As filed with the Securities and Exchange Commission on
February 3, 1997
Registration Nos. 2-91373
811-4038
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/X/
Pre-Effective Amendment No.
/ /
Post-Effective Amendment No. 21
/X/
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 22
/X/
St. Clair Funds, Inc.
(Exact Name of Registrant as Specified in Charter)
480 Pierce Street Birmingham, Michigan 48009
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (810) 647-9200
Teresa M.R. Hamlin, Esq.
First Data Investor Services Group, Inc.
One Exchange Place, 8th Floor
Boston, Massachusetts 02109
Copies to:
Lisa Anne Rosen, Esq. Paul F. Roye, Esq.
Munder Capital Management Dechert Price & Rhoads
480 Pierce Street 1500 K Street, NW
Birmingham, Michigan 48009 Washington, D.C. 20549
/X/ It is proposed that this filing will become effective
on April 19, 1997 pursuant to paragraph (a)(2) of Rule 485.
The Registrant has registered an indefinite number of shares
under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. The Rule 24f-2 Notice for the
Registrant's fiscal year ended February 29, 1996 was filed on
April 29, 1996.
ST. CLAIR FUNDS, INC.
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
Prospectus for St. Clair Funds, Inc.
(Munder S&P 500 Index Equity Fund, Munder S&P MidCap Index
Equity Fund, Munder S&P SmallCap Index Equity Fund, Munder
Foreign Equity Fund and Munder Aggregate Bond Index Fund)
Part A
Item Heading
1. Cover Page Cover Page
2. Synopsis Not Applicable
3. Condensed Financial Information Not Applicable
4. General Description of Registrant Cover
Page; Investment Objectives and
Policies; Investment Limitations; Portfolio Instruments
and Practices and Associated Risk Factors; Description of
Shares
5. Management of the Fund Management;
Investment Objectives and Policies; Dividends and
Distributions; Performance
6. Capital Stock and Other Securities
Management; Purchase and Redemption of Shares;
Description of Shares; Dividends and Distributions; Taxes
7. Purchase of Securities Being Offered Net Asset
Value; Purchase and
Redemption of Shares
8. Redemption or Repurchase Purchase and
Redemption of Shares
9. Pending Legal Proceedings Not Applicable
Part B
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History See Prospectus -
- - "Management";
General; Directors and Officers
13. Investment Objectives and Policies Fund
Investments; Investment
Limitations; Risk Factors and Special Considerations -
Index Funds; Portfolio Transactions
14. Management of the Fund See Prospectus --
"Management";
Directors and Officers; Miscellaneous
15. Control Persons and Principal Holders See
Prospectus -- "Management";
of Securities Miscellaneous; Control Persons
and
Principal Holder of Securities
16. Investment Advisory and Other Services
Investment Advisory and Other
Service Arrangements; See
Prospectus -- "Management"
17. Brokerage Allocation and Other Practices
Portfolio Transactions
18. Capital Stock and Other Securities See
Prospectus -- "Description of
Shares"; and "Management"' Additional Information
Concerning Shares
19. Purchase, Redemption and Pricing Purchase and
Redemption Information;
of Securities Being Offered Net Asset Value;
Additional Information
Concerning Shares
20. Tax Status Taxes
21. Underwriters Investment Advisory and Other
Service
Arrangements
22. Calculation of Performance Data Performance
Information
23. Financial Statements Not Applicable
<PAGE>
ST. CLAIR FUNDS, INC.
480 PIERCE STREET
BIRMINGHAM, MICHIGAN 48009
TELEPHONE (800) 438-5789
PROSPECTUS
St. Clair Funds, Inc. (the "Company") is an open-end investment company (a
mutual fund) that currently offers a selection of investment portfolios. This
Prospectus describes five of the investment portfolios offered by the Company
(the "Funds"):
Munder S&P 500 Index Equity Fund
Munder S&P MidCap Index Equity Fund
Munder S&P SmallCap Index Equity Fund
Munder Aggregate Bond Index Fund
Munder Foreign Equity Fund
Shares of the Funds are available to the public only through the purchase
of certain variable annuity and variable life insurance contracts, subject to
obtaining regulatory approval ("Contracts") issued by various life insurance
companies (the"Insurers"). THE
PROSPECTUS(ES) FOR THE SPECIFIC CONTRACT(S) SHOULD BE READ IN
CONJUNCTION WITH
THIS PROSPECTUS.
Munder Capital Management (the "Advisor") serves as investment advisor to
the Funds.
This Prospectus contains the information that a prospective investor should
know before investing in the Funds. Investors are encouraged to read this
Prospectus and retain it for future reference. A Statement of Additional
Information dated ______, 1997, as amended or supplemented from time to time,
has been filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference into this Prospectus. The Statement of Additional
Information may be obtained free of charge by calling the Company at (800) 438-
5789. In addition, the SEC maintains a web site (http://www.sec.gov) that
contains the Statement of Additional Information and other information regarding
the Funds.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT INSURED OR GUARANTEED BY
THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY. AN
INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING
THE POSSIBLE LOSS
OF PRINCIPAL.
SECURITIES OFFERED BY THIS PROSPECTUS HAVE NOT BEEN APPROVED
OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is ____________, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE FUNDS............................................................ 3
INVESTMENT OBJECTIVES AND POLICIES................................... 3
PORTFOLIO INSTRUMENTS AND PRACTICES AND
ASSOCIATED RISK FACTORS.............................................. 7
INVESTMENT LIMITATIONS............................................... 14
PURCHASE AND REDEMPTION OF SHARES.................................... 14
DIVIDENDS AND DISTRIBUTIONS.......................................... 15
NET ASSET VALUE...................................................... 15
MANAGEMENT........................................................... 16
TAXES................................................................ 18
DESCRIPTION OF SHARES................................................ 20
PERFORMANCE.......................................................... 20
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION, OR TO
MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE
FUNDS' STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND OR
LONGROW SECURITIES, INC. (THE "DISTRIBUTOR"). THIS PROSPECTUS
DOES NOT
CONSTITUTE AN OFFERING BY THE FUND OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
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THE COMPANY
Each of the Funds is a series of shares issued by the Company, an open-end
management investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act"). The Company's principal office is located at
480 Pierce Street, Birmingham, Michigan 48009 and its telephone number is (800)
438-5789.
INVESTMENT OBJECTIVES AND POLICIES
This Prospectus describes the following Funds offered by the Company:
Munder S&P 500 Index Equity Fund ("Large-Cap Index Fund"), Munder S&P MidCap
Index Equity Fund ("MidCap Index Fund"), Munder S&P SmallCap Index Equity Fund
("SmallCap Index Fund"), Munder Aggregate Bond Index Fund ("Bond Index Fund")
and Munder Foreign Equity Fund ("Foreign Fund"). Investing in shares of any
Fund should not be considered a complete investment program, but an important
segment of a well-diversified investment program.
LARGE-CAP INDEX FUND
The investment objective of the Large-Cap Index Fund is to provide price
performance and income that is comparable to the Standard & Poor's 500 Composite
Stock Price Index ("S&P 500"), an index which emphasizes large capitalization
companies. The S&P 500 is an index of 500 common stocks, most of which trade on
the New York Stock Exchange Inc. ("NYSE"). As of December 31, 1996, the S&P 500
represented approximately 72% of the market capitalization of publicly owned
stocks in the United States. Although the Fund may not hold securities of all
500 issuers included in the S&P 500, it will normally hold the securities of at
least 80% of such issuers. Stock selections are based primarily on market
capitalization and industry weightings. The Fund may also invest in Standard &
Poor's Depositary Receipts ("SPDRs"). SPDRs are securities traded on the
American Stock Exchange that represent ownership in the SPDR Trust, a long-term
unit investment trust which is intended to provide investment results that
generally correspond to the price and yield performance of certain S&P indices.
See "Portfolio Instruments and Practices and Associated Risk Factors--
Investment Company Securities." The Fund seeks quarterly performance within a
.95 correlation with the S&P 500. The Fund's ability to achieve performance
comparable to that of the S&P 500 may be affected by, among other things,
transaction costs; administration and other expenses incurred by the Fund;
changes in either the composite of S&P 500 and the timing and amount of separate
account purchases and redemptions.
The Fund is managed through the use of a "quantitative" or "indexing"
investment approach, which attempts to duplicate the investment composition and
performance of the S&P 500 through statistical procedures. As a result, the
Advisor does not employ traditional methods of fund investment management, such
as selecting securities on the basis of economic, financial and market analysis.
In addition to investing in stocks, the Large-Cap Index Fund is also
authorized to invest in high quality short-term fixed income securities as cash
reserves or for temporary defensive purposes. The Fund may also invest in stock
index futures contracts and options on futures contracts. See "Portfolio
Instruments and Practices and Associated Risk Factors" for a description of
investment practices of the Fund.
MIDCAP INDEX FUND
The investment objective of the MidCap Index Fund is to provide price
performance and income that is comparable to the Standard & Poor's MidCap 400
Index ("S&P MidCap 400"), an index which emphasizes medium capitalization
companies. As of December 31, 1996, the S&P MidCap 400
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represented approximately 10% of the market capitalization of publicly owned
stocks in the United States. Although the Fund may not hold securities of all
400 issuers included in the S&P MidCap 400, it will normally hold the securities
of at least 80% of such issuers. Stock selections are based primarily on market
capitalization and industry weightings. The Fund may also invest in SPDRs. See
"Portfolio Instruments and Practices and Associated Risk Factors--Investment
Company Securities". The Fund seeks quarterly performance within a .95
correlation with the S&P MidCap 400 Index. The Fund's ability to achieve
performance comparable to that of the S&P MidCap 400 may be affected by, among
other things, transaction costs; administration and other expenses incurred by
the Fund; changes in either the composite of S&P MidCap 400 and the timing and
amount of separate account purchases and redemptions.
The Fund is managed through the use of a "quantitative" or "indexing"
investment approach, which attempts to duplicate the investment composition and
performance of the S&P MidCap 400 through statistical procedures. As a result,
the Advisor does not employ traditional methods of fund investment management,
such as selecting securities on the basis of economic, financial and market
analysis.
Medium capitalization companies typically are subject to a greater degree
of change in earnings and business prospects than larger, more established
companies. In addition, securities of medium capitalization companies are traded
in lower volume than those issued by larger companies and may be more volatile.
As a result, the Fund may be subject to greater price volatility than a fund
consisting of larger capitalization stocks.
In addition to investing in stocks, the MidCap Index Fund is also
authorized to invest in high quality short-term fixed income securities as cash
reserves or for temporary defensive purposes. The Fund may also invest in stock
index futures contracts and options on futures contracts. See "Portfolio
Instruments and Practices and Associated Risk Factors" for a description of
investment practices of the Fund.
SMALLCAP INDEX FUND
The investment objective of the SmallCap Index Fund is to provide price
performance and income that is comparable to the Standard & Poor's SmallCap 600
Index ("S&P SmallCap 600"), an index which emphasizes small capitalization
companies. As of December 31, 1996, the S&P SmallCap 600 represented
approximately 4% of the market capitalization of publicly owned stocks in the
United States. Although the Fund may not hold securities of all 600 issuers
included in the S&P SmallCap 600, it will normally hold the securities of at
least 80% of such issuers. Stock selections are based primarily on market
capitalization and industry weightings. The Fund seeks quarterly performance
within a .95 correlation with the S&P SmallCap 600 Index. The Fund's ability to
achieve performance comparable to that of the S&P SmallCap 600 may be affected
by, among other things, transaction costs; administration and other expenses
incurred by the Fund; changes in either the composite of S&P SmallCap 600 and
the timing and amount of separate account purchases and redemptions.
The Fund is managed through the use of a "quantitative" or "indexing"
investment approach, which attempts to duplicate the investment composition and
performance of the S&P SmallCap 600 through statistical procedures. As a result,
the Advisor does not employ traditional methods of fund investment management,
such as selecting securities on the basis of economic, financial and market
analysis.
Smaller capitalization companies typically are subject to a greater degree
of change in earnings and business prospects than larger, more established
companies. In addition, securities of smaller capitalization companies are
traded in lower volume than those issued by larger companies and may be more
volatile. As a result, the Fund may be subject to greater price volatility than
a fund consisting of larger capitalization stocks.
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<PAGE>
In addition to investing in stocks, the SmallCap Index Fund is also
authorized to invest in high quality short-term fixed income securities as cash
reserves or for temporary defensive purposes. The Fund may also invest in stock
index futures contracts and options on futures contracts. See "Portfolio
Instruments and Practices and Associated Risk Factors" for a description of
investment practices of the Fund.
BOND INDEX FUND
The investment objective of the Bond Index Fund is to provide investment
exposure and income which generally correspond to the Lehman Brothers Aggregate
Bond Index ("Aggregate Bond Index"). The Aggregate Bond Index is a broad market
weighted index which encompasses three major classes of investment grade fixed-
income securities in the United States: U.S. Treasury and agency securities,
corporate bonds and international (dollar-denominated) bonds, and mortgage-
backed securities, all with maturities of greater than one year. The Bond Index
Fund will be constructed to approximately match the composition of the Aggregate
Bond Index and seeks performance within a .95 correlation to the Aggregate Bond
Index.
The Aggregate Bond Index includes fixed-rate debt issues rated investment
grade or higher by Moody's Investor Service, Inc. ("Moody's"), Standard and
Poor's Corporation, or Fitch Investors' Service. All issues have at least one
year to maturity and an outstanding par value of at least $100 million for U.S.
Government issues and $25 million for all others.
The Fund is managed through the use of a "quantitative" or "indexing"
investment approach, which attempts to duplicate the investment composition and
performance of the Aggregate Bond Index through statistical procedures. As a
result, the Advisor does not employ traditional methods of fund investment
management, such as selecting securities on the basis of economic, financial and
market analysis. The Fund may temporarily hold securities in other categories,
including bankers acceptances, certificates of deposit and commercial paper that
the Advisor may determine to be a suitable investment to achieve the stated
objective for the Fund. The Fund may also invest in options, futures contracts
and options on futures contracts. The Fund is authorized to invest in high
quality short-term fixed income securities as cash reserves or for temporary
defensive purposes. See "Portfolio Investments and Practices and Associated
Risk Factors" for a description of investment practices of the Fund.
FOREIGN FUND
The investment objective of the Foreign Fund is to provide long-term
appreciation by investing primarily in the common stock of foreign issuers and
American Depository Receipts ("ADRs"). ADRs are receipts typically issued by a
United States bank or trust company evidencing ownership of the underlying
foreign securities. The Fund will emphasize companies with a market
capitalization of at least $100 million. In selecting issuers, the Advisor may
consider, among other factors, the location of the issuer, its competitive
stature, the issuer's past record and future prospects for growth, and the
marketability of its securities.
The eligible universe of investments for the Fund will consist of common
stock and ADRs of foreign incorporated companies trading in the following
exchanges or markets: NYSE, American Stock Exchange ("AMEX"), NASDAQ National
Market System ("NASDAQ") and the United States over-the-counter market ("OTC")
(the "Eligible Universe").
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<PAGE>
On a continuing basis, but at least annually, the Advisor creates a list of
securities eligible for purchase by the Fund (the "Eligible List"). The Advisor
then calculates the adjusted market capitalization of all securities in the
Eligible Universe. The securities will then be sorted in descending order of
adjusted market capitalization. The securities in the Eligible Universe with a
market capitalization greater than $100 million will constitute the Eligible
List for the next 12-month period. On a regular basis, securities will be added
to the Eligible Universe as new ADR facilities and exchange listings occur,
provided these new listings meet the other stated eligibility requirements.
There will be no fixed limit as to the number of securities that the Fund can
hold.
The securities purchased by the Fund will be selected from the Eligible
List. These securities will be held in proportion to their individual market
capitalization as a percentage of the market capitalization of the entire Fund
portfolio. Market capitalization of a stock will be computed by multiplying the
market price of the stock by the number of shares outstanding, adjusted for
control blocks. A control block is defined as a block of stock owned by another
corporation. The primary sources of information regarding the existence and size
of control blocks will be the S&P Stock reports and the Morgan Stanley Capital
International Perspective. Control blocks will be updated each time the Eligible
List of securities is created or an issuer is added to the Eligible Universe. A
security held in the Fund's portfolio may be retained even if such security is
no longer included on the Eligible List.
In addition to investing in stocks, the Fund may, for the purpose of
hedging its portfolio, purchase and write put and call options on foreign stock
indices listed on domestic stock exchanges. The Fund may also invest in
convertible securities, stock index futures contracts and, to a limited extent,
warrants. The Fund is also authorized to invest in high quality short-term fixed
income securities as cash reserves or for temporary defensive purposes. See
"Portfolio Instruments and Practices and Associated Risk Factors-- Foreign
Securities."
STANDARD & POOR'S INDEXES
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's 500",
"500", "S&P MidCap 400", "Standard & Poor's 400", "400", "S&P SmallCap
600(R)", "Standard & Poor's 600", and "600" are trademarks of McGraw-Hill
Companies, Inc. ("McGraw-Hill") and have been licensed for use by the Company.
Standard and Poor's Ratings Service ("S&P") is a division of McGraw-Hill.
The Funds are not sponsored, endorsed, sold or promoted by S&P. S&P makes
no representation or warranty, express or implied, to the owners of the Funds or
any member of the public regarding the advisability of investing in securities
generally or in the Funds particularly or the ability of the S&P 500, the S&P
MidCap 400 or the S&P SmallCap 600 (together, the "Indexes") to trace general
stock market performance. S&P's only relationship to the Company is the
licensing of certain trademarks and trade names of S&P and of the Indexes which
is determined, composed and calculated by S&P without regard to the Company or
the Fund. S&P has no obligation to take the needs of the Company or the owners
of the Funds into consideration in determining, composing or calculating the
Indexes. S&P is not responsible for and has not participated in the
determination of the prices and amount of the Funds or the timing of the
issuance or sale of the Funds or in the determination or calculation of the
equation by which the Funds are to be converted into cash. S&P has no obligation
or liability in connection with the administration, marketing or trading of the
Funds.
S&P does not guarantee the accuracy and/or the completeness of the Indexes
or any data included therein and S&P shall have no liability for any errors,
omissions, or interruptions therein. S&P makes no warranty, express or implied,
as to results to be obtained by the Company, owners of the Funds, or any other
person or entity from the use of the Indexes or any data included therein. S&P
makes no express or
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implied warranties, and expressly disclaims all warranties of merchantability of
fitness for a particular purpose or use with respect to the Indexes or any data
included therein. Without limiting any of the foregoing, in no event shall S&P
have any liability for any special, punitive, indirect, or consequential damages
(including lost profits), even if notified of the possibility of such damages.
INFORMATION REGARDING ALL FUNDS
Each Fund may also lend its portfolio securities and borrow money for
investment purposes (i.e., "leverage" its portfolio). In addition, each Fund
may enter into transactions in options on securities, securities indices and
futures contracts and related options. When deemed appropriate by the Advisor,
a Fund may invest cash balances in repurchase agreements and other money market
investments to maintain liquidity in an amount to meet expenses or for day-to-
day operating purposes. These investment techniques are described below and
under the heading "Investment Objectives and Policies" in the Statement of
Additional Information.
When the Advisor believes that market conditions warrant, a Fund may adopt
a temporary defensive position and may invest without limit in money market
securities denominated in U.S. dollars. See "Portfolio Instruments and
Practices and Associated Risk Factors --- Liquidity Management."
PORTFOLIO INSTRUMENTS AND PRACTICES AND
ASSOCIATED RISK FACTORS
Investment strategies that are available to the Funds are set forth below.
Additional information concerning certain of these strategies and their related
risks is contained in the Statement of Additional Information.
EQUITY SECURITIES. "Equity securities," as used in this Prospectus, refers
to common stock, preferred stock, warrants or rights to subscribe to or purchase
such securities and sponsored or unsponsored ADRs. Securities considered for
purchase by the Funds may be listed or unlisted, and may be issued by companies
with various levels of market capitalization.
Each Fund (other than the Bond Index Fund) may invest up to 5% of its net
assets at the time of purchase in warrants and similar rights (other than those
that have been acquired in units or attached to other securities). Warrants
represent rights to purchase securities at a specific price valid for a specific
period of time. The prices of warrants do not necessarily correlate with the
prices of the underlying securities. Each Fund (other than the Bond Index Fund)
may invest in convertible preferred stock. A convertible security is a security
that may be converted either at a stated price or rate within a specified period
of time into a specified number of shares of common stock. By investing in
convertible securities, a Fund seeks the opportunity, through the conversion
feature, to participate in the capital appreciation of the common stock into
which the securities are convertible, while earning higher current income than
is available from the common stock.
As mutual funds investing primarily in common stocks, the Large-Cap Index
Fund, MidCap Index Fund, SmallCap Index Fund and Foreign Fund are subject to
market risk --- i.e., the possibility that common stock prices will decline over
short or even extended periods. Stock markets tend to be cyclical, with periods
when stock prices generally rise and periods when stock prices generally
decline.
FOREIGN SECURITIES. There are certain risks and costs involved in
investing in securities of companies and governments of foreign nations, which
are in addition to the usual risks inherent in U.S. investments. These
considerations include the possibility of political instability (including
revolution),
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future political and economic developments and dependence on foreign economic
assistance. Investments in companies domiciled in foreign countries therefore
may be subject to potentially higher risks than investments in the United
States.
The Bond Index Fund may invest in international dollar-denominated bonds
and non-domestic bank obligations including Yankee bonds, which are dollar
denominated bonds issued in the U.S. by foreign banks and corporations; Yankee
Certificates of Deposit ("Yankee CDs"), which are U.S. dollar denominated
Certificates of Deposit issued by a U.S. branch of a foreign bank and held in
the United States; and Yankee Banker's Acceptances ("Yankee BAs"), which are
U.S. dollar denominated bankers' acceptances issued by a U.S. branch of a
foreign bank and held in the U.S.
The Foreign Fund may invest in foreign securities of companies domiciled in
countries with emerging economies located in the Asia-Pacific region, Eastern
Europe, Latin and South America and Africa. Political and economic structures in
many of these countries may be undergoing significant evolution and rapid
development, and emerging market countries may lack the social, political and
economic stability characteristic of more developed countries.
In addition, many Asian countries may be subject to a greater degree of
social, political and economic instability than is the case in the United States
and European countries. Such instability may result from (i) authoritarian
governments or military involvement in political and economic decision-making;
(ii) popular unrest associated with demands for improved political, economic and
social conditions; (iii) internal insurgencies; (iv) hostile relations with
neighboring countries; and (v) ethnic, religious and racial disaffection.
