<PAGE>
As filed with the Securities and Exchange Commission on April 28, 2000
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. 32 / X /
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
Amendment No. 33 / 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 Patrick W. D. Turley, 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
pursuant to paragraph (b) of Rule 485.
<PAGE>
CLASS K SHARES
Prospectus
APRIL 28, 2000
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
.Short Term Treasury Fund
.Money Market Fund
9 Who May Want To Invest
10 Fees and Expenses
11 More About Munder Institutional Funds
13 Your Investment
13 How To Reach The Funds
13 Purchasing Shares
13 Redeeming Shares
13 Additional Policies For Purchases and Redemptions
14 Service Agents
15 Pricing of Fund Shares
16 Distributions
17 Federal Tax Considerations
17 Taxes On Distributions
17 Taxes On Sales
17 Other Considerations
18 Management
18 Investment Advisor
18 Portfolio Managers
19 Financial Highlights
20 Appendix
</TABLE>
Back Cover For Additional Information
<PAGE>
Risk/Return Summary
- --------------------------------------------------------------------------------
This Risk/Return Summary briefly describes the goals and principal investment
strategies of the Funds and the principal risks of investing in the Funds. For
further information on the Funds' investment strategies and risks, please read
the section entitled More About Munder Institutional Funds.
An investment in a Fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other governmental agency.
Index Funds
S&P 500 Index Equity Fund
Goal
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.
Principal Investment Strategies
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 advisor employs a "quantitative" or "indexing" investment approach, which
attempts to duplicate the investment composition and performance of the
particular index through statistical procedures. The advisor invests in stocks
that are included in the particular index, in approximately the same
proportions as they are represented in the index. As a result, the advisor does
not use traditional methods of fund investment management, i.e., it does not
select stocks on the basis of economic, financial and market analysis.
The Fund will try to achieve a correlation between the performance of its
portfolio and that of the S&P 500 of at least .95. A correlation of 1.0 would
mean
that the changes in the Fund's price mirror exactly the changes 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."
Principal Risks
The Fund is subject to the following principal investment risks:
. The Fund will invest in the securities included in the S&P 500 regardless of
market trends. As a result, the Fund cannot modify its investment strategies
to respond to changes in the economy, which means it may be particularly
susceptible to a general decline in the stock market segment relating to the
S&P 500.
. An adverse event, such as an unfavorable earnings report, may depress the
value of a particular stock held by the Fund.
. Because the Fund has operating expenses, while the S&P 500 does not, the
Fund's returns are likely to be lower than those of the S&P 500. Tracking
variance may also result from share purchases, redemptions and other factors.
. The share price of the Fund will change daily based on market conditions and
other factors; you may lose money if you invest in the Fund.
. The Fund cannot be certain it will achieve its investment goal.
2
<PAGE>
Performance
The bar chart and table below give some indication of the variability of an
investment in the Fund. The bar chart shows the Fund's performance for each
calendar year since inception. The table shows the Fund's average annual total
returns for different calendar periods over the life of the Fund compared to
those of a broad based securities market index.
Because Class K Shares do not have any performance history, the annual returns
in the bar chart, the best quarter and worst quarter returns and the average
annual total return chart are those of the Fund's Class Y Shares, which are not
offered in this prospectus. Class Y shares are not subject to a shareholder
servicing fee. Class K Shares are subject to a shareholder servicing fee of
.25%. Please see the section entitled "Fees and Expenses". Performance for
Class K shares would have substantially similar annual returns because the
shares are invested in the same portfolio of securities and have the same
portfolio management. Because of different fees and expenses, performance of
each class will differ.
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
Calendar Year Total Returns
Average Annual Total Returns
(For the period ended December 31,
1999)
<TABLE>
--------------------------
<CAPTION>
Since
Inception
Fund/Index 1 Year (October 14, 1997)
--------------------------
<S> <C> <C>
S&P 500 Index
Equity Fund 20.56% 21.93%
S&P 500 Index* 21.04% 23.27%**
</TABLE>
--------
* Standard & Poor's Composite 500
Index is an unmanaged index of
common stock prices.
** Index return from September 30,
1997.
[Bar Charts]
1998 28.22%
1999 20.56%
Best and Worst Quarterly Performance
(During the periods shown above)
Best Quarter: 4th Q 1998 21.17%
Worst Quarter: 3rd Q 1998 (9.94)%
3
<PAGE>
MidCap Index Equity Fund
Goal
The Fund's goal is to provide price performance and income tht 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.
Principal Investment Strategies
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 advisor employs a "quantitative" or "indexing" investment approach, which
attempts to duplicate the investment composition and performance of the
particular index through statistical procedures. The advisor invests in stocks
that are included in the particular index, in approximately the same
proportions as they are represented in the index. As a result, the advisor does
not use traditional methods of fund investment management, i.e., it does not
select stocks on the basis of economic, financial and market analysis.
The Fund will try to achieve a correlation between the performance of its
portfolio and that of the S&P MidCap 400 of at least .95. A correlation of 1.0
would mean that the changes in the Fund's price mirror exactly the changes in
the S&P MidCap 400.
The Fund may also purchase foreign securities, enter into futures contracts and
lend portfolio securities, which are described below under "More About Munder
Institutional Funds."
Principal Risks
The Fund is subject to the following principal investment risks:
. The Fund will invest in the securities included in the S&P MidCap 400
regardless of market trends. As a result, the Fund cannot modify its
investment strategies to respond to changes in the economy, which means it
may be particularly susceptible to a general decline in the stock market
segment relating to the S&P MidCap 400.
. An adverse event, such as an unfavorable earnings report, may depress the
value of a particular stock held by the Fund.
. The share price of the Fund will change daily based on market conditions and
other factors; you may lose money if you invest the Fund.
. Because the Fund has operating expenses, while the S&P MidCap 400 does not,
the Fund's returns are likely to be lower than those of the S&P MidCap 400.
Tracking variance may also result from share purchases, redemptions and other
factors.
. The Fund invests in stocks of smaller companies, which may have more risks
than stocks of larger companies. Smaller companies may be more susceptible to
market downturns, their prices may be more volatile and they may be less
liquid.
. The Fund cannot be certain it will achieve its investment goal.
4
<PAGE>
Performance
The bar chart and table below give some indication of the variability of an
investment in the Fund. The bar chart shows the Fund's performance for each
calendar year since inception. The table shows the Fund's average annual total
returns for different calendar periods over the life of the Fund compared to
those of a broad based securities market index.
Because Class K Shares do not have any performance history, the annual returns
in the bar chart, the best quarter and worst quarter returns and the average
annual total return chart are those of the Fund's Class Y Shares, which are not
offered in this prospectus. Class Y shares are not subject to a shareholder
servicing fee. Class K Shares are subject to a shareholder servicing fee of
.25%. Please see the section entitled "Fees and Expenses". Performance for
Class K shares would have substantially similar annual returns because the
shares are invested in the same portfolio of securities and have the same
portfolio management. Because of different fees and expenses, performance of
each class will differ.
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.
MidCap Index Equity Fund
Calendar Year Total Returns
[Bar Chart]
1999 14.69%
Best and Worst Quarterly Performance
(During the periods shown above)
Best Quarter: 4th Q 1999 16.83%
Worst Quarter: 3rd Q 1999 (8.33)%
Average Annual Total Returns
(For the period ended December 31, 1999)
Since
Inception
Fund/Index 1 Year (February 13, 1998)
- ---------------------------------------------
MidCap Index
Equity Fund 14.69% 15.84%
S&P MidCap
400 Index* 14.72% 18.88%**
- --------
*Standard & Poor's MidCap 400 Index is an unmanaged index of common stock
prices.
**Index return from January 31, 1998.
5
<PAGE>
SmallCap Index Equity Fund
Goal
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.
Principal Investment Strategies
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 advisor employs a "quantitative" or "indexing" investment approach, which
attempts to duplicate the investment composition and performance of the
particular index through statistical procedures. The advisor invests in stocks
that are included in the particular index, in approximately the same
proportions as they are represented in the index. As a result, the advisor does
not use traditional methods of fund investment management, i.e., it does not
select stocks on the basis of economic, financial and market analysis.
The Fund will try to achieve a correlation between the performance of its
portfolio and that of the S&P SmallCap 600 of at least .95. A correlation of
1.0 would mean that the changes in the Fund's price mirror exactly the changes
in the S&P SmallCap 600.
The Fund may also purchase foreign securities, enter into futures contracts and
lend portfolio securities, which are described below under "More About The
Munder Institutional Funds."
Principal Risks
The Fund is subject to the following principal investment risks:
. The Fund will invest in the securities included in the S&P SmallCap 600
regardless of market trends. As a result, the Fund cannot modify its
investment strategies to respond to changes in the economy, which means it
may be particularly susceptible to a general decline in the stock market
segment relating to the S&P SmallCap 600.
. An adverse event, such as an unfavorable earnings
report, may depress the value of a particular stock held by the Fund.
. The share price of the Fund will change daily based on market conditions and
other factors; you may lose money if you invest in the Fund.
. Because the Fund has operating expenses, while the S&P SmallCap 600 does not,
the Fund's returns are likely to be lower than those of the S&P SmallCap 600.
Tracking variance may also result from share purchases, redemptions and other
factors.
. The Fund invests in stocks of smaller companies, which may have more risks
than stocks of larger companies. Stock of smaller companies may be more
susceptible to market downturns, their prices may be more volatile and they
may be less liquid.
. The Fund cannot be certain it will achieve its investment goal.
Performance
The Fund does not have a full calendar year of investment returns as of the
date of this Prospectus and, therefore, no performance information has been
provided.
6
<PAGE>
Short Term Treasury Fund
Goal
The Fund's goal is to provide investors with a high level of current income
consistent with the preservation of capital.
Principal Investment Strategies
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.
Performance
The Fund does not have a full calendar year of investment returns as of the
date of this Prospectus and, therefore, no performance information has been
provided.
7
<PAGE>
Money Market Fund
Goal
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.
Principal Investment Strategies
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.
Performance
The Fund does not have a full calendar year of investment returns as of the
date of this Prospectus and, therefore, no performance information has been
provided.
8
<PAGE>
Who May Want To Invest
The Index Funds may be appropriate for investors:
. Looking to invest over the long term.
. Able to ride out market swings.
. Looking to invest in a diversified stock portfolio focused on a particular
stock market segment.
The Money Market Fund may be appropriate for investors who are looking for as
high a level of income, as is consistent with liquidity and stability of
principal.
The Short Term Treasury Fund may be appropriate for investors who are looking
for as high a level of income, as is consistent with liquidity and stability of
principal.
None of the Funds alone provides a balanced investment program.
9
<PAGE>
Fees and Expenses
The tables below describe 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 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
Maximum Deferred Sales Charge (Load)....................................... None
Sales Charge (Load) Imposed on Reinvested Dividends........................ None
Redemption Fees............................................................ None
Exchange Fees.............................................................. None
</TABLE>
<TABLE>
<CAPTION>
S&P
Annual Fund Operating Expenses 500 MidCap SmallCap Short
(expenses that are paid from Fund Index Index Index Term Money
assets) Equity Equity 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 Operating Ex-
penses(1)............................. .57% 1.13% 4.78% 1.00% .63%
=== ==== ==== ==== ===
</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. 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 for the last
fiscal year were: .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, the actual other operating
expenses and total annual fund operating expenses for the last fiscal year
were: .00% and .45%, respectively, for the Money Market Fund. Because of
the expense reimbursement, it is estimated that other operating expenses
and total annual fund operating expenses for the current fiscal year are
expected to be: .03% and .48% respectively, for the Short Term Treasury
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 $ 352 $ 790
</TABLE>
10
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More About Munder Institutional Funds
- --------------------------------------------------------------------------------
Index Funds
The Funds' principal strategies and risks are summarized above in the section
entitled Risk/Return Summary--Index Funds. Below is further information about
the Funds' principal investments. The Funds may also use strategies and invest
in securities described in the Statement of Additional Information.
Equity Securities. The Funds invest in equity securities which include common
stocks, preferred stocks, convertible preferred stocks and warrants or rights
to subscribe for or purchase such securities. Securities considered for
purchase by the Index Funds may be listed or unlisted.
Foreign Securities. Each Fund may invest in foreign securities, which include
securities issued by foreign companies and foreign governments and their
agencies, instrumentalities or political subdivisions and supranational
organizations. Investments by each Fund in foreign securities involve risks in
addition to those of U.S. securities. Foreign securities are generally more
volatile and less liquid than U.S. securities, in part because of higher
political and economic risks and because there is less public information
available about foreign companies. Also, a decline in the value of foreign
currencies relative to the U.S. dollar will reduce the value of securities
denominated in those currencies.
Futures Contracts. Each Fund may, but is not required to, use futures contracts
which are a type of derivative. A derivative is a financial contract whose
value is based on a security, an asset or a market index. The main risk with
derivatives is that some types can amplify a gain or loss, potentially earning
or losing substantially more money than the actual cost of the derivative. With
some derivatives, there is also the risk that the other party to the contract
may fail to honor its obligations, causing a loss for the Fund. The Funds will
not use derivatives for speculative purposes. Rather, each Fund will use
futures contracts to gain exposure to its index for its cash balances. There is
a risk that futures contracts could cause a Fund to track its index less
closely, if they do not perform as expected.
Securities Lending. Each Fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains or
losses. If the borrower fails to return the securities and the invested
collateral has declined in value, the Fund could lose money.
Short Term Treasury Fund
The Fund's principal strategies and risks are summarized above in the section
entitled Risk/Return Summary-Short Term Treasury Fund. Below is further
information about the Fund's principal investments. The Fund may also use
strategies and invest in securities described in the Statement of Additional
Information.
U.S. Treasury Securities. Securities purchased by the Fund are direct
obligations of the U.S. Treasury and are guaranteed by the full faith and
credit of the U.S. Government. These securities consist of U.S. Treasury bills
and U.S. Treasury notes. U.S. Treasury securities differ in their interest
rates, maturities and times of issuance. Treasury bills have initial maturities
of one year or less and Treasury notes have initial maturities of one to ten
years.
A portion of the U.S. Treasury Securities purchased by the Fund may be zero
coupon securities. These are U.S. Treasury notes which have been stripped of
their unmatured interest coupons and receipts. These securities are issued at a
discount from their face value because interest payments are typically
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
11
<PAGE>
additional gains or losses. If the borrower fails to return the securities and
the invested collateral has declined in value, the Fund could lose money.
Money Market Fund
The Fund's principal strategies and risks are summarized above in the section
entitled Risk/Return Summary--Money Market Fund. Below is further information
about the Fund's principal investments. The Fund may also use strategies and
invest in securities described in the Statement of Additional Information.
The Fund has specific investment policies and procedures designed to maintain a
constant $1.00 net asset value per share. The Fund complies with rules of the
Securities and Exchange Commission, which impose certain liquidity, maturity
and diversification requirements. The Fund's investments must have remaining
maturities of 397 days or less and the average maturity of the Fund's
investments must be 90 days or less.
Money Market Securities. The Fund invests in money market securities, which are
high quality, short-term debt securities that pay a fixed, variable or floating
rate of interest. Securities are often specifically structured so that they are
eligible investments for a money market fund. For example, in order to satisfy
the maturity restrictions for a money market fund, some money market securities
have demand or put features which have the effect of shortening the security's
maturity. Money market securities include certificates of deposit, bankers'
acceptances, bank time deposits, notes, commercial paper and U.S. Government
securities.
U.S. Government Securities. The Fund invests in U.S. Government securities,
which are high-quality securities issued or guaranteed by the U.S. Treasury or
by an agency or instrumentality of the U.S. Government. U.S. Government
securities may be backed by the full faith and credit of the U.S. Treasury, the
right to borrow from the U.S. Treasury, or the agency or instrumentality
issuing or guaranteeing the security.
Foreign Securities. The Fund may invest in U.S. dollar denominated money market
securities of foreign issuers, which include securities issued by foreign
companies and foreign governments and their agencies, instrumentalities or
political subdivisions and supranational organizations. Investments by the Fund
in foreign securities involve risks in addition to those of U.S. securities.
Foreign securities are generally more volatile and less liquid than U.S.
securities, in part because of higher political and economic risks and because
there is less public information available about foreign companies.
Repurchase Agreements. The Fund may buy securities with the understanding that
the seller will buy them back with interest at a later date. If the seller is
unable to honor its commitment to repurchase the securities, the Fund could
lose money.
Guaranteed Investment Contracts. The Fund invests in guaranteed investment
contracts. Guaranteed investment contracts are agreements of the Fund to make
payments, generally to an insurance company's general account, in exchange for
a minimum level of interest based on an index. Guaranteed investment contracts
are considered illiquid investments and are acquired subject to the Fund's
limitation on illiquid investments.
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.
12
<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 shareholder services.
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 more 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, the transfer
agent or authorized dealer 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 Redemptions
. 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.
. At any time, the Funds may change any of their purchase or redemption
procedures, and may suspend the sale of their shares.
13
<PAGE>
. 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 a Fund, investors may purchase shares of the 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 (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.
. 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 Funds' 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, from time to time, make payments to banks,
broker-dealers or other financial institutions for certain services to the
Funds and/or their shareholders, including sub-administration, sub-transfer
agency and shareholder servicing. The advisor may make such payments out of its
own resources and there are no additional costs to the Funds or their
shareholders.
14
<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 regular trading 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.
The NAV of each Fund is generally based on the market value of the securities
held in the Fund. If market values are not available, the fair value of
securities is determined in good faith by, or using procedures approved by, the
Board of Directors of the Funds.
Trading in foreign securities may be completed at times that vary from the
closing of the New York Stock Exchange. A Fund values foreign securities at the
latest closing price on the exchange on which they are traded immediately prior
to the closing of the New York Stock Exchange. Certain foreign currency
exchange rates may also be determined at the latest rate prior to the closing
of the New York Stock Exchange. Foreign securities quoted in foreign currencies
are translated into U.S. dollars at current rates. Occasionally, events that
affect these values and exchange rates may occur between the times at which
they are determined and the closing of the New York Stock Exchange. If the
advisor believes that such events materially affect the value of portfolio
securities, these securities may be valued at their fair market value as
determined in good faith by, or using procedures approved by, the Fund's Board
of Directors.
Foreign securities may trade in their primary markets on weekends or other days
when a Fund does not price its shares. Therefore, the value of a Fund's
portfolio 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 regular trading on 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.
15
<PAGE>
Distributions
- --------------------------------------------------------------------------------
As a shareholder, you are entitled to your share of a Fund's net income and
gains on its investments. The Funds pass substantially all of their earnings
along to their shareholders as distributions. When the Funds earn 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.
Index Funds
These Funds pay dividends, if any, at least quarterly.
Short Term Treasury Fund
This Fund pays dividends, if any, at least monthly.
Money Market Fund
Dividend distributions are declared daily and paid monthly.
All Funds
All Funds distribute their net realized capital gains, if any, at least
annually.
It is possible that a Fund may make a distribution in excess of the Fund's
earnings and profits. You will treat such a distribution as a return of capital
which is applied against and reduces your basis in your shares. You will treat
the excess of any such distribution over your basis in your shares as gain from
a sale or exchange of the shares.
Each Fund will pay distributions in additional shares of that Fund. If you wish
to receive distributions in cash, either indicate this request on your account
application form or notify the Funds by calling (800) 438-5789.
16
<PAGE>
Federal Tax Considerations
- --------------------------------------------------------------------------------
Investments in a Fund may have tax consequences that you should consider. This
section briefly describes some of the more common federal tax consequences. A
more detailed discussion about the tax treatment of distributions from the
Funds and about other potential tax liabilities, including backup withholding
for certain taxpayers and about tax aspects of dispositions of shares of the
Funds, is contained in the Statement of Additional Information. You should
consult your tax adviser about your own particular tax situation.
Taxes On Distributions
You will generally have to pay federal income tax on all Fund distributions.
Distributions will be taxed in the same manner whether you receive the
distributions in cash or in additional shares of the Fund. Shareholders not
subject to tax on their income, generally will not be required to pay any tax
on distributions.
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 you pay 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 you held your
Fund shares.
Distributions are generally taxable to you in the tax year in which they are
paid, with one exception: distributions declared in October, November or
December, but not paid until January of the following year, are taxed as though
they were paid on December 31 in the year in which they were declared.
Shareholders generally are required to report all Fund distributions on their
federal income tax returns. Each year the Funds will send you information
detailing the amount of ordinary income and capital gains paid to you for the
previous year.
Taxes On Sales
If you sell shares of a Fund, you generally will be subject to tax on any
taxable gain. Your taxable gain is computed by subtracting your tax basis in
the shares from the redemption proceeds. Because your tax basis depends on the
original purchase price and on the price at which any dividends may have been
reinvested, you should be sure to keep account statements so that you or your
tax preparer will be able to determine whether a sale will result in a taxable
gain.
Other Considerations
If you buy shares of a Fund just before the Fund makes any distribution, you
will pay the full price for the shares and then receive back a portion of the
money you have just invested in the form of a taxable distribution.
If you have not provided complete, correct taxpayer information by law, the
Funds must withhold a portion of your distributions and redemption proceeds to
pay federal income taxes.
17
<PAGE>
Management
- --------------------------------------------------------------------------------
Investment Advisor
Munder Capital Management ("MCM"), 480 Pierce Street, Birmingham, Michigan
48009 is the investment advisor of the Money Market Fund and Short Term
Treasury 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 December 31, 1999, MCM and its
affiliates had approximately $56 billion in assets under management, of which
$36 billion were invested in equity securities, $7 billion were invested in
money market or other short-term instruments, $7 billion were invested in other
fixed income securities, and $6 billion in non-discretionary assets. As of
December 31, 1999, World had approximately $21.9 billion in assets under
management, of which $17.1 billion were invested in domestic equity securities,
$4.2 billion were invested in international equity securities and $0.7 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, 1999, each Fund paid an advisory fee at
an annual rate based on the average daily net assets of the fund (after
waivers, if any) as follows:
<TABLE>
<S> <C>
S&P 500 Index Equity Fund................................................. 0.00%
MidCap Index Equity Fund.................................................. 0.00%
SmallCap Index Equity Fund................................................ 0.00%
Money Market Fund......................................................... 0.20%
</TABLE>
Because World voluntarily agreed to waive a portion of its fee for each of the
Index Funds, the payments shown above for those Funds is less than the
contractual advisory fee of 0.07%, 0.15% and 0.15%, respectively, of the S&P
500 Index Equity Fund's average daily net assets, MidCap Index Equity Fund's
average daily net assets and SmallCap Index Equity Fund's average daily net
assets.
MCM is entitled to receive an annual fee equal to 0.20% of the average daily
net assets of the Short Term Treasury Fund.
Portfolio Managers
Index Funds
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 III
and Mark Drouse jointly manage the SmallCap Index Equity Fund.
Mr. Schluchter, Director of Domestic Investments of the advisor, has managed
the Index 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).
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) and a
systems administrator for Munder Capital Management (1995-1996).
Short Term Treasury Fund
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.
18
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
The financial highlights table is intended to help shareholders understand the
Funds' financial performance for the past 5 years (or, if shorter, 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). As of the date of this Prospectus, Class K
shares of the Money Market Fund and the Short Term Treasury Fund have not
commenced operations. The information has been audited by Ernst & Young LLP,
independent auditors, whose report along with the Funds' financial statements,
are included in the annual report, and is incorporated by reference into the
statement of Additional Information. You may obtain the annual report without
charge by calling (800) 438-5789.
<TABLE>
<CAPTION>
S&P 500 MidCap SmallCap
Index Index Index
Equity Equity Equity
Fund(a) Fund(a) Fund(a)
----------- ----------- -----------
Period Period Period
Ended Ended Ended
12/31/99(d) 12/31/99(d) 12/31/99(d)
----------- ----------- -----------
<S> <C> <C> <C>
Net asset value, beginning of period... $10.00 $10.00 $ 10.00
------ ------ -------
Income from investment operations:
Net investment income.................. 0.02 0.02 0.02
Net realized and unrealized gain on in-
vestments............................. 0.81 0.82 1.00
------ ------ -------
Total from investment operations....... 0.83 0.84 1.02
------ ------ -------
Less distributions:
Distributions from net investment in-
come.................................. (0.05) (0.06) (0.01)
Distributions in excess of net invest-
ment income........................... -- (0.02) --
Distributions from net realized gains.. (0.23) (1.76) --
Distributions from capital............. (0.01) -- (0.11)
------ ------ -------
Total distributions.................... (0.29) (1.84) (0.12)
------ ------ -------
Net asset value, end of period......... $10.54 $ 9.00 $ 10.90
====== ====== =======
Total return (b)....................... 8.36% 9.77% 10.31%
====== ====== =======
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's)... $4,212 $1,232 $30,820
Ratio of operating expenses to average
net assets............................ 0.34%(c) 0.43%(c) 0.43%(c)
Ratio of net investment income to aver-
age net assets........................ 1.01%(c) 1.21%(c) 0.89%(c)
Portfolio turnover rate................ 10% 36% 3%
Ratio of operating expenses to average
net assets without expenses
reimbursed............................ 1.35%(c) 1.29%(c) 0.76%(c)
</TABLE>
- --------
(a) The Munder Institutional S&P 500 Index Equity Fund Class K and Munder
Institutional S&P MidCap Equity Fund Class K commenced operations on
November 4, 1999. The Munder Institutional S&P SmallCap Index Equity Fund
Class K commenced operations on October 28, 1999.
(b) Total return represents aggregate total return for the period indicated.
(c) Annualized.
(d) Per share numbers have been calculated using the average shares method.
19
<PAGE>
Appendix
- --------------------------------------------------------------------------------
Standard & Poor's Indexes
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard and Poor's 500",
"500", "S&P MidCap 400", "Standard & Poor's MidCap 400", "400", "S&P SmallCap
600(R)", "Standard & Poor's SmallCap 600" and "600" are trademarks of McGraw-
Hill Companies, Inc. (McGraw-Hill) and have been licensed for use by St. Clair
Funds, Inc. (the "Company"). Standard and Poor's Ratings Service (S&P) is a
division of McGraw-Hill.
The Index 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 Index
Funds or any member of the public regarding the advisability of investing in
securities generally or in the Index Funds particularly or the ability of the
S&P 500, the S&P MidCap 400 or the S&P SmallCap 600 to track general stock
market performance. S&P's only relationship to the Index 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 Index Funds.
S&P has no obligation to take the needs of the Company or the owners of the
Index 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 Index Funds
or the timing of the issuance or sale of the Index Funds or in the
determination or calculation of the equation by which the Index Funds are to be
converted into cash. S&P has no obligation or liability in connection with the
administration, marketing or trading of the Index 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 Index Funds, owners of the Index 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.
20
<PAGE>
More information about The Munder Institutional Funds
is available free upon request, including the following:
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the Funds' investments is available in
the Funds' annual and semi-annual reports to shareholders. In the
Funds' annual report, you will find a discussion of the market
conditions and investment strategies that significantly affected the
fund's performance during its last fiscal year. You will receive
unaudited semi-annual reports and audited annual reports on a
regular basis from the Funds. In addition, you will also receive
updated Prospectuses or Supplements to this Prospectus. In order
to eliminate duplicate mailings, the Funds will only send one copy of
the above communications to (1) accounts with the same primary
record owner, (2) joint tenant accounts, (3) tenant in common
accounts and (4) accounts which have the same address.
STATEMENT OF ADDITIONAL INFORMATION
Provides more details about all of the funds and their policies. A
current Statement of Additional Information is on file with the
Securities and Exchange Commission and is incorporated by
reference (is legally considered part of this prospectus).
- ------------------------------------------------------------------------
To Obtain Information:
BY TELEPHONE
Call 1-800-438-5739
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, D.C.
(phone 1-202-942-8090) or by sending your request and a
duplicating fee to the Securities and Exchange Commission's Public
Reference Section, Washington, D.C., 20549-0102. You may also
obtain information after paying a duplicating fee, by electronic
request at: [email protected].
- ------------------------------------------------------------------------
SEC file number: 811-4038
PROINSTK 400
Investment Advisor: Munder Capital Management
Distributed by: Distributor, Inc.
<PAGE>
CLASS Y SHARES
PROSPECTUS
APRIL 28, 2000
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
.Short Term Treasury Fund
.Money Market Fund
9 Who May Want To Invest
10 Fees and Expenses
11 More About Munder Institutional Funds
13 Your Investment
13 How To Reach The Funds
13 Purchasing Shares
14 Redeeming Shares
14 Additional Policies For Purchases and Redemptions
15 Pricing of Fund Shares
16 Distributions
17 Federal Tax Considerations
17 Taxes On Distributions
17 Taxes On Sales
17 Other Considerations
18 Management
18 Investment Advisor
18 Portfolio Managers
19 Financial Highlights
21 Appendix
</TABLE>
Back Cover For Additional Information
<PAGE>
Risk/Return Summary
- --------------------------------------------------------------------------------
This Risk/Return Summary briefly describes the goals and principal investment
strategies of the Funds and the principal risks of investing in the Funds. For
further information on the Funds' investment strategies and risks, please read
the section entitled More About Munder Institutional Funds.
An investment in a Fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other governmental agency.
Index Funds
S&P 500 Index Equity Fund
Goal
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.
Principal Investment Strategies
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 advisor employs a "quantitative" or "indexing" investment approach, which
attempts to duplicate the investment composition and performance of the
particular index through statistical procedures. The advisor invests in stocks
that are included in the particular index, in approximately the same
proportions as they are represented in the index. As a result, the advisor does
not use traditional methods of fund investment management, i.e., it does not
select stocks on the basis of economic, financial and market analysis.
The Fund will try to achieve a correlation between the performance of its
portfolio and that of the S&P 500 of at least .95. A correlation of 1.0 would
mean that the changes in the Fund's price mirror exactly the changes 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."
Principal Risks
The Fund is subject to the following principal investment risks:
. The Fund will invest in the securities included in the S&P 500 regardless of
market trends. As a result, the Fund cannot modify it's investment strategies
to respond to changes in the economy, which means it may be particularly
susceptible to a general decline in the stock market segment relating to the
S&P 500.
. An adverse event, such as an unfavorable earnings report, may depress the
value of a particular stock held by the Fund.
. Because the Fund has operating expenses, while the S&P 500 does not, the
Fund's returns are likely to be lower than those of the S&P 500. Tracking
variance may also result from share purchases, redemptions and other factors.
. The share price of the Fund will change daily based on market conditions and
other factors; you may lose money if you invest in the Fund.
. The Fund cannot be certain it will achieve its investment goal.
2
<PAGE>
Performance
The bar chart and table below give some indication of the variability of an
investment in the Fund. The bar chart shows the Fund's performance for each
calendar year since inception. The table shows the Fund's average annual total
returns for different calendar periods over the life of the Fund compared to
those of a broad based securities market index.
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
Calendar Year Total Returns
Average Annual Total Returns
(As of December 31, 1999)
<TABLE>
-----------------------------------------
<S> <C> <C>
Since
Inception
Fund/Index 1 Year (October 14, 1997)
------------------------------------------
S&P 500 Index
Equity Fund 20.56% 21.93%
S&P 500
Composite
Index* 21.04% 23.27%**
</TABLE>
--------
[Bar Chart] *Standard & Poor's Composite 500
Index is an unmanaged index of
1998 28.23% common stock prices.
1999 20.56%
**Index return from September 30,
1997.
Best and Worst Quarterly Performance
(During the periods shown above)
Best Quarter: 4th Q 1998 21.17%
Worst Quarter: 3rd Q 1998 (9.94%)
3
<PAGE>
MidCap Index Equity Fund
Goal
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.
Principal Investment Strategies
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 advisor employs a "quantitative" or "indexing" investment approach, which
attempts to duplicate the investment composition and performance of the
particular index through statistical procedures. The advisor invests in stocks
that are included in the particular index, in approximately the same
proportions as they are represented in the index. As a result, the advisor does
not use traditional methods of fund investment management, i.e., it does not
select stocks on the basis of economic, financial and market analysis.
The Fund will try to achieve a correlation between the performance of its
portfolio and that of the S&P MidCap 400 of at least .95. A correlation of 1.0
would mean that the changes in the Fund's price mirror exactly the changes in
the S&P MidCap 400.
The Fund may also purchase foreign securities, enter into futures contracts and
lend portfolio securities, which are described below under "More About Munder
Institutional Funds."
Principal Risks
The Fund is subject to the following principal investment risks:
. The Fund will invest in the securities included in the S&P MidCap 400
regardless of market trends. As a result, the Fund cannot modify it's
investment strategies to respond to changes in the economy, which means it
may be particularly susceptible to a general decline in the stock market
segment relating to the S&P MidCap 400.
. An adverse event, such as an unfavorable earnings report, may depress the
value of a particular stock held by the Fund.
. The share price of the Fund will change daily based on market conditions and
other factors; you may lose money if you invest the Fund.
. Because the Fund has operating expenses, while the S&P MidCap 400 does not,
the Fund's returns are likely to be lower than those of the S&P MidCap 400.
Tracking variance may also result from share purchases, redemptions and other
factors.
. The Fund invests in stocks of smaller companies, which may have more risks
than stocks of larger companies. Smaller companies may be more susceptible to
market downturns, their prices may be more volatile and they may be less
liquid.
. The Fund cannot be certain it will achieve its investment goal.
4
<PAGE>
Performance
The bar chart and table below give some indication of the variability of an
investment in the Fund. The bar chart shows the Fund's performance for each
calendar year since inception. The table shows the Fund's average annual total
returns for different calendar periods over the life of the Fund compared to
those of a broad based securities market index.
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.
MidCap Index Equity Fund
Calendar Year Total Returns
Average Annual Total Returns
(As of December 31, 1999)
<TABLE>
------------------------------------------
<S> <C> <C>
Since
Inception
Fund/Index 1 Year (February 13, 1998)
------------------------------------------
MidCap Index
Equity Fund 14.69% 15.84%
S&P MidCap
400 Index* 14.72% 18.88%**
</TABLE>
--------
[Bar Chart] * Standard & Poor's Composite 500
Index is an unmanaged index of
1999 14.69% common stock prices.
**Index return from September 30,
1997.
Best and Worst Quarterly Performance
(During the periods shown above)
Best Quarter: 4th Q 1999 16.83%
Worst Quarter: 3rd Q 1999 (8.33%)
5
<PAGE>
SmallCap Index Equity Fund
Goal
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.
Principal Investment Strategies
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 advisor employs a "quantitative" or "indexing" investment approach, which
attempts to duplicate the investment composition and performance of the
particular index through statistical procedures. The advisor invests in stocks
that are included in the particular index, in approximately the same
proportions as they are represented in the index. As a result, the advisor does
not use traditional methods of fund investment management, i.e., it does not
select stocks on the basis of economic, financial and market analysis.
The Fund will try to achieve a correlation between the performance of its
portfolio and that of the S&P SmallCap 600 of at least .95. A correlation of
1.0 would mean that the changes in the Fund's price mirror exactly the changes
in the S&P SmallCap 600.
The Fund may also purchase foreign securities, enter into futures contracts and
lend portfolio securities, which are described below under "More About The
Munder Institutional Funds."
Principal Risks
The Fund is subject to the following principal investment risks:
. The Fund will invest in the securities included in the S&P SmallCap 600
regardless of market trends. As a result, the Fund cannot modify its
investment strategies to respond to changes in the economy, which means it
may be particularly susceptible to a general decline in the stock market
segment relating to the S&P SmallCap 600.
. An adverse event, such as an unfavorable earnings report, may depress the
value of a particular stock held by the Fund.
. The share price of the Fund will change daily based on market conditions and
other factors; you may lose money if you invest in the Fund.
. Because the Fund has operating expenses, while the S&P SmallCap 600 does not,
the Fund's returns are likely to be lower than those of the S&P SmallCap 600.
Tracking variance may also result from share purchases, redemptions and other
factors.
. The Fund invests in stocks of smaller companies, which may have more risks
than stocks of larger companies. Stock of smaller companies may be more
susceptible to market downturns, their prices may be more volatile and they
may be less liquid.
The Fund cannot be certain it will achieve its investment goal.
Performance
The Fund does not have a full calendar year of investment returns as of the
date of this Prospectus and, therefore, no performance information has been
provided.
6
<PAGE>
Short Term Treasury Fund
Goal
The Fund's goal is to provide investors with a high level of current income
consistent with the preservation of capital.
Principal Investment Strategies
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.
Performance
The Fund does not have a full calendar year of investment returns as of the
date of this Prospectus and, therefore, no performance information has been
provided.
7
<PAGE>
Money Market Fund
Goal
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.
Principal Investment Strategies
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.
Performance
The Fund does not have a full calendar year of investment returns as of the
date of this Prospectus and, therefore, no performance information has been
provided.
8
<PAGE>
Who May Want To Invest
The Index Funds may be appropriate for investors:
. Looking to invest over the long term.
. Able to ride out market swings.
. Looking to invest in a diversified stock portfolio focused on a particular
stock market segment.
The Money Market Fund may be appropriate for investors who are looking for as
high a level of income as is consistent with liquidity and stability of
principal.
The Short Term Treasury Fund may be appropriate for investors who are looking
for as high a level of income as is consistent with liquidity and stability of
principal.
None of the Funds alone provide a balanced investment program.
9
<PAGE>
Fees and Expenses
The tables below describe 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
Maximum Deferred Sales Charge (Load)....................................... None
Sales Charge (Load) Imposed on Reinvested Dividends........................ None
Redemption Fees............................................................ None
Exchange Fees.............................................................. None
</TABLE>
<TABLE>
<CAPTION>
S&P 500 MidCap SmallCap Short
Annual Fund Operating Expenses Index Index Index Term Money
(expenses that are paid from Fund Equity Equity Equity Treasury Market
assets) as a % of net 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 Operating Ex-
penses(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. 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 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, the actual other operating
expenses and total annual fund operating expenses for the last fiscal year
were: .00% and .20%, respectively, for the Money Market Fund. Because of
the expense reimbursement, it is estimated that other operating expenses
and total annual fund operating expenses for the current fiscal year are
expected to be: .03% and .23%, respectively, for the Short Term Treasury
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 $ 214 $ 483
</TABLE>
10
<PAGE>
More About Munder Institutional Funds
- --------------------------------------------------------------------------------
Index Funds
The Funds' principal strategies and risks are summarized above in the section
entitled Risk/Return Summary--Index Funds. Below is further information about
the Funds' principal investments. The Funds may also use strategies and invest
in securities described in the Statement of Additional Information.
Equity Securities. The Funds invest in equity securities which include common
stocks, preferred stocks, convertible preferred stocks and warrants or rights
to subscribe for or purchase such securities. Securities considered for
purchase by the Index Funds may be listed or unlisted.
Foreign Securities. Each Fund may invest in foreign securities, which include
securities issued by foreign companies and foreign governments and their
agencies, instrumentalities or political subdivisions and supranational
organizations. Investments by each Fund in foreign securities involve risks in
addition to those of U.S. securities. Foreign securities are generally more
volatile and less liquid than U.S. securities, in part because of higher
political and economic risks and because there is less public information
available about foreign companies. Also, a decline in the value of foreign
currencies relative to the U.S. dollar will reduce the value of securities
denominated in those currencies.
Futures Contracts. Each Fund may, but is not required to, use futures contracts
which are a type of derivative. A derivative is a financial contract whose
value is based on a security, an asset or a market index. The main risk with
derivatives is that some types can amplify a gain or loss, potentially earning
or losing substantially more money than the actual cost of the derivative. With
some derivatives, there is also the risk that the other party to the contract
may fail to honor its obligations, causing a loss for the Fund. The Funds will
not use derivatives for speculative purposes. Rather, each Fund will use
futures contracts to gain exposure to its index for its cash balances. There is
a risk that futures contracts could cause a Fund to track its index less
closely, if they do not perform as expected.
Securities Lending. Each Fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains or
losses. If the borrower fails to return the securities and the invested
collateral has declined in value, the Fund could lose money.
Short Term Treasury Fund
The Fund's principal strategies and risks are summarized above in the section
entitled Risk/Return Summary-Short Term Treasury Fund. Below is further
information about the Fund's principal investments. The Fund may also use
strategies and invest in securities described in the Statement of Additional
Information.
