<PAGE>
As filed with the Securities and Exchange Commission on October 8, 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. 31 / X /
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
Amendment No. 32 / 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
Francine S. Hayes
State Street Bank and Trust Company
2 Avenue de Lafayette, 4th Floor
Boston, MA 02111
(Name and Address of Agent for Service)
Copies to:
<TABLE>
<CAPTION>
<S> <C>
Terry H. Gardner Jane Kanter, Esq.
Munder Capital Management Dechert Price & Rhoads
480 Pierce Street 1775 Eye Street, NW
Birmingham, Michigan 48009 Washington, D.C. 20006
</TABLE>
/ X / It is proposed that this filing will become effective upon filing
(October 8, 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 S&P SmallCap Index Equity Fund,
Munder Institutional Short Term Treasury Fund and
Munder Institutional Money Market Fund
(Class K Shares)
Part A
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Item Heading
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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 Munder
Institutional Funds; Management
5. Management of Fund Management; Distributions; Federal Tax
Considerations
6. Capital Stock and Other Securities Management; Your Investment; Pricing of Fund
Shares; Distributions; Federal Tax Considerations
7. Purchase of Securities Being Offered Your Investment; Pricing of Fund Shares
8. Redemption or Repurchase Your Investment
9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
ST. CLAIR FUNDS, INC.
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
Prospectus for St. Clair Funds, Inc.
Munder Institutional S&P 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
(Class Y Shares)
Part A
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Item Heading
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1. Cover Page Cover Page
2. Synopsis Risk/Return Summary
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Cover Page; Risk/Return Summary; More About the
Fund; Management
5. Management of Fund Management; Distributions; Federal Tax
Considerations
6. Capital Stock and Other Securities Management; Your Investment; Pricing of Fund
Shares; Distributions; Federal Tax Considerations
7. Purchase of Securities Being Offered Your Investment; Pricing of Fund Shares
8. Redemption or Repurchase Your Investment
9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
ST. CLAIR FUNDS, INC.
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 S&P SmallCap Index Equity Fund,
Munder Institutional Short Term Treasury Fund and
Munder Institutional Money Market Fund
Part B
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Item Heading
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History See Prospectus -- "Management"; General; Directors
and Officers
13. Investment Objectives and Policies Fund Investments; Investment Limitations;
Portfolio Transactions
14. Management of Fund See Prospectus -- "Management"; Directors and
Officers; Miscellaneous
15. Control Persons and Principal Holders Miscellaneous
of Securities
16. Investment Advisory and Other Services Investment Advisory and Other Service Arrangements;
See Prospectus -- "Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities Additional Information Concerning Shares
19. Purchase, Redemption and Pricing of Additional Purchase and Redemption Information; Net
Securities Being Offered Asset Value; Additional Information Concerning
Shares
20. Tax Status Taxes
21. Underwriters Investment Advisory and Other Service Arrangements
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>
<PAGE>
ST. CLAIR FUNDS, INC.
The purpose of this Post-Effective Amendment filing to the Company's
Registration Statement is (i) to add a new class of shares, specifically Class K
Shares for the Munder Institutional S&P 500 Index Equity Fund, Munder
Institutional S&P MidCap Index Equity Fund, Munder Institutional S&P SmallCap
Index Equity Fund, Munder Institutional Short Term Treasury Fund and Munder
Institutional Money Market Fund; (ii) to rename the existing shares for the
Munder Institutional S&P 500 Index Equity Fund, Munder Institutional S&P MidCap
Index Equity Fund, Munder Institutional S&P SmallCap Index Equity Fund, Munder
Institutional Short Term Treasury Fund and Munder Institutional Money Market
Fund as Class Y Shares; and (iii) to incorporate supplements to prospectuses and
statement of additional information.
The Prospectuses and Statements of Additional Information for the Liquidity
Plus Money Market Fund and the 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 are not included in
this filing.
<PAGE>
CLASS K SHARES
Prospectus
O C T O B E R 8, 1 9 9 9
THE MUNDER INSTITUTIONAL FUNDS
Institutional S&P 500 Index Equity Fund
Institutional S&P MidCap Index Equity Fund
Institutional S&P SmallCap 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
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2 Risk/Return Summary
Index Funds
2 Goals and Main Investment Strategies
2 Principal Risks
3 Who May Want To Invest
4 Performance
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
8 More About Munder Institutional Funds
11 Your Investment
11 How To Reach The Funds
11 Purchasing Shares
11 Redeeming Shares
11 Additional Policies for Purchases and Redemptions
12 Service Agents
13 Pricing of Fund Shares
13 Distributions
14 Federal Tax Considerations
14 Taxes On Distributions
14 Taxes On Sales
14 Other Considerations
15 Management
15 Investment Advisor
15 Year 2000
16 Appendix
</TABLE>
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.
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 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 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 and 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.
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."
2
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Investment Approach
. The advisor manages the Index
Funds through a "quantitative"
or "indexing" investment
approach, which attempts to
duplicate the investment
composition and performance of
the particular index through
statistical procedures.
. The advisor invests in stocks
that are included in the
particular index, in
approximately the same
proportions as they are
represented in the index.
. 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.
. Willing to accept greater risks than associated with 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
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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. Both the MidCap Index Equity Fund and SmallCap
Index Equity Fund do not have a full calendar year of investment returns at the
date of this prospectus. For this reason, no performance information for those
Funds is provided in this prospectus.
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)
[TABLE APPEARS HERE]
40% 30% 20% 10% 0%
28.22% 1998
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Highest and Lowest Return*
(1998)
------------------
Quarter Ending
------------------
<S> <C> <C>
Highest 21.17% December 31, 1998
------------------
Lowest -9.94% September 30, 1998
</TABLE>
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<CAPTION>
Average Annual Total Returns*
(through December 31, 1998)
------------------------
Life of Fund
1 Year (since 10/14/97)
------------------------
<S> <C> <C>
S&P 500 Index
Equity Fund 28.22% 23.06%
------------------------
S&P 500 Compos-
ite Index 28.57% 23.39%
</TABLE>
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*The annual returns in the bar chart, the highest and lowest return chart and
the average annual total return chart are for the Fund's Class Y shares,
which are not offered in this prospectus, and do not reflect a shareholder
servicing fee. Performance for Class K shares would have substantially
similar annual returns because the shares are invested in the same portfolio
of securities and the annual returns would differ only to the extent that
the Classes do not have the same expenses.
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
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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 provide 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 Class K shares of the Munder Institutional Funds. Please note the
following does not include fees that institutions may charge for services they
provide to you.
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Shareholder Fees
(fees paid directly from your investment)
- -----------------------------------------
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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
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<CAPTION>
Annual Fund Operating
Expenses (expenses that S&P 500 MidCap SmallCap Short Term Money
are paid from Fund assets) Index Equity Index Equity Index Equity Treasury Market
as a % of net assets Fund Fund Fund Fund Fund
- -------------------------- ------------ ------------ ------------ ---------- ------
<S> <C> <C> <C> <C> <C>
Management Fees (1) .07% .15% .15% .20% .20%
Other Expenses
Shareholder Servicing
Fee .25% .25% .25% .25% .25%
Other Operating Expenses
(1) .25% .73% 4.38% .55% .18%
---- ----- ----- ----- ----
Total Other Expenses .50% .98% 4.63% .80% .43%
---- ----- ----- ----- ----
Total Annual Fund Operat-
ing
Expenses (1) .57% 1.13% 4.78% 1.00% .63%
==== ===== ===== ===== ====
</TABLE>
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(1) The advisor has voluntarily agreed to waive the management fees for the S&P
500 Index Equity Fund, MidCap Index Equity Fund and SmallCap Index Equity
Fund and to reimburse the Funds' operating expenses to keep the Funds'
other expenses at specified levels, as set forth below. The advisor may
eliminate all or part of the fee waiver and/or expense reimbursement at any
time. Because of the fee waiver and expense reimbursement, the actual
management fees, other operating expenses and total annual fund operating
expenses would be: .00%, .09% and .34%, respectively, for the S&P 500 Index
Equity Fund, .00%, .18% and .43%, respectively, for the MidCap Index Equity
Fund and .00%, .18% and .43% respectively, for the SmallCap Index Equity
Fund. Because of the expense reimbursement, it is estimated that other
operating expenses and total annual fund operating expenses for the current
fiscal year will be: .03% and .48%, respectively, for the Short Term
Treasury Fund and .00% and .45%, respectively, for the Money Market Fund.
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, that the
Fund's operating expenses remain the same as shown in the table above and that
all dividends and distributions are reinvested. Although your actual costs and
the return on your investment may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
S&P 500 Index Equity Fund....................... $ 58 $ 183 $ 319 $ 717
MidCap Index Equity Fund........................ $115 $ 360 $ 624 $1,380
SmallCap Index Equity Fund...................... $481 $1,447 $2,416 $4,855
Short Term Treasury Fund........................ $102 $ 319 -- --
Money Market Fund............................... $ 64 $ 202 -- --
</TABLE>
7
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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.
Securities Lending Each Fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains or
losses. If the borrower fails to return the securities and the invested
collateral has declined in value, the Fund could lose money.
Portfolio Managers
Kenneth A. Schluchter III and Darin McBride jointly manage the S&P 500 Index
Equity Fund and jointly manage the MidCap Index Equity Fund. Mr. Schluchter and
Mark Drouse jointly manage the SmallCap Index Equity Fund.
Mr. Schluchter, Director of Domestic Investments of the advisor, has managed
the Funds since their inception. He was previously a systems developer and data
analyst for Compuware Incorporated (1993-1995).
Mr. McBride, a portfolio manager of the advisor, has also managed the S&P 500
Index Equity Fund and the MidCap Index Equity Fund since their inception.
Previously, Mr. McBride was a portfolio research analyst at Flexible Plan
Investments, Ltd. (1995-1997) and an account executive at Ryder Systems, Inc.
(1993-1994).
Mr. Drouse has managed the SmallCap Index Equity Fund since its inception,
utilizing his systems experience in quantitative investment management.
Previously, he was a portfolio analyst for the advisor (1996 -1997), a systems
administrator for Munder Capital Management (1995-1996) and a WAN network
administrator for Comerica Bank (1993-1995).
Short Term Treasury Fund
The Fund's main strategies and risks are summarized above in the section
entitled Risk/Return Summary-Short Term Treasury Fund. Below is further
information about the Fund's principal investments. The Fund may also use
strategies and invest in 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.
8
<PAGE>
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
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.
9
<PAGE>
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.
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
Customers (and their immediate family members) of banks and other institutions
that have entered into agreements with us to provide shareholder services for
customers may purchase Class K Shares. Customers may include individuals,
trusts, partnerships and corporations. Each Fund also issues other classes of
shares, which have different sales charges, expense levels and performance.
Call (800) 438-5789 to obtain move information concerning the Funds' other
classes of shares.
Purchase Price of Shares
Class K shares of the Funds are sold at the NAV next determined after a
purchase order is received in proper form.
Method for Purchasing Shares
You may purchase shares through selected banks or other institutions.
Policies for Purchasing Shares
. All share purchases are effected through a customer's account at an
institution and confirmations of share purchases will be sent to the
institution involved.
. Institutions (or their nominees) will normally be the holders of record of
Fund shares acting on behalf of their customers, and will reflect their
customers' beneficial ownership of shares in the account statements provided
by them to their customers.
. Purchase orders must be received by the Fund's distributor or the transfer
agent before the close of
regular trading on the New York Stock Exchange (normally, 4:00 p.m. Eastern
time).
Redeeming Shares
Redemption Price
We will redeem shares at the NAV next determined after we receive the
redemption request in proper form.
Methods for Redeeming Shares
. You may redeem shares of all Funds through your bank or other financial
institution.
Policies for Redeeming Shares
. 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.
If we receive a redemption order for a Fund (other than the Money Market Fund)
before 4:00 p.m. (Eastern time), we will normally wire payment to the
redeeming institution on the next business day. If we receive a redemption
order for the Money Market Fund before 12:00 noon (Eastern time), we will
normally wire payment to the redeeming institution on the same business day.
If an order for the Money Market Fund is received between 12:00 noon and 4:00
p.m. (Eastern time), payment is normally wired the next business day.
Additional Policies for Purchases and Redemption
. We consider requests to be in "proper form" when all required documents are
properly completed, signed and received.
. If your purchase order payment for the Money Market Fund is received in
proper form before 2:45 p.m. (Eastern time), you will receive dividends for
that day. If your redemption order is received in proper form before 2:45
p.m. (Eastern time), you will not receive dividends for that day.
. The Funds reserve the right to reject any purchase order.
11
<PAGE>
. At any time, the Funds may change any of their purchase or redemption
procedures, and may suspend the sale of their 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 the Funds' expenses, we no longer issue share certificates.
. We will typically send redemption amounts to you within seven business days
after you redeem shares. We may hold redemption amounts from the sale of
shares you purchased by check until the purchase check has cleared, which
may be as long as 15 days.
. 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;
. If the Securities and Exchange Commission orders the Fund to suspend
redemptions.
. If accepted by the Fund, investors may purchase shares of a Fund with
securities that the Fund may hold. 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 the Funds at (808)-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.
. We record all telephone calls for your protection and take measures to
identify the caller. As long as the Funds' transfer agent takes reasonable
measures to authenticate telephone requests on an investor's account, neither
the Funds, the Funds' distributor nor the transfer agent will be held
responsible for any losses resulting from unauthorized transactions.
. Financial institutions are responsible for transmitting orders and payments
for their customers on a timely basis.
Service Agents
Class K shares of the Funds are sold through institutions that have entered
into shareholder servicing agreements with the Funds. These agreements are
permitted under the Fund's Shareholder Servicing Plan. Under the agreements,
the institutions provide shareholder services to their customers who are
record or beneficial owners of Class K shares. In return for providing these
services, the institutions are entitled to receive a fee from each Fund at an
annual rate of up to 0.25% of the average daily net asset value of the Class K
shares owned by their customers. Class K shares bear all fees paid to
institutions under the Shareholder Servicing Plan. payments are not tied
exclusively to the shareholder expenses actually incurred by the institutions
and may exceed service expenses actually incurred.
Please note that Comerica Bank, an affiliate of the advisor, receives a fee
from the Funds for providing shareholder services to its customers who own
shares of the Funds.
In addition, the advisor may, form 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.
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
Munder Capital Management ("MCM"), 480 Pierce Street, Birmingham, Michigan
48009 is the investment advisor of each Fund other than S&P 500 Index Equity
Fund, MidCap Index Equity Fund and SmallCap Index Equity Fund. World Asset
Management, ("World"), 255 East Brown Street, Birmingham, Michigan 48009, is
the investment advisor of the Index Funds. World is a wholly-owned subsidiary
of MCM. As of June 30, 1999, MCM and its affiliates had approximately $55.1
billion in assets under management, of which $30.2 billion were invested in
equity securities, $9.4 billion were invested in money market or other short-
term instruments, $9.0 billion were invested in other fixed income securities,
and $6.5 billion in non-discretionary assets. As of June 30, 1999, World had
approximately $20.4 billion in assets under management, of which $15.96 billion
were invested in domestic equity securities, $3.9 billion were invested in
international equity securities and $0.5 billion were invested in other fixed
income securities.
The advisors provide overall investment management for the Funds, provides
research and credit analysis and is responsible for all purchases and sales of
portfolio securities.
World is entitled to receive an annual fee equal to 0.07% of the average daily
net assets of the S&P 500 Index Equity Fund, and 0.15% of the average daily net
assets of the MidCap Index Equity Fund and SmallCap Index Equity Fund. MCM is
entitled to receive an annual fee equal to 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 advisors 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 advisors may make such payments out of their 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>
Appendix
- --------------------------------------------------------------------------------
Standard & Poor's Indexes
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard and Poor's 500",
"500", "S&P MidCap 400", "Standard & Poor's MidCap 400" 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.
16
<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 Index Funds'
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the fund's performance during
its last fiscal year. You will receive unaudited semi-annual reports and audited
annual reports on a regular basis from the Funds. In addition, you will also
receive updated Prospectuses or Supplements to this Prospectus. In order to
eliminate duplicate mailings, the Funds will only send one copy of the above
communications to (1) accounts with the same primary record owner, (2) joint
tenant accounts, (3) tenant in common accounts and (4) accounts which have the
same address.
Statement of Additional Information
Provides more details about all of the funds and their policies. A current
Statement of Additional Information is on file with the Securities and Exchange
Commission and is incorporated by reference (is legally considered part of this
prospectus).
SEC file number: 811-4038
PROINSTK1099
Investment Advisor: Munder Capital Management
Distributed by: Funds Distributor, Inc.
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.
<PAGE>
CLASS Y SHARES
Prospectus
O C T O B E R 8 , 1 9 9 9
THE MUNDER INSTITUTIONAL FUNDS
Institutional S&P 500 Index Equity Fund
Institutional S&P MidCap Index Equity Fund
Institutional S&P SmallCap 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
<TABLE>
<C> <S>
2 Risk/Return Summary
Index Funds
2 Goals and Main Investment Strategies
2 Principal Risks
3 Who May Want To Invest
4 Performance
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
8 More About Munder Institutional Funds
11 Your Investment
11 How To Reach The Funds
11 Purchasing Shares
11 Redeeming Shares
11 Additional Policies for Purchases and Sales
13 Pricing of Fund Shares
13 Distributions
14 Federal Tax Considerations
14 Taxes On Distributions
14 Taxes On Sales
14 Other Considerations
15 Management
15 Investment Advisor
15 Year 2000
16 Financial Highlights
18 Appendix
</TABLE>
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.
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 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 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 and 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.
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."
2
<PAGE>
Investment Approach
. The advisor manages the Index
Funds through a "quantitative"
or "indexing" investment
approach, which attempts to
duplicate the investment
composition and performance of
the particular index through
statistical procedures.
. The advisor invests in stocks
that are included in the
particular index, in
approximately the same
proportions as they are
represented in the index.
. 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.
. Willing to accept greater risks than those associated with 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. Both the MidCap Index Equity Fund and SmallCap
Index Equity Fund do not have a full calendar year of investment returns at the
date of this prospectus. For this reason, no performance information for those
Funds is provided in this prospectus.
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)
[TABLE APPEARS HERE]
40% 30% 20% 10% 0%
28.22% 1998
Highest and Lowest Return
(1998)
<TABLE>
------------------
<CAPTION>
Quarter Ending
------------------
<S> <C> <C>
Highest 21.17% December 31, 1998
------------------
Lowest -9.94% September 30, 1998
</TABLE>
Average Annual Total Returns
(through December 31, 1998)
<TABLE>
------------------------
<CAPTION>
Life of Fund
1 Year (since 10/14/97)
------------------------
<S> <C> <C>
S&P 500 Index
Equity Fund 28.22% 23.06%
------------------------
S&P 500 Compos-
ite Index 28.57% 23.39%
</TABLE>
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 provide 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 Class Y shares of the Munder Institutional Funds. Please note the
following information does not include fees that institutions may charge for
services they provide to you.
<TABLE>
<CAPTION>
Shareholder Fees
(fees paid directly from your investment)
- -----------------------------------------
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase............................ None
Sales Charge (Load) Imposed on Reinvested Dividends........................ None
Maximum Deferred Sales Charge (Load)....................................... None
Redemption Fees............................................................ None
Exchange Fees.............................................................. None
</TABLE>
<TABLE>
<CAPTION>
Annual Fund Operating
Expenses (expenses that
are paid from Fund S&P 500 MidCap SmallCap Short Term Money
assets) as a % of net Index Equity Index Equity Index Equity Treasury Market
assets Fund Fund Fund Fund Fund
- ----------------------- ------------ ------------ ------------ ---------- ------
<S> <C> <C> <C> <C> <C>
Management Fees(1)...... .07% .15% 0.15% .20% .20%
Other Expenses(1)....... .25% .73% 4.38% .55% .18%
--- --- ----- --- ---
Total Annual Fund Oper-
ating Expenses(1)...... .32% .88% 4.53% .75% .38%
=== === ===== === ===
</TABLE>
- --------
(1) The advisor has voluntarily agreed to waive the management fees for the S&P
500 Index Equity Fund, MidCap Index Equity Fund and SmallCap Index Equity
Fund and to reimburse the Funds' operating expenses to keep the Funds'
other expenses at specified levels, as set forth below. The advisor may
eliminate all or part of the fee waiver and/or expense reimbursement at any
time. Because of the fee waiver and expense reimbursement, the actual
management fees, other operating expenses and total annual fund operating
expense for the last fiscal year were: .00%, .09% and .09%, respectively,
for the S&P 500 Index Equity Fund, .00%, .18% and .18%, respectively, for
the MidCap Index Equity Fund and .00%, .18% and .18%, respectively, for the
SmallCap Index Equity Fund. Because of the expense reimbursement, it is
estimated that other operating expenses and total annual fund operating
expenses for the current fiscal year will be: .03% and .23%, respectively,
for the Short Term Treasury Fund and .00% and .20%, respectively, for the
Money Market Fund.
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, that the
Fund's operating expenses remain the same as shown in the table above and that
all dividends and distributions are reinvested. Although your actual costs and
the return on your investment may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
S&P 500 Index Equity Fund....................... $ 33 $ 103 $ 180 $ 408
MidCap Index Equity Fund........................ $ 90 $ 281 $ 489 $1,089
SmallCap Index Equity Fund...................... $457 $1,376 $2,303 $4,658
Short Term Treasury Fund........................ $ 77 $ 240 -- --
Money Market Fund............................... $ 39 $ 122 -- --
</TABLE>
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.
Securities Lending Each Fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains or
losses. If the borrower fails to return the securities and the invested
collateral has declined in value, the Fund could lose money.
