<PAGE>
As filed with the Securities and Exchange Commission on April 30, 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. 30 / X /
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
Amendment No. 31 / 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 April 30, 1999
pursuant to paragraph (b) 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>
<S> <C>
ITEM HEADING
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 Your Investment; Pricing of Fund
Offered 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>
<S> <C>
ITEM HEADING
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 Your Investment; Pricing of Fund
Offered 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>
<S> <C>
ITEM HEADING
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 Your Investment; Pricing of Fund
Offered 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>
<S> <C>
ITEM HEADING
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 Your Investment; Pricing of Fund
Offered 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>
<S> <C>
ITEM HEADING
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 Miscellaneous
Holders of Securities
16. Investment Advisory and Other Investment Advisory and Other
Services Service Arrangements; See Prospectus
-- "Management"
17. Brokerage Allocation and Other Portfolio Transactions
Practices
18. Capital Stock and Other Securities Additional Information Concerning
Shares
19. Purchase, Redemption and Pricing of Additional Purchase and Redemption
Securities Being Offered Information; Net Asset Value;
Additional Information Concerning
Shares
20. Tax Status Taxes
21. Underwriters Investment Advisory and Other
Service Arrangements
22. Calculation of Performance Data Performance Information
23. Financial Statements 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>
<S> <C>
ITEM HEADING
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 Fund Investments; Investment
Policies Limitations;
Portfolio Transactions
14. Management of Fund See Prospectus -- "Management";
Directors and Officers; Miscellaneous
15. Control Persons and Principal Miscellaneous
Holders of Securities
16. Investment Advisory and Other Investment Advisory and Other Service
Services Arrangements; See Prospectus --
"Management"
17. Brokerage Allocation and Other Portfolio Transactions
Practices
18. Capital Stock and Other Additional Information Concerning
Securities Shares
19. Purchase, Redemption and Pricing Additional Purchase and Redemption
of Securities Being Offered Information; Net Asset Value;
Additional Information Concerning
Shares
20. Tax Status Taxes
21. Underwriters Investment Advisory and Other Service
Arrangements
22. Calculation of Performance Data Performance Information
23. Financial Statements Not Applicable
</TABLE>
<PAGE>
ST. CLAIR FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION FOR ST. CLAIR FUNDS, INC.
LIQUIDITY PLUS MONEY MARKET FUND
PART B
<TABLE>
<CAPTION>
<S> <C>
ITEM HEADING
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 Fund Investments; Additional
Policies Investment Limitations; Portfolio
Transactions
14. Management of Fund Directors and Officers; Miscellaneous
15. Control Persons and Principal See Prospectus -- "Management";
Holders of Securities Miscellaneous
16. Investment Advisory and Other Investment Advisory and Other Service
Services Arrangements; See Prospectus --
"Management"
17. Brokerage Allocation and Other Portfolio Transactions
Practices
18. Capital Stock and Other Additional Information Concerning
Securities Shares
19. Purchase, Redemption and Pricing Additional Purchase and Redemption
of Securities Being Offered Information; Net 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>
<S> <C>
ITEM HEADING
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 Fund Investments; Investment
Policies Limitations; Risk Factors and Special
Considerations- Index Funds; Portfolio
Transactions
14. Management of Fund Directors and Officers; Miscellaneous
15. Control Persons and Principal Miscellaneous; Control Persons and
Holders of Securities Principal Holders of Securities
16. Investment Advisory and Other Investment Advisory and Other Service
Services Arrangements; See Prospectus --
"Management"
17. Brokerage Allocation and Other Portfolio Transactions
Practices
18. Capital Stock and Other Additional Information Concerning
Securities Shares
19. Purchase, Redemption and Pricing Additional Purchase and Redemption
of Securities Being Offered Information; Net Asset Value;
Additional Information Concerning
Shares
20. Tax Status Taxes
21. Underwriters Investment Advisory and Other Service
Arrangements
22. Calculation of Performance Data Performance Information
23. Financial Statements Not Applicable
</TABLE>
<PAGE>
ST. CLAIR FUNDS, INC.
The purpose of this filing is to bring other information for the St. Clair
Funds, Inc. up to date under Section 10(a)(3) of Securities Act of 1933, as
amended. As of the date of this filing the Munder Institutional Short Term
Treasury Fund, 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
and Munder Foreign Equity Fund have not yet commenced operations.
<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 OF CONTENTS
2 RISK/RETURN SUMMARY
INDEX FUNDS
2 GOALS AND MAIN INVESTMENT STRATEGIES
2 PRINCIPAL RISKS
3 WHO MAY WANT TO INVEST
4 PERFORMANCE
5 SHORT TERM TREASURY FUND
5 GOAL AND MAIN INVESTMENT STRATEGIES
5 PRINCIPAL RISKS
5 WHO MAY WANT TO INVEST
5 PERFORMANCE
MONEY MARKET FUND
6 GOAL AND MAIN INVESTMENT STRATEGIES
6 PRINCIPAL RISKS
6 WHO MAY WANT TO INVEST
6 PERFORMANCE
7 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
16 YEAR 2000
17 FINANCIAL HIGHLIGHTS
18 APPENDIX
BACK COVER FOR ADDITIONAL INFORMATION
<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 Fund may also purchase foreign securities, enter into futures 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.
The Fund may also purchase foreign securities, enter into futures contracts
and lend portfolio securities, which are described below under "More About
Munder Institutional Funds."
- ---------------------------------------
PRINCIPAL RISKS
- ---------------------------------------
The Index Funds are subject to the following principal investment risks:
- - The Index Funds will invest in the securities included in the relevant
index 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.
- - An adverse event, such as an unfavorable earnings report, may depress the
value of a particular stock held by an Index Fund.
- - 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.
- - None of the Index Funds can be certain it will achieve its investment
goal.
- - 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.
- ------------------------------------------------------------------------------
INVESTMENT APPROACH
- - The advisor employs a "quantitative" or "indexing" investment approach,
which attempts to duplicate the investment composition and performance of
the particular index through statistical procedures.
- - The advisor invests in stocks that are included in the particular index,
in approximately the same proportions as they are represented in the
index.
- ------------------------------------------------------------------------------
2
<PAGE>
- ------------------------------------------------------------------------------
INVESTMENT APPROACH (CONTINUED)
- - Because the Index Funds have operating expenses and an index does not, the
Index Funds will not be able to match the performance of their respective
index exactly.
- - The advisor attempts to track the performance of the particular index
within a 0.95 correlation.
- ------------------------------------------------------------------------------
- ---------------------------------------
WHO MAY WANT TO INVEST
- ---------------------------------------
The Index Funds may be appropriate for investors:
- - Looking to invest over the long term and willing to ride out market swings
in search of potentially higher returns.
- - Looking for an investment that has more return and risk potential than
fixed income investments.
- - 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.
3
<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)
[GRAPH]
1998
Total Return 28.22%
- ------------------------------------------------------------
HIGHEST AND LOWEST RETURN
(1998)
- ------------------------------------------------------------
QUARTER ENDING
- ------------------------------------------------------------
HIGHEST 21.17% December 31, 1998
- ------------------------------------------------------------
LOWEST -9.94% September 30, 1998
- ------------------------------------------------------------
- ------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- ------------------------------------------------------------
LIFE OF FUND
1 YEAR (SINCE 10/14/97)
- ------------------------------------------------------------
S&P 500 INDEX EQUITY FUND 28.22% 23.06%
- ------------------------------------------------------------
S&P 500 COMPOSITE INDEX 28.57% 23.39%
- ------------------------------------------------------------
4
<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 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:
- - In general, prices of U.S. Treasury securities, like other fixed income
securities, fall when interest rates rise.
- - 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.
- - The share price of the Fund will change daily based on economic and market
conditions, interest rates and other factors.
- - 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.
- - 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.
5
<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:
- The rate of income will vary from day to day, depending on short-term
interest rates.
- 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.
- 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.
- 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.
6
<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)
- -----------------------------------------
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
- --------------------
(1) Does not include fees that institutions may charge for services they
provide to you.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING S&P 500 MIDCAP SHORT
EXPENSES(1) (EXPENSES THAT ARE INDEX INDEX TERM MONEY
PAID FROM FUND 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................. .25% .73% .55% .18%
---- ---- ---- ----
Total Operating Expenses....... .32% .88% .75% .38%
---- ---- ---- ----
---- ---- ---- ----
</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:
S&P 500 MIDCAP
INDEX EQUITY INDEX EQUITY
FUND FUND
------------ -------------
Management Fees.............. .00% .00%
Other Expenses............... .09% .18%
---- ----
Total Operating Expenses..... .09% .18%
---- ----
---- ----
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:
SHORT TERM MONEY
TREASURY MARKET
FUND FUND
---------- ------
Management Fees............. .20% .20%
Other Expenses.............. .03% .00%
---- ----
Total Operating Expenses.... .23% .20%
---- ----
---- ----
- ------------------------------------------------------------------------------
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
S&P 500 Index Equity Fund........ $33 $103 $180 $ 408
MidCap Index Equity Fund......... $90 $281 $489 $1,089
Short Term Treasury Fund......... $77 $240 - -
Money Market Fund................ $39 $122 - -
7
<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.
FUTURES CONTRACTS Each Fund may, but is not required to, use futures
contracts which are a type of derivative. A derivative is a financial
contract whose value is based on a security, an asset or a market index. 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.
Rather, each Fund will use futures contracts to gain exposure to its index
for its cash balances. There is a risk that futures contracts could cause a
Fund to track its index less closely, if they do not perform as expected.
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, 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).
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 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.
A portion of the U.S. Treasury Securities purchased by the Fund may be zero
coupon securities. These are U.S. Treasury notes which have been stripped of
their unmatured interest coupons and receipts. These securities are issued
at a discount from their face value because interest payments are typically
8
<PAGE>
postponed until maturity. 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.
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 manages the Fund. Ms. Fayolle has been Vice President and
Director of Money Market Trading for the advisor since 1996. Prior to that
she managed an international portfolio 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 money
market securities of foreign issuers, 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 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.
9
<PAGE>
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.
VARIABLE AND FLOATING RATE SECURITIES Variable and floating rate securities
have interest rates that are periodically adjusted either at set intervals or
that float at a margin above a generally recognized index rate. These
securities exhibit greater price variations than fixed-rate securities.
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.
10
<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:
- S&P 500 Index Equity Fund $3,000,000
- MidCap Index Equity Fund $1,000
- Short Term Treasury Fund and Money
Market Fund $10,000,000
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:
11
<PAGE>
- the New York Stock Exchange is closed;
- trading on the New York Stock Exchange is restricted;
- an emergency exists and the Fund cannot sell its assets or
accurately determine the value of its assets.
- 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.
- 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.
- 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.
12
<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.
13
<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.
14
<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 0.00% of its average daily net assets.
Because the advisor agreed to reimburse certain of the Fund's expenses, the
payment was less than the Fund's contractual advisory fee of 0.07% of its
average daily net assets. The advisory may discontinue or change its
voluntary reimbursement at any time. 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.
15
<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 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 FUND EQUITY FUND
------------------------------------- ----------------
YEAR PERIOD PERIOD
ENDED ENDED ENDED
12/31/98 12/31/97 (a) 12/31/98 (a)
------------- --------------- ---------------
<S> <C> <C> <C>
Net asset value, beginning of Period ........................ $ 10.00 $ 10.00 $ 10.00
------------- --------------- ---------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ....................................... 0.17 0.04 0.11
Net realized and unrealized gain on investments ............. 2.63 0.00 (d) 1.34
------------- --------------- --------------
Total from investment operations ............................ 2.80 0.04 1.45
------------- --------------- --------------
LESS DISTRIBUTIONS:
Distributions from net investment income .................... (0.17) (0.04) (0.11)
------------- --------------- --------------
Distributions from net realized gains ....................... (0.14) -- (0.26)
------------- --------------- --------------
Total distributions ......................................... (0.31) (0.04) (0.37)
------------- --------------- --------------
Net asset value, end of period .............................. $ 12.49 $ 10.00 $ 11.08
------------- --------------- --------------
------------- --------------- --------------
TOTAL RETURN (b) ............................................ 28.22% 0.39% 15.04%
------------- --------------- --------------
------------- --------------- --------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ........................ $ 69,032 $ 63,999 $ 10,853
Ratio of operating expenses to average net assets ........... 0.09% 0.09%(c) 0.18%(c)
Ratio of net investment income to average net assets ........ 1.44% 1.76%(c) 1.20%(c)
Ratio of operating expenses to average net assets
without expenses reimbursed ............................. 0.32% 0.61%(c) 0.88%(c)
Portfolio turnover........................................... 6% 0% 37%
</TABLE>
- ---------------------
(a) Munder Institutional S&P 500 Index Equity Fund commenced operations on
October 14, 1997. Munder Institutional S&P MidCap Index Equity Fund
commenced operations on February 12, 1998.
