<PAGE>
As filed with the Securities and Exchange Commission on March 1, 1999
Securities Act File No. 2-91373
Investment Company Act of 1940 File No. 811-4038
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Post-Effective Amendment No. 29 / X /
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
Amendment No. 30 / X /
St. Clair Funds, Inc.
(Exact Name of Registrant as Specified in Charter)
480 Pierce Street, Birmingham, Michigan 48009
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number (248) 647-9200
Cynthia Surprise
Vice President and Associate Counsel
State Street Bank and Trust Company
1776 Heritage Drive, AFB
North Quincy, MA 02171
(Name and Address of Agent for Service)
Copies to:
Lisa Anne Rosen, Esq. Jane Kanter, Esq.
Munder Capital Management Dechert Price & Rhoads
480 Pierce Street 1775 Eye Street, NW
Birmingham, Michigan 48009 Washington, D.C. 20006
/X/ It is proposed that this filing will become effective 60 days after filing
pursuant to paragraph (a)(1) of Rule 485.
<PAGE>
ST. CLAIR FUNDS, INC.
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(A)
PROSPECTUS FOR ST. CLAIR FUNDS, INC.
MUNDER INSTITUTIONAL S&P 500 INDEX EQUITY FUND,
MUNDER INSTITUTIONAL S&P MIDCAP INDEX EQUITY FUND,
MUNDER INSTITUTIONAL SHORT TERM TREASURY FUND AND
MUNDER INSTITUTIONAL MONEY MARKET FUND
PART A
<TABLE>
<CAPTION>
ITEM HEADING
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<S> <C>
1. Cover Page Cover Page
2. Synopsis Risk/Return Summary
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Cover Page; Risk/Return Summary; More About Munder
Institutional Funds; Management
5. Management of Fund Management; Distributions; Federal Tax Considerations
6. Capital Stock and Other Securities Management; Your Investment; Pricing of Fund Shares;
Distributions; Federal Tax Considerations
7. Purchase of Securities Being Offered Your Investment; Pricing of Fund Shares
8. Redemption or Repurchase Your Investment
9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
ST. CLAIR FUNDS, INC.
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(A)
PROSPECTUS FOR ST. CLAIR FUNDS, INC.
MUNDER INSTITUTIONAL S&P SMALLCAP INDEX EQUITY FUND
PART A
<TABLE>
<CAPTION>
ITEM HEADING
- ---- -------
<S> <C>
1. Cover Page Cover Page
2. Synopsis Risk/Return Summary
3. Condensed Financial Information Not Applicable
4. General Description of Registrant Cover Page; Risk/Return Summary; More About the Fund;
Management
5. Management of Fund Management; Distributions; Federal Tax Considerations
6. Capital Stock and Other Securities Management; Your Investment; Pricing of Fund Shares;
Distributions; Federal Tax Considerations
7. Purchase of Securities Being Offered Your Investment; Pricing of Fund Shares
8. Redemption or Repurchase Your Investment
9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
ST. CLAIR FUNDS, INC.
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(A)
PROSPECTUS FOR ST. CLAIR FUNDS, INC.
LIQUIDITY PLUS MONEY MARKET FUND
PART A
<TABLE>
<CAPTION>
ITEM HEADING
- ---- -------
<S> <C>
1. Cover Page Cover Page
2. Synopsis Risk/Return Summary
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Cover Page; Risk/Return Summary; More About the Fund;
Management
5. Management of Fund Management; Distributions; Federal Tax Considerations
6. Capital Stock and Other Securities Management; Your Investment; Pricing of Fund Shares;
Distributions; Federal Tax Considerations
7. Purchase of Securities Being Offered Your Investment; Pricing of Fund Shares
8. Redemption or Repurchase Your Investment
9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
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
<TABLE>
<CAPTION>
ITEM HEADING
- ---- -------
<S> <C>
1. Cover Page Cover Page
2. Synopsis Risk/Return Summary
3. Condensed Financial Information Not Applicable
4. General Description of Registrant Cover Page; Risk/Return Summary; More About the Funds;
Management
5. Management of Fund Management; Distributions; Federal Tax Considerations
6. Capital Stock and Other Securities Management; Your Investment; Pricing of Fund Shares;
Distributions; Federal Tax Considerations
7. Purchase of Securities Being Offered Your Investment; Pricing of Fund Shares
8. Redemption or Repurchase Your Investment
9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
ST. CLAIR FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION FOR ST. CLAIR FUNDS, INC.
MUNDER INSTITUTIONAL S&P 500 INDEX EQUITY FUND,
MUNDER INSTITUTIONAL S&P MIDCAP INDEX EQUITY FUND,
MUNDER INSTITUTIONAL SHORT TERM TREASURY FUND AND
MUNDER INSTITUTIONAL MONEY MARKET FUND
PART B
<TABLE>
<CAPTION>
ITEM HEADING
- ---- -------
<S> <C>
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;
Portfolio Transactions
14. Management of Fund See Prospectus -- "Management"; Directors and Officers;
Miscellaneous
15. Control Persons and Principal Holders Miscellaneous
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 Additional Information Concerning Shares
19. Purchase, Redemption and Pricing of Securities Being Additional Purchase and Redemption Information; Net
Offered 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 Financial Statements
</TABLE>
<PAGE>
ST. CLAIR FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION FOR ST. CLAIR FUNDS, INC.
MUNDER INSTITUTIONAL S&P SMALLCAP INDEX EQUITY FUND
PART B
<TABLE>
<CAPTION>
ITEM HEADING
- ---- -------
<S> <C>
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;
Portfolio Transactions
14. Management of Fund See Prospectus -- "Management"; Directors and Officers;
Miscellaneous
15. Control Persons and Principal Holders Miscellaneous
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 Additional Information Concerning Shares
19. Purchase, Redemption and Pricing of Securities Being Additional Purchase and Redemption Information; Net
Offered 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
</TABLE>
<PAGE>
ST. CLAIR FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION FOR ST. CLAIR FUNDS, INC.
LIQUIDITY PLUS MONEY MARKET FUND
PART B
<TABLE>
<CAPTION>
ITEM HEADING
- ---- -------
<S> <C>
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; Additional Investment Limitations;
Portfolio Transactions
14. Management of Fund Directors and Officers; Miscellaneous
15. Control Persons and Principal Holders Miscellaneous
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 Additional Information Concerning Shares
19. Purchase, Redemption and Pricing of Securities Being Additional Purchase and Redemption Information; Net
Offered Asset Value; Additional Information Concerning Shares
20. Tax Status Taxes
21. Underwriters Investment Advisory and Other Service Arrangements
22. Calculation of Performance Data Yield
23. Financial Statements Financial Statements
</TABLE>
<PAGE>
ST. CLAIR FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION 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 B
<TABLE>
<CAPTION>
ITEM HEADING
- ---- -------
<S> <C>
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 Fund Directors and Officers; Miscellaneous
15. Control Persons and Principal Holders Miscellaneous; Control Persons and Principal Holders of
of Securities 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 Additional Information Concerning Shares
19. Purchase, Redemption and Pricing of Securities Being Additional Purchase and Redemption Information; Net
Offered 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
</TABLE>
<PAGE>
ST. CLAIR FUNDS, INC.
The purposes of this filing are (i) to rewrite and streamline the
Prospectus for Munder Institutional S&P 500 Index Equity Fund, Munder
Institutional S&P MidCap Index Equity Fund, Munder Institutional Short Term
Treasury Fund and Munder Institutional Money Market Fund; the Prospectus for the
Munder Institutional S&P SmallCap Index Equity Fund; the Prospectus for
Liquidity Plus Money Market Fund and the Prospectus for 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, Munder Aggregate Bond Index Fund; (ii)
to separate the Prospectus for the Munder Institutional S&P SmallCap Index
Equity Fund into its own Prospectus and Statement of Additional Information and
(iii) to conform the Prospectuses for all the Funds to the requirements of
amended Form N-1A.
<PAGE>
PROSPECTUS
APRIL 30, 1999
THE MUNDER INSTITUTIONAL FUNDS
INSTITUTIONAL S&P 500 INDEX EQUITY FUND
INSTITUTIONAL S&P MIDCAP INDEX EQUITY FUND
INSTITUTIONAL SHORT TERM TREASURY FUND
INSTITUTIONAL MONEY MARKET FUND
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND
EXCHANGE COMMISSION DOES NOT GUARANTEE THAT THE
INFORMATION IN THIS PROSPECTUS IS ACCURATE OR
COMPLETE, NOR HAS IT APPROVED OR DISAPPROVED THESE
SECURITIES. IT IS A CRIMINAL OFFENSE TO STATE
OTHERWISE.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
3 RISK/RETURN SUMMARY
INDEX FUNDS
3 GOALS AND MAIN INVESTMENT STRATEGIES
3 PRINCIPAL RISKS
4 WHO MAY WANT TO INVEST
5 PERFORMANCE
SHORT TERM TREASURY FUND
6 GOAL AND MAIN INVESTMENT STRATEGIES
6 PRINCIPAL RISKS
6 WHO MAY WANT TO INVEST
6 PERFORMANCE
MONEY MARKET FUND
7 GOAL AND MAIN INVESTMENT STRATEGIES
7 PRINCIPAL RISKS
7 WHO MAY WANT TO INVEST
7 PERFORMANCE
8 EXPENSES
9 MORE ABOUT MUNDER INSTITUTIONAL FUNDS
12 YOUR INVESTMENT
12 HOW TO REACH THE FUNDS
12 PURCHASING SHARES
12 REDEEMING SHARES
14 PRICING OF FUND SHARES
14 DISTRIBUTIONS
15 FEDERAL TAX CONSIDERATIONS
15 TAXES ON DISTRIBUTIONS
15 TAXES ON SALES
15 OTHER CONSIDERATIONS
16 MANAGEMENT
16 INVESTMENT ADVISOR
17 FINANCIAL HIGHLIGHTS
18 APPENDIX
</TABLE>
BACK COVER FOR ADDITIONAL INFORMATION
2
<PAGE>
RISK/RETURN SUMMARY
- --------------------------------------------------------------------------------
This Risk/Return Summary briefly describes each of the Munder Institutional
Funds and the principal risks of investing in the Funds. For further information
on the Funds, please read the section entitled More About Munder Institutional
Funds.
An investment in a Fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other governmental agency.
INDEX FUNDS
GOALS AND MAIN INVESTMENT STRATEGIES
S&P 500 INDEX EQUITY FUND
The Fund's goal is to provide price performance and income that is comparable to
the Standard and Poor's 500 Composite Stock Price Index (S&P 500). The S&P 500
is an index of 500 stocks that emphasizes large capitalization companies.
The Fund invests primarily in stocks and it normally will hold the shares of at
least 80% of the issuers in the S&P 500.
The Index Funds may also purchase foreign securities, enter into derivative
contracts and lend portfolio securities, which are described below under "More
About Munder Institutional Funds."
MIDCAP INDEX EQUITY FUND
The Fund's goal is to provide price performance and income that is comparable to
the Standard & Poor's MidCap 400 Index (S&P MidCap 400). The S&P MidCap 400 is
an index of 400 stocks that emphasizes medium capitalization companies.
The Fund invests primarily in stocks and it normally will hold the shares of at
least 80% of the issuers in the S&P MidCap 400.
PRINCIPAL RISKS
The Index Funds are subject to the following principal investment risks:
o The stock market may go down.
o An adverse event, such as an unfavorable earnings report, may depress the
value of a particular stock held by an Index Fund.
o The MidCap Index Equity Fund invests in stocks of smaller companies, which
may have more risks than stocks of larger companies. They may be more
susceptible to market downturns, their prices may be more volatile and they
may be less liquid.
o The share price of each Index Fund will change daily based on market
conditions and other factors; you may lose money if you invest in the
Funds.
o None of the Index Funds can be certain it will achieve its investment goal.
o The Index Funds will invest in the securities included in the relevant
index or substantially identical securities regardless of market trends. As
a result, the Index Funds cannot modify their investment strategies to
respond to changes in the economy, which means they may be particularly
susceptible to a general decline in the stock market segment relating to
the relevant index.
- --------------------------------------------------------------------------------
MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
o The advisor manages the Index Funds through a "quantitative" or "indexing"
investment approach, which attempts to duplicate the investment composition
and performance of the particular index through statistical procedures.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
o The advisor selects stocks based primarily on market capitalization and
industry weightings.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
o The advisor attempts to track the performance of the particular index
within a 0.95 correlation.
- --------------------------------------------------------------------------------
3
<PAGE>
WHO MAY WANT TO INVEST
The Index Funds may be appropriate for investors:
o Looking to invest over the long term and willing to ride out market swings
in search of potentially higher returns.
o Looking for an investment that has more return and risk potential than
fixed income investments.
o Looking to invest in a diversified stock portfolio focused on a particular
stock market segment.
None of the Index Funds alone provides a balanced investment program.
4
<PAGE>
PERFORMANCE
The chart and table below give some indication of the variability of the S&P 500
Index Equity Fund's returns by showing calendar year to year changes in the S&P
500 Index Equity Fund's performance and the risk of an investment in the S&P 500
Index Equity Fund by comparing the Fund's performance with a broad measure of
market performance. The MidCap Index Equity Fund began operations in 1998 and
does not have a full calendar year of investment returns at the date of this
Prospectus. Consequently, no performance information for that Fund is provided.
When you consider this information, please remember the Fund's performance in
past years is not necessarily an indication of how the Fund will do in the
future.
S&P 500 INDEX EQUITY FUND
Total Return
(per calendar year)
[Bar Chart]
HIGHEST AND LOWEST RETURN
(1998)
- --------------------------------------------------------------------------------
Quarter Ending
Highest % [Date]
Lowest % [Date]
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
1 Year Life of Fund
(SINCE 10/14/97)
- ----------------------------------------
S&P 500 Index Equity Fund % %
S&P 500 Composite Index % %
5
<PAGE>
SHORT TERM TREASURY FUND
- --------------------------------------------------------------------------------
GOAL AND MAIN INVESTMENT STRATEGIES
The Fund's goal is to provide investors with a high level of current income
consistent with the preservation of capital.
The Fund invests in U.S. Treasury securities and repurchase agreements fully
collateralized by U.S. Treasury securities. The Fund will purchase U.S. Treasury
securities with remaining maturities of three years or less. The Fund's dollar
weighted average maturity usually will not exceed two years.
The Fund may also invest in repurchase agreements and engage in short-term
trading and securities lending, which are described below under "More About
Munder Institutional Funds."
PRINCIPAL RISKS
The Fund is subject to the following principal investment risks:
o In general, prices of U.S. Treasury securities, like other fixed income
securities, fall when interest rates rise.
o Zero coupon U.S. Treasury securities are generally more sensitive to
interest rate changes than are comparable debt securities that make current
distributions of interest.
o Generally, the longer the average maturity of the securities in the Fund,
the more the Fund's share price will fluctuate in response to interest rate
changes.
o The share price of the Fund will change daily based on economic and market
conditions, interest rates and other factors.
o The Fund is not a money market fund and although it seeks to maintain
minimum fluctuation of principal value, you may lose money if you invest in
the Fund.
o The Fund cannot be certain it will achieve its investment goal.
WHO MAY WANT TO INVEST
The Fund may be appropriate for investors who desire a high level of income,
liquidity and stability of principal.
The Fund alone does not provide a balanced investment program.
PERFORMANCE
The Fund had not commenced operations as of the date of this Prospectus and,
therefore, has no performance information to report.
6
<PAGE>
MONEY MARKET FUND
- --------------------------------------------------------------------------------
GOAL AND MAIN INVESTMENT STRATEGIES
The Fund's goal is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal.
The Fund invests in U.S. dollar-denominated money market securities, including
U.S. Government securities, bank obligations, commercial paper and repurchase
agreements.
The Fund may also invest in foreign securities, guaranteed investment contracts,
and asset-backed securities, and engage in securities lending, which are
described below under "More About Munder Institutional Funds."
PRINCIPAL RISKS
The Fund is subject to the following principal investment risks:
o The rate of income will vary from day to day, depending on short-term
interest rates.
o The Fund may invest more than 25% of its assets in the banking industry.
Concentrating investments in the banking industry may involve additional
risk. Banks are subject to extensive government regulation that may limit
their operations. They largely depend on the availability and cost of
capital funds for their profitability, which can change significantly when
interest rates change.
o Variable rate securities exhibit greater price variation than fixed-rate
securities.
o Although the Fund seeks to preserve the value of your investment at $1.00
per share, it is possible you may lose money by investing in the Fund. For
example, a major change in interest rates or a default on a security or a
repurchase agreement could cause the value of your investment to decline.
o The Fund cannot be certain it will achieve its goal.
WHO MAY WANT TO INVEST
The Fund may be appropriate for investors who desire a high level of current
income, liquidity and stability of principal.
The Fund alone does not provided a balanced investment program.
PERFORMANCE
The Fund does not have a full calendar year of investment returns at the date of
the Prospectus and, therefore, no performance information has been provided.
7
<PAGE>
EXPENSES
The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Munder Institutional Funds.
SHAREHOLDER FEES(1)
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase........................ None
Sales Charge (Load) Imposed on Reinvested Dividends.................... None
Maximum Deferred Sales Charge (Load)................................... None
Redemption Fees........................................................ None
Exchange Fees.......................................................... None
</TABLE>
- ----------
(1) Does not include fees that institutions may charge for services they provide
to you.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (1)
(EXPENSES THAT ARE PAID FROM FUND S&P 500 INDEX MIDCAP INDEX SHORT TERM MONEY
ASSETS) EQUITY EQUITY TREASURY MARKET
AS A % OF NET ASSETS FUND FUND FUND FUND
--------------- ---------------- --------------- ---------------------
<S> <C> <C> <C> <C>
Management Fees................ .07% .15% .20% .20%
Other Expenses................. % % % %
Total Operating Expenses....... % % % %
</TABLE>
- ----------
(1) The advisor has voluntarily agreed to reimburse the Funds' operating
expenses to keep the Funds' other expenses at a specified level. The advisor may
eliminate all or part of the reimbursement at any time. Because of the expense
reimbursement, the actual expenses for the S&P 500 Index Equity Fund and MidCap
Index Equity Fund for the last fiscal year were:
<TABLE>
<CAPTION>
S&P 500 MIDCAP
INDEX EQUITY FUND INDEX EQUITY FUND
------------------------ --------------------
<S> <C> <C>
Management Fees............. .07% .15%
Other Expenses.............. % %
Total Operating Expenses.... % %
</TABLE>
Because of the expense reimbursement, it is estimated that the expenses for the
Short Term Treasury Fund and Money Market Fund for the current fiscal year will
be:
<TABLE>
<CAPTION>
SHORT TERM MONEY MARKET FUND
TREASURY FUND
---------------------- ---------------------
<S> <C> <C>
Management Fees............. .20% .20%
Other Expenses.............. % %
Total Operating Expenses.... % %
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the Munder
Institutional Funds to the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in a Fund for the time periods indicated and
then sell all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same as shown in the table above. Although your
actual costs and the return on your investment may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
S&P 500 Index Equity Fund...............
MidCap Index Equity Fund................
Short Term Treasury Fund................ - -
Money Market Fund....................... - -
</TABLE>
8
<PAGE>
MORE ABOUT MUNDER INSTITUTIONAL FUNDS
- -------------------------------------------------------------------------------
INDEX FUNDS
The Funds' main strategies and risks are summarized above in the section
entitled Risk/Return Summary-Index Funds. Below is further information about the
Funds' principal investments. The Funds may also use strategies and invest in
securities described in the Statement of Additional Information.
EQUITY SECURITIES The Funds invest in equity securities which include common
stocks, preferred stocks, convertible preferred stocks and warrants or rights to
subscribe for or purchase such securities. Securities considered for purchase by
the Index Funds may be listed or unlisted.
FOREIGN SECURITIES Each Fund may invest in foreign securities, which include
securities issued by foreign companies and foreign governments and their
agencies, instrumentalities or political subdivisions and supranational
organizations. Investments by each Fund in foreign securities involve risks in
addition to those of U.S. securities. Foreign securities are generally more
volatile and less liquid than U.S. securities, in part because of higher
political and economic risks and because there is less public information
available about foreign companies. Also, a decline in the value of foreign
currencies relative to the U.S. dollar will reduce the value of securities
denominated in those currencies.
DERIVATIVE CONTRACTS Each Fund may, but is not required to, use stock index
futures contracts to maintain liquidity or to hedge against adverse changes -
caused by changing stock market prices - in the market value of securities held
by or to be bought for a Fund. While hedging can guard against potential risks,
it adds to the Fund's expenses and can eliminate some opportunities for gains.
There is also a risk that a derivative intended as a hedge may not perform as
expected. The main risk with derivatives is that some types can amplify a gain
or loss, potentially earning or losing substantially more money than the actual
cost of the derivative. With some derivatives, there is also the risk that the
other party to the contract may fail to honor its obligations, causing a loss
for the Fund. The Funds will not use derivatives for speculative purposes.
DEFENSIVE INVESTING During unusual market conditions, each Fund may place up to
100% of total assets in cash or high-quality, short-term debt securities. To the
extent that the Fund does this, it is not pursuing its goal.
SECURITIES LENDING Each Fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains or
losses. If the borrower fails to return the securities and the invested
collateral has declined in value, the Fund could lose money.
PORTFOLIO MANAGERS
Kenneth A. Schluchter III and Darin McBride jointly manage the S&P 500 Index
Equity Fund and jointly manage the MidCap Index Equity Fund. Mr. Schluchter and
Mark Drouse jointly manage the SmallCap Index Equity Fund.
Mr. Schluchter, Director of Domestic Investments of the advisor, has managed the
Funds since their inception. He was previously a systems developer and data
analyst for Compuware Incorporated (1993-1995).
Mr. McBride, a portfolio manager of the advisor, has also managed the S&P 500
Index Equity Fund and the MidCap Index Equity Fund since their inception.
Previously, Mr. McBride was a portfolio research analyst at Flexible Plan
Investments, Ltd. (1995-1997) and an account executive at Ryder Systems, Inc.
(1993-1994).
Mr. Drouse has managed the SmallCap Index Equity Fund since its inception,
utilizing his systems experience in quantitative investment management.
Previously, he was a portfolio analyst for the advisor (1996-1997), a systems
administrator for Munder Capital Management (1995-1996) and a WAN network
administrator for Comerica Bank (1993-1995).
SHORT TERM TREASURY FUND
The Fund's main strategies and risks are summarized above in the section
entitled Risk/Return Summary-Short Term Treasury Fund. Below is further
information about the Fund's principal investments. The Fund may also use
strategies and invest in
9
<PAGE>
securities described in the Statement of Additional Information.
U.S. TREASURY SECURITIES Securities purchased by the Fund are direct obligations
of the U.S. Treasury and are guaranteed by the full faith and credit of the U.S.
Government. These securities consist of U.S. Treasury bills and U.S. Treasury
notes. U.S. Treasury securities differ in their interest rates, maturities and
times of issuance. Treasury bills have initial maturities of one year or less
and Treasury notes have initial maturities of one to ten years.
REPURCHASE AGREEMENTS The Fund may buy U.S. Treasury securities from financial
institutions with the understanding that the seller will buy them back with
interest at a later date. If the seller is unable to honor its commitment to
repurchase the securities, the Fund could lose money.
SHORT TERM TRADING The Fund may engage in active and frequent trading to achieve
its investment goal. Frequent trading may increase transaction costs, which
could detract from the Fund's performance, and may increase your tax liability.
SECURITIES LENDING The Fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains or
losses. If the borrower fails to return the securities and the invested
collateral has declined in value, the Fund could lose money.
PORTFOLIO MANAGER
Sharon E. Fayolle, Vice President and Director of Money Market Trading for the
advisor, manages the Fund. Prior to joining the advisor in 1996, she was a
European portfolio manager for Ford Motor Company.
MONEY MARKET FUND
The Fund's main strategies and risks are summarized above in the section
entitled Risk/Return Summary-Money Market Fund. Below is further information
about the Fund's principal investments. The Fund may also use strategies and
invest in securities described in the Statement of Additional Information.
The Fund has specific investment policies and procedures designed to maintain a
constant $1.00 net asset value per share. The Fund complies with rules of the
Securities and Exchange Commission, which impose certain liquidity, maturity and
diversification requirements. The Fund's investments must have remaining
maturities of 397 days or less and the average maturity of the Fund's
investments must be 90 days or less.
MONEY MARKET SECURITIES The Fund invests in money market securities, which are
high quality, short-term debt securities that pay a fixed, variable or floating
rate of interest. Securities are often specifically structured so that they are
eligible investments for a money market fund. For example, in order to satisfy
the maturity restrictions for a money market fund, some money market securities
have demand or put features which have the effect of shortening the security's
maturity. Money market securities include certificates of deposit, bankers'
acceptances, bank time deposits, notes, commercial paper and U.S. Government
securities.
U.S. GOVERNMENT SECURITIES The Fund invests in U.S. Government securities, which
are high-quality securities issued or guaranteed by the U.S. Treasury or by an
agency or instrumentality of the U.S. Government. U.S. Government securities may
be backed by the full faith and credit of the U.S. Treasury, the right to borrow
from the U.S. Treasury, or the agency or instrumentality issuing or guaranteeing
the security.
FOREIGN SECURITIES The Fund may invest in U.S. dollar denominated foreign
securities, which include securities issued by foreign companies and foreign
governments and their agencies, instrumentalities or political subdivisions and
supranational organizations. Investments by the Fund in foreign securities
involve risks in addition to those of U.S. securities. Foreign securities are
generally more volatile and less liquid than U.S. securities, in part because of
higher political and economic risks and because there is less public information
available about foreign companies.
REPURCHASE AGREEMENTS The Fund may buy securities with the understanding that
the seller will buy them back with interest at a later date. If the seller is
unable to honor its commitment to repurchase the securities, the Fund could lose
money.
GUARANTEED INVESTMENT CONTRACTS The Fund invests in guaranteed investment
contracts. Guaranteed investment contracts are agreements of
<PAGE>
the Fund to make payments, generally to an insurance company's general account,
in exchange for a minimum level of interest based on an index. Guaranteed
investment contracts are considered illiquid investments and are acquired
subject to the Fund's limitation on illiquid investments.
ASSET-BACKED SECURITIES Subject to applicable maturity and credit criteria, the
Fund may purchase securities backed by mortgages, installment sales contracts,
credit card receivables or other assets. Mortgage-backed securities carry
additional risks. The price and yield of these securities typically assume that
the securities will be redeemed at a given time before maturity. When interest
rates fall substantially, these securities are generally redeemed early because
the underlying mortgages are often prepaid. In that case the Fund would have to
reinvest the money at a lower rate. In addition, the price or yield of
mortgage-backed securities may fall if they are redeemed later than expected.
SECURITIES LENDING The Fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains or
losses. If the borrower fails to return the securities and the invested
collateral has declined in value, the Fund could lose money.
11
<PAGE>
YOUR INVESTMENT
- --------------------------------------------------------------------------------
This section describes how to do business with the Munder Institutional Funds.
HOW TO REACH THE FUNDS
By telephone: 1-800-438-5789
Call for account information
By mail: The Munder Funds
480 Pierce Street
Birmingham, MI 48009
PURCHASING SHARES
WHO MAY PURCHASE SHARES
The following persons may purchase shares of the Funds:
- fiduciary and discretionary accounts of institutions
- high net worth individuals
- institutional investors (including: banks, savings institutions, credit
unions and other financial institutions, corporations, foundations,
partnerships, pension and profit sharing and employee benefit plans and
trusts and insurance companies, investment companies, investment
advisors and broker-dealers acting for their own accounts or for the
accounts of their clients).
HOW TO PURCHASE SHARES
The minimum initial investment for each fund is as follows:
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------- ----------------
- - S&P 500 Index Equity Fund $3,000,000
- ---------------------------------------- ----------------
- ---------------------------------------- ----------------
- - MidCap Index Equity Fund $1,000,000
- ---------------------------------------- ----------------
- ---------------------------------------- ----------------
- - Short Term Treasury Fund and
Money Market Fund $10,000,000
- ---------------------------------------- ----------------
</TABLE>
There is no minimum for additional investments.
Shares of the Funds are sold at the net asset value per share (NAV) next
determined after a purchase order is received.
Investors may purchase shares directly through the distributor or the transfer
agent or through arrangements with institutions. Purchase orders must be
received by the distributor or the transfer agent before the close of regular
trading on the New York Stock Exchange (normally, 4:00 p.m. Eastern time).
Investors may pay for shares in federal funds or other funds that are
immediately available to the Funds' sub-custodian by no later than 4:00 p.m.
(Eastern time) on the next business day following receipt of the purchase order.
Institutions acting on an investor's behalf are responsible for transmitting
orders and funds by the deadline. If you purchase shares through an institution,
the institution may charge for its services.
REDEEMING SHARES
HOW TO REDEEM SHARES
Redemption requests are effected at the NAV next determined after the transfer
agent receives the order.
Shares held by an institution on behalf of its customers must be redeemed in
accordance with instructions and limitations pertaining to the account at that
institution.
The transfer agent may charge a fee of $7.50 for wire redemptions under $5,000.
If we receive a redemption order before 4:00 p.m. (Eastern time), we will
normally wire payment to the redeeming institution on the next business day.
ADDITIONAL POLICIES FOR PURCHASES AND SALES
- All orders to purchase shares are subject to acceptance by the Funds.
- At any time, the Funds may change any of its order acceptance
practices, and may suspend the sale of its shares.
- The Funds may delay sending redemption proceeds for up to seven days,
or longer if permitted by the Securities and Exchange Commission.
- To limit Fund expenses, we do not issue share certificates.
- A Fund may temporarily stop redeeming shares if:
12
<PAGE>
o the New York Stock Exchange is closed;
o trading on the New York Stock Exchange is restricted;
o an emergency exists and the Fund cannot sell its assets or
accurately determine the value of its assets.
o If accepted by the Fund, investors may purchase shares of a Fund with
securities they own. The advisor will determine if the securities are
consistent with the Fund's objectives and policies. If accepted, the
securities will be valued the same way the Fund values portfolio
securities it already owns. Call 1-800-438-5789 for more information.
o The Funds reserve the right to make payment for redeemed shares wholly
or in part by giving the redeeming shareholder portfolio securities.
The shareholder may pay transaction costs to dispose of these
securities.
o As long as the Funds take reasonable measures to authenticate
telephone requests on an investor's account, neither the Funds, the
distributor nor the transfer agent will be held responsible for
unauthorized transactions.
13
<PAGE>
PRICING OF FUND SHARES
- --------------------------------------------------------------------------------
Each Fund's NAV is calculated on each day the New York Stock Exchange is open.
NAV is the value of a single share of a Fund. NAV is calculated by (1) taking
the current market value of a Fund's total assets, (2) subtracting the
liabilities and (3) dividing that amount by the total number of shares owned by
shareholders.
INDEX FUNDS AND
SHORT TERM TREASURY FUND
The Funds calculate NAV as of the close of business on the New York Stock
Exchange, normally 4:00 p.m. Eastern time. If the New York Stock Exchange closes
early, the Funds will accelerate their calculation of NAV and transaction
deadlines to that time.
Each Fund generally values the securities held in the Fund based on market
quotations and valuations provided by independent pricing services. If
quotations are not readily available or if the advisor believes that events
occurring after the close of a foreign exchange have rendered the quotations
unreliable, the Fund may use fair-value estimates instead. A Fund that uses fair
value to price securities may value those securities higher or lower than a fund
that uses market quotations.
Foreign securities are valued based on quotations from the primary market in
which they are traded, and are converted from the local currency into U.S.
dollars using current exchange rates. Foreign securities may trade in their
primary markets on weekends or other days when the Fund does not price its
shares. Therefore, the value of the portfolio of a Fund holding foreign
securities may change on days when shareholders will not be able to buy or sell
their shares.
MONEY MARKET FUND
The Money Market Fund calculates NAV as of 3:00 p.m. Eastern time and as of the
close of the New York Stock Exchange, normally 4:00 p.m., Eastern time. In
determining the Money Market Fund's NAV, securities are valued at amortized
cost, which is approximately equal to market value. If the New York Stock
Exchange closes early, the Fund will accelerate its calculation of NAV and
transaction deadlines to that time.
DISTRIBUTIONS
Shareholders are entitled to their share of a Fund's net income and gains on its
investments. Each Fund passes substantially all of its earnings along to its
shareholders as distributions. When a Fund earns dividends from stocks and
interest from debt securities and distributes these earnings to shareholders, it
is called a DIVIDEND DISTRIBUTION. A Fund realizes capital gains when it sells
securities for a higher price than it paid. When these gains are distributed to
shareholders, it is called a CAPITAL GAIN DISTRIBUTION. Dividend distributions
may be made several times a year, while capital gain distributions are generally
made on an annual basis.
INDEX FUNDS
These Funds pay dividends quarterly.
SHORT TERM TREASURY FUND
This Fund pays dividends monthly.
MONEY MARKET FUND
Dividend distributions are declared daily and paid monthly. If a purchase order
is accepted by 3:00 p.m. Eastern time, the investor will receive dividends for
that day. If a redemption order is received before 3:00 p.m. Eastern time, the
redeeming shareholder will not receive dividends for that day.
ALL FUNDS
Shareholders will receive distributions from a Fund in additional shares of that
Fund unless they elect to receive distributions in cash.
14
<PAGE>
FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
Investments in a Fund will have tax consequences that investors should consider.
This section describes some of the more common federal tax consequences, but
investors should consult their tax adviser about the investor's own particular
situation.
TAXES ON DISTRIBUTIONS
Shareholders will generally have to pay federal income tax on all Fund
distributions. Distributions will be taxed in the same manner whether the
shareholder receives the distributions in cash or additional shares of the Fund.
Distributions that are derived from net long-term capital gains generally will
be taxed as long-term capital gains. Dividend distributions and short-term
capital gains generally will be taxed as ordinary income. The tax a shareholder
pays on a given capital gains distribution generally depends on how long the
Fund held the portfolio securities it sold. It does not depend on how long the
shareholder held the Fund shares.
The Money Market Fund and the Short Term Treasury Fund expect that their
distributions will consist primarily of ordinary income. The Index Funds expect
that their distributions will consist primarily of capital gains.
Shareholders generally are required to report all Fund distributions on their
federal income tax returns. Each year the Funds will send shareholders
information detailing the amount of ordinary income and capital gains paid to
the shareholder for the previous year.
TAXES ON SALES
If a shareholder sells shares of a Fund, the shareholder generally will be
subject to tax on any taxable gain. Taxable gain is computed by subtracting the
shareholder's tax basis in the shares from the redemption proceeds. Because a
shareholder's tax basis depends on the original purchase price and on the price
at which any dividends may have been reinvested, shareholders should be sure to
keep account statements so that they or their tax preparers will be able to
determine whether a sale will result in a taxable gain.
OTHER CONSIDERATIONS
If an investor buys shares of a Fund just before the Fund makes any
distribution, the investor will receive some of the purchase price back in the
form of a taxable distribution.
By law, the Funds must withhold a portion of a shareholder's distributions and
redemptions proceeds to pay federal income taxes if the shareholder has not
provided complete, correct taxpayer information.
15
<PAGE>
MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISOR
The Funds' investment advisor is Munder Capital Management, 480 Pierce Street,
Birmingham, Michigan 48009. As of December 31, 1998, the Advisor and its
affiliates had approximately $50 billion in assets under management, of which
$28 billion were invested in equity securities, $8 billion were invested in
money market or other short-term instruments, $8 billion were invested in other
fixed income securities, and $6 billion in non-discretionary assets.
The advisor provides overall investment management for the Funds, provides
research and credit analysis and is responsible for all purchases and sales of
portfolio securities.
For the fiscal year ended December 31, 1998, the S&P 500 Index Equity Fund paid
the advisor a fee equal to 0.07% of its average daily net assets. The advisor is
entitled to receive an annual fee equal to 0.15% of the average daily net assets
of the MidCap Index Equity Fund, 0.20% of the average daily net assets of the
Short Term Treasury Fund and 0.20% of the average daily net assets of the Money
Market Fund.
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. The advisor may make such payments out of its own resources and there
are no additional costs to the Funds or their shareholders.
YEAR 2000
- --------------------------------------------------------------------------------
Like other mutual funds, financial institutions and business organizations
and individuals around the world, each Fund could be adversely affected if
the computer systems used by the advisor and the Fund's other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. The advisor is taking steps that it
believes are reasonably designed to address year 2000 computer-related
problems with respect to the computer systems that it uses and to obtain
assurances that comparable steps are being taken by a Fund's other, major
service providers. Although there can be no assurances, the advisor believes
that these steps will be sufficient to avoid any adverse impact on any of the
Funds. Similarly, the companies and other issuers in which a Fund invests
could be adversely affected by year 2000 computer-related problems, and there
can be no assurance that the steps taken, if any, by these issuers will be
sufficient to avoid any adverse impact on a Fund.
16
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help shareholders understand the
Funds' financial performance for the period of the Funds' operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned [or
lost] on an investment in the Fund (assuming reinvestment of all dividends and
distributions). The Money Market Fund commenced operations on January 4, 1999.
As of the date of this Prospectus, the Short Term Treasury Fund has not
commenced operations. The information has been audited by Ernst & Young LLP,
whose report along with the Funds' financial statements, are included in the
annual report, which is available upon request.
<TABLE>
<CAPTION>
S&P 500 INDEX MIDCAP INDEX EQUITY
EQUITY FUND(A) FUND(A)
------------------------------ -----------------------
YEAR PERIOD PERIOD
ENDED ENDED ENDED
12/31/98 12/31/97 12/31/98
-------- -------- --------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.....................
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income....................................
Net Gains or Losses on Securities (both realized
and unrealized).........................................
Total From Investment Operations.........................
LESS DISTRIBUTIONS
Dividends (from net investment income)...................
Distributions (from capital gains).......................
Returns of Capital.......................................
Total Distributions......................................
Net Asset Value, End of Period
TOTAL
return...................................................
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period................................
Ratio of Expenses to Average Net Assets..................
Ratio of Net Income to Average Net Assets................
Portfolio Turnover Rate..................................
</TABLE>
- ---------
(a) S&P 500 Index Equity Fund commenced operations on October 14, 1997. MidCap
Index Equity Fund commenced operations on February 13, 1998.
17
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S INDEXES
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard and Poor's 500",
"500", "S&P MidCap 400", "Standard & Poor's MidCap 400", "400", "S&P SmallCap
600(R)", "Standard & Poor's SmallCap 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 to track general stock market performance.
S&P's only relationship to the Munder Institutional Funds is the licensing of
certain trademarks and trade names of S&P and of the indexes which are
determined, composed and calculated by S&P without regard to the Munder
Institutional Funds. 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 Munder Institutional Funds, 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 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.
18
<PAGE>
FOR MORE INFORMATION
TO OBTAIN INFORMATION:
- --------------------------------------------------------------------------------
BY TELEPHONE
Call 1-800-438-5789
BY MAIL Write to:
The Munder Funds
480 Pierce Street
Birmingham, MI 48009
ON THE INTERNET Text-only versions of fund documents can be viewed online or
downloaded from:
SECURITIES AND EXCHANGE COMMISSION
http://www.sec.gov
You can also obtain copies by visiting the Securities and Exchange Commission's
Public Reference Room in Washington, DC (phone 1-800-SEC-0330) or by sending
your request and a duplicating fee to the Securities and Exchange Commission's
Public Reference Section,
Washington, DC 2054-6009.
More information about The Munder Institutional Funds is available free upon
request, including the following:
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the Index Funds' investments is available in the
Index Funds' annual and semi-annual reports to shareholders. In each Index
Funds' annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the fund's performance during
its last fiscal year. You will receive unaudited semi-annual reports and audited
annual reports on a regular basis from the Funds. In addition, you will also
receive updated Prospectuses or Supplements to this Prospectus. In order to
eliminate duplicate mailings, the Funds will only send one copy of the above
communications to (1) accounts with the same primary record owner, (2) joint
tenant accounts, (3) tenant in common accounts and (4) accounts which have the
same address.
STATEMENT OF ADDITIONAL INFORMATION
Provides more details about all of the funds and their policies. A current
Statement of Additional Information is on file with the Securities and Exchange
Commission and is incorporated by reference (is legally considered part of this
prospectus).
SEC FILE NUMBER: 811-4038
<PAGE>
PROSPECTUS
APRIL 30, 1999
THE MUNDER INSTITUTIONAL S&P SMALLCAP INDEX EQUITY FUND
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND
EXCHANGE COMMISSION DOES NOT GUARANTEE THAT THE
INFORMATION IN THIS PROSPECTUS IS ACCURATE OR
COMPLETE, NOR HAS IT APPROVED OR DISAPPROVED THESE
SECURITIES. IT IS A CRIMINAL OFFENSE TO STATE
OTHERWISE.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
3 RISK/RETURN SUMMARY
3 GOAL AND MAIN INVESTMENT STRATEGIES
3 PRINCIPAL RISKS
3 WHO MAY WANT TO INVEST
4 PERFORMANCE
5 EXPENSES
6 MORE ABOUT THE FUND
7 YOUR INVESTMENT
7 HOW TO REACH THE FUND
7 PURCHASING SHARES
7 REDEEMING SHARES
9 PRICING OF FUND SHARES
9 DISTRIBUTIONS
10 FEDERAL TAX CONSIDERATIONS
10 TAXES ON DISTRIBUTIONS
10 TAXES ON SALES
10 OTHER CONSIDERATIONS
11 MANAGEMENT
11 INVESTMENT ADVISOR
12 APPENDIX
</TABLE>
BACK COVER FOR ADDITIONAL INFORMATION
2
<PAGE>
RISK/RETURN SUMMARY
- --------------------------------------------------------------------------------
This Risk/Return Summary briefly describes the SmallCap Index Equity Fund and
the principal risks of investing in the Fund. For further information on the
Fund, please read the section entitled More About The Fund.
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other governmental agency.
GOALS AND MAIN INVESTMENT STRATEGIES
The Fund's goal is to provide price performance and income that is comparable to
the Standard & Poor's SmallCap 600 Index (S&P SmallCap 600). The S&P SmallCap
600 is an index of 600 stocks that emphasizes small capitalization companies.
The Fund invests primarily in stocks and it normally will hold the shares of at
least 80% of the issuers in the S&P SmallCap 600.
The Fund may also purchase foreign securities, enter into derivative contracts
and lend portfolio securities, which are described below under "More About The
Fund."
PRINCIPAL RISKS
The Fund is subject to the following principal investment risks:
o The stock market may go down.
o An adverse event, such as an unfavorable earnings report, may depress the
value of a particular stock held by the Fund.
o The Fund invests in stocks of smaller companies, which may have more risks
than stocks of larger companies. They may be more susceptible to market
downturns, their prices may be more volatile and they may be less liquid.
o The share price of the Fund will change daily based on market conditions
and other factors; you may lose money if you invest in the Fund.
o The Fund cannot be certain it will achieve its investment goal.
o The Fund will invest in the securities included in the relevant index or
substantially identical securities regardless of market trends. As a
result, the Fund cannot modify its investment strategies to respond to
changes in economy, which means they may be particularly susceptible to a
general decline in the stock market segment relating to the relevant index.
- --------------------------------------------------------------------------------
MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
o The advisor manages the Fund through a "quantitative" or "indexing"
investment approach, which attempts to duplicate the investment composition
and performance of the particular index through statistical procedures.
o The advisor selects stocks based primarily on market capitalization and
industry weightings.
o The advisor attempts to track the performance of the particular index
within a 0.95 correlation.
WHO MAY WANT TO INVEST
The Fund may be appropriate for investors:
o Looking to invest over the long term and willing to ride out market swings
in search of potentially higher returns.
o Looking for an investment that has more return and risk potential than
fixed income investments.
o Looking to invest in a diversified stock portfolio focused on a particular
stock market segment.
The Fund alone does not provide a balanced investment program.
3
<PAGE>
PERFORMANCE
[The chart and table below give some indication of the variability of the Fund's
returns by showing calendar year to year changes in the Fund's performance and
the risk of an investment in the Fund by comparing the Fund's performance with a
broad measure of market performance.
When you consider this information, please remember the Fund's performance in
past years is not necessarily an indication of how the Fund will do in the
future.
Total Return
(per calendar year)
[Bar Chart]
<TABLE>
<CAPTION>
HIGHEST AND LOWEST RETURN
(1998)
- --------------------------------------------------------------------------------
<S> <C> <C>
Quarter Ending
Highest % [Date]
Lowest % [Date]
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- --------------------------------------------------------------------------------
1 Year Life of Fund
(SINCE 8/7/97)
SmallCap Index Equity Fund % %
- --------------------------------------------------------------------------------
S&P SmallCap 600 % % ]
</TABLE>
4
<PAGE>
EXPENSES
The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES(1)
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase.................................None
Sales Charge (Load) Imposed on Reinvested Dividends.............................None
Maximum Deferred Sales Charge (Load)............................................None
Redemption Fees.................................................................None
Exchange Fees...................................................................None
</TABLE>
- ----------
(1) Does not include fees that institutions may charge for services they
provide to you.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (1) (EXPENSES THAT
ARE PAID FROM FUND ASSETS) SMALLCAP INDEX
AS A % OF NET ASSETS EQUITY FUND
------------------------------------------------------
<S> <C>
Management Fees....................................... .15%
Other Expenses........................................ %
Total Operating Expenses.............................. %
</TABLE>
- ----------
(1) The advisor has voluntarily agreed to reimburse the Funds' operating
expenses to keep the Fund's other expenses at a specified level. The advisor may
eliminate all or part of the reimbursement at any time. Because of the expense
reimbursement, the actual expenses for the SmallCap Index Equity Fund for the
last fiscal year was:
<TABLE>
<CAPTION>
SMALLCAP INDEX
EQUITY FUND
------------------------------------------------------
<S> <C>
Management Fees....................................... .15%
Other Expenses........................................ %
Total Operating Expenses.............................. %
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated and then sell all of
your shares at the end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same as shown in the table above. Although your actual costs and the
return on your investment may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
- -
</TABLE>
5
<PAGE>
MORE ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund's main strategies and risks are summarized above in the section
entitled Risk/Return Summary. Below is further information about the Fund's
principal investments. The Fund may also use strategies and invest in securities
described in the Statement of Additional Information.
EQUITY SECURITIES The Fund invests in equity securities which include common
stocks, preferred stocks, convertible preferred stocks and warrants or rights to
subscribe for or purchase such securities. Securities considered for purchase by
the Fund may be listed or unlisted.
FOREIGN SECURITIES The Fund may invest in foreign securities, which include
securities issued by foreign companies and foreign governments and their
agencies, instrumentalities or political subdivisions and supranational
organizations. Investments by each Fund in foreign securities involve risks in
addition to those of U.S. securities. Foreign securities are generally more
volatile and less liquid than U.S. securities, in part because of higher
political and economic risks and because there is less public information
available about foreign companies. Also, a decline in the value of foreign
currencies relative to the U.S. dollar will reduce the value of securities
denominated in those currencies.
DERIVATIVE CONTRACTS The Fund may, but is not required to, use stock index
futures contracts to maintain liquidity or to hedge against adverse changes -
caused by changing interest rates, stock market prices or - in the market value
of securities held by or to be bought for the Fund. While hedging can guard
against potential risks, it adds to the Fund's expenses and can eliminate some
opportunities for gains. There is also a risk that a derivative intended as a
hedge may not perform as expected. The main risk with derivatives is that some
types can amplify a gain or loss, potentially earning or losing substantially
more money than the actual cost of the derivative. With some derivatives, there
is also the risk that the other party to the contract may fail to honor its
obligations, causing a loss for the Fund. The Fund will not use derivatives for
speculative purposes.
DEFENSIVE INVESTING During unusual market conditions, the Fund may place up to
100% of total assets in cash or high-quality, short-term debt securities. To the
extent that the Fund does this, it is not pursuing its goal.
SECURITIES LENDING The Fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains or
losses. If the borrower fails to return the securities and the invested
collateral has declined in value, the Fund could lose money.
PORTFOLIO MANAGERS
Kenneth A. Schluchter III and Mark Drouse jointly manage the SmallCap Index
Equity Fund.
Mr. Schluchter, Director of Domestic Investments of the advisor, has managed the
Funds since their inception. He was previously a systems developer and data
analyst for Compuware Incorporated (1993-1995).
Mr. Drouse has managed the SmallCap Index Equity Fund since its inception,
utilizing his systems experience in quantitative investment management.
Previously, he was a portfolio analyst for the advisor (1996-1997), a systems
administrator for Munder Capital Management (1995-1996) and a WAN network
administrator for Comerica Bank (1993-1995).
6
<PAGE>
YOUR INVESTMENT
- --------------------------------------------------------------------------------
This section describes how to do business with the Fund.
HOW TO REACH THE FUND
By telephone: 1-800-438-5789
Call for account information
By mail: The Munder Funds
480 Pierce Street
Birmingham, MI 48009
PURCHASING SHARES
WHO MAY PURCHASE SHARES
The following persons may purchase shares of the Fund:
o fiduciary and discretionary accounts of institutions
o high net worth individuals
o institutional investors (including: banks, savings institutions, credit
unions and other financial institutions, corporations, foundations,
partnerships, pension and profit sharing and employee benefit plans and
trusts and insurance companies, investment companies, investment advisors
and broker-dealers acting for their own accounts or for the accounts of
their clients).
HOW TO PURCHASE SHARES
The minimum initial investment for the Fund is $1,000,000. There is no minimum
for additional investments.
Shares of the Fund are sold at the net asset value per share (NAV) next
determined after a purchase order is received.
Investors may purchase shares directly through the distributor or the transfer
agent or through arrangements with institutions. Purchase orders must be
received by the distributor or the transfer agent before the close of regular
trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time).
Investors may pay for shares in federal funds or other funds that are
immediately available to the Fund's sub-custodian by no later than 4:00 p.m.
(Eastern time) on the next business day following receipt of the purchase order.
Institutions acting on an investor's behalf are responsible for transmitting
orders and funds by the deadline. If you purchase shares through an institution,
the institution may charge for its services.
REDEEMING SHARES
HOW TO REDEEM SHARES
Redemption requests are effected at the NAV next determined after the transfer
agent receives the order.
Shares held by an institution on behalf of its customers must be redeemed in
accordance with instructions and limitations pertaining to the account at that
institution.
The transfer agent may charge a fee of $7.50 for wire redemptions under $5,000.
If we receive a redemption order before 4:00 p.m. (Eastern time), we will
normally wire payment to the redeeming institution on the next business day.
ADDITIONAL POLICIES FOR PURCHASES AND SALES
o All orders to purchase shares are subject to acceptance by the Fund.
o At any time, the Fund may change any of its order acceptance practices, and
may suspend the sale of its shares.
o The Fund may delay sending redemption proceeds for up to seven days, or
longer if permitted by the Securities and Exchange Commission.
o To limit Fund expenses, we do not issue share certificates.
o A Fund may temporarily stop redeeming shares if:
o the New York Stock Exchange is closed;
o trading on the New York Stock Exchange is restricted;
o an emergency exists and the Fund cannot sell its assets or accurately
determine the value of its assets.
7
<PAGE>
o If accepted by the Fund, investors may purchase shares of a Fund with
securities they own. The advisor will determine if the securities are
consistent with the Fund's objectives and policies. If accepted, the
securities will be valued the same way the Fund values portfolio securities
it already owns. Call 1-800-438-5789 for more information.
o The Fund reserves the right to make payment for redeemed shares wholly or
in part by giving the redeeming shareholder portfolio securities. The
shareholder may pay transaction costs to dispose of these securities.
o As long as the Fund takes reasonable measures to authenticate telephone
requests on an investor;s account, neither the Fund, the distributor nor
the transfer agent will be held responsible for unauthorized transactions.
8
<PAGE>
PRICING OF FUND SHARES DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund's NAV is calculated on each day the New York Stock Exchange is open.
NAV is the value of a single share of a Fund. NAV is calculated by (1) taking
the current market value of a Fund's total assets, (2) subtracting the
liabilities and (3) dividing that amount by the total number of shares owned by
shareholders.
The Fund calculates NAV as of the close of business on the New York Stock
Exchange, normally 4:00 p.m. Eastern time. If the New York Stock Exchange closes
early, the Fund will accelerate calculation of NAV and transaction deadlines to
that time.
The Fund generally values the securities held in the Fund based on market
quotations and valuations provided by independent pricing services. If
quotations are not readily available or if the advisor believes that events
occurring after the close of a foreign exchange have rendered the quotations
unreliable, the Fund may use fair-value estimates instead. The Fund that uses
fair value to price securities may value those securities higher or lower than a
fund that uses market quotations.
Foreign securities are valued based on quotations from the primary market in
which they are traded, and are converted from the local currency into U.S.
dollars using current exchange rates. Foreign securities may trade in their
primary markets on weekends or other days when the Fund does not price its
shares. Therefore, the value of the portfolio of a Fund holding foreign
securities may change on days when shareholders will not be able to buy or sell
their shares.
Shareholders are entitled to their share of the Fund's net income and gains on
its investments. The Fund passes substantially all of its earnings along to its
shareholders as distributions. When the Fund earns dividends from stocks and
interest from debt securities and distributes these earnings to shareholders, it
is called a DIVIDEND DISTRIBUTION. The Fund realizes capital gains when it sells
securities for a higher price than it paid. When these gains are distributed to
shareholders, it is called a CAPITAL GAIN DISTRIBUTION. Dividend distributions
may be made several times a year, while capital gain distributions are generally
made on an annual basis.
The Fund pays dividends quarterly.
Shareholders will receive distributions from the Fund in additional shares of
that Fund unless they elect to receive distributions in cash.
9
<PAGE>
FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
Investments in the Fund will have tax consequences that investors should
consider. This section describes some of the more common federal tax
consequences, but investors should consult their tax adviser about the
investor's own particular situation.
TAXES ON DISTRIBUTIONS
Shareholders will generally have to pay federal income tax on all Fund
distributions. Distributions will be taxed in the same manner whether the
shareholder receives the distributions in cash or additional shares of the Fund.
Distributions that are derived from net long-term capital gains generally will
be taxed as long-term capital gains. Dividend distributions and short-term
capital gains generally will be taxed as ordinary income. The tax a shareholder
pays on a given capital gains distribution generally depends on how long the
Fund held the portfolio securities it sold. It does not depend on how long the
shareholder held the Fund shares.
The Fund expects that their distributions will consist primarily of capital
gains.
Shareholders generally are required to report all Fund distributions on their
federal income tax returns. Each year the Fund will send shareholders
information detailing the amount of ordinary income and capital gains paid to
the shareholder for the previous year.
TAXES ON SALES
If a shareholder sells shares of the Fund, the shareholder generally will be
subject to tax on any taxable gain. Taxable gain is computed by subtracting the
shareholder's tax basis in the shares from the redemption proceeds. Because a
shareholder's tax basis depends on the original purchase price and on the price
at which any dividends may have been reinvested, shareholders should be sure to
keep account statements so that they or their tax preparers will be able to
determine whether a sale will result in a taxable gain.
OTHER CONSIDERATIONS
If an investor buys shares of the Fund just before the Fund makes any
distribution, the investor will receive some of the purchase price back in the
form of a taxable distribution.
By law, the Fund must withhold a portion of a shareholder's distributions and
redemptions proceeds to pay federal income taxes if the shareholder has not
provided complete, correct taxpayer information.
10
<PAGE>
MANAGEMENT YEAR 2000
- --------------------------------------------------------------------------------
INVESTMENT ADVISOR
The Fund's investment advisor is Munder Capital Management, 480 Pierce Street,
Birmingham, Michigan 48009. As of December 31, 1998, the Advisor and its
affiliates had approximately $50 billion in assets under management, of which
$28 billion were invested in equity securities, $8 billion were invested in
money market or other short-term instruments, $8 billion were invested in other
fixed income securities, and $6 billion in non-discretionary assets.
The advisor provides overall investment management for the Fund, provides
research and credit analysis and is responsible for all purchases and sales of
portfolio securities.
For the fiscal year ended December 31, 1998, the SmallCap Index Equity Fund paid
the advisor a fee equal to 0.15% of its 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 Fund and/or their
shareholders, including sub-administration, sub-transfer agency and shareholder
servicing. The advisor may make such payments out of its own resources and there
are no additional costs to the Fund or its shareholders.
Like other mutual funds, financial institutions and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the advisor and the Fund's other service providers
do not properly process and calculate date-related information and data from
and after January 1, 2000. The advisor is taking steps that it believes are
reasonably designed to address year 2000 computer-related problems with
respect to the computer systems that it uses and to obtain assurances that
comparable steps are being taken by the Fund's other, major service
providers. Although there can be no assurances, the advisor believes that
these steps will be sufficient to avoid any adverse impact on the Fund.
Similarly, the companies and other issuers in which the Fund invests could be
adversely affected by year 2000 computer-related problems, and there can be
no assurance that the steps taken, if any, by these issuers will be
sufficient to avoid any adverse impact on the Fund.
11
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S INDEXES
"Standard & Poor's-Registered Trademark-", "S&P-Registered Trademark-", "S&P
SmallCap 600-Registered Trademark-", "Standard & Poor's SmallCap 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 Fund is not sponsored, endorsed, sold or promoted by S&P. S&P makes no
representation or warranty, express or implied, to the owners of the Fund or any
member of the public regarding the advisability of investing in securities
generally or in the Fund particularly or the ability of the S&P SmallCap 600 to
track general stock market performance. S&P's only relationship to the Munder
Institutional Fund is the licensing of certain trademarks and trade names of S&P
and of the indexes which are determined, composed and calculated by S&P without
regard to the Munder Institutional Fund. S&P has no obligation to take the needs
of the Munder Institutional Fund. or the owners of the Fund 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
Fund or the timing of the issuance or sale of the Fund or in the determination
or calculation of the equation by which the Fund are to be converted into cash.
S&P has no obligation or liability in connection with the administration,
marketing or trading of the Fund.
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 Munder Institutional Fund, owners of the
Fund, or any other person or entity from the use of the Indexes or any data
included therein. S&P makes no express or 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.
12
<PAGE>
FOR MORE INFORMATION
TO OBTAIN INFORMATION:
BY TELEPHONE
Call 1-800-438-5789
BY MAIL Write to:
The Munder Funds
480 Pierce Street
Birmingham, MI 48009
ON THE INTERNET Text-only versions of fund documents to can be viewed online or
downloaded from:
SECURITIES AND EXCHANGE COMMISSION http://www.sec.gov
You can also obtain copies by visiting the Securities and Exchange Commission's
Public Reference Room in Washington, DC (phone 1-800-SEC-0330) or by sending
your request and a duplicating fee to the Securities and Exchange Commission's
Public Reference Section, Washington, DC 2054-6009.
More information about The Fund is available free upon request, including the
following:
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. You
will receive unaudited semi-annual reports and audited annual reports on a
regular basis from the Fund. In addition, you will also receive updated
Prospectuses or Supplements to this Prospectus. In order to eliminate duplicate
mailings, the Fund will only send one copy of the above communications to (1)
accounts with the same primary record owner, (2) joint tenant accounts, (3)
tenant in common accounts and (4) accounts which have the same address.
STATEMENT OF ADDITIONAL INFORMATION
Provides more details about the Fund and its policies. A current Statement of
Additional Information is on file with the Securities and Exchange Commission
and is incorporated by reference (is legally considered part of this
prospectus).
<PAGE>
PROSPECTUS
APRIL 30, 1999
LIQUIDITY PLUS MONEY MARKET FUND
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND
EXCHANGE COMMISSION DOES NOT GUARANTEE THAT THE
INFORMATION IN THIS PROSPECTUS IS ACCURATE OR
COMPLETE, NOR HAS IT APPROVED OR DISAPPROVED THESE
SECURITIES. IT IS A CRIMINAL OFFENSE TO STATE
OTHERWISE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
3 RISK/RETURN SUMMARY
3 GOAL AND MAIN INVESTMENT STRATEGIES
3 PRINCIPAL RISKS
3 WHO MAY WANT TO INVEST
4 PERFORMANCE
4 EXPENSES
5 MORE ABOUT THE FUND
6 YOUR INVESTMENT
6 HOW TO REACH THE FUND
6 PURCHASING SHARES
6 REDEEMING SHARES
7 RULE 12B-1 PLAN
8 PRICING OF FUND SHARES
8 DISTRIBUTIONS
9 FEDERAL TAX CONSIDERATIONS
9 TAXES ON DISTRIBUTIONS
9 OTHER CONSIDERATIONS
9 MANAGEMENT
9 INVESTMENT ADVISOR
11 FINANCIAL HIGHLIGHTS
</TABLE>
BACK COVER FOR ADDITIONAL INFORMATION
2
<PAGE>
RISK/RETURN SUMMARY
- --------------------------------------------------------------------------------
This Risk/Return Summary briefly describes the Liquidity Plus Money Market Fund
and the principal risks of investing in the Fund. For further information on the
Fund, please read the section entitled More About the Fund.
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other governmental agency.
GOAL AND MAIN INVESTMENT STRATEGIES
The Fund's goal is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal.
The Fund invests in U.S. dollar-denominated money market securities including
U.S. Government securities, bank obligations and repurchase agreements.
The Fund may also invest in foreign securities, guaranteed investment contracts,
and asset-backed securities, and engage in securities lending, which are
described below under "More About The Fund."
PRINCIPAL RISKS
The Fund is subject to the following principal investment risks:
o The rate of income will vary from day to day, depending on short-term
interest rates.
o The Fund may invest more than 25% of its assets in the banking
industry. Concentrating investments in the banking industry may involve
additional risk. Banks are subject to extensive government regulation
that may limit their operations. They largely depend on the
availability and cost of capital funds for their profitability, which
can change significantly when interest rates change.
o Variable rate securities exhibit greater price variation than
fixed-rate securities.
o Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible you may lose money by investing in the
Fund. For example, a major change in interest rates or a default on a
security or a repurchase agreement could cause the value of your
investment to decline.
o The Fund cannot be certain it will achieve its goal.
WHO MAY WANT TO INVEST
The Fund may be appropriate for investors who desire a high level of current
income, liquidity and stability of principal.
The Fund alone does not provided a balanced investment program.