Portfolio Managers
Kenneth A. Schluchter III and Darin McBride jointly manage the S&P 500 Index
Equity Fund and jointly manage the MidCap Index Equity Fund. Mr. Schluchter and
Mark Drouse jointly manage the SmallCap Index Equity Fund.
Mr. Schluchter, Director of Domestic Investments of the advisor, has managed
the Funds since their inception. He was previously a systems developer and data
analyst for Compuware Incorporated (1993-1995).
Mr. McBride, a portfolio manager of the advisor, has also managed the S&P 500
Index Equity Fund and the MidCap Index Equity Fund since their inception.
Previously, Mr. McBride was a portfolio research analyst at Flexible Plan
Investments, Ltd. (1995-1997) and an account executive at Ryder Systems, Inc.
(1993-1994).
Mr. Drouse has managed the SmallCap Index Equity Fund since its inception,
utilizing his systems experience in quantitative investment management.
Previously, he was a portfolio analyst for the advisor (1996-1997), a systems
administrator for Munder Capital Management (1995-1996) and a WAN network
administrator for Comerica Bank (1993-1995).
Short Term Treasury Fund
The Fund's main strategies and risks are summarized above in the section
entitled Risk/Return Summary-Short Term Treasury Fund. Below is further
information about the Fund's principal investments. The Fund may also use
strategies and invest in 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
8
<PAGE>
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
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.
9
<PAGE>
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.
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:
<TABLE>
<S> <C>
. S&P 500 Index Equity
Fund $ 3,000,000
- ----------------------------------------
. MidCap Index Equity
Fund and SmallCap Index
Equity Fund $1,000
- ----------------------------------------
. Short Term Treasury
Fund and Money Market
Fund $10,000,000
</TABLE>
There is no minimum for additional investments.
Shares of the Funds are sold at the net asset value per share (NAV) next
determined after a purchase order is received.
Investors may purchase shares directly through the distributor or the transfer
agent or through arrangements with institutions. Purchase orders must be
received by the distributor or the transfer agent before the close of regular
trading on the New York Stock Exchange (normally, 4:00 p.m. Eastern time).
Investors may pay for shares in federal funds or other funds that are
immediately available to the Funds' sub-custodian by no later than 4:00 p.m.
(Eastern time) on the next business day following receipt of the purchase
order. Institutions acting on an investor's behalf are responsible for
transmitting orders and funds by the deadline. If you purchase shares through
an institution, the institution may charge for its services.
Redeeming Shares
How To Redeem Shares
Redemption requests are effected at the NAV next determined after the transfer
agent receives the order.
Shares held by an institution on behalf of its customers must be redeemed in
accordance with instructions and limitations pertaining to the account at that
institution.
The transfer agent may charge a fee of $7.50 for wire redemptions under $5,000.
If we receive a redemption order before 4:00 p.m. (Eastern time), we will
normally wire payment to the redeeming institution on the next business day.
Additional Policies For Purchases And Sales
. All orders to purchase shares are subject to acceptance by the Funds.
. At any time, the Funds may change any of its order acceptance practices, and
may suspend the sale of its shares.
. The Funds may delay sending redemption proceeds for up to seven days, or
longer if permitted by the Securities and Exchange Commission.
11
<PAGE>
. 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.
. 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
Munder Capital Management ("MCM"), 480 Pierce Street, Birmingham, Michigan
48009 is the investment advisor of each Fund other than S&P 500 Index Equity
Fund, MidCap Index Equity Fund and SmallCap Index Equity Fund. World Asset
Management, ("World"), 255 East Brown Street, Birmingham, Michigan 48009, is
the investment advisor of the Index Funds. World is a wholly-owned subsidiary
of MCM. As of June 30, 1999, MCM and its affiliates had approximately $55.1
billion in assets under management, of which $30.2 were invested in equity
securities, $9.4 billion were invested in money market or other short-term
instruments, $9.0 billion were invested in other fixed income securities, and
$6.5 billion in non-discretionary assets. As of June 30, 1999, World had
approximately $20.4 billion in assets under management, of which $15.96 billion
were invested in domestic equity securities, $3.9 billion were invested in
international equity securities and $0.5 billion were invested in other fixed
income securities.
The advisors provide 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 advisor may discontinue or change its voluntary reimbursement at
any time. The advisors are entitled to receive an annual fee equal to 0.15% of
the average daily net assets of the MidCap Index Equity Fund and SmallCap 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 advisors 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 advisors may make such payments out of their 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>
MidCap
Index
S&P 500 Index Equity
Equity Fund (a) Fund (a)
------------------- ---------
Year Period Period
Ended Ended Ended
12/31/98 12/31/97 12/31/98
-------- --------- ---------
<S> <C> <C> <C>
Net asset value, beginning of period........ $ 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 invest-
ments...................................... 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>
<TABLE>
<CAPTION>
SmallCap Index
Equity Fund
--------------------------
Year Period
Ended Ended
12/31/98(b) 12/31/97(a)
----------- -----------
<S> <C> <C>
Net asset value, beginning of period............... $10.23 $10.00
------ ------
Income from investment operations:
Net investment income.............................. 0.02 0.04
Net realized and unrealized gain on investments.... 0.84 0.26
------ ------
Total from investment operations................... 0.86 0.30
------ ------
Less distributions:
Distributions from net investment income........... -- (0.04)
Distributions from net realized gains.............. (0.04) (0.03)
------ ------
Total distributions................................ (0.04) (0.07)
------ ------
Net asset value, end of period..................... $11.05 (d) $10.23
====== ======
Total return (c)................................... 8.41 % 3.00 %
====== ======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)............... $ -- $2,559
Ratio of operating expenses to average net assets.. 0.18 (c) 0.18 %(e)
Ratio of net investment income to average net as-
sets.............................................. 0.52 (e) 0.80 (f)
Ratio of operating expenses to average net assets
without expenses reimbursed....................... 4.53 %(e) 3.88 (f)
Portfolio turnover................................. 17 % 8 %
</TABLE>
- --------
(a) The Munder Institutional SmallCap Index Equity Fund commenced operations on
August 7, 1997.
(b) The Munder Institutional SmallCap Index Equity Fund ceased investment
operations on May 18, 1998.
(c) Total return represents aggregate total return for the period indicated.
(d) Reflects the net asset value on May 18, 1998.
(e) Annualized based on the activity of the Fund through May 18, 1998.
(f) Annualized.
17
<PAGE>
Appendix
- --------------------------------------------------------------------------------
Standard & Poor's Indexes
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard and Poor's 500",
"500", "S&P MidCap 400", "Standard & Poor's MidCap 400" 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.
18
<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 the Index Funds'
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the fund's performance during
its last fiscal year. You will receive unaudited semi-annual reports and audited
annual reports on a regular basis from the Funds. In addition, you will also
receive updated Prospectuses or Supplements to this Prospectus. In order to
eliminate duplicate mailings, the Funds will only send one copy of the above
communications to (1) accounts with the same primary record owner, (2) joint
tenant accounts, (3) tenant in common accounts and (4) accounts which have the
same address.
Statement of Additional Information
Provides more details about all of the funds and their policies. A current
Statement of Additional Information is on file with the Securities and Exchange
Commission and is incorporated by reference (is legally considered part of this
prospectus).
SEC file number: 811-4038
PROINSTY1099
Investment Advisor: Munder Capital Management
Distributed by: Funds Distributor, Inc.
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.
<PAGE>
MUNDER INSTITUTIONAL S&P 500 INDEX EQUITY FUND
MUNDER INSTITUTIONAL S&P MIDCAP INDEX EQUITY FUND
MUNDER INSTITUTIONAL S&P SMALLCAP INDEX EQUITY FUND
MUNDER INSTITUTIONAL SHORT TERM TREASURY FUND
MUNDER INSTITUTIONAL MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
St. Clair Funds, Inc. (the "Company") currently offers a selection of
investment portfolios, five 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"), Munder Institutional S&P SmallCap Index Equity Fund
("SmallCap 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 provided supplementary information
pertaining to all classes of shares representing interests in each of the
investment portfolios listed 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 October 8, 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 October 8, 1999.
An investment in a Fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other governmental agency.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
General............................................. 3
Fund Investments.................................... 3
Risk Factors and Special Considerations............. 15
Investment Limitations.............................. 16
Temporary Defensive Position........................ 20
Directors and Officers.............................. 20
Investment Advisory and Other Service Arrangements.. 23
Portfolio Transactions.............................. 27
Additional Purchase and Redemption Information...... 28
Net Asset Value..................................... 30
Performance Information............................. 30
Taxes............................................... 32
Additional Information Concerning Shares............ 36
Miscellaneous....................................... 37
Registration Statement.............................. 39
Financial Statements................................ 39
Appendix A.......................................... A-1
Appendix B.......................................... B-1
</TABLE>
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information or in
the Prospectus in connection with the offering made by the Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Funds or the Distributor. The Prospectus does not
constitute an offering by the Funds or by the Distributor in any jurisdiction in
which such offering may not lawfully be made.
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GENERAL
The Company is an open-end management investment company, which is a mutual
fund that sells and redeems shares every day that it is open for business. The
Company was organized as a Maryland corporation on May 23, 1984 under the name
St. Clair Money Market Fund, Inc., which was changed to St. Clair Fixed Income
Fund, Inc. on December 30, 1986 and to St. Clair Funds, Inc. on September 18,
1996.
Each of the Funds is a diversified mutual fund. The investment advisor of
the Short Term Treasury Fund and Money Market Fund is Munder Capital Management
(the "Advisor"). The investment advisor of the Index Funds is World Asset
Management ("World"). 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. World is a wholly owned subsidiary
of the Advisor.
Capitalized terms used herein and not otherwise defined have the same
meanings as are given to them in the Prospectus.
FUND INVESTMENTS
The following supplements the information contained in the Funds'
Prospectus concerning the investment objective and policies of the Funds. Each
Fund's investment objective is a non-fundamental policy and may be changed
without the authorization of the holders of a majority of the Fund's outstanding
shares. There can be no assurance that any Fund will achieve its objective.
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 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
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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 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.
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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 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.
World 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.
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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. World 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 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 World 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 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.
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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 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 or World 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 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
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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 or World 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.
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
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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 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.
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
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liquidate the segregated account (in the case of a secured put option) until the
option expires or the optioned security is delivered upon exercise with the
result that the writer in such circumstances will be subject to the risk of
market decline or appreciation in the security during such period.
There is no assurance that a Fund will be able to close an unlisted option
position. Furthermore, unlisted options are not subject to the protections
afforded purchasers of listed options by the Options Clearing Corporation, which
performs the obligations of its members who fail to do so in connection with the
purchase or sale of options.
In addition, a liquid secondary market for particular options, whether
traded over-the-counter or on a national securities exchange (an "Exchange"),
may be absent for reasons which include the following: there may be insufficient
trading interest in certain options; restrictions may be imposed by an Exchange
on opening transactions or closing transactions or both; trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; unusual or unforeseen
circumstances may interrupt normal operations on an Exchange; the facilities of
an Exchange or the Options Clearing Corporation may not at all times be adequate
to handle current trading volume; or one or more Exchanges could, for economic
or other reasons, decide or be 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.
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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.
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 World 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 custodian bank or
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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.
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).
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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 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.
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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 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 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 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
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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 or World
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 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, the Advisor or World, 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, World 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. World 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. World 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 World
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
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corresponding index that are not dominated by the most heavily market-
capitalized companies would be reduced or eliminated.
For these reasons, World will identify the sectors which are (or, except
for sector balancing, would be) most underrepresented in an Index Fund's
portfolio and will purchase balancing securities in these sectors until the
portfolio's sector weightings closely match those of the corresponding index.
This process continues until the portfolio is fully invested (except for cash
holdings).
Redemptions of a substantial number of shares of an Index Fund could reduce
the number of issuers represented in the Fund's investment portfolio, which
could, in turn, adversely affect the accuracy with which the Fund tracks the
performance of the corresponding index.
If an issuer drops in ranking, or is eliminated entirely from an Index
Fund's corresponding index, World 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 World 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 World 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 World 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
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);
16
<PAGE>
(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.
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.
17
<PAGE>
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.
18
<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>
- -----------------------------------------------------------------------------------------------------------------------------------
Investments and S&P 500 MidCap Index SmallCap Short Term Money Market
Investment Practices Index Equity Equity Fund Index Equity Treasury Fund Fund
Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Asset-Backed Securities N N N N Y
- -----------------------------------------------------------------------------------------------------------------------------------
Bank Obligations 25% 25% 25% N Y
- -----------------------------------------------------------------------------------------------------------------------------------
Borrowing(1) Y Y Y Y Y
- -----------------------------------------------------------------------------------------------------------------------------------
Convertible Preferred Stock Y Y N N N
- -----------------------------------------------------------------------------------------------------------------------------------
Corporate Obligations:
. Commercial paper........................ Y Y Y N Y
. Corporate bonds......................... Y Y Y N Y
. Notes................................... Y Y Y N Y
. Other short-term obligations............ Y Y Y N Y
. Variable Master Demand Notes............ Y Y Y N Y
. Debentures.............................. Y Y Y N Y
- -----------------------------------------------------------------------------------------------------------------------------------
Depositary Receipts Y Y Y N N
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign Securities 25% 25% 25% N Y
- -----------------------------------------------------------------------------------------------------------------------------------
Forward Foreign Currency Exchange Contracts Y Y Y N N
- -----------------------------------------------------------------------------------------------------------------------------------
Guaranteed Investment Contracts N N N N Y
- -----------------------------------------------------------------------------------------------------------------------------------
Illiquid Securities 15% 15% 15% N 10%
- -----------------------------------------------------------------------------------------------------------------------------------
Investment Company Securities Y Y Y N Y
- -----------------------------------------------------------------------------------------------------------------------------------
Lending Securities 25% 25% 25% 25% 25%
- -----------------------------------------------------------------------------------------------------------------------------------
Options Y Y Y N N
- -----------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements Y Y Y Y Y
- -----------------------------------------------------------------------------------------------------------------------------------
Reverse Repurchase Agreements Y Y Y Y Y
- -----------------------------------------------------------------------------------------------------------------------------------
Rights and Warrants Y Y Y N N
- -----------------------------------------------------------------------------------------------------------------------------------
Stock Index Futures, Options on Stock Y Y Y N N
Indices and Options on Stock Index
Futures (2)
- -----------------------------------------------------------------------------------------------------------------------------------
Stripped Securities:
. Participations in trusts that hold U.S.
Treasury and agency securities.......... N N N N Y
. U.S. Treasury-issued receipts........... N N N Y Y
. Non-U.S. Treasury receipts.............. N N N N Y
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Government Obligations:
. Issued or guaranteed by U.S.
Government.............................. Y Y Y Y Y
. Issued or guaranteed by U.S. Government
agencies and instrumentalities.......... Y Y Y N Y
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Investments and S&P 500 MidCap Index SmallCap Short Term Money Market
Investment Practices Index Equity Equity Fund Index Equity Treasury Fund Fund
Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury Inflation-Protection N N N Y N
Securities
- -----------------------------------------------------------------------------------------------------------------------------------
Variable and Floating Rate Securities Y Y Y N Y
- -----------------------------------------------------------------------------------------------------------------------------------
When-Issued Purchases and Forward Y 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.
<PAGE>
TEMPORARY DEFENSIVE POSITION
During periods of unusual economic or market conditions or for temporary
defensive purposes or liquidity, each Fund may invest without limit in cash and
in U.S. dollar-denominated high quality money market and other short-term
instruments. These investments may result in a lower yield than would be
available from investments with a lower quality or longer term.
DIRECTORS AND OFFICERS
The directors and executive officers of the Company, and their business
addresses and principal occupations during the past five years, are:
<TABLE>
<CAPTION>
Principal Occupation
Name, Address and Age Positions with Company + During Past Five Years
- --------------------- ------------------------ ----------------------
<S> <C> <C>
Charles W. Elliott Director and Chairman of the Board Senior Advisor to the President,
1024 Essex Circle of Directors Western Michigan University (since
Kalamazoo, MI 49008 July 1995); Executive Vice President,
Age: 67 Administration & Chief Financial
Officer, Kellogg Company (January 1987
through June 1995). Board of
Directors, Steelcase Financial
Corporation; Board of Directors,
Enesco Group.
John Rakolta, Jr. Director and Vice Chairman of the Chairman and Chief Executive Officer,
1876 Rathmor Board of Directors Walbridge Aldinger Company
Bloomfield Hills, MI 48304 (construction company).
Age: 52
Thomas B. Bender Director Partner, Financial & Investment
7 Wood Ridge Road Management Group.
Glen Arbor, MI 49636
Age: 66
David J. Brophy Director Professor, University of Michigan.
1025 Martin Place Director, River Place Financial
Ann Arbor, MI 48104 Corporation.
Age: 63
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: 61 (since September 1993); Chancellor,
Lamar University (September 1994 to
September 1995); Chairman of Board of
Directors, Ross Controls of Troy,
Michigan.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Thomas D. Eckert Director President and Chief Executive Officer,
10726 Falls Pointe Drive Capital Automotive REIT (real estate
Great Falls, VA 22066 investment trust specializing in
Age: 51 retail automotive properties) (since
November 1997); President,
Mid-Atlantic Region of Pulte Home
Corporation (developer of residential
land and construction of housing
units) (1983 to 1997); Director,
Celotex Corporation (building products
manufacturer).
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: 54 Chief Executive Officer, World Asset
Management (January 1995 to December
1997); Chief Executive Officer, Old
MCM (predecessor of Advisor) (since
February 1985); Director, LPM
Investment Services, Inc. ("LPM");
Director, Capital Automotive REIT.
Terry H. Gardner Vice President, Chief Financial Vice President and Chief Financial
480 Pierce Street Officer, Treasurer Officer of the Advisor (since 1993),
Suite 300 and Secretary Vice President and Chief Financial
Birmingham, MI 48009 Officer, Old MCM (since 1993);
Age: 38 Secretary, LPM (since June 1993).
Paul Tobias Vice President Chief Executive Officer of the Advisor
480 Pierce Street (since February 1998); Chief Operating
Suite 300 Officer of the Advisor (April 1995 to
Birmingham, MI 48009 February 1998); Executive Vice
Age: 48 President of the Advisor (April 1995
to February 1998); Executive Vice
President, Comerica, Inc. (October
1990 to April 1995).
Gerald Seizert Vice President Chief Investment Officer/Equities of
480 Pierce Street the Advisor (since April 1995); Chief
Suite 300 Executive Officer of the Advisor
Birmingham, MI 48009 (February 1998-August 1999); 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. (investment counselor).
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Elyse G. Essick Vice President Vice President and Director of
480 Pierce Street Communications and Client Services of
Suite 300 the Advisor (since January 1995).
Birmingham, MI 48009
Age: 41
James C. Robinson Vice President Executive Vice President and Chief
480 Pierce Street Investment Officer/Fixed Income of the
Suite 300 Advisor (since January 1995).
Birmingham, MI 48009
Age: 38
Leonard J. Barr Vice President Vice President and Director of Core
480 Pierce Street Equity Research of the Advisor (since
Suite 300 January 1995 ); Director and Senior
Birmingham, MI 48009 Vice President, Old MCM (since 1988);
Age: 55 Director of LPM (since June 1993).
Ann F. Putallaz Vice President Vice President and Director of
480 Pierce Street Retirement Services Group of the
Suite 300 Advisor (since January 1995).
Birmingham, MI 48009
Age: 54
Therese Hogan Assistant Secretary Director, State Regulation Department,
101 Federal Street First Data Investor Services Group
Boston, MA 02110 (since June 1994).
Age: 37
Libby Wilson Assistant Secretary Director of Mutual Funds Operations of
480 Pierce Street the Advisor (since July 1999); Global
Suite 300 Portfolio Client Associate of Invesco
Birmingham, MI 48009 Global Asset Management (investment
Age: 30 advisor) (March 1999 to July 1999);
Mutual Funds Operations Manager of the
Advisor (May 1996 to March 1999);
Mutual Funds Operations Administrator
of the Advisor (March 1993 to May
1996).
Mary Ann Shumaker Assistant Secretary Associate General Counsel of the
480 Pierce Street Advisor (since July 1997); and
Suite 300 Counsel, Miro Weiner & Kramer (law
Birmingham, MI 48009 firm) (1991 to 1997).
Age: 34
</TABLE>
- ----------------
+ Individual holds same position with The Munder Funds Trust (the "Trust"),
Munder Framlington Funds Trust ("Framlington") and St. Clair Funds, Inc. ("St.
Clair") 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 St. Clair, and
Trustees who are not interested persons of the Trust and Framlington, receive an
aggregate fee from the Company, the Trust, St. Clair and Framlington for service
on those organizations' respective Boards, comprised of an annual retainer fee
of $35,000
22
<PAGE>
and a fee of $3,000 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, the Custodian, the
Distributor, the Administrator or the Transfer Agent currently receives any
compensation from the Trust, Framlington or the Company. As of September 27,
1999, the Directors and officers of the Company, as a group, owned less than 1%
of all classes of outstanding shares of the Fund.
INVESTMENT ADVISORY AND OTHER SERVICE ARRANGEMENTS
Investment Advisors. The Advisor of the Money Market Fund and Short Term
Treasury Fund is Munder Capital Management, a Delaware general partnership. The
investment advisor of the Index Funds is World Asset Management. 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. World is a wholly owned subsidiary of the Advisor.
The Investment Advisory Agreement between the Advisor or World and the
Company with respect to the Funds (the "Advisory Agreement") were approved by
the Company's Board of Directors and by the shareholders. Under the terms of the
Advisory Agreement, the Advisor or World 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 or World, subject to review by the
Company's Board of Directors.