The economies of most emerging markets and Asian countries are heavily
dependent upon international trade and are accordingly affected by protective
trade barriers and the economic conditions of their trading partners,
principally, the United States, Japan, China and the European Community. The
enactment by the United States or other principal trading partners of
protectionist trade legislation, reduction of foreign investment in the local
economies and general declines in the international securities markets could
have a significant adverse effect upon the securities of issuers domiciled in
such countries.
DEPOSITARY RECEIPTS. ADRs are depositary receipts typically issued by a
U.S. bank or trust company which evidence ownership of underlying securities
issued by a foreign corporation. Generally, depositary receipts in registered
form are designed for use in the U.S. securities market and depositary receipts
in bearer form are designed for use in securities markets outside the United
States. Depositary receipts may not necessarily be denominated in the same
currency as the underlying securities into which they may be converted.
Depositary receipts may be issued pursuant to sponsored or unsponsored programs.
In sponsored programs, an issuer has made arrangements to have its securities
traded in the form of depositary receipts. In unsponsored programs, the issuer
may not be directly involved in the creation of the program. Although
regulatory requirements with respect to sponsored and unsponsored programs are
generally similar, in some cases it may be easier to obtain financial
information from an issuer that has participated in the creation of a sponsored
program. Accordingly, there may be less information available regarding issuers
of securities underlying unsponsored programs and there may not be a correlation
between such information and the market value of the depositary receipts.
Depositary receipts also involve the risks of other investments in foreign
securities, as discussed above. For purposes of the Funds' investment policies,
a Fund's investments in depositary receipts will be deemed to be investments in
the underlying securities.
FUTURES CONTRACTS AND OPTIONS. The Funds may invest in futures
contracts
and options on futures contracts for hedging purposes or to maintain liquidity.
However, a Fund may not purchase or sell a futures contract unless immediately
after any such transaction the sum of the aggregate amount of margin
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deposits on its existing futures positions and the amount of premiums paid for
related options is 5% or less of its total assets.
Futures contracts obligate a Fund, at maturity, to take or make delivery of
certain securities or the cash value of a bond or securities index. When
interest rates are rising, futures contracts can offset a decline in value of
the Fund's portfolio securities. When rates are falling, these contracts can
secure higher yields for securities the Fund intends to purchase.
The Funds may purchase and sell call and put options on futures contracts
traded on an exchange or board of trade. When a Fund purchases an option on a
futures contract, it has the right to assume a position as a purchaser or seller
of a futures contract at a specified exercise price at any time during the
option period. When a Fund sells an option on a futures contract, it becomes
obligated to purchase or sell a futures contract if the option is exercised. In
anticipation of a market advance, a Fund may purchase call options on futures
contracts as a substitute for the purchase of futures contracts to hedge against
a possible increase in the price of securities which the Fund intends to
purchase. Similarly, if the value of a Fund's portfolio securities is expected
to decline, the Fund might purchase put options or sell call options on futures
contracts rather than sell futures contracts. In connection with a Fund's
position in a futures contract or option thereon, the Fund will create a
segregated account of liquid assets or will otherwise cover its position in
accordance with applicable requirements of the SEC.
In addition, the Funds may write covered call options, buy put options, buy
call options and write secured put options on particular securities or various
stock indices. Options trading is a highly specialized activity which entails
greater than ordinary investment risks. A call option for a particular security
gives the purchaser of the option the right to buy, and a writer the obligation
to sell, the underlying security at the stated exercise price at any time prior
to the expiration of the option, regardless of the market price of the security.
The premium paid to the writer is in consideration for undertaking the
obligations under the option contract. A put option for a particular security
gives the purchaser the right to sell the underlying security at the stated
exercise price at any time prior to the expiration date of the option,
regardless of the market price of the security. In contrast to an option on a
particular security, an option on a stock index provides the holder with the
right to make or receive a cash settlement upon exercise of the option.
The use of derivative instruments exposes a Fund to additional risks and
transaction costs. Risks inherent in the use of derivative instruments include:
(1) the risk that interest rates, securities prices and currency markets will
not move in the direction that a portfolio manager anticipates; (2) imperfect
correlation between the price of derivative instruments and movements in the
prices of the securities, interest rates or currencies being hedged; (3) the
fact that skills needed to use these strategies are different than those needed
to select portfolio securities; (4) inability to close out certain hedged
positions to avoid adverse tax consequences; (5) the possible absence of a
liquid secondary market for any particular instrument and possible exchange-
imposed price fluctuation limits, either of which may make it difficult or
impossible to close out a position when desired; (6) leverage risk, that is, the
risk that adverse price movements in an instrument can result in a loss
substantially greater than a Fund's initial investment in that instrument (in
some cases, the potential loss is unlimited); and (7) particularly in the case
of privately-negotiated instruments, the risk that the counterparty will fail to
perform its obligations, which could leave a Fund worse off than if it had not
entered into the position. For a further discussion, see "Fund Investments" and
the Appendix in the Statement of Additional Information.
When a Fund invests in a derivative instrument, it may be required to
segregate cash and other liquid portfolio securities to "cover" the Fund's
position. Assets segregated or set aside generally may not be disposed of so
long as a Fund maintains the positions requiring segregation or cover.
Segregating assets
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<PAGE>
could diminish a Fund's return due to the opportunity losses of foregoing other
potential investments with the segregated assets.
The Funds are not commodity pools, and all futures transactions engaged in
by a Fund must constitute bona fide hedging or other permissible transactions in
accordance with the rules and regulations promulgated by the Commodity Futures
Trading Commission. Successful use of futures and options is subject to special
risk considerations.
For a further discussion see "Additional Information on Fund Investments"
and the Appendix to the Statement of Additional Information.
CORPORATE OBLIGATIONS. The Bond Index Fund may purchase corporate bonds
and
commercial paper that meet the applicable quality and maturity limitations. The
Bond Index Fund will purchase only those securities which are considered to be
investment grade or better (within the four highest rating categories of S&P or
Moody's or, if unrated, of comparable quality. Obligations rated "Baa" by
Moody's lack outstanding investment characteristics and have speculative
characteristics. Adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of obligations rated "BBB" by S&P to pay
interest and repay principal than in the case of higher grade obligations. After
purchase by the Fund, a security may cease to be rated or its rating may be
reduced below the minimum required for purchase by the Fund. Neither event will
require the Fund to sell such security. However, the Advisor will reassess
promptly whether the security presents minimal credit risks and determine
whether continuing to hold the security is in the best interests of the Fund. To
the extent that the ratings given by Moody's, S&P or another nationally
recognized statistical rating organization ("NRSRO") for securities may change
as a result of changes in the rating systems or because of corporate
reorganization of such rating organizations, the Fund will attempt to use
comparable ratings as standards for its investments in accordance with the
investment objective and policies of the Fund. Descriptions of each rating
category are included as Appendix A to the Statement of Additional Information.
ASSET-BACKED SECURITIES. Subject to applicable credit criteria, the Bond
Index Fund may purchase asset-backed securities (i.e., securities backed by
mortgages, installment sales contracts, credit card receivables or other
assets). The average life of asset-backed securities varies with the maturities
of the underlying instruments which, in the case of mortgages, have maximum
maturities of forty years. The average life of a mortgage-backed instrument, in
particular, is likely to be substantially less than the original maturity of the
mortgage pools underlying the securities as the result of unscheduled principal
payments and mortgage prepayments. The rate of such mortgage prepayments, and
hence the life of the certificates, will be primarily a function of current
market rates and current conditions in the relevant housing markets. In
calculating the average weighted maturity of the Bond Index Fund, the maturity
of mortgage-backed instruments will be based on estimates of average life. The
relationship between mortgage prepayment and interest rates may give some high-
yielding mortgage-related securities less potential for growth in value than
conventional bonds with comparable maturities. In addition, in periods of
falling interest rates, the rate of mortgage prepayment tends to increase.
During such periods, the reinvestment of prepayment proceeds by the Fund will
generally be at lower rates than the rates that were carried by the obligations
that have been prepaid. Because of these and other reasons, an asset-backed
security's total return may be difficult to predict precisely. To the extent
that the Fund purchases mortgage-related or mortgage-backed securities at a
premium, mortgage prepayments (which may be made at any time without penalty)
may result in some loss of the Fund's principal investment to the extent of
premium paid.
Presently there are several types of mortgage-backed securities issued or
guaranteed by U.S. Government agencies, including guaranteed mortgage pass-
through certificates, which provide the holder with a pro rata interest in the
underlying mortgages, and collateralized mortgage obligations ("CMOs"),
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<PAGE>
which provide the holder with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage-backed securities. Insurers of CMOs
frequently elect to be taxed as a pass-through entity known as real estate
mortgage investment conduits, or REMICs. CMOs are issued in multiple classes,
each with a specified fixed or floating interest rate and a final distribution
date. The relative payment rights of the various CMO classes may be structured
in many ways. In most cases, however, payments of principal are applied to the
CMO classes in the order of their respective stated maturities, so that no
principal payments will be made on a CMO class until all other classes having an
earlier stated maturity date are paid in full. The classes may include accrual
certificates (also known as "Z-Bonds"), which only accrue interest at a
specified rate until other specified classes have been retired and are converted
thereafter to interest-paying securities. They may also include planned
amortization classes ("PAC") which generally require, within certain limits,
that specified amounts of principal be applied on each payment date, and
generally exhibit less yield and market volatility than other classes. The Fund
will not purchase "residuaL" CMO interests, which normally exhibit the greatest
price volatility.
STRIPPED SECURITIES. The Bond Index Fund may purchase participations in
trusts that hold U.S. Treasury and agency securities (such as TIGRs and CATS)
and also may purchase Treasury receipts and other stripped securities, which
represent beneficial ownership interests in either future interest payments or
the future principal payments on U.S. Government obligations. These instruments
are issued at a discount to their "face value" and may (particularly in the
case of stripped mortgage-backed securities) exhibit greater price volatility
than ordinary debt securities because of the manner in which their principal and
interest are returned to investors. Stripped securities will normally be
considered illiquid investments and will be acquired subject to the limitation
on illiquid investments unless determined to be liquid under guidelines
established by the Board of Directors.
REPURCHASE AGREEMENTS. The Funds may agree to purchase securities from
financial institutions subject to the seller's agreement to repurchase them at
an agreed-upon time and price ("repurchase agreements"). The financial
institutions with which a Fund may enter into repurchase agreements include
member banks of the Federal Reserve System, any foreign bank or any domestic or
foreign broker/dealer which is recognized as a reporting government securities
dealer. The Advisor will review and continuously monitor the creditworthiness
of the seller under a repurchase agreement, and will require the seller to
maintain liquid assets in a segregated account in an amount that is greater than
the repurchase price. Default by or bankruptcy of the seller would, however,
expose a Fund to possible loss because of adverse market action or delays in
connection with the disposition of the underlying obligations.
INVESTMENT COMPANY SECURITIES. In connection with the management of
daily
cash positions, the Funds may invest in securities issued by other investment
companies which invest in short-term debt securities and which seek to maintain
a $1.00 net asset value per share (i.e., "money market funds"). The Foreign
Fund may purchase shares of investment companies investing primarily in foreign
securities, including so called "country funds". The Large-Cap Fund and the
MidCap Fund may also invest in SPDRs and shares of other open-end investment
companies that are structured to seek performance that corresponds to that of
the appropriate Index. Securities of other investment companies will be acquired
within limits prescribed by the 1940 Act. These limitations, among other
matters, restrict investments in securities of other investment companies to no
more than 10% of the value of a Fund's total assets, with no more than 5%
invested in the securities of any one investment company. As a shareholder of
another investment company, a Fund would bear, along with other shareholders,
its pro rata portion of the other investment company's expenses, including
advisory fees. These expenses would be in addition to the expenses a Fund bears
directly in connection with its own operations.
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<PAGE>
VARIABLE AND FLOATING RATE SECURITIES. Each Fund may purchase
variable and
floating rate securities. These securities may include variable amount master
demand notes that permit the indebtedness to vary in addition to providing for
periodic adjustments in the interest rate. Unrated variable and floating rate
securities will be determined by the Advisor to be of comparable quality at the
time of purchase to rated securities purchasable by the Fund. The absence of an
active secondary market, however, could make it difficult to dispose of the
securities, and the Fund could suffer a loss if the issuer defaulted or during
periods that the Fund is not entitled to exercise its demand rights. Variable
and floating rate securities held by the Fund will be subject to the Fund's
limitation on illiquid investments when the Fund may not demand payment of the
principal amount within seven days absent a reliable trading market.
LIQUIDITY MANAGEMENT. Pending investment, to meet anticipated redemption
requests, or as a temporary defensive measure if the Advisor determines that
market conditions warrant, the Funds may also invest without limitation in
short-term U.S. Government obligations, high quality money market instruments,
variable and floating rate instruments and repurchase agreements as described
above.
High quality money market instruments may include commercial paper. The
Funds may also purchase U.S. dollar-denominated bank obligations, such as
certificates of deposit, bankers' acceptances and interest-bearing savings and
time deposits, issued by U.S. or foreign banks or savings institutions having
total assets at the time of purchase in excess of $1 billion. The Bond Index
Fund may also invest in Yankee BAs and Yankee CDs. Short-term obligations
purchased by the Funds will either have short-term debt ratings at the time of
purchase in the top two categories by one or more unaffiliated NRSROs or be
issued by issuers with such ratings. Unrated instruments purchased by a Fund
will be of comparable quality as determined by the Advisor.
ILLIQUID SECURITIES. Each Fund may invest up to 15% of the value of its net
assets (determined at time of acquisition) in securities which are illiquid.
Illiquid securities would generally include repurchase agreements and time
deposits with notice/termination dates in excess of seven days, and certain
securities which are subject to trading restrictions because they are not
registered under the Securities Act of 1933, as amended (the "Act"). If, after
the time of acquisition, events cause this limit to be exceeded, the Fund will
take steps to reduce the aggregate amount of illiquid securities as soon as
reasonably practicable in accordance with the policies of the SEC.
The Funds may invest in commercial obligations issued in reliance on the
"private placement" exemption from registration afforded by Section 4(2) of the
Act ("Section 4(2) paper"). The Funds may also purchase securities that are not
registered under the Act, but which can be sold to qualified institutional
buyers in accordance with Rule 144A under the Act ("Rule 144A securities").
Section 4(2) paper is restricted as to disposition under the Federal securities
laws, and generally is sold to institutional investors which agree that they are
purchasing the paper for investment and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2) paper
normally is resold to other institutional investors through or with the
assistance of the issuer or investment dealers which make a market in the
Section 4(2) paper, thus providing liquidity. Rule 144A securities generally
must be sold only to other qualified institutional buyers. If a particular
investment in Section 4(2) paper or Rule 144A securities is not determined to be
liquid, that investment will be included within the Fund's limitation on
investment in illiquid securities. The Advisor will determine the liquidity of
such investments pursuant to guidelines established by the Company's Board of
Directors.
U.S. GOVERNMENT OBLIGATIONS. The Funds may purchase obligations issued
or
guaranteed the U.S. Government and U.S. Government agencies and
instrumentalities. Obligations of certain agencies and instrumentalities of the
U.S. Government, such as those of the Government National Mortgage Association,
are supported by the full faith and credit of the U.S. Treasury. Others, such as
those of the Export-Import
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<PAGE>
Bank of the United States, are supported by the right of the issuer to borrow
from the U.S. Treasury; and still others, such as those of the Student Loan
Marketing Association, are supported only by the credit of the agency or
instrumentality issuing the obligation. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law.
BORROWING AND REVERSE REPURCHASE AGREEMENTS. Each Fund is
authorized to
borrow money in amounts up to 5% of the value of the Fund's total assets at the
time of such borrowing for temporary purposes. The Funds may also borrow funds
for temporary purposes by selling portfolio securities to financial institutions
such as banks and broker/dealers and agreeing to repurchase them at a mutually
specified date and price ("reverse repurchase agreements"). Reverse repurchase
agreements involve the risk that the market value of the securities sold by a
Fund may decline below the repurchase price. A Fund would pay interest on
amounts obtained pursuant to a reverse repurchase agreement. Additionally, a
Fund is authorized to borrow money in amounts up to 33 1/3% of its assets, as
permitted by the 1940 Act, for the purpose of meeting redemption requests.
Borrowing by a Fund creates an opportunity for greater total return but, at the
same time, increases exposure to capital risk. Leveraging by means of borrowing
may exaggerate the effect of any increase or decrease in the value of portfolio
securities on a Fund's net asset value. In addition, borrowed funds are subject
to interest costs that may offset or exceed the return earned on the borrowed
funds. However, a Fund will not purchase portfolio securities while borrowings
exceed 5% of the Fund's total assets. For more detailed information with respect
to the risks associated with borrowing, see the heading "Borrowing" in the
Statement of Additional Information.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. Each Fund
may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions, which involve a commitment by
a Fund to purchase or sell particular securities with payment and delivery
taking place at a future date (perhaps one or two months later), permit the Fund
to lock-in a price or yield on a security, regardless of future changes in
interest rates. When-issued and forward commitment transactions involve the risk
that the price or yield obtained may be less favorable than the price or yield
available when the delivery takes place. Each Fund will establish a segregated
account consisting of cash, U.S. Government securities or other liquid portfolio
securities in an amount equal to the amount of its when-issued purchases and
forward commitments. Each Fund's when-issued purchases and forward purchase
commitments are not expected to exceed 25% of the value of the particular Fund's
total assets absent unusual market conditions. The Funds do not intend to engage
in when-issued purchases and forward commitments for speculative purposes but
only in furtherance of their investment objectives.
FIXED INCOME SECURITIES. Generally, the market value of fixed income
securities held by the Funds can be expected to vary inversely to changes in
prevailing interest rates. Investors should also recognize that, in periods of
declining interest rates, the yields of investment portfolios composed primarily
of fixed income securities will tend to be higher than prevailing market rates
and, in periods of rising interest rates, yields will tend to be somewhat lower.
The market value of a Fund's investment will also change in response to the
relative financial strengths of each issuer. Changes in the financial strengths
of an issuer or charges in the ratings of a particular security may also affect
the value of those investments. Fluctuations in the market value of fixed income
securities subsequent to their acquisitions will not affect cash income from
such securities, but will be reflected in a Fund's net asset value.
The Funds may purchase zero-coupon bonds (i.e., discount debt obligations that
do not make periodic interest payments). Zero-coupon bonds are subject to
greater market fluctuations from changing interest rates than debt obligations
of comparable maturities which make current distributions of interest.
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<PAGE>
As a mutual fund investing primarily in fixed-income securities, the Bond
Index Fund is subject to interest rate, income, call, credit and prepayment
risk.
Interest rate risk is the potential for fluctuations in bond prices due to
changing interest rates. Income risk is the potential for a decline in the
Fund's income due to falling market interest rates. Credit risk is the
possibility that a bond issuer will fail to make timely payments of either
interest or principal to the Fund. Prepayment risk (applicable to mortgage-
backed securities) and call risk (applicable to corporate bonds) (is the
likelihood that, during periods of falling interest rates, securities with high
stated interest rates will be prepaid (or "called") prior to maturity, requiring
the Fund to invest proceeds at generally lower interest rates.
LENDING OF PORTFOLIO SECURITIES. To enhance the return of the portfolio, a
Fund may lend securities in its portfolio representing up to 25% of its total
assets, taken at market value, to securities firms and financial institutions,
provided that each loan is secured continuously by collateral in the form of
cash, high quality money market instruments or short-term U.S. Government
securities adjusted daily to have a market value at least equal to the current
market value of the securities loaned. The risk in lending portfolio securities,
as with other extensions of credit, consists of possible delay in the recovery
of the securities or possible loss of rights in the collateral should the
borrower fail financially.
DIVERSIFICATION. Each Fund is classified as a diversified investment
company under the 1940 Act.
PORTFOLIO TRANSACTIONS AND TURNOVER. All orders for the purchase or
sale of
securities on behalf of the Funds are placed by the Advisor with broker/dealers
that the Advisor selects. A high portfolio turnover rate involves larger
brokerage commission expenses or transaction costs which must be borne directly
by the Fund, and may result in the realization of short-term capital gains which
are taxable to shareholders as ordinary income. The Advisor will not consider
portfolio turnover rate a limiting factor in making investment decisions
consistent with a Fund's objective and policies. It is anticipated that each
Fund's annual portfolio turnover rate will range from [___% to ___%.]
INVESTMENT LIMITATIONS
Each Fund's investment objective and policies may be changed by the
Company's Board of Directors without shareholder approval. No assurance can be
given that any Fund will achieve its investment objective.
Each Fund has also adopted certain fundamental investment limitations that
may be changed only with the approval of a "majority of the outstanding shares
of the Fund" (as defined in the Statement of Additional Information). These
limitations are set forth in the Statement of Additional Information.
PURCHASE AND REDEMPTION OF SHARES
Shares of each Fund are sold by the Distributor on a continuous basis to
separate accounts of the Insurers. The Distributor is a registered broker/dealer
with principal offices at 222 South Central Avenue, St. Louis, Missouri 63105.
Each Fund's shares are continuously offered to each Insurer's separate
accounts at the net asset value per share next determined after a proper
purchase request has been received by the Insurer.
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<PAGE>
The Funds and the Distributor reserve the right to reject any
purchase order for shares of the Funds.
Payments for redeemed shares will ordinarily be made within seven (7)
business days after the Funds receive a redemption order from the relevant
Insurer. The redemption price will be the net asset value per share next
determined after the Insurer receives the Contractowner's request in proper
form. The Company reserves the right to suspend or postpone redemptions
during any
period when: (i) trading on the NYSE is restricted, as determined by the SEC, or
the NYSE is closed for other than customary weekend and holiday closings; (ii)
the SEC has by order permitted such suspension or postponement for the
protection of shareholders; or (iii) an emergency, as determined by the SEC,
exists, making disposal of portfolio securities or valuation of net assets of
the Funds not reasonably practicable.
THE PROSPECTUS FOR THE RELEVANT INSURER'S VARIABLE ANNUITY
OR
VARIABLE LIFE INSURANCE POLICY DESCRIBES THE ALLOCATION,
TRANSFER AND WITHDRAWAL
PROVISIONS OF SUCH ANNUITY OR POLICY.