3
<PAGE>
PERFORMANCE
The chart and table below show the Fund's annual returns and gives some
indication of the risk of an investment in the Fund by comparing the Fund's
performance with a broad measure of market performance. The Fund's yield for the
7-day period ended December 31, 1998 is also shown. When you consider this
information, please remember the Fund's past performance is not necessarily an
indication of how the Fund will do in the future.
Total Return
(per calendar year)
[Bar Chart]
<TABLE>
<CAPTION>
HIGHEST AND LOWEST RETURN
(1998)
- --------------------------------------------------------------------------------
<S> <C> <C>
Quarter Ending
Highest % [Date]
Lowest % [Date]
</TABLE>
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- --------------------------------------------------------------------------------
<S> <C> <C>
1 Year Life of Fund
(SINCE 10/14/97)
% %
% %
</TABLE>
Yield
EXPENSES
The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES(1)
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase.................................None
Sales Charge (Load) Imposed on Reinvested Dividends.............................None
Maximum Deferred Sales Charge (Load)............................................None
Redemption Fees.................................................................None
Exchange Fees...................................................................None
</TABLE>
- ----------
Notes:
(1) Does not include fees that institutions may charge for services they provide
to you.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
PAID FROM FUND ASSETS) AS A % OF NET ASSETS
- ---------------------------------------------------------
<S> <C>
Management Fees................................................ 0.35%
Distribution and Service (12b-1) Fees.......................... 0.35%
Other Expenses................................................. %
Total Operating Expenses....................................... %
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated and then sell all of
your shares at the end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same as shown in the table above. Although your actual costs and the
return on your investment may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
4
<PAGE>
MORE ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund's main strategies and risks are summarized in the Risk/Return Summary.
Below is further information about the Fund's principal investments. The Fund
may also use strategies and invest in securities described in the Statement of
Additional Information.
The Fund has specific investment policies and procedures designed to maintain a
constant $1.00 net asset value per share. The Fund complies with rules of the
Securities and Exchange Commission, which impose certain liquidity, maturity and
diversification requirements. The Fund's investments must have remaining
maturities of 397 days or less and the average maturity of the Fund's
investments must be 90 days or less.
MONEY MARKET SECURITIES The Fund invests in money market securities, which are
high quality, short-term debt securities that pay a fixed, variable or floating
rate of interest. Securities are often specifically structured so that they are
eligible investments for a money market fund. For example, in order to satisfy
the maturity restrictions for a money market fund, some money market securities
have demand or put features which have the effect of shortening the security's
maturity. Money market securities include certificates of deposit, bankers'
acceptances, bank time deposits, notes, commercial paper and U.S. Government
securities.
U.S. GOVERNMENT SECURITIES The Fund invests in U.S. Government securities, which
are high-quality securities issued or guaranteed by the U.S. Treasury or by an
agency or instrumentality of the U.S. Government. U.S. Government securities may
be backed by the full faith and credit of the U.S. Treasury, the right to borrow
from the U.S. Treasury, or the agency or instrumentality issuing or guaranteeing
the security.
FOREIGN SECURITIES The Fund may invest in U.S. dollar-denominated foreign
securities, which include securities issued by foreign companies and foreign
governments and their agencies, instrumentalities or political subdivisions and
supranational organizations. Investments by the Fund in foreign securities
involve risks in addition to those of U.S. securities. Foreign securities are
generally more volatile and less liquid than U.S. securities, in part because of
higher political and economic risks and because there is less public information
available about foreign companies.
REPURCHASE AGREEMENTS The Fund may buy securities with the understanding that
the seller will buy them back with interest at a later date. If the seller is
unable to honor its commitment to repurchase the securities, the Fund could lose
money.
GUARANTEED INVESTMENT CONTRACTS The Fund invests in guaranteed investment
contracts, which are agreements of the Fund to make payments, generally to an
insurance company's general account, in exchange for a minimum level of interest
based on an index. Guaranteed investment contracts are considered illiquid
investments and are acquired subject to the Fund's limitation on illiquid
investments.
ASSET-BACKED SECURITIES Subject to applicable maturity and credit criteria, the
Fund may purchase securities backed by mortgages, installment sales contracts,
credit card receivables or other assets. Mortgage-backed securities carry
additional risks. The price and yield of these securities typically assume that
the securities will be redeemed at a given time before maturity. When interest
rates fall substantially, these securities are generally redeemed early because
the underlying mortgages are often prepaid. In that case, the Fund would have to
reinvest the money at a lower rate. In addition, the price or yield of
mortgage-backed securities may fall if they are redeemed later than expected.
SECURITIES LENDING The Fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains or
losses. If the borrower fails to return the securities and the invested
collateral has declined in value, the Fund could lose money.
5
<PAGE>
YOUR INVESTMENT
- --------------------------------------------------------------------------------
This section describes how to do business with the Fund.
HOW TO REACH THE FUND
By telephone: 1-800-438-5789
By mail: The Munder Funds
480 Pierce Street
Birmingham, MI 48009
PURCHASING SHARES
WHO MAY PURCHASE SHARES
Only certain institutional investors (including Comerica Securities) that have
an agreement with the Fund to provide shareholder services to their customers
may purchase shares of the Fund. Individuals may not purchase shares directly.
Individuals should contact their account representative to find out how to
purchase shares.
HOW TO PURCHASE SHARES
There is no minimum for initial or subsequent investments.
Institutional investors will purchase shares on behalf of a customer account
through procedures established in accordance with the requirements of the
account.
The Fund will send confirmations of share purchases to the institution involved.
Institutional investors will provide account statements to their customers
showing the customers' beneficial ownership of shares.
Provided their procedures are compatible with the purchase and redemption
policies of the Fund, institutional investors may purchase shares of the Fund on
behalf of their customers through automatic "sweeping" and other programs.
Purchase orders will be executed at the net asset value per share (NAV) next
determined after receipt of the order in proper form.
It is the responsibility of the institution to transmit orders for purchases by
its customers and to deliver payment of the shares on a timely basis.
Institutions may charge their customers certain account fees, depending on the
type of account the investor has established with the institution.
REDEEMING SHARES
HOW TO REDEEM SHARES
Shares held by an institution on behalf of its customers must be redeemed in
accordance with instructions and limitations pertaining to the account
established by that institution.
Redemption requests will be executed at the NAV next determined after the
transfer agent receives the request in proper form.
If the transfer agent receives a redemption order before 12:00 noon (Eastern
time), we will normally wire payment to the redeeming institution on the same
business day. For a redemption order received between 12:00 noon (Eastern time)
and 4:00 p.m. (Eastern time), we will normally wire payment on the next business
day.
ADDITIONAL POLICIES FOR PURCHASES AND SALES
o All orders to purchase shares are subject to acceptance by the Fund.
o At any time, the Fund may change any of its order acceptance practices
and may suspend the sale of its shares.
o The Fund may delay wiring redemption proceeds for up to seven days or
longer if permitted by the Securities and Exchange Commission.
o To limit Fund expenses, we do not issue share certificates.
o The Fund may temporarily stop redeeming shares if:
o the New York Stock Exchange is closed;
o trading on the New York Stock Exchange is restricted;
o or an emergency exists and the Fund cannot sell its assets or
accurately determine the value of its assets.
6
<PAGE>
o If accepted by the Fund, investors may purchase shares of the Fund with
securities they own. The advisor will determine if the securities are
consistent with the Fund's objectives and policies. If accepted, the
securities will be valued the same way the Fund values portfolio
securities it already owns. Call 1-800-438-5789 for more information.
o The Fund reserves the right to make payment for redeemed shares wholly
or in part by giving the redeeming shareholder portfolio securities.
The shareholder may pay transaction costs to dispose of these
securities.
o As long as the Fund takes reasonable measures to authenticate telephone
requests, neither the Fund, the distributor nor the transfer agent will
be held responsible for unauthorized transactions.
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 plan. The Plan allows the Fund to use up to
.10% of its daily net assets to finance activities relating to the distribution
of its shares and up to .25% of its daily net assets pay for certain shareholder
services provided by institutions that have agreements with the Fund to provide
such services.
Because the fees are paid out of the Fund's assets on an on-going basis, over
time these fees will increase the cost of an investment in the Fund and may cost
a shareholder more than paying other types of sales charges.
7
<PAGE>
PRICING OF FUND SHARES
- --------------------------------------------------------------------------------
The Fund's NAV is calculated on each day the New York Stock Exchange is open.
NAV is the value of a single share of a Fund. In determining the Fund's NAV,
securities are valued at amortized cost, which is approximately equal to market
value.
The Fund calculates NAV as of 12:00 p.m. (Eastern time) and as of the close of
the New York Stock Exchange, normally 4:00 p.m. (Eastern time). If the New York
Stock Exchange closes early, the Fund will accelerate calculation of its NAV and
transaction deadlines to that time.
DISTRIBUTIONS
- --------------------------------------------------------------------------------
Shareholders are entitled to their share of the Fund's net income and gains on
its investments. The Fund passes substantially all of its earnings along to its
shareholders as distributions. When the Fund earns income or interest from its
investments and distributes these earnings to shareholders, it is called a
DIVIDEND distribution. The Fund realizes capital gains when it sells securities
for a higher price than it paid. When these gains are distributed to
shareholders, it is called a CAPITAL GAIN DISTRIBUTION.
Capital gain distributions, if any, will generally be made on an annual basis.
Dividend distributions are declared daily and paid monthly.
If a purchase order is accepted by 12:00 p.m. (Eastern time), the investor will
receive dividends for that day. Otherwise the investor will begin to earn
dividends on the first business day following the day of purchase. If a
redemption order is received before 12:00 p.m. (Eastern time), the redeeming
shareholder will not receive dividends for that day. If the redemption is
received after 12:00 p.m. (Eastern time), the redeeming shareholder will receive
that days' dividends.
Shareholders will receive distributions from the Fund in additional shares of
the Fund unless they elect to receive distributions in cash.
8
<PAGE>
FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
Investments in the Fund will have tax consequences that an investor should
consider. This section describes some of the more common federal tax
consequences, but investors should consult their tax advisers about the
investors own particular situation.
TAXES ON DISTRIBUTIONS
Shareholders will generally have to pay federal income tax on all Fund
distributions. Distributions will be taxed in the same manner whether the
shareholder receives the distributions in cash or additional shares of the Fund.
The Fund expects that its distributions will consist primarily of ordinary
income.
Shareholders generally are required to report all Fund distributions on their
federal income tax returns. Each year the Fund will send shareholders
information detailing the amount of ordinary income and capital gains paid to
the shareholder for the previous year.
OTHER CONSIDERATIONS
By law, the Fund must withhold a portion of a shareholder's distributions and
redemption proceeds to pay federal income taxes if the shareholder has not
provided complete, correct taxpayer information.
MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISOR
The Fund's investment advisor is Munder Capital Management, 480 Pierce Street,
Birmingham, Michigan 48009. As of December 31, 1998, the advisor and its
affiliates had approximately $50 billion in assets under management, of which
$28 billion were invested in equity securities, $8 billion were invested in
money market or other short-term instruments, $8 billion were invested in other
fixed income securities, and $6 billion in non-discretionary assets.
The advisor provides overall investment management for the Fund, provides
research and credit analysis and is responsible for all purchases and sales of
portfolio securities.
For the fiscal year ended December 31, 1998, the Fund paid the advisor a fee
equal to 0.35% of its 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 Fund and/or their
shareholders, including sub-administration, sub-transfer agency and shareholder
servicing. The advisor may make such payments out of its own resources and there
are no additional costs to the Fund or its shareholders.
9
<PAGE>
YEAR 2000
Like other mutual funds, financial institutions and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the advisor and the Fund's other service providers
do not properly process and calculate date-related information and data from
and after January 1, 2000. The advisor is taking steps that it believes are
reasonably designed to address year 2000 computer-related problems with
respect to the computer systems that it uses and to obtain assurances that
comparable steps are being taken by the Fund's other, major service
providers. Although there can be no assurances, the advisor believes that
these steps will be sufficient to avoid any adverse impact on the Fund.
Similarly, the companies and other issuers in which the Fund invests could be
adversely affected by year 2000 computer-related problems, and there can be
no assurance that the steps taken, if any, by these issuers will be
sufficient to avoid any adverse impact on the Fund.
10
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help shareholders understand the
Fund's financial performance for the period of the Fund's operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned [or
lost] on an investment in the Fund (assuming reinvestment of all dividends and
distributions). The information has been audited by Ernst & Young LLP, whose
report along with the Fund's financial statements, are included in the annual
report, which is available upon request.
<TABLE>
<CAPTION>
------------------------------
YEAR PERIOD
ENDED ENDED
12/31/98 12/31/97(A)
<S> <C>
Net Asset Value, Beginning of Period.............................
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income........................................
Net Gains or Losses on Securities (both realized
and unrealized)..............................................
Total From Investment Operations..........................
LESS DISTRIBUTIONS
Dividends (from net investment income)......................
Distributions (from capital gains)..........................
Returns of Capital..........................................
Total Distributions.....................................
Net Asset Value, End of Period
TOTAL return.....................................................
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period........................................
Ratio of Expenses to Average Net Assets..........................
Ratio of Net Income to Average Net Assets........................
Portfolio Turnover Rate..........................................
</TABLE>
- ----------
(a) The Fund commenced operations on June 4, 1997.
11
<PAGE>
FOR MORE INFORMATION
TO OBTAIN INFORMATION:
BY TELEPHONE
Call 1-800-438-5789
BY MAIL Write to:
The Munder Funds
480 Pierce Street
Birmingham, MI 48009
ON THE INTERNET Text-only versions of fund documents can be viewed online or
downloaded from:
SECURITIES AND EXCHANGE COMMISSION
http://www.sec.gov
You can also obtain copies by visiting the Securities and Exchange Commission's
Public Reference Room in Washington, DC (phone 1-800-SEC-0330) or by sending
your request and a duplicating fee to the Securities Exchange Commission's
Public Reference Section, Washington, DC 2054-6009.
More information about Liquidity Plus Money Market Fund is available free upon
request, including the following:
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In Fund's annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the fund's performance during its last fiscal year. You
will receive unaudited semi-annual reports and audited annual reports on a
regular basis from the Fund. In addition, you will also receive updated
Prospectuses or Supplements to this Prospectus. In order to eliminate duplicate
mailings, the Fund will only send one copy of the above communications to (1)
accounts with the same primary record owner, (2) joint tenant accounts, (3)
tenant in common accounts and (4) accounts which have the same address.
STATEMENT OF ADDITIONAL INFORMATION
Provides more details about all of the funds and their policies. A current
Statement of Additional Information is on file with the and Securities and
Exchange Commission and is incorporated by reference (is legally considered part
of this prospectus).
<PAGE>
PROSPECTUS
APRIL 30, 1999
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
AS WITH ALL MUTUAL FUNDS, THE SECURITIES
AND EXCHANGE COMMISSION DOES NOT
GUARANTEE THAT THE INFORMATION IN THIS
PROSPECTUS IS ACCURATE OR COMPLETE, NOR
HAS IT APPROVED OR DISAPPROVED THESE
SECURITIES. IT IS A CRIMINAL OFFENSE TO
STATE OTHERWISE.
<PAGE>
TABLE OF CONTENTS
3 RISK/RETURN SUMMARY
INDEX EQUITY FUNDS
3 GOALS AND MAIN INVESTMENT STRATEGIES
3 PRINCIPAL RISKS
AGGREGATE BOND INDEX FUND
5 GOAL AND MAIN INVESTMENT STRATEGIES
5 PRINCIPAL RISKS
FOREIGN EQUITY FUND
6 GOAL AND MAIN INVESTMENT STRATEGIES
6 PRINCIPAL RISKS
7 MORE ABOUT THE FUNDS
10 SHARES OF THE FUNDS
10 PRICING OF FUND SHARES
11 DISTRIBUTIONS
11 FEDERAL TAX CONSIDERATIONS
12 MANAGEMENT
12 INVESTMENT ADVISOR
12 SHAREHOLDER SERVICING PLAN
13 APPENDIX
BACK COVER FOR ADDITIONAL INFORMATION
2
<PAGE>
RISK/RETURN SUMMARY
- --------------------------------------------------------------------------------
This Risk/Return Summary briefly describes each of the Funds and the principal
risks of investing in the Funds. For further information on the Funds, please
read the section entitled More About The Funds.
An investment in a Fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other governmental agency.
INDEX EQUITY FUNDS
GOALS AND MAIN INVESTMENT STRATEGIES
S&P 500 INDEX EQUITY FUND
The Fund's goal is to provide price performance and income that is comparable to
the Standard and Poor's 500 Composite Stock Price Index (S&P 500). The S&P 500
is an index of 500 stocks that emphasizes large capitalization companies.
The Fund invests primarily in common stocks and it normally will hold the shares
of at least 80% of the issuers in the S&P 500.
The Index Equity Funds may also purchase foreign securities, enter into
derivative contracts and repurchase agreements and lend portfolio securities,
which are described below under "More About the Funds."
MIDCAP INDEX EQUITY FUND
The Fund's goal is to provide price performance and income that is comparable to
the Standard & Poor's MidCap 400 Index (S&P MidCap 400). The S&P MidCap 400 is
an index of 400 stocks that emphasizes medium capitalization companies.
The Fund invests primarily in common stocks and it normally will hold the shares
of at least 80% of the issuers in the S&P MidCap 400.
SMALLCAP INDEX EQUITY FUND
The Fund's goal is to provide price performance and income that is comparable to
the Standard & Poor's SmallCap 600 Index (S&P SmallCap 600). The S&P SmallCap
600 is an index of 600 stocks that emphasizes small capitalization companies.
The Fund invests primarily in common stocks and it normally will hold the shares
of at least 80% of the issuers in the S&P SmallCap 600.
PRINCIPAL RISKS
The Index Equity Funds are subject to the following principal investment risks:
- - The stock market may go down.
- - An adverse event, such as an unfavorable earnings report, may depress the
value of a particular stock held by an Index Equity Fund.
- - The MidCap Index Equity Fund and the SmallCap Index Equity Fund invest in
stocks of smaller companies, which may have more risks than stocks of
larger companies. They may be more susceptible to market downturns, their
prices may be more volatile and they may be less liquid.
- - The share price of each Index Equity Fund will change daily based on market
conditions and other factors; you may lose money if you invest in the
Funds.
- - None of the Index Equity Funds can be certain it will achieve its
investment goal.
- - The Index Equity Funds will invest in the securities included in the
relevant index or substantially identical securities regardless of market
trends. As a result, the Index Equity Funds cannot modify their investment
strategies to respond to changes in economy, which means they may be
particularly susceptible to a general decline in the stock market segment
relating to the relevant index.
3
<PAGE>
MANAGEMENT APPROACH
- - The advisor manages the Index Equity Funds through a "quantitative" or
"indexing" investment approach, which attempts to duplicate the investment
composition and performance of the particular index through statistical
procedures.
- - The advisor selects stocks based primarily on market capitalization and
industry weightings.
- - The advisor attempts to track the performance of the particular index
within a 0.95 correlation.
4
<PAGE>
AGGREGATE BOND INDEX FUND
- --------------------------------------------------------------------------------
GOAL AND MAIN INVESTMENT STRATEGIES
The Fund's goal is to provide price performance and income that is comparable to
the Lehman Brothers Aggregate Bond Index (Aggregate Bond Index). The Aggregate
Bond Index is a broad market weighted index for publicly traded,
investment-grade bonds.
The Fund invests primarily in U.S. Government securities and investment grade
corporate bonds of U.S. and foreign issuers, with maturities of greater than one
year.
PRINCIPAL RISKS
The Fund is subject to the following principal investment risks:
- - In general, bond prices fall when interest rates rise.
- - Generally, the longer the average maturity of the bonds in the Fund, the
more the Fund's share price will fluctuate in response to interest rate
changes.
- - The possibility that a bond issuer will fail to make timely payments of
either interest or principal to the Fund.
- - During periods of falling interest rates, securities with high stated
interest rates may be called prior to maturity, requiring the Fund to
invest proceeds at generally lower interest rates.
- - The share price of the Fund will change daily based on market conditions
and other factors; and you may lose money if you invest in the Funds.
- - The Fund cannot be certain it will achieve its investment goal.
- - The Fund will invest in securities included in the Aggregate Bond Index
or substantially identical securities regardless of market trends. As a
result, the Fund cannot modify its investment strategies to respond to
changes in the economy, which means it may be particularly susceptible to a
general decline in the bond market segment relating to the relevant index.
MANAGEMENT APPROACH
- - The advisor manages the Fund through a "quantitative" or "indexing"
investment approach, which attempts to duplicate the investment composition
and performance of the particular index through statistical procedures.
- - The advisor attempts to track the performance of a particular index within
a 0.95 correlation.
5
<PAGE>
FOREIGN EQUITY FUND
- --------------------------------------------------------------------------------
GOAL AND MAIN INVESTMENT STRATEGIES
The Fund's goal is to provide long-term capital appreciation.
The Fund invests primarily in common stocks of foreign issuers and in
American Depositary Receipts. The Fund will emphasize companies with market
capitalizations of at least $100 million.
PRINCIPAL RISKS
The Fund is subject to the following principal investment risks:
- - The stock market may go down.
- - Investments by the Fund in foreign securities involve risks in addition to
those of U.S. securities. They are generally more volatile and less liquid
than U.S. securities, in part because of higher political and economic
risks and because there is less public information available about foreign
companies. There is also the risk of fluctuations in currency exchange
rates.
- - All of the risks of investing in foreign securities are heightened by
investing in emerging markets.
- - The share price of the Fund will change daily based on market conditions
and other factors; you may lose money if you invest in the Fund.
- - The Fund cannot be certain it will achieve its investment goal.
MANAGEMENT APPROACH
- - The advisor selects stocks based on factors such as the location of the
issuer, its competitive stature, the issuer's past record and future
prospects for growth and marketability of its securities.
- - [The advisor creates a list at least annually of securities eligible for
purchase by the Fund and then calculates the adjusted market capitalization
of all securities in the eligible universe. The securities are 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. 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.]
6
<PAGE>
MORE ABOUT THE FUNDS
- --------------------------------------------------------------------------------
INDEX EQUITY FUNDS
The Funds' main strategies and risks are summarized above in the section
entitled Risk/Return Summary. Below is further information about the Funds'
principal investments. The Funds may also use strategies and invest in
securities described in the Statement of Additional Information.
EQUITY SECURITIES The Funds invest in equity securities which include common
stocks, preferred stocks, convertible preferred stocks and warrants or rights to
subscribe for or purchase such securities. Securities considered for purchase by
the Index Equity Funds may be listed or unlisted.
FOREIGN SECURITIES Each Fund may invest in securities of foreign issuers.
Investments by each Fund in foreign securities involve risks in addition to
those of U.S. securities. Foreign securities are generally more volatile and
less liquid than U.S. securities, in part because of higher political and
economic risks and because there is less public information available about
foreign companies. Also, a decline in the value of foreign currencies relative
to the U.S. dollar will reduce the value of securities denominated in those
currencies.
DERIVATIVE CONTRACTS Each Fund may, but is not required to, use stock index
futures contracts to maintain liquidity or to hedge against adverse changes -
caused by changing interest rates, stock market prices or currency exchange
rates - in the market value of securities held by or to be bought for a Fund.
While hedging can guard against potential risks, it adds to the Fund's expenses
and can eliminate some opportunities for gains. There is also a risk that a
derivative intended as a hedge may not perform as expected. The main risk with
derivatives is that some types can amplify a gain or loss, potentially earning
or losing substantially more money than the actual cost of the derivative. With
some derivatives, there is also the risk that the other party to the contract
may fail to honor its obligation, causing a loss for the Fund. The Funds will
not use derivatives for speculative purposes.
DEFENSIVE INVESTING During unusual market conditions, each Fund may place up to
100% of total assets in cash or high-quality, short-term debt securities. To the
extent that the Fund does this, it is not pursuing its goal.
SECURITIES LENDING Each Fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains or
losses. If the borrower fails to return the securities and the invested
collateral has declined in value, the Fund could lose money.
PORTFOLIO MANAGERS
Kenneth A. Schluchter III and Darin McBride jointly manage the S&P 500 Index
Equity Fund and jointly manage the MidCap Index Equity Fund. Mr. Schluchter and
Mark Drouse jointly manage the SmallCap Index Equity Fund.
Mr. Schluchter, Director of Domestic Investments of the advisor, has managed the
Funds since their inception. He was previously a systems developer and data
analyst for Compuware Incorporated (1993-1995).
Mr. McBride, a portfolio manager of the advisor, has also managed the S&P 500
Index Equity Fund and the MidCap Index Equity Fund since their inception.
Previously, Mr. McBride was a portfolio research analyst at Flexible Plan
Investments, Ltd. (1995-1997) and an account executive at Ryder Systems, Inc.
(1993-1994).
Mr. Drouse has managed the SmallCap Index Equity Fund since its inception,
utilizing his systems experience in quantitative investment management.
Previously, he was a portfolio analyst for the advisor (1996-1997), a systems
administrator for Munder Capital Management (1995-1996) and a WAN network
administrator for Comerica Bank (1993-1995).
AGGREGATE BOND INDEX FUND
The Fund's main strategies and risks are summarized above in the section
entitled Risk/Return Summary. Below is further information about the Fund's
principal investments. The Fund may also use
7
<PAGE>
strategies and invest in securities described in the Statement of Additional
Information.
The Fund may also invest in convertible securities, stock index futures
contracts, options on stock index futures contracts and, to a limited extent,
warrants.
The Fund may purchase corporate bonds and commercial paper that meet the
applicable quality and maturity limitations. The 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 Investor Service, Inc. 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 investment objective and policies of the
Fund. Descriptions of each rating category are included as Appendix A to the
Statement of Additional Information.
The Aggregate Bond Index includes four major types of taxable bonds in the
United States: U.S. treasury and agency securities; corporate bonds; foreign
bonds denominated in U.S. dollars; and mortgage-backed securities.
FOREIGN SECURITIES The Fund may invest in bonds of foreign issuers, so long as
the securities are denominated in U.S. dollars. Investments by each Fund in
foreign securities involve risks in addition to those of U.S. securities.
Foreign securities are generally more volatile and less liquid than U.S.
securities, in part because of higher political and economic risks and because
there is less public information available about foreign companies.
DERIVATIVE CONTRACTS The Fund may, but is not required to, use derivative
contracts to maintain liquidity or to hedge against adverse changes in the
market value of securities held by or to be bought for a fund. While hedging can
guard against potential risks, it adds to the Fund's expenses and can eliminate
some opportunities for gains. There is also a risk that a derivative intended as
a hedge may not perform as expected. The main risk with derivatives is that some
types can amplify a gain or loss, potentially earning or losing substantially
more money than the actual cost of the derivative. With some derivatives, there
is also the risk that the counterparty may fail to honor its contract terms,
causing a loss for the Fund. The Fund will not use derivatives for speculative
purposes.
ASSET-BACKED SECURITIES The Fund may purchase securities backed by mortgages,
installment sales contracts, credit card receivables or other assets.
Mortgage-backed securities carry additional risks. The price and yield of these
securities typically assume that the securities will be redeemed at a given time
before maturity. When interest rates fall substantially, these securities are
generally redeemed early because the underlying mortgages are often prepaid. The
Fund would then have to reinvest the money at a lower rate. In addition, the
price or yield of mortgage-backed securities may fall if they are redeemed later
than expected.
U.S. GOVERNMENT SECURITIES The Fund invests in U.S. Government securities which
are high-quality securities issued or guaranteed by the U.S. Treasury or by an
agency or instrumentality of the U.S. Government. U.S. Government securities may
be backed by the full faith and credit of the U.S. Treasury, the right to borrow
from the U.S. Treasury, or the agency or instrumentality issuing or guaranteeing
the security.
DEFENSIVE INVESTING During unusual market conditions, the Fund may place up to
100% of total assets in cash or high-quality, short-term debt securities. To the
extent that the Fund does this, it is not pursuing its goal.
SECURITIES LENDING The Fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize
8
<PAGE>
additional gains or losses. If the borrower fails to return the securities and
the invested collateral has declined in value, the Fund could lose money.
PORTFOLIO MANAGER
FOREIGN EQUITY FUND
The Fund's main strategies and risks are summarized above in the section
entitled Risk/Return Summary. Below is further information about the Fund's
principal investments. The Fund may also use strategies and invest in securities
described in the SAI.
EQUITY SECURITIES The Fund invests in equity securities which include common
stocks, preferred stocks, convertible preferred stocks and warrants or rights to
subscribe to or purchase such securities. Securities considered for purchase by
the Fund may be listed or unlisted, and may be issued by companies with various
levels of market capitalization.
FOREIGN SECURITIES The Fund invests in securities of foreign issuers.
Investments by the Fund in foreign securities involve risks in addition to those
of U.S. securities. Foreign securities are generally more volatile and less
liquid than U.S. securities, in part because of higher political and economic
risks and because there is less public information available about foreign
companies. All of the risks of investing in foreign securities are heightened by
investing in emerging markets.
AMERICAN DEPOSITARY RECEIPTS The Fund invests in American Depositary Receipts.
American Depositary Receipts are receipts typically issued by a United States
bank or trust company evidencing ownership of the underlying foreign securities.
American Depositary Receipts involve the risks of other investments in foreign
securities, as discussed above.
DERIVATIVE CONTRACTS The Fund may, but is not required to, use derivative
contracts to maintain liquidity or to hedge against adverse changes in the
market value of securities held by or to be bought for the Fund. While hedging
can guard against potential risks, it adds to the Fund's expenses and can
eliminate some opportunities for gains. There is also a risk that a derivative
intended as a hedge may not perform as expected. The main risk with derivatives
is that some types can amplify a gain or loss, potentially earning or losing
substantially more money than the actual cost of the derivative. With some
derivatives, there is also the risk that the counterparty may fail to honor its
contract terms, causing a loss for the Fund. The Fund will not use derivatives
for speculative purposes.
DEFENSIVE INVESTING During unusual market conditions, the Fund may place up to
100% of its total assets in cash or high-quality, short-term debt securities. To
the extent that the Fund does this, it is not pursuing its goal.
SECURITIES LENDING The Fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains or
losses. If the borrower fails to return the securities and the invested
collateral has declined in value, the Fund could lose money.
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 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 Interaciones 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.
9
<PAGE>
SHARES OF THE FUNDS
- --------------------------------------------------------------------------------
Shares of the Funds are available only through the purchase of variable annuity
and variable life insurance contracts issued by various life insurance
companies. This means you cannot purchase shares of the Funds directly, but only
through such a contract as offered by an insurance company. For further
information, please read the accompanying separate account prospectus for the
annuity or life insurance contract through which shares of the Funds are
offered.
PRICING OF FUND SHARES
Each Fund's NAV is calculated on each day the New York Stock Exchange is open.
NAV is the value of a single share of a Fund. NAV is calculated by (1) taking
the current market value of a Fund's total assets, (2) subtracting the
liabilities and (3) dividing that amount by the total number of shares owned by
shareholders.
The Funds calculate NAV as of the close of business on the New York Stock
Exchange, normally 4:00 p.m. Eastern time. If the New York Stock Exchange closes
early, the Funds will accelerate their calculation of NAV and transaction
deadlines to that time.
Each Fund generally values the securities held in the Fund based on market
quotations and valuations provided by independent pricing services. If
quotations are not readily available or if the advisor believes that events
occurring after the close of a foreign exchange have rendered the quotations
unreliable, the Fund may use fair-value estimates instead. A Fund that uses fair
value to price securities may value those securities higher or lower than a fund
that uses market quotations.
Foreign securities are valued based on quotations from the primary market in
which they are traded, and are converted from the local currency into U.S.
dollars using current exchange rates. Foreign securities may trade in their
primary markets on weekends or other days when the Fund does not price its
shares. Therefore, the value of the portfolio of a Fund holding foreign
securities may change on days when shareholders will not be able to buy or sell
their shares.
10
<PAGE>
DISTRIBUTIONS
- --------------------------------------------------------------------------------
Each Fund passes substantially all of its earnings along to its shareholders as
distributions. When a Fund earns dividends from stocks and interest from debt
securities and distributes these earnings, it is called a DIVIDEND DISTRIBUTION.
A Fund realizes capital gains when it sells securities for a higher price than
it paid. When these gains are distributed, it is called a CAPITAL GAIN
DISTRIBUTION. Dividend distributions may be made several times a year, while
capital gain distributions, if any, are made on an annual basis.
INDEX EQUITY FUNDS AND AGGREGATE BOND INDEX FUND
These Funds pay dividends quarterly.
FOREIGN EQUITY FUND
Dividend distributions are declared daily and paid at least annually.
ALL FUNDS
The insurance company's separate accounts will automatically reinvest
distributions from a Fund in additional shares of that Fund.
FEDERAL TAX CONSIDERATIONS
The tax consequences of your investment in a Fund depend on the provisions of
the variable annuity or life insurance plan through which you invest. For more
information on taxes, please read the prospectus for the insurance company
separate account that offers your variable annuity or insurance contract.
11
<PAGE>
MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISOR
The Funds' investment advisor is Munder Capital Management, 480 Pierce Street,
Birmingham, Michigan 48009. As of December 31, 1998, the Advisor and its
affiliates had approximately $50 billion in assets under management, of which
$28 billion were invested in equity securities, $8 billion were invested in
money market or other short-term instruments, $8 billion were invested in other
fixed income securities, and $6 billion in non-discretionary assets.
The advisor provides overall investment management for the Funds, provides
research and credit analysis and is responsible for all purchases and sales of
portfolio securities.
The advisor is entitled to receive an annual fee equal to.05% of the average
daily net assets of the S&P 500 Index Equity Fund, MidCap Index Equity Fund, the
SmallCap Index Equity Fund, Aggregate Bond Index Fund and Foreign Equity Fund.
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. The Advisor may make such payments out of its own resources and there
are no additional costs to the Funds or their shareholders.
SHAREHOLDER SERVICING PLAN
The Fund has adopted a Shareholder Servicing Plan under Rule 12b-1 of the
Investment Company Act of 1940, as amended, that provides for payment to the
insurance companies offering the separate accounts, dealers that offer the
contracts and the Funds' distributor for providing shareholder services to
contractowners. The Plan authorizes payments at an annual rate of up to 0.25% of
each Fund's average daily net assets.
Because the fees are paid out of the Fund's assets on an on-going basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
YEAR 2000
Like other mutual funds, financial institutions and business organizations
and individuals around the world, each Fund could be adversely affected if
the computer systems used by the advisor and the Fund's other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. The advisor is taking steps that it
believes are reasonably designed to address year 2000 computer-related
problems with respect to the computer systems that it uses and to obtain
assurances that comparable steps are being taken by a Fund's other, major
service providers. Although there can be no assurances, the advisor believes
that these steps will be sufficient to avoid any adverse impact on any of the
Funds. Similarly, the companies and other issuers in which a Fund invests
could be adversely affected by year 2000 computer-related problems, and there
can be no assurance that the steps taken, if any, by these issuers will be
sufficient to avoid any adverse impact on a Fund.
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APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S INDEXES
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard and Poor's 500",
"500", "S&P MidCap 400", "Standard & Poor's MidCap 400", "400", "S&P SmallCap
600(R)", "Standard & Poor's SmallCap 600", and "600" are trademarks of
McGraw-Hill Companies, Inc. (McGraw-Hill) and have been licensed for use by St.
Clair Funds, Inc. 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 to track general stock market performance.
S&P's only relationship to the St. Clair Funds, Inc. is the licensing of certain
trademarks and trade names of S&P and of the indexes which are determined,
composed and calculated by S&P without regard to the St. Clair Funds, Inc. 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 St. Clair Funds, Inc., 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 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.
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FOR MORE INFORMATION
TO OBTAIN INFORMATION:
BY TELEPHONE
Call 1-800-438-5789
BY MAIL Write to:
The Munder Funds
480 Pierce Street
Birmingham, MI 48009
ON THE INTERNET Text-only versions of fund documents can be viewed online or
downloaded from:
SECURITIES AND EXCHANGE COMMISSION
http://www.sec.gov
You can also obtain copies by visiting the Securities and Exchange Commission's
Public Reference Room in Washington, DC (phone 1-800-SEC-0330) or by sending
your request and a duplicating fee to the Securities and Exchange Commission's
Public Reference Section,
Washington, DC 2054-6009.
More information about the Funds is available free upon request, including the
following:
STATEMENT OF ADDITIONAL INFORMATION
Provides more details about all of the funds and their policies. A current
Statement of Additional Information is on file with the Securities and Exchange
Commission and is incorporated by reference (is legally considered part of this
prospectus).
SEC FILE NUMBER: 811-4038
<PAGE>
MUNDER INSTITUTIONAL S&P 500 INDEX EQUITY FUND
MUNDER INSTITUTIONAL S&P MIDCAP INDEX EQUITY FUND
MUNDER INSTITUTIONAL SHORT TERM TREASURY FUND
MUNDER INSTITUTIONAL MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
St. Clair Funds, Inc. (the "Company") currently offers a selection of
investment portfolios, four of which are discussed in this Statement of
Additional Information: Munder Institutional S&P 500 Index Equity Fund ("S&P 500
Index Equity Fund"), Munder Institutional S&P MidCap Index Equity Fund ("MidCap
Index Equity Fund"), (together, the "Index Funds"), Munder Institutional
Short Term Treasury Fund ("Short Term Treasury Fund") and Munder Institutional
Money Market Fund ("Money Market Fund") (collectively with the Index Funds, the
"Funds"). The Funds' investment advisor is Munder Capital Management.
This Statement of Additional Information is intended to supplement the
information provided to investors in the Funds' Prospectus dated April 30, 1999
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 April 30, 1999. 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 Funds Distributor,
Inc. (the "Distributor"), or by calling the Funds at (800) 438-5789. This
Statement of Additional Information is dated April 30, 1999.
AN INVESTMENT IN A FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED OR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
General.......................................................................................... 3
Fund Investments................................................................................. 3
Risk Factors and Special Considerations ......................................................... 18
Investment Limitations........................................................................... 19
Temporary Defensive Position..................................................................... 23
Directors and Officers........................................................................... 23
Investment Advisory and Other Service Arrangements............................................... 27
Portfolio Transactions........................................................................... 29
Additional Purchase and Redemption Information................................................... 31
Net Asset Value.................................................................................. 32
Performance Information.......................................................................... 33
Taxes............................................................................................ 35
Additional Information Concerning Shares......................................................... 40
Miscellaneous.................................................................................... 41
Registration Statement........................................................................... 42
Financial Statements............................................................................. 43
Appendix A....................................................................................... 44
Appendix B....................................................................................... 46
</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
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GENERAL
The Company is an open-end management investment company, which is a
mutual fund that sells and redeems shares every day that it is open for
business. 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.
Each of the Funds is a diversified mutual fund. The investment advisor
of the Funds is Munder Capital Management (the "Advisor"). The principal
partners of the Advisor are Old MCM, Inc. ("MCM"), Munder Group LLC, WAM
Holdings, Inc. ("WAM") and WAM Holdings II, Inc. ("WAM II"). MCM was founded in
April 1985 as a Delaware corporation and was a registered investment advisor.
WAM and WAM II are indirect, wholly owned subsidiaries of Comerica Incorporated
which owns or controls approximately 88% of the partnership interests in 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.
ASSET-BACKED SECURITIES. Subject to applicable credit criteria, the
Money Market 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
interest rates and current conditions in the relevant housing markets. In
calculating the average weighted maturity of the Money Market 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. When 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 the premium paid.
BANK OBLIGATIONS. The Funds (other than the Short Term Treasury Fund)
may purchase U.S. dollar-denominated bank obligations, including certificates of
deposit, bankers' acceptances, bank notes, deposit notes 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. For this purpose, the assets
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of a bank or savings institution include the assets of both its domestic and
foreign branches. The Money Market Fund will invest in the obligations of
domestic banks and savings institutions only if their deposits are federally
insured. Investments by a Fund (other than the Money Market Fund) in (i)
obligations of domestic banks and (ii) obligations of foreign banks and foreign
branches of domestic banks each will not exceed 25% of the Fund's total assets
at the time of investment.
Non-domestic bank obligations include Eurodollar Certificates of
Deposit ("ECDs"), which are U.S. dollar-denominated certificates of deposit
issued by offices of foreign and domestic banks located outside the United
States; Eurodollar Time Deposits ("ETDs"), which are U.S. dollar-denominated
deposits in a foreign branch of a U.S. bank or a foreign bank; Canadian Time
Deposits ("CTDs"), which are essentially the same as ETDs except they are issued
by Canadian offices of major Canadian banks; Schedule Bs, which are obligations
issued by Canadian branches of foreign or domestic banks; 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 Bankers' 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 United States. Although the Funds (other than Short Term
Treasury Fund) 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.
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. Borrowed funds are
subject to interest costs that may or may not be offset by amounts earned on
borrowed funds. 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. A
Fund may not purchase portfolio securities while borrowings exceed 5% of the
Fund's total assets.
COMMERCIAL PAPER. Investments by a Fund (other than the Short Term
Treasury Fund and Money Market Fund) in commercial paper will consist of issues
rated at the time in one of the highest four rating categories by at least one
nationally-recognized statistical rating organization ("NRSRO"). Investments by
the Money Market Fund will consist of issuers having at the time, a quality
rating within the two highest rating categories of an NRSRO. 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.
CONVERTIBLE PREFERRED STOCK. Each Index Fund may invest in convertible
preferred stock. A convertible security is a security that may be converted
either at a stated price or a 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
4
<PAGE>
appreciation of the common stock into which the securities are convertible,
while earning higher current income than is available from the common stock.
DEPOSITARY RECEIPTS. The Index Funds may purchase American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and
Global Depositary Receipts ("GDRs"). 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. EDRs and GDRs are issued by
European financial institutions. 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. For purposes of the Funds'
investment policies, a Fund's investments in depositary receipts will be
deemed to be investments in the underlying securities.
FOREIGN SECURITIES. Each Index Fund may invest up to 25% of its
assets in foreign securities and the Money Market Fund may invest its assets
in U.S. dollar-denominated securities of foreign issuers. Income and gains on
such 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
companies comparable to the reports and ratings published about companies in the
United States. Foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards, and auditing practices
and requirements may not be comparable to those applicable to United States
companies. Foreign markets have substantially less trading volume than the New
York Stock Exchange and securities of some foreign companies are less liquid and
more volatile than securities of comparable United States companies. Commission
rates in foreign countries, which are generally fixed rather than subject to
negotiation as in the United States, are likely to be higher. In many foreign
countries there is less government supervision and less regulation of stock
exchanges, brokers, and listed companies than in the United States. Such
concerns are particularly heightened for emerging markets and Eastern European
countries.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
These risks include (i) less social, political and economic stability; (ii) the
small current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict a
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interest; (iv) foreign taxation; (v)
the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private property; (vi)
the absence, until recently in certain Eastern European countries, of a capital
market structure or market-oriented economy; and (vii) the possibility that
recent favorable
5
<PAGE>
economic developments in Eastern Europe may be slowed or reversed by
unanticipated political or social events in such countries.
Investments in Eastern European countries may involve risks of
nationalization, expropriation and confiscatory taxation. The Communist
governments of a number of Eastern European countries expropriated large amounts
of private property in the past, in many cases without adequate compensation,
and there can be no assurance that such expropriation will not occur in the
future. In the event of such expropriation, the Fund could lose a substantial
portion of any investments it has made in the affected countries. Further, no
accounting standards exist in Eastern European countries. Finally, even though
certain Eastern European currencies may be convertible into United States
dollars, the conversion rates may be artificial rather than their actual market
values and they may be adverse to a Fund.
The Advisor endeavors to buy and sell foreign currencies on as
favorable a basis as practicable. Some price spread on currency exchange (to
cover service charges) may be incurred, particularly when the Fund changes
investments from one country to another or when proceeds of the sale of Fund
shares in U.S. dollars are used for the purchase of securities in foreign
countries. Also, some countries may adopt policies which would prevent the Fund
from transferring cash out of the country or withhold portions of interest and
dividends at the source. There is the possibility of expropriation,
nationalization or confiscatory taxation, withholding and other foreign taxes on
income or other amounts, foreign exchange controls (which may include suspension
of the ability to transfer currency from a given country), default in foreign
government securities, political or social instability or diplomatic
developments that could affect investments in securities of issuers in foreign
nations.
Foreign securities markets have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when assets of a Fund are uninvested and no return is earned
thereon. The inability of a Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to a Fund due to subsequent declines in
value of the portfolio security or, if the fund has entered into a contract to
sell the security, could result in possible liability to the purchaser.
A Fund may be affected either unfavorably or favorably by fluctuations
in the relative rates of exchange between the currencies of different nations,
by exchange control regulations and by indigenous economic and political
developments. Changes in foreign currency exchange rates will influence values
within a Fund from the perspective of U.S. investors, and may also affect the
value of dividends and interest earned, gains and losses realized on the sale of
securities, and net investment income and gains, if any, to be distributed to
shareholders by a Fund. The rate of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and demand in the foreign
exchange markets. These forces are affected by the international balance of
payments and other economic and financial conditions, government intervention,
speculation and other factors. The Advisor will attempt to avoid unfavorable
consequences and to take advantage of favorable developments in particular
nations where, from time to time, it places a Fund's investments.
The exercise of this flexible policy may include decisions to purchase
securities with substantial risk characteristics and other decisions such as
changing the emphasis on investments from one nation to
6
<PAGE>
another and from one type of security to another. Some of these decisions may
later prove profitable and others may not. No assurance can be given that
profits, if any, will exceed losses.
FORWARD FOREIGN CURRENCY TRANSACTIONS. In order to protect against a
possible loss on investments resulting from a decline or appreciation in the
value of a particular foreign currency against the U.S. dollar or another
foreign currency, the Index Funds are authorized, but are not required, to
enter into forward foreign currency exchange contracts ("forward currency
contracts"). These contracts involve an obligation to purchase or sell a
specified currency at a future date at a price set at the time of the
contract. Forward currency contracts do not eliminate fluctuations in the
values of portfolio securities but rather allow a Fund to establish a rate of
currency exchange for a future point in time.
When entering into a contract for the purchase or sale of a security, a
Fund may enter into a forward currency contract for the amount of the purchase
or sale price to protect against variations, between the date the security is
purchased or sold and the date on which payment is made or received, in the
value of the foreign currency relative to the U.S. dollar or other foreign
currency.
When the Advisor anticipates that a particular foreign currency may
decline substantially relative to the U.S. dollar or other leading currencies,
in order to reduce risk, a Fund may enter into a forward contract to sell, for a
fixed amount, the amount of foreign currency approximating the value of some or
all of the Fund's securities denominated in such foreign currency. Similarly,
when the obligations held by a Fund create a short position in a foreign
currency, the Fund may enter into a forward contract to buy, for a fixed amount,
an amount of foreign currency approximating the short position. With respect to
any forward foreign currency contract, it will not generally be possible to
match precisely the amount covered by that contract and the value of the
securities involved due to the changes in the values of such securities
resulting from market movements between the date the forward contract is entered
into and the date it matures. In addition, while forward contracts may offer
protection from losses resulting from declines or appreciation in the value of a
particular foreign currency, they also limit potential gains which might result
from changes in the value of such currency. A Fund will also incur costs in
connection with forward currency contracts and conversions of foreign currencies
and U.S. dollars.
Cash or liquid securities equal to the amount of a Fund's assets that
could be required to consummate forward contracts will be designated on the
records of the Fund or on those of the Funds' Sub-Custodian except to the extent
the contracts are otherwise "covered." For the purpose of determining the
adequacy of the designated securities in the account, the designated securities
will be valued at market or fair value. If the market or fair value of such
securities declines, additional cash or securities will be designated daily so
that the value of the designated securities will equal the amount of such
commitments by the Fund. A forward contract to sell a foreign currency is
"covered" if a Fund owns the currency (or securities denominated in the
currency) underlying the contract, or holds a forward contract (or call option)
permitting the Fund to buy the same currency at a price no higher than the
Fund's price to sell the currency. A forward contract to buy a foreign currency
is "covered" if a Fund holds a forward contract (or put option) permitting the
Fund to sell the same currency at a price as high as or higher than the Fund's
price to buy the currency.
GUARANTEED INVESTMENT CONTRACTS. The Money Market Fund may make limited
investments in guaranteed investment contracts ("GICs") issued by U.S. insurance
companies. Pursuant to such contracts, a Fund makes cash contributions to a
deposit fund of the insurance company's general account. The insurance company
then credits to the Fund on a monthly basis interest which is based on an index
(in most cases this index is expected to be the Salomon Brothers CD Index), but
is guaranteed not to be less than a certain minimum rate. A GIC is normally a
general obligation of the issuing insurance
7
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company and not funded by a separate account. The purchase price paid for a GIC
becomes part of the general assets of the insurance company, and the contract is
paid from the company's general assets. A Fund will only purchase GICs from
insurance companies which, at the time of purchase, have assets of $1 billion or
more and meet quality and credit standards established by the Advisor pursuant
to guidelines approved by the Board of Directors. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Therefore, GICs will normally be considered illiquid investments, and will be
acquired subject to the limitation on illiquid investments.
ILLIQUID SECURITIES. Each Fund (other than the Money Market Fund and
the Short Term Treasury Fund) may invest up to 15% of the value of its net
assets (determined at time of acquisition) in securities which are illiquid. The
Money Market Fund may invest up to 10% of the value of its net assets
(determined at time of acquisition) in securities which are illiquid. Illiquid
securities would generally include securities for which there is a limited
trading market, 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 (other than the Short Term Treasury Fund) 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 who 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. It is possible that
unregistered securities purchased by a Fund in reliance upon Rule 144A 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.
INVESTMENT COMPANY SECURITIES. The Funds (other than the Short Term
Treasury Fund) may invest in securities issued by other investment companies.
The Index Funds 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 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.
8
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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.
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, 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. 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.
OPTIONS. The Index Funds may write covered call options, buy put
options, buy call options and write secured put options. 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. For risks associated with options on foreign currencies,
see Appendix B of this Statement of Additional Information ("SAI").
A call option for a particular security gives the purchaser of the
option the right to buy, and the writer of the option 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, and the writer of the option the obligation to buy,
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 wishes 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 the
relevant Fund will have
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incurred a loss in the transaction. There is no guarantee in any instance 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 Index 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 such 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 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 Index Funds may write options in connection with buy-and-write
transactions; that is, the Index Funds may purchase a security and then write a
call option against that security. The exercise price of the call such 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 writing 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 sub-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 sub-custodian. The Index Funds may
write call options that are not covered for cross-hedging purposes. Each of the
Index 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 Index
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
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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 Index Funds may purchase put options to hedge against a
decline in the value of its portfolio. By using put options in this way, a Fund
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 Index 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 relevant Fund upon exercise of the
option, and, unless the price of the underlying security rises sufficiently, the
option may expire worthless to the Fund.
When a Fund purchases an option, the premium paid by it is recorded as
an asset of the Fund. When a 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 a Fund expires unexercised the Fund realizes a
loss equal to the premium paid. If a 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 a 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 a 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 (an "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 volume; or one or more Exchanges could, for economic
or other reasons, decide or be
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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.
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 Short Term Treasury Fund will only invest in
repurchase agreements fully collateralized by U.S. Treasury securities. 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 except with respect
to repurchase agreements secured by U.S. Government securities. With respect
to the Money Market Fund, the securities held subject to a repurchase
agreement may have stated maturities exceeding 397 days, provided that the
repurchase agreement itself matures in 397 days or less.
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).
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").
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 cash, U.S. Government
securities or other liquid securities designated on the books of the Fund or the
Sub-Custodian in an amount at least equal to the market value of the securities,
plus accrued interest, subject to the agreement.
RIGHTS AND WARRANTS. Each 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 level of the underlying security. Warrants acquired by a Fund in
units or attached to other securities are not subject to this restriction or to
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the restriction that each Fund's investment in warrants or rights may not exceed
5% of its net assets at the time of purchase.
STOCK INDEX FUTURES, OPTIONS ON STOCK INDICES AND OPTIONS ON STOCK
INDEX FUTURES CONTRACTS. The Index Funds may purchase and sell stock index
futures, options on stock indices and options on stock index futures contracts
as a hedge against movements in the equity 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 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 index gives the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing level of that stock 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 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 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 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 Index Funds may purchase and write call and put options on stock
index futures contracts. Each Index 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 Index Funds may purchase put
options or write call options on stock index futures, rather than selling
futures contracts, in anticipation of a decline in general stock market prices
or purchase call options or write put options on stock index futures, rather
than purchasing such futures, to hedge against possible increases in the price
of securities which such Funds intend to purchase.
In connection with transactions in stock index futures, stock index
options and options on stock index 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. For a
detailed description of futures contracts and related options, see Appendix B to
this SAI.
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STRIPPED SECURITIES. The Money Market 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 principal 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 Company 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, the Money Market 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.
Stripped securities will normally be considered illiquid instruments
and will be acquired subject to the limitation on illiquid investments unless
determined to be liquid under guidelines established by the Board of Directors.
U.S. GOVERNMENT OBLIGATIONS. The Funds may purchase obligations issued
or guaranteed by the U.S. Government and U.S. Government agencies and
instrumentalities, except that the Short Term Treasury Fund will only purchase
obligations issued by the U.S. Treasury. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of the Government
National Mortgage Association ("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, U.S.
Treasury Notes and U.S. 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, Federal National Mortgage
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Association, GNMA, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks and Maritime Administration.
U.S. Treasury securities differ in their interest rates, maturities and
times of issuance. Treasury bills have initial maturities of one year or less,
Treasury notes have initial maturities of one to ten years and Treasury bonds
generally have initial maturities greater than ten years. A portion of the U.S.
Treasury securities purchased by the Short Term Treasury Fund may be "zero
coupon" Treasury securities. These are U.S. treasury notes and bonds which have
been stripped of their unmatured interest coupons and receipts or which are
certificates representing interests in such stripped debt obligations and
coupons. Such securities are purchased at a discount from their face amount,
giving the purchaser the right to receive their full value at maturity. A zero
coupon security pays no interest to its holder during its life. Its value to an
investor consists of the difference between its face value at the time of
maturity and the price for which it was acquired, which is generally an amount
significantly less than its face value (sometimes referred to as a "deep
discount" price).
The interest earned on such securities is, implicitly, automatically
compounded and paid out at maturity. While such compounding at a constant rate
eliminates the risk of receiving lower yields upon reinvestment of interest if
prevailing interest rates decline, the owner of a zero coupon security will be
unable to participate in higher yields upon reinvestment of interest received if
prevailing interest rates rise. For this reason, zero coupon securities are
subject to substantially greater market price fluctuations during periods of
changing prevailing interest rates than are comparable debt securities which
make current distributions of interest. Current federal tax law requires that a
holder (such as a Fund) of a zero coupon security accrue a portion of the
discount at which the security was purchased as income each year even though the
Fund receives no interest payments in cash on the security during the year.
Certain banks and brokerage firms have separated ("stripped") the
principal portions ("corpus") from the coupon portions of the U.S. Treasury
bonds and notes and sell them separately in the form of receipts or certificates
representing undivided interests in these instruments (which instruments are
generally held by a bank in a custodial or trust account). The Short Term
Treasury Fund will not purchase any such receipts or certificates representing
stripped corpus or coupon interests in U.S. Treasury securities sold by banks
and brokerage firms. The Short Term Treasury Fund will only purchase zero coupon
Treasury securities which have been stripped by the Federal Reserve Bank.
U.S. TREASURY INFLATION-PROTECTION SECURITIES. The Short Term Treasury
Fund may purchase securities issued by the U.S. Government, which includes U.S.
Treasury inflation-protection securities. The Fund does not expect to invest
more than 5% of its total assets in such inflation-protection securities.
Inflation-protection securities are a new type of marketable book-entry
security issued by the United States Department of Treasury ("Treasury") with a
nominal return linked to the inflation rate in prices. Inflation-protection
securities will be auctioned and issued on a quarterly basis on the 15th of
January, April, July, and October beginning on January 15, 1997. Initially, they
will be issued as 10-year notes, with other maturities added thereafter. The
index used to measure inflation will be non-seasonally adjusted U.S. City
Average All Items Consumer Price Index for All Urban Consumers ("CPI-U").
The value of the principal will be adjusted for inflation, and every
six months the security will pay interest, which will be an amount equal to a
fixed percentage of the inflation-adjusted value of the principal. The final
payment of principal of security will not be less than the original par amount
of the security at issuance.
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The principal of the inflation-protection security will be indexed to
the non-seasonally adjusted CPI-U. To calculate the inflation-adjusted principal
value for a particular valuation date, the value of the principal at issuance is
multiplied by the index ratio applicable to that valuation date. The index ratio
for any date is the ratio of reference Consumer Price Index ("CPI") applicable
to such date to the reference CPI applicable to the original issue date.
Semiannual coupon interest is determined by multiplying the inflation-adjusted
principal amount by one-half of the stated rate of interest on each interest
payment date.
Inflation-adjusted principal or the original par amount, whichever is
larger, will be paid on the maturity date as specified in the applicable
offering announcement. If at maturity the inflation-adjusted principal is less
than the original principal value of the security, an additional amount will be
paid at maturity so that the additional amount plus the inflation-adjusted
principal equals the original principal amount. Some inflation-protection
securities may be stripped into principal and interest components. In the case
of a stripped security, the holder of the stripped principal would receive this
additional amount. The final interest payment, however, will be based on the
final inflation-adjusted principal value, not the original par amount.
The reference CPI for the first day of any calendar month is the CPI-U
for the third preceding calendar month. (For example, the reference CPI for
December 1 is the CPI-U reported for September of the same year, which is
released in October). The reference CPI for any other day of the month is
calculated by a linear interpolation between the reference CPI applicable to the
first day of the month and the reference CPI applicable to the first day of the
following month.
Any revision the Bureau of Labor Statistics (or successor agency) makes
to any CPI-U number that has been previously released will not be used in
calculations of the value of outstanding inflation-protection securities. In the
case that the CPI-U for a particular month is not reported by the last day of
the following month, the Treasury will announce an index number based on the
last year-over-year CPI-U inflation rate available. Any calculations of the
Treasury's payment obligations on the inflation-protection security that need
that month's CPI-U number will be based on the index number that the Treasury
has announced. If the CPI-U is rebased to a different year, the Treasury will
continue to use the CPI-U series based on the base reference period in effect
when the security was first issued as long as that series continues to be
published. If the CPI-U is discontinued during the period the
inflation-protection security is outstanding, the Treasury will, in consultation
with the Bureau of Labor Statistics (or successor agency), determine an
appropriate substitute index and methodology for linking the discontinued series
with the new price index series. Determinations of the Secretary of Treasury in
this regard are final.
Inflation-protection securities will be held and transferred in either
of two book-entry systems: the commercial book-entry system ("TRADES") and
TREASURY DIRECT system through which an individual investor can make a
noncompetitive bid on U.S. Treasury securities. The securities will be
maintained and transferred at their original par amount, i.e., not at their
inflation-adjusted value. STRIPS components will be maintained and transferred
in TRADES at their value based on the original par amount of the fully
constituted security.
VARIABLE AND FLOATING RATE SECURITIES. The Funds (other than Short Term
Treasury Fund) may purchase variable and floating rate securities which are debt
instruments with variable or floating interest rates. Unrated variable and
floating securities will be determined by the Advisor to be of comparable
quality at the time of purchase to rated securities purchasable by a Fund. The
Funds (other than the Short
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Term Treasury Fund) 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, the 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.
The absence of an active secondary market could make it difficult to
dispose of the securities, and a 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 a 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. The Funds invest in variable amount master demand notes only when the
Advisor deems the investment to involve minimal credit risk. 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 relevant 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.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS (DELAYED-DELIVERY
TRANSACTIONS). When-issued purchases and forward commitments (known as
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 Sub-Custodian will set aside cash or liquid securities
equal to the amount of the commitment in a separate account. Normally, the
Sub-Custodian will set aside portfolio securities to satisfy a purchase
commitment, and in such a case a 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 a Fund's net assets will fluctuate to a
greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. 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 a 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 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 a Fund's incurring a loss or missing an opportunity to
obtain a price considered to be advantageous.
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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 a Fund starting on the day the Fund agrees to purchase the securities. A Fund
does not earn interest on the securities it has committed to purchase until they
are paid for and delivered on the settlement date.
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 rating organizations 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.
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.
RISK FACTORS AND SPECIAL CONSIDERATIONS
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. The Index Funds are not managed in this
manner. Instead, with the aid of a computer program, the Advisor purchases and
sells securities for each Index Fund in an attempt to produce investment results
that substantially duplicate the investment composition and performance of each
Index Fund's respective corresponding index, taking into account redemptions,
sales of additional Fund shares, and other adjustments as described below.
An Index 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 weighting and sector balancing
techniques it will be able to construct and maintain each 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 an Index Fund would acquire solely on the basis of
their weighted capitalizations with the industry sector diversification of all
issuers included in the relevant corresponding index. This comparison is made
because the Advisor believes that, unless an Index Fund holds all stocks
included in its 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.
18
<PAGE>
For these reasons, the Advisor will identify the sectors which are (or,
except for sector balancing, would be) most underrepresented in an Index 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 an Index 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 an Index
Fund's corresponding index, the Advisor may be required to sell some or all of
the common stock of such issuer then held by the Fund. Such 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, the securities might not be sold. These sales may result in lower prices
for such securities than may have 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 an Index Fund by
traditional methods of financial and market analysis, the Advisor will monitor
each Index Fund's investment with a view towards removing stocks of companies
which may impair for any reason the Fund's ability to achieve its investment
objective.
The Index Funds will invest primarily in the common stocks that
constitute their corresponding indexes 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 a 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.
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. However, as an operating policy the Money
Market Fund intends to adhere to the 5% limitation (with
respect to the Fund's investment in the outstanding securities
of any one issuer) with regard to 100% of its portfolio to the
extent required under applicable regulations under the 1940
Act;
19
<PAGE>
2. Purchase securities if more than 25% of the value of the
Fund's total assets would be invested in the securities of
issuers conducting their principal business activities in the
same industry; provided that: (i) there is no limit on
investments in U.S. Government Securities or, with respect to
the Money Market Fund, obligations of domestic commercial
banks (including U.S. branches of foreign banks subject to
regulations under U.S. laws applicable to domestic banks and,
to the extent that its parent is unconditionally liable for
the obligation, foreign branches of U.S. banks); (ii) there is
no limit on investments in issuers domiciled in a single
country; (iii) financial service companies are classified
according to the end users of their services (for example,
automobile finance, bank finance and diversified finance are
each considered to be a separate industry); and (iv) utility
companies are classified according to their services (for
example, gas, gas transmission, electric, and telephone are
each considered to be a separate industry);
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);
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 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. Make investments for the purpose of exercising control of
management;
9. Invest in commodities or commodity futures contracts, provided
that this limitation shall not prohibit the purchase or sale
by a Fund of financial futures and stock index futures
contracts, options on futures contracts, options on securities
and securities indices, as permitted by the Fund's Prospectus;
or
10. 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.