(b) Total return represents aggregate total return for the period indicated.
(c) Annualized.
(d) The amount shown at this caption for each share outstanding throughout
the period, may not accord with the change in aggregate gains and losses
in the portfolio securities for the period, because of the timing of
purchases and withdrawals of shares in relation to the fluctuating
market values of the portfolio.
16
<PAGE>
APPENDIX
- ------------------------------------------------------------------------------
- ---------------------------------------
STANDARD & POOR'S INDEXES
- ---------------------------------------
"Standard & Poor's-Registered Trademark-", "S&P-Registered Trademark-", "S&P
500-Registered Trademark-", "Standard and Poor's 500", "500", "S&P MidCap
400", "Standard & Poor's MidCap 400" and "400" 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 or the S&P MidCap 400 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.
17
<PAGE>
FOR MORE INFORMATION
- ------------------------------------------------------------------------------
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).
- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
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 OF CONTENTS
2 RISK/RETURN SUMMARY
2 GOAL AND MAIN INVESTMENT STRATEGIES
2 PRINCIPAL RISKS
2 WHO MAY WANT TO INVEST
3 PERFORMANCE
3 EXPENSES
4 MORE ABOUT THE FUND
5 YOUR INVESTMENT
5 HOW TO REACH THE FUND
5 PURCHASING SHARES
5 REDEEMING SHARES
7 PRICING OF FUND SHARES
7 DISTRIBUTIONS
8 FEDERAL TAX CONSIDERATIONS
8 TAXES ON DISTRIBUTIONS
8 TAXES ON SALES
8 OTHER CONSIDERATIONS
9 MANAGEMENT
9 INVESTMENT ADVISOR
9 YEAR 2000
10 APPENDIX
BACK COVER FOR ADDITIONAL INFORMATION
<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.
- ---------------------------------------
GOAL 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 futures 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:
- - 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 the Fund.
- - 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.
- - 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.
- - The Fund will invest in the securities included in the relevant index
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.
- ------------------------------------------------------------------------------
INVESTMENT APPROACH
- - The advisor manages the Fund through a "quantitative" or "indexing"
investment approach, which attempts to duplicate the investment
composition and performance of the S&P SmallCap 600 through statistical
procedures.
- - The advisor selects stocks based primarily on market capitalization and
industry weightings.
- - Because the Fund has operating expenses and the S&P SmallCap 600 does not,
the Fund will not be able to match the performance of the S&P SmallCap 600
exactly.
- - The advisor attempts to track the performance of the S&P SmallCap 600
within a 0.95 correlation.
- ------------------------------------------------------------------------------
- ---------------------------------------
WHO MAY WANT TO INVEST
- ---------------------------------------
The Fund may be appropriate for investors:
- - Looking to invest over the long term and willing to ride out market swings
in search of potentially higher returns.
- - Looking for an investment that has more return and risk potential than
fixed income investments.
- - 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.
2
<PAGE>
- ------------------------------------------------------------------------------
PERFORMANCE
- ------------------------------------------------------------------------------
The Fund does not have a full calendar year of investment returns as of the date
of this Prospectus and is not currently in operations. Therefore, no performance
information has been provided.
- ------------------------------------------------------------------------------
EXPENSES
- ------------------------------------------------------------------------------
The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
SHAREHOLDER FEES(1)
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- -------------------------------------------
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
- ----------------------
(1) Does not include fees that institutions may charge for services they
provide to you.
ANNUAL FUND OPERATING EXPENSES (1) (EXPENSES THAT
ARE PAID FROM FUND ASSETS) SMALLCAP INDEX
AS A % OF NET ASSETS EQUITY FUND
- -------------------- ------------------------------------
Management Fees.................. .15%
Other Expenses................... 3.28%
----
Total Operating Expenses......... 3.43%
====
- --------------------
(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:
SMALLCAP INDEX
EQUITY FUND
----------------------------------------
Management Fees.................. .15%
Other Expenses................... .03%
---
Total Operating Expenses......... .18%
===
- ------------------------------------------------------------------------------
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
------ ------- ------- --------
$347 $1,058 $1,791 $3,725
3
<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.
FUTURES CONTRACTS The Fund may, but is not required to, use futures contracts
which are a type of derivative. A derivative is a financial contract whose value
is based on a security, an asset or a market index. 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. Rather, the Fund will use futures
contracts to gain exposure to its index for its cash balances. There is a risk
that futures contracts could cause the Fund to track its index less closely, if
it does not perform as 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.
- ---------------------------------------
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
Fund since its 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).
4
<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:
- 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 the Fund is $1,000. 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
- All orders to purchase shares are subject to acceptance by the Fund.
- At any time, the Fund may change any of its order acceptance practices,
and may suspend the sale of its shares.
- The Fund 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:
- the New York Stock Exchange is closed;
- trading on the New York Stock Exchange is restricted;
- an emergency exists and the Fund cannot sell its assets or accurately
determine the value of its assets.
5
<PAGE>
- 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.
- 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.
- 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.
6
<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. 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.
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 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.
7
<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.
8
<PAGE>
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 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.
- ---------------------------------------
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.
9
<PAGE>
APPENDIX
- ------------------------------------------------------------------------------
- ---------------------------------------
STANDARD & POOR'S INDEX
- ---------------------------------------
"Standard & Poor's(R)", "S&P(R)", "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 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 Index or
any data included therein and S&P shall have no liability for any errors,
omissions, or interruptions therein. S&P makes no warranty, express or
implied, as to results to be obtained by the Munder Institutional Fund,
owners of the Fund, or any other person or entity from the use of the Index
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 Index or any data included
therein. Without limiting any of the foregoing, in no event shall S&P have
any liability for any special, punitive, indirect, or consequential damages
(including lost profits), even if notified of the possibility of such damages.
10
<PAGE>
FOR MORE INFORMATION
- ------------------------------------------------------------------------------
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).
- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
SEC FILE NUMBER: 811-4038
<PAGE>
----------
PROSPECTUS
LIQUIDITY PLUS MONEY MARKET FUND
APRIL 30, 1999
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
2 RISK/RETURN SUMMARY
2 GOAL AND MAIN INVESTMENT STRATEGIES
2 PRINCIPAL RISKS
2 WHO MAY WANT TO INVEST
3 PERFORMANCE
3 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
9 YEAR 2000
11 FINANCIAL HIGHLIGHTS
BACK COVER FOR ADDITIONAL INFORMATION
<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:
- The rate of income will vary from day to day, depending on short-term
interest rates.
- 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.
- 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.
- 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.
2
<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)
[GRAPH]
4.68%
1998
- ------------------------------------------------------
HIGHEST AND LOWEST RETURN
(1998)
- ------------------------------------------------------
QUARTER ENDING
- ----------------------- ------------ -----------------
HIGHEST 1.17% 9/30/98
- ----------------------- ------------ -----------------
LOWEST 1.09% 12/31/98
- ----------------------- ------------ -----------------
- ------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- ------------------------------------------------------
LIFE OF FUND
1 YEAR (SINCE 6/4/97)
- ---------------------------- -------------------------
4.68% 4.62%
- ---------------------------- -------------------------
The Fund's 7 day yield on 12/31/98 was 4.29%.
- ------------------------------------------------------------------------------
EXPENSES
- ------------------------------------------------------------------------------
The table below describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
SHAREHOLDER FEES(1)
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- -----------------------------------------
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
- --------------------
Notes:
(1) Does not include fees that institutions may charge for services they
provide to you.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE PAID FROM FUND ASSETS)
AS A % OF NET ASSETS
- ---------------------------------------------------------------------
Management Fees .................................................... 0.35%
Distribution and Service (12b-1) Fees .............................. 0.35%
Other Expenses ..................................................... 0.27%
----
Total Operating Expenses ........................................... 0.97%
----
----
3
<PAGE>
- ------------------------------------------------------------------------------
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
------ ------- ------- --------
$99 $309 $537 $1,194
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 money
market securities of foreign issuers, 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.
VARIABLE AND FLOATING RATE SECURITIES Variable and floating rate securities
have interest rates that are periodically adjusted either at set intervals or
that float at a margin above a generally recognized index rate. These
securities exhibit greater price variations than fixed-rate securities.
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
- All orders to purchase shares are subject to acceptance by the Fund.
- At any time, the Fund may change any of its order acceptance practices
and may suspend the sale of its shares.
- The Fund may delay wiring 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.
- The Fund may temporarily stop redeeming shares if:
- the New York Stock Exchange is closed;
- trading on the New York Stock Exchange is restricted; or
- an emergency exists and the Fund cannot sell its assets or
accurately determine the value of its assets.
6
<PAGE>
- 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.
- 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.
- 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 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>
LIQUIDITY PLUS MONEY MARKET FUND
--------------------------------
YEAR PERIOD
ENDED ENDED
12/31/98 12/31/97(a)
-------- --------
<S> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00
------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................................... 0.050 0.030
------- --------
Total from investment operations........................................ 0.050 0.030
------- --------
LESS DISTRIBUTIONS:
Distributions from net investment income................................ (0.050) (0.030)
------- --------
Total distributions..................................................... (0.050) (0.030)
------- --------
Net asset value, end of period......................................... $ 1.00 $ 1.00
------- --------
------- --------
TOTAL RETURN (B)........................................................ 4.68% 2.59%
------- --------
------- --------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's).................................... $76,975 $ 56,636
Ratio of operating expenses to average net assets....................... 0.97% 0.86%(c)
Ratio of net investment income to average net assets.................... 4.58% 4.29%(c)
Ratio of operating expenses to average net assets
without expenses reimbursed......................................... 0.97% 0.86%(c)
- ---------------------------
</TABLE>
(a) Liquidity Plus Money Market Fund commenced operations on June 4, 1997.
(b) Total return represents aggregate total return for the period indicated.
(c) Annualized.
11
<PAGE>
FOR MORE INFORMATION
- ------------------------------------------------------------------------------
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 Securities and
Exchange Commission and is incorporated by reference (is legally considered
part of this prospectus).
- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
SEC FILE NUMBER: 811-4038
<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
3 PERFORMANCE
AGGREGATE BOND INDEX FUND
5 GOAL AND MAIN INVESTMENT STRATEGIES
5 PRINCIPAL RISKS
5 PERFORMANCE
FOREIGN EQUITY FUND
6 GOAL AND MAIN INVESTMENT STRATEGIES
6 PRINCIPAL RISKS
6 PERFORMANCE
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
12 YEAR 2000
13 APPENDIX
BACK COVER FOR ADDITIONAL INFORMATION
<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 Fund may also purchase foreign securities, enter into futures 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.
The Fund may also purchase foreign securities, enter into futures contracts
and repurchase agreements and lend portfolio securities, which are described
below under "More About the Funds."
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.
The Fund may also purchase foreign securities, enter into futures contracts
and repurchase agreements and lend portfolio securities, which are described
below under "More About the Funds."
- ---------------------------------------
PRINCIPAL RISKS
- ---------------------------------------
The Index Equity Funds are subject to the following principal investment
risks:
- - The Index Equity Funds will invest in the securities included in the
relevant index 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.
- - An adverse event, such as an unfavorable earnings report, may depress the
value of a particular stock held by an Index Equity Fund.
- - 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.
2
<PAGE>
- - 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.
- ------------------------------------------------------------------------------
INVESTMENT 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.
- - Because the Index Equity Funds have operating expenses and an index does
not, the Index Equity Funds will not be able to match the performance of
their respective index exactly.
- - The advisor attempts to track the performance of the particular index
within a 0.95 correlation.
- ------------------------------------------------------------------------------
- ---------------------------------------
PERFORMANCE
- ---------------------------------------
The Index Equity Funds have not commenced operations as of the date of this
Prospectus and, therefore, have no performance information to report.
3
<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 Fund.
- - 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.
- ------------------------------------------------------------------------------
INVESTMENT APPROACH
- - The advisor manages the Fund through a "quantitative" or "indexing"
investment approach, which attempts to duplicate the investment
composition and performance of the Aggregate Bond Index through
statistical procedures.
- - Because the Fund has operating expenses and an index does not, the Fund
will not be able to match the performance of its index exactly.
- - The advisor attempts to track the performance of the Aggregate Bond Index
within a 0.95 correlation.