DIVIDENDS AND DISTRIBUTIONS
Each Fund expects to pay dividends and distributions from the net income
and capital gains, if any, earned on investments held by the Fund. Dividends
from net income are declared and paid quarterly for each Fund (other than the
Foreign Fund). Dividends from net income are declared and paid at least annually
for the Foreign Fund. Each Fund's net realized capital gains (including net
short-term capital gains), if any, are distributed at least annually. All
dividends and capital gains distributions paid by each Fund will be
automatically reinvested, at net asset value, by the Insurers' separate accounts
in additional shares of the Fund. Contractowners who own units in a separate
account which correspond to shares in the Funds will be notified when
distributions are made.
A Fund's expenses are deducted from the income of the Fund before dividends
are declared and paid. These expenses include, but are not limited to, fees paid
to the Advisor, Administrator, Custodian and Transfer Agent; shareholder
servicing fees; fees and expenses of officers and Directors; taxes; interest;
legal and auditing fees; brokerage fees and commissions; expenses of preparing
prospectuses and statements of additional information; the expense of reports to
shareholders, shareholders' meetings and proxy solicitations; fidelity bond and
Directors' and officers' liability insurance premiums; the expense of using
independent pricing services; and other expenses which are not assumed by the
Administrator or an Insurer. Any general expenses of the Company that are not
readily identifiable as belonging to a particular fund of the Company are
allocated among all funds of the Company by or under the direction of the Board
of Directors in a manner that the Board determines to be fair and equitable,
taking into
consideration whether it is appropriate for expenses to be borne by the Funds
in addition
to the Company's other funds.
Except as noted in this Prospectus and the Statement of Additional Information,
the Funds' service contractors bear expenses in connection with the performance
of their services, and each Fund bears the expenses incurred in its operations.
The Advisor, Administrator, Custodian and Transfer Agent may voluntarily waive
all or a portion of their respective fees from time to time.
NET ASSET VALUE
Net asset value for shares in a Fund is calculated by dividing the value of
all securities and other assets belonging to the Fund, less the liabilities
charged, by the number of outstanding shares.
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<PAGE>
The net asset value per share of each Fund for the purpose of pricing
purchase and redemption orders is determined as of the close of regular trading
hours on the NYSE (currently 4:00 p.m., New York time) on each day on which the
NYSE is open for trading (a "Business Day"). With respect to the Funds,
securities traded on a national securities exchange or on NASDAQ are valued at
the last sale price on such exchange or market as of the close of business on
the date of valuation. Securities traded on a national securities exchange or on
NASDAQ for which there were no sales on the date of valuation and securities
traded on other over-the-counter markets, including listed securities for which
the primary market is believed to be over-the-counter, are valued at the mean
between the most recently quoted bid and asked prices. Options will be valued at
market value or fair value if no market exists. Futures contracts will be valued
in like manner, except that open futures contract sales will be valued using the
closing settlement price or, in the absence of such a price, the most recently
quoted asked price. Restricted securities and securities and assets for which
market quotations are not readily available are valued at fair value by the
Advisor under the supervision of the Board of Directors. Debt securities with
remaining maturities of 60 days or less are valued at amortized cost, unless the
Board of Directors determines that such valuation does not constitute fair value
at that time. Under this method, such securities are valued initially at cost on
the date of purchase (or the 61st day before maturity).
The Company does not accept purchase and redemption orders on days on which
the NYSE is closed. The NYSE is currently scheduled to be closed on New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving and Christmas, and on the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday, respectively.
MANAGEMENT
BOARD OF DIRECTORS
The Company is managed under the direction of its Board of Directors. The
Statement of Additional Information contains the name and background information
of each Director.
INVESTMENT ADVISOR
Munder Capital Management, a Delaware general partnership with its
principal offices at 480 Pierce Street, Birmingham, Michigan 48009, serves as
the Funds' investment advisor. The Advisor was formed in December 1994. The
principal partners of the Advisor are Old MCM, Inc. ("MCM"), Munder Group LLC,
Woodbridge Capital Management, Inc. ("Woodbridge") and WAM Holdings, Inc.
("WAM"). MCM was founded in February 1985 as a Delaware corporation and was a
registered investment advisor. Woodbridge and WAM are indirect, wholly-owned
subsidiaries of Comerica Incorporated. Mr. Lee P. Munder, the Advisor's chief
executive officer, indirectly owns or controls a majority of the partnership
interests in the Advisor. As of September 30, 1996, the Advisor and its
affiliates had approximately $36 billion in assets under active management, of
which $18 billion were invested in equity securities, $8 billion were invested
in money market or other short-term instruments, and $10 billion were invested
in other fixed income securities.
Subject to the supervision of the Board of Directors of the Company, the
Advisor provides overall investment management for the Funds, provides research
and credit analysis, is responsible for all purchases and sales of portfolio
securities, maintains books and records with respect to the Funds' securities
transactions and provides periodic and special reports to the Board of Directors
as requested.
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<PAGE>
For the advisory services provided and expenses assumed with regard to the
Funds, the Advisor has agreed to a fee, computed daily and payable monthly, at
an annual rate of .05% of each Fund's average daily net assets.
The Advisor may, from time to time, make payments to banks, broker-dealers
or other financial institutions for certain services to the Funds and/or their
shareholders, including sub-administration, sub-transfer agency and shareholder
servicing. Such payments are made out of the Advisor's own resources and do not
involve additional costs to the Funds or their shareholders.
PORTFOLIO MANAGERS
Todd B. Johnson, Chief Investment Officer of the Advisor is the co-manager
of the Foreign Fund. Mr. Johnson is also the co-manager of the Munder
International Equity Fund (previously, from January, 1996 to October, 1996, was
the portfolio manager,) and the Munder Index 500 Fund (previously, from July,
1992 to October, 1996, was the portfolio manager) of The Munder Funds Trust. Mr.
Johnson previously served as a portfolio manager at Woodbridge Capital
Management (June, 1992 to December, 1994) and Manufacturers Bank (June, 1986 to
June, 1992). Mr. Johnson received a B.A. in Finance from Michigan State
University and an M.B.A. from Wayne State University.
Theodore Miller, Senior Portfolio Manager of the Advisor is the co-manager
of the Foreign Fund. Mr. Miller is also the co-manager of the Munder
International Equity Fund of The Munder Funds Trust (since October, 1996.) Prior
to being appointed co-manager of the Munder International Equity Fund, Mr.
Miller acted as the primary analyst for the Fund, assisting the manager with
portfolio decisions Prior to joining the Advisor, Mr. Miller worked in
Derivatives Marketing for Interacciones Global Inc. (1993-1995), in Equity
Sales/Trader for McDonald & Co. Securities Inc. (1991-1993) and started his
career in 1986 and was a derivative and equity transaction execution specialist
with various New York investment banks. Mr. Miller received his B.S. from the
University of Pittsburgh and his M.B.A. from Indiana University.
ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT
First Data Investor Services Group, Inc. ("First Data"), whose principal
business address is 53 State Street, Boston, Massachusetts 02109 (the
"Administrator"), serves as administrator for the Company. First Data is a
wholly-owned subsidiary of First Data Corporation. The Administrator generally
assists the Company in all aspects of its administration and operations,
including the maintenance of financial records and fund accounting.
First Data also serves as the Company's transfer agent and dividend
disbursing agent ("Transfer Agent"). Shareholder inquiries may be directed to
First Data at P.O. Box 5130, Westborough, Massachusetts 01581-5130.
As compensation for these services, the Administrator is entitled to
receive fees, computed daily and payable monthly, at the rate of [ ___% of
average daily net assets of the Funds] The Transfer Agent is entitled to receive
fees, based on the aggregate average daily net assets of the Funds, computed
daily and payable monthly at the rate of [ ___%.] The Administrator and Transfer
Agent are also entitled to reimbursement for out-of-pocket expenses.
Comerica Bank (the "Custodian"), whose principal business address is One
Detroit Center, 500 Woodward Avenue, Detroit, Michigan 48226, provides custodial
services to the Funds. The Custodian is a wholly owned subsidiary of Comerica
Incorporated, a publicly-held bank holding company. As
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<PAGE>
compensation for its services, the Custodian is entitled to receive fees, based
on the aggregate average daily net assets of the Funds and certain other
investment portfolios that are advised by the Advisor for which the custodian
provides services, [computed daily and payable monthly at an annual rate of .03%
of the first $100 million of average daily net assets, .02% of the next $500
million of net assets and .01% of net assets in excess of $600 million.] The
Custodian also receives certain transaction based fees.
For an additional description of the services performed by the
Administrator, Transfer Agent and Custodian, see the Statement of Additional
Information.
SHAREHOLDER SERVICING ARRANGEMENTS
The Funds have adopted a Shareholder Serving Plan (the "Plan") that
provides for payment to the Insurers offering the separate accounts, dealers
that
offer the Contracts and the Funds' Distributor ("Service Organizations") for
providing shareholder services to Contractowners. The Plan authorizes payments
at an annual rate of up to .25% of each Fund's average daily net assets.
The services provided by the Service Organizations under the Plan may
include execution and processing of orders from Insurers; processing purchase,
exchange and redemption requests furnished to the Insurers by the
Contractowners,
placing orders with the Transfer Agent; processing dividend and distribution
payments from the Funds; providing statements of additional information and
information periodically showing positions in Fund shares and providing such
other similar services as may reasonably be requested.
TAXES
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code for 1986, as amended (the "Code").
Such qualification relieves a Fund of liability for Federal income taxes to the
extent its earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for any
taxable year requires, among other things, that a Fund distribute to its
shareholders an amount equal to at least 90% of its investment company taxable
income and 90% of its net tax-exempt interest income for such year. In general a
Fund's investment company income will be its taxable income (including
dividends, interest, and short-term capital gains) subject to certain
adjustments and excluding the excess of any net long-term capital gain for the
taxable year over the net short-term capital loss, if any, for such year. Each
Fund intends to distribute substantially all of its investment company taxable
income each taxable year.
The Funds serve as the underlying investments for Contracts issued through
separate accounts of life insurance companies which may or may not be
affiliated. Section 817(h) of the code imposes certain diversification standards
on the underlying assets of segregated asset accounts that fund contracts such
as the Contracts (that is, the assets of the Fund's), which are in addition to
the diversification requirements imposed on the Funds by the 1940 Act and
Subchapter M. Failure to satisfy those standards would result in imposition of
Federal income tax on a Contract owner with respect to the increase in the value
of the contract. Section 817(h)(2) provides that a segregated asset account that
funds contracts such as the Contracts is treated as meeting the diversification
standards if, as of the close of each calendar quarter, the assets in the
account meet the diversification requirements for a regulated investment company
and no more than 55% of those assets consist of cash, cash items, U.S.
Government securities and securities of other regulated investment companies.
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<PAGE>
The Treasury Regulations amplify the diversifications standards set forth
in Section 817(h) and provide an alternative to the provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if (i) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (ii) no more than 70% of such
value is represented by any two investments; (iii) no more than 80% of such
value is represented by any three investments; and (iv) no more than 90% of such
value is represented by any four investments. For purposes of these Regulations
all securities of the same issuer are treated as a single investment, but each
United States government agency or instrumentality shall be treated as a
separate issuer.
Each Fund will be managed with the intention of complying with these
diversification requirements. It is possible that, in order to comply with these
requirements, less desirable investment decisions may be made which would affect
the investment performance of a Fund.
Currently, the State of California imposes diversification requirements on
variable insurance products funds investing in non-U.S. securities. Under these
requirements, a fund investing at least 80% of its assets in non-U.S. securities
must be invested in at least five countries; less than 80% but at least 60%, in
at least four counties; less than 60% but at least 40%, in at least three
countries; and less than 40% but at least 20%, in at least two countries, except
that up to 25% of a fund's assets may be invested in securities of issuers
located in any of the following countries: Australia, Canada, France, Japan, the
United Kingdom or Germany. The Funds intend to comply with the California
diversification requirements, to the extent applicable.
TAXES - FOREIGN INVESTMENTS
Income or gain from investments in foreign securities may be subject to
foreign withholding or other taxes. It is expected that the Funds will be
subject to foreign withholding taxes with respect to income received from
sources within foreign countries. If more than 50% of the value of a Fund's
total assets at the close of a taxable year consists of stock or securities of
foreign corporations, the Fund may elect, for U.S. Federal income tax purposes,
to treat certain foreign taxes paid by it, including generally any withholding
taxes and other foreign income taxes, as paid by its shareholders. If a Fund
makes this election, the amount of such foreign taxes paid by the Fund will be
included in its shareholders' income pro rata (in addition to taxable
distributions actually received by them), and the shareholders would be entitled
(a) to credit their proportionate amount of such taxes against their U.S.
Federal income tax liabilities subject to certain limitations described in the
Statement of Additional Information, or (b) if they itemize their deductions, to
deduct such proportionate amount from their U.S. income.
If a Fund invests in certain "passive foreign investment companies"
("PFICs"), it will be subject to Federal income tax (and possibly additional
interest charges) on a portion of any "excess distribution" or gain from the
disposition of such shares even if it distributes such income to its
shareholders. If a Fund elects to treat the PFIC as a "qualified election fund"
("QEF") and the PFIC furnishes certain financial information in the required
form to such Fund, the Fund will instead be required to include in income each
year its allocable share of the ordinary earnings and net capital gains on the
QEF, regardless of whether received, and such amounts will be subject to the
various distribution requirements described above.
The prospectus for an Insurer's variable annuity contracts or
variable life insurance polices describes the federal income tax treatment of
distributions from such contracts to Contractowners.
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The foregoing is only a brief summary of important tax law provisions that
can affect the Funds. Other Federal, state or local law provisions may also
affect the Funds and their operations. Anyone who is considering allocating,
transferring or withdrawing monies held under an Insurer's variable contract to
or from a Fund should consult a qualified tax adviser.
DESCRIPTION OF SHARES
The Company was organized as a Maryland corporation on May 23, 1984 under
the name St. Clair Money Market Fund, Inc. which was changed to St. Clair Fixed
Income Fund, Inc. on December 30, 1986 and to St. Clair Funds, Inc. on September
18, 1996. The Company's Articles of Incorporation authorize the Board of
Directors to classify or reclassify any authorized but unissued shares of the
Company into one or more additional portfolios (or classes of shares within a
portfolio) by setting or changing in any one or more respects their respective
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption. Pursuant to such authority, the Company's Board of Directors has
authorized the issuance of shares of common stock representing interests in
Munder S&P 500 Index Equity Fund, Munder S&P MidCap Index Equity Fund, S&P
SmallCap Index Equity Fund, Munder Aggregate Bond Index Fund, Munder Foreign
Equity Fund, Liquidity Plus Money Market Fund and Institutional Index Equity
Fund, each of which is classified as a diversified investment company under the
1940 Act.
Each share of a Fund has a par value of $.001 and represents an equal
proportionate interest in the Fund and is entitled to such dividends and
distributions out of the income earned on the assets belonging to the Fund as
are declared at the discretion of the Company's Board of Directors. The
Company's shareholders are entitled to one vote for each full share held and
proportionate fractional votes for fractional shares held. Shareholders will
vote in the aggregate and not by Fund, except where otherwise required by law or
when the Board of Directors determines that the matter to be voted upon affects
only the interests of the shareholders of a particular Fund. Voting rights are
not cumulative and, accordingly, the holders of more than 50% of the aggregate
number of shares can elect 100% of the Directors, if they chose to do so and, in
such event, the holders of the remaining shares would not be able to elect any
person or persons to the Board of Directors. The Company is not required and
does not currently intend to hold annual meetings of shareholders for the
election of Board members except as required under the 1940 Act. A meeting of
shareholders will be called upon the written request of at least 10% of the
outstanding shares of the Company. To the extent required by law, the Company
will assist in shareholder communications in connection with such a meeting. For
further discussion of the voting rights of shareholders, see "Additional
Information Concerning Shares" in the Statement of Additional Information.
Through their respective separate accounts, the Insurers are the Funds'
sole
stockholders of record, and as such under the 1940 Act, the Insurers are deemed
to be in control of the Funds. Nevertheless, when a shareholders' meeting
occurs, each Insurer solicits and accepts voting instructions from its
Contractowners who have allocated or transferred monies for an investment in a
Fund as of the record date of the meeting. Each Insurer then votes each Fund's
shares that are attributable to its Contractowners' interests in the Fund in
proportion to the voting instructions received. Each Insurer will vote any share
that it is entitled to vote directly due to amounts it has contributed or
accumulated in its separate accounts in the manner described in the prospectuses
for its variable annuities and variable life insurance policies.
PERFORMANCE
The Funds' performance may be used from time to time in advertisements,
shareholder reports or other communications to existing or prospective owners of
the Insurers' Contracts. When performance information is provided in
advertisements, it will include the effect of all charges deducted
20
<PAGE>
under the terms of the specified contract, as well as all recurring and non-
recurring charges incurred by a Fund. Performance information may include a
Fund's investment results and/or comparisons of its investment results to
various unmanaged indices or results of other mutual funds or investment or
savings vehicles. The Fund's investment results as used in such communications
will be calculated on a total rate of return or yield basis in the manner set
forth below. From time to time, fund rankings may be quoted from various
sources, such as Lipper Analytical Services, Inc., Value Line and Morningstar
Inc.
The Company may provide period and average annualized "total return"
quotations for the Funds. A Fund's "total return" refers to the change in the
value of an investment in the Fund over a stated period based on any change in
net asset value per share and including the value of any shares purchasable with
any dividends or capital gains distributed during such period. Period total
return may be annualized. An annualized total return is a compounded total
return which assumes that the period total return is generated over a one-year
period, and that all dividends and capital gain distributions are reinvested. An
annualized total return will be higher than a period total return if the period
is shorter than one year, because of the compounding effect.
The yield of the shares in the Bond Index Fund is computed based on the net
income of the Fund during a 30-day (or one month) period (which period will be
identified in connection with the particular yield quotation). More
specifically, the Fund's yield is computed by dividing the per share net income
during a 30-day (or one-month) period by the maximum offering price per share on
the last day of the period and annualizing the result on a semi-annual basis.
Performance will fluctuate and any quotation of performance should not be
considered as representative of future performance of shares in a Fund.
Shareholders should remember that performance is generally a function of the
kind and quality of the instruments held in a fund, portfolio maturity,
operating expenses, and market conditions. Any fees charged by institutions
directly to their customers' accounts in connection with investments in a Fund
will not be included in calculations of yield and performance.
Shareholders will receive unaudited financial reports semi-annually that
include the Funds' financial statements, including a list of investment
securities held by the Funds' at those dates. Annual reports are audited by
independent accountants.
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<PAGE>
MUNDER S&P 500 INDEX EQUITY FUND
MUNDER S&P MIDCAP INDEX EQUITY FUND
MUNDER S&P SMALLCAP INDEX EQUITY FUND
MUNDER AGGREGATE BOND INDEX FUND
MUNDER FOREIGN EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
__________, 1997
St. Clair Funds, Inc. (the "Company"), currently offers a selection of
investment portfolios, five of which are offered in this Statement of Additional
Information: Munder S&P 500 Cap Index Equity Fund ("Large-Cap Index Fund"),
Munder S&P MidCap Index Equity Fund ("MidCap Index Fund"), Munder S&P
SmallCap
Index Equity Fund ("SmallCap Index Fund"), Munder Aggregate Bond Index Fund
("Bond Index Fund") and Munder Foreign Equity Fund ("Foreign Fund")
(collectively, the "Funds"). The Fund's investment advisor is Munder Capital
Management (the "Advisor").
Shares of the Funds are available to the public only through the purchase
of certain variable annuity and variable life insurance contracts, subject to
regulatory
approval ("Contracts") issued by various life insurance companies
(the "Insurers").
This Statement of Additional Information is intended to supplement the
information provided to investors in the Funds' Prospectus dated __________,
1997 and has been filed with the Securities and Exchange Commission ("SEC") as
part of the Company's Registration Statement. This Statement of Additional
Information is not a prospectus, and should be read only in conjunction with the
Funds' Prospectus dated __________, 1997. The contents of this Statement of
Additional Information are incorporated by reference in the Prospectus in their
entirety. A copy of the Prospectus may be obtained through Longrow Securities
Inc. (the "Distributor"), or by calling the Funds at (800) 438-5789. This
Statement of Additional Information is dated __________, 1997.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT INSURED OR GUARANTEED BY
THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY. AN
INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING
THE POSSIBLE LOSS
OF PRINCIPAL.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
GENERAL........................................................... 3
FUND INVESTMENTS.................................................. 3
RISK FACTORS AND SPECIAL CONSIDERATIONS - INDEX FUNDS.............
14
INVESTMENT LIMITATIONS............................................ 15
DIRECTORS AND OFFICERS............................................ 17
INVESTMENT ADVISORY AND OTHER SERVICE ARRANGEMENTS................
21
CONTROL PERSON AND PRINCIPAL HOLDER OF SECURITIES................. 23
PORTFOLIO TRANSACTIONS............................................ 23
PURCHASE AND REDEMPTION INFORMATION............................... 25
NET ASSET VALUE................................................... 26
PERFORMANCE INFORMATION........................................... 26
TAXES............................................................. 28
ADDITIONAL INFORMATION CONCERNING SHARES.......................... 30
MISCELLANEOUS..................................................... 31
REGISTRATION STATEMENT............................................ 32
APPENDIX A........................................................ A-1
APPENDIX B........................................................ B-1
</TABLE>
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information or in
the Prospectus in connection with the offering made by the Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Funds or the Distributor. The Prospectus does not
constitute an offering by the Funds or by the Distributor in any jurisdiction in
which such offering may not lawfully be made.
2
<PAGE>
GENERAL
The Company was organized as a Maryland corporation on May 23, 1984 under
the name St. Clair Money Market Fund, Inc. which was changed to St. Clair Fixed
Income Fund, Inc. on December 30, 1986 and to St. Clair Funds, Inc. on September
18, 1996.
As stated in the Prospectus, the investment advisor of the Fund is Munder
Capital Management (the "Advisor"). The principal partners of the Advisor are
Old MCM, Inc. ("Old MCM"), Munder Group LLC, Woodbridge Capital Management,
Inc.
("Woodbridge") and WAM Holdings, Inc. ("WAM"). Mr. Lee P. Munder, the Advisor's
Chief Executive Officer, indirectly owns or controls a majority of the
partnership interests of the Advisor. Capitalized terms used herein and not
otherwise defined have the same meanings as are given to them in the Prospectus.