20
<PAGE>
Although not a matter of fundamental policy, the Funds consider
securities which are issued or guaranteed by the same foreign government to be
issued by the same industry for purposes of the 25% asset limitation on
investments in securities of issuers conducting their principal business
activity in the same industry.
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 (10% of net assets for
the Money Market Fund) (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;
2. Invest in other investment companies except as permitted under
the 1940 Act; or
3. 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 a Fund may make margin deposits in connection
with transactions in options, futures and options on futures.
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% (10% for the Money
Market Fund) 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.
21
<PAGE>
The following chart summarizes the Funds' investments and investment
practices as described above. All percentages are based on a Fund's total assets
except where otherwise noted.
<TABLE>
<CAPTION>
- ------------------------------------------------ ---------------- ----------------- -------------- ------------------
SHORT TERM MONEY
INVESTMENTS AND S&P 500 INDEX MIDCAP INDEX TREASURY MARKET
INVESTMENT PRACTICES EQUITY FUND EQUITY FUND FUND FUND
- ------------------------------------------------ ---------------- ----------------- -------------- ------------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES N N N Y
- ------------------------------------------------ ---------------- ----------------- -------------- ------------------
BANK OBLIGATIONS 25% 25% N Y
- ------------------------------------------------ ---------------- ----------------- -------------- ------------------
BORROWING(1) Y Y Y Y
- ------------------------------------------------ ---------------- ----------------- -------------- ------------------
CONVERTIBLE PREFERRED STOCK Y Y N N
- ------------------------------------------------ ---------------- ----------------- -------------- ------------------
CORPORATE OBLIGATIONS:
- Commercial paper..................... Y Y N Y
- Corporate bonds...................... Y Y N Y
- Notes................................ Y Y N Y
- Other short-term obligations......... Y Y N Y
- Variable Master Demand Notes......... Y Y N Y
- Debentures........................... Y Y N Y
- ------------------------------------------------ ---------------- ----------------- -------------- ------------------
DEPOSITARY RECEIPTS Y Y N N
- ------------------------------------------------ ---------------- ----------------- -------------- ------------------
FOREIGN SECURITIES 25% 25% N Y
- ------------------------------------------------ ---------------- ----------------- -------------- ------------------
FORWARD FOREIGN CURRENCY EXCHANGE Y Y N N
CONTRACTS
- ------------------------------------------------ ---------------- ----------------- -------------- ------------------
GUARANTEED INVESTMENT CONTRACTS N N N Y
- ------------------------------------------------ ---------------- ----------------- -------------- ------------------
ILLIQUID SECURITIES 15% 15% N 10%
- ------------------------------------------------ ---------------- ----------------- -------------- ------------------
INVESTMENT COMPANY SECURITIES Y Y N Y
- ------------------------------------------------ ---------------- ----------------- -------------- ------------------
LENDING SECURITIES 25% 25% 25% 25%
- ------------------------------------------------ ---------------- ----------------- -------------- ------------------
OPTIONS Y Y N N
- ------------------------------------------------ ---------------- ----------------- -------------- ------------------
REPURCHASE AGREEMENTS Y Y Y Y
- ------------------------------------------------ ---------------- ----------------- -------------- ------------------
REVERSE REPURCHASE AGREEMENTS Y Y Y Y
- ------------------------------------------------ ---------------- ----------------- -------------- ------------------
RIGHTS AND WARRANTS Y Y N N
- ------------------------------------------------ ---------------- ----------------- -------------- ------------------
STOCK INDEX FUTURES, OPTIONS ON STOCK INDICES Y Y N N
AND OPTIONS ON STOCK INDEX FUTURES (2)
- ------------------------------------------------ ---------------- ----------------- -------------- ------------------
STRIPPED SECURITIES:
- Participations in trusts that hold
U.S. Treasury and agency securities.... N N N Y
- U.S. Treasury-issued receipts.......... N N Y Y
- Non-U.S. Treasury receipts............. N N N Y
- ------------------------------------------------ ---------------- ----------------- -------------- ------------------
U.S. GOVERNMENT OBLIGATIONS:
- Issued or guaranteed by U.S.
Government............................. Y Y Y Y
- Issued or guaranteed by U.S.
Government agencies and
instrumentalities...................... Y Y N Y
- ------------------------------------------------ ---------------- ----------------- -------------- ------------------
U.S. TREASURY INFLATION-PROTECTION SECURITIES N N Y N
- ------------------------------------------------ ---------------- ----------------- -------------- ------------------
VARIABLE AND FLOATING RATE SECURITIES Y Y N Y
- ------------------------------------------------ ---------------- ----------------- -------------- ------------------
WHEN-ISSUED PURCHASES AND FORWARD Y Y Y Y
COMMITMENTS
- ------------------------------------------------ ---------------- ----------------- -------------- ------------------
</TABLE>
Key:
Y = investment allowed without restriction N = investment not allowed
(1) The limitation on borrowing is 5% of a Fund's assets for temporary purposes.
(2) The limitation on margin and premiums for futures and related options is 5%
of a Fund's assets.
22
<PAGE>
TEMPORARY DEFENSIVE POSITION
During periods of unusual economic or market conditions or for
temporary defensive purposes or liquidity, each Fund may invest without limit in
cash and in U.S. dollar-denominated high quality money market and other
short-term instruments. These investments may result in a lower yield than would
be available from investments with a lower quality or longer term.
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 OCCUPATION
NAME, ADDRESS AND AGE POSITIONS WITH COMPANY+ DURING PAST FIVE YEARS
<S> <C> <C>
Charles W. Elliott Director and Chairman of the Board Senior Advisor to the President,
1024 Essex Circle of Directors Western Michigan University (July 1995
Kalamazoo, MI 49008 through December 1998); Executive Vice
Age: 67 President, Administration & Chief
Financial Officer, Kellogg Company
(January 1987 through June 1995).
Board of Directors, Steelcase
Financial Corporation; Board of
Directors, Enesco Group.
John Rakolta, Jr. Director and Vice Chairman of the Chairman and Chief Executive Officer,
1876 Rathmor Board of Directors Walbridge Aldinger Company
Bloomfield Hills, MI 48304 (construction company).
Age: 51
Thomas B. Bender Director Partner, Financial & Investment
5033 Wood Ridge Road Management Group.
Glen Arbor, MI 49636
Age: 65
David J. Brophy Director Professor, University of Michigan.
1025 Martin Place Director, River Place Financial
Ann Arbor, MI 48104 Corporation.
Age: 62
</TABLE>
23
<PAGE>
<TABLE>
<S> <C> <C>
Dr. Joseph E. Champagne Director Dean, University Center, Macomb
319 East Snell Road College (since September 1997);
Rochester, MI 48306 Corporate and Executive Consultant
Age: 60 (since September 1995); Chancellor,
Lamar University (September 1994 to
September 1995). Chairman of Board of
Directors, Ross Operating Valve of
Troy, Michigan.
Thomas D. Eckert Director President and Chief Executive Officer,
10726 Falls Pointe Drive Capital Automotive REIT (real estate
Great Falls, VA 22066 investment trust specializing in
Age: 51 retail automotive properties) (since
November 1997); President and
Chief Operating Officer, Mid-Atlantic
Group of Pulte Home Corporation (developer
of residential land and construction
of housing units) (1983 to 1997).
Lee P. Munder* Director and President Chairman of the Advisor (since
1029 N. Ocean Blvd. February 1998); Chief Executive
Palm Beach, FL 33480 Officer of the Advisor (1995 to 1998);
Age: 53 Chief Executive Officer, World Asset
Management (1995 to 1998); Chief
Executive Officer, MCM (predecessor of
Advisor) (since 1985); Director, LPM
Investment Services, Inc. ("LPM"); Director,
Capital Automotive REIT.
Terry H. Gardner Vice President, Vice President and Chief Financial
480 Pierce Street Chief Financial Officer Officer of the Advisor (since 1993),
Suite 300 and Treasurer Vice President and Chief Financial
Birmingham, MI 48009 Officer, MCM (since 1993); Secretary,
Age: 38 LPM.
</TABLE>
24
<PAGE>
<TABLE>
<S> <C> <C>
Paul Tobias Vice President Chief Executive Officer of the Advisor
480 Pierce Street (since February 1998); Chief Operating
Suite 300 Officer of the Advisor (since April
Birmingham, MI 48009 1995); Executive Vice President of the
Age: 48 Advisor (April 1995 to February 1998);
Executive Vice President, Comerica,
Inc. (October 1990 through April 1995).
Gerald Seizert Vice President Chief Executive Officer of the Advisor
480 Pierce Street (since February 1998); Chief
Suite 300 Investment Officer/Equities of the
Birmingham, MI 48009 Advisor (since April 1995); Executive
Age: 46 Vice President of the Advisor (April
1995 to February 1998); Managing Director
(1991 to 1995), Director (1992 to 1995), and
Vice President (1984 to 1991) of Loomis,
Sayles and Company, L.P.
Elyse G. Essick Vice President Vice President and Director of
480 Pierce Street Marketing of the Advisor (since
Suite 300 January 1995).
Birmingham, MI 48009
Age: 40
James C. Robinson Vice President Vice President and Chief Investment
480 Pierce Street Officer/Fixed Income of the Advisor
Suite 300 (since January 1995).
Birmingham, MI 48009
Age: 37
Leonard J. Barr Vice President Vice President and Director of Core
480 Pierce Street Equity Research of the Advisor (since
Suite 300 January 1995); Director and Senior
Birmingham, MI 48009 Vice President, MCM (since 1988);
Age: 54 Director of LPM.
Ann F. Putallaz Vice President Vice President and Director of
480 Pierce Street Fiduciary Services of the Advisor
Suite 300 (since January 1995).
Birmingham, MI 48009
Age: 53
</TABLE>
25
<PAGE>
<TABLE>
<S> <C> <C>
Lisa A. Rosen Secretary, Assistant Treasurer General Counsel of the Advisor (since
480 Pierce Street May 1996); Counsel, First Data
Suite 300 Investor Services Group, Inc. (June
Birmingham, MI 48009 1994 to May 1996).
Age: 31
Therese Hogan Assistant Secretary Director, State Regulation Department,
53 State Street First Data Investor Services Group
Boston, MA 02109 (since June 1994).
Age: 37
</TABLE>
- -------------------
+ Individual holds same position with The Munder Funds, Inc., ("Munder"), The
Munder Funds Trust (the "Trust") and Munder Framlington Funds Trust
("Framlington Trust") each a registered investment company.
* "Interested person" of the Company, as defined in the 1940 Act.
Directors who are not interested persons of the Company and Munder, and
Trustees who are not interested persons of the Trust and Framlington Trust,
receive an aggregate fee from the Company, the Trust, Munder and Framlington
Trust for service on those organizations' respective Boards, comprised of an
annual retainer fee of $30,000 and a fee of $2,500 for each Board meeting
attended; and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings.
The following table summarizes the compensation paid by the Company,
the Trust, Munder and Framlington Trust to their respective Directors/Trustees
for the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
- ------------------------------- ----------------- ----------------- ------------- ------------- -------------- --------------
Charles W. Elliot John Rakolta, Jr. Thomas B. David J. Dr. Joseph Thomas D.
Chairman, Vice Chairman, Bender Brophy E. Champagne Eckert
Trustee and Trustee and Trustee and Trustee and Trustee and Trustee and
Director Director Director Director Director Director
- ------------------------------- ----------------- ----------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C>
Aggregate Compensation
from the Company $ $ $ $ $ $
- ------------------------------- ----------------- ----------------- ------------- ------------- -------------- --------------
Aggregate Compensation
from the Trust $ $ $ $ $ $
- ------------------------------- ----------------- ----------------- ------------- ------------- -------------- --------------
Aggregate Compensation
from Framlington Trust $ $ $ $ $ $
- ------------------------------- ----------------- ----------------- ------------- ------------- -------------- --------------
Aggregate Compensation
from St. Clair $ $ $ $ $ $
- ------------------------------- ----------------- ----------------- ------------- ------------- -------------- --------------
Pension Retirement
BenefitsAccrued as Part of
Fund Expenses None None None None None None
- ------------------------------- ----------------- ----------------- ------------- ------------- -------------- --------------
Estimated Annual Benefits
upon Retirement None None None None None None
- ------------------------------- ----------------- ----------------- ------------- ------------- -------------- --------------
Total from the Fund
Complex $ $ $ $ $ $
- ------------------------------- ----------------- ----------------- ------------- ------------- -------------- --------------
</TABLE>
No officer, director or employee of the Advisor, Comerica, the
Sub-Custodian, the Distributor, the Administrator or the Transfer Agent
currently receives any compensation from the Company. As of April ____, 1999,
the Directors and officers of the Company, as a group, owned less than 1% of
outstanding shares of the Funds of the Company. [Verify]
26
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICE ARRANGEMENTS
INVESTMENT ADVISOR. The Advisor of each Fund is Munder Capital
Management, a Delaware general partnership. The general partners of the Advisor
are WAM, WAM II, MCM and Munder Group, LLC. WAM and WAM II 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.
The Investment Advisory Agreement between the Advisor and the Company
with respect to the Funds (the "Advisory Agreement") was approved by the
Company's Board of Directors and by the shareholders. Under the terms of 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.
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).
For the advisory services provided and expenses assumed with regard to
the Funds, the Advisor has agreed to a fee from each Fund, computed daily and
payable monthly on a separate Fund-by-Fund basis, at an annual rate of .07% of
the average daily net assets of the S&P 500 Index Equity Fund, .15% of the
average daily net assets of the MidCap Index Equity Fund and .20% of the average
daily net assets of each of the Short Term Treasury Fund and Money Market Fund.
For the period from commencement of operations on October 14, 1997 for
S&P 500 Index Equity Fund through December 31, 1997, the Advisor received fees
in the amounts of $7,005 for the S&P 500 Index Equity Fund. For the period from
commencement of operations through December 31, 1997, the Advisor voluntarily
reimbursed expenses in the amounts of $53,427 for the S&P 500 Index Equity Fund.
For the fiscal year ended December 31, 1998 (and for the period from
commencement of operations on February 12, 1997 through December 31, 1998 for
the MidCap Index Fund), the Advisor received fees in the amounts of $___________
for the S&P 500 Index Equity Fund, $________ and $______ for the MidCap Index
Equity Fund. For the fiscal year ended December 31, 1998 (and for the period
from commencement of operations through December 31, 1998 for the MidCap Index
Equity Fund), the Advisor voluntarily reimbursed expenses in the amounts of
$_______ for the S&P 500 Index Equity Fund, and $______ for the MidCap Index
Equity Fund.
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. The Distributor has agreed to
27
<PAGE>
use appropriate efforts to solicit orders for the purchase of shares of the Fund
although it is not obligated to sell any particular amount of shares. The
Distributor pays the cost of printing and distributing prospectuses to persons
who are not holders of fund shares (excluding preparation and printing expenses
necessary for the continued registration of the shares). The Distributor's
principal offices are located at 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
ADMINISTRATION AGREEMENT. State Street Bank and Trust Company ("State
Street" or the "Administrator") located at 225 Franklin Street, Boston,
Massachusetts 02110, serves as administrator for the Company pursuant to an
administration agreement (the "Administration Agreement"). State Street has
agreed to maintain office facilities for the Company; oversee 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. State Street
may enter into an agreement with one or more third parties pursuant to which
such third parties will provide administrative services on behalf of the Funds.
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 negligence in the performance of its duties or
from the reckless disregard by it of its duties and obligations thereunder.
For the period from commencement of operations on October 14, 1997 for
S&P 500 Index Equity Fund through December 31, 1997, the administration fees of
State Street accrued as follows: S&P 500 Index Equity Fund $841.
For the fiscal year ended December 31, 1998 (and for the period from
commencement of operations on February 12, 1997 through December 31, 1998 for
the MidCap Index Equity Fund), the administration fees of State Street accrued
as follows: S&P 500 Index Equity Fund $_____ and MidCap Index Equity Fund
$_______.
CUSTODIAN, SUB-CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. Comerica Bank
(the "Custodian"), whose principal business address is One Detroit Center, 500
Woodward Avenue, Detroit, MI 48226, is the custodian of each Fund pursuant to a
custody agreement ("Custody Agreement") with the Company. The Custodian receives
no compensation for such services. State Street (the "Sub-Custodian") serves as
the sub-custodian to the Funds pursuant to a sub-custodian agreement (the
"Sub-Custodian Contract") among the Custodian, Company and State Street. State
Street is also the sub-custodian with respect to the custody of foreign
securities held by certain of the Funds. State Street has in turn entered into
additional agreements with financial institutions and depositaries located in
foreign countries with respect to the custody of such securities. Under the
Sub-Custodian Contract, the Sub-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.
First Data Investor Services Group Inc. located at 4400 Computer Drive,
Westborough, Massachusetts 01581 ("Investor Services Group" or the "Transfer
Agent") 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 Investor Services Group (i) issues and redeems
shares of
28
<PAGE>
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, SUB-CUSTODIAN AND
TRANSFER AGENCY AGREEMENTS. Except as noted in this SAI the Funds' service
contractors bear all expenses in connection with the performance of their
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, Sub-Custodian and Transfer Agent; 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, Sub-Custodian and Transfer Agent may voluntarily waive all or a
portion of their respective fees from time to time.
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.
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.
Over-the-counter issues, including corporate debt and government
securities, are normally traded through dealers on a "net" basis (i.e., without
commission), or directly with the issuer. With respect to over-the-counter
transactions, the Advisor will normally deal directly with dealers who make a
market in the instruments except in those circumstances where more favorable
prices and execution are available elsewhere. The cost of 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
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<PAGE>
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. [VERIFY
PORTFOLIO TURNOVER RATE]
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.
The table below shows information on brokerage commissions paid by
the S&P 500 Index Equity Fund for the period of commencement of operations on
October 14, 1997 through December 31, 1997.
<TABLE>
<CAPTION>
% of Brokerage $ Amount of Transactions
$ Amount Brokerage Commission Representing Involving Research
Commission Research Services Services
----------------------------------------------------------------------------------
<S> <C> <C> <C>
S&P 500 Index Equity Fund* $9,081 % $
</TABLE>
The table below shows information on brokerage commissions paid by
the S&P 500 Index Equity Fund for the fiscal year ended December 31, 1998
and by the MidCap Index Equity Fund from commencement of operations on
February 12, 1998 through December 31, 1998.
<TABLE>
<CAPTION>
% of Brokerage Commission $ Amount of Transactions
$ Amount Brokerage Representing Research Involving Research
Commission Services Services
------------------------- ----------------------------- --------------------------
<S> <C> <C> <C>
S&P 500 Index Equity Fund
MidCap Index Equity Fund*
- -------------------------
</TABLE>
*Commencement of operations for MidCap Index Equity Fund was February 12, 1998.
30
<PAGE>
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.
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 any securities while the Advisor or any
affiliated person (as defined in the 1940 Act) is a member of any underwriting
or selling group for such securities except pursuant to procedures adopted by
the Company's Board of Directors in accordance with Rule 10f-3 under the 1940
Act.
The Company is required to identify the securities of their regular
brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or their parent
companies held by them as of the close of their most recent fiscal year and to
state the value of such holding. As of December 31, 1998, the S&P 500 Index
Equity Fund held securities of ________ valued at $_________ and the MidCap
Index Equity Fund held securities of __________ valued at $_________.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchases and redemptions are discussed in the Funds' prospectus and
such information is incorporated herein by reference.
RETIREMENT PLANS. Shares of any of the Funds may be purchased in
connection with various types of tax deferred retirement plans, including
individual retirement accounts ("IRAs"), qualified plans, deferred compensation
for public schools and charitable organizations (403(b) plans) and simplified
employee pension IRAs. An individual or organization considering the
establishment of a retirement plan should consult with an attorney and/or an
accountant with respect to the terms and tax aspects of the plan. A $10.00
annual custodial fee is also charged on IRAs. This custodial fee is due by
December 15 of each year and may be paid by check or shares liquidated from a
shareholder's account.
OTHER REDEMPTION INFORMATION. The Funds may suspend the right of
redemption or postpone the date of payment for Shares during any period when:
(a) trading on the New York Stock Exchange (the "NYSE") is restricted by
applicable rules and regulations of the SEC; (b) the NYSE is closed, other than
for customary weekend and holiday closings; (c) the SEC has by order permitted
such suspension; or (d) an emergency exists as determined by the SEC. Upon the
occurrence of any of the foregoing conditions, the Funds may also suspend or
postpone the recording of the transfer of its Shares.
In addition, the Funds may compel the redemption of, reject any order
for, or refuse to give effect on the Funds' books to the transfer of, its Shares
where the relevant investor or investors have not furnished the Funds with
valid, certified taxpayer identification numbers and such other tax-related
certifications as the Fund may request. The Funds may also redeem Shares
involuntarily if it otherwise
31
<PAGE>
appears appropriate to do so in light of the Funds' responsibilities under the
1940 Act or in connection with a failure of the appropriate person(s) to furnish
certified taxpayer identification numbers and other tax-related certifications.
Payment for shares may, in the discretion of the Advisor, be made in
the form of securities that are permissible investments for the Funds as
described in the Prospectus. For further information about this form of payment
please contact the Transfer Agent. In connection with an in-kind securities
payment, the Funds will require, among other things, that the securities be
valued on the day of purchase in accordance with the pricing methods used by the
Fund and that the Fund receive satisfactory assurances that (1) it will have
good and marketable title to the securities received by it; (2) that the
securities are in proper form for transfer to the Funds; and (3) adequate
information will be provided concerning the basis and other tax matters relating
to the securities.
Redemption proceeds are normally paid in cash; however, each Fund may
pay the redemption price in whole or in part by a distribution in kind of
securities from the portfolio of the particular 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. The Funds are 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.
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.
The net asset value per share of each Fund (except the Money Market
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., Eastern
time) on each Business Day. 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).
In seeking to maintain a stable net asset value of $1.00 per share with
respect to the Money Market Fund, the Company values the Fund's portfolio
securities according to the amortized cost method of valuation. Under this
method, securities are valued initially at cost on the date of purchase.
Thereafter, absent unusual circumstances, the Fund assumes a constant
proportionate amortization of any discount or premium until maturity of the
security.
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
32
<PAGE>
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 shareholders or prospective
investors. These performance figures are calculated in the following manner:
YIELD OF THE MONEY MARKET FUND
The Money Market Fund's current and effective yields are computed using
standardized methods required by the SEC. The annualized yield is computed by:
(a) determining the net change in the value of a hypothetical account having a
balance of one share at the beginning of a seven-calendar day period; (b)
dividing the net change by the value of the account at the beginning of the
period to obtain the base period return; and (c) annualizing the results (i.e.,
multiplying the base period return by 365/7). The net change in the value of the
account reflects the value of additional shares purchased with dividends
declared and all dividends declared on both the original share and such
additional shares, but does not include realized gains and losses or unrealized
appreciation and depreciation. Compound effective yields are computed by adding
1 to the base period return (calculated as described above), raising the sum to
a power equal to 365/7 and subtracting 1.
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yield of the Fund will fluctuate, it cannot be
compared with yields on savings accounts or other investment alternatives that
provide an agreed to or guaranteed fixed yield for a stated period of time.
However, yield information may be useful to an investor considering temporary
investments in money market instruments. In comparing the yield of one money
market fund to another, consideration should be given to the Fund's investment
policies including the types of investments made, lengths of maturities of the
portfolio securities, and whether there are any special account charges which
may reduce the effective yield.
Based on the foregoing computations, the annualized yield for the seven
day period ended December 31, 1998 for the Money Market Fund was ______%.
YIELD OF THE SHORT TERM TREASURY FUND
The Short Term Treasury Fund's 30-day SEC yield (or one month) standard
yield is calculated for the Fund in accordance with the method prescribed by the
SEC for mutual funds:
6
YIELD = 2 [( a-b + 1) - 1]
----
cd
Where: a = dividends and interest earned by a Fund during the period;
b = expenses accrued for the period (net of expense
reimbursements and waivers);
c = average daily number of shares outstanding during the
period entitled to receive dividends;
d = maximum offering price per share on the last day of the
period.
33
<PAGE>
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
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.
Interest earned on tax-exempt obligations that are issued without
original issue discount and that have a current market discount is calculated by
using the coupon rate of interest instead of the yield to maturity. In the case
of tax-exempt obligations that are issued with original issue discount but which
have discounts based on current market value that exceed the then-remaining
portion of the original issue discount (market discount), the yield to maturity
is the imputed rate based on the original issue discount calculation. On the
other hand, in the case of tax-exempt obligations that are issued with original
issue discount but which have the discounts based on current market value that
are less than the then-remaining portion of the original issue discount (market
premium), the yield to maturity is based on the market value.
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 a 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). Based on the foregoing computations, the annualized yield for the
seven day period ended December 31, 1998 for the Short Term Treasury Fund was
______%.
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:
n
P (1 + T) = ERV
Where:
P = hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years and portion of a year
34
<PAGE>
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 and of any CDSC deduction (or a
fractional portion thereof);
AGGREGATE TOTAL RETURN
A Fund that advertises its "aggregate total return" computes 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
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.
Based on the foregoing calculation, set forth below are the average
annual total return figures for the S&P 500 Index Equity Fund and the MidCap
Index Equity Fund for the 12 month period ended December 31, 1998 and since
commencement of operations.
<TABLE>
<CAPTION>
12 MONTH PERIOD INCEPTION
ENDED THROUGH
FUND-INCEPTION DATE 12/31/98 12/31/98
- ------------------- -------- --------
<S> <C> <C>
S&P 500 Index Equity Fund - October 14, 1997 % %
MidCap Index Equity Fund - February 14, 1998 % %
</TABLE>
ALL FUNDS. 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 or compared to stock or other
relevant indices. For example, the Money Market Fund's 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 Federal and state income
tax considerations generally affecting each Fund and its shareholders that are
not described in the Funds' Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Funds or its shareholders,
35
<PAGE>
and the discussion here and in the Prospectus 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.
GENERAL. Each Fund intends to elect and qualify annually to be taxed as
a regulated investment company under Subchapter M, of the Internal Revenue Code
of 1986, as amended (the "Internal Revenue 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 its
shareholders, 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 Internal Revenue 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 satisfying 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"). 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 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.
Certain debt instruments acquired by a Fund may include an "original
issue discount" or a "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 below, 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 and any net
realized short-term capital gains distributed by the Fund will be taxable to
shareholders as ordinary income and will not be eligible for the
dividends-received deduction for corporations.
36
<PAGE>
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 gain from the sale or exchange of a capital asset
held for more than one year, regardless of the length of time the shareholder
has held the Fund shares, and regardless of whether the distribution is paid in
cash or reinvested in shares. The Funds expect that capital gain dividends will
be taxable to shareholders as long-term gains. Capital gain dividends are not
eligible for the dividends-received deduction.
In the case of corporate shareholders, distributions of a Fund for any
taxable year generally qualify for the dividends-received deduction to the
extent of the gross amount of "qualifying dividends" received by such Fund for
the year and if certain holding period requirements are met. Generally, a
dividend will be treated as a "qualifying dividend" if it has been received from
a domestic corporation.
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. In such
event, all distributions (whether or not derived from exempt-interest income)
would be taxable as ordinary income and would be eligible for the
dividends-received deduction in the case of corporate shareholders to the extent
of the Fund's current and accumulated earnings and profits.
Shareholders will be advised annually as to the Federal income tax
consequences of distributions made by the Fund each year.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax. To
prevent imposition of the excise tax, each Fund must distribute during each
calendar year an amount equal to the sum of (1) at least 98% of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, (2) at least 98% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses, as prescribed by the Internal Revenue
Code) for the one-year period ending on October 31 of the calendar year, and (3)
any ordinary income and capital gains for previous years that was not
distributed during those years. A distribution will be treated as paid on
December 31 of the current calendar year if it is declared by a Fund in October,
November or December with a record date in such a month and paid by the Fund
during January of the following calendar year. Such distributions will be
taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are made. To
prevent application of the excise tax, each Fund intends to make its
distributions in accordance with the calendar year distribution requirement.
HEDGING TRANSACTIONS. The taxation of equity options and
over-the-counter options on debt securities is governed by Internal Revenue Code
Section 1234. Pursuant to Internal Revenue Code Section 1234, the premium
received by a Fund for selling a put or call option is not included in income at
the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by a Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by a Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is
37
<PAGE>
added to the basis of the purchased security and, in the case of a put option,
reduces the amount realized on the underlying security in determining gain or
loss.
Any regulated futures contracts and certain options (namely, nonequity
options and dealer equity options) in which a Fund may invest are "Section 1256
contracts." Gains or losses on Section 1256 contracts generally are considered
60% long-term and 40% short-term capital gains or losses; however, foreign
currency gains or losses (as discussed below) arising from certain Section 1256
contracts may be treated as ordinary income or loss. Also, Section 1256
contracts held by a Portfolio at the end of each taxable year (and, generally,
for purposes of the 4% excise tax, on October 31 of each year) are "marked to
market" (that is, treated as sold at fair market value), resulting in unrealized
gains or losses being treated as though they were realized.
Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for U.S. Federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by a Fund. In addition, losses
realized by a Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Funds of engaging in hedging
transactions are not entirely clear. Hedging transactions may increase the
amount of short-term capital gain realized by the Funds which is taxed as
ordinary income when distributed to shareholders.
Each Fund may make one or more of the elections available under the
Internal Revenue Code which are applicable to straddles. If a Fund makes any of
the elections, the amount, character and timing of the recognition of gains or
losses from the affected straddle positions will be determined under rules that
vary according to the election(s) made. The rules applicable under certain of
the elections may operate to accelerate the recognition of gains or losses from
the affected straddle positions.
Because the straddle rules may affect the character of gains or losses,
and may defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which may be distributed to
shareholders, and which will be taxed to them as ordinary income or long-term
capital gain, may be more than or less than the distributions of a fund that did
not engage in such hedging transactions.
The diversification requirements applicable to each Fund's assets may
limit the extent to which each Fund will be able to engage in transactions in
options and futures contracts.
CURRENCY FLUCTUATIONS - "SECTION 988" GAINS OR LOSSES. Under the
Internal Revenue Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Fund accrues receivables or liabilities
denominated in a foreign currency, and the time the Fund actually collects such
receivables or pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain options and futures contracts,
gains or losses attributable to fluctuations in the value of foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains or losses,
referred to under the Internal Revenue Code as "Section 988" gains or losses,
may increase or decrease the amount of a Fund's investment company taxable
income to be distributed to its shareholders as ordinary income.
DISPOSITION OF SHARES. Upon the redemption, sale or exchange of shares
of a Fund, a shareholder may realize a capital gain or loss depending upon his
or her basis in the shares. Such gain or
38
<PAGE>
loss will be treated as capital gain or loss if the shares are capital assets in
the shareholder's hands and will be long-term or short-term, generally depending
upon the shareholder's holding period for the shares. Any loss realized on a
redemption, sale or exchange will be disallowed to the extent the shares
disposed of are replaced (including shares acquired pursuant to a dividend
reinvestment plan) within a period of 61 days beginning 30 days before and
ending 30 days after disposition of the shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of Fund shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net capital gains received by the
shareholder with respect to such shares and treated as long-term capital gains.
Furthermore, a loss realized by a shareholder on the redemption, sale or
exchange of shares of a Fund with respect to which exempt-interest dividends
have been paid will, to the extent of such exempt-interest dividends, be
disallowed if such shares have been held by the shareholder for six months or
less.
CONSTRUCTIVE SALES. Recently enacted rules may affect the timing and
character of gain if a Fund engages in transactions that reduce or eliminate its
risk of loss with respect to appreciated financial positions. If the Fund enters
into certain transactions in property while holding substantially identical
property, the Fund would be treated as if it had sold and immediately
repurchased the property and would be taxed on any gain (but not loss) from the
constructive sale. The character of gain from a constructive sale would depend
upon the Fund's holding period in the property. Loss from a constructive sale
would be recognized when the property was subsequently disposed of, and its
character would depend on the Fund's holding period and the application of
various loss deferral provisions of the Internal Revenue Code.
PASSIVE FOREIGN INVESTMENT COMPANIES. Certain Funds may invest in
shares of foreign corporations that may be classified under the Internal Revenue
Code as passive foreign investment companies ("PFICs"). In general, a foreign
corporation is classified as a PFIC if at least one-half of its assets
constitute investment-type assets, or 75% or more of its gross income
investment-type income. If a Fund receives a so-called "excess distribution"
with respect to PFIC shares, the Fund itself may be subject to a tax on a
portion of the excess distribution, whether or not the corresponding income is
distributed by the Fund to shareholders. In general, under the PFIC rules, an
excess distribution is treated as having been realized ratably over the period
during which the Fund held the PFIC shares. Each Fund will itself be subject to
tax on the portion, if any, of an excess distribution that is so allocated to
prior Fund taxable years and an interest factor will be added to the tax, as if
the tax had been payable in such prior taxable years. Certain distributions from
a PFIC as well as gain from the sale of PFIC shares are treated as excess
distributions. Excess distributions are characterized as ordinary income even
though, absent application of the PFIC rules, certain excess distributions might
have been classified as capital gain.
The Funds may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently is available in some
circumstances, a Fund generally would be required to include in its gross income
its share of the earnings of a PFIC on a current basis, regardless of whether
distributions were received from the PFIC in a given year. If this election were
made, the special rules, discussed above, relating to the taxation of excess
distributions, would not apply. In addition, another election would involve
marking to market the Fund's PFIC shares at the end of each taxable year, with
the result that unrealized gains would be treated as though they were realized
and reported as ordinary income. Any mark-to-market losses and loss from an
actual disposition of Fund shares would be deductible as ordinary losses to the
extent of any net mark-to-market gains included in income in prior years.
39
<PAGE>
Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries.
The Company will be required in certain cases to withhold and remit to
the United States Treasury 31% of taxable distributions paid to any shareholder
(i) who has provided either an incorrect tax identification number or no number
at all, (ii) who is subject to backup withholding by the Internal Revenue
Service for failure to report the receipt of taxable interest or dividend income
properly, or (iii) who has failed to certify to the Company that he is not
subject to backup withholding or that he is an "exempt recipient."
Fund shareholders may be subject to state, local and foreign taxes on
their Fund distributions. In many states, Fund distributions which are derived
from interest on certain U.S. Government obligations are exempt from taxation.
The tax consequences to a foreign shareholder of an investment in a Fund may be
different from those described herein. Foreign shareholders are advised to
consult their own tax advisers with respect to the particular tax consequences
to them of an investment in a Fund. Shareholders are advised to consult their
own tax advisers with respect to the particular tax consequences to them of an
investment in a Fund.
The foregoing general discussion of Federal income tax consequences is
based on the Internal Revenue Code and the regulations issued thereunder as in
effect on the date of this SAI. 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 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, Munder S&P SmallCap Index Equity
Fund, Munder Aggregate Bond Index Fund, Munder Foreign Equity Fund, Liquidity
Plus Money Market Fund, Munder Institutional S&P 500 Index Equity Fund,
Munder Institutional S&P MidCap Index Equity Fund, Munder Institutional S&P
SmallCap Index Equity Fund, Munder Institutional Short Term Treasury Fund and
Munder Institutional Money Market 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 SAI,
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
<PAGE>
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 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, 1775 Eye Street, N.W.,
Washington, D.C. 20006, 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, 200 Clarendon Street, Boston,
MA 02116 serves as the Company's independent auditors.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES. As of April ____,
1999 the following persons were beneficial owners of 5% or more of the
outstanding shares of a Fund because they possessed voting or investment power
with respect to such shares:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
NAME OF FUND NAME AND ADDRESS SHARES OUTSTANDING
- ------------ ---------------- ------------------
<S> <C> <C>
</TABLE>
41
<PAGE>
As of April ___, 1999, Munder Capital Management, on behalf of its
clients owned ______% of the ________.
SHAREHOLDER APPROVALS. As used in this SAI and in the Prospectus, 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.
REGISTRATION STATEMENT
This SAI 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. Text-only
versions of fund documents can be viewed online or downloaded from the SEC at
http://www.sec.gov.
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.
42
<PAGE>
FINANCIAL STATEMENTS
[ The financial statements of the Company including the notes thereto, dated
December 31, 1998 have been audited by Ernst & Young LLP and are incorporated by
reference into this SAI from the Annual Report of the Company dated as of
December 31, 1998. The information under the caption "Financial Highlights" of
the Funds for the period from commencement of operations through December 31,
1998, appearing in the Prospectus dated April 30, 1999 has been derived from the
financial statements audited by Ernst & Young LLP.]
43
<PAGE>
APPENDIX A
- - RATED INVESTMENTS -
CORPORATE BONDS
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 edged." 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 appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
"Ba": Bonds that are rated "Ba" are judged to have speculative
elements; their future cannot be considered 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.
44
<PAGE>
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 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
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 issuers (or related supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.
Instruments rated "PRIME-2" are offered by issuers (or related supporting
institutions) which 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 susceptible 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."
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 Board of Directors.
45
<PAGE>
APPENDIX B
The Funds may enter into certain futures transactions and options
for hedging purposes. Such transactions are described in this Appendix.
I. INDEX FUTURES CONTRACTS
GENERAL. 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
indexes, 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.
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
<TABLE>
<CAPTION>
PORTFOLIO FUTURES
- --------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate buying $62,500 in Equity Securities Buying 1 Index Futures at 125
Value of Futures = $62,500/Contract
-Day Hedge is Lifted-
Buy Equity Securities with Actual Cost = $65,000 Sell 1 Index Futures at 130
Increase in Purchase Price = $2,500 Value of Futures = $65,000/Contract
Gain on Futures = $2,500
</TABLE>
46
<PAGE>
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract - 125 X $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
PORTFOLIO FUTURES
- --------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Selling $1,000,000 in Equity Securities Sell 16 Index Futures at 125
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
</TABLE>
II. MARGIN PAYMENTS
Unlike the purchase or sale 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
securities 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 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.
III. 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 futures and movements in the price of the
instruments which are the subject of the hedge. The price of futures may move
more than or less
47
<PAGE>
than the price of the instruments being hedged. If the price of 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 sells futures to hedge its portfolio against a
decline in the market, the market may advance and the value of the futures
instruments held in the Fund may decline. If this occurrs, 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 securities 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 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
48
<PAGE>
that a liquid secondary market on any exchange or board of trade will exist for
any particular contract or at any particular time. When there is no liquid
market, 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 commodities 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 it may be disadvantageous to do so.
IV. 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 from (call) or sell to (put) 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 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
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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.
V. OTHER MATTERS
Accounting for futures contracts will be in accordance with generally
accepted accounting principles.
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MUNDER INSTITUTIONAL S&P SMALLCAP INDEX EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
St. Clair Funds, Inc. (the "Company") currently offers a selection of
investment portfolios, one of which is discussed in this Statement of Additional
Information: Munder Institutional S&P SmallCap Index Equity Fund. The Fund's
investment advisor is Munder Capital Management.
This Statement of Additional Information is intended to supplement the
information provided to investors in the Fund's Prospectus dated April 30, 1999
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
Fund's Prospectus dated April 30, 1999. 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 Funds Distributor,
Inc. (the "Distributor"), or by calling the Fund at (800) 438-5789. This
Statement of Additional Information is dated April 30, 1999.
AN INVESTMENT IN A FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED OR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
General.......................................................................................... 3
Fund Investments................................................................................. 3
Risk Factors and Special Considerations ......................................................... 15
Investment Limitations........................................................................... 16
Temporary Defensive Position..................................................................... 18
Directors and Officers........................................................................... 19
Investment Advisory and Other Service Arrangements............................................... 22
Portfolio Transactions........................................................................... 25
Additional Purchase and Redemption Information................................................... 26
Net Asset Value.................................................................................. 27
Performance Information.......................................................................... 28
Taxes............................................................................................ 29
Additional Information Concerning Shares......................................................... 34
Miscellaneous.................................................................................... 35
Registration Statement........................................................................... 36
Appendix A....................................................................................... 37
Appendix B....................................................................................... 38
</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 Fund or the Distributor. The 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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GENERAL
The Company is an open-end management investment company, which is a
mutual fund that sells and redeems shares every day that it is open for
business. 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 Fund is a diversified mutual fund. The investment advisor of the
Fund is Munder Capital Management (the "Advisor"). The principal partners of the
Advisor are Old MCM, Inc. ("MCM"), Munder Group LLC, WAM Holdings, Inc. ("WAM")
and WAM Holdings II, Inc. ("WAM II"). MCM was founded in April 1985 as a
Delaware corporation and was a registered investment advisor. WAM and WAM II are
indirect, wholly owned subsidiaries of Comerica Incorporated which owns or
controls approximately 88% of the partnership interests in 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 Fund's
Prospectus concerning the investment objective and policies of the Fund. The
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 the Fund will achieve its objective.
BANK OBLIGATIONS. The Fund may purchase U.S. dollar-denominated bank
obligations, including certificates of deposit, bankers' acceptances, bank
notes, deposit notes 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. For this purpose, the assets of a bank or
savings institution include the assets of both its domestic and foreign
branches. Investments by the Fund in (i) obligations of domestic banks and (ii)
obligations of foreign banks and foreign branches of domestic banks each will
not exceed 25% of the Fund's total assets at the time of investment.
Non-domestic bank obligations include Eurodollar Certificates of
Deposit ("ECDs"), which are U.S. dollar-denominated certificates of deposit
issued by offices of foreign and domestic banks located outside the United
States; Eurodollar Time Deposits ("ETDs"), which are U.S. dollar-denominated
deposits in a foreign branch of a U.S. bank or a foreign bank; Canadian Time
Deposits ("CTDs"), which are essentially the same as ETDs except they are issued
by Canadian offices of major Canadian banks; Schedule Bs, which are obligations
issued by Canadian branches of foreign or domestic banks; 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 Bankers' 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 United States. Although the Fund 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.
3
<PAGE>
BORROWING. The 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 the 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, the 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. Borrowed funds are
subject to interest costs that may or may not be offset by amounts earned on
borrowed funds. The 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. The Fund may, in connection
with permissible borrowings, transfer, as collateral, securities owned by the
Fund. The Fund may not purchase portfolio securities while borrowings exceed 5%
of the Fund's total assets.
COMMERCIAL PAPER. Investments by the Fund in commercial paper will
consist of issues rated at the time in one of the highest four rating categories
by at least one nationally-recognized statistical rating organization ("NRSRO").
In addition, the Fund 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 the Fund as previously
described.
CONVERTIBLE PREFERRED STOCK. The Fund may invest in convertible
preferred stock. A convertible security is a security that may be converted
either at a stated price or a 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.
DEPOSITARY RECEIPTS. The Fund may purchase American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs") and Global
Depositary Receipts ("GDRs"). 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. EDRs and GDRs are issued by
European financial institutions. 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. For purposes of the Fund's
investment policies, the Fund's investments in depositary receipts will be
deemed to be investments in the underlying securities.
FOREIGN SECURITIES. The Fund may invest up to 25% of its assets in
U.S. dollar-denominated securities of foreign issuers. Income and gains on
such securities may be subject to foreign withholding
4
<PAGE>
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
companies comparable to the reports and ratings published about companies in the
United States. Foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards, and auditing practices
and requirements may not be comparable to those applicable to United States
companies. Foreign markets have substantially less trading volume than the New
York Stock Exchange and securities of some foreign companies are less liquid and
more volatile than securities of comparable United States companies. Commission
rates in foreign countries, which are generally fixed rather than subject to
negotiation as in the United States, are likely to be higher. In many foreign
countries there is less government supervision and less regulation of stock
exchanges, brokers, and listed companies than in the United States. Such
concerns are particularly heightened for emerging markets and Eastern European
countries.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
These risks include (i) less social, political and economic stability; (ii) the
small current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict a
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interest; (iv) foreign taxation; (v)
the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private property; (vi)
the absence, until recently in certain Eastern European countries, of a capital
market structure or market-oriented economy; and (vii) the possibility that
recent favorable economic developments in Eastern Europe may be slowed or
reversed by unanticipated political or social events in such countries.
Investments in Eastern European countries may involve risks of
nationalization, expropriation and confiscatory taxation. The Communist
governments of a number of Eastern European countries expropriated large amounts
of private property in the past, in many cases without adequate compensation,
and there can be no assurance that such expropriation will not occur in the
future. In the event of such expropriation, the Fund could lose a substantial
portion of any investments it has made in the affected countries. Further, no
accounting standards exist in Eastern European countries. Finally, even though
certain Eastern European currencies may be convertible into United States
dollars, the conversion rates may be artificial rather than their actual market
values and they may be adverse to a Fund.
The Advisor endeavors to buy and sell foreign currencies on as
favorable a basis as practicable. Some price spread on currency exchange (to
cover service charges) may be incurred, particularly when the Fund changes
investments from one country to another or when proceeds of the sale of Fund
shares in U.S. dollars are used for the purchase of securities in foreign
countries. Also, some countries may adopt policies which would prevent the Fund
from transferring cash out of the country or withhold portions of interest and
dividends at the source. There is the possibility of expropriation,
nationalization or confiscatory taxation, withholding and other foreign taxes on
income or other amounts, foreign exchange controls (which may include suspension
of the ability to transfer currency from a given country), default in foreign
government securities, political or social instability or diplomatic
developments that could affect investments in securities of issuers in foreign
nations.
Foreign securities markets have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of
5
<PAGE>
securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when assets of the Fund
are uninvested and no return is earned thereon. The inability of the Fund to
make intended security purchases due to settlement problems could cause the Fund
to miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser.
The Fund may be affected either unfavorably or favorably by
fluctuations in the relative rates of exchange between the currencies of
different nations, by exchange control regulations and by indigenous economic
and political developments. Changes in foreign currency exchange rates will
influence values within the Fund from the perspective of U.S. investors, and may
also affect the value of dividends and interest earned, gains and losses
realized on the sale of securities, and net investment income and gains, if any,
to be distributed to shareholders by the Fund. The rate of exchange between the
U.S. dollar and other currencies is determined by the forces of supply and
demand in the foreign exchange markets. These forces are affected by the
international balance of payments and other economic and financial conditions,
government intervention, speculation and other factors. The Advisor will attempt
to avoid unfavorable consequences and to take advantage of favorable
developments in particular nations where, from time to time, it places the
Fund's investments.
The exercise of this flexible policy may include decisions to purchase
securities with substantial risk characteristics and other decisions such as
changing the emphasis on investments from one nation to another and from one
type of security to another. Some of these decisions may later prove profitable
and others may not. No assurance can be given that profits, if any, will exceed
losses.
FORWARD FOREIGN CURRENCY TRANSACTIONS. In order to protect against a
possible loss on investments resulting from a decline or appreciation in the
value of a particular foreign currency against the U.S. dollar or another
foreign currency, the Fund is authorized, but is not required, to enter into
forward foreign currency exchange contracts ("forward currency contracts").
These contracts involve an obligation to purchase or sell a specified
currency at a future date at a price set at the time of the contract. Forward
currency contracts do not eliminate fluctuations in the values of portfolio
securities but rather allow the Fund to establish a rate of currency exchange
for a future point in time.
When entering into a contract for the purchase or sale of a security,
the Fund may enter into a forward currency contract for the amount of the
purchase or sale price to protect against variations, between the date the
security is purchased or sold and the date on which payment is made or received,
in the value of the foreign currency relative to the U.S. dollar or other
foreign currency.
When the Advisor anticipates that a particular foreign currency may
decline substantially relative to the U.S. dollar or other leading currencies,
in order to reduce risk, the Fund may enter into a forward contract to sell, for
a fixed amount, the amount of foreign currency approximating the value of some
or all of the Fund's securities denominated in such foreign currency. Similarly,
when the obligations held by the Fund create a short position in a foreign
currency, the Fund may enter into a forward contract to buy, for a fixed amount,
an amount of foreign currency approximating the short position. With respect to
any forward foreign currency contract, it will not generally be possible to
match precisely the amount covered by that contract and the value of the
securities involved due to the changes in the values of such securities
resulting from market movements between the date the forward contract is entered
into and the date it matures. In addition, while forward contracts may offer
protection from losses resulting from declines or appreciation in the value of a
particular foreign currency, they also limit potential gains
6
<PAGE>
which might result from changes in the value of such currency. The Fund will
also incur costs in connection with forward currency contracts and conversions
of foreign currencies and U.S. dollars.
Cash or liquid securities equal to the amount of the Fund's assets that
could be required to consummate forward contracts will be designated on the
records of the Fund or on those of the Fund's sub-custodian except to the extent
the contracts are otherwise "covered." For the purpose of determining the
adequacy of the designated securities in the account, the designated securities
will be valued at market or fair value. If the market or fair value of such
securities declines, additional cash or securities will be designated daily so
that the value of the designated securities will equal the amount of such
commitments by the Fund. A forward contract to sell a foreign currency is
"covered" if the Fund owns the currency (or securities denominated in the
currency) underlying the contract, or holds a forward contract (or call option)
permitting the Fund to buy the same currency at a price no higher than the
Fund's price to sell the currency. A forward contract to buy a foreign currency
is "covered" if the Fund holds a forward contract (or put option) permitting the
Fund to sell the same currency at a price as high as or higher than the Fund's
price to buy the currency.
ILLIQUID SECURITIES. The 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 securities for which there is a
limited trading market, 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 Fund 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 Fund 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 who 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. It is possible that unregistered securities purchased by the Fund in
reliance upon Rule 144A could have the effect of increasing the level of the
Fund's illiquidity to the extent that qualified institutional buyers become, for
a period, uninterested in purchasing these securities.
INVESTMENT COMPANY SECURITIES. The Fund may invest in securities issued
by other investment companies. 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 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,
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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, the 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. The 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.
LENDING OF PORTFOLIO SECURITIES. To enhance the return on its
portfolio, the 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, 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. 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 the 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. The 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.
OPTIONS. The Fund may write covered call options, buy put options, buy
call options and write secured put options. 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. For risks associated with options on foreign currencies,
see Appendix B of this Statement of Additional Information ("SAI").
A call option for a particular security gives the purchaser of the
option the right to buy, and the writer of the option 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, and the writer of the option the obligation to buy,
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 wishes 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
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<PAGE>
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 the relevant Fund will have incurred a loss in the
transaction. There is no guarantee in any instance 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 Fund 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 such Fund 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 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 the 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 Fund may write options in connection with buy-and-write
transactions; that is, the Fund may purchase a security and then write a call
option against that security. The exercise price of the call such Fund 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 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 writing a call option on a security, the option is
"covered" if the 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 the Fund maintains with its sub-custodian
cash or cash equivalents equal to the contract value. A call option is also
covered if the 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 sub-custodian. The
Fund may write call options that are not covered for cross-hedging purposes. The
Fund 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 Fund will write put
options only if they are "secured" by cash or cash equivalents maintained in a
segregated account by the Fund's sub-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 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
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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.
The Fund may purchase put options to hedge against a decline in the
value of its portfolio. By using put options in this way, the Fund 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. The Fund
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 Fund upon exercise of the option, and, unless the price of the
underlying security rises sufficiently, the option may expire worthless to the
Fund.
When the 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 the 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 (an "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 volume; or one or more Exchanges could, for economic
or other reasons, decide or be
10
<PAGE>
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.
REPURCHASE AGREEMENTS. The Fund 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, exposes the Fund
to possible loss because of adverse market action or delays in connection with
the disposition of underlying obligations except with respect to repurchase
agreements secured by U.S. Government securities.
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).
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 the Fund under the Investment Company
Act of 1940, as amended (the "1940 Act").
REVERSE REPURCHASE AGREEMENTS. The Fund 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. The Fund will pay interest on
amounts obtained pursuant to a reverse repurchase agreement. While reverse
repurchase agreements are outstanding, the Fund will maintain cash, U.S.
Government securities or other liquid securities designated on the books of the
Fund or the Sub-Custodian in an amount at least equal to the market value of the
securities, plus accrued interest, subject to the agreement.
RIGHTS AND WARRANTS. The 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 the
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 level of the underlying security. Warrants acquired by the Fund
in units or attached to other securities are not subject to this restriction or
to the restriction that the Fund's investment in warrants or rights may not
exceed 5% of its net assets at the time of purchase.
11
<PAGE>
STOCK INDEX FUTURES, OPTIONS ON STOCK INDICES AND OPTIONS ON STOCK
INDEX FUTURES CONTRACTS. The Fund may purchase and sell stock index futures,
options on stock indices and options on stock index futures contracts as a hedge
against movements in the equity 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 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 index gives the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing level of that stock 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 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 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 Fund's futures contract or index option
resulting from the increase in the index. If, on the other hand, the Advisor
expects general stock 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 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 Fund may purchase and write call and put options on stock index
futures contracts. The 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 Fund may purchase put options or write
call options on stock index futures, rather than selling futures contracts, in
anticipation of a decline in general stock market prices or purchase call
options or write put options on stock index futures, rather than purchasing such
futures, to hedge against possible increases in the price of securities which
the Fund intend to purchase.
In connection with transactions in stock index futures, stock index
options and options on stock index futures, the Fund 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. For a detailed
description of futures contracts and related options, see Appendix B to this
SAI.
U.S. GOVERNMENT OBLIGATIONS. The Fund may purchase obligations issued
or guaranteed by the U.S. Government and U.S. Government agencies and
instrumentalities. Obligations of certain agencies
12
<PAGE>
and instrumentalities of the U.S. Government, such as those of the Government
National Mortgage Association ("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, U.S.
Treasury Notes and U.S. 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, Federal National Mortgage Association,
GNMA, General Services Administration, Student Loan Marketing Association,
Central Bank for Cooperatives, Federal Home Loan Mortgage Corporation, Federal
Intermediate Credit Banks and Maritime Administration.
U.S. Treasury securities differ in their interest rates, maturities and
times of issuance. Treasury bills have initial maturities of one year or less,
Treasury notes have initial maturities of one to ten years and Treasury bonds
generally have initial maturities greater than ten years. A portion of the U.S.
Treasury securities purchased by the Short Term Treasury Fund may be "zero
coupon" Treasury securities. These are U.S. treasury notes and bonds which have
been stripped of their unmatured interest coupons and receipts or which are
certificates representing interests in such stripped debt obligations and
coupons. Such securities are purchased at a discount from their face amount,
giving the purchaser the right to receive their full value at maturity. A zero
coupon security pays no interest to its holder during its life. Its value to an
investor consists of the difference between its face value at the time of
maturity and the price for which it was acquired, which is generally an amount
significantly less than its face value (sometimes referred to as a "deep
discount" price).
The interest earned on such securities is, implicitly, automatically
compounded and paid out at maturity. While such compounding at a constant rate
eliminates the risk of receiving lower yields upon reinvestment of interest if
prevailing interest rates decline, the owner of a zero coupon security will be
unable to participate in higher yields upon reinvestment of interest received if
prevailing interest rates rise. For this reason, zero coupon securities are
subject to substantially greater market price fluctuations during periods of
changing prevailing interest rates than are comparable debt securities which
make current distributions of interest. Current federal tax law requires that a
holder (such as a Fund) of a zero coupon security accrue a portion of the
discount at which the security was purchased as income each year even though the
Fund receives no interest payments in cash on the security during the year.
Certain banks and brokerage firms have separated ("stripped") the
principal portions ("corpus") from the coupon portions of the U.S. Treasury
bonds and notes and sell them separately in the form of receipts or certificates
representing undivided interests in these instruments (which instruments are
generally held by a bank in a custodial or trust account). The Short Term
Treasury Fund will not purchase any such receipts or certificates representing
stripped corpus or coupon interests in U.S. Treasury securities sold by banks
and brokerage firms. The Short Term Treasury Fund will only purchase zero coupon
Treasury securities which have been stripped by the Federal Reserve Bank.
VARIABLE AND FLOATING RATE SECURITIES. The Fund may purchase variable
and floating rate securities which are debt instruments with variable or
floating interest rates. Unrated variable and floating 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 Fund may also purchase variable
amount master
13
<PAGE>
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, the 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.
The absence of an active secondary market 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. The Fund invests in variable amount master demand notes only when the
Advisor deems the investment to involve minimal credit risk. 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.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS (DELAYED-DELIVERY
TRANSACTIONS). When-issued purchases and forward commitments (known as
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 the Fund to lock-in
a price or yield on a security, regardless of future changes in interest rates.
When the Fund agrees to purchase securities on a when-issued or forward
commitment basis, the Sub-Custodian will set aside cash or liquid securities
equal to the amount of the commitment in a separate account. Normally, the
Sub-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 a Fund's net assets will fluctuate to a
greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because the 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 Fund 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, the Fund may dispose of or renegotiate a
commitment after it is 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 the 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.
14
<PAGE>
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.
YIELDS AND RATINGS. The yields on certain obligations, including the
money market instruments in which the 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 rating organizations 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.
Subsequent to its purchase by the 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.
RISK FACTORS AND SPECIAL CONSIDERATIONS
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. The Fund is not managed in this manner.
Instead, with the aid of a computer program, the Advisor purchases and sells
securities for the Fund in an attempt to produce investment results that
substantially duplicate the investment composition and performance of the Fund's
respective corresponding index, taking into account redemptions, sales of
additional Fund shares, and other adjustments as described below.
The 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 weighting and sector balancing
techniques it will be able to construct and maintain the 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 relevant corresponding index. This comparison is made because the Advisor
believes that, unless the Fund holds all stocks included in its 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 the Fund's
portfolio and will purchase balancing securities in these
15
<PAGE>
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 the 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
Fund's corresponding index, the Advisor may be required to sell some or all of
the common stock of such issuer then held by the Fund. Such 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, the securities might not be sold. These sales may result in lower prices
for such securities than may have 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 the 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 may impair for
any reason the Fund's ability to achieve its investment objective.
The Fund will invest primarily in the common stocks that constitute
their corresponding indexes in accordance with their relative capitalization and
sector weightings as described above. It is possible, however, that the Fund
will from time to time receive, as part of a "spin-off" or other corporate
reorganization of an issuer included in a 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.
INVESTMENT LIMITATIONS
The Fund is subject to the investment limitations enumerated in this
section which may be changed with respect to the Fund only by a vote of the
holders of a majority of the Fund's outstanding shares (as defined under
"Miscellaneous - Shareholder Approvals").
The 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. Purchase securities if more than 25% of the value of the
Fund's total assets would be invested in the securities of
issuers conducting their principal business activities in the
same industry; provided that: (i) there is no limit on
investments in U.S. Government Securities; (ii) there is no
limit on investments in issuers domiciled in a single country;
(iii) financial service companies are classified according to
the end users of their services
16
<PAGE>
(for example, automobile finance, bank finance and diversified
finance are each considered to be a separate industry); and
(iv) utility companies are classified according to their
services (for example, gas, gas transmission, electric, and
telephone are each considered to be a separate industry);
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);
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 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. Make investments for the purpose of exercising control of
management;
9. Invest in commodities or commodity futures contracts, provided
that this limitation shall not prohibit the purchase or sale
by a Fund of financial futures and stock index futures
contracts, options on futures contracts, options on securities
and securities indices, as permitted by the Fund's Prospectus;
or
10. 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.
Although not a matter of fundamental policy, the Fund considers
securities which are issued or guaranteed by the same foreign government to be
issued by the same industry for purposes of the 25% asset limitation on
investments in securities of issuers conducting their principal business
activity in the same industry.
Additional investment restrictions adopted by the 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 in securities which
cannot be readily resold because of legal or contractual
restrictions or which are not otherwise marketable;
17
<PAGE>
2. Invest in other investment companies except as permitted under
the 1940 Act; or
3. 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.
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 the Fund's investments will not constitute a violation of such
limitation, except that any borrowing by the 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 the 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, the 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.
The following chart summarizes the Fund's investments and investment
practices as described above. All percentages are based on a Fund's total assets
except where otherwise noted.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------- -------------------------------------
INVESTMENTS AND INVESTMENT PRACTICES SMALLCAP INDEX EQUITY FUND
- ------------------------------------------------------------------------------- -------------------------------------
- ------------------------------------------------------------------------------- -------------------------------------
<S> <C>
BANK OBLIGATIONS 25%
- ------------------------------------------------------------------------------- -------------------------------------
- ------------------------------------------------------------------------------- -------------------------------------
BORROWING(1) Y
- ------------------------------------------------------------------------------- -------------------------------------
- ------------------------------------------------------------------------------- -------------------------------------
CONVERTIBLE PREFERRED STOCK Y
- ------------------------------------------------------------------------------- -------------------------------------
- ------------------------------------------------------------------------------- -------------------------------------
CORPORATE OBLIGATIONS:
-- Commercial paper..................... Y
-- Corporate bonds....................... Y
-- Notes.................................... Y
-- Other short-term obligations......... Y
-- Variable Master Demand Notes...... Y
-- Debentures............................... Y
- ------------------------------------------------------------------------------- -------------------------------------
- ------------------------------------------------------------------------------- -------------------------------------
DEPOSITARY RECEIPTS Y
- ------------------------------------------------------------------------------- -------------------------------------
- ------------------------------------------------------------------------------- -------------------------------------
FOREIGN SECURITIES 25%
- ------------------------------------------------------------------------------- -------------------------------------
- ------------------------------------------------------------------------------- -------------------------------------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS Y
- ------------------------------------------------------------------------------- -------------------------------------
- ------------------------------------------------------------------------------- -------------------------------------
ILLIQUID SECURITIES 15%
- ------------------------------------------------------------------------------- -------------------------------------
- ------------------------------------------------------------------------------- -------------------------------------
INVESTMENT COMPANY SECURITIES Y
- ------------------------------------------------------------------------------- -------------------------------------
- ------------------------------------------------------------------------------- -------------------------------------
LENDING SECURITIES 25%
- ------------------------------------------------------------------------------- -------------------------------------
- ------------------------------------------------------------------------------- -------------------------------------
OPTIONS Y
- ------------------------------------------------------------------------------- -------------------------------------
- ------------------------------------------------------------------------------- -------------------------------------
REPURCHASE AGREEMENTS Y
- ------------------------------------------------------------------------------- -------------------------------------
- ------------------------------------------------------------------------------- -------------------------------------
REVERSE REPURCHASE AGREEMENTS Y
- ------------------------------------------------------------------------------- -------------------------------------
- ------------------------------------------------------------------------------- -------------------------------------
RIGHTS AND WARRANTS Y
- ------------------------------------------------------------------------------- -------------------------------------
- ------------------------------------------------------------------------------- -------------------------------------
STOCK INDEX FUTURES, OPTIONS ON STOCK INDICES AND OPTIONS ON STOCK INDEX Y
FUTURES (2)
- ------------------------------------------------------------------------------- -------------------------------------
- ------------------------------------------------------------------------------- -------------------------------------
U.S. GOVERNMENT OBLIGATIONS:
-- Issued or guaranteed by U.S. Government.............................. Y
-- Issued or guaranteed by U.S. Government agencies and
instrumentalities......................... Y
- ------------------------------------------------------------------------------- -------------------------------------
- ------------------------------------------------------------------------------- -------------------------------------
VARIABLE AND FLOATING RATE SECURITIES Y
- ------------------------------------------------------------------------------- -------------------------------------
- ------------------------------------------------------------------------------- -------------------------------------
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS Y
- ------------------------------------------------------------------------------- -------------------------------------
</TABLE>
Key:
Y = investment allowed without restriction
(1) The limitation on borrowing is 5% of a Fund's assets for temporary purposes.
