMIT MUTUAL FUNDS, INC.
(SEAL)
Attest: /s/ John F. Labmeier By: /s/ Steven R. Sutermeister
Steven R. Sutermeister, President
Pursuant to the requirements of the Securities Act of 1933,
this Post-effective Amendment to the Registration Statement has
been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Steven R. Sutermeister President and Director 10/11/2000
Steven R. Sutermeister (Principal Executive Officer)
/s/ Thomas G. Knipper Controller and Treasurer 10/11/2000
Thomas G. Knipper (Principal Financial
and Accounting Officer)
* /s/ George M. Callard, M.D. Director 10/11/2000
George M. Callard, M.D.
* /s/ Theodore H. Emmerich Director 10/11/2000
Theodore H. Emmerich
* /s/ Richard H. Finan Director 10/11/2000
Richard H. Finan
* /s/ Jean Patrice Harrington, S.C. Director 10/11/2000
Jean Patrice Harrington, S.C.
*/s/ John H. Jacobs Director 10/11/2000
John H. Jacobs
* /s/ Charles W. McMahon Director 10/11/2000
Charles W. McMahon
* /s/ Harry Rossi Director 10/11/2000
Harry Rossi
</TABLE>
* By John F. Labmeier, pursuant to Power of Attorney previously
filed.