FUND INVESTMENTS
The following supplements the information contained in the Funds'
Prospectus concerning the investment objective and policies of the Funds. Each
Fund's investment objective is a non-fundamental policy and may be changed
without the authorization of the holders of a majority of the Fund's outstanding
shares. There can be no assurance that any Fund will achieve its objective.
FOREIGN SECURITIES. The Foreign Fund may invest in common stock of foreign
issuers and American Depositary Receipts ("ADRs") listed on a domestic
securities exchange or included in the NASDAQ National Market System or the
United States Over-the Counter Market ("OTC"). ADRs are receipts typically
issued by a United States bank or trust company evidencing ownership of the
underlying foreign securities. Certain such institutions issuing ADRs may not
be sponsored by the issuer. A non-sponsored depositary may not provide the same
shareholder information that a sponsored depositary is required to provide under
its contractual arrangements with the issuer.
The Bond Index Fund may invest in international dollar-denominated bonds
such as Yankee bonds, which are dollar denominated bonds issued in the U.S. by
foreign banks and corporations.
Income and gains on foreign securities may be subject to foreign
withholding taxes. Investors should consider carefully the substantial risks
involved in securities of companies and governments of foreign nations, which
are in addition to the usual risks inherent in domestic investments.
There may be less publicly available information about foreign domiciled
companies comparable to the reports and ratings published about companies in the
United States. Investments in companies domiciled in foreign countries may be
subject to potentially higher risks than investments in the United States.
These risks include (i) less social, political and economic stability; (ii)
certain national policies which may restrict a Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interest; (iii) the absence, until recently in certain Eastern
European countries, of a capital market structure or market-oriented economy;
and (iv) the possibility that recent favorable economic developments in Eastern
Europe may be slowed or reversed by unanticipated political or social events in
such countries.
Many Asian countries may be subject to a greater degree of social,
political and economic instability than is the case in the United States and
European countries. Such instability may result from (i) authoritarian
governments or military involvement in political and economic decision-making;
(ii) popular unrest associated with demands for improved political, economic and
social conditions; (iii) internal insurgencies; (iv) hostile relations with
neighboring countries; and (v) ethnic, religious and racial disaffection. The
economies of most of emerging markets and Asian countries are heavily dependent
upon
3
<PAGE>
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally, the United
States, Japan, China and the European Community.
FUTURES CONTRACTS AND RELATED OPTIONS. The Funds currently expect
that
they may purchase and sell futures contracts on interest-bearing securities or
securities or bond indices, and may purchase and sell call and put options on
futures contracts. For a detailed description of futures contracts and related
options, see Appendix B to this Statement of Additional Information.
INTEREST RATE SWAP TRANSACTIONS. The Bond Index Fund may enter into
interest rate swap agreements for purposes of attempting to obtain a particular
desired return at a lower cost to the Fund than if the Fund had invested
directly in an instrument that yielded that desired return. Interest rate swap
transactions involve the exchange by the Fund with another party of its
commitments to pay or receive interest, such as an exchange of fixed rate
payments for floating rate payments. Typically, the parties with which the Fund
will enter into interest rate swap transactions will be brokers, dealers or
other financial institutions known as "counterparties." Certain Federal income
tax requirements may, however, limit the Fund's ability to engage in certain
interest rate transactions. Gains from transactions in interest rate swaps
distributed to shareholders of the Fund will be taxable as ordinary income or,
in certain circumstances, as long-term capital gains to the shareholders.
The Bond Index Fund's obligations (or rights) under a swap agreement will
generally be equal only to the net amount to be paid or received under the
agreement based on the relative values of the positions held by each party to
the agreement (the "net amount"). The Fund's obligations under a swap agreement
will be accrued daily (offset against any amounts owed to the Fund). Accrued
but unpaid net amounts owed to a swap counterparty will be covered by the
maintenance of a segregated account consisting of cash, U.S. Government
securities or other high-grade debt securities, to avoid any potential
leveraging of the Fund's portfolio.
The Bond Index Fund will not enter into any interest rate swap transaction
unless the credit quality of the unsecured senior debt or the claims-paying
ability of the other party to the transaction is rated in one of the highest
four rating categories by at least one nationally-recognized statistical rating
organization ("NRSRO") or is believed by the Advisor to be equivalent to that
rating. If the other party to a transaction defaults, the Fund will have
contractual remedies pursuant to the agreements related to the transactions.
The use of interest rate swaps is a highly specialized activity that
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If the Advisor is incorrect in its
forecasts of market values, interest rates and other applicable factors, the
investment performance of the Fund would be lower than it would have been if
interest rate swaps were not used. The swaps market has grown substantially in
recent years with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized swap documentation. As
a result, the swaps market has become relatively liquid in comparison with other
similar instruments traded in the interbank market. The swaps market is a
relatively new market and is largely unregulated. It is possible that
developments in the swaps market, including potential government regulation,
could adversely affect the Fund's ability to terminate existing swap agreements
or to realize amounts to be received under such agreements.
INVESTMENT COMPANY SECURITIES. The Funds may invest in securities issued
by other investment companies. The Foreign Fund may purchase shares of
investment companies investing primarily in foreign securities, including so
called "country funds". In addition, the LargeCap Index Fund and the MidCap
Index Fund may invest in Standard & Poor's Depositary Receipts ("SPDRs"). SPDRs
are securities that represent ownership in the SPDR Trust, a long-term unit
investment trust which is intended to provide investment results that generally
correspond to the price and yield performance of certain corresponding
4
<PAGE>
S&P indices. SPDR holders are paid a "Dividend Equivalent Amount" that
corresponds to the amount of cash dividends accruing to the securities in the
SPDR Trust, net of certain fees and expenses charged to the Trust. Because of
these fees and expenses, the dividend yield for SPDRs may be less than that of
the corresponding S&P index. SPDRs are traded on the American Stock Exchange.
As a shareholder of another investment company, a Fund would bear its pro
rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the expenses each Fund bears
directly in connection with its own operations. Each Fund currently intends to
limit its investments in securities issued by other investment companies so
that, as determined immediately after a purchase of such securities is made:
(i) not more than 5% of the value of the Fund's total assets will be invested in
the securities of any one investment company; (ii) not more than 10% of the
value of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (iii) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Fund or by the
Company as a whole.
MONEY MARKET INSTRUMENTS. As described in the Prospectus, the Funds may
invest from time to time in "money market instruments," a term that includes,
among other things, bank obligations, commercial paper, variable amount master
demand notes and corporate bonds with remaining maturities of 397 days or less.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits, including U.S. dollar-denominated
instruments issued or supported by the credit of U.S. or foreign banks or
savings institutions. Although the Funds will invest in obligations of foreign
banks or foreign branches of U.S. banks only when the Advisor deems the
instrument to present minimal credit risks, such investments may nevertheless
entail risks that are different from those of investments in domestic
obligations of U.S. banks due to differences in political, regulatory and
economic systems and conditions. [All investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase, and investments by a Fund in the
obligations of foreign banks and foreign branches of U.S. banks will not exceed
25% of such Fund's total assets at the time of purchase.]
Investments by a Fund in commercial paper will consist of issues rated at
the time A-1 and/or P-1 by Standard & Poor's Rating Service ("S&P"), a division
of McGraw-Hill Companies, Inc., or Moody's Investor Services, Inc. ("Moody's").
In addition, the Funds may acquire unrated commercial paper and corporate bonds
that are determined by the Advisor at the time of purchase to be of comparable
quality to rated instruments that may be acquired by such Fund as previously
described.
The Funds may also purchase variable amount master demand notes which are
unsecured instruments that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate. Although the notes are
not normally traded and there may be no secondary market in the notes, a Fund
may demand payment of the principal of the instrument at any time. The notes
are not typically rated by credit rating agencies, but issuers of variable
amount master demand notes must satisfy the same criteria as set forth above for
issuers of commercial paper. If an issuer of a variable amount master demand
note defaulted on its payment obligation, a Fund might be unable to dispose of
the note because of the absence of a secondary market and might, for this or
other reasons, suffer a loss to the extent of the default. The Funds invest in
variable amount master notes only when the Advisor deems the investment to
involve minimal credit risk.
MORTGAGE-RELATED SECURITIES. There are a number of important
differences
among the agencies and instrumentalities of the U.S. Government that issue
mortgage-related securities and among the securities that they issue. Mortgage-
related securities guaranteed by the Government National Mortgage
5
<PAGE>
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA and are not backed by or entitled to the full faith and
credit of the United States, but are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of the principal and interest by FNMA. Mortgage-related securities
issued by the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC
Mortgage Participation Certificates (also known as "Freddie Macs" or "PCs").
FHLMC is a corporate instrumentality of the United States, created pursuant to
an Act of Congress, which is owned entirely by Federal Home Loan Banks. Freddie
Macs are not guaranteed by the United States or by any Federal Home Loan Banks
and do not constitute a debt or obligation of the United States or of any
Federal Home Loan Bank. Freddie Macs entitle the holder to timely payment of
interest, which is guaranteed by the FHLMC. FHLMC guarantees either ultimate
collection or timely payment of all principal payments on the underlying
mortgage loans. When FHLMC does not guarantee timely payment of principal, FHLMC
may remit the amount due on account of its guarantee of ultimate payment of
principal at any time after default on an underlying mortgage, but in no event
later than one year after it becomes payable.
OPTIONS. The Funds may write covered call options, buy put options, buy
call options and write secured put options in an amount not exceeding 5% of
their net assets. Such options may relate to particular securities and may or
may not be listed on a national securities exchange and issued by the Options
Clearing Corporation. Options trading is a highly specialized activity which
entails greater than ordinary investment risk. Options on particular securities
may be more volatile than the underlying securities, and therefore, on a
percentage basis, an investment in options may be subject to greater fluctuation
than an investment in the underlying securities themselves.
A call option for a particular security gives the purchaser of the option
the right to buy, and a writer the obligation to sell, the underlying security
at the stated exercise price at any time prior to the expiration of the option,
regardless of the market price of the security. The premium paid to the writer
is in consideration for undertaking the obligations under the option contract.
A put option for a particular security gives the purchaser the right to sell the
underlying security at the stated exercise price at any time prior to the
expiration date of the option, regardless of the market price of the security.
The writer of an option that wished to terminate its obligation may effect
a "closing purchase transaction." This is accomplished by buying an option of
the same series as the option previously written. The effect of the purchase is
that the writer's position will be canceled by the clearing corporation.
However, a writer may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, an investor who is the holder
of an option may liquidate its position by effecting a "closing sale
transaction." The cost of such a closing purchase plus transaction costs may be
greater than the premium received upon the original option, in which event each
Fund will have incurred a loss in the transaction. There is no guarantee that
either a closing purchase or a closing sale transaction can be effected.
Effecting a closing transaction in the case of a written call option will
permit the Funds to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case of
a written put option, will permit the Funds to write another put option to the
extent that the exercise price thereof is secured by deposited cash or short-
term securities. Also, effecting a
6
<PAGE>
closing transaction will permit the cash or proceeds from the concurrent sale of
any securities subject to the option to be used for other Fund investments. If a
Fund desires to sell a particular security from its portfolio on which it has
written a call option, it will effect a closing transaction prior to or
concurrent with the sale of the security.
The Funds may write options in connection with buy-and-write transactions;
that is, the Funds may purchase a security and then write a call option against
that security. The exercise price of the call the Funds determine to write will
depend upon the expected price movement of the underlying security. The
exercise price of a call option may be below ("in-the-money"), equal to ("at-
the-money") or above ("out-of-the-money") the current value of the underlying
security at the time the option is written. Buy-and-write transactions using
in-the-money call options may be used when it is expected that the price of the
underlying security will remain flat or decline moderately during the option
period. Buy-and-write transactions using out-of-the-money call options may be
used when it is expected that the premiums received from writing the call option
plus the appreciation in the market price of the underlying security up to the
exercise price will be greater than the appreciation in the price of the
underlying security alone. If the call options are exercised in such
transactions, the maximum gain to the relevant Fund will be the premium received
by it for writing the option, adjusted upwards or downwards by the difference
between the Fund's purchase price of the security and the exercise price. If
the options are not exercised and the price of the underlying security declines,
the amount of such decline will be offset in part, or entirely, by the premium
received.
In the case of a call option on a security, the option is "covered" if a
Fund owns the security underlying the call or has an absolute and immediate
right to acquire that security without additional cash consideration (or, if
additional cash consideration is required, cash or cash equivalents in such
amount as are held in a segregated account by its custodian) upon conversion or
exchange of other securities held by it. For a call option on an index, the
option is covered if a Fund maintains with its Custodian cash or cash
equivalents equal to the contract value. A call option is also covered if a
Fund holds a call on the same security or index as the call written where the
exercise price of the call held is (i) equal to or less than the exercise price
of the call written, or (ii) greater than the exercise price of the call written
provided the difference is maintained by the portfolio in cash or cash
equivalents in a segregated account with its custodian. The Funds may write
call options that are not covered for cross-hedging purposes. Each of the Funds
will limit its investment in uncovered put and call options purchased or written
by the Fund to 5% of the Fund's total assets. The Funds will write put options
only if they are "secured" by cash or cash equivalents maintained in a
segregated account by the Funds' custodian in an amount not less than the
exercise price of the option at all times during the option period.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the relevant Fund's gain will be limited to the
premium received. If the market price of the underlying security declines or
otherwise is below the exercise price, the Fund may elect to close the position
or take delivery of the security at the exercise price and the Fund's return
will be the premium received from the put option minus the amount by which the
market price of the security is below the exercise price.
Each of the Funds may purchase put options to hedge against a decline in
the value of its portfolio. By using put options in this way, the Funds will
reduce any profit it might otherwise have realized in the underlying security by
the amount of the premium paid for the put option and by transaction costs.
Each of the Funds may purchase call options to hedge against an increase in the
price of securities that it anticipates purchasing in the future. The premium
paid for the call option plus any transaction costs will reduce the benefit, if
any, realized by the Funds upon exercise of the option, and, unless the price of
the underlying security rises sufficiently, the option may expire worthless to
the Fund.
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When a Fund purchases an option, the premium paid by it is recorded as an
asset of the Fund. When the Fund writes an option, an amount equal to the net
premium (the premium less the commission) received by the Fund is included in
the liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of this asset or deferred credit will be
subsequently marked-to-market to reflect the current value of the option
purchased or written. The current value of the traded option is the last sale
price or, in the absence of a sale, the average of the closing bid and asked
prices. If an option purchased by the Fund expires unexercised the Fund
realizes a loss equal to the premium paid. If the Fund enters into a closing
sale transaction on an option purchased by it, the Fund will realize a gain if
the premium received by the Fund on the closing transaction is more than the
premium paid to purchase the option, or a loss if it is less. If an option
written by the Fund expires on the stipulated expiration date or if the Fund
enters into a closing purchase transaction, it will realize a gain (or loss if
the cost of a closing purchase transaction exceeds the net premium received when
the option is sold) and the deferred credit related to such option will be
eliminated. If an option written by the Fund is exercised, the proceeds of the
sale will be increased by the net premium originally received and the Fund will
realize a gain or loss.
There are several risks associated with transactions in options on
securities and indices. For example, there are significant differences between
the securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its
objectives. An option writer, unable to effect a closing purchase transaction,
will not be able to sell the underlying security (in the case of a covered call
option) or liquidate the segregated account (in the case of a secured put
option) until the option expires or the optioned security is delivered upon
exercise with the result that the writer in such circumstances will be subject
to the risk of market decline or appreciation in the security during such
period.
There is no assurance that a Fund will be able to close an unlisted option
position. Furthermore, unlisted options are not subject to the protections
afforded purchasers of listed options by the Options Clearing Corporation, which
performs the obligations of its members who fail to do so in connection with the
purchase or sale of options.
In addition, a liquid secondary market for particular options, whether
traded over-the-counter or on a national securities exchange ("Exchange") may be
absent for reasons which include the following: there may be insufficient
trading interest in certain options; restrictions may be imposed by an Exchange
on opening transactions or closing transactions or both; trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; unusual or unforeseen
circumstances may interrupt normal operations on an Exchange; the facilities of
an Exchange or the Options Clearing Corporation may not at all times be adequate
to handle current trading value; or one or more Exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that Exchange (or in that class or series of options)
would cease to exist, although outstanding options that had been issued by the
Options Clearing Corporation as a result of trades on that Exchange would
continue to be exercisable in accordance with their terms.
RIGHTS AND WARRANTS. As stated in the Prospectus, each Fund (other than
the Bond Index Fund) may purchase warrants, which are privileges issued by
corporations enabling the owners to subscribe to and purchase a specified number
of shares of the corporation at a specified price during a specified period of
time. Subscription rights normally have a short life span to expiration. The
purchase of warrants involves the risk that a Fund could lose the purchase value
of a warrant if the right to subscribe to additional shares is not exercised
prior to the warrant's expiration. Also, the purchase of warrants involves the
risk that the effective price paid for the warrant added to the subscription
price of the related security may exceed the value of the subscribed security's
market price such as when there is no movement in the
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level of the underlying security. Warrants acquired by a Fund in units or
attached to other securities are not subject to this restriction.
STOCK INDEX FUTURES, OPTIONS ON STOCK AND BOND INDICES AND
OPTIONS ON STOCK
AND BOND INDEX FUTURES CONTRACTS. The Funds may purchase and sell stock
index
futures, options on stock and bond indices and options on stock index futures
contracts as a hedge against movements in the equity and bond markets.
A stock index futures contract is an agreement in which one party agrees to
deliver to the other an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is made.
No physical delivery of securities is made.
Options on stock and bond indices are similar to options on specific
securities, described above, except that, rather than the right to take or make
delivery of the specific security at a specific price, an option on a stock or
bond index gives the holder the right to receive, upon exercise of the option,
an amount of cash if the closing level of that stock or bond index is greater
than, in the case of a call option, or less than, in the case of a put option,
the exercise price of the option. This amount of cash is equal to such
difference between the closing price of the index and the exercise price of the
option expressed in dollars times a specified multiple. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount. Unlike options on specific securities, all settlements of options
on stock or bond indices are in cash, and gain or loss depends on general
movements in the stocks included in the index rather than price movements in
particular stocks.
If the Advisor expects general stock or bond market prices to rise, it
might purchase a stock index futures contract, or a call option on that index,
as a hedge against an increase in prices of particular securities it ultimately
wants to buy. If in fact the index does rise, the price of the particular
securities intended to be purchased may also increase, but that increase would
be offset in part by the increase in the value of the relevant Fund's futures
contract or index option resulting from the increase in the index. If, on the
other hand, the Advisor expects general stock or bond market prices to decline,
it might sell a futures contract, or purchase a put option, on the index. If
that index does in fact decline, the value of some or all of the securities in
the relevant Fund's portfolio may also be expected to decline, but that decrease
would be offset in part by the increase in the value of the Fund's position in
such futures contract or put option.
The Funds (except the Bond Index Fund) may purchase and write call and put
options on stock index futures contracts and the Bond Index Fund may purchase
and write call and put options on bond index futures contracts. Each Fund may
use such options on futures contracts in connection with its hedging strategies
in lieu of purchasing and selling the underlying futures or purchasing and
writing options directly on the underlying securities or indices. For example,
the Funds may purchase put options or write call options on stock and index
futures (bond index futures in the case of the Bond Index Fund), rather than
selling futures contracts, in anticipation of a decline in general stock or bond
market prices or purchase call options or write put options on stock or bond
index futures, rather than purchasing such futures, to hedge against possible
increases in the price of securities which the Funds intend to purchase.
In connection with transactions in stock or bond index futures, stock or
bond index options and options on stock index or bond futures, the Funds will be
required to deposit as "initial margin" an amount of cash and short-term U.S.
Government securities equal to from 5% to 8% of the contract amount.
Thereafter, subsequent payments (referred to as "variation margin") are made to
and from the broker to reflect changes in the value of the option or futures
contract. No Fund may at any time commit more than 5% of its total assets to
initial margin deposits on futures contracts, index options and options on
futures contracts.
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STRIPPED SECURITIES. The Bond Index Fund may acquire U.S. Government
obligations and their unmatured interest coupons that have been separated
("stripped") by their holder, typically a custodian bank or investment brokerage
firm. Having separated the interest coupons from the underlying principal of
the U.S. Government obligations, the holder will resell the stripped securities
in custodial receipt programs with a number of different names, including
"Treasury Income Growth Receipts" ("TIGRs") and "Certificate of Accrual on
Treasury Securities" ("CATS"). The stripped coupons are sold separately from
the underlying principal, which is usually sold at a deep discount because the
buyer receives only the right to receive a future fixed payment on the security
and does not receive any rights to periodic interest (cash) payments. The
underlying U.S. Treasury bonds and notes themselves are held in book-entry form
at the Federal Reserve Bank or, in the case of bearer securities (i.e.,
unregistered securities which are ostensibly owned by the bearer or holder), in
trust on behalf of the owners. Counsel to the underwriters of these
certificates or other evidences of ownership of U.S. Treasury securities have
stated that, in their opinion, purchasers of the stripped securities most likely
will be deemed the beneficial holders of the underlying U.S. Government
obligations for federal tax and securities purposes. The Trust is not aware of
any binding legislative, judicial or administrative authority on this issue.
Only instruments which are stripped by the issuing agency will be
considered U.S. Government obligations. Securities such as CATS and TIGRs which
are stripped by their holder do not qualify as U.S. Government obligations.
Within the past several years the Treasury Department has facilitated
transfers of ownership of zero coupon securities by accounting separately for
the beneficial ownership of particular interest coupon and principal payments or
Treasury securities through the Federal Reserve book-entry record-keeping
system. The Federal Reserve program as established by the Treasury Department
is known as "STRIPS" or "Separate Trading of Registered Interest and Principal
of Securities." Under the STRIPS program, a Fund is able to have its beneficial
ownership of zero coupon securities recorded directly in the book-entry record-
keeping system in lieu of having to hold certificates or other evidences of
ownership of the underlying U.S. Treasury securities.
In addition, the Bond Index Fund may invest in stripped mortgage-backed
securities ("SMBS"), which represent beneficial ownership interests in the
principal distributions and/or the interest distributions on mortgage assets.
SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions on a pool of mortgage assets. One
type of SMBS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class will receive most of
the interest and the remainder of the principal. In the most common case, one
class of SMBS will receive all of the interest (the interest-only or "IO"
class), while the other class will receive all of the principal (the principal-
only or "PO" class). SMBS may be issued by FNMA or FHLMC.