(2) The limitation on margin and premiums for futures and related options is 5%
of a Fund's assets.
18
<PAGE>
TEMPORARY DEFENSIVE POSITION
During periods of unusual economic or market conditions or for
temporary defensive purposes or liquidity, the Fund may invest without limit in
cash and in U.S. dollar-denominated high quality money market and other
short-term instruments. These investments may result in a lower yield than would
be available from investments with a lower quality or longer term.
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 OCCUPATION
NAME, ADDRESS AND AGE POSITIONS WITH COMPANY+ DURING PAST FIVE YEARS
- --------------------- ----------------------- ------------------------
<S> <C> <C>
Charles W. Elliott Director and Chairman of the Board Senior Advisor to the President,
1024 Essex Circle of Directors Western Michigan University (July 1995
Kalamazoo, MI 49008 through December 1998); Executive Vice
Age: 67 President, Administration & Chief
Financial Officer, Kellogg Company
(January 1987 through June 1995).
Board of Directors, Steelcase
Financial Corporation; Board of
Directors, Enesco Group.
John Rakolta, Jr. Director and Vice Chairman of the Chairman and Chief Executive Officer,
1876 Rathmor Board of Directors Walbridge Aldinger Company
Bloomfield Hills, MI 48304 (construction company).
Age: 51
Thomas B. Bender Director Partner, Financial & Investment
5033 Wood Ridge Road Management Group.
Glen Arbor, MI 49636
Age: 65
David J. Brophy Director Professor, University of Michigan.
1025 Martin Place Director, River Place Financial
Ann Arbor, MI 48104 Corporation.
Age: 62
</TABLE>
19
<PAGE>
<TABLE>
<S> <C> <C>
Dr. Joseph E. Champagne Director Dean, University Center, Macomb
319 East Snell Road College (since September 1997);
Rochester, MI 48306 Corporate and Executive Consultant
Age: 60 (since September 1995); Chancellor,
Lamar University (September 1994 to
September 1995). Chairman of Board of
Directors, Ross Operating Valve of
Troy, Michigan.
Thomas D. Eckert Director President and Chief Executive Officer,
10726 Falls Pointe Drive Capital Automotive REIT (real estate
Great Falls, VA 22066 investment trust specializing in
Age: 51 retail automotive properties) (since
November 1997); President and Chief
Operating Officer, Mid-Atlantic Group
of Pulte Home Corporation (developer of
residential land and construction of
housing units) (1983 to 1997).
Lee P. Munder* Director and President Chairman of the Advisor (since
1029 N. Ocean Blvd. February 1998); Chief Executive
Palm Beach, FL 33480 Officer of the Advisor (1995 to 1998);
Age: 53 Chief Executive Officer, World Asset
Management (1995 to 1998); Chief Executive
Officer, MCM (predecessor of Advisor) (since
1985); Director, LPM Investment Services,
Inc. ("LPM"); Director, Capital Automotive
REIT.
Terry H. Gardner Vice President, Vice President and Chief Financial
480 Pierce Street Chief Financial Officer Officer of the Advisor (since 1993),
Suite 300 and Treasurer Vice President and Chief Financial
Birmingham, MI 48009 Officer, MCM (since 1993); Secretary,
Age: 38 LPM.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Paul Tobias Vice President Chief Executive Officer of the Advisor
480 Pierce Street (since February 1998); Chief Operating
Suite 300 Officer of the Advisor (since April
Birmingham, MI 48009 1995); Executive Vice President of the
Age: 48 Advisor (April 1995 to February 1998);
Executive Vice President, Comerica,
Inc. (October 1990 through April 1995).
Gerald Seizert Vice President Chief Executive Officer of the Advisor
480 Pierce Street (since February 1998); Chief
Suite 300 Investment Officer/Equities of the
Birmingham, MI 48009 Advisor (since April 1995); Executive
Age: 46 Vice President of the Advisor (April
1995 to February 1998); Managing Director
(1991 to 1995), Director (1992 to 1995),
and Vice President (1984 to 1991) of Loomis,
Sayles and Company, L.P.
Elyse G. Essick Vice President Vice President and Director of
480 Pierce Street Marketing of the Advisor (since
Suite 300 January 1995).
Birmingham, MI 48009
Age: 40
James C. Robinson Vice President Vice President and Chief Investment
480 Pierce Street Officer/Fixed Income of the Advisor
Suite 300 (since January 1995).
Birmingham, MI 48009
Age: 37
Leonard J. Barr Vice President Vice President and Director of Core
480 Pierce Street Equity Research of the Advisor (since
Suite 300 January 1995); Director and Senior
Birmingham, MI 48009 Vice President, MCM (since 1988);
Age: 54 Director of LPM.
Ann F. Putallaz Vice President Vice President and Director of
480 Pierce Street Fiduciary Services of the Advisor
Suite 300 (since January 1995).
Birmingham, MI 48009
Age: 53
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Lisa A. Rosen Secretary, Assistant Treasurer General Counsel of the Advisor (since
480 Pierce Street May 1996); Counsel, First Data
Suite 300 Investor Services Group, Inc. (June
Birmingham, MI 48009 1994 to May 1996).
Age: 31
Therese Hogan Assistant Secretary Director, State Regulation Department,
53 State Street First Data Investor Services Group
Boston, MA 02109 (since June 1994).
Age: 37
</TABLE>
+ Individual holds same position with The Munder Funds, Inc., ("Munder"), The
Munder Funds Trust (the "Trust") and Munder Framlington Funds Trust
("Framlington Trust") each a registered investment company.
* "Interested person" of the Company, as defined in the 1940 Act.
Directors who are not interested persons of the Company and Munder, and
Trustees who are not interested persons of the Trust and Framlington Trust,
receive an aggregate fee from the Company, the Trust, Munder and Framlington
Trust for service on those organizations' respective Boards, comprised of an
annual retainer fee of $30,000 and a fee of $2,500 for each Board meeting
attended; and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings.
The following table summarizes the compensation paid by the Company,
the Trust, Munder and Framlington Trust to their respective Directors/Trustees
for the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
Charles W. Elliot John Rakolta, Thomas B. David J. Dr. Joseph Thomas D.
Chairman, Jr. Vice Bender Brophy E. Champagne Eckert
Trustee and Chairman, Trustee and Trustee and Trustee and Trustee and
Director Trustee and Director Director Director Director
Director
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Aggregate Compensation from
the Company $ $ $ $ $ $
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
Aggregate Compensation from
the Trust $ $ $ $ $ $
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
Aggregate Compensation from
Framlington Trust $ $ $ $ $ $
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
Aggregate Compensation from
St. Clair $ $ $ $ $ $
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
Pension Retirement Benefits
Accrued as Part of Fund
Expenses None None None None None None
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
Estimated Annual Benefits
upon Retirement None None None None None None
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
Total from the Fund Complex
$ $ $ $ $ $
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
</TABLE>
No officer, director or employee of the Advisor, Comerica, the
Sub-Custodian, the Distributor, the Administrator or the Transfer Agent
currently receives any compensation from the Company. As of April ____, 1999,
the Directors and officers of the Company, as a group, owned less than 1% of
outstanding shares of the Fund of the Company. [Verify]
INVESTMENT ADVISORY AND OTHER SERVICE ARRANGEMENTS
22
<PAGE>
INVESTMENT ADVISOR. The Advisor of the Fund is Munder Capital
Management, a Delaware general partnership. The general partners of the Advisor
are WAM, WAM II, MCM and Munder Group, LLC. WAM and WAM II 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.
The Investment Advisory Agreement between the Advisor and the Company
with respect to the Fund (the "Advisory Agreement") was approved by the
Company's Board of Directors and by the shareholders. Under the terms of the
Advisory Agreement, the Advisor furnishes continuing investment supervision to
the Fund and is responsible for the management of the 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.
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 the Fund, at any time without penalty, upon 60 days'
written notice to the Advisor. The Advisor may also terminate its advisory
relationship with the 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).
For the advisory services provided and expenses assumed with regard to
the Fund, the Advisor has agreed to a fee from the Fund, computed daily and
payable monthly on a separate Fund-by-Fund basis, at an annual rate of .15% of
the average daily net assets of the Fund.
For the period from commencement of operations on August 7, 1997 for
the Fund through December 31, 1997, the Advisor received fees in the amounts of
$1,554. For the period from commencement of operations through December 31,
1997, the Advisor voluntarily reimbursed expenses in the amount of $38,346 for
the Fund.
For the fiscal year ended December 31, 1998, the Advisor received fees
in the amount of $___________ for the Fund. For the fiscal year ended December
31, 1998, the Advisor voluntarily reimbursed expenses in the amount of $_______
for the Fund.
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. The Distributor has agreed to use appropriate efforts to
solicit orders for the purchase of shares of the Fund although it is not
obligated to sell any particular amount of shares. The Distributor pays the cost
of printing and distributing prospectuses to persons who are not holders of fund
shares (excluding preparation and printing expenses necessary for the continued
registration of the shares). The Distributor's principal offices are located at
60 State Street, Suite 1300, Boston, Massachusetts 02109.
ADMINISTRATION AGREEMENT. State Street Bank and Trust Company ("State
Street" or the "Administrator") located at 225 Franklin Street, Boston,
Massachusetts 02110, serves as administrator for the Company pursuant to an
administration agreement (the "Administration Agreement"). State Street has
agreed to maintain office facilities for the Company; oversee the computation of
the Fund's net
23
<PAGE>
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. State Street may enter into an agreement
with one or more third parties pursuant to which such third parties will provide
administrative services on behalf of the Fund.
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 negligence in the performance of its duties or
from the reckless disregard by it of its duties and obligations thereunder.
For the period from commencement of operations on August 7, 1997
through December 31, 1997 for the Fund, the administration fees of State Street
accrued were $87.
For the fiscal year ended December 31, 1998 the administration fees of
State Street accrued were
$________.
CUSTODIAN, SUB-CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. Comerica Bank
(the "Custodian"), whose principal business address is One Detroit Center, 500
Woodward Avenue, Detroit, MI 48226, is the custodian of the Fund pursuant to a
custody agreement ("Custody Agreement") with the Company. The Custodian receives
no compensation for such services. State Street (the "Sub-Custodian") serves as
the sub-custodian to the Fund pursuant to a sub-custodian agreement (the
"Sub-Custodian Contract") among the Custodian, Company and State Street. State
Street is also the sub-custodian with respect to the custody of foreign
securities held by certain of the Fund. State Street has in turn entered into
additional agreements with financial institutions and depositaries located in
foreign countries with respect to the custody of such securities. Under the
Sub-Custodian Contract, the Sub-Custodian (i) maintains a separate account in
the name of the Fund, (ii) holds and transfers portfolio securities on account
of the Fund, (iii) accepts receipts and makes disbursements of money on behalf
of the Fund, (iv) collects and receives all income and other payments and
distributions on account of the Fund's securities and (v) makes periodic reports
to the Board of Directors concerning the Fund's operations.
First Data Investor Services Group Inc. located at 4400 Computer Drive,
Westborough, Massachusetts 01581 ("Investor Services Group" or the "Transfer
Agent") serves as the transfer and dividend disbursing agent for the Fund
pursuant to a transfer agency agreement (the "Transfer Agency Agreement") with
the Company, under which Investor Services Group (i) issues and redeems shares
of the Fund, (ii) addresses and mails all communications by the 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 the
Fund and (v) makes periodic reports to the Board of Directors concerning the
operations of the Fund.
OTHER INFORMATION PERTAINING TO ADMINISTRATION, SUB-CUSTODIAN AND
TRANSFER AGENCY AGREEMENTS. Except as noted in this SAI the Fund's service
contractors bear all expenses in connection with the performance of their
services and the Fund bears the expenses incurred in its operations. These
expenses include, but are not limited to, fees paid to the Advisor,
Administrator, Sub-Custodian and Transfer Agent; 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 the 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
24
<PAGE>
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 Fund in addition to the Company's
other funds. The Advisor, Administrator, Sub-Custodian and Transfer Agent may
voluntarily waive all or a portion of their respective fees from time to time.
25
<PAGE>
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 the Fund.
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.
Over-the-counter issues, including corporate debt and government
securities, are normally traded through dealers on a "net" basis (i.e., without
commission), or directly with the issuer. With respect to over-the-counter
transactions, the Advisor will normally deal directly with dealers who make a
market in the instruments except in those circumstances where more favorable
prices and execution are available elsewhere. The cost of 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 Fund 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 Fund will engage in this practice, however, only when the Advisor believes
such practice to be in the Fund's interests.
The portfolio turnover rate of the 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. The 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 the 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 Fund. 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
26
<PAGE>
discretion is exercised. Conversely, the Fund 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.
The table below shows information on brokerage commissions paid by the
Fund for the
<TABLE>
<CAPTION>
Commencement of operations on FOR THE FISCAL YEAR ENDED
August 7, 1997 through December 31, 1997. DECEMBER 31, 1998
-------------------------------------------------- ------------------------------
<S> <C> <C>
$ Amount Brokerage Commission $1,241 %
% of Brokerage Commission
Representing Research Services
$ Amount of Transactions
Involving Research Services
</TABLE>
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.
Investment decisions for the 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 Fund is concerned, in other cases it is believed to be
beneficial to the Fund. To the extent permitted by law, the Advisor may
aggregate the securities to be sold or purchased for the Fund with those to be
sold or purchased for other investment companies or accounts in executing
transactions.
The Fund will not purchase any securities while the Advisor or any
affiliated person (as defined in the 1940 Act) is a member of any underwriting
or selling group for such securities except pursuant to procedures adopted by
the Company's Board of Directors in accordance with Rule 10f-3 under the 1940
Act.
The Company is required to identify the securities of their regular
brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or their parent
companies held by them as of the close of their most recent fiscal year and to
state the value of such holding. As of December 31, 1998, the Fund held
securities of ________ valued at $_________.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchases and redemptions are discussed in the Fund's prospectus and
such information is incorporated herein by reference.
RETIREMENT PLANS. Shares of the Fund may be purchased in connection
with various types of tax deferred retirement plans, including individual
retirement accounts ("IRAs"), qualified plans, deferred compensation for public
schools and charitable organizations (403(b) plans) and simplified employee
pension IRAs. An individual or organization considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan. A
27
<PAGE>
$10.00 annual custodial fee is also charged on IRAs. This custodial fee is due
by December 15 of each year and may be paid by check or shares liquidated from a
shareholder's account.
OTHER REDEMPTION INFORMATION. The Fund may suspend the right of
redemption or postpone the date of payment for Shares during any period when:
(a) trading on the New York Stock Exchange (the "NYSE") is restricted by
applicable rules and regulations of the SEC; (b) the NYSE is closed, other than
for customary weekend and holiday closings; (c) the SEC has by order permitted
such suspension; or (d) an emergency exists as determined by the SEC. Upon the
occurrence of any of the foregoing conditions, the Fund may also suspend or
postpone the recording of the transfer of its Shares.
In addition, the Fund may compel the redemption of, reject any order
for, or refuse to give effect on the Fund's books to the transfer of, its Shares
where the relevant investor or investors have not furnished the Fund with valid,
certified taxpayer identification numbers and such other tax-related
certifications as the Fund may request. The Fund may also redeem Shares
involuntarily if it otherwise appears appropriate to do so in light of the
Fund's responsibilities under the 1940 Act or in connection with a failure of
the appropriate person(s) to furnish certified taxpayer identification numbers
and other tax-related certifications.
Payment for shares may, in the discretion of the Advisor, be made in
the form of securities that are permissible investments for the Fund as
described in the Prospectus. For further information about this form of payment
please contact the Transfer Agent. In connection with an in-kind securities
payment, the Fund will require, among other things, that the securities be
valued on the day of purchase in accordance with the pricing methods used by the
Fund and that the Fund receive satisfactory assurances that (1) it will have
good and marketable title to the securities received by it; (2) that the
securities are in proper form for transfer to the Fund; and (3) adequate
information will be provided concerning the basis and other tax matters relating
to the securities.
Redemption proceeds are normally paid in cash; however, the Fund may
pay the redemption price in whole or in 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.
The 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.
NET ASSET VALUE
Net asset value for shares in the 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.
The net asset value per share of the 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., Eastern time) on each Business Day.
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
28
<PAGE>
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).
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 the Fund's performance may be included
in advertisements, sales literature, or reports to shareholders or prospective
investors. These performance figures are calculated in the following manner:
AVERAGE ANNUAL TOTAL RETURN
The 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:
P = hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years and portion of a year
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 and of any CDSC deduction (or a
fractional portion thereof);
AGGREGATE TOTAL RETURN
The Fund that advertises its "aggregate total return" computes 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
29
<PAGE>
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
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.
Based on the foregoing calculation, set forth below are the average
annual total return figures for the Fund for the 12 month period ended December
31, 1998 and since commencement of operations.
<TABLE>
<CAPTION>
12 MONTH PERIOD INCEPTION
ENDED THROUGH
FUND-INCEPTION DATE 12/31/98 12/31/98
- ------------------- -------- --------
<S> <C> <C>
SmallCap Index Equity Fund - August 7, 1997 % %
</TABLE>
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
Fund's yields or total returns may be quoted and compared to those of other
mutual funds with similar investment objectives or compared to stock or other
relevant indices. For example, the Fund's total return may be compared 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 Federal and state income
tax considerations generally affecting the Fund and its shareholders that are
not described in the Fund's Prospectus. 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 Prospectus 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.
GENERAL. The Fund intends to elect and qualify annually to be taxed as
a regulated investment company under Subchapter M, of the Internal Revenue Code
of 1986, as amended (the "Internal Revenue Code"). As a regulated investment
company, the Fund generally is exempt from Federal income tax on its net
investment income and realized capital gains which it distributes to its
shareholders, 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 Internal Revenue 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 satisfying the Distribution Requirement, the 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
30
<PAGE>
(the "Income Requirement"). 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 the 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 25% of the
value of the 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.
Certain debt instruments acquired by the Fund may include an "original
issue discount" or a "market discount." As a result, the 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 below, 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 the Fund and any net
realized short-term capital gains distributed by the Fund will be taxable to
shareholders as ordinary income and will not be eligible for the
dividends-received deduction for corporations.
The 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 gain from the sale or exchange of a capital asset
held for more than one year, regardless of the length of time the shareholder
has held the Fund shares, and regardless of whether the distribution is paid in
cash or reinvested in shares. The Fund expects that capital gain dividends will
be taxable to shareholders as long-term gains. Capital gain dividends are not
eligible for the dividends-received deduction.
In the case of corporate shareholders, distributions of the Fund for
any taxable year generally qualify for the dividends-received deduction to the
extent of the gross amount of "qualifying dividends" received by the Fund for
the year and if certain holding period requirements are met. Generally, a
dividend will be treated as a "qualifying dividend" if it has been received from
a domestic corporation.
If for any taxable year the 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. In such
event, all distributions (whether or not derived from exempt-interest income)
would be taxable as ordinary income and would be eligible for the
dividends-received deduction in the case of corporate shareholders to the extent
of the Fund's current and accumulated earnings and profits.
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<PAGE>
Shareholders will be advised annually as to the Federal income tax
consequences of distributions made by the Fund each year.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax. To
prevent imposition of the excise tax, each Fund must distribute during each
calendar year an amount equal to the sum of (1) at least 98% of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, (2) at least 98% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses, as prescribed by the Internal Revenue
Code) for the one-year period ending on October 31 of the calendar year, and (3)
any ordinary income and capital gains for previous years that was not
distributed during those years. A distribution will be treated as paid on
December 31 of the current calendar year if it is declared by a Fund in October,
November or December with a record date in such a month and paid by the Fund
during January of the following calendar year. Such distributions will be
taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are made. To
prevent application of the excise tax, the Fund intends to make its
distributions in accordance with the calendar year distribution requirement.
HEDGING TRANSACTIONS. The taxation of equity options and
over-the-counter options on debt securities is governed by Internal Revenue Code
Section 1234. Pursuant to Internal Revenue Code Section 1234, the premium
received by a Fund for selling a put or call option is not included in income at
the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by a Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Any regulated futures contracts and certain options (namely, nonequity
options and dealer equity options) in which a Fund may invest are "Section 1256
contracts." Gains or losses on Section 1256 contracts generally are considered
60% long-term and 40% short-term capital gains or losses; however, foreign
currency gains or losses (as discussed below) arising from certain Section 1256
contracts may be treated as ordinary income or loss. Also, Section 1256
contracts held by a Portfolio at the end of each taxable year (and, generally,
for purposes of the 4% excise tax, on October 31 of each year) are "marked to
market" (that is, treated as sold at fair market value), resulting in unrealized
gains or losses being treated as though they were realized.
Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for U.S. Federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by the Fund. In addition, losses
realized by a Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Fund of engaging in hedging
transactions are
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<PAGE>
not entirely clear. Hedging transactions may increase the amount of short-term
capital gain realized by the Funds which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the
Internal Revenue Code which are applicable to straddles. If the Fund makes any
of the elections, the amount, character and timing of the recognition of gains
or losses from the affected straddle positions will be determined under rules
that vary according to the election(s) made. The rules applicable under certain
of the elections may operate to accelerate the recognition of gains or losses
from the affected straddle positions.
Because the straddle rules may affect the character of gains or losses,
and may defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which may be distributed to
shareholders, and which will be taxed to them as ordinary income or long-term
capital gain, may be more than or less than the distributions of a fund that did
not engage in such hedging transactions.
The diversification requirements applicable to the Fund's assets may
limit the extent to which the Fund will be able to engage in transactions in
options and futures contracts.
CURRENCY FLUCTUATIONS - "SECTION 988" GAINS OR LOSSES. Under the
Internal Revenue Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time the Fund accrues receivables or liabilities
denominated in a foreign currency, and the time the Fund actually collects such
receivables or pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain options and futures contracts,
gains or losses attributable to fluctuations in the value of foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains or losses,
referred to under the Internal Revenue Code as "Section 988" gains or losses,
may increase or decrease the amount of the Fund's investment company taxable
income to be distributed to its shareholders as ordinary income.
DISPOSITION OF SHARES. Upon the redemption, sale or exchange of shares
of the Fund, a shareholder may realize a capital gain or loss depending upon his
or her basis in the shares. Such gain or loss will be treated as capital gain or
loss if the shares are capital assets in the shareholder's hands and will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. Any loss realized on a redemption, sale or exchange will
be disallowed to the extent the shares disposed of are replaced (including
shares acquired pursuant to a dividend reinvestment plan) within a period of 61
days beginning 30 days before and ending 30 days after disposition of the
shares. In such a case, the basis of the shares acquired will be adjusted to
reflect the disallowed loss. Any loss realized by a shareholder on a disposition
of Fund shares held by the shareholder for six months or less will be treated as
a long-term capital loss to the extent of any distributions of net capital gains
received by the shareholder with respect to such shares and treated as long-term
capital gains. Furthermore, a loss realized by a shareholder on the redemption,
sale or exchange of shares of the Fund with respect to which exempt-interest
dividends have been paid will, to the extent of such exempt-interest dividends,
be disallowed if such shares have been held by the shareholder for six months or
less.
CONSTRUCTIVE SALES. Recently enacted rules may affect the timing and
character of gain if a Fund engages in transactions that reduce or eliminate its
risk of loss with respect to appreciated financial positions. If the Fund enters
into certain transactions in property while holding substantially identical
property, the Fund would be treated as if it had sold and immediately
repurchased the property and would be taxed on any gain (but not loss) from the
constructive sale. The character of gain from a
33
<PAGE>
constructive sale would depend upon the Fund's holding period in the property.
Loss from a constructive sale would be recognized when the property was
subsequently disposed of, and its character would depend on the Fund's holding
period and the application of various loss deferral provisions of the Internal
Revenue Code.
PASSIVE FOREIGN INVESTMENT COMPANIES. The Fund may invest in shares of
foreign corporations that may be classified under the Internal Revenue Code as
passive foreign investment companies ("PFICs"). In general, a foreign
corporation is classified as a PFIC if at least one-half of its assets
constitute investment-type assets, or 75% or more of its gross income
investment-type income. If the Fund receives a so-called "excess distribution"
with respect to PFIC shares, the Fund itself may be subject to a tax on a
portion of the excess distribution, whether or not the corresponding income is
distributed by the Fund to shareholders. In general, under the PFIC rules, an
excess distribution is treated as having been realized ratably over the period
during which the Fund held the PFIC shares. The Fund will itself be subject to
tax on the portion, if any, of an excess distribution that is so allocated to
prior Fund taxable years and an interest factor will be added to the tax, as if
the tax had been payable in such prior taxable years. Certain distributions from
a PFIC as well as gain from the sale of PFIC shares are treated as excess
distributions. Excess distributions are characterized as ordinary income even
though, absent application of the PFIC rules, certain excess distributions might
have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently is available in some
circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions were received from the PFIC in a given year. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions, would not apply. In addition, another election would
involve marking to market the Fund's PFIC shares at the end of each taxable
year, with the result that unrealized gains would be treated as though they were
realized and reported as ordinary income. Any mark-to-market losses and loss
from an actual disposition of Fund shares would be deductible as ordinary losses
to the extent of any net mark-to-market gains included in income in prior years.
Income received by the Fund from sources within foreign countries may
be subject to withholding and other taxes imposed by such countries.
The Company will be required in certain cases to withhold and remit to
the United States Treasury 31% of taxable distributions paid to any shareholder
(i) who has provided either an incorrect tax identification number or no number
at all, (ii) who is subject to backup withholding by the Internal Revenue
Service for failure to report the receipt of taxable interest or dividend income
properly, or (iii) who has failed to certify to the Company that he is not
subject to backup withholding or that he is an "exempt recipient."
Fund shareholders may be subject to state, local and foreign taxes on
its Fund distributions. In many states, Fund distributions which are derived
from interest on certain U.S. Government obligations are exempt from taxation.
The tax consequences to a foreign shareholder of an investment in the Fund may
be different from those described herein. Foreign shareholders are advised to
consult their own tax advisers with respect to the particular tax consequences
to them of an investment in the Fund. Shareholders are advised to consult their
own tax advisers with respect to the particular tax consequences to them of an
investment in the Fund.
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<PAGE>
The foregoing general discussion of Federal income tax consequences is
based on the Internal Revenue Code and the regulations issued thereunder as in
effect on the date of this SAI. 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 the 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 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, Munder S&P SmallCap Index Equity
Fund, Munder Aggregate Bond Index Fund, Munder Foreign Equity Fund, Liquidity
Plus Money Market Fund, Munder Institutional S&P 500 Index Equity Fund,
Munder Institutional S&P MidCap Index Equity Fund, Munder Institutional S&P
SmallCap Index Equity Fund, Munder Institutional Short Term Treasury Fund and
Munder Institutional Money Market Fund.
Shares of the Fund 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 SAI,
shares will be fully paid and non-assessable by the Company. In the event of a
liquidation or dissolution of the Company or the Fund, shareholders of the Fund
would be entitled to receive the assets available for distribution belonging to
the 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 Fund, 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 the 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 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
35
<PAGE>
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 Fund and the Company's other funds, if any
(voting together without regard to class).
MISCELLANEOUS
COUNSEL. The law firm of Dechert Price & Rhoads, 1775 Eye Street, N.W.,
Washington, D.C. 20006, has passed upon certain legal matters in connection with
the shares offered by the Fund and serves as counsel to the Company.
INDEPENDENT AUDITORS. Ernst & Young LLP, 200 Clarendon Street, Boston,
MA 02116 serves as the Company's independent auditors.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES. As of April ____,
1999 the following persons were beneficial owners of 5% or more of the
outstanding shares of the Fund because they possessed voting or investment power
with respect to such shares:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
NAME AND ADDRESS SHARES OUTSTANDING
- ---------------- -------------------
<S> <C>
</TABLE>
As of April ___, 1999, Munder Capital Management, on behalf of its
clients owned ______% of the ________.
SHAREHOLDER APPROVALS. As used in this SAI and in the Prospectus, 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
36
<PAGE>
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.
REGISTRATION STATEMENT
This SAI and the Fund's Prospectus do not contain all the
information included in the Fund's 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. Text-only
versions of fund documents can be viewed online or downloaded from the SEC at
http://www.sec.gov.
Statements contained herein and in the Fund's 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 Fund's registration statement,
each such statement being qualified in all respect by such reference.
37
<PAGE>
APPENDIX A
- - RATED INVESTMENTS -
CORPORATE BONDS
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 edged." 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 appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
"Ba": Bonds that are rated "Ba" are judged to have speculative
elements; their future cannot be considered 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.
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<PAGE>
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 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
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 issuers (or related supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.
Instruments rated "PRIME-2" are offered by issuers (or related supporting
institutions) which 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 susceptible 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."
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 Board of Directors.
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<PAGE>
APPENDIX B
The Fund may enter into certain futures transactions and options
for hedging purposes. Such transactions are described in this Appendix.
I. INDEX FUTURES CONTRACTS
GENERAL. 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
indexes, 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.
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
<TABLE>
<CAPTION>
PORTFOLIO FUTURES
- --------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate buying $62,500 in Equity Securities Buying 1 Index Futures at 125
Value of Futures = $62,500/Contract
-Day Hedge is Lifted-
Buy Equity Securities with Actual Cost = $65,000 Sell 1 Index Futures at 130
Increase in Purchase Price = $2,500 Value of Futures = $65,000/Contract
Gain on Futures = $2,500
</TABLE>
40
<PAGE>
<TABLE>
<S> <C>
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract - 125 X $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO FUTURES
- --------- -------
<S> <C>
- -Day Hedge is Placed-
Anticipate Selling $1,000,000 in Equity Securities Sell 16 Index Futures at 125
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
</TABLE>
II. MARGIN PAYMENTS
Unlike the purchase or sale 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
securities 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 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.
III. 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 futures and movements in the price of the
instruments which are the subject of the hedge. The price of futures may move
more than or less than the price of the instruments being hedged. If the price
of futures moves less
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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 sells futures to hedge its portfolio against a
decline in the market, the market may advance and the value of the futures
instruments held in the Fund may decline. If this occurs, 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 securities 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 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
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that a liquid secondary market on any exchange or board of trade will exist for
any particular contract or at any particular time. When there is no liquid
market, 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 commodities 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 it may be disadvantageous to do so.
IV. 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 from (call) or sell to (put) 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 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
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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.
V. OTHER MATTERS
Accounting for futures contracts will be in accordance with generally
accepted accounting principles.
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LIQUIDITY PLUS MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
Liquidity Plus Money Market Fund (the "Fund") is a diversified
portfolio of St. Clair Funds, Inc. (the "Company"), an open-end management
investment company. The Fund's investment advisor is Munder Capital Management.
This Statement of Additional Information is intended to supplement the
information provided to investors in the Fund's Prospectus dated April 30, 1999
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
Fund's Prospectus dated April 30, 1999. 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 Funds Distributor,
Inc. (the "Distributor"), or by calling the Fund at (800) 438-5789. This
Statement of Additional Information is dated April 30, 1999.
AN INVESTMENT IN A FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED OR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
General............................................................................3
Fund Investments...................................................................3
Additional Investment Limitations.................................................12
Temporary Defensive Position......................................................15
Directors and Officers............................................................15
Investment Advisory and Other Service Arrangements................................19
Portfolio Transactions............................................................22
Additional Purchase and Redemption Information....................................23
Net Asset Value...................................................................24
Yield.............................................................................24
Taxes.............................................................................25
Additional Information Concerning Shares..........................................28
Miscellaneous.....................................................................29
Registration Statement............................................................30
Financial Statements..............................................................30
Appendix..........................................................................31
</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 Fund or the Distributor. The 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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GENERAL
The Company is an open-end management investment company, which is a
mutual fund that sells and redeems shares every day that it is open for
business. 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 Funds is
Munder Capital Management (the "Advisor"). The principal partners of the Advisor
are Old MCM, Inc. ("MCM"), Munder Group LLC, WAM Holdings, Inc. ("WAM") and WAM
Holdings II, Inc. ("WAM II"). MCM was founded in April 1985 as a Delaware
corporation and was a registered investment advisor. WAM and WAM II are
indirect, wholly owned subsidiaries of Comerica Incorporated which owns or
controls approximately 88% of the partnership interests in the Advisor.
Shares of the Fund are sold only to Comerica Bank, its affiliate and
subsidiary banks, and certain other institutional investors ("Institutional
Investors"). Shares may be purchased by Institutional Investors for investment
of their own funds, or for funds of their customer accounts ("Customer
Accounts") for which they serve in a fiduciary, agency or custodial capacity.
Shares are sold and redeemed without the imposition of a purchase or redemption
charge by the Fund, although Institutional Investors that are record owners of
Shares for their Customer Accounts may charge their customers separate account
fees.
FUND INVESTMENTS
The following policies supplement the Fund's investment objective and
policies as set forth in the Prospectus. A description of applicable credit
ratings is set forth in the Appendix hereto.
ASSET-BACKED SECURITIES. Subject to applicable maturity and credit
criteria, the 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 scheduled 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
interest rates and current conditions in the relevant housing markets. 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 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. When 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.
BANK OBLIGATIONS. The Fund may purchase U.S. dollar-denominated bank
obligations, including certificates of deposit, bankers' acceptances, bank
notes, deposit notes and interest-bearing
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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. For this purpose, the assets of a bank or savings institution include
the assets of both its domestic and foreign branches. The Fund will invest in
the obligations of domestic banks and savings institutions only if their
deposits are federally insured.
Non-domestic bank obligations include Eurodollar Certificates of
Deposit ("ECDs"), which are U.S. dollar-denominated certificates of deposit
issued by offices of foreign and domestic banks located outside the United
States; Eurodollar Time Deposits ("ETDs"), which are U.S. dollar-denominated
deposits in a foreign branch of a U.S. bank or a foreign bank; Canadian Time
Deposits ("CTDs"), which are essentially the same as ETDs except they are issued
by Canadian offices of major Canadian banks; Schedule Bs, which are obligations
issued by Canadian branches of foreign or domestic banks; 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 Bankers' 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 United States. Although the Fund 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.
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. Borrowed funds are
subject to interest costs that may or may not be offset by amounts earned on
borrowed funds. 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. A
Fund may not purchase portfolio securities while borrowings exceed 5% of the
Fund's total assets.
COMMERCIAL PAPER. Commercial paper (short-term promissory notes issued
by corporations), including variable amount master demand notes, having
short-term ratings at the time of purchase, must be rated by at least two
nationally recognized statistical rating organizations ("NRSROs"), such as
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation
("S&P") within the highest rating category assigned to short-term debt
securities or, if not rated, or rated by only one agency, are determined to be
of comparable quality pursuant to guidelines approved by the Company's Board of
Directors. To the extent that the ratings accorded by NRSROs may change as a
result of changes in their rating systems, the Fund will attempt to use
comparable ratings as standards for its investments, in accordance with the
investment policies contained herein. Where necessary to ensure that an
instrument meets, or is of comparable quality to, the Fund's rating criteria,
the Fund may require that the issuer's obligation to pay the principal of, and
the interest on, the instrument be backed by insurance or by an unconditional
bank letter or line of credit, guarantee, or commitment to lend. In addition,
the Fund may acquire unrated commercial paper and corporate bonds that are
determined by the Advisor at the time of
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<PAGE>
purchase to be of comparable quality to rated instruments that may be acquired
by such Fund as previously described.
FOREIGN SECURITIES. The Fund may invest up to 25% of its assets in U.S.
dollar-denominated securities of foreign issuers such as foreign commercial
paper and obligations of foreign banks. Income and gains on such 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
companies comparable to the reports and ratings published about companies in the
United States. Foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards, and auditing practices
and requirements may not be comparable to those applicable to United States
companies. Foreign markets have substantially less trading volume than the New
York Stock Exchange and securities of some foreign companies are less liquid and
more volatile than securities of comparable United States companies. Commission
rates in foreign countries, which are generally fixed rather than subject to
negotiation as in the United States, are likely to be higher. In many foreign
countries there is less government supervision and less regulation of stock
exchanges, brokers, and listed companies than in the United States. Such
concerns are particularly heightened for emerging markets and Eastern European
countries.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
These risks include (i) less social, political and economic stability; (ii) the
small current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interest; (iv) foreign taxation; (v)
the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private property; (vi)
the absence, until recently in certain Eastern European countries, of a capital
market structure or market-oriented economy; and (vii) the possibility that
recent favorable economic developments in Eastern Europe may be slowed or
reversed by unanticipated political or social events in such countries.
Investments in Eastern European countries may involve risks of
nationalization, expropriation and confiscatory taxation. The Communist
governments of a number of Eastern European countries expropriated large amounts
of private property in the past, in many cases without adequate compensation,
and there can be no assurance that such expropriation will not occur in the
future. In the event of such expropriation, the Fund could lose a substantial
portion of any investment it has made in the affected countries. Further, no
accounting standards exist in Eastern European countries. Finally, even though
certain Eastern European currencies may be convertible into United States
dollars, the conversion rates may be artificial rather than their actual market
values and they may be adverse to the Fund.
GUARANTEED INVESTMENT CONTRACTS. The Fund may make limited investments
in guaranteed investment contracts ("GICs") issued by U.S. insurance companies.
Pursuant to such contracts, a Fund makes cash contributions to a deposit fund of
the insurance company's general account. The insurance company then credits to
the Fund on a monthly basis interest which is based on an index (in most cases
this index is expected to be the Salomon Brothers CD Index), but is guaranteed
not to be less than a certain minimum rate. A GIC is normally a general
obligation of the issuing insurance company and not funded by a separate
account. The purchase price paid for a GIC becomes part of the general assets of
5
<PAGE>
the insurance company, and the contract is paid from the company's general
assets. A Fund will only purchase GICs from insurance companies which, at the
time of purchase, have assets of $1 billion or more and meet quality and credit
standards established by the Advisor pursuant to guidelines approved by the
Board of Directors. Generally, GICs are not assignable or transferable without
the permission of the issuing insurance companies, and an active secondary
market in GICs does not currently exist. Therefore, GICs will normally be
considered illiquid investments, and will be acquired subject to the limitation
on illiquid investments.
ILLIQUID SECURITIES. The Fund may invest up to 10% of the value of its
net assets (determined at time of acquisition) in securities which are illiquid.
Illiquid securities would generally include securities for which there is a
limited trading market, 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 Fund may invest in commercial obligations issued in reliance on the
"private placement" exemption from registration afforded by Section 4(2) of the
Securities Act of 1933, as amended ("Section 4(2) paper"). The Fund may also
purchase securities that are not registered under the Securities Act of 1933, as
amended, but which can be sold to qualified institutional buyers in accordance
with Rule 144A under that 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, such as the Fund, 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 like the Fund through or
with the assistance of the issuer or investment dealers who make a market in the
Section 4(2) paper, thus providing liquidity. Rule 144A securities generally
must be sold 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. It is possible that unregistered securities purchased by a Fund in
reliance upon Rule 144A 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.
INVESTMENT COMPANY SECURITIES. The Fund may invest in securities issued
by other investment companies. As a shareholder of another investment company,
the 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 the Fund bears directly in connection with its own operations. The 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. It is the policy not to invest in securities issued by other investment
companies which pay asset-based fees to the Advisor, the Administrator, the
Sub-Custodian, the Distributor or their affiliates.
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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 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. 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.
MUNICIPAL OBLIGATIONS. Opinions relating to the validity of municipal
obligations and to the exemption of interest thereon from regular Federal income
tax are rendered by bond counsel or counsel to the respective issuers at the
time of issuance. Neither the Company nor the Advisor will review the
proceedings relating to the issuance of municipal obligations or the bases for
such opinions.
An issuer's obligations under its municipal obligations are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if any,
which may be enacted by Federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the payment
of interest on and principal of its municipal obligations may be materially
adversely affected by litigation or other conditions.
From time to time proposals have been introduced before Congress for
the purpose of restricting or eliminating the Federal income tax exemption for
interest on municipal obligations. For example, under the Tax Reform Act of 1986
interest on certain private activity bonds must be included in an investor's
Federal alternative minimum taxable income, and corporate investors must include
all tax-exempt interest in their Federal alternative minimum taxable income. The
Company cannot predict what legislation, if any, may be proposed in Congress in
the future as regards the Federal income tax status of interest on municipal
obligations in general, or which proposals, if any, might be enacted.
The Fund may, when deemed appropriate by the Advisor in light of the
Fund's investment objective, invest in high quality municipal obligations issued
by state and local governmental issuers, the interest on which may be taxable or
tax-exempt for Federal income tax purposes, provided that such obligations carry
yields that are competitive with those of other types of money market
instruments of comparable quality. The Fund does not expect to invest more than
5% of its net assets in such municipal obligations during the current fiscal
year.
REPURCHASE AGREEMENTS. The Fund may agree to purchase securities from
financial institutions such as banks and non-bank dealers of U.S. Government
securities that are listed on the Federal Reserve Bank of New York's list of
reporting dealers, 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 the Fund to possible loss
because of
7
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adverse market action or delays in connection with the disposition of underlying
obligations except with respect to repurchase agreements secured by U.S.
Government securities.
The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by the Fund plus interest negotiated
on the basis of current short-term rates (which may be more or less than the
rate on the securities underlying the repurchase agreement).
Securities subject to repurchase agreements will be held by the Fund's
sub-custodian in the Federal Reserve/Treasury book-entry system or by another
authorized securities depositary. Repurchase agreements are considered to be
loans by the Fund under the Investment Company Act of 1940, as amended (the
"1940 Act").
Repurchase agreements shall be deemed to have a maturity equal to the
period remaining until the date on which the repurchase of the underlying
securities is scheduled to occur, or, where the agreement is subject to demand,
the notice period applicable to a demand for the repurchase of the securities.
REVERSE REPURCHASE AGREEMENTS. The Fund 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. The Fund will pay interest on
amounts obtained pursuant to a reverse repurchase agreement. While reverse
repurchase agreements are outstanding, the Fund will maintain in cash, U.S.
Government securities or other liquid securities designated on the books of the
Fund or the Fund's sub-custodian in an amount at least equal to the market value
of the securities, plus accrued interest, subject to the agreement.
STRIPPED SECURITIES. The 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 single 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 Fund 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.
The Treasury Department facilitates transfers of ownership of zero
coupon securities by accounting separately for the beneficial ownership of
particular interest coupon and principal payments
8
<PAGE>
or Treasury securities through the Federal Reserve book-entry recordkeeping
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, the 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.
Stripped securities will normally be considered illiquid instruments
and will be acquired subject to the limitation on illiquid investments unless
determined to be liquid under guidelines established by the Board of Directors.
In addition, the 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 Federal National Mortgage
Association or Federal Home Loan Mortgage Corporation.
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
of 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 the Fund may not fully recover its initial
investment.
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 Directors. 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 the Fund's net asset
value per share.
U.S. GOVERNMENT OBLIGATIONS. The Fund may purchase obligations issued
or guaranteed by the U.S. Government and U.S. Government agencies and
instrumentalities, except that the Short Term Treasury Fund will only purchase
obligations issued by the U.S. Treasury. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of the Government
National Mortgage Association ("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.
9
<PAGE>
Government obligations that may be acquired by the Funds include U.S. Treasury
Bills, U.S. Treasury Notes and U.S. 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, Federal National Mortgage
Association, GNMA, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks and Maritime Administration.
U.S. Treasury securities differ in their interest rates, maturities and
times of issuance. Treasury bills have initial maturities of one year or less,
Treasury notes have initial maturities of one to ten years and Treasury bonds
generally have initial maturities greater than ten years. A portion of the U.S.
Treasury securities purchased by the Fund may be "zero coupon" Treasury
securities. These are U.S. treasury notes and bonds which have been stripped of
their unmatured interest coupons and receipts or which are certificates
representing interests in such stripped debt obligations and coupons. Such
securities are purchased at a discount from their face amount, giving the
purchaser the right to receive their full value at maturity. A zero coupon
security pays no interest to its holder during its life. Its value to an
investor consists of the difference between its face value at the time of
maturity and the price for which it was acquired, which is generally an amount
significantly less than its face value (sometimes referred to as a "deep
discount" price).
The interest earned on such securities is, implicitly, automatically
compounded and paid out at maturity. While such compounding at a constant rate
eliminates the risk of receiving lower yields upon reinvestment of interest if
prevailing interest rates decline, the owner of a zero coupon security will be
unable to participate in higher yields upon reinvestment of interest received if
prevailing interest rates rise. For this reason, zero coupon securities are
subject to substantially greater market price fluctuations during periods of
changing prevailing interest rates than are comparable debt securities which
make current distributions of interest. Current federal tax law requires that a
holder (such as a Fund) of a zero coupon security accrue a portion of the
discount at which the security was purchased as income each year even though the
Fund receives no interest payments in cash on the security during the year.
Certain banks and brokerage firms have separated the principal portions
from the coupon portions of the U.S. Treasury bonds and notes and sell them
separately in the form of receipts or certificates representing undivided
interests in these instruments (which instruments are generally held by a bank
in a custodial or trust account). The Fund will not purchase any such receipts
or certificates representing stripped prinicipal or coupon interests in U.S.
Treasury securities sold by banks and brokerage firms. The Fund will only
purchase zero coupon Treasury securities which have been stripped by the Federal
Reserve Bank.
VARIABLE AND FLOATING RATE INSTRUMENTS. Debt instruments may be
structured to have variable or floating interest rates. Variable and floating
rate obligations purchased by the Fund may have stated maturities in excess of
the Fund's maturity limitation if the Fund can demand payment of the principal
of the instrument at least once during such period on not more than thirty days'
notice (this demand feature is not required if the instrument is guaranteed by
the U.S. Government or an agency thereof) or if the instruments are deemed to
have shorter maturities in accordance with the current regulations of the SEC.
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
10
<PAGE>
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.
In determining average weighted portfolio maturity of the Fund,
short-term variable rate securities shall be deemed to have a maturity equal to
the earlier of the period remaining until the next readjustment of the interest
rate or the period remaining until the principal amount can be recovered through
demand, and short-term floating rate securities shall be deemed to have a
maturity of one day. For purposes of this paragraph, "short-term" with respect
to a security means that the principal amount, in accordance with the terms of
the security, must unconditionally be paid in 397 calendar days or less.
In determining average weighted portfolio maturity of the Fund,
long-term variable rate securities shall be deemed to have a maturity equal to
the longer of the period remaining until the next readjustment of the interest
rate or the period remaining until the principal amount can be recovered through
demand, and long-term floating rate securities shall be deemed to have a
maturity equal to the period remaining until the principal amount can be
recovered through demand. For purposes of this paragraph, "long-term" with
respect to a security means that the principal amount of the security is
scheduled to be paid in more than 397 days.
Variable rate government securities where the variable rate of interest
is readjusted no less frequently than every 762 days shall be deemed to have a
maturity equal to the period remaining until the next interest rate
readjustment. Floating rate government securities shall be deemed to have a
remaining maturity of one day.
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 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 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.
All obligations, including any underlying guarantees, must be deemed by
the Advisor to present minimal credit risks, pursuant to guidelines approved by
the Board of Directors. See the "Appendix" for a description of applicable
ratings.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS (DELAYED-DELIVERY
TRANSACTIONS). When-issued purchases and forward commitments (also called
delayed-delivery transactions) are commitments by the 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 the Fund to lock-in
a price or yield on a security, regardless of future changes in interest rates.
When the Fund agrees to purchase securities on a when-issued or forward
commitment basis, the Fund's Sub-Custodian will set aside cash or liquid
portfolio securities equal to the amount of the commitment in a separate
account. Normally, the Sub-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
11
<PAGE>
commitments than when it sets aside cash. Because the 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 a Fund's total assets absent
unusual market conditions.
The Fund 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, the Fund may dispose of or renegotiate a
commitment after it is 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 the 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 market 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.
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 rating organizations 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.
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.
ADDITIONAL INVESTMENT LIMITATIONS
The Fund is subject to the investment restrictions and limitations
listed below which may be changed only by a vote of the holders of a majority of
the Fund's outstanding shares (as defined under "Miscellaneous-Shareholder
Approvals").
The Fund may not:
1. Purchase securities (other than obligations of the U.S.
Government, its agencies or instrumentalities) if more than 5%
of the value of the Fund's total assets would be invested in
the securities of any one issuer, except that up to 25% of the
value of the Fund's total assets may be invested without
regard to this 5% limitation. However, as an
12
<PAGE>
operating policy, the Fund intends to adhere to this 5%
limitation with regard to 100% of its portfolio to the extent
required under applicable regulations under the 1940 Act;
2. Purchase more than 10% of the outstanding voting securities of
any issuer, except that up to 25% of the value of the Fund's
total assets may be invested without regard to this 10%
limitation;
3. Invest 25% or more of the Fund's total assets in one or more
issuers conducting their principal business activities in the
same industry, provided that: (a) there is no limitation with
respect to obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, domestic bank
certificates of deposit, bankers' acceptances, and repurchase
agreements secured by such obligations; (b) wholly owned
finance companies will be considered to be in the industries
of their parents if their activities are primarily related to
financing the activities of their parents; and (c) utilities
will be divided according to their services -- for example,
gas, gas transmission, electric and gas, electric, and
telephone will each be considered separate industry;
4. Make loans, except that the Fund may purchase or hold certain
debt instruments and enter into repurchase agreements, in
accordance with its policies and limitations;
5. Borrow money, except for temporary purposes in amounts up to
one-third of the value of the Fund's total assets at the time
of such borrowing. Whenever borrowings exceed 5% of the Fund's
total assets, the Fund will not make any additional
investments;
6. Knowingly invest more than 10% of its total assets in illiquid
securities including time deposits with maturities longer than
seven days and repurchase agreements providing for settlement
more than seven days after notice;
7. Pledge, mortgage or hypothecate its assets other than to
secure borrowings permitted by restriction 5 above;
8. Underwrite securities of other issuers, except insofar as the
Fund may be deemed an underwriter under the Securities Act of
1933, as amended, in selling portfolio securities;
9. Purchase or sell real estate or any interest therein,
including interests in real estate limited partnerships,
except securities issued by companies (including real estate
investment trusts) that invest in real estate or interests
therein;
10. Purchase securities on margin, or make short sales of
securities, except for the use of short-term credit necessary
for the clearance of purchases and sales of portfolio
securities; or
11. 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.
Additional investment restrictions adopted by the Fund, which may be
changed by the Board of Directors, provide that the Fund may not:
13
<PAGE>
1. Purchase or sell interests in oil, gas or other mineral exploration
or development plans or leases;
2. Invest in other investment companies except as permitted under the
1940 Act; or
3. Make investments for the purpose of exercising control or
management.
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 the Fund's investments will not constitute a violation of such
limitation. In addition, if the Fund's holdings of illiquid securities exceeds
10% 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, the 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.
The following chart summarizes the Fund's investments and investment
practices as described above. All percentages are based on a Fund's total assets
except where otherwise noted.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------- -------------------------------------
INVESTMENTS AND INVESTMENT PRACTICES LIQUIDITY PLUS MONEY MARKET FUND
- ------------------------------------------------------------------------------- -------------------------------------
<S> <C>
ASSET-BACKED SECURITIES Y
- ------------------------------------------------------------------------------- -------------------------------------
BANK OBLIGATIONS 25%
- ------------------------------------------------------------------------------- -------------------------------------
BORROWING(1) Y
- ------------------------------------------------------------------------------- -------------------------------------
CORPORATE OBLIGATIONS:
- Commercial paper.............................. Y
- Corporate bonds............................... Y
- Notes......................................... Y
- Other short-term obligations.................. Y
- Variable Master Demand Notes.................. Y
- Debentures.................................... Y
- ------------------------------------------------------------------------------- -------------------------------------
FOREIGN SECURITIES 25%
- ------------------------------------------------------------------------------- -------------------------------------
GUARANTEED INVESTMENT CONTRACTS Y
- ------------------------------------------------------------------------------- -------------------------------------
ILLIQUID SECURITIES 15%
- ------------------------------------------------------------------------------- -------------------------------------
INVESTMENT COMPANY SECURITIES Y
- ------------------------------------------------------------------------------- -------------------------------------
LENDING SECURITIES 25%
- ------------------------------------------------------------------------------- -------------------------------------
MUNICIPAL OBLIGATIONS Y
- ------------------------------------------------------------------------------- -------------------------------------
REPURCHASE AGREEMENTS Y
- ------------------------------------------------------------------------------- -------------------------------------
REVERSE REPURCHASE AGREEMENTS Y
- ------------------------------------------------------------------------------- -------------------------------------
STRIPPED SECURITIES Y
- ------------------------------------------------------------------------------- -------------------------------------
U.S. GOVERNMENT OBLIGATIONS:
- - Issued or guaranteed by U.S. Government.................... Y
- - Issued or guaranteed by U.S. Government agencies and
instrumentalities........................................... Y
- ------------------------------------------------------------------------------- -------------------------------------
VARIABLE AND FLOATING RATE SECURITIES Y
- ------------------------------------------------------------------------------- -------------------------------------
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS Y
- ------------------------------------------------------------------------------- -------------------------------------
</TABLE>
Key:
Y = investment allowed without restriction
(1) The limitation on borrowing is 5% of the Fund's assets for temporary
purposes.
14
<PAGE>
TEMPORARY DEFENSIVE POSITION
During periods of unusual economic or market conditions or for
temporary defensive purposes or liquidity, the Fund may invest without limit in
cash and in U.S. dollar-denominated high quality money market and other
short-term instruments. These investments may result in a lower yield than would
be available from investments with a lower quality or longer term.
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 OCCUPATION
NAME, ADDRESS AND AGE POSITIONS WITH COMPANY+ DURING PAST FIVE YEARS
- --------------------- ----------------------- ----------------------
<S> <C> <C>
Charles W. Elliott Director and Chairman of the Senior Advisor to the President,
1024 Essex Circle Board of Directors Western Michigan University (July 1995
Kalamazoo, MI 49008 through December 1998); Executive Vice
Age: 67 President, Administration & Chief
Financial Officer, Kellogg Company
(January 1987 through June 1995).
Board of Directors, Steelcase
Financial Corporation; Board of
Directors, Enesco Group.
John Rakolta, Jr. Director and Vice Chairman of Chairman and Chief Executive Officer,
1876 Rathmor the Board of Directors Walbridge Aldinger Company
Bloomfield Hills, MI 48304 (construction company).
Age: 51
Thomas B. Bender Director Partner, Financial & Investment
5033 Wood Ridge Road Management Group.
Glen Arbor, MI 49636
Age: 65
David J. Brophy Director Professor, University of Michigan.
1025 Martin Place Director, River Place Financial
Ann Arbor, MI 48104 Corporation.
Age: 62
</TABLE>
15
<PAGE>
<TABLE>
<S> <C> <C>
Dr. Joseph E. Champagne Director Dean, University Center, Macomb
319 East Snell Road College (since September 1997);
Rochester, MI 48306 Corporate and Executive Consultant
Age: 60 (since September 1995); Chancellor,
Lamar University (September 1994 to
September 1995). Chairman of Board of
Directors, Ross Operating Valve of
Troy, Michigan.
Thomas D. Eckert Director President and Chief Executive Officer,
10726 Falls Pointe Drive Capital Automotive REIT (real estate
Great Falls, VA 22066 investment trust specializing in
Age: 51 retail automotive properties) (since
November 1997); President and Chief
Operating Officer, Mid-Atlantic Group of
Pulte Home Corporation (developer of
residential land and construction of housing
units) (1983 to 1997).
Lee P. Munder* Director and President Chairman of the Advisor (since
1029 N. Ocean Blvd. February 1998); Chief Executive
Palm Beach, FL 33480 Officer of the Advisor (1995 to 1998);
Age: 53 Chief Executive Officer, World Asset
Management (1995 to 1998); Chief Executive
Officer, MCM (predecessor of Advisor) (since
1985); Director, LPM Investment Services,
Inc. ("LPM"); Director, Capital Automotive
REIT.
Terry H. Gardner Vice President, Vice President and Chief Financial
480 Pierce Street Chief Financial Officer Officer of the Advisor (since 1993),
Suite 300 and Treasurer Vice President and Chief Financial
Birmingham, MI 48009 Officer, MCM (since 1993); Secretary,
Age: 38 LPM.
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C>
Paul Tobias Vice President Chief Executive Officer of the Advisor
480 Pierce Street (since February 1998); Chief Operating
Suite 300 Officer of the Advisor (since April
Birmingham, MI 48009 1995); Executive Vice President of the
Age: 48 Advisor (April 1995 to February 1998);
Executive Vice President, Comerica,
Inc. (October 1990 through April 1995).
Gerald Seizert Vice President Chief Executive Officer of the Advisor
480 Pierce Street (since February 1998); Chief
Suite 300 Investment Officer/Equities of the
Birmingham, MI 48009 Advisor (since April 1995); Executive
Age: 46 Vice President of the Advisor (April
1995 to February 1998); Managing Director
(1991 to 1995), Director (1992 to 1995), and
Vice President (1984 to 1991) of Loomis,
Sayles and Company, L.P.
Elyse G. Essick Vice President Vice President and Director of
480 Pierce Street Marketing of the Advisor (since
Suite 300 January 1995).
Birmingham, MI 48009
Age: 40
James C. Robinson Vice President Vice President and Chief Investment
480 Pierce Street Officer/Fixed Income of the Advisor
Suite 300 (since January 1995).
Birmingham, MI 48009
Age: 37
Leonard J. Barr Vice President Vice President and Director of Core
480 Pierce Street Equity Research of the Advisor (since
Suite 300 January 1995); Director and Senior
Birmingham, MI 48009 Vice President, MCM (since 1988);
Age: 54 Director of LPM.
Ann F. Putallaz Vice President Vice President and Director of
480 Pierce Street Fiduciary Services of the Advisor
Suite 300 (since January 1995).
Birmingham, MI 48009
Age: 53
</TABLE>
17
<PAGE>
<TABLE>
<S> <C> <C>
Lisa A. Rosen Secretary, Assistant Treasurer General Counsel of the Advisor (since
480 Pierce Street May 1996); Counsel, First Data
Suite 300 Investor Services Group, Inc. (June
Birmingham, MI 48009 1994 to May 1996).
Age: 31
Therese Hogan Assistant Secretary Director, State Regulation Department,
53 State Street First Data Investor Services Group
Boston, MA 02109 (since June 1994).
Age: 37
</TABLE>
- ---------------
+ Individual holds same position with The Munder Funds, Inc., ("Munder"),
The Munder Funds Trust (the "Trust") and Munder Framlington Funds Trust
("Framlington Trust") each a registered investment company.
* "Interested person" of the Company, as defined in the 1940 Act.
Directors who are not interested persons of the Company and Munder and
Trustees who are not interested persons of the Trust and Framlington Trust
receive an aggregate fee from the Company, the Trust, Munder and Framlington
Trust for service on those organizations' respective Boards, comprised of an
annual retainer fee of $30,000 and a fee of $2,500 for each Board meeting
attended; and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings.
The following table summarizes the compensation paid by the Company,
the Trust, Munder and Framlington Trust to their respective Directors/Trustees
for the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Charles W. Elliot John Rakolta, Thomas B. David J. Dr. Joseph Thomas D.
Chairman, Jr. Vice Bender Brophy E. Champagne Eckert
Trustee and Chairman, Trustee and Trustee and Trustee and Trustee and
Director Trustee and Director Director Director Director
Director
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Aggregate Compensation from
the Company $ $ $ $ $ $
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
Aggregate Compensation from
the Trust $ $ $ $ $ $
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
Aggregate Compensation from
Framlington $ $ $ $ $ $
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
Aggregate Compensation from
St. Clair $ $ $ $ $ $
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
Pension Retirement Benefits
Accrued as Part of Fund
Expenses None None None None None None
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
Estimated Annual Benefits
upon Retirement None None None None None None
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
Total from the Fund Complex
$ $ $ $ $ $
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
</TABLE>
No officer, director or employee of the Advisor, Comerica Bank, the
Sub-Custodian, the Distributor, the Administrator or the Transfer Agent, as
defined below currently receives any
18
<PAGE>
compensation from the Company. As of April ____, 1999, the Directors and
officers of the Company, as a group, owned less than 1% of outstanding shares of
the Fund.
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 WAM, WAM II, Old MCM, and Munder Group, LLC. WAM and WAM II 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.
The Investment Advisory Agreement between the Advisor and the Company
with respect to the Fund (the "Advisory Agreement") was approved by the
Company's Board of Directors and by the shareholders. Under the terms of the
Advisory Agreement, the Advisor furnishes continuing investment supervision to
the Fund and is responsible for the management of the 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.
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 with
respect to the Fund by a vote of the Board of Directors, or by the holders of a
majority of the outstanding voting securities of the Fund, at any time without
penalty, on 60 days' written notice to the Advisor. The Advisor may also
terminate its advisory relationship with respect to the Fund on 60 days' written
notice to the Company, and the Advisory Agreement terminates automatically in
the event of its assignment.