- ------------------------------------------------------------------------------
- ---------------------------------------
PERFORMANCE
- ---------------------------------------
The Fund had not commenced operations as of the date of this Prospectus and,
therefore, has no performance information to report.
4
<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 $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; and 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.
- ------------------------------------------------------------------------------
- ---------------------------------------
PERFORMANCE
- ---------------------------------------
The Fund had not commenced operations as of the date of this Prospectus and,
therefore, has no performance information to report.
5
<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.
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 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.
6
<PAGE>
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.
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.
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.
7
<PAGE>
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.
8
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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.
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<PAGE>
DISTRIBUTIONS
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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.
10
<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.
11
<PAGE>
APPENDIX
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- ---------------------------------------
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.
12
<PAGE>
FOR MORE INFORMATION
- ------------------------------------------------------------------------------
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).
- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
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
<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.
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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<PAGE>
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
<PAGE>
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.
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
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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 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.
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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 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.
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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
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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 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
the restriction that each Fund's investment in warrants or rights may not exceed
5% of its net assets at the time of purchase.
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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.
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
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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 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.
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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.
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
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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 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
16
<PAGE>
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.
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
17
<PAGE>
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.
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).
18
<PAGE>
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;
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
19
<PAGE>
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.
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.
20
<PAGE>
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 Senior Advisor to the President,
1024 Essex Circle Board of Directors Western Michigan University (July
Kalamazoo, MI 49008 1995 through December 1998);
Age: 67 Executive Vice 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
1876 Rathmor the Board of Directors Officer, Walbridge Aldinger
Bloomfield Hills, MI 48304 Company (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
Age: 60 Consultant (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
10726 Falls Pointe Drive Officer, Capital Automotive REIT
Great Falls, VA 22066 (real estate investment trust
Age: 51 specializing in 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
Age: 53 1998); 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
Suite 300 and Treasurer 1993), Vice President and Chief
Birmingham, MI 48009 Financial Officer, MCM (since
Age: 38 1993); Secretary, LPM.
</TABLE>
24
<PAGE>
<TABLE>
<S> <C> <C>
Paul Tobias Vice President Chief Executive Officer of the
480 Pierce Street Advisor (since February 1998);
Suite 300 Chief Operating Officer of the
Birmingham, MI 48009 Advisor (since April 1995);
Age: 48 Executive Vice President of the
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
480 Pierce Street Advisor (since February 1998);
Suite 300 Chief Investment Officer/Equities
Birmingham, MI 48009 of the Advisor (since April 1995);
Age: 47 Executive 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: 41
James C. Robinson Vice President Vice President and Chief
480 Pierce Street Investment Officer/Fixed Income
Suite 300 of the Advisor (since January
Birmingham, MI 48009 1995).
Age: 38
Leonard J. Barr Vice President Vice President and Director of
480 Pierce Street Core Equity Research of the
Suite 300 Advisor (since January 1995);
Birmingham, MI 48009 Director and Senior Vice President,
Age: 54 MCM (since 1988); 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
480 Pierce Street (since May 1996); Counsel, First
Suite 300 Data Investor Services Group, Inc.
Birmingham, MI 48009 (June 1994 to May 1996).
Age: 31
Therese Hogan Assistant Secretary Director, State Regulation
53 State Street Department, First Data Investor
Boston, MA 02109 Services Group (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 E. Thomas D.
Chairman, Vice Chairman, Bender Brophy Champagne Eckert
Trustee and Trustee and Trustee and Trustee and Trustee and Trustee and
Director Director Director Director Director Director
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aggregate Compensation
from Munder $7,909 $7,909 $7,909 $7,400 $7,909 $7,909
- ------------------------------------------------------------------------------------------------------------------------------------
Aggregate Compensation
from the Trust $28,709 $28,709 $28,709 $26,807 $28,709 $28,709
- ------------------------------------------------------------------------------------------------------------------------------------
Aggregate Compensation
from Framlington Trust $637 $637 $637 $598 $637 $637
- ------------------------------------------------------------------------------------------------------------------------------------
Aggregate Compensation
from the Company $745 $745 $745 $695 $745 $745
- ------------------------------------------------------------------------------------------------------------------------------------
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 $38,000 $38,000 $38,000 $35,500 $38,000 $38,000
- ------------------------------------------------------------------------------------------------------------------------------------
</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 1, 1999, the
Directors and officers of the Company, as a group, owned less than 1% of
outstanding shares of the Funds of the Company.
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 $0 for the
S&P 500 Index Equity Fund, and $0 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 waived fees and reimbursed expenses in the amounts of
$43,466 and $99,879, respectively for the S&P 500 Index Equity Fund, and $12,831
and $47, 646, respectively for the MidCap Index Equity Fund.
27
<PAGE>
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
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 $7,340 and MidCap Index Equity Fund
$1,010.
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.
28
<PAGE>
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 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
29
<PAGE>
members of a bidding group. The Funds will engage in this practice, however,
only when the Advisor believes such practice to be in each Fund's interests.
The portfolio turnover rate of each Fund is calculated by dividing the
lesser of the Fund's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of securities whose maturities at the time of
acquisition were one year or less) by the monthly average value of the
securities held by the Fund during the year. Each Fund may engage in short-term
trading to achieve its investment objective. Portfolio turnover may vary greatly
from year to year as well as within a particular year.
In the Advisory Agreement, the Advisor agrees to select broker-dealers
in accordance with guidelines established by the Company's Board of Directors
from time to time and in accordance with applicable law. In assessing the terms
available for any transaction, the Advisor shall consider all factors it deems
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker-dealer,
and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. In addition, the Advisory Agreement
authorizes the Advisor, subject to the prior approval of the Company's Board of
Directors, to cause each Fund to pay a broker-dealer which furnishes brokerage
and research services a higher commission than that which might be charged by
another broker-dealer for effecting the same transaction, provided that the
Advisor determines in good faith that such commission is reasonable in relation
to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either the particular transaction or the
overall responsibilities of the Advisor to the Fund. Such brokerage and research
services might consist of reports and statistics on specific companies or
industries, general summaries of groups of bonds and their comparative earnings
and yields, or broad overviews of the securities markets and the economy.
Supplementary research information so received is in addition to, and
not in lieu of, services required to be performed by the Advisor and does not
reduce the advisory fees payable to the Advisor by the Funds. It is possible
that certain of the supplementary research or other services received will
primarily benefit one or more other investment companies or other accounts for
which investment discretion is exercised. Conversely, the Funds may be the
primary beneficiary of the research or services received as a result of
portfolio transactions effected for such other account or investment company.
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 0% $0
</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 $ Amount of
$ Amount Brokerage Commission Representing Transactions Involving
Commission Research Services Research Services
-------------------------- ------------------------------ ---------------------------
<S> <C> <C> <C>
S&P 500 Index Equity Fund $6,395.12 0% $0
MidCap Index Equity Fund $5,062.15 0% $0
</TABLE>
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 Chase Securities valued at $394,762, J.P. Morgan
& Co., Inc. valued at $126,075, Lehman Brothers Holdings, Inc. valued at
$39,656, Merrill Lynch & Co., Inc. valued at $153,525, Morgan Stanley & Co.
valued at $291,100, Bear Stearns Securities valued at $29,900 and Schwab
Corporation valued at $151,706 and the MidCap Index Equity Fund held securities
of PaineWebber Group, Inc. valued at $54,075 and Edwards (A.G.), Inc. valued at
$37,250.
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.
31
<PAGE>
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 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.
32
<PAGE>
In determining the approximate market value of portfolio investments,
the Company may employ outside organizations, which may use matrix or formula
methods that take into consideration market indices, matrices, yield curves and
other specific adjustments. This may result in the securities being valued at a
price different from the price that would have been determined had the matrix or
formula methods not been used. All cash, receivables and current payables are
carried on the Company's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith under the supervision of the
Board of Directors.
PERFORMANCE INFORMATION
From time to time, quotations of a Fund's performance may be included
in advertisements, sales literature, or reports to 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.
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:
YIELD = 2 [( A-B + 1)6 - 1]
cd
Where: a = dividends and interest earned by a Fund during the period;
b = expenses accrued for the period (net of expense reimbursements
and waivers);
c = average daily number of shares outstanding during the period
entitled to receive dividends;
33
<PAGE>
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 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).
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, the average annual total return
figures for the S&P 500 Index Equity Fund for the 12 month period ended December
31, 1998 was 28.22% and for the period from commencement of operations on
October 14, 1997 through December 31, 1998 was 23.06%.
Based on the foregoing calculation, the aggregate total return for the
MidCap Index Equity Fund for the period from commencement of operations on
February 14, 1998 through December 31, 1998 was 15.04%.
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, 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.
35
<PAGE>
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.
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
36
<PAGE>
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 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.
37
<PAGE>
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 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
38
<PAGE>
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.
Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries.
39
<PAGE>
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 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.
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<PAGE>
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 1,
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>
Money Market Fund Calhoun & Co. 100%
and c/o Comerica Bank
S&P 500 Index Equity Fund Attn: Vicky Froehlich
P.O. Box 75000
Detroit, MI 48275-3455
MidCap Index Calhoun & Co. 99.9%
Equity Fund c/o Comerica Bank
Attn: Vicky Froehlich
P.O. Box 75000
Detroit, MI 48275-3455
</TABLE>
41
<PAGE>
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.
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<PAGE>
FINANCIAL STATEMENTS
The financial statements of the S&P 500 Index Equity Fund and MidCap
Index Equity Fund 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.
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<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 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>
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<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 requred 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
47
<PAGE>
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 instruents 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
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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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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"). 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.
*The Fund is not currently available for purchase.
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TABLE OF CONTENTS
PAGE
General............................................................ 3
Fund Investments................................................... 3
Risk Factors and Special Considerations ........................... 15
Investment Limitations............................................. 16
Temporary Defensive Position....................................... 19
Directors and Officers............................................. 19
Investment Advisory and Other Service Arrangements................. 23
Portfolio Transactions............................................. 25
Additional Purchase and Redemption Information..................... 27
Net Asset Value.................................................... 28
Performance Information............................................ 28
Taxes.............................................................. 29
Additional Information Concerning Shares........................... 34
Miscellaneous...................................................... 35
Registration Statement............................................. 36
Appendix A......................................................... 37
Appendix B......................................................... 39
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.
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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
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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
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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 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
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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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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
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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 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.
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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
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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
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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.
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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 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
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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
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(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;
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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 FUTURES (2) 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 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 Senior Advisor to the President,
1024 Essex Circle Board of Directors Western Michigan University
Kalamazoo, MI 49008 (July 1995 through December
Age: 67 1998); Executive Vice 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 Chairman and Chief Executive
1876 Rathmor of the Board of Directors Officer, Walbridge Aldinger
Bloomfield Hills, MI 48304 Company (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
10726 Falls Pointe Drive Officer, Capital Automotive REIT
Great Falls, VA 22066 (real estate investment trust
Age: 51 specializing in 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, LPM.
Age: 38
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C>
Paul Tobias Vice President Chief Executive Officer of the Advisor
480 Pierce Street (since February 1998); Chief
Suite 300 Operating Officer of the Advisor
Birmingham, MI 48009 (since April 1995); Executive Vice President of
Age: 48 the 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
480 Pierce Street Advisor (since February 1998); Chief
Suite 300 Investment Officer/Equities of the
Birmingham, MI 48009 Advisor (since April 1995); Executive
Age: 47 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 Marketing
480 Pierce Street of the Advisor (since January 1995).
Suite 300
Birmingham, MI 48009
Age: 41
James C. Robinson Vice President Vice President and Chief Investment
480 Pierce Street Officer/Fixed Income of the Advisor (since
Suite 300 January 1995).
Birmingham, MI 48009
Age: 38
Leonard J. Barr Vice President Vice President and Director of
480 Pierce Street Core Equity Research of the
Suite 300 Advisor (since January 1995);
Birmingham, MI 48009 Director and Senior Vice President,
Age: 54 MCM (since 1988); 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>
<S> <C> <C>
Lisa A. Rosen Secretary, Assistant Treasurer General Counsel of the Advisor
480 Pierce Street (since May 1996); Counsel, First
Suite 300 Data Investor Services Group,
Birmingham, MI 48009 Inc. (June 1994 to May 1996).
Age: 31
Therese Hogan Assistant Secretary Director, State Regulation
53 State Street Department, First Data Investor
Boston, MA 02109 Services Group (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 E. Thomas D.