The original principal amount, if any, of each SMBS class represents the
amount payable to the holder thereof over the life of such SMBS class from
principal distributions of the underlying mortgage assets, which will be zero in
the case of an IO class. Interest distributions allocable to a class of SMBS,
if any, consist of interest at a specified rate on its principal amount, if any,
or its notional principal amount in the case of an IO class. The notional
principal amount is used solely for purposes of the determination of interest
distributions and certain other rights of holders of such IO class and does not
represent an interest in principal distributions of the mortgage assets.
Yields on SMBS will be extremely sensitive to the prepayment experience on
the underlying mortgage loans, and there are other associated risks. For IO
classes of SMBS and SMBS that were purchased at prices exceeding their principal
amounts there is a risk that a Fund may not fully recover its initial
investment.
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The determination of whether a particular government-issued IO or PO backed
by fixed-rate mortgages is liquid may be made under guidelines and standards
established by the Board of Trustees. Such securities may be deemed liquid if
they can be disposed of promptly in the ordinary course of business at a value
reasonably close to that used in the calculation of a Fund's net asset value per
share.
U.S. GOVERNMENT OBLIGATIONS. The Funds may purchase obligations issued
or
guaranteed by the U.S. Government and U.S. Government agencies and
instrumentalities. Obligations of certain agencies and instrumentalities of the
U.S. Government, such as those of the GNMA, are supported by the full faith and
credit of the U.S. Treasury. Others, such as those of the Export-Import Bank of
the United States, are supported by the right of the issuer to borrow from the
U.S. Treasury; and still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the agency or instrumentality
issuing the obligation. No assurance can be given that the U.S. Government
would provide financial support to U.S. government-sponsored instrumentalities
if it is not obligated to do so by law. Examples of the types of U.S.
Government obligations that may be acquired by the Funds include U.S. Treasury
Bills, Treasury Notes and Treasury Bonds and the obligations of Federal Home
Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, FNMA, Government National Mortgage
Association, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, FHLMC, Federal Intermediate Credit
Banks and Maritime Administration.
VARIABLE AND FLOATING RATE INSTRUMENTS. Debt instruments may be
structured
to have variable or floating interest rates. These instruments may include
variable amount master demand notes that permit the indebtedness to vary in
addition to providing for periodic adjustments in the interest rates. The
Advisor will consider the earning power, cash flows and other liquidity ratios
of the issuers and guarantors of such instruments and, if the instrument is
subject to a demand feature, will continuously monitor their financial ability
to meet payment on demand. Where necessary to ensure that a variable or
floating rate instrument is equivalent to the quality standards applicable to
the Fund, the issuer's obligation to pay the principal of the instrument will be
backed by an unconditional bank letter or line of credit, guarantee or
commitment to lend.
The absence of an active secondary market for certain variable and floating
rate notes could make it difficult to dispose of the instruments, and the Bond
Index Fund could suffer a loss if the issuer defaulted or during periods that
the Fund is not entitled to exercise its demand rights.
Variable and floating rate instruments held by the Bond Index Fund will be
subject to the Fund's limitation on illiquid investments when the Fund may not
demand payment of the principal amount within seven days absent a reliable
trading market.
REPURCHASE AGREEMENTS. The Funds may agree to purchase securities from
financial institutions such as member banks of the Federal Reserve System, any
foreign bank or any domestic or foreign broker/dealer that is recognized as a
reporting government securities dealer, subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). The
Advisor will review and continuously monitor the creditworthiness of the seller
under a repurchase agreement, and will require the seller to maintain liquid
assets in a segregated account in an amount that is greater than the repurchase
price. Default by, or bankruptcy of the seller would, however, expose a Fund to
possible loss because of adverse market action or delays in connection with the
disposition of underlying obligations.
The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by a Fund plus interest negotiated on
the basis of current short-term rates (which may be more or less than the rate
on the securities underlying the repurchase agreement).
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Securities subject to repurchase agreements will be held by the Company's
custodian (or sub-custodian) in the Federal Reserve/Treasury book-entry system
or by another authorized securities depository. Repurchase agreements are
considered to be loans by a Fund under the Investment Company Act of 1940, as
amended (the "1940 Act").
BORROWING. Each Fund is authorized to borrow money in an amount up to 5%
of the value of its total assets at the time of such borrowings for temporary
purposes, and is authorized to borrow money in excess of the 5% limit as
permitted by the 1940 Act to meet redemption requests. This borrowing may be
unsecured. The 1940 Act requires a Fund to maintain continuous asset coverage of
300% of the amount borrowed. If the 300% asset coverage should decline as a
result of market fluctuations or other reasons, a Fund may be required to sell
some of its portfolio holdings within three days to reduce the debt and restore
the 300% asset coverage, even though it may be disadvantageous from an
investment standpoint to sell securities at that time. Borrowing may exaggerate
the effect on a Fund's net asset value of any increase or decrease in the market
value of securities purchased with borrowed funds. Money borrowed will be
subject to interest costs which may or may not be recovered by an appreciation
of the securities purchased. A Fund may also be required to maintain minimum
average balances in connection with such borrowing or to pay a commitment or
other fees to maintain a line of credit; either of these requirements would
increase the cost of borrowing over the stated interest rate. Each Fund may, in
connection with permissible borrowings, transfer, as collateral, securities
owned by the Fund.
REVERSE REPURCHASE AGREEMENTS. The Funds may borrow funds for
temporary or
emergency purposes by selling portfolio securities to financial institutions
such as banks and broker/dealers and agreeing to repurchase them at a mutually
specified date and price ("reverse repurchase agreements"). Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Fund may decline below the repurchase price. A Fund will pay interest on amounts
obtained pursuant to a reverse repurchase agreement. While reverse repurchase
agreements are outstanding, a Fund will maintain, in a segregated account, cash,
U.S. Government securities or other liquid high-grade debt securities of an
amount at least equal to the market value of the securities, plus accrued
interest, subject to the agreement.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS (DELAYED-
DELIVERY
TRANSACTIONS). When-issued purchases and forward commitments (delayed-delivery
transactions) are commitments by a Fund to purchase or sell particular
securities with payment and delivery to occur at a future date (perhaps one or
two months later). These transactions permit a Fund to lock-in a price or yield
on a security, regardless of future changes in interest rates.
When a Fund agrees to purchase securities on a when-issued or forward
commitment basis, the Custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, the Custodian will set aside portfolio securities to satisfy a
purchase commitment, and in such a case the Fund may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitments. It
may be expected that the market value of the Fund's net assets will fluctuate to
a greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because a Fund's liquidity and ability
to manage its portfolio might be affected when it sets aside cash or portfolio
securities to cover such purchase commitments, the Advisor expects that its
commitments to purchase when-issued securities and forward commitments will not
exceed 25% of the value of the Fund's total assets absent unusual market
conditions.
The Funds will purchase securities on a when-issued or forward commitment
basis only with the intention of completing the transaction and actually
purchasing the securities. If deemed advisable as a matter of investment
strategy, however, a Fund may dispose of or renegotiate a commitment after it is
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entered into, and may sell securities it has committed to purchase before those
securities are delivered to the Fund on the settlement date. In these cases the
Fund may realize a taxable capital gain or loss.
When a Fund engages in when-issued and forward commitment transactions, it
relies on the other party to consummate the trade. Failure of such party to do
so may result in the Fund's incurring a loss or missing an opportunity to obtain
a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their market value, are taken into account when determining the net asset value
of the Fund starting on the day the Fund agrees to purchase the securities. The
Fund does not earn interest on the securities it has committed to purchase until
they are paid for and delivered on the settlement date.
LENDING OF PORTFOLIO SECURITIES. To enhance the return on its portfolio,
each Fund may lend securities in its portfolio (subject to a limit of 25% of its
total assets) to securities firms and financial institutions, provided that each
loan is secured continuously by collateral in the form of cash or U.S.
Government securities adjusted daily to have a market value at least equal to
the current market value of the securities loaned. These loans are terminable at
any time, and the Fund will receive any interest or dividends paid on the loaned
securities. In addition, it is anticipated that a Fund may share with the
borrower some of the income received on the collateral for the loan or the Fund
will be paid a premium for the loan. The risk in lending portfolio securities,
as with other extensions of credit, consists of a possible delay in recovery of
the securities or a possible loss of rights in the collateral should the
borrower fail financially. In determining whether a Fund will lend securities,
the Advisor will consider all relevant facts and circumstances. A Fund will only
enter into loan arrangements with broker-dealers, banks or other institutions
which the Advisor has determined are creditworthy under guidelines established
by the Board of Directors.
YIELDS AND RATINGS. The yields on certain obligations, including the money
market instruments in which each Fund may invest (such as commercial paper and
bank obligations), are dependent on a variety of factors, including general
money market conditions, conditions in the particular market for the obligation,
the financial condition of the issuer, the size of the offering, the maturity of
the obligation and the ratings of the issue. The ratings of S&P, Moody's, Duff &
Phelps Credit Rating Co., Thomson Bank Watch, Inc., and other nationally
recognized statistical NRSROs represent their respective opinions as to the
quality of the obligations they undertake to rate. Ratings, however, are general
and are not absolute standards of quality. Consequently, obligations with the
same rating, maturity and interest rate may have different market prices.
OTHER. Subsequent to its purchase by a Fund, a rated security may cease to
be rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Directors or the Advisor, pursuant to
guidelines established by the Board, will consider such an event in determining
whether the Fund involved should continue to hold the security in accordance
with the interests of the Fund and applicable regulations of the SEC.
It is possible that unregistered securities purchased by a Fund in reliance
upon Rule 144A under the Securities Act of 1933, as amended, could have the
effect of increasing the level of a Fund's illiquidity to the extent that
qualified institutional buyers become, for a period, uninterested in purchasing
these securities.
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RISK FACTORS AND SPECIAL CONSIDERATIONS -- INDEX FUNDS
Traditional methods of fund investment management typically involve
relatively frequent changes in a portfolio of securities on the basis of
economic, financial and market analysis. Index funds such as the Large-Cap Index
Fund, MidCap Index Fund, SmallCap Index Fund (the "Equity Index Funds") and the
Bond Index Fund are not managed in this manner. Instead, with the aid of a
computer program, the Advisor purchases and sells securities for each Fund in an
attempt to produce investment results that substantially duplicate the
investment composition and performance of each Fund's respective corresponding
Index (the "Corresponding Index"), taking into account redemptions, sales of
additional Fund shares, and other adjustments as described below.
With respect to the Equity Index Funds, a Fund does not expect to hold at
any particular time all of the stocks included in the Corresponding Index. The
Advisor believes, however, that through the application of capitalization
weighing and sector balancing techniques it will be able to construct and
maintain each Equity Index Fund's investment portfolio so that it reasonably
tracks the performance of its Corresponding Index. The Advisor will compare the
industry sector diversification of the stocks the Fund would acquire solely on
the basis of their weighted capitalizations with the industry sector
diversification of all issuers included in the Corresponding Index. This
comparison is made because the Advisor believes that, unless a Fund holds all
stocks included in the Corresponding Index, the selection of stocks for purchase
by the Fund solely on the basis of their weighted market capitalizations would
tend to place heavier concentration in certain industry sectors. As a result,
events disproportionately affecting such industries could affect the performance
of the Fund differently than the performance of the Corresponding Index.
Conversely, if smaller companies were not purchased by the Fund, the
representation of industries included in the Corresponding Index that are not
dominated by the most heavily market-capitalized companies would be reduced or
eliminated.
For these reasons, the Advisor will identify the sectors which are (or,
except for sector balancing, would be) most underrepresented in a Fund's
portfolio and will purchase balancing securities in these sectors until the
portfolio's sector weightings closely match those of the Corresponding Index.
This process continues until the portfolio is fully invested (except for cash
holdings).
Redemptions of a substantial number of shares of a Fund could reduce the
number of issuers represented in the Fund's investment portfolio, which could,
in turn, adversely affect the accuracy with which the Fund tracks the
performance of the Corresponding Index.
If an issuer drops in ranking, or is eliminated entirely from the
Corresponding Index, the Advisor may be required to sell some or all of the
common stock of such issuer then held by a Fund. Sales of portfolio securities
may be made at times when, if the Advisor were not required to effect purchases
and sales of portfolio securities in accordance with the Corresponding Index,
such securities might not be sold. Such sales may result in lower prices for
such securities than may been realized or in losses that may not have been
incurred if the Advisor were not required to effect the purchases and sales. The
failure of an issuer to declare or pay dividends, the institution against an
issuer of potentially materially adverse legal proceedings, the existence or
threat of defaults materially and adversely affecting an issuer's future
declaration and payment of dividends, or the existence of other materially
adverse credit factors will not necessarily be the basis for the disposition of
portfolio securities, unless such event causes the issuer to be eliminated
entirely from the Corresponding Index. However, although the Advisor does not
intend to screen securities for investment by a Fund by traditional methods of
financial and market analysis, the Advisor will monitor the Fund's investment
with a view towards removing stocks of companies which exhibit extreme financial
distress or which may impair for any reason the Fund's ability to achieve its
investment objective.
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The Funds will invest primarily in the common stocks that constitute the
Corresponding Index in accordance with their relative capitalization and sector
weightings as described above. It is possible, however, that a Fund will from
time to time receive, as part of a "spin-off" or other corporate reorganization
of an issuer included in the Corresponding Index, securities that are themselves
outside the Corresponding Index. Such securities will be disposed of by the Fund
in due course consistent with the Fund's investment objective.
With respect to the Bond Index Fund, the Fund will invest in a group of
fixed income securities selected from the Lehman Brothers Aggregate Bond Index
("Aggregate Bond Index") which are expected to perform similarly to the Index as
a whole. The Bond Index Fund will be unable to hold all of the individual issues
which comprise the Aggregate Bond Index because of the large number of
securities involved. The Fund will however be constructed to approximately match
the composition of the Aggregate Bond Index.
As the Bond Index Fund will invest primarily in fixed-income securities,
the Fund is subject to interest rate, income, call, credit and prepayment risk
(with respect to mortgage-backed securities.) Interest rate risk is the
potential for fluctuations in bond prices due to changing interest rates. Income
risk is the potential for a decline in the Fund's income due to falling market
interest rates. Credit risk is the possibility that a bond issuer will fail to
make timely payments of either interest or principal to the Fund. Prepayment
risk (for mortgage-backed securities) and call risk (for corporate bonds) is the
likelihood that, during periods of falling interest rates, securities with high
stated interest rates will be prepaid (or "called") prior to maturity requiring
the Fund to invest the proceeds at generally lower interest rates.
INVESTMENT LIMITATIONS
Each Fund is subject to the investment limitations enumerated in this
section which may be changed with respect to a particular Fund only by a vote of
the holders of a majority of the Fund's outstanding shares (as defined under
"Miscellaneous - Shareholder Approvals").
Each Fund may not:
1. With respect to 75% of the Fund's assets, invest more than 5% of
the Fund's assets (taken at market value at the time of purchase)
in the outstanding securities of any single issuer or own more
than 10% of the outstanding voting securities of any one issuer,
in each case other than securities issued or guaranteed by the
United States Government, its agencies or instrumentalities;
2. Invest more than 25% of its total assets in the securities of
issuers conducting their principal business activities in any one
industry (securities issued or guaranteed by the United States
Government, its agencies or instrumentalities are not considered
to represent industries);
3. Borrow money or enter into reverse repurchase agreements except
that the Fund may (i) borrow money or enter into reverse
repurchase agreements for temporary purposes in amounts not
exceeding 5% of its total assets and (ii) borrow money for the
purpose of meeting redemption requests, in amounts (when
aggregated with amounts borrowed under clause (i)) not exceeding
33 1/3% of its total assets;
4. Pledge, mortgage or hypothecate its assets other than to secure
borrowings permitted by restriction 3 above (collateral
arrangements with respect to margin requirements for options and
futures transactions are not deemed to be pledges or
hypothecations for this purpose);
15
<PAGE>
5. Make loans of securities to other persons in excess of 25% of the
Fund's total assets, provided the Fund may invest without
limitation in short-term debt obligations (including repurchase
agreements) and publicly distributed debt obligations;
6. Underwrite securities of other issuers, except insofar as the
Fund may be deemed an underwriter under the Securities Act of
1933, as amended (the "1933 Act") in selling portfolio
securities;
7. Purchase or sell real estate or any interest therein, but not
including securities issued by companies (including real estate
investment trusts) that invest in real estate or interests
therein;
8. Purchase securities on margin, or make short sales of securities
except for the use of short-term credit necessary for the
clearance of purchase and sales of portfolio securities, but the
Fund may make margin deposits in connection with transactions in
options, futures and options on futures;
9. Make investments for the purpose of exercising control of
management;
10. Invest in commodities or commodity futures contracts, provided
that this limitation shall not prohibit the purchase or sale by
the Fund of financial futures contracts and options on financial
futures contracts, options on securities and securities indices,
as permitted by the Fund's Prospectus; or
11. Issue any senior securities (as such term is defined in Section
18(f) of the 1940 Act) except to the extent the activities
permitted by other enumerated Investment Limitations may be
deemed to give rise to a senior security and as consistent with
interpretations under the 1940 Act.
Additional investment restrictions adopted by each Fund, which may be
changed by the Board of Directors, provide that a Fund may not:
1. Invest more than 15% of its net assets (taken at market value at
the time of purchase) in securities which cannot be readily
resold because of legal or contractual restrictions or which are
not otherwise marketable; or
2. Invest in other investment companies except as permitted under
the 1940 Act.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
a Fund's investments will not constitute a violation of such limitation, except
that any borrowing by a Fund that exceeds the fundamental investment limitations
stated above must be reduced to meet such limitations within the period required
by the 1940 Act (currently three days). In addition, if a Fund's holdings of
illiquid securities exceeds 15% because of changes in the value of the Fund's
investments, the Fund will take action to reduce its holdings of illiquid
securities within a time frame deemed to be in the best interest of the Fund.
Otherwise, a Fund may continue to hold a security even though it causes the Fund
to exceed a percentage limitation because of fluctuation in the value of the
Fund's assets.
16
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Company, and their business
addresses and principal occupations during the past five years, are:
<TABLE>
<CAPTION>
Principal Occupations
Name, Address and Age Positions with Company During the Past Five Years
- --------------------- ---------------------- ---------------------------
<S> <C> <C>
Charles W. Elliott 1/ Chairman of the Board Senior Advisor to the
3338 Bronson Boulevard of Directors President - Western
Kalmazoo, MI 49008 Michigan University since
Age: 64 July 1995; prior to that
Executive Vice President -
Administration & Chief
Financial Officer, Kellogg
Company from January 1987
through June 1995; before
that Price Waterhouse.
Board of Directors,
Steelcase Financial
Corporation.
John Rakolta, Jr. Director and Vice Chairman, Walbridge
1876 Rathmor Chairman of the Board Aldinger Company
Bloomfield Hills, MI 48304 of Directors
Age: 49
Thomas B. Bender Director Investment Advisor,
7 Wood Ridge Road Financial & Investment
Glen Arbor, MI 49636 Management Group (since
Age: 63 April, 1991); Vice
President Institutional
Sales, Kidder, Peabody &
Co. (Retired April, 1991).
David J. Brophy Director Professor, University of
1025 Martin Place Michigan; Director, River
Ann Arbor, MI 48104 Place Financial Corp.;
Age: 60 Trustee, Renaissance
Assets Trust.
</TABLE>
17
<PAGE>
<TABLE>
<S> <C> <C>
Dr. Joseph E. Champagne Director Corporate and Executive
319 Snell Road Consultant since September
Rochester, MI 48306 1995; prior to that
Age: 58 Chancellor, Lamar
University from September
1994 until September 1995;
before that Consultant to
Management, Lamar
University; President and
Chief Executive Officer,
Crittenton Corporation,
Crittenton Development
Corporation until August
1993; before that
President, Oakland
University of Rochester,
MI, until August 1991;
Member, Board of
Directors, Ross Operating
Valve of Troy, MI
Thomas D. Eckert Director President and COO,
10726 Falls Pointe Drive Mid-Atlantic Group of
Great Falls, VA 22066 Pulte Home Corporation
Age: 49
Jack L. Otto Director Retired; Director of
6532 W. Beech Tree Road Standard Federal Bank;
Glen Arbor, MI 49636 Executive Director,
Age: 70 McGregor Fund (a private
philanthropic foundation)
1981-1985; Managing
Partner, Detroit office of
Ernst & Young, until 1981.
Arthur DeRoy Rodecker Director President, Rodecker &
4000 Town Center Company, Investment
Suite 101 Brokers, Inc. since
Southfield, MI 48075 November 1976; President,
Age: 69 RAC Advisors, Inc.,
Registered Investment
Advisor since February
1979; President and
Trustee, Helen L. DeRoy
Foundation, a charitable
foundation; Vice President
and Trustee, DeRoy
Testamentary Foundation, a
charitable foundation;
Trustee, Providence
Hospital Foundation.
</TABLE>
18
<PAGE>
<TABLE>
<S> <C> <C>
Lee P. Munder President President and CEO of the
480 Pierce Street Advisor; Chief Executive
Suite 300 Officer and President of
Birmingham, MI 48009 Old MCM, Inc.; Chief
Age: 51 Executive Officer of World
Asset Management; and
Director, LPM Investment
Services, Inc. ("LPM").
Terry H. Gardner Vice President, Chief Vice President and Chief
480 Pierce Street Financial Officer and Financial Officer of the
Suite 300 Treasurer Advisor; Vice President
Birmingham, MI 48009 and Chief Financial
Age: 36 Officer of Old MCM, Inc.
(February 1993 to
present); Audit Manager
Arthur Andersen & Co.
(1991 to February 1993);
Secretary of LPM
Paul Tobias Vice President Executive Vice President
480 Pierce Street and Chief Operating
Suite 300 Officer of the Advisor
Birmingham, MI 48009 (since April 1995) and
Age: 45 Executive Vice President
of Comerica, Inc.
Gerald Seizert Vice President Executive Vice President
480 Pierce Street and Chief Investment
Suite 300 Officer/Equities of the
Birmingham, MI 48009 Advisor (since April
Age: 44 1995); Managing Director
(1991-1995), Director
(1992-1995) and Vice
President (1984-1991) of
Loomis, Sayles and
Company, L.P.
Elyse G. Essick Vice President Vice President and
480 Pierce Street Director of Marketing for
Suite 300 the Advisor; Vice
Birmingham, MI 48009 President and Director of
Age: 38 Client Services of Old
MCM, Inc. (August 1988 to
December 1994).