23
<PAGE>
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 Agreements 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 or World. The Advisor or World 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 the Funds, computed daily and
payable monthly on a separate Fund-by-Fund basis, .20% of the average
daily net assets of each of the Short Term Treasury Fund and Money Market Fund.
For the advisory services provided and expenses assumed with regard to the
Funds, World 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 and .15% of the
average daily net assets of the MidCap Index Equity 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.
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.
24
<PAGE>
Shareholder Servicing Arrangements - Class K Shares. As stated in the
Funds' Prospectus, Class K Shares are sold to investors through institutions
which enter into Shareholder Servicing Agreements with St. Clair to provide
support services to their Customers who beneficially own Class K Shares in
consideration of the Funds' payment of not more than 0.25% (on an annualized
basis) of the average daily net assets of the Class K Shares beneficially owned
by the Customers.
Services provided by institutions under their service agreements may
include: (i) aggregating and processing purchase and redemption requests for
Class K Shares from Customers and placing net purchase and redemption orders
with the Distributor; (ii) providing Customers with a service that invests the
assets of their accounts in Class K Shares pursuant to specific or pre-
authorized instructions; (iii) processing dividend payments on behalf of
Customers; (iv) providing information periodically to Customers showing their
positions in Class K Shares; (v) arranging for bank wires; (vi) responding to
Customer inquiries relating to the services performed by the institutions; (vii)
providing subaccounting with respect to Class K Shares beneficially owned by
Customers or the information necessary for subaccounting; (viii) if required by
law, forwarding shareholder communications from St. Clair (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; (ix) forwarding to Customers proxy
statements and proxies containing any proposals regarding St. Clair's
arrangements with institutions; and (x) providing such other similar services as
St. Clair may reasonably request to the extent the institutions are permitted to
do so under applicable statutes, rules and regulations.
Pursuant to St. Clair's agreements with such institutions, the Board of
Directors will review, at least quarterly, a written report of the amounts
expended under St. Clair's agreements with institutions and the purposes for
which the expenditures were made. In addition, the arrangements with
institutions must be approved annually by a majority of the Board of Directors,
including a majority of the Directors who are not "interested persons" as
defined in the 1940 Act, and have no direct or indirect financial interest in
such arrangements.
The Board of Directors have approved the arrangements with institutions
based on information provided by the service contractors that there is a
reasonable likelihood that the arrangements will benefit the Funds and their
shareholders by affording the Funds greater flexibility in connection with the
servicing of the accounts of the beneficial owners of their shares in an
efficient manner.
Comerica. As stated in the Funds' Class K Shares Prospectus, Class K
Shares of the Funds are sold to customers of banks and other institutions. Such
banks and institutions may include Comerica Incorporated (a publicly-held bank
holding company), its affiliates and subsidiaries ("Comerica") and other
institutions that have entered into agreements with St. Clair for shareholder
services for their customers.
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 St.
Clair contemplated by their respective agreements with each of them without
violation of applicable banking laws and 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 certain services for the Funds.
25
<PAGE>
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 St. Clair might be required to alter materially or
discontinue the arrangements with the institutions and change the method of
operations. It is not anticipated, however, that any change in the Funds' 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.
It should be noted that 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 Comerica and certain other institutions from continuing to perform
certain services for Class K shares of the Funds.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of Comerica and/or other institutions in connection with
the provision of services on behalf of Class K shares of the Funds, St. Clair
might be required to alter materially or discontinue the arrangements with the
institutions and change the method of operations with respect to Comerica and
certain other institutions. It is not anticipated, however, that any change in
the Funds' method of operations would affect the net asset value per share of
the Funds or result in a financial loss to any holder of Class K shares of the
Funds.
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 were $841.
For the period from commencement of operations on August 7, 1997 through
December 31, 1997 for the SmallCap Index Equity Fund, the administration fees of
State Street accrued were $87.
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, MidCap Index Equity Fund $1,010
and SmallCap Index Equity Fund $121.
Custodian. State Street serves as the custodian (the "Custodian") to the
Fund pursuant to a custodian agreement (the "Custodian Contract") between State
Street and the Company. State Street is also the 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
Custodian Contract, State Street (i) maintains a separate account in the name of
each 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.
Transfer and Dividend Disbursing Agent. First Data Investor Services
Group, Inc. ("Investor Services Group" or the "Transfer Agent") located at 4400
Computer Drive, Westborough, Massachusetts 01581 serves as the
26
<PAGE>
transfer and dividend disbursing agent for the Fund pursuant to 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 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 the Fund and (v) makes periodic reports to the
Board of Directors concerning the operations of the Fund.
Other Information Pertaining to Administration, 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 their operations. These expenses include,
but are not limited to, fees paid to the Advisor, Administrator, Custodian, and
Transfer Agent; fees and expenses of officers and Board of 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; and the expense of using independent pricing services. 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 determines to be fair and equitable. The
Advisor, Administrator, Custodian and Transfer Agent may voluntarily waive all
or a portion of their respective fees from time to time.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Board of Directors, the Advisor
makes decisions with respect to and places orders for all purchases and sales of
portfolio securities for each Fund.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers.
Over-the-counter issues, including corporate debt and government
securities, are normally traded through dealers on a "net" basis (i.e., without
commission), or directly with the issuer. With respect to over-the-counter
transactions, the Advisor will normally deal directly with dealers who make a
market in the instruments except in those circumstances where more favorable
prices and execution are available elsewhere. The cost of securities purchased
from underwriters includes an underwriting commission or concession, and the
prices at which securities are purchased from and sold to dealers include a
dealer's mark-up or mark-down.
The Funds may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
The Funds will engage in this practice, however, only when the Advisor believes
such practice to be in each Fund's interests.
The portfolio turnover rate of each Fund is calculated by dividing the
lesser of the Fund's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of securities whose maturities at 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
27
<PAGE>
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 and by the SmallCap Index Equity Fund for the
period of commencement of operations on August 7, 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
SmallCap Index Equity $1,241 0% $0
</TABLE>
The table below shows information on brokerage commissions paid by the S&P
500 Index Equity Fund and the SmallCap 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 Transactions
$ Amount Brokerage Commission Representing Involving Research
Commission Research Services 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
SmallCap Index Equity $ 0 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 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.
28
<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 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. As of December 31, 1998, the SmallCap Index Equity Fund held no such
securities.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchases. As described in the Prospectuses, shares of the Funds may be
purchased in a number of different ways. Such alternative sales arrangements
permit an investor to choose the method of purchasing shares that is most
beneficial depending on the amount of the purchase, the length of time the
investor expects to hold shares and other relevant circumstances. An investor
may place orders directly through the Transfer Agent or the Distributor or
through arrangements with his/her authorized broker.
Retirement Plans. Shares of any of the Funds may be purchased in
connection with various types of tax deferred retirement plans, including
individual retirement accounts ("IRAs"), qualified plans, deferred compensation
for public schools and charitable organizations (403(b) plans) and simplified
employee pension IRAs. An individual or organization considering the
establishment of a retirement plan should consult with an attorney and/or an
accountant with respect to the terms and tax aspects of the plan. A $10.00
annual custodial fee is also charged on IRAs. This custodial fee is due by
December 15 of each year and may be paid by check or shares liquidated from a
shareholder's account.
Other Redemption Information. The Funds may suspend the right of
redemption or postpone the date of payment for Shares during any period when:
(a) trading on the New York Stock Exchange (the "NYSE") is restricted by
applicable rules and regulations of the SEC; (b) the NYSE is closed, other than
for customary weekend and holiday closings; (c) the SEC has by order permitted
such suspension; or (d) an emergency exists as determined by the SEC. Upon the
occurrence of any of the foregoing conditions, the Funds may also suspend or
postpone the recording of the transfer of its Shares.
In addition, the Funds may compel the redemption of, reject any order for,
or refuse to give effect on the Funds' books to the transfer of, its Shares
where the relevant investor or investors have not furnished the Funds with
valid, certified taxpayer identification numbers and such other tax-related
certifications as the Fund may request. The Funds may also redeem Shares
involuntarily if it otherwise 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.
Exchanges. In addition to the method of exchanging shares described in the
Funds' Prospectuses, a shareholder exchanging at least $1,000 of shares (for
which certificates have not been issued) and who has
29
<PAGE>
authorized expedited exchanges on the application form filed with the Transfer
Agent may exchange shares by telephoning the Funds at (800) 438-5789. Telephone
exchange instructions must be received by the Transfer Agent by 4:00 p.m.,
Eastern time. The Funds, Distributor and Transfer Agent reserve the right at any
time to suspend or terminate the expedited exchange procedure or to impose a fee
for this service. During periods of unusual economic or market changes,
shareholders may experience difficulties or delays in effecting telephone
exchanges. Neither the Funds nor the Transfer Agent will be responsible for any
loss, damages, expense or cost arising out of any telephone exchanges effected
upon instructions believed by them to be genuine. The Transfer Agent has
instituted procedures that it believes are reasonably designed to insure that
exchange instructions communicated by telephone are genuine, and could be liable
for losses caused by unauthorized or fraudulent instructions in the absence of
such procedures. The procedures currently include a recorded verification of the
shareholder's name, social security number and account number, followed by the
mailing of a statement confirming the transaction, which is sent to the address
of record.
NET ASSET VALUE
Net asset value for shares in a Fund is calculated by dividing the value of
all securities and other assets belonging to the Fund, less the liabilities
charged, by the number of outstanding shares.
The net asset value per share of each Fund (except the Money Market Fund)
for the purpose of pricing purchase and redemption orders is determined as of
the close of regular trading hours on the NYSE (currently 4:00 p.m., Eastern
time) on each Business Day. Securities traded on a national securities exchange
or on NASDAQ for which there were no sales on the date of valuation and
securities traded on other over-the-counter markets, including listed securities
for which the primary market is believed to be over-the-counter, are valued at
the mean between the most recently quoted bid and asked prices. Options will be
valued at market value or fair value if no market exists. Futures contracts will
be valued in like manner, except that open futures contract sales will be valued
using the closing settlement price or, in the absence of such a price, the most
recently quoted asked price. Restricted securities and securities and assets for
which market quotations are not readily available are valued at fair value by
the Advisor under the supervision of the Board of Directors. Debt securities
with remaining maturities of 60 days or less are valued at amortized cost,
unless the Board of Directors determines that such valuation does not constitute
fair value at that time. Under this method, such securities are valued initially
at cost on the date of purchase (or the 61st day before maturity).
In seeking to maintain a stable net asset value of $1.00 per share with
respect to the Money Market Fund, the Company values the Fund's portfolio
securities according to the amortized cost method of valuation. Under this
method, securities are valued initially at cost on the date of purchase.
Thereafter, absent unusual circumstances, the Fund assumes a constant
proportionate amortization of any discount or premium until maturity of the
security.
In determining the approximate market value of portfolio investments, the
Company may employ outside organizations, which may use matrix or formula
methods that take into consideration market indices, matrices, yield curves and
other specific adjustments. This may result in the securities 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
30
<PAGE>
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;
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
31
<PAGE>
length of the base period and the Fund's mean (or median) account size.
Undeclared earned income will be subtracted from the offering price per share
(variable "d" in the formula).
Average Annual Total Return
A Fund may advertise its "average annual total return" and will compute
such return by determining the average annual compounded rate of return during
specified periods that equates the initial amount invested to the ending
redeemable value of such investment according to the following formula:
P (1 + T)/n/ = ERV
Where:
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 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%. The average annual total return
figures for the SmallCap Index Equity Fund for the 12 month period ended
December 31, 1998 was 8.41% and for the period from commencement of operations
through December 31, 1998 was 11.66%.
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.
32
<PAGE>
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.
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
33
<PAGE>
taxable to shareholders as gain from the sale or exchange of a capital asset
held for more than one year, regardless of the length of time the shareholder
has held the Fund shares, and regardless of whether the distribution is paid in
cash or reinvested in shares. The Funds expect that capital gain dividends will
be taxable to shareholders as long-term gains. Capital gain dividends are not
eligible for the dividends-received deduction.
In the case of corporate shareholders, distributions of a Fund for any
taxable year generally qualify for the dividends-received deduction to the
extent of the gross amount of "qualifying dividends" received by such Fund for
the year and if certain holding period requirements are met. Generally, a
dividend will be treated as a "qualifying dividend" if it has been received from
a domestic corporation.
If for any taxable year a Fund does not qualify as a regulated investment
company, all of its taxable income will be subject to tax at regular corporate
rates without any deduction for distributions to shareholders. In such event,
all distributions (whether or not derived from exempt-interest income) would be
taxable as ordinary income and would be eligible for the dividends-received
deduction in the case of corporate shareholders to the extent of the Fund's
current and accumulated earnings and profits.
Shareholders will be advised annually as to the Federal income tax
consequences of distributions made by the Fund each year.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax. To
prevent imposition of the excise tax, each Fund must distribute during each
calendar year an amount equal to the sum of (1) at least 98% of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, (2) at least 98% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses, as prescribed by the Internal Revenue
Code) for the one-year period ending on October 31 of the calendar year, and (3)
any ordinary income and capital gains for previous years that was not
distributed during those years. A distribution will be treated as paid on
December 31 of the current calendar year if it is declared by a Fund in October,
November or December with a record date in such a month and paid by the Fund
during January of the following calendar year. Such distributions will be
taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are made. To
prevent application of the excise tax, each Fund intends to make its
distributions in accordance with the calendar year distribution requirement.
Hedging Transactions. The taxation of equity options and over-the-counter
options on debt securities is governed by Internal Revenue Code Section 1234.
Pursuant to Internal Revenue Code Section 1234, the premium received by a Fund
for selling a put or call option is not included in income at the time of
receipt. If the option expires, the premium is short-term capital gain to the
Fund. If the Fund enters into a closing transaction, the difference between the
amount paid to close out its position and the premium received is short-term
capital gain or loss. If a call option written by a Fund is exercised, thereby
requiring the Fund to sell the underlying security, the premium will increase
the amount realized upon the sale of such security and any resulting gain or
loss will be a capital gain or loss, and will be long-term or short-term
depending upon the holding period of the security. With respect to a put or call
option that is purchased by a Fund, if the option is sold, any resulting gain or
loss will be a capital gain or loss, and will be long-term or short-term,
depending upon the holding period of the option. If the option expires, the
resulting loss is a capital loss and is long-term or short-term, depending upon
the holding period of the option. If the option is exercised, the cost of the
option, in the case of a call option, is added to the basis of the purchased
security and, in the case of a put option, reduces the amount realized on the
underlying security in determining gain or loss.
Any regulated futures contracts and certain options (namely, nonequity
options and dealer equity options) in which a Fund may invest are "Section 1256
contracts." Gains or losses on Section 1256 contracts generally are considered
60% long-term and 40% short-term capital gains or losses; however, foreign
currency gains or losses (as discussed below) arising from certain Section 1256
contracts may be treated as ordinary income or loss. Also, Section 1256
contracts held by a Portfolio at the end of each taxable year (and, generally,
for purposes of the 4% excise tax, on October 31 of each year) are "marked to
market" (that is, treated as sold at fair market value), resulting in unrealized
gains or losses being treated as though they were realized.
34
<PAGE>
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 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,
35
<PAGE>
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.
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.
36
<PAGE>
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. The shares of each Fund (other than the 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 and Liquidity Plus Money Market Fund) are offered in two separate
classes: Class K and Class Y Shares.
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. 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.
The Board of St. Clair has adopted plans pursuant to Rule 18f-3 under the
1940 Act ("Multi-Class Plans") on behalf of each Fund. The Multi-Class Plan
provides that shares of each class of a Fund are identical, except for one or
more expense variables, certain related rights, exchange privileges, class
designation and sales loads assessed due to differing distribution methods.
Holders of all outstanding shares of a particular Fund will vote together
in the aggregate and not by class on all matters, except that only Class K
Shares of a Fund will be entitled to vote on matters submitted to a vote of
shareholders pertaining to the Class K Plan. 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
37
<PAGE>
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 September 27,
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>
Name of Fund Name and Address Shares Outstanding
- ------------ ---------------- -------------------
<S> <C> <C>
S&P 500 Index Calhoun & Co. 100%
Equity Fund, c/o Comerica Bank
MidCap Index Attn: Vicky Froehlich
Equity Fund and P.O. Box 75000
Money Market Fund Detroit, MI 48275-3455
SmallCap Index Equity Funds Distributor, Inc. 100%
Fund 60 State Street
Suite 1300
Boston, MA 02109
</TABLE>
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
38
<PAGE>
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.
FINANCIAL STATEMENTS
The financial statements of the S&P 500 Index Equity Fund and the 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 financial statements of the SmallCap Index Equity Fund of the Company
including the notes thereto, dated December 31, 1998 have been audited by Ernst
& Young and are attached herein. The information under the caption "Financial
Highlights" of the Funds for the period from commencement of operations through
December 31, 1998, appearing in the Class Y Shares Prospectus dated October 8,
1999 has been derived from the financial statements audited by Ernst & Young
LLP. The unaudited financial statements of the S&P 500 Index Equity Fund, MidCap
Index Equity Fund and Money Market Fund are incorporated by reference into this
SAI from the Semi-Annual Report of the Company dated as of June 30, 1999.
39
<PAGE>
Munder Institutional S&P SmallCap Index Equity Fund
Statement of Operations, Year Ended December 31, 1998 (a)
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Dividend income................................................... $ 7,195
--------
Total investment income...................................... 7,195
--------
EXPENSES:
Custodian fees.................................................... 36,166
Amortization of organization costs................................ 3,141
Legal and audit fees.............................................. 2,086
Investment advisory fee........................................... 1,528
Registration and filing fees...................................... 767
Administration fee................................................ 145
Directors' fees and expenses...................................... 17
Other............................................................. 2,432
--------
Total Expenses............................................... 46,282
Expenses reimbursed by investment advisor......................... (44,440)
--------
Total Expenses............................................... 1,842
--------
NET INVESTMENT INCOME............................................. 5,353
--------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS:
Net realized gain from security transactions...................... 257,496
Net change in unrealized appreciation/depreciation of securities.. (48,690)
--------
Net realized and unrealized gain on investments................... 208,806
--------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................................... $214,159
========
</TABLE>
- ---------------
(a) The Munder Institutional S&P SmallCap Index Equity Fund ceased investment
operations on May 18, 1998.
See Notes to Financial Statements.
40
<PAGE>
Munder Institutional S&P SmallCap Index Equity Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Year Period
Ended Ended
12/31/98(b) 12/31/97(a)
-------------- ------------
<S> <C> <C>
Net investment income............................................... $ 5,353 $ 8,312
Net realized gain on investments from security transactions......... 257,496 18,468
Net change in unrealized appreciation/(depreciation) of securities.. (48,690) 48,690
----------- ----------
Net increase in net assets resulting from operations................ 214,159 75,470
Distributions to shareholders from net investment income............ -- (8,800)
Distributions to shareholders from net realized gains............... (10,132) (8,000)
Net increase/(decrease) in net assets from Fund share transactions.. (2,762,707) 2,500,010
----------- ----------
Net increase in net assets.......................................... (2,558,680) 2,558,680
NET ASSETS:
Beginning of year................................................... 2,558,680 --
----------- ----------
End of year......................................................... $ -- $2,588,680
=========== ==========
Undistributed net investment income................................. $ -- $ 771
=========== ==========
</TABLE>
- ----------------------
(a) The Munder Institutional S&P SmallCap Index Equity Fund commenced
operations on August 7, 1997.
(b) The Munder Institutional S&P SmallCap Index Equity Fund ceased investment
operations on May 18, 1998.
See Notes to Financial Statements.
41
<PAGE>
Munder Institutional S&P SmallCap Index Equity Fund
Financial Highlights, For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Period
Ended Ended
12/31/98(b) 12/31/97(a)
----------- -----------
<S> <C> <C>
Net asset value, beginning of period.................. $ 10.23 $ 10.00
----------- -----------
Income from investment operations:
Net investment income................................. 0.02 0.04
Net realized and unrealized gain on investments....... 0.84 0.26
----------- -----------
Total from investment operations...................... 0.86 0.30
----------- -----------
Less distributions:
Distributions from net investment income.............. -- (0.04)
Distributions from net realized gains................. (0.04) (0.03)
----------- -----------
Total distributions................................... (0.04) (0.07)
----------- -----------
Net asset value, end of period........................ $ 11.05(d) $ 10.23
=========== ===========
Total return (c)...................................... 8.41% 3.00%
=========== ===========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's).................. $ -- $ 2,559
Ratio of operating expenses to average net assets..... 0.18%(e) 0.18%(f)
Ratio of net investment income to average net assets.. 0.52%(e) 0.80%(f)
Ratio of operating expenses to average net assets
without expenses reimbursed......................... 4.53%(e) 3.88%(f)
Portfolio turnover.................................... 17% 8%
</TABLE>
- ---------------
(a) The Munder Institutional S&P SmallCap Index Equity Fund commenced
operations on August 7, 1997.
(b) The Munder Institutional S&P SmallCap Index Equity Fund ceased investment
operations on May 18, 1998.
(c) Total return represents aggregate total return for the period indicated.
(d) Reflects the net asset value on May 18, 1998.
(e) Annualized based on the activity of the Fund through May 18, 1998.
(f) Annualized.
See Notes to Financial Statements.
42
<PAGE>
Munder Institutional S&P SmallCap Index Equity Fund
Notes to Financial Statements, December 31, 1998
- ----------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Munder Institutional S&P SmallCap Index Equity Fund (the "Fund") is a
diversified portfolio of St. Clair Funds, Inc. (the "Company") which is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end management investment company. The Fund commenced
operations on August 7, 1997 and ceased investment operations on May 18, 1998.