U.S. Treasury Securities. Securities purchased by the Fund are direct
obligations of the U.S. Treasury and are guaranteed by the full faith and
credit of the U.S. Government. These securities consist of U.S. Treasury bills
and U.S. Treasury notes. U.S. Treasury securities differ in their interest
rates, maturities and times of issuance. Treasury bills have initial maturities
of one year or less and Treasury notes have initial maturities of one to ten
years.
A portion of the U.S. Treasury Securities purchased by the Fund may be zero
coupon securities. These are U.S. Treasury notes which have been stripped of
their unmatured interest coupons and receipts. These securities are issued at a
discount from their face value because interest payments are typically
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
11
<PAGE>
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.
Money Market Fund
The Fund's principal strategies and risks are summarized above in the section
entitled Risk/Return Summary--Money Market Fund. Below is further information
about the Fund's principal investments. The Fund may also use strategies and
invest in securities described in the Statement of Additional Information.
The Fund has specific investment policies and procedures designed to maintain a
constant $1.00 net asset value per share. The Fund complies with rules of the
Securities and Exchange Commission, which impose certain liquidity, maturity
and diversification requirements. The Fund's investments must have remaining
maturities of 397 days or less and the average maturity of the Fund's
investments must be 90 days or less.
Money Market Securities. The Fund invests in money market securities, which are
high quality, short-term debt securities that pay a fixed, variable or floating
rate of interest. Securities are often specifically structured so that they are
eligible investments for a money market fund. For example, in order to satisfy
the maturity restrictions for a money market fund, some money market securities
have demand or put features which have the effect of shortening the security's
maturity. Money market securities include certificates of deposit, bankers'
acceptances, bank time deposits, notes, commercial paper and U.S. Government
securities.
U.S. Government Securities. The Fund invests in U.S. Government securities,
which are high-quality securities issued or guaranteed by the U.S. Treasury or
by an agency or instrumentality of the U.S. Government. U.S. Government
securities may be backed by the full faith and credit of the U.S. Treasury, the
right to borrow from the U.S. Treasury, or the agency or instrumentality
issuing or guaranteeing the security.
Foreign Securities. The Fund may invest in U.S. dollar denominated money market
securities of foreign issuers, which include securities issued by foreign
companies and foreign governments and their agencies, instrumentalities or
political subdivisions and supranational organizations. Investments by the Fund
in foreign securities involve risks in addition to those of U.S. securities.
Foreign securities are generally more volatile and less liquid than U.S.
securities, in part because of higher political and economic risks and because
there is less public information available about foreign companies.
Repurchase Agreements. The Fund may buy securities with the understanding that
the seller will buy them back with interest at a later date. If the seller is
unable to honor its commitment to repurchase the securities, the Fund could
lose money.
Guaranteed Investment Contracts. The Fund invests in guaranteed investment
contracts. Guaranteed investment contracts are agreements of the Fund to make
payments, generally to an insurance company's general account, in exchange for
a minimum level of interest based on an index. Guaranteed investment contracts
are considered illiquid investments and are acquired subject to the Fund's
limitation on illiquid investments.
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.
12
<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 shareholder services.
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);
. directors, trustees, officers and employees of the Munder Funds, the advisor
and the Funds' distributor;
. the advisor's investment advisory clients;
. family members of employees of the advisor.
Purchase Price of Shares
Shares of the Funds are sold at the net asset value per share (NAV) next
determined after a purchase order is received in proper form.
Policies for Purchasing 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.
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, the transfer agent or authorized dealer before the
close of regular trading on the New York Stock Exchange (normally, 4:00 p.m.
Eastern time).
Methods for Purchasing Shares
You can purchase Class Y shares through the Fund's transfer agent, though the
Fund's distributor or through arrangements with a broker-dealer or financial
institution.
. Through a Financial Institution. You may purchase shares through a financial
institution through procedures established with that institution.
Confirmations of share purchases will be sent to the institution.
. By Mail. You may open an account directly through the Fund's transfer agent
by completing, signing and mailing an account application form and a check or
other negotiable bank draft (payable to The Munder Funds) to: The Munder
Funds, c/o First Data Investor Services Group, P.O. Box 60428, King of
Prussia, Pennsylvania, 19406-0428. You can obtain an account application form
by calling (800) 438-5789. For additional investments, send a letter stating
the Fund and share class you wish to purchase, your name and your account
number with a check to the address listed above. We do not generally accept
third-party checks.
. By Wire. You may make additional investments in the Funds by wire. Wire
instructions must state the Fund name, share class, your registered name and
your account number. Your bank wire should be sent through the Federal
Reserve Bank Wire System to:
Boston Safe Deposit and Trust Company
Boston, MA
ABA# 011001234
DDA# 16-798-3
Account No.:
Note that banks may charge fees for transmitting wires.
13
<PAGE>
Redeeming Shares
Redemption Price
Redemption requests are effected at the NAV next determined after the transfer
agent receives the request in proper form.
Methods for Redeeming Shares
. You may redeem shares of all Funds through your broker-dealer or 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 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 Redemptions
. We consider requests to be in "proper form" when all required documents are
properly completed, signed and received.
. All orders to purchase shares are subject to acceptance by the Funds.
. At any time, the Funds may change any of their purchase or redemption
procedures, and may suspend the sale of its shares.
. The Funds may delay sending redemption proceeds for up to seven days, or
longer if permitted by the Securities and Exchange Commission.
. To limit Fund expenses, we do not issue share certificates.
. A Fund may temporarily stop redeeming shares if:
. the New York Stock Exchange is closed;
. trading on the New York Stock Exchange is restricted;
. an emergency exists and a Fund cannot sell its assets or accurately
determine the value of its assets; or
. the Securities and Exchange Commission orders a 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 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.
. 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 unauthorized transactions.
. If you purchased shares directly through the Funds' transfer agent, the
transfer agent will send you confirmations of the opening of an account and
of all subsequent purchases or redemptions in the account. Confirmations of
transactions effected through an institution will be sent to the institution.
. Financial institutions are responsible for transmitting orders and payments
for their customers on a timely basis.
14
<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 regular trading 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.
The NAV of each Fund is generally based on the market value of the securities
held in the Fund. If market values are not available, the fair value of
securities is determined in good faith by, or using procedures approved by, the
Board of Directors of the Funds.
Trading in foreign securities may be completed at times that vary from the
closing of the New York Stock Exchange. A Fund values foreign securities at the
latest closing price on the exchange on which they are traded immediately prior
to the closing of the New York Stock Exchange. Certain foreign currency
exchange rates may also be determined at the latest rate prior to the closing
of the New York Stock Exchange. Foreign securities quoted in foreign currencies
are translated into U.S. dollars at current rates. Occasionally, events that
affect these values and exchange rates may occur between the times at which
they are determined and the closing of the New York Stock Exchange. If the
advisor believes that such events materially affect the value of portfolio
securities, these securities may be valued at their fair market value as
determined in good faith by, or using procedures approved by, the Funds' Board
of Directors.
Foreign securities may trade in their primary markets on weekends or other days
when a Fund does not price its shares. Therefore, the value of a Fund's
portfolio 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 regular trading on 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.
15
<PAGE>
Distributions
- --------------------------------------------------------------------------------
As a shareholder, you are entitled to your share of a Fund's net income and
gains on its investments. The Funds pass substantially all of their earnings
along to their shareholders as distributions. When the Funds earn 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.
Index Funds
These Funds pay dividends, if any, at least quarterly.
Short Term Treasury Fund
This Fund pays dividends, if any, at least monthly.
Money Market Fund
Dividend distributions are declared daily and paid monthly.
All Funds
All Funds distribute their net realized capital gains, if any, at least
annually.
It is possible that a Fund may make a distribution in excess of the Fund's
earnings and profits. You will treat such a distribution as a return of capital
which is applied against and reduces your basis in your shares. You will treat
the excess of any such distribution over your basis in your shares as gain from
a sale or exchange of the shares.
Each Fund will pay distributions in additional shares of that Fund. If you wish
to receive distributions in cash, either indicate this request on your account
application form or notify the Funds by calling (800) 438-5789.
16
<PAGE>
Federal Tax Considerations
- --------------------------------------------------------------------------------
Investments in a Fund may have tax consequences that you should consider. This
section briefly describes some of the more common federal tax consequences. A
more detailed discussion about the tax treatment of distributions from the
Funds and about other potential tax liabilities, including backup withholding
for certain taxpayers and about tax aspects of dispositions of shares of the
Funds, is contained in the Statement of Additional Information. You should
consult your tax adviser about your own particular tax situation.
Taxes On Distributions
You will generally have to pay federal income tax on all Fund distributions.
Distributions will be taxed in the same manner whether you receive the
distributions in cash or in additional shares of the Fund. Shareholders not
subject to tax on their income, generally will not be required to pay any tax
on distributions.
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 you pay 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 you held your
Fund shares.
Distributions are generally taxable to you in the tax year in which they are
paid, with one exception: distributions declared in October, November or
December, but not paid until January of the following year, are taxed as though
they were paid on December 31 in the year in which they were declared.
Shareholders generally are required to report all Fund distributions on their
federal income tax returns. Each year the Funds will send you information
detailing the amount of ordinary income and capital gains paid to you for the
previous year.
Taxes On Sales
If you sell shares of a Fund, you generally will be subject to tax on any
taxable gain. Your taxable gain is computed by subtracting your tax basis in
the shares from the redemption proceeds. Because your tax basis depends on the
original purchase price and on the price at which any dividends may have been
reinvested, you should be sure to keep account statements so that you or your
tax preparer will be able to determine whether a sale will result in a taxable
gain.
Other Considerations
If you buy shares of a Fund just before the Fund makes any distribution, you
will pay the full price for the shares and then receive back a portion of the
money you have just invested in the form of a taxable distribution.
If you have not provided complete, correct taxpayer information by law, the
Funds must withhold a portion of your distributions and redemption proceeds to
pay federal income taxes.
17
<PAGE>
Management
- --------------------------------------------------------------------------------
Investment Advisor
Munder Capital Management ("MCM"), 480 Pierce Street, Birmingham, Michigan
48009 is the investment advisor of the Money Market Fund and Short Term
Treasury 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 December 31, 1999, MCM and its
affiliates had approximately $56 billion in assets under management, of which
$36 billion were invested in equity securities, $7 billion were invested in
money market or other short-term instruments, $7 billion were invested in other
fixed income securities, and $7 billion in non-discretionary assets. As of
December 31, 1999, World had approximately $21.9 billion in assets under
management, of which $17.1 billion were invested in domestic equity securities,
$4.2 billion were invested in international equity securities and $0.7 billion
were invested in other fixed income securities.
The advisors provide overall investment management for the Funds, provide
research and credit analysis and are responsible for all purchases and sales of
portfolio securities.
For the fiscal year ended December 31, 1999, each Fund paid an advisory fee at
an annual rate based on the average daily net assets of the Fund (after
waivers, if any) as follows:
<TABLE>
<S> <C>
S&P 500 Index Equity Fund................................................. 0.00%
MidCap Index Equity Fund.................................................. 0.00%
SmallCap Index Equity Fund................................................ 0.00%
Money Market Fund......................................................... 0.20%
</TABLE>
Because World voluntarily agreed to waive a portion of its fee for each of the
Index Funds, the payments shown above for those Funds is less than the
contractual advisory fee of 0.07%, 0.15% and 0.15%, respectively, of the S&P
500 Index Equity Fund's average daily net assets, MidCap Index Equity Fund's
average daily net assets and SmallCap Index Equity Fund's average daily net
assets.
MCM is entitled to receive an annual fee equal to 0.20% of the average daily
net assets of the Short Term Treasury 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 its own resources and
there are no additional costs to the Funds or their shareholders.
Portfolio Managers
Index Funds
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 III
and Mark Drouse jointly manage the SmallCap Index Equity Fund.
Mr. Schluchter, Director of Domestic Investments of the advisor, has managed
the Index 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).
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) and a
systems administrator for Munder Capital Management (1995-1996).
Short Term Treasury Fund
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.
18
<PAGE>
Financial Highlights
- -------------------------------------------------------------------------------
The financial highlights table is intended to help shareholders understand the
Funds' financial performance for the past 5 years (or, if shorter, 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 Short Term Treasury Fund commenced
operations on January 4, 2000. The information has been audited by Ernst &
Young LLP, independent auditors, whose report along with the Funds' financial
statements, are included in the annual report, and is incorporated by
reference into the statement of Additional Information. You may obtain the
annual report without change by calling (800) 438-5789.
<TABLE>
<CAPTION>
S&P 500 Index MidCap Index
Equity Fund(a) Equity Fund(a)
------------------------------ --------------------
Year Year Period Year Period
Ended Ended Ended Ended Ended
12/31/99(e) 12/31/98 12/31/97 12/31/99(e) 12/31/98
----------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 12.49 $ 10.00 $ 10.00 $11.08 $ 10.00
-------- ------- ------- ------ -------
Income from investment
operations:
Net investment income.... 0.17 0.17 0.04 0.16 0.11
Net realized and
unrealized gain on
investments............. 2.36 2.63 0.00(d) 1.48 1.34
-------- ------- ------- ------ -------
Total from investment
operations.............. 2.53 2.80 0.04 1.64 1.45
-------- ------- ------- ------ -------
Less distributions:
Distributions from net
investment income....... (0.17) (0.17) (0.04) (0.17) (0.11)
Distributions in excess
of net investment
income.................. -- -- -- (0.05) --
Distributions from net
realized gains.......... (0.32) (0.14) -- (2.21) (0.26)
-------- ------- ------- ------ -------
Distributions from
capital................. (0.02) -- -- -- --
-------- ------- ------- ------ -------
Total distributions...... (0.51) (0.31) (0.04) (2.43) (0.37)
-------- ------- ------- ------ -------
Net asset value, end of
period.................. $ 14.51 $ 12.49 $ 10.00 $10.29 $ 11.08
======== ======= ======= ====== =======
Total return (b)......... 20.56% 28.22% 0.39% 14.69% 15.04%
======== ======= ======= ====== =======
Ratios to average net
assets/ supplemental
data:
Net assets, end of period
(in 000's).............. $118,761 $69,032 $63,999 $9,264 $10,853
Ratio of operating
expenses to average net
assets.................. 0.09% 0.09% 0.09%(c) 0.18% 0.18%
Ratio of net investment
income to average net
assets.................. 1.26% 1.44% 1.76%(c) 1.46% 1.20%
Portfolio turnover rate.. 10% 6% 0% 36% 37%
Ratio of operating
expenses to average net
assets without expenses
reimbursed.............. 0.32% 0.32% 0.61%(c) 1.04% 0.88%
</TABLE>
- --------
(a) The Munder Institutional S&P 500 Index Equity Fund Class Y commenced
operations on October 14, 1997.
The Munder Institutional S&P MidCap Index Equity Fund Class Y commenced
operations on February 13, 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.
(e) Per share numbers have been calculated using the average shares method.
19
<PAGE>
<TABLE>
<CAPTION>
Money
SmallCap Index Market
Equity Fund(a) Fund(a)
---------------------------------- --------
Period Period Period Perio d
Ended Ended Ended Ended
12/31/99(d) 12/31/98 12/31/97 12/31/99
----------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period.................. $ 10.00 $10.23 $10.00 $ 1.00
------- ------ ------ --------
Income from investment
operations:
Net investment income....... 0.02 0.02 0.04 0.050
Net realized and unrealized
gain on investments........ 1.02 0.84 0.26 --
Total from investment
operations................. 1.04 0.86 0.30 0.050
------- ------ ------ --------
Less distributions:
Distributions from net
investment income.......... (0.01) -- (0.04) 0.050
Distributions from capital.. (0.12) (0.04) (0.03) --
------- ------ ------ --------
Total distributions......... (0.13) (0.04) (0.07) (0.050)
------- ------ ------ --------
Net asset value, end of
period..................... $ 10.91 $11.05(e) $10.23 $ 1.00
======= ====== ====== ========
Total return (b)............ 10.50% 8.41% 3.00% 5.09%
======= ====== ====== ========
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's)................. $22,834 $ -- $2,559 $102,535
Ratio of operating expenses
to average net assets...... 0.18%(c) 0.18%(f) 0.18%(c) 0.20%(c)
Ratio of net investment
income to average net
assets..................... 1.14%(c) 0.52%(f) 0.80%(c) 4.99%(c)
Portfolio turnover rate..... 3% 17% 8% --
Ratio of operating expenses
to average net assets
without expenses
reimbursed................. 0.52%(c) 4.53%(f) 3.88%(c) 0.37%(c)
</TABLE>
- --------
(a) The Munder Institutional SmallCap Index Equity Fund Class Y commenced
operations on August 7, 1997. The Munder Institutional SmallCap Index
Equity Fund ceased investment operations on May 18,1998 and resumed
operations on October 27, 1999. The Munder Institutional Money Market Fund
Class Y commenced operations on January 4, 1999.
(b) Total return represents aggregate total return for the period indicated.
(c) Annualized.
(d) Per share numbers have been calculated using the average shares method.
(e) Reflects the net asset value on May 18, 1998.
(f) Annualized based on the activity of the Munder Institutional SmallCap Index
Equity Fund through May 18, 1998.
20
<PAGE>
Appendix
- --------------------------------------------------------------------------------
Standard & Poor's Indexes
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard and Poor's 500",
"500", "S&P MidCap 400", "Standard & Poor's MidCap 400", "400", "S&P SmallCap
600(R)", "Standard & Poor's SmallCap 600" and "600" are trademarks of McGraw-
Hill Companies, Inc. (McGraw-Hill) and have been licensed for use by St. Clair
Funds, Inc. (the "Company"). Standard and Poor's Ratings Service (S&P) is a
division of McGraw-Hill.
The Index 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 Index
Funds or any member of the public regarding the advisability of investing in
securities generally or in the Index Funds particularly or the ability of the
S&P 500, the S&P MidCap 400 or the S&P SmallCap 600 to track general stock
market performance. S&P's only relationship to the Index 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 Index Funds.
S&P has no obligation to take the needs of the Company or the owners of the
Index 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 Index Funds or the timing of the
issuance or sale of the Index Funds or in the determination or calculation of
the equation by which the Index Funds are to be converted into cash. S&P has no
obligation or liability in connection with the administration, marketing or
trading of the Index 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 Index Funds, owners of the Index 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.
21
<PAGE>
More information about The Munder Institutional Funds is available free upon
request, including the following:
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the Funds' investments is available in the Funds'
annual and semi-annual reports to shareholders. In the Funds' annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the fund's performance during its last fiscal year. You
will receive unaudited semi-annual reports and audited annual reports on a
regular basis from the Funds. In addition, you will also receive updated
Prospectuses or Supplements to this Prospectus. In order to eliminate duplicate
mailings, the Funds will only send one copy of the above communications to (1)
accounts with the same primary record owner, (2) joint tenant accounts, (3)
tenant in common accounts and (4) accounts which have the same address.
STATEMENT OF ADDITIONAL INFORMATION
Provides more details about all of the funds and their policies. A current
Statement of Additional Information is on file with the Securities and Exchange
Commission and is incorporated by reference (is legally considered part of this
prospectus).
To Obtain Information:
BY TELEPHONE
Call 1-800-438-5789
BY MAIL
Write to:
The Munder Funds
480 Pierce Street
Birmingham, MI 48009
ON THE INTERNET
Text-only versions of the 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, D.C. (phone 1-202-942-8090) or by sending
your request and a duplicating fee to the Securities and Exchange Commission's
Public Reference Section, Washington, D.C. 20549-0102. You may also obtain
information, after paying a duplicating fee, by electronic request at:
[email protected].
SEC file number: 811-4038
PROINSTY400
Investment Advisor: Munder Capital Management
Distributed by: Funds Distributor, Inc.
<PAGE>
--------------------------------------------------------
p r o s p e c t u s
LIQUIDITY PLUS MONEY MARKET FUND
April 28, 2000
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
2 Goal
2 Principal Investment Strategies
2 Principal Risks
2 Who May Want To Invest
3 Performance
4 Fees and Expenses
5 More About The Fund
6 Your Investment
6 How To Reach The Fund
6 Purchasing Shares
6 Redeeming Shares
6 Additional Policies for Purchases and Redemptions
8 Distribution Arrangements
8 Rule 12b-1 Plan
8 Other Information
9 Pricing Of Fund Shares
9 Distributions
10 Federal Tax Considerations
10 Taxes on Distributions
10 Taxes on Sales
10 Other Considerations
11 Management
11 Investment Advisor
12 Financial Highlights
</TABLE>
Back Cover For Additional Information
<PAGE>
Risk/Return Summary
- --------------------------------------------------------------------------------
This Risk/Return Summary briefly describes the Liquidity Plus Money Market Fund
and the principal risks of investing in the Fund. For further information on
the Fund, please read the section entitled More About the Fund.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
Goal
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.
Principal Investment Strategies
The Fund pursues its goal by investing in U.S. dollar-denominated money market
securities including U.S. Government securities, bank obligations and
repurchase agreements.
The Fund may also invest in foreign securities, guaranteed investment
contracts, and asset-backed securities, and engage in securities lending, which
are described below under "More About The Fund."
Principal Risks
The Fund is subject to the following principal investment risks:
. The rate of income will vary from day to day, depending on short-term
interest rates. An increase in prevailing interest rates will cause fixed
income securities held by the Fund to decline in value.
. 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 are looking for as high a level
of income as is consistent with liquidity and stability of principal.
The Fund alone does not provide a balanced investment program.
2
<PAGE>
Performance
The bar chart and table below give some indication of the risk of an investment
in the Fund. The bar chart shows the Fund's performance for each calendar year
since inception. The table shows the Fund's average annual total returns for
different calendar periods over the life of the Fund. When you consider this
information, please remember the Fund's past performance is not necessarily an
indication of how the Fund will do in the future.
Calendar Year Total Returns
Average Annual Total Returns
(for periods ended December 31,
1999)
<TABLE>
-----------------------------------------
<S> <C> <C>
[BAR CHART] Since
1998 4.68% Inception
1999 4.35% 1 Year (6/4/97)
-----------------------------------------
Liquidity Plus Money Market 4.35% 4.52%
</TABLE>
You may call 1-800-438-5789 to
obtain the Fund's current 7 day
yield.
Best and Worst Quarterly Performance
(During the periods shown above)
<TABLE>
<S> <C> <C>
Best Quarter: 4th Q 1999 1.18%
Worst Quarter: 2nd Q 1999 1.00%
</TABLE>
3
<PAGE>
Fees and Expenses
The tables below describe the fees and expenses that you may pay if you buy and
hold shares of the Fund. Please note that 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
Maximum Deferred Sales Charge (Load)....................................... None
Sales Charge (Load) Imposed on Reinvested Dividends........................ None
Redemption Fees............................................................ None
Exchange Fees.............................................................. None
</TABLE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses (expenses that are paid from Fund assets)
as a % of net assets
- ------------------------------------------------------------------------
<S> <C>
Management Fees.......................................................... 0.35%
Distribution and Service (12b-1) Fees.................................... 0.35%
Other Expenses........................................................... 0.27%
-----
Total Annual Fund Operating Expenses..................................... 0.97%
=====
</TABLE>
Example
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated and then sell all of
your shares at the end of those periods. The example also assumes that your
investment has a 5% return each year, 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>
$99 $309 $537 $1,195
</TABLE>
4
<PAGE>
More About The Fund
- --------------------------------------------------------------------------------
The Fund's principal strategies and risks are summarized in the Risk/Return
Summary. Below is further information about the Fund's principal investments.
The Fund may also use strategies and invest in securities described in the
Statement of Additional Information.
The Fund has specific investment policies and procedures designed to maintain a
constant $1.00 net asset value per share. The Fund complies with rules of the
Securities and Exchange Commission, which impose certain liquidity, maturity
and diversification requirements. The Fund's investments must have remaining
maturities of 397 days or less and the average maturity of the Fund's
investments must be 90 days or less.
Money Market Securities. The Fund invests in money market securities, which are
high quality, short-term debt securities that pay a fixed, variable or floating
rate of interest. Securities are often specifically structured so that they are
eligible investments for a money market fund. For example, in order to satisfy
the maturity restrictions for a money market fund, some money market securities
have demand or put features which have the effect of shortening the security's
maturity. Money market securities include certificates of deposit, bankers'
acceptances, bank time deposits, notes, commercial paper and U.S. Government
securities.
U.S. Government Securities. The Fund invests in U.S. Government securities,
which are high-quality securities issued or guaranteed by the U.S. Treasury or
by an agency or instrumentality of the U.S. Government. U.S. Government
securities may be backed by the full faith and credit of the U.S. Treasury, the
right to borrow from the U.S. Treasury, or the agency or instrumentality
issuing or guaranteeing the security.
Foreign Securities. The Fund may invest in U.S. dollar-denominated money market
securities of foreign issuers, which include securities issued by foreign
companies and foreign governments and their agencies, instrumentalities or
political subdivisions and supranational organizations. Investments by the Fund
in foreign securities involve risks in addition to those of U.S. securities.
Foreign securities are generally more volatile and less liquid than U.S.
securities, in part because of higher political and economic risks and because
there is less public information available about foreign companies.
Repurchase Agreement. The Fund may buy securities with the understanding that
the seller will buy them back with interest at a later date. If the seller is
unable to honor its commitment to repurchase the securities, the Fund could
lose money.
Guaranteed Investment Contracts. The Fund invests in guaranteed investment
contracts, which are agreements of the Fund to make payments, generally to an
insurance company's general account, in exchange for a minimum level of
interest based on an index. Guaranteed investment contracts are considered
illiquid investments and are acquired subject to the Fund's limitation on
illiquid investments.
Asset-Backed Securities. Subject to applicable maturity and credit criteria,
the Fund may purchase securities backed by mortgages, installment sales
contracts, credit card receivables or other assets. Mortgage-backed securities
carry additional risks. The price and yield of these securities typically
assume that the securities will be redeemed at a given time before maturity.
When interest rates fall substantially, these securities are generally redeemed
early because the underlying mortgages are often prepaid. In that case, the
Fund would have to reinvest the money at a lower rate. In addition, the price
or yield of mortgage-backed securities may fall if they are redeemed later than
expected.
Variable and Floating Rate Securities. Variable and floating rate securities
have interest rates that are periodically adjusted either at set intervals or
that float at a margin above a generally recognized index rate. These
securities exhibit greater price variations than fixed-rate securities.
Securities Lending. The Fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains or
losses. If the borrower fails to return the securities and the invested
collateral has declined in value, the Fund could lose money.
5
<PAGE>
Your Investment
- --------------------------------------------------------------------------------
This section describes how to do business with the Fund.
How To Reach The Fund
By telephone: 1-800-438-5789
Call for shareholder services.
By mail:The Munder Funds
480 Pierce Street
Birmingham, MI 48009
Purchasing Shares
Who May Purchase Shares
Only certain institutional investors (including Comerica Securities) that have
an agreement with the Fund to provide shareholder services to their customers
may purchase shares of the Fund. Individuals may not purchase shares directly.
Individuals should contact their account representative to find out how to
purchase shares.
Purchasing Shares
Purchase orders will be executed at the net asset value per share (NAV) next
determined after receipt of the order in proper form.
Policies for Purchasing Shares
There is no minimum for initial or subsequent investments.
Institutional investors will purchase shares on behalf of a customer account
through procedures established in accordance with the requirements of the
account.
The Fund will send confirmations of share purchases to the institution
involved. Institutional investors will provide account statements to their
customers showing the customers' beneficial ownership of shares.
Provided their procedures are compatible with the purchase and redemption
policies of the Fund, institutional investors may purchase shares of the Fund
on behalf of their customers through automatic "sweeping" and other programs.
It is the responsibility of the institution to transmit orders for purchases by
its customers and to deliver payment of the shares on a timely basis.
Institutions may charge their customers certain account fees, depending on the
type of account the investor has established with the institution.
Redeeming Shares
Redemption Price
Redemption requests will be executed at the NAV next determined after the
transfer agent receives the request in proper form.
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
established by that institution.
. If the transfer agent receives a redemption order before 12:00 noon (Eastern
time), we will normally wire payment to the redeeming institution on the same
business day. For a redemption order received between 12:00 noon (Eastern
time) and 4:00 p.m. (Eastern time), we will normally wire payment on the next
business day.
Additional Policies for Purchases and Redemptions
. We consider requests to be in "proper form" when all required documents are
properly completed, signed and received.
. All orders to purchase shares are subject to acceptance by the Fund.
. At any time, the Fund may change any of its purchase or redemption procedures
and may suspend the sale of its shares.
. The Fund may delay wiring redemption proceeds for up to seven days or longer
if permitted by the Securities and Exchange Commission.
6
<PAGE>
. To limit Fund expenses, we do not issue share certificates.
. The Fund may temporarily stop redeeming shares if:
. the New York Stock Exchange is closed;
. trading on the New York Stock Exchange is restricted;
. the Securities and Exchange Commission orders the Fund to suspend
redemptions; or
. 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 the 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 Fund at 1-800-438-5789 for
more information.
. The Fund reserves the right to make payment for redeemed shares wholly or in
part by giving the redeeming shareholder portfolio securities. The
shareholder may pay transaction costs to dispose of these securities.
. We record all telephone calls for your protection and take measures to
identify the caller. As long as the Fund's transfer agent takes reasonable
measures to authenticate telephone requests on an investor's account, neither
the Fund, the Fund's distributor nor the transfer agent will be held
responsible for any losses resulting from unauthorized transactions.
7
<PAGE>
Distribution Arrangements
- --------------------------------------------------------------------------------
Rule 12b-1 Plan
The Fund has adopted a Rule 12b-1 plan. The Plan allows the Fund to use up to
.10% of its daily net assets to finance activities relating to the distribution
of its shares and up to .25% of its daily net assets pay for certain
shareholder services provided by institutions that have agreements with the
Fund to provide such services.
Because the fees are paid out of the Fund's assets on an on-going basis, over
time these fees will increase the cost of an investment in the Fund and may
cost a shareholder more than paying other types of sales charges.
Other Information
The advisor may, from time to time, make payments to banks, broker-dealers or
other financial institutions for certain services to the Fund and/or its
shareholders, including sub-administration, sub-transfer agency and shareholder
servicing. The advisor may make such payments out of its own resources and
there are no additional costs to the Fund or its shareholders.
8
<PAGE>
Pricing Of Fund Shares
- --------------------------------------------------------------------------------
The Fund's NAV is calculated on each day the New York Stock Exchange is open.
NAV is the value of a single share of a Fund. NAV is calculated by (1) taking
the current value of the Fund's total assets, (2) subtracting the liabilities
and expenses, (3) dividing the amount by the total number of shares.
In determining the Fund's NAV, securities are valued at amortized cost, which
is approximately equal to market value.
The Fund calculates NAV as of 12:00 p.m. (Eastern time) and as of the close of
regular trading on the New York Stock Exchange, normally 4:00 p.m. (Eastern
time). If the New York Stock Exchange closes early, the Fund will accelerate
its calculation of NAV and transaction deadlines to that time.
Distributions
- --------------------------------------------------------------------------------
As a shareholder, you are entitled to your share of the Fund's net income and
gains on its investments. The Fund passes substantially all of its earnings
along to its shareholders as distributions. When the Fund earns interest from
debt securities and distributes these earnings to shareholders, it is called a
dividend distribution. The Fund realizes capital gains when it sells securities
for a higher price than it paid. When these gains are distributed to
shareholders, it is called a capital gain distribution.
The Fund distributes its net realized capital gains, if any, at least annually.
Dividend distributions are declared daily and paid monthly.
If a purchase order is accepted by 12:00 p.m. (Eastern time), the investor will
receive dividends for that day. Otherwise the investor will begin to earn
dividends on the first business day following the day of purchase. If a
redemption order is received before 12:00 p.m. (Eastern time), the redeeming
shareholder will not receive dividends for that day. If the redemption is
received after 12:00 p.m. (Eastern time), the redeeming shareholder will
receive that days' dividends.
It is possible that a Fund may make a distribution in excess of the Fund's
earnings and profits. You will treat such a distribution as a return of capital
which is applied against and reduces your basis in your shares. You will treat
the excess of any such distribution over your basis in your shares as gain from
a sale or exchange of the shares.
The Fund will pay distributions in additional shares of the Fund. If you wish
to receive distributions in cash, either indicate this request on your account
application form or notify the Fund by calling (800) 438-5789.
9
<PAGE>
Federal Tax Considerations
- --------------------------------------------------------------------------------
Investments in the Fund will have tax consequences that an investor should
consider. This section briefly describes some of the more common federal tax
consequences. A more detailed discussion about the tax treatment of
distributions from the Fund and about other potential tax liabilities,
including backup withholding for certain taxpayers and about tax aspects of
dispositions of shares of the Fund, is contained in the Statement of Additional
Information. You should consult your tax adviser about your own particular tax
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 you
receive the distributions in cash or additional shares of the Fund.
Shareholders not subject to tax on their income, generally will not be required
to pay any tax on distributions.
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 you pay 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 you held your
Fund shares.
Distributions are generally taxable to you in the tax year in which they are
paid, with one exception: distributions declared in October, November or
December, but not paid until January of the following year, are taxed as though
they were paid on December 31 in the year in which they were declared.
Shareholders generally are required to report all Fund distributions on their
federal income tax returns. Each year the Fund will send shareholders
information detailing the amount of ordinary income and capital gains paid to
the shareholder for the previous year.
Taxes On Sales
If you sell shares of the Fund, you generally will be subject to tax on any
taxable gain. Taxable gain is computed by subtracting your tax basis in the
shares from the redemption proceeds. Because your tax basis depends on the
original purchase price and on the price at which any dividends may have been
reinvested, you should be sure to keep account statements so that you or your
tax preparer will be able to determine whether a sale will result in a taxable
gain.
Other Considerations
If you buy shares of a Fund just before the Fund makes any distribution, you
will pay the full price for the shares and then receive back a portion of the
money you have just invested in the form of a taxable distribution.
If you have not provided complete, correct taxpayer information by law, the
Fund must withhold a portion of your distributions and redemption proceeds to
pay federal income taxes.
10
<PAGE>
Management
- --------------------------------------------------------------------------------
Investment Advisor
The Fund's investment advisor is Munder Capital Management, 480 Pierce Street,
Birmingham, Michigan 48009. As of December 31, 1999, the advisor and its
affiliates had approximately $56 billion in assets under management, of which
$36 billion were invested in equity securities, $7 billion were invested in
money market or other short-term instruments, $7 billion were invested in other
fixed income securities, and $6 billion in non-discretionary assets.
The advisor provides overall investment management for the Fund, provides
research and credit analysis and is responsible for all purchases and sales of
portfolio securities.
For the fiscal year ended December 31, 1999, the Fund paid the advisor a fee
equal to 0.35% of its average daily net assets.
11
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
The financial highlights table is intended to help shareholders understand the
Fund's financial performance for the past 5 years (or, if shorter, the period
of the Fund's operations). Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that an
investor would have earned on an investment in the Fund (assuming reinvestment
of all dividends and distributions). The information has been audited by Ernst
& Young LLP, independent auditors, whose report along with the Fund's financial
statements, are included in the annual report, and is incorporated by reference
into the Statement of Additional Information. You may obtain the annual report
without charge by calling (800) 438-5789.
<TABLE>
<CAPTION>
Liquidity Plus
Money Market Fund(a)
----------------------------
Year Year Period
Ended Ended Ended
12/31/99 12/31/98 12/31/97
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period............ $ 1.00 $ 1.00 $ 1.00
-------- ------- -------
Income from investment operations:
Net investment income........................... 0.043 0.050 0.030
-------- ------- -------
Total from investment operations................ 0.043 0.050 0.030
-------- ------- -------
Less distributions:
Distributions from net investment income........ (0.043) (0.050) (0.030)
-------- ------- -------
Total distributions............................. (0.043) (0.050) (0.030)
-------- ------- -------
Net asset value, end of period.................. $ 1.00 $ 1.00 $ 1.00
-------- ------- -------
Total return (b)................................ 4.35% 4.68% 2.59%
======== ======= =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)............ $109,551 $76,975 $56,636
Ratio of operating expenses to average net as-
sets........................................... 0.96% 0.97% 0.86%(c)
Ratio of net investment income to average net
assets......................................... 4.28% 4.58% 4.29%(c)
Ratio of operating expenses to average net as-
sets without expenses
reimbursed..................................... 0.96% 0.97% 0.86%(c)
</TABLE>
- --------
(a) The Liquidity Plus Money Market Fund commenced operations on June 4, 1997.
(b) Total return represents aggregate total return for the period indicated.
(c) Annualized.
12
<PAGE>
For More Information
More information about Liquidity Plus Money
Market Fund is available free upon request,
including the following:
Annual/Semi-annual Reports
Additional information about the Fund's
investments is available in the Fund's annual
and semi-annual reports to shareholders. In
Fund's annual report, you will find a
discussion of the market conditions and
investment strategies that significantly
affected the fund's performance during its
last fiscal year. You will receive unaudited
semi-annual reports and audited annual
reports on a regular basis from the Fund. In
addition, you will also receive updated
Prospectuses or Supplements to this
Prospectus. In order to eliminate duplicate
mailings, the Fund will only send one copy of
the above communications to (1) accounts with
the same primary record owner, (2) joint
tenant accounts, (3) tenant in common
accounts and (4) accounts which have the same
address.
Statement of Additional Information
Provides more details about the Fund and its
policies. A current Statement of Additional
Information is on file with the Securities
and Exchange Commission and is incorporated
by reference (is legally considered part of
this prospectus).
To Obtain Information:
By telephone
Call 1-800-438-5789
By mail Write to:
The Munder Funds
480 Pierce Street
Birmingham, MI 48009
On the Internet Text-only versions of
fund documents can be viewed online or
downloaded from:
Securities and Exchange Commission
http://www.sec.gov
You can also obtain copies by visiting
the Securities and Exchange Commission's
Public Reference Room in Washington, DC
(phone 1-202-942-8090) or by sending your
request and a duplicating fee to the
Securities and Exchange Commission's
Public Reference Section, Washington, DC
20549-0102. You may also obtain
information, after paying a duplicating
fee, by electronic request at :
[email protected]
St. Clair Funds, Inc.
SEC file number: 811-4038
PROLIQ400
Investment Advisor: Munder Capital Management
Distributed by: Funds Distributor, Inc.
<PAGE>
Prospectus
________, 2000
Munder S&P 500 Index Equity Fund
Munder S&P MidCap Index Equity Fund
Munder S&P SmallCap Index Equity Fund
Munder Aggregate Bond Index Fund
Munder Foreign Equity Fund
As with all mutual funds, the Securities and
Exchange Commission does not guarantee that
the information in this prospectus is
accurate or complete, nor has it approved or
disapproved these securities. It is a
criminal offense to state otherwise.
<PAGE>
Table Of Contents
3 Risk/Return Summary
Index Equity Funds
3 Goals and Main Investment Strategies
3 Principal Risks
3 Performance
Aggregate Bond Index Fund
5 Goal and Main Investment Strategies
5 Principal Risks
5 Performance
Foreign Equity Fund
6 Goal and Main Investment Strategies
6 Principal Risks
6 Performance
7 More About The Funds
10 Shares Of The Funds
10 Pricing of Fund Shares
11 Distributions
11 Federal Tax Considerations
12 Management
12 Investment Advisor
12 Shareholder Servicing Plan
12 Year 2000
13 Appendix
Back Cover For Additional Information
<PAGE>
Risk/Return Summary
- --------------------------------------------------------------------------------
This Risk/Return Summary briefly describes each of the Funds and the principal
risks of investing in the Funds. For further information on the Funds, please
read the section entitled More About The Funds.
An investment in a Fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other governmental agency.
Index Equity Funds
Goals And Main Investment Strategies
S&P 500 Index Equity Fund
The Fund's goal is to provide price performance and income that is comparable to
the Standard and Poor's 500 Composite Stock Price Index (S&P 500). The S&P 500
is an index of 500 stocks that emphasizes large capitalization companies.
The Fund invests primarily in common stocks and it normally will hold the shares
of at least 80% of the issuers in the S&P 500.
The Fund may also purchase foreign securities, enter into futures contracts and
repurchase agreements and lend portfolio securities, which are described below
under "More About the Funds."
Midcap Index Equity Fund
The Fund's goal is to provide price performance and income that is comparable to
the Standard & Poor's MidCap 400 Index (S&P MidCap 400). The S&P MidCap 400 is
an index of 400 stocks that emphasizes medium capitalization companies.