James C. Robinson Vice President Vice President and Chief
480 Pierce Street Investment Officer/Fixed
Suite 300 Income for the Advisor;
Birmingham, MI 48009 Vice President and
Age: 35 Director of Fixed Income
of Old MCM, Inc.
(1987-1994).
</TABLE>
19
<PAGE>
<TABLE>
<S> <C> <C>
Leonard J. Barr, II Vice President Vice President and
480 Pierce Street Director of Core Equity
Suite 300 Research of the Advisor;
Birmingham, MI 48009 Director and Senior Vice
Age: 52 President of Old MCM, Inc.
(since 1988); Director of
LPM.
Ann F. Putallaz Vice President Vice President and
480 Pierce Street Director of Fiduciary
Suite 300 Services of the Advisor
Birmingham, MI 48009 (since January 1995);
Age: 51 Director of Client and
Marketing Services of
Woodbridge Capital
Management, Inc.
Richard H. Rose Assistant Treasurer Senior Vice President,
First Data Investor First Data Investor
Services Group, Inc. Services Group, Inc.
One Exchange Place (since May 6, 1994).
6th Floor Formerly, Senior Vice
Boston, MA 02109 President, The Boston
Age: 41 Company Advisors, Inc.
since November 1989.
Lisa A. Rosen Secretary, Assistant General Counsel of the
480 Pierce Street Treasurer Advisor since May, 1996;
Suite 300 Formerly Counsel, First
Birmingham, MI 48009 Data Investor Services
Age: 29 Group, Inc.; Assistant
Vice President and Counsel
with The Boston Company
Advisors, Inc.; Associate
with Hutchins, Wheeler &
Dittmar.
Teresa M. R. Hamlin Assistant Secretary Counsel, First Data
First Data Investor Investor Services Group,
Services Group, Inc. Inc.; Formerly Paralegal
One Exchange Place Manager, The Boston
8th Floor Company Advisors, Inc.
Boston, MA 02109
Age: 33
</TABLE>
1/ Director is an "interested person" of the Company as defined in the 1940
Act.
Directors of the Company receive an aggregate fee from the Company, The
Munder Funds Trust (the "Trust"), The Munder Funds, Inc. ("Munder") and The
Munder Framlington Funds Trust ("Framlington Trust") comprised of an annual
retainer fee and a fee for each Board meeting attended, and are reimbursed for
all out-of-pocket expenses relating to attendance at meetings.
20
<PAGE>
The following table summarizes the compensation paid by Munder and the
Trust to their respective Directors/Trustees for the fiscal year ended June 30,
1996. Neither the Company nor Framlington Trust had operations during the fiscal
year ended June 30, 1996.
<TABLE>
<CAPTION>
Aggregate Pension
Compensation Retirement Estimated
Name of from the Trust Benefits Accrued Annual Benefits Total
from
Person and as Part of upon the Fund
and Position Munder Fund Expenses Retirement Complex
------------ ------ ------------- ----------- -------
<S> <C> <C> <C> <C>
Charles W. Elliott $14,000.00 None None $14,000.00
Chairman
John Rakolta, Jr. $14,000.00 None None $14,000.00
Vice Chairman
Thomas B. Bender $14,000.00 None None $14,000.00
Trustee and Director
David J. Brophy $14,000.00 None None $14,000.00
Trustee and Director
Dr. Joseph E. Champagne $14,000.00 None None
$14,000.00
Trustee and Director
Thomas D. Eckert $14,000.00 None None $14,000.00
Trustee and Director
Jack L. Otto $14,000.00 None None $14,000.00
Trustee and Director
Arthur DeRoy Rodecker $14,000.00 None None
$14,000.00
Trustee and Director
</TABLE>
No officer, director or employee of the Advisor, Comerica, the Distributor,
the Administrator or the Transfer Agent currently receives any compensation from
the Company, the Trust, Munder or Framlington Trust.
The Company will not employ Rodecker & Company, Investment Brokers, Inc. to
effect brokerage transactions for the Funds.
INVESTMENT ADVISORY AND OTHER SERVICE ARRANGEMENTS
INVESTMENT ADVISOR. The Advisor of the Fund is Munder Capital Management,
a Delaware general partnership. The general partners of the Advisor are
Woodbridge, WAM, Old MCM, and Munder Group, LLC. Woodbridge and WAM are
wholly-owned subsidiaries of Comerica Bank -- Ann Arbor, which, in turn is a
wholly-owned subsidiary of Comerica Incorporated, a publicly-held bank holding
company.
21
<PAGE>
Under the terms of the Investment Advisory Agreement between the Company
and the Advisor with respect to the Funds (the "Advisory Agreement"), the
Advisor furnishes continuing investment supervision to the Funds and is
responsible for the management of each Fund's portfolio. The responsibility for
making decisions to buy, sell or hold a particular security rests with the
Advisor, subject to review by the Company's Board of Directors.
For the advisory services provided and expenses assumed by it, the Advisor
has agreed to a fee from each Fund, computed daily and payable monthly, at an
annual rate of .05% of average daily net assets of the Fund.
The Advisory Agreement will continue in effect for a period of two years
from its effective date. If not sooner terminated, the Advisory Agreement will
continue in effect for successive one year periods thereafter, provided that
each continuance is specifically approved annually by (a) the vote of a majority
of the Board of Directors who are not parties to the Advisory Agreement or
interested persons (as defined in the 1940 Act), cast in person at a meeting
called for the purpose of voting on approval, and (b) either (i) the vote of a
majority of the outstanding voting securities of the Fund, or (ii) the vote of a
majority of the Board of Directors. The Advisory Agreement is terminable by vote
of the Board of Directors, or by the holders of a majority of the outstanding
voting securities of a Fund, at any time without penalty, upon 60 days' written
notice to the Advisor. The Advisor may also terminate its advisory relationship
with a Fund without penalty upon 90 days' written notice to the Company. The
Advisory Agreement terminates automatically in the event of its assignment (as
defined in the 1940 Act).
DISTRIBUTION AGREEMENT. The Company has entered into a distribution
agreement, under which the Distributor, as agent, sells shares of the Fund on a
continuous basis to separate accounts of the Insurers. The Distributor's
principal offices are located at 222 South Central Avenue, St. Louis, Missouri
63105.
SHAREHOLDER SERVICING ARRANGEMENTS. The Funds have adopted a
Shareholder
Servicing Plan (the "Plan") under which the Distributor, Insurers, and other
dealers that offer the Contracts may be paid by the Funds in connection with
providing shareholder services to the Contractowners. Under the Plan, each fund
may incur such shareholder servicing expenses in amounts up to an annual rate of
.25% of the average daily net assets of each Fund.
The services provided by the Service Organizations under the Plan may
include execution and processing of orders from Insurers; processing purchase,
exchange and redemption requests furnished to the Insurers by the
Contractowners;
placing orders with the Transfer Agent; processing dividend and distribution
payments from the Funds; providing statements of additional information and
information periodically showing positions in Fund shares; and providing such
other personal and account maintenance services as may reasonably be requested
by the Funds.
ADMINISTRATION AGREEMENT. First Data Investor Services Group, Inc. ("First
Data") located at 53 State Street, Boston, Massachusetts 02109 serves as
administrator for the Company pursuant to an administration agreement (the
"Administration Agreement"). First Data has agreed to maintain office facilities
for the Company; provide accounting and bookkeeping services for the Funds,
including the computation of each Fund's net asset value, net income and
realized capital gains, if any; furnish statistical and research data, clerical
services, and stationery and office supplies; prepare and file various reports
with the appropriate regulatory agencies; and prepare various materials required
by the SEC or any state securities commission having jurisdiction over the
Company.
The Administration Agreement provides that the Administrator performing
services thereunder shall not be liable under the Agreement except for its
willful misfeasance, bad faith or gross negligence in the performance of its
duties or from the reckless disregard by it of its duties and obligations
thereunder.
22
<PAGE>
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. Comerica Bank (the
"Custodian"),
whose principal business address is One Detroit Center, 500 Woodward Avenue,
Detroit, MI 48226, maintains custody of each Fund's assets pursuant to a
custodian agreement ("Custody Agreement") with the Company. Under the Custody
Agreement, the Custodian (i) maintains a separate account in the name of each
Fund, (ii) holds and transfers portfolio securities on account of each Fund,
(iii) accepts receipts and makes disbursements of money on behalf of each Fund,
(iv) collects and receives all income and other payments and distributions on
account of each Fund's securities and (v) makes periodic reports to the Board of
Directors concerning each Fund's operations. The Custodian is authorized to
select one or more domestic or foreign banks or trust companies to serve as sub-
custodian on behalf of the Funds.
First Data also serves as the transfer and dividend disbursing agent for
the Funds pursuant to a transfer agency agreement (the "Transfer Agency
Agreement") with the Company, under which First Data (i) issues and redeems
shares of each Fund, (ii) addresses and mails all communications by each Fund to
its record owners, including reports to shareholders, dividend and distribution
notices and proxy materials for its meetings of shareholders, (iii) maintains
shareholder accounts, (iv) responds to correspondence by shareholders of each
Fund and (v) makes periodic reports to the Board of Directors concerning the
operations of the Funds.
OTHER INFORMATION PERTAINING TO ADMINISTRATION, CUSTODIAN
AND TRANSFER
AGENCY AGREEMENTS. As stated in the Prospectus, the Administrator and Transfer
Agent each receives, as compensation for its services, [fees from the Funds
based on the aggregate average daily net assets of the Funds and other
investment portfolios advised by the Advisor.] The Custodian receives a
separate fee for its services. In approving the Administration Agreement and
Transfer Agency Agreement, the Board of Directors did consider the services that
are to be provided under their respective agreements, the experience and
qualifications of the respective service contractors, the reasonableness of the
fees payable by the Company in comparison to the charges of competing vendors,
the impact of the fees on the estimated total ordinary operating expense ratio
of each Fund and the fact that neither the Administrator nor the Transfer Agent
is affiliated with the Company or the Advisor. The Board also considered its
responsibilities under federal and state law in approving these agreements.
Comerica Bank provides custodial services to the Fund. [As compensation
for its services, Comerica Bank is entitled to receive fees, based on the
aggregate average daily net assets of the Fund and certain other investment
portfolios for which Comerica Bank provides services, computed daily and payable
monthly at an annual rate of 0.03% of the first $100 million of average daily
net assets, plus 0.02% of the next $500 million of net assets, plus 0.01% of all
net assets in excess of $600 million.] Comerica Bank also receives certain
transaction based fees.
CONTROL PERSON AND PRINCIPAL HOLDER OF SECURITIES
The separate accounts of the Insurers are the sole shareholders of the
Funds
and therefore are considered to be control persons of the Funds.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Board of Directors, the Advisor
makes decisions with respect to and places orders for all purchases and sales of
portfolio securities for each Fund.
23
<PAGE>
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. Transactions on foreign
stock exchanges involve payment for brokerage commissions which are generally
fixed.
Over-the-counter issues, including corporate debt and government
securities, are normally traded on a "net" basis (i.e., without commission)
through dealers, or otherwise involve transactions directly with the issuer of
an instrument. With respect to over-the-counter transactions, the Advisor will
normally deal directly with dealers who make a market in the instruments
involved except in those circumstances where more favorable prices and execution
are available elsewhere. The cost of foreign and domestic securities purchased
from underwriters includes an underwriting commission or concession, and the
prices at which securities are purchased from and sold to dealers include a
dealer's mark-up or mark-down.
The Funds may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
The Funds will engage in this practice, however, only when the Advisor believes
such practice to be in each Fund's interests.
The portfolio turnover rate of each Fund is calculated by dividing the
lesser of the Fund's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of securities whose maturities at the time of
acquisition were one year or less) by the monthly average value of the
securities held by the Fund during the year. Each Fund may engage in short-term
trading to achieve its investment objective. Portfolio turnover may vary
greatly from year to year as well as within a particular year.
In the Advisory Agreement, the Advisor agrees to select broker-dealers in
accordance with guidelines established by the Company's Board of Directors from
time to time and in accordance with applicable law. In assessing the terms
available for any transaction, the Advisor shall consider all factors it deems
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker-dealer,
and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. In addition, the Advisory Agreement
authorizes the Advisor, subject to the prior approval of the Company's Board of
Directors, to cause each Fund to pay a broker-dealer which furnishes brokerage
and research services a higher commission than that which might be charged by
another broker-dealer for effecting the same transaction, provided that the
Advisor determines in good faith that such commission is reasonable in relation
to the value of the brokerage and research services provided by such broker-
dealer, viewed in terms of either the particular transaction or the overall
responsibilities of the Advisor to the Fund. Such brokerage and research
services might consist of reports and statistics on specific companies or
industries, general summaries of groups of bonds and their comparative earnings
and yields, or broad overviews of the securities markets and the economy.
Supplementary research information so received is in addition to, and not
in lieu of, services required to be performed by the Advisor and does not reduce
the advisory fees payable to the Advisor by the Funds. It is possible that
certain of the supplementary research or other services received will primarily
benefit one or more other investment companies or other accounts for which
investment discretion is exercised. Conversely, the Funds may be the primary
beneficiary of the research or services received as a result of portfolio
transactions effected for such other account or investment company.
Portfolio securities will not be purchased from or sold to the Advisor, the
Distributor or any affiliated person (as defined in the 1940 Act) of the
foregoing entities except to the extent permitted by SEC exemptive order or by
applicable law.
24
<PAGE>
Investment decisions for each Fund and for other investment accounts
managed by the Advisor are made independently of each other in the light of
differing conditions. However, the same investment decision may be made for two
or more of such accounts. In such cases, simultaneous transactions are
inevitable. Purchases or sales are then averaged as to price and allocated as
to amount in a manner deemed equitable to each such account. While in some
cases this practice could have a detrimental effect on the price or value of the
security as far as the Funds are concerned, in other cases it is believed to be
beneficial to the Funds. To the extent permitted by law, the Advisor may
aggregate the securities to be sold or purchased for the Funds with those to be
sold or purchased for other investment companies or accounts in executing
transactions.
The Funds will not purchase securities during the existence of any
underwriting or selling group relating to such securities of which the Advisor
or any affiliated person (as defined in the 1940 Act) thereof is a member except
pursuant to procedures adopted by the Company's Board of Directors in accordance
with Rule 10f-3 under the 1940 Act.
Except as noted in the Prospectus and this Statement of Additional
Information the Funds' service contractors bear all expenses in connection with
the performance of its services and each Fund bears the expenses incurred in its
operations. These expenses include, but are not limited to, fees paid to the
Advisor, Administrator, Custodian and Transfer Agent; shareholder servicing
fees; fees and expenses of officers and directors; taxes; interest; legal and
auditing fees; brokerage fees and commissions; certain fees and expenses in
registering and qualifying each Fund and its shares for distribution under
Federal and state securities laws; expenses of preparing prospectuses and
statements of additional information and of printing and distributing
prospectuses and statements of additional information to existing shareholders;
the expense of reports to shareholders, shareholders' meetings and proxy
solicitations; fidelity bond and directors' and officers' liability insurance
premiums; the expense of using independent pricing services; and other expenses
which are not assumed by the Administrator. Any general expenses of the Company
that are not readily identifiable as belonging to a particular investment
portfolio of the Company are allocated among all investment portfolios of the
Company by or under the direction of the Board of Directors in a manner that the
Board of Directors determines to be fair and equitable, taking into
consideration whether
it is appropriate for expenses to be borne by the Funds in addition to the
Company's other
funds. The Advisor, Administrator, Custodian and Transfer Agent may voluntarily
waive
all or a portion of their respective fees from time to time.
PURCHASE AND REDEMPTION INFORMATION
Purchases and redemptions are discussed in the Funds' Prospectus and such
information is incorporated herein by reference.
PURCHASES. Each Fund's shares are continuously offered to the Insurers'
separate accounts at the net asset value per share next determined after a
proper purchase request has been received by the Insurer. The Funds and the
Distributor
reserve the right to reject any purchase order for shares of the Funds.
REDEMPTIONS. Payments for redeemed shares will ordinarily be made within
seven (7) business days after the Funds receive a redemption order from the
relevant Insurer. The redemption price will be the net asset value per share
next determined after the Insurer receives the Contractowner's request in proper
form. The Company reserves the right to suspend or postpone redemptions during
any period when: (i) trading on the New York Stock Exchange is restricted, as
determined by the SEC, or the New York Stock Exchange is closed for other than
customary weekend and holiday closings; (ii) the SEC has by order
25
<PAGE>
permitted such suspension or postponement for the protection of shareholders; or
(iii) an emergency, as determined by the SEC, exists, making disposal of
portfolio securities or valuation of net assets of the Funds not reasonably
practicable.
Redemption proceeds are normally paid in cash; however, each Fund may pay
the redemption price in whole or part by a distribution in kind of securities
from the portfolio of the Fund, in lieu of cash, in conformity with applicable
rules of the SEC. If shares are redeemed in kind, the redeeming Shareholder
might incur transaction costs in converting the assets into cash. Each Fund is
obligated to redeem Shares solely in cash up to the lesser of $250,000 or 1% of
its net assets during any 90-day period for any one Shareholder.
The prospectus(es) for the Insurers' variable annuities describe the
allocation, transfer and withdrawal provisions of such annuities.
NET ASSET VALUE
In determining the approximate market value of portfolio investments, the
Company may employ outside organizations, which may use matrix or formula
methods that take into consideration market indices, matrices, yield curves and
other specific adjustments. This may result in the securities being valued at a
price different from the price that would have been determined had the matrix or
formula methods not been used. All cash, receivables and current payables are
carried on the Company's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith under the supervision of the
Board of Directors.
PERFORMANCE INFORMATION
From time to time, quotations of a Fund's performance may be included in
advertisements, sales literature, or reports to existing or prospective owners
of the Insurers' variable contracts. These performance figures are calculated
in
the following manner:
YIELD
The Bond Index Fund's 30-day (or one month) standard yield described in the
Prospectus is calculated for the Fund in accordance with the method prescribed
by the SEC for mutual funds:
YIELD = 2[((a - b)+1)/6/- 1]
-----
cd
Where: a = dividends and interest earned by a Fund during the period;
b = expenses accrued for the period (net of reimbursements and
waivers);
c = average daily number of shares outstanding during the period
entitled to receive dividends; and
d = maximum offering price per share on the last day of the period.
For the purpose of determining interest earned on debt obligations
purchased by the Fund at a discount or premium (variable "a" in the formula),
the Fund computes the yield to maturity of such instrument based on the market
value of the obligation (including actual accrued interest) at the close of
26
<PAGE>
business on the last business day of each month, or, with respect to obligations
purchased during the month, the purchase price (plus actual accrued interest).
Such yield is then divided by 360 and the quotient is multiplied by the market
value of the obligation (including actual accrued interest) in order to
determine the interest income on the obligation for each day of the subsequent
month that the obligation is in the portfolio. It is assumed in the above
calculation that each month contains 30 days. The maturity of a debt obligation
with a call provision is deemed to be the next call date on which the obligation
reasonably may be expected to be called or, if none, the maturity date. For the
purpose of computing yield on equity securities held by the Fund, dividend
income is recognized by accruing 1/360 of the stated dividend rate of the
security for each day that the security is held by the Fund.
With respect to mortgage or other receivables-backed debt obligations
purchased at a discount or premium, the formula generally calls for amortization
of the discount or premium. The amortization schedule will be adjusted monthly
to reflect changes in the market value of such debt obligations. Expenses
accrued for the period (variable "b" in the formula) include all recurring fees
charged by the Fund to all shareholder accounts in proportion to the length of
the base period and the Fund's mean (or median) account size. Undeclared earned
income will be subtracted from the offering price per share (variable "d" in the
formula).
AVERAGE ANNUAL TOTAL RETURN
A Fund may advertise its "average annual total return" and will compute
such return by determining the average annual compounded rate of return during
specified periods that equates the initial amount invested to the ending
redeemable value of such investment according to the following formula:
P (1 + T)/n/ = ERV
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5, or 10 year
(or other) periods at the end of the applicable period
(or a fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
AGGREGATE TOTAL RETURN
A Fund may advertise its "aggregate total return" and will compute such
return by determining the aggregate compounded rates of return during specified
periods that likewise equate the initial amount invested to the ending
redeemable value of such investment. The formula for calculating aggregate
total return is as follows:
(ERV) - 1
-----
Aggregate Total Return = P
The calculations are made assuming that (1) all dividends and capital gain
distributions are reinvested on the reinvestment dates at the price per share
existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
27
<PAGE>
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all non-recurring charges at the end of the
measuring period.
The performance of any investment is generally a function of portfolio
quality and maturity, type of investment and operating expenses.
From time to time, in advertisements or in reports to shareholders, the
Funds' yields or total returns may be quoted and compared to those of other
mutual funds with similar investment objectives and to stock or other relevant
indices. For example, the Funds' yield may be compared to the IBC/Donoghue's
Money Fund Average, which is an average compiled by Donoghue's MONEY FUND
REPORT
of Holliston, MA 01746, a widely recognized independent publication that
monitors the performance of money market funds, or to the data prepared by
Lipper Analytical Services, Inc., a widely recognized independent service that
monitors the performance of mutual funds.
TAXES
The following summarizes certain additional tax considerations generally
affecting the Fund and its shareholders that are not described in the Fund's
Prospectuses. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussion here and in the
Prospectuses is not intended as a substitute for careful tax planning.
Potential investors should consult their tax advisors with specific reference to
their own tax situations.
Each Fund will elect to be taxed separately as a regulated investment
company under Subchapter M, of the Internal Revenue Code of 1986, as amended
(the "Code"). As a regulated investment company, a Fund generally is exempt
from Federal income tax on its net investment income and realized capital gains
which it distributes to the separate accounts, provided that it distributes an
amount equal to the sum of (a) at least 90% of its investment company taxable
income (net investment income and the excess of net short-term capital gain over
net long-term capital loss), if any, for the year and (b) at least 90% of its
net tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income and net tax-
exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement.
In addition to satisfaction of the Distribution Requirement, each Fund must
derive with respect to a taxable year at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans and gains
from the sale or other disposition of stock or securities or foreign currencies,
or from other income derived with respect to its business of investing in such
stock, securities, or currencies (the "Income Requirement") and derive less than
30% of its gross income from the sale or other disposition of securities and
certain other investments held for less than three months (the "Short-Short Gain
Test"). Interest (including original issue discount and "accrued market
discount") received by a Fund at maturity or on disposition of a security held
for less than three months will not be treated (in contrast to other income
which is attributable to realized market appreciation) as gross income from the
sale or other disposition of securities held for less than three months for this
purpose.