As of May 18, 1998, there were no assets in the Fund, thus no Statement of
Assets and Liabilities is presented.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies followed by the Fund in the preparation of their financial statements:
Security Valuation: Securities (including financial futures, if any) traded on
a recognized stock exchange or on the NASDAQ National Market System ("NASDAQ")
are valued at the last sale price on the securities exchange on which such
securities are primarily traded or at the last sale price on the national
securities market as of the close of business on the date of the valuation.
Securities traded on a national securities exchange or on NASDAQ for which there
were no sales on the date of valuation and securities traded on 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. Restricted securities, and securities and assets for which
market quotations are not readily available, are valued at fair value by Munder
Capital Management (the "Advisor"), and under certain circumstances by a pricing
committee, under the guidelines approved by supervision of the Board of
Directors.
Security Transactions and Investment Income: Security transactions are
recorded on the trade date. The cost of investments sold is determined by use
of the specific identification method for both financial reporting and income
tax purposes. Interest income is recorded on the accrual basis.
Dividends and Distributions to Shareholders: Dividends from net investment
income are declared and paid at least quarterly by the Fund. Capital gains
distributions, if any, will be made at least annually. Distributions to
shareholders are recorded on the ex-dividend date.
Income dividends and capital gain distributions are determined in accordance
with income tax regulations that may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments of
certain expenses and income and gains on various investment securities held by a
Fund, timing differences and differing characterization of distributions made by
the Fund as a whole. The Fund also utilizes earnings and profits distributed to
shareholders on redemption of shares as a part of the dividends paid deduction
for income tax purposes.
Federal Income Taxes: The Fund intends to continue to qualify as a regulated
investment company by complying with the requirements of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies and to
distribute substantially all of its earnings to its shareholders. Therefore, no
Federal income or excise tax provision is required.
2. Investment Advisor, Custodian and Other Related Party Transactions
For its advisory services, the Advisor is entitled to receive a fee from the
Fund, computed daily and payable monthly, at an annual rate of 0.15% of the
value of its average daily net assets.
The Advisor voluntarily waived fees of $1,528 and reimbursed certain expenses
of $42,912, payable by the Fund, for the year ended December 31, 1998.
43
<PAGE>
Effective July 2, 1998 Comerica Bank ("Comerica") increased its ownership
in the Advisor whereby it now owns approximately 88% of the Advisor. Comerica
provides certain shareholder services to the Fund. As compensation for the
shareholder services provided to the Fund, Comerica receives a fee of 0.01% of
the aggregate average daily net assets of the Funds beneficially owned by
Comerica and its customers. Comerica earned $102 for its shareholder services to
the Fund for the year ended December 31, 1998.
Each Director of the Company is paid an aggregate fee for services provided
as a Board member of the Company, The Munder Funds Trust, The Munder Funds,
Inc., and The Munder Framlington Funds Trust. The fee consists of a $30,000
annual retainer, for services in such capacity plus $2,500 for each Board
meeting attended, plus out-of-pocket expenses related to attendance at such
meeting. No officer, director or employee of the Advisor or Comerica received
any compensation from the Company.
3. Securities Transactions
For the year ended December 31,1998, cost of purchases and proceeds from
sales of securities other than short-term investments and U.S. Government
securities were $399,344 and $3,142,024 respectively.
4. Common Stock
Changes in common stock were as follows:
<TABLE>
<CAPTION>
Year Ended Period Ended
12/31/98 12/31/97
---------------------------- -------------------------
Shares Amount Shares Amount
-------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Sold......................... -- -- 250,001 $2,500,010
Redeemed..................... (250,001) $(2,762,707) -- --
-------- ----------- ------- ----------
Net increase/(decrease)...... (250,001) $(2,762,707) 250,001 $2,500,010
======== =========== ======= ==========
</TABLE>
44
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
To the Board of Directors of
Munder Institutional S&P SmallCap Index Equity Fund
We have audited the accompanying statement of operations of Munder Institutional
S&P SmallCap Index Equity Fund, one of the portfolios constituting St. Clair
Funds, Inc. for the year ended December 31, 1998, the statements of changes in
net assets and the financial highlights for the year ended December 31, 1998 and
for the period from August 7, 1997 to December 31, 1997. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the results of operations of the
Munder Institutional S&P SmallCap Index Equity Fund of St. Clair Funds, Inc.,
for the year ended December 31, 1998, and the changes in its net assets and the
financial highlights for the year ended December 31, 1998 and the period from
August 7, 1997 to December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
---------------------
Ernst & Young, LLP
Boston, Massachusetts
October 6, 1999
<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.
A-1
<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.
A-2
<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>
B-1
<PAGE>
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract - 125 X $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
Portfolio Futures
- --------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Selling $1,000,000 in Equity Securities Sell 16 Index Futures at 125
Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Securities - Own Stock Buy 16 Index Futures at 120
with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Value = $40,000 Gain on Futures = $40,000
</TABLE>
II. Margin Payments
---------------
Unlike the purchase or sale of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with the Custodian an amount of cash or cash equivalents, known as initial
margin, based on the value of the contract. The nature of initial margin in
futures transactions is different from that of margin in securities transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions. Rather, the initial margin is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instruments fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking to the market. For example, when a particular Fund has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Fund will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where the Fund has purchased a
futures contract and the price of the futures contract has declined in response
to a decrease in the underlying instruments, the position would be less valuable
and the Fund would be required to make a variation margin payment to the broker.
At any time prior to expiration of the futures contract, the Advisor may elect
to close the position by taking an opposite position, subject to the
availability of a secondary market, which will operate to terminate the Fund's
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid by or released to the Fund,
and the Fund realizes a loss or gain.
III. Risks of Transactions in Futures Contracts
------------------------------------------
There are several risks in connection with the use of futures by the Funds
as hedging devices. One risk arises because of the imperfect correlation
between movements in the price of futures and movements in the price of the
instruments which are the subject of the hedge. The price of futures may move
more than or less 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
B-2
<PAGE>
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 or World. 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 or World. It is also possible that, when the Fund
sells futures to hedge its portfolio against a decline in the market, the market
may advance and the value of the futures instruments held in the Fund may
decline. If this occurrs, the Fund would lose money on the futures and also
experience a decline in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the Funds
will realize a loss on the futures contract that is not offset by a reduction in
the price of the securities that were to be purchased.
In instances involving the purchase of futures contracts by the Funds, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Custodian and/or
in a margin account with a broker to collateralize the position and thereby
insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the instruments
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions which could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced, thus producing distortions. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the Advisor may still not result in
a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance 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.
B-3
<PAGE>
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 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.
B-4
<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
incorporated by reference to Post-Effective Amendment No. 31 to
Registrant's Registration Statement on Form N-1A filed with the
Commission on April 30, 1999.
(15) Articles Supplementary dated October 1, 1999 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 are filed herein.
(b) By-Laws as amended, restated and adopted by Registrant's Board of
Directors on March 2, 1990 are filed herein.
(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
2
<PAGE>
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) 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) Custodian Agreement dated May 4, 1999 between Registrant and
State Street Bank and Trust Company with respect to Munder S&P
500 Index Equity Fund, Munder S&P MidCap Index Equity Fund,
Munder S&P SmallCap Index Equity Fund, Munder Aggregate Bond
Index Fund, Munder Foreign Equity Fund, Liquidity Plus Money
Market Fund, Munder Institutional S&P 500 Index Equity Fund,
Munder Institutional S&P MidCap Index Equity Fund, Munder
Institutional S&P SmallCap Index Equity Fund, Munder
Institutional Short Term Treasury Fund and Munder Institutional
Money Market Fund is filed herein.
(h) (1) Administration Agreement among Registrant and State Street Bank
and Trust Company with respect to Munder S&P 500 Index Equity
Fund, Munder S&P MidCap Index Equity Fund, Munder S&P SmallCap
Index Equity Fund, Munder Aggregate Bond Index Fund, Munder
Foreign Equity Fund, Liquidity Plus Money Market Fund, Munder
Institutional S&P 500 Index Equity Fund, Munder Institutional S&P
MidCap Index Equity Fund, Munder Institutional S&P SmallCap Index
Equity Fund, Munder Institutional Short Term Treasury Fund and
Munder Institutional Money Market Fund is 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
3
<PAGE>
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 incorporated by reference to Post-Effective
Amendment No. 31 to Registrant's Registration Statement on
Form N-1A filed with the Commission on April 30, 1999.
(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 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
4
<PAGE>
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 dated September 30, 1999 are filed herein.
(2) 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.
(3) Service Plan with respect to Munder Institutional S&P 500 Index
Equity Fund, Munder Institutional S&P MidCap Index Equity Fund,
Munder Institutional S&P SmallCap Index Equity Fund, Munder
Institutional Short Term Treasury Fund and Munder Institutional
Money Market Fund is filed herein.
(n) Not Applicable.
(o) MultiClass Plan with respect to the Munder Institutional S&P 500 Index
Equity Fund, Munder Institutional S&P MidCap Index Equity Fund, Munder
Institutional S&P SmallCap Index Equity Fund, Munder Institutional
Short Term Treasury Fund and Munder Institutional Money Market Fund is
filed herein.
Item 24. Persons Controlled by or under Common Control with Registrant.
--------------------------------------------------------------
Not Applicable.
5
<PAGE>
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 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.
6
<PAGE>
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 Director of The Private Management Group
Terry H. Gardner Vice President and Chief Financial Officer
Elyse G. Essick Vice President and Director of Communications and 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 Senior Vice President of The Private Management Group
Ann F. Putallaz Vice President and Director of Retirement Services Group
Peter G. Root Vice President and Director of Government Securities Trading
James C. Robinson Executive Vice President and Chief Investment Officer/Fixed
Income
Gerald L. Seizert Chief Investment Officer-Equities
Paul D. Tobias Chief Executive Officer
</TABLE>
For further information relating to the Investment Advisor's
officers, reference is made to Form ADV filed under the Investment Advisers
Act of 1940 by Munder Capital Management. See File No. 801-48394.
World Asset Management
<TABLE>
<CAPTION>
Name Position with Advisor
<S> <C>
Terry H. Gardner Chief Financial Officer
Todd B. Johnson President, Chief Investment Officer and Chief
Executive Officer
Robert J. Kay Director, Client Services
Theodore D. Miller Director, International Investments
Kenneth A. Schluchter, III Director, Domestic Investments
</TABLE>
For further information relating to the Advisor's officers, reference is
made to Form ADV filed under the Investment Advisers Act of 1940 by World
Asset Management, SEC File No. 801-55795.
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 Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Premium Reserves, Inc.
American Century Quantitative Equity Funds
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century World Mutual Funds, Inc.
The Brinson Funds
CDC MPT Funds
Dresdner RCM Capital Funds, Inc.
Dresdner RCM Global Funds, Inc.
Dresdner RCM Investment Funds Inc.
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 Trust
National Investors Cash Management Fund, Inc.
Nomura Pacific Basin Fund, Inc.
Orbitex Group of Funds
SG Cowen Funds, Inc.
SG Cowen Income + Growth Fund, Inc.
SG Cowen Standby Reserve Fund, Inc.
SG Cowen Standby Tax-Exempt Reserve Fund, Inc.
SG Cowen Series Fund, Inc.
8
<PAGE>
SoGen Funds, Inc.
SoGen Variable Funds, Inc.
St. Clair Funds, Inc.
The Skyline Funds
TD Waterhouse Trust
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>
<CAPTION>
<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., 100 Federal Street,
Boston, Massachusetts 02110 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 (records relating to its function as administrator and
custodian);
(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
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. 32 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. 32 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Quincy and The Commonwealth of Massachusetts, on the
8th day of October, 1999.
ST. CLAIR FUNDS, INC.
By: *
------------------------
Lee P. Munder, President
* By: /s/ Francine S. Hayes
-----------------------
Francine S. Hayes
as Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signatures Title Date
- ---------------------- ------------------------ ---------------
<S> <C> <C>
* Director October 8, 1999
- --------------------
Lee P. Munder
* Director October 8, 1999
- --------------------
Charles W. Elliott
* Director October 8, 1999
- --------------------
Joseph E. Champagne
* Director October 8, 1999
- --------------------
Thomas B. Bender
* Director October 8, 1999
- --------------------
Thomas D. Eckert
* Director October 8, 1999
- --------------------
John Rakolta, Jr.
* Director October 8, 1999
- --------------------
David J. Brophy
* Vice President, October 8, 1999
- -------------------- Treasurer, Secretary and
Terry H. Gardner Chief Financial Officer
*By: /s/ Francine S. Hayes
---------------------
Francine S. Hayes
as Attorney-in-Fact
Terry H. Gardner
</TABLE>
11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------- -----------
<S> <C>
99(a)(15) Articles Supplementary with respect to Munder Institutional S&P
Index Equity Fund, Munder Institutional MidCap Index Equity Fund,
Munder Institutional SmallCap Index Equity Fund, Munder
Institutional Short Term Treasury Fund and Munder Institutional
Money Market Fund.
99(b) By-Laws.
99(g) Custodian Agreement.
99(j)(1) Powers of Attorney.
99(j)(2) Consent of Ernst & Young LLP.
99(m)(3) Service Plan with respect to to Munder Institutional S&P Index
Equity Fund, Munder Institutional MidCap Index Equity Fund,
Munder Institutional SmallCap Index Equity Fund, Munder
Institutional Short Term Treasury Fund and Munder Institutional
Money Market Fund.
99(o) MultiClass Plan with respect to the Munder Institutional S&P 500
Index Equity Fund, Munder Institutional S&P MidCap Index Equity
Fund, Munder Institutional S&P SmallCap Index Equity Fund, Munder
Institutional Short Term Treasury Fund and Munder Institutional
Money Market Fund.
</TABLE>
12
<PAGE>
Exhibit 99(a)(15)
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 August
3, 1999, pursuant to Section 2-208 of Maryland General Corporate Law, duly
reclassified fifty million (50,000,000) shares of the Munder Institutional S&P
500 Index Equity Fund, fifty million (50,000,000) shares of the Munder
Institutional S&P MidCap Index Equity Fund, fifty million (50,000,000) shares of
the Munder Institutional S&P SmallCap Index Equity Fund, fifty million
(50,000,000) shares of the Munder Institutional Short Term Treasury Fund and ten
billion (10,000,000,000) shares of the Munder Institutional Money Market Fund,
as set forth below:
<TABLE>
<CAPTION>
Reclassified Shares
Name of Series Shares Allocated by Class
- -------------- -------------------------
K Y
- -
<S> <C> <C>
Munder Institutional S&P 500 Index Equity Fund 25,000,000 25,000,000
Munder Institutional S&P MidCap Index Equity Fund 25,000,000 25,000,000
Munder Institutional S&P SmallCap Index Equity Fund 25,000,000 25,000,000
Munder Institutional Short Term Treasury Fund 25,000,000 25,000,000
Munder Institutional Money Market Fund 5,000,000,000 5,000,000,000
</TABLE>
SECOND: The shares of the Corporation reclassified pursuant to Article
First of these Articles Supplementary have been so reclassified 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's Articles of
Incorporation 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 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:
<TABLE>
<CAPTION>
Previously Classified Shares
----------------------------
Name of Series Authorized Shares
- -------------- -----------------
<S> <C>
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
</TABLE>
<PAGE>
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:
<TABLE>
<CAPTION>
Current Classification of Shares
--------------------------------
Name of Series Authorized Shares
- -------------- -----------------
<S> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Name of Series Shares Allocated by Class
- -------------- -------------------------
K Y
- -
<S> <C> <C>
Munder Institutional S&P 500 Index Equity Fund 25,000,000 25,000,000
Munder Institutional S&P MidCap Index Equity Fund 25,000,000 25,000,000
Munder Institutional S&P SmallCap Index Equity Fund 25,000,000 25,000,000
Munder Institutional Short Term Treasury Fund 25,000,000 25,000,000
Munder Institutional Money Market Fund 5,000,000,000 5,000,000,000
</TABLE>
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, 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.
FIFTH: The preferences, rights, voting powers, restrictions, limitations as
to dividends, qualifications and terms and conditions of redemption of the
various classes of shares of the Munder Institutional S&P 500 Index Equity Fund,
Munder Institutional S&P MidCap Index Equity Fund, Munder Institutional S&P
SmallCap Index Equity Fund, Munder Institutional Short Term Treasury Fund and
Munder Institutional Money Market Fund shall be as 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, and those set forth as follows:
(a) The assets of each Class of a Series shall be invested in the same
investment portfolio of the Corporation.
(b) The dividends and distributions of investment income and capital gains
with respect to each class of shares shall be in such amount as may be
declared from time to time by the Board of Directors, and the dividends and
distributions of each class of shares may vary from the dividends and
distributions of the other classes of shares to reflect differing
allocations of the expenses of the Corporation among the holders of each
class and any resultant differences between the net asset value per share
of each class, to such extent and for such purposes as the Board of
Directors may deem appropriate. The allocation of investment income or
capital gains and expenses and liabilities of the Corporation among the
classes shall be determined by the Board of Directors in a manner it deems
appropriate.
2
<PAGE>
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: September 29, 1999
ST. CLAIR FUNDS, INC.
[CORPORATE SEAL]
By: /s/ Terry H. Gardner
-------------------------------------
Terry H. Gardner
Vice President
Attest:
/s/ Libby E. Wilson
- -------------------
Libby E. Wilson
Assistant Secretary
3
<PAGE>
Exhibit 99(b)
ST. CLAIR EQUITY FUND, INC.
BY-LAWS
ARTICLE I
----------
STOCKHOLDERS
------------
SECTION 1. Annual Meetings. An annual meeting of the stockholders of the
Corporation shall not be required to be held in any year in which stockholders
are not required to elect directors under the Investment Company Act of 1940
(the "1940 Act"). If the Corporation is required by the 1940 Act to hold a
meeting to elect directors, the meeting shall be designated as the Annual
Meeting of stockholders for that year and shall be held within 120 days after
the occurrence of an event requiring the election of directors. The Board of
Directors may, in its discretion, hold a meeting to be designated as the Annual
Meeting of stockholders on a date within the thirty-one day period, October 16
through November 15, in any year where an election of directors by stockholders
is not required under the 1940 Act. The date of an Annual Meeting shall be set
by appropriate resolution of the Board of Directors, and stockholders shall vote
on the election of directors and transact any other business as may be properly
brought before the Annual Meeting.
SECTION 2. Special Meetings. Special meetings of the stockholders for any
purpose or purposes, unless otherwise prescribed by statute or by the Charter,
may be held at any place, within or without the State of Maryland, and may be
called at any time by the Board of Directors or by the President, and shall be
called by the President or Secretary at the request in writing of a majority of
the Board or at the request in writing of stockholders entitled to cast at east
twenty-five (25) percent of the votes entitled to be cast at such meeting. Such
request shall state the purpose or purposes of the proposed meeting.
SECTION 3. Notice of Meetings and Stockholder List. Written or printed
notice of the purpose or purposes and of the time and place of every meeting of
the stockholders shall be given by the Secretary of the Corporation to each
stockholder of record entitled to vote at the meeting, by placing such notice in
the mail at least ten days, but not more than ninety (90) days, and in any event
within the period prescribed by law, prior to the date named for the meeting
addressed to each stockholder at his address appearing on the books of the
Corporation or supplied by him to the corporation for the purpose of notice. The
notice of every meeting of stockholders may be accompanied by a form of proxy
approved by the Board of Directors in favor of such actions or persons as the
Board of Directors may select.
At least five (5) days prior to each meeting of stockholders, the officer
or agent having charge of the share transfer books of the Corporation shall make
a complete list of stockholders entitled to vote at such meeting, in
alphabetical order with the address of and the number of shares held by each
stockholder.
<PAGE>
SECTION 4. Record Date. The Board of Directors may fix a date not more
than ninety (90) days preceding the date of any meeting of stockholders, or the
date fixed for the payment of any dividend, or the date of the allotment or
rights or the date when any change or conversion or exchange of shares shall go
into effect, as a record date for the determination of stockholders entitled to
notice of, or to vote at, any such meeting (or any adjournment thereof) or
entitled to receive payment of any dividend, or to receive such allotment of
rights, or to exercise such rights, as the case may be. In such case, only
stockholders of record at the close of business on the date so fixed shall be
entitled to vote, to receive notice or receive rights, or to exercise rights,
notwithstanding any subsequent transfer on the books of the Corporation. The
Board of directors shall not close the books of the Corporation against
transfers of shares during the whole or any part of such period. In the case of
a meeting of stockholders, the record date shall be fixed not less than ten (10)
days prior to the date of the meeting.
SECTION 5. Quorum and Stockholder Action. Except as otherwise provided by
statute or by the Charter, the presence in person or by proxy of stockholders of
the Corporation entitled to cast at least a majority of the votes to be cast
shall constitute a quorum at each meeting of the stockholders, and all questions
shall be decided by majority vote of the shares so represented in person or by
proxy at the meeting and entitled to vote. In the absence of a quorum, the
stockholders present in person or by proxy, by majority vote and without notice
other than by announcement, may adjourn the meeting from time to time as
provided in Section 7 of this Article I until a quorum shall attend. The
stockholders present at any duly organized meeting may continue to do business
until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum.
SECTION 6. Organization. At every meeting of the stockholders, the
Chairman of the Board, if one has been selected the Chairman of the Board and
the President, a Vice President, or in the absence of the Chairman of the Board,
the President, or all the Vice Presidents, a chairman chosen by the
stockholders, shall act as chairman; and the Secretary, or in his absence, an
Assistant Secretary, or in the absence of the Secretary and all the Assistant
Secretaries, a person appointed by the chairman, shall act as secretary.