Chairman Vice Chairman Bender Brophy Champagne Eckert
Trustee and Trustee and Trustee and Trustee and Trustee and Trustee and
Director Director Director Director Director Director
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aggregate Compensation
from Munder $7,909 $7,909 $7,909 $7,400 $7,909 $7,909
- -----------------------------------------------------------------------------------------------------------------------------------
Aggregate Compensation
from the Trust $28,709 $28,709 $28,709 $26,807 $28,709 $28,709
- -----------------------------------------------------------------------------------------------------------------------------------
Aggregate Compensation
from Framlington Trust $637 $637 $637 $598 $637 $637
- -----------------------------------------------------------------------------------------------------------------------------------
Aggregate Compensation
from the Company $745 $745 $745 $695 $745 $745
- -----------------------------------------------------------------------------------------------------------------------------------
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 $38,000 $38,000 $38,000 $35,500 $38,000 $38,000
- -----------------------------------------------------------------------------------------------------------------------------------
</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 1, 1999,
the Directors and officers of the Company, as a group, owned less than 1% of
outstanding shares of the Fund of the Company.
22
<PAGE>
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, 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 $0 for the Fund. For the fiscal year ended December 31,
1998, the Advisor voluntarily waived fees and reimbursed expenses in the
amount of $1,528 and $52,785, respectively 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.
23
<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; oversee 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 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 $121.
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
24
<PAGE>
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 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.
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
25
<PAGE>
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 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 fiscal year ended December 31, 1998 and by the Fund from
commencement of operations on August 7, 1997 through December 31, 1997.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Commencement of operations For the Fiscal Year Ended
through December 31, 1997. December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ Amount Brokerage Commission $1,241 $0
- -----------------------------------------------------------------------------------------------------------------------------
% of Brokerage Commission
Representing Research Services 0% 0%
- -----------------------------------------------------------------------------------------------------------------------------
$ Amount of Transactions
Involving Research Services $0 $0
- -----------------------------------------------------------------------------------------------------------------------------
</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.
26
<PAGE>
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 no such securities.
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 $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.
27
<PAGE>
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 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:
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
28
<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
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
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.
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
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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 (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"
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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.
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
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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 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
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<PAGE>
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 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."
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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.
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
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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 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.
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.
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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 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.
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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 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>
39
<PAGE>
<TABLE>
<CAPTION>
<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
40
<PAGE>
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
41
<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
42
<PAGE>
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.
43
<PAGE>
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
Page
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
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.
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.
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
3
<PAGE>
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
4
<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.
6
<PAGE>
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
<PAGE>
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 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
11
<PAGE>
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 10%
- ----------------------------------------------------------------------------------------------------------------------
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 Senior Advisor to the President,
1024 Essex Circle the Board of Directors Western Michigan University
Kalamazoo, MI 49008 (July 1995 through December
Age: 67 1998); Executive Vice 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 and Chief Executive
1876 Rathmor Chairman of the Board of Officer, Walbridge Aldinger
Bloomfield Hills, MI Directors Company (construction company).
48304
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
Age: 60 Consultant (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
10726 Falls Pointe Drive Officer, Capital Automotive REIT
Great Falls, VA 22066 (real estate investment trust
Age: 51 specializing in 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); 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
Suite 300 and Treasurer 1993), Vice President and Chief
Birmingham, MI 48009 Financial Officer, MCM (since
Age: 38 1993); Secretary, LPM.
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C>
Paul Tobias Vice President Chief Executive Officer of the
480 Pierce Street Advisor (since February 1998);
Suite 300 Chief Operating Officer of the
Birmingham, MI 48009 Advisor (since April 1995);
Age: 48 Executive Vice President of the
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
480 Pierce Street Advisor (since February 1998);
Suite 300 Chief Investment Officer/Equities
Birmingham, MI 48009 of the Advisor (since April 1995);
Age: 47 Executive 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: 41
James C. Robinson Vice President Vice President and Chief
480 Pierce Street Investment Officer/Fixed Income
Suite 300 of the Advisor (since January
Birmingham, MI 48009 1995).
Age: 38
Leonard J. Barr Vice President Vice President and Director of
480 Pierce Street Core Equity Research of the
Suite 300 Advisor (since January 1995);
Birmingham, MI 48009 Director and Senior Vice
Age: 54 President, MCM (since 1988);
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 General Counsel of the Advisor
480 Pierce Street Treasurer (since May 1996); Counsel, First
Suite 300 Data Investor Services Group, Inc.
Birmingham, MI 48009 (June 1994 to May 1996).
Age: 31
Therese Hogan Assistant Secretary Director, State Regulation
53 State Street Department, First Data Investor
Boston, MA 02109 Services Group (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 $20,000$30,000 and a fee of $1,500$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 E. Thomas D. Eckert
Chairman, Vice Chairman, Bender Brophy Champagne Trustee and
Trustee and Trustee and Trustee and Trustee and Trustee and Director
Director Director Director Director Director
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aggregate Compensation
from Munder $7,909 $7,909 $7,909 $7,400 $7,909 $7,909
- ----------------------------------------------------------------------------------------------------------------------------------
Aggregate Compensation
from the Trust $28,709 $28,709 $28,709 $26,807 $28,709 $28,709
- ----------------------------------------------------------------------------------------------------------------------------------
Aggregate Compensation
from Framlington $637 $637 $637 $598 $637 $637
- ----------------------------------------------------------------------------------------------------------------------------------
Aggregate Compensation
from the Company $745 $745 $745 $695 $745 $745
- ----------------------------------------------------------------------------------------------------------------------------------
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 $38,000 $38,000 $38,000 $35,500 $38,000 $38,000
- ----------------------------------------------------------------------------------------------------------------------------------
</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 1, 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 $233,769.
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
19
<PAGE>
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 $171,241 and distribution fees in
the amount of $68,496.
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.
20
<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 $34,159 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 4400 Computer Drive, Westborough,
Massachusetts 01581 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
21
<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.
23
<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
24
<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 4.29% and the effective
yield was 4.38%.
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
25
<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.
26
<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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<PAGE>
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 1,
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
---------------- -------------------
National Financial Services Corp. 99.9%
for the exclusive benefit of
our customers
Attn: Mutual Funds 5th Fl.
P.O. Box 3908 Church Street Station
New York, NY
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
29
<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.
30
<PAGE>
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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<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>
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.................................17
Directors and Officers.......................................18
Investment Advisory and Other Service Arrangements...........21
Control Person and Principal Holder of Securities............24
Portfolio Transactions.......................................24
Purchase and Redemption Information..........................25
Net Asset Value..............................................26
Performance Information......................................26
Taxes........................................................28
Additional Information Concerning Shares.....................30
Miscellaneous................................................31
Appendix A...................................................33
Appendix B...................................................35
</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
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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.
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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 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
14
<PAGE>
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 were not purchased by the Fund, the
representation of industries included in the corresponding index that are not
dominated by the most heavily market-capitalized companies would be reduced
or eliminated.
For these reasons, the Advisor will identify the sectors which are (or,
except for sector balancing, would be) most underrepresented in a Fund's
portfolio and will purchase balancing securities in these sectors until the
portfolio's sector weightings closely match those of the corresponding index.
This process continues until the portfolio is fully invested (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
15
<PAGE>
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 Senior Advisor to the President,
1024 Essex Circle Board of Directors Western Michigan University
Kalamazoo, MI 49008 (July 1995 through December 1998);
Age: 67 Executive Vice 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
1876 Rathmor the Board of Directors Officer, Walbridge Aldinger
Bloomfield Hills, MI 48304 Company (construction company).
Age: 51
Thomas B. Bender Director Partner, Financial &
5033 Wood Ridge Road Investment Management Group.
Glen Arbor, MI 49636
Age: 65
David J. Brophy Director Professor, University of Michigan.
1025 Martin Place Director, River Place Financial Corporation.
Ann Arbor, MI 48104
Age: 62
Dr. Joseph E. Champagne Director Dean, University Center, Macomb College (since
319 East Snell Road September 1997); Corporate and Executive
Rochester, MI 48306 Consultant (since September 1995); Chancellor,
Age: 60 Lamar University (September 1994
to September 1995). Chairman of Board of
Directors, Ross Operating Valve of Troy, Michigan.
</TABLE>
18
<PAGE>
<TABLE>
<S> <C> <C>
Thomas D. Eckert Director President and Chief Executive Officer, Capital
10726 Falls Pointe Drive Automotive REIT (real estate investment
Great Falls, VA 22066 trust specializing in retail automotive
Age: 51 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 Officer,
Birmingham, MI 48009 MCM (since 1993); Secretary, LPM.
Age: 38
Paul Tobias Vice President Chief Executive Officer of the
480 Pierce Street Advisor (since February 1998);
Suite 300 Chief Operating Officer of the
Birmingham, MI 48009 Advisor (since April 1995);
Age: 48 Executive Vice President of the
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
480 Pierce Street Advisor (since February 1998);
Suite 300 Chief Investment Officer/Equities
Birmingham, MI 48009 of the Advisor (since April 1995);
Age: 47 Executive 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 Marketing
480 Pierce Street of the Advisor (since January 1995).
Suite 300
Birmingham, MI 48009
Age: 41
James C. Robinson Vice President Vice President and Chief Investment Officer/Fixed
480 Pierce Street Income of the Advisor (since January 1995).
Suite 300
Birmingham, MI 48009
Age: 38
Leonard J. Barr Vice President Vice President and Director of Core Equity
480 Pierce Street Research of the Advisor (since January 1995);
Suite 300 Director and Senior Vice President, MCM
Birmingham, MI 48009 (since 1988); Director of LPM.
Age: 54
Ann F. Putallaz Vice President Vice President and Director of Fiduciary
480 Pierce Street Services of the Advisor (since January 1995).
Suite 300
Birmingham, MI 48009
Age: 53
Lisa A. Rosen Secretary, Assistant Treasurer General Counsel of the Advisor (since May 1996);
480 Pierce Street Counsel, First Data Investor Services Group, Inc.
Suite 300 (June 1994 to May 1996).
Birmingham, MI 48009
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, Jr. Thomas B. David J. Dr. Joseph E. Thomas D.
Chairman Vice Chairman Bender Brophy Champagne Eckert
Trustee and Trustee and Trustee and Trustee and Trustee and Trustee and
Director Director Director Director Director Director
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aggregate Compensation
from Munder $7,909 $7,909 $7,909 $7,400 $7,909 $7,909
- -------------------------------------------------------------------------------------------------------------------------------
Aggregate Compensation
from the Trust $28,709 $28,709 $28,709 $26,807 $28,709 $28,709
- -------------------------------------------------------------------------------------------------------------------------------
Aggregate Compensation
from Framlington $637 $637 $637 $598 $637 $637
- -------------------------------------------------------------------------------------------------------------------------------
Aggregate Compensation
from the Company $745 $745 $745 $695 $745 $745
- -------------------------------------------------------------------------------------------------------------------------------
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 $38,000 $38,000 $38,000 $35,500 $38,000 $38,000
- -------------------------------------------------------------------------------------------------------------------------------
</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.
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 for the Company pursuant to an
administration agreement (the "Administration Agreement"). State
22
<PAGE>
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 4400 Computer Drive, Westborough,
Massachusetts 01581 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
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<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
27
<PAGE>
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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<PAGE>
(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
30
<PAGE>
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,
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
31
<PAGE>
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 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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<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 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
35
<PAGE>
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
36
<PAGE>
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.
37
<PAGE>
EXAMPLES OF STOCK INDEX FUTURES TRANSACTIONS. The following are examples
of transactions in stock index futures (net of commissions and premiums, if
any).
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<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 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
38
<PAGE>
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.
<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.
(14) Articles Supplementary to Registrant's Articles of
Incorporation with respect to Munder Institutional
Money Market Fund is filed herein.
(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 incorporated by reference
to Post-Effective Amendment No. 29 to Registrant's
Registration Statement on Form N-1A filed with the
Commission on March 1, 1999.
(e) (1) Distribution Agreement among Registrant and Funds
Distributor Inc. with respect to the Liquidity Plus
Money Market Fund is incorporated by reference to
Post- Effective Amendment No. 29 to Registrant's
Registration Statement on Form N- 1A filed with the
Commission on March 1, 1999.
2
<PAGE>
(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
incorporated by reference to Post-Effective
Amendment No. 29 to Registrant's Registration
Statement on Form N-1A filed with the Commission on
March 1, 1999.
(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 incorporated by
reference to Post-Effective Amendment No. 29 to
Registrant's Registration Statement on Form N-1A
filed with the Commission on March 1, 1999.
(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 incorporated by reference to
Post-Effective Amendment No. 29 to Registrant's
Registration Statement on Form N-1A filed with the
Commission on March 1, 1999.