The Fund invests primarily in common stocks and it normally will hold the shares
of at least 80% of the issuers in the S&P MidCap 400.
The Fund may also purchase foreign securities, enter into futures contracts and
repurchase agreements and lend portfolio securities, which are described below
under "More About the Funds."
Smallcap Index Equity Fund
The Fund's goal is to provide price performance and income that is comparable to
the Standard & Poor's SmallCap 600 Index (S&P SmallCap 600). The S&P SmallCap
600 is an index of 600 stocks that emphasizes small capitalization companies.
The Fund invests primarily in common stocks and it normally will hold the shares
of at least 80% of the issuers in the S&P SmallCap 600.
The Fund may also purchase foreign securities, enter into futures contracts and
repurchase agreements and lend portfolio securities, which are described below
under "More About the Funds."
Principal Risks
The Index Equity Funds are subject to the following principal investment risks:
. The Index Equity Funds will invest in the securities included in the relevant
index securities regardless of market trends. As a result, the Index Equity
Funds cannot modify their investment strategies to respond to changes in
economy, which means they may be particularly susceptible to a general
decline in the stock market segment relating to the relevant index.
. An adverse event, such as an unfavorable earnings report, may depress the
value of a particular stock held by an Index Equity Fund.
. The share price of each Index Equity Fund will change daily based on market
conditions and other factors; you may lose money if you invest in the Funds.
. None of the Index Equity Funds can be certain it will achieve its investment
goal.
2
<PAGE>
. The MidCap Index Equity Fund and the SmallCap Index Equity Fund invest in
stocks of smaller companies, which may have more risks than stocks of larger
companies. They may be more susceptible to market downturns, their prices may
be more volatile and they may be less liquid.
Investment Approach
. The advisor manages the Index Equity Funds through a "quantitative" or
"indexing" investment approach, which attempts to duplicate the investment
composition and performance of the particular index through statistical
procedures.
. The advisor selects stocks based primarily on market capitalization and
industry weightings.
. Because the Index Equity Funds have operating expenses and an index does not,
the Index Equity Funds will not be able to match the performance of their
respective index exactly.
. The advisor attempts to track the performance of the particular index within
a 0.95 correlation.
Performance
The Index Equity Funds have not commenced operations as of the date of this
Prospectus and, therefore, have no performance information to report.
3
<PAGE>
Aggregate Bond Index Fund
Goal And Main Investment Strategies
The Fund's goal is to provide price performance and income that is comparable to
the Lehman Brothers Aggregate Bond Index (Aggregate Bond Index). The Aggregate
Bond Index is a broad market weighted index for publicly traded, investment-
grade bonds.
The Fund invests primarily in U.S. Government securities and investment grade
corporate bonds of U.S. and foreign issuers, with maturities of greater than one
year.
Principal Risks
The Fund is subject to the following principal investment risks:
. In general, bond prices fall when interest rates rise.
. Generally, the longer the average maturity of the bonds in the Fund, the more
the Fund's share price will fluctuate in response to interest rate changes.
. The possibility that a bond issuer will fail to make timely payments of
either interest or principal to the Fund.
. During periods of falling interest rates, securities with high stated
interest rates may be called prior to maturity, requiring the Fund to invest
proceeds at generally lower interest rates.
. The share price of the Fund will change daily based on market conditions and
other factors; and you may lose money if you invest in the Fund.
. The Fund cannot be certain it will achieve its investment goal.
. The Fund will invest in securities included in the Aggregate Bond Index or
substantially identical securities regardless of market trends. As a result,
the Fund cannot modify its investment strategies to respond to changes in the
economy, which means it may be particularly susceptible to a general decline
in the bond market segment relating to the relevant index.
Investment Approach
. The advisor manages the Fund through a "quantitative" or "indexing"
investment approach, which attempts to duplicate the investment composition
and performance of the Aggregate Bond Index through statistical procedures.
. Because the Fund has operating expenses and an index does not, the Fund will
not be able to match the performance of its index exactly.
. The advisor attempts to track the performance of the Aggregate Bond Index
within a 0.95 correlation.
Performance
The Fund had not commenced operations as of the date of this Prospectus and,
therefore, has no performance information to report.
4
<PAGE>
Foreign Equity Fund
Goal And Main Investment Strategies
The Fund's goal is to provide long-term capital appreciation.
The Fund invests primarily in common stocks of foreign issuers and in American
Depositary Receipts. The Fund will emphasize companies with market
capitalizations of $100 million.
Principal Risks
The Fund is subject to the following principal investment risks:
. The stock market may go down.
. Investments by the Fund in foreign securities involve risks in addition to
those of U.S. securities. They are generally more volatile and less liquid
than U.S. securities, in part because of higher political and economic risks
and because there is less public information available about foreign
companies. There is also the risk of fluctuations in currency exchange rates.
. All of the risks of investing in foreign securities are heightened by
investing in emerging markets.
. The share price of the Fund will change daily based on market conditions and
other factors; and you may lose money if you invest in the Fund.
. The Fund cannot be certain it will achieve its investment goal.
Management Approach
. The advisor selects stocks based on factors such as the location of the
issuer, its competitive stature, the issuer's past record and future
prospects for growth and marketability of its securities.
. The advisor creates a list at least annually of securities eligible for
purchase by the Fund and then calculates the adjusted market capitalization
of all securities in the eligible universe. The securities are sorted in
descending order of adjusted market capitalization. The securities in the
eligible universe with a market capitalization greater than $100 million will
constitute the eligible list for the next 12-month period. There will be no
fixed limit as to the number of securities that the Fund can hold.
. The securities purchased by the Fund will be selected from the eligible list.
These securities will be held in proportion to their individual market
capitalization as a percentage of the market capitalization of the entire
Fund portfolio. Market capitalization of a stock will be computed by
multiplying the market price of the stock by the number of shares
outstanding, adjusted for control blocks. A control block is defined as a
block of stock owned by another corporation. The primary sources of
information regarding the existence and size of control blocks will be the
S&P Stock Reports and the Morgan Stanley Capital International Perspective.
Control blocks will be updated each time the eligible list of securities is
created or an issuer is added to the eligible universe. A security held in
the Fund's portfolio may be retained even if such security is no longer
included on the eligible list.
Performance
The Fund had not commenced operations as of the date of this Prospectus and,
therefore, has no performance information to report.
5
<PAGE>
More About The Funds
- --------------------------------------------------------------------------------
Index Equity Funds
The Funds' main strategies and risks are summarized above in the section
entitled Risk/Return Summary. Below is further information about the Funds'
principal investments. The Funds may also use strategies and invest in
securities described in the Statement of Additional Information.
Equity Securities. The Funds invest in equity securities which include common
stocks, preferred stocks, convertible preferred stocks and warrants or rights to
subscribe for or purchase such securities. Securities considered for purchase by
the Index Equity Funds may be listed or unlisted.
Foreign Securities. Each Fund may invest in securities of foreign issuers.
Investments by each Fund in foreign securities involve risks in addition to
those of U.S. securities. Foreign securities are generally more volatile and
less liquid than U.S. securities, in part because of higher political and
economic risks and because there is less public information available about
foreign companies. Also, a decline in the value of foreign currencies relative
to the U.S. dollar will reduce the value of securities denominated in those
currencies.
Derivative Contracts. Each Fund may, but is not required to, use stock index
futures contracts to maintain liquidity or to hedge against adverse changes -
caused by changing interest rates, stock market prices or currency exchange
rates - in the market value of securities held by or to be bought for a Fund.
While hedging can guard against potential risks, it adds to the Fund's expenses
and can eliminate some opportunities for gains. There is also a risk that a
derivative intended as a hedge may not perform as expected. The main risk with
derivatives is that some types can amplify a gain or loss, potentially earning
or losing substantially more money than the actual cost of the derivative. With
some derivatives, there is also the risk that the other party to the contract
may fail to honor its obligation, causing a loss for the Fund. The Funds will
not use derivatives for speculative purposes.
Securities Lending. Each Fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains or
losses. If the borrower fails to return the securities and the invested
collateral has declined in value, the Fund could lose money.
Portfolio Managers
Kenneth A. Schluchter III and Darin McBride jointly manage the S&P 500 Index
Equity Fund and jointly manage the MidCap Index Equity Fund. Mr. Schluchter and
Mark Drouse jointly manage the SmallCap Index Equity Fund.
Mr. Schluchter, Director of Domestic Investments of the advisor, has managed the
Funds since their inception.
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).
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) and a systems
administrator for Munder Capital Management (1995-1996).
Aggregate Bond Index Fund
The Fund's main strategies and risks are summarized above in the section
entitled Risk/Return Summary. Below is further information about the Fund's
principal investments. The Fund may also use strategies and invest in securities
described in the Statement of Additional Information.
The Fund may also invest in convertible securities, stock index futures
contracts, options on stock index futures contracts and, to a limited extent,
warrants.
The Fund may purchase corporate bonds and commercial paper that meet the
applicable quality and maturity limitations. The Fund will purchase only those
securities which are considered to be investment grade or better (within the
four highest
6
<PAGE>
rating categories of S&P or Moody's Investor Service, Inc. or, if unrated, of
comparable quality). Obligations rated "Baa" by Moody's lack outstanding
investment characteristics and have speculative characteristics. Adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of obligations rated "BBB" by S&P to pay interest and repay
principal than in the case of higher grade obligations. After purchase by the
Fund, a security may cease to be rated or its rating may be reduced below the
minimum required for purchase by the Fund. Neither event will require the Fund
to sell such security. However, the Advisor will reassess promptly whether the
security presents minimal credit risks and determine whether continuing to hold
the security is in the best interests of the Fund. To the extent that the
ratings given by Moody's, S&P or another nationally recognized statistical
rating organization ("NRSRO") for securities may change as a result of changes
in the rating systems or because of corporate reorganization of such rating
organizations, the Fund will attempt to use comparable ratings as standards for
its investments in accordance with investment objective and policies of the
Fund. Descriptions of each rating category are included as Appendix A to the
Statement of Additional Information.
The Aggregate Bond Index includes four major types of taxable bonds in the
United States: U.S. treasury and agency securities; corporate bonds; foreign
bonds denominated in U.S. dollars; and mortgage-backed securities.
Foreign Securities. The Fund may invest in bonds of foreign issuers, so long as
the securities are denominated in U.S. dollars. Investments by each Fund in
foreign securities involve risks in addition to those of U.S. securities.
Foreign securities are generally more volatile and less liquid than U.S.
securities, in part because of higher political and economic risks and because
there is less public information available about foreign companies.
Derivative Contracts. The Fund may, but is not required to, use derivative
contracts to maintain liquidity or to hedge against adverse changes in the
market value of securities held by or to be bought for a fund. While hedging can
guard against potential risks, it adds to the Fund's expenses and can eliminate
some opportunities for gains. There is also a risk that a derivative intended as
a hedge may not perform as expected. The main risk with derivatives is that some
types can amplify a gain or loss, potentially earning or losing substantially
more money than the actual cost of the derivative. With some derivatives, there
is also the risk that the counterparty may fail to honor its contract terms,
causing a loss for the Fund. The Fund will not use derivatives for speculative
purposes.
Asset-Backed Securities. The Fund may purchase securities backed by mortgages,
installment sales contracts, credit card receivables or other assets. Mortgage-
backed securities carry additional risks. The price and yield of these
securities typically assume that the securities will be redeemed at a given time
before maturity. When interest rates fall substantially, these securities are
generally redeemed early because the underlying mortgages are often prepaid.
The Fund would then have to reinvest the money at a lower rate. In addition,
the price or yield of mortgage-backed securities may fall if they are redeemed
later than expected.
U.S. Government Securities. The Fund invests in U.S. Government securities which
are high-quality securities issued or guaranteed by the U.S. Treasury or by an
agency or instrumentality of the U.S. Government. U.S. Government securities
may be backed by the full faith and credit of the U.S. Treasury, the right to
borrow from the U.S. Treasury, or the agency or instrumentality issuing or
guaranteeing the security.
Securities Lending. The Fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains or
losses. If the borrower fails to return the securities and the invested
collateral has declined in value, the Fund could lose money.
Foreign Equity Fund
The Fund's main strategies and risks are summarized above in the section
entitled Risk/Return Summary. Below is further information about the Fund's
principal investments. The Fund may also use strategies and invest in
securities described in the SAI.
Equity Securities. The Fund invests in equity securities which include common
stocks, preferred stocks, convertible preferred stocks and warrants or rights to
subscribe to or purchase such securities. Securities considered for purchase by
the Fund may be listed or unlisted, and may be issued by companies with various
levels of market capitalization.
Foreign Securities. The Fund invests in securities of foreign issuers.
Investments by the Fund in foreign
7
<PAGE>
securities involve risks in addition to those of U.S. securities. Foreign
securities are generally more volatile and less liquid than U.S. securities, in
part because of higher political and economic risks and because there is less
public information available about foreign companies. All of the risks of
investing in foreign securities are heightened by investing in emerging markets.
American Depositary Receipts. The Fund invests in American Depositary Receipts.
American Depositary Receipts are receipts typically issued by a United States
bank or trust company evidencing ownership of the underlying foreign securities.
American Depositary Receipts involve the risks of other investments in foreign
securities, as discussed above.
Derivative Contracts. The Fund may, but is not required to, use derivative
contracts to maintain liquidity or to hedge against adverse changes in the
market value of securities held by or to be bought for the Fund. While hedging
can guard against potential risks, it adds to the Fund's expenses and can
eliminate some opportunities for gains. There is also a risk that a derivative
intended as a hedge may not perform as expected. The main risk with derivatives
is that some types can amplify a gain or loss, potentially earning or losing
substantially more money than the actual cost of the derivative. With some
derivatives, there is also the risk that the counterparty may fail to honor its
contract terms, causing a loss for the Fund. The Fund will not use derivatives
for speculative purposes.
Defensive Investing. During unusual market conditions, the Fund may place up to
100% of its total assets in cash or high-quality, short-term debt securities. To
the extent that the Fund does this, it is not pursuing its goal.
Securities Lending. The Fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains or
losses. If the borrower fails to return the securities and the invested
collateral has declined in value, the Fund could lose money.
Portfolio Managers
Todd B. Johnson, Chief Investment Officer of the Advisor is the co-manager of
the Foreign Fund. Mr. Johnson is also the co-manager of the Munder International
Equity Fund (previously, from January, 1996 to October, 1996, was the portfolio
manager) and the Munder Index 500 Fund (previously, from July, 1992 to October,
1996, was the portfolio manager) of the Munder Funds Trust.
Theodore Miller, Senior Portfolio Manager of the Advisor is the co-manager of
the Foreign Fund. Mr. Miller is also the co-manager of the Munder International
Equity Fund of The Munder Funds Trust (since October, 1996). Prior to being
appointed co-manager of the Munder International Equity Fund, Mr. Miller acted
as the primary analyst for the Fund, assisting the manager with portfolio
decisions.
8
<PAGE>
Shares of the Funds
Shares of the Funds are available only through the purchase of variable annuity
and variable life insurance contracts issued by various life insurance
companies. This means you cannot purchase shares of the Funds directly, but only
through such a contract as offered by an insurance company. For further
information, please read the accompanying separate account prospectus for the
annuity or life insurance contract through which shares of the Funds are
offered.
Pricing Of Fund Shares
Each Fund's NAV is calculated on each day the New York Stock Exchange is open.
NAV is the value of a single share of a Fund. NAV is calculated by (1) taking
the current market value of a Fund's total assets, (2) subtracting the
liabilities and (3) dividing that amount by the total number of shares owned by
shareholders.
The Funds calculate NAV as of the close of regular 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.
9
<PAGE>
Distributions
Each Fund passes substantially all of its earnings along to its shareholders as
distributions. When a Fund earns dividends from stocks and interest from debt
securities and distributes these earnings, it is called a dividend distribution.
A Fund realizes capital gains when it sells securities for a higher price than
it paid. When these gains are distributed, it is called a capital gain
distribution. Dividend distributions may be made several times a year, while
capital gain distributions, if any, are made on an annual basis.
Index Equity Funds And Aggregate Bond Index Fund
These Funds pay dividends quarterly.
Foreign Equity Fund
Dividend distributions are declared daily and paid at least annually.
All Funds
The insurance company's separate accounts will automatically reinvest
distributions from a Fund in additional shares of that Fund.
Federal Tax Considerations
The tax consequences of your investment in a Fund depend on the provisions of
the variable annuity or life insurance plan through which you invest. For more
information on taxes, please read the prospectus for the insurance company
separate account that offers your variable annuity or insurance contract.
10
<PAGE>
Management
- --------------------------------------------------------------------------------
Investment Advisor
The Funds' investment advisor is Munder Capital Management, 480 Pierce Street,
Birmingham, Michigan 48009. As of December 31, 1999, the Advisor and its
affiliates had approximately $56 billion in assets under management, of which
$36 billion were invested in equity securities, $7 billion were invested in
money market or other short-term instruments, $7 billion were invested in other
fixed income securities, and $7 billion in non-discretionary assets.
The advisor provides overall investment management for the Funds, provides
research and credit analysis and is responsible for all purchases and sales of
portfolio securities.
The advisor is entitled to receive an annual fee equal to .05% of the average
daily net assets of the S&P 500 Index Equity Fund, MidCap Index Equity Fund, the
SmallCap Index Equity Fund, Aggregate Bond Index Fund and Foreign Equity Fund.
The advisor may, from time to time, make payments to banks, broker-dealers or
other financial institutions for certain services to the Funds and/or their
shareholders, including sub-administration, sub-transfer agency and shareholder
servicing. The Advisor may make such payments out of its own resources and
there are no additional costs to the Funds or their shareholders.
Shareholder Servicing Plan
The Fund has adopted a Shareholder Servicing Plan under Rule 12b-1 of the
Investment Company Act of 1940, as amended, that provides for payment to the
insurance companies offering the separate accounts, dealers that offer the
contracts and the Funds' distributor for providing shareholder services to
contractowners. The Plan authorizes payments at an annual rate of up to 0.25%
of each Fund's average daily net assets.
Because the fees are paid out of the Fund's assets on an on-going basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
11
<PAGE>
Appendix
Standard & Poor's Indexes
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard and Poor's 500",
"500", "S&P MidCap 400", "Standard & Poor's MidCap 400", "400", "S&P SmallCap
600(R)", "Standard & Poor's SmallCap 600", and "600" are trademarks of McGraw-
Hill Companies, Inc. (McGraw-Hill) and have been licensed for use by St. Clair
Funds, Inc. Standard and Poor's Ratings Service (S&P) is a division of McGraw-
Hill.
The Funds are not sponsored, endorsed, sold or promoted by S&P. S&P makes no
representation or warranty, express or implied, to the owners of the Funds or
any member of the public regarding the advisability of investing in securities
generally or in the Funds particularly or the ability of the S&P 500, the S&P
MidCap 400 or the S&P SmallCap 600 to track general stock market performance.
S&P's only relationship to the St. Clair Funds, Inc. is the licensing of certain
trademarks and trade names of S&P and of the indexes which are determined,
composed and calculated by S&P without regard to the St. Clair Funds, Inc. S&P
has no obligation to take the needs of the Company or the owners of the Funds
into consideration in determining, composing or calculating the Indexes. S&P is
not responsible for and has not participated in the determination of the prices
and amount of the Funds or the timing of the issuance or sale of the Funds or in
the determination or calculation of the equation by which the Funds are to be
converted into cash. S&P has no obligation or liability in connection with the
administration, marketing or trading of the Funds.
S&P does not guarantee the accuracy and/or the completeness of the Indexes or
any data included therein and S&P shall have no liability for any errors,
omissions, or interruptions therein. S&P makes no warranty, express or implied,
as to results to be obtained by the St. Clair Funds, Inc., owners of the Funds,
or any other person or entity from the use of the Indexes or any data included
therein. S&P makes no express or implied warranties, and expressly disclaims
all warranties of merchantability of fitness for a particular purpose or use
with respect to the Indexes or any data included therein. Without limiting any
of the foregoing, in no event shall S&P have any liability for any special,
punitive, indirect, or consequential damages (including lost profits), even if
notified of the possibility of such damages.
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For More Information
More information about the Funds is available free upon request, including the
following:
Statement of Additional Information
Provides more details about all of the funds and their policies. A current
Statement of Additional Information is on file with the Securities and Exchange
Commission and is incorporated by reference (is legally considered part of this
prospectus).
To Obtain Information:
By telephone
Call 1-800-438-5789
By mail Write to:
The Munder Funds
480 Pierce Street
Birmingham, MI 48009
On the Internet Text-only versions of fund documents can be viewed online or
downloaded from:
Securities and Exchange Commission
http://www.sec.gov
You can also obtain copies by visiting the Securities and Exchange Commission's
Public Reference Room in Washington, DC (phone 1-202-942-8090) or by sending
your request and a duplicating fee to the Securities and Exchange Commission's
Public Reference Section, Washington, DC 20549-0102. You may also obtain
information, after paying a duplicating fee, by electronic request at:
[email protected].
SEC file number: 811-4038
<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
April 28, 2000
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 April 28, 2000. The contents
of this Statement of Additional Information are incorporated by reference in the
Prospectus in their entirety. A copy of the Prospectus may be obtained through
Funds Distributor, Inc. (the "Distributor"), or by calling the Funds at (800)
438-5789. This Statement of Additional Information is dated April 28,
2000.
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>
History and General Information..................................... 3
Fund Investments.................................................... 3
Risk Factors and Special Considerations............................. 15
Investment Limitations.............................................. 16
Temporary Defensive Position........................................ 18
Directors and Officers.............................................. 18
Investment Advisory and Other Service Arrangements.................. 21
Code of Ethics...................................................... 25
Portfolio Transactions.............................................. 25
Additional Purchase and Redemption Information...................... 27
Net Asset Value..................................................... 28
Performance Information............................................. 29
Taxes............................................................... 31
Additional Information Concerning Shares............................ 35
Miscellaneous....................................................... 36
Registration Statement.............................................. 37
Financial Statements................................................ 37
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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HISTORY AND GENERAL INFORMATION
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 Munder Group
LLC, WAM Holdings, Inc. ("WAM") and WAM Holdings II, Inc. ("WAM II"). WAM and
WAM II are indirect, wholly owned subsidiaries of Comerica Incorporated, which
owns or controls approximately 95% of the partnership interests in the Advisor.
World is a wholly owned subsidiary of 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.
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<PAGE>
Non-domestic bank obligations include Eurodollar Certificates of Deposit
("ECDs"), which are U.S. dollar-denominated certificates of deposit issued by
offices of foreign and domestic banks located outside the United States;
Eurodollar Time Deposits ("ETDs"), which are U.S. dollar-denominated deposits in
a foreign branch of a U.S. bank or a foreign bank; Canadian Time Deposits
("CTDs"), which are essentially the same as ETDs except they are issued by
Canadian offices of major Canadian banks; Schedule Bs, which are obligations
issued by Canadian branches of foreign or domestic banks; Yankee Certificates of
Deposit ("Yankee CDs"), which are U.S. dollar-denominated certificates of
deposit issued by a U.S. branch of a foreign bank and held in the United States;
and Yankee Bankers' Acceptances ("Yankee BAs"), which are U.S. dollar-
denominated bankers' acceptances issued by a U.S. branch of a foreign bank and
held in the United States. Although the Funds (other than Short Term Treasury
Fund) will invest in obligations of foreign banks or foreign branches of U.S.
banks only when the Advisor or World 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 or World 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
4
<PAGE>
of other investments in foreign securities. For purposes of the Funds'
investment policies, a Fund's investments in depositary receipts will be deemed
to be investments in the underlying securities.
Foreign Securities. Each Index Fund may invest up to 25% of its assets in
foreign securities and the Money Market Fund may invest its assets in U.S.
dollar-denominated securities of foreign issuers. Income and gains on such
securities may be subject to foreign withholding taxes. Investors should
consider carefully the substantial risks involved in securities of companies and
governments of foreign nations, which are in addition to the usual risks
inherent in domestic investments.
There may be less publicly available information about foreign companies
comparable to the reports and ratings published about companies in the United
States. Foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards, and auditing practices and
requirements may not be comparable to those applicable to United States
companies. Foreign markets have substantially less trading volume than the New
York Stock Exchange and securities of some foreign companies are less liquid and
more volatile than securities of comparable United States companies. Commission
rates in foreign countries, which are generally fixed rather than subject to
negotiation as in the United States, are likely to be higher. In many foreign
countries there is less government supervision and less regulation of stock
exchanges, brokers, and listed companies than in the United States. Such
concerns are particularly heightened for emerging markets and Eastern European
countries.
Investments in companies domiciled in developing countries may be subject
to potentially higher risks than investments in developed countries. These
risks include (i) less social, political and economic stability; (ii) the small
current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict a
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interest; (iv) foreign taxation; (v)
the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private property; (vi)
the absence, until recently in certain Eastern European countries, of a capital
market structure or market-oriented economy; and (vii) the possibility that
recent favorable 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
5
<PAGE>
value of the portfolio security or, if the fund has entered into a contract to
sell the security, could result in possible liability to the purchaser.
A Fund may be affected either unfavorably or favorably by fluctuations in
the relative rates of exchange between the currencies of different nations, by
exchange control regulations and by indigenous economic and political
developments. Changes in foreign currency exchange rates will influence values
within a Fund from the perspective of U.S. investors, and may also affect the
value of dividends and interest earned, gains and losses realized on the sale of
securities, and net investment income and gains, if any, to be distributed to
shareholders by a Fund. The rate of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and demand in the foreign
exchange markets. These forces are affected by the international balance of
payments and other economic and financial conditions, government intervention,
speculation and other factors. 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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<PAGE>
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 the possibility of loss to the Funds due to (i) the inability
of the borrower to return the securities, (ii) delay in recovery of the
securities or (iii) a loss of rights in the collateral should the borrower fail
financially. In determining whether a Fund will lend securities, the Advisor or
World 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
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when it is expected that the price of the underlying security will remain flat
or decline moderately during the option period. Buy-and-write transactions using
out-of-the-money call options may be used when it is expected that the premiums
received from writing the call option plus the appreciation in the market price
of the underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. If the call options
are exercised in such transactions, the maximum gain to the relevant Fund will
be the premium received by it for writing the option, adjusted upwards or
downwards by the difference between the Fund's purchase price of the security
and the exercise price. If the options are not exercised and the price of the
underlying security declines, the amount of such decline will be offset in part,
or entirely, by the premium received.
In the case of writing a call option on a security, the option is "covered"
if a Fund owns the security underlying the call or has an absolute and immediate
right to acquire that security without additional cash consideration (or, if
additional cash consideration is required, cash or cash equivalents in such
amount as are held in a segregated account by its custodian) upon conversion or
exchange of other securities held by it. For a call option on an index, the
option is covered if a Fund maintains with its custodian cash or cash
equivalents equal to the contract value. A call option is also covered if a
Fund holds a call on the same security or index as the call written where the
exercise price of the call held is (i) equal to or less than the exercise price
of the call written, or (ii) greater than the exercise price of the call written
provided the difference is maintained by the portfolio in cash or cash
equivalents in a segregated account with its custodian. The 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 liquidate the segregated account (in the case of a secured put
option) until the option expires or the optioned security
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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 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 in an amount at least equal to the market value of the securities, plus
accrued interest, subject to the agreement.
Rights and Warrants. Each Index Fund may purchase warrants, which are
privileges issued by corporations enabling the owners to subscribe to and
purchase a specified number of shares of the corporation at a specified price
during a specified period of time. Subscription rights normally have a short
life span to expiration. The purchase of warrants involves the risk that a Fund
could lose the purchase value of a warrant if the right to subscribe to
additional shares is not exercised prior to the warrant's expiration. Also, the
purchase of warrants involves the risk that the effective price paid for the
warrant added to the subscription price of the related security
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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, World 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 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
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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).
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
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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.
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
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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 or
World 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 purchase commitments than when it
sets aside cash. Because a Fund's liquidity and ability to manage its portfolio
might be affected when it sets aside cash or portfolio securities to cover such
purchase commitments, the Advisor expects that its commitments to purchase when-
issued securities and forward commitments will not exceed 25% of the value of a
Fund's total assets absent unusual market conditions.
The Funds will purchase securities on a when-issued or forward commitment
basis only with the intention of completing the transaction and actually
purchasing the securities. If deemed advisable as a matter of investment
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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, the Advisor purchases
and sells securities for each Index Fund in an attempt to produce investment
results that substantially duplicate the investment composition and performance
of each Index Fund's respective corresponding index, taking into account
redemptions, sales of additional Fund shares, and other adjustments as described
below.
An Index Fund does not expect to hold, at any particular time, all of the
stocks included in the corresponding index. 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 the
Advisor believes that, unless an Index Fund holds all stocks included in its
corresponding index, the selection of stocks for purchase by the Fund solely on
the basis of their weighted market capitalizations would tend to place heavier
concentration in certain industry sectors. As a result, events
disproportionately affecting such industries could affect the performance of the
Fund differently than the performance of the corresponding index. Conversely,
if smaller companies were not purchased by the Fund, the representation of
industries included in the corresponding index that are not dominated by the
most heavily market-capitalized companies would be reduced or eliminated.
For these reasons, 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).
15
<PAGE>
Redemptions of a substantial number of shares of an Index Fund could reduce
the number of issuers represented in the Fund's investment portfolio, which
could, in turn, adversely affect the accuracy with which the Fund tracks the
performance of the corresponding index.
If an issuer drops in ranking, or is eliminated entirely from an Index
Fund's corresponding index, 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 the Advisor were not required to effect
purchases and sales of portfolio securities in accordance with the corresponding
index, the securities might not be sold. These sales may result in lower prices
for such securities than may have been realized or in losses that may not have
been incurred if 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, World 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); (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
16
<PAGE>
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.
17
<PAGE>
Additional investment restrictions adopted by each Fund, which may be
changed by the Board of Directors, provide that a Fund may not:
1. Invest more than 15% of its net assets (10% of net assets for the
Money Market Fund) (taken at market value at the time of purchase) in
securities which cannot be readily resold because of legal or
contractual restrictions or which are not otherwise marketable;
2. Invest in other investment companies except as permitted under the
1940 Act; or
3. Purchase securities on margin, or make short sales of securities
except for the use of short-term credit necessary for the clearance of
purchase and sales of portfolio securities, but a Fund may make margin
deposits in connection with transactions in options, futures and
options on futures.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
a Fund's investments will not constitute a violation of such limitation, except
that any borrowing by a Fund that exceeds the fundamental investment limitations
stated above must be reduced to meet such limitations within the period required
by the 1940 Act (currently three days). In addition, if a Fund's holdings of
illiquid securities exceeds 15% (10% for the Money Market Fund) because of
changes in the value of the Fund's investments, the Fund will take action to
reduce its holdings of illiquid securities within a time frame deemed to be in
the best interest of the Fund. Otherwise, a Fund may continue to hold a
security even though it causes the Fund to exceed a percentage limitation
because of fluctuation in the value of the Fund's assets.
TEMPORARY DEFENSIVE POSITION
During periods of unusual economic or market conditions or for temporary
defensive purposes or liquidity, each Fund may invest without limit in cash and
in U.S. dollar-denominated high quality money market and other short-term
instruments. These investments may result in a lower yield than would be
available from investments with a lower quality or longer term.
DIRECTORS AND OFFICERS
The directors and executive officers of the Company, and their business
addresses and principal occupations during the past five years, are:
<TABLE>
<CAPTION>
Principal Occupation
Name, Address and Age Positions with Company /+/ During Past Five Years
- --------------------- -------------------------- ----------------------
<S> <C> <C>
Charles W. Elliott Director and Chairman of the Senior Advisor to the President,
1024 Essex Circle Board of Directors Western Michigan University (July
Kalamazoo, MI 49008 1995 through December 1998);
DOB: 1/7/32 Executive Vice President,
Administration & Chief Financial
Officer, Kellogg Company (January
1987 through June 1995). Board of
Directors, Steelcase Financial
Corporation.
John Rakolta, Jr. Director and Vice Chairman of the Chairman and Chief Executive
1876 Rathmor Board of Directors Officer, Walbridge Aldinger
Bloomfield Hills, MI 48304 Company (construction company).
DOB: 5/26/47
</TABLE>
18
<PAGE>
<TABLE>
<S> <C> <C>
Thomas B. Bender Director Director, Disciplined Growth
7 Wood Ridge Road Investors (investment management
Glen Arbor, MI 49636 firm since December 1999); Partner,
DOB: 7/14/33 Financial & Investment Management
Group, (April 1991 to December
1999).
David J. Brophy Director Professor, University of Michigan.
1025 Martin Place Director, River Place Financial
Ann Arbor, MI 48104 Corporation.
DOB: 8/7/36
Dr. Joseph E. Champagne Director Dean , University Center, Macomb
319 East Snell Road College (since September 1997);
Rochester, MI 48306 Corporate and Executive Consultant
DOB: 5/19/38 (since September 1993); Chancellor,
Lamar University (September 1994 to
September 1995); Chairman of Board
of Directors, Ross Controls of Troy,
Michigan.
Thomas D. Eckert Director President and Chief Executive
10726 Falls Pointe Drive Officer, Capital Automotive REIT
Great Falls, VA 22066 (real estate investment trust
DOB: 9/22/47 specializing in 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).
Terry H. Gardner Vice President, Vice President and Chief Financial
480 Pierce Street Chief Financial Officer, Officer of the Advisor (since 1993),
Suite 300 Treasurer Vice President and Chief Financial
Birmingham, MI 48009 and Secretary Officer, Old MCM (since 1993);
DOB: 10/11/60 Secretary, LPM (since June 1993).
</TABLE>
19
<PAGE>
<TABLE>
<S> <C> <C>
Michael Monahan Vice President Chairman of the Advisor (January
480 Pierce Street 2000 to present); Vice President and
Suite 300 Chief Executive Officer of the
Birmingham, MI 48009 Advisor (October 1999 to December
DOB: 1/26/39 1999); President of Monahan
Enterprises, LLC (consulting
company) (June 1999 to present);
President of Comerica Incorporated
(1994 to June 1999); President of
Comerica Bank (1994 to June 1999).
Elyse G. Essick Vice President Vice President and Director of
480 Pierce Street Communications and Client Services
Suite 300 of the Advisor (since January 1995).
Birmingham, MI 48009
DOB: 4/6/58
James C. Robinson Vice President Chief Executive Officer of the
480 Pierce Street Advisor (January 2000 to present);
Suite 300 Executive Vice President of the
Birmingham, MI 48009 Advisor (February 1998 to December
DOB: 4/24/61 1999); and Chief Investment
Officer/Fixed Income of the Advisor
(January 1995 to December 1999).
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
DOB: 6/16/44 1988); 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
DOB: 6/8/45
Therese Hogan Assistant Secretary Director, State Regulation
4400 Computer Drive Department, PFPC Inc. (formerly First
Westborough, MA 01581 Data Investor Services Group) (since
DOB: 2/27/62 June 1994).
Libby Wilson Assistant Secretary Director; Mutual Funds Operations of
480 Pierce Street and Assistant Treasurer the Advisor (since July 1999); Global
Suite 300 Portfolio Client Associate; Invesco
Birmingham, MI 48009 Global Asset Management
DOB: 2/24/69 (investment advisor) (March 1999 to
July 1999); Manager, Mutual Funds
Operations of the Advisor (May 1996
to March 1999); Mutual Funds
Operations Administrator, of the
Advisor (March 1993 to May 1996).
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C>
Mary Ann Shumaker Assistant Secretary Associate General Counsel of the
480 Pierce Street Advisor (since July 1997); and
Suite 300 Counsel, Miro Weiner & Kramer
Birmingham, MI 48009 (law firm) (1991 to 1997).
DOB: 7/31/54
</TABLE>
______________
+ Individual holds same position with The Munder Funds, Inc., ("Munder"), The
Munder Funds Trust (the "Trust") and Munder Framlington Funds Trust
("Framlington Trust"), each a registered investment company.
Directors who are not interested persons of the Company and Munder, and
Trustees who are not interested persons of the Trust and Framlington, receive an
aggregate fee from the Company, the Trust, Munder and Framlington Trust for
service on those organizations' respective Boards, comprised of an annual
retainer fee of $35,000 and a fee of $3,500 for each Board meeting attended;
and are reimbursed for all out-of-pocket expenses relating to attendance at such
meetings.
The following table summarizes the compensation paid by the Company, the
Trust, Munder and Framlington Trust to their respective Directors/Trustees for
the year ended December 31, 1999.
<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 $14,688 $13,751 $13,751 $13,751 $13,751 $13,751
- ---------------------------------------------------------------------------------------------------------------------------------
Aggregate Compensation
from the Trust $29,967 $28,803 $28,803 $28,803 $28,803 $28,803
- ---------------------------------------------------------------------------------------------------------------------------------
Aggregate Compensation $ 733 $ 704 $ 704 $ 704 $ 704 $ 704
from Framlington Trust
- ---------------------------------------------------------------------------------------------------------------------------------
Aggregate Compensation
from the Company $ 1,300 $ 1,242 $ 1,242 $ 1,242 $ 1,242 $ 1,242
- ---------------------------------------------------------------------------------------------------------------------------------
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 $46,688 $44,500 $44,500 $44,500 $44,500 $44,500
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
No officer, director or employee of the Advisor, World, the Custodian, the
Distributor, the Administrator or the Transfer Agent currently receives any
compensation from the Trust, Framlington or the Company. As of April 3, 2000,
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 the 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 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.
21
<PAGE>
The Investment Advisory Agreement between the Advisor or World with respect
to the Funds (the "Advisory Agreement") was approved by the Company's Board of
Directors and by the shareholders. Under the terms of the Advisory Agreement,
the Advisor 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.
The Advisory Agreement will continue in effect for a period of two years
from its effective date. If not sooner terminated, the Advisory Agreement will
continue in effect for successive one year periods thereafter, provided that
each continuance is specifically approved annually by (a) the vote of a majority
of the Board of Directors who are not parties to the Advisory Agreement or
interested persons (as defined in the 1940 Act), cast in person at a meeting
called for the purpose of voting on approval, and (b) either (i) the vote of a
majority of the outstanding voting securities of the Fund, or (ii) the vote of a
majority of the Board of Directors. The Advisory Agreement is terminable by vote
of the Board of Directors, or by the holders of a majority of the outstanding
voting securities of a Fund, at any time without penalty, upon 60 days' written
notice to the Advisor 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 each Fund, computed daily and
payable monthly on a separate Fund-by-Fund basis, at an annual rate of .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, .15% of the average
daily net assets of the MidCap Index Equity Fund and SmallCap Index Equity Fund.
For the period from commencement of operations on October 14, 1997 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 period from
commencement of operations on August 7, 1997 through December 31, 1997, the
Advisor received fees in the amounts of $1,554 for the SmallCap Index Equity
Fund. For the period from commencement of operations through December 31, 1997,
the Advisor voluntarily reimbursed expenses in the amount of $38,346 for the S&P
SmallCap Index Equity Fund.
For the fiscal year ended December 31, 1998 (and for the period from
commencement of operations on February 13, 1998 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 500 Index Equity Fund, and $12,831 and
$47,646, respectively for the MidCap Index Equity Fund. For the period ended May
18, 1998, the Advisor received fees in the amount of $0 for the SmallCap Index
Equity Fund. For the period ended May 18, 1998, the Advisor voluntarily waived
fees and reimbursed expenses in the amount of $1,528 and $52,785, respectively
for the SmallCap Index Equity Fund.
For the fiscal year ended December 31, 1999 (and for the period from
commencement of operations on October 27, 1999 for the SmallCap Index Equity
Fund and for the period from commencement of operations on January 4, 1999 for
the Money Market Fund), the Advisor received fee in the amount of $0 for the S&P
500 Index Equity Fund, $0 for the MidCap Index Equity Fund, $0 for the SmallCap
Index Equity Fund and $201,820 for the Money Market Fund. For the fiscal year
ended December 31, 1999 (and for the period from commencement of operations for
the SmallCap Index Equity Fund and for the period from commencement of
operations for the Money Market Fund), the Adviser voluntarily waived fees and
reimbursed expenses in the amounts of $54,165 and $126,963 for the 500 Index
Equity Fund, $14,079 and $67,886 for the MidCap Index Equity Fund, $7,203 and
$9,014 for the SmallCap Index Equity Fund and $0 and $177,469 for the Money
Market 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
22
<PAGE>
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.