In addition to the foregoing requirements, at the close of each quarter of
its taxable year, at least 50% of the value of each Fund's assets must consist
of cash and cash items, U.S. Government securities, securities of other
regulated investment companies, and securities of other issuers (as to which the
Fund has not invested more than 5% of the value of its total assets in
securities of such issuer and as to which the Fund does not hold more than 10%
of the outstanding voting securities of such issuer) and no more than
28
<PAGE>
25% of the value of each Fund's total assets may be invested in the securities
of any one issuer (other than U.S. Government securities and securities of other
regulated investment companies), or in two or more issuers which the Fund
controls and which are engaged in the same or similar trades or businesses.
Repurchase agreements collateralized by U.S. treasury securities are not treated
for purposes of the diversification requirement described in this paragraph as
U.S. Government securities.
Certain debt instruments acquired by a Fund may include "original issue
discount" or "market discount". As a result, a Fund may be deemed under tax law
rules to have earned discount income in taxable periods in which it does not
actually receive any payments on the particular debt instruments involved. This
income, however, will be subject to the Distribution Requirements and must also
be distributed in accordance with the excise tax distribution rules discussed
above, which may cause the Fund to have to borrow or liquidate securities to
generate cash in order to timely meet these requirements (even though such
borrowing or liquidating securities at that time may be detrimental from the
standpoint of optimal portfolio management). Gain from the sale of a debt
instrument having market discount may be treated for tax purposes as ordinary
income to the extent that market discount accrued during the Fund's ownership of
that instrument.
Distributions of net investment income received by a Fund from investments
in debt securities and any net realized short-term capital gains distributed by
the Fund will be taxable to the separate accounts as ordinary income and will
not be eligible for the dividends received deduction for corporations.
Each Fund intends to distribute to shareholders any excess of net long-term
capital gain over net short-term capital loss ("net capital gain") for each
taxable year. Such gain is distributed as a capital gain dividend and is
taxable to shareholders as long-term capital gain, regardless of the length of
time the shareholder has held the shares, whether such gain was recognized by
the Fund prior to the date on which a shareholder acquired shares of the Fund
and whether the distribution was paid in cash or reinvested in shares.
If for any taxable year a Fund does not qualify as a regulated investment
company, all of its taxable income will be subject to tax at regular corporate
rates without any deduction for distributions to shareholders.
The Code imposes a non-deductible 4% excise tax on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). Each Fund intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and capital
gain net income each calendar year to avoid liability for this excise tax.
To comply with regulations under Section 817(h) of the Code, each Fund will
be required to diversify its investments so that on the last day of each
calendar quarter no more than 55% of the value of its assets is represented by
any one investment, no more than 70% is represented by any two investments, no
more than 80% is represented by any three investments and no more than 90% is
represented by any four investments. Generally, all securities of the same
issuer are treated as a single investment. For the purposes of Section 817(h)
of the Code, obligations of the U.S. Treasury and each U.S. Government
instrumentality are treated as securities of separate issuers. The Treasury
Department has indicated that it may issue future pronouncements addressing the
circumstances in which a variable annuity contract owner's control of the
investments of a separate account may cause the variable contract owner, rather
than the separate account's sponsoring insurance company, to be treated as the
owner of the assets held by the separate account. If the variable annuity
contract owner is considered the owner of the securities underlying the separate
account, income and gains produced by those securities would be included
currently in the variable annuity contract owner's gross income. It is not
known what standards will be set forth in
29
<PAGE>
such pronouncements or when, if at all, these pronouncements may be issued. In
the event that rules or regulations are adopted, there can be no assurance that
a Fund will be able to operate as described currently in the Prospectus or that
the Fund will not have to change its investment policies or goals.
The foregoing general discussion of Federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the date
of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Although each Fund expects to qualify as a "regulated investment company"
and to be relieved of all or substantially all Federal income taxes, depending
upon the extent of its activities in states and localities in which its offices
are maintained, in which its agents or independent contractors are located or in
which it is otherwise deemed to be conducting business, the Fund may be subject
to the tax laws of such states or localities.
ADDITIONAL INFORMATION CONCERNING SHARES
The Company is a Maryland corporation. The Company's Articles of
Incorporation authorize the Board of Directors to classify or reclassify any
authorized but unissued shares of the Company into one or more additional
portfolios (or classes of shares within a portfolio) by setting or changing in
any one or more respects their respective preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption. Pursuant to such authority, the
Company's Board of Directors have authorized the issuance of shares of common
stock representing interests in Munder S&P 500 Index Equity Fund, Munder S&P
MidCap Index Equity Fund, S&P SmallCap Index Equity Fund, Munder Aggregate Bond
Index Fund, Munder Foreign Equity Fund, Liquidity Plus Money Market Fund and
Institutional Index Equity Fund.
Shares of the Funds have no subscription or pre-emptive rights and only
such conversion or exchange rights as the Board may grant in its discretion.
When issued for payment as described in the applicable Prospectus and Statement
of Additional Information, shares will be fully paid and non-assessable by the
Company. In the event of a liquidation or dissolution of the Company or an
individual Fund, shareholders of a particular Fund would be entitled to receive
the assets available for distribution belonging to such Fund, and a
proportionate distribution, based upon the relative net asset values of the Fund
and the Company's other Funds, of any general assets not belonging to any
particular Fund which are available for distribution. Shareholders of a Fund are
entitled to participate in the net distributable assets of the particular Fund
involved, based on the number of shares of the Fund that are held by each
shareholder.
Shareholders of the Funds, as well as those of any other investment
portfolio now or hereafter offered by the Company, will vote together in the
aggregate and not separately on a Fund-by-Fund basis, except as otherwise
required by law or when permitted by the Board of Directors. Rule 18f-2 under
the 1940 Act provides that any matter required to be submitted to the holders of
the outstanding voting securities of an investment company such as the Company
shall not be deemed to have been effectively acted upon unless approved by the
holders of a majority of the outstanding shares of each Fund affected by the
matter. A Fund is affected by a matter unless it is clear that the interests of
such Fund in the matter are substantially identical to the interests of other
Funds of the Company or that the matter does not affect any interest of such
Fund. Under the Rule, the approval of an investment advisory agreement or any
change in a fundamental investment policy would be effectively acted upon with
respect to a Fund only if approved by a majority of the outstanding shares of
such Fund. However, the Rule also provides that the ratification of the
appointment of independent auditors, the approval of principal underwriting
contracts and the
30
<PAGE>
election of directors may be effectively acted upon by shareholders of the
Company voting together in the aggregate without regard to a particular Fund.
Shareholder meetings to elect directors will not be held unless and until
such time as required by law. At that time, the directors then in office will
call a shareholders' meeting to elect directors. Except as set forth above, the
directors will continue to hold office and may appoint successor directors.
Meetings of the shareholders of the Company shall be called by the directors
upon the written request of shareholders owning at least 10% of the outstanding
shares entitled to vote.
Notwithstanding any provision of Maryland law requiring a greater vote of
the Company's shares (or of any class voting as a class) in connection with any
corporate action, unless otherwise provided by law (for example, by Rule 18f-2)
or the Company's Articles of Incorporation, the Company may take or authorize
such action upon the favorable vote of the holders of more than 50% of the
outstanding Common Stock of the Funds and the Company's other Funds, if any
(voting together without regard to class).
MISCELLANEOUS
COUNSEL. The law firm of Dechert Price & Rhoads, 1500 K Street, N.W.,
Washington, DC 20005, has passed upon certain legal matters in connection with
the shares offered by the Funds and serves as counsel to the Company.
INDEPENDENT AUDITORS. Ernst & Young LLP, serves as the Company's
independent auditors.
SHAREHOLDER APPROVALS. As used in this Statement of Additional Information
and in the Prospectuses, a "majority of the outstanding shares" of the Fund
means the lesser of (a) 67% of the shares of the Fund represented at a meeting
at which the holders of more than 50% of the outstanding shares of the Fund are
present in person or by proxy, or (b) more than 50% of the outstanding shares of
the Fund.
BANKING LAWS. Banking laws and regulations currently prohibit a bank
holding company registered under the Federal Bank Holding Company Act of 1956 or
any bank or non-bank affiliate thereof from sponsoring, organizing, controlling
or distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from underwriting securities, but such banking laws and regulations do not
prohibit such a holding company or affiliate or banks generally from acting as
investment advisor, administrator, transfer agent or custodian to such an
investment company, or from purchasing shares of such a company as agent for and
upon the order of customers. The Advisor and the Custodian are subject to such
banking laws and regulations.
The Advisor and the Custodian believe they may perform the services for the
Company contemplated by their respective agreements with the Company without
violation of applicable banking laws or regulations. It should be noted,
however, that there have been no cases deciding whether bank and non-bank
subsidiaries of a registered bank holding company may perform services
comparable to those that are to be performed by these companies, and future
changes in either Federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well as
future judicial or administrative decisions or interpretations of current and
future statutes and regulations, could prevent these companies from continuing
to perform such service for the Company.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of such companies in connection with the provision of
services on behalf of the Company, the Company might be required to alter
materially or discontinue its arrangements with such companies and change its
method of operations. It is not anticipated, however, that any change in the
Company's method of operations would affect the net asset value per share of the
Funds or result in a financial loss to any shareholder of the Funds.
31
<PAGE>
REGISTRATION STATEMENT
This Statement of Additional Information and the Funds' Prospectus do not
contain all the information included in the Funds' registration statement filed
with the SEC under the 1933 Act with respect to the securities offered hereby,
certain portions of which have been omitted pursuant to the rules and
regulations of the SEC. The registration statement, including the exhibits
filed therewith, may be examined at the offices of the SEC in Washington, D.C.
Statements contained herein and in the Funds' Prospectus as to the contents
of any contract or other documents referred to are not necessarily complete,
and, in such instance, reference is made to the copy of such contract or other
documents filed as an exhibit to the Funds' registration statement, each such
statement being qualified in all respect by such reference.
32
<PAGE>
APPENDIX A
----------
- RATED INVESTMENTS -
CORPORATE BONDS
- ---------------
Excerpts from MOODY'S INVESTORS SERVICES, INC. ("MOODY'S") description
of
its bond ratings:
"AAA": Bonds that are rated "Aaa" are judged to be of the best quality.
------
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
"AA": Bonds that are rated "Aa" are judged to be of high-quality by all
-----
standards. Together with the "Aaa" group they comprise what are generally known
as "high-grade" bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A": Bonds that are rated "A" possess many favorable investment
----
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
"BAA": Bonds that are rated "Baa" are considered as medium grade
------
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appears adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.
"BA": Bonds that are rated "Ba" are judged to have speculative
-----
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
"B": Bonds that are rated "B" generally lack characteristics of
----
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
"CAA": Bonds that are rated "Caa" are of poor standing. These issues
------
may be in default or present elements of danger may exist with respect to
principal or interest.
Moody's applies numerical modifiers (1, 2 and 3) with respect to bonds
rated "Aa" through "B". The modifier 1 indicates that the bond being rated ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the
lower end of its generic rating category.
A-1
<PAGE>
Excerpts from STANDARD & POOR'S CORPORATION ("S&P") description of its
bond
ratings:
"AAA": Debt rated "AAA" has the highest rating assigned by S&P. Capacity
------
to pay interest and repay principal is extremely strong.
"AA": Debt rated "AA" has a very strong capacity to pay interest and
-----
repay principal and differs from "AAA" issues by a small degree.
"A": Debt rated "A" has a strong capacity to pay interest and repay
----
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
"BBB": Bonds rated "BBB" are regarded as having an adequate capacity to
------
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than for bonds in higher rated categories.
"BB", "B" AND "CCC": Bonds rated "BB" and "B" are regarded, on balance,
--------------------
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligations. "BB" represents a
lower degree of speculation than "B" and "CCC" the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
To provide more detailed indications of credit quality, the "AA" or "A"
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
COMMERCIAL PAPER
- ----------------
The rating "PRIME-1" is the highest commercial paper rating assigned by
MOODY'S. These issues (or related supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.
Issues rated "PRIME-2" (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics of "Prime-1" rated issues, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Commercial paper ratings of S&P are current assessments of the likelihood
of timely payment of debt having original maturities of no more than 365 days.
Commercial paper rated "A-1" by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted "A-1+."
Commercial paper rated "A-2" by S&P indicates that capacity for timely payment
is strong. However, the relative degree of safety is not as high as for issues
designated "A-1."
A-2
<PAGE>
APPENDIX A
----------
- RATED INVESTMENTS -
COMMERCIAL PAPER
- ----------------
Rated commercial paper purchased by a Fund must have (at the time of
purchase) the highest quality rating assigned to short-term debt securities or,
if not rated, or rated by only one agency, are determined to be of comparative
quality pursuant to guidelines approved by a Fund's Boards of Trustees and
Directors. Highest quality ratings for commercial paper for Moody's and S&P are
as follows:
MOODY'S: The rating "PRIME-1" is the highest commercial paper rating
--------
category assigned by Moody's. These issues (or related supporting institutions)
are considered to have a superior capacity for repayment of short-term
promissory obligations.
S&P: Commercial paper ratings of S&P are current assessments of the
----
likelihood of timely payment of debts having original maturities of no more than
365 days. Commercial paper rated in the "A-1" category by S&P indicates that
the degree of safety regarding timely payment is either overwhelming or very
strong. Those issues determined to possess overwhelming safety characteristics
are denoted "A-1+".
A-3
<PAGE>
APPENDIX B
As stated in the Prospectus, the Funds may enter into certain futures
transactions and options for hedging purposes. Such transactions are described
in this Appendix.
I. Interest Rate Futures Contracts
-------------------------------
Use of Interest Rate Futures Contracts. Bond prices are established in
--------------------------------------
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate futures
contracts as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
The Funds presently could accomplish a similar result to that which it
hopes to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because
of the liquidity that is often available in the futures market, the protection
is more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Funds, through using futures contracts.
Description of Interest Rate Futures Contracts. An interest rate futures
----------------------------------------------
contract sale would create an obligation by a Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until or at near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without making or taking of delivery of securities.
Closing out a futures contract sale is effected by the Fund's entering into a
futures contract purchase for the same aggregate amount of the specific type of
financial instrument and the same delivery date. If the price of the sale
exceeds the price of the offsetting purchase, the Fund is immediately paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly,
the closing out of a futures contract purchase is effected by the Fund entering
into a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on the
floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.
B-1
<PAGE>
A public market now exists in futures contracts covering various financial
instruments including long-term United States Treasury Bonds and Notes;
Government National Mortgage Association (GNMA) modified pass-through mortgage
backed securities; three-month United States Treasury Bills; and ninety-day
commercial paper. The Funds may trade in any interest rate futures contracts
for which there exists a public market, including, without limitation, the
foregoing instruments.
Example of Futures Contract Sale. The Funds would engage in an interest
--------------------------------
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security held by a particular
Fund tends to move in concert with the futures market prices of long-term United
States Treasury bonds ("Treasury Bonds"). The Advisor wishes to fix the current
market value of the portfolio security until some point in the future. Assume
the portfolio security has a market value of 100, and the Advisor believes that,
because of an anticipated rise in interest rates, the value will decline to 95.
The fund might enter into futures contract sales of Treasury bonds for an
equivalent of 98. If the market value of the portfolio security does indeed
decline from 100 to 95, the equivalent futures market price for the Treasury
bonds might also decline from 98 to 93.
In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The Advisor could be wrong in its forecast of interest rates and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example might
incur a loss of 2 points (which might be reduced by an offsetting transaction
prior to the settlement date). In each transaction, transaction expenses would
also be incurred.
Example of Futures Contract Purchase. The Funds would engage in an
------------------------------------
interest rate futures contract purchase when they are not fully invested in
long-term bonds but wish to defer for a time the purchase of long-term bonds in
light of the availability of advantageous interim investments, e.g., shorter
term securities whose yields are greater than those available on long-term
bonds. A Fund's basic motivation would be to maintain for a time the income
advantage from investing in the short-term securities; the Fund would be
endeavoring at the same time to eliminate the effect of all or part of an
expected increase in market price of the long-term bonds that the Fund may
purchase.
For example, assume that the market price of a long-term bond that the Fund
may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. The Advisor wishes to fix the current market
price (and thus 10% yield) of the long-term bond until the time (four months
away in this example) when it may purchase the bond. Assume the long-term bond
has a market price of 100, and the Advisor believes that, because of an
anticipated fall in interest rates, the price will have risen to 105 (and the
yield will have dropped to about 91/2%) in four months. The Fund might enter
into futures contracts purchases of Treasury bonds for an equivalent price of
98. At the same time, the Fund would assign a pool of investments in short-term
securities that are either maturing in four months or earmarked for sale in four
months, for purchase of the long-term bond at an assumed market price of 100.
Assume these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury bonds might also rise from 98 to 103. In that case, the 5
point
B-2
<PAGE>
increase in the price that the Fund pays for the long-term bond would be offset
by the 5 point gain realized by closing out the futures contract purchase.
The Advisor could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for long-
term bonds. The market price of available long-term bonds would have decreased.
The benefit of this price decrease, and thus yield increase, will be reduced by
the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rated, it
is possible that the Fund would discontinue its purchase program for long-term
bonds. The yield on short-term securities in the portfolio, including those
originally in the pool assigned to the particular long-term bond, would remain
higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase. In each transaction, expenses would also be
incurred.
II. Index Futures Contracts
-----------------------
General. A bond index assigns relative values of the bonds included in the
-------
index bind the index fluctuates with changes in the market values of the bonds
included. The Chicago Board of Trade has designed a futures contract based on
the Bond Buyer Municipal Bond Index. This Index is composed of 40 term revenue
and general obligation bonds and its composition is updated regularly as new
bonds meeting the criteria of the Index are issued and existing bonds mature.
The Index is intended to provide an accurate indicator of trends and changes in
the municipal bond market. Each bond in the Index is independently priced by
six dealer-to-dealer municipal bond brokers daily. The 40 prices then are
averaged and multiplied by a coefficient. The coefficient is used to maintain
the continuity of the Index when its composition changes.
A stock index assigns relative values to the stocks included in the index
and the index fluctuates with changes in the market values of the stocks
included. Some stock index futures contracts are based on broad market indexed,
such as the Standard & Poor's 500 or the New York Stock Exchange Composite
Index. In contrast, certain exchanges offer futures contracts on narrower
market indexes, such as the Standard & Poor's 100 or indexes based on an
industry or market segment, such as oil and gas stocks.
Futures contracts are traded on organized exchanges regulated by the
Commodity Futures Trading Commission. Transactions on such exchanges are
cleared through a clearing corporation, which guarantees the performance of the
parties to each contract.
A Fund will sell index futures contracts in order to offset a decrease in
market value of its portfolio securities that might otherwise result from a
market decline. A Fund will purchase index futures contracts in anticipation of
purchases of securities. In a substantial majority of these transactions, a
Fund will purchase such securities upon termination of the long futures
position, but a long futures position may be terminated without a corresponding
purchase of securities.
In addition, a Fund may utilize index futures contracts in anticipation of
changes in the composition of its portfolio holdings. For example, in the event
that a Fund expects to narrow the range of industry groups represented in its
holdings it may, prior to making purchases of the actual securities, establish a
long futures position based on a more restricted index, such as an index
comprised of securities of a particular industry group. A Fund may also sell
futures contracts in connection with this strategy, in order to protect against
the possibility that the value of the securities to be sold as part of the
restructuring of the portfolio will decline prior to the time of sale.
B-3
<PAGE>
Examples of Stock Index Futures Transactions. The following are examples
--------------------------------------------
of transactions in stock index futures (net of commissions and premiums, if
any).
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate buying $62,500 in Equity Buying 1 Index Futures at 125
Securities Value of Futures = $62,500/Contract
-Day Hedge is Lifted-
Buy Equity Securities with Actual Cost Sell 1 Index Futures at 130
= $65,000 Value of Futures = $65,000/Contract
Increase in Purchase Price = $2,500 Gain on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Portfolio Beta Relative to the Index = 1.0
Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Selling $1,000,000 in Equity Sell 16 Index Futures at 125
Securities Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Securities - Own Stock Buy 16 Index Futures at 120
with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Value = $40,000 Gain on Futures = $40,000
III. Margin Payments
---------------
Unlike purchase or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with the Custodian an amount of cash or cash equivalents, known as initial
margin, based on the value of the contract. The nature of initial margin in
futures transactions is different from that of margin in security transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions. Rather, the initial margin is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instruments fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking-to-the-market. For
B-4
<PAGE>
example, when a particular Fund has purchased a futures contract and the price
of the contract has risen in response to a rise in the underlying instruments,
that position will have increased in value and the Fund will be entitled to
receive from the broker a variation margin payment equal to that increase in
value. Conversely, where the Fund has purchased a futures contract and the price
of the futures contract has declined in response to a decrease in the underlying
instruments, the position would be less valuable and the Fund would be required
to make a variation margin payment to the broker. At any time prior to
expiration of the futures contract, the Advisor may elect to close the position
by taking an opposite position, subject to the availability of a secondary
market, which will operate to terminate the Fund's position in the futures
contract. A final determination of variation margin is then made, additional
cash is required to be paid by or released to the Fund, and the Fund realizes a
loss or gain.
IV. Risks of Transactions in Futures Contracts
------------------------------------------
There are several risks in connection with the use of futures by the Funds
as hedging devices. One risk arises because of the imperfect correlation
between movements in the price of the futures and movements in the price of the
instruments which are the subject of the hedge. The price of the future may
move more than or less than the price of the instruments being hedged. If the
price of the futures moves less than the price of the instruments which are the
subject of the hedge, the hedge will not be fully effective but, if the price of
the instruments 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 instruments being hedged has moved in a favorable direction, this advantage
will be partially offset by the loss on the futures. If the price of the
futures moves more than the price of the hedged instruments, the Fund involved
will experience either a loss or gain on the futures which will not be
completely offset by movements in the price of the instruments which are the
subject of the hedge. To compensate for the imperfect correlation of movements
in the price of instruments being hedged and movements in the price of futures
contracts, the Fund may buy or sell futures contracts in a greater dollar amount
than the dollar amount of instruments being hedged if the volatility over a
particular time period of the prices of such instruments has been greater than
the volatility over such time period of the futures, or if otherwise deemed to
be appropriate by the Advisor. Conversely, the Funds may buy or sell fewer
futures contracts if the volatility over a particular time period of the prices
of the instruments being hedged is less than the volatility over such time
period of the futures contract being used, or if otherwise deemed to be
appropriate by the Advisor. It is also possible that, when the Fund had sold
futures to hedge its portfolio against a decline in the market, the market may
advance and the value of instruments held in the Fund may decline. If this
occurred, the Fund would lose money on the futures and also experience a decline
in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the Funds
will realize a loss on the futures contract that is not offset by a reduction in
the price of the instruments that were to be purchased.