(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
3
<PAGE>
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
incorporated by reference to Post-Effective
Amendment No. 29 to Registrant's Registration
Statement on Form N-1A filed with the Commission on
March 1, 1999.
(2) 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 filed herein.
(3) 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 filed herein.
(4) Amendment to Transfer Agency and Registrar Agreement
among Registrant and First Data Investor Services
Group, Inc. is incorporated by reference to Post-
Effective Amendment No. 29 to Registrant's
Registration Statement on Form N- 1A filed with the
Commission on March 1, 1999.
(5) Amendment to Transfer Agency and Registrar Agreement
among Registrant and First Data Investor Services
Group, Inc. is incorporated by reference to Post-
Effective Amendment No. 29 to Registrant's
Registration Statement on Form N- 1A filed with the
Commission on March 1, 1999.
(6) Amendment to Transfer Agency and Registrar Agreement
among Registrant and First Data Investor Services
Group, Inc. is incorporated by reference to Post-
Effective Amendment No. 29 to Registrant's
Registration Statement on Form N- 1A filed with the
Commission on March 1, 1999.
(7) 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.
(8) 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
4
<PAGE>
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.
(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.
(3) Consent of Ernst & Young LLP is filed herein.
(k) Not Applicable.
(l) Not Applicable.
(m) (1) Service and Distribution Plan of the Liquidity
Plus Money Market Fund is incorporated by reference
to Post-Effective Amendment No. 29 to Registrant's
Registration Statement on Form N-1A filed with the
Commission on March 1, 1999.
(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.
5
<PAGE>
(n) Financial Data Schedules are filed herein.
(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, 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
6
<PAGE>
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
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.
7
<PAGE>
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 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.
The Brinson Funds
Dresdner RCM Capital Funds, Inc.
Dresdner RCM Equity 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 Investment Trust
LaSalle Partners Funds, Inc.
Merrimac Series
Monetta Fund, Inc.
Monetta Trust
The Montgomery Funds I
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds, Inc.
The Munder Funds Trust
National Investors Cash Management Fund, Inc.
Orbitex Group of Funds
SG Cowen Funds, Inc.
SG Cowen Income & Growth Fund, Inc.
8
<PAGE>
SG Cowen Standby Reserve Fund, Inc.
SG Cowen Standby Tax-Exempt Reserve Fund, Inc.
SG Cowen Series Fund, Inc.
The Skyline Funds
Waterhouse Investors 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 -Margaret W. Chambers
Compliance Officer, Secretary and Clerk
Director, Senior Vice President, Treasurer and Chief -Joseph F. Tower, III
Financial Officer
Senior Vice President -Paula R. David
Senior Vice President -Gary S. MacDonald
Senior Vice President -Judith K. Benson
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);
9
<PAGE>
(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.
10
<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. 30 to the Registration Statement meets the
requirements for effectiveness pursuant to Rule 485(b) of the Securities Act
of 1933, as amended, and the Registrant has duly caused this Post-Effective
Amendment No. 30 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Quincy and The Commonwealth of Massachusetts,
on the 30th day of April, 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:
SIGNATURES TITLE DATE
* Director and April 30, 1999
---------------------- President
Lee P. Munder
* Director April 30, 1999
----------------------
Charles W. Elliott
* Director April 30, 1999
----------------------
Joseph E. Champagne
* Director April 30, 1999
----------------------
Thomas B. Bender
* Director April 30, 1999
----------------------
Thomas D. Eckert
* Director April 30, 1999
----------------------
John Rakolta, Jr.
* Director April 30, 1999
----------------------
David J. Brophy
11
<PAGE>
* Vice President, April 30, 1999
---------------------- Treasurer and
Terry H. Gardner Chief Financial Officer
*By: /s/ Cynthia Surprise
---------------------
Cynthia Surprise
as Attorney-in-Fact
12
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
99(a)(14) Articles Supplementary with respect to Munder Institutional
Money Market Fund
99(h)(2) Transfer Agency and Registrar Agreement between the
Registrant and First Data Investor Services Group, Inc.
99(h)(3) Notice to Transfer Agency and Registrar Agreement between
the Registrant and First Data Investor Services Group, Inc.
99(j)(3) Consent of Ernst & Young LLP
99(n) Financial Data Schedules
<PAGE>
ST. CLAIR FUNDS, INC.
ARTICLES SUPPLEMENTARY
ST. CLAIR FUNDS, INC., a Maryland corporation registered as an
open-end investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and having its principal office in the State of
Maryland in Baltimore City, Maryland (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of
Maryland that:
FIRST: In accordance with procedures established in the
Corporation's Charter, the Board of Directors of the Corporation, by
resolution dated February 22, 1999 pursuant to Section 2-208 of Maryland
General Corporate Law duly classified 5,000,000,000 shares of the unissued,
authorized capital stock of the Corporation into the Munder Institutional
Money Market Fund as set forth below:
NAME OF SERIES NUMBER OF SHARES ALLOCATED
- -------------- --------------------------
Munder Institutional Money Market Fund 5,000,000,000
SECOND: The shares of the Corporation authorized and classified
pursuant to Article First of these Articles Supplementary have been so
authorized and classified by the Board of Directors under the authority
contained in the Charter of the Corporation. The number of shares of capital
stock of the various classes that the Corporation has authority to issue had
been established by the Board of Directors in accordance with Section
2-105(c) of the Maryland General Corporation Law.
THIRD: Immediately prior to the effectiveness of the Articles
Supplementary of the Corporation as hereinabove set forth, the Corporation
had the authority to issue twenty billion (20,000,000,000) shares of Common
Stock of the par value of $0.001 per share and of the aggregate par value of
twenty million dollars ($20,000,000), of which the Board of Directors has
classified seven billion, four hundred and fifty million (7,450,000,000)
shares into Series as follows:
PREVIOUSLY CLASSIFIED SHARES
----------------------------
NAME OF SERIES AUTHORIZED SHARES
- -------------- -----------------
Liquidity Plus Money Market Fund 2,000,000,000
Munder S&P 500 Index Equity Fund 50,000,000
Munder S&P MidCap Index Equity Fund 50,000,000
Munder S&P SmallCap Index Equity Fund 50,000,000
Munder Foreign Equity Fund 50,000,000
Munder Aggregate Bond Index Fund 50,000,000
Munder Institutional S&P 500 Index Equity Fund 50,000,000
Munder Institutional S&P MidCap Index Equity Fund 50,000,000
Munder Institutional S&P SmallCap Index Equity Fund 50,000,000
Munder Institutional Short Term Treasury Fund 50,000,000
Munder Institutional Money Market Fund 5,000,000,000
As amended hereby, the Corporation's Articles of Incorporation
authorize the issuance of twenty billion (20,000,000,000) shares of Common
Stock of the par value of $0.001 per share and having an aggregate par value
of twenty million dollars ($20,000,000), of which the Board of Directors has
designated twelve billion, four hundred million, (12,450,000,000) shares into
Series and classified the shares of each Series as follows:
<PAGE>
CURRENT CLASSIFICATION OF SHARES
--------------------------------
NAME OF SERIES AUTHORIZED SHARES
- -------------- -----------------
Liquidity Plus Money Market Fund 2,000,000,000
Munder S&P 500 Index Equity Fund 50,000,000
Munder S&P MidCap Index Equity Fund 50,000,000
Munder S&P SmallCap Index Equity Fund 50,000,000
Munder Foreign Equity Fund 50,000,000
Munder Aggregate Bond Index Fund 50,000,000
Munder Institutional S&P 500 Index Equity Fund 50,000,000
Munder Institutional S&P MidCap Index Equity Fund 50,000,000
Munder Institutional S&P SmallCap Index Equity Fund 50,000,000
Munder Institutional Short Term Treasury Fund 50,000,000
Munder Institutional Money Market Fund 10,000,000,000
FOURTH: The preferences, rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption of each share of 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 shall be set forth in the Corporation's
Articles of Incorporation and shall be subject to all provisions of the
Articles of Incorporation relating to shares of the Corporation generally.
IN WITNESS WHEREOF, St. Clair Funds, Inc. has caused these Articles
Supplementary to be signed in its name on its behalf by its authorized
officers who acknowledge that these Articles Supplementary are the act of the
Corporation, that to the best of their knowledge, information and belief, all
matters and facts set forth herein relating to the authorization and approval
of these Articles Supplementary are true in all material respects and that
this statement is made under the penalties of perjury
Date: March 2, 1999
ST. CLAIR FUNDS, INC.
[CORPORATE SEAL]
By: /S/ TERRY H. GARDNER
--------------------
Terry H. Gardner
Vice President
Attest:
/S/ LISA A. ROSEN
- --------------------
Lisa A. Rosen
Secretary
<PAGE>
EXHIBIT 99(H)(2)
TRANSFER AGENCY AND REGISTRAR AGREEMENT
AGREEMENT, dated as of February 4, 1997, between ST. CLAIR FUNDS INC.
(the "Company"), a Maryland corporation having its offices at 480 Pierce
Street, Suite 300, Birmingham, Michigan 48009, and IRST DATA INVESTOR
SERVICES GROUP, INC. (the "Transfer Agent"), a Massachusetts corporation with
principal offices at 4400 Computer Drive, Westborough, Massachusetts 02109.
W I T N E S S E T H
-------------------
WHEREAS, the Company is authorized to issue Shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets;
WHEREAS, the Company initially intends to offer shares in those
Portfolios identified in the attached Exhibit 1, and each such Portfolio,
together with all other Portfolios subsequently established by the Company
shall be subject to this Agreement in accordance with Section 17; and
WHEREAS, the Company on behalf of the Portfolios, desires to appoint the
Transfer Agent as its transfer agent, dividend disbursing agent and agent in
connection with certain other activities and the Transfer Agent desires to
accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the Company and the Transfer Agent agree as follows:
1. DEFINITIONS. Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the following
meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, Partnership Agreement, or similar
organizational document as the case may be, of the Company as the same may be
amended form time to time.
(b) "Authorized Person" shall be deemed to include any person,
whether or not such person is an officer or employee of the Company, duly
authorized to give Oral Instructions or Written Instructions on behalf of the
Company as indicated in a certificate furnished to the Transfer Agent
pursuant to Section 4(c) hereof as may be received by the Transfer Agent from
time to time.
(c) "Board of Directors" shall mean the Board of Directors, Board of
Trustees or, if the Company is a limited partnership, the General Partner(s)
of the Company, as the case may be.
(d) "Commission" shall mean the Securities and Exchange Commission.
(e) "Company" shall mean the entity executing this Agreement, and
each Portfolio listed on Exhibit 1 or hereafter created and made subject to
this Agreement in accordance with Section 17.
(f) "Custodian" refers to any custodian or subcustodian of securities
and other property which the Company may from time to time deposit, or cause
to be deposited or held under the name or account of such a custodian
pursuant to a Custodian Agreement.
<PAGE>
(g) "1940 Act" shall mean the Investment Company Act of 1940.
(h) "Oral Instructions" shall mean instructions, other than Written
Instructions, actually received by the Transfer Agent from a person
reasonably believed by the Transfer Agent to be an Authorized Person.
(i) "Prospectus" shall mean the most recently dated Company
Prospectuses and Statements of Additional Information, including any
supplements thereto if any, which have become effective under the Securities
Act of 1933 and the 1940 Act.
(j) "Shares" refers collectively to such shares of capital stock,
beneficial interest or limited partnership interests, as the case may be, of
the Company as may be issued from time to time and, if the Company is a
closed-end or a series Company, as such terms are used in the 1940 Act any
other class or series of stock, shares of beneficial interest or limited
partnership interests that may be issued from time to time.
(k) "Shareholder" shall mean a holder of shares of capital stock,
beneficial interest or any other class or series, and also refers to partners
of limited partnerships.
(l) "Written Instructions" shall mean a written communication signed
by a person reasonably believed by the Transfer Agent to be an Authorized
Person and actually received by the Transfer Agent. Written Instructions
shall include manually executed originals and authorized electronic
transmissions, including telefacsimile of a manually executed original or
other process.
2. APPOINTMENT OF THE TRANSFER AGENT. The Company hereby appoints and
constitutes the Transfer Agent as transfer agent, registrar and dividend
disbursing agent for Shares of the Company and as shareholder servicing agent
for the Company. The Transfer Agent accepts such appointments and agrees to
perform the duties hereinafter set forth.