For the advisory services provided and expenses assumed by it, the
Advisor has agreed to a fee from the Fund, computed daily and payable monthly,
at an annual rate of .35% of average daily net assets of the Fund.
For the period from commencement of operations on June 4, 1997 through
December 31, 1997, the Advisor received fees in the amount of $52,118.
For the fiscal year ended December 31, 1998, the Advisor received fees
in the amount of $______________.
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. The Distributor has agreed to use appropriate efforts to
solicit orders for the purchase of shares of the Fund, although it is not
obligated to sell any particular amount of shares. The Distributor pays the cost
of printing and distributing prospectuses to persons who are not holders of Fund
shares (excluding preparation and printing expenses necessary for the continued
registration of the shares). The Distributor's principal offices are located at
60 State Street, Suite 1300, Boston, Massachusetts 02109.
DISTRIBUTION SERVICES ARRANGEMENTS. The Fund has adopted a Service and
Distribution Plan (the "Plan"), pursuant to which it uses its assets to finance
activities relating to the distribution of its
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shares to investors and the provision of certain shareholder services. Under the
Service and Distribution Plans, the Distributor is paid an annual service fee of
0.25% of the value of average daily net assets of the Fund and an annual
distribution fee at the rate of 0.10% of the value of average daily net assets
of the Fund.
During the period from commencement of operations on June 4, 1997
through December 31, 1997, the Fund paid the Distributor service fee in the
amount of $37,266 and distribution fees in the amount of $14,890.
During the fiscal year ended December 31, 1998, the Fund paid the
Distributor service fee in the amount of $___________ and distribution fees in
the amount of $___________.
Under the Plan, the distributor uses the service fees primarily to pay
ongoing trail commissions to securities dealers (which may include the
distributor itself) and other financial institutions and organizations
(collectively, the Service Organizations) who provide shareholder services for
the Fund. These services include, among other things, processing new shareholder
account applications, preparing and transmitting to the Fund's transfer agent
computer processable tapes of all transactions by customers and serving as the
primary source of information to customers in answering questions concerning the
Fund and their transactions with the Fund.
The Plan permits payments to be made by the Fund to the distributor for
expenditures incurred by it in connection with the distribution of Fund shares
to investors and the provision of certain shareholder services, including but
not limited to the payment of compensation, including incentive compensation, to
Service Organizations to obtain various distribution-related services for the
Fund. The distributor is also authorized to engage in advertising, the
preparation and distribution of sales literature and other promotional
activities on behalf of the Fund. In addition, the Plan authorizes payments by
the Fund of the cost of preparing, printing and distributing Fund prospectuses
and statements of additional information to prospective investors and of
implementing and operating the Plan. Distribution expenses also include an
allocation of overhead of the distributor and accruals for interest on the
amount of distribution expenses incurred by the distributor.
Under the terms of the Plan, the Plan continues from year to year,
provided such continuance is approved annually by vote of the Board of
Directors, including a majority of the Board of Directors who are not interested
persons of the Company, as applicable, and who have no direct or indirect
financial interest in the operation of that Plan (the "Non-Interested Plan
Directors"). The Plan may not be amended to increase the amount to be spent for
the services provided by the Distributor without shareholder approval, and all
amendments of the Plan also must be approved by the Directors in the manner
described above. The Plan may be terminated at any time, without penalty, by
vote of a majority of the Non-Interested Plan Directors or by a vote of a
majority of the outstanding voting securities of the Fund (as defined in the
1940 Act) upon not more than 30 days' written notice to any other party to the
Plan. Pursuant to the Plan, the Distributor will provide the Board of Directors
periodic reports of amounts expended under the Plan and the purposes for which
such expenditures were made.
The Distributor expects to pay sales commissions to dealers authorized
to sell the Fund's shares at the time of sale. The Distributor will use its own
funds (which may be borrowed) to pay such commissions pending reimbursement
pursuant to the Plan. In addition, the Advisor may use its own resources to make
payments to the Distributor or dealers authorized to sell the Fund's shares to
support their sales efforts.
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<PAGE>
ADMINISTRATION AGREEMENT. State Street Bank and Trust Company ("State
Street" or the "Administrator"), located at 225 Franklin Street, Boston,
Massachusetts 02110, serves as administrator for the Company pursuant to an
administration agreement (the "Administration Agreement"). State Street has
agreed to maintain office facilities for the Company; provide accounting and
bookkeeping services for the Fund, including the computation of the 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. State Street may enter into an agreement
with one or more third parties pursuant to which such third parties will provide
administrative services on behalf of the Fund.
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 negligence in the performance of its duties or
from the reckless disregard by it of its duties and obligations thereunder.
For the fiscal year ended December 31, 1998, the administration fees of
State Street accrued were $_______ for the Fund.
CUSTODIAN, SUB-CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. Comerica Bank
(the "Custodian") whose principal business address is One Detroit Center, 500
Woodward Avenue, Detroit, Michigan 46226, is the custodian of the Company's
assets pursuant to a custody agreement (the "Custody Agreement"). The Custodian
receives no compensation for such services. State Street (the "Sub-Custodian)
serves as sub-custodian to the Fund pursuant to a sub-custodian agreement (the
"Sub-Custodian Contract") among the Custodian, Company and State Street. State
Street is also the sub-custodian with respect to the custody of foreign
securities held by the Fund. State Street has in turn entered into additional
agreements with financial institutions and depositaries located in foreign
countries with respect to the custody of such securities. Under the
Sub-Custodian Contract, the Sub-Custodian (i) maintains a separate account in
the name of the Fund, (ii) holds and transfers portfolio securities on account
of the Fund, (iii) accepts receipts and makes disbursements of money on behalf
of the Fund, (iv) collects and receives all income and other payments and
distributions on account of the Fund's securities and (v) makes periodic reports
to the Company's Board of Directors concerning the Fund's operations.
First Data Investor Services Group, Inc. ("Investor Services Group" or
the "Transfer Agent") located at 53 State Street, Boston, Massachusetts 02109
serves as the transfer and dividend disbursing agent for the Company pursuant to
a transfer agency agreement (the "Transfer Agency Agreement"), under which
Investor Services Group (i) issues and redeems shares of the Fund, (ii)
addresses and mails all communications by the 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 the Fund and (v)
makes periodic reports to the Board of Directors concerning the operations of
the Fund.
OTHER INFORMATION PERTAINING TO ADMINISTRATION, SUB-CUSTODIAN AND
TRANSFER AGENCY AGREEMENTS. As stated in the Prospectus, the Administrator, the
Transfer Agent and the Sub-Custodian each receives a separate fee for its
services. In approving the Administration Agreement, the Sub-Custodian Contract
and the 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
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<PAGE>
expense ratio of each Fund and the fact that neither the Administrator, the
Sub-Custodian 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.
PORTFOLIO TRANSACTIONS
Pursuant to the Advisory Agreement, the Advisor determines which
securities are to be sold and purchased by the Fund and which brokers are to be
eligible to execute its portfolio transactions. Portfolio securities are
normally purchased directly from the issuer or from an underwriter or market
maker for the securities. Purchases from underwriters of portfolio securities
include a commission or concession paid by the issuer to the underwriter and
purchases from dealers serving as market makers may include the spread between
the bid and asked price. While the Advisor generally seeks competitive spreads
or commissions, the Fund may not necessarily pay the lowest spread or commission
available on each transaction for reasons discussed below.
Allocation of transactions, including their frequency, to various
dealers is determined by the Advisor in its best judgment and in a manner deemed
fair and reasonable to shareholders. The primary consideration is the prompt
execution of orders in an effective manner at the most favorable price. Subject
to this consideration, dealers who provide supplemental investment research to
the Advisor may receive orders for transactions by the Fund. Information so
received is in addition to and not in lieu of services required to be performed
by the Advisor, nor would the receipt of such information reduce the Advisor's
fees. Such information may be useful to the Advisor in serving both the Fund and
other clients, and conversely, supplemental information obtained by the
placement of business of other clients may be useful to the Advisor in carrying
out its obligations to the Fund.
The Fund will not execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in, or enter into
repurchase or reverse repurchase agreements with the Advisor, the Distributor,
or their affiliates.
Investment decisions for the Fund are made independently from those for
any other investment portfolios or accounts ("accounts") managed by the Advisor.
Such accounts may also invest in the same securities as the Fund. When a
purchase or sale of the same security is made at substantially the same time on
behalf of the Fund and another account, the transaction will be averaged as to
price, and available investments allocated as to amount, in a manner which the
Advisor believes to be equitable to the Fund and such other account. In some
instances, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtained or sold by the Fund.
To the extent permitted by law, the Advisor may aggregate the securities to be
sold or purchased for the Fund with those to be sold or purchased for other
accounts in order to obtain the best execution.
The Fund does not intend to seek profits through short-term trading.
Since the Fund will invest only in short-term debt instruments, brokerage
commissions will not normally be paid, and portfolio turnover is not expected to
have a material effect on the net income of the Fund. The Fund's portfolio
turnover rate is expected to be zero for regulatory reporting purposes.
Except as noted in this Statement of Additional Information the Fund's
service contractors bear all expenses in connection with the performance of
their services and the Fund bears the expenses incurred in its operations. These
expenses include, but are not limited to, fees paid to the Advisor,
Administrator, Sub-Custodian and Transfer Agent; fees and expenses of officers
and Directors; taxes; interest; legal and auditing fees; brokerage fees and
commissions; certain fees and expenses in
22
<PAGE>
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 Fund in
addition to the Company's other funds. The Advisor, Administrator, Sub-Custodian
and Transfer Agent may voluntarily waive all or a portion of their respective
fees from time to time.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchases and redemptions are discussed in the Fund's Prospectus and
such information is incorporated herein by reference.
Differing types of Customer Accounts over which Institutional Investors
exercise substantial investment discretion may be used to purchase Fund Shares,
including trust accounts. Investors purchasing Fund Shares may include officers,
directors, or employees of Comerica Bank or its affiliated banks.
The Fund may suspend the right of redemption or postpone the date of
payment for Shares during any period when: (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the SEC; (b) the Exchange is closed other than for customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC. Upon the occurrence of any of the
foregoing conditions, the Fund may also suspend or postpone the recording of the
transfer of its Shares.
In addition, the Fund may compel the redemption of, reject any order
for, or refuse to give effect on the Fund's books to the transfer of, its Shares
where the relevant investor or investors have not furnished the Fund with valid,
certified taxpayer identification numbers and such other tax-related
certifications as the Fund may request. The Fund may also redeem Shares
involuntarily if it otherwise appears appropriate to do so in light of the
Fund's responsibilities under the 1940 Act or in connection with a failure of
the appropriate person(s) to furnish certified taxpayer identification numbers
and other tax-related certifications.
Payment for shares may, in the discretion of the Advisor, be made in
the form of securities that are permissible investments for the Fund as
described in the Prospectus. For further information about this form of payment
please contact the Transfer Agent. In connection with an in-kind securities
payment, the Fund will require, among other things, that the securities be
valued on the day of purchase in accordance with the pricing methods used by the
Fund and that the Fund receive satisfactory assurances that (1) it will have
good and marketable title to the securities received by it; (2) that the
securities are in proper form for transfer to the Fund; and (3) adequate
information will be provided concerning the basis and other tax matters relating
to the securities.
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<PAGE>
NET ASSET VALUE
The Fund has elected to use the amortized cost method of valuation
pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an instrument at
its cost initially and thereafter assuming a constant amortization to maturity
of any discount or premium, regardless of the impact of fluctuating interest
rates on the market value of the instrument. This method may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the Fund would receive if it sold the instrument. The value of securities
in the Fund can be expected to vary inversely with changes in prevailing
interest rates.
Pursuant to Rule 2a-7, as amended, the Fund will maintain a
dollar-weighted average portfolio maturity appropriate to its objective of
maintaining a stable net asset value per Share, provided that the Fund will
neither purchase any security with a remaining maturity of more than 397 days
(securities subject to repurchase agreements, variable and floating rate
instruments, and certain other securities may bear longer maturities) nor
maintain a dollar-weighted average portfolio maturity which exceeds 90 days.
In addition, the Fund may acquire only U.S. dollar-denominated
obligations that present minimal credit risks and that are "First Tier
Securities" at the time of investment. First Tier Securities are those that are
rated in the highest rating category by at least two NRSROs or by one if it is
the only NRSRO rating such obligation or, if unrated, determined to be of
comparable quality. A security is deemed to be rated if the issuer has any
security outstanding of comparable priority and security which has received a
short-term rating by an NRSRO. The Adviser will determine that an obligation
presents minimal credit risks or that unrated investments are of comparable
quality, in accordance with guidelines established by the Board of Directors.
The Company's Board of Directors has also undertaken to establish
procedures reasonably designed, taking into account current market conditions
and the Fund's investment objective, to stabilize the Fund's net asset value per
Share for purposes of sales and redemptions at $1.00. These procedures include
review by the Board of Directors, at such intervals as it deems appropriate, to
determine the extent, if any, to which the Fund's net asset value per Share
calculated by using available market quotations deviates from $1.00 per Share.
In the event such deviation exceeds one-half of one percent, the Rule requires
that the Board promptly consider what action, if any, should be initiated. If
the Board believes that the extent of any deviation from the Fund's $1.00
amortized cost price per share may result in material dilution or other unfair
results to new or existing investors, it will take such steps as it considers
appropriate to eliminate or reduce to the extent reasonably practicable any such
dilution or unfair results. These steps may include: selling portfolio
instruments prior to maturity; shortening the average portfolio maturity;
withholding or reducing dividends; or redeeming shares in kind.
YIELD
The Fund's annual standardized 7-day yield is computed by determining
the net change, exclusive of capital changes, in the value of a hypothetical
pre-existing account in the Fund having a balance of one Share at the beginning
of the period, dividing the net change in account value by the value of the
account at the beginning of the base period to obtain the base period return,
and multiplying the base period return by 365/7. The net change in the value of
an account in the Fund includes the value of additional Shares purchased with
dividends from the original Share and any such additional Shares, and all fees,
other than non-recurring account or sales charges, that are charged to all
shareholder accounts in proportion to the length of the base period and the
Fund's average account size. The capital changes to
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<PAGE>
be excluded from the calculation of the net change in account value are realized
gains and losses from the sale of securities and unrealized appreciation and
depreciation. The Fund's effective annualized yield is computed by compounding
the unannualized base period return (calculated as above) by adding 1 to the
base period return, raising the sum to a power equal to 365 divided by 7, and
subtracting 1 from the result.
Based on the foregoing computations, for the seven-day period ended
December 31, 1998 the Fund's annualized yield was ____% and the effective yield
was ______%.
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yield of the Fund will fluctuate, it cannot be
compared with yields on savings accounts or other investment alternatives that
provide an agreed to or guaranteed fixed yield for a stated period of time.
However, yield information may be useful to an investor considering temporary
investments in money market instruments. In comparing the yield of one money
market fund to another, consideration should be given to the Fund's investment
policies including the types of investments made, lengths of maturities of the
portfolio securities, and whether there are any special account charges which
may reduce the effective yield.
From time to time, in advertisements or in reports to shareholders, the
Fund's 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 Fund's 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 Federal and state income
tax considerations generally affecting the Fund and its shareholders that are
not described in the Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Funds or its shareholders, and the
discussion here and in the Prospectus 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.
GENERAL. The Fund intends to elect and qualify annually to be taxed as
a regulated investment company under Subchapter M, of the Internal Revenue Code
of 1986, as amended (the "Internal Revenue 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 its
shareholders, 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 Internal Revenue 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 satisfying the Distribution Requirement, the 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
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<PAGE>
from other income derived with respect to its business of investing in such
stock, securities, or currencies (the "Income Requirement").
In addition to the foregoing requirements, at the close of each quarter
of its taxable year, at least 50% of the value of the 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 25% of the
value of the 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 trade or business.
Certain debt instruments acquired by the Fund may include "original
issue discount" or "market discount." As a result, the 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 below, 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 the Fund and any net
realized short-term capital gains distributed by the Fund will be taxable to
shareholders as ordinary income and will not be eligible for the
dividends-received deduction for corporations.
The 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 gain from the sale or exchange of a capital asset
held for more than one year, regardless of the length of time the shareholder
has held the Fund shares, and regardless of whether the distribution is paid in
cash or reinvested in shares. The Fund expects that capital gain dividends will
be taxable to shareholders as long-term gains. Capital gain dividends are not
eligible for the dividends-received deduction.
In the case of corporate shareholders, distributions of a Fund for any
taxable year generally qualify for the dividends-received deduction to the
extent of the gross amount of "qualifying dividends" received by such Fund for
the year and if certain holding period requirements are met. Generally, a
dividend will be treated as a "qualifying dividend" if it has been received from
a domestic corporation.
If for any taxable year the 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. In such
event, all distributions (whether or not derived from exempt-interest income)
would be taxable as ordinary income and would be eligible for the
dividends-received deduction in the case of corporate shareholders to the extent
of the Fund's current and accumulated earnings and profits.
Shareholders will be advised annually as to the Federal income tax
consequences of distributions made by the Fund each year.
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<PAGE>
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax. To
prevent imposition of the excise tax, each Fund must distribute during each
calendar year an amount equal to the sum of (1) at least 98% of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, (2) at least 98% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses, as prescribed by the Internal Revenue
Code) for the one-year period ending on October 31 of the calendar year, and (3)
any ordinary income and capital gains for previous years that was not
distributed during those years. A distribution will be treated as paid on
December 31 of the current calendar year if it is declared by a Fund in October,
November or December with a record date in such a month and paid by the Fund
during January of the following calendar year. Such distributions will be
taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
To prevent application of the excise tax, each Fund intends to make its
distributions in accordance with the calendar year distribution requirement.
The Company will be required in certain cases to withhold and remit to
the United States Treasury 31% of taxable distributions paid to any shareholder
(i) who has provided either an incorrect tax identification number or no number
at all, (ii) who is subject to backup withholding by the Internal Revenue
Service for failure to report the receipt of taxable interest or dividend income
properly, or (iii) who has failed to certify to the Company that he is not
subject to backup withholding or that he is an "exempt recipient."
Fund shareholders may be subject to state, local and foreign taxes on
their Fund distributions. In many states, Fund distributions which are derived
from interest on certain U.S. Government obligations are exempt from taxation.
The tax consequences to a foreign shareholder of an investment in a Fund may be
different from those described herein. Foreign as well as U.S. shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in a Fund.
The foregoing general discussion of Federal income tax consequences is
based on the Internal Revenue 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 the 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.
CURRENCY FLUCTUATIONS - "SECTION 988" GAINS OR LOSSES. Under the
Internal Revenue Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Fund accrues receivables or liabilities
denominated in a foreign currency, and the time the Fund actually collects such
receivables or pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain options and futures contracts,
gains or losses attributable to fluctuations in the value of foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains or losses,
referred to under the Internal Revenue Code as
27
<PAGE>
"Section 988" gains or losses, may increase or decrease the amount of the Fund's
investment company taxable income to be distributed to its shareholders as
ordinary income.
DISPOSITION OF SHARES. Upon the redemption, sale or exchange of shares
of the Fund, a shareholder may realize a capital gain or loss depending upon his
or her basis in the shares. Such gain or loss will be treated as capital gain or
loss if the shares are capital assets in the shareholder's hands and will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. Any loss realized on a redemption, sale or exchange will
be disallowed to the extent the shares disposed of are replaced (including
shares acquired pursuant to a dividend reinvestment plan) within a period of 61
days beginning 30 days before and ending 30 days after disposition of the
shares. In such a case, the basis of the shares acquired will be adjusted to
reflect the disallowed loss. Any loss realized by a shareholder on a disposition
of Fund shares held by the shareholder for six months or less will be treated as
a long-term capital loss to the extent of any distributions of net capital gains
received by the shareholder with respect to such shares and treated as long-term
capital gains. Furthermore, a loss realized by a shareholder on the redemption,
sale or exchange of shares of a Fund with respect to which exempt-interest
dividends have been paid will, to the extent of such exempt-interest dividends,
be disallowed if such shares have been held by the shareholder for six months or
less.
CONSTRUCTIVE SALES. Recently enacted rules may affect the timing and
character of gain if a Fund engages in transactions that reduce or eliminate its
risk of loss with respect to appreciated financial positions. If the Fund enters
into certain transactions in property while holding substantially identical
property, the Fund would be treated as if it had sold and immediately
repurchased the property and would be taxed on any gain (but not loss) from the
constructive sale. The character of gain from a constructive sale would depend
upon the Fund's holding period in the property. Loss from a constructive sale
would be recognized when the property was subsequently disposed of, and its
character would depend on the Fund's holding period and the application of
various loss deferral provisions of the Internal Revenue Code.
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, Munder S&P SmallCap Index Equity Fund, Munder
Aggregate Bond Index Fund, Munder Foreign Equity Fund, Liquidity Plus Money
Market Fund, Munder Institutional S&P 500 Index Equity Fund, Munder
Institutional S&P MidCap Index Equity Fund, Munder Institutional S&P SmallCap
Index Equity Fund, Munder Institutional Short Term Treasury Fund and Munder
Institutional Money Market Fund.
Shares 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 Fund's Prospectus and this Statement of
Additional Information, the Fund's Shares will be fully paid and nonassessable.
In the event of a liquidation or dissolution of the Company, Shares of the Fund
are entitled to receive the assets available for distribution belonging to the
Fund, and a proportionate distribution, based upon the relative asset values of
the Fund and the Company's other Portfolios, of any general assets not belonging
to any particular Portfolio which are available for distribution.
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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 a
Portfolio affected by the matter. A Portfolio is affected by a matter unless it
is clear that the interests of the Portfolio in the matter are identical to the
interests of the Company's other Portfolios or that the matter does not affect
any-interest of the Portfolio. Under Rule 18f-2, the approval of an investment
advisory agreement or any change in a fundamental investment policy would be
effectively acted upon with respect to a Portfolio only if approved by a
majority of the outstanding shares of the Portfolio. However, Rule 18f-2 also
provides that the ratification of the appointment of independent auditors, the
approval of principal underwriting contracts, and the election of Directors may
be effectively acted upon by shareholders of the Company voting together without
regard to class.
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 by 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 Fund and the Company's other Portfolios, if
any, (voting together without regard to class).
MISCELLANEOUS
COUNSEL. The law firm of Dechert Price & Rhoads, 1775 Eye Street, N.W.,
Washington, D.C. 20006, serves as counsel to the Company.
INDEPENDENT AUDITORS. Ernst & Young LLP, 200 Clarendon Street, Boston,
MA 02116, serves as the Company's independent auditors.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES. As of April _____,
1999 the following persons were beneficial owners of 5% or more of the
outstanding shares of the Fund because they possessed voting or investment power
with respect to such shares:
Percentage of Total
Name and Address Shares Outstanding
---------------- ------------------
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
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<PAGE>
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 or 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 any
Fund or result in a financial loss to any shareholder of the Fund.
SHAREHOLDER APPROVALS. As used in this Statement of Additional
Information and in the Prospectus, a "majority of the outstanding shares" of a
Fund or investment portfolio means the lesser of (a) 67% of the shares of the
particular Fund portfolio represented at a meeting at which the holders of more
than 50% of the outstanding shares of such Fund or portfolio are present in
person or by proxy, or (b) more than 50% of the outstanding shares of such Fund
or portfolio.
REGISTRATION STATEMENT
This Statement of Additional Information and the Fund's Prospectus
do not contain all the information included in the, Fund's 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. Text-only versions of fund documents can be viewed
online or downloaded from the SEC at http://www.sec.gov.
Statements contained herein and in the Fund's Prospectus as to the
contents of any contract of 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 Fund's registration statement,
each such statement being qualified in all respect by such reference.
FINANCIAL STATEMENTS
[The financial statements of the Fund including the notes thereto dated
December 31, 1998 have been audited by Ernst & Young LLP and are incorporated by
reference into this SAI from the Annual Report of the Fund dated December 31,
1998. The information under the caption "Financial Highlights" of the Fund for
the period from commencement of operations through December 31, 1998 appearing
in the Prospectus dated April 30, 1999 has been derived from the financial
statements audited by Ernst & Young LLP.]
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APPENDIX
- Rated Investments -
CORPORATE BONDS
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 edged." 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 appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
"Ba": Bonds that are rated "Ba" are judged to have speculative
elements; their future cannot be considered 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.
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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 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
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 issuers (or related supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.
Instruments rated "PRIME-2" are offered by issuers (or related supporting
institutions) which 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 susceptible 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."
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 Board of Directors.
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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
APRIL 30, 1999
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 Index Equity Fund ("S&P 500 Index Equity Fund"),
Munder S&P MidCap Index Equity Fund ("MidCap Index Equity Fund"), Munder S&P
SmallCap Index Equity Fund ("SmallCap Index Equity Fund"), Munder Aggregate Bond
Index Fund ("Aggregate Bond Index Fund") and Munder Foreign Equity Fund
("Foreign Equity Fund") (collectively, the "Funds"). The Fund's investment
advisor is Munder Capital Management.
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 April 30, 1999
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 April 30, 1999. 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 Huntleigh Fund
Distributors, Inc. (the "Distributor"), or by calling the Funds at (800)
438-5789. This Statement of Additional Information is dated April 30, 1999.
AN INVESTMENT IN A FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED OR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
General........................................................................3
Fund Investments...............................................................3
Risk Factors and Special Consideration - Index Funds..........................14
Investment Limitations........................................................16
Temporary Defensive Position..................................................16
Directors and Officers........................................................17
Investment Advisory and Other Service Arrangements............................22
Control Person and Principal Holder of Securities.............................24
Portfolio Transactions........................................................24
Purchase and Redemption Information...........................................26
Net Asset Value...............................................................26
Performance Information.......................................................26
Taxes.........................................................................28
Additional Information Concerning Shares......................................31
Miscellaneous.................................................................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 is an open-end management investment company, which is a
mutual fund that sells and redeems shares every day that it is open for
business. 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 Funds is
Munder Capital Management (the "Advisor"). The principal partners of the Advisor
are Old MCM, Inc. ("MCM"), Munder Group LLC, WAM Holdings, Inc. ("WAM") and WAM
Holdings II, Inc. ("WAM II"). MCM was founded in April 1985 as a Delaware
corporation and was a registered investment advisor. WAM and WAM II are
indirect, wholly owned subsidiaries of Comerica Incorporated which owns or
controls approximately 88% of the partnership interests in 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.
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. Borrowed funds are subject to
interest costs which may or may not be offset by amounts earned on borrowed
funds. 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 rate. Each Fund may, in connection with permissible
borrowings, transfer, as collateral, securities owned by the Fund.
FOREIGN SECURITIES. The Foreign Equity 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.
3
<PAGE>
The Aggregate 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 and 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 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 Aggregate 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 Aggregate 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
4
<PAGE>
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 Aggregate 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 larger 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 Equity Fund may purchase
shares of investment companies investing primarily in foreign securities,
including so called "country funds". In addition, the S&P 500 Index Equity Fund
and the MidCap Index Equity 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 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 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.
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, 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. These loans are
5
<PAGE>
terminable at any time, and the Fund will receive 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.
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 including 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.
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
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
6
<PAGE>
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. For risks associated
with options on foreign currencies, see Appendix B of this Statement of
Additional Information ("SAI").
A call option for a particular security gives the purchaser of the
option the right to buy and the writer of the option 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 obligation
under the option contract. A put option for a particular security gives the
purchaser the right to sell, and the writer of the option the obligation to buy,
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 wishes 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 in any
instance 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 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-
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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 writing 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 sub-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 sub-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.
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
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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
Corporate, 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 (an "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)
could 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. See Appendix B to
this SAI.
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 except with respect to repurchase
agreements secured by U.S. Government securities.
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 subcustodian) 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").
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 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 cash, U.S. Government securities or other
liquid high-grade debt securities designated on the books of the Funds or the
Funds' sub-custodian in an amount at least equal to the market value of the
securities, plus accrued interest, subject to the agreement.
RIGHTS AND WARRANTS. As stated in the Prospectus, each Fund (other than
the Aggregate 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
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 (except the Aggregate Bond
Index Fund) may purchase and sell stock index futures, and options on stock
indices and stock index futures contracts and the Aggregate Bond Index Fund may
purchase and sell bond index futures and options on bond indices and bond index
futures contracts as a hedge against movements in the equity and bond markets,
respectively.
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.
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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. 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 Aggregate Bond Index Fund) may purchase and write
call and put options on stock index futures contracts and the Aggregate 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
Aggregate 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
STRIPPED SECURITIES. The Aggregate 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
principal 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 these
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.
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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 Aggregate 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 "I0" 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 I0 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.
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 instrumentalities
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, U.S.
Treasury Notes and U.S. Treasury Bonds and the obligations of Federal Home Loan
Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
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Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, FNMA, GNMA, 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 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 Aggregate 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 Aggregate 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.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS (DELAYED-DELIVERY
TRANSACTIONS). When issued purchases and forward commitments (known as
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 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 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 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.
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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.
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 (the
"Act"), 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.
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 S&P 500 Index
Equity Fund, MidCap Index Equity Fund, SmallCap Index Equity Fund (the "Equity
Index Funds") and the Aggregate 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 , 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 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
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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 their
concentration in certain industry sectors. As a result, event disproportionately
affecting such industries could affect the performance of the Fund differently
than the performance of the corresponding index. Conversely, if smaller
companies w-ere 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 (exempt 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. Such 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. These sales may result in lower prices
for such securities than may be 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 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.
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 Aggregate 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 Aggregate 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 Aggregate 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
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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 or
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);
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 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;
16
<PAGE>
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.
TEMPORARY DEFENSIVE POSITION
During periods of unusual economic or market conditions or for
temporary defensive purposes or liquidity, each Fund may invest without limit in
cash and in U.S. dollar-denominated high quality money market and other
short-term instruments. These investments may result in a lower yield than would
be available from investments with a lower quality or longer term.
17
<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 OCCUPATION
NAME, ADDRESS AND AGE POSITIONS WITH COMPANY+ DURING PAST FIVE YEARS
- --------------------- ----------------------- ----------------------
<S> <C> <C>
Charles W. Elliott Director and Chairman of the Board Senior Advisor to the President,
1024 Essex Circle of Directors Western Michigan University (July 1995
Kalamazoo, MI 49008 through December 1998); Executive Vice
Age: 67 President, Administration & Chief
Financial Officer, Kellogg Company
(January 1987 through June 1995).
Board of Directors, Steelcase
Financial Corporation; Board of
Directors, Enesco Group.
John Rakolta, Jr. Director and Vice Chairman of the Chairman and Chief Executive Officer,
1876 Rathmor Board of Directors Walbridge Aldinger Company
Bloomfield Hills, MI 48304 (construction company).
Age: 51
Thomas B. Bender Director Partner, Financial & Investment
5033 Wood Ridge Road Management Group.
Glen Arbor, MI 49636
Age: 65
David J. Brophy Director Professor, University of Michigan.
1025 Martin Place Director, River Place Financial
Ann Arbor, MI 48104 Corporation.
Age: 62
Dr. Joseph E. Champagne Director Dean, University Center, Macomb
319 East Snell Road College (since September 1997);
Rochester, MI 48306 Corporate and Executive Consultant
Age: 60 (since September 1995); Chancellor,
Lamar University (September 1994 to
September 1995). Chairman of Board of
Directors, Ross Operating Valve of
Troy, Michigan.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Thomas D. Eckert Director President and Chief Executive Officer,
10726 Falls Pointe Drive Capital Automotive REIT (real estate
Great Falls, VA 22066 investment trust specializing in
Age: 51 retail automotive properties) (since
November1997); President and Chief
Operating Officer, Mid-Atlantic
Group of Pulte Home Corporation
(developer of residential land and
construction of housing units)
(1983 to 1997).
Lee P. Munder* Director and President Chairman of the Advisor (since
1029 N. Ocean Blvd. February 1998); Chief Executive
Palm Beach, FL 33480 Officer of the Advisor (1995 to 1998);
Age: 53 Chief Executive Officer, World Asset
Management (1995 to 1998); Chief Executive
Officer, MCM (predecessor of Advisor) (since
1985); Director, LPM Investment Services,
Inc. ("LPM"); Director, Capital Automotive
REIT.
Terry H. Gardner Vice President, Vice President and Chief Financial
480 Pierce Street Chief Financial Officer Officer of the Advisor (since 1993),
Suite 300 and Treasurer Vice President and Chief Financial
Birmingham, MI 48009 Officer, MCM (since 1993); Secretary,
Age: 38 LPM.
Paul Tobias Vice President Chief Executive Officer of the Advisor
480 Pierce Street (since February 1998); Chief Operating
Suite 300 Officer of the Advisor (since April
Birmingham, MI 48009 1995); Executive Vice President of the
Age: 48 Advisor (April 1995 to February 1998);
Executive Vice President, Comerica,
Inc. (October 1990 through April 1995).
</TABLE>
19
<PAGE>
<TABLE>
<S> <C> <C>
Gerald Seizert Vice President Chief Executive Officer of the Advisor
480 Pierce Street (since February 1998); Chief
Suite 300 Investment Officer/Equities of the
Birmingham, MI 48009 Advisor (since April 1995); Executive
Age: 46 Vice President of the Advisor (April
1995 to February 1998); Managing
Director (1991 to 1995), Director
(1992 to 1995), and Vice President
(1984 to 1991) of Loomis, Sayles
and Company, L.P.
Elyse G. Essick Vice President Vice President and Director of
480 Pierce Street Marketing of the Advisor (since
Suite 300 January 1995).
Birmingham, MI 48009
Age: 40
James C. Robinson Vice President Vice President and Chief Investment
480 Pierce Street Officer/Fixed Income of the Advisor
Suite 300 (since January 1995).
Birmingham, MI 48009
Age: 37
Leonard J. Barr Vice President Vice President and Director of Core
480 Pierce Street Equity Research of the Advisor (since
Suite 300 January 1995); Director and Senior
Birmingham, MI 48009 Vice President, MCM (since 1988);
Age: 54 Director of LPM.
Ann F. Putallaz Vice President Vice President and Director of
480 Pierce Street Fiduciary Services of the Advisor
Suite 300 (since January 1995).
Birmingham, MI 48009
Age: 53
Lisa A. Rosen Secretary, Assistant Treasurer General Counsel of the Advisor (since
480 Pierce Street May 1996); Counsel, First Data
Suite 300 Investor Services Group, Inc. (June
Birmingham, MI 48009 1994 to May 1996).
Age: 31
Therese Hogan Assistant Secretary Director, State Regulation Department,
53 State Street First Data Investor Services Group
Boston, MA 02109 (since June 1994).
Age: 37
</TABLE>
20
<PAGE>
+ Individual holds same position with The Munder Funds, Inc., ("Munder"), The
Munder Funds Trust (the "Trust") and Munder Framlington Funds Trust
("Framlington Trust") each a registered investment company.
* "Interested person" of the Company, as defined in the 1940 Act.
Directors who are not interested persons of the Company and Munder, and
Trustees who are not interested persons of the Trust and Framlington Trust,
receive an aggregate fee from the Company, the Trust, Munder and Framlington
Trust for service on those organizations' respective Boards, comprised of an
annual retainer fee of $30,000 and a fee of $2,500 for each Board meeting
attended; and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings.
The following table summarizes the compensation paid by the Company,
the Trust, Munder and Framlington Trust to their respective Directors/Trustees
for the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
Charles W. Elliot John Rakolta, Thomas B. David J. Dr. Joseph Thomas D.
Chairman, Jr. Vice Bender Brophy E. Champagne Eckert
Trustee and Chairman, Trustee and Trustee and Trustee and Trustee and
Director Trustee and Director Director Director Director
Director
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Aggregate Compensation from
the Company $ $ $ $ $ $
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
Aggregate Compensation from
the Trust $ $ $ $ $ $
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
Aggregate Compensation from
Framlington $ $ $ $ $ $
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
Aggregate Compensation from
St. Clair $ $ $ $ $ $
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
Pension Retirement Benefits
Accrued as Part of Fund
Expenses None None None None None None
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
Estimated Annual Benefits
upon Retirement None None None None None None
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
Total from the Fund Complex
$ $ $ $ $ $
- ----------------------------- -------------------- ------------------ ------------- ------------- -------------- --------------
</TABLE>
No officer, director or employee of the Advisor, Comerica, the
Sub-Custodian, the Distributor, the Administrator or the Transfer Agent
currently receives any compensation from the Company. As of April ____, 1999,
the Directors and officers of the Company, as a group, owned less than 1% of
outstanding shares of the Funds of the Company.
INVESTMENT ADVISORY AND OTHER SERVICE ARRANGEMENTS
INVESTMENT ADVISOR. The Advisor of each Fund is Munder Capital
Management, a Delaware general partnership. The general partners of the Advisor
are WAM, WAM II, MCM and Munder Group, LLC. WAM and WAM II 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.
The Investment Advisory Agreement between the Advisor and the Company
with respect to the Funds (the "Advisory Agreement") was approved by the
Company's Board of Directors and by the shareholders. Under the terms of 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.
21
<PAGE>
The Advisory Agreement will continue in effect for a period of two
years from its effective date. If not sooner terminated 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).
For the advisory services provided and expenses assumed by it, the
Advisor has agreed to a fee from each Fund, computer daily and payable monthly
at an annual rate of .05% of average daily net assets of the Fund.
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 South Central Avenue, Suite 300, St. Louis,
Missouri 63141.
SHAREHOLDER SERVICING ARRANGEMENTS. Under Rule 12b-1 of the 1940 Act,
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.
Under the terms of the Plan, the Plan continues from year to year,
provided such continuance is approved annually by vote of the Board of
Directors, including a majority of the Board of Directors who are not interested
persons of the Company and who have no direct or indirect financial interest in
the operation of the Plan (the "Non-Interested Plan Directors"). The Plan may
not be amended to increase the amount to be spent for the services without
shareholder approval, and all amendments of the Plan also must be approved by
the Directors in the manner described above. The Plan may be terminated at any
time, without penalty, by vote of a majority of the Non-Interested Plan
Directors or by a vote of a majority of the outstanding voting securities of the
Fund (as defined in the 1940 Act) on not more than 30 days' written notice to
any other party to the Plan. Pursuant to the Plan, the Distributor will provide
the Board of Directors periodic reports of amounts expended under the Plan and
the purpose for which such expenditures were made.
ADMINISTRATION AGREEMENT. State Street Bank and Trust Company ("State
Street" or the "Administrator") located at 225 Franklin Street, Boston,
Massachusetts 02110, serves as administrator
22
<PAGE>
for the Company pursuant to an administration agreement (the "Administration
Agreement"). State Street has agreed to maintain office facilities for the
Company; oversee 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 negligence in the performance of its duties or
from the reckless disregard by it of its duties and obligations thereunder.
CUSTODIAN, SUB-CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. Comerica Bank,
whose principal business address is One Detroit Center, 500 Woodward Avenue,
Detroit, MI 48226, is the custodian of each Fund pursuant to a custody agreement
("Custody Agreement") with the Company. The Custodian receives no compensation
for its services. State Street (the "Sub-Custodian") serves as the sub-custodian
to the Funds pursuant to a sub-custodian agreement (the "Sub-Custodian
Contract") among the Custodian, Company and State Street. State Street is also
the sub-custodian with respect to the custody of foreign securities held by
certain of the Funds. State Street has in turn entered into additional
agreements with financial institutions and depositaries located in foreign
countries with respect to the custody of such securities. Under the
Sub-Custodian Contract, 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.
First Data Investor Services Group Inc. ("Investor Services Group" or
the "Transfer Agent") located at 53 State Street, Boston, Massachusetts 02109
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 Investor Services Group (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 AND TRANSFER AGENCY
AGREEMENTS. Except as noted in this SAI, 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; 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 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
23
<PAGE>
in addition to the Company's other funds. The Advisor, Administrator,
Sub-Custodian and Transfer Agent may voluntarily waive all or a portion of their
respective fees from time to time.
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.
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 through dealers on a "net" basis (i.e.,
commission) or directly with the issuer. With respect to over-the-counter
transactions, the Advisor will normally deal directly with dealers who make a
market in the instruments 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
24
<PAGE>
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 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
foreign entities except to the extent permitted by SEC exemptive order or by
applicable law.
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 equitable 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 any securities while the Advisor or any
affiliated person (as defined in the 1940 Act) is a member of any underwriting
or selling group for such securities except pursuant to procedures adopted by
the Company's Board of Directors in accordance with Rule 10f-3 under the 1940
Act.
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.
OTHER REDEMPTION INFORMATION. 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 (the "NYSE") is restricted, as determined by the SEC, or the
NYSE is closed other than for 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.
25
<PAGE>
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 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 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' Contracts. These performance figures are calculated in
the following manner:
Yield
The Aggregate 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 described by the SEC for mutual funds:
6
YIELD = 2 [( a-b + 1) - 1]
---
cd
Where: a = dividends and interest earned by a Fund during the
period;
b = expenses accrued for the period (net of expense
reimbursements and waivers);
c = average daily number of shares outstanding during the
period entitled to receive dividends;
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
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
26
<PAGE>
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:
n
P (1 + T) = ERV
Where:
P = hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years and portion of a year
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 and of any CDSC deduction (or a
fractional portion thereof);
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 rates 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
the size of the account, a mean (or median) account size in the Fund during the
period is reflected. The ending redeemable value (variable "ERV" in the formula)
is determined by assuming complete
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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 or compared to stock or other
relevant indices. For example, the Funds' 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 Federal and state income
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
"Internal Revenue 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 gains 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
Internal Revenue 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 satisfying 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 income derived with respect to its business of investing in such stock,
securities, or currencies (the "Income Requirement"). 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 25% of
the value of each Fund's total assets may be invested in the securities of any
one issuer
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(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 an "original
issue discount" or a "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 gain from the sole exchange of a capital asset held
for more than one year, regardless of the length of time the shareholder has
held the Fund shares, and regardless of whether the distribution is paid in cash
or reinvested in shares.
If for any taxable year a Fund does not qualify as a registered
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders.
The Internal Revenue Code imposes a non-deductible 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 Internal Revenue
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 Internal Revenue 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.
29
<PAGE>
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 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 Internal Revenue 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 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, Munder S&P SmallCap Index Equity
Fund, Munder Aggregate Bond Index Fund, Munder Foreign Equity Fund, Liquidity
Plus Money Market Fund, Munder Institutional S&P 500 Index Equity Fund,
Munder Institutional S&P MidCap Index Equity Fund, Munder Institutional S&P
SmallCap Index Equity Fund, Munder Institutional Short Term Treasury Fund and
Munder Institutional Money Market Fund.
Shares of 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 SAI,
shares will be fully paid and nonassessable 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 relating 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
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<PAGE>
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 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, 1775 Eye Street, N.W.,
Washington, D.C. 20006, 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, 200 Clarendon Street, Boston,
Massachusetts, 02116, serves as the Company's independent auditors.
SHAREHOLDER APPROVALS. As used in this SAI and in the Prospectus, a
"majority of the outstanding voting 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 bank 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 compared 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
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<PAGE>
future judicial or administrative decisions or interpretations of current and
future statutes and regulations, could present 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.
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APPENDIX A
- - RATED INVESTMENTS -
CORPORATE BONDS
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 edged." 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 appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
"Ba": Bonds that are rated "Ba" are judged to have speculative
elements; their future cannot be considered 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.
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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 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
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 issuers (or related supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.
Instruments rated "PRIME-2" are offered by issuers (or related supporting
institutions) which 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 susceptible 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."
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 Board of Directors.
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APPENDIX B
The Funds may enter into certain futures transactions and options
for hedging purposes. Such transactions are described in this Appendix.
1. 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 specified 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 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
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exchange guarantees performance under contract provisions through a clearing
corporation, a nonprofit organization managed by the exchange membership.
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 concern 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 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 cash and futures prices 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 prices will have risen to 105 (and the
yield will have dropped to about 9 1/2%) in four months. The Fund might enter
into futures contracts purchases of Treasury bonds for an equivalent price of
98. At the same
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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
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 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
indexes, 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.
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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
<TABLE>
<CAPTION>
PORTFOLIO FUTURES
- --------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate buying $62,500 in Equity Securities Buying 1 Index Futures at 125
Value of Futures = $62,500/Contract
-Day Hedge is Lifted-
Buy Equity Securities with Actual Cost = $65,000 Sell 1 Index Futures at 130
Increase in Purchase Price = $2,500 Value of Futures = $65,000/Contract
Gain on Futures = $2,500
</TABLE>
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract - 125 X $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
PORTFOLIO FUTURES
- --------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Selling $1,000,000 in Equity Securities Sell 16 Index Futures at 125
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
</TABLE>
III. MARGIN PAYMENTS
Unlike the purchase or sale 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
securities 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
38
<PAGE>
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
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 futures and movements in the price of the
instruments which are the subject of the hedge. The price of futures may move
more than or less than the price of the instruments being hedged. If the price
of 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 sells futures to hedge its
portfolio against a decline in the market, the market may advance and the value
of the futures instruments held in the Fund may decline. If this occurrs, 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 securities 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
39
<PAGE>
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which 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. When there is no liquid market, 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 commodities 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 it may be disadvantageous to do so.
40
<PAGE>
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 from (call) or sell to (put) 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 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.
VI. OTHER MATTERS
Accounting for futures contracts will be in accordance with generally
accepted accounting principles.
41
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits
----------
(a) (1) 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.
(2) 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.
(3) 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.
(4) 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.
(5) 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.
(6) 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.
(7) 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.
(8) 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.
(9) 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.
<PAGE>
(10) Articles Supplementary to Registrant's Articles of
Incorporation are incorporated herein by reference to
Post-Effective Amendment No. 22 to Registrant's
Registration Statement on Form N-1A filed with the
Commission on April 18, 1997.
(11) Articles Supplementary to Registrant's Articles of
Incorporation 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 are
incorporated herein by reference to Post-Effective
Amendment No. 22 to Registrant's Registration
Statement on Form N-1A filed with the Commission on
April 18, 1997.
(12) Certificate of Correction with respect to the
Liquidity Plus Money Market Fund is incorporated
herein by reference to Post-Effective Amendment No.
22 to Registrant's Registration Statement on Form
N-1A filed with the Commission on April 18, 1997.
(13) Articles Supplementary to Registrant's Articles of
Incorporation with respect to Munder Institutional
S&P 500 Index Equity Fund, Munder Institutional S&P
MidCap Index Equity Fund, Munder Institutional S&P
SmallCap Index Equity Fund, Munder Institutional
Short Term Treasury Fund and Munder Institutional
Money Market Fund is incorporated by reference to
Post-Effective Amendment No. 24 to Registrant's
Registration Statement on Form N-1A filed with the
Commission on July 23, 1997.
(b) 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 with
the Commission on November 29, 1990.
(c) Not Applicable.
(d) Investment Advisory Agreement among Registrant and Munder
Capital Management 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, Munder Aggregate Bond Index
Fund, Munder Institutional S&P 500 Index Equity Fund, Munder
Institutional S&P MidCap Index Equity Fund, Munder
Institutional S&P SmallCap Index Equity Fund, Munder
Institutional Short Term Treasury Fund and Munder
Institutional Money Market Fund is filed herein.
(e) (1) Distribution Agreement among Registrant and Funds
Distributor Inc. with respect to the Liquidity Plus
Money Market Fund is filed herein.
(2) Distribution Agreement among Registrant and Funds
Distributor, Inc. with respect to Munder
Institutional S&P 500 Index Equity Fund, Munder
Institutional S&P MidCap Index Equity Fund, Munder
Institutional S&P SmallCap Index Equity Fund, Munder
Institutional Short Term Treasury Fund and Munder
Institutional Money Market Fund is filed herein.
2
<PAGE>
(3) Form of Distribution Agreement among Registrant and
Huntleigh Fund Distributors, 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 is incorporated by reference to
Post-Effective Amendment No. 28 to Registrant's
Registration Statement on Form N-1A filed with the
Commission on April 14, 1998.
(f) Not Applicable.
(g) (1) Custody Agreement among 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 is filed herein.
(2) Form of Notice to Custody Agreement among Registrant
and Comerica Bank with respect to the addition of
Munder Institutional S&P 500 Index Equity Fund,
Munder Institutional S&P MidCap Index Equity Fund,
Munder Institutional S&P SmallCap Index Equity Fund,
Munder Institutional Short Term Treasury Fund and
Munder Institutional Money Market is incorporated by
reference to Post-Effective Amendment No. 24 to
Registrant's Registration Statement on Form N-1A
filed with the Commission on July 23, 1997.
(3) Sub-Custodian Agreement among Registrant, Comerica
Bank and State Street Bank and Trust Company 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 Aggregate Bond Index Fund,
Munder Foreign Equity Fund, Liquidity Plus Money
Market Fund, Munder Institutional S&P 500 Index
Equity Fund, Munder Institutional S&P MidCap Index
Equity Fund, Munder Institutional S&P SmallCap Index
Equity Fund, Munder Institutional Short Term Treasury
Fund and Munder Institutional Money Market Fund is
filed herein.
(h) (1) Administration Agreement among Registrant and
State Street Bank and Trust Company 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 Aggregate Bond Index Fund, Munder
Foreign Equity Fund, Liquidity Plus Money Market
Fund, Munder Institutional S&P 500 Index Equity Fund,
Munder Institutional S&P MidCap Index Equity Fund,
Munder Institutional S&P SmallCap Index Equity Fund,
Munder Institutional Short Term Treasury Fund and
Munder Institutional Money Market Fund is filed
herein.
(2) Form of Transfer Agency and Registrar Agreement among
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 is incorporated herein by
reference to
3
<PAGE>
Post-Effective Amendment No. 22 to Registrant's
Registration Statement on Form N-1A filed with the
Commission on April 18, 1997.
(4) Form of Notice to Transfer Agency and Registrar
Agreement among Registrant and First Data Investor
Services Group, Inc. with respect to the addition of
Munder Institutional S&P 500 Index Equity Fund,
Munder Institutional S&P MidCap Index Equity Fund,
Munder Institutional S&P SmallCap Index Equity Fund,
Munder Institutional Short Term Treasury Fund and
Munder Institutional Money Market Fund is
incorporated by reference to Post-Effective
Amendment No. 24 to Registrant's Registration
Statement on Form N-1A filed with the Commission on
July 23, 1997.
(5) Amendment to Transfer Agency and Registrar Agreement
among Registrant and First Data Investor Services
Group, Inc. is filed herein.
(6) Amendment to Transfer Agency and Registrar Agreement
among Registrant and First Data Investor Services
Group, Inc. is filed herein.
(7) Amendment to Transfer Agency and Registrar Agreement
among Registrant and First Data Investor Services
Group, Inc. is filed herein.
(8) Form of Participation Agreement among Registrant,
Kemper Investors Life Insurance Company and Huntleigh
Fund Distributors, 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 is incorporated by reference to Post-Effective
Amendment No. 28 to Registrant's Registration
Statement on Form N-1A filed with the Commission on
April 14, 1998.
(9) 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 is incorporated herein by reference to
Post-Effective Amendment No. 22 to Registrant's
Registration Statement on Form N-1A filed with the
Commission on April 18, 1997.
(i) (1) Opinion and consent of counsel for 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.
(2) Opinion and consent of counsel with respect to 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 is incorporated herein by reference to
Post-Effective Amendment No. 22 to Registrant's
Registration Statement on Form N-1A filed with the
Commission on April 18, 1997.
4
<PAGE>
(3) Opinion and consent of counsel with respect to Munder
Institutional S&P 500 Index Equity Fund, Munder
Institutional S&P MidCap Index Equity Fund, Munder
Institutional S&P SmallCap Index Equity Fund, Munder
Institutional Short Term Treasury Fund and Munder
Institutional Money Market is incorporated by
reference to Post-Effective Amendment No. 24 to
Registrant's Registration Statement on Form N-1A
filed with the Commission on July 23, 1997.
(j) (1) Powers of Attorney are incorporated herein by
reference to Post-Effective Amendment No. 27 to
Registrant's Registration Statement on Form N-1A
filed with the Commission on February 27, 1998.
(2) Certified Resolution of Board authorizing signature
on behalf of Registrant pursuant to powers of
attorney are incorporated herein by reference to
Post-Effective Amendment No. 27 to Registrant's
Registration Statement on Form N-1A filed with the
Commission on February 27, 1998.
(k) Not Applicable.
(l) Not Applicable.
(m) (1) Service and Distribution Plan of the Liquidity Plus
Money Market Fund is filed herein.
(2) Service 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 is
incorporated by reference to Post-Effective Amendment
No. 28 to Registrant's Registration Statement on Form
N-1A filed with the Commission on April 14, 1998.
(n) Financial Data Schedule to be filed by amendment.
(o) Not Applicable.
Item 24. Persons Controlled by or under Common Control with Registrant.
--------------------------------------------------------------
Not Applicable.
Item 25. 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,
5
<PAGE>
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 26. Business and Other Connections of Investment Advisor
----------------------------------------------------
Munder Capital Management
<TABLE>
<CAPTION>
NAME POSITION WITH ADVISOR
---- ---------------------
<S> <C>
Old MCM, Inc. Partner
Munder Group LLC Partner
WAM Holdings, Inc. Partner
WAM Holdings II, Inc. Partner
Lee P. Munder Chairman
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME POSITION WITH ADVISOR
---- ---------------------
<S> <C>
Leonard J. Barr, II Senior Vice President and Director of Research
Clark Durant Vice President and Co-Director of The Private Management Group
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
Richard R. Mullaney Vice President and Director of The Private Management Group
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 Chief Executive Officer and Chief Investment Officer/Equity
Paul D. Tobias Chief Executive Officer and Chief Operating Officer
</TABLE>
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 27. Principal Underwriters.
---------------------------
(a) With respect to Liquidity Plus Money Market Fund, Munder
Institutional S&P 500 Index Equity Fund, Munder Institutional
S&P MidCap Index Equity Fund, Munder Institutional S&P
SmallCap Index Equity Fund, Munder Institutional Short Term
Treasury Fund and Munder Institutional Money Market Fund:
Funds Distributor, Inc. ("FDI"), located at 60 State Street,
Suite 1300, Boston, Massachusetts 02109. 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:
American Century California Tax-Free and Municipal Funds
American Century Capital Portfolios, Inc.
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Premium Reserves, Inc.
American Century Quantitative Equity Funds
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century World Mutual Funds, Inc.
BJB Investment Funds
The Brinson Funds
Dresdner RCM Capital Funds, Inc.
Dresdner RCM Equity Funds, Inc.
7
<PAGE>
Founders Funds, Inc.
Harris Insight Funds Trust
HT Insight Funds, Inc. d/b/a Harris Insight Funds
JP Morgan Institutional Funds
JP Morgan Funds
JPM Series Trust
JPM Series Trust II
Kobrick-Cendant Investment Trust
LaSalle Partners Funds, Inc.
Merrimac Series
Monetta Fund, Inc.
Monetta Trust
The Montgomery Funds
The Montgomery Funds II
The Munder Funds, Inc.
The Munder Funds Trust
The Munder Framlington Funds Trust
National Investors Cash Management Fund, Inc.
Orbitex Group of Funds
SG Cowen Funds, Inc.
SG Cowen Income & Growth Fund, Inc.
SG Cowen Standby Reserve Fund, Inc.
SG Cowen Series Fund, Inc.
The Skyline Funds
Waterhouse Investor Family of Funds, Inc.
WEBS Index Fund, Inc.
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: Huntleigh Fund Distributors, Inc., ("Huntleigh"),
located at 222 South Central Avenue, Suite 300, St. Louis,
Missouri 63141. Huntleigh does not act as principal
underwriter to any other investment company other than the
Registrant.
(b) The following is a list of the executive officers, directors
and partners of Funds Distributor, Inc.
<TABLE>
<S> <C>
Director, President and Chief Executive Officer -Marie E. Connolly
Executive Vice President -George A. Rio
Executive Vice President -Donald R. Roberson
Executive Vice President -William S. Nichols
Senior Vice President -Michael S. Petrucelli
Senior Vice President, General Counsel, Chief Compliance -Margaret W. Chambers
Officer, Secretary and Clerk
Director, Senior Vice President, Treasurer and Chief Financial -Joseph F. Tower, III
Officer
Senior Vice President -Paula R. David
Senior Vice President -Bernard A. Whalen
Senior Vice President -Allen B. Closser
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Chairman and Director -William J. Nutt
</TABLE>
The information required by this Item 27(b) with respect to
each director, officer or partner of Huntleigh is incorporated
by reference to Schedule A of Form BD filed by Huntleigh with
the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934. (SEC File No. 2-21442).
(c) Not Applicable.
Item 28. 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 transfer
agent);
(3) State Street Bank and Trust Company, 225 Franklin
Street, Boston, MA 02110 or 150 Newport Avenue, North
Quincy, Massachusetts 02171 (records relating to its
function as administrator and subcustodian);
(4) Huntleigh Fund Distributors, Inc., 222 South Central
Avenue, Suite 300, 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) Funds Distributor, Inc., 60 State Street, Boston,
Massachusetts 02109 (records relating to its function
as distributor); and
(6) Comerica Bank, 1 Detroit Center, 500 Woodward Avenue,
Detroit, Michigan 48226 (records relating to its
function as custodian).
Item 29. Management Services
-------------------
None.
Item 30. Undertakings
------------
Not Applicable.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant certifies that this
Post-Effective Amendment No. 29 to the Registration Statement meets all of the
requirements for effectiveness pursuant to Rule 485(a) of the Securities Act of
1933, as amended, and the Registrant has duly caused this Post-Effective
Amendment No. 29 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Quincy and The Commonwealth of Massachusetts, on the
1st day of March, 1999.
ST. CLAIR FUNDS, INC.
By: *
---------------------------------
Lee P. Munder
* By: /S/ CYNTHIA SURPRISE
-------------------------------
Cynthia Surprise
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed by the following persons
in the capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
* Director and March 1, 1999
-------------------------- President
Lee P. Munder
* Director March 1, 1999
--------------------------
Charles W. Elliott
* Director March 1, 1999
--------------------------
Joseph E. Champagne
* Director March 1, 1999
--------------------------
Thomas B. Bender
* Director March 1, 1999
--------------------------
Thomas D. Eckert
* Director March 1, 1999
--------------------------
John Rakolta, Jr.
* Director March 1, 1999
--------------------------
David J. Brophy
</TABLE>
10
<PAGE>
<TABLE>
<S> <C> <C>
* Vice President, March 1, 1999
-------------------------- Treasurer and
Terry H. Gardner Chief Financial Officer
*By: /S/ CYNTHIA SURPRISE
--------------------------
Cynthia Surprise
as Attorney-in-Fact
</TABLE>
11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
99(d) Investment Advisory Agreement among Registrant and Munder Capital Management 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, Munder Institutional S&P 500
Index Equity Fund, Munder Institutional S&P MidCap Index Equity Fund, Munder
Institutional S&P SmallCap Index Equity Fund, Munder Institutional Short Term Treasury
Fund and Munder Institutional Money Market Fund
99(e)(1) Distribution Agreement among Registrant and Funds Distributor Inc., with respect to
the Liquidity Plus Money Market Fund
99(e)(2) Distribution Agreement among Registrant and Funds Distributor, Inc. with respect to
Munder Institutional S&P 500 Index Equity Fund, Munder Institutional S&P MidCap Index
Equity Fund, Munder Institutional S&P SmallCap Index Equity Fund, Munder Institutional
Short Term Treasury Fund and Munder Institutional Money Market Fund
99(g)(1) Custody Agreement among 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
99(g)(3) Sub-Custodian Agreement among Registrant, Comerica Bank and State Street Bank and
Trust Company 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 Aggregate Bond Index
Fund, Munder Foreign Equity Fund, Liquidity Plus Money Market Fund, Munder
Institutional S&P 500 Index Equity Fund, Munder Institutional S&P MidCap Index Equity
Fund, Munder Institutional S&P SmallCap Index Equity Fund, Munder Institutional Short
Term Treasury Fund and Munder Institutional Money Market Fund
99(h)(1) Administration Agreement among Registrant and State Street Bank and Trust Company 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 Aggregate Bond Index Fund, Munder
Foreign Equity Fund, Liquidity Plus Money Market Fund, Munder Institutional S&P 500
Index Equity Fund, Munder Institutional S&P MidCap Index Equity Fund, Munder
Institutional S&P SmallCap Index Equity Fund, Munder Institutional Short Term Treasury
Fund and Munder Institutional Money Market Fund
99(h)(5) Amendment to Transfer Agency and Registrar Agreement among Registrant and First Data
Investor Services Group, Inc.
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
99(h)(6) Amendment to Transfer Agency and Registrar Agreement among Registrant and First Data
Investor Services Group, Inc.
99(h)(7) Amendment to Transfer Agency and Registrar Agreement among Registrant and First Data
Investor Services Group, Inc.
99(m)(1) Service and Distribution Plan of the Liquidity Plus Money Market Fund
</TABLE>
13
<PAGE>
EXHIBIT 99(D)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made this 2nd day of July, 1998, between St. Clair Funds,
Inc. ("St. Clair") on behalf of each Fund (collectively, the "Funds") set
forth on Schedule A attached hereto, and Munder Capital Management (the
"Advisor"), a Delaware partnership.
WHEREAS, St. Clair is a Maryland corporation authorized to issue shares
in series and is registered as an open-end management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"), and
each Fund is a series of St. Clair;
WHEREAS, the Advisor is registered as an investment advisor under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"); and
WHEREAS, St. Clair wishes to retain the Advisor to render investment
advisory services to the Funds, and the Advisor is willing to furnish such
services to the Funds;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between St. Clair and the Advisor as follows:
1. APPOINTMENT
(a) St. Clair hereby appoints the Advisor to act as investment advisor to
the Funds for the periods and on the terms set forth herein. The Advisor accepts
the appointment and agrees to furnish the services set forth herein for the
compensation provided herein.
(b) In the event that St. Clair establishes one or more portfolios other
than the Funds listed on Schedule A attached hereto, with respect to which it
desires to retain the Investment Advisor to act as investment advisor hereunder,
it shall notify the Investment Advisor in writing. If the Investment Advisor is
willing to render such services under this Agreement it shall notify St. Clair
in writing whereupon such portfolio shall become a Fund hereunder and shall be
subject to the provisions of this Agreement to the same extent as the Fund named
above except to the extent that said provisions (including those relating to the
compensation payable by the Fund to the Investment Advisor) are modified with
respect to such Fund in writing by St. Clair and the Investment Advisor at the
that time.