In instances involving the purchase of futures contracts by the Funds, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Custodian and/or
in a margin account with a broker to collateralize the position and thereby
insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the instruments
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions which
B-5
<PAGE>
could distort the normal relationship between the cash and futures markets.
Second, with respect to financial futures contracts, the liquidity of the
futures market depends on participants entering into off-setting transactions
rather than making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures market could be reduced thus
producing distortions. Third, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market may also cause temporary price distortions. Due to the
possibility of price distortion in the futures market, and because of the
imperfect correlation between the movements in the cash market and movements in
the price of futures, a correct forecast of general market trends or interest
rate movements by the Advisor may still not result in a successful hedging
transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, the Funds would continue to be required to make daily cash payments
of variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions. The
trading of futures contracts is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
Successful use of futures by the Funds is also subject to the Advisor's
ability to predict correctly movements in the direction of the market. For
example, if a particular Fund has hedged against the possibility of a decline in
the market adversely affecting securities held by it and securities prices
increase instead, the Fund will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the Fund
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. The Funds may have to
sell securities at a time when they may be disadvantageous to do so.
V. Options on Futures Contracts
----------------------------
The Funds may purchase and write options on the futures contracts described
above. A futures option gives the holder, in return for the premium paid, the
right to buy (call) from or sell (put) to the writer of the option a futures
contract at a specified price at any time during the period of the option. Upon
exercise, the writer of, the option is obligated to pay the difference between
the cash value of the futures contract and the exercise price. Like the buyer
or seller of a futures contract, the holder, or writer, of an option has the
right to terminate its position prior to the scheduled expiration of the option
by selling, or purchasing an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss. A Fund
B-6
<PAGE>
will be required to deposit initial margin and variation margin with respect to
put and call options on futures contracts written by it pursuant to brokers'
requirements similar to those described above. Net option premiums received will
be included as initial margin deposits.
Investments in futures options involve some of the same considerations that
are involved in connection with investments in future contracts (for example,
the existence of a liquid secondary market). In addition, the purchase or sale
of an option also entails the risk that changes in the value of the underlying
futures contract will not correspond to changes in the value of the option
purchased. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the securities
being hedged, an option may or may not be less risky than ownership of the
futures contract or such securities. In general, the market prices of options
can be expected to be more volatile than the market prices on underlying futures
contract. Compared to the purchase or sale of futures contracts, however, the
purchase of call or put options on futures contracts may frequently involve less
potential risk to the Fund because the maximum amount at risk is the premium
paid for the options (plus transaction costs). The writing of an option on a
futures contract involves risks similar to those risks relating to the sale of
futures contracts.
VII. Other Matters
-------------
Accounting for futures contracts will be in accordance with generally
accepted accounting principles.
B-7
ST. CLAIR FUNDS, INC.
The purpose of this Post-Effective Amendment filing
is to add to the Registration Statement disclosure
regarding five new portfolios of the Registrant, namely
the Munder S&P 500 Index Equity Fund, Munder S&P MidCap
Index Equity Fund, Munder S&P SmallCap Index Equity Fund,
Munder Foreign Equity Fund and Munder Aggregate Bond Index
Fund.
The prospectus and statement of additional
information relating to the Liquidity Plus Money Market
Fund is not included in this filing.
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------------
(a) Financial Statements
Not applicable.
(b) Exhibits:
(1) (a) Articles of Incorporation dated May 22,
1984 are incorporated herein by reference to Post-
Effective Amendment No. 20 to Registrant's Registration
Statement on Form N-1A filed with the Commission on
November 15, 1996.
(b) Articles Supplementary to Registrant's Articles
of Incorporation are incorporated herein by reference to
Post-Effective Amendment No. 20 to Registrant's
Registration Statement on Form N-1A filed with the
Commission on November 15, 1996.
(c) Articles of Amendment to Registrant's Articles
of Incorporation are incorporated herein by reference to
Post-Effective Amendment No. 20 to Registrant's
Registration Statement on Form N-1A filed with the
Commission on November 15, 1996.
(d) Articles Supplementary to Registrant's Articles
of Incorporation are incorporated herein by reference to
Post-Effective Amendment No. 20 to Registrant's
Registration Statement on Form N-1A filed with the
Commission on November 15, 1996.
(e) Certificate of Correction is incorporated herein
by reference to Post-Effective Amendment No. 20 to
Registrant's Registration Statement on Form N-1A filed
with the Commission on November 15, 1996.
(f) Articles Supplementary to Registrant's Articles
of Incorporation are incorporated herein by reference to
Post-Effective Amendment No. 20 to Registrant's
Registration Statement on Form N-1A filed with the
Commission on November 15, 1996.
(g) Certificate of Correction is incorporated herein
by reference to Post-Effective Amendment No. 20 to
Registrant's Registration Statement on Form N-1A filed
with the Commission on November 15, 1996.
(h) Articles of Amendment to Registrant's Articles
of Incorporation are incorporated herein by reference to
Post-Effective Amendment No. 20 to Registrant's
Registration Statement on Form N-1A filed with the
Commission on November 15, 1996.
(i) Articles Supplementary to Registrant's Articles
of Incorporation are incorporated herein by reference to
Post-Effective Amendment No. 20 to Registrant's
Registration Statement on Form N-1A filed with the
Commission on November 15, 1996.
(j) Form of Articles Supplementary to Registrant's
Articles of Incorporation relating to Munder S&P 500 Index
Equity Fund, Munder S&P MidCap Index Equity Fund, Munder
S&P SmallCap Index Equity Fund, Munder Foreign Equity Fund
and Munder Aggregate Bond Index Fund.*
(k) Form of Certificate of Correction relating to
the Liquidity Plus Money Market Fund.*
(2) (a) By-Laws as amended, restated and adopted
by Registrant's Board of Directors on March 2, 1990 are
incorporated herein by reference to Exhibit 2(a) of Post-
Effective Amendment No. 9 to Registrant's Registration
Statement on Form N-1A, filed on November 29, 1990.
(3) Not applicable.
(4) Not applicable.
(5) (a) Form of Investment Advisory Agreement
between Registrant and Munder Capital Management with
respect to the Liquidity Plus Money Market Fund is
incorporated herein by reference to Post-Effective
Amendment No. 20 to Registrant's Registration Statement on
Form N-1A filed with the Commission on November 15, 1996.
(b) Form of Investment Advisory Agreement between
Registrant and Munder Capital Management with respect to
Munder S&P 500 Index Equity Fund, Munder S&P MidCap Index
Equity Fund, Munder S&P SmallCap Index Equity Fund, Munder
Foreign Equity Fund and Munder Aggregate Bond Index Fund.*
(6) (a) Form of Distribution Agreement between
Registrant and Funds Distributor Inc., with respect to the
Liquidity Plus Money Market Fund is incorporated herein by
reference to Post-Effective Amendment No. 20 to
Registrant's Registration Statement on Form N-1A filed
with the Commission on November 15, 1996.
(b) Form of Distribution Agreement between
Registrant and Longrow Securities Inc., with respect to
Munder S&P 500 Index Equity Fund, Munder S&P MidCap Index
Equity Fund, Munder S&P SmallCap Index Equity Fund, Munder
Foreign Equity Fund and Munder Aggregate Bond Index Fund.*
(7) Not applicable.
(8) (a) Custody Agreement between Registrant and
Comerica Bank is incorporated herein by reference to Post-
Effective Amendment No. 20 to Registrant's Registration
Statement on Form N-1A filed with the Commission on
November 15, 1996.
(b) Form of Notice to Custodian Agreement is
incorporated herein by reference to Post-Effective
Amendment No. 20 to Registrant's Registration Statement on
Form N-1A filed with the Commission on November 15, 1996.
(c) Form of Custody Agreement between Registrant and
Comerica Bank with respect to Liquidity Plus Money Market
Fund, Munder S&P 500 Index Equity Fund, Munder S&P MidCap
Index Equity Fund, Munder S&P SmallCap Index Equity Fund,
Munder Foreign Equity Fund and Munder Aggregate Bond Index
Fund.*
(9) (a) Administration Agreement between
Registrant and The Shareholder Services Group, Inc. is
incorporated herein by reference to Post-Effective
Amendment No. 20 to Registrant's Registration Statement on
Form N-1A filed with the Commission on November 15, 1996.
(b) Form of Notice to Administration Agreement with
respect to the Liquidity Plus Money Market Fund is
incorporated herein by reference to Post-Effective
Amendment No. 20 to Registrant's Registration Statement on
Form N-1A filed with the Commission on November 15, 1996.
(c) Form of Amended and Restated Administration
Agreement between Registrant and First Data Investor
Services Group, Inc. with respect to Liquidity Plus Money
Market Fund, Munder S&P 500 Index Equity Fund, Munder S&P
MidCap Index Equity Fund, Munder S&P SmallCap Index Equity
Fund, Munder Foreign Equity Fund and Munder Aggregate Bond
Index Fund.*
(d) Transfer Agency and Registrar Agreement between
Registrant and First Data Investor Services Group, Inc. is
incorporated herein by reference to Post-Effective
Amendment No. 20 to Registrant's Registration Statement on
Form N-1A filed with the Commission on November 15, 1996.
(e) Form of Notice to Transfer Agency and Registrar
Agreement with respect to the Liquidity Plus Money Market
Fund is incorporated herein by reference to Post-Effective
Amendment No. 20 to Registrant's Registration Statement on
Form N-1A on filed with the Commission on November 15,
1996.
(f) Form of Transfer Agency and Registrar Agreement
between Registrant and First Data Investor Services Group,
Inc. with respect to Liquidity Plus Money Market Fund,
Munder S&P 500 Index Equity Fund, Munder S&P MidCap Index
Equity Fund, Munder S&P SmallCap Index Equity Fund, Munder
Foreign Equity Fund and Munder Aggregate Bond Index Fund.*
(g) Form of Participation Agreement between
Registrant, Zurich-Kemper and Longrow Securities Inc.,
with respect to Munder S&P 500 Index Equity Fund, Munder
S&P MidCap Index Equity Fund, Munder S&P SmallCap Index
Equity Fund, Munder Foreign Equity Fund and Munder
Aggregate Bond Index Fund.*
(10) Opinion and consent of counsel.*
(11) Powers of Attorney are incorporated herein by
reference to Exhibit 11 of Post-Effective Amendment No. 16
to Registrant's Registration Statement on Form N-1A filed
with the Commission on June 21, 1996.
(12) Not Applicable
(13) Not Applicable.
(14) Not Applicable.
(15)(a) Form of Service and Distribution Plan of the
Liquidity Plus Money Market Fund is incorporated herein by
reference to Post-Effective Amendment No. 20 to
Registrant's Registration Statement on Form N-1A filed
with the Commission on November 15, 1996.
(b) Form of Shareholder Servicing Plan with respect
to Munder S&P 500 Index Equity Fund, Munder S&P MidCap
Index Equity Fund, Munder S&P SmallCap Index Equity Fund,
Munder Foreign Equity Fund and Munder Aggregate Bond Index
Fund.*
(16)(a) Schedules for computation of annualized and
effective yields of the Liquidity Plus Money Market Fund
is incorporated herein by reference to Post-Effective
Amendment No. 20 to Registrant's Registration Statement on
Form N-1A filed with the Commission on November 15, 1996.
(b) Schedules for computation of annualized and
effective yields with respect to Munder S&P 500 Index
Equity Fund, Munder S&P MidCap Index Equity Fund, Munder
S&P SmallCap Index Equity Fund, Munder Foreign Equity Fund
and Munder Aggregate Bond Index Fund is filed herein.
(17) Not Applicable.
(18) Not Applicable.
- ------------------------------------------
* To be filed by amendment.
- ------------------------------------------
Item 25. Persons Controlled by or under Common
Control with Registrant.
------------------------------------------
- ----------------------------------
Not Applicable.
Item 26. Number of Holders of Securities
--------------------------------------
No record holders as of January 24, 1997.
Item 27. Indemnification
------------------
Article VII, Section 3 of the Registrant's Articles of
Incorporation ("Section 3") provides that the Registrant,
including its successors and assigns, shall indemnify its
directors and officers and make advance payment of related
expenses to the fullest extent permitted, and in
accordance with the procedures required, by the General
Laws of the State of Maryland and the Investment Company
Act of 1940. Such indemnification shall be in addition
to any other right or claim to which any director,
officer, employee or agent may otherwise be entitled. In
addition, Article VI, Section 2 of the Registrant's By-
laws provides that any person who was or is a party or is
threatened to be made a party in any threatened, pending
or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of
the fact that such person is a current or former director
or officer of the Corporation, is or was serving while a
director or officer of the Corporation at the request of
the Corporation as a director, officer, partner, trustee,
employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, enterprise or employee
benefit plan, shall be indemnified by the Corporation
against judgments, penalties, fines, excise taxes,
settlements and reasonable expenses (including attorney's
fees) actually incurred by such person in connection with
such action, suit or proceeding to the full extent
permissible under General Laws of the State of Maryland
and the Investment Company Act of 1940, as such statutes
are now or hereafter in force, except that such indemnity
shall not protect any such person against any liability to
the Corporation or any stockholder thereof to which such
person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
office.
The indemnification provided by this Section 2 shall not
be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such
indemnification may be entitled under any issuance or
other agreement, vote of shareholders or disinterested
directors or otherwise, both as to action by a director or
officer of the Corporation in his official capacity and as
to action by such person in another capacity while holding
such office or position, and shall continue as to a person
who has ceased to be a director or officer and shall inure
to the benefit of the heirs, executors and administrators
of such a person.
Insofar as indemnification for liabilities arising under
the Securities Act of 1933, as amended, may be permitted
to directors, officers and controlling persons of the
Registrant by the Registrant pursuant to the Fund's
Articles of Incorporation, its By-Laws or otherwise, the
Registrant is aware that in the opinion of the Securities
and Exchange Commission, such indemnification is against
public policy as expressed in the Act and, therefore, is
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
directors, officers or controlling persons of the
Registrant in connection with the successful defense of
any act, suit or proceeding) is asserted by such
directors, officers or controlling persons in connection
with shares 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 issues.
Item 28. Business and Other Connections of
Investment Adviser
------------------------------------------
- -----------------------
Munder Capital Management
Position
Name with Adviser
Old MCM, Inc. Partner
Munder Group LLC Partner
WAM Holdings, Inc. Partner
Woodbridge Capital Partner
Management, Inc.
Lee P. Munder President and Chief Executive Officer
Leonard J. Barr, II Senior Vice President and
Director of Research
Ann J. Conrad Vice President and Director of
Special Equity Products
Terry H. Gardner Vice President and Chief
Financial Officer
Elyse G. Essick Vice President and Director of
Client Services
Sharon E. Fayolle Vice President and Director of
Money Market Trading
Otto G. Hinzmann Vice President and Director of
Equity Portfolio Management
Anne K. Kennedy Vice President and Director of
Corporate Bond Trading
Ann F. Putallaz Vice President and Director
of Fiduciary Services
Peter G. Root Vice President and Director of
Government Securities Trading
Lisa A. Rosen General Counsel and Director
of Mutual Fund Operations
James C. Robinson Vice President and Chief
Investment Officer/Fixed Income
Gerald L. Seizert Executive Vice President and Chief
Investment Officer/Equity
Paul D. Tobias Executive Vice President and
Chief Operating Officer
For further information relating to the Investment
Adviser's officers, reference is made to Form ADV filed
under the Investment Advisers Act of 1940 by Munder
Capital Management. See File No. 801-32415.
Item 29. Principal Underwriters.
---------------------------
(a) With respect to Liquidity Plus Money Market
Fund: Funds Distributor, Inc. ("FDI"), located at 60
State Street, Boston, Massachusetts 02109, is the
principal underwriter of the Funds. FDI is an indirectly
wholly-owned subsidiary of Boston Institutional Group,
Inc. a holding company, all of whose outstanding shares
are owned by key employees. FDI is a broker dealer
registered under the Securities Exchange Act of 1934, as
amended. FDI acts as principal underwriter of the
following investment companies other than the Registrant:
HT Insight Funds, d/b/a Harris Insight Funds
Harris Insight Funds Trust Skyline Funds
The Munder Funds Trust Foreign Fund, Inc.
St. Clair Funds, Inc. Fremont Mutual Funds, Inc.
BJB Investment Funds RCM Capital Funds, Inc.
PanAgora Funds
RCM Equity Funds, Inc.
Waterhouse Investors Cash Management Fund, Inc.
LKCM Fund
Pierpont Funds
JPM Advisor Funds
JPM Institutional Funds
With respect to the Munder S&P 500 Index Equity Fund,
Munder S&P MidCap Index Equity Fund, Munder S&P SmallCap
Index Equity Fund, Munder Foreign Equity Fund and Munder
Aggregate Bond Index Fund: Longrow Securities Inc.
("Longrow"), located at 222 South Central Avenue, St.
Louis, Missouri 63105. Longrow does not act as principal
underwriter to any other investment company other than the
Registrant.
(b) The information required by this Item 29(b) with
respect to each director, officer or partner of FDI is
incorporated by reference to Schedule A of Form BD filed
by FDI with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934 (SEC File
No. 8-20518).
The information required by this Item 29(b) with respect
to each director, officer or partner of Longrow is
incorporated by reference to Schedule A of Form BD filed
by Longrow with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934 (SEC File
No. 2-21442).
(c) Not Applicable
Item 30. Location of Accounts and Records
-----------------------------------------
The account books and other documents required to be
maintained by Registrant pursuant to Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder
will be maintained at the offices of:
(1) Munder Capital Management, 480 Pierce Street or 255
East Brown Street, Birmingham, Michigan 48009 (records
relating to its function as investment advisor)
(2) First Data Investor Services Group, Inc., 53 State
Street, Exchange Place, Boston, Massachusetts 02109 or
4400 Computer Drive, Westborough, Massachusetts 01581
(records relating to its functions as administrator and
transfer agent)
(3) Funds Distributor, Inc., 60 State Street, Boston,
Massachusetts 02109 (records relating to its function as
distributor of Liquidity Plus Money Market Fund)
(4) Longrow Securities Inc., 222 South Central Avenue,
St. Louis, Missouri 63105 (records relating to its
function as distributor of the Munder S&P Index Equity
Fund, Munder S&P MidCap Index Equity Fund, Munder S&P
SmallCap Index Equity Fund, Munder Foreign Equity Fund and
Munder Aggregate Bond Index Fund)
(5) Comerica Bank, 1 Detroit Center, 500 Woodward Avenue,
Detroit, Michigan 48226 (records relating to its function
as custodian)
Item 31. Management Services
--------------------------
None.
Item 32. Undertakings
----------------
(1) Registrant hereby undertakes to call a meeting of its
shareholders for the purpose of voting upon the question
of removal of a director or directors of Registrant when
requested in writing to do so by the holders of at least
10% of Registrant's outstanding shares. Registrant
undertakes further, in connection with the meeting, to
comply with the provisions of Section 16(c) of the
Investment Company Act of 1940, as amended, relating to
communications with the shareholders of certain common-law
trusts.
(2) Registrant hereby undertakes to furnish each person
to whom a prospectus is delivered a copy of the
Registrant's most recent annual report to shareholders,
upon request without charge.
(3) Registrant undertakes to file a Post-Effective
Amendment, using reasonably current financial statements
which need not be certified, within four to six months
from the effective date of the Registration Statement with
respect to the Liquidity Plus Money Market Fund, Munder
S&P 500 Index Equity Fund, Munder S&P MidCap Index Equity
Fund, Munder S&P SmallCap Index Equity Fund, Munder
Foreign Equity Fund and Munder Aggregate Bond Index
Fund.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as amended, and the Investment Company Act of 1940,
as amended, the Registrant has duly caused this Post-
Effective Amendment No. 21 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boston and the
Commonwealth of Massachusetts, on the 3rd day of February,
1997.
ST. CLAIR FUNDS, INC.
By: *
Lee P. Munder
* By: /s/ Teresa M.R. Hamlin
Teresa M.R. Hamlin
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as amended, this Registration ` Statement has been
signed by the following persons in the capacities and on
the date indicated:
Signatures Title Date
* President and Chief February 3, 1997
Lee P. Munder Executive Officer
* Director February 3, 1997
Charles W. Elliott
* Director February 3, 1997
Joseph E. Champagne
* Director February 3, 1997
Arthur DeRoy Rodecker
* Director February 3, 1997
Jack L. Otto
* Director February 3, 1997
Thomas B. Bender
* Director February 3, 1997
Thomas D. Eckert
* Director February 3, 1997
John Rakolta, Jr.
* Director February 3, 1997
David J. Brophy
* Vice President, February 3, 1997
Terry H. Gardner Treasurer and
Chief Financial Officer
*By: /s/ Teresa M.R. Hamlin
Teresa M.R. Hamlin
as Attorney-in-Fact
* The Powers of Attorney are incorporated herein by
reference to Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form N-1A filed
with the Commission on June 21, 1996.
EXHIBIT INDEX
Exhibit Description
Exhibit 16(b) Schedule of Computation
16
shared/bankgrp/stclr/secfiling/pea21.doc
Exhibit 16b
ST. CLAIR FUNDS, INC.
Schedule of Computation
(Exhibit 16b)
1. 30-Day SEC Yield:
Formula 2[((A - B)/CD) + 1)6 - 1]
A = interest and dividends (current income) earned
during the period
B = expenses accrued during the period (net of
expense reimbursements and waivers)
C = average fund shares outstanding during the
period entitled to receive dividends
D = maximum offering price per share on the last day
of the period
2. Average Annual Total Return:
Formula: P(1 + T)n = ERV
T = average annual total return
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5 or 10 year (or other) periods at
the end of the applicable period (or a fractional portion
thereof);
P = hypothetical initial payment of $1,000
n = period covered by the computation, expressed in
years and portion of a year
3. Aggregate Total Return:
Formula: (ERV/P) - 1