3. COMPENSATION.
(a) The Company will compensate or cause the Transfer Agent to be
compensated for the performance of its obligations hereunder in accordance
with the fees set forth in the written schedule of fees annexed hereto as
Schedule A and incorporated herein. The Transfer Agent will transmit an
invoice to the Company as soon as practicable after the end of each calendar
month which will be detailed in accordance with Schedule A, and the Company
will pay to the Transfer Agent the amount of such invoice within fifteen (15)
days after the Company's receipt of the invoice.
In addition, the Company agrees to pay, and will be billed separately
for, out-of-pocket expenses incurred by the Transfer Agent in the performance
of its duties hereunder. Out-of-pocket expenses shall include, but shall not
be limited to, the items specified in the written schedule of out-of-pocket
charges annexed hereto as Schedule B and incorporated herein. Schedule B may
be modified by the Transfer Agent upon mutual consent of the parties hereto.
Unspecified out-of-pocket expenses shall be limited to those out-of-pocket
expenses reasonably incurred by the Transfer Agent in the performance of its
obligations hereunder. Reimbursement by the Company for expenses incurred by
the Transfer Agent in any month shall be made as soon as practicable but no
later than 15 days after the receipt of an itemized bill from the Transfer
Agent.
2
<PAGE>
(b) Any compensation agreed to hereunder may be adjusted form time to
time by attaching to Schedule A, a revised fee schedule executed and dated by
the parties hereto.
4. DOCUMENTS. In connection with the appointment of the Transfer Agent
the Company shall deliver or cause to be delivered to the Transfer Agent the
following documents on or before the date this Agreement goes into effect,
but in any case within a reasonable period of time for the Transfer Agent to
prepare to perform its duties hereunder:
(a) If applicable, specimens of the certificates for Shares of the
Company;
(b) All account application forms and other documents relating to
Shareholder accounts or to any plan, program or service offered
by the Company;
(c) A signature card bearing the signatures of any officer of the
Company or other Authorized Person who will sign Written
Instructions or is authorized to give Oral Instructions;
(d) A certified copy of the Articles of Incorporation, as amended;
(e) A certified copy of the By-laws of the Company, as amended;
(f) A copy of the resolution of the Board of Directors authorizing
the execution and delivery of this Agreement;
(g) A certified list of Shareholders of the Company with the name,
address and taxpayer identification number of each Shareholder,
and the number of Shares of the Company held by each, certificate
numbers and denominations (if any certificates have been issued),
lists of any accounts against which stop transfer orders have been
placed, together with the reasons therefor, and the number of
Shares redeemed by the Company; and
(h) An opinion of counsel for the Company with respect to the validity
of the Shares and the status of such Shares under the Securities
Act of 1933, as amended.
5. FURTHER DOCUMENTATION. The Company will also furnish the Transfer
Agent with copies of the following documents promptly after the same
shall become available:
(a) each resolution of the Board of Directors authorizing the issuance
of Shares;
(b) any registration statements filed on behalf of the Company and all
pre-effective and post-effective amendments thereto filed with the
Commission;
(c) a certified copy of each amendment to the Articles of Incorporation
or the By-laws of the Company;
(d) certified copies of each resolution of the Board of Directors or
other authorization designating Authorized Persons; and
3
<PAGE>
(e) such other certificates, documents or opinions as the Transfer
Agent may reasonably request in connection with the performance of
its duties hereunder.
6. REPRESENTATIONS OF THE COMPANY. The Company represents to the
Transfer Agent that all outstanding Shares are validly issued, fully paid and
non-assessable. When Shares are hereafter issued in accordance with the terms
of the Company's Articles of Incorporation and its Prospectus, such Shares
shall be validly issued, fully paid and non-assessable.
7. DISTRIBUTIONS PAYABLE IN SHARES. In the event that the Board of
Directors of the Company shall declare a distribution payable in Shares, the
Company shall deliver or cause to be delivered to the Transfer Agent written
notice of such declaration signed on behalf of the Company by an officer
thereof, upon which the Transfer Agent shall be entitled to rely for all
purposes, certifying (i) the identity of the Shares involved, (ii) the number
of Shares involved, and (iii) that all appropriate action has been taken.
8. DUTIES OF THE TRANSFER AGENT. The Transfer Agent shall be responsible
for administering and/or performing those functions typically performed by a
transfer agent; for acting as service agent in connection with dividend and
distribution functions; and for performing shareholder account and
administrative agent functions in connection with the issuance, transfer and
redemption or repurchase (including coordination with the Custodian) of
Shares in accordance with the terms of the Prospectus, applicable by law and
this Agreement including without limitation, those duties specified in
Schedule C attached hereto. In addition, the Company shall deliver to the
Transfer Agent all notices issued by the Company with respect to the Shares
in accordance with and pursuant to the Articles of Incorporation or By-laws
of the Company or as required by law and shall perform such other specific
duties as are set forth in the Articles of Incorporation including the giving
of notice of any special or annual meetings of shareholders and any other
notices required thereby.
9. RECORD KEEPING AND OTHER INFORMATION. The Transfer Agent shall create
and maintain all records required of it pursuant to its duties hereunder and
as set forth in Schedule C in accordance with all applicable laws, rules, and
regulations, including records required by Section 31(a) of the 1940 Act. All
such records shall be the property of the Company and shall be available
during regular business hours for inspection, copying and use by the Company.
Where applicable, such records shall be maintained by the Transfer Agent for
the periods and in the places required by Rule 31a-2 under the 1940 Act. Upon
termination of this Agreement, the Transfer Agent shall deliver all such
records to the Company or such person as the Company may designate.
Upon reasonable notice by the Company, the Transfer Agent shall make
available during regular business hours such of its facilities and premises
employed in connection with the performance of its duties under this
Agreement for reasonable visitation by the Company, or any person retained by
the Company as may be necessary for the Company to evaluate the quality of
the services performed by the Transfer Agent pursuant hereto.
10. OTHER DUTIES. In addition to the duties set forth in Schedule C, the
Transfer Agent shall perform such other duties and functions, and shall be
paid such amounts therefor, as may from time to time be agreed upon in
writing between the Company and the Transfer Agent. The compensation for such
other duties and functions shall be reflected in a written amendment to
Schedule A or B and the duties and functions shall be reflected in an
amendment to Schedule C, both dated and signed by authorized persons of the
parties hereto.
4
<PAGE>
11. RELIANCE BY TRANSFER AGENT; INSTRUCTIONS.
(a) Provided the standard of care in Section 13 has been met, the
Transfer Agent will have no liability when acting upon Written or Oral
Instructions believed to have been executed or orally communicated by an
Authorized Person and will not be held to have any notice of any change of
authority of any person until receipt of a Written Instruction thereof from
the Company pursuant to Section 4(c). Provided the standard of care in
Section 13 has been met, The Transfer Agent will also have no liability when
processing Share certificates which it reasonably believes to bear the proper
manual or facsimile signatures of the officers of the Company and the proper
countersignature of the Transfer Agent.
(b) At any time, the Transfer Agent may apply to any Authorized
Person of the Company for Written Instructions and may seek advice from legal
counsel for the Company, or its own legal counsel, with respect to any matter
arising in connection with this Agreement, and provided the standard of care
in Section13 has been met, it shall not be liable for any action taken or not
taken or suffered by it in good faith in accordance with such Written
Instructions or in accordance with the opinion of counsel for the Company or
for the Transfer Agent. Written Instructions requested by the Transfer Agent
will be provided by the Company within a reasonable period of time. In
addition, the Transfer Agent, its officers, agents or employees, shall accept
Oral Instructions or Written Instructions given to them by any person
representing or acting on behalf of the Company only if said representative
is an Authorized Person. The Company agrees that all Oral Instructions shall
be followed within one business day by confirming Written Instructions, and
that the Company's failure to so confirm shall not impair in any respect the
Transfer Agent's right to rely on Oral Instructions. The Transfer Agent shall
have no duty or obligation to inquire into, nor shall the Transfer Agent be
responsible for, the legality of any act done by it upon the request or
direction of a person reasonably believed by the Transfer Agent to be an
Authorized Person.
(c) Notwithstanding any of the foregoing provisions of this
Agreement, the Transfer Agent shall be under no duty or obligation to inquire
into, and shall not be liable for : (i) the legality of the issuance or sale
of any Shares or the sufficiency of the amount to be received therefor; (ii)
the legality of the redemption of any Shares, or the propriety of the amount
to be paid therefor; (iii) the legality of the declaration of any dividend by
the Board of Directors, or the legality of the issuance of any Shares in
payment of any dividend; or (iv) the legality of any recapitalization or
readjustment of the Shares.
12. ACTS OF GOD, ETC.. The Transfer Agent will not be liable or
responsible for delays or errors by acts of God or by reason of circumstances
beyond its control, including acts of civil or military authority, national
emergencies, labor difficulties, mechanical breakdown, insurrection, war,
riots, or failure or unavailability of transportation, communication or power
supply, fire, flood or other catastrophe.
In the event of equipment failures beyond the Transfer Agent's
control, the Transfer Agent shall, at no additional expense to the Company,
take reasonable steps to minimize service interruptions but shall have no
liability with respect thereto. The foregoing obligation shall not extend to
computer terminals located outside of premises maintained by the Transfer
Agent. The Transfer Agent shall enter into and shall maintain in effect with
appropriate parties one or more agreements making reasonable provision for
emergency use of electronic data processing equipment to the extent
appropriate equipment is available.
13. DUTY OF CARE AND INDEMNIFICATION. The Transfer Agent shall be
obligated to exercise care and diligence and to act in good faith and to use
its best efforts within commercially reasonable limits to
5
<PAGE>
insure the accuracy and completeness of all services performed under this
Agreement. The Company will indemnify the Transfer Agent against and hold it
harmless from any and all losses, claims, damages, liabilities or expenses of
any sort or kind (including reasonable counsel fees and expenses) resulting
from any claim, demand, action or suit or other proceeding (a "Claim")
arising directly or indirectly from any action or thing which the Transfer
Agent takes or does or omits to take or do (i) at the request or on the
direction of or in reliance on the advice of the Company; (ii) upon Oral or
Written Instructions; (iii) in reliance on any records or documents received
from the Company or any Agent of the Company, including the prior transfer
agent; (iv) under the terms of this Agreement; and (v) the offer or sale of
Shares in violation of any requirement under Federal or State Securities
Laws, provided that neither the Transfer Agent nor any of its nominees or
sub-contractors shall be indemnified against any liability to the Company or
to its Shareholders (or any expenses incident to such liability) arising out
of the Transfer Agent's or such nominee's or such sub-contractor's own
willful misfeasance, bad faith or negligence or reckless disregard of its
duties in connection with the performance of its duties and obligations
specifically described in this Agreement.
In any case in which the Company may be asked to indemnify or hold
the Transfer Agent harmless, the Company shall be advised of all pertinent
facts concerning the situation in question. The Transfer Agent will notify
the Company promptly after indemnifying any situation which it believes
presents or appears likely to present a claim for indemnification against the
Company although the failure to do so shall not prevent recovery by the
Transfer Agent except and to the extent the Company has been prejudiced
thereby. The Company shall have the option to defend the Transfer Agent
against any claim which may be the subject of this indemnification, and, in
the event that the Company so elects, such defense shall be conducted by
counsel chosen by the Company and reasonably satisfactory to the Transfer
Agent, and thereupon the Company shall take over complete defense of the
Claim and the Transfer Agent shall sustain no further legal or other expenses
in respect of such Claim. The Transfer Agent will not confess any Claim or
make any compromise in any case in which the Company will be asked to provide
indemnification, except with the Company's prior written consent. The
obligations of the parties hereto under this Section shall survive the
termination of this Agreement.
14. CONSEQUENTIAL DAMAGES. In no event and under no circumstances shall
either party under this Agreement be liable to the other party for
consequential or indirect loss of profits, reputation or business or any
other special damages under any provisions of this Agreement or for any act
or failure to act hereunder.
15. TERM AND TERMINATION.
(a) This Agreement shall be effective as of the dates first written
above with respect to the Company's respective series and shall continue
until _______, 1998 except as provided in subparagraph (b) of this Section
and except that the Company may terminate this Agreement if the Transfer
Agent breaches its duty of care set forth in Section 13 and such breach is
not cured within ninety (90) days after written notice of the breach has been
received by the Transfer Agent from the Company. After _______, 1998, this
Agreement shall continue indefinitely until terminated by either party, with
or without cause, upon written notice to the other party given at least
ninety (90) days prior to such date, except that the Agreement may be
terminated at any time as provided in subparagraph (b) of this Section.