2. SERVICES AS INVESTMENT ADVISOR
Subject to the general supervision and direction of the Board of Directors
of St. Clair, the Advisor will (a) provide overall management to the Funds in
accordance with each Fund's investment objective and policies as stated in the
Fund's Prospectus and the Statement of Additional Information filed with the
Securities and Exchange Commission, as they may be amended from time to time;
(b) make investment decisions for the Funds; (c) oversee the placement of
purchase and sale orders on behalf of the Funds; (d) employ professional
portfolio managers and securities analysts to provide research services to the
Funds; (e) maintain books and records with respect to each Fund's securities
transactions; and (f) provide periodic and special reports to the Board of
Directors of St. Clair, as requested. In providing those services, the Advisor
will provide the Funds with ongoing research, analysis, advice and judgments
regarding individual investments, general economic conditions and trends and
long-range investment policy. In addition, the Advisor will furnish the Funds
with whatever
<PAGE>
statistical information the Funds may reasonably request with respect to the
securities that the Funds may hold or contemplate purchasing.
The Advisor further agrees that, in performing its duties hereunder, it
will:
(a) comply with the 1940 Act and all rules and regulations thereunder and
under the Advisers Act, the Internal Revenue Code of 1986, as amended (the
"Code"), and all other applicable federal and state law and regulations, and
with any applicable procedures adopted by the Trustees;
(b) use reasonable efforts to manage each Fund so that it will qualify,
and continue to qualify, as a regulated investment company under Subchapter M of
the Code and regulations issued thereunder;
(c) maintain books and records with respect to each Fund's securities
transactions, render to the Board of Directors of St. Clair such periodic and
special reports as the Board may reasonably request, and keep the Trustees
informed of developments materially affecting each Fund's portfolio;
(d) make available to the Funds' administrator and St. Clair, promptly
upon their request, such copies of its investment records and ledgers with
respect to the Funds as may be required to assist the administrator and St.
Clair in their compliance with applicable laws and regulations. The Advisor will
furnish the Directors with such periodic and special reports regarding the Funds
as they may reasonably request; and
(e) immediately notify St. Clair in the event that the Advisor or any of
its affiliates: (1) becomes aware that it is subject to a statutory
disqualification that prevents the Advisor from serving as investment advisor
pursuant to this Agreement; or (2) becomes aware that it is the subject of an
administrative proceeding or enforcement action by the Securities and Exchange
Commission or other regulatory authority. The Advisor further agrees to notify
St. Clair immediately of any material fact known to the Advisor respecting or
relating to the Advisor that is not contained in St. Clair's Registration
Statement regarding the Funds, or any amendment or supplement thereto, but that
is required to be disclosed therein, and of any statement contained therein that
becomes untrue in any material respect.
3. DOCUMENTS
St. Clair has delivered properly certified or authenticated copies of
each of the following documents to the Advisor and will deliver to it all
future amendments and supplements thereto, if any:
(a) certified resolution of the Board of Directors of St. Clair
authorizing the appointment of the Advisor and approving the form of this
Agreement;
(b) the Registration Statement describing the Fund as filed with the
Securities and Exchange Commission and any amendments thereto; and
(c) exhibits, powers of attorneys, certificates and any and all other
documents relating to or filed in connection with the Registration Statement
described above.
2
<PAGE>
4. BROKERAGE
In selecting brokers or dealers to execute transactions on behalf of the
Funds, the Advisor will use its best efforts to seek the best overall terms
available. In assessing the best overall terms available for any Fund
transaction, the Advisor will consider all factors it deems relevant, including,
but not limited to, the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer and the reasonableness of the commission, if any, for the specific
transaction and on a continuing basis. In selecting brokers-dealers to execute a
particular transaction, and in evaluating the best overall terms available, the
Advisor is authorized to consider the brokerage and research services (as those
terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as
amended (the "1934 Act")) provided to the Funds and/or other accounts over which
the Advisor or its affiliates exercise investment discretion. The parties hereto
acknowledge that it is desirable for St. Clair that the Advisor have access to
supplemental investment and market research and security and economic analysis
provided by brokers-dealers who may execute brokerage transactions at a higher
cost to St. Clair than may result when allocating brokerage to other brokers on
the basis of seeking the most favorable price and efficient execution.
Therefore, the Advisor may cause the 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 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. It is understood that the
services provided by such brokers may be useful to the Advisor in connection
with the Advisor's services to other clients. In accordance with Section 11(a)
of the 1934 Act and Rule 11a2-2(T) thereunder and subject to any other
applicable laws and regulations, the Advisor and its affiliates are authorized
to effect portfolio transactions for the Funds and to retain brokerage
commissions on such transactions.
5. RECORDS
The Advisor agrees to maintain and to preserve for the periods prescribed
under the 1940 Act any such records as are required to be maintained by the
Advisor with respect to the Funds by the 1940 Act. The Advisor further agrees
that all records which it maintains for the Funds are the property of the Funds
and it will promptly surrender any of such records upon request.
6. STANDARD OF CARE
The Advisor shall exercise its best judgment in rendering the services
under this Agreement. The Advisor shall not be liable for any error of judgment
or mistake of law or for any loss suffered by a Fund or the Funds' shareholders
in connection with the matters to which this Agreement relates, provided that
nothing herein shall be deemed to protect or purport to protect the Advisor
against any liability to a Fund or to its shareholders to which the Advisor
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or by reason of the
Advisor's reckless disregard of its obligations and duties under this Agreement.
As used in this Section 6, the term "Advisor" shall include any officers,
Directors, employees, or other affiliates of the Advisor performing services
with respect to a Fund.
3
<PAGE>
7. COMPENSATION
In consideration of the services rendered pursuant to this Agreement, each
Fund will pay the Advisor a fee as set forth on Schedule B attached hereto. This
fee shall be computed and accrued daily and payable monthly; however, with
respect to any Fund for which the effective date of this Agreement is prior to
November 30, 1998, the fee shall be maintained in an interest-bearing escrow
account until such time as shareholders of the Fund approve the payment of fees
pursuant to this agreement. If shareholders do not approve such payment of fees
on or before November 30, 1998, the balance in the escrow account shall be paid
to the Fund. For the purpose of determining fees payable to the Advisor, the
value of a Fund's average daily net assets shall be computed at the times and in
the manner specified in the Fund's Prospectus or Statement of Additional
Information.
8. EXPENSES
The Advisor will bear all expenses in connection with the performance of
its services under this Agreement and will bear the costs and expenses payable
to Sub-Advisors under the Sub-Advisory Agreements. Each Fund will bear certain
other expenses to be incurred in its operation, including: taxes, interest,
brokerage fees and commissions, if any, fees of Directors of St. Clair who are
not officers, Directors or employees of the Advisor or any Sub-Advisor;
Securities and Exchange Commission fees and state blue sky fees; charges of
custodians and transfer and dividend disbursing agents; the Fund's proportionate
share of insurance premiums; outside auditing and legal expenses; costs of
maintenance of the Fund's existence; costs attributable to investor services,
including, without limitation, telephone and personal expenses; charges of an
independent pricing service, costs of preparing and printing prospectuses and
statements of additional information for regulatory purposes and for
distribution to existing shareholders; costs of shareholders' reports and
meetings of the shareholders of the Fund and of the officers of Board of
Directors of St. Clair; and any extraordinary expenses.
9. SERVICES TO OTHER COMPANIES OR ACCOUNTS
The investment advisory services of the Advisor to the Funds under this
Agreement are not to be deemed exclusive, and the Advisor, or any affiliate
thereof, shall be free to render similar services to other investment companies
and clients (whether or not their investment objective and policies are similar
to those of a Fund) and to engage in activities so long as its services
hereunder are not impaired thereby.
10. DURATION AND TERMINATION
This Agreement shall become effective on the date of this Agreement
provided that with respect to any Fund, this Agreement shall not take effect
unless it has been approved (a) by a vote of a majority of the Board of
Directors of the Company including a majority of those Directors who are not
"interested persons" (as defined in the 1940 Act) of any party to this Agreement
cast in person at a meeting called for the purpose of voting on such approval
and (b) by vote of a majority of that Fund's outstanding voting securities and
shall continue in effect with respect to the Fund, unless sooner terminated as
provided herein, for two years from such date and shall continue from year to
year thereafter, provided each continuance is specifically approved at least
annually by (i) the vote of a majority of the Board of Directors of St. Clair or
(ii) a vote of a "majority" (as defined in the 1940 Act) of the Fund's
outstanding voting securities, provided that in either event the continuance is
also approved by a majority of the Board of Directors who are not "interested
persons" (as defined in the 1940 Act) of any party to this
4
<PAGE>
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. This Agreement is terminable with respect to the Funds, or any
Fund, without penalty, on sixty (60) days' written notice by the Board of
Directors of St. Clair or by vote of the holders of a "majority" (as defined in
the 1940 Act) of the shares of the affected Funds or upon ninety (90) days'
written notice by the Advisor. Termination of this Agreement with respect to any
given Fund, shall in no way affect the continued validity of this Agreement or
the performance thereunder with respect to any other Fund. This Agreement will
be terminated automatically in the event of its "assignment" (as defined in the
1940 Act).
11. AMENDMENT
No provision of this Agreement may be changed, waived or discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, and no amendment of this Agreement with respect to any Fund shall be
effective until approved by an affirmative vote of (i) a majority of the
outstanding voting securities of that Fund, and (ii) a majority of the Trustees
of the Trust, including a majority of Trustees who are not "interested persons"
(as defined in the 1940 Act) of any party to this Agreement, cast in person at a
meeting called for the purpose of voting on such approval, if such approval is
required by applicable law.
12. USE OF NAME
It is understood that the name of Munder Capital Management or any
derivative thereof or logo associated with that name is the valuable property of
the Advisor and its affiliates, and that St. Clair and each Fund have the right
to use such name (or derivable or logo) only so long as this Agreement shall
continue with respect to a given Fund. Upon termination of this Agreement, or
upon termination of this Agreement with respect to a given Fund, St. Clair and
any affected Fund shall forthwith cease to use such name (or derivable or logo)
and St. Clair shall promptly amend its Articles of Incorporation to change the
Fund name to comply herewith.
13. MISCELLANEOUS
(a) This Agreement constitutes the full and complete agreement of the
parties hereto with respect to the subject matter hereof.
(b) Titles or captions of sections in this Agreement are inserted only as
a matter of convenience and for reference, and in no way define, limit, extend
or describe the scope of this Agreement or the intent of any provisions thereof.
(c) This Agreement may be executed in several counterparts, all of which
together shall for all purposes constitute one Agreement, binding on all the
parties.
(d) This Agreement and the rights and obligations of the parties hereunder
shall be governed by, and interpreted, construed and enforced in accordance with
the laws of the State of Michigan.
(e) If any provisions of this Agreement or the application thereof to any
party or circumstances shall be determined by any court of competent
jurisdiction to be invalid or unenforceable to any extent, the remainder of this
Agreement or the application of such provision to such person circumstance,
other than these as to which it so determined to be invalid or unenforceable,
shall not be affected thereby, and each provision hereof shall be valid and
shall be enforced to the fullest extent permitted by law.
5
<PAGE>
(f) Notices of any kind to be given to the Advisor by the Trust shall be
in writing and shall be duly given if mailed or delivered to the Advisor at 480
Pierce Street, Birmingham, Michigan 48009, or at such other address or to such
individual as shall be specified by the Advisor to the Trust. Notices of any
kind to be given to the Trust by the Advisor shall be in writing and shall be
duly given if mailed or delivered to 480 Pierce Street, Birmingham, Michigan
48009, or at such the address to such individual as shall be specified by the
Trust to the Advisor.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below on the day and year first above
written.
ST. CLAIR FUNDS, INC.
By: /S/ LISA ANNE ROSEN
----------------------------
MUNDER CAPITAL MANAGEMENT
By: /S/ TERRY H. GARDNER
----------------------------
7
<PAGE>
SCHEDULE A
Munder Institutional S&P Index Equity Fund
Munder Institutional S&P MidCap Index Equity Fund
Munder Institutional S&P SmallCap Index Equity Fund
Munder Institutional Short Term Treasury Fund
Munder Institutional 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
Munder Aggregate Bond Index Fund
Liquidity Plus Money Market Fund
8
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
FUND ANNUAL FEES (AS A PERCENTAGE OF
AVERAGE DAILY NET ASSETS)
--------------------------------
<S> <C>
Munder Institutional S&P 500 Index Equity Fund 0.07%
Munder Institutional S&P MidCap Index Equity Fund 0.15%
Munder Institutional S&P SmallCap Index Equity Fund 0.15%
Munder Institutional Short Term Treasury 0.20%
Munder Institutional Money Market 0.20%
Liquidity Plus Money Market Fund 0.35%
Munder S&P 500 Index Equity Fund 0.05%
Munder S&P MidCap Index Equity Fund 0.05%
Munder S&P SmallCap Index Equity Fund 0.05%
Munder Foreign Equity Fund 0.05%
Munder Aggregate Bond Index Fund 0.05%
</TABLE>
9
<PAGE>
EXHIBIT 99(E)(1)
DISTRIBUTION AGREEMENT
This Distribution Agreement is made as of this 7th day of November, 1996
by and between ST. CLAIR FUNDS, INC., a Maryland Corporation (the "Fund"), and
FUNDS DISTRIBUTOR, INC., a Massachusetts corporation ("Funds Distributor").
WHEREAS, the Fund is an open-end management investment company and is so
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Fund desires to retain Funds Distributor as Distributor for
the Fund's investment portfolio--Liquidity Plus Money Market Fund (the
"Portfolio"), to provide for the sale and distribution of shares of the
Portfolio (the "Shares"), and Funds Distributor is willing to render such
services;
NOW, THEREFORE, in consideration of the premises and mutual covenants set
forth herein and intending to be legally bound hereby, the parties hereto agree
as follows:
I. DELIVERY OF DOCUMENTS
The Fund has delivered to Funds Distributor copies of each of the
following documents and will deliver to it all future amendments and supplements
thereto, if any:
(a) Resolutions of the Fund's Board of Directors authorizing the
execution and delivery of this Agreement;
(b) The Fund's Articles of Incorporation as filed with the State of
Maryland;
(c) The Fund's By-Laws;
(d) The Fund's Notification of Registration on Form N-8A under the 1940
Act as filed with the Securities and Exchange Commission ("SEC");
(e) The Fund's Registration Statement on Form N-1A (the "Registration
Statement") under the Securities Act of 1933 (the "1933 Act") and
the 1940 Act, as filed with the SEC, and all amendments thereto; and
(f) The Fund's most recent Prospectus and Statement of Additional
Information and all amendments and supplements thereto
(collectively, the "Prospectus").
II. DISTRIBUTION
1. APPOINTMENT OF DISTRIBUTOR. The Fund hereby appoints Funds Distributor
as Distributor of the Portfolio's Shares and Funds Distributor hereby accepts
such appointment and agrees to render the services and duties set forth in this
Section II. In the event that the Fund establishes one or more additional
portfolios or classes of shares other than the Portfolio and the
<PAGE>
Shares with respect to which it decides to retain Funds Distributor to act as
distributor hereunder, the Fund shall notify Funds Distributor in writing. If
Funds Distributor is willing to render such services, it shall so notify the
Fund in writing whereupon such portfolio and such shares shall become a
Portfolio and Shares hereunder and shall be subject to the provisions of this
Agreement, except to the extent that said provision is modified with respect to
such portfolio or shares in writing by the Fund and Funds Distributor at the
time.
2. SERVICES AND DUTIES.
(a) The Fund agrees to sell through Funds Distributor, as agent, from time
to time during the term of this Agreement, Shares (whether authorized but
unissued or treasury shares, in the Fund's sole discretion) upon the terms and
at the current offering price as described in the applicable Prospectus. Funds
Distributor will act only in its own behalf as principal in making agreements
with selected dealers or others for the sale and redemption of Shares, and shall
sell Shares only at the offering price thereof as set forth in the applicable
Prospectus. Funds Distributor shall devote appropriate efforts to effect sales
of Shares of the Portfolio, but shall not be obligated to sell any certain
number of Shares.
(b) In all matters relating to the sale and redemption of Shares, Funds
Distributor will act in conformity with the Fund's Articles of Incorporation,
By-Laws and applicable Prospectuses and with the instructions and directions of
the Board of Directors of the Fund and will conform to and comply with the
requirements of the 1933 Act, the 1940 Act, the regulations of the National
Association of Securities Dealers, Inc. and all other applicable Federal or
state laws and regulations.
(c) Funds Distributor will bear the cost of printing and distributing any
Prospectus (including any supplement or amendment thereto), PROVIDED, HOWEVER,
that Funds Distributor shall not be obligated to bear the expenses incurred by
the Fund in connection with (i) the preparation and printing of any supplement
or amendment to a Registration Statement or Prospectus necessary for the
continued effective registration of the Shares under the 1933 Act or state
securities laws; and (ii) the printing and distribution of any Prospectus,
supplement or amendment thereto for existing shareholders of the Shares
described therein.
3. SALES AND REDEMPTIONS.
(a) The Fund shall pay all costs and expenses in connection with the
registration of the Shares under the 1933 Act, and all expenses in connection
with maintaining facilities for the issue and transfer of the Shares and for
supplying information, prices and other data to be furnished by the Fund
hereunder, and all expenses in connection with preparing, printing and
distributing the Prospectuses except as set forth in subsection 2(c) of
Section II hereof.
(b) The Fund shall execute all documents, furnish all information and
otherwise take all actions which may be reasonably necessary in the discretion
of the Fund's officers in connection with the sale of the Shares in such states
as Funds Distributor may designate to the Fund and the Fund may approve, and the
Fund shall pay all filing fees which may be incurred in
2
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connection with such sale. Funds Distributor shall pay all other expenses
incurred by Funds Distributor in connection with the sale of the Shares, except
as otherwise specifically provided in this Agreement.
(c) The Fund shall have the right to suspend the sale of Shares at any
time in response to conditions in the securities markets or otherwise, and to
suspend the redemption of Shares of any Portfolio at any time permitted by the
1940 Act or the rules of the SEC ("Rules").
(d) The Fund reserves the right to reject any order for Shares, but will
not do so arbitrarily or without reasonable cause.
III. LIMITATIONS OF LIABILITY
Funds Distributor shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Fund or any Portfolio in connection with
the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement.
IV. CONFIDENTIALITY
Funds Distributor will treat confidentially and as proprietary information
of the Fund all records and other information relative to the Fund, to the
Fund's prior or current shareholders and to those persons or entities who
respond to Funds Distributor's inquiries concerning investment in the Fund, and,
except as provided below, will not use such records and information for any
purpose other than the performance of its responsibilities and duties hereunder.
Any other use by Funds Distributor of the information and records referred to
above may be made only after prior notification to and approval in writing by
the Fund. Such approval shall not be unreasonably withheld and may not be
withheld where: (i) Funds Distributor may be exposed to civil or criminal
contempt proceedings for failure to divulge such information; (ii) Funds
Distributor is requested to divulge such information by duly constituted
authorities; or (iii) Funds Distributor is so requested by the Fund.
V. INDEMNIFICATION
1. FUND REPRESENTATION. The Fund represents and warrants to Funds
Distributor that at all times the Registration Statement and Prospectuses will
in all material respects conform to the applicable requirements of the 1933 Act
and the Rules thereunder and will not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading, except that no representation or warranty
in this subsection shall apply to statements or omissions made in reliance upon
and in conformity with written information furnished to the Fund by or on behalf
of and with respect to Funds Distributor expressly for use in the Registration
Statement or Prospectuses.
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2. FUNDS DISTRIBUTOR REPRESENTATION. Funds Distributor represents and
warrants to the Fund that it is duly organized as a Massachusetts corporation
and is and at all times will remain duly authorized and licensed to carry out
its services as contemplated herein.
3. FUND INDEMNIFICATION. The Fund, on behalf of the Portfolio, agrees that
the Portfolio will indemnify, defend and hold harmless Funds Distributor, its
several officers and directors, and any person who controls Funds Distributor
within the meaning of Section 15 of the 1933 Act, from and against any losses,
claims, damages or liabilities, joint or several, to which any of them may
become subject under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of, or are based upon, any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, the Prospectus or in any
application or other document executed by or on behalf of the Portfolio, or
arise out of or based upon, information furnished by or on behalf of the
Portfolio, filed in any state in order to sell the Shares under the securities
or blue sky laws thereof ("Blue Sky Application"), or arise out of, or are based
upon, the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse Funds Distributor, its several officers and directors, and
any person who controls Funds Distributor within the meaning of Section 15 of
the 1933 Act, for any legal or other expenses reasonably incurred by any of them
in investigating, defending or preparing to defend any such action, proceeding
or claim; PROVIDED, HOWEVER, that neither the Fund nor the Portfolio shall be
liable in any case to the extent that such loss, claim, damage or liability
arises out of, or is based upon, any untrue statement, alleged untrue statement,
or omission or alleged omission made in the Registration Statement, the
Prospectus, any Blue Sky Application or any application or other document
executed by or on behalf of the Fund in reliance upon and in conformity with
written information furnished to the Fund by or on behalf of Funds Distributor
specifically for inclusion therein.
The Portfolio shall not indemnify any person pursuant to this subsection 3
unless the court or other body before which the proceeding was brought has
rendered a final decision on the merits that such person was not liable by
reason of his willful misfeasance, bad faith or gross negligence in the
performance of his duties, or his reckless disregard of his obligations and
duties, under this Agreement ("disabling conduct") or, in the absence of such a
decision, a reasonable determination (based upon a review of the facts) that
such person was not liable by reason of disabling conduct has been made by the
vote of a majority of a quorum of Directors of the Fund who are neither
"interested parties" of the Fund (as defined in the 1940 Act) nor parties to the
proceeding, or by an independent legal counsel in a written opinion.
The Portfolio shall advance attorneys' fees and other expenses incurred
by any person in defending any claim, demand, action or suit which is the
subject of a claim for indemnification pursuant to this subsection 3, so long
as: (i) such person shall undertake to repay all such advances unless it is
ultimately determined that he or she is entitled to indemnification
hereunder; and (ii) such person shall provide security for such undertaking,
or the Portfolio shall be insured against losses arising by reason of any
lawful advances, or a majority of a quorum of the disinterested, non-party
directors of the Fund (or an independent legal counsel in written opinion)
shall determine based on a review of readily available facts (as opposed to a
full trial-
4
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type inquiry) that there is reason to believe that such person ultimately will
be found entitled to indemnification hereunder.
The obligations of the Portfolio under this subsection 3 shall be the
several (and not joint or joint and several) obligation of the Portfolio.
4. FUNDS DISTRIBUTOR INDEMNIFICATION. Funds Distributor will indemnify,
defend and hold harmless the Fund, the Portfolio, the Fund's several officers
and Directors and any person who controls the Fund or the Portfolio within the
meaning of Section 15 of the 1933 Act, from and against any losses, claims,
damages or liabilities, joint or several, to which any of them may become
subject under the 1933 Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions or proceedings in respect hereof) arise out of, or
are based upon, any breach of its representations, warranties and agreements
herein, or which arise out of, or are based upon, any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, the Prospectuses, any Blue Sky Application or any application or
other documents executed by or on behalf of the Fund or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, which statement or
omission was made in reliance upon and in conformity with information furnished
in writing to the Fund or any of its several officers and Directors by or on
behalf of Funds Distributor specifically for inclusion therein, and will
reimburse the Fund, the Portfolio, the Fund's several officers and trustees, and
any person who controls the Fund or the Portfolio within the meaning of Section
15 of the 1933 Act, for any legal or other expenses reasonably incurred by any
of them in investigating, defending or preparing to defend any such action,
proceeding or claim.
5. GENERAL INDEMNITY PROVISION. No indemnifying party shall be liable
under its indemnity agreement contained in subsection 3 or 4 hereof with respect
to any claim made against such indemnifying party unless the indemnified party
shall have notified the indemnifying party in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon the indemnified party (or after the
indemnified party shall have received notice of such service on any designated
agent), but failure to notify the indemnifying party of any such claim shall not
relieve it from any liability which it may otherwise have to the indemnified
party. The indemnifying party will be entitled to participate at its own expense
in the defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, and if the indemnifying party elects to assume the
defense, such defense shall be conducted by counsel chosen by it and reasonably
satisfactory to the indemnified party. In the event the indemnifying party
elects to assume the defense of any such suit and retain such counsel, the
indemnified party shall bear the fees and expenses of any additional counsel
retained by the indemnified party.
VI. DURATION AND TERMINATION
This Agreement shall become effective as of the date first above written,
and, unless sooner terminated as provided herein, shall continue until November
7, 1998. Thereafter, if not terminated, this Agreement shall continue
automatically for successive terms of one year,
5
<PAGE>
provided that such continuance is specifically approved at least annually by a
vote of the majority of the Board of Directors of the Fund, including a majority
of the Directors who are not "interested persons" of the Fund and have no direct
or indirect financial interest in the operation of the Plan, this Agreement, by
vote cast in person at a meeting called for the purpose of voting on such
approval; PROVIDED, HOWEVER, that this Agreement may be terminated with respect
to any Portfolio by the Fund at any time, without the payment of any penalty, by
vote of a majority of the Directors or by a vote of a "majority of the
outstanding voting securities" of such Portfolio on 60 days' written notice to
Funds Distributor, or by Funds Distributor at any time, without the payment of
any penalty, on 60 days' written notice to the Fund. This Agreement will
automatically and immediately terminate in the event of its "assignment." (As
used in this Agreement, the terms "majority of the outstanding voting
securities," "interested person" and "assignment" shall have the same meanings
as such terms have in the 1940 Act.)
VII. AMENDMENT OF THIS AGREEMENT
No provision of this Agreement may be changed, waived, discharged or
terminated except by an instrument in writing signed by the party against which
an enforcement of the change, waiver, discharge or termination is sought.
VIII. NOTICES
Notices of any kind to be given to the Fund hereunder by Funds Distributor
shall be in writing and shall be duly given if mailed or delivered to the Fund
at 480 Pierce Street, Suite 300, Birmingham, Michigan 48009, Attention: Lee
Munder, with a copy to Paul F. Roye, Esq., Dechert Price & Rhoads, 1500 K Street
N.W., Washington, D.C. 20005-1208, or at such other address or to such
individual as shall be so specified by the Fund to Funds Distributor. Notices of
any kind to be given to Funds Distributor hereunder by the Fund shall be in
writing and shall be duly given if mailed or delivered to Funds Distributor at
60 State Street, Suite 1300, Boston, Massachusetts 02109, Attention: Betsy
Connolly or at such other address or to such individual as shall be so specified
by Funds Distributor to the Fund.
IX. MISCELLANEOUS
The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or otherwise
affect their construction or effect. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby. Subject to the
provisions of Section VI hereof, this Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
shall be governed by Massachusetts law; PROVIDED, HOWEVER, that nothing herein
shall be construed in a manner inconsistent with the 1940 Act or any rule or
regulation of the SEC thereunder.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
ST. CLAIR FUNDS, INC.
By: /S/ LEE P. MUNDER
---------------------------
Name: Lee P. Munder
Title: President
Attest:
----------------------
FUNDS DISTRIBUTOR, INC.
By: /S/ MARIE E. CONNOLLY
---------------------------
Name: Betsy Connolly
Title: President
Attest:
----------------------
7
<PAGE>
EXHIBIT 99(E)(2)
DISTRIBUTION AGREEMENT
This Distribution Agreement is made as of this 6th day of May, 1997 by and
between ST. CLAIR FUNDS, INC., a Maryland Corporation (the "Fund"), and FUNDS
DISTRIBUTOR, INC., a Massachusetts corporation ("Funds Distributor").
WHEREAS, the Fund is an open-end management investment company and is so
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Fund desires to retain Funds Distributor as Distributor for
the Fund's shares of beneficial interest in the Munder Institutional S&P 500
Index Equity Fund, Munder Institutional S&P MidCap Index Equity Fund, Munder
Institutional S&P SmallCap Index Equity Fund, Munder Institutional Short Term
Treasury Fund and Munder Institutional Money Market Fund (the "Portfolios"), to
provide for the sale and distribution of shares of the Portfolios (the
"Shares"), and Funds Distributor is willing to render such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants set
forth herein and intending to be legally bound hereby, the parties hereto agree
as follows:
I. DELIVERY OF DOCUMENTS
The Fund has delivered to Funds Distributor copies of each of the
following documents and will deliver to it all future amendments and supplements
thereto, if any:
(a) Resolutions of the Fund's Board of Directors authorizing the execution
and delivery of this Agreement;
(b) The Fund's Articles of Incorporation as filed with the State of
Maryland - Department of Assessments and Taxation on May 23, 1984;
(c) The Fund's By-Laws;
(d) The Fund's Notification of Registration on Form N-8A under the 1940
Act as filed with the Securities and Exchange Commission ("SEC");
(e) The Fund's Registration Statement on Form N-1A (the "Registration
Statement") under the Securities Act of 1933 (the "1933 Act") and the
1940 Act, as filed with the SEC;
(f) The Fund's most recent Prospectuses and Statements of Additional
Information and all amendments and supplements thereto (collectively,
the "Prospectuses").
<PAGE>
II. DISTRIBUTION
1. APPOINTMENT OF DISTRIBUTOR. The Fund hereby appoints Funds Distributor
as Distributor of the Portfolios' Shares and Funds Distributor hereby accepts
such appointment and agrees to render the services and duties set forth in this
Section II. In the event that the Fund establishes one or more additional
portfolios or classes of shares other than the Portfolios and the Shares with
respect to which it decides to retain Funds Distributor to act as distributor
hereunder, the Fund shall notify Funds Distributor in writing. If Funds
Distributor is willing to render such services, it shall so notify the Fund in
writing whereupon such portfolio and such shares shall become a Portfolio and
Shares hereunder and shall be subject to the provisions of this Agreement,
except to the extent that said provision is modified with respect to such
portfolio or shares in writing by the Fund and Funds Distributor at the time.
2. SERVICES AND DUTIES.
(a) The Fund agrees to sell through Funds Distributor, as agent, from time
to time during the term of this Agreement, Shares (whether authorized but
unissued or treasury shares, in the Fund's sole discretion) upon the terms and
at the current offering price as described in the applicable Prospectus. Funds
Distributor will act only in its own behalf as principal in making agreements
with selected dealers or others for the sale and redemption of Shares, and shall
sell Shares only at the offering price thereof as set forth in the applicable
Prospectus. Funds Distributor shall devote appropriate efforts to effect sales
of Shares of each of the Portfolios, but shall not be obligated to sell any
certain number of Shares.
(b) In all matters relating to the sale and redemption of Shares, Funds
Distributor will act in conformity with the Fund's Articles of Incorporation,
By-Laws and applicable Prospectuses and with the instructions and directions of
the Board of Directors of the Fund and will conform to and comply with the
requirements of the 1933 Act, the 1940 Act, the regulations of the National
Association of Securities Dealers, Inc. and all other applicable Federal or
state laws and regulations.
(c) Funds Distributor will bear the cost of printing and distributing any
Prospectus (including any supplement or amendment thereto), PROVIDED, HOWEVER,
that Funds Distributor shall not be obligated to bear the expenses incurred by
the Fund in connection with (i) the preparation and printing of any supplement
or amendment to a Registration Statement or Prospectus necessary for the
continued effective registration of the Shares under the 1933 Act or state
securities laws; and (ii) the printing and distribution of any Prospectus,
supplement or amendment thereto for existing shareholders of the Portfolios.
(d) All Shares of each Portfolio offered for sale by Funds Distributor
shall be offered for sale to the public at a price per share (the "offering
price") equal to (i) their net asset value (determined in the manner set forth
in the applicable Prospectuses) plus, except to those classes of persons set
forth in the applicable Prospectuses, (ii) a sales charge which shall be the
percentage of the offering price of such Shares as set forth in the applicable
Prospectuses. The
2
<PAGE>
offering price, if not an exact multiple of one cent, shall be adjusted to the
nearest cent. Concessions paid by Funds Distributor to broker-dealers and other
persons shall be set forth in either the selling agreements between Funds
Distributor and such broker-dealers and persons or, if such concessions are
described in the applicable Prospectuses, shall be as so set forth. No
broker-dealer or other person who enters into a selling or distribution and
servicing agreement with Funds Distributor shall be authorized to act as agent
for the Fund in connection with the offering or sale of Shares to the public or
otherwise.
(e) If any shares sold by Funds Distributor under the terms of this
Agreement are redeemed or repurchased by the Fund or by Funds Distributor as
agent or are tendered for redemption within seven business days after the date
of confirmation of the original purchase of said Shares, Funds Distributor shall
forfeit the amount above the net asset value received by it with respect to such
Shares, provided that the portion, if any, of such amount re-allowed by Funds
Distributor to broker-dealers or other persons shall be repayable to the Fund
only to the extent recovered by Funds Distributor from the broker-dealer or
other persons concerned. Funds Distributor shall include in the form of
agreement with such broker-dealers and other persons a corresponding provision
for the forfeiture by them of their concession with respect to Shares sold by
them or their principals and redeemed or repurchased by the Fund or by Funds
Distributor as agent (or tendered for redemption) within seven business days
after the date of confirmation of such initial purchases.
3. SALES AND REDEMPTIONS.
(a) The Fund shall pay all costs and expenses in connection with the
registration of the Shares under the 1933 Act, and all expenses in connection
with maintaining facilities for the issue and transfer of the Shares and for
supplying information, prices and other data to be furnished by the Fund
hereunder, and all expenses in connection with preparing, printing and
distributing the Prospectuses except as set forth in subsection 2(c) of
Section II hereof.
(b) The Fund shall execute all documents, furnish all information and
otherwise take all actions which may be reasonably necessary in the discretion
of the Fund's officers in connection with the sale of the Shares in such states
as Funds Distributor may designate to the Fund and the Fund may approve, and the
Fund shall pay all filing fees which may be incurred in connection with such
sale. Funds Distributor shall pay all other expenses incurred by Funds
Distributor in connection with the sale of the Shares, except as otherwise
specifically provided in this Agreement.
(c) The Fund shall have the right to suspend the sale of Shares at any
time in response to conditions in the securities markets or otherwise, and to
suspend the redemption of Shares of any Portfolio at any time permitted by the
1940 Act or the rules of the SEC ("Rules").
(d) The Fund reserves the right to reject any order for Shares, but will
not do so arbitrarily or without reasonable cause.
3
<PAGE>
III. LIMITATIONS OF LIABILITY
Funds Distributor shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Fund or any Portfolio in connection with
the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement.
IV. CONFIDENTIALITY
Funds Distributor will treat confidentially and as proprietary information
of the Fund all records and other information relative to the Fund, to the
Fund's prior or current shareholders and to those persons or entities who
respond to Funds Distributor's inquiries concerning investment in the Fund, and,
except as provided below, will not use such records and information for any
purpose other than the performance of its responsibilities and duties hereunder.
Any other use by Funds Distributor of the information and records referred to
above may be made only after prior notification to and approval in writing by
the Fund. Such approval shall not be unreasonably withheld and may not be
withheld where: (i) Funds Distributor may be exposed to civil or criminal
contempt proceedings for failure to divulge such information; (ii) Funds
Distributor is requested to divulge such information by duly constituted
authorities; or (iii) Funds Distributor is so requested by the Fund.
V. INDEMNIFICATION
1. FUND REPRESENTATION. The Fund represents and warrants to Funds
Distributor that at all times the Registration Statement and Prospectuses will
in all material respects conform to the applicable requirements of the 1933 Act
and the Rules thereunder and will not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading, except that no representation or warranty
in this subsection shall apply to statements or omissions made in reliance upon
and in conformity with written information furnished to the Fund by or on behalf
of and with respect to Funds Distributor expressly for use in the Registration
Statement or Prospectuses.
2. FUNDS DISTRIBUTOR REPRESENTATION. Funds Distributor represents and
warrants to the Fund that it is duly organized as a Massachusetts corporation
and is and at all times will remain duly authorized and licensed to carry out
its services as contemplated herein.
3. FUND INDEMNIFICATION. The Fund, on behalf of each Portfolio, agrees
that each Portfolio will indemnify, defend and hold harmless Funds Distributor,
its several officers and directors, and any person who controls Funds
Distributor within the meaning of Section 15 of the 1933 Act, from and against
any losses, claims, damages or liabilities, joint or several, to which any of
them may become subject under the 1933 Act or otherwise, insofar as such losses,
claims
4
<PAGE>
damages or liabilities (or actions or proceedings in respect thereof) arise out
of, or are based upon, any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, the Prospectuses or in
any application or other document executed by or on behalf of a Portfolio, or
arise out of or based upon, information furnished by or on behalf of a
Portfolio, filed in any state in order to sell the Shares under the securities
or blue sky laws thereof ("Blue Sky Application"), or arise out of, or are based
upon, the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse Funds Distributor, its several officers and directors, and
any person who controls Funds Distributor within the meaning of Section 15 of
the 1933 Act, for any legal or other expenses reasonably incurred by any of them
in investigating, defending or preparing to defend any such action, proceeding
or claim; PROVIDED, HOWEVER, that neither the Fund nor any Portfolio shall be
liable in any case to the extent that such loss, claim, damage or liability
arises out of, or is based upon, any untrue statement, alleged untrue statement,
or omission or alleged omission made in the Registration Statement, the
Prospectuses, any Blue Sky Application or any application or other document
executed by or on behalf of the Fund in reliance upon and in conformity with
written information furnished to the Fund by or on behalf of Funds Distributor
specifically for inclusion therein.
A Portfolio shall not indemnify any person pursuant to this subsection 3
unless the court or other body before which the proceeding was brought has
rendered a final decision on the merits that such person was not liable by
reason of his willful misfeasance, bad faith or gross negligence in the
performance of his duties, or his reckless disregard of his obligations and
duties, under this Agreement ("disabling conduct") or, in the absence of such a
decision, a reasonable determination (based upon a review of the facts) that
such person was not liable by reason of disabling conduct has been made by the
vote of a majority of a quorum of Directors of the Fund who are neither
"interested parties" of the Fund (as defined in the 1940 Act) nor parties to the
proceeding, or by an independent legal counsel in a written opinion.
Each Portfolio shall advance attorneys' fees and other expenses incurred
by any person in defending any claim, demand, action or suit which is the
subject of a claim for indemnification pursuant to this subsection 3, so long
as: (i) such person shall undertake to repay all such advances unless it is
ultimately determined that he or she is entitled to indemnification hereunder;
and (ii) such person shall provide security for such undertaking, or the
Portfolio shall be insured against losses arising by reason of any lawful
advances, or a majority of a quorum of the disinterested, non-party directors of
the Fund ( or an independent legal counsel in a written opinion) shall determine
based on a review of readily available facts (as opposed to a full trial-type
inquiry) that there is reason to believe that such person ultimately will be
found entitled to indemnification hereunder.
The obligations of each portfolio under this subsection 3 shall be the
several (and not joint or joint and several) obligation of each Portfolio.
4. FUNDS DISTRIBUTOR INDEMNIFICATION. Funds Distributor will indemnify,
defend and hold harmless the Fund, each Portfolio, the Fund's several officers
and Directors and any person who controls the Fund or any Portfolio within the
meaning of Section 15 of the 1933 Act, from
5
<PAGE>
and against any losses, claims, damages or liabilities, joint or several, to
which any of them may become subject under the 1933 Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect hereof) arise out of, or are based upon, any breach of its
representations, warranties and agreements herein, or which arise out of, or are
based upon, any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, the Prospectuses, any Blue Sky
Application or any application or other documents executed by or on behalf of
the Fund or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, which statement or omission was made in reliance upon and in
conformity with information furnished in writing to the Fund or any of its
several officers and Directors by or on behalf of Funds Distributor specifically
for inclusion therein, and will reimburse the Fund, each Portfolio, the Fund's
several officers and trustees, and any person who controls the Fund or any
Portfolio within the meaning of Section 15 of the 1933 Act, for any legal or
other expenses reasonably incurred by any of them in investigating, defending or
preparing to defend any such action, proceeding or claim.
5. GENERAL INDEMNITY PROVISION. No indemnifying party shall be liable
under its indemnity agreement contained in subsection 3 or 4 hereof with respect
to any claim made against such indemnifying party unless the indemnified party
shall have notified the indemnifying party in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon the indemnified party (or after the
indemnified party shall have received notice of such service on any designated
agent), but failure to notify the indemnifying party of any such claim shall not
relieve it from any liability which it may otherwise have to the indemnified
party. The indemnifying party will be entitled to participate at its own expense
in the defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, and if the indemnifying party elects to assume the
defense, such defense shall be conducted by counsel chosen by it and reasonably
satisfactory to the indemnified party. In the event the indemnifying party
elects to assume the defense of any such suit and retain such counsel, the
indemnified party shall bear the fees and expenses of any additional counsel
retained by the indemnified party.
VI. DURATION AND TERMINATION
This Agreement shall become effective as of the date first above written,
and, unless sooner terminated as provided herein, shall continue until May 6,
1999. Thereafter, if not terminated, this Agreement shall continue automatically
for successive terms of one year, provided that such continuance is specifically
approved at least annually by a vote of the majority of the Board of Directors
of the Fund, including a majority of the Directors who are not "interested
persons" of the Fund and have no direct or indirect financial interest in the
operation of the Plan, this Agreement, or in any agreement relating to the Plan
(the "Plan Directors"), by vote cast in person at a meeting called for the
purpose of voting on such approval; PROVIDED, HOWEVER, that this Agreement may
be terminated with respect to any Portfolio by the Fund at any time, without the
payment of any penalty, by vote of a majority of the Directors or by a vote of a
"majority of the outstanding voting securities" of such Portfolio on 60 days'
written notice to Funds Distributor, or by Funds Distributor at any time,
without the payment of any penalty, on
6
<PAGE>
60 days' written notice to the Fund. This Agreement will automatically and
immediately terminate in the event of its `assignment" (As used in this
Agreement, the terms "majority of the outstanding voting securities" "interested
person" and "assignment" shall have the same meanings as such terms have in the
1940 Act.)
VII. AMENDMENT OF THIS AGREEMENT
No provision of this Agreement may be changed, waived, discharged or
terminated except by an instrument in writing signed by the party against which
an enforcement of the change, waiver, discharge or termination is sought.
VIII. NOTICES
Notices of any kind to be given to the Fund hereunder by Funds Distributor
shall be in writing and shall be duly given if mailed or delivered to the Fund
at 480 Pierce Street, Suite 300, Birmingham, Michigan 48009, Attention: Lee
Munder, with a copy to Paul F. Roye, Esq., Dechert Price & Rhoads, 1500 K Street
N.W., Washington, D.C. 20005-1208, or at such other address or to such
individual as shall be so specified by the Fund to Funds Distributor. Notices of
any kind to be given to Funds Distributor hereunder by the Fund shall be in
writing and shall be duly given if mailed or delivered to Funds Distributor at
60 State Street, Suite 1300, Boston, Massachusetts 02109, Attention: Marie
Connolly or at such other address or to such individual as shall be so specified
by Funds Distributor to the Fund.
IX. MISCELLANEOUS
The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or otherwise
affect their construction or effect. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby. Subject to the
provisions of Section VI hereof, this Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
shall be governed by Maryland law; PROVIDED, HOWEVER, that nothing herein shall
be construed in a manner inconsistent with the 1940 Act or any rule or
regulation of the SEC thereunder.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
ST. CLAIR FUNDS, INC.
By: /S/ LISA ANNE ROSEN
-----------------------
FUNDS DISTRIBUTOR, INC.
By: /S/ MARIE E. CONNOLLY
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EXHIBIT 99(g)(1)
CUSTODY AGREEMENT
AGREEMENT dated as of February 4, 1997 between St. Clair Funds, Inc. ("St.
Clair"), a Maryland Corporation with its principal place of business at 480
Pierce Street, Birmingham, MI 48009, on behalf of the investment portfolios of
St. Clair identified on Schedule A attached hereto (which may be amended from
time to time by attaching Schedule A, a revised list of portfolios, dated and
signed by an authorized representative of each party hereto) (individually, a
"Fund" and collectively, the "Funds"), and Comerica Bank (the "Custodian"), a
Michigan banking corporation and a wholly-owned subsidiary of Comerica
Incorporated, with its principal place of business at One Detroit Center, 500
Woodward Avenue, Detroit, Michigan.
W I T N E S S E T H:
That for and in consideration of the mutual promises hereinafter set forth,
St. Clair and the Custodian agree as follows:
1. DEFINITIONS.
Whenever used in this Agreement or in any Schedules to this Agreement, the
following words and phrases, unless the context otherwise requires, shall have
the following meanings:
(a) "Authorized Person" shall be deemed to include the Chairman of the
Board of Directors, the President, and any Vice President, the Secretary,
the Treasurer or any other person, whether or not any such person is an
officer or employee of the Fund, duly authorized by the Board of Directors
of the Fund to give Oral Instructions and Written Instructions on behalf of
a Fund and listed in the certification annexed hereto as Appendix A or such
other certification as may be received by the Custodian from time to time.
(b) "Book-Entry System" shall mean the Federal Reserve/Treasury book-entry
system for United States and federal agency securities, its successor or
successors and its nominee or nominees.
(c) "Certificate" shall mean any notice, instruction or other instrument in
writing, authorized or required by this Agreement to be given to the
Custodian, which is actually received by the Custodian and signed on behalf
of St. Clair by any two Authorized Persons or any two officers thereof.
(d) "Articles of Incorporation" shall mean the Articles of Incorporation of
St. Clair filed with the State of Maryland Department of Assessments and
Taxation on May 23, 1984, as now in affect and as the same may be amended
from time to time.
(e) "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission
under Section 17(a) of the Securities Exchange Act of 1934, as amended, its
successor or successors and its nominee or nominees, in which the Custodian
is hereby specifically authorized to make deposits. The term " Depository"
shall further mean and include any other person to be named in a
Certificate authorized to act as a depository under the 1940 Act, its
successor or successors and its nominee or nominees.
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(f) "Money Market Security" shall be deemed to include, without limitation,
debt obligations issued or guaranteed as to interest and principal by the
Government of the United States or agencies or instrumentalities thereof,
commercial paper, bank certificates of deposit, bankers' acceptances and
short-term corporate obligations, where the purchase or sale of such
securities normally requires settlement in federal funds on the same day as
such purchase or sale, and repurchase and reverse repurchase agreements
with respect to any of the foregoing types of securities.
(g) "Oral Instructions" shall mean verbal instructions actually received by
the Custodian from a person reasonably believed by the Custodian to be an
Authorized Person.
(h) "Prospectus" shall mean a Fund's current prospectus and statement of
additional information relating to the registration of the Fund's Shares
under the Securities Act of 1933, as amended.
(i) "Shares" refers to the shares of beneficial interest, $.001 par value
per share of a Fund, as may be issued by the Fund from time to time.
(j) "Security" or "Securities" shall be deemed to include bonds,
debentures, notes, stocks, shares, evidences of indebtedness, options and
other securities, commodity interests and investments, including currency,
from time to time of a Fund, including futures contracts, forward contracts
and options on futures contracts and forward contracts.
(k) "Transfer Agent" shall mean the person which performs as the transfer
agent, dividend disbursing agent and shareholder servicing agent functions
for St. Clair.
(l) "Written Instructions" shall mean a written communication actually
received by the Custodian signed by two Authorized Persons or form two
persons reasonably believed by the Custodian to be Authorized Persons by
telex or facsimile machine or any other such system whereby the receiver of
such communication is able to verify through codes or otherwise with a
reasonable degree of certainty the authenticity of the sender of such
communication; however, "Written Instructions" from St. Clair's
Administrator, First Data Investor Services Group, Inc., to the Custodian
shall mean an electronic communication transmitted by fund accountants and
their managers (who have been provided an access code by the Administrator)
and actually received by the Custodian.
(m) The "1940 Act" refers to the Investment Company Act of 1940, and the
Rules and Regulations thereunder, all as amended from time to time.
2. APPOINTMENT OF CUSTODIAN.
(a) St. Clair hereby constitutes and appoints the Custodian as custodian of
all the Securities and monies at the time owned by or in the possession of
the Funds during the period of this Agreement.
(b) The Custodian hereby accepts appointment as such custodian and agrees
to perform the duties thereof as hereinafter set forth.
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(c) The Custodian understands and acknowledges that St. Clair intends to
issue Shares of separate series and classes, and may classify and
reclassify Shares of such series and classes. The Custodian shall identify
to each such series or class the property belonging to such series or class
and in such reports, confirmations and notices to St. Clair called for
under this Agreement shall identify the series or class to which such
report, confirmation or notice pertains. In the event St. Clair establishes
one or more portfolios other than the Funds with respect to which St. Clair
wishes to retain the Custodian to act as custodian, St. Clair shall so
notify the Custodian in writing. If the Custodian is willing to render such
services, the Custodian shall notify St. Clair in writing whereupon each
such portfolio shall be deemed to be a Fund hereunder.
3. COMPENSATION.
(a) St. Clair will compensate the Custodian for its services rendered under
this Agreement in accordance with the fees set forth in the Fee Schedule
annexed hereto as Schedule B and incorporated herein.
(b) Any compensation agreed to hereunder may be adjusted from time to time
by attaching to Schedule B of this Agreement a revised Fee Schedule, dated
and signed by an Authorized Officer or authorized representative of each
party hereto.
(c) The Custodian will bill St. Clair as soon as practicable after the end
of each calendar month, and said billings will be detailed in accordance
with the Fee Schedule for St. Clair. St. Clair will promptly pay to the
Custodian the amount of such billing. The Custodian may charge against any
monies held on behalf of a Fund pursuant to this Agreement such
compensation and any expenses incurred by the Custodian (and reimbursable
by the Fund) in the performance of its duties pursuant to this Agreement.
The Custodian shall also be entitled to charge against any money held on
behalf of a Fund pursuant to this agreement the amount of any loss, damage,
liability or expense incurred with respect to the Fund, including
reasonable counsel fees, for which it shall be entitled to reimbursement
under the provisions of this Agreement.
The expenses which the Custodian may charge against such account
include, but are not limited to, the expenses of Sub-Custodians and foreign
branches of the Custodian incurred in settling transactions outside of
Detroit, Michigan or New York City, New York involving the purchase and
sale of Securities.
(d) Each Fund will use reasonable efforts to avoid cash overdrafts in its
account and will provide offsetting balances with respect to any cash
overdrafts that may occur from time to time.
4. CUSTODY OF CASH AND SECURITIES.
(a) RECEIPT AND HOLDING OF ASSETS.
St. Clair will deliver or cause to be delivered to the Custodian all
Securities and monies owned by the Funds, including cash received from the
issuance of Shares, at any time during the period of this Agreement. The
Custodian will not be responsible for such Securities and monies until
actually received by it. St. Clair shall instruct the Custodian from time
to time in its sole discretion, by means of Written Instructions, or, in
connection with the purchase or sale of Money Market Securities, by means
of Oral Instructions or Written Instructions, as to the manner in which and
in what amounts Securities and monies are to be deposited on behalf of the
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Funds in the Book-Entry System or a Depository and specifically allocated
on the books of the Custodian to the Funds; provided, however, that prior
to the initial deposit of Securities of the Funds in the Book-Entry System
or a Depository, including a deposit connection with the settlement of a
purchase or sale, the Custodian shall have received a Certificate or
Written Instructions specifically approving such deposits by the Custodian
in the Book-Entry System or a Depository. Securities and monies of the
Funds deposited in the Book-Entry System or the Depository will be
represented in accounts which include only assets held by the Custodian for
customers, including but not limited to accounts which the Custodian acts
in a fiduciary or representative capacity.
(b) ACCOUNTS AND DISBURSEMENTS. The Custodian shall establish and maintain
a separate account for each Fund and shall credit to the separate account
all monies received by it for the account of the Fund and shall disburse
the same only:
1. In payment for Securities purchased for the Fund, as provided in
Section 5 hereof;
2. Pursuant to Written Instructions, for the payment of any expense or
liability incurred by the Fund, including but not limited to the
following payments for the account of the Fund: interest, taxes,
management, accounting, transfer agent and legal fees and operating
expenses of the Fund whether or not such expenses are, in whole or in
part, to be capitalized or treated as deferred expenses;
3. In payment of dividends or distributions with respect to the Shares
of the Fund, as provided in Section 7 hereof;
4. In payment of original issue or other taxes with respect to the
Shares of the Fund, as provided in Section 8 hereof;
5. In payment for Shares which have been redeemed by the Fund, as
provided in Section 8 hereof;
6. Pursuant to Written Instructions, setting forth the name and
address of the Fund and the person to whom the payment is to be made,
the amount to be paid and the purpose for which payment is to be made;
7. In payment of fees and in reimbursement of the expenses and
liabilities of the Custodian attributable to the Fund, as provided in
Section 3(a) and Section 11(h) hereof, or
8. To a sub-custodian pursuant to Section 11(f) hereof.
(c) CONFIRMATION AND STATEMENTS. Promptly after the close of business on
each day, the Custodian shall furnish each Fund with confirmations and a
summary of all transfers to or from the account of the Fund during said
day. Where securities purchased by the Funds are in a tangible bulk of
securities registered in the name of the Custodian (or its nominee) or
shown on the Custodian's account on the books of a Depository or the
Book-Entry System, the Custodian shall by book entry or otherwise identify
the quantity of those securities belonging to the Funds. At least monthly,
the Custodian shall furnish each Fund with a detailed statement of the
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Securities and monies held for the Fund under this Agreement. The Custodian
shall also furnish St. Clair with such periodic and special reports as St.
Clair may reasonably request, and such other information as may be agreed
upon from time to time.
(d) REGISTRATION OF SECURITIES AND PHYSICAL SEPARATION. All Securities held
for the Funds which are issued or issuable only in bearer form, except such
Securities as are held in the Book-Entry System, shall be held by the
Custodian in that form; all other Securities held for the Fund may be
registered in the name of the Fund, in the name of any duly appointed
registered nominee of the Custodian as the Custodian may from time to time
determine, or in the name of the Book-Entry System or a Depository or their
successor or successors, or their nominee or nominees. St. Clair reserves
the right to instruct the Custodian as to the method of registration and
safekeeping of the Securities of the Funds. St. Clair agrees to furnish to
the Custodian appropriate instruments to enable the Custodian to hold or
deliver in proper form for transfer, or to register in the name of its
registered nominee or in the name of the Book-Entry System or a Depository,
any Securities which it may hold for the account of the Funds and which may
from time to time be registered in the name of the Funds. The Custodian
shall hold all such Securities specifically allocated to a Fund which are
not held in the Book-Entry System or a Depository in a separate account for
the Fund in the name of the Fund physically segregated at all times from
those of any other person or persons.
(e) SEGREGATED ACCOUNTS. Upon receipt of a Written Instruction the
Custodian will establish segregated accounts on behalf of the Funds to hold
liquid or other assets as it shall be directed by a Written Instruction and
shall increase or decrease the assets in such segregated accounts only as
it shall be directed by subsequent Written Instruction.
(f) COLLECTION OF INCOME AND OTHER MATTERS AFFECTING SECURITIES. Unless
otherwise instructed to the contrary by a Written Instruction, the
Custodian by itself, or through the use of the Book-Entry System or a
Depository with respect to Securities therein deposited, shall with respect
to all Securities held for the Funds in accordance with this Agreement:
1. Collect all income due or payable;
2. Present for payment and collect the amount payable upon all
Securities which may mature or be called, redeemed or retired, or
otherwise become payable. Notwithstanding the foregoing, the Custodian
shall have no responsibility to a Fund for monitoring or ascertaining
any call, redemption or retirement dates with respect to put bonds
which are owned by a Fund and held by the Custodian or its nominees.
Nor shall the Custodian have any responsibility or liability to a Fund
for any loss by a Fund for any missed payment or other defaults
resulting therefrom; unless the Custodian received timely notification
from the Fund specifying the time, place and manner for the
presentment of any such put bond owned by a Fund and held by the
Custodian or its nominee. The Custodian shall not be responsible and
assumes no liability to a Fund for the accuracy or completeness of any
notification the Custodian may furnish to a Fund with respect to put
bonds;
3. Surrender Securities in temporary form for definitive Securities;
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4. Execute any necessary declarations or certificates of ownership
under the Federal income tax laws or the laws or regulations of any
other taxing authority now or hereafter in effect;
5. Hold directly, or through the Book-Entry System or the Depository
with respect to Securities therein deposited, for the account of the
Funds all rights and similar Securities issued with respect to any
Securities held by the Custodian hereunder for the Funds;
6. Transmit promptly to the Fund any proxy statement, proxy materials,
notice of a call or conversion or similar communication received by it
as Custodian; and
7. Receive and hold for the account of each Fund all securities
received as a distribution on the Fund's portfolio of securities as a
result of a stock dividend, share split-up or reorganization,
recapitalization, readjustment or other rearrangement or distribution
of rights or similar securities issued with respect to any portfolio
securities belonging to the Fund.
(g) DELIVERY OF SECURITIES AND EVIDENCE OF AUTHORITY. Upon receipt of
Written Instructions and not otherwise, except for subparagraphs 5, 6, and
7 of this section 4(g) which may be effected by Oral or Written
Instructions, the Custodian, directly or through the use of the Book-Entry
System or a Depository, shall:
1. Execute and deliver or cause to be executed and delivered to such
persons as may be designated in such Written Instructions, proxies,
consents, authorizations, and any other instruments whereby the
authority of a Fund as owner of any Securities may be exercised;
2. Deliver or cause to be delivered any Securities held for a Fund in
exchange for other Securities or cash issued or paid in connection
with the liquidation, reorganization, refinancing, merger,
consolidation or recapitalization of any corporation, or the exercise
of any conversion privilege;
3. Deliver or cause to be delivered any Securities held for a Fund to
any protective committee, reorganization committee or other person in
connection with the reorganization, refinancing, merger, consolidation
or recapitalization or sale of assets of any corporation, and receive
and hold under the terms of this Agreement in the separate account for
the Fund certificates of deposit, interim receipts or other
instruments or documents as may be issued to it to evidence such
delivery;
4. Make or cause to be made such transfers or exchanges of the assets
specifically allocated to the separate account of a Fund and take such
other steps as shall be stated in Written Instructions to be for the
purpose of effecting any duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of the Fund;
5. Deliver Securities owned by a Fund upon sale of such Securities for
the account of the a Fund pursuant to Section 5;
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6. Deliver Securities owned by a Fund upon the receipt of payment in
connection with any repurchase agreement related to such Securities
entered into by the Fund;
7. Deliver Securities owned by a Fund to the issuer thereof, or its
agent, for transfer into the name of the Fund or into the name of any
nominee or nominees of the Custodian or into the name or nominee name
of any agent appointed pursuant to Section 10(f) or into the name or
nominee name of any sub-custodian appointed pursuant to Section 10(e);
or for exchange for a different number of bonds, certificates or other
evidence representing the same aggregate face amount or number of
units; provided, however, that in any such case, the new Securities
are to be delivered to the Custodian;
8. Deliver Securities owned by a Fund to the broker for examination in
accordance with "street delivery" custom;
9. Deliver Securities owned by a Fund in accordance with the
provisions of any agreement among the Fund, the Custodian and any
broker-dealer or any similar organization or organizations relating to
compliance with the rules of any options clearing entity or securities
or commodities exchange, regarding escrow or other arrangements in
connection with transactions by the Fund;
10. Deliver Securities owned by a Fund in accordance with the
provisions of any agreement among the Fund, the Custodian, and a
futures commission merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity futures
Trading Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in
connection with transactions by the Fund;
11. Deliver Securities owned by a Fund for delivery in connection with
any loans of securities made by the Fund but only against receipt of
adequate collateral as agreed upon from time to time by the Custodian
and the Fund which may be in the form of cash or obligations issued by
the United States government, its agencies or instrumentalities;
12. Deliver Securities owned by a Fund for delivery as security in
connection with any borrowings by the Fund requiring a pledge of Fund
assets, but only against receipt of amounts borrowed;
13. Deliver Securities owned by a Fund upon receipt of Written
Instructions from the Fund for delivery to the Transfer Agent or to
the holders of Shares in connection with the distributions in kind, as
may be described from time to time in the Fund's Prospectus, in
satisfaction of requests by holders of Shares for repurchase or
redemption;
14. Deliver Securities as collateral in connection with short sales of
securities by a Fund;
15. Deliver Securities for any purpose expressly permitted by and in
accordance with procedures described in a Fund's Prospectus or
resolution adopted by its Board of Directors signed by an Authorized
Person and certified by the Secretary of St. Clair; and
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16. Deliver Securities owned by a Fund or any other proper business
purpose, but only upon receipt of, in addition to Written
Instructions, a certified copy of a resolution of the Board of
Directors signed by an Authorized Person and certified by the
Secretary of St. Clair, specifying the Securities to be delivered,
setting forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper business purpose, and naming the
person or persons to whom delivery of such Securities shall be made.
(h) ENDORSEMENT AND COLLECTION OF CHECKS, ETC. The Custodian is hereby
authorized to endorse and collect all checks, drafts or other orders for
the payment of money received by the Custodian for the account of a Fund;
provided, however, that the Custodian shall not be liable pursuant to this
Agreement for any money, whether or not represented by check, draft, or
other instrument for the payment of money, received by it on behalf of the
Fund until the Custodian actually receives and collects such money directly
or by the final crediting of the account representing the Fund's interest
in the Book-Entry System or the Depository.
5. PURCHASE AND SALE OF INVESTMENTS OF A FUND.
(a) Promptly after each purchase of Securities for a Fund, the Fund shall
deliver to the Custodian (i) with respect to each purchase of Securities
which are not Money Market Securities, Written Instructions and (ii) with
respect to each purchase of Money Market Securities, either Written
Instructions or Oral Instructions, in either case specifying with respect
to each purchase: (1) the name of the issuer and the title of the
Securities; (2) the number of shares or the principal amount purchased and
accrued interest, if any; (3) the date of purchase and settlement; (4) the
purchase price per unit; (5) the total amount payable upon such purchase;
(6) the name of the person from whom or the broker through whom the
purchase was made, if any; (7) whether or not such purchase is to be
settled through the Book-Entry System or a Depository; and (8) whether the
Securities purchased are to be deposited in the Book-Entry System or
Depository; and (8) whether the Securities purchased are to be deposited in
the Book-Entry System or a Depository. The Custodian shall receive the
Securities purchased by or for the Fund and upon receipt of Securities or,
as appropriate, a copy of the broker's or dealer's confirmation or payee's
invoice, shall pay out of the monies held for the account of the Fund the
total amount payable upon such purchase, provided that the same conforms to
the total amount payable as set forth in such Written or Oral Instructions.