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.
23
<PAGE>
Administration Agreement. State Street Bank and Trust Company ("State
Street" or the "Administrator") located at 225 Franklin Street, Boston,
Massachusetts 02110, serves as administrator for the Company pursuant to an
administration agreement (the "Administration Agreement"). State Street has
agreed to maintain office facilities for the Company; oversee the computation of
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 13, 1998 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.
For the fiscal year ended December 31, 1999 (and for the period from
commencement of operations on October 27, 1999 through December 31, 1999 for the
SmallCap Index Equity Fund and for the period from commencement on January 4,
1999 through December 31, 1999 for the Money Market Fund), the administration
fees of State Street accrued as follows: S&P 500 Index Equity Fund $9,134,
MidCap Index Equity Fund $1,122, SmallCap Index Equity Fund $571 and Money
Market Fund $11,907.
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
24
<PAGE>
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. PFPC Inc. (formerly First Data
Investor Services Group, Inc.) (the "Transfer Agent") located at 4400 Computer
Drive, Westborough, Massachusetts 01581 serves as the 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.
CODE OF ETHICS
The Company, the Advisor and the Distributor each have adopted a code of
ethics as required by applicable law, which is designed to prevent affiliated
persons of the Company, the Advisor and the Distributor from engaging in
deceptive, manipulative or fraudulent activities in connection with securities
held or to be acquired by the Fund (which may also be held by persons subject to
a code of ethics). There can be no assurance that the codes of ethics will be
effective in preventing such activities. Each code of ethics, filed as exhibits
to this registration statement, may be examined at the office of the SEC in
Washington, D.C. or on the Internet from the SEC's website at
http:/www.sec.gov.
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
25
<PAGE>
group. The Funds will engage in this practice, however, only when the Advisor
believes such practice to be in each Fund's interests.
The portfolio turnover rate of each Fund is calculated by dividing the
lesser of the Fund's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of securities whose maturities at the time of
acquisition were one year or less) by the monthly average value of the
securities held by the Fund during the year. Each Fund may engage in short-term
trading to achieve its investment objective. Portfolio turnover may vary
greatly from year to year as well as within a particular year.
In the Advisory Agreement, the Advisor agrees to select broker-dealers in
accordance with guidelines established by the Company's Board of Directors from
time to time and in accordance with applicable law. In assessing the terms
available for any transaction, the Advisor shall consider all factors it deems
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker-dealer,
and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. In addition, the Advisory Agreement
authorizes the Advisor, subject to the prior approval of the Company's Board of
Directors, to cause each Fund to pay a broker-dealer which furnishes brokerage
and research services a higher commission than that which might be charged by
another broker-dealer for effecting the same transaction, provided that the
Advisor determines in good faith that such commission is reasonable in relation
to the value of the brokerage and research services provided by such broker-
dealer, viewed in terms of either the particular transaction or the overall
responsibilities of the Advisor to the Fund. Such brokerage and research
services might consist of reports and statistics on specific companies or
industries, general summaries of groups of bonds and their comparative earnings
and yields, or broad overviews of the securities markets and the economy.
Supplementary research information so received is in addition to, and not
in lieu of, services required to be performed by the Advisor and does not reduce
the advisory fees payable to the Advisor by the Funds. It is possible that
certain of the supplementary research or other services received will primarily
benefit one or more other investment companies or other accounts for which
investment discretion is exercised. Conversely, the Funds may be the primary
beneficiary of the research or services received as a result of portfolio
transactions effected for such other account or investment company.
The table below shows information on brokerage commissions paid by the S&P
500 Index Equity Fund for the period of commencement of operations on October
14, 1997 through December 31, 1997 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 Fund $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
$ Amount Brokerage Commission Representing Transactions Involving
Commission Research Services Research Services
------------------------------------------------------------------------
<S> <C> <C> <C>
S&P 500 Index Equity Fund $6,395.12 0% $0
MidCap Index Equity Fund $5,062.15 0% $0
SmallCap Index Equity Fund $ 0 0% $0
</TABLE>
The table below shows information on brokerage commissions paid by the S&P
500 Index Equity Fund and the MidCap Index Equity Fund, for the fiscal year
ended December 31, 1999; and by the SmallCap Index Equity Fund from commencement
of operations on October 27, 1999 through December 31, 1999.
26
<PAGE>
<TABLE>
<CAPTION>
$ Amount % of Brokerage $ Amount of
Brokerage Commission Representing Transactions Involving
Commission Research Services Research Services
-----------------------------------------------------------------------------
<S> <C> <C> <C>
S&P 500 Index Equity Fund $17,212 0% $0
MidCap Index Equity Fund $ 2,857 0% $0
SmallCap Index Equity Fund $41,900 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.
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, 1999, the S&P 500 Index
Equity Fund held securities of Morgan Stanley Dean Witter & Co. valued at
$770,850, Chase Securities valued at $637,037, Charles Schwab Corp. valued at
$310,837, Merrill Lynch & Co., Inc. valued at $300,600, J.P. Morgan & Co. valued
at $215,262, Lehman Brothers Holdings, Inc. valued at $101,625, Comerica, Inc.
valued at $63,028, Paine Webber Group, Inc. valued at $54,338, Citigroup Inc.
valued at $1,853,009 and Bear Stearns Companies, Inc. valued at $50,531; and the
MidCap Index Equity Fund held securities of E-Trade Group, Inc. valued at
$70,537, A.G. Edwards, Inc. valued at $28,856 and Legg Mason, Inc. valued at
$18,125. As of December 31, 1999, the SmallCap Index Equity Fund and the Money
Market 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
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<PAGE>
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.
Redemptions. The redemption price for Fund shares is the net asset value
next determined after receipt of the redemption request in pro per order.
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.
Other Redemption Information. The Funds reserve the right to suspend or
postpone redemptions 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 postponement for
the protection of the shareholders or (d) for an emergency; as determined by the
SEC exists, making disposal of portfolio securities or valuation of net assets
of a fund not reasonably practicable. 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.
In Kind Purchases. 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.
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 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.
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<PAGE>
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 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.
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<PAGE>
Based on the foregoing computations for the seven-day period ended December
31, 1999, the Money Market Fund's annualized yield was 5.56% and the effective
yield was 5.71%.
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 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
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<PAGE>
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);
Based on the foregoing calculation, the average annual total return figures
for the 12 month period ended December 31, 1999 were 20.56% for the S&P 500
Index Equity Fund Class Y Shares and 14.69% for the MidCap Index Equity Fund
Class Y Shares.
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 aggregate total return figure from
commencement of operations on October 27, 1999 through December 31, 1999 for the
S&P Small Cap Index Equity Fund Class Y Shares was 10.50%. The aggregate total
return figures from commencement of operations on November 4, 1999 through
December 31, 1999 were 8.36% for the S&P 500 Index Equity Fund Class K Shares
and 9.77% for the MidCap Index Equity Fund Class K Shares. The aggregate total
return figure from commencement of operations on October 28, 1999 through
December 31, 1999 for the Small Cap Index Equity Fund Class K Shares was
10.31%.
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
31
<PAGE>
01746, a widely recognized independent publication that monitors the performance
of money market funds, or to the data prepared by Lipper Analytical Services,
Inc., a widely recognized independent service that monitors the performance of
mutual funds.
TAXES
The following summarizes certain additional Federal and state income tax
considerations generally affecting each Fund and its shareholders that are not
described in the Funds' Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Funds or its shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning. Potential investors should consult their tax advisors
with specific reference to their own tax situations.
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.
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<PAGE>
Each Fund intends to distribute to shareholders any excess of net long-term
capital gain over net short-term capital loss ("net capital gain") for each
taxable year. Such gain is distributed as a capital gain dividend and is
taxable to shareholders as gain from the sale or exchange of a capital asset
held for more than one year, regardless of the length of time the shareholder
has held the Fund shares, and regardless of whether the distribution is paid in
cash or reinvested in shares. The Funds expect that capital gain dividends will
be taxable to shareholders as long-term gains. Capital gain dividends are not
eligible for the dividends-received deduction.
In the case of corporate shareholders, distributions of a Fund for any
taxable year generally qualify for the dividends-received deduction to the
extent of the gross amount of "qualifying dividends" received by such Fund for
the year and if certain holding period requirements are met. Generally, a
dividend will be treated as a "qualifying dividend" if it has been received from
a domestic corporation.
If for any taxable year a Fund does not qualify as a regulated investment
company, all of its taxable income will be subject to tax at regular corporate
rates without any deduction for distributions to shareholders. In such event,
all distributions (whether or not derived from exempt-interest income) would be
taxable as ordinary income and would be eligible for the dividends-received
deduction in the case of corporate shareholders to the extent of the Fund's
current and accumulated earnings and profits.
Shareholders will be advised annually as to the Federal income tax
consequences of distributions made by the Fund each year.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax. To
prevent imposition of the excise tax, each Fund must distribute during each
calendar year an amount equal to the sum of (1) at least 98% of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, (2) at least 98% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses, as prescribed by the Internal Revenue
Code) for the one-year period ending on October 31 of the calendar year, and (3)
any ordinary income and capital gains for previous years that was not
distributed during those years. A distribution will be treated as paid on
December 31 of the current calendar year if it is declared by a Fund in October,
November or December with a record date in such a month and paid by the Fund
during January of the following calendar year. Such distributions will be
taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are made. To
prevent application of the excise tax, each Fund intends to make its
distributions in accordance with the calendar year distribution requirement.
Hedging Transactions. The taxation of equity options and over-the-counter
options on debt securities is governed by Internal Revenue Code Section 1234.
Pursuant to Internal Revenue Code Section 1234, the premium received by a Fund
for selling a put or call option is not included in income at the time of
receipt. If the option expires, the premium is short-term capital gain to the
Fund. If the Fund enters into a closing transaction, the difference between the
amount paid to close out its position and the premium received is short-term
capital gain or loss. If a call option written by a Fund is exercised, thereby
requiring the Fund to sell the underlying security, the premium will increase
the amount realized upon the sale of such security and any resulting gain or
loss will be a capital gain or loss, and will be long-term or short-term
depending upon the holding period of the security. With respect to a put or
call option that is purchased by a Fund, if the option is sold, any resulting
gain or loss will be a capital gain or loss, and will be long-term or short-
term, depending upon the holding period of the option. If the option expires,
the resulting loss is a capital loss and is long-term or short-term, depending
upon the holding period of the option. If the option is exercised, the cost of
the option, in the case of a call option, is 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,
33
<PAGE>
Section 1256 contracts held by a Portfolio at the end of each taxable year (and,
generally, for purposes of the 4% excise tax, on October 31 of each year) are
"marked to market" (that is, treated as sold at fair market value), resulting in
unrealized gains or losses being treated as though they were realized.
Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for U.S. Federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by a Fund. In addition, losses
realized by a Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Funds of engaging in hedging
transactions are not entirely clear. Hedging transactions may increase the
amount of short-term capital gain realized by the Funds which is taxed as
ordinary income when distributed to shareholders.
Each Fund may make one or more of the elections available under the
Internal Revenue Code which are applicable to straddles. If a Fund makes any of
the elections, the amount, character and timing of the recognition of gains or
losses from the affected straddle positions will be determined under rules that
vary according to the election(s) made. The rules applicable under certain of
the elections may operate to accelerate the recognition of gains or losses from
the affected straddle positions.
Because the straddle rules may affect the character of gains or losses, and
may defer losses and/or accelerate the recognition of gains or losses from the
affected straddle positions, the amount which may be distributed to
shareholders, and which will be taxed to them as ordinary income or long-term
capital gain, may be more than or less than the distributions of a fund that did
not engage in such hedging transactions.
The diversification requirements applicable to each Fund's assets may limit
the extent to which each Fund will be able to engage in transactions in options
and futures contracts.
Currency Fluctuations - "Section 988" Gains or Losses. Under the Internal
Revenue Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time a Fund accrues receivables or liabilities
denominated in a foreign currency, and the time the Fund actually collects such
receivables or pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain options and futures contracts,
gains or losses attributable to fluctuations in the value of foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains or losses,
referred to under the Internal Revenue Code as "Section 988" gains or losses,
may increase or decrease the amount of a Fund's investment company taxable
income to be distributed to its shareholders as ordinary income.
Disposition of Shares. Upon the redemption, sale or exchange of shares of
a Fund, a shareholder may realize a capital gain or loss depending upon his or
her basis in the shares. Such gain or loss will be treated as capital gain or
loss if the shares are capital assets in the shareholder's hands and will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. Any loss realized on a redemption, sale or exchange will
be disallowed to the extent the shares 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
34
<PAGE>
constructive sale. The character of gain from a constructive sale would depend
upon the Fund's holding period in the property. Loss from a constructive sale
would be recognized when the property was subsequently disposed of, and its
character would depend on the Fund's holding period and the application of
various loss deferral provisions of the Internal Revenue Code.
Passive Foreign Investment Companies. Certain Funds may invest in shares
of foreign corporations that may be classified under the Internal Revenue Code
as passive foreign investment companies ("PFICs"). In general, a foreign
corporation is classified as a PFIC if at least one-half of its assets
constitute investment-type assets, or 75% or more of its gross income
investment-type income. If a Fund receives a so-called "excess distribution"
with respect to PFIC shares, the Fund itself may be subject to a tax on a
portion of the excess distribution, whether or not the corresponding income is
distributed by the Fund to shareholders. In general, under the PFIC rules, an
excess distribution is treated as having been realized ratably over the period
during which the Fund held the PFIC shares. Each Fund will itself be subject to
tax on the portion, if any, of an excess distribution that is so allocated to
prior Fund taxable years and an interest factor will be added to the tax, as if
the tax had been payable in such prior taxable years. Certain distributions
from a PFIC as well as gain from the sale of PFIC shares are treated as excess
distributions. Excess distributions are characterized as ordinary income even
though, absent application of the PFIC rules, certain excess distributions might
have been classified as capital gain.
The Funds may be eligible to elect alternative tax treatment with respect
to PFIC shares. Under an election that currently is available in some
circumstances, a Fund generally would be required to include in its gross income
its share of the earnings of a PFIC on a current basis, regardless of whether
distributions were received from the PFIC in a given year. If this election
were made, the special rules, discussed above, relating to the taxation of
excess distributions, would not apply. In addition, another election would
involve marking to market the Fund's PFIC shares at the end of each taxable
year, with the result that unrealized gains would be treated as though they were
realized and reported as ordinary income. Any mark-to-market losses and loss
from an actual disposition of Fund shares would be deductible as ordinary losses
to the extent of any net mark-to-market gains included in income in prior years.
Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries.
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.
35
<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.
36
<PAGE>
Notwithstanding any provision of Maryland law requiring a greater vote of
the Company's shares (or of any class voting as a class) in connection with any
corporate action, unless otherwise provided by law (for example, by Rule 18f-2)
or the Company's Articles of Incorporation, the Company may take or authorize
such action upon the favorable vote of the holders of more than 50% of the
outstanding Common Stock of the Funds and the Company's other funds, if any
(voting together without regard to class).
MISCELLANEOUS
Counsel. The law firm of Dechert Price & Rhoads, 1775 Eye Street, N.W.,
Washington, D.C. 20006, has passed upon certain legal matters in connection with
the shares offered by the Funds and serves as counsel to the Company.
Independent Auditors. Ernst & Young LLP, 200 Clarendon Street, Boston, MA
02116 serves as the Company's independent auditors.
Control Persons and Principal Holders of Securities. As of April 3, 2000
the following persons were beneficial owners of 5% or more of the outstanding
shares of a Fund because they possessed voting or investment power with respect
to such shares:
<TABLE>
<CAPTION>
Percentage of Total
Name of Fund Class Name and Address Shares Outstanding
- ------------ ----- ---------------- -------------------
<S> <C> <C> <C>
S&P 500 Index Equity Fund Class K Shares Calhoun & Co. 100%
MidCap Index Equity Fund c/o Comerica Bank
SmallCap Index Equity Fund Attn: Vicky Froehlich
Money Market Fund P.O. Box 75000
Detroit, MI 48275-3455
Short Term Treasury Fund Class K Shares City of Detroit Water 92.9%
1210 City County Building
Detroit, MI 48226
S&P 500 Index Equity Fund Class Y Shares Calhoun & Co. 100%
MidCap Index Equity Fund c/o Comerica Bank
SmallCap Index Equity Fund Attn: Vicky Froehlich
Money Market Fund P.O. Box 75000
Detroit, MI 48275-3455
</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.
37
<PAGE>
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 Funds including the notes thereto, dated
December 31, 1999 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, 1999.
38
<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
B-2
<PAGE>
buy or sell futures contracts in a greater dollar amount than the dollar amount
of instruments being hedged if the volatility over a particular time period of
the prices of such instruments has been greater than the volatility over such
time period of the futures, or if otherwise deemed to be appropriate by the
Advisor 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 occurs, the
Fund would lose money on the futures and also experience a decline in value in
its portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the Funds
will realize a loss on the futures contract that is not offset by a reduction in
the price of the securities that were to be purchased.
In instances involving the purchase of futures contracts by the Funds, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Custodian and/or
in a margin account with a broker to collateralize the position and thereby
insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the instruments
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions which could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced, thus producing distortions. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the Advisor may still not result in
a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance 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
B-3
<PAGE>
other disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
Successful use of futures by the Funds is also subject to the Advisor's
ability to predict correctly movements in the direction of the market. For
example, if a particular Fund has hedged against the possibility of a decline in
the market adversely affecting securities held by it and securities prices
increase instead, the Fund will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the Fund
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. The Funds may have to
sell securities at a time when it may be disadvantageous to do so.
IV. Options on Futures Contracts
----------------------------
The Funds may purchase and write options on the futures contracts described
above. A futures option gives the holder, in return for the premium paid, the
right to buy from (call) or sell to (put) the writer of the option a futures
contract at a specified price at any time during the period of the option. Upon
exercise, the writer of the option is obligated to pay the difference between
the cash value of the futures contract and the exercise price. Like the buyer
or seller of a futures contract, the holder, or writer, of an option has the
right to terminate its position prior to the scheduled expiration of the option
by selling, or purchasing an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss. A Fund will
be required to deposit initial margin and variation margin with respect to put
and call options on futures contracts written by it pursuant to brokers'
requirements similar to those described above. Net option premiums received
will be included as initial margin deposits.
Investments in futures options involve some of the same considerations that
are involved in connection with investments in future contracts (for example,
the existence of a liquid secondary market). In addition, the purchase or sale
of an option also entails the risk that changes in the value of the underlying
futures contract will not correspond to changes in the value of the option
purchased. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or 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>
LIQUIDITY PLUS MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
April 28, 2000
Liquidity Plus Money Market Fund (the "Fund") is a diversified
portfolio of St. Clair Funds, Inc. (the "Company"), an open-end management
investment company. The Fund's investment advisor is Munder Capital Management.
This Statement of Additional Information is intended to supplement the
information provided to investors in the Fund's Prospectus dated April 28, 2000
and has been filed with the Securities and Exchange Commission ("SEC") as part
of the Company's Registration Statement. This Statement of Additional
Information is not a prospectus, and should be read only in conjunction with the
Fund's Prospectus dated April 28, 2000. The contents of this Statement of
Additional Information are incorporated by reference in the Prospectus in their
entirety. A copy of the Prospectus may be obtained through Funds Distributor,
Inc. (the "Distributor"), or by calling the Fund at (800) 438-5789. This
Statement of Additional Information is dated April 28, 2000.
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>
History and General Information........................................... 3
Fund Investments.......................................................... 3
Investment Limitations.................................................... 12
Temporary Defensive Position.............................................. 14
Management of the Fund.................................................... 14
Investment Advisory and Other Service Arrangements........................ 18
Code of Ethics............................................................ 22
Portfolio Transactions.................................................... 22
Additional Purchase and Redemption Information............................ 23
Net Asset Value........................................................... 23
Yield..................................................................... 24
Taxes..................................................................... 25
Additional Information Concerning Shares.................................. 28
Other Information......................................................... 29
Registration Statement.................................................... 30
Financial Statements...................................................... 30
Appendix.................................................................. A-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 Fund or the Distributor. The Prospectus does not
constitute an offering by the Fund or by the Distributor in any jurisdiction in
which such offering may not lawfully be made.
2
<PAGE>
HISTORY AND GENERAL INFORMATION
The Company is an open-end management investment company, which is a
mutual fund that sells and redeems shares every day that it is open for
business. The Company was organized as a Maryland corporation on May 23, 1984
under the name St. Clair Money Market Fund, Inc., which was changed to St. Clair
Fixed Income Fund, Inc. on December 30, 1986 and to St. Clair Funds, Inc. on
September 18, 1996.
As stated in the Prospectus, the investment advisor of the Fund is
Munder Capital Management (the "Advisor"). The principal partners of the Advisor
are Munder Group LLC, WAM Holdings, Inc. ("WAM") and WAM Holdings II, Inc. ("WAM
II"). WAM and WAM II are indirect, wholly owned subsidiaries of Comerica
Incorporated which owns or controls approximately 95% of the partnership
interests in the Advisor.
Shares of the Fund are sold only to Comerica Bank, its affiliate and
subsidiary banks, and certain other institutional investors ("Institutional
Investors"). Shares may be purchased by Institutional Investors for investment
of their own funds, or for funds of their customer accounts ("Customer
Accounts") for which they serve in a fiduciary, agency or custodial capacity.
Shares are sold and redeemed without the imposition of a purchase or redemption
charge by the Fund, although Institutional Investors that are record owners of
Shares for their Customer Accounts may charge their customers separate account
fees.
FUND INVESTMENTS
The following policies supplement the Fund's investment objective and
policies as set forth in the Prospectus. A description of applicable credit
ratings is set forth in the Appendix hereto.
Asset-Backed Securities. Subject to applicable maturity and credit
criteria, the Fund may purchase asset-backed securities (i.e., securities backed
by mortgages, installment sales contracts, credit card receivables or other
assets). The average life of asset-backed securities varies with the maturities
of the underlying instruments which, in the case of mortgages, have maximum
maturities of forty years. The average life of a mortgage-backed instrument, in
particular, is likely to be substantially less than the original maturity of the
mortgage pools underlying the securities as the result of scheduled principal
payments and mortgage prepayments. The rate of such mortgage prepayments, and
hence the life of the certificates, will be primarily a function of current
interest rates and current conditions in the relevant housing markets. The
relationship between mortgage prepayment and interest rates may give some
high-yielding mortgage-related securities less potential for growth in value
than conventional bonds with comparable maturities. In addition, in periods of
falling interest rates, the rate of mortgage prepayment tends to increase.
During such periods, the reinvestment of prepayment proceeds by the Fund will
generally be lower rates than the rates that were carried by the obligations
that have been prepaid. Because of these and other reasons, an asset-backed
security's total return may be difficult to predict precisely. When the Fund
purchases mortgage-related or mortgage-backed securities at a premium, mortgage
prepayments (which may be made at any time without penalty) may result in some
loss of the Fund's principal investment to the extent of premium paid.
Bank Obligations. The Fund may purchase U.S. dollar-denominated bank
obligations, including certificates of deposit, bankers' acceptances, bank
notes, deposit notes and interest-bearing 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
3
<PAGE>
assets of both its domestic and foreign branches. The Fund will invest in the
obligations of domestic banks and savings institutions only if their deposits
are federally insured.
Non-domestic bank obligations include Eurodollar Certificates of
Deposit ("ECDs"), which are U.S. dollar-denominated certificates of deposit
issued by offices of foreign and domestic banks located outside the United
States; Eurodollar Time Deposits ("ETDs"), which are U.S. dollar-denominated
deposits in a foreign branch of a U.S. bank or a foreign bank; Canadian Time
Deposits ("CTDs"), which are essentially the same as ETDs except they are issued
by Canadian offices of major Canadian banks; Schedule Bs, which are obligations
issued by Canadian branches of foreign or domestic banks; Yankee Certificates of
Deposit ("Yankee CDs"), which are U.S. dollar-denominated certificates of
deposit issued by a U.S. branch of a foreign bank and held in the United States;
and Yankee Bankers' Acceptances ("Yankee BAs"), which are U.S.
dollar-denominated bankers' acceptances issued by a U.S. branch of a foreign
bank and held in the United States. Although the Fund will invest in obligations
of foreign banks or foreign branches of U.S. banks only when the Advisor deems
the instrument to present minimal credit risks, such investments may
nevertheless entail risks that are different from those of investments in
domestic obligations of U.S. banks due to differences in political, regulatory
and economic systems and conditions.
Borrowing. The Fund is authorized to borrow money in an amount up to
5% of the value of its total assets at the time of such borrowings for temporary
purposes, and is authorized to borrow money in excess of the 5% limit as
permitted by the 1940 Act to meet redemption requests. This borrowing may be
unsecured. The 1940 Act requires the Fund to maintain continuous asset
coverage of 300% of the amount borrowed. If the 300% asset coverage should
decline as a result of market fluctuations or other reasons, the Fund may be
required to sell some of its portfolio holdings within three days to reduce the
debt and restore the 300% asset coverage, even though it may be disadvantageous
from an investment standpoint to sell securities at that time. Borrowed funds
are subject to interest costs that may or may not be offset by amounts earned on
borrowed funds. The Fund may also be required to maintain minimum average
balances in connection with such borrowing or to pay a commitment or other fees
to maintain a line of credit; either of these requirements would increase the
cost of borrowing over the stated interest rate. The Fund may, in connection
with permissible borrowings, transfer, as collateral, securities owned by the
Fund. The Fund may not purchase portfolio securities while borrowings exceed
5% of the Fund's total assets.
Commercial Paper. Commercial paper (short-term promissory notes issued
by corporations), including variable amount master demand notes, having
short-term ratings at the time of purchase, must be rated by at least two
nationally recognized statistical rating organizations ("NRSROs"), such as
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation
("S&P") within the highest rating category assigned to short-term debt
securities or, if not rated, or rated by only one agency, are determined to be
of comparable quality pursuant to guidelines approved by the Company's Board of
Directors. To the extent that the ratings accorded by NRSROs may change as a
result of changes in their rating systems, the Fund will attempt to use
comparable ratings as standards for its investments, in accordance with the
investment policies contained herein. Where necessary to ensure that an
instrument meets, or is of comparable quality to, the Fund's rating criteria,
the Fund may require that the issuer's obligation to pay the principal of, and
the interest on, the instrument be backed by insurance or by an unconditional
bank letter or line of credit, guarantee, or commitment to lend. In addition,
the Fund may acquire unrated commercial paper and corporate bonds that are
determined by the Advisor at the time of purchase to be of comparable quality to
rated instruments that may be acquired by such Fund as previously described.
Foreign Securities. The Fund may invest up to 25% of its assets in U.S.
dollar-denominated securities of foreign issuers such as foreign commercial
paper and obligations of foreign banks. Income
4
<PAGE>
and gains on such securities may be subject to foreign withholding taxes.
Investors should consider carefully the substantial risks involved in securities
of companies and governments of foreign nations, which are in addition to the
usual risks inherent in domestic investments.
There may be less publicly available information about foreign
companies comparable to the reports and ratings published about companies in the
United States. Foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards, and auditing practices
and requirements may not be comparable to those applicable to United States
companies. Foreign markets have substantially less trading volume than the New
York Stock Exchange and securities of some foreign companies are less liquid and
more volatile than securities of comparable United States companies. Commission
rates in foreign countries, which are generally fixed rather than subject to
negotiation as in the United States, are likely to be higher. In many foreign
countries there is less government supervision and less regulation of stock
exchanges, brokers, and listed companies than in the United States. Such
concerns are particularly heightened for emerging markets and Eastern European
countries.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
These risks include (i) less social, political and economic stability; (ii) the
small current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interest; (iv) foreign taxation; (v)
the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private property; (vi)
the absence, until recently in certain Eastern European countries, of a capital
market structure or market-oriented economy; and (vii) the possibility that
recent favorable economic developments in Eastern Europe may be slowed or
reversed by unanticipated political or social events in such countries.
Investments in Eastern European countries may involve risks of
nationalization, expropriation and confiscatory taxation. The Communist
governments of a number of Eastern European countries expropriated large amounts
of private property in the past, in many cases without adequate compensation,
and there can be no assurance that such expropriation will not occur in the
future. In the event of such expropriation, the Fund could lose a substantial
portion of any investment it has made in the affected countries. Further, no
accounting standards exist in Eastern European countries. Finally, even though
certain Eastern European currencies may be convertible into United States
dollars, the conversion rates may be artificial rather than their actual market
values and they may be adverse to the Fund.
Guaranteed Investment Contracts. The Fund may make limited investments
in guaranteed investment contracts ("GICs") issued by U.S. insurance companies.
Pursuant to such contracts, the 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. The 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.
5
<PAGE>
Illiquid Securities. The Fund may invest up to 10% of the value of its
net assets (determined at time of acquisition) in securities which are illiquid.
Illiquid securities would generally include securities for which there is a
limited trading market, repurchase agreements and time deposits with
notice/termination dates in excess of seven days, and certain securities which
are subject to trading restrictions because they are not registered under the
Securities Act of 1933, as amended (the "Act"). If, after the time of
acquisition, events cause this limit to be exceeded, the Fund will take steps to
reduce the aggregate amount of illiquid securities as soon as reasonably
practicable in accordance with the policies of the SEC.
The Fund may invest in commercial obligations issued in reliance on the
"private placement" exemption from registration afforded by Section 4(2) of the
Securities Act of 1933, as amended ("Section 4(2) paper"). The Fund may also
purchase securities that are not registered under the Securities Act of 1933, as
amended, but which can be sold to qualified institutional buyers in accordance
with Rule 144A under that Act ("Rule 144A securities"). Section 4(2) paper is
restricted as to disposition under the Federal securities laws, and generally is
sold to institutional investors, such as the Fund, which agree that they are
purchasing the paper for investment and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2) paper
normally is resold to other institutional investors like the Fund through or
with the assistance of the issuer or investment dealers who make a market in the
Section 4(2) paper, thus providing liquidity. Rule 144A securities generally
must be sold to other qualified institutional buyers. If a particular investment
in Section 4(2) paper or Rule 144A securities is not determined to be liquid,
that investment will be included within the Fund's limitation on investment in
illiquid securities. The Advisor will determine the liquidity of such
investments pursuant to guidelines established by the Company's Board of
Directors. It is possible that unregistered securities purchased by a Fund in
reliance upon Rule 144A could have the effect of increasing the level of a
Fund's illiquidity to the extent that qualified institutional buyers become, for
a period, uninterested in purchasing these securities.
Investment Company Securities. The Fund may invest in securities issued
by other investment companies. As a shareholder of another investment company,
the Fund would bear its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
expenses the Fund bears directly in connection with its own operations. The Fund
currently intends to limit its investments in securities issued by other
investment companies so that, as determined immediately after a purchase of such
securities is made: (i) not more than 5% of the value of the Fund's total assets
will be invested in the securities of any one investment company; (ii) not more
than 10% of the value of its total assets will be invested in the aggregate in
securities of investment companies as a group; and (iii) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Fund. It is the policy not to invest in securities issued by other investment
companies which pay asset-based fees to the Advisor, the Administrator, the
Custodian, the Distributor or their affiliates.
Lending of Portfolio Securities. To enhance the return on its
portfolio, the Fund may lend securities in its portfolio (subject to a limit
of 25% of its total assets) to securities firms and financial institutions,
provided that each loan is secured continuously by collateral in the form of
cash or high quality money market instruments or short-term U.S. Government
securities adjusted daily to have a market value at least equal to the current
market value of the securities loaned. These loans are terminable at any time,
and the Fund will receive any interest or dividends paid on the loaned
securities. In addition, it is anticipated that the Fund may share with the
borrower some of the income received on the collateral for the loan or the Fund
will be paid a premium for the loan. The risk in lending portfolio securities,
as with other extensions of credit, consists of the possibility of loss to the
Fund due to (i) the inability of the borrower to return the securities, (ii)
delay in recovery of the securities, or (iii) loss of rights in the collateral
should the borrower fail financially. In determining whether the Fund will lend
securities, the Advisor will consider all relevant facts and circumstances. The
6
<PAGE>
Fund will only enter into loan arrangements with broker-dealers, banks or other
institutions which the Advisor has determined are creditworthy under guidelines
established by the Board of Directors.
Municipal Obligations. Opinions relating to the validity of municipal
obligations and to the exemption of interest thereon from regular Federal income
tax are rendered by bond counsel or counsel to the respective issuers at the
time of issuance. Neither the Company nor the Advisor will review the
proceedings relating to the issuance of municipal obligations or the bases for
such opinions.
An issuer's obligations under its municipal obligations are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if any,
which may be enacted by Federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the payment
of interest on and principal of its municipal obligations may be materially
adversely affected by litigation or other conditions.
From time to time proposals have been introduced before Congress for
the purpose of restricting or eliminating the Federal income tax exemption for
interest on municipal obligations. For example, under the Tax Reform Act of 1986
interest on certain private activity bonds must be included in an investor's
Federal alternative minimum taxable income, and corporate investors must include
all tax-exempt interest in their Federal alternative minimum taxable income. The
Company cannot predict what legislation, if any, may be proposed in Congress in
the future as regards the Federal income tax status of interest on municipal
obligations in general, or which proposals, if any, might be enacted.
The Fund may, when deemed appropriate by the Advisor in light of the
Fund's investment objective, invest in high quality municipal obligations issued
by state and local governmental issuers, the interest on which may be taxable or
tax-exempt for Federal income tax purposes, provided that such obligations carry
yields that are competitive with those of other types of money market
instruments of comparable quality. The Fund does not expect to invest more than
5% of its net assets in such municipal obligations during the current fiscal
year.
Repurchase Agreements. The Fund may agree to purchase securities from
financial institutions such as banks and non-bank dealers of U.S. Government
securities that are listed on the Federal Reserve Bank of New York's list of
reporting dealers, subject to the seller's agreement to repurchase them at an
agreed-upon time and price ("repurchase agreements"). The Advisor will review
and continuously monitor the creditworthiness of the seller under a repurchase
agreement, and will require the seller to maintain liquid assets in a segregated
account in an amount that is greater than the repurchase price. Default by, or
bankruptcy of the seller would, however, expose the Fund to possible loss
because of adverse market action or delays in connection with the disposition of
underlying obligations except with respect to repurchase agreements secured by
U.S. Government securities.
The repurchase price under the repurchase agreements generally equals
the price paid by the Fund plus interest negotiated on the basis of current
short-term rates (which may be more or less than the rate on the securities
underlying the repurchase agreement).
Securities subject to repurchase agreements will be held by the Fund's
custodian in the Federal Reserve/Treasury book-entry system or by another
authorized securities depositary. Repurchase agreements are considered to be
loans by the Fund under the Investment Company Act of 1940, as amended (the
"1940 Act").
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<PAGE>
Repurchase agreements shall be deemed to have a maturity equal to the
period remaining until the date on which the repurchase of the underlying
securities is scheduled to occur, or, where the agreement is subject to demand,
the notice period applicable to a demand for the repurchase of the securities.
Reverse Repurchase Agreements. The Fund may borrow funds for temporary
or emergency purposes by selling portfolio securities to financial institutions
such as banks and broker/dealers and agreeing to repurchase them at a mutually
specified date and price ("reverse repurchase agreements"). Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Fund may decline below the repurchase price. The Fund will pay interest on
amounts obtained pursuant to a reverse repurchase agreement. While reverse
repurchase agreements are outstanding, the Fund will maintain in cash, U.S.
Government securities or other liquid securities designated on the books of the
Fund's custodian in an amount at least equal to the market value of the
securities, plus accrued interest, subject to the agreement.
Stripped Securities. The Fund may acquire U.S. Government obligations
and their unmatured interest coupons that have been separated ("stripped") by
their holder, typically a custodian bank or investment brokerage firm. Having
separated the interest coupons from the underlying principal of the U.S.
Government obligations, the holder will resell the stripped securities in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" ("TIGRs") and "Certificate of Accrual on Treasury
Securities" ("CATS"). The stripped coupons are sold separately from the
underlying principal, which is usually sold at a deep discount because the buyer
receives only the right to receive a single future fixed payment on the security
and does not receive any rights to periodic interest (cash) payments. The
underlying U.S. Treasury bonds and notes themselves are held in book-entry form
at the Federal Reserve Bank or, in the case of bearer securities (i.e.,
unregistered securities which are ostensibly owned by the bearer or holder), in
trust on behalf of the owners. Counsel to the underwriters of these certificates
or other evidences of ownership of U.S. Treasury securities have stated that, in
their opinion, purchasers of the stripped securities most likely will be deemed
the beneficial holders of the underlying U.S. Government obligations for Federal
tax and securities purposes. The Fund is not aware of any binding legislative,
judicial or administrative authority on this issue.
Only instruments which are stripped by the issuing agency will be
considered U.S. Government obligations. Securities such as CATS and TIGRs which
are stripped by their holder do not qualify as U.S. Government obligations.
The Treasury Department facilitates transfers of ownership of zero
coupon securities by accounting separately for the beneficial ownership of
particular interest coupon and principal payments or Treasury securities through
the Federal Reserve book-entry recordkeeping system. The Federal Reserve program
as established by the Treasury Department is known as "STRIPS" or "Separate
Trading of Registered Interest and Principal of Securities." Under the STRIPS
program, the Fund is able to have its beneficial ownership of zero coupon
securities recorded directly in the book-entry record-keeping system in lieu of
having to hold certificates or other evidences of ownership of the underlying
U.S. Treasury securities.
Stripped securities will normally be considered illiquid instruments
and will be acquired subject to the limitation on illiquid investments unless
determined to be liquid under guidelines established by the Board of Directors.
In addition, the Fund may invest in stripped mortgage-backed securities
("SMBS"), which represent beneficial ownership interests in the principal
distributions and/or the interest distributions on mortgage assets. SMBS are
usually structured with two classes that receive different proportions of the
interest and principal distributions on a pool of mortgage assets. One type of
SMBS will have one class
8
<PAGE>
receiving some of the interest and most of the principal from the mortgage
assets, while the other class will receive most of the interest and the
remainder of the principal. In the most common case, one class of SMBS will
receive all of the interest (the interest-only or "IO" class), while the other
class will receive all of the principal (the principal-only or "PO" class). SMBS
may be issued by Federal National Mortgage Association or Federal Home Loan
Mortgage Corporation.
The original principal amount, if any, of each SMBS class represents
the amount payable to the holder thereof over the life of such SMBS class from
principal distributions of the underlying mortgage assets, which will be zero in
the case of an IO class. Interest distributions allocable to a class of SMBS, if
any, consist of interest at a specified rate on its principal amount, if any, or
its notional principal amount in the case of an IO class. The notional principal
amount is used solely for purposes of the determination of interest
distributions and certain other rights of holders of such IO class and does not
represent an interest in principal distributions of the mortgage assets.
Yields on SMBS will be extremely sensitive to the prepayment experience
of the underlying mortgage loans, and there are other associated risks. For IO
classes of SMBS and SMBS that were purchased at prices exceeding their principal
amounts there is a risk that the Fund may not fully recover its initial
investment.
The determination of whether a particular government-issued IO or PO
backed by fixed-rate mortgages is liquid may be made under guidelines and
standards established by the Board of Directors. Such securities may be deemed
liquid if they can be disposed of promptly in the ordinary course of business at
a value reasonably close to that used in the calculation of the Fund's net asset
value per share.
U.S. Government Obligations. The Fund may purchase obligations issued
or guaranteed by the U.S. Government and U.S. Government agencies and
instrumentalities, except that the Short Term Treasury Fund will only purchase
obligations issued by the U.S. Treasury. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of the Government
National Mortgage Association ("GNMA"), are supported by the full faith and
credit of the U.S. Treasury. Others, such as those of the Export-Import Bank of
the United States, are supported by the right of the issuer to borrow from the
U.S. Treasury; and still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the agency or instrumentality
issuing the obligation. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Examples of the types of U.S. Government
obligations that may be acquired by the Funds include U.S. Treasury Bills, U.S.
Treasury Notes and U.S. Treasury Bonds and the obligations of Federal Home Loan
Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
GNMA, General Services Administration, Student Loan Marketing Association,
Central Bank for Cooperatives, Federal Home Loan Mortgage Corporation, Federal
Intermediate Credit Banks and Maritime Administration.