(b) The Transfer Agent represents that it is currently registered
with the appropriate Federal Agency for the registration of Transfer Agents,
and that it will remain so registered for the duration of this Agreement. The
Transfer Agent agrees that it will promptly notify the Company in the event
of any material change in its status as a registered Transfer Agent. Should
the Transfer Agent fail to be
6
<PAGE>
registered with the appropriate Federal agency as a Transfer Agent at any
time during this Agreement, the Company may, on written notice to the
Transfer Agent, immediately terminate this Agreement.
(c) Upon termination of this Agreement and (unless this Agreement is
terminated pursuant to subparagraph (b) of this Section 15, or unless the
Transfer Agent has breached the standard of care in Section 13 and such
breach is uncured on the date notice of termination is given) at the expense
of the Company, the Transfer Agent will deliver to such successor a certified
list of shareholders of the Company (with names and addresses), and all other
relevant books, records, correspondence and other Company records or data in
the possession of the Transfer Agent, and the Transfer Agent will cooperate
with the Company and any successor transfer agent or agents in the
substitution process.
16. CONFIDENTIALITY. Both parties hereto agree that any non public
information obtained hereunder concerning the other party is confidential and
may not be disclosed to any other person without the consent of the other
party, except as may be required by applicable law or at the request of the
Commission or other governmental agency. The Transfer Agent agrees that it
shall not use any non-public information for any purpose other than
performance of its duties or obligations hereunder. The obligations of the
parties under this Section shall survive the termination of this Agreement.
The Parties further agree that a breach of this Section would irreparably
damage the other party and accordingly agree that each of them is entitled,
without bond or other security, to an injunction or injunctions to prevent
breaches of this provision. Without limiting the foregoing, the Transfer
Agent agrees on behalf of itself and its nominees, sub-contractors and
employees to treat confidentially all records and other information relative
to the Company and its prior, present or potential Shareholders.
17. ADDITIONAL PORTFOLIOS. In the event that the Company establishes one
or more Portfolios in addition to those identified in Exhibit 1, with respect
to which the Company desires to have the Transfer Agent render services as
transfer agent under the terms hereof, the Company shall so notify the
Transfer Agent in writing, and if the Transfer Agent agrees in writing to
provide such services, Exhibit 1 shall be amended to include such additional
Portfolios.
18. AMENDMENT. This Agreement may only be amended or modified by a
written instrument executed by both parties.
19. SUBCONTRACTING. On thirty (30) days prior to written notice to the
Company, the Transfer Agent may assign its rights and delegate its duties
hereunder to any wholly-owned direct or indirect subsidiary of First Data
Corporation provided that (i) the delegate agrees with the Transfer Agent to
comply with all relevant provisions of the 1940 Act; (ii) the Transfer Agent
and such delegate shall promptly provide such information as the Company may
request, and respond to such question as the Company may ask, relative to the
delegation, including (without limitation) the capabilities of the delegate;
(iii) the delegation of such duties shall not relieve the Transfer Agent of
any of its duties hereunder;
20. MISCELLANEOUS.
(a) NOTICES. Any notice or other instrument authorized or required by
this Agreement to be given in writing to the Company or the Transfer Agent,
shall be sufficiently given if addressed to that party and received by it at
its office set forth below or at such other place as it may from time to time
designate in writing.
7
<PAGE>
To the Company:
Lee P. Munder
President, St. Clair Funds, Inc.
480 Pierce Street - Suite 300
Birmingham, Michigan 48009
To the Transfer Agent:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westborough, Massachusetts 01581
Attention: President
with a copy to: The Transfer Agent's General
Counsel (same address)
(b) SUCCESSORS. This Agreement shall extend to and shall be binding
upon the parties hereto, and their respective successors.
(c) GOVERNING LAW. This Agreement shall be governed exclusively by
the laws of the Commonwealth of Massachusetts without reference to the choice
of law provisions thereof.
(d) COUNTERPARTS. 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.
(e) CAPTIONS. The captions of 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.
(f) USE OF TRANSFER AGENT'S NAME. The Company shall not use the name
of the Transfer Agent in any Prospectus, Statement of Additional Information,
shareholders' report, sales literature or other material relating to the
Company in a manner not approved prior thereto in writing; provided, that the
Transfer Agent need only receive notice of all reasonable uses of its name
which merely refer in accurate terms to its appointment and services
hereunder or which are required by any government agency or applicable law or
rule.
(g) USE OF A COMPANY'S NAME. The Transfer Agent shall not use the
name of the Company or material relating to the Company on any documents or
forms or other internal use in a manner not approved prior thereto in
writing; provided, that the Company need only receive notice of all
reasonable uses of its name which merely refer in accurate terms to the
appointment of the Transfer Agent or which are required by any government
agency or applicable law or rule.
(h) INDEPENDENT CONTRACTORS. The parties agree that they are
independent contractors and not partners or co-venturers.
8
<PAGE>
(i) ENTIRE AGREEMENT; SEVERABILITY. This Agreement and the Schedules
attached hereto constitute the entire agreement of the parties hereto
relating to the matters covered hereby and supersede and previous agreements.
If any provision is held to be illegal, unenforceable or invalid for any
reason, the remaining provisions shall not be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their duly authorized officers, as of the day and year
first above written.
ST. CLAIR FUNDS, INC.
By: /s/ Lisa Anne Rosen
-------------------
Title: Secretary and Assistant Treasurer
---------------------------------
FIRST DATA INVESTOR SERVICES GROUP, INC.
By: D. Goldberg
-------------------
Title: Senior Vice President
---------------------------------
9
<PAGE>
EXHIBIT 1
LIST OF PORTFOLIOS
DATED AS OF FEBRUARY 4, 1997
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
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<PAGE>
Schedule A
TRANSFER AGENT FEES
<TABLE>
<CAPTION>
LIQUIDITY PLUS MONEY MARKET FUND
- --------------------------------
<S> <S>
1) Asset Based Charge: Based on the total net assets of the companies
(as defined below*)
First $2.8 billion of net assets @ 2.0 basis points
Next $2.2 billion of aggregate net assets @ 1.5 basis points
Over $5 billion of aggregate net assets @ 1.0 basis points
Other Fees: IRA accounts will be charged $10.00 per annum
NSCC Transaction Charge is $.15 per financial transaction
2)
One-Time Conversion Fee: The conversion expenses are estimated at $150,000 of which
Transfer Agent will absorb 50%
3)
System Development: Client defined system enhancements will be agreed upon by
Transfer Agent and Munder Capital and billed at a rate of
$100.00 per hour
</TABLE>
- - Companies shall include The Munder Funds Trust, The Munder Funds, Inc.
(other than Munder All-Season Aggressive Fund, Munder All-Season Conservative
Fund and Munder All-Season Moderate Fund) and the Liquidity Plus Money Market
Fund of 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 AGGREGATE BOND INDEX FUND AND MUNDER
FOREIGN EQUITY FUND (THE "VARIABLE ANNUITY FUNDS")
$1,000 per month with respect to the Variable Annuity Funds
11
<PAGE>
Schedule B
OUT-OF-POCKET EXPENSES
The Company 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 Company
- - 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 Company
- - Duplicating services
- - Courier services
- - Incoming and outgoing wire charges
- - Overtime, as approved by the Company
- - Temporary staff, as approved by the Fund
- - Travel and entertainment, as approved by the Fund
- - Federal Reserve charges for check clearance
- - Record retention, retrieval and destruction costs
- - Third party audit reviews
- - Customized systems development after the conversion at the rate of $100.00
per hour
- - Insurance
- - Such other miscellaneous expenses reasonably incurred by the Transfer Agent
in performing its duties and responsibilities under this Agreement as
approved by the Company
The Company agrees that postage and mailing expenses will be paid on the
day of or prior to mailing is 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.
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<PAGE>
SCHEDULE C
DUTIES OF THE TRANSFER AGENT
----------------------------
1. SHAREHOLDER INFORMATION. The Transfer Agent or its agent shall
maintain a record of the number of Shares held by each holder of record which
shall include name, address, taxpayer identification and which shall indicate
whether such Shares are held in certificates or uncertificated form, and if
in certificated form shall include certificate numbers and denominations;
historical information regarding the account of each Shareholder, including
dividends and distributions paid and the date and price for all transactions
on a Shareholder's account; any stop or restraining order placed against the
Shareholder's account; any correspondence relating to the current maintenance
of a Shareholder's account; information with respect to withholdings; and,
any information required in order for the Transfer Agent to perform any
calculations contemplated or required by its Agreement with the Company. The
Transfer Agent shall keep a record of all redemption checks and dividend
checks returned by postal authorities, and shall maintain such records as are
required for the Company to comply with the escheat laws of any State or
other authority; shall keep a record of all redemption checks and dividend
checks returned by the postal authorities for the period of time they are the
Transfer Agent of record and for any records provided by and receipt
acknowledged by both parties from any prior Transfer Agent by means of a
records certification letter; otherwise the Transfer Agent is not responsible
for the said records. The Transfer Agent shall maintain such records as are
required or The Company to comply with the escheat laws of any state or other
authority for the period they are Transfer Agent. The Company will be
responsible for notifying and instructing the Transfer Agent to commence the
escheatment process on their behalf, for any or all states.
2. SHAREHOLDER SERVICES. The Transfer Agent or its agent will
investigate all inquiries from Shareholders of the Company relating to
Shareholder accounts and will respond to all communications from Shareholders
and others relating to its duties hereunder and such other correspondence as
may from time to time be mutually agreed upon between the Transfer Agent and
the Company.
3. SHARE CERTIFICATES.
(a) At the expense of the Company, it shall supply the Transfer Agent
or its agent with an adequate supply of blank share certificates to meet the
Transfer Agent or its agent's requirements therefor. Such Share certificates
shall be properly signed by facsimile. The Company agrees that,
notwithstanding the death, resignation, or removal of any officer of the
Company whose signature appears on such certificates, the Transfer Agent or
its agent may continue to countersign certificates which bear such signatures
until otherwise directed by Written Instructions.
(b) The Transfer Agent or its agent shall issue replacement Share
certificates in lieu of certificates which have been lost, stolen or
destroyed, upon receipt by the Transfer Agent or its agent of properly
executed affidavits and lost certificate bonds, in form satisfactory to the
Transfer Agent or its agent, with the Company and the Transfer Agent or its
agent as obligees under the bond.
(c) The Transfer Agent or its agent shall also maintain a record of
each certificate issued and/or canceled the number of Shares represented
thereby and the holder of record. With respect to Shares held in open
accounts or uncertificated form, i.e., no certificate being issued with
respect thereto, the Transfer Agent or its agent shall maintain comparable
records of the record holders thereof, including
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<PAGE>
their names, addresses and taxpayer identification. The Transfer Agent or its
agent shall further maintain a stop transfer record on lost and/or replaced
certificates.
4. MAILING COMMUNICATIONS TO SHAREHOLDERS; PROXY MATERIALS. The Transfer
Agent or its agent will address and mail to Shareholders of the Company, all
communicators by the Company to such Shareholders, including without
limitation, confirmations of purchases and sales of Company shares, monthly
statements, all reports to Shareholders, dividend and distribution notices
and proxy material for the Company's meetings of Shareholders. In connection
with meetings of Shareholders, the Transfer Agent or its Agent will prepare
Shareholder lists, mail and certify as to the mailing of proxy materials,
process and tabulate returned proxy cards, report on proxies voted prior to
meetings, act as inspector of election at meetings and certify Shares voted
at meetings.
5. SALES OF SHARES.
(a) ISSUANCE OF SHARES. Upon receipt of a purchase order from or on
behalf of an investor for the purchase of Shares and sufficient information
to enable the Transfer Agent to establish a Shareholder account (if it is a
new account) and to determine which class of Shares the investor wishes to
purchase, and after confirmation of receipt of payment in the form described
in the Prospectus for the class of Shares involved, the Transfer Agent shall
issue and credit the account of the investor or other record holder with
Shares in the manner described in the Prospectus relating to such Shares and
shall prepare and mail the appropriate confirmation in accordance with legal
requirements.
(b) SUSPENSION OF SALE OF SHARES. The Transfer Agent or its agent
shall not be required to issue any Shares of the Company where it has
received a Written Instruction from the Company or official notice from any
appropriate authority that the sale of the Shares of the Company has been
suspended or discontinued. The existence of such Written Instructions or such
official notice shall be conclusive evidence of the right of the Transfer
Agent or its agent to rely on such Written Instructions or official notice.
(c) RETURNED CHECKS. In the event that any check or other order for
payment of money is returned unpaid for any reason, the Transfer Agent or its
agent will: (i) give prompt notice of such return to the Company or its
designee; (ii) place a stop transfer order against all Shares issued as a
result of such check or order; and (iii) take such actions as the Transfer
Agent may from time to time deem appropriate.