(b) Promptly after each sale of Securities of a Fund, the Fund shall
deliver to the Custodian (i) with respect to each sale of Securities which
are not Money Market Securities, Written Instructions, and (ii) with
respect to each sale of Money Market Securities, either Written
Instructions or Oral Instructions, in either case specifying with respect
to such sale: (1) the name of the issuer and the title of the Securities;
(2) the number of shares or principal amount sold, and accrued interest, if
any; (3) the date of sale; (4) the sale price per unit; (5) the total
amount payable to the Fund upon such sale; (6) the name of the broker
through whom or the person to whom the sale was made; and (7) whether or
not such sale is to be settled through the Book-Entry System or a
Depository. The Custodian shall deliver or cause to be delivered the
Securities to the broker or other person designated by the Fund upon
receipt for the total amount payable to the Fund upon such sale, provided
that the same conforms to the total amount payable to the Fund as set forth
in such Written or Oral Instructions. Subject to the foregoing, the
Custodian may accept payment in such form as shall be satisfactory to it,
and is customary
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among dealers in Securities, and may deliver Securities and arrange for
payment in accordance with the customs prevailing among dealers in
Securities.
6. LENDING OF SECURITIES.
(a) If St. Clair is permitted by the terms of its Articles of Incorporation
and, as disclosed in its Prospectus to lend Securities, within 24 hours
after each loan of Securities, a Fund, shall deliver to the Custodian
Written Instructions specifying with respect to each such loan: (i) the
name of the issuer and the title of the Securities; (ii) the number of
shares or the principal amount loaned; (iii) the date of loan and delivery;
(iv) the total amount to be delivered to the Custodian and specifically
allocated against the loan of the Securities, including the amount of cash
collateral and the premium, if any, separately identified; (v) the name of
the broker, dealer or financial institution to which the loan was made; and
(vi) whether the Securities loaned are to be delivered through the
Book-Entry System or a Depository.
(b) Promptly after each termination of a loan of Securities, a Fund shall
deliver to the Custodian Written Instructions specifying with respect to
each such loan termination and return of Securities: (i) the name of the
issuer and the title of the Securities to be returned; (ii) the number of
shares or the principal amount to be returned; (iii) the date of
termination; (iv) the total amount to be delivered by the Custodian
(including the cash collateral for such Securities minus any offsetting
credits as described in said Written Instructions); (v) the name of the
broker, dealer or financial institution from which the Securities will be
returned; and (vi) whether such return is to be effected through the
Book-Entry System or a Depository. The Custodian shall receive all
Securities returned from the broker, dealer or financial institution to
which such Securities were loaned and upon receipt thereof shall pay the
total amount payable upon such return of Securities as set forth in the
Written Instructions. Securities returned to the Custodian shall be held as
they were prior to such loan.
7. PAYMENT OF DIVIDENDS OR DISTRIBUTIONS.
(a) St. Clair shall furnish to the Custodian Written Instructions
(i) authorizing the declaration of dividends or distributions with respect
to a Fund on a specified periodic basis and specifying the date of the
declaration of such dividend or distribution, the date of payment thereof,
the record date as of which shareholders entitled to payment shall be
determined, and the total amount payable to the Transfer Agent on the
payment date, or (ii) setting forth the date of declaration of any
distribution by the Fund, the date of payment shall be determined, and the
total amount payable to the Transfer Agent on the payment date.
(b) Upon the payment specified in such Written Instructions, the Custodian
shall pay to the Transfer Agent out of monies specifically allocated to and
held for the account of a Fund the total amount payable to the Transfer
Agent. In lieu of paying the Transfer Agent cash dividends and
distributions, the Custodian may arrange for the direct payment of cash
dividends and distributions to Shareholders by the Custodian in accordance
with such procedures and controls as are mutually agreed upon from time to
time by and among St. Clair, the Custodian and the Transfer Agent.
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8. SALE AND REDEMPTION OF SHARES OF ST. CLAIR.
(a) Whenever a Fund shall sell any Shares, the Fund shall deliver or cause
to be delivered to the Custodian Written Instructions duly specifying:
1. The number of Shares sold, trade date, and price; and
2. The amount of money to be received by the Custodian for the sale of
such Shares.
The Custodian understands and agrees that Written Instructions may be
furnished subsequent to the purchase of Shares of the Fund and that the
information contained therein will be derived from the sales of Shares as
reported to the Fund by the Transfer Agent.
(b) Upon receipt of such money from the Transfer Agent, the Custodian shall
credit such money to the separate account of the Fund.
(c) Upon issuance of any Shares in accordance with the foregoing provisions
of this Section 8, the Custodian shall pay all original issue or other
taxes required to be paid in connection with such issuance upon the receipt
of Written Instructions specifying the amount to be paid.
(d) Except as provided hereafter, whenever any Shares are redeemed, the
Fund shall cause the Transfer Agent to promptly furnish to the Custodian
Written Instructions, specifying:
1. The number of Shares redeemed; and
2. The amount to be paid for the Shares redeemed.
The Custodian further understands that the information contained in
such Written Instructions will be derived from the redemption of Shares as
reported to the Fund by the Transfer Agent.
(e) Upon receipt from the Transfer Agent of advice setting forth the number
of Shares received by the Transfer Agent for redemption and that such
Shares are valid and in good form for redemption, the Custodian shall make
payment to the Transfer Agent of the total amount specified in Written
Instructions issued pursuant to paragraph (d) of this Section 8. In lieu of
paying the Transfer Agent said redemption proceeds as stated, the Custodian
may arrange for the direct payment of said proceeds to Shareholders by the
Custodian in accordance with such procedures and controls as are mutually
agreed upon from time to time by and among St. Clair, the Custodian and the
Transfer Agent.
(f) Notwithstanding the above provision regarding the redemption of Shares,
whenever such Shares are redeemed pursuant to any check redemption
privilege which may from time to time be offered by the Fund, the
Custodian, unless otherwise instructed by Written Instructions, shall honor
the check presented as part of such check redemption privilege out of the
monies specifically allocated to the Fund in such advice for such purpose.
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9. INDEBTEDNESS.
(a) St. Clair will cause to be delivered to the Custodian by any bank
(excluding the Custodian) from which a Fund borrows money, a notice or
undertaking in the form currently employed by any bank setting forth the
amount which such bank will loan to the Fund and the amount of collateral,
if any, required for such loan. St. Clair shall promptly deliver to the
Custodian Written Instructions stating with respect to each such borrowing:
(i) the name of the bank; (ii) the amount and terms of the borrowing, which
may be set forth by incorporating by reference an attached promissory note,
duly endorsed by the Fund, or other loan agreement or evidence of
indebtedness; (iii) the time and date, if known, on which the loan is to be
entered into (the "Borrowing date"); (iv) the date on which the loan
becomes due and payable; (v) the total amount payable to the Fund on the
Borrowing Date; (vi) the market value of Securities, if any, to be
delivered as collateral for such loan, including the name of the issuer,
the title and the number of shares or the principal or other amount of any
particular Securities; (vii) whether the Custodian is to deliver such
collateral through the Book-Entry System or a Depository; and (viii) a
statement that such loan is in conformance with the 1940 Act and the Fund's
Prospectus.
(b) Upon receipt of the Written Instructions referred to in subparagraph
(a) above, the Custodian shall deliver on the Borrowing Date the specified
collateral (if any) against delivery by the lending bank of the total
amount of the loan payable, provided that the same conforms to the total
amount payable as set forth in the Written Instructions. The Custodian may,
at the option of the lending bank (unless the lending bank has not been
appointed a custodian or sub-custodian of the Fund's assets, in which case
the Custodian must), keep any such collateral in its possession, but such
collateral shall be subject to all rights therein given the lending bank by
virtue of any promissory note or loan agreement. The Custodian shall
deliver as additional collateral in the same manner as directed by the Fund
from time to time such Securities specifically allocated to such Fund as
may be specified in Written Instructions to collateralize further any
transaction described in this Section 9. The Fund shall cause all
Securities released from collateral status be returned directly to the
Custodian, and the Custodian shall receive from time to time such return of
collateral as may be tendered to it. In the event that St. Clair fails to
specify in Written Instructions all of the information required by this
Section 9, the Custodian shall not be under any obligation to deliver any
Securities. Collateral returned to the Custodian shall be held hereunder as
it was prior to being used as collateral.
10. PERSONS HAVING ACCESS TO ASSETS OF THE FUND.
(a) No Trustee, officer, employee or agent of St. Clair, and no officer,
director, employee or agent of a Fund's investment advisers, or any
sub-investment adviser of a Fund, or of a Fund's administrator, shall have
physical access to the assets of the Fund held by the Custodian or be
authorized or permitted to withdraw any investments of the Fund, nor shall
the Custodian deliver any assets of the Fund to any such person. No
officer, director, employee or agent of the Custodian who holds any similar
position with a Fund's investment advisers, with any sub-investment adviser
of a Fund or with a Fund's administrator shall have access to the assets of
the Fund.
(b) The individual employees of the Custodian duly authorized by the Board
of Directors of the Custodian to have access to the assets of the Funds are
listed in the certification annexed
11
<PAGE>
hereto as Appendix A. The Custodian shall advise the Funds of any change in
the individuals authorized to have access to the assets of the Fund by
written notice to the Fund accompanied by a certified copy of the
authorizing resolution of the Custodian's Board of Directors approving such
change.
(c) Nothing in this Section 10 shall prohibit any officer, employee or
agent of the Fund, or any officer, director, employee or agent of the
investment advisers, of any sub-investment adviser of the Funds or of the
Funds' administrator, form giving Oral Instructions or Written Instructions
to the Custodian or executing a Certificate so long as it does not result
in delivery of or access to assets of a Fund prohibited by paragraph (a) of
this Section 10.
11. CONCERNING THE CUSTODIAN.
(a) STANDARD OF CONDUCT. In the performance of its duties hereunder, the
Custodian shall be obligated to exercise care and diligence and to act in
good faith and to use its best efforts within reasonable limits to insure
the accuracy and completeness of all services under this Agreement. Except
as otherwise provided herein, neither the Custodian nor its nominee shall
be liable for any loss or damage, including counsel fees, resulting from
its action or omission to act or otherwise, except for any such loss or
damage arising out of its negligence, misfeasance or willful misconduct or
that of its employees or agents. The Custodian may, with respect to
questions of law, apply for and obtain the advice and opinion of counsel to
St. Clair or of its own counsel, at the expense of St. Clair, and shall be
fully protected with respect to anything done or omitted by it in good
faith in conformity with such advice or opinion. The Custodian shall be
liable to the Funds for any loss or damage resulting form the use of the
Book-Entry System or a Depository arising by reason of any negligence,
misfeasance or willful misconduct on the part of the custodian or any of
its employees or agents.
(b) LIMIT OF DUTIES. Without limiting the generality of the foregoing, the
Custodian shall be under no duty or obligation to inquire into, and shall
not be liable for:
1. The validity of the issue of any Securities purchased by the Funds,
the legality of the purchase thereof, or the propriety of the amount
paid therefor;
2. The legality of the sale of any Securities by the Funds or the
propriety of the amount for which the same are sold;
3. The legality of the issue or sale of any Shares, or the sufficiency
of the amount to be received therefor;
4. The legality of the redemption of any Shares, or the propriety of
the amount to be paid therefor;
5. The legality of the declaration or payment of any distribution of
any Fund; or
6. The legality of any borrowing.
(c) NO LIABILITY UNTIL RECEIPT. The Custodian shall not be liable for, or
considered to be the Custodian of, any money, whether or not represented by
any check, draft, or other instrument for
12
<PAGE>
the payment of money, received by it on behalf of a Fund until the
Custodian actually receives and collects such money directly or by the
final crediting of the account representing the Fund's interest in the
Book-Entry System or a Depository.
(d) AMOUNTS DUE FROM TRANSFER AGENT. The Custodian shall not be under any
duty or obligation to take action to effect collection of any amount due to
the funds from the Transfer Agent nor to take any action to effect payment
or distribution by the Transfer Agent of any amount paid by the Custodian
to the Transfer Agent in accordance with this Agreement.
(e) COLLECTION WHERE PAYMENT REFUSED. The Custodian shall not be under any
duty or obligation to take action to effect collection of any amount, if
the Securities upon which such amount is payable are in default, or if
payment is refused after the due demand or presentation, unless and until
(i) it shall be directed to take such action by a Certificate and (ii) it
shall be assured to its satisfaction of reimbursement of its costs and
expenses in connection with any such action. The Custodian shall give the
Funds prompt notice of each such event.
(f) APPOINTMENT OF SUB-CUSTODIANS. In connection with its duties under this
Agreement, the Custodian may, at its own expense, enter into sub-custodian
agreements with other domestic banks or trust companies for the receipt of
certain securities and cash to be held by the Custodian for the accounts of
the Funds pursuant to this Agreement; provided that each such bank or trust
company complies with all relevant provisions of the 1940 Act, applicable
state securities laws and the rules and regulations thereunder. The
custodian shall remain responsible for the performance of all of its duties
under this Agreement and shall hold St. Clair harmless from the acts and
omissions, under the standards of care provided for herein, of any domestic
bank or trust company that it might choose pursuant to this Section. The
parties hereto acknowledge that they intend to enter into a Sub-Custodian
Agreement with Boston Safe Deposit and Trust Company or another institution
agreeable to them providing for the custody of certain securities outside
the United States in accordance with Rule 17f-5 under the 1940 Act.
(g) NO DUTY TO ASCERTAIN AUTHORITY. The Custodian shall not be under any
duty or obligation to ascertain whether any Securities at any time
delivered to or held by it for the Fund are such as may properly be held by
the Fund under the provisions of the Articles of Incorporation and the
Prospectus.
(h) RELIANCE ON CERTIFICATES AND INSTRUCTIONS. The custodian shall be
entitled to rely upon any Certificate, notice or other instrument in
writing received by the Custodian and reasonably believed by the Custodian
to be genuine and to be signed by two officers of St. Clair or Authorized
Persons. The Custodian shall be entitled to rely upon any Written or Oral
Instructions actually received by the Custodian pursuant to the applicable
Sections of this Agreement and reasonably believed by the Custodian to be
genuine and to be given by an Authorized Person in the case of Oral
Instructions or two Authorized Persons in the case of Written Instructions.
St. Clair agrees to forward the Custodian Written Instructions form two
Authorized Persons confirming such Oral Instructions in such manner so that
such Written Instructions are received by the Custodian, whether by hand or
delivery, telex or otherwise, by the close of business on the same day that
such Oral Instructions are given to the Custodian. St. Clair agrees that
the fact that such confirming instructions are not received by the
custodian shall in no way affect the validity of the transactions or
enforceability of the transactions hereby authorized by St. Clair. St.
Clair agrees that the Custodian shall incur no liability to St. Clair in
acting upon Oral Instructions
13
<PAGE>
given to the Custodian hereunder concerning such transactions provided such
instructions reasonably appear to have been received from a duly Authorized
Person.
(i) BOOKS AND RECORDS. The books and records pertaining to St. Clair which
are now or hereafter in the possession of the Custodian shall be the
property of St. Clair. Such books and records shall be prepared and
maintained as required by the 1940 Act and other applicable securities laws
and regulations and shall, to the extent practicable, be maintained
separately for each Fund of St. Clair. St. Clair, St. Clair's authorized
representatives and auditors shall have access to such books and records at
all times during the Custodian's normal business hours. Upon the reasonable
request of St. Clair, copies of any such books and records shall be
provided by the custodian to St. Clair or St. Clair's authorized
representatives at St. Clair's expense.
The Custodian shall provide St. Clair with any report obtained by the
Custodian on the system of internal accounting control of the Book-Entry
System or a Depository and with such reports on its own systems of internal
accounting control in accordance with the requirements of the 1940 Act and
as St. Clair may reasonably request from time to time.
(j) COOPERATION WITH ACCOUNTANTS. The Custodian shall cooperate with St.
Clair's independent public accountants and shall take all reasonable action
in the performance of its obligations under this Agreement to assure that
the necessary information is made available to such accountants for the
expression of their opinions, as such may be required from time to time by
St. Clair.
(k) COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS. The Custodian shall
comply with all applicable requirements of the federal securities and
commodities laws, and any other laws, rules and regulations of governmental
authorities having jurisdiction with respect to the duties to be performed
by the Custodian hereunder. Except as specifically set forth herein, the
Custodian assumes no responsibility for such compliance by St. Clair.
12. TERM AND TERMINATION.
(a) This Agreement shall become effective on the date first set forth above
(the "Effective Date") and shall continue in effect thereafter until
terminated pursuant to paragraph (b) of this Section 12.
(b) Either of the parties hereto may terminate this Agreement at any time
by giving to the other party a notice in writing specifying the date of
such termination, which shall be not less than 60 days after the date of
receipt of such notice. In the event such notice is given by St. Clair, it
shall be accompanied by a certified resolution of the Board of Directors of
St. Clair, electing to terminate this Agreement and designating a successor
custodian or custodians, which shall be a person qualified to so act under
the 1940 Act.
In the event such notice is given by the Custodian, St. Clair shall,
on or before the termination date, deliver to the Custodian a certified
resolution of the Board of Directors of St. Clair, designating a successor
custodian or custodians. In the absence of such designation by St. Clair,
the Custodian may designate a successor custodian, which shall be a person
qualified to so act under the 1940 Act. If St. Clair fails to designate a
successor custodian, St. Clair shall upon the specified in the notice of
termination of this Agreement and upon the delivery by the Custodian of all
Securities (other than Securities held in the Book-Entry System and other
14
<PAGE>
securities held in uncertificated form which cannot be delivered to St.
Clair) and monies then owned by St. Clair, be deemed to be its own
custodian and the Custodian shall thereby be relieved of all duties and
responsibilities pursuant to this Agreement, other than the duty with
respect to Securities held in the Book-Entry System and other
uncertificated securities which cannot be delivered to St. Clair.
(c) Upon the date set forth in such notice under paragraph (b) of this
Section 12, this Agreement shall terminate to the extent specified in such
notice, and the Custodian shall upon receipt of a notice of acceptance by
the successor custodian deliver directly to the successor custodian on that
date all Securities and monies then held by the Custodian on behalf of the
Fund, after deducting all fees, expenses and other amounts the payment or
reimbursement of which it shall then be entitled.
13. MISCELLANEOUS.
(a) Annexed hereto as Appendix A is a certification signed by two of the
present officers of St. Clair setting forth the names and the signatures of
the present Authorized Persons. St. Clair agrees to furnish to the
Custodian a new certification in similar form in the event that any such
present Authorized Person ceases to be such an Authorized Person or in the
event that other or additional Authorized Persons are elected or appointed.
Until such new certification shall be received, the Custodian shall be
fully protected in acting under the provisions of this Agreement upon Oral
Instructions or signatures of the present Authorized Persons as set forth
in the last delivered certification.
(b) Annexed hereto as Appendix B is a certification signed by the present
officers of St. Clair setting forth the names and the signatures of the
three present officers of St. Clair. St. Clair agrees to furnish to the
Custodian a new certification in similar form in the event any such present
officer ceases to be an officer of St. Clair or in the event that other or
additional officers are elected or appointed. Until such new certification
shall be received, the Custodian shall be fully protected in acting under
the provisions of this Agreement upon the signature of the officers as set
forth in the last delivered certification.
(c) Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, shall be sufficiently given if
addressed to the Custodian and mailed or delivered to it at its offices at
411 West Lafayette, 2nd Floor MasterTrust Mail Code 3438, Detroit, Michigan
48226, Attn.: Julie Elya or at such other place as the Custodian may from
time to time designate in writing.
(d) Any notice or other instrument in writing, authorized or required by
this Agreement to be given to St. Clair, shall be sufficiently given if
addressed to St. Clair and mailed or delivered to Lee P. Munder, President,
St. Clair Funds, Inc., 480 Pierce Street, Suite 300, Birmingham, Michigan
48009, or to such other place as St. Clair may from time to time designate
in writing.
(e) This Agreement may not be amended or modified in any manner except by a
written agreement executed by both parties with the same formality as this
Agreement, (i) authorized and approved by a resolution of the Board of
Directors of St. Clair, including a majority of the members of the Board of
Directors of St. Clair who are not "interested persons" of St. Clair (as
defined in the 1940 Act), or (ii) authorized and approved by such other
procedures as may be permitted or required by the 1940 Act.
15
<PAGE>
(f) This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by St. Clair without the
written consent of the Custodian, or by the Custodian without the written
consent of St. Clair authorized or approved by a resolution of the Board of
Directors of St. Clair, and any attempt assignment without such written
consent shall be null and void.
(g) This Agreement shall be construed in accordance with the laws of the
State of Maryland.
(h) The captions of the Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
(i) This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective representatives duly authorized as of the day and
years first above written.
ST. CLAIR FUNDS,INC.
By: /S/ LISA ANNE ROSEN
--------------------------------------
Name: Lisa Anne Rosen
Title: Secretary and Assistant
Treasurer
COMERICA BANK
By: /S/ JULIE ELYA
--------------------------------------
Name: Julie Elya
Title: Vice President
16
<PAGE>
SCHEDULE A
LIST OF FUNDS
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
Munder Aggregate Bond Index Fund
ST. CLAIR FUNDS, INC.
By: /S/ LISA ANNE ROSEN
----------------------------------------
Title: Secretary and Assistant Treasurer
COMERICA BANK
By: /S/ JULIE ELYA
----------------------------------------
Title: Vice President
17
<PAGE>
SCHEDULE B
FEE SCHEDULE
ANNUAL FEE
Computed daily and payable monthly based on the aggregate average daily net
assets of St. Clair Funds, Inc.
<TABLE>
<S> <C>
First $100 million of net assets .03%
Next $500 million of net assets .02%
Over $600 million of net assets .01%
</TABLE>
TRANSITION CHARGES
<TABLE>
<S> <C>
DTC Trades $2.00 per trade
Fed Book Entry Trade $12.00 per trade
U.S. Physical Trade $25.00 per trade
</TABLE>
18
<PAGE>
APPENDIX A
I, Lisa A. Rosen, Secretary of St. Clair Funds, Inc., a Maryland
corporation ("St. Clair") do hereby certify that:
The individuals shown on Exhibit A attached hereto have been duly
authorized as Authorized Persons to give Oral Instructions and Written
Instructions on behalf of St. Clair and the signatures set forth opposite their
respective names are their true and correct signatures.
St. Clair Funds, Inc.
/S/ LISA A. ROSEN
---------------------------
Lisa A. Rosen, Secretary
19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
NAME SIGNATURE
<S> <C>
Steven Albrecht /s/ Steven Albrecht
------------------------
Joseph Aceto
------------------------
Leonard J. Barr II /s/ Leonard Barr
------------------------
Kristopher Belken
------------------------
Stephanie Benson
------------------------
Chelia Cicione
------------------------
Ann Conrad /s/ Ann Conrad
------------------------
Philip D. Dano
------------------------
Patti DePace
------------------------
John E. Dicker
------------------------
Arnold K. Douville
------------------------
Edward Eberle
------------------------
Sharon Fayolle /s/ Sharon Fayolle
------------------------
Terry H. Gardner /s/ Terry H. Gardner
------------------------
Cheryl Z. Germeroth /s/ Cheryl Z. Germeroth
------------------------
Michael Georgio
------------------------
Mike Gura
------------------------
Allan Harris
------------------------
Otto G. Hinzmann, Jr. /s/ Otto G. Hinzmann, Jr
------------------------
Peter Hoglund /s/ Peter Hoglund
------------------------
Brian T. Jeffries
------------------------
Todd Johnson
------------------------
Julie Kahan
------------------------
Anne Kennedy /s/ Anne Kennedy
------------------------
Theodore Miller
------------------------
Francis Murphy
------------------------
Lee P. Munder /s/ Lee P. Munder
------------------------
Greg Prost /s/ Greg Prost
------------------------
Ronald Reed
------------------------
David Rever /s/ David Rever
------------------------
D. Gary Richardson /s/ D. Gary Richardson
------------------------
James Robinson /s/ James Robinson
------------------------
Lisa A. Rosen /s/ Lisa A. Rosen
------------------------
Peter Root /s/ Peter Root
------------------------
Robert Samrah
------------------------
Kenneth Schluchter
------------------------
Gerald Seizert /s/ Gerald Seizert
------------------------
Susan Verdun /s/ Susan Verdun
------------------------
Joseph A. Viselli
------------------------
Jeffrey A. Wrona
------------------------
Carl Wilk
------------------------
</TABLE>
20
<PAGE>
APPENDIX B
I, Lisa A. Rosen, Secretary of St. Clair Funds, Inc., a Maryland
corporation ("St. Clair"), do hereby certify that:
The following individuals serve in the following positions with St. Clair
and each individual has been duly elected or appointed to each such position and
qualified therefor in conformity with St. Clair's Articles of Organization and
the signatures set forth opposite their respective names are their true and
correct signatures:
<TABLE>
<CAPTION>
NAME POSITION SIGNATURE
<S> <C> <C>
Charles W. Elliott Chairman of the Board of Directors
---------------------------------
John D. Rakolta, Jr. Vice Chairman
---------------------------------
Lee P. Munder President /s/ Lee P. Munder
---------------------------------
Terry H. Gardner Vice President Chief Financial
Officer and Treasurer /s/ Terry H. Gardner
---------------------------------
Leonard J. Barr II Vice President /s/ Leonard J. Barr II
---------------------------------
Ann F. Putallaz Vice President /s/ Ann F. Putallaz
---------------------------------
James C. Robinson Vice President /s/ James C. Robinson
---------------------------------
Gerald L. Seizert Vice President /s/ Gerald L. Seizert
---------------------------------
Paul D. Tobias Vice President /s/ Paul D. Tobias
---------------------------------
Elyse G. Essick Vice President /s/ Elyse G. Essick
---------------------------------
Richard H. Rose Assistant Treasurer
---------------------------------
Lisa A. Rosen Secretary and Assistant Treasurer /s/ Lisa A. Rosen
---------------------------------
Teresa M.R. Hamlin Assistant Secretary
---------------------------------
Julie A. Tedesco Assistant Secretary
---------------------------------
</TABLE>
21
<PAGE>
EXHIBIT 99(g)(3)
SUB-CUSTODIAN CONTRACT
Among
ST. CLAIR FUNDS, INC.,
COMERICA BANK
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. Employment of Sub-Custodian and Property to be Held By
It.....................................................................1
2. Duties of the Sub-Custodian with Respect to Property
of the Fund Held by the Sub-Custodian in the United States.............2
2.1 Holding Securities...............................................2
2.2 Delivery of Securities...........................................2
2.3 Registration of Securities.......................................4
2.4 Bank Accounts....................................................4
2.5 Availability of Federal Funds....................................5
2.6 Collection of Income.............................................5
2.7 Payment of Fund Monies...........................................5
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased.............................................6
2.9 Appointment of Agents............................................7
2.10 Deposit of Fund Assets in U.S. Securities System.................7
2.11 Fund Assets Held in the Sub-Custodian's Direct
Paper System.....................................................9
2.12 Segregated Account...............................................9
2.13 Ownership Certificates for Tax Purposes..........................9
2.14 Proxies.........................................................10
2.15 Communications Relating to Portfolio
Securities......................................................10
3. Duties of the Sub-Custodian with Respect to Property of
the Fund Held Outside of the United States............................10
3.1 Appointment of Foreign Sub-Sub-Custodians.......................10
3.2 Assets to be Held...............................................10
3.3 Foreign Securities Systems......................................10
3.4 Holding Securities..............................................11
3.5 Agreements with Foreign Banking Institutions....................11
3.6 Access of Independent Accountants of the Fund...................11
3.7 Reports by Sub-Sub-Custodian....................................11
3.8 Transactions in Foreign Custody Account.........................11
3.9 Liability of Foreign Sub-Sub-Custodians.........................12
3.10 Liability of Sub-Custodian......................................12
3.11 Reimbursement for Advances......................................12
3.12 Monitoring Responsibilities.....................................13
3.13 Branches of U.S. Banks..........................................13
3.14 Tax Law.........................................................13
4. Payments for Sales or Repurchases or Redemptions
of Shares of the Fund.................................................13
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5. Proper Instructions...................................................14
6. Actions Permitted Without Express Authority...........................14
7. Evidence of Authority.................................................15
8. Duties of Sub-Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net Income.....................15
9. Records...............................................................15
10. Opinion of Fund's Independent Accountants.............................15
11. Reports to Fund by Independent Public Accountants.....................16
12. Compensation of Sub-Custodian.........................................16
13. Responsibility of Sub-Custodian.......................................16
14. Effective Period, Termination and Amendment...........................18
15. Successor Sub-Custodian...............................................18
16. Interpretive and Additional Provisions................................19
17. Additional Funds......................................................19
18. Massachusetts Law to Apply............................................19
19. Prior Contracts.......................................................20
20. Reproduction of Documents.............................................20
21. Shareholder Communications Election...................................20
22. Use of Fund's Name....................................................20
</TABLE>
<PAGE>
SUB-CUSTODIAN CONTRACT
This Contract among St. Clair Funds, Inc., a corporation organized and
existing under the laws of Maryland, having its principal place of business at
480 Pierce Street, Birmingham, Michigan 48009, hereinafter called the "Fund",
Comerica Bank, a Michigan banking corporation having a principal place of
business at 411 West Lafayette, Detroit, Michigan 48226, hereinafter called the
"Custodian" and State Street Bank and Trust Company, a Massachusetts trust
company, having its principal place of business at 225 Franklin Street, Boston,
Massachusetts, 02110, hereinafter called the "Sub-Custodian",
WITNESSETH:
WHEREAS, the Fund has appointed the Custodian as custodian of its
assets;
WHEREAS, the Custodian and the Fund desire to appoint the Sub-Custodian
to act as sub-custodian of the assets of the Fund;
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund currently offers shares in eleven series, 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,
Liquidity Plus Money Market Fund, Munder Institutional S&P 500 Index Equity
Fund, Munder Institutional S&P MidCap Index Equity Fund, Munder Institutional
S&P SmallCap Index Equity Fund, Munder Institutional Short Term Treasury Fund
and Munder Institutional Money Market Fund (such series together with all other
series subsequently established by the Fund and made subject to this Contract in
accordance with paragraph 17, being herein referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT OF SUB-CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Custodian and the Fund hereby employ the Sub-Custodian as the
Sub-Custodian of the assets of the Portfolios of the Fund, including securities
which the Fund, on behalf of the applicable Portfolio desires to be held in
places within the United States ("domestic securities") and securities it
desires to be held outside the United States ("foreign securities") pursuant to
the provisions of the Articles of Incorporation. The Fund on behalf of the
Portfolio(s) agrees to deliver to the Sub-Custodian all securities and cash of
the Portfolios, and all payments of income, payments of principal or capital
distributions received by it with respect to all securities owned by the
Portfolio(s) from time to time, and the cash consideration received by it for
such new or treasury shares of capital stock of the Fund representing interests
in the Portfolios, ("Shares") as may be issued or sold from time to time. The
Sub-Custodian shall not be responsible for any property of a Portfolio held or
received by the Portfolio and not delivered to the Sub-Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Sub-Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-sub-custodians, located in the United States but
only in accordance with an applicable vote by the Board of Directors of the Fund
on
<PAGE>
behalf of the applicable Portfolio(s), and provided that the Sub-Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-sub-custodian so employed than any such
sub-sub-custodian has to the Sub-Custodian. The Sub-Custodian may employ as
sub-sub-custodian for the Fund's foreign securities on behalf of the applicable
Portfolio(s) the foreign banking institutions and foreign securities
depositories designated in Schedule A hereto but only in accordance with the
provisions of Article 3.
2. DUTIES OF THE SUB-CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD
BY THE SUB-CUSTODIAN IN THE UNITED STATES
2.1 HOLDING SECURITIES. The Sub-Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, to be held by it
in the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository or
in a book-entry system authorized by the U.S. Department of the Treasury
(each, a U.S. Securities System") and (b) commercial paper of an issuer
for which State Street Bank and Trust Company acts as issuing and paying
agent ("Direct Paper") which is deposited and/or maintained in the Direct
Paper System of the Sub-Custodian (the "Direct Paper System") pursuant to
Section 2.11.
2.2 DELIVERY OF SECURITIES. The Sub-Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Sub-Custodian or in a
U.S. Securities System account of the Sub-Custodian or in the
Sub-Custodian's Direct Paper book entry system account ("Direct Paper
System Account") only upon receipt of Proper Instructions from the Fund on
behalf of the applicable Portfolio, which may be continuing instructions
when deemed appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Portfolio;
3) In the case of a sale effected through a U.S. Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Sub-Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of
the Portfolio or into the name of any nominee or nominees of the
Sub-Custodian or into the name or nominee name of any agent
appointed pursuant to Section 2.9 or into the name or nominee name
of any sub-sub-custodian appointed pursuant to Article 1; or for
exchange for a different number of bonds, certificates or other
evidence representing the same aggregate face amount or number of
units; PROVIDED that, in any such case, the new securities are to be
delivered to the Sub-Custodian;
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7) Upon the sale of such securities for the account of the Portfolio,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom; provided
that in any such case, the Sub-Custodian shall have no
responsibility or liability for any loss arising from the delivery
of such securities prior to receiving payment for such securities
except as may arise from the Sub-Custodian's own negligence or
willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or pursuant
to any deposit agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Sub-Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar
securities or the surrender of interim receipts or temporary
securities for definitive securities; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Sub-Custodian;
10) For delivery in connection with any loans of securities made by the
Portfolio, BUT ONLY against receipt of adequate collateral as agreed
upon from time to time by the Sub-Custodian and the Fund on behalf
of the Portfolio, which may be in the form of cash or obligations
issued by the United States government, its agencies or
instrumentalities, except that in connection with any loans for
which collateral is to be credited to the Sub-Custodian's account in
the book-entry system authorized by the U.S. Department of the
Treasury, the Sub-Custodian will not be held liable or responsible
for the delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by the
Fund on behalf of the Portfolio requiring a pledge of assets by the
Fund on behalf of the Portfolio, BUT ONLY against receipt of amounts
borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Sub-Custodian and a
broker-dealer registered under the Securities Exchange Act of 1934
(the "Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with the
rules of The Options Clearing Corporation and of any registered
national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection
with transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Sub-Custodian, and a
Futures Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity Futures
Trading Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in
connection with transactions by the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions
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in kind, as may be described from time to time in the currently
effective prospectus and statement of additional information of the
Fund, related to the Portfolio ("Prospectus"), in satisfaction of
requests by holders of Shares for repurchase or redemption; and
15) For any other proper corporate purpose, BUT ONLY upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the Board
of Directors or of the Executive Committee signed by an officer of
the Fund and certified by the Secretary or an Assistant Secretary,
specifying the securities of the Portfolio to be delivered, setting
forth the purpose for which such delivery is to be made, declaring
such purpose to be a proper corporate purpose, and naming the person
or persons to whom delivery of such securities shall be made.
2.3 REGISTRATION OF SECURITIES. Domestic securities held by the Sub-Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Sub-Custodian which nominee shall be
assigned exclusively to the Portfolio, UNLESS the Fund has authorized in
writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as the
Portfolio, or in the name or nominee name of any agent appointed pursuant
to Section 2.9 or in the name or nominee name of any sub-sub-custodian
appointed pursuant to Article 1. All securities accepted by the
Sub-Custodian on behalf of the Portfolio under the terms of this Contract
shall be in "street name" or other good delivery form. If, however, the
Fund directs the Sub-Custodian to maintain securities in "street name",
the Sub-Custodian shall utilize its best efforts only to timely collect
income due the Fund on such securities and to notify the Fund on a best
efforts basis only of relevant corporate actions including, without
limitation, pendency of calls, maturities, tender or exchange offers.
2.4 BANK ACCOUNTS. The Sub-Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio of
the Fund, subject only to draft or order by the Sub-Custodian acting
pursuant to the terms of this Contract, and shall hold in such account or
accounts, subject to the provisions hereof, all cash received by it from
or for the account of the Portfolio, other than cash maintained by the
Portfolio in a bank account established and used in accordance with Rule
17f-3 under the Investment Company Act of 1940. Funds held by the
Sub-Custodian for a Portfolio may be deposited by it to its credit as
Sub-Custodian in the Banking Department of the Sub-Custodian or in such
other banks or trust companies as it may in its discretion deem necessary
or desirable; PROVIDED, however, that every such bank or trust company
shall be qualified to act as a Sub-Custodian under the Investment Company
Act of 1940 and that each such bank or trust company and the funds to be
deposited with each such bank or trust company shall on behalf of each
applicable Portfolio be approved by vote of a majority of the Board of
Directors of the Fund. Such funds shall be deposited by the Sub-Custodian
in its capacity as Sub-Custodian and shall be withdrawable by the
Sub-Custodian only in that capacity.
2.5 AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement between the Fund on
behalf of each applicable Portfolio and the Sub-Custodian, the
Sub-Custodian shall, upon the receipt of Proper Instructions from the Fund
on behalf of a Portfolio, make federal funds available to such Portfolio
as of specified times agreed upon from time to time by the Fund and the
Sub-Custodian in the amount of checks received in payment for Shares of
such Portfolio which are deposited into the Portfolio's account.
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2.6 COLLECTION OF INCOME. Subject to the provisions of Section 2.3, the
Sub-Custodian shall collect on a timely basis all income and other
payments with respect to registered domestic securities held hereunder to
which each Portfolio shall be entitled either by law or pursuant to custom
in the securities business, and shall collect on a timely basis all income
and other payments with respect to bearer domestic securities if, on the
date of payment by the issuer, such securities are held by the
Sub-Custodian or its agent thereof and shall credit such income, as
collected, to such Portfolio's Sub-Custodian account. Without limiting the
generality of the foregoing, the Sub-Custodian shall detach and present
for payment all coupons and other income items requiring presentation as
and when they become due and shall collect interest when due on securities
held hereunder. Income due each Portfolio on securities loaned pursuant to
the provisions of Section 2.2 (10) shall be the responsibility of the
Fund. The Sub-Custodian will have no duty or responsibility in connection
therewith, other than to provide the Fund with such information or data as
may be necessary to assist the Fund in arranging for the timely delivery
to the Sub-Custodian of the income to which the Portfolio is properly
entitled.
2.7 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions from the Fund
on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Sub-Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts
or options on futures contracts for the account of the Portfolio but
only (a) against the delivery of such securities or evidence of
title to such options, futures contracts or options on futures
contracts to the Sub-Custodian (or any bank, banking firm or trust
company doing business in the United States or abroad which is
qualified under the Investment Company Act of 1940, as amended, to
act as a Sub-Custodian and has been designated by the Sub-Custodian
as its agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Sub-Custodian referred
to in Section 2.3 hereof or in proper form for transfer; (b) in the
case of a purchase effected through a U.S. Securities System, in
accordance with the conditions set forth in Section 2.10 hereof; (c)
in the case of a purchase involving the Direct Paper System, in
accordance with the conditions set forth in Section 2.11; (d) in the
case of repurchase agreements entered into between the Fund on
behalf of the Portfolio and the Sub-Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against delivery of the
securities either in certificate form or through an entry crediting
the Sub-Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing
purchase by the Portfolio of securities owned by the Sub-Custodian
along with written evidence of the agreement by the Sub-Custodian to
repurchase such securities from the Portfolio or (e) for transfer to
a time deposit account of the Fund in any bank, whether domestic or
foreign; such transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank pursuant to
Proper Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of securities
owned by the Portfolio as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Portfolio
as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments for
the account of the Portfolio: interest, taxes,
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management, accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in whole
or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio declared
pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, BUT ONLY upon receipt of, in addition
to Proper Instructions from the Fund on behalf of the Portfolio, a
certified copy of a resolution of the Board of Directors or of the
Executive Committee of the Fund signed by an officer of the Fund and
certified by its Secretary or an Assistant Secretary, specifying the
amount of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper
purpose, and naming the person or persons to whom such payment is to
be made.
2.8 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED.
Except as specifically stated otherwise in this Contract, in any and every
case where payment for purchase of domestic securities for the account of
a Portfolio is made by the Sub-Custodian in advance of receipt of the
securities purchased in the absence of specific written instructions from
the Fund on behalf of such Portfolio to so pay in advance, the
Sub-Custodian shall be absolutely liable to the Fund for such securities
to the same extent as if the securities had been received by the
Sub-Custodian.
2.9 APPOINTMENT OF AGENTS. The Sub-Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a Sub-Custodian, as its agent to carry out
such of the provisions of this Article 2 as the Sub-Custodian may from
time to time direct; PROVIDED, however, that the appointment of any agent
shall not relieve the Sub-Custodian of its responsibilities or liabilities
hereunder.
2.10 DEPOSIT OF FUND ASSETS IN U.S. SECURITIES SYSTEMS. The Sub-Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "U.S. Securities System" in accordance with
applicable Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following provisions:
1) The Sub-Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are represented in
an account ("Account") of the Sub-Custodian in the U.S. Securities
System which shall not include any assets of the Sub-Custodian other
than assets held as a fiduciary, Custodian or otherwise for
customers;
2) The records of the Sub-Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the Portfolio;
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3) The Sub-Custodian shall pay for securities purchased for the account
of the Portfolio upon (i) receipt of advice from the U.S. Securities
System that such securities have been transferred to the Account,
and (ii) the making of an entry on the records of the Sub-Custodian
to reflect such payment and transfer for the account of the
Portfolio. The Sub-Custodian shall transfer securities sold for the
account of the Portfolio upon (i) receipt of advice from the U.S.
Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on the
records of the Sub-Custodian to reflect such transfer and payment
for the account of the Portfolio. Copies of all advices from the
U.S. Securities System of transfers of securities for the account of
the Portfolio shall identify the Portfolio, be maintained for the
Portfolio by the Sub-Custodian and be provided to the Fund at its
request. Upon request, the Sub-Custodian shall furnish the Fund on
behalf of the Portfolio confirmation of each transfer to or from the
account of the Portfolio in the form of a written advice or notice
and shall furnish to the Fund on behalf of the Portfolio copies of
daily transaction sheets reflecting each day's transactions in the
U.S. Securities System for the account of the Portfolio;
4) The Sub-Custodian shall provide the Fund for the Portfolio with any
report obtained by the Sub-Custodian on the U.S. Securities System's
accounting system, internal accounting control and procedures for
safeguarding securities deposited in the U.S. Securities System;
5) The Sub-Custodian shall have received from the Fund on behalf of the
Portfolio the initial or annual certificate, as the case may be,
required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Sub-Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting from use
of the U.S. Securities System by reason of any negligence,
misfeasance or misconduct of the Sub-Custodian or any of its agents
or of any of its or their employees or from failure of the
Sub-Custodian or any such agent to enforce effectively such rights
as it may have against the U.S. Securities System; at the election
of the Fund, it shall be entitled to be subrogated to the rights of
the Sub-Custodian with respect to any claim against the U.S.
Securities System or any other person which the Sub-Custodian may
have as a consequence of any such loss or damage if and to the
extent that the Portfolio has not been made whole for any such loss
or damage.
2.11 FUND ASSETS HELD IN THE SUB-CUSTODIAN'S DIRECT PAPER SYSTEM. The
Sub-Custodian may deposit and/or maintain securities owned by a Portfolio
in the Direct Paper System of the Sub-Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions from the Fund
on behalf of the Portfolio;
2) The Sub-Custodian may keep securities of the Portfolio in the Direct
Paper System only if such securities are represented in an account
("Account") of the Sub-Custodian in the Direct Paper System which
shall not include any assets of the Sub-Custodian other than assets
held as a fiduciary, Custodian or otherwise for customers;
3) The records of the Sub-Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Portfolio;
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4) The Sub-Custodian shall pay for securities purchased for the account
of the Portfolio upon the making of an entry on the records of the
Sub-Custodian to reflect such payment and transfer of securities to
the account of the Portfolio. The Sub-Custodian shall transfer
securities sold for the account of the Portfolio upon the making of
an entry on the records of the Sub-Custodian to reflect such
transfer and receipt of payment for the account of the Portfolio;
5) The Sub-Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio, in the form of a written advice or notice, of Direct
Paper on the next business day following such transfer and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transaction in the U.S.
Securities System for the account of the Portfolio;
6) The Sub-Custodian shall provide the Fund on behalf of the Portfolio
with any report on its system of internal accounting control as the
Fund may reasonably request from time to time.
2.12 SEGREGATED ACCOUNT. The Sub-Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on behalf
of each such Portfolio, into which account or accounts may be transferred
cash and/or securities, including securities maintained in an account by
the Sub-Custodian pursuant to Section 2.10 hereof, (i) in accordance with
the provisions of any agreement among the Fund on behalf of the Portfolio,
the Sub-Custodian and a broker-dealer registered under the Exchange Act
and a member of the NASD (or any futures commission merchant registered
under the Commodity Exchange Act), relating to compliance with the rules
of The Options Clearing Corporation and of any registered national
securities exchange (or the Commodity Futures Trading Commission or any
registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Portfolio, (ii) for purposes of segregating cash or
government securities in connection with options purchased, sold or
written by the Portfolio or commodity futures contracts or options thereon
purchased or sold by the Portfolio, (iii) for the purposes of compliance
by the Portfolio with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the Securities
and Exchange Commission relating to the maintenance of segregated accounts
by registered investment companies and (iv) for other proper corporate
purposes, BUT ONLY, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the applicable
Portfolio, a certified copy of a resolution of the Board of Directors or
of the Executive Committee signed by an officer of the Fund and certified
by the Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such purposes to be
proper corporate purposes.
2.13 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Sub-Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Portfolio held by it and in
connection with transfers of securities.
2.14 PROXIES. The Sub-Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder of
such securities, if the securities are registered otherwise than in the
name of the Portfolio or a nominee of the Portfolio, all proxies, without
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indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.15 COMMUNICATIONS RELATING TO PORTFOLIO SECURITIES. Subject to the provisions
of Section 2.3, the Sub-Custodian shall transmit promptly to the Fund for
each Portfolio all written information (including, without limitation,
pendency of calls and maturities of domestic securities and expirations of
rights in connection therewith and notices of exercise of call and put
options written by the Fund on behalf of the Portfolio and the maturity of
futures contracts purchased or sold by the Portfolio) received by the
Sub-Custodian from issuers of the securities being held for the Portfolio.
With respect to tender or exchange offers, the Sub-Custodian shall
transmit promptly to the Portfolio all written information received by the
Sub-Custodian from issuers of the securities whose tender or exchange is
sought and from the party (or his agents) making the tender or exchange
offer. If the Portfolio desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the Portfolio
shall notify the Sub-Custodian at least three business days prior to the
date on which the Sub-Custodian is to take such action.
3. DUTIES OF THE SUB-CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD
OUTSIDE OF THE UNITED STATES
3.1 APPOINTMENT OF FOREIGN SUB-SUB-CUSTODIANS. The Fund hereby authorizes and
instructs the Sub-Custodian to employ as sub-sub-custodians for the
Portfolio's securities and other assets maintained outside the United
States the foreign banking institutions and foreign securities
depositories designated on Schedule A hereto ("foreign
sub-sub-custodians"). Upon receipt of "Proper Instructions", as defined in
Section 5 of this Contract, together with a certified resolution of the
Fund's Board of Directors, the Sub-Custodian and the Fund may agree to
amend Schedule A hereto from time to time to designate additional foreign
banking institutions and foreign securities depositories to act as
sub-sub-custodian. Upon receipt of Proper Instructions, the Fund may
instruct the Sub-Custodian to cease the employment of any one or more such
sub-sub-custodians for maintaining custody of the Portfolio's assets.
3.2 ASSETS TO BE HELD. The Sub-Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-Sub-Custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Sub-Custodian or the Fund may determine to be
reasonably necessary to effect the Portfolio's foreign securities
transactions. The Sub-Custodian shall identify on its books as belonging
to the Fund, the foreign securities of the Fund held by each foreign
sub-sub-custodian.
3.3 FOREIGN SECURITIES SYSTEMS. Except as may otherwise be agreed upon in
writing by the Sub-Custodian and the Fund, assets of the Portfolios shall
be maintained in a clearing agency which acts as a securities depository
or in a book-entry system for the central handling of securities located
outside the United States (each a "Foreign Securities System") only
through arrangements implemented by the foreign banking institutions
serving as sub-sub-custodians pursuant to the terms hereof (Foreign
Securities Systems and U.S. Securities Systems are collectively referred
to herein as the "Securities Systems"). Where possible, such arrangements
shall include entry into agreements containing the provisions set forth in
Section 3.5 hereof.
3.4 HOLDING SECURITIES. The Sub-Custodian may hold securities and other
non-cash property for all of its customers, including the Fund, with a
foreign sub-sub-custodian in a single account that is identified as
belonging to the Sub-Custodian for the benefit of its customers, PROVIDED
HOWEVER,
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that (i) the records of the Sub-Custodian with respect to securities and
other non-cash property of the Fund which are maintained in such account
shall identify by book-entry those securities and other non-cash property
belonging to the Fund and (ii) the Sub-Custodian shall require that
securities and other non-cash property so held by the foreign
sub-sub-custodian be held separately from any assets of the foreign
sub-sub-custodian or of others.
3.5 AGREEMENTS WITH FOREIGN BANKING INSTITUTIONS. Each agreement with a
foreign banking institution shall provide that: (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution or
its creditors or agent, except a claim of payment for their safe custody
or administration; (b) beneficial ownership for the assets of each
Portfolio will be freely transferable without the payment of money or
value other than for custody or administration; (c) adequate records will
be maintained identifying the assets as belonging to each applicable
Portfolio; (d) officers of or auditors employed by, or other
representatives of the Sub-Custodian, including to the extent permitted
under applicable law the independent public accountants for the Fund, will
be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the
Sub-Custodian; and (e) assets of the Portfolios held by the foreign
sub-sub-custodian will be subject only to the instructions of the
Sub-Custodian or its agents.
3.6 ACCESS OF INDEPENDENT ACCOUNTANTS OF THE FUND. Upon request of the Fund,
the Sub-Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of
any foreign banking institution employed as a foreign sub-Sub-Custodian
insofar as such books and records relate to the performance of such
foreign banking institution under its agreement with the Sub-Custodian.
3.7 REPORTS BY SUB-CUSTODIAN. The Sub-Custodian will supply to the Fund from
time to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-sub-custodians, including but not limited to an identification of
entities having possession of the Portfolio(s) securities and other assets
and advices or notifications of any transfers of securities to or from
each custodial account maintained by a foreign banking institution for the
Sub-Custodian on behalf of each applicable Portfolio indicating, as to
securities acquired for a Portfolio, the identity of the entity having
physical possession of such securities.
3.8 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. (a) Except as otherwise provided
in paragraph (b) of this Section 3.8, the provision of Sections 2.2 and
2.7 of this Contract shall apply, MUTATIS MUTANDIS to the foreign
securities of the Fund held outside the United States by foreign
sub-sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the account
of each applicable Portfolio may be effected in accordance with the
customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering securities
to the purchaser thereof or to a dealer therefor (or an agent for such
purchaser or dealer) against a receipt with the expectation of receiving
later payment for such securities from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-sub-custodian
may be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Contract, and the Fund agrees to hold
any such nominee harmless from any liability as a holder of record of such
securities.
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3.9 LIABILITY OF FOREIGN SUB-SUB-CUSTODIANS. Each agreement pursuant to which
the Sub-Custodian employs a foreign banking institution as a foreign
sub-sub-custodian shall require the institution to exercise reasonable
care in the performance of its duties and to indemnify, and hold harmless,
the Sub-Custodian and the Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Sub-Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made
whole for any such loss, damage, cost, expense, liability or claim.
3.10 LIABILITY OF SUB-CUSTODIAN. The Sub-Custodian shall be liable for the acts
or omissions of a foreign banking institution to the same extent as set
forth with respect to sub-sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a U.S.
bank as contemplated by paragraph 3.13 hereof, the Sub-Custodian shall not
be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions, or
acts of war or terrorism or any loss where the sub-sub-custodian has
otherwise exercised reasonable care. Notwithstanding the foregoing
provisions of this paragraph 3.10, in delegating custody duties to State
Street London Ltd., the Sub-Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk (including, but not
limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or (b)
other losses (excluding a bankruptcy or insolvency of State Street London
Ltd. not caused by political risk) due to Acts of God, nuclear incident or
other losses under circumstances where the Sub-Custodian and State Street
London Ltd. have exercised reasonable care.
3.11 REIMBURSEMENT FOR ADVANCES. If the Fund requires the Sub-Custodian to
advance cash or securities for any purpose for the benefit of a Portfolio
including the purchase or sale of foreign exchange or of contracts for
foreign exchange, or in the event that the Sub-Custodian or its nominee
shall incur or be assessed any taxes, charges, expenses, assessments,
claims or liabilities in connection with the performance of this Contract,
except such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at any time
held for the account of the applicable Portfolio shall be security
therefor to the extent thereof, and should the Fund fail to repay the
Sub-Custodian promptly, the Sub-Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent
necessary to obtain reimbursement.
3.12 MONITORING RESPONSIBILITIES. The Sub-Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-sub-custodians employed by the Sub-Custodian. Such information shall
be similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Sub-Custodian
will promptly inform the Fund in the event that the Sub-Custodian learns
of a material adverse change in the financial condition of a foreign
sub-sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-sub-custodian not the subject of an exemptive
order from the Securities and Exchange Commission is notified by such
foreign sub-sub-custodian that there appears to be a substantial
likelihood that its shareholders' equity will decline below $200 million
(U.S. dollars or the equivalent thereof) or that its shareholders' equity
has declined below $200 million (in each case computed in accordance with
generally accepted U.S. accounting principles).
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3.13 BRANCHES OF U.S. BANKS. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of the
Portfolios assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2 (a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26 (a) of said Act. The appointment of any such branch as a
sub-sub-custodian shall be governed by paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom shall
be maintained in an interest bearing account established for the Fund with
the Sub-Custodian's London branch, which account shall be subject to the
direction of the Sub-Custodian, State Street London Ltd. or both.
3.14 TAX LAW. The Sub-Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Sub-Custodian
as Sub-Custodian of the Fund by the tax law of the United States of
America or any state or political subdivision thereof. It shall be the
responsibility of the Fund to notify the Sub-Custodian of the obligations
imposed on the Fund or the Sub-Custodian as Sub-Custodian of the Fund by
the tax law of jurisdictions other than those mentioned in the above
sentence, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and governmental
reporting. The sole responsibility of the Sub-Custodian with regard to
such tax law shall be to use reasonable efforts to assist the Fund with
respect to any claim for exemption or refund under the tax law of
jurisdictions for which the Fund has provided such information.
4. PAYMENTS FOR SALES OR REPURCHASES OR REDEMPTIONS OF SHARES OF THE FUND
The Sub-Custodian shall receive from the distributor for the Shares or
from the transfer agent of the Fund and deposit into the account of the
appropriate Portfolio such payments as are received for Shares of that Portfolio
issued or sold from time to time by the Fund. The Sub-Custodian will provide
timely notification to the Fund on behalf of each such Portfolio and the
transfer agent of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation and any applicable votes of the
Board of Directors of the Fund pursuant thereto, the Sub-Custodian shall, upon
receipt of instructions from the transfer agent, make funds available for
payment to holders of Shares who have delivered to the transfer agent a request
for redemption or repurchase of their Shares. In connection with the redemption
or repurchase of Shares of a Portfolio, the Sub-Custodian is authorized upon
receipt of instructions from the transfer agent to wire funds to or through a
commercial bank designated by the redeeming shareholders. In connection with the
redemption or repurchase of Shares of the Fund, the Sub-Custodian shall honor
checks drawn on the Sub-Custodian by a holder of Shares, which checks have been
furnished by the Fund to the holder of Shares, when presented to the
Sub-Custodian in accordance with such procedures and controls as are mutually
agreed upon from time to time between the Fund and the Sub-Custodian.
5. PROPER INSTRUCTIONS
Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of Directors
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Sub-Custodian reasonably believes
them to have been given by a person authorized to give such instructions with
respect to the transaction involved. The Fund shall cause all oral instructions
to be
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confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Directors of the
Fund accompanied by a detailed description of procedures approved by the Board
of Directors, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Board of
Directors and the Sub-Custodian are satisfied that such procedures afford
adequate safeguards for the Portfolios' assets. For purposes of this Section,
Proper Instructions shall include instructions received by the Sub-Custodian
pursuant to any three - party agreement which requires a segregated asset
account in accordance with Section 2.12.
6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Sub-Custodian may in its discretion, without express authority from
the Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, PROVIDED that all such payments shall be accounted for to
the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Portfolio except as
otherwise directed by the Board of Directors of the Fund.
7. EVIDENCE OF AUTHORITY
The Sub-Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Sub-Custodian may receive and accept a certified copy of a vote of the Board
of Directors of the Fund as conclusive evidence (a) of the authority of any
person to act in accordance with such vote or (b) of any determination or of any
action by the Board of Directors pursuant to the Articles of Incorporation as
described in such vote, and such vote may be considered as in full force and
effect until receipt by the Sub-Custodian of written notice to the contrary.
8. DUTIES OF SUB-CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND
CALCULATION OF NET ASSET VALUE AND NET INCOME
The Sub-Custodian shall keep the books of account of each Portfolio and
compute the net asset value per share of the outstanding shares of each
Portfolio. The Sub-Custodian shall also calculate daily the net income of the
Portfolio as described in the Fund's currently effective prospectus related to
such Portfolio and shall advise the Fund and the transfer agent daily of the
total amounts of such net income and shall advise the transfer agent
periodically of the division of such net income among its various components.
The calculations of the net asset value per share and the daily income of each
Portfolio shall be made at the time or times described from time to time in the
Fund's currently effective prospectus related to such Portfolio.
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9. RECORDS
The Sub-Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund
and shall at all times during the regular business hours of the Sub-Custodian be
open for inspection by duly authorized officers, employees or agents of the Fund
and employees and agents of the Securities and Exchange Commission. The
Sub-Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by each Portfolio and held by the Sub-Custodian and shall, when
requested to do so by the Fund and for such compensation as shall be agreed upon
between the Fund and the Sub-Custodian, include certificate numbers in such
tabulations.
10. OPINION OF FUND'S INDEPENDENT ACCOUNTANT
The Sub-Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS
The Sub-Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Sub-Custodian
under this Contract; such reports, shall be of sufficient scope and in
sufficient detail, as may reasonably be required by the Fund to provide
reasonable assurance that any material inadequacies would be disclosed by such
examination, and, if there are no such inadequacies, the reports shall so state.
12. COMPENSATION OF SUB-CUSTODIAN
The Sub-Custodian shall be entitled to reasonable compensation for its
services and expenses as Sub-Custodian, as agreed upon from time to time between
the Fund on behalf of each applicable Portfolio and the Sub-Custodian.
13. RESPONSIBILITY OF SUB-CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable
care, the Sub-Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Sub-Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by the Fund and shall be without liability to the Fund
or to the Custodian for any action taken or omitted by it in good faith without
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negligence, willful misconduct or reckless disregard of its duties and
obligations under this Contract. It shall be entitled to rely on and may act
upon advice of counsel (who may be counsel for the Fund) on all matters, and
shall be without liability for any action reasonably taken or omitted pursuant
to such advice.
Except as may arise from the Sub-Custodian's own bad faith, negligence,
willful misconduct or reckless disregard of its duties and obligations hereunder
or the bad faith, negligence or willful misconduct or reckless disregard of the
duties and obligations of a sub-sub-custodian or agent, the Sub-Custodian shall
be without liability to the Fund or to the Custodian for any loss, liability,
claim or expense resulting from or caused by; (i) events or circumstances beyond
the reasonable control of the Sub-Custodian or any sub-sub-custodian or
Securities System or any agent or nominee of any of the foregoing, including,
without limitation, nationalization or expropriation, imposition of currency
controls or restrictions, the interruption, suspension or restriction of trading
on or the closure of any securities market, power or other mechanical or
technological failures or interruptions, computer viruses or communications
disruptions, acts of war or terrorism, riots, revolutions, work stoppages,
natural disasters or other similar events or acts; (ii) errors by the Fund or
the Investment Advisor in their instructions to the Sub-Custodian provided such
instructions have been in accordance with this Contract; (iii) the insolvency of
or acts or omissions by a Securities System; (iv) any delay or failure of any
broker, agent or intermediary, central bank or other commercially prevalent
payment or clearing system to deliver to the Sub-Custodian's sub-sub-custodian
or agent securities purchased or in the remittance or payment made in connection
with securities sold; (v) any delay or failure of any company, corporation, or
other body in charge of registering or transferring securities in the name of
the Sub-Custodian, the Fund, the Sub-Custodian's sub-sub-custodians, nominees or
agents or any consequential losses arising out of such delay or failure to
transfer such securities including non-receipt of bonus, dividends and rights
and other accretions or benefits; (vi) delays or inability to perform its duties
due to any disorder in market infrastructure with respect to any particular
security or Securities System; and (vii) any provision of any present or future
law or regulation or order of the United States of America, or any state
thereof, or any other country, or political subdivision thereof or of any court
of competent jurisdiction.
The Sub-Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-sub-custodians generally in this Contract.
If the Fund on behalf of a Portfolio requires the Sub-Custodian to take
any action with respect to securities, which action involves the payment of
money or which action may, in the opinion of the Sub-Custodian, result in the
Sub-Custodian or its nominee assigned to the Fund or the Portfolio being liable
for the payment of money or incurring liability of some other form, the Fund on
behalf of the Portfolio, as a prerequisite to requiring the Sub-Custodian to
take such action, shall provide indemnity to the Sub-Custodian in an amount and
form satisfactory to it.
If the Fund requires the Sub-Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement) or
in the event that the Sub-Custodian or its nominee shall incur or be assessed
any taxes, charges, expenses, assessments, claims or liabilities in connection
with the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable Portfolio shall
be security therefor to the extent thereof, and should the Fund fail to repay
the Sub-Custodian promptly, the Sub-Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent necessary
to obtain reimbursement.