U.S. Treasury securities differ in their interest rates, maturities and
times of issuance. Treasury bills have initial maturities of one year or less,
Treasury notes have initial maturities of one to ten years and Treasury bonds
generally have initial maturities greater than ten years. A portion of the U.S.
Treasury securities purchased by the Fund may be "zero coupon" Treasury
securities. These are U.S. treasury notes and bonds which have been stripped of
their unmatured interest coupons and receipts or which are certificates
representing interests in such stripped debt obligations and coupons. Such
securities are purchased at a discount from their face amount, giving the
purchaser the right to receive their full value at maturity. A zero coupon
security pays no interest to its holder during its life. Its value to an
investor consists of the difference between its face value at the time of
maturity and the price for
9
<PAGE>
which it was acquired, which is generally an amount significantly less than its
face value (sometimes referred to as a "deep discount" price).
The interest earned on such securities is, implicitly, automatically
compounded and paid out at maturity. While such compounding at a constant rate
eliminates the risk of receiving lower yields upon reinvestment of interest if
prevailing interest rates decline, the owner of a zero coupon security will be
unable to participate in higher yields upon reinvestment of interest received if
prevailing interest rates rise. For this reason, zero coupon securities are
subject to substantially greater market price fluctuations during periods of
changing prevailing interest rates than are comparable debt securities which
make current distributions of interest. Current federal tax law requires that a
holder (such as a Fund) of a zero coupon security accrue a portion of the
discount at which the security was purchased as income each year even though the
Fund receives no interest payments in cash on the security during the year.
Certain banks and brokerage firms have separated the principal portions
from the coupon portions of the U.S. Treasury bonds and notes and sell them
separately in the form of receipts or certificates representing undivided
interests in these instruments (which instruments are generally held by a bank
in a custodial or trust account). The Fund will not purchase any such receipts
or certificates representing stripped principal or coupon interests in U.S.
Treasury securities sold by banks and brokerage firms. The Fund will only
purchase zero coupon Treasury securities which have been stripped by the Federal
Reserve Bank.
Variable and Floating Rate Instruments. Debt instruments may be
structured to have variable or floating interest rates. Variable and floating
rate obligations purchased by the Fund may have stated maturities in excess of
the Fund's maturity limitation if the Fund can demand payment of the principal
of the instrument at least once during such period on not more than thirty days'
notice (this demand feature is not required if the instrument is guaranteed by
the U.S. Government or an agency thereof) or if the instruments are deemed to
have shorter maturities in accordance with the current regulations of the SEC.
These instruments may include variable amount master demand notes that permit
the indebtedness to vary in addition to providing for periodic adjustments in
the interest rates. The Advisor will consider the earning power, cash flows and
other liquidity ratios of the issuers and guarantors of such instruments and, if
the instrument is subject to a demand feature, will continuously monitor their
financial ability to meet payment on demand. Where necessary to ensure that a
variable or floating rate instrument is equivalent to the quality standards
applicable to the Fund, the issuer's obligation to pay the principal of the
instrument will be backed by an unconditional bank letter or line of credit,
guarantee or commitment to lend.
In determining average weighted portfolio maturity of the Fund,
short-term variable rate securities shall be deemed to have a maturity equal to
the earlier of the period remaining until the next readjustment of the interest
rate or the period remaining until the principal amount can be recovered through
demand, and short-term floating rate securities shall be deemed to have a
maturity of one day. For purposes of this paragraph, "short-term" with respect
to a security means that the principal amount, in accordance with the terms of
the security, must unconditionally be paid in 397 calendar days or less.
In determining average weighted portfolio maturity of the Fund,
long-term variable rate securities shall be deemed to have a maturity equal to
the longer of the period remaining until the next readjustment of the interest
rate or the period remaining until the principal amount can be recovered through
demand, and long-term floating rate securities shall be deemed to have a
maturity equal to the period remaining until the principal amount can be
recovered through demand. For purposes of this paragraph, "long-term" with
respect to a security means that the principal amount of the security is
scheduled to be paid in more than 397 days.
10
<PAGE>
Variable rate government securities where the variable rate of interest
is readjusted no less frequently than every 762 days shall be deemed to have a
maturity equal to the period remaining until the next interest rate
readjustment. Floating rate government securities shall be deemed to have a
remaining maturity of one day.
The absence of an active secondary market for certain variable and
floating rate notes could make it difficult to dispose of the instruments, and
the Fund could suffer a loss if the issuer defaulted or during periods that the
Fund is not entitled to exercise its demand rights.
Variable and floating rate instruments held by the Fund will be subject
to the Fund's limitation on illiquid investments when the Fund may not demand
payment of the principal amount within seven days absent a reliable trading
market.
All obligations, including any underlying guarantees, must be deemed by
the Advisor to present minimal credit risks, pursuant to guidelines approved by
the Board of Directors. See the "Appendix" for a description of applicable
ratings.
When-Issued Purchases and Forward Commitments (Delayed-Delivery
Transactions). When-issued purchases and forward commitments (also called
delayed-delivery transactions) are commitments by the Fund to purchase or sell
particular securities with payment and delivery to occur at a future date
(perhaps one or two months later). These transactions permit the Fund to lock-in
a price or yield on a security, regardless of future changes in interest rates.
When the Fund agrees to purchase securities on a when-issued or forward
commitment basis, the Fund's Custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, the Custodian will set aside portfolio securities to satisfy a
purchase commitment, and in such a case the Fund may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitments. It
may be expected that the market value of the Fund's net assets will fluctuate to
a greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because the Fund's liquidity and
ability to manage its portfolio might be affected when it sets aside cash or
portfolio securities to cover such purchase commitments, the Advisor expects
that its commitments to purchase when-issued securities and forward commitments
will not exceed 25% of the value of a Fund's total assets absent unusual market
conditions.
The Fund will purchase securities on a when-issued or forward
commitment basis only with the intention of completing the transaction and
actually purchasing the securities. If deemed advisable as a matter of
investment strategy, however, the Fund may dispose of or renegotiate a
commitment after it is entered into, and may sell securities it has committed to
purchase before those securities are delivered to the Fund on the settlement
date. In these cases the Fund may realize a taxable capital gain or loss.
When the Fund engages in when-issued and forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase or
a forward commitment to purchase securities, and any subsequent fluctuations in
their market value, are taken into account when determining the market value of
the Fund starting on the day the Fund agrees to purchase the securities. The
Fund does not earn interest on the securities it has committed to purchase until
they are paid for and delivered on the settlement date.
11
<PAGE>
Yields and Ratings. The yields on certain obligations, including the money
market instruments in which each Fund may invest (such as commercial paper and
bank obligations), are dependent on a variety of factors, including general
money market conditions, conditions in the particular market for the obligation,
the financial condition of the issuer, the size of the offering, the maturity of
the obligation and the ratings of the issue. The ratings of S&P, Moody's, Duff &
Phelps Credit Rating Co., Thomson Bank Watch, Inc., and other nationally
recognized statistical rating organizations represent their respective opinions
as to the quality of the obligations they undertake to rate. Ratings, however,
are general and are not absolute standards of quality. Consequently, obligations
with the same rating, maturity and interest rate may have different market
prices.
Subsequent to its purchase by a Fund, a rated security may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Directors or the Advisor, pursuant to
guidelines established by the Board, will consider such an event in determining
whether the Fund involved should continue to hold the security in accordance
with the interests of the Fund and applicable regulations of the SEC.
INVESTMENT LIMITATIONS
The Fund is subject to the investment restrictions and limitations listed
below which may be changed only by a vote of the holders of a majority of the
Fund's outstanding shares (as defined under "Miscellaneous-Shareholder
Approvals").
The Fund may not:
1. Purchase securities (other than obligations of the U.S. Government,
its agencies or instrumentalities) if more than 5% of the value of the
Fund's total assets would be invested in the securities of any one
issuer, except that up to 25% of the value of the Fund's total assets
may be invested without regard to this 5% limitation. However, as an
operating policy, the Fund intends to adhere to this 5% limitation
with regard to 100% of its portfolio to the extent required under
applicable regulations under the 1940 Act;
2. Purchase more than 10% of the outstanding voting securities of any
issuer, except that up to 25% of the value of the Fund's total assets
may be invested without regard to this 10% limitation;
3. Invest 25% or more of the Fund's total assets in one or more issuers
conducting their principal business activities in the same industry,
provided that: (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, domestic bank certificates of deposit, bankers'
acceptances, and repurchase agreements secured by such obligations;
(b) wholly owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related
to financing the activities of their parents; and (c) utilities will
be divided according to their services -- for example, gas, gas
transmission, electric and gas, electric, and telephone will each be
considered separate industry;
4. Make loans, except that the Fund may purchase or hold certain debt
instruments and enter into repurchase agreements, in accordance with
its policies and limitations;
5. Borrow money, except for temporary purposes in amounts up to one-third
of the value of the Fund's total assets at the time of such borrowing.
Whenever borrowings exceed 5% of the Fund's total assets, the Fund
will not make any additional investments;
12
<PAGE>
6. Knowingly invest more than 10% of its total assets in illiquid
securities including time deposits with maturities longer than seven
days and repurchase agreements providing for settlement more than
seven days after notice;
7. Pledge, mortgage or hypothecate its assets other than to secure
borrowings permitted by restriction 5 above;
8. Underwrite securities of other issuers, except insofar as the Fund may
be deemed an underwriter under the Securities Act of 1933, as amended,
in selling portfolio securities;
9. Purchase or sell real estate or any interest therein, including
interests in real estate limited partnerships, except securities
issued by companies (including real estate investment trusts) that
invest in real estate or interests therein;
10. Purchase securities on margin, or make short sales of securities,
except for the use of short-term credit necessary for the clearance of
purchases and sales of portfolio securities; or
11. Invest in commodities or commodity futures contracts, provided that
this limitation shall not prohibit the purchase or sale by the Fund of
financial futures contracts and options on financial futures
contracts, options on securities and securities indices, as permitted
by the Fund's Prospectus.
Additional investment restrictions adopted by the Fund, which may be
changed by the Board of Directors, provide that the Fund may not:
1. Purchase or sell interests in oil, gas or other mineral exploration or
development plans or leases;
2. Invest in other investment companies except as permitted under the
1940 Act; or
3. Make investments for the purpose of exercising control or management.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
the Fund's investments will not constitute a violation of such limitation. In
addition, if the Fund's holdings of illiquid securities exceeds 10% because of
changes in the value of the Fund's investments, the Fund will take action to
reduce its holdings of illiquid securities within a time frame deemed to be in
the best interest of the Fund. Otherwise, the Fund may continue to hold a
security even though it causes the Fund to exceed a percentage limitation
because of fluctuation in the value of the Fund's assets.
13
<PAGE>
TEMPORARY DEFENSIVE POSITION
During periods of unusual economic or market conditions or for temporary
defensive purposes or liquidity, the Fund may invest without limit in cash and
in U.S. dollar-denominated high quality money market and other short-term
instruments. These investments may result in a lower yield than would be
available from investments with a lower quality or longer term.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The directors and executive officers of the Company, and their business
addresses and principal occupations during the past five years, are:
<TABLE>
<CAPTION>
Principal Occupation
Name, Address and Age Positions with Company+ During Past Five Years
- --------------------- ----------------------- ----------------------
<S> <C> <C>
Charles W. Elliott Director and Chairman of the Senior Advisor to the President,
1024 Essex Circle Board of Directors Western Michigan University (July
Kalamazoo, MI 49008 1995 through December 1998); Executive
DOB: 1/7/32 Vice President, Administration
& Chief Financial Officer, Kellogg
Company (January 1987 through
June 1995). Board of Directors,
Steelcase Financial Corporation.
John Rakolta, Jr. Director and Vice Chairman of Chairman and Chief Executive
1876 Rathmor the Board of Directors Officer, Walbridge Aldinger
Bloomfield Hills, MI 48304 Company (construction company).
DOB: 5/26/47
</TABLE>
14
<PAGE>
<TABLE>
<S> <C> <C>
Thomas B. Bender Director Director, Disciplined Growth Investors (investment
5033 Wood Ridge Road management firm since December 1999); Partner,
Glen Arbor, MI 49636 Financial & Investment Management Group (April 1991 to
DOB: 7/14/33 December 1999).
David J. Brophy Director Professor, University of Michigan.
1025 Martin Place Director, River Place Financial Corporation.
Ann Arbor, MI 48104
DOB: 8/7/36
Dr. Joseph E. Champagne Director Dean, University Center, Macomb College (since September
319 East Snell Road 1997); Corporate and Executive Consultant (since September
Rochester, MI 48306 1995). Chancellor, Lamar University (September 1994 to
DOB: 5/19/38 September 1995). Chairman of Board of Directors, Ross
Operating Valve of Troy, Michigan.
Thomas D. Eckert Director President and Chief Executive Officer, Capital Automotive
10726 Falls Pointe Drive REIT (real estate investment trust specializing in retail
Great Falls, VA 22066 automotive properties) (since November 1997); President,
DOB: 9/22/47 Mid-Atlantic Region of Pulte Home Corporation (developer
of residential and construction of housing units) (1983
to 1997). Director, Celotex Corporation (building products
manufacturer).
</TABLE>
15
<PAGE>
<TABLE>
<S> <C> <C>
Terry H. Gardner Vice President, Vice President and Chief Financial Officer of the Advisor
480 Pierce Street Chief Financial Officer, (since 1993), Vice President and Chief Financial Officer,
Suite 300 Treasurer and Secretary MCM (since 1993); Secretary, LPM (since June 1993).
Birmingham, MI 48009
DOB: 10/11/60
Michael Monahan Vice President Chairman of the Advisor (January 2000 to present); Vice
480 Pierce Street President and Chief Executive Officer of the Advisor (October
Suite 300 1999 to December 1999); President of Monahan Enterprises, LLC
Birmingham, MI 48009 (consulting company) (June 1999 to present); President of
DOB: 1/26/39 Comerica Incorporated (1994 to June 1999); President of
Comerica Bank (1994 to June 1999).
Elyse G. Essick Vice President Vice President and Director of Communications and Client
480 Pierce Street Services of the Advisor (since January 1995).
Suite 300
Birmingham, MI 48009
DOB: 4/6/58
James C. Robinson Vice President Chief Executive Officer of the Advisor (January 2000 to
480 Pierce Street present); Executive Vice President of the Advisor (February
Suite 300 1998 to December 1999); and Chief Investment Officer/Fixed
Birmingham, MI 48009 Income of the Advisor (January 1995 to December 1999).
DOB: 4/24/61
Leonard J. Barr Vice President Vice President and Director of Core Equity Research of the
480 Pierce Street Advisor (since January 1995); Director and Senior Vice
Suite 300 President, MCM (since 1988); Director of LPM.
Birmingham, MI 48009
DOB: 6/16/44
Ann F. Putallaz Vice President Vice President and Director of Retirement Services Group
480 Pierce Street of the Advisor (since January 1995).
Suite 300
Birmingham, MI 48009
DOB: 6/8/45
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C>
Therese Hogan Assistant Director, State Regulation Department, PFPC Inc.
53 State Street Secretary (formerly First Data Investor Services Group) (since
Boston, MA 02109 June 1994).
DOB: 2/27/62
Libby Wilson Assistant Secretary and Director of Mutual Fund Operations of the Advisor (since
480 Pierce Street Assistant Treasurer July 1999); Global Portfolio Client Associate of Invesco
Suite 300 Global Asset Management (investment advisor) (March 1999 to
Birmingham, MI 48009 July 1999); Manager of Mutual Funds Operations of the
DOB: 2/24/69 Advisor (May 1996 to March 1999); Administrator of Mutual
Funds Operations of the Advisor (March 1993 to May 1996).
Mary Ann Shumaker Assistant Secretary Associate General Counsel of the Advisor (since July 1997);
480 Pierce Street and Associate, Miro Weiner & Kramer (law firm) (1991 to
Suite 300 1997.)
Birmingham, MI 48009
DOB: 7/31/54
</TABLE>
___________________
+ Individual holds same position with The Munder Funds, Inc., ("Munder"), The
Munder Funds Trust (the "Trust") and Munder Framlington Funds Trust
("Framlington") each a registered investment company.
Directors who are not interested persons of the Company and Munder and
Trustees who are not interested persons of the Trust and Framlington receive an
aggregate fee from the Company, the Trust, Munder and Framlington for service on
those organizations' respective Boards, comprised of an annual retainer fee of
$35,000 and a fee of $3,500 for each Board meeting attended; and are reimbursed
for all out-of-pocket expenses relating to attendance at such meetings.
The following table summarizes the compensation paid by the Company, the
Trust, Munder and Framlington to their respective Directors/Trustees for the
year ended December 31, 1999.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Charles W. Elliot John Rakolta, Thomas David J. Dr. Joseph Thomas D.
Chairman, Jr. Vic B. Brophy E. Eckert
Trustee and Chairman, Bender Trustee and Champagne Trustee and
Director Trustee and Trustee Director Trustee and Director
Director and Director
Director
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aggregate Compensation
from Munder $14,688 $13,751 $13,751 $13,751 $13,751 $13,751
- ------------------------------------------------------------------------------------------------------------------------------------
Aggregate
Compensation from the $29,967 $28,803 $28,803 $28,803 $28,803 $28,803
Trust
- ------------------------------------------------------------------------------------------------------------------------------------
Aggregate
Compensation from $733 $704 $704 $704 $704 $704
Framlington
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Aggregate
Compensation from the $1,300 $1,242 $1,242 $1,242 $1,242 $1,242
Company
- ------------------------------------------------------------------------------------------------------------------------------------
Pension Retirement
Benefits Accrued as Part
of Fund Expenses None None None None None None
- ------------------------------------------------------------------------------------------------------------------------------------
Estimated Annual
Benefits upon None None None None None None
Retirement
- ------------------------------------------------------------------------------------------------------------------------------------
Total from the Fund
Complex $46,688 $44,500 $44,500 $44,500 $44,500 $44,500
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
No officer, director or employee of the Advisor, Comerica Bank, the
Custodian, the Distributor, the Administrator or the Transfer Agent, as defined
below currently receives any compensation from the Company. As of April 3, 2000,
the Directors and officers of the Company, as a group, owned less than 1% of
outstanding shares of the Fund.
INVESTMENT ADVISORY AND OTHER SERVICE ARRANGEMENTS
Investment Advisor. The Advisor of the Fund is Munder Capital Management, a
Delaware general partnership. The general partners of the Advisor are WAM, WAM
II, and Munder Group, LLC. WAM and WAM II are wholly owned subsidiaries of
Comerica Bank -- Ann Arbor, which in turn is a wholly owned subsidiary of
Comerica Incorporated, a publicly held bank holding company.
The Investment Advisory Agreement between the Advisor and the Company with
respect to the Fund (the "Advisory Agreement") was approved by the Company's
Board of Directors and by the shareholders. Under the terms of the Advisory
Agreement, the Advisor furnishes continuing investment supervision to the Fund
and is responsible for the management of the Fund's portfolio. The
responsibility for making decisions to buy, sell or hold a particular security
rests with the Advisor, subject to review by the Company's Board of Directors.
18
<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 Agreement or
interested persons (as defined in the 1940 Act), cast in person at a meeting
called for the purpose of voting on approval, and (b) either (i) the vote of a
majority of the outstanding voting securities of the Fund, or (ii) the vote of a
majority of the Board of Directors. The Advisory Agreement is terminable with
respect to the Fund by a vote of the Board of Directors, or by the holders of a
majority of the outstanding voting securities of the Fund, at any time without
penalty, on 60 days' written notice to the Advisor. The Advisor may also
terminate its advisory relationship with respect to the Fund on 60 days' written
notice to the Company, and the Advisory Agreement terminates automatically in
the event of its assignment.
For the advisory services provided and expenses assumed by it, the Advisor
has agreed to a fee from the Fund, computed daily and payable monthly, at an
annual rate of .35% of average daily net assets of the Fund.
For the period from commencement of operations on June 4, 1997 through
December 31, 1997, the Advisor received fees in the amount of $52,118.
For the fiscal year ended December 31, 1998, the Advisor received fees in
the amount of $233,769.
For the fiscal year ended December 31, 1999, the Advisor received fees in
the amount of $334,228.
Distribution Agreement. The Company has entered into a distribution
agreement, under which the Distributor, as agent, sells shares of the Fund on a
continuous basis. The Distributor has agreed to use appropriate efforts to
solicit orders for the purchase of shares of the Fund, although it is not
obligated to sell any particular amount of shares. The Distributor pays the cost
of printing and distributing prospectuses to persons who are not holders of Fund
shares (excluding preparation and printing expenses necessary for the continued
registration of the shares). The Distributor's principal offices are located at
60 State Street, Suite 1300, Boston, Massachusetts 02109.
Distribution Services Arrangements. The Fund has adopted a Service and
Distribution Plan (the "Plan"), pursuant to which it uses its assets to finance
activities relating to the distribution of its shares to investors and the
provision of certain shareholder services. Under the Service and Distribution
Plans, the Distributor is paid an annual service fee of 0.25% of the value of
average daily net assets of the Fund and an annual distribution fee at the rate
of 0.10% of the value of average daily net assets of the Fund.
During the period from commencement of operations on June 4, 1997 through
December 31, 1997, the Fund paid the Distributor service fee in the amount of
$37,266 and distribution fees in the amount of $14,890.
19
<PAGE>
During the fiscal year ended December 31, 1998, the Fund paid the
Distributor service fee in the amount of $171,241 and distribution fees in the
amount of $68,496.
During the fiscal year ended December 31, 1999, the Fund paid the
Distributor service fee in the amount of $237,302 and distribution fees in the
amount of $96,926.
Under the Plan, the distributor uses the service fees primarily to pay
ongoing trail commissions to securities dealers (which may include the
distributor itself) and other financial institutions and organizations
(collectively, the Service Organizations) who provide shareholder services for
the Fund. These services include, among other things, processing new shareholder
account applications, preparing and transmitting to the Fund's transfer agent
computer processable tapes of all transactions by customers and serving as the
primary source of information to customers in answering questions concerning the
Fund and their transactions with the Fund.
The Plan permits payments to be made by the Fund to the distributor for
expenditures incurred by it in connection with the distribution of Fund shares
to investors and the provision of certain shareholder services, including but
not limited to the payment of compensation, including incentive compensation, to
Service Organizations to obtain various distribution-related services for the
Fund. The distributor is also authorized to engage in advertising, the
preparation and distribution of sales literature and other promotional
activities on behalf of the Fund. In addition, the Plan authorizes payments by
the Fund of the cost of preparing, printing and distributing Fund prospectuses
and statements of additional information to prospective investors and of
implementing and operating the Plan. Distribution expenses also include an
allocation of overhead of the distributor and accruals for interest on the
amount of distribution expenses incurred by the distributor.
Under the terms of the Plan, the Plan continues from year to year, provided
such continuance is approved annually by vote of the Board of Directors,
including a majority of the Board of Directors who are not interested persons of
the Company, as applicable, and who have no direct or indirect financial
interest in the operation of that Plan (the "Non-Interested Plan Directors").
The Plan may not be amended to increase the amount to be spent for the services
provided by the Distributor without shareholder approval, and all amendments of
the Plan also must be approved by the Directors in the manner described above.
The Plan may be terminated at any time, without penalty, by vote of a majority
of the Non-Interested Plan Directors or by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the 1940 Act) upon not
more than 30 days' written notice to any other party to the Plan. Pursuant to
the Plan, the Distributor will provide the Board of Directors periodic reports
of amounts expended under the Plan and the purposes for which such expenditures
were made.
The Distributor expects to pay sales commissions to dealers authorized to
sell the Fund's shares at the time of sale. The Distributor will use its own
funds (which may be borrowed) to pay such commissions pending reimbursement
pursuant to the Plan. In addition, the Advisor may use its own resources to make
payments to the Distributor or dealers authorized to sell the Fund's shares to
support their sales efforts.
Administration Agreement. State Street Bank and Trust Company ("State
Street" or the "Administrator"), located at 225 Franklin Street, Boston,
Massachusetts 02110, serves as administrator for the Company pursuant to an
administration agreement (the "Administration Agreement"). State Street has
agreed to maintain office facilities for the Company; provide accounting and
bookkeeping services for the Fund, including the computation of the Fund's net
asset value, net income and realized capital gains, if any; furnish statistical
and research data, clerical services, and stationery and office supplies;
prepare and file various reports with the appropriate regulatory agencies; and
prepare various materials required by the SEC or any state securities commission
having jurisdiction over the Company. State Street may enter into an agreement
with one or more third parties pursuant to which such third parties will provide
administrative services on behalf of the Fund.
20
<PAGE>
The Administration Agreement provides that the Administrator performing
services thereunder shall not be liable under the Agreement except for its
willful misfeasance, bad faith or negligence in the performance of its duties or
from the reckless disregard by it of its duties and obligations thereunder.
For the fiscal year ended December 31, 1998, the administration fees of
State Street accrued were $34,159 for the Fund.
For the fiscal year ended December 31, 1999, the administration fees of
State Street accrued were $48,025 for the Fund.
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, the Custodian (i) maintains a separate account in the name
of the Fund, (ii) holds and transfers portfolio securities on account of the
Fund, (iii) accepts receipts and makes disbursements of money on behalf of the
Fund, (iv) collects and receives all income and other payments and distributions
on account of the Fund's securities and (v) makes periodic reports to the
Company's Board of Directors concerning the Fund's operations.
Transfer and Dividend Disbursing Agent. PFPC Inc. (formerly First Data
Investor Services Group, Inc.) (the "Transfer Agent") located at 4400 Computer
Drive, Westborough, Massachusetts 01581 serves as the transfer and dividend
disbursing agent for the Company pursuant to a transfer agency agreement (the
"Transfer Agency Agreement"), under which the Transfer Agent (i) issues and
redeems shares of the Fund, (ii) addresses and mails all communications by the
Fund to its record owners, including reports to shareholders, dividend and
distribution notices and proxy materials for its meetings of shareholders, (iii)
maintains shareholder accounts, (iv) responds to correspondence by shareholders
of the Fund and (v) makes periodic reports to the Board of Directors concerning
the operations of the Fund.
Other Information Pertaining to Administration, Custodian and Transfer
Agency Agreements. The Administrator, the Transfer Agent and the Custodian
each receives a separate fee for its services. In approving the Administration
Agreement, the Custodian Contract and the Transfer Agency Agreement, the Board
of Directors did consider the services that are to be provided under their
respective agreements, the experience and qualifications of the respective
service contractors, the reasonableness of the fees payable by the Company in
comparison to the charges of competing vendors, the impact of the fees on the
estimated total ordinary operating expense ratio of each Fund and the fact that
neither the Administrator, the Custodian nor the Transfer Agent is affiliated
with the Company or the Advisor. The Board also considered its responsibilities
under Federal and state law in approving these agreements.
21
<PAGE>
Except as noted in this Statement of Additional Information the Fund's
service contractors bear all expenses in connection with the performance of
their services and the Fund bears the expenses incurred in its operations. These
expenses include, but are not limited to, fees paid to the Advisor,
Administrator, Custodian and Transfer Agent; fees and expenses of officers and
Directors; taxes; interest; legal and auditing fees; brokerage fees and
commissions; certain fees and expenses in registering and qualifying each Fund
and its shares for distribution under Federal and state securities laws;
expenses of preparing prospectuses and statements of additional information and
of printing and distributing prospectuses and statements of additional
information to existing shareholders; the expense of reports to shareholders,
shareholders' meetings and proxy solicitations; fidelity bond and directors' and
officers' liability insurance premiums; the expense of using independent pricing
services; and other expenses which are not assumed by the Administrator. Any
general expenses of the Company that are not readily identifiable as belonging
to a particular investment portfolio of the Company are allocated among all
investment portfolios of the Company by or under the direction of the Board of
Directors in a manner that the Board of Directors determines to be fair and
equitable, taking into consideration whether it is appropriate for expenses to
be borne by the Fund in addition to the Company's other funds. The Advisor,
Administrator, Custodian and Transfer Agent may voluntarily waive all or a
portion of their respective fees from time to time.
CODE OF ETHICS
The Company, the Advisor and the Distributor each have adopted a code
of ethics as required by applicable law, which is designed to prevent affiliated
persons of the Company, the Advisor and the Distributor from engaging in
deceptive, manipulative or fraudulent activities in connection with securities
held or to be acquired by the Fund (which may also be held by persons subject to
a code of ethics). There can be no assurance that the codes of ethics will be
effective in preventing such activities. Each code of ethics, filed as exhibits
to this registration statement, may be examined at the office of the SEC in
Washington, D.C. or on the Internet from the SEC's website at
http:/www.sec.gov.
PORTFOLIO TRANSACTIONS
Pursuant to the Advisory Agreement, the Advisor determines which
securities are to be sold and purchased by the Fund and which brokers are to be
eligible to execute its portfolio transactions. Portfolio securities are
normally purchased directly from the issuer or from an underwriter or market
maker for the securities. Purchases from underwriters of portfolio securities
include a commission or concession paid by the issuer to the underwriter and
purchases from dealers serving as market makers may include the spread between
the bid and asked price. While the Advisor generally seeks competitive spreads
or commissions, the Fund may not necessarily pay the lowest spread or commission
available on each transaction for reasons discussed below.
22
<PAGE>
Allocation of transactions, including their frequency, to various
dealers is determined by the Advisor in its best judgment and in a manner deemed
fair and reasonable to shareholders. The primary consideration is the prompt
execution of orders in an effective manner at the most favorable price. Subject
to this consideration, dealers who provide supplemental investment research to
the Advisor may receive orders for transactions by the Fund. Information so
received is in addition to and not in lieu of services required to be performed
by the Advisor, nor would the receipt of such information reduce the Advisor's
fees. Such information may be useful to the Advisor in serving both the Fund and
other clients, and conversely, supplemental information obtained by the
placement of business of other clients may be useful to the Advisor in carrying
out its obligations to the Fund.
The Fund will not execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in, or enter into
repurchase or reverse repurchase agreements with the Advisor, the Distributor,
or their affiliates.
Investment decisions for the Fund are made independently from those for
any other investment portfolios or accounts ("accounts") managed by the Advisor.
Such accounts may also invest in the same securities as the Fund. When a
purchase or sale of the same security is made at substantially the same time on
behalf of the Fund and another account, the transaction will be averaged as to
price, and available investments allocated as to amount, in a manner which the
Advisor believes to be equitable to the Fund and such other account. In some
instances, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtained or sold by the Fund.
To the extent permitted by law, the Advisor may aggregate the securities to be
sold or purchased for the Fund with those to be sold or purchased for other
accounts in order to obtain the best execution.
The Fund does not intend to seek profits through short-term trading.
Since the Fund will invest only in short-term debt instruments, brokerage
commissions will not normally be paid, and portfolio turnover is not expected to
have a material effect on the net income of the Fund. The Fund's portfolio
turnover rate is expected to be zero for regulatory reporting purposes.
23
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchases. Purchases and redemptions are discussed in the Fund's
Prospectus and such information is incorporated herein by reference.
Differing types of Customer Accounts over which Institutional
Investors exercise substantial investment discretion may be used to purchase
Fund Shares, including trust accounts. Investors purchasing Fund Shares may
include officers, directors, or employees of Comerica Bank or its affiliated
banks.
Redemptions. The Fund may suspend the right of redemption or postpone
the date of payment for Shares during any period when: (a) trading on the New
York Stock Exchange (the "Exchange") is restricted by applicable rules and
regulations of the SEC; (b) the Exchange is closed other than for customary
weekend and holiday closings; (c) the SEC has by order permitted such
suspension; or (d) an emergency exists as determined by the SEC. Upon the
occurrence of any of the foregoing conditions, the Fund may also suspend or
postpone the recording of the transfer of its Shares.
In addition, the Fund may compel the redemption of, reject any order
for, or refuse to give effect on the Fund's books to the transfer of, its Shares
where the relevant investor or investors have not furnished the Fund with valid,
certified taxpayer identification numbers and such other tax-related
certifications as the Fund may request. The Fund may also redeem Shares
involuntarily if it otherwise appears appropriate to do so in light of the
Fund's responsibilities under the 1940 Act or in connection with a failure of
the appropriate person(s) to furnish certified taxpayer identification numbers
and other tax-related certifications.
In-kind Purchases. Payment for shares may, in the discretion of the
Advisor, be made in the form of securities that are permissible investments for
the Fund as described in the Prospectus. For further information about this form
of payment please contact the Transfer Agent. In connection with an in-kind
securities payment, the Fund will require, among other things, that the
securities be valued on the day of purchase in accordance with the pricing
methods used by the Fund and that the Fund receive satisfactory assurances that
(1) it will have good and marketable title to the securities received by it; (2)
that the securities are in proper form for transfer to the Fund; and (3)
adequate information will be provided concerning the basis and other tax matters
relating to the securities.
NET ASSET VALUE
The Fund has elected to use the amortized cost method of valuation
pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an instrument at
its cost initially and thereafter assuming a constant amortization to maturity
of any discount or premium, regardless of the impact of fluctuating interest
rates on the market value of the instrument. This method may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the Fund would receive if it sold the instrument. The value of securities
in the Fund can be expected to vary inversely with changes in prevailing
interest rates.
24
<PAGE>
Pursuant to Rule 2a-7, as amended, the Fund will maintain a
dollar-weighted average portfolio maturity appropriate to its objective of
maintaining a stable net asset value per Share, provided that the Fund will
neither purchase any security with a remaining maturity of more than 397 days
(securities subject to repurchase agreements, variable and floating rate
instruments, and certain other securities may bear longer maturities) nor
maintain a dollar-weighted average portfolio maturity which exceeds 90 days.
In addition, the Fund may acquire only U.S. dollar-denominated
obligations that present minimal credit risks and that are "First Tier
Securities" at the time of investment. First Tier Securities are those that are
rated in the highest rating category by at least two NRSROs or by one if it is
the only NRSRO rating such obligation or, if unrated, determined to be of
comparable quality. A security is deemed to be rated if the issuer has any
security outstanding of comparable priority and security which has received a
short-term rating by an NRSRO. The Adviser will determine that an obligation
presents minimal credit risks or that unrated investments are of comparable
quality, in accordance with guidelines established by the Board of Directors.
The Company's Board of Directors has also undertaken to establish
procedures reasonably designed, taking into account current market conditions
and the Fund's investment objective, to stabilize the Fund's net asset value per
Share for purposes of sales and redemptions at $1.00. These procedures include
review by the Board of Directors, at such intervals as it deems appropriate, to
determine the extent, if any, to which the Fund's net asset value per Share
calculated by using available market quotations deviates from $1.00 per Share.
In the event such deviation exceeds one-half of one percent, the Rule requires
that the Board promptly consider what action, if any, should be initiated. If
the Board believes that the extent of any deviation from the Fund's $1.00
amortized cost price per share may result in material dilution or other unfair
results to new or existing investors, it will take such steps as it considers
appropriate to eliminate or reduce to the extent reasonably practicable any such
dilution or unfair results. These steps may include: selling portfolio
instruments prior to maturity; shortening the average portfolio maturity;
withholding or reducing dividends; or redeeming shares in kind.
YIELD
The Fund's annual standardized 7-day yield is computed by determining
the net change, exclusive of capital changes, in the value of a hypothetical
pre-existing account in the Fund having a balance of one Share at the beginning
of the period, dividing the net change in account value by the value of the
account at the beginning of the base period to obtain the base period return,
and multiplying the base period return by 365/7. The net change in the value of
an account in the Fund includes the value of additional Shares purchased with
dividends from the original Share and any such additional Shares, and all fees,
other than non-recurring account or sales charges, that are charged to all
shareholder accounts in proportion to the length of the base period and the
Fund's average account size. The capital changes to be excluded from the
calculation of the net change in account value are realized gains and losses
from the sale of securities and unrealized appreciation and depreciation. The
Fund's effective annualized yield is computed by
25
<PAGE>
compounding the unannualized base period return (calculated as above) by adding
1 to the base period return, raising the sum to a power equal to 365 divided by
7, and subtracting 1 from the result.
Based on the foregoing computations, for the seven-day period ended
December 31, 1999 the Fund's annualized yield was 4.58% and the effective yield
was 4.69%.
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yield of the Fund will fluctuate, it cannot be
compared with yields on savings accounts or other investment alternatives that
provide an agreed to or guaranteed fixed yield for a stated period of time.
However, yield information may be useful to an investor considering temporary
investments in money market instruments. In comparing the yield of one money
market fund to another, consideration should be given to the Fund's investment
policies including the types of investments made, lengths of maturities of the
portfolio securities, and whether there are any special account charges which
may reduce the effective yield.
From time to time, in advertisements or in reports to shareholders,
the Fund's yields or total returns may be quoted and compared to those of other
mutual funds with similar investment objectives and to stock or other relevant
indices. For example, the Fund's yield may be compared to the IBC/Donoghue's
Money Fund Average, which is an average compiled by Donoghue's MONEY FUND REPORT
of Holliston, MA 01746, a widely recognized independent publication that
monitors the performance of money market funds, or to the data prepared by
Lipper Analytical Services, Inc., a widely recognized independent service that
monitors the performance of mutual funds.
TAXES
The following summarizes certain additional Federal and state income
tax considerations generally affecting the Fund and its shareholders that are
not described in the Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Funds or its shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning. Potential investors should consult their tax advisors with
specific reference to their own tax situations.
General. The Fund intends to elect and qualify annually to be taxed as
a regulated investment company under Subchapter M, of the Internal Revenue Code
of 1986, as amended (the "Internal Revenue Code"). As a regulated investment
company, a Fund generally is exempt from Federal income tax on its net
investment income and realized capital gains which it distributes to its
shareholders, provided that it distributes an amount equal to the sum of (a) at
least 90% of its investment company taxable income (net investment income and
the excess of net short-term capital gain over net long-term capital loss), if
any, for the year and (b) at least 90% of its net tax-exempt interest income, if
any, for the year (the "Distribution Requirement") and satisfies certain other
requirements of the Internal Revenue Code that are described below.
Distributions of investment company taxable income and net tax-exempt interest
income made during the taxable year or, under specified circumstances, within
twelve months after the close of the taxable year will satisfy the Distribution
Requirement.
In addition to satisfying the Distribution Requirement, the Fund must
derive with respect to a taxable year at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans and gains
from the sale or other disposition of stock or securities or foreign currencies,
or from other income derived with respect to its business of investing in such
stock, securities, or currencies (the "Income Requirement").
In addition to the foregoing requirements, at the close of each
quarter of its taxable year, at least 50% of the value of the Fund's assets must
consist of cash and cash items, U.S. Government securities,
26
<PAGE>
securities of other regulated investment companies, and securities of other
issuers (as to which the Fund has not invested more than 5% of the value of its
total assets in securities of such issuer and as to which the Fund does not hold
more than 10% of the outstanding voting securities of such issuer) and no more
than 25% of the value of the Fund's total assets may be invested in the
securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which the Fund controls and which are engaged in the same or similar trade or
business.
Certain debt instruments acquired by the Fund may include "original
issue discount" or "market discount." As a result, the Fund may be deemed under
tax law rules to have earned discount income in taxable periods in which it does
not actually receive any payments on the particular debt instruments involved.
This income, however, will be subject to the Distribution Requirements and must
also be distributed in accordance with the excise tax distribution rules
discussed below, which may cause the Fund to have to borrow or liquidate
securities to generate cash in order to timely meet these requirements (even
though such borrowing or liquidating securities at that time may be detrimental
from the standpoint of optimal portfolio management). Gain from the sale of a
debt instrument having market discount may be treated for tax purposes as
ordinary income to the extent that market discount accrued during the Fund's
ownership of that instrument.
Distributions of net investment income received by the Fund and any
net realized short-term capital gains distributed by the Fund will be taxable to
shareholders as ordinary income and will not be eligible for the dividends-
received deduction for corporations.
The Fund intends to distribute to shareholders any excess of net
long-term capital gain over net short-term capital loss ("net capital gain") for
each taxable year. Such gain is distributed as a capital gain dividend and is
taxable to shareholders as gain from the sale or exchange of a capital asset
held for more than one year, regardless of the length of time the shareholder
has held the Fund shares, and regardless of whether the distribution is paid in
cash or reinvested in shares. The Fund expects that capital gain dividends will
be taxable to shareholders as long-term gains. Capital gain dividends are not
eligible for the dividends-received deduction.
In the case of corporate shareholders, distributions of a Fund for any
taxable year generally qualify for the dividends-received deduction to the
extent of the gross amount of "qualifying dividends" received by such Fund for
the year and if certain holding period requirements are met. Generally, a
dividend will be treated as a "qualifying dividend" if it has been received from
a domestic corporation.
If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders. In such
event, all distributions (whether or not derived from exempt-interest income)
would be taxable as ordinary income and would be eligible for the
dividends-received deduction in the case of corporate shareholders to the extent
of the Fund's current and accumulated earnings and profits.
Shareholders will be advised annually as to the Federal income tax
consequences of distributions made by the Fund each year.
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
27
<PAGE>
distribution will be treated as paid on December 31 of the current calendar year
if it is declared by a Fund in October, November or December with a record date
in such a month and paid by the Fund during January of the following calendar
year. Such distributions will be taxable to shareholders in the calendar year in
which the distributions are declared, rather than the calendar year in which the
distributions are received. To prevent application of the excise tax, each Fund
intends to make its distributions in accordance with the calendar year
distribution requirement.
The Company will be required in certain cases to withhold and remit to
the United States Treasury 31% of taxable distributions paid to any shareholder
(i) who has provided either an incorrect tax identification number or no number
at all, (ii) who is subject to backup withholding by the Internal Revenue
Service for failure to report the receipt of taxable interest or dividend income
properly, or (iii) who has failed to certify to the Company that he is not
subject to backup withholding or that he is an "exempt recipient."
Fund shareholders may be subject to state, local and foreign taxes on
their Fund distributions. In many states, Fund distributions which are derived
from interest on certain U.S. Government obligations are exempt from taxation.
The tax consequences to a foreign shareholder of an investment in a Fund may be
different from those described herein. Foreign as well as U.S. shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in a Fund.
The foregoing general discussion of Federal income tax consequences is
based on the Internal Revenue Code and the regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Although the Fund expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all Federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located or in which it is otherwise deemed to be conducting business, the Fund
may be subject to the tax laws of such states or localities.
Currency Fluctuations - "Section 988" Gains or Losses. Under the
Internal Revenue Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Fund accrues receivables or liabilities
denominated in a foreign currency, and the time the Fund actually collects such
receivables or pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain options and futures contracts,
gains or losses attributable to fluctuations in the value of foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains or losses,
referred to under the Internal Revenue Code as "Section 988" gains or losses,
may increase or decrease the amount of the Fund's investment company taxable
income to be distributed to its shareholders as ordinary income.
Disposition of Shares. Upon the redemption, sale or exchange of shares
of the Fund, a shareholder may realize a capital gain or loss depending upon his
or her basis in the shares. Such gain or loss will be treated as capital gain or
loss if the shares are capital assets in the shareholder's hands and will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. Any loss realized on a redemption, sale or exchange will
be disallowed to the extent the shares disposed of are replaced (including
shares acquired pursuant to a dividend reinvestment plan) within a period of 61
days beginning 30 days before and ending 30 days after disposition of the
shares. In such a case, the basis of the shares acquired will be adjusted to
reflect the disallowed loss. Any loss realized by a shareholder
28
<PAGE>
on a disposition of Fund shares held by the shareholder for six months or less
will be treated as a long-term capital loss to the extent of any distributions
of net capital gains received by the shareholder with respect to such shares and
treated as long-term capital gains. Furthermore, a loss realized by a
shareholder on the redemption, sale or exchange of shares of a Fund with respect
to which exempt-interest dividends have been paid will, to the extent of such
exempt-interest dividends, be disallowed if such shares have been held by the
shareholder for six months or less.
Constructive Sales. Recently enacted rules may affect the timing and
character of gain if a Fund engages in transactions that reduce or eliminate its
risk of loss with respect to appreciated financial positions. If the Fund enters
into certain transactions in property while holding substantially identical
property, the Fund would be treated as if it had sold and immediately
repurchased the property and would be taxed on any gain (but not loss) from the
constructive sale. The character of gain from a constructive sale would depend
upon the Fund's holding period in the property. Loss from a constructive sale
would be recognized when the property was subsequently disposed of, and its
character would depend on the Fund's holding period and the application of
various loss deferral provisions of the Internal Revenue Code.
ADDITIONAL INFORMATION CONCERNING SHARES
The Company is a Maryland corporation. The Company's Articles of
Incorporation authorize the Board of Directors to classify or reclassify any
authorized but unissued shares of the Company into one or more additional
portfolios (or classes of shares within a portfolio) by setting or changing in
any one or more respects their respective preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption. Pursuant to such authority, the
Company's Board of Directors have authorized the issuance of shares of common
stock representing interests in Munder S&P 500 Index Equity Fund, Munder S&P
MidCap Index Equity Fund, Munder S&P SmallCap Index Equity Fund, Munder
Aggregate Bond Index Fund, Munder Foreign Equity Fund, Liquidity Plus Money
Market Fund, Munder Institutional S&P 500 Index Equity Fund, Munder
Institutional S&P MidCap Index Equity Fund, Munder Institutional S&P SmallCap
Index Equity Fund, Munder Institutional Short Term Treasury Fund and Munder
Institutional Money Market Fund.
Shares have no subscription or pre-emptive rights and only such
conversion or exchange rights as the Board may grant in its discretion. When
issued for payment as described in the Fund's Prospectus and this Statement of
Additional Information, the Fund's Shares will be fully paid and nonassessable.
In the event of a liquidation or dissolution of the Company, Shares of the Fund
are entitled to receive the assets available for distribution belonging to the
Fund, and a proportionate distribution, based upon the relative asset values of
the Fund and the Company's other Portfolios, of any general assets not belonging
to any particular Portfolio which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Company shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of a
Portfolio affected by the matter. A Portfolio is affected by a matter unless it
is clear that the interests of the Portfolio in the matter are identical to the
interests of the Company's other Portfolios or that the matter does not affect
any-interest of the Portfolio. Under Rule 18f-2, the approval of an investment
advisory agreement or any change in a fundamental investment policy would be
effectively acted upon with respect to a Portfolio only if approved by a
majority of the outstanding shares of the Portfolio. However, Rule 18f-2 also
provides that the ratification of the appointment of independent auditors, the
approval of principal underwriting contracts, and the election of Directors may
be effectively acted upon by shareholders of the Company voting together without
regard to class.
29
<PAGE>
Shareholder meetings to elect Directors will not be held unless and
until such time as required by law. At that time, the Directors then in office
will call a shareholders' meeting to elect Directors. Except as set forth above,
the Directors will continue to hold office and may appoint successor Directors.
Meetings of the shareholders of the Company shall be called by the Directors
upon the written request of shareholders owning at least 10% of the outstanding
shares entitled to vote.
Notwithstanding any provision of Maryland law requiring a greater vote
of the Company's shares (or of any class voting as a class) in connection with
any corporate action, unless otherwise provided by law (for example, by Rule
18f-2) or by the Company's Articles of Incorporation, the Company may take or
authorize such action upon the favorable vote of the holders of more than 50% of
the outstanding Common Stock of the Fund and the Company's other Portfolios, if
any, (voting together without regard to class).
OTHER INFORMATION
Counsel. The law firm of Dechert Price & Rhoads, 1775 Eye Street,
N.W., Washington, D.C. 20006, serves as counsel to the Company.
Independent Auditors. Ernst & Young LLP, 200 Clarendon Street, Boston,
MA 02116, serves as the Company's independent auditors.
Control Persons and Principal Holders of Securities. As of April 3,
2000 the following person were beneficial owners of 5% or more of the
outstanding shares of the Fund because they possessed voting or investment power
with respect to such shares:
<TABLE>
<CAPTION>
Percentage of Total
Name and Address Shares Outstanding
---------------- ------------------
<S> <C>
National Financial Services Corp. 99.661%
P.O. Box 3908 Church Street Station
New York, NY 10008-3908
</TABLE>
30
<PAGE>
Shareholder Approvals. As used in this Statement of Additional
Information and in the Prospectus, a "majority of the outstanding shares" of a
Fund or investment portfolio means the lesser of (a) 67% of the shares of the
particular Fund portfolio represented at a meeting at which the holders of more
than 50% of the outstanding shares of such Fund or portfolio are present in
person or by proxy, or (b) more than 50% of the outstanding shares of such Fund
or portfolio.
REGISTRATION STATEMENT
This Statement of Additional Information and the Fund's Prospectus do
not contain all the information included in the, Fund's registration statement
filed with the SEC under the 1933 Act with respect to the securities offered
hereby, certain portions of which have been omitted pursuant to the rules and
regulations of the SEC. The registration statement, including the exhibits filed
therewith, may be examined at the offices of the SEC in Washington, D.C.
Text-only versions of fund documents can be viewed online or downloaded from the
SEC at http:\\www.sec.gov.
Statements contained herein and in the Fund's Prospectus as to the
contents of any contract of other documents referred to are not necessarily
complete, and, in such instance, reference is made to the copy of such contract
or other documents filed as an exhibit to the Fund's registration statement,
each such statement being qualified in all respect by such reference.
FINANCIAL STATEMENTS
The financial statements of the Funds including the notes thereto,
dated December 31, 1999 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, 1999.
31
<PAGE>
APPENDIX
- Rated Investments -
Corporate Bonds
- ---------------
From Moody's Investors Services, Inc. ("Moody's") description of its
bond ratings:
"Aaa": Bonds that are rated "Aaa" are judged to be of the best
------
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
"Aa": Bonds that are rated "Aa" are judged to be of high-quality
-----
by all standards. Together with the "Aaa" group they comprise what are generally
known as "high-grade" bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa" securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than in
"Aaa" securities.
"A": Bonds that are rated "A" possess many favorable investment
----
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
"Baa": Bonds that are rated "Baa" are considered as medium grade
------
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
"Ba": Bonds that are rated "Ba" are judged to have speculative
-----
elements; their future cannot be considered well assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
"B": Bonds that are rated "B" generally lack characteristics of
----
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
"Caa": Bonds that are rated "Caa" are of poor standing. These
------
issues may be in default or present elements of danger may exist with respect to
principal or interest.
Moody's applies numerical modifiers (1, 2 and 3) with respect to bonds
rated "Aa" through "B". The modifier 1 indicates that the bond being rated ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category.
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>
MUNDER S&P 500 INDEX EQUITY FUND
MUNDER S&P MIDCAP INDEX EQUITY FUND
MUNDER S&P SMALLCAP INDEX EQUITY FUND
MUNDER AGGREGATE BOND INDEX FUND
MUNDER FOREIGN EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
________, 2000
St. Clair Funds, Inc. (the "Company") currently offers a selection of
investment portfolios, five of which are offered in this Statement of Additional
Information: Munder S&P 500 Index Equity Fund ("S&P 500 Index Equity Fund"),
Munder S&P MidCap Index Equity Fund ("MidCap Index Equity Fund"), Munder S&P
SmallCap Index Equity Fund ("SmallCap Index Equity Fund"), Munder Aggregate Bond
Index Fund ("Aggregate Bond Index Fund") and Munder Foreign Equity Fund
("Foreign Equity Fund") (collectively, the "Funds"). The Fund's investment
advisor is Munder Capital Management.
Shares of the Funds are available to the public only through the purchase
of certain variable annuity and variable life insurance contracts subject to
regulatory approval ("Contracts") issued by various life insurance companies
(the "Insurers").
This Statement of Additional Information is intended to supplement the
information provided to investors in the Funds' Prospectus dated ________, 2000
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 ________, 2000. The contents of this Statement of
Additional Information are incorporated by reference in the Prospectus in their
entirety. A copy of the Prospectus may be obtained through Huntleigh Fund
Distributors, Inc. (the "Distributor"), or by calling the Funds at (800) 438-
5789. This Statement of Additional Information is dated ________, 2000.
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>
History and General Information....................... 3
Fund Investments...................................... 3
Risk Factors and Special Consideration - Index Funds.. 14
Investment Limitations................................ 16
Temporary Defensive Position.......................... 18
Directors and Officers................................ 19
Investment Advisory and Other Service Arrangements.... 25
Control Person and Principal Holder of Securities..... 27
Code of Ethics........................................ 28
Portfolio Transactions................................ 28
Purchase and Redemption Information................... 29
Net Asset Value....................................... 30
Performance Information............................... 30
Taxes................................................. 32
Additional Information Concerning Shares.............. 35
Miscellaneous......................................... 36
Appendix A............................................ A-1
Appendix B............................................ B-1
</TABLE>
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information or in
the Prospectus in connection with the offering made by the Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Funds or the Distributor. The Prospectus does not
constitute an offering by the Funds or by the Distributor, in any jurisdiction
in which such offering may not lawfully be made.
2
<PAGE>
HISTORY AND GENERAL INFORMATION
The Company is an open-end management investment company, which is a mutual
fund that sells and redeems shares every day that it is open for business. The
Company was organized as a Maryland corporation on May 23, 1984 under the name
St. Clair Money Market Fund, Inc. which was changed to St. Clair Fixed Income
Fund, Inc. on December 30, 1986 and to St. Clair Funds, Inc. on September 18,
1996.
As stated in the Prospectus, the investment advisor of the Funds is Munder
Capital Management (the "Advisor"). The principal partners of the Advisor are
Munder Group LLC, WAM Holdings, Inc. ("WAM") and WAM Holdings II, Inc. ("WAM
II"). WAM and WAM II are indirect, wholly owned subsidiaries of Comerica
Incorporated which owns or controls approximately 95% of the partnership
interests in the Advisor.
Capitalized terms used herein and not otherwise defined have the same meanings
as are given to them in the Prospectus.
FUND INVESTMENTS
The following supplements the information contained in the Funds' Prospectus
concerning the investment objective and policies of the Funds. Each Fund's
investment objective is a non-fundamental policy and may be changed without the
authorization of the holders of a majority of the Fund's outstanding shares.
There can be no assurance that any Fund will achieve its objective.
Borrowing. Each Fund is authorized to borrow money in an amount up to 5% of
the value of its total assets at the time of such borrowings for temporary
purposes, and is authorized to borrow money in excess of the 5% limit as
permitted by the 1940 Act to meet redemption requests. This borrowing may, be
unsecured. The 1940 Act requires a Fund to maintain continuous asset coverage
of 300% of the amount borrowed. If the 300% asset coverage should decline as a
result of market fluctuations or other reasons, a Fund may be required to sell
some of its portfolio holdings within three days to reduce the debt and restore
the 300% asset coverage, even though it may be disadvantageous from an
investment standpoint to sell securities at that time. Borrowing may exaggerate
the effect on a Fund's net asset value of any increase or decrease in the market
value of securities purchased with borrowed funds. Borrowed funds are subject
to interest costs which may or may not be offset by amounts earned on borrowed
funds. A Fund may also be required to maintain minimum average balances in
connection with such borrowing or to pay a commitment or other fees to maintain
a line of credit; either of these requirements would increase the cost of
borrowing over the stated rate. Each Fund may, in connection with permissible
borrowings, transfer, as collateral, securities owned by the Fund.
Foreign Securities. The Foreign Equity Fund may invest in common stock of
foreign issuers and American Depositary Receipts ("ADRs") listed on a domestic
securities exchange or included in the NASDAQ National Market System or the
United States Over-the-Counter Market ("OTC"). ADRs are receipts typically
issued by a United States bank or trust company evidencing ownership of the
underlying foreign securities. Certain such institutions issuing ADRs may not
be sponsored by the issuer. A non-sponsored depositary may not provide the same
shareholder information that a sponsored depositary is required to provide under
its contractual arrangements with the issuer.
3
<PAGE>
The Aggregate Bond Index Fund may invest in international dollar-denominated
bonds such as Yankee bonds, which are dollar denominated bonds issued in the
U.S. by foreign banks and corporations.
Income and gains on foreign securities may be subject to foreign withholding
taxes. Investors should consider carefully the substantial risks involved in
securities of companies and governments of foreign nations which are in addition
to the usual risks inherent in domestic investments.
There may be less publicly available information about foreign domiciled
companies comparable to the reports and ratings published about companies in the
United States. Investments in companies domiciled in foreign countries may be
subject to potentially higher risks than investments in the United States.
These risks include (i) less social, political and economic stability (ii)
certain national policies which may restrict a Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interest; (iii) the absence, until recently in certain Eastern
European countries, of a capital market structure or market-oriented economy and
(iv) the possibility that recent favorable economic developments in Eastern
Europe may be slowed or reversed by unanticipated political or social events in
such countries.
Many Asian countries may be subject to a greater degree of social, political
and economic instability than is the case in the United States and European
countries. Such instability may result from (I) authoritarian governments or
military involvement in political and economic decision-making; (ii) popular
unrest associated with demands for improved political and economic and social
conditions; (iii) internal insurgencies; (iv) hostile relations with neighboring
countries; and (v) ethnic, religious and racial disaffection. The economies of
most of emerging markets and Asian countries are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally, the United
States, Japan, China and the European Community.
Futures Contracts and Related Options. The Funds currently expect that they
may purchase and sell futures contracts on interest-bearing securities or
securities or bond indices, and may purchase and sell call and put options on
futures contracts. For a detailed description of futures contracts and related
options, see Appendix B to this Statement of Additional Information.
Interest Rate Swap Transactions. The Aggregate Bond Index Fund may enter into
interest rate swap agreements for purposes of attempting to obtain a particular
desired return at a lower cost to the Fund than if the Fund had invested
directly in an instrument that yielded that desired return. Interest rate swap
transactions involve the exchange by the Fund with another party of its
commitments to pay or receive interest, such as an exchange of fixed rate
payments for floating rate payments. Typically, the parties with which the Fund
will enter into interest rate swap transactions will be brokers, dealers or
other financial institutions known as "counterparties." Certain Federal Income
tax requirements may, however, limit the Fund's ability to engage in certain
interest rate transactions. Gains from transactions in interest rate swaps
distributed to shareholders of the Fund will be taxable as ordinary income or,
in certain circumstances, as long-term capital gains to the shareholders
The Aggregate Bond Index Fund's obligations (or rights) under a swap agreement
will generally be equal only to the net amount to be paid or received under the
agreement based on the relative values of the positions held by each party to
the agreement (the "net amount"). The Fund's obligations under a swap agreement
will be accrued daily (offset against any amounts owed to the Fund). Accrued
but unpaid net amounts owed to a swap counterparty will be covered by the
maintenance of a segregated account consisting of cash. U.S. Government
securities or other high-grade debt securities, to avoid any potential
leveraging of the Fund's portfolio.
4
<PAGE>
The Aggregate Bond Index Fund will not enter into any interest rate swap
transaction unless the credit quality of the unsecured senior debt or the
claims-paying ability of the other party to the transaction is rated in one of
the highest four rating categories by at least one nationally-recognized
statistical rating organization ("NRSRO") or is believed by the Advisor to be
equivalent to that rating. If the other party to a transaction defaults, the
Fund will have contractual remedies pursuant to the agreements related to the
transactions.
The use of interest rate swaps is a highly specialized activity that involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Advisor is incorrect in its forecasts
of market values, interest rates and other applicable factors, the investment
performance of the Fund would be lower than it would have been if interest rate
swaps were not used. The swaps market has grown substantially in recent years
with a larger number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a
result, the swaps market has become relatively liquid in comparison with other
similar instruments traded in the interbank market. The swaps market is a
relatively new market and is largely unregulated. It is possible that
developments in the swaps market, including potential government regulation,
could adversely affect the Fund's ability to terminate existing swap agreements
or to realize amounts to be received under such agreements.
Investment Company Securities. The Funds may invest in securities issued by
other investment companies. The Foreign Equity Fund may purchase shares of
'investment companies investing primarily in foreign securities, including so
called "country funds". In addition, the S&P 500 Index Equity Fund and the
MidCap Index Equity Fund may invest in Standard & Poor's Depositary Receipts
("SPDRs"). SPDRs are securities that represent ownership in the SPDR Trust, a
long-term unit investment trust which is intended to provide investment results
that generally correspond to the price and yield performance of certain
corresponding S&P indices. SPDR holders are paid a "Dividend Equivalent Amount"
that corresponds to the amount of cash dividends accruing to the securities in
the SPDR Trust, net of certain fees and expenses charged to the Trust. Because
of these fees and expenses, the dividend yield for SPDRs may be less than that
of the corresponding S&P index. SPDRs are traded on the American Stock
Exchange.
As a shareholder of another investment company, a Fund would bear its pro rata
portion of the other investment company's expenses, including advisory fees.
These expenses would be in addition to the expenses each Fund bears directly in
connection with its own operations. Each Fund currently intends to limit its
investments in securities issued by other investment companies so that, as
determined immediately after a purchase of such securities is made: (i) not
more than 5%, of the Fund's total assets will be invested in the securities of
any one investment company; (ii) not more than 10% of the value of its total
assets will be invested in the aggregate in securities of investment companies
as a group; and (iii) not more than 3% of the outstanding voting stock of any
one investment company will be owned by the Fund.
Lending of Portfolio Securities. To enhance the return on its portfolio, each
Fund may lend securities in its portfolio (subject to a limit of 25% of its
total assets) to securities firms and financial institutions, provided that each
loan is secured continuously by collateral in the form of cash, high quality
money market instruments or short-term U.S. Government securities adjusted daily
to have a market value at least equal to the current market value of the
securities loaned. These loans are terminable at any time, and the Fund will
receive interest or dividends paid on the loaned securities. In addition, it is
anticipated that a Fund may share with the borrower some of the income received
on the collateral for the loan or the Fund will be paid a premium for the loan.
The risk in lending portfolio securities as with other extensions of credit,
consists the possibility of loss to the Funds due to (i) the inability of the
borrower to return the securities, (ii) delay in recovery of the securities or
(iii) loss of rights in the collateral should the borrower fail financially. In
determining whether a Fund will lend securities, the
5
<PAGE>
Advisor will consider all relevant facts and circumstances. A Fund will only
enter into loan arrangements with broker-dealers, banks or other institutions
which the Advisor has determined are creditworthy under guidelines established
by the Board of Directors.
Money Market Instruments. As described in the Prospectus, the Funds may
invest from time to time in "money market instruments," a term that includes,
among other things, bank obligations, commercial paper, variable amount master
demand notes and corporate bonds with remaining maturities of 397 days or less.
Bank obligations including bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits, including U.S. dollar-denominated
instruments issued or supported by the credit of U.S. or foreign banks or
savings institutions. Although the Funds will invest in obligations of
foreign banks or foreign branches of U S. banks only when the Advisor deems the
instrument to present minimal credit risks, such investments may nevertheless
entail risks that are different from those of investments in domestic
obligations of U.S. banks due to differences in political, regulatory and
economic systems and conditions. All investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase, and investments by a Fund in the
obligations of foreign banks and foreign branches of U.S. banks will not exceed
25% of such Fund's total assets at the time of purchase.
Investments by a Fund in commercial paper will consist of issues rated at the
time A-1 and/or P-1 by Standard & Poor's Rating Service ("S&P"), a division of
McGraw-Hill Companies, Inc., or Moody's Investor Services, Inc. ("Moody's"). In
addition, the Funds may acquire unrated commercial paper and corporate bonds
that are determined by the Advisor at the time of purchase to be of comparable
quality to rated instruments that may be acquired by such Fund as previously
described.
Mortgage-Related Securities. There are a number of important differences
among the agencies and instrumentalities of the U.S. Government that issue
mortgage-related securities and among the securities that they issue. Mortgage-
related securities guaranteed by the Government National Mortgage Association
("GNMA") include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes") which are guaranteed as to the timely payment of principal and interest
by GNMA and such guarantee is backed by the full faith and credit of the United
States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA and are not backed by or entitled to the full faith and
credit of the United States, but are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of the principal and interest by FNMA. Mortgage-related securities
issued by the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC
Mortgage Participation Certificates (also known as "Freddie Macs" or "PCs").
FHLMC is a corporate instrumentality of the United States, created pursuant to
an Act of Congress, which is owned entirely by Federal Home Loan Banks. Freddie
Macs are not guaranteed by the United States or by any Federal Home Loan Banks
and do not constitute a debt or obligation of the United States or of any
Federal Home Loan Bank. Freddie Macs entitle the holder to timely payment of
interest, which is guaranteed by the FHLMC. FHLMC guarantees either ultimate
collection or timely payment of all principal payments on the underlying
mortgage loans. When FHLMC does not guarantee timely payment of principal,
FHLMC may remit the amount due on account of its guarantee of ultimate payment
of principal at any time after default on an underlying mortgage, but in no
event later than one year after it becomes payable.
6
<PAGE>
Options. The Funds may write covered call options, buy put options, buy call
options and write secured put options in an amount not exceeding 5% of their net
assets. Such options may relate to particular securities and may or may not be
listed on a national securities exchange and issued by the Options Clearing
Corporation. Options trading is a highly specialized activity which entails
greater than ordinary investment risk. Options on particular securities may be
more volatile than the underlying securities, and therefore, on a percentage
basis, an investment in options may be subject to greater fluctuation than an
investment in the underlying securities themselves. For risks associated with
options on foreign currencies, see Appendix B of this Statement of Additional
Information ("SAI").
A call option for a particular security gives the purchaser of the option the
right to buy and the writer of the option the obligation to sell, the underlying
security at the stated exercise price at any time prior to the expiration of the
option, regardless of the market price of the security. The premium paid to the
writer is in consideration for undertaking the obligation under the option
contract. A put option for a particular security gives the purchaser the right
to sell, and the writer of the option the obligation to buy, the underlying
security at the stated exercise price at any time prior to the expiration date
of the option, regardless of the market price of the security.
The writer of an option that wishes to terminate its obligation may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. The effect of the purchase is
that the writer's position will be canceled by the clearing corporation.
However, a writer may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, an investor who is the holder
of an option may liquidate its position by effecting a "closing sale
transaction." The cost of such a closing purchase plus transaction costs may be
greater than the premium received upon the original option, in which event each
Fund will have incurred a loss in the transaction. There is no guarantee in any
instance that either a closing purchase or a closing sale transaction can be
effected.
Effecting a closing transaction in the case of a written call option will
permit the Funds to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case of
a written put option, will permit the Funds to write another put option to the
extent that the exercise price thereof is secured by deposited cash or short-
term securities. Also, effecting a closing transaction will permit the cash or
proceeds from the concurrent sale of any securities subject to the option to be
used for other Fund investments. If a Fund desires to sell a particular
security from its portfolio on which it has written a call option, it will
effect a closing transaction prior to or concurrent with the sale of the
security.
The Funds may write options in connection with buy-and-write transactions;
that is, the Funds may purchase a security and then write a call option against
that security. The exercise price of the call the Funds determine to write will
depend upon the expected price movement of the underlying security. The
exercise price of a call option may be below ("in-the-money"), equal to ("at-
the-money") or above ("out-of-the-money") the current value of the underlying
security at the time the option is written. Buy-and-write transactions using
in-the-money call options may be used when it is expected that the price of the
underlying security will remain flat or decline moderately during the option
period. Buy-and-write transactions using out-of-the-money call options may be
used when it is expected that the premiums received from writing the call option
plus the appreciation in the market price of the underlying security up to the
exercise price will be greater than the appreciation in the price of the
underlying security alone. If the call options are exercised in such
transactions, the maximum gain to the relevant Fund will be the premium received
by it for writing the option, adjusted upwards or downwards by the difference
between the Fund's purchase price of the security and the exercise price. If
the options are not exercised and the price of the underlying security declines,
the amount of such decline will be offset in part, or entirely, by the premium
received.
7
<PAGE>
In the case of writing a call option on a security the option is "covered" if
a Fund owns the security underlying the call or has an absolute and immediate
right to acquire that security without additional cash consideration (or if
additional cash consideration is required cash or cash equivalents in such
amount as are held in a segregated account by its custodian) upon conversion or
exchange of other securities held by it. For a call option on an index, the
option is covered if a Fund maintains with its sub-custodian cash or cash
equivalents equal to the contract value. A call option is also covered if a
Fund holds a call on the same security, or index as the call written where the
exercise price of the call held is (i) equal to or less than the exercise price
of the call written or (ii) greater than the exercise price of the call written
provided the difference is maintained by the portfolio in cash or cash
equivalents in a segregated account with its sub-custodian. The Funds may write
call options that are not covered for cross-hedging purposes. Each of the Funds
will limit its investment in uncovered put and call options purchased or written
by the Fund to 5% of the Fund's total assets. The Funds will write put options
only if they are "secured" by cash or cash equivalents maintained in a
segregated account by the Funds' custodian in an amount not less than the
exercise price of the option at all times during the option period.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the relevant Fund's gain will be limited to the
premium received. If the market price of the underlying security declines or
otherwise is below the exercise price, the Fund may elect to close the position
or take delivery of the security at the exercise price and the Fund's return
will be the premium received from the put option minus the amount by which the
market price of the security is below the exercise price.
Each of the Funds may purchase put options to hedge against a decline in the
value of its portfolio. By using put options in this way, the Funds will reduce
any profit it might otherwise have realized in the underlying security by the
amount of the premium paid for the put option and by transaction costs. Each of
the Funds may purchase call options to hedge against an increase in the price of
securities that it anticipates purchasing in the future. The premium paid for
the call option plus any transaction costs will reduce the benefit, if any,
realized by the Funds upon exercise of the option, and, unless the price of the
underlying security rises sufficiently, the option may expire worthless to the
Fund.
When a Fund purchases an option, the premium paid by it is recorded as an
asset of the Fund. When the Fund writes an option, an amount equal to the net
premium (the premium less the commission) received by the Fund is included in
the liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of this asset or deferred credit will be
subsequently marked to market to reflect the current value of the option
purchased or written. The current value of the traded option is the last sale
price or, in the absence of a sale, the average of the closing bid and asked
prices. If an option purchased by the Fund expires unexercised the Fund
realizes a loss equal to the premium paid. If the Fund enters into a closing
sale transaction on an option purchased by it, the Fund will realize a gain if
the premium received by the Fund on the closing transaction is more than the
premium paid to purchase the option, or a loss if it is less. If an option
written by the Fund expires on the stipulated expiration date or if the Fund
enters into a closing purchase transaction, it will realize a gain (or loss if
the cost of a closing purchase transaction exceeds the net premium received when
the option is sold) and the deferred credit related to such option will be
eliminated. If an option written by the Fund is exercised, the proceeds of the
sale will be increased by the net premium originally received and the Fund will
realize a gain or loss.
There are several risks associated with transactions in options on securities
and indices. For example, there are significant differences between the
securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its
objectives. An option writer, unable to effect a closing purchase transaction,
will not be able to sell the underlying
8
<PAGE>
security (in the case of a covered call option) or liquidate the segregated
account (in the case of a secured put option) until the option expires or the
optioned security is delivered upon exercise with the result that the writer in
such circumstances will be subject to the risk of market decline or appreciation
in the security during such period.
There is no assurance that a Fund will be able to close an unlisted option
position. Furthermore, unlisted options are not subject to the protections
afforded purchasers of listed options by the Options Clearing Corporate, which
performs the obligations of its members who fail to do so in connection with the
purchase or sale of options.
In addition a liquid secondary market for particular options, whether traded
over-the-counter or on a national securities exchange (an "Exchange") may be
absent for reasons which include the following: there may be insufficient
trading interest in certain options restrictions may be imposed by an Exchange
on opening transactions or closing transactions or both; trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; unusual or unforeseen
circumstances may interrupt normal operations on an Exchange; the facilities of
an Exchange or the Options Clearing Corporation may not at all times be adequate
to handle current trading value; or one or more Exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that Exchange (or in that class or series of options)
could cease to exist, although outstanding options that had been issued by the
Options Clearing Corporation as a result of trades on that Exchange would
continue to be exercisable in accordance with their terms. See Appendix B to
this SAI.
Repurchase Agreements. The Funds may agree to purchase securities from
financial institutions such as member banks of the Federal Reserve System. any
foreign bank or any domestic or foreign broker/dealer that is recognized as a
reporting government securities dealer, subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). The
Advisor will review and continuously, monitor the creditworthiness of the seller
under a repurchase agreement, and, will require the seller to maintain liquid
assets in a segregated account in an amount that is greater than the repurchase
price. Default by, or bankruptcy of the seller would, however, expose a Fund to
possible loss because of adverse market action or delays in connection with the
disposition of underlying obligations except with respect to repurchase
agreements secured by U.S. Government securities.
The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by a Fund plus interest negotiated on
the basis of current short-term rates (which may be more or less than the rate
on the securities underlying the repurchase agreement).
Securities subject to repurchase agreements will be held by the Company's
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 specified
date and price ("reverse repurchase agreements"). Reverse repurchase agreements
involve the risk that the market value of the securities sold by the Fund may
decline below the repurchase price. A Fund will pay interest on amounts obtained
pursuant to a reverse repurchase agreement. While reverse repurchase agreements
are outstanding, a Fund will maintain cash, U.S. Government securities or other
liquid high-grade debt securities designated on the books of the Funds'
custodian in an amount at least equal to the market value of the securities,
plus accrued interest, subject to the agreement.
9
<PAGE>
Rights and Warrants. As stated in the Prospectus, each Fund (other than the
Aggregate Bond Index Fund) may purchase warrants, which are privileges issued by
corporations enabling the owners to subscribe to and purchase a specified number
of shares of the corporation at a specified price during a specified period of
time. Subscription rights normally have a short life span to expiration. The
purchase of warrants involves the risk that a Fund could lose the purchase value
of a warrant if the right to subscribe to additional shares is not exercised
prior to the warrant's expiration. Also, the purchase of warrants involves the
risk that the effective price paid for the warrant added to the subscription
price of the related security may exceed the value of the subscribed security's
market price such as when there is no movement in the level of the underlying
security. Warrants acquired by a Fund in units or attached to other securities
are not subject to this restriction.
Stock Index Futures, Options on Stock and Bond Indices and Options on Stock
and Bond Index Futures Contracts. The Funds (except the Aggregate Bond Index
Fund) may purchase and sell stock index futures, and options on stock indices
and stock index futures contracts and the Aggregate Bond Index Fund may purchase
and sell bond index futures and options on bond indices and bond index futures
contracts as a hedge against movements in the equity and bond markets,
respectively.
A stock index futures contract is an agreement in which one party agrees to
deliver to the other an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is made.
No physical delivery of securities is made.
Options on stock and bond indices are similar to options on specific
securities, described above, except that, rather than the right to take or make
delivery of the specific security at a specific price, an option on a stock or
bond index gives the holder the right to receive, upon exercise of the option,
an amount of cash if the closing level of that stock or bond index is greater
than, in the case of a call option, or less than, in the case of a put option,
the exercise price of the option. This amount of cash is equal to such
difference between the closing price of the index and the exercise price of the
option expressed in dollars times a specified multiple. The writer of the
option is obligated, in return for the premium received, to make delivery, of
this amount. Unlike options on specific securities, all settlements of options
on stock or bond indices are in cash, and gain or loss depends on general
movements in the stocks included in the index rather than price movements in
particular stocks.
If the Advisor expects general stock or bond market prices to rise, it might
purchase a stock index futures contract, or a call option on that index, as a
hedge against an increase in prices of particular securities it ultimately wants
to buy. If in fact the index does rise, the price of the particular securities
intended to be purchased may also increase, but that increase would be offset in
part by the increase in the value of the relevant Fund's futures contract or
index option resulting from the increase in the index. If, on the other hand,
the Advisor expects general stock or bond market prices to decline, it might
sell a futures contract, or purchase a put option. If that index does in fact
decline, the value of some or all of the securities in the relevant Fund's
portfolio may also be expected to decline, but that decrease would be offset in
part by the increase in the value of the Fund's position in such futures
contract or put option.
The Funds (except the Aggregate Bond Index Fund) may purchase and write call
and put options on stock index futures contracts and the Aggregate Bond Index
Fund may purchase and write call and put options on bond index futures
contracts. Each Fund may use such options on futures contracts in connection
with its hedging strategies in lieu of purchasing and selling the underlying
futures or purchasing and writing options directly on the underlying securities
or indices. For example, the Funds may purchase put options or write call
options on stock and index futures (bond index futures in the case of the
Aggregate Bond Index Fund), rather than selling futures contracts, in
anticipation of a decline in
10
<PAGE>
general stock or bond market prices or purchase call options or write put
options on stock or bond index futures, rather than purchasing such futures, to
hedge against possible increases in the price of securities which the Funds
intend to purchase.
In connection with transactions in stock or bond index futures, stock or bond
index options and options on stock index or bond futures, the Funds will be
required to deposit as "initial margin" an amount of cash and short-term U.S.
Government securities equal to from 5% to 8% of the contract amount.
Thereafter, subsequent payments (referred to as "variation margin") are made to
and from the broker to reflect changes in the value of the option or futures
contract. No Fund may at any time commit more than 5% of its total assets to
initial margin deposits on futures contracts, index options and options on
futures contracts
Stripped Securities. The Aggregate Bond Index Fund may acquire U.S.
Government obligations and their unmatured interest coupons that have been
separated ("stripped") by their holder, typically a custodian bank or investment
brokerage firm. Having separated the interest coupons from the underlying
principal of the U.S. Government obligations, the holder will resell the
stripped securities in custodial receipt programs with a number of different
names, including "Treasury Income Growth Receipts" ("TIGRs") and "Certificate of
Accrual on Treasury Securities" ("CATS"). The stripped coupons are sold
separately from the underlying principal, which is usually, sold at a deep
discount because the buyer receives only the right to receive a future fixed
principal payment on the security and does not receive any rights to periodic
interest (cash) payments. The underlying U.S. Treasury bonds and notes
themselves are held in book-entry form at the Federal Reserve Bank or, in the
case of bearer securities (i.e., unregistered securities which are ostensibly
owned by the bearer or holder), in trust on behalf of the owners. Counsel to
the underwriters of these certificates or other evidences of ownership of U.S.
Treasury securities have stated that, in their opinion, purchasers of these
stripped securities most likely will be deemed the beneficial holders of the
underlying U.S. Government obligations for federal tax and securities purposes.
The Trust is not aware of any binding legislative, judicial or administrative
authority on this issue.
Only instruments which are stripped by the issuing agency will be considered
U.S. Government obligations. Securities such as CATS and TIGRs which are
stripped by their holder do not qualify as U.S. Government obligations.
Within the past several years the Treasury Department has facilitated
transfers of ownership of zero coupon securities by accounting separately for
the beneficial ownership of particular interest coupon and principal payments or
Treasury securities through the Federal Reserve book-entry, record-keeping
system. The Federal Reserve program as established by the Treasury Department
is known as "STRIPS" or "Separate Trading of Registered Interest and Principal
of Securities." Under the STRIPS program a Fund is able to have its beneficial
ownership of zero coupon securities recorded directly in the book-entry record-
keeping system in lieu of having to hold certificates or other evidences of
ownership of the underlying U.S. Treasury securities.
In addition, the Aggregate Bond Index Fund may invest in stripped mortgage-
backed securities ("SMBS"), which represent beneficial ownership interests in
the principal distributions and/or the interest distributions on mortgage
assets. SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. One type of SMBS will have one class receiving some of the interest and
most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
common case, one class of SMBS will receive all of the interest (the interest-
only or "I0" class), while the other class will receive all of the principal
(the principal-only or "PO" class). SMBS may be issued by FNMA or FHLMC.
11
<PAGE>
The original principal amount, if any, of each SMBS class represents the
amount payable to the holder thereof over the life of such SMBS class from
principal distributions of the underlying mortgage assets, which will be zero in
the case of an IO class. Interest distributions allocable to a class of SMBS,
if any, consist of interest at a specified rate on its principal amount, if any,
or its notional principal amount in the case of an I0 class. The notional
principal amount is used solely for purposes of the determination of interest
distributions and certain other rights of holders of such IO class and does not
represent an interest in principal distributions of the mortgage assets.
Yields on SMBS will be extremely sensitive to the prepayment experience on the
underlying mortgage loans, and there are other associated risks. For IO classes
of SMBS and SMBS that were purchased at prices exceeding their principal amounts
there is a risk that a Fund may not fully recover its initial investment.
The determination of whether a particular government-issued IO or PO backed by
fixed-rate mortgages is liquid may be made under guidelines and standards
established by the Board of Trustees. Such securities may be deemed liquid if
they can be disposed of promptly in the ordinary course of business at a value
reasonably close to that used in the calculation of a Fund's net asset value per
share.