SECTION 7. Adjournment. Any meeting of the stockholders may be adjourned
from time to time, without notice other than by announcement at the meeting at
which such adjournment is taken, any at any such adjourned meeting at which a
quorum shall be present any action may be taken that could have been taken at
the meeting originally called; provided that the meeting may not be adjourned to
a date more than the number of days after the original record date for the
meeting permitted by law, and if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the adjourned meeting.
2
<PAGE>
ARTICLE II
-----------
BOARD OF DIRECTORS
------------------
SECTION 1. Election and Powers. The number of directors shall be fixed
from time to time by resolution of the Board of Directors adopted by a majority
of the directors then in office; provided, however, that the number of directors
shall in no event be less than three nor more than fifteen, unless there is no
stock of the Corporation outstanding, in which case the number of directors may
be less than three but shall not be less than one. The business affairs and
property of the Corporation shall be managed by the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Charter or by these By-Laws required to
be exercised or done by the stockholders. The members of the Board of Directors
shall be elected by the stockholders at their annual meeting and each Director
shall hold office until the annual meeting next after his election and until his
successor shall have been duly chosen and qualified, until he shall have
resigned, or until he shall have been removed as provided in Section 10 hereof.
SECTION 2. Regular Meetings. Regular meetings of the Board of Directors
may he held without notice on such dates as the Board may from time to time
determine.
SECTION 3. Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by the Chairman of the Board, President or by a
majority of the directors either in writing or by vote at a meeting.
SECTION 4. Notice of Special Meetings. Notice of the place, day and hour
of every special meeting shall be delivered personally to each director or
mailed, telegraphed or cabled to his address on the books of the Corporation at
least one day before the meeting. It shall not be requisite to the validity of
any meeting of the Board of Directors that notice thereof shall have been given
to any director who is present thereat, or, if absent, waives notice thereof in
writing filed with the records of the meeting either before or after the holding
thereof.
SECTION 5. Place of Meetings. The Board of Directors may hold its regular
and special meetings at such place or places within or without the State of
Maryland as the Board may from time to time determine.
SECTION 6. Quorum and Board Action. Except as otherwise provided by
statute or by the Charter: (a) one-third (1/3) of the members of the Board of
Directors then in office, but in no case less than two (2) directors, shall be
necessary to constitute a quorum for the transaction of business at every
meeting of the Board; (b) the action of a majority of the directors present at a
meeting at which a quorum is present shall be the action of the Board; and (c)
if at any meeting there be less than a quorum present, a majority. of those
present may adjourn the meeting from time to time, but not for a period greater
than thirty (30) days at any one time, without notice other than by announcement
at the meeting, until a quorum shall attend. At any such adjourned meeting at
which a
3
<PAGE>
quorum shall be present, any business may be transacted which might have been
transacted at the meeting as originally scheduled.
SECTION 7. Chairman. The Board of Directors may at any time appoint one of
its members as Chairman of the Board, who shall serve at the pleasure of the
Board and who shall perform and execute such duties and powers as may be
conferred upon or assigned to him by the Board or these By-Laws, but who shall
not by reason of performing and executing these duties and powers be deemed an
officer or employee of the Corporation.
SECTION 8. Organization. At every meeting of the Board of Directors, the
Chairman of the Board, if one has been selected and is present, and, if not, the
President, or in the absence of the Chairman of the Board and the President, a
Vice President, or in the absence of the Chairman of the Board, the President
and all the Vice Presidents, a chairman chosen by a majority of the directors
present, shall preside; and the Secretary, or in his absence, an Assistant
Secretary, or in the absence of the Secretary and all the Assistant Secretaries,
a person appointed by the chairman, shall act as secretary.
SECTION 9. Vacancies. Any vacancy occurring by reason of any increase in
the number of directors may be filled by a majority of the entire Board of
Directors. Any vacancy occurring for any other cause may be filled by a majority
of the remaining members of the Board of Directors, whether or not these members
constitute a quorum under Section 6 of this Article. Any vacancy occurring by
reason of removal of a director may be filled by stockholders. Any director
chosen to fill a vacancy shall hold office until the next annual meeting of
stockholders and until his successor shall have been duly elected and qualified.
SECTION 10. Removal. At any meeting of the stockholders called for that
purpose, any director may, by vote of stockholders entitled to cast a majority
of the votes, be removed from office, with or without cause, and another may be
elected in the place of the person so removed, to serve for the remainder of his
term.
SECTION 11. Resignations. Any director may resign at any time by giving
written notice to the Board of Directors, the President of the Secretary. Any
such resignation shall take effect at the time of the receipt of such notice or
at any later time specified therein; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 12. Committees. The Board of Directors may, by resolution passed by
a majority of the entire Board, designate one or more committees of the Board,
each consisting of two (2) or more directors. To the extent provided in such
resolution, and permitted by law, such committee or committees shall have and
may exercise the powers of the Board of Directors in the management of the
business and affairs of the Corporation and may authorize the seal of the
Corporation to be affixed to all papers which may require it. Such committee or
committees shall have such name or names as
4
<PAGE>
may be determined from time to time by resolution adopted by the Board of
Directors. Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required. The members of a committee
present at any meeting, whether or not they constitute a quorum, may appoint a
director to act in the place of an absent member.
SECTION 13. Telephone Conference. Members of the Board of Directors or any
committee thereof may participate in a meeting of the Board or such committee by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time, and participation by such means shall constitute presence in person at the
meeting.
SECTION 14. Compensation of Directors. Any director, whether or not he is a
salaried officer, employee or agent of the Corporation, may be compensated for
his services as director or as a member of a committee, or as Chairman of the
Board or chairman of a committee, and in addition may be reimbursed for
transportation and other expenses, all in such manner and amounts as the
directors may from time to time determine.
ARTICLE III
-----------
OFFICERS
--------
SECTION 1. Number. The officers of the Corporation shall be a President, a
Secretary, and a Treasurer, any may include one or more Vice Presidents, one or
more Assistant Secretaries, one or more Assistant Treasurers, and such other
officers as the Board of Directors may from time to time determine. Any officer
may hold more than one office in the Corporation, except that an officer may not
serve concurrently as both the President and a Vice President.
SECTION 2. Election and Term of Office. The officers of the Corporation
shall be elected by the Board of Directors and, subject to earlier termination
of office, each officer shall hold office for one year and until his successor
shall have been elected and qualified.
SECTION 3. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors, the President, or the Secretary of the
Corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
SECTION 4. Removal. If the Board of Directors in its judgment finds that
the best interests of the Corporation will be served, the Board may remove any
officer of the Corporation at any time.
SECTION 5. President. The President shall be the chief executive officer
of the Corporation and shall have general supervision over the business and
5
<PAGE>
operations of the Corporation, subject, however, to the control of the Board of
Directors. He, or such persons as he shall designate, shall sign, execute,
acknowledge, verify, deliver and accept, in the name of the Corporation, deeds,
mortgages, bonds, contracts and other instruments authorized by the Board of
Directors, except in the case where the signing, execution, acknowledgement,
verification, delivery or acceptance thereof shall be delegated by the Board to
some other officer or agent of the Corporation; and, in general, he shall have
general executive powers as well as other powers and duties as from time to time
may be conferred upon or assigned to him by the Board.
SECTION 6. The Vice Presidents. In the absence or disability of the
President, or when so directed by the President, any Vice President designated
by the Board of Directors may perform any or all of the duties of the President,
and, when so acting, shall have all the powers of, and be subject to all the
restrictions upon, the President; provided, however, that no Vice President
shall act as a member of or as chairman of any committee of which the President
is a member or chairman by designation of ex-officio, except when designated by
the Board. Each Vice President shall perform such other duties as form time to
time may be conferred upon or assigned to him by the Board or the President.
SECTION 7. The Secretary. The Secretary shall record all the votes of the
stockholders and of the directors and the minutes of the meetings of the
stockholders and of the Board of Directors in a book or books to be kept for
that purpose; he shall see that notices of meetings of the stockholders and the
Board of Directors are given and that all records and reports are properly kept
and filed by the Corporation as required by law; he shall be the custodian of
the seal of the Corporation and shall see that it is affixed to all documents to
be executed on behalf of the Corporation under its seal, provided that in lieu
of affixing the corporate seal to any document, it shall be sufficient to meet
the requirements of any law rules or regulation relating to a corporate seal to
affix the word "(SEAL)" adjacent to the signature of the authorized officer of
the Corporation; and, in general, he shall perform all duties incident to the
office of Secretary, and such other duties as from time to time may be conferred
upon or assigned to him by the Board or the President.
SECTION 8. Assistant Secretaries. In the absence or disability of the
Secretary, or when so directed by the Secretary, and Assistant Secretary may
perform any or all of the duties of the Secretary, and, when so acting, shall
have all the powers of, and be subject to all restrictions upon, the Secretary.
Each Assistant Secretary shall perform such other duties as from time to time
may be conferred upon or assigned to him by the Board of Directors, the
President or the Secretary.
SECTION 9. The Treasurer. Subject to the provisions of any contract which
may be entered into with any custodian pursuant to authority granted by the
Board of Directors, the Treasurer shall have charge of all receipts and
disbursements of the Corporation and shall have or provide for the custody of
its funds and securities; he shall have full authority to receive and give
receipts for all money due and payable to the Corporation, and to endorse
checks, drafts and warrants, in its name and on its behalf,
6
<PAGE>
and to give full discharge for the same; he shall deposit all funds of the
Corporation, except such as may be required for current use, in such banks or
other places of deposit as the Board of Directors may from time to time
designate; and, in general, he shall perform all duties incident to the office
of Treasurer and such other duties as from time to time may be conferred upon or
assigned to him by the Board or the President.
SECTION 10. Assistant Treasurers. In the absence or disability of the
Treasurer, or when so directed by the Treasurer, any Assistant Treasurer may
perform any or all of the duties of the Treasurer, and, when so acting, shall
have all the powers of, and be subject to all the restrictions upon, the
Treasurer. Each Assistant Treasurer shall perform all such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Treasurer.
SECTION 11. Compensation Of Officers. The compensation of all officers
shall be fixed from time to time by the Board of Directors, or any committee or
officer authorized by the Board so to do. No officer shall be precluded from
receiving such compensation by reason of the fact that he is also a director of
the Corporation.
ARTICLE IV
----------
STOCK
-----
SECTION 1. Certificates. Each stockholder shall be entitled, upon written
request, to a stock certificate or certificates, certifying the number and kind
of full shares owned by him, signed by the President, a Vice President or the
chairman of the Board and countersigned by the Secretary, an Assistant
Secretary, the Treasurer or an Assistant Treasurer, which signatures may be
either manual or facsimile signatures, and sealed with the seal of the
Corporation, which seal may be either facsimile or any other form of seal. Stock
certificates shall be in such form, not inconsistent with law or with the
Charter, as shall be approved by the Board of Directors.
SECTION 2. Transfer of Shares. Transfers of shares shall be made on the
books of the Corporation at the direction of the person named on the
Corporation's books or named in the certificate or certificates for such shares
(if issued, or by his attorney lawfully constituted in writing, upon surrender
of such certificate or certificates (if issued) properly endorsed, together with
a proper request for redemption, to the Corporation's transfer agent, with such
evidence of the authenticity of such transfer, authorization and such other
matters as the Corporation or its agents may reasonably require, and subject to
such other reasonable terms and conditions as may be required by the Corporation
or its agents; or, if the Board of Directors shall by resolution so provide,
transfer of shares may be made in any other manner provided by law.
SECTION 3. Transfer Agents and Registrars. The Corporation may have one or
more Transfer Agents and one or more Registrars of its stock, whose respective
duties the board of directors may, from time to time, define. No certificate of
stock shall be valid until countersigned by a Transfer Agent, if the Corporation
shall have a Transfer
7
<PAGE>
Agent, or until registered by a Registrar, if the Corporation shall have a
Registrar. The duties of Transfer Agent and Registrar may be combined.
SECTION 4. Mutilated, Lost or Destroyed Certificates. The Board of
Directors, by standing resolution or by resolutions with respect to particular
cases, may authorize the issue of a new stock certificate in lieu of any stock
certificate lost, destroyed or mutilated, upon such terms and conditions as the
Board may direct. The Board may in its discretion refuse to issue such a new
certificate, unless ordered to do so by a court of competent jurisdiction.
SECTION 5. Stock Ledgers. The Corporation shall not be required to keep
original or duplicate stock ledgers at its registered office in the City of
Baltimore, Maryland, but stock ledgers shall be kept at the respective offices
of the Transfer Agents of the Corporation's capital stock.
ARTICLE V
---------
SEAL
----
The seal of the Corporation shall be in such form as the Board of Directors
shall prescribe.
ARTICLE VI
----------
SUNDRY PROVISIONS
-----------------
SECTION 1. Amendments. (a) By Stockholders. By-Laws may be adopted,
altered, amended or repealed in the manner provided in Section 5 of Article I
hereof at any annual or special meeting of the stockholders.
(b) By Directors. By-Laws may be adopted, altered, amended or repealed in
the manner provided in Section 6 of Article II hereof by the Board of Directors
at any regular or special meeting of the Board.
SECTION 2. Indemnification of Directors and Officers.
(a) Indemnification. 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, or 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 the 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
8
<PAGE>
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.
(b) Advances. Any current or former director or officer of the Corporation
claiming indemnification within the scope of this Section 2 shall be entitled to
advances from the Corporation for payment of the reasonable expenses incurred by
him in connection with proceedings to which he is a party in the manner and to
the full extent permissible under the General Laws of the State of Maryland and
the Investment Company Act of 1940, as such statutes are now or hereafter in
force.
(c) Procedure. On the request of any current or former director or officer
requesting indemnification or an advance under this Section 2, the Board of
Directors shall determine, or cause to be determined, in a manner consistent
with the General Laws of the State of Maryland and the investment Company Act of
1940, as such statutes are now or hereafter in force, whether the standards
required by this Section 2 have been met.
(d) Other Rights. 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 or otherwise, to which
those seeking such indemnification may be entitled under any insurance 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.
9
<PAGE>
Exhibit 99(g)
CUSTODIAN CONTRACT
Between
ST. CLAIR FUNDS, INC.
and
STATE STREET BANK AND TRUST COMPANY
Global/Series/Corp.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Employment of Custodian and Property to be Held By It................................ 1
2. Duties of the Custodian with Respect to Property of the Fund Held by the Custodian
in the United States................................................................. 2
2.1 Holding Securities............................................................. 2
2.2 Delivery of Securities......................................................... 2
2.3 Registration of Securities..................................................... 4
2.4 Bank Accounts.................................................................. 4
2.5 Availability of Federal Funds.................................................. 5
2.6 Collection of Income........................................................... 5
2.7 Payment of Fund Monies......................................................... 5
2.8 Liability for Payment in Advance of Receipt of Securities Purchased............ 6
2.9 Appointment of Agents.......................................................... 7
2.10 Deposit of Fund Assets in U.S. Securities System............................... 7
2.11 Fund Assets Held in the Custodian's Direct Paper System........................ 8
2.12 Segregated Account............................................................. 9
2.13 Ownership Certificates for Tax Purposes........................................ 9
2.14 Proxies........................................................................ 9
2.15 Communications Relating to Portfolio Securities................................ 10
3. The Custodian as Foreign Custody Manager............................................. 10
3.1 Definitions.................................................................... 10
3.2 Delegation to the Custodian as Foreign Custody Manager......................... 11
3.3 Countries Covered.............................................................. 11
3.4 Scope of Delegated Responsibilities............................................ 12
3.4.1. Selection of Eligible Foreign Custodians.............................. 12
3.4.2. Contracts with Eligible Foreign Custodians............................ 12
3.4.3. Monitoring............................................................ 12
3.5 Guidelines for the Exercise of Delegated Authority............................. 13
3.6 Standard of Care as Foreign Custody Manager of a Portfolio..................... 13
3.7 Reporting Requirements......................................................... 13
3.8 Representations with Respect to Rule 17f-5..................................... 13
3.9 Effective Date and Termination of the Custodian as Foreign Custody Manager..... 13
4. Duties of the Custodian with Respect to Property of the Portfolios Held
Outside the United States............................................................ 14
4.1 Definitions.................................................................... 14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
4.2 Holding Securities......................................................... 14
4.3 Foreign Securities Systems................................................. 14
4.4 Transactions in Foreign Custody Account.................................... 14
4.4.1. Delivery of Foreign Securities................................... 14
4.4.2. Payment of Portfolio Monies...................................... 15
4.4.3. Market Conditions; Market Information............................ 16
4.5 Registration of Foreign Securities......................................... 17
4.6 Bank Accounts.............................................................. 17
4.7 Collection of Income....................................................... 17
4.8 Shareholder Rights......................................................... 17
4.9 Communications Relating to Foreign Securities.............................. 17
4.10 Liability of Foreign Sub-Custodians and Foreign Securities Systems......... 18
4.11 Tax Law.................................................................... 18
4.12 Conflict................................................................... 18
5. Payments for Sales or Repurchases or Redemptions of Shares of the Fund............. 18
6. Proper Instructions................................................................ 19
7. Actions Permitted Without Express Authority........................................ 19
8. Evidence of Authority ............................................................. 20
9. Duties of Custodian With Respect to the Books of Account and Calculation
of Net Asset Value and Net Income ................................................. 20
10. Record............................................................................. 20
11. Opinion of Fund's Independent Accountants.......................................... 21
12. Reports to Fund by Independent Public Accountants.................................. 21
13. Compensation of Custodian.......................................................... 21
14. Responsibility of Custodian........................................................ 21
15. Effective Period, Termination and Amendment........................................ 23
16. Successor Custodian................................................................ 23
17. Interpretive and Additional Provisions............................................. 24
18. Additional Funds................................................................... 24
19. Massachusetts Law to Apply......................................................... 25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
20. Prior Contracts.................................................................... 25
21. Reproduction of Documents.......................................................... 25
22. Shareholder Communications Election................................................ 25
</TABLE>
<PAGE>
CUSTODIAN CONTRACT
------------------
This Contract between St. Clair Funds, Inc., a corporation organized and
existing under the laws of Maryland, having its principal place of business at
480 Pierce Street, Birmingham, Michigan 48009, hereinafter called the "Fund",
and State Street Bank and Trust Company, a Massachusetts trust company, having
its principal place of business at 225 Franklin Street, Boston, Massachusetts,
02110, hereinafter called the "Custodian",
WITNESSETH:
WHEREAS, the Fund has appointed the Custodian as custodian of its assets;
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund currently offers shares in eleven series, Liquidity Plus
Money Market Fund, Munder Aggregate Bond Index Fund, Munder Foreign Equity Fund,
Munder Institutional Money Market Fund, Munder Institutional S&P 500 Index
Equity Fund, Munder Institutional S&P MidCap Index Equity Fund, Munder
Institutional S&P SmallCap Index Equity Fund, Munder Institutional Short Term
Treasury Fund, Munder S&P 500 Index Equity Fund, Munder S&P MidCap Index Equity
Fund, and Munder S&P SmallCap Index Equity Fund (such series together with all
other series subsequently established by the Fund and made subject to this
Contract in accordance with paragraph 18, being herein referred to as the
"Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of the
Portfolios of the Fund, including securities which the Fund, on behalf of the
applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Articles of
Incorporation. The Fund on behalf of the Portfolio(s) agrees to deliver to the
Custodian all securities and cash of the Portfolios, and all payments of income,
payments of principal or capital distributions received by it with respect to
all securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of capital stock of
the Fund representing interests in the Portfolios, ("Shares") as may be issued
or sold from time to time. The Custodian shall not be responsible for any
property of a Portfolio held or received by the Portfolio and not delivered to
the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 6),
the Custodian shall on behalf of the applicable Portfolio(s) from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of
<PAGE>
Directors of the Fund on behalf of the applicable Portfolio(s), and provided
that the Custodian shall have no more or less responsibility or liability to the
Fund on account of any actions or omissions of any sub-custodian so employed
than any such sub-custodian has to the Custodian. The Custodian may employ as
sub-custodian for the Fund's foreign securities on behalf of the applicable
Portfolio(s) the foreign banking institutions and foreign securities
depositories designated in Schedules A and B hereto but only in accordance with
the applicable provisions of Articles 3 and 4.
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate for
the account of each Portfolio all non-cash property, to be held by it in
the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository or
in a book-entry system authorized by the U.S. Department of the Treasury
(each, a "U.S. Securities System") and (b) commercial paper of an issuer
for which State Street Bank and Trust Company acts as issuing and paying
agent ("Direct Paper") which is deposited and/or maintained in the Direct
Paper System of the Custodian (the "Direct Paper System") pursuant to
Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver domestic
securities owned by a Portfolio held by the Custodian or in a U.S.
Securities System account of the Custodian or in the Custodian's Direct
Paper book entry system account ("Direct Paper System Account") only upon
receipt of Proper Instructions from the Fund on behalf of the applicable
Portfolio, which may be continuing instructions when deemed appropriate by
the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Portfolio;
3) In the case of a sale effected through a U.S. Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of the
Portfolio or into the name of any nominee or nominees of the Custodian
or into the name or nominee
2.