6. TRANSFER AND REDEMPTION.
(a) REQUIREMENTS FOR TRANSFER OR REDEMPTION OF SHARES. The Transfer
Agent or its agent shall process all requests to transfer or repurchase
Shares in accordance with the transfer or redemption procedures set forth in
the Company's Prospectus.
The Transfer Agent or its agent will transfer or redeem Shares upon
receipt of Oral or Written Instructions or otherwise pursuant to the
Prospectus and Share certificates, if any, properly endorsed for transfer or
redemption, accompanied by such documents as the Transfer Agent or its agent
reasonably may deem necessary.
The Transfer Agent or its agent reserves the right to refuse to
transfer or redeem Shares until it is satisfied that the endorsement on the
instructions is valid and genuine. The Transfer Agent or
14
<PAGE>
its agent also reserves the right to refuse to transfer or redeem Shares
until it is satisfied that the requested transfer or redemption is legally
authorized, and it shall incur no liability for the refusal, in good faith,
to make transfers or redemptions which the Transfer Agent or its agent, in
its good judgment, deems improper or unauthorized, or until it is reasonably
satisfied that there is no basis to any claims adverse to such transfer or
redemption.
(b) NOTICE TO CUSTODIAN AND COMPANY. When Shares are redeemed, the
Transfer Agent shall, upon receipt of the instructions and documents in
proper form, deliver to the Company's Custodian and to the Company or its
designee a notification setting forth the number of Shares to be redeemed.
Such redeemed Shares shall be reflected on appropriate accounts maintained by
the Transfer Agent reflecting outstanding Shares of the Company involved and
Shares attributed to individual accounts.
(c) PAYMENT OF REDEMPTION PROCEEDS. The Transfer Agent shall, upon
receipt of the moneys paid to it by the Custodian for the redemption of
Shares, pay such moneys as are received form the Custodian, all in accordance
with the procedures described in the Written Instruction received by the
Transfer Agent form the Company. It is understood that the Transfer Agent may
arrange for the direct payment of redemption proceeds to Shareholders by the
Company's Custodian in accordance with such procedures and controls as are
mutually agreed upon from time to time by the Company, the Transfer Agent and
the Company's Custodian.
The Transfer Agent shall not process or effect any redemption with
respect to Shares of the Company after receipt by the Transfer Agent of
notification of the suspension of the determination of the net asset value of
the Company, provided the Transfer Agent has had a reasonable time to act on
such notification.
7. DIVIDENDS.
(a) NOTICE TO AGENT AND CUSTODIAN. Upon the declaration of each
dividend and each capital gains distribution by the Board of Directors of the
Company with respect to Shares of the Company, the Company shall furnish or
cause to be furnished to the Transfer Agent or its agent a copy of a
resolution of the Company's Board of Directors certified by the Secretary of
The Company setting forth the date of the declaration of such dividend or
distribution, the ex-dividend date, the date of payment thereof, the record
date as of which shareholders entitled to payment shall be determined, the
amount payable per Share to the shareholders of record as of that date, the
total amount payable to the Transfer Agent or its agent on the payment date
and whether such dividend or distribution is to be paid in Shares of such
class at net asset value.
On or before the payment date specified in such resolution of the
Board of Directors, the Custodian of the Company will pay to the Transfer
Agent sufficient cash to make payment to the shareholders of record as of
such payment date.
After deducting any amount required to be withheld by any applicable
tax laws, riles and/or regulations and/or other applicable laws, the Transfer
Agent shall in accordance with the instructions in proper form from a
Shareholder and the provisions of the applicable dividend resolutions and
Prospectus issue and credit the Account of the Shareholder with Shares, or,
if the Shareholder so elects, pay such dividends or distributions in cash.
15
<PAGE>
In lieu of receiving from the Company's custodian and paying to
Shareholders cash dividends or distributions, the Transfer Agent may arrange
for the direct payment of cash dividends and distributions to Shareholders by
the Company's Custodian, in accordance with such procedures and controls as
are mutually agreed upon from time to time by and among the Company, the
Transfer Agent and the Company's Custodian.
The Transfer Agent shall prepare, file with the Internal Revenue
Services and other appropriate taxing authorities, and address and mail to
Shareholders such returns, forms and information relating to dividends and
distributions paid by the Company as are required to be so prepared, filed
and mailed by applicable laws, rules and/or resolutions. On behalf of the
Company, the Transfer Agent shall mail certain requests for Shareholders'
certifications under penalties of perjury and pay on a timely basis to the
appropriate Federal authorities any taxes to be withheld on dividends and
distributions paid by the Company, all as required by applicable Federal tax
laws and regulations.
(b) INSUFFICIENT FUNDS FOR PAYMENTS. If the Transfer Agent or its
agent does not receive sufficient cash from the Custodian to make total
dividend and/or distribution payments to all shareholders of the Company as
of the record date, the Transfer Agent or its agent will, upon notifying the
Company, withhold payment to all Shareholders of record as of the record date
until sufficient cash is provided to the Transfer Agent or its agent.
8. COOPERATION WITH ACCOUNTANTS. The Transfer Agent shall cooperate with
the Company's independent public accountants and shall take all reasonable
action in the performance of its obligations under its agreement with the
Company to assure that the necessary information is made available to such
accountants for the expression of their opinions as much as they may be
required by the Company from time to time.
9. OTHER SERVICES. In accordance with the Prospectus and such procedures
and controls as are mutually agreed upon from time to time by and among the
Company, the Transfer Agent and the Company's Custodian, the Transfer Agent
shall (a) arrange for issuance of Shares obtained through (i) transfers of
Funds from Shareholders' accounts at financial institutions, (ii) a
pre-authorized check plan, if any and (iii) a right of accumulation, if any;
(b) arrange for the exchange of Shares for shares of such other Funds
designated by the Company from time to time; and (c) arrange for systematic
withdrawals from the account of a Shareholder participating in a systematic
withdrawal plan, if any.
16
<PAGE>
EXHIBIT 1 TO SCHEDULE C
SUMMARY OF SERVICES
The services to be performed by the Transfer Agent or its agent shall
include the following:
A. DAILY RECORDS
-------------
Maintain daily the following information with respect to each
Shareholder account as received:
- Name and Address (Zip Code)
- Class of Shares
- Taxpayer Identification Number
- Balance of Shares held by Agent
- Beneficial owner code: i.e., male, female, joint tenant, etc.
- Dividend code (reinvestment)
- Number of Shares held in certificate form
B. OTHER DAILY ACTIVITY
--------------------
- Answer written inquiries relating to Shareholder accounts
(matters relating to portfolio management, distribution of
Shares and other management policy questions will be referred
to the Company).
- Process additional payments into established Shareholder
accounts in accordance with Written Instruction.
- Upon receipt of proper instructions and all required
documentation, process requests for repurchase of Shares.
- Identify redemption requests made with respect to accounts in
which Shares have been purchased within an agreed-upon period of
time for determining whether good Funds have been collected with
respect to such purchase and process as agree by the Transfer
Agent in accordance with Written Instructions set forth by the
Company.
- Examine and process all transfers of Shares, ensuring that all
transfer requirements and legal documents have been supplied.
- Issue and mail replacement checks.
- Open new accounts and maintain records of exchanges between
accounts.
- Furnish daily requests of transactions in Shares.
17
<PAGE>
- Calculate sales load or compensation payment (front-end and
deferred) and provide such information to the Company, if any.
- Calculate dealer commissions for the Company, if any.
- Provide toll-free lines for direct Shareholder use, plus
customer liaison staff with on-line inquiry capacity.
- Mail duplicate confirmations to dealers of their client's
activity, whether executed through the dealer or directly with
the Transfer Agent, if any.
- Identify to each series or class of Shares property belonging to
such series or class, and in such reports, confirmations and
notices to the Company called for under this Agreement identify
the series or class to which such report, confirmation or notice
pertains.
C. DIVIDEND ACTIVITY
-----------------
- Calculate and process Share dividends and distributions as
instructed by the Company.
- Compute, prepare and mail all necessary reports to Shareholders
or various authorities as requested by the Company. Report to
the Company reinvestment plan share purchases and determination
of the reinvestment price.
D. MEETINGS OF SHAREHOLDERS
------------------------
- Cause to be mailed proxy and related material for all meetings
of Shareholders. Tabulate returned proxies (proxies must be
adaptable to mechanical equipment of the Transfer Agent or its
agents) and supply daily reports when sufficient proxies have
been received.
- Prepare and submit to the Company an Affidavit of Mailing.
- At the time of the meeting, furnish a certified list of
Shareholders, hard copy, microfilm or microfiche and, if
requested by the Company, Inspection of Election.
E. PERIODIC ACTIVITIES
-------------------
- Cause to be mailed reports, Prospectuses, and any other
enclosures requested by the Company (material must be adaptable
to mechanical equipment of Transfer Agent or its agents).
- Receive all notices issued by the Company with respect to the
Shares in accordance with and pursuant to the Articles of
Incorporation and By-laws and perform such other
18
<PAGE>
specific duties as are set forth in the Articles of
Incorporation and By-laws and perform such other specific
duties as are set forth in the Articles of Incorporation and
By-laws including a giving of notice of a special meeting and
notice of redemption in the circumstances and other wise in
accordance with all relevant provisions of the Articles of
Incorporation and By-laws.
- Furnish monthly reports of transactions in shares by type
(custodial, Company, Keogh, IRA, other) including numbers of
accounts.
- Furnish state-by-state registration and sales reports to the
Administrator.
- Provide detail for underwriter or broker confirmations and other
participating dealer Shareholder accounting, in accordance with
with such procedures as may be agreed upon between the Company
and the Transfer Agent, if any.
- Provide Shareholder lists and statistical information concerning
accounts to the Company.
- Provide timely notification of Company activity and such other
information as may be agreed upon from time to time between the
Transfer Agent and the Custodian, to the Company or the
Custodian.
19
<PAGE>
Exhibit 99(h)(3)
NOTICE TO TRANSFER AGENCY AND REGISTRAR AGREEMENT
First Data Investor Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
Gentlemen:
Reference is made to the Transfer Agency and Registrar Agreement between
us dated as of February 4, 1997 (the "Agreement").
Pursuant to the Agreement, this letter is to provide notice of the
creation of five additional investment portfolios of St. Clair Funds, Inc.,
namely the Munder Institutional S&P 500 Index Equity Fund, Munder
Institutional S&P SmallCap Index Equity Fund, Munder Institutional S&P MidCap
Index Equity Fund, Munder Institutional Short Term Treasury Fund and Munder
Institutional Money Market Fund (the "New Portfolios").
We request that you act as Transfer Agent under the Agreement with
respect to the New Portfolios.
If the foregoing is in accordance with your understanding, please so
indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
St. Clair Funds, Inc.
By: Lisa Anne Rosen
-------------------------
Accepted:
First Data Investor Services Group, Inc.
Dated: May 6, 1997
By: D. Goldberg
-------------------------
<PAGE>
Exhibit 99(j)(3)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the caption "Financial
Highlights" in the Prospectus for the Munder Institutional S&P 500 Index
Equity Fund and the Munder Institutional S&P MidCap Index Equity Fund and for
the Liquidity Plus Money Market Fund in the Liquidity Plus Money Market Fund
Prospectus. We also consent to the references to our firm under the captions
"Independent Auditors" and "Financial Statements" in the combined Statement
of Additional Information for the Munder Institutional S&P 500 Index Equity,
Munder Institutional S&P MidCap Index Equity, Munder Institutional Short Term
Treasury and Munder Institutional Money Market Funds and in the Liquidity
Plus Money Market Fund Statement of Additional Information; to the reference
to our firm under the caption "Independent Auditors" in the Munder
Institutional SmallCap Index Equity Fund and in the combined Statement of
Additional Information for the Munder S&P Index Equity, Munder S&P MidCap
Index Equity, Munder S&P SmallCap Index Equity, Munder Aggregate Bond Index
and Munder Foreign Equity Funds; and to the incorporation by reference in
Post-Effective Amendment No. 30 to the Registration Statement (Form N-1A,
No 2-91373) of our reports dated February 12, 1999 on the financial statements
and financial highlights of the Munder Institutional S&P 500 Index Equity
Fund, Munder Institutional S&P MidCap Index Equity Fund, and Liquidity Plus
Money Market Fund.
/s/ Ernst & Young LLP
---------------------
ERNST & YOUNG LLP
Boston, Massachusetts
April 28, 1999
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