U.S. Government Obligations. The Funds may purchase obligations issued or
guaranteed by the U.S. Government and U.S. Government agencies and
instrumentalities. Obligations of certain agencies and instrumentalities of the
U.S. Government, such as those of the GNMA, are supported by the full faith and
credit of the U.S. Treasury. Others, such as those of the Export-Import Bank of
the United States, are supported by the right of the issuer to borrow from the
U.S. Treasury; and still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the agency or instrumentalities
issuing the obligation. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Examples of the types of U.S. Government
obligations that may be acquired by the Funds include U.S. Treasury Bills, U.S.
Treasury Notes and U.S. Treasury Bonds and the obligations of Federal Home Loan
Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, FNMA, GNMA, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, FHLMC, Federal Intermediate Credit Banks and Maritime
Administration.
Variable and Floating Rate Instruments. Debt instruments may be structured to
have variable or floating interest rates. These instruments may include
variable amount master demand notes that permit the indebtedness to vary in
addition to providing for periodic adjustments in the interest rates. The
Advisor will consider the earning power, cash flows and other liquidity ratios
of the issuers and guarantors of such instruments and, if the instrument is
subject to a demand feature, will continuously monitor their financial ability
to meet payment on demand. Where necessary to ensure that a variable or
floating rate instrument is equivalent to the quality standards applicable to
the Fund, the obligation to pay the principal of the instrument will be backed
by an unconditional bank letter or line of credit, guarantee, or commitment to
lend.
The absence of an active secondary market for certain variable and floating
rate notes could make it difficult to dispose of the instruments, and the
Aggregate Bond Index Fund could suffer a loss if the issuer defaulted or during
periods that the Fund is not entitled to exercise its demand rights.
12
<PAGE>
Variable and floating rate instruments held by the Aggregate Bond Index Fund
will be subject to the Fund's limitation on illiquid investments when the Fund
may not demand payment of the principal amount within seven days absent a
reliable trading market.
When-Issued Purchases and Forward Commitments (Delayed-Delivery Transactions).
When issued purchases and forward commitments (known as delayed-delivery
transactions) are commitments by a Fund to purchase or sell particular
securities with payment and delivery to occur at a future date (perhaps one or
two months later). These transactions permit a Fund to lock-in a price or yield
on a security, regardless of future changes in interest rates.
When a Fund agrees to purchase securities on a when-issued or forward
commitment basis, the Custodian will set aside cash or liquid securities equal
to the amount of the commitment in a separate account. Normally, the Custodian
will set aside portfolio securities to satisfy a purchase commitment, and in
such a case the Fund may be required subsequently to place additional assets in
the separate account in order to ensure the value of the account remains equal
to the amount of the Fund's commitments. It may be expected that the market
value of the Fund's net assets will fluctuate to a greater degree when it sets
aside portfolio securities to cover such purchase commitments than when it sets
aside cash. Because a Fund's liquidity and ability to manage its portfolio
might be affected when it sets aside cash or portfolio securities to cover such
purchase commitments, the Advisor expects that its commitments to purchase when-
issued securities and forward commitments will not exceed 25% of the value of
the Fund's total assets absent unusual market conditions.
The Funds will purchase securities on a when-issued or forward commitment
basis only with the intention of completing the transaction and actually
purchasing the securities. If deemed advisable as a matter of investment
strategy, however, a Fund may dispose of or renegotiate a commitment after it is
entered into, and may sell securities it has committed to purchase before those
securities are delivered to the Fund on the settlement date. In these cases the
Fund may realize a taxable capital gain or loss.
When a Fund engages in when-issued and forward commitment transactions, it
relies on the other party to consummate the trade. Failure of such party to do
so may result in the Fund's incurring a loss or missing an opportunity to obtain
a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their market value, are taken into account when determining the net asset value
of the Fund starting on the day the Fund agrees to purchase the securities. The
Fund does not earn interest on the securities it has committed to purchase until
they are paid for and delivered on the settlement date.
13
<PAGE>
Yields and Ratings. The yields on certain obligations, including the money
market instruments in which each Fund may invest (such as commercial paper and
bank obligations), are dependent on a variety of factors, including general
money market conditions, conditions in the particular market for the obligation,
the financial condition of the issuer, the size of the offering, the maturity of
the obligation and the ratings of the issue. The ratings of S&P, Moody's, Duff
& Phelps Credit Rating Co., Thomson Bank Watch, Inc. and other nationally
recognized statistical NRSROs represent their respective opinions as to the
quality of the obligations they undertake to rate. Ratings, however, are
general and are not absolute standards of quality. Consequently, obligations
with the same rating, maturity, and interest rate may have different market
prices.
Other. Subsequent to its purchase by a Fund, a rated security may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Directors or the Advisor, pursuant to
guidelines established by the Board, will consider such an event in determining
whether the Fund involved should continue to hold the security in accordance
with the interests of the Fund and applicable regulations of the SEC.
It is possible that unregistered securities purchased by a Fund in reliance
upon Rule 144A under the Securities Act of 1933, as amended (the "Act"), could
have the effect of increasing the level of a Fund's illiquidity to the extent
that qualified institutional buyers become, for a period, uninterested in
purchasing these securities.
RISK FACTORS AND SPECIAL CONSIDERATIONS - INDEX FUNDS
Traditional methods of fund investment management typically involve relatively
frequent changes in a portfolio of securities on the basis of economic,
financial and market analysis. Index funds such as the S&P 500 Index Equity
Fund, MidCap Index Equity Fund, SmallCap Index Equity Fund (the "Equity Index
Funds") and the Aggregate Bond Index Fund are not managed in this manner.
Instead, with the aid of a computer program, the Advisor purchases and sells
securities for each Fund in an attempt to produce investment results that
substantially duplicate the investment composition and performance of each
Fund's respective corresponding Index , taking into account redemptions, sales
of additional Fund shares, and other adjustments as described below.
With respect to the Equity Index Funds, a Fund does not expect to hold at any
particular time, all of the stocks included in the corresponding index. The
Advisor believes, however, that through the application of capitalization
weighing and sector balancing techniques it be able to construct and maintain
each Equity Index Fund's investment portfolio so that it reasonably tracks the
performance of its corresponding index. The Advisor will compare the industry
sector diversification of the stocks the Fund would acquire solely on the basis
of their weighted capitalizations with the industry, sector diversification of
all issuers included in the corresponding index. This comparison is made
because the Advisor believes that, unless a Fund holds all stocks included in
the corresponding index, the selection of stocks for purchase by the Fund solely
on the basis of their weighted market capitalizations would tend to place their
14
<PAGE>
concentration in certain industry sectors. As a result, event disproportionately
affecting such industries could affect the performance of the Fund differently
than the performance of the corresponding index. Conversely, if smaller
companies were not purchased by the Fund, the representation of industries
included in the corresponding index that are not dominated by the most heavily
market-capitalized companies would be reduced or eliminated.
For these reasons, the Advisor will identify the sectors which are (or, except
for sector balancing, would be) most underrepresented in a Fund's portfolio and
will purchase balancing securities in these sectors until the portfolio's sector
weightings closely match those of the corresponding index. This process
continues until the portfolio is fully invested (exempt for cash holdings).
Redemptions of a substantial number of shares of a Fund could reduce the
number of issuers represented in the Fund's 'investment portfolio, which could,
in turn, adversely affect the accuracy with which the Fund tracks the
performance, of the corresponding index.
If an issuer drops in ranking, or is eliminated entirely from the
corresponding index, the Advisor may be required to sell some or all of the
common stock of such issuer then held by a Fund. Such sales of portfolio
securities may be made at times when, if the Advisor were not required to effect
purchases and sales of portfolio securities in accordance with the corresponding
index, such securities might not be sold. These sales may result in lower
prices for such securities than may be realized or in losses that may not have
been incurred if the Advisor were not required to effect the purchases and
sales. The failure of an issuer to declare or pay dividends, the institution
against an issuer of potentially materially adverse legal proceedings, the
existence or threat of defaults materially and adversely affecting an issuer's
future declaration and payment of dividends, or the existence of other
materially adverse credit factors not necessarily be the basis for the
disposition of portfolio securities, unless such event causes the issuer to be
eliminated entirely from the corresponding index. However, although the Advisor
does not intend to screen securities for investment by a Fund by traditional
methods of financial and market analysis, the Advisor will monitor the Fund's
investment with a view towards removing stocks of companies which exhibit
extreme financial distress or which may impair for any reason the Fund's ability
to achieve its investment objective.
The Funds will invest primarily in the common stocks that constitute the
Corresponding Index in accordance with their relative capitalization and sector
weightings as described above. It is possible, however, that a Fund will from
time to time receive, as part of a "spin-off' or other corporate reorganization
of an issuer included in the Corresponding Index, securities that are themselves
outside the Corresponding Index. Such securities will be disposed of by the
Fund in due course consistent with the Fund's investment objective.
With respect to the Aggregate Bond Index Fund, the Fund will invest in a group
of fixed income securities selected from the Lehman Brothers Aggregate Bond
Index ("Aggregate Bond Index") which are expected to perform similarly to the
Index as a whole. The Aggregate Bond Index Fund will be unable to
15
<PAGE>
hold all of the individual issues which comprise the Aggregate Bond Index
because of the large number of securities involved. The Fund will however be
constructed to approximately match the composition of the Aggregate Bond
Index.
As the Aggregate Bond Index Fund will invest primarily in fixed-income
securities, the Fund is subject to interest rate, income, call, credit and
prepayment risk (with respect to mortgage-backed securities.) Interest rate risk
is the potential for fluctuations in bond prices due to changing interest rates.
Income risk is the potential for a decline in the Fund's income due to falling
market interest rates. Credit risk is the possibility that a bond issuer will
fail to make timely- payments of either interest or principal to the Fund.
Prepayment risk (for mortgage-backed securities) and call risk (for corporate
bonds) is the likelihood that, during periods of falling interest rates,
securities with high stated interest rates will be prepaid (or "called") prior
to maturity requiring the Fund to invest the proceeds at generally lower
interest rates.
INVESTMENT LIMITATIONS
Each Fund is subject to the investment limitations enumerated in this
section which may be changed with respect to a particular Fund only by a vote of
the holders of a majority of the Fund's outstanding shares (as defined under
"Miscellaneous - Shareholder Approvals").
Each Fund may not:
1. With respect to 75% of the Fund's assets, invest more than 5% of the
Fund's assets(taken at market value at the time or purchase) in the
outstanding securities of any single issuer or own more than 10% of
the outstanding voting securities of any one issuer, in each case
other than securities issued or guaranteed by the United States
Government, its agencies or instrumentalities;
2. Invest more than 25% of its total assets in the securities of issuers
conducting their principal business activities in any one industry
(securities issued or guaranteed by the United States Government, its
agencies or instrumentalities are not considered to represent
industries);
3. Borrow money or enter into reverse repurchase agreements except that
the Fund may (i) borrow money, or enter into reverse repurchase
agreements for temporary purposes in amounts not exceeding 5% of its
total assets and (ii) borrow money for the purpose of
16
<PAGE>
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. Purchase securities on margin, or make short sales of securities
except for the use of short-term credit necessary, for the clearance
of purchase and sales of portfolio securities, but the Fund may make
margin deposits in connection with transactions in options, futures
and options on futures;
9. Make investments for the purpose of exercising control of
management;
10. Invest in commodities or commodity futures contracts, provided that
this limitation shall not prohibit the purchase or sale by the Fund of
financial futures contracts and options on financial futures
contracts, options on securities and securities indices, as permitted
by the Fund's Prospectus; or
11. Issue any senior securities (as such term is defined in Section 18(f)
of the 1940 Act) except to the extent the activities permitted by
other enumerated Investment Limitations may be deemed to give rise to
a senior security and as consistent with interpretations under
17
<PAGE>
the 1940 Act.
Additional investment restrictions adopted by each Fund which may be
changed by the Board of Directors, provide that a Fund may not:
1. Invest more than 15% of its net assets (taken at market value at the
time of purchase) in securities which cannot be readily resold because
of legal or contractual restrictions or which are not otherwise
marketable; or
2. Invest in other investment companies except as permitted under the
1940 Act.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
a Fund's investments will not constitute a violation of such limitation, except
that any borrowing by a Fund that exceeds the fundamental investment limitations
stated above must be reduced to meet such limitations within the period required
by the 1940 Act (currently three days). In addition, if a Fund's holdings of
illiquid securities exceeds 15% because of changes in the value of the Fund's
investments, the Fund will take action to reduce its holdings of illiquid
securities within a time frame deemed to be in the best interest of the Fund.
Otherwise, a Fund may continue to hold a security even though it causes the Fund
to exceed a percentage limitation because of fluctuation in the value of the
Fund's assets.
TEMPORARY DEFENSIVE POSITION
During periods of unusual economic or market conditions or for temporary
defensive purposes or liquidity, each Fund may invest without limit in cash and
in U.S. dollar-denominated high quality money market and other short-term
instruments. These investments may result in a lower yield than would be
available from investments with a lower quality or longer term.
18
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Company, and their business
addresses and principal occupations during the past five years, are:
<TABLE>
<CAPTION>
Principal Occupation
Name, Address and Age Positions with Company+ During Past Five Years
- --------------------- ----------------------- ----------------------
<S> <C> <C>
Charles W. Elliott Director and Chairman Senior Advisor to the President,
1024 Essex Circle of the Board of Directors Western Michigan University (July
Kalamazoo, MI 49008 1995 through December 1998);
DOB: 1/7/32 Executive Vice President,
Administration & Chief Financial
Officer, Kellogg Company (January
1987 through June 1995). Board of
Directors, Steelcase Financial
Corporation.
John Rakolta, Jr. Director and Vice Chairman of Chairman and Chief Executive
1876 Rathmor the Board of Directors Officer, Walbridge Aldinger
Bloomfield Hills, MI 48304 Company (construction company).
DOB: 5/26/47
Thomas B. Bender Director Director, Disciplined Growth
5033 Wood Ridge Road Investors (investment management
Glen Arbor, MI 49636 firm since December 1999); Partner,
DOB: 7/14/33 Financial & Investment Management
Group (April 1991 to December 1999)
</TABLE>
19
<PAGE>
<TABLE>
<S> <C> <C>
David J. Brophy Director Professor, University of Michigan.
1025 Martin Place Director, River Place Financial
Ann Arbor, MI 48104 Corporation.
DOB: 8/7/36
Dr. Joseph E. Champagne Director Dean, University Center, Macomb
319 East Snell Road College (since September 1997)
Rochester, MI 48306 Corporate and Executive Consultant
DOB: 5/19/38 (since September 1995); Chancellor,
Lamar University (September 1994 to
September 1995). Chairman of
Board of Directors, Ross Operating
Valve of Troy, Michigan.
Thomas D. Eckert Director President and Chief Executive
10726 Falls Pointe Drive Officer, Capital Automotive REIT
Great Falls, VA 22066 (real estate investment trust
DOB: 9/22/47 specializing in 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).
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C>
Terry H. Gardner Vice President, Chief Financial Vice President and Chief Financial
480 Pierce Street Officer, Treasurer and Secretary Officer of the Advisor (since
Suite 300 1993), Vice President and Chief
Birmingham, MI 48009 Financial Officer, MCM (since
DOB: 10/11/60 1993); Secretary, LPM (since June
1993).
Michael Monahan Vice President Chairman of the Advisor (January
480 Pierce Street 2000 to present); Vice President and
Suite 300 Chief Executive Officer of the
Birmingham, MI 48009 Advisor (October 1999 to December
DOB: 1/26/39 1999); President of Monahan
Enterprises, LLC (consulting
company) (June 1999 to present);
President of Comerica Incorporated
(1994 to June 1999); President of
Comerica Bank (1994 to June 1999).
Elyse G. Essick Vice President Vice President and Director of
480 Pierce Street Communications and Client Services
Suite 300 of the Advisor (since January
Birmingham, MI 48009 1995).
DOB: 4/6/58
</TABLE>
21
<PAGE>
<TABLE>
<S> <C> <C>
James C. Robinson Vice President Chief Executive Officer of the
480 Pierce Street Advisor (January 2000 to present);
Suite 300 Executive Vice President of the
Birmingham, MI 48009 Advisor (February 1998 to December
DOB: 4/24/61 1999); and Chief Investment
Officer/Fixed Income of the Advisor
(January 1995 to December 1999).
Leonard J. Barr Vice President Vice President and Director of Core
480 Pierce Street Equity Research of the Advisor
Suite 300 (since January 1995); Director and
Birmingham, MI 48009 Senior Vice President, MCM (since
DOB: 6/16/44 1988); Director of LPM.
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
DOB: 6/8/45
Therese Hogan Assistant Secretary Director, State Regulation
53 State Street Department, PFPC Inc. (formerly
Boston, MA 02109 First Data Investor Services Group)
DOB: 2/27/62 (since June 1994).
</TABLE>
22
<PAGE>
<TABLE>
<S> <C> <C>
Libby Wilson Assistant Secretary and Assistant Director of Mutual Fund Operations
480 Pierce Street Treasurer of the Advisor (since July 1999);
Suite 300 Global Portfolio Client Associate
Birmingham, MI 48009 of Invesco Global Asset Management
DOB: 2/24/69 (investment advisor) (March 1999 to
July 1999); Manager of Mutual Funds
Operations of the Advisor (May 1996
to March 1999); Administrator of
Mutual Funds Operations 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 Associate, Miro Weiner & Kramer
Birmingham, MI 48009 (law firm) (1991 to 1997).
DOB: 7/31/54
</TABLE>
________________
+ Individual holds same position with The Munder Funds, Inc., ("Munder"), The
Munder Funds Trust (the "Trust") and Munder Framlington Funds Trust
("Framlington") each a registered investment company.
Directors who are not interested persons of the Company and Munder and
Trustees who are not interested persons of the Trust and Framlington receive an
aggregate fee from the Company, the Trust, Munder and Framlington for service on
those organizations' respective Boards, comprised of an annual retainer fee of
$35,000 and a fee of $3,500 for each Board meeting attended; and are reimbursed
for all out-of-pocket expenses relating to attendance at such meetings.
The following table summarizes the compensation paid by the Company, the
Trust, Munder and Framlington to their respective Directors/Trustees for the
year ended December 31, 1999.
<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 $14,688 $13,751 $13,751 $13,751 $13,751 $13,751
- -------------------------------------------------------------------------------------------------------------------------------
Aggregate Compensation
from the Trust $29,967 $28,803 $28,803 $28,803 $28,803 $28,803
- -------------------------------------------------------------------------------------------------------------------------------
Aggregate Compensation
from Framlington $ 733 $ 704 $ 704 $ 704 $ 704 $ 704
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
<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 the Company $ 1,300 $ 1,242 $ 1,242 $ 1,242 $ 1,242 $ 1,242
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
<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>
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 $46,688 $44,500 $44,500 $44,500 $44,500 $44,500
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
No officer, director or employee of the Advisor, the Custodian, the
Distributor, the Administrator or the Transfer Agent, as defined below currently
receives any compensation from the Company.
INVESTMENT ADVISORY AND OTHER SERVICE ARRANGEMENTS
Investment Advisor. The Advisor of each Fund is Munder Capital Management,
a Delaware general partnership. The general partners of the Advisor are WAM,
WAM II and Munder Group, LLC. WAM and WAM II are wholly owned subsidiaries of
Comerica Bank -- Ann Arbor, which, in turn is a wholly owned subsidiary of
Comerica Incorporated, a publicly held bank holding company.
The Investment Advisory Agreement between the Advisor and the Company with
respect to the Funds (the "Advisory Agreement") was approved by the Company's
Board of Directors and by the shareholders. Under the terms of the Advisory
Agreement, the Advisor furnishes continuing investment supervision to the Funds
and is responsible for the management of each Fund's portfolio. The
responsibility for making decisions to buy, sell or hold a particular security
rests with the Advisor, subject to review by the Company's Board of
Directors.
The Advisory Agreement will continue in effect for a period of two years
from its effective date. If not sooner terminated Advisory Agreement will
continue in effect for successive one year periods thereafter, provided that
each continuance is specifically approved annually by (a) the vote of a majority
of the Board of Directors who are not parties to the Advisory Agreement or
interested persons (as defined in the 1940 Act), cast in person at a meeting
called for the purpose of voting on approval, and (b) either
25
<PAGE>
(i) the vote of a majority of the outstanding voting securities of the Fund, or
(ii) the vote of a majority of the Board of Directors. The Advisory Agreement is
terminable by vote of the Board of Directors, or by the holders of a majority of
the outstanding voting securities of a Fund, at any time without penalty, upon
60 days' written notice to the Advisor. The Advisor may also terminate its
advisory relationship with a Fund without penalty upon 90 days' written notice
to the Company. The Advisory Agreement terminates automatically in the event of
its assignment (as defined in the 1940 Act).
For the advisory services provided and expenses assumed by it, the Advisor
has agreed to a fee from each Fund, computer daily and payable monthly at an
annual rate of .05% of average daily net assets of the Fund.
Distribution Agreement. The Company has entered into a distribution
agreement, under which the Distributor, as agent, sells shares of the Fund on a
continuous basis to separate accounts of the Insurers. The Distributor's
principal offices are located at South Central Avenue, Suite 300, St. Louis,
Missouri 63141.
Shareholder Servicing Arrangements. Under Rule 12b-1 of the 1940 Act, the
Funds have adopted a Shareholder Servicing Plan (the "Plan") under which the
Distributor, Insurers, and other dealers that offer the Contracts may be paid by
the Funds in connection with providing shareholder services to the
Contractowners. Under the Plan, each Fund may incur such shareholder servicing
expenses in amounts up to an annual rate of .25% of the average daily net assets
of each Fund.
The services provided by the Service Organizations under the Plan may
include execution and processing of orders from Insurers; processing purchase,
exchange and redemption requests furnished to the Insurers by the
Contractowners; placing orders with the Transfer Agent; processing dividend and
distribution payments from the Funds; providing statements of additional
information and information periodically showing positions in Fund shares; and
providing such other personal and account maintenance services as may reasonably
be requested by the Funds.
Under the terms of the Plan, the Plan continues from year to year, provided
such continuance is approved annually by vote of the Board of Directors,
including a majority of the Board of Directors who are not interested persons of
the Company and who have no direct or indirect financial interest in the
operation of the Plan (the "Non-Interested Plan Directors"). The Plan may not
be amended to increase the amount to be spent for the services without
shareholder approval, and all amendments of the Plan also must be approved by
the Directors in the manner described above. The Plan may be terminated at any
time, without penalty, by vote of a majority of the Non-Interested Plan
Directors or by a vote of a majority of the outstanding voting securities of the
Fund (as defined in the 1940 Act) on not more than 30 days' written notice to
any other party to the Plan. Pursuant to the Plan, the Distributor will provide
the Board of Directors periodic reports of amounts expended under the Plan and
the purpose for which such expenditures were made.
Administration Agreement. State Street Bank and Trust Company ("State
Street" or the "Administrator") located at 225 Franklin Street, Boston,
Massachusetts 02110, serves as administrator for the Company pursuant to an
administration agreement (the "Administration Agreement"). State 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.
26
<PAGE>
The Administration Agreement provides that the Administrator performing
services thereunder shall not be liable under the Agreement except for its
willful misfeasance, bad faith or negligence in the performance of its duties or
from the reckless disregard by it of its duties and obligations thereunder.
Custodian. State Street (the "Custodian") serves as the custodian to the
Funds pursuant to a custodian agreement (the "Custodian Contract") between the
Company and State Street. State Street is also the custodian with respect to the
custody of foreign securities held by certain of the Funds. State Street has in
turn entered into additional agreements with financial institutions and
depositaries located in foreign countries with respect to the custody of such
securities. Under the Custodian Contract, the Custodian (i) maintains a separate
account in the name of each Fund, (ii) holds and transfers portfolio securities
on account of each Fund, (iii) accepts receipts and makes disbursements of money
on behalf of each Fund, (iv) collects and receives all income and other payments
and distributions on account of each Fund's securities and (v) makes periodic
reports to the Board of Directors concerning each Fund's operations.
Transfer Agent. PFPC Inc. (formerly First Data Investor Services Group Inc.
(the "Transfer Agent") located at 4400 Computer Drive, Westborough,
Massachusetts 01581 serves as the transfer and dividend disbursing agent for the
Funds pursuant to a transfer agency agreement (the "Transfer Agency Agreement")
with the Company, under which Investor Services Group (i) issues and redeems
shares of each Fund, (ii) addresses and mails all communications by each Fund to
its record owners, including reports to shareholders, dividend and distribution
notices and proxy materials for its meetings of shareholders, (iii) maintains
shareholder accounts, (iv) responds to correspondence by shareholders of each
Fund and (v) makes periodic reports to the Board of Directors concerning the
operations of the Funds.
Other Information Pertaining to Administration, Custodian and Transfer
Agency Agreements. Except as noted in this SAI, the Funds' service contractors
bear all expenses in connection with the performance of its services and each
Fund bears the expenses incurred in its operations. These expenses include, but
are not limited to, fees paid to the Advisor, Administrator, Custodian and
Transfer Agent; shareholder servicing fees; fees and expenses of officers and
directors; taxes; interest; legal and auditing fees; fees and commissions;
certain fees and expenses in registering and qualifying each Fund and its shares
for distribution under Federal and state securities laws; expenses of preparing
prospectuses and statements of additional information and of printing and
distributing prospectuses and statements of additional information to existing
shareholders; the expense of reports to shareholders, shareholders' meetings and
proxy solicitations; fidelity bond and directors' and officers' liability
insurance premiums; the expense of using independent pricing services and other
expenses which are not assumed by the Administrator. Any general expenses of the
Company that are not readily identifiable as belonging to a particular
investment portfolio of the Company are allocated among all investment
portfolios of the Company by or under the direction of the Board Directors in a
manner that the Board of Directors determines to be fair and equitable, taking
into consideration whether it is appropriate for expenses to be borne by the
Funds in addition to the Company's other funds. The Advisor, Administrator,
Custodian and Transfer Agent may voluntarily waive all or a portion of their
respective fees from time to time.
CONTROL PERSON AND PRINCIPAL HOLDER OF SECURITIES
The separate accounts of the Insurers are the sole shareholders of the
Funds and therefore are considered to be control persons of the Funds.
27
<PAGE>
CODE OF ETHICS
The Company and the Advisor each have adopted a code of ethics as required
by applicable law, which is designed to prevent affiliated persons of the
Company and the Advisor from engaging in deceptive, manipulative or fraudulent
activities in connection with securities held or to be acquired by the Funds
(which may also be held by persons subject to a code of ethics). There can be no
assurance that the codes of ethics will be effective in preventing such
activities. Each code of ethics, filed as exhibits to this registration
statement, may be examined at the office of the SEC in Washington, D.C. or on
the Internet from the SEC's website at http:/www.sec.gov.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Board of Directors, the Advisor
makes decisions with respect to and places orders for all purchases and sales of
portfolio securities for each Fund.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. Transactions on foreign
stock exchanges involve payment for brokerage commissions which are generally
fixed.
Over-the-counter issues, including corporate debt and government securities
are normally traded through dealers on a "net" basis (i.e., commission) or
directly with the issuer. With respect to over-the-counter transactions, the
Advisor will normally deal directly with dealers who make a market in the
instruments except in those circumstances where more favorable prices and
execution are available elsewhere. The cost of foreign and domestic securities
purchased from underwriters includes an underwriting commission or concession,
and the prices at which securities are purchased from and sold to dealers
include a dealer's mark-up or mark-down.
The Funds may participate, if and when practicable. In bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
The Funds will engage in this practice, however, only when the Advisor believes
such practice to be in each Fund's interests.
The portfolio turnover rate of each Fund is calculated by dividing the
lesser of the Fund's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of securities whose maturities at the time of
acquisition were one year or less) by the monthly average value of the
securities held by the Fund during the year. Each Fund may engage in short-term
trading to achieve its investment objective. Portfolio turnover may vary greatly
from year to year as well as within a particular year.
In the Advisory Agreement, the Advisor agrees to select broker-dealers in
accordance with guidelines established by the Company's Board of Directors from
time to time and in accordance with applicable law. In assessing the terms
available for any transaction, the Advisor shall consider all factors it deems
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker-dealer,
and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. In addition, the Advisory Agreement
authorizes the Advisor, subject to the prior approval of the Company's Board of
Directors, to cause each Fund to pay a broker-dealer which furnishes brokerage
and research services a higher commission than that which might be charged by
another broker-dealer for effecting the same transaction, provided that the
Advisor determines in good faith that such commission is reasonable in relation
to the
28
<PAGE>
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 or other services received will primarily benefit
one or more other investment companies or other accounts for which investment
discretion is exercised. Conversely, the Funds may be the primary beneficiary of
the research or services received as a result of portfolio transactions effected
for such other account or investment company.
Portfolio securities will not be purchased from or sold to the Advisor, the
Distributor or any affiliated person (as defined in the 1940 Act) of the foreign
entities except to the extent permitted by SEC exemptive order or by applicable
law.
Investment decisions for each Fund and for other investment accounts
managed by the Advisor are made independently of each other in the light of
differing conditions. However, the same investment decision may be made for two
or more of such accounts. In such cases, simultaneous transactions are
inevitable. Purchases or sales are then averaged as to price and allocated as to
amount in a manner deemed equitable to each such account. While in some cases
this practice could have a detrimental effect on the equitable price or value of
the security as far as the Funds are concerned. In other cases it is believed to
be beneficial to the Funds. To the extent permitted by law, the Advisor may
aggregate the securities to be sold or purchased for the Funds with those to be
sold or purchased for other investment companies or accounts in executing
transactions.
The Funds will not purchase any securities while the Advisor or any
affiliated person (as defined in the 1940 Act) is a member of any underwriting
or selling group for such securities except pursuant to procedures adopted by
the Company's Board of Directors in accordance with Rule 10f-3 under the 1940
Act.
PURCHASE AND REDEMPTION INFORMATION
Purchases and redemptions are discussed in the Funds' Prospectus and such
information is incorporated herein by reference.
Purchases. Each Fund's shares are continuously offered to the Insurers'
separate accounts at the net asset value per share next determined after a
proper purchase request has been received by the Insurer. The Funds and the
Distributor reserve the right to reject any purchase order for shares of the
Funds.
Other Redemption Information. Payments for redeemed shares will ordinarily
be made within seven (7) business days after the Funds receive a redemption
order from the relevant Insurer. The redemption price will be the net asset
value per share next determined after the Insurer receives the Contractowner's
request in proper form. The Company, reserves the right to suspend or postpone
redemptions during any period when: (i) trading on the New York Stock Exchange
(the "NYSE") is restricted, as determined by the SEC, or the NYSE is closed
other than for customary weekend and holiday closings; (ii) the SEC has by order
permitted such suspension or postponement for the protection of shareholders; or
(iii) an emergency, as determined by the SEC, exists, making disposal of
portfolio securities or valuation of net assets of the Funds not reasonably
practicable.
29
<PAGE>
Redemption proceeds are normally paid in cash, however, each Fund may pay
the redemption price in whole or part by a distribution in kind of securities
from portfolio of the Fund, in lieu of cash, in conformity with applicable,
rules of the SEC. If shares are redeemed in kind, the redeeming Shareholder
might incur transaction costs in converting the assets into cash. Each Fund is
obligated to redeem Shares solely in cash up to the lesser of $250,000 or 1% of
its net assets during any 90 day period for any one Shareholder.
The prospectus(es) for the Insurers' variable annuities describe the
allocation, transfer and withdrawal provisions of such annuities.
NET ASSET VALUE
In determining the approximate market value of portfolio investments, the
Company may employ organizations, which may use matrix or formula methods that
take into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula methods not been used. All cash, receivables and current payables are
carried on the Company's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith under the supervision of the
Board of Directors.
PERFORMANCE INFORMATION
From time to time, quotations of a Fund's performance may be included in
advertisements, sales literature, or reports to existing or prospective owners
of the Insurers' Contracts. These performance figures are calculated in the
following manner:
Yield
The Aggregate Bond Index Fund's 30 day (or one month) standard yield
described in the Prospectus is calculated for the Fund in accordance with the
method described by the SEC for mutual funds:
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
30
<PAGE>
quotient is multiplied by the market value of the obligation (including actual
accrued interest) in order to determine the interest income on the obligation
for each day of the subsequent month that the obligation is in the portfolio. It
is assumed in the above calculation that each month contains 30 days. The
maturity of a debt obligation with a call provision is deemed to be the next
call date on which the obligation reasonably may be expected to be called or, if
none, the- maturity date. For the purpose of computing yield on equity
securities held by- the Fund, dividend income is recognized by accruing 1/360 of
the stated dividend rate of the security for each day that the security is held
by the Fund.
With respect to mortgage- or other receivables-backed debt obligations
purchased at a discount or premium, the formula generally calls for amortization
of the discount or premium. The amortization schedule will be adjusted monthly
to reflect changes in the market value of such debt obligations. Expenses
accrued for the period (variable "b" in the formula) include all recurring fees
charged by the Fund to all shareholder accounts in proportion to the length of
the base period and the Fund's mean (or median) account size. Undeclared
earned income will be subtracted from the offering price per share (variable "d"
in the formula).
Average Annual Total Return
A Fund may advertise its "average annual total return" and will compute
such return by determining the average annual compounded rate of return during
specified periods that equates the initial amount invested to the ending
redeemable value of such investment according to the following formula:
P (1 + T)n = ERV
Where:
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);
31
<PAGE>
Aggregate Total Return
A Fund may advertise its "aggregate total return" and will compute such
return by determining the aggregate compounded rates of return during specified
periods that likewise equate the initial amount invested to the ending
redeemable value of such investment. The formula for calculating aggregate total
return is as follows:
(ERV) - 1
-----
Aggregate Total Return = P
The calculations are made assuming that (1) all dividends and capital gain
distributions are reinvested on the reinvestment rates at the price per share
existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
period is reflected. The ending redeemable value (variable "ERV" in the formula)
is determined by assuming complete redemption of the hypothetical investment
after deduction of all non-recurring charges at the end of the measuring
period.
The performance of any investment is generally a function of portfolio
quality and maturity, type of investment and operating expenses.
From time to time, in advertisements or in reports to shareholders, the
Funds' yields or total returns may be quoted and compared to those of other
mutual funds with similar investment objectives or compared to stock or other
relevant indices. For example, the Funds' may be compared to the IBC/Donoghue's
Money Fund Average, which is an average compiled by Donoghue's MONEY FUND REPORT
of Holliston, MA 01746, a widely recognized independent publication that
monitors the performance of money market Funds, or to the data prepared by,
Lipper Analytical Services, Inc., a widely recognized independent service that
monitors the performance of mutual funds.
TAXES
The following summarizes certain additional Federal and state income tax
considerations generally, affecting the Fund and its shareholders that are not
described in the Fund's Prospectuses. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and
32
<PAGE>
the discussion here and in the Prospectuses is not intended as a substitute for
careful tax planning. Potential investors should consult their tax advisors
with specific reference to their own tax situations.
Each Fund will elect to be taxed separately as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"). As a regulated investment company, a Fund generally is
exempt from Federal Income tax on its net investment income and realized capital
gains which it distributes to the separate accounts, provided that it
distributes an amount equal to the sum of (a) at least 90% of its investment
company taxable income (net investment income and the excess of net short-term
capital gains over net long-term capital loss), if any, for the year and (b) at
least 90% of its net tax exempt interest income, if any, for the year (the
"Distribution Requirement") and satisfies certain other requirements of the
Internal Revenue Code that are described below. Distributions of investment
company taxable income and net tax-exempt, interest income made during the
taxable year or, under specified circumstances, within twelve months after the
close of the taxable year will satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, each Fund must
derive with respect to a taxable year at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans and gains
from the sale or other disposition of stock or securities or foreign currencies,
or from income derived with respect to its business of investing in such stock,
securities, or currencies (the "Income Requirement"). Interest (including
"original issue discount" and "accrued market discount") received by a Fund at
maturity or on disposition of a security held for less than three months will
not be treated (in contrast to other income which is attributable to realized
market appreciation) as gross income from the sale or other disposition of
securities held for less than three months for this purpose.
In addition to the foregoing requirements, at the close of each quarter of
its taxable year, at least 50% of the value of each Fund's assets must consist
of cash and cash items, U.S. Government securities, securities of other
regulated investment companies, and securities of other issuers (as to which the
Fund has not invested more than 5% of the value of its total assets in
securities of such issuer and as to which the Fund does not hold more than 10%
of the outstanding voting securities of such issuer,) and no more than 25% of
the value of each Fund's total assets may be invested in the securities of any
one issuer (other than U.S. Government securities and securities of other
regulated investment companies), or in two or more issuers which the Fund
controls and which are engaged in the same or similar trades or businesses.
Repurchase agreements collateralized by U.S. treasury securities are not treated
for purposes of the diversification requirement described in this paragraph as
U.S. Government securities.
Certain debt instruments acquired by a Fund may include an "original issue
discount" or a "market discount." As a result, a Fund may be deemed under tax
law rules to have earned discount income in taxable periods in which it does not
actually receive any payments on the particular debt instruments involved. This
income, however, will be subject to the Distribution Requirements and must also
be distributed in accordance with the excise tax distribution rules discussed
above, which may cause the Fund to have to borrow or liquidate securities to
generate cash in order to timely meet these requirements (even though such
borrowing or liquidating securities at that time may be detrimental from the
standpoint of optimal portfolio management). Gain from the sale of a debt
instrument having market
33
<PAGE>
discount may be treated for tax purposes as ordinary-income to the extent that
market discount accrued during the Fund's ownership of that instrument.
Distributions of net investment income received by a Fund from investments
in debt securities and any net realized short-term capital gains distributed by
the Fund will be taxable to the separate accounts as ordinary income and will
not be eligible for the dividends-received deduction for corporations.
Each Fund intends to distribute to shareholders any excess of net long-term
capital gain over net short-term capital loss ("net capital gain") for each
taxable year. Such gain is distributed as a capital gain dividend and is
taxable to shareholders as gain from the sole exchange of a capital asset held
for more than one year, regardless of the length of time the shareholder has
held the Fund shares, and regardless of whether the distribution is paid in cash
or reinvested in shares.
If for any taxable year a Fund does not qualify as a registered investment
company, all of its taxable income will be subject to tax at regular corporate
rates without any deduction for distributions to shareholders.
The Internal Revenue Code imposes a non-deductible excise tax on regulated
investment companies that fail to currently distribute an amount equal to
specified percentages of their ordinary taxable income and capital gain net
income (excess of capital gains over capital losses). Each Fund intends to make
sufficient distributions or deemed distributions of its ordinary taxable income
and capital gain net income each calendar year to avoid liability for this
excise tax.
To comply with regulations under Section 817(h) of the Internal Revenue
Code, each Fund will be required to diversify its investments so that on the
last day of each calendar quarter no more than 55% of the value of its assets is
represented by any one investment, no more than 70% is represented by any two
investments, no more than 80% is represented by any three investments, and no
more than 90% is represented by any four investments. Generally, all securities
of the same issuer are treated as a single investment. For the purposes of
Section 817(h) of the Internal Revenue Code, obligations of the U.S. Treasury
and each U.S. Government instrumentality are treated as securities of separate
issuers. The Treasury Department has indicated that it may issue future
pronouncements addressing the circumstances in which a variable annuity contract
owner's control of the investments of a separate account may cause the variable
contract owner, rather than the separate account's sponsoring insurance company,
to be treated as the owner of the assets held by the separate account. If the
variable annuity contract owner is considered the owner of the securities
underlying the separate account, income and gains produced by. those securities
would be included currently in the variable annuity contract owner's gross
income. It is not known what standards will be set forth in such pronouncements
or when, if at all, these pronouncements may be issued. In the event that rules
or regulations are adopted, there can be no assurance that a Fund will be able
to operate as described currently in the Prospectus or that the Fund will not
have to change its investment policies
34
<PAGE>
or goals.
The foregoing general discussion of Federal income tax consequences is
based on the Internal Revenue Code and the regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly,
change the conclusions expressed herein, and such changes or decisions may have
a retroactive effect with respect to the transactions contemplated herein.