<PAGE>
name of any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any sub-custodian appointed pursuant to Article 1;
or for exchange for a different number of bonds, certificates or other
evidence representing the same aggregate face amount or number of
units; provided that, in any such case, the new securities are to be
delivered to the Custodian;
7) Upon the sale of such securities for the account of the Portfolio, to
the broker or its clearing agent, against a receipt, for examination
in accordance with "street delivery" custom; provided that in any
such case, the Custodian shall have no responsibility or liability for
any loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise from the
Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions
for conversion contained in such securities, or pursuant to any
deposit agreement; provided that, in any such case, the new securities
and cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar
securities or the surrender of interim receipts or temporary
securities for definitive securities; provided that, in any such case,
the new securities and cash, if any, are to be delivered to the
Custodian;
10) For delivery in connection with any loans of securities made by the
Portfolio, but only against receipt of adequate collateral as agreed
upon from time to time by the Custodian and the Fund on behalf of the
Portfolio, which may be in the form of cash or obligations issued by
the United States government, its agencies or instrumentalities,
except that in connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the Custodian will
not be held liable or responsible for the delivery of securities owned
by the Portfolio prior to the receipt of such collateral;
11) For delivery as security in connection with any borrowings by the Fund
on behalf of the Portfolio requiring a pledge of assets by the Fund on
behalf of the Portfolio, but only against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement among
the Fund on behalf of the Portfolio, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the "Exchange
Act") and a member of The National Association of Securities Dealers,
Inc. ("NASD"), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations, regarding
3.
<PAGE>
escrow or other arrangements in connection with transactions by the
Portfolio of the Fund;
13) For delivery in accordance with the provisions of any agreement among
the Fund on behalf of the Portfolio, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange Act,
relating to compliance with the rules of the Commodity Futures
Trading Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in
connection with transactions by the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, as may be
described from time to time in the currently effective prospectus and
statement of additional information of the Fund, related to the
Portfolio ("Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the Board of
Directors or of the Executive Committee signed by an officer of the
Fund and certified by the Secretary or an Assistant Secretary,
specifying the securities of the Portfolio to be delivered, setting
forth the purpose for which such delivery is to be made, declaring
such purpose to be a proper corporate purpose, and naming the person
or persons to whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized in
writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as the
Portfolio, or in the name or nominee name of any agent appointed pursuant
to Section 2.9 or in the name or nominee name of any sub-custodian
appointed pursuant to Article 1. All securities accepted by the Custodian
on behalf of the Portfolio under the terms of this Contract shall be in
"street name" or other good delivery form. If, however, the Fund directs
the Custodian to maintain securities in "street name", the Custodian shall
utilize its best efforts only to timely collect income due the Fund on such
securities and to notify the Fund on a best efforts basis only of relevant
corporate actions including, without limitation, pendency of calls,
maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio of
the Fund, subject only to draft or order by the Custodian acting pursuant
to the terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for
4.
<PAGE>
the account of the Portfolio, other than cash maintained by the Portfolio
in a bank account established and used in accordance with Rule 17f-3 under
the Investment Company Act of 1940. Funds held by the Custodian for a
Portfolio may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies as it
may in its discretion deem necessary or desirable; provided, however, that
every such bank or trust company shall be qualified to act as a Custodian
under the Investment Company Act of 1940 and that each such bank or trust
company and the funds to be deposited with each such bank or trust
company shall on behalf of each applicable Portfolio be approved by vote of
a majority of the Board of Directors of the Fund. Such funds shall be
deposited by the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian shall,
upon the receipt of Proper instructions from the Fund on behalf of a
Portfolio, make federal funds available to such Portfolio as of specified
times agreed upon from time to time by the Fund and the Custodian in the
amount of checks received in payment for Shares of such Portfolio which are
deposited into the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which each
Portfolio shall be entitled either by law or pursuant to custom in the
securities business, and shall collect on a timely basis all income and
other payments with respect to bearer domestic securities if, on the date
of payment by the issuer, such securities are held by the Custodian or its
agent thereof and shall credit such income, as collected, to such
Portfolio's Custodian account. Without limiting the generality of the
foregoing, the Custodian shall detach and present for payment all coupons
and other income items requiring presentation as and when they become due
and shall collect interest when due on securities held hereunder. Income
due each Portfolio on securities loaned pursuant to the provisions of
Section 2.2 (10) shall be the responsibility of the Fund. The Custodian
will have no duty or responsibility in connection therewith, other than to
provide the Fund with such information or data as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian of
the income to which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the Fund
on behalf of the applicable Portfolio, which may be continuing instructions
when deemed appropriate by the parties, the Custodian shall pay out monies
of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts
or options on futures contracts for the account of the Portfolio but
only (a) against the delivery of such securities or evidence of title
to such options, futures contracts or options on futures contracts to
the Custodian (or any bank, banking firm or trust company doing
business in the United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a Custodian and
has been designated by the Custodian as its agent for this purpose)
registered in the name of
5.
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the Portfolio or in the name of a nominee of the Custodian referred to
in Section 2.3 hereof or in proper form for transfer; (b) in the case
of a purchase effected through a U.S. Securities System, in accordance
with the conditions set forth in Section 2.10 hereof; (c) in the case
of a purchase involving the Direct Paper System, in accordance with
the conditions set forth in Section 2.11; (d) in the case of
repurchase agreements entered into between the Fund on behalf of the
Portfolio and the Custodian, or another bank, or a broker-dealer which
is a member of NASD, (i) against delivery of the securities either in
certificate form or through an entry crediting the Custodian's account
at the Federal Reserve Bank with such securities or (ii) against
delivery of the receipt evidencing purchase by the Portfolio of
securities owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from the
Portfolio or (e) for transfer to a time deposit account of the Fund in
any bank, whether domestic or foreign; such transfer may be effected
prior to receipt of a confirmation from a broker and/or the applicable
bank pursuant to Proper Instructions from the Fund as defined in
Article 6;
2) In connection with conversion, exchange or surrender of securities
owned by the Portfolio as set forth in Section 2.2 hereof,
3) For the redemption or repurchase of Shares issued by the Portfolio as
set forth in Article 5 hereof;
4) For the payment of any expense or liability incurred by the Portfolio,
including but not limited to the following payments for the account of
the Portfolio: interest, taxes, management, accounting, transfer agent
and legal fees, and operating expenses of the Fund whether or not such
expenses are to be in whole or part capitalized or treated as deferred
expenses;
5) For the payment of any dividends on Shares of the Portfolio declared
pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in addition to
Proper Instructions from the Fund on behalf of the Portfolio, a
certified copy of a resolution of the Board of Directors or of the
Executive Committee of the Fund signed by an officer of the Fund and
certified by its Secretary or an Assistant Secretary, specifying the
amount of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper purpose,
and naming the person or persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased. Except
as specifically stated otherwise in this Contract, in any and every case
where payment for purchase of domestic securities for the account of a
Portfolio is made by the Custodian in advance of
6.
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receipt of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a Custodian, as its agent to carry out such of
the provisions of this Article 2 as the Custodian may from time to time
direct; provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of Fund Assets in U.S. Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "U.S. Securities System" in accordance with
applicable Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are represented in an
account ("Account") of the Custodian in the U.S. Securities System
which shall not include any assets of the Custodian other than assets
held as a fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the Portfolio;
3) The Custodian shall pay for securities purchased for the account of
the Portfolio upon (i) receipt of advice from the U.S. Securities
System that such securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Custodian to reflect
such payment and transfer for the account of the Portfolio. The
Custodian shall transfer securities sold for the account of the
Portfolio upon (i) receipt of advice from the U.S. Securities System
that payment for such securities has been transferred to the Account,
and (ii) the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the Portfolio.
Copies of all advices from the U.S. Securities System of transfers of
securities for the account of the Portfolio shall identify the
Portfolio, be maintained for the Portfolio by the Custodian and be
provided to the Fund at its request. Upon request, the Custodian shall
furnish the Fund on behalf of the Portfolio confirmation of each
transfer to or from the account of the Portfolio in the form of a
written advice or notice and shall furnish to the Fund on behalf of
the Portfolio copies of daily
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transaction sheets reflecting each day's transactions in the U.S.
Securities System for the account of the Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with any
report obtained by the Custodian on the U.S. Securities System's
accounting system, internal accounting control and procedures for
safeguarding securities deposited in the U.S. Securities System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio the initial or annual certificate, as the case may be,
required by Article 15 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting from use
of the U.S. Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its agents or of
any of its or their employees or from failure of the Custodian or any
such agent to enforce effectively such rights as it may have against
the U.S. Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect
to any claim against the U.S. Securities System or any other person
which the Custodian may have as a consequence of any such loss or
damage if and to the extent that the Portfolio has not been made
whole for any such loss or damage.
2.11 Fund Assets Held in the Custodian's Director Paper System. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the Direct
Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System will
be effected in the absence of Proper Instructions from the Fund on
behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct
Paper System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the account of
the Portfolio upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to the
account of the Portfolio. The Custodian shall transfer securities
sold for the account of the Portfolio upon the making of an entry on
the records of the Custodian to reflect such transfer and receipt of
payment for the account of the Portfolio;
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5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio, in the form of a written advice or notice, of Direct Paper
on the next business day following such transfer and shall furnish to
the Fund on behalf of the Portfolio copies of daily transaction
sheets reflecting each day's transaction in the U.S. Securities
System for the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio with
any report on its system of internal accounting control as the Fund
may reasonably request from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on behalf
of each such Portfolio, into which account or accounts may be transferred
cash and/or securities, including securities maintained in an account by
the Custodian pursuant to Section 2.10 hereof, (i) in accordance with the
provisions of any agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national securities
exchange (or the Commodity Futures Trading Commission or any registered
contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by
the Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased or
sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act Release
No. 10666, or any subsequent release or releases of the Securities and
Exchange Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the applicable
Portfolio, a certified copy of a resolution of the Board of Directors or
of the Executive Committee signed by an officer of the Fund and certified
by the Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such purposes to be
proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Portfolio held by it and in
connection with transfers of securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder of
such securities, if the securities are registered otherwise than in the
name of the Portfolio or a nominee of the Portfolio, all
9
<PAGE>
proxies, without indication of the manner in which such proxies are to be
voted, and shall promptly deliver to the Portfolio such proxies, all proxy
soliciting materials and all notices relating to such securities.
2.15 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise of
call and put options written by the Fund on behalf of the Portfolio and
the maturity of futures contracts purchased or sold by the Portfolio)
received by the Custodian from issuers of the securities being held for
the Portfolio. With respect to tender or exchange offers, the Custodian
shall transmit promptly to the Portfolio all written information received
by the Custodian from issuers of the securities whose tender or exchange
is sought and from the party (or his agents) making the tender or
exchange offer. If the Portfolio desires to take action with respect to
any tender offer, exchange offer or any other similar transaction, the
Portfolio shall notify the Custodian at least three business days prior to
the date on which the Custodian is to take such action.
3. The Custodian as Foreign Custody Manager
----------------------------------------
3.1. Definitions.
Capitalized terms in this Article 3 shall have the following meanings:
"Country Risk" means all factors reasonably related to the systemic risk
of holding Foreign Assets in a particular country including, but not
limited to, such country's political environment, economic and financial
infrastructure (including any Mandatory Securities Depositories operating
in the country); prevailing or developing custody and settlement
practices; and laws and regulations applicable to the safekeeping and
recovery of Foreign Assets held in custody in that country.
"Eligible Foreign Custodian" has the meaning set forth in section (a)(1)
of Rule 17f-5, including a majority-owned or indirect subsidiary of a U.S.
Bank (as defined in Rule 17f-5), a bank holding company meeting the
requirements of an Eligible Foreign Custodian (as set forth in Rule 17f-5
or by other appropriate action of the U.S. Securities and Exchange
Commission (the "SEC")), or a foreign branch of a Bank (as defined in
Section 2(a)(5) of the 1940 Act) meeting the requirements of a custodian
under Section 17(f) of the 1940 Act, except that the term does not include
Mandatory Securities Depositories.
"Foreign Assets" means any of the Portfolios' investments (including
foreign currencies) for which the primary market is outside the United
States and such cash and cash equivalents as are reasonably necessary to
effect the Portfolios' transactions in such investments.
"Foreign Custody Manager" has the meaning set forth in section (a)(2) of
Rule 17f-5.
10.
<PAGE>
"Mandatory Securities Depository" means a foreign securities depository or
clearing agency that, either as a legal or practical matter, must be used
if the Fund, on the Portfolio's behalf, determines to place Foreign Assets
in a country outside the United States (i) because required by law or
regulation; (ii) because securities cannot be withdrawn from such foreign
securities depository or clearing agency; or (iii) because maintaining or
effecting trades in securities outside the foreign securities depository or
clearing agency is not consistent with prevailing or developing custodial
or market practices.
3.2. Delegation to the Custodian as Foreign Custody Manager. The Fund, by
resolution adopted by its Board of Directors, hereby delegates to the
Custodian, with respect to the Portfolios, subject to Section (b) of Rule
17f-5, the responsibilities set forth in this Article 3 with respect to
Foreign Assets of the Portfolios held outside the United States, and the
Custodian hereby accepts such delegation, as Foreign Custody Manager with
respect to the Portfolios.
3.3. Countries Covered. The Foreign Custody Manager shall be responsible for
performing the delegated responsibilities defined below only with respect
to the countries and custody arrangements for each such country listed on
Schedule A to this Contract, which list of countries may be amended from
time to time by the Fund with the agreement of the Foreign Custody Manager.
The Foreign Custody Manager shall list on Schedule A the Eligible Foreign
Custodians selected by the Foreign Custody Manager to maintain the assets
of the Portfolios which list of Eligible Foreign Custodians may be amended
from time to time in the sole discretion of the Foreign Custody Manager.
Mandatory Securities Depositories are listed on Schedule B to this
Contract, which Schedule B may be amended from time to time by the Foreign
Custody Manager. The Foreign Custody Manager will provide amended versions
of Schedules A and B in accordance with Section 3.7 of this Article 3.
Upon the receipt by the Foreign Custody Manager of Proper Instructions to
open an account or to place or maintain Foreign Assets in a country listed
on Schedule A, and the fulfillment by the Fund on behalf of the Portfolios
of the applicable account opening requirements for such country, the
Foreign Custody Manager shall be deemed to have been delegated by the Board
of Directors on behalf of the Portfolios responsibility as Foreign Custody
Manager with respect to that country and to have accepted such delegation.
Execution of this Amendment by the Fund shall be deemed to be a Proper
Instruction to open an account, or to place or maintain Foreign Assets, in
each country listed on Schedule A in which the Custodian has previously
placed or currently maintains Foreign Assets pursuant to the terms of the
Contract. Following the receipt of Proper Instructions directing the
Foreign Custody Manager to close the account of a Portfolio with the
Eligible Foreign Custodian selected by the Foreign Custody Manager in a
designated country, the delegation by the Board of Directors on behalf of
the Portfolios to the Custodian as Foreign Custody Manager for that country
shall be deemed to have been withdrawn and the Custodian shall immediately
cease to be the Foreign Custody Manager of the Portfolios with respect to
that country.
The Foreign Custody Manager may withdraw its acceptance of delegated
responsibilities with respect to a designated country upon written notice
to the Fund. Thirty days (or such
11.
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longer period as to which the parties agree in writing) after receipt of
any such notice by the Fund, the Custodian shall have no further
responsibility as Foreign Custody Manager to the Fund with respect to the
country as to which the Custodian's acceptance of delegation is withdrawn.
3.4. Scope of Delegated Responsibilities.
3.4.1. Selection of Eligible Foreign Custodians.
Subject to the provisions of this Article 3, the Portfolio's Foreign
Custody Manager may place and maintain the Foreign Assets in the care of
the Eligible Foreign Custodian selected by the Foreign Custody Manager in
each country listed on Schedule A, as amended from time to time.
In performing its delegated responsibilities as Foreign Custody Manager to
place or maintain Foreign Assets with an Eligible Foreign Custodian, the
Foreign Custody Manager shall determine that the Foreign Assets will be
subject to reasonable care, based on the standards applicable to custodians
in the country in which the Foreign Assets will be held by that Eligible
Foreign Custodian, after considering all factors relevant to the
safekeeping of such assets, including, without limitation the factors
specified in Rule 17f-5(c)(1).
3.4.2. Contracts With Eligible Foreign Custodians.
The Foreign Custody Manager shall determine that the contract (or the rules
or established practices or procedures in the case of an Eligible Foreign
Custodian that is a foreign securities depository or clearing agency)
governing the foreign custody arrangements with each Eligible Foreign
Custodian selected by the Foreign Custody Manager will satisfy the
requirements of Rule l7f-5(c)(2).
3.4.3. Monitoring.
In each case in which the Foreign Custody Manager maintains Foreign Assets
with an Eligible Foreign Custodian selected by the Foreign Custody Manager,
the Foreign Custody Manager shall establish a system to monitor (i) the
appropriateness of maintaining the Foreign Assets with such Eligible
Foreign Custodian and (ii) the contract governing the custody arrangements
established by the Foreign Custody Manager with the Eligible Foreign
Custodian (or the rules or established practices and procedures in the case
of an Eligible Foreign Custodian selected by the Foreign Custody Manager
which is a foreign securities depository or clearing agency that is not a
Mandatory Securities Depository). In the event the Foreign Custody Manager
determines that the custody arrangements with an Eligible Foreign Custodian
it has selected are no longer appropriate, the Foreign Custody Manager
shall notify the Board of Directors in accordance with Section 3.7
hereunder.
12.
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3.5. Guidelines for the Exercise of Delegated Authority. For purposes of this
Article 3, the Board of Directors shall be deemed to have considered and
determined to accept such Country Risk as is incurred by placing and
maintaining the Foreign Assets in each country for which the Custodian is
serving as Foreign Custody Manager of the Portfolios. The Fund, on behalf
of the Portfolios, and the Board of Directors shall be deemed to be
monitoring on a continuing basis such Country Risk to the extent that the
Board of Directors considers necessary or appropriate. The Fund and the
Custodian each expressly acknowledge that the Foreign Custody Manager shall
not be delegated any responsibilities under this Article 3 with respect to
Mandatory Securities Depositories.
3.6. Standard of Care as Foreign Custody Manager of a Portfolio. In performing
the responsibilities delegated to it, the Foreign Custody Manager agrees to
exercise reasonable care, prudence and diligence such as a person having
responsibility for the safekeeping of assets of management investment
companies registered under the 1940 Act would exercise.
3.7. Reporting Requirements. The Foreign Custody Manager shall report the
withdrawal of the Foreign Assets from an Eligible Foreign Custodian and the
placement of such Foreign Assets with another Eligible Foreign Custodian by
providing to the Board of Directors amended Schedules A or B at the end of
the calendar quarter in which an amendment to either Schedule has occurred.
The Foreign Custody Manager shall make written reports notifying the Board
of Directors of any other material change in the foreign custody
arrangements of the Portfolios described in this Article 3 after the
occurrence of the material change.
3.8. Representations with Respect to Rule 17f-5. The Foreign Custody Manager
represents to the Fund that it is a U.S. Bank as defined in section (a)(7)
of Rule 17f-5.
The Fund represents to the Custodian that the Board of Directors has
determined that it is reasonable for the Board of Directors to rely on the
Custodian to perform the responsibilities delegated pursuant to this
Contract to the Custodian as the Foreign Custody Manager of the Portfolios.
3.9. Effective Date and Termination of the Custodian as Foreign Custody Manager.
The Board of Directors' delegation to the Custodian as Foreign Custody
Manager of the Portfolios shall be effective as of the date hereof and
shall remain in effect until terminated at any time, without penalty, by
written notice from the terminating party to the non-terminating party.
Termination will become effective thirty (30) days after receipt by the
non-terminating party of such notice. The provisions of Section 3.3 hereof
shall govern the delegation to and termination of the Custodian as Foreign
Custody Manager of the Portfolios with respect to designated countries.
13.
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4. Duties of the Custodian with Respect to Property of the Portfolios Held
Outside the United States.
4.1. Definitions.
Capitalized terms in this Article 4 shall have the following meanings:
"Foreign Securities System" means either a clearing agency or a
securities depository listed on Schedule A hereto or a Mandatory
Securities Depository listed on Schedule B hereto.
"Foreign Sub-Custodian" means a foreign banking institution, serving as
an Eligible Foreign Custodian.
4.2. Holding Securities. The Custodian shall identify on its books as
belonging to the Portfolios the foreign securities held by each Foreign
Sub-Custodian or Foreign Securities System. The Custodian may hold
foreign securities for all of its customers, including the Portfolios,
with any Foreign Sub-Custodian in an account that is identified as
belonging to the Custodian for the benefit of its customers, provided
however, that (i) the records of the Custodian with respect to foreign
securities of the Portfolios which are maintained in such account shall
identify those securities as belonging to the Portfolios and (ii), to the
extent permitted and customary in the market in which the account is
maintained the Custodian shall require that securities so held by the
Foreign Sub-Custodian be held separately from any assets of such Foreign
Sub-Custodian or of other customers of such Foreign Sub-Custodian.
4.3. Foreign Securities Systems. Foreign securities shall be maintained in a
Foreign Securities System in a designated country only through
arrangements implemented by the Foreign Sub-Custodian in such country
pursuant to the terms of this Contract.
4.4. Transactions in Foreign Custody Account.
4.4.1. Delivery of Foreign Securities.
The Custodian or a Foreign Sub-Custodian shall release and deliver
foreign securities of the Portfolios held by such Foreign Sub-Custodian,
or in a Foreign Securities System account, only upon receipt of Proper
Instructions, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
(i) upon the sale of such foreign securities for the Portfolio in
accordance with commercially reasonable market practice in the
country where such foreign securities are held or traded, including,
without limitation: (A) delivery against expectation of receiving
later payment; or (B) in the case of a sale effected through a
Foreign Securities System, in accordance with the rules governing
the operation of the Foreign Securities System;
(ii) in connection with any repurchase agreement related to foreign
securities;
14.
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(iii) to the depository agent in connection with tender or other similar offers
for foreign securities of the Portfolios;
(iv) to the issuer thereof or its agent when such foreign securities are
called, redeemed, retired or otherwise become payable;
(v) to the issuer thereof, or its agent, for transfer into the name of the
Custodian (or the name of the respective Foreign Sub-Custodian or of any
nominee of the Custodian or such Foreign Sub-Custodian) or for exchange
for a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
(vi) to brokers, clearing banks or other clearing agents for examination or
trade execution in accordance with market custom; provided that in any
such case the Foreign Sub-Custodian shall have no responsibility or
liability for any loss arising from the delivery of such securities prior
to receiving payment for such securities except as may arise from the
Foreign Sub-Custodian's own negligence or willful misconduct;
(vii) for exchange or conversion pursuant to any plan of merger, consolidation,
recapitalization, reorganization or readjustment of the securities of the
issuer of such securities, or pursuant to provisions for conversion
contained in such securities, or pursuant to any deposit agreement;
(viii) in the case of warrants, rights or similar foreign securities, the
surrender thereof in the exercise of such warrants, rights or similar
securities or the surrender of interim receipts or temporary securities
for definitive securities;
(ix) for delivery as security in connection with any borrowing by the
Portfolios requiring a pledge of assets by the Portfolios;
(x) in connection with trading in options and futures contracts, including
delivery as original margin and variation margin;
(xi) in connection with the lending of foreign securities; and
(xii) for any other proper purpose, but only upon receipt of Proper
Instructions specifying the foreign securities to be delivered, setting
forth the purpose for which such delivery is to be made, declaring such
purpose to be a proper corporate purpose, and naming the person or
persons to whom delivery of such securities shall be made.
4.4.2. Payment of Portfolio Monies.
Upon receipt of Proper Instructions, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall pay out, or direct the
respective Foreign
15.
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Sub-Custodian or the respective Foreign Securities System to pay out, monies of
a Portfolio in the following cases only:
(i) upon the purchase of foreign securities for the Portfolio, unless
otherwise directed by Proper Instructions, by (A) delivering money to the
seller thereof or to a dealer therefor (or an agent for such seller or
dealer) against expectation of receiving later delivery of such foreign
securities; or (B) in the case of a purchase effected through a Foreign
Securities System, in accordance with the rules governing the operation
of such Foreign Securities System;
(ii) in connection with the conversion, exchange or surrender of foreign
securities of the Portfolio;
(iii) for the payment of any expense or liability of the Portfolio, including
but not limited to the following payments: interest, taxes, investment
advisory fees, transfer agency fees, fees under this Contract, legal
fees, accounting fees, and other operating expenses;
(iv) for the purchase or sale of foreign exchange or foreign exchange
contracts for the Portfolio, including transactions executed with or
through the Custodian or its Foreign Sub-Custodians;
(v) in connection with trading in options and futures contracts, including
delivery as original margin and variation margin;
(vi) for payment of part or all of the dividends received in respect of
securities sold short;
(vii) in connection with the borrowing or lending of foreign securities; and
(viii) for any other proper purpose, but only upon receipt of Proper
Instructions specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such purpose to
be a proper corporate purpose, and naming the person or persons to whom
such payment is to be made.
4.4.3. Market Conditions; Market Information.
Notwithstanding any provision of this Contract to the contrary, settlement and
payment for Foreign Assets received for the account of the Portfolios and
delivery of Foreign Assets maintained for the account of the Portfolios may be
effected in accordance with the customary established securities trading or
processing practices and procedures in the country or market in which the
transaction occurs, including, without limitation, delivering Foreign Assets to
the purchaser thereof or to a dealer therefor (or an agent for such purchaser or
dealer) with the expectation of receiving later payment for such Foreign Assets
from such purchaser or dealer.
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The Custodian shall provide to the Board of Directors the information
with respect to custody and settlement practices in countries in which
the Custodian employs a Foreign Sub-Custodian, including without
limitation information relating to Foreign Securities Systems, described
on Schedule C hereto at the time or times set forth on such Schedule. The
Custodian may revise Schedule C from time to time, provided that no such
revision shall result in the Board of Directors being provided with
substantively less information than had been previously provided
hereunder.
4.5. Registration of Foreign Securities. The foreign securities maintained in
the custody of a Foreign Sub-Custodian (other than bearer securities)
shall be registered in the name of the applicable Portfolio or in the
name of the Custodian or in the name of any Foreign Sub-Custodian or in
the name of any nominee of the foregoing, and the Fund on behalf of such
Portfolio agrees to hold any such nominee harmless from any liability as
a holder of record of such foreign securities. The Custodian or a foreign
Sub-Custodian shall not be obligated to accept securities on behalf of a
Portfolio under the terms of this Contract unless the form of such
securities and the manner in which they are delivered are in accordance
with reasonable market practice.
4.6. Bank Accounts. The Custodian shall identify on its books as belonging to
the Fund cash (including cash denominated in foreign currencies)
deposited with the Custodian. Where the Custodian is unable to maintain,
or market practice does not facilitate the maintenance of, cash on the
books of the Custodian, a bank account or bank accounts opened and
maintained outside the United States on behalf of a Portfolio with a
Foreign Sub-Custodian shall be subject only to draft or order by the
Custodian or such Foreign Sub-Custodian, acting pursuant to the terms of
this Contract to hold cash received by or from or for the account of the
Portfolio.
4.7. Collection of Income. The Custodian shall use reasonable commercial
efforts to collect all income and other payments with respect to the
Foreign Assets held hereunder to which the Portfolios shall be entitled
and shall credit such income, as collected, to the applicable Portfolio.
In the event that extraordinary measures are required to collect such
income, the Fund and the Custodian shall consult as to such measures and
as to the compensation and expenses of the Custodian relating to such
measures.
4.8. Shareholder Rights. With respect to the foreign securities held pursuant
to this Article 4, the Custodian will use reasonable commercial efforts
to facilitate the exercise of voting and other shareholder rights,
subject always to the laws, regulations and practical constraints that
may exist in the country where such securities are issued. The Fund
acknowledges that local conditions, including lack of regulation, onerous
procedural obligations, lack of notice and other factors may have the
effect of severely limiting the ability of the Fund to exercise
shareholder rights.
4.9. Communications Relating to Foreign Securities. The Custodian shall answer
promptly to the Fund's written information (including, without
limitation, pendency of calls and maturities of foreign securities and
expirations of rights in connection therewith) received
17.
<PAGE>
by the Custodian via the Foreign Sub-Custodians from issuers of the
foreign securities being held for the account of the Portfolios. With
respect to tender or exchange offers, the Custodian shall transmit
promptly to the Fund written information so received by the Custodian
from issuers of the foreign securities whose tender or exchange is sought
or from the party (or its agents) making the tender or exchange offer.
The Custodian shall not be liable for any untimely exercise of any
tender, exchange or other right or power in connection with foreign
securities or other property of the Portfolios at any time held by it
unless (i) the Custodian or the respective Foreign Sub-Custodian is in
actual possession of such foreign securities or property and (ii) the
Custodian receives Proper Instructions with regard to the exercise of any
such right or power, and both (i) and (ii) occur at least three business
days prior to the date on which the Custodian is to take action to
exercise such right or power.
4.10. Liabilities of Foreign Sub-Custodians and Foreign Securities Systems.
Each agreement pursuant to which the Custodian employs a Foreign Sub-
Custodian shall, to the extent possible, require the Foreign Sub-
Custodian to exercise reasonable care in the performance of its duties
and, to the extent possible, to indemnify, and hold harmless, the
Custodian from and against any loss, damage, cost, expense, liability or
claim arising out of or in connection with the Foreign Sub-Custodian's
performance of such obligations. At the Fund's election, the Portfolios
shall be entitled to be subrogated to the rights of the Custodian with
respect to any claims against a Foreign Sub-Custodian as a consequence of
any such loss, damage, cost, expense, liability or claim if and to the
extent that the Portfolios have not been made whole for any such loss,
damage, cost, expense, liability or claim.
4.11. Tax Law. The Custodian shall have no responsibility or liability for any
obligations now or hereafter imposed on the Fund, the Portfolios or the
Custodian as custodian of the Portfolios by the tax law of the United
States or of any state or political subdivision thereof it shall be the
responsibility of the Fund to notify the Custodian of the obligations
imposed on the Fund with respect to the Portfolios or the Custodian as
custodian of the Portfolios by the tax law of countries other than those
mentioned in the above sentence, including responsibility for withholding
and other taxes, assessments or other governmental charges,
certifications and governmental reporting. The sole responsibility of the
Custodian with regard to such tax law shall be to use reasonable efforts
to assist the Fund with respect to any claim for exemption or refund
under the tax law of countries for which the Fund has provided such
information.
4.12. Conflict. If the Custodian is delegated the responsibilities of Foreign
Custody Manager pursuant to the terms of Section 3 hereof, in the event
of any conflict between the provisions of Sections 3 and 4 hereof, the
provisions of Section 3 shall prevail.
5. Payments for Sales or Repurchases or Redemptions of Shares of the Fund.
The Custodian shall receive from the distributor for the Shares or from
the transfer agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for
18.
<PAGE>
Shares of that Portfolio issued or sold from time to time by the Fund. The
Custodian will provide timely notification to the Fund on behalf of each such
Portfolio and the transfer agent of any receipt by it of payments for Shares of
such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation and any applicable votes of the
Board of Directors of the Fund pursuant thereto, the Custodian shall, upon
receipt of instructions from the transfer agent, make funds available for
payment to holders of Shares who have delivered to the transfer agent a request
for redemption or repurchase of their Shares. In connection with the redemption
or repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt
of instructions from the transfer agent to wire funds to or through a
commercial bank designated by the redeeming shareholders. In connection with
the redemption or repurchase of Shares of the Fund, the Custodian shall honor
checks drawn on the Custodian by a holder of Shares, which checks have been
furnished by the Fund to the holder of Shares, when presented to the Custodian
in accordance with such procedures and controls as are mutually agreed upon from
time to time between the Fund and the Custodian.
6. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of Directors
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Directors of the
Fund accompanied by a detailed description of procedures approved by the Board
of Directors. Proper Instructions may include communications effected directly
between electro-mechanical or electric devices provided that the Board of
Directors and the Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three - party agreement which requires a segregated asset account in
accordance with Section 2.12.
7. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, providing that all such payments shall be accounted for to
the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in definitive
form;
19
<PAGE>
3) endorse for collection, in the name of the Portfolio, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other
dealings with the securities; and property of the Portfolio except as
otherwise directed by the Board of Directors of the Fund.
8. Evidence of Authority
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Directors of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Directors pursuant to the Articles of Incorporation as described
in such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
9. Duties of Custodian with Respect to the Books of Account and Calculation of
Net Asset Value and Net Income
The Custodian shall keep the books of account of each Portfolio and compute
the net asset value per share of the outstanding shares of each Portfolio. The
Custodian shall also calculate daily the net income of the Portfolio as
described in the Fund's currently effective prospectus related to such Portfolio
and shall advise the Fund and the transfer agent daily of the total amounts of
such net income and shall advise the transfer agent periodically of the division
of such net income among its various components. The calculations of the net
asset value per share and the daily income of each Portfolio shall be made at
the time or times described from time to time in the Fund's currently effective
prospectus related to such Portfolio.
10. Records
The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Contract in such
Manner as will meet the obligations of the Fund under the Investment Company Act
of 1940, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the Fund and shall
at all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission. The Custodian
shall, at the Fund's request, supply the Fund with a tabulation of securities
owned by each Portfolio and held by the Custodian and shall, when requested to
do so by the Fund and for such compensation as shall be agreed upon between the
Fund and the Custodian, include certificate numbers in such tabulations.
20
<PAGE>
11. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's
Form N-1A, and Form N-SAR or other annual reports to the SEC and with respect to
any other requirements thereof.
12. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian under this Contract;
such reports, shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Fund to provide reasonable assurance that any
material inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state.
13. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund on
behalf of each applicable Portfolio and the Custodian.
14. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of a three-party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract, but shall be
kept indemnified by the Fund and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence, willful
misconduct or reckless disregard of its duties and obligations under this
Contract. It shall be entitled to rely on and may act upon advice of counsel
(who may be counsel for the Fund) on all matters, and shall be without liability
for any action reasonably taken or omitted pursuant to such advice. The
Custodian shall be without liability to the Fund and the Portfolios for any
loss, liability, claim or expense resulting from or caused by anything which is
(A) part of Country Risk (as defined in Section 3 hereof), including without
limitation nationalization, expropriation, currency restriction, or acts of war,
revolution, riots or terrorism, or (B) part of the "prevailing country risk" of
the Portfolios, as such term is used in SEC Release Nos. IC-22658;IS-1080 (May
12, 1997) or as such term or other similar terms are now or
21.
<PAGE>
in the future interpreted by the SEC or by the staff of the Division of
Investment Management thereof.
Except as may arise from the Custodian's own bad faith, negligence, willful
misconduct or reckless disregard of its duties and obligations hereunder or the
bad faith, negligence or willful misconduct or reckless disregard of the duties
and obligations of a sub-custodian or agent, the Custodian shall be without
liability to the Fund for any loss, liability, claim or expense resulting from
or caused by; (i) events or circumstances beyond the reasonable control of the
Custodian or any sub-custodian or Securities System or any agent or nominee of
any of the foregoing, including, without limitation, nationalization or
expropriation, imposition of currency controls or restrictions, the
interruption, suspension or restriction of trading on or the closure of any
securities market, power or other mechanical or technological failures or
interruptions, computer viruses or communications disruptions, acts of war or
terrorism, riots, revolutions, work stoppages, natural disasters or other
similar events or acts; (ii) errors by the Fund or the Investment Advisor in
their instructions to the Custodian provided such instructions have been in
accordance with this Contract; (iii) the insolvency of or acts or omissions by a
Securities System; (iv) any delay or failure of any broker, agent or
intermediary, central bank or other commercially prevalent payment or clearing
system to deliver to the Custodian's sub-custodian or agent securities purchased
or in the remittance or payment made in connection with securities sold; (v) any
delay or failure of any company, corporation, or other body in charge of
registering or transferring securities in the name of the Custodian, the Fund,
the Custodian's sub-custodians, nominees or agents or any consequential losses
arising out of such delay or failure to transfer such securities including non-
receipt of bonus, dividends and rights and other accretions or benefits; (vi)
delays or inability to perform its duties due to any disorder in market
infrastructure with respect to any particular security or Securities System; and
(vii) any provision of any present or future law or regulation or order of the
United States of America, or any state thereof, or any other country, or
political subdivision thereof or of any court of competent jurisdiction.
The Custodian shall be liable for the acts or omissions of a Foreign Sub-
Custodian to the same extent as set forth with respect to sub-custodians
generally in this Contract.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian, its affiliates, subsidiaries or agents,
to advance cash or securities for any purpose (including but not limited to
securities settlements, foreign exchange contracts and assumed settlement) or in
the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable Portfolio shall
be security therefor to the extent thereof, and should the Fund fail
22.
<PAGE>
to repay the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent necessary
to obtain reimbursement.
The Custodian shall have no responsibility or liability for any acts or
omissions of any prior custodian, subcustodian, accounting agent or other
service provider to the Fund and shall be indemnified by the Fund against any
claims arising out of or attributable to the acts or omissions of any prior
custodian, subcustodian, accounting agent or other service provider. Without in
any way limiting the foregoing, the Custodian shall have no liability in respect
of any loss, damage or expense suffered by the Fund insofar as such loss, damage
or expense arises from the performance of the Custodian's duties hereunder in
reliance upon records that were maintained for the Fund by entities other than
the Custodian prior to the Custodian's appointment as custodian for the Fund.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
15. Effective Period, Termination and Amendment
-------------------------------------------
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
the Fund or the Custodian by an instrument in writing delivered or mailed,
postage prepaid to the other parties, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Directors of the Fund has
approved the initial use of a particular Securities System by such Portfolio, as
required by Rule 17f-4 under the Investment Company Act of 1940, as amended and
that the Custodian shall not with respect to a Portfolio act under Section 2.11
hereof in the absence of receipt of an initial certificate of the Secretary or
an Assistant Secretary that the Board of Directors has approved the initial use
of the Direct Paper System by such Portfolio; provided further, however, that
the Fund shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Articles of
Incorporation, and further provided, that the fund on behalf of one or more of
the Portfolios may at any time by action of its Board of Directors (i)
substitute another bank or trust company for the Custodian by giving notice as
described above to the Custodian, or (ii) immediately terminate this Contract in
the event of the appointment of a conservator or receiver for the Custodian by
the Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
16. Successor Custodian
-------------------
If a successor Custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Directors of the Fund, the Custodian shall,
upon termination, deliver to such successor
23
<PAGE>
Custodian at the office of the Custodian, duly endorsed and in the form for
transfer, all securities of each applicable Portfolio then held by it hereunder
and shall transfer to an account of the successor Custodian all of the
securities of each such Portfolio hold in a Securities System.
If no such successor Custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor Custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less then $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments; held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor Custodian all of the securities of each such
Portfolio hold in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors to appoint a successor Custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
17. Interpretive and Additional Provisions
--------------------------------------
In connection with the operation of this Contract, the Custodian and the
Fund on behalf of each of the Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Articles of Incorporation of the Fund.
No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
18. Additional Funds
----------------
In the event that the Fund establishes one or more series of Shares in
addition to Liquidity Plus Money Market Fund, Munder Aggregate Bond Index Fund,
Munder Foreign Equity Fund, Munder Institutional Money Market Fund, Munder
Institutional S&P 500 Index Equity Fund, Munder Institutional S&P MidCap Index
Equity Fund, Munder Institutional S&P SmallCap Index Equity Fund, Munder
Institutional Short Term Treasury Fund, Munder S&P 500 Index Equity
24
<PAGE>
Fund, Munder S&P MidCap Index Equity Fund, and Munder S&P SmallCap Index Equity
Fund with respect to which it desires to have the Custodian render services as
Custodian under the terms hereof, it shall so notify the Custodian in writing,
and if the Custodian agrees in writing to provide such services, such series of
Shares shall become a Portfolio hereunder.
19. Massachusetts Law to Apply
--------------------------
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
20. Prior Contracts
---------------
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each of the Portfolios and the Custodian
relating to the custody of the Fund's assets.
21. Reproduction of Documents
-------------------------
This Contract and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm, micro-
card, miniature photographic or other similar process. The parties hereto
all/each agree that any such reproduction shall be admissible in evidence as
the original itself in any judicial or administrative proceeding, whether or not
the original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
22. Shareholder Communications Election
-----------------------------------
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no,"
the Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting to disclosure
of this information for all securities owned by the Fund or any funds or
accounts established by the Fund. For the Fund's protection, the Rule prohibits
the requesting company from using the Fund's name and address for any purpose
other than corporate communications. Please indicate below whether the Fund
consents or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name, address,
and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
25
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 3rd day of August, 1999.
ATTEST ST. CLAIR FUNDS, INC.
By /s/ Terry Gardner
- ----------------------------- --------------------------------------
Name: Terry Gardner
Title: VP & CFO
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ Marc L. Parsons By /s/ Ronald E. Logue
- ----------------------------- --------------------------------------
Marc L. Parsons Ronald E. Logue
Associate Counsel Vice Chairman
26
<PAGE>
Exhibit 99(j)(1)
St. Clair Funds, Inc.
Power of Attorney
-----------------
The undersigned, Lee P. Munder, whose signature appears below, does hereby
constitute and appoint Terry H. Gardner, MaryAnn Shumaker, Jane Kanter and
Francine S. Hayes his true and lawful attorneys and agents to execute in his
name, place and stead, in his capacity as director or officer, or both, of St.
Clair Funds, Inc. ("St. Clair"), the Registration Statement of St. Clair on Form
N-1A, any amendments thereto, and all instruments necessary or incidental in
connection therewith, and to file the same with the Securities and Exchange
Commission; and such attorneys shall have the full power of substitution and re-
substitution; and such attorneys shall have full power and authority to do and
perform in the name and on the behalf of the undersigned director and/or officer
of St. Clair, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises, as fully and to all intents and purposes
as the undersigned director and/or officer of St. Clair might or could do in
person, such acts of such attorneys being hereby ratified and approved.
/s/ Lee P. Munder
-----------------------------------------
Lee P. Munder
Dated: September 30, 1999
<PAGE>
St. Clair Funds, Inc.
Power of Attorney
-----------------
The undersigned, Charles W. Elliot, whose signature appears below, does
hereby constitute and appoint Terry H. Gardner, MaryAnn Shumaker, Jane Kanter
and Francine S. Hayes his true and lawful attorneys and agents to execute in his
name, place and stead, in his capacity as director or officer, or both, of St.
Clair Funds, Inc. ("St. Clair"), the Registration Statement of St. Clair on Form
N-1A, any amendments thereto, and all instruments necessary or incidental in
connection therewith, and to file the same with the Securities and Exchange
Commission; and such attorneys shall have the full power of substitution and re-
substitution; and such attorneys shall have full power and authority to do and
perform in the name and on the behalf of the undersigned director and/or officer
of St. Clair, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises, as fully and to all intents and purposes
as the undersigned director and/or officer of St. Clair might or could do in
person, such acts of such attorneys being hereby ratified and approved.
/s/ Charles W. Elliott
-----------------------------------------
Charles W. Elliott
Dated: September 30, 1999
<PAGE>
St. Clair Funds, Inc.
Power of Attorney
-----------------
The undersigned, Joseph E. Champagne, whose signature appears below, does
hereby constitute and appoint Terry H. Gardner, MaryAnn Shumaker, Jane Kanter
and Francine S. Hayes his true and lawful attorneys and agents to execute in his
name, place and stead, in his capacity as director or officer, or both, of St.