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The Sub-Custodian shall have no responsibility or liability for any acts
or omissions of any prior custodian, subcustodian, accounting agent or other
service provider to the Fund and shall be indemnified by the Fund against any
claims arising out of or attributable to the acts or omissions of any prior
custodian, subcustodian, accounting agent or other service provider. Without in
any way limiting the foregoing, the Subcustodian shall have no liability in
respect of any loss, damage or expense suffered by the Fund insofar as such
loss, damage or expense arises from the performance of the Subcustodian's duties
hereunder in reliance upon records that were maintained for the Fund by entities
other than the Subcustodian prior to the Subcustodian's appointment as
subcustodian for the Fund.
In no event shall the Sub-Custodian be liable for indirect, special or
consequential damages.
14. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by the Fund, the Custodian or the Sub-Custodian by an instrument in
writing delivered or mailed, postage prepaid to the other parties, such
termination to take effect not sooner than thirty (30) days after the date of
such delivery or mailing; PROVIDED, however that the Sub-Custodian shall not
with respect to a Portfolio act under Section 2.10 hereof in the absence of
receipt of an initial certificate of the Secretary or an Assistant Secretary
that the Board of Directors of the Fund has approved the initial use of a
particular Securities System by such Portfolio, as required by Rule 17f-4 under
the Investment Company Act of 1940, as amended and that the Sub-Custodian shall
not with respect to a Portfolio act under Section 2.11 hereof in the absence of
receipt of an initial certificate of the Secretary or an Assistant Secretary
that the Board of Directors has approved the initial use of the Direct Paper
System by such Portfolio ; PROVIDED FURTHER, however, that the Fund shall not
amend or terminate this Contract in contravention of any applicable federal or
state regulations, or any provision of the Articles of Incorporation, and
further provided, that the Fund on behalf of one or more of the Portfolios may
at any time by action of its Board of Directors (i) substitute another bank or
trust company for the Sub-Custodian by giving notice as described above to the
Sub-Custodian, or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Sub-Custodian by the
Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Sub-Custodian such compensation as may be due as of
the date of such termination and shall likewise reimburse the Sub-Custodian for
its costs, expenses and disbursements.
15. SUCCESSOR SUB-CUSTODIAN
If a successor Sub-Custodian for the Fund, of one or more of the
Portfolios shall be appointed by the Board of Directors of the Fund, the
Sub-Custodian shall, upon termination, deliver to such successor Sub-Custodian
at the office of the Sub-Custodian, duly endorsed and in the form for transfer,
all securities of each applicable Portfolio then held by it hereunder and shall
transfer to an account of the successor Sub-Custodian all of the securities of
each such Portfolio held in a Securities System.
If no such successor Sub-Custodian shall be appointed, the Sub-Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the Board
of Directors of the Fund, deliver at the office of the Sub-Custodian and
transfer such securities, funds and other properties in accordance with such
vote.
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In the event that no written order designating a successor Sub-Custodian
or certified copy of a vote of the Board of Directors shall have been delivered
to the Sub-Custodian on or before the date when such termination shall become
effective, then the Sub-Custodian shall have the right to deliver to a bank or
trust company, which is a "bank" as defined in the Investment Company Act of
1940, doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Sub-Custodian on behalf of each applicable Portfolio and
all instruments held by the Sub-Custodian relative thereto and all other
property held by it under this Contract on behalf of each applicable Portfolio
and to transfer to an account of such successor Sub-Custodian all of the
securities of each such Portfolio held in any Securities System. Thereafter,
such bank or trust company shall be the successor of the Sub-Custodian under
this Contract.
In the event that securities, funds and other properties remain in the
possession of the Sub-Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors to appoint a successor Sub-Custodian, the Sub-Custodian
shall be entitled to fair compensation for its services during such period as
the Sub-Custodian retains possession of such securities, funds and other
properties and the provisions of this Contract relating to the duties and
obligations of the Sub-Custodian shall remain in full force and effect.
16. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Contract, the Sub-Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, PROVIDED that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Articles of Incorporation
of the Fund. No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Contract.
17. ADDITIONAL FUNDS
In the event that the Fund establishes one or more series of Shares in
addition to 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, Liquidity Plus Money Market Fund, Munder
Institutional S&P 500 Index Equity Fund, Munder Institutional S&P MidCap Index
Equity Fund, Munder Institutional S&P SmallCap Index Equity Fund, Munder
Institutional Short Term Treasury Fund and Munder Institutional Money Market
Fund with respect to which it desires to have the Sub-Custodian render services
as Sub-Custodian under the terms hereof, it shall so notify the Sub-Custodian in
writing, and if the Sub-Custodian agrees in writing to provide such services,
such series of Shares shall become a Portfolio hereunder.
18. MASSACHUSETTS LAW TO APPLY
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
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19. PRIOR CONTRACTS
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each of the Portfolios and the
Sub-Custodian relating to the custody of the Fund's assets.
20. REPRODUCTION OF DOCUMENTS
This Contract and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
all/each agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
21. SHAREHOLDER COMMUNICATIONS ELECTION
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Sub-Custodian needs the Fund to indicate whether it authorizes the
Sub-Custodian to provide the Fund's name, address, and share position to
requesting companies whose securities the Fund owns. If the Fund tells the
Sub-Custodian "no", the Sub-Custodian will not provide this information to
requesting companies. If the Fund tells the Sub-Custodian "yes" or does not
check either "yes" or "no" below, the Sub-Custodian is required by the rule to
treat the Fund as consenting to disclosure of this information for all
securities owned by the Fund or any funds or accounts established by the Fund.
For the Fund's protection, the Rule prohibits the requesting company from using
the Fund's name and address for any purpose other than corporate communications.
Please indicate below whether the Fund consents or objects by checking one of
the alternatives below.
YES [ ] The Sub-Custodian is authorized to release the Fund's name,
address, and share positions.
NO [ ] The Sub-Custodian is not authorized to release the Fund's name,
address, and share positions.
22. USE OF FUND'S NAME
The Sub-Custodian shall not, without the written consent of the Custodian
and the Fund, identify the Fund, or any Portfolio, as a custodial client of the
Sub-Custodian in any promotional materials, proposals to or other communications
with clients or prospective clients.
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IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 5th day of August, 1997.
ATTEST ST. CLAIR FUNDS, INC.
/S/ HOPE THOMPSON- MITCHELL By: /S/ LISA ANNE ROSEN
- ---------------------------- -------------------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
/S/ MAUREEN KANE By: /S/ KATHLEEN C. CUOCOLO
- ---------------------------- -------------------------------
ATTEST COMERICA BANK
/S/ STEPHEN D. MARGRIT By: /S/ SCOTT D. SEIBERT
- ---------------------------- -------------------------------
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SCHEDULE A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Directors of St. Clair Funds,
Inc. for use as sub-sub-custodians for the Fund's securities and other assets:
(Insert banks and securities depositories)
Certified:
- ---------------------------
Fund's Authorized Officer
Date:
--------------------
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Exhibit 99(h)(1)
ADMINISTRATION AGREEMENT
Agreement dated as of August 5, 1997 by and between State Street
Bank and Trust Company, a Massachusetts trust company (the "Administrator"),
and St. Clair Funds, Inc. (the "Fund").
WHEREAS, the Fund is registered as an open-end, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund desires to retain the Administrator to furnish
certain administrative services to the Fund, and the Administrator is willing to
furnish such services, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties hereto agree as follows:
1. APPOINTMENT OF ADMINISTRATOR
The Fund hereby appoints the Administrator to act as administrator
with respect to the Fund for purposes of providing certain administrative
services for the period and on the terms set forth in this Agreement. The
Administrator accepts such appointment and agrees to render the services stated
herein.
The Fund will initially consist of the portfolio(s) and/or class(es)
of shares (each an "Investment Fund") listed in Schedule A to this Agreement. In
the event that the Fund establishes one or more additional Investment Funds with
respect to which it wishes to retain the Administrator to act as administrator
hereunder, the Fund shall notify the Administrator in writing. Upon written
acceptance by the Administrator, such Investment Fund shall become subject to
the provisions of this Agreement to the same extent as the existing Investment
Funds, except to the extent that such provisions (including those relating to
the compensation and expenses payable by the Fund and its Investment Funds) may
be modified with respect to each additional Investment Fund in writing by the
Fund and the Administrator at the time of the addition of the Investment Fund.
2. DELIVERY OF DOCUMENTS
The Fund will promptly deliver to the Administrator copies of each
of the following documents and all future amendments and supplements, if any:
a. The Fund's charter document and by-laws;
b. The Fund's currently effective registration statement under
the Securities Act of 1933, as amended (the "1933 Act"), and
the 1940 Act and the Fund's Prospectus(es) and Statement(s) of
Additional Information relating to all Investment Funds and
all amendments and supplements thereto as in effect from time
to time;
c. Certified copies of the resolutions of the Board of Directors
of the Fund (the "Board") authorizing (1) the Fund to enter
into this Agreement and (2) certain
<PAGE>
individuals on behalf of the Fund to (a) give instructions to
the Administrator pursuant to this Agreement and (b) sign
checks and pay expenses;
d. A copy of the investment advisory agreement between the Fund
and its investment adviser; and
e. Such other certificates, documents or opinions which the
Administrator may, in its reasonable discretion, deem
necessary or appropriate in the proper performance of its
duties.
3. REPRESENTATION AND WARRANTIES OF THE ADMINISTRATOR
The Administrator represents and warrants to the Fund that:
a. It is a Massachusetts trust company, duly organized, existing
and in good standing under the laws of The Commonwealth of
Massachusetts;
b. It has the corporate power and authority to carry on its
business in The Commonwealth of Massachusetts;
c. All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement;
d. No legal or administrative proceedings have been instituted or
threatened which would impair the Administrator's ability to
perform its duties and obligations under this Agreement; and
e. Its entrance into this Agreement shall not cause a material
breach or be in material conflict with any other agreement or
obligation of the Administrator or any law or regulation
applicable to it.
4. REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to the Administrator that:
a. It is a corporation, duly organized and existing and in
good standing under the laws of Maryland;
b. It has the corporate power and authority under applicable laws
and by its charter and by-laws to enter into and perform this
Agreement;
c. All requisite proceedings have been taken to authorize it to
enter into and perform this Agreement;
d. It is an investment company properly registered under the 1940
Act;
e. A registration statement under the 1933 Act and the 1940 Act
has been filed and will be effective and remain effective
during the term of this Agreement. The Fund also warrants to
the Administrator that as of the effective date of this
2
<PAGE>
Agreement, all necessary filings under the securities laws of
the states in which the Fund offers or sells its shares have
been made;
f. No legal or administrative proceedings have been instituted or
threatened which would impair the Fund's ability to perform
its duties and obligations under this Agreement;
g. Its entrance into this Agreement shall not cause a material
breach or be in material conflict with any other agreement or
obligation of the Fund or any law or regulation applicable to
it; and
h. As of the close of business on the date of this Agreement, the
Fund is authorized to issue an unlimited amount of shares of
beneficial interest.
5. ADMINISTRATION SERVICES
The Administrator shall provide the following services, in each
case, subject to the control, supervision and direction of the Fund and the
review and comment by the Fund's auditors and legal counsel and in accordance
with procedures which may be established from time to time between the Fund and
the Administrator:
a. Oversee the determination and publication of the Fund's net
asset value in accordance with the Fund's policy as adopted
from time to time by the Board;
b. Oversee the maintenance by the Fund's custodian of certain
books and records of the Fund as required under Rule 31a-1(b)
of the 1940 Act;
c. Prepare the Fund's federal, state and local income tax returns
for review by the Fund's independent accountants and filing by
the Fund's treasurer;
d. Review calculation, submit for approval by officers of the
Fund and arrange for payment of the Fund's expenses;
e. Prepare for review and approval by officers of the Fund
financial information for the Fund's semi-annual and annual
reports, proxy statements and other communications required or
otherwise to be sent to Fund shareholders, and arrange for the
printing and dissemination of such reports and communications
to shareholders;
f. Prepare for review by an officer of and legal counsel for the
Fund the Fund's periodic financial reports required to be
filed with the Securities and Exchange Commission ("SEC") on
Form N-SAR and financial information required by Form N-1A and
such other reports, forms or filings as may be mutually agreed
upon;
g. Prepare reports relating to the business and affairs of the
Fund as may be mutually agreed upon and not otherwise prepared
by the Fund's investment adviser, custodian, legal counsel or
independent accountants;
3
<PAGE>
h. Make such reports and recommendations to the Board
concerning the performance of the independent accountants
as the Board may reasonably request;
i. Make such reports and recommendations to the Board concerning
the performance and fees of the Fund's custodian and transfer
and dividend disbursing agent ("Transfer Agent") as the Board
may reasonably request or deems appropriate;
j. Calculate, submit for review by officers of the Fund, and
arrange for the payment of fees to the Fund's investment
adviser, custodian, sub-administrator and Transfer Agent;
k. Consult with the Fund's officers, independent accountants,
legal counsel, custodian and Transfer Agent in establishing
the accounting policies of the Fund;
l. Review implementation of any dividend reinvestment programs
authorized by the Board;
m. Respond to, or refer to the Fund's officers or Transfer Agent,
shareholder inquiries relating to the Fund;
n. Provide periodic testing of portfolios to assist the Fund's
investment adviser in complying with Internal Revenue Code
mandatory qualification requirements, the requirements of the
1940 Act and Fund prospectus limitations as may be mutually
agreed upon;
o. Maintain general corporate calendar, and with respect to each
Investment Fund create and maintain all records required by
Section 31 of the 1940 Act and Rule 31a-1 and 31a-2
thereunder, except those records that are maintained by the
Fund's custodian, transfer agent, adviser or
sub-administrator;
p. Maintain copies of the Fund's charter and by-laws;
q. File annual and semi-annual shareholder reports with the
appropriate regulatory agencies; review text of "President's
letters" to shareholders and "Management's Discussion of Fund
Performance" (which shall also be subject to review by the
Fund's legal counsel);
r. Prepare and furnish the Fund (at the Fund's request) with
performance information (including yield and total return
information) calculated in accordance with applicable U.S.
securities laws and report to external databases such
information as may reasonably be requested.
s. Organize, attend and prepare minutes of shareholder meetings;
t. Provide consultation on regulatory matters relating to
portfolio management, Fund operations and any potential
changes in the Fund's investment policies,
4
<PAGE>
operations or structure; act as liaison to legal counsel to
the Fund and, where applicable, to legal counsel to the Fund's
independent Board members;
u. Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect the
Fund, update the Board and the investment adviser on those
developments and provide related planning assistance where
requested or appropriate;
v. Develop or assist in developing guidelines and procedures to
improve overall compliance by the Fund and its various agents;
w. Counsel and assist the Fund in the handling of routine
regulatory examinations and work closely with the Fund's legal
counsel in response to any non-routine regulatory matters.
Subject to review and comment by the Fund's legal counsel:
x. Prepare and file with the SEC amendments to the Fund's
registration statement, including updating the Prospectus and
Statement of Additional Information, where applicable;
y. Prepare and file with the SEC proxy statements; provide
consultation on proxy solicitation matters;
z. Prepare agenda and background materials for Board meetings,
make presentations where appropriate, prepare minutes and
follow-up on matters raised at Board meetings;
aa. Prepare and file with the SEC Form N-SAR and Rule 24f-2
notices;
bb. Review and provide assistance on Fund advertisements, sales
literature and shareholder communications; and
cc. Prepare and file state notice filings of the Fund's securities
pursuant to the specific instructions of the Fund and as
detailed in Schedule C to this Agreement.
The Administrator shall provide the office facilities and the personnel required
by it to perform the services contemplated herein. In performing its duties
hereunder, the Administrator shall act in accordance with the charter, bylaws
and prospectus of the Fund and with instructions of the Board of Directors of
the Fund and will conform to and comply with the requirements of the 1940 Act
and all other applicable federal and state laws and regulations, and will
consult with legal counsel to the Fund, as necessary and appropriate.
5
<PAGE>
6. FEES; EXPENSES; EXPENSE REIMBURSEMENT
The Administrator shall receive from the Fund such compensation for
the Administrator's services provided pursuant to this Agreement as may be
agreed to from time to time in a written fee schedule approved by the parties
and initially set forth in Schedule B to this Agreement. The fees are accrued
daily and billed monthly and shall be due and payable upon receipt of the
invoice. Upon the termination of this Agreement before the end of any month, the
fee for the part of the month before such termination shall be prorated
according to the proportion which such part bears to the full monthly period and
shall be payable upon the date of termination of this Agreement. In addition,
the Fund shall reimburse the Administrator for its out-of-pocket costs incurred
in connection with this Agreement.
The Fund agrees promptly to reimburse the Administrator for any
equipment and supplies specially ordered by or for the Fund through the
Administrator and for any other expenses not contemplated by this Agreement that
the Administrator may incur on the Fund's behalf at the Fund's request or with
the Fund's consent.
The Fund will bear all expenses that are incurred in its operation
and not specifically assumed by the Administrator. Expenses to be borne by the
Fund, include, but are not limited to: organizational expenses; cost of services
of independent accountants and outside legal and tax counsel (including such
counsel's review of the Fund's registration statement, proxy materials, federal
and state tax qualification as a regulated investment company and other reports
and materials prepared by the Administrator under this Agreement); cost of any
services contracted for by the Fund directly from parties other than the
Administrator; cost of trading operations and brokerage fees, commissions and
transfer taxes in connection with the purchase and sale of securities for the
Fund; investment advisory fees; taxes, insurance premiums and other fees and
expenses applicable to its operation; costs incidental to any meetings of
shareholders including, but not limited to, legal and accounting fees, proxy
filing fees and the costs of preparation (excluding preparation as provided in
Section 5y), printing and mailing of any proxy materials; costs incidental to
Board meetings other than the costs of preparation of the agenda and background
materials, including fees and expenses of Board members; the salary and expenses
of any officer, director\trustee or employee of the Fund; costs incidental to
the preparation (excluding preparation as provided in Section 5x), printing and
distribution of the Fund's registration statements and any amendments thereto
and shareholder reports; cost of typesetting and printing of prospectuses; cost
of preparation (excluding preparation as provided in Section 5x) and filing of
the Fund's tax returns, Form N-1A and Form N-SAR, and all notices, registrations
and amendments associated with applicable federal and state tax and securities
laws; all applicable registration fees and filing fees required under federal
and state securities laws; fidelity bond and directors' and officers' liability
insurance; and cost of independent pricing services used in computing the Fund's
net asset value.
The Administrator is authorized to and may employ or associate with such
person or persons as the Administrator may deem desirable to assist it in
performing its duties under this Agreement; provided, however, that the
compensation of such person or persons shall be paid by the Administrator and
that the Administrator shall be as fully responsible to the Fund for the acts
and omissions of any such person or persons as it is for its own acts and
omissions.
6
<PAGE>
7. INSTRUCTIONS AND ADVICE
At any time, the Administrator may apply to any officer of the Fund
for instructions and may consult with outside counsel for the Fund or with the
independent accountants for the Fund at the expense of the Fund, or with its own
legal counsel at its own expense, with respect to any matter arising in
connection with the services to be performed by the Administrator under this
Agreement. The Administrator shall not be liable, and shall be indemnified by
the Fund, for any action taken or omitted by it in good faith in reliance upon
any such instructions or advice or upon any paper or document believed by it to
be genuine and to have been signed by the proper person or persons. The
Administrator shall not be held to have notice of any change of authority of any
person until receipt of written notice thereof from the Fund. Nothing in this
paragraph shall be construed as imposing upon the Administrator any obligation
to seek such instructions or advice, or to act in accordance with such advice
when received.
8. LIMITATION OF LIABILITY AND INDEMNIFICATION
The Administrator shall be responsible for the performance of only
such duties as are set forth in this Agreement and, except as otherwise provided
under Section 6, shall have no responsibility for the actions or activities of
any other party, including other service providers. The Administrator shall have
no liability in respect of any loss, damage or expense suffered by the Fund
insofar as such loss, damage or expense arises from the performance of the
Administrator's duties hereunder in reliance upon records that were maintained
for the Fund by entities other than the Administrator prior to the
Administrator's appointment as administrator for the Fund. The Administrator
shall have no liability for any error of judgment or mistake of law or for any
loss or damage resulting from the performance or nonperformance of its duties
under this Agreement unless solely caused by or resulting from the bad faith,
negligence, willful misconduct or reckless disregard of the duties and
obligations under this Agreement of the Administrator, its officers or
employees. The Administrator shall not be liable for any special, indirect or
consequential damages of any kind whatsoever (including, without limitation,
attorneys' fees) under any provision of this Agreement or for any such damages
arising out of any act or failure to act hereunder. In any event, for any
liability or loss suffered by the Fund including, but not limited to, any
liability relating to qualification of the Fund as a regulated investment
company or any liability relating to the Fund's compliance with any federal or
state tax or securities statute, regulation or ruling, the Administrator's
liability under this Agreement shall be limited to such amount as may be agreed
upon from time to time between the parties hereto.
Except as may arise from the Administrator's bad faith, negligence,
willful misconduct or reckless disregard of its duties and obligations under
this Agreement, the Administrator shall not be responsible or liable for any
failure or delay in performance of its obligations under this Agreement arising
out of or caused, directly or indirectly, by circumstances beyond its control,
including without limitation, work stoppage, power or other mechanical failure,
computer virus, natural disaster, governmental action or communication
disruption, nor shall any such failure or delay give the Fund the right to
terminate this Agreement.
The Fund shall indemnify and hold the Administrator harmless from
all loss, cost, damage and expense, including reasonable fees and expenses for
counsel, incurred by the Administrator resulting from any claim, demand, action
or suit in connection with the Administrator's acceptance of this Agreement, any
action or omission by it in the performance of its duties hereunder, or as a
result of acting upon any instructions reasonably believed by it to have been
duly authorized by the Fund, provided that this indemnification shall not apply
to actions or omissions of the Administrator, its officers or employees
7
<PAGE>
in cases of its or their own bad faith, negligence, willful misconduct or
reckless disregard of its duties and obligations under this Agreement.
The Fund will be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit brought to
enforce any liability subject to the indemnification provided above. In the
event the Fund elects to assume the defense of any such suit and retain counsel,
the Administrator or any of its affiliated persons, named as defendant or
defendants in the suit, may retain additional counsel but shall bear the fees
and expenses of such counsel unless (i) the Fund shall have specifically
authorized the retaining of such counsel or (ii) the Administrator shall have
determined in good faith that the retention of such counsel is required as a
result of a conflict of interest.
The indemnification contained herein shall survive the termination
of this Agreement.
9. CONFIDENTIALITY
The Administrator agrees that, except as otherwise required by law
or in connection with any required disclosure to a banking or other regulatory
authority, it will keep confidential all records and information in its
possession relating to the Fund or its shareholders or shareholder accounts and
will not disclose the same to any person except at the request or with the
written consent of the Fund.
10. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS; RECORDS
The Fund assumes full responsibility for complying with all
securities, tax, commodities and other laws, rules and regulations applicable to
it.
In compliance with the requirements of Rule 31a-3 under the 1940
Act, the Administrator agrees that all records which it maintains for the Fund
shall at all times remain the property of the Fund, shall be readily accessible
during normal business hours, and shall be promptly surrendered upon the
termination of the Agreement or otherwise on written request. The Administrator
further agrees that all records which it maintains for the Fund pursuant to Rule
31a-1 under the 1940 Act will be preserved for the periods prescribed by Rule
31a-2 under the 1940 Act unless any such records are earlier surrendered as
provided above. Records shall be surrendered in usable machine-readable form.
11. SERVICES NOT EXCLUSIVE
The services of the Administrator to the Fund are not to be deemed
exclusive, and the Administrator shall be free to render similar services to
others. The Administrator shall be deemed to be an independent contractor and
shall, unless otherwise expressly provided herein or authorized by the Fund from
time to time, have no authority to act or represent the Fund in any way or
otherwise be deemed an agent of the Fund.
12. TERM, TERMINATION AND AMENDMENT
This Agreement shall become effective as of the date first above
written. The Agreement shall remain in effect with respect to the Fund unless
terminated by either party on sixty (60) days' prior written notice. Termination
of this Agreement with respect to any given Investment Fund shall in no way
affect the continued validity of this Agreement with respect to any other
Investment Fund. Upon termination of this Agreement, the Fund shall pay to the
Administrator such compensation and any reimbursable expenses as may be due
under the terms hereof as of the date of such termination, including
8
<PAGE>
reasonable out-of-pocket expenses associated with such termination. This
Agreement may be modified or amended from time to time by mutual written
agreement of the parties hereto.
13. NOTICES
Any notice or other communication authorized or required by this
Agreement to be given to either party shall be in writing and deemed to have
been given when delivered in person or by confirmed facsimile, or posted by
certified mail, return receipt requested, to the following address (or such
other address as a party may specify by written notice to the other): if to the
Fund:______________, Attn:______________, fax:___________ ; if to the
Administrator: State Street Bank and Trust Company, 1776 Heritage Drive, North
Quincy, Massachusetts 02171, Attn: Mutual Funds Legal Division, fax: (617)
985-2497.
14. NON-ASSIGNABILITY
This Agreement shall not be assigned by either party hereto without
the prior consent in writing of the other party.
15. SUCCESSORS
This Agreement shall be binding on and shall inure to the benefit of
the Fund and the Administrator and their respective successors and permitted
assigns.
16. ENTIRE AGREEMENT
This Agreement together with any written agreement of the parties
entered into from time to time pursuant to Section 8 contain the entire
understanding between the parties hereto with respect to the subject matter
hereof and supersede all previous representations, warranties or commitments
regarding the services to be performed hereunder whether oral or in writing.
17. WAIVER
The failure of a party to insist upon strict adherence to any term
of this Agreement on any occasion shall not be considered a waiver nor shall it
deprive such party of the right thereafter to insist upon strict adherence to
that term or any term of this Agreement. Any waiver must be in writing signed by
the waiving party.
18. SEVERABILITY
If any provision of this Agreement is invalid or unenforceable, the
balance of the Agreement shall remain in effect, and if any provision is
inapplicable to any person or circumstance it shall nevertheless remain
applicable to all other persons and circumstances.
9
<PAGE>
19. GOVERNING LAW
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
20. REPRODUCTION OF DOCUMENTS
This Agreement and all schedules, exhibits, attachments and
amendments hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
all/each agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first written above.
ST. CLAIR FUNDS, INC.
By: /S/ LISA ANNE ROSEN
--------------------------
Name: LISA ANNE ROSEN
------------------------
Title: SECRETARY
-----------------------
STATE STREET BANK AND TRUST COMPANY
By: /S/ KATHLEEN C. CUOCOLO
--------------------------
Name: KATHLEEN C. CUOCOLO
------------------------
Title: SENIOR VICE PRESIDENT
-----------------------
11
<PAGE>
ADMINISTRATION AGREEMENT
ST. CLAIR FUNDS, INC.
SCHEDULE A
LISTING OF INVESTMENT 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 Liquidity Plus Money Market Fund
Munder Institutional S&P 500 Index Equity Fund
Munder Institutional S&P MidCap Index Equity Fund
Munder Institutional S&P SmallCap Index Equity Fund
Munder Institutional Short Term Treasury Fund
Munder Institutional Money Market Fund
12
<PAGE>
ADMINISTRATION AGREEMENT
ST. CLAIR FUNDS, INC.
SCHEDULE B
FEES AND EXPENSES
13
<PAGE>
ADMINISTRATION AGREEMENT
ST. CLAIR FUNDS, INC.
SCHEDULE C
NOTICE FILING WITH
STATE SECURITIES ADMINISTRATORS
AT THE SPECIFIC DIRECTION OF THE FUND, THE ADMINISTRATOR WILL PREPARE REQUIRED
DOCUMENTATION AND MAKE NOTICE FILINGS IN ACCORDANCE WITH THE SECURITIES LAWS OF
EACH JURISDICTION IN WHICH FUND SHARES ARE TO BE OFFERED OR SOLD PURSUANT TO
INSTRUCTIONS GIVEN TO THE ADMINISTRATOR BY THE FUND.
THE FUND SHALL BE SOLELY RESPONSIBLE FOR THE DETERMINATION (I) OF THOSE
JURISDICTIONS IN WHICH NOTICE FILINGS ARE TO BE SUBMITTED AND (II) THE NUMBER OF
FUND SHARES TO BE PERMITTED TO BE SOLD IN EACH SUCH JURISDICTION. IN THE EVENT
THAT THE ADMINISTRATOR BECOMES AWARE OF (A) THE SALE OF FUND SHARES IN A
JURISDICTION IN WHICH NO NOTICE FILING HAS BEEN MADE OR (B) THE SALE OF FUND
SHARES IN EXCESS OF THE NUMBER OF FUND SHARES PERMITTED TO BE SOLD IN SUCH
JURISDICTION, THE ADMINISTRATOR SHALL REPORT SUCH INFORMATION TO THE FUND, AND
IT SHALL BE THE FUND'S RESPONSIBILITY TO DETERMINE APPROPRIATE CORRECTIVE ACTION
AND INSTRUCT THE ADMINISTRATOR WITH RESPECT THERETO.
The Blue Sky services shall consist of the following:
1. Filing of Fund's Initial Notice Filings, as directed by the Fund;
2. Filing of Fund's renewals and amendments as required;
3. Filing of amendments to the Fund's registration statement where
required;
4. Filing Fund sales reports where required;
5. Payment at the expense of the Fund of all Fund Notice Filing fees;
6. Filing the Prospectuses and Statements of Additional Information and
any amendments or supplements thereto where required;
7. Filing of annual reports and proxy statements where required; and
8. The performance of such additional services as the Administrator and
the Fund may agree upon in writing.
Unless otherwise specified in writing by the Administrator, Blue Sky services by
the Administrator shall not include determining the availability of exemptions
under a jurisdiction's blue sky law. Any such determination shall be made by the
Fund or its legal counsel. In connection with the services described herein, the
Fund shall issue in favor of the Administrator a power of attorney to submit
Notice Filings on behalf of the Fund, which power of attorney shall be
substantially in the form of Exhibit I attached hereto.
14
<PAGE>
EXHIBIT I
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, as of August 5, 1997 that the undersigned ST.
CLAIR FUNDS, INC. with principal offices at 480 Pierce Street, Birmingham,
Michigan 48009 (individually the "Fund") makes, constitutes, and appoints STATE
STREET BANK AND TRUST COMPANY (the "Administrator") with principal offices at
225 Franklin Street, Boston, Massachusetts its lawful attorney-in-fact for it to
do as if it were itself acting, the following:
1. REGISTRATION OF FUND SHARES. The power to register shares of the Fund
in each jurisdiction in which Fund shares are offered or sold and in
connection therewith the power to prepare, execute, and deliver and
file any and all Fund applications, including without limitation,
applications to register shares, consents, including consents to
service of process, reports, including without limitation, all periodic
reports, claims for exemption, or other documents and instruments now
or hereafter required or appropriate in the judgment of the
Administrator in connection with the registration of Fund shares.
2. AUTHORIZED SIGNERS. Pursuant to this Limited Power of Attorney,
individuals holding the titles of Officer, Blue Sky Manager, or Senior
Blue Sky Administrator at the Administrator shall have authority to act on
behalf of the Fund with respect to item 1 above.
The execution of this limited power of attorney shall be deemed coupled with an
interest and shall be revocable only upon receipt by the Administrator of such
termination of authority. Nothing herein shall be construed to constitute the
appointment of the Administrator as or otherwise authorize the Administrator to
act as an officer, director or employee of the Fund.
IN WITNESS WHEREOF, the Fund has caused this Agreement to be executed in its
name and on its behalf by and through its duly authorized officer, as of the
date first written above.
ST. CLAIR FUNDS, INC.
By:
-------------------------
Name:
-----------------------
Title:
----------------------
15
<PAGE>
EXHIBIT 99(h)(5)
AMENDMENT TO THE TRANSFER AGENCY AGREEMENT
This Amendment dated as of 1st day of June, 1998 (the "Amendment") is made
to the Transfer Agency and Registrar Agreement(s) (the "Agreement(s)") between
each of the Funds executing this Amendment and listed on Exhibit 1 of this
Amendment attached hereto and incorporated herein (hereinafter individually and
collectively referred to as the "Fund") and First Data Investor Services Group,
Inc. ("Investor Services Group").
WITNESSTH
WHEREAS, the Fund desires to enable the shareholders of the Funds and
their respective Portfolios of the Fund as applicable set forth in Exhibit 1, to
access certain Fund information maintained by Investor Services Group on behalf
of the Fund through use of the Internet (as hereinafter defined) and Investor
Services Group desires to allow such access and provide certain services as more
fully described below in connection therewith;
NOW THEREFORE, the Fund and Investor Services Group agree that as of the
date first referenced above, Investor Services Group Agreement shall be amended
as follows:
1. The following definitions are hereby incorporated into Agreement:
(a) "Investor Services Group Secure Net Gateway" shall mean the system
of computer hardware and software and network established by
Investor Services Group to provide access between Investor Services
Group recordkeeping system and the Internet;
(b) "Investor Services Group Web Transaction Engine" shall mean the
system of computer hardware and software created and established by
Investor Services Group in order to enable Shareholders of the Fund
to perform the transactions contemplated hereunder.
(c) "Internet" shall mean the communications network comprised of
multiple communications networks linking education, government,
industrial and private computer network.
(d) "Fund Home Page" shall mean the Fund's proprietary web site on the
Internet used by the Fund to provide information to its shareholders
and potential shareholders.
2. In addition to the services rendered by Investor Services Group as set forth
in the Agreement, Investor Services Group agrees to provide the following
services for the fees set forth in the Schedule of IMPRESSNet Fees attached
hereto as Schedule A of this Amendment:
<PAGE>
(a) in accordance with the written procedures established between the
fund and Investor Services Group, enable the Fund and its
Shareholders utilize the Internet in order to access Fund
information maintained by Investor Services Group through the use of
the Investor Services Group Web Transaction Engine and Secure Net
Gateway;
(b) allow the Shareholders to perform account inquiries and
transactions;
(c) maintenance of the Investor Services Group Secure Net Gateway and
the Investor Services Group Web Transaction Engine.
3. Responsibility of the Fund. In connection with the services provided by
Investor Services Group hereunder, the Fund shall be responsible for the
following:
(a) establishment and maintenance of the Fund Home Page on the Internet;
(b) services and relationships between the Fund and any third party
on-line service providers to enable the Shareholders to access the
Fund Home Page;
(c) provide Investor Services Group with access to and information
regarding the Fund Home Page in order to enable Investor Services
Group to provide the services contemplated hereunder;
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment 2 to be
executed by their duly authorized officers, as of the day and year first above
written.
THE MUNDER FUNDS, INC. THE MUNDER FUNDS TRUST
/S/ TERRY H. GARDNER /S/ TERRY H. GARDNER
- ------------------------- ----------------------------
By: Terry H. Gardner By: By: Terry H. Gardner
Title: Vice President Title: Vice President
ST. CLAIR FUNDS, INC. THE MUNDER FRAMLINGTON FUNDS
TRUST
/S/ TERRY H. GARDNER /S/ TERRY H. GARDNER
- ------------------------- ----------------------------
By: Terry H. Gardner By: Terry H. Gardner
Title: Vice President Title: Vice President
FIRST DATA INVESTOR SERVICES
GROUP, INC.
/S/ GERALD G. KOKOS
- -------------------------
By: Gerald G. Kokos
Title: Executive Vice President
<PAGE>
EXHIBIT 1
LIST OF FUNDS AND PORTFOLIOS
The Munder Funds Trust
Munder Accelerating Growth Fund
Munder Balanced Fund
Munder Bond Fund
Munder Cash Investment Fund
Munder Growth & Income Fund
Munder Index 500 Fund
Munder Intermediate Bond Fund
Munder International Equity Fund
Munder Michigan Triple Tax-Free Bond Fund
Munder Small Company Growth Fund
Munder Tax-Free Bond Fund
Munder Tax-Free Intermediate Bond Fund
Munder Tax-Free Money Market Fund
Munder U.S. Government Income Fund
Munder U.S. Treasury Money Market Fund
The Munder Funds, Inc.
Munder Multi-Season Growth Fund
Munder Money Market Fund
Munder Real Estate Equity Investment Fund
Munder Value Fund
Munder Mid-Cap Growth Fund
St. Clair Funds, Inc.
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
Munder Aggregate Bond Index Fund
Munder Framlington Funds Trust
Munder Framlington Emerging Markets Fund
Munder Framlington Healthcare Fund
Munder Framlington International Growth Fund
<PAGE>
Schedule A
IMPRESSNet Fees
Web Transaction Engine
Transaction Cost:
- - Account Inquiry $.10 per inquiry
- - Financial Transactions $.50 per transaction
*Hardware Maintenance Fee Including Hardware and Software: $50,000 per annum
- - Does not include client hardware and software requirements. That is an
out-of-pocket expense for the client
- - Installation of hardware is billed as time and materials
- - Does not include third party hardware and software maintenance agreements
- - Does not include hardware upgrades
*Customized Development: $150 Per hour
Call Center Services for Registration (one-time): $2.50 per call
*Network Fee (one-time): $2,100
Per Pin Assignment (one-time): $2.50
*Cumulative charge with respect to all Funds executing this Amendment and such
other Funds advised by Munder Asset Management services by Investor Services
Group.
Investor Services Group will provide an invoice as soon as practicable after the
end of each calendar month. The Fund agrees to pay to Investor Services Group
the amounts so billed by Federal Funds Wire within fifteen (15) business days
after the Fund's receipt of invoice. In addition, with respect to all fees,
Investor Services Group may charge a service fee equal to the lesser of (i) one
and one half percent (1-1/2%) per month or (ii) the highest rate legally
permitted on any past due invoiced amounts.
<PAGE>
EXHIBIT 99(h)(6)
AMENDMENT TO THE TRANSFER AGENCY AND REGISTRAR AGREEMENT
This Amendment dated as of June 1, 1998 is made to the Transfer Agency
Agreement(s) (the "Agreement(s)") between each of the Funds executing this
Amendment and listed on Exhibit 1 of this Amendment attached hereto and
incorporated herein (hereinafter individually and collectively referred to as
the "Fund") and First Data Investor Services Group, Inc. ("Investor Services
Group").
1. Modify Paragraph "(a)" of Section 15 "Term and Termination" by deleting the
contents of this paragraph in its entirety and inserting the following new
paragraph in its place:
"(a) Except as otherwise set forth herein, this Agreement shall be
effective as of the dates first written above and shall continue until June
1, 2000 (the "Initial Term"). Upon the expiration of the Initial Term, this
Agreement shall automatically renew for successive terms of one (1) year
("Renewal Terms") each, unless the Trust or the Transfer Agent provides
written notice to the other of its intent not to renew. Such notice must be
received not less than ninety(90) days and not more than one-hundred eighty
(180) days prior to the expiration of the Initial Term or the then current
Renewal Term."
2. Modify Schedule A "Transfer Agent Fees" by deleting this Schedule in its
entirety and insert the attached new Schedule A in its place.
3. Modify Schedule B "Out-of-Pocket Expenses" by deleting this Schedule in its
entirety and insert the attached new Schedule B in its place.
4. Modify Exhibit 1 to Schedule C insert the following additional bullet:
- Identify area responsible for gain/loss purposes due to "as/of"
processing and daily reconciliation of processing to identify gains
and/or losses which impact the Fund. Any gain or loss will be netted
out on a quarterly basis. The Transfer Agent will compensate the Fund
for any Losses attributable to Transfer Agent processing errors.
<PAGE>
This Amendment contains the entire understanding among the parties with respect
to the transactions contemplated hereby. To the extent that any provision of
this Amendment modifies or is otherwise inconsistent with any provisions of the
prior agreements and related agreements, this Amendment shall control, but the
prior agreements and all related documents shall otherwise remain in full force
and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers, as of the day and year first above
written.
THE MUNDER FUNDS, INC. THE MUNDER FUNDS TRUST
- ---------------------------- ---------------------------
By: By:
-------------------------- -------------------------
Title: Title:
---------------------- ----------------------
ST. CLAIR FUNDS, INC. THE MUNDER FRAMLINGTON
FUNDS TRUST
- --------------------------- ---------------------------
By: By:
------------------------- -------------------------
Title: Title:
---------------------- ----------------------
FIRST DATA INVESTOR SERVICES
GROUP, INC.
- ----------------------------
By:
--------------------------
Title:
-----------------------
<PAGE>
SCHEDULE A
TRANSFER AGENT'S FEES
1. Fund Complex Minimum* $90,000 per month
2. Asset Based Fees 2.00 Basis Points for assets less than 5 billion
1.50 Basis Points for assets 5 billion-9 billion
1.00 Basis Points for assets greater than
9 billion
3. Other Fees: IRA accounts will be charged $10.00 per global
account per annum (excluding Consumer's Energy
Group)
NSCC Transaction Charge is $.15 per financial
transaction
Client defined system enhancements will be agreed
upon by Transfer Agent and Munder Capital and
billed at a rate of $150.00 per hour
* The Fund Complex minimum will apply to all existing and any future funds
offered by Munder Capital Management which are serviced by the Transfer
Agent. The fees specified herein may be adjusted at any time upon written
agreement between the parties. After March 1, 2000 the parties agree to
review the fees charged for services under this Agreement.
<PAGE>
SCHEDULE B
OUT-OF-POCKET EXPENSES
The Fund shall reimburse the Transfer Agent monthly for applicable
out-of-pocket expenses, including, but not limited to the following items:
- Microfiche/microfilm production
- Magnetic media tapes and freight
- Printing costs, including certificates, envelopes, checks and
stationery
- Postage (bulk, pre-sort, ZIP+4, barcoding, first class) direct pass
through to the Fund
- Due diligence mailings
- Telephone and telecommunication costs, including all lease,
maintenance and line costs
- Ad hoc reports
- Proxy solicitations, mailings and tabulations
- Daily & Distribution advice mailings
- Shipping, Certified and Overnight mail and insurance
- Year-end form production and mailings
- Terminals, communication lines, printers and other equipment
specifically required by the Fund
- Duplicating services
- Courier services
- Incoming and outgoing wire charges
- Overtime, as approved by the Fund
- Temporary staff, as approved by the Fund
- Travel and entertainment, as approved by the Fund
- Federal Reserve changes for check clearance
- Record retention, retrieval and destruction costs
- Third party audit reviews
- Insurance
- Such other miscellaneous expenses reasonably incurred by the Transfer
Agent in performing its duties and responsibilities under this
Agreement as approved the Fund
The Company agrees that postage and mailing expenses will be paid on the
day of or price to mailing as agreed with the Transfer Agent. In addition, the
Company will promptly reimburse the Transfer Agent for any other unscheduled
expenses incurred by the Transfer Agent whenever the Company and the Transfer
Agent mutually agree that such expenses are not otherwise properly borne by the
Transfer Agent as part of its duties and obligations under the Agreement.
<PAGE>
EXHIBIT 1
LIST OF FUNDS AND PORTFOLIOS
THE MUNDER FUNDS TRUST
Munder Accelerating Growth Fund
Munder Balanced Fund
Munder Bond Fund
Munder Cash Investment Fund
Munder Growth & Income Fund
Munder Index 500 Fund
Munder Intermediate Bond Fund
Munder International Equity Fund
Munder Michigan Triple Tax-Free Bond Fund
Munder Small Company Growth Fund
Munder Tax-Free Bond Fund
Munder Tax-Free Intermediate Bond Fund
Munder Tax-Free Money Market Fund
Munder U.S. Government Income Fund
Munder U.S. Treasury Money Market Fund
THE MUNDER FUNDS, INC.
Munder Multi-Season Growth Fund
Munder Money Market Fund
Munder Real Estate Equity Investment Fund
Munder Value Fund
Munder Mid-Cap Growth Fund
ST. CLAIR FUNDS, INC.
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
Munder Aggregate Bond Index Fund
MUNDER FRAMLINGTON FUNDS TRUST
Munder Framlington Emerging Markets Fund
Munder Framlington Healthcare Fund
Munder Framlington International Growth Fund
<PAGE>
EXHIBIT 99(h)(7)
AMENDMENT TO THE
TRANSFER AGENCY AND REGISTRAR AGREEMENT
THIS AMENDMENT, dated as of June 1, 1998 is made to the Transfer Agency
Agreement[s] (the "Agreement[s]") between each of the Funds executing this
Amendment and listed on Exhibit 1 of this Amendment attached hereto and
incorporated herein (hereinafter individually and collectively referred to as
the "Fund") and FIRST DATA INVESTOR SERVICES GROUP, INC. ("Investor Services
Group").
1. Amendment # 2 to the Transfer Agency and Registrar Agreement between The
Munder Funds Trust and First Data Investor Services Group, Inc. for
retirement account fees and services, dated June 1, 1998 is deleted in its
entirety.
2. Schedule C is modified by adding the following new Section 10:
"10.RETIREMENT ACCOUNT SERVICES The Transfer Agent agrees to perform
the services set forth in the Attached Exhibit 2 of this Schedule C
with respect to those retirement plans offered by the Fund.".
This Amendment contains the entire understanding among the parties with respect
to the transactions contemplated hereby. To the extent that any provision of
this Amendment modifies or is otherwise inconsistent with any provision of the
prior agreements and related agreements, this Amendment shall control, but the
prior agreements and all related documents shall otherwise remain in full force
and effect.
IN WITNESS WHEREOF, each party has caused this Amendment to be executed
by its duly authorized representative on the date first stated above.
FIRST DATA INVESTOR SERVICES THE ST. CLAIR FUND, INC.
GROUP, INC.
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
THE MUNDER FRAMLINGTON THE MUNDER FUNDS TRUST
FUNDS TRUST
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
THE MUNDER FUNDS, INC.
By:______________________________
Name:____________________________
Title:___________________________
<PAGE>
EXHIBIT 1
List of Funds and Portfolios
THE MUNDER FUNDS TRUST
Munder Accelerating Growth Fund
Munder Balanced Fund
Munder Bond Fund
Munder Cash Investment Fund
Munder Growth & Income Fund
Munder Index 500 Fund
Munder Intermediate Bond Fund
Munder International Equity Fund
Munder Michigan Triple Tax-Free Bond Fund
Munder Small Company Growth Fund
Munder Tax-Free Bond Fund
Munder Tax-Free Intermediate Bond Fund
Munder Tax-Free Money Market Fund
Munder U.S. Government Income Fund
Munder U.S. Treasury Money Market Fund
THE MUNDER FUNDS INC.
The Munder Multi-Season Growth Fund
The Munder Money Market Fund
The Munder Real Estate Equity Investment Fund
The Munder Value Fund
The Munder Mid-Cap Growth Fund
THE ST. CLAIR FUND INC.
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
Munder Aggregate Bond Index Fund
THE MUNDER FRAMLINGTON FUNDS TRUST
Framlington Emerging Markets Fund
Framlington Healthcare Fund
Framlington International Growth Fund
<PAGE>
Exhibit 2 to Schedule C
RETIREMENT ACCOUNT SERVICES
(a) Process new accounts, verify completeness of application forms;
establish new account records with standard abbreviations and registration
formats, including proper account identification codes.
(b) Examine and process contributions and invest monies received in Investments
in accordance with the written instructions of the Participant/Employer, as
the case may be.
(c) Process transactions in Custodial Accounts upon receipt of proper
documentation and in accordance with the terms of the plan.
(d) Reinvest income dividends and capital gains distributions in Investments
selected by the Participant.
(e) Send a confirmation to the proper person(s) with respect to each
transaction in the account.
(f) Examine and process requests for distributions, subject to receipt of
required legal documents; verify eligibility of the recipient and make
payments.
(g) Establish a record of types and reasons for distributions (i.e., attainment
of age 59-1/2, disability, death, return of excess contributions, etc.)
(h) Record method of distribution requested and/or made.
(i) Distribute the account in the event of death as required in writing by the
Participant/Beneficiary, subject to receipt of required legal documents.
(j) Receive and process designation of the beneficiary forms.
(k) Examine and process requests for direct transfers between
custodians/trustees, transfer and pay over to the successor assets in the
account and records pertaining thereto as requested;
(l) Send to each Participant/Beneficiary/Employer notices, prospectuses,
account statements, proxies and other documents or communications relating
to Fund shares or other Investments; send such other notices, documents or
other communications to Participants/Beneficiaries/Employers as the Fund
may direct FDISG to deliver.
(m) Maintain records of contributions, distributions, and other transactions.
(n) Prepare any annual reports or returns required to be prepared and/or filed
by a custodian of a Plan, including, but not limited to, an annual fair
market value report, Forms 1099R and 5498 and file with the IRS and provide
to Participant/Beneficiary.
(o) Send Participants/Beneficiaries an annual TEFRA notice regarding required
federal tax withholding.
(p) Answer Participant/ Beneficiary telephone, written or other inquiries
concerning the plan and Investments under the Plan.
(q) Process requested changes to account information.
(r) Retain original source documents, such as applications and correspondence,
microfilm original source documents, as required.
(s) Respond to research inquiries from Fund or as requested by Custodian is
directed by the Fund. Perform applicable withholding for accounts.
<PAGE>
(t) Purge "closed" accounts as directed by the Fund.
<PAGE>
EXHIBIT 99(m)(1)
SERVICE AND DISTRIBUTION PLAN
WHEREAS, St. Clair Funds, Inc. (the "Company") engages in business as an
open-end investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "Act");
WHEREAS, shares of common stock of the Company are currently divided into
series of shares, one of which is designated as Liquidity Plus Money Market Fund
(the "Fund");
WHEREAS, the Company employs Funds Distributor, Inc. (the"Distributor")
as distributor of the securities of which it is the issuer;
WHEREAS, the Company and the Distributor have entered into a Distribution
Agreement pursuant to which the Company has employed the Distributor in such
capacity during the continuous offering of shares of the Company; and
NOW, THEREFORE, the Company hereby adopts on behalf of the Fund with
respect to its shares, and the Distributor hereby agrees to the terms of this
Service and Distribution Plan (the "Plan"), in accordance with Rule 12b-1 under
the Act on the following terms and conditions:
1. A. The Fund shall pay to the Distributor, as the distributor of the
shares of the Fund, a fee for distribution of the shares at the rate of .10% on
an annualized basis of the average daily net assets of the Fund's shares,
provided that, at any time such payment is made, whether or not this Plan
continues in effect, the making thereof will not cause the limitation upon such
payments established by this Plan to be exceeded. Such fee shall be calculated
and accrued daily and paid at such intervals as the Board of Directors shall
determine, subject to any applicable restriction imposed by rules of the
National Association of Securities Dealers, Inc.
B. The Fund shall pay to the Distributor, as the distributor of the
shares of the Fund, a service fee at the rate of up to .25% on an annualized
basis of the average daily net assets of the Fund's shares, provided that, at
any time such payment is made, whether or not this Plan continues in effect, the
making thereof will not cause the limitation upon such payments established by
this Plan to be exceeded. Such fee shall be calculated and accrued daily and
paid at such intervals as the Board of Directors shall determine, subject to any
applicable restriction imposed by rules of the National Association of
Securities Dealers, Inc.
2. The amount set forth in paragraph 1.A. of this Plan shall be paid for
the Distributor's services as distributor of the shares of the Funds in
connection with any activities or expenses primarily intended to result in the
sale of the shares of the Fund, including, but not limited to, payment of
compensation, including incentive compensation, to securities dealers (which may
include the Distributor itself) and other financial institutions and
organizations to obtain various distribution related and/or administrative
services for the Fund. These services include, among other things, processing
new shareholder account applications, preparing and transmitting to the Fund's
Transfer Agent computer processable tapes of all transactions by customers and
serving as the primary source of information to customers in answering questions
1
<PAGE>
concerning the Fund and their transactions with the Fund. The Distributor is
also authorized to engage in advertising, the preparation and distribution of
sales literature and other promotional activities on behalf of the Fund. In
addition, this Plan hereby authorizes payment by the Fund of the cost of
preparing, printing and distributing the Fund Prospectuses and Statements of
Additional Information to prospective investors and of implementing and
operating the Plan. Distribution expenses also include an allocation of overhead
of the Distributor and accruals for interest on the amount of distribution
expenses that exceed distribution fees and contingent deferred sales charges
received by the Distributor. Payments under the Plan are not tied exclusively to
actual distribution and service expenses, and the payments may exceed
distribution and service expenses actually incurred.
3.A. The amount set forth in paragraph 1.B. of this Plan may be used by
the Distributor to pay securities dealers (which may include the Distributor
itself) and other financial institutions or institutional investors
("Shareholder Organizations") for servicing shareholder accounts, including a
continuing fee which may accrue immediately after the sale of shares.
3.B. Any officer of the Company is authorized to acknowledge, in the name
and on behalf of the Company, written agreements based on the form attached
hereto as Appendix A or any other form duly approved by the Company's Board of
Directors ("Agreements") with Shareholder Organizations. Pursuant to such
Agreements, Shareholder Organizations shall provide the support services set
forth therein to their clients who beneficially own shares of the Fund in
consideration of a fee, as set forth in the Agreement. Comerica Bank and its
affiliates are eligible to become Shareholder Organizations and to receive fees
under this Plan.
4. The Plan shall not take effect with respect to the shares of the Fund
until it has been approved by a vote of the then sole shareholder of the shares
of the Fund.
5. This Plan shall not take effect until it, together with any related
agreements, has been approved by votes of a majority of both (a) the Directors
of the Company and (b) those Directors of the Company who are not "interested
persons" of the Company (as defined in the Act) and who have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Directors"), cast in person at a meeting (or
meetings) called for the purpose of voting on this Plan and such related
agreements.
6. After approval as set forth in paragraphs 4 and 5, this Plan shall take
effect. The Plan of Distribution shall continue in full force and effect as to
the shares of the Fund for so long as such continuance is specifically approved
at least annually in the manner provided for approval of this Plan in
paragraph 5.
7. The Distributor shall provide to the Directors of the Company, and the
Directors shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made.
8. This Plan may be terminated as to the Fund at any time, without payment
of any penalty, by vote of the Directors of the Company, by vote of a majority
of the Rule 12b-1
2
<PAGE>
Directors, or by a vote of a majority of the outstanding voting securities of
the Fund on not more than 30 days' written notice to any other party to the
Plan.
9. This Plan may not be amended to increase materially the amount of
distribution fee (including any service fee) provided for in paragraph 1 hereof
unless such amendment is approved in the manner provided for initial approval in
paragraph 4 hereof, and no material amendment to the Plan shall be made unless
approved in the manner provided for approval and annual renewal in paragraph 5
hereof.
10. While this Plan is in effect, the selection and nomination of
Directors who are not interested persons (as defined in the Act) of the Company
shall be committed to the discretion of the Directors who are not such
interested persons.
11. The Company shall preserve copies of this Plan and any related
agreements and all reports made to paragraph 7 hereof, for a period of not less
than six years from the date of this Plan, any such agreement or any such
report, as the case may be, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the Company, on behalf of the Fund, and the
Distributor have executed this Service and Distribution Plan as of the 7th day
of November, 1996.
THE MUNDER FUNDS, INC.
By: /s/ LISA ANNE ROSEN
--------------------
FUNDS DISTRIBUTOR, INC.
By: /s/ MARIE E. CONNOLLY
--------------------
3
<PAGE>
APPENDIX A
ST. CLAIR FUNDS, INC.
SERVICE AGREEMENT
To: [ ]
We wish to enter into this Servicing Agreement with you concerning the
provision of support services to your clients ("Clients") who may from time to
time beneficially own shares ("Shares") of the Liquidity Plus Money Market Fund
(the "Fund") of St. Clair Funds, Inc. (the "Company") offered by us.
The terms and conditions of this Servicing Agreement are as follows:
1. You agree to provide the following support services to Clients who may
from time to time beneficially own Shares1: (i) establishing and maintaining
accounts and records relating to Clients that invest in Shares; (ii) processing
dividend and distribution payments from us on behalf of Clients; (iii) providing
information periodically to Clients showing their positions in Shares and
integrating such statements with those of other transactions and balances in
Client's other accounts serviced by you; (iv) arranging for bank wires;
(v) responding to Client inquiries relating to services performed by you;
(vi) responding to routine inquires from Clients concerning their investments in
Shares; (vii) providing subaccounting with respect to Shares beneficially owned
by Clients or the information to us necessary for subaccounting; (viii) if
required by law, forwarding shareholder communications form us (such proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to clients; (ix) assisting in processing purchase,
exchange and redemption requests from Clients and in placing such orders with
our service contractors; (x) assisting Clients in changing dividend options,
account designations and addresses; (xi) providing Clients with a service that
invests the assets of their accounts in Shares pursuant to specific or
pre-authorized instructions; and (xii) providing such other similar services as
we may reasonably request to the extent you are permitted to do so under
applicable statutes, rules and regulations.
Section 2. You will provide such office space and equipment, telephone
facilities and personnel (which may be all or any part of the space, equipment
and facilities currently used in our business, or all or any personnel employed
by us) as may be reasonably necessary or beneficial in order to provide the
aforementioned services and assistance to Clients.
Section 3. Neither you nor any of your officers, employees or agents are
authorized to make any representation concerning us or the Shares except those
contained in our then current prospectuses and statement of additional
information for Shares, copies of which will be supplied by us to you, or in
such supplemental literature or advertising as may be authorized by us in
writing.
- ---------------------
1 Services may be modified or omitted in the particular case and items
renumbered.
<PAGE>
Section 4. For all purposes of this Agreement you will be deemed to be an
independent contractor, and will have no authority to act as agent for us in any
matter or in any respect. By your written acceptance of this Agreement, you
agree to and do release, indemnify and hold us harmless from and against any and
all direct or indirect liabilities or losses resulting from requests,
directions, actions or inactions of or by you or your officers, employees or
agents regarding your responsibilities hereunder or the purchase, redemption,
transfer or registration of Shares (or orders relating to the same) by or on
behalf of Clients. You and your employees will, upon request, be available
during normal business hours to consult with us or our designees concerning the
performance of your responsibilities under this Agreement.
Section 5. In consideration of the services and facilities provided by you
hereunder, we will pay you, and you will accept as full payment therefor, a fee
at an annul rate of .25 of 1% of the average daily net asset value of the Shares
beneficially owned by your Clients for whom you are the dealer of record or
holder of record or with whom you have a servicing relationship (the "Clients'
Shares"), which fee shall be computed daily and payable monthly. For purposes of
determining the fees payable under this Section 5, the average daily net asset
value of the Clients' Shares will be computed in the manner specified in our
Registration Statement (as the same is in effect from time to time) in
connection with the computation of the net asset value of Shares for purposes of
purchases and redemptions. By your written acceptance of this Agreement, you
agree to and do waive such portion of any fee payable to you hereunder to the
extent necessary to assure that such fee and other expenses required to be
accrued by us on any day with respect to the Client's Shares in any Fund that
declares its net investment income as a dividend to Shareholders on a daily
basis does not exceed the income to be accrued by us to such Shares on that day.
The fee rate stated above may be prospectively increased or decreased by us, our
sole discretion, at any time upon notice to you. Further, we may, in our
discretion and without notice, suspend or withdraw the sale of Shares, including
the sale of Shares to you for the account of any Client or Clients.
Section 6. Any person authorized to direct the disposition of monies paid
or payable by us pursuant to this Agreement will provide to the Company's Board
of Directors, and the Company's Directors will review, at least quarterly, a
written report of the amounts so expended and the purposes for which such
expenditures were made. In addition, you will furnish us or our designees with
such information as we or they may reasonably request (including, without
limitation, periodic certifications confirming the provision to Clients of the
services described herein), and will otherwise cooperate with us and our
designees (including, without limitation, any auditors designated by us), in
connection with the preparation of reports to the Company's Board of Directors
concerning this Agreement and the monies paid or payable by us pursuant hereto,
as well as any other reports or filings that may be required by law.
Section 7. We may enter into other similar Servicing Agreements with any
other persons without your consent.
Section 8. By your written acceptance of this Agreement, you represent,
warrant and agree that: (i) the compensation payable to you in connection with
the investment of your Clients' assets in Shares will be disclosed by you to
your Clients, will be authorized by your
2
<PAGE>
Clients and will not be excessive; (ii) the services provided by you under this
Agreement will in no event be primarily intended to result in the sale of
Shares; and (iii) in the event an issue pertaining to our Shareholder Servicing
Plan is submitted for shareholder approval, you will vote any shares held for
your own account in the same proportion as the vote of those shares held for
your Client's accounts.
Section 9. This agreement will become effective on the date a fully
executed copy of this Agreement is received by us or our designee. Unless sooner
terminated, this Agreement will continue until __________, 1998, and thereafter
will continue automatically for successive annual periods provided such
continuance is specifically approved at least annually by us in the manner
described in Section 12. This Agreement is terminable with respect to the
Shares, without penalty, at any time by us (which termination may be by vote or
a majority of the Disinterested Directors as defined in Section 12) or by you
upon written notice to the other party hereto.
Section 10. All notices and other communications to either you or us will
be duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address stated herein, or to such
other address as either party shall so provide the other.
Section 11. This Agreement will be construed in accordance with the laws
of the State of Massachusetts and is non-assignable by the parties hereto.
Section 12. This Agreement has been approved by a vote of a majority of
(i) the Company's Board of Directors and (ii) those Directors who are not
"interested persons" as defined in the Investment Company Act of 1940 and have
no direct or indirect financial interest in the operation of the Shareholder
Servicing Plan adopted by us regarding the provision of support services to the
beneficial owners of Shares or in any agreement related thereto ("Disinterested
Directors").
3
<PAGE>
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us, 60 State Street, Suite 1300, Boston, Massachusetts 02109, Attention:
President (with a copy to the same address, Attention: General Counsel).
Very truly yours,
FUNDS DISTRIBUTOR, INC.
Date: By: /S/ MARIE E. CONNOLLY
------------------------- ------------------------
(Authorized Officer)
Accepted and Agreed to:
[ ]
Date: By:
------------------------- ------------------------
(Authorized Officer)
Address of Shareholder Organization:
------------------------
------------------------
------------------------
Acknowledged
ST. CLAIR FUNDS, INC.
Date: By: /S/ LISA ANNE ROSEN
------------------------- ------------------------
(Authorized Officer)
4
<PAGE>