Although each Fund expects to qualify as a "regulated investment company"
and to be relieved of all or substantially all Federal income taxes, depending
upon the extent of its activities in states and localities in which its offices
are maintained, in which its agents or independent contractors are located or in
which it is otherwise deemed to be conducting business, the Fund may be subject
to the tax laws of such states or localities.
ADDITIONAL INFORMATION CONCERNING SHARES
The Company is a Maryland corporation. The Company's Articles of
Incorporation authorize the Board of Directors to classify or reclassify any
authorized but unissued shares of the Company into one or more additional
portfolios (or classes of shares within a portfolio) by setting or changing in
any one or more respects their respective preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption. Pursuant to such authority, the
Company's Board of Directors have authorized the issuance of shares of common
stock representing interests in Munder S&P 500 Index Equity Fund, Munder S&P
MidCap Index Equity Fund, Munder S&P SmallCap Index Equity Fund, Munder
Aggregate Bond Index Fund, Munder Foreign Equity Fund, Liquidity Plus Money
Market Fund, Munder Institutional S&P 500 Index Equity Fund, Munder
Institutional S&P MidCap Index Equity Fund, Munder Institutional S&P SmallCap
Index Equity Fund, Munder Institutional Short Term Treasury Fund and Munder
Institutional Money Market Fund.
Shares of Funds have no subscription or pre-emptive rights and only such
conversion or exchange rights as the Board may grant in its discretion. When
issued for payment as described in the applicable Prospectus and SAI, shares
will be fully paid and nonassessable by the Company. In the event of a
liquidation or dissolution of the Company or an individual Fund, shareholders of
a particular Fund would be entitled to receive the assets available for
distribution belonging to such Fund, and a proportionate distribution, based
upon the relating net asset values of the Fund and the Company's other Funds, of
any general assets not belonging to any particular Fund which are available for
distribution. Shareholders of a Fund are entitled to participate in the net
distributable assets of the particular Fund involved, based on the number of
shares of the Fund that are held by each shareholder.
Shareholders of the Funds, as well as those of any other investment
portfolio now or hereafter offered by the Company, will vote together in the
aggregate and not separately on a Fund-by,-Fund basis, except as otherwise
required by law or when permitted by the Board of Directors. Rule 18f-2 under
the 1940 Act provides that any matter required to be submitted to the holders of
the outstanding voting securities of an investment company such as the Company
shall not be deemed to have been effectively acted upon unless approved by the
holders of a majority of the outstanding shares of each Fund affected
35
<PAGE>
by the matter. A Fund is affected by a matter unless it is clear that the
interests of such Fund in the matter are substantially identical to the
interests of other Funds of the Company or that the matter does not affect any
interest of such Fund. Under the Rule, the approval of an investment advisory
agreement or any change in a fundamental investment policy would be effectively
acted upon with respect to a Fund only if approved by a majority of the
outstanding shares of such Fund. However, the Rule also provides that the
ratification of the appointment of independent auditors, the approval of
principal underwriting contracts and the election of directors may be
effectively acted upon by shareholders of the Company voting together in the
aggregate without regard to a particular Fund.
Shareholder meetings to elect directors will not be held unless and until
such time as required by law. At that time, the directors then in office will
call a shareholders' meeting to elect directors except as set forth above, the
directors will continue to hold office and may appoint successor directors
meetings of the shareholders of the Company shall be called by the directors
upon the written request of shareholders owning at least 10% of the outstanding
shares entitled to vote.
Notwithstanding any provision of Maryland law requiring a greater vote of
the Company's shares (or of any class voting as a class) in connection with any
corporate action, unless otherwise provided by law (for example, by Rule 18f-2)
or the Company's Articles of Incorporation, the Company may take or authorize
such action upon the favorable vote of the holders of more than 50% of the
outstanding common stock of The Funds and the Company's other Funds, if any
(voting together without regard to class).
MISCELLANEOUS
Counsel. The law firm of Dechert Price & Rhoads, 1775 Eye Street, N.W.,
Washington, D.C. 20006, has passed upon certain legal matters in connection with
the shares offered by the Funds and serves as counsel to the Company.
Independent Auditors. Ernst & Young LLP, 200 Clarendon Street, Boston,
Massachusetts, 02116, serves as the Company's independent auditors.
Shareholder Approvals. As used in this SAI and in the Prospectus, a
"majority of the outstanding voting shares" of the Fund means the lesser of (a)
67% of the shares of the Fund represented at a meeting at which the holders of
more than 50% of the outstanding shares of the Fund are present in person or by
proxy, or (b) more than 50% of the outstanding shares of the Fund.
36
<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.
1. Interest Rate Futures Contracts
-------------------------------
Use of Interest Rate Futures Contracts. Bond prices are established in both
---------------------------------------
the cash market and the futures market. In the cash market, bonds are purchased
and sold with payment for the full purchase price of the bond being made in
cash, generally, within five business days after the trade. In the futures
market, only a contract is made to purchase or sell a bond in the future for a
specified price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate
futures contracts as a defense, or hedge against anticipated interest rate
changes and not for speculation. As described below, this would include the use
of futures contract sales to protect against expected increases in interest
rates and futures contract purchases to offset the impact of interest rate
declines.
The Funds presently could accomplish a similar result to that which it
hopes to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market, the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Funds, through using futures contracts.
Description of Interest Rate Futures Contracts. An interest rate futures
----------------------------------------------
contract sale would create an obligation by a Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
time for a specified price. A futures contract purchase would create an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until or at near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without making or taking of delivery of securities.
Closing out a futures contract sale is effected by the Fund's entering into a
futures contract purchase for the same aggregate amount of the specific type of
financial instrument and the same delivery date. If the price of the sale
exceeds the price of the offsetting purchase, the Fund is immediately paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly,
the closing out of a futures contract purchase is effected by the Fund entering
into a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on the
floors of several exchanges principally, the Chicago Board of Trade, the Chicago
Mercantile Exchange and the New York Futures Exchange. The Funds would deal
only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.
B-1
<PAGE>
A public market now exists in futures contracts covering various financial
instruments including long-term United States Treasury Bonds and Notes,
Government National Mortgage Association (GNMA) modified pass-through mortgage
backed securities; three-month United States Treasury Bills; and ninety-day
commercial paper. The Funds may trade in any interest rate futures contracts
for which there exists a public market, including, without limitation, the
foregoing instruments.
Example of Futures Contract Sale. The Funds would engage in an interest
--------------------------------
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security held by a particular
Fund tends to move in concern with the futures market prices of long-term United
States Treasury bonds ("Treasury Bonds"). The Advisor wishes to fix the current
market value of the portfolio security until some point in the future. Assume
the portfolio security has a market value of 100, and the Advisor believes that,
because of an anticipated rise in interest rates, the value will decline to 95.
The fund might enter into futures contract sales of Treasury bonds for an
equivalent of 98. If the market value of the portfolio security does indeed
decline from 98 to 93.
In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation cash and futures prices below.
The Advisor could be wrong in its forecast of interest rates and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example might
incur a loss of 2 points (which might be reduced by an offsetting transaction
prior to the settlement date). In each transaction, transaction expenses would
also be incurred.
Example of Futures Contract Purchase. The Funds would engage in an interest
------------------------------------
rate futures contract purchase when they are not fully invested in long-term
bonds but wish to defer for a time the purchase of long-term bonds in light of
the availability of advantageous interim investments, e.g., shorter term
securities whose yields are greater than those available on long-term bonds. A
Fund's basic motivation would be to maintain for a time the income advantage
from investing in the short-term securities; the Fund would be endeavoring at
the same time to eliminate the effect of all or part of an expected increase in
market price of the long-term bonds that the Fund may purchase.
For example, assume that the market price of a long-term bond that the Fund
may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. The Advisor wishes to fix the current market
price (and thus 10% yield) of the long-term bond until the time (four months
away in this example) when it may purchase the bond. Assume the long-term bond
has a market price of 100, and the Advisor believes that because of an
anticipated fall in interest rates, the prices will have risen to 105 (and the
yield will have dropped to about 9 1/2%) in four months. The Fund might enter
into futures contracts purchases of Treasury bonds for an equivalent price of
98. At the same time, the Fund would assign a pool of investments in short-term
securities that are either maturing in four months or earmarked for sale in four
months, for purchase of the long-term bond at an assumed market price of 100.
Assume these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury bonds might also
B-2
<PAGE>
rise from 98 to 103. In that case, the 5 point increase in the price that the
Fund pays for the long-term bond would be offset by the 5 point gain realized by
closing out the futures contract purchase.
The Advisor could be wrong in its forecast of interest rates, long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for long-
term bonds. The market price of available long-term bonds would have decreased.
The benefit of this price decrease, and thus yield increase, will be reduced by
the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rated, it
is possible that the Fund would discontinue its purchase program for long-term
bonds. The yield on short-term securities in the portfolio. Including those
originally in the pool assigned to the particular long-term bond, would remain
higher than yields on long-term bonds. The benefit of this continued incremental
income will be reduced by the loss realized on closing out the futures contract
purchase. In each transaction. expenses would also be incurred.
II. Index Futures Contracts
-----------------------
General. A stock index assigns relative values to the stocks included in
------
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
Portfolio Futures
- ---------- -------
B-3
<PAGE>
<TABLE>
<S> <C>
-Day Hedge in Placed-
Anticipate buying $62,500 in Equity Securities Buying 1 Index Futures at 125
Value of Futures = $62,500/Contract
-Day Hedge is Lifted-
Buy Equity Securities with Actual Cost = $65,000 Sell 1 Index Futures at 130
Increase in Purchase Price = $2,500 Value of Futures = $65,000/Contract
Gain on Futures = $2,500
</TABLE>
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract - 125 X $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
<S> <C>
Portfolio Futures
- --------- -------
-Day Hedge is Placed-
Anticipate Selling $1,000,000 in Equity Securities Sell 16 Index Futures at 125
Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Securities - Own Stock Buy 16 Index Futures at 120
with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Value = $40,000 Gain on Futures = $40,000
</TABLE>
III. Margin Payments
---------------
Unlike the purchase or sale of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with the Custodian an amount of cash or cash equivalents, known as initial
margin, based on the value of the contract. The nature of initial margin in
futures transactions is different from that of margin in securities transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions. Rather, the initial margin is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instruments fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking to the market. For example, when a particular Fund has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying 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
B-4
<PAGE>
Advisor may elect to close the position by taking an opposite position, subject
to the availability of a secondary market, which will operate to terminate the
Fund's position in the futures contract. A final determination of variation
margin is then made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or gain.
IV. Risks of Transactions in Futures Contracts
------------------------------------------
There are several risks in connection with the use of futures by the
Funds as hedging devices. One risk arises because of the imperfect correlation
between movements in the price of futures and movements in the price of the
instruments which are the subject of the hedge. The price of futures may move
more than or less than the price of the instruments being hedged. If the price
of futures moves less than the price of the instruments which are the subject of
the hedge, the hedge will not be fully effective but, if the price of the
instruments being hedged has moved in an unfavorable direction, the Fund would
be in a better position than if it had not hedged at all. If the price of the
instruments being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the futures. If the price of the futures
moves more than the price of the hedged instruments, the Fund involved will
experience either a loss or gain on the futures which will not be completely
offset by movements in the price of the instruments which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
instruments being hedged and movements in the price of futures contracts, the
Fund may buy or sell futures contracts in a greater dollar amount than the
dollar amount of instruments being hedged if the volatility over a particular
time period of the prices of such instruments has been greater than the
volatility over such time period of the futures, or if otherwise deemed to be
appropriate by the Advisor. Conversely, the Funds may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
instruments being hedged is less than the volatility over such time period of
the futures contract being used, or if otherwise deemed to be appropriate by the
Advisor. It is also possible that, when the Fund sells futures to hedge its
portfolio against a decline in the market, the market may advance and the value
of the futures instruments held in the Fund may decline. If this occurs, the
Fund would lose money on the futures and also experience a decline in value in
its portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the Funds
will realize a loss on the futures contract that is not offset by a reduction in
the price of the securities that were to be purchased.
In instances involving the purchase of futures contracts by the Funds, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Custodian and/or
in a margin account with a broker to collateralize the position and thereby
insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
instruments being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by
B-5
<PAGE>
speculators in the futures market may also cause temporary price distortions.
Due to the possibility of price distortion in the futures market, and because of
the imperfect correlation between the movements in the cash market and movements
in the price of futures, a correct forecast of general market trends or interest
rate movements by the Advisor may still not result in a successful hedging
transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. When there is no liquid market, it may not
be possible to close a futures investment position, and in the event of adverse
price movements, the Funds would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have been
used to hedge portfolio securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the futures contract. However, as described above, there is no guarantee that
the price of the securities will in fact correlate with the price movements in
the futures contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodities exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions. The
trading of futures contracts is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
Successful use of futures by the Funds is also subject to the Advisor's
ability to predict correctly movements in the direction of the market. For
example, if a particular Fund has hedged against the possibility of a decline in
the market adversely affecting securities held by it and securities prices
increase instead, the Fund will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the Fund
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. The Funds may have to
sell securities at a time when it may be disadvantageous to do so.
B-6
<PAGE>
V. Options on Futures Contracts
----------------------------
The Funds may purchase and write options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy from (call) or sell to (put) the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer, of
an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing an option of the same series,
at which time the person entering into the closing transaction will realize a
gain or loss. A Fund will be required to deposit initial margin and variation
margin with respect to put and call options on futures contracts written by it
pursuant to brokers' requirements similar to those described above. Net option
premiums received will be included as initial margin deposits.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in future contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
or sale of an option also entails the risk that changes in the value of the
underlying futures contract will not correspond to changes in the value of the
option purchased. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the securities
being hedged, an option may or may not be less risky than ownership of the
futures contract or such securities. In general, the market prices of options
can be expected to be more volatile than the market prices on underlying futures
contract. Compared to the purchase or sale of futures contracts, however, the
purchase of call or put options on futures contracts may frequently involve less
potential risk to the Fund because the maximum amount at risk is the premium
paid for the options (plus transaction costs). The writing of an option on a
futures contract involves risks similar to those risks relating to the sale of
futures contracts.
VI. Other Matters
-------------
Accounting for futures contracts will be in accordance with generally
accepted accounting principles.
B-7
<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.
(10) Articles Supplementary to Registrant's Articles of Incorporation
are incorporated herein by reference to Post-Effective Amendment
No. 22 to Registrant's
<PAGE>
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. 30 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 incorporated by reference to
Post-Effective Amendment No. 31 to Registrant's Registration
Statement on Form N-1A filed with the Commission on October 8,
1999.
(b) By-Laws as amended, restated and adopted by Registrant's Board of
Directors on March 2, 1990 are incorporate by reference to Post-
Effective Amendment No. 31 to Registrant's Registration Statement on
Form N-1A filed with the Commission on October 8, 1999.
(c) Not Applicable.
2
<PAGE>
(d) Investment Advisory Agreement among Registrant and Munder Capital
Management with respect to the Liquidity Plus Money Market Fund,
Munder S&P 500 Index Equity Fund, Munder S&P MidCap Index Equity Fund,
Munder S&P SmallCap Index Equity Fund, Munder Foreign Equity Fund,
Munder Aggregate Bond Index Fund, Munder Institutional S&P 500 Index
Equity Fund, Munder Institutional S&P MidCap Index Equity Fund, Munder
Institutional S&P SmallCap Index Equity Fund, Munder Institutional
Short Term Treasury Fund and Munder Institutional Money Market Fund is
incorporated by reference to Post-Effective Amendment No. 29 to
Registrant's Registration Statement on Form N-1A filed with the
Commission on March 1, 1999.
(e) (1) Distribution Agreement among Registrant and Funds Distributor
Inc. with respect to the Liquidity Plus Money Market Fund is
incorporated by reference to Post-Effective Amendment No. 29 to
Registrant's Registration Statement on Form N-1A filed with the
Commission on March 1, 1999.
(2) 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 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.
3
<PAGE>
(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 PFPC
Inc. (formerly First Data Investor Services Group, Inc.) with
respect to Liquidity Plus Money Market Fund, Munder S&P 500 Index
Equity Fund, Munder S&P MidCap Index Equity Fund, Munder S&P
SmallCap Index Equity Fund, Munder Foreign Equity Fund and Munder
Aggregate Bond Index Fund is incorporated by reference to Post-
Effective Amendment No. 31 to Registrant's Registration Statement
on Form N-1A filed with the Commission on October 8, 1999.
(3) Notice to Transfer Agency and Registrar Agreement among
Registrant and PFPC Inc. (formerly 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. 30 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 PFPC Inc. (formerly First Data Investor Services
Group, Inc.) is filed herein.
(5) 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.
(6) 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.
4
<PAGE>
(i) (1) Opinion and consent of counsel for Liquidity Plus Money Market
Fund is incorporated herein by reference to Post-Effective
Amendment No. 20 to Registrant's Registration Statement on Form
N-1A filed with the Commission on November 15, 1996.
(2) Opinion and consent of counsel with respect to Munder S&P Index
Equity Fund, Munder S&P MidCap Index Equity Fund, Munder S&P
SmallCap Index Equity Fund, Munder Foreign Equity Fund and Munder
Aggregate Bond Index Fund is incorporated herein by reference to
Post-Effective Amendment No. 22 to Registrant's Registration
Statement on Form N-1A filed with the Commission on April 18,
1997.
(3) Opinion and consent of counsel with respect to Munder
Institutional S&P 500 Index Equity Fund, Munder Institutional S&P
MidCap Index Equity Fund, Munder Institutional S&P SmallCap Index
Equity Fund, Munder Institutional Short Term Treasury Fund and
Munder Institutional Money Market is incorporated by reference to
Post-Effective Amendment No. 24 to Registrant's Registration
Statement on Form N-1A filed with the Commission on July 23,
1997.
(j) (1) Powers of Attorney dated September 30, 1999 are incorporated
herein by reference to Post-Effective Amendment No. 31 to
Registrant's Registration Statement on Form N-1A filed with the
Commission on October 8, 1999.
(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 incorporate by reference to Post-Effective
Amendment No. 31 to Registrant's Registration Statement on
Form N-1A filed with the Commission on October 8, 1999.
5
<PAGE>
(n) 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
incorporated by reference to Post-Effective Amendment No. 31 to
Registrant's Registration Statement on Form N-1A filed with the
Commission on October 8, 1999.
(p) (1) Fifth Amended and Restated Code of Ethics is filed herein.
(2) Code of Ethics of Funds Distributor, Inc. is filed herein.
(3) Code of Ethics of Munder Capital Management is filed herein.
Item 24. Persons Controlled by or under Common Control with Registrant.
--------------------------------------------------------------
Not Applicable.
Item 25. Indemnification
---------------
Article VII, Section 3 of the Registrant's Articles of Incorporation
("Section 3") provides that the Registrant, including its successors
and assigns, shall indemnify its directors and officers and make
advance payment of related expenses to the fullest extent permitted,
and in accordance with the procedures required, by the General Laws of
the State of Maryland and the Investment Company Act of 1940. Such
indemnification shall be in addition to any other right or claim to
which any director, officer, employee or agent may otherwise be
entitled. In addition, Article VI, Section 2 of the Registrant's By-
Laws provides that any person who was or is a party or is threatened
to be made a party in any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is a current or
former director or officer of the Corporation, is or was serving while
a director or officer of the Corporation at the request of the
Corporation as a director, officer, partner, trustee, employee, agent
or fiduciary of another corporation, partnership, joint venture,
trust, enterprise or employee benefit plan, shall be indemnified by
the Corporation against judgments, penalties, fines, excise taxes,
settlements and reasonable expenses (including attorney's fees)
actually incurred by such person in connection with such action, suit
or proceeding to the full extent permissible under General Laws of the
State of Maryland and the Investment Company Act of 1940, as such
statutes are now or hereafter in force, except that such indemnity
shall not protect any such person against any liability to the
Corporation or any stockholder thereof to which such person would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office.
The indemnification provided by this Section 2 shall not be deemed
exclusive of any other right, in respect of indemnification or
otherwise, to which those seeking such indemnification may be entitled
under any issuance or other agreement, vote of shareholders or
disinterested directors or otherwise, both as to action by a director
or officer of the Corporation in his official capacity and as to
action by such person in another capacity while holding such office or
position, and shall continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of the heirs,
executors and administrators of such a person.
6
<PAGE>
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors,
officers and controlling persons of the Registrant by the Registrant
pursuant to the Fund's Articles of Incorporation, its By-Laws or
otherwise, the Registrant is aware that in the opinion of the
Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and, therefore, is
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by directors, officers or controlling persons of the
Registrant in connection with the successful defense of any act, suit
or proceeding) is asserted by such directors, officers or controlling
persons in connection with shares being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by
the final adjudication of such issues.
Item 26. Business and Other Connections of Investment Advisor
----------------------------------------------------
Munder Capital Management
Name Position with Advisor
Munder Group LLC Partner
WAM Holdings, Inc. Partner
WAM Holdings II, Inc. Partner
Michael Monahan 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 Portfolio
Management
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 Chief Investment
Officer/Fixed Income
James C. Robinson Chief Executive Officer
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
Name Position with Advisor
Terry H. Gardner Chief Financial Officer
Todd B. Johnson President, Chief Investment Officer
and Chief Executive
7
<PAGE>
Robert J. Kay Director, Client Services
Theodore D. Miller Director, International Investments
Kenneth A. Schluchter, III Director, Domestic Investments
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.
Item 27. Principal Underwriters.
----------------------
(a) Funds Distributor, Inc. (the "Distributor") acts as principal
underwriter for 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.
J.P. Morgan Institutional Funds
J.P. Morgan Funds
JPM Series Trust
JPM Series Trust II
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
The Munder Funds, Inc.
National Investors Cash Management Fund, Inc.
Nomura Pacific Basin Fund, Inc.
Orbitex Group of Funds
The Saratoga Advantage Trust
SG Cowen Funds, Inc.
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.
The Skyline Funds
8
<PAGE>
TD Waterhouse Family of Funds, Inc.
TD Waterhouse Trust
Funds Distributor is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the National
Association of Securities Dealers. Funds Distributor is located at 60
State Street, Suite 1300, Boston, Massachusetts 02109. Funds
Distributor is an indirect wholly-owned subsidiary of Boston
Institutional Group, Inc., a holding company all of whose outstanding
shares are owned by key employees.
(b) The following is a list of the executive officers, directors and
partners of Funds Distributor, Inc.
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 and Treasurer -Joseph F. Tower, III
Senior Vice President -Gary S. MacDonald
Senior Vice President -Judith K. Benson
Chairman and Director -William J. Nutt
Vice President and Chief Financial Officer -William J. Stetter
The information required by this Item 27(b) with respect to each
director, officer or partner of Huntleigh is incorporated by reference
to Schedule A of Form BD filed by Huntleigh with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934.
(SEC File No. 2-21442).
(c) Not Applicable.
Item 28. Location of Accounts and Records
--------------------------------
The account books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of
1940 and the Rules thereunder will be maintained at the offices of:
(1) Munder Capital Management, 480 Pierce Street or 255 East Brown
Street, Birmingham, Michigan 48009 (records relating to its
function as investment advisor);
(2) PFPC Inc. (formerly First Data Investor Services Group, Inc),
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
9
<PAGE>
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 Boston and The Commonwealth of Massachusetts, on the
28th day of April, 2000.
ST. CLAIR FUNDS, INC.
By: *
------------------------
Terry H. Gardner, Chief Financial Officer
* 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 April 28, 2000
------------------------
Charles W. Elliott
* Director April 28, 2000
------------------------
Joseph E. Champagne
* Director April 28, 2000
------------------------
Thomas B. Bender
* Director April 28, 2000
------------------------
Thomas D. Eckert
* Director April 28, 2000
------------------------
John Rakolta, Jr.
* Director April 28, 2000
------------------------
David J. Brophy
* Vice President, April 28, 2000
------------------------ Treasurer, Secretary and
Terry H. Gardner Chief Financial Officer
*By: /s/ Francine S. Hayes
---------------------
Francine S. Hayes
as Attorney-in-Fact
</TABLE>
11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ---------- -----------
<S> <C>
99(g) Custodian Agreement
99(h)(4) Amendment to Transfer Agency and Registrar Agreement
99(j)(2) Consent of Ernst & Young LLP
99(p)(1) Fifth Amended and Restated Code of Ethics
99(p)(2) Code of Ethics of Funds Distributor, Inc.
99(p)(3) Code of Ethics of Munder Capital Management
</TABLE>
12
<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>
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>
<S> <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. Records.................................................................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>
<S> <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.
<PAGE>
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.
<PAGE>
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
7.
<PAGE>
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 Direct 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;
8.
<PAGE>
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 17f-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.
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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's 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.
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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;
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<PAGE>
(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;
(h) 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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<PAGE>
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
transmit promptly to the Fund written information (including, without
limitation, pendency of calls and maturities of foreign securities and
expirations of rights in connection therewith) received
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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. Liability of Foreign Sub-Custodians and Foreipn 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.
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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 electronic 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, provided that all such payments shall be accounted for to
the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in definitive
form;
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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 31 a-1 and
31 a-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.
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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.
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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 held 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 than $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 held 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 H. Gardner
- ---------------------- ------------------------------
Name: Terry H. Gardner
Title: VP & CEO
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(h)(4)
AMENDMENT TO THE TRANSFER AGENCY AGREEMENT
FOR IMPRESSNet/R/ SERVICES
THIS AMENDMENT, dated as of October 1, 1999 is made to the Transfer Agency
Agreement[s] (the "Agreement[s]") between each of the Funds executing this
Amendment (hereinafter individually and collectively referred to as the "Fund")
and FIRST DATA INVESTOR SERVICES GROUP, INC. ("Investor Services Group").
WITNESSETH
WHEREAS, the Fund desires to enable Shareholders and Financial Planners to
access certain Fund and Shareholder information maintained by Investor Services
Group on behalf of the Fund on the Investor Services Group System through the
use of the Internet and Investor Services Group desires to allow such access and
provide certain services as more fully described below in connection therewith;
NOW, THEREFORE, the Fund and Investor Services Group agree that as of the
date first referenced above, Investor services Group Agreement shall be amended
as follows:
1. The IMPRESSNet amendment to each Agreement dated June 1, 1998 is hereby
deleted from the Agreements in its entirety.
2. Exhibit 1 of each Agreement is modified to reflect the revised list of
Portfolios for each Fund attached hereto as Revised Exhibit 1 and
incorporated herein.
3. Definitions. The following definitions are hereby incorporated into
Agreement:
(a) "Account Inquiry" shall mean any access to the Investor Services Group
recordkeeping system via IMPRESSNet/R/ initiated by an End-User which is
not a Financial Transaction.
(b) "End-User" shall mean any Shareholder or Financial Planner that
accesses the Investor Services Group recordkeeping system via
IMPRESSNet/R/.
(c) "Financial Planner" shall mean any investment advisor, broker-dealer,
financial planner or any other person authorized to act on behalf of a
Shareholder.
(d) "Financial Transaction" shall mean purchase, redemption, exchange or
any other transaction involving the movement of Shares initiated by an End-
User.
(e) "Fund Home Page" shall mean the Fund's proprietary web site on the
Internet used by the Fund to provide information to its shareholders and
potential shareholders.
<PAGE>
(f) "IMPRESSNet/R/" shall mean the Investor Services Group proprietary
system consisting of the Investor Services Group Secure Net Gateway and the
Investor Services Group Web Transaction Engine.
(g) "Investor Services Group Secure Net Gateway" shall mean the system of
computer hardware and software and network established by Investor Services
Group to provide access between Investor Services Group recordkeeping
system and the Internet.
(h) "Investor Services Group Web Transaction Engine" shall mean the system
of computer hardware and software created and established by Investor
Services Group in order to enable Shareholders of the Fund to perform the
transactions contemplated hereunder.
(i) "Internet" shall mean the communications network comprised of multiple
communications networks linking education, government, industrial and
private computer networks.
2. Responsibilities of Investor Services Group. In addition to the services
rendered by Investor Services Group as set forth in the Agreement, Investor
Services Group agrees to provide the following services for the fees set
forth in the Schedule of IMPRESSNet/R/ Fees attached hereto as Schedule A
of the Amendment:
(a) In accordance with the written IMPRESSNet/R/ procedures and product
functionality documentation provided to the Fund by Investor Services
Group, Investor Services Group shall, through the use of the Investor
Services Group Web Transaction Engine and Secure Net Gateway; (i) enable
the Funds and End-Users to utilize the Internet to access Fund information
maintained by the Fund on the Fund Home Page; and (ii) enable End-Users to
utilize the Internet to access the Investor Services Group System in order
to perform account inquiries and transactions in Shareholder accounts.
(b) process the set up of personal identification numbers ("PIN") which
shall include verification of initial identification numbers issued, reset
and activate personalized PIN's and reissue new PIN's in connection with
lost PIN's;
(c) Installation services which shall include, review and sign off on the
Fund's network requirements, recommending method of linking to the FDISG
Web Transaction Engine, installing network hardware and software,
implementing the network connectivity, and testing the network connectivity
and performance;
(d) Maintenance and support of the Investor Service Group Secure Net
Gateway and the Investor Services Group Web Transaction Engine, which
includes the following:
(i) error corrections, minor enhancements and interim upgrades to
IMPRESSNet/R/ which are made generally available by FDISG to
IMPRESSNet/R/ customers;
2
<PAGE>
(ii) help desk support to provide assistance to Fund employees with
the Fund's use of IMPRESSNet/R/.
Maintenance and support shall not include (i) access to or use of any
substantial added functionality, new interfaces, new architecture, new
platforms, new versions or major development efforts, unless made generally
available by FDISG to IMPRESSNet/R/ clients, as determined solely by FDISG,
or (ii) maintenance of customized features.
(e) Maintenance and upkeep of the security infrastructure and capabilities
described in the procedures and product functionality documentation.
(f) Prepare and forward a monthly usage reports to the Fund which shall
provide the Fund with a summary of activity and functionality used by and
End-Users.
3 Responsibility of the Fund. In connection with the services provided by
Investor Services Group hereunder, the Fund shall be responsible for the
following:
(a) establishment and maintenance of the Fund Home Page on the Internet;
(b) services and relationships between the Fund and any third party on-line
service providers to enable End-Users to access the Fund Home Page and/or
the Investor Services System via the Internet;
(c) provide Investor Services Group with access to and information
regarding the Fund Home page in order to enable Investor Services Group to
provide the services contemplated hereunder.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers, as of the day and year first above
written.
<TABLE>
<S> <C>
THE MUNDER FUNDS, INC. THE MUNDER FUNDS TRUST
/s/ Terry H. Gardner /s/ Terry H. Gardner
- -------------------- --------------------
By: Terry H. Gardner By: Terry H. Gardner
------------------ ------------------
Title: Vice President and Chief Financial Officer Title: Vice President and Chief Financial Officer
-------------------------------------------- --------------------------------------------
ST. CLAIR FUNDS THE MUNDER FRAMLINGTON FUNDS TRUST
/s/ Terry H. Gardner /s/ Terry H. Gardner
- -------------------- --------------------
By: Terry H. Gardner By: Terry H. Gardner
------------------ ------------------
Title: Vice President and Chief Financial Officer Title: Vice President and Chief Financial Officer
-------------------------------------------- --------------------------------------------
FIRST DATA INVESTOR SERVICES GROUP, INC.
/s/ Peggy Schooley
- --------------------------------
By: Peggy Schooley
-----------------------------
Title:
--------------------------
</TABLE>
4
<PAGE>
Exhibit 1 - Revised As of
List of Funds and Portfolios
THE MUNDER FUNDS TRUST
- ----------------------
Munder Balanced Fund
Munder Bond Fund
Munder Cash Investment Fund
Munder Growth and Income Fund
Munder Index 500 Fund
Munder Intermediate Bond Fund
Munder International Equity Fund
Munder Michigan Tax-Free Bond Fund
Munder Small Company Growth Fund
Munder Tax-Free Bond Fund
Munder Tax-Free Short-Intermediate Bond Fund
Munder Tax-Free Money Market Fund
Munder U.S. Government Income Fund
Munder U.S. Treasury Money Market Fund
THE MUNDER FUNDS INC.
- ---------------------
Munder Multi-Season Growth Fund
Munder Money Market Fund
Munder Real Estate Equity Investment Fund
Munder Value Fund
Munder Mid-Cap Growth Fund
Munder Equity Selection Fund
Munder Growth Opportunities Fund
Munder International Bond Fund
Munder All-Season Conservative Fund
Munder All-Season Moderate Fund
Munder All-Season Aggressive Fund
Munder Micro-Cap Equity Fund
Munder Small-Cap Value Fund
Munder NetNet Fund
ST. CLAIR FUNDS INC.
- --------------------
Liquidity Plus Money Market Fund
Munder S&P 500 Index Equity Fund
Munder S&P MidCap Index Equity Fund
Munder S&P SmallCap Index Equity Fund
Munder Foreign Equity Fund
Munder Aggregate Bond Index Fund
Munder Institutional Money Market Fund
Munder Institutional S&P 500 Index Equity Fund
Munder Institutional S&P Mid-Cap Index Equity Fund
Munder Institutional S&P SmallCap Index Equity Fund
Munder Institutional Short-Term Treasury Fund
THE MUNDER FRAMLINGTON FUNDS TRUST
- ----------------------------------
Framlington Emerging Markets Fund
Framlington Healthcare Fund
Framlington International Growth Fund
Framlington Global Financial Services Fund
5
<PAGE>
Schedule A
IMPRESSNet/R/ Fees
A. IMPRESSNet/R/ Retail.
1. Transaction Costs:
. Account Inquiry $.10 per inquiry
. Financial Transactions $.50 per transaction
2. Hardware Maintenance Fee Including Hardware and Software: $50,000 per
annum*
. Does not include client hardware and software requirements. That is
an out-of-pocket expense for the client
. Installation of hardware is billed as time and materials
. Does not include third party hardware and software maintenance
agreements
. Does not include hardware upgrades
3. Customized Development: $150 per hour*
4. Call Center Services for Registration (one-time): $2.50 per call
5. Network Fee (one-time): $2,100*
6. PIN Registration and Lost PIN Replacement $2.50 per/PIN
B. IMPRESSNet/R/ Brokerage
1. One Time Set up Fee: $30,000* - Fee Waived
$ 1,000 per Portfolio
2. Annual Maintenance Fee: $28,000 per annum*
3. Transaction Costs:
. Account Inquiry $.05 per inquiry
. Financial Transactions $.30 per transaction
. Statements $.10 per statement
. New Account Set Up
With Settlement $1.50 per account
4. Customized Development: $150 per hour*
5. PIN Registration and Lost PIN
Replacement: $2.50 per/PIN
*Cumulative charge with respect to all Funds executing this Amendment and
such other Funds advised by Munder Asset Management services by Investor
Services Group.
6
<PAGE>
The above references fees do not include fees associated with third party
software products or fees associated with other Investor Services Group
products which may be required to utilize future releases of IMPRESSNet/R/.
Investor Services Group will provide an invoice as soon as practicable
after the end of each calendar month. The Fund agrees to pay to Investor
Services Group the amounts so billed by Federal Funds Wire within fifteen
(15) business days after the Fund's receipt of the invoice. In addition,
with respect to all fees, Investor Services Group may charge a service fee
equal to the lesser of (i) one and one half percent (1-1/2%) per month or
(ii) the highest rate legally permitted on any past due invoiced amounts.
7
<PAGE>
Exhibit 99(j)(2)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Independent Auditors" in the Statement of
Additional Information and to the incorporation by reference of our report dated
February 15, 2000 in Post-Effective Amendment No. 32 to the Registration
Statement (form N-1A No. 2-91373) of St Clair Funds, Inc.
/s/ Ernst & Young
-------------------------
ERNST & YOUNG LLP
Boston, Massachusetts
April 27, 2000
<PAGE>
Exhibit 99(p)(1)
THE MUNDER FUNDS TRUST
THE MUNDER FUNDS, INC.
ST. CLAIR FUNDS, INC.
FIFTH AMENDED AND RESTATED CODE OF ETHICS
I. Introduction
------------
A. General Principles
------------------
This Code of Ethics ("Code") establishes rules of conduct for "Covered
Persons" (as defined herein) of The Munder Funds Trust (the "Trust"),
The Munder Funds, Inc. (the "Company") and St. Clair Funds, Inc. ("St.
Clair") (each, a "Fund", collectively the "Funds") and is designed to
(i) govern the personal securities activities of Covered Persons; (ii)
prevent Covered Persons from engaging in fraud; and (iii) require the
Funds to use reasonable diligence and institute procedures reasonably
necessary to prevent violations of the Code. In general, in connection
with personal securities transactions, Covered Persons should (1)
always place the interests of the Fund's shareholders first; (2)
ensure that all personal securities transactions are conducted
consistent with this Code and in such a manner as to avoid any actual
or potential conflict of interest or any abuse of a Covered Person's
position of trust and responsibility; and (3) not take inappropriate
advantage of their positions.
B. Applicability
-------------
1. For purposes of this Code, "Covered Persons" shall mean any:
a. Officer or employee of a Fund or of the investment adviser
or sub-adviser (or any company in a control relationship to
a Fund or to the investment adviser or sub-adviser) who, in
connection with his or her regular duties, makes,
participates in or obtains information regarding the
purchase or sale of securities by a Fund or whose functions
relate to the making of any recommendation to a Fund
regarding the purchase or sale of securities (an "Advisory
Person"), including the person or persons with the direct
responsibility and authority to make investment decisions
affecting a Fund (the "Portfolio Manager");
b. Natural person in a control relationship to a Fund who
obtains information concerning recommendations made to a
Fund with regard to the purchase or sale of a security;
c. Trustee/director of a Fund; and
d. Person designated by the Compliance Officer.
2. For purposes of this Code, a "Covered Person" does not include
any person who is subject to securities transaction reporting
requirements of a code of ethics
<PAGE>
adopted by a Fund's administrator, transfer agent or principal
underwriter which contains provisions that are substantially
similar to those in this Code and which is also in compliance
with Rule 17j-1 of the 1940 Act and Section 15(f) of the
Securities Exchange Act of 1934, as applicable.
3. For purposes of this Code, a person who normally assists in the
preparation of public reports or who receives public reports but
who receives no information about current recommendations or
trading or who obtains knowledge of current recommendations or
trading activity once or infrequently or inadvertently shall not
be deemed to be either an Advisory Person or a Covered Person.
4. For purposes of this Code, a "non-interested trustee/director"
shall include each trustee/director of a Fund who is not also a
director, trustee, officer, partner or employee or controlling
person of a Fund's investment adviser, sub-adviser,
administrator, custodian, transfer agent, or distributor.
5. A security is "held or to be acquired" if within the most recent
15 days it (a) is or has been held by a Fund, or (b) is being or
has been considered by the Fund or its investment adviser for
purchase by a Fund. A purchase or sale includes the writing or
purchasing of an option to purchase or sell a security. It also
includes any security convertible into or exchangeable for a
security.
6. To the extent this Code conflicts with any code of ethics or
other code or policy to which a Covered Person is also subject,
this Code shall control; except that if the other code of ethics
is more restrictive than this Code, such other code of ethics
shall control.
II. Restrictions on Activities
--------------------------
A. Blackout Periods
----------------
1. No Covered Person shall purchase or sell, directly or indirectly,
any security in which he or she has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership
(as defined in Attachment A to this Code) (a) on a day during
which a Fund has a pending "buy" or "sell" order in that same
security until that order is executed or withdrawn or (b) when
the "Designated Supervisory Person", a supervisory person
designated by a Fund or, in the case of a person employed by the
Fund's investment adviser, by such investment adviser, has been
advised by the Fund's investment adviser that the same security
is being considered for purchase or sale for any portfolio of the
Fund; and
2. No Portfolio Manager of a portfolio of the Fund shall purchase or
sell, directly or indirectly, any security in which he or she
has, or by reason of such transaction acquires, any direct or
indirect beneficial ownership as defined in Attachment A to this
Code within seven (7) calendar days before or after the Fund
trades in that security.
2
<PAGE>
B. Interested Transactions
-----------------------
No Covered Person shall recommend any securities transactions by a
Fund without having disclosed his or her interest, if any, in such
securities or the issuer thereof, including without limitation:
1. any direct or indirect beneficial ownership (as defined in
Attachment A to this Code) of any securities of such issuer;
2. any contemplated