Clair Funds, Inc. ("St. Clair"), the Registration Statement of St. Clair on Form
N-1A, any amendments thereto, and all instruments necessary or incidental in
connection therewith, and to file the same with the Securities and Exchange
Commission; and such attorneys shall have the full power of substitution and re-
substitution; and such attorneys shall have full power and authority to do and
perform in the name and on the behalf of the undersigned director and/or officer
of St. Clair, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises, as fully and to all intents and purposes
as the undersigned director and/or officer of St. Clair might or could do in
person, such acts of such attorneys being hereby ratified and approved.
/s/ Joseph E. Champagne
-----------------------------------------
Joseph E. Champagne
Dated: September 30, 1999
<PAGE>
St. Clair Funds, Inc.
Power of Attorney
-----------------
The undersigned, Thomas B. Bender, whose signature appears below, does
hereby constitute and appoint Terry H. Gardner, MaryAnn Shumaker, Jane Kanter
and Francine S. Hayes his true and lawful attorneys and agents to execute in his
name, place and stead, in his capacity as director or officer, or both, of St.
Clair Funds, Inc. ("St. Clair"), the Registration Statement of St. Clair on Form
N-1A, any amendments thereto, and all instruments necessary or incidental in
connection therewith, and to file the same with the Securities and Exchange
Commission; and such attorneys shall have the full power of substitution and re-
substitution; and such attorneys shall have full power and authority to do and
perform in the name and on the behalf of the undersigned director and/or officer
of St. Clair, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises, as fully and to all intents and purposes
as the undersigned director and/or officer of St. Clair might or could do in
person, such acts of such attorneys being hereby ratified and approved.
/s/ Thomas B. Bender
-----------------------------------------
Thomas B. Bender
Dated: September 30, 1999
<PAGE>
St. Clair Funds, Inc.
Power of Attorney
-----------------
The undersigned, Thomas D. Eckert, whose signature appears below, does
hereby constitute and appoint Terry H. Gardner, MaryAnn Shumaker, Jane Kanter
and Francine S. Hayes his true and lawful attorneys and agents to execute in his
name, place and stead, in his capacity as director or officer, or both, of St.
Clair Funds, Inc. ("St. Clair"), the Registration Statement of St. Clair on Form
N-1A, any amendments thereto, and all instruments necessary or incidental in
connection therewith, and to file the same with the Securities and Exchange
Commission; and such attorneys shall have the full power of substitution and re-
substitution; and such attorneys shall have full power and authority to do and
perform in the name and on the behalf of the undersigned director and/or officer
of St. Clair, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises, as fully and to all intents and purposes
as the undersigned director and/or officer of St. Clair might or could do in
person, such acts of such attorneys being hereby ratified and approved.
/s/ Thomas D. Eckert
-----------------------------------------
Thomas D. Eckert
Dated: September 30, 1999
<PAGE>
St. Clair Funds, Inc.
Power of Attorney
-----------------
The undersigned, John Rakolta, Jr., whose signature appears below, does
hereby constitute and appoint Terry H. Gardner, MaryAnn Shumaker, Jane Kanter
and Francine S. Hayes his true and lawful attorneys and agents to execute in his
name, place and stead, in his capacity as director or officer, or both, of St.
Clair Funds, Inc. ("St. Clair"), the Registration Statement of St. Clair on Form
N-1A, any amendments thereto, and all instruments necessary or incidental in
connection therewith, and to file the same with the Securities and Exchange
Commission; and such attorneys shall have the full power of substitution and re-
substitution; and such attorneys shall have full power and authority to do and
perform in the name and on the behalf of the undersigned director and/or officer
of St. Clair, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises, as fully and to all intents and purposes
as the undersigned director and/or officer of St. Clair might or could do in
person, such acts of such attorneys being hereby ratified and approved.
/s/ John Rakolta, Jr.
-----------------------------------------
John Rakolta, Jr.
Dated: September 30, 1999
<PAGE>
St. Clair Funds, Inc.
Power of Attorney
-----------------
The undersigned, David J. Brophy, whose signature appears below, does
hereby constitute and appoint Terry H. Gardner, MaryAnn Shumaker, Jane Kanter
and Francine S. Hayes his true and lawful attorneys and agents to execute in his
name, place and stead, in his capacity as director or officer, or both, of St.
Clair Funds, Inc. ("St. Clair"), the Registration Statement of St. Clair on Form
N-1A, any amendments thereto, and all instruments necessary or incidental in
connection therewith, and to file the same with the Securities and Exchange
Commission; and such attorneys shall have the full power of substitution and re-
substitution; and such attorneys shall have full power and authority to do and
perform in the name and on the behalf of the undersigned director and/or officer
of St. Clair, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises, as fully and to all intents and purposes
as the undersigned director and/or officer of St. Clair might or could do in
person, such acts of such attorneys being hereby ratified and approved.
/s/ David J. Brophy
-----------------------------------------
David J. Brophy
Dated: September 30, 1999
<PAGE>
St. Clair Funds, Inc.
Power of Attorney
-----------------
The undersigned, Terry H. Gardner, whose signature appears below, does
hereby constitute and appoint MaryAnn Shumaker, Jane Kanter and Francine S.
Hayes his true and lawful attorneys and agents to execute in his name, place and
stead, in his capacity as director or officer, or both, of St. Clair Funds, Inc.
("St. Clair"), the Registration Statement of St. Clair on Form N-1A, any
amendments thereto, and all instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange Commission; and
such attorneys shall have the full power of substitution and re-substitution;
and such attorneys shall have full power and authority to do and perform in the
name and on the behalf of the undersigned director and/or officer of St. Clair,
in any and all capacities, every act whatsoever requisite or necessary to be
done in the premises, as fully and to all intents and purposes as the
undersigned director and/or officer of St. Clair might or could do in person,
such acts of such attorneys being hereby ratified and approved.
/s/ Terry H. Gardner
-----------------------------------------
Terry H. Gardner
Dated: September 30, 1999
<PAGE>
Exhibit 99(j)(2)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the caption "Financial
Highlights" for the Munder Institutional S&P 500 Index Equity Fund, the Munder
Institutional S&P MidCap Index Equity Fund and the Munder Institutional S&P
SmallCap Index Equity Fund in the Munder Institutional Funds Class Y Prospectus.
We also consent to the references to our firm under the captions "Independent
Auditors" and "Financial Statements" in the Statement of Additional Information
and to the incorporation by reference in Post-Effective Amendment No. 31 to the
Registration Statement (Form N-1A, No. 2-91373) of our report dated February 12,
1999 on the financial statements and financial highlights of the Munder
Institutional S&P 500 Index Equity Fund and Munder Institutional S&P MidCap
Index Equity Fund and to the inclusion of our report dated October 6, 1999 on
the financial statements and financial highlights of Munder Institutional
SmallCap Index Equity Fund.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Boston, Massachusetts
October 7, 1999
<PAGE>
Exhibit 99(m)(3)
ST. CLAIR FUNDS, INC.
SERVICE PLAN
Section 1. Any officer of St. Clair Funds, Inc. (the "Company") is
authorized to execute and deliver, in the name and on behalf of the Company,
written agreements based on the form attached hereto as Appendix A or any other
form duly approved by the Company's Board of Directors ("Agreements") with
institutional investors ("Shareholder Organizations") which are shareholders or
dealers of record or which have a servicing relationship with the beneficial
owners of shares of the Class K shares of the Munder Institutional S&P 500 Index
Equity Fund, Munder Institutional S&P Midcap Index Equity Fund, Munder
Institutional S&P Smallcap Index Equity Fund, Munder Institutional Short Term
Treasury Fund and Munder Institutional Money Market Fund (the "Funds") of the
Company. Pursuant to such Agreements, Shareholder Organizations shall provide
support services as set forth therein to their clients who beneficially own
Class K Shares in consideration of a fee, computed monthly in the manner set
forth in the Agreements, at an annual rate of up to 0.25% of the average daily
net asset value of the Class K Shares beneficially owned by such clients.
Comerica Bank and its affiliates are eligible to become Shareholder
Organizations and to receive fees under this Plan.
Section 2. The Funds' distributor shall monitor the arrangements pertaining
to the Company's Agreements with Shareholder Organizations in accordance with
the terms of the Distributor's agreement with the Company. The Distributor shall
not, however, be obligated by this Plan to recommend, and the Company shall not
be obligated to execute, any Agreement with any qualifying Shareholder
Organization.
Section 3. So long as this Plan is in effect, the Distributor shall provide
to the Company's Board of Directors, and the Directors shall review, at least
quarterly, a written report of the amounts expended pursuant to this Plan and
the purposes for which such expenditures were made.
Section 4. This Plan shall become effective immediately with respect to
Class K Shares of the Funds upon the approval of the Plan (and the form of
Agreement attached hereto) by a majority of the Company's Board of Directors,
including a majority of the Directors who are not "interested persons," as
defined in the Investment Company Act of 1940, as amended (the "Act"), of the
Company and who have no direct or indirect financial interest in the operation
of this Plan or in any Agreement related to this Plan (the "Disinterested
Directors"), pursuant to a vote cast in person at a meeting called for the
purpose of voting on the approval of this Plan (and form of Agreement).
Section 5. Unless sooner terminated, this Plan shall continue in effect for
so long as its continuance is approved at least annually in the manner set forth
in Section 4.
Section 6. This Plan may be amended at any time with respect to Class K
Shares of the Funds by the Company's Board of Directors, provided that this Plan
may not be amended to increase materially the fee provided for in Section 1
hereof unless such amendment is approved by the shareholders of the Fund in a
manner provided in the Act, and no material amendment of the terms of this Plan
shall become effective unless approved in the manner set forth in Section 4.
Section 7. This Plan is terminable at any time with respect to Class K
Shares of the Funds by vote of a majority of the Disinterested Directors.
Section 8. While this Plan is in effect, the selection and nomination of
those directors who are not "interested persons" (as defined in the Act) of the
Company shall be committed to the discretion of such non-interested Directors.
<PAGE>
APPENDIX A
ST. CLAIR FUNDS, INC.
SERVICING AGREEMENT
To: [ ]
We wish to enter into this Servicing Agreement with you concerning the
provision of support services to your clients ("Clients") who may from time to
time beneficially own shares of Class K ("Shares") of the portfolio series of
St. Clair Funds, Inc. (the "Funds") offered by us.
The terms and conditions of this Servicing Agreement are as follows:
1. You agree to provide the following support services to Clients who may
from time to time beneficially own Shares:/1/ (i) establishing and maintaining
accounts and records relating to Clients that invest in Shares; (ii) processing
dividend and distribution payments from us on behalf of Clients; (iii) providing
information periodically to Clients showing their positions in Shares and
integrating such statements with those of other transactions and balances in
Client's other accounts serviced by you; (iv) arranging for bank wires; (v)
responding to Client inquiries relating to the services performed by you; (vi)
responding to routine inquiries from Clients concerning their investments in
Shares; (vii) providing subaccounting with respect to Shares beneficially owned
by Clients or the information to us necessary for subaccounting; (viii) if
required by law, forwarding shareholder communications from us (such proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Clients; (ix) assisting in processing purchase,
exchange and redemption requests from Clients and in placing such orders with
our servicing contractors; (x) assisting Clients in changing dividend options,
account designations and addresses; (xi) providing Clients with a service that
invests the assets of their accounts in Shares pursuant to specific or pre-
authorized instructions; and (xii) providing such other similar services as we
may reasonably request to the extent you are permitted to do so under applicable
statutes, rules and regulations.
Section 2. You will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services and assistance to Clients.
Section 3. Neither you nor any of your officers, employees or agents are
authorized to make any representations concerning us or the shares except those
contained in our then current prospectuses and statements of additional
information for Shares, copies of which will be supplied by us to you, or in
such supplemental literature or advertising as may be authorized by us in
writing.
Section 4. For all purposes of this Agreement, you will be deemed to be an
independent contractor and will have no authority to act as agent for us in any
matter or in any respect. By your written acceptance of this Agreement, you
agree to and do release, indemnify and hold us harmless from and against any and
all direct or indirect liabilities or losses resulting from requests,
directions, actions or inactions of or by you or your officers, employees or
agents regarding your responsibilities hereunder or the purchase, redemption,
transfer or registration of Shares (or orders relating to the same) by or on
behalf of Clients. You and your employees will, upon request, be available
during normal business hours to consult with us or our designees concerning the
performance of your responsibilities under this Agreement.
- ----------------
/1/ Services may be modified or omitted in the particular case and items
renumbered.
1
<PAGE>
Section 5. In consideration of the services and facilities provided by you
hereunder, we will pay to you, and you will accept as full payment therefor, a
fee at the annual rate of .25% of the average daily net asset value of the
Shares beneficially owned by your Clients for whom you are the dealer of record
or holder of record or with whom you have a servicing relationship (the
"Clients' Shares"), which fee will be computed daily and payable monthly. For
purposes of determining the fees payable under this Section 5, the average daily
net asset value of the Clients' Shares will be computed in the manner specified
in our Registration Statement (as the same is in effect from time to time) in
connection with the computation of the net asset value of Shares for purposes of
purchases and redemptions. By your written acceptance of this Agreement, you
agree to and do waive such portion of any fee payable to you hereunder to the
extent necessary to assure that such fee and other expenses required to be
accrued by us on any day with respect to the Clients' Shares in any Fund that
declares its net investment income as a dividend to shareholders on a daily
basis does not exceed the income to be accrued by us to such Shares on that day.
The fee rate stated above may be prospectively increased or decreased by us, in
our sole discretion, at any time upon notice to you. Further, we may, in our
discretion and without notice, suspend or withdraw the sale of Shares, including
the sale of Shares to you for the account of any Client or Clients.
Section 6. Any person authorized to direct the disposition of monies paid
or payable by us pursuant to this Agreement will provide the Board of Directors,
and our Directors will review, at least quarterly, a written report of the
amounts so expended and the purposes for which such expenditures were made. In
addition, you will furnish us or our designees with such information as we or
they may reasonably request (including, without limitation, periodic
certifications confirming the provision to Clients of the services described
herein), and will otherwise cooperate with us and our designees (including,
without limitation, any auditors designated by us), in connection with the
preparation of reports to our Board of Directors concerning this Agreement and
the monies paid or payable by us pursuant hereto, as well as any other reports
or filings that may be required by law.
Section 7. We may enter into other similar Servicing Agreements with any
other persons without your consent.
Section 8. By your written acceptance of this Agreement, you represent,
warrant and agree that: (i) the compensation payable to you in connection with
the investment of your Clients' assets in Shares will be disclosed by you to
your Clients, will be authorized by your Clients and will not be excessive; (ii)
the services provided by you under this Agreement will in no event be primarily
intended to result in the sale of shares of Shares; and (iii) in the event an
issue pertaining to our Service Plan is submitted for shareholder approval, you
will vote any shares held for your own account in the same proportion as the
vote of those shares held for your Client's accounts.
Section 9. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or our designee. Unless sooner
terminated, this Agreement will continue until ___________, 1999, and thereafter
will continue automatically for successive annual periods provided such
continuance is specifically approved at least annually by us in the manner
described in Section 12. This Agreement is terminable with respect to the
Shares, without penalty, at any time by us (which termination will be by vote of
a majority of the Disinterested Directors as defined in Section 12) or by you
upon written notice to the other party hereto.
Section 10. All notices and other communications hereunder will be duly
given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address stated herein, or to such
other address as either party shall so provide the other.
2
<PAGE>
Section 11. This Agreement will be construed in accordance with the laws of
the State of Michigan and is non-assignable by the parties hereto.
Section 12. This Agreement has been approved by vote of a majority of (i)
our Board of Directors, and (ii) those Directors who are not "interested
persons" (as defined in the Investment Company Act of 1940) of us and have no
direct or indirect financial interest in the operation of the Service Plan
adopted by us regarding the provision of support services to the beneficial
owners of Shares or in any agreement related thereto cast in person at a meeting
called for the purpose of voting on such approval ("Disinterested Directors").
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to the Distributor.
Very truly yours,
ST. CLAIR FUNDS, INC.
Date: By:
---------------------------- -------------------------------------
(Authorized Officer)
Accepted and Agreed to:
[SHAREHOLDER ORGANIZATION]
Date: By:
---------------------------- -------------------------------------
(Authorized Officer)
Address of Shareholder Organization:
-----------------------------------------
-----------------------------------------
-----------------------------------------
3
<PAGE>
Exhibit 99(o)
ST. CLAIR FUNDS, INC.
Multi-Class Plan
----------------
Introduction
------------
The purpose of this Plan is to specify the attributes of the classes of
shares offered by St. Clair Funds, Inc. (the "Company"), including the sales
loads, expense allocations, conversion features and exchange features of each
class, as required by Rule 18f-3 under the Investment Company Act of 1940, as
amended (the "1940 Act").
The Munder Institutional S&P 500 Index Equity Fund, Munder Institutional
S&P MidCap Index Equity Fund, Munder Institutional S&P SmallCap Index Equity
Fund, Munder Institutional Short Term Treasury Fund and Munder Institutional
Money Market Fund (each, a "Fund"), issues its shares of common stock in two
classes: "Class K" Shares and "Class Y" Shares. Shares of each Class of a Fund
shall represent an equal pro rata interest in such Fund, and generally, shall
have identical voting, dividend, liquidation and other rights, preferences,
powers, restrictions, limitations, qualifications, and terms and conditions,
except that: (a) each Class shall have a different designation; (b) each Class
may have a different sales charge structure; (c) each Class of shares shall bear
any Class Expenses, as defined below; (d) each Class shall have exclusive voting
rights on any matter submitted to shareholders that relates solely to its
arrangement and each Class shall have separate voting rights on any matter
submitted to shareholders in which the interests of one Class differ from the
interests of any other Class; and (e) each Class may have different exchange
and/or conversion features as described below.
Allocation of Expenses
----------------------
To the extent practicable, certain expenses (other than Class Expenses as
defined below which shall be allocated more specifically), shall be subtracted
from the gross income allocated to each Class of a Fund on the basis of net
assets of each Class of the Fund. These expenses include:
(1) Expenses incurred by the Company (for example, fees of Directors,
auditors, and legal counsel) not attributable to a particular Fund or to a
particular Class of shares of a Fund ("Company Level Expenses"); and
(2) Expenses incurred by a Fund not attributable to any particular Class of
the Fund's shares (for example, advisory fees, custodial fees, or other expenses
relating to the management of the Fund's assets) ("Fund Expenses").
Expenses attributable to a particular Class ("Class Expenses") shall be
limited to: (i) payments made pursuant to a Service Plan, Service and
Distribution Plan or Shareholder Servicing Plan; (ii) transfer agent fees
attributable to a specific Class; (iii) printing and postage expenses related to
preparing and distributing materials such as shareholder reports, prospectuses
and proxies to current shareholders of a specific Class; (iv) Blue Sky fees
incurred by a Class; (v) Securities and Exchange Commission registration fees
incurred by a Class; (vi) the expense of administrative personnel and services
to support the shareholders of a specific Class; (vii) litigation or other legal
expenses relating solely to one Class; and (viii) Directors' fees incurred as a
result of issues relating solely to one Class. Expenses in category (i) above
must be allocated to the Class for which such expenses are incurred. For all
other "Class Expenses" listed in categories (ii) - (viii) above, the President
and Chief Financial Officer shall determine, subject to Board approval or
ratification, which such categories of expenses will be treated as
<PAGE>
Class Expenses, consistent with applicable legal principles under the Act and
the Internal Revenue Code of 1986, as amended, any private letter ruling with
respect to the Company issued by the Internal Revenue Service.
Therefore, expenses of a Fund shall be apportioned to each Class of shares
depending upon the nature of the expense item. Company Level Expenses and Fund
Expenses will be allocated among the Classes of shares based on their relative
net asset values. Approved Class Expenses shall be allocated to the particular
Class to which they are attributable. In addition, certain expenses may be
allocated differently if their method of imposition changes. Thus, if a Class
Expense can no longer be attributed to a Class, it shall be charged to a Fund
for allocation among Classes, as may be appropriate; however, any additional
Class Expenses not specifically identified above which are subsequently
identified and determined to be properly allocated to one Class of shares shall
not be so allocated until approved by the Board of Directors of the Company in
light of the requirements of the Act and the Internal Revenue Code of 1986, as
amended.
Class Y Shares
--------------
Class Y Shares of a Fund are offered at net asset value. Class Y Shares of
a Fund may be exchanged for Class Y Shares of another fund of the Company, The
Munder Funds, Inc., The Munder Framlington Funds Trust or The Munder Funds Trust
without the imposition of a sales charge.
Class K Shares
--------------
Class K Shares of a Fund are offered at net asset value. Class K Shares of
a Fund may be exchanged for Class K Shares of another fund of the Company, The
Munder Funds, Inc., The Munder Framlington Funds Trust or The Munder Funds Trust
without the imposition of a sales charge.
Class K Shares pay a service fee of up to 0.25% (annualized) of the average
daily net assets of a Fund's Class K Shares. Services provided by brokers,
dealers and other institutions for such service fees include: processing
purchase, exchange and redemption requests from customers and placing orders
with the Company's transfer agent; processing dividend and distribution payments
from the Funds on behalf of customers; providing information periodically to
customers showing their positions in Class K Shares; providing sub-accounting
with respect to Class K Shares beneficially owned by customers or the
information necessary for sub-accounting; responding to inquiries from customers
concerning their investment in Class K Shares; arranging for bank wires; and
providing such other similar services as may reasonably be requested.
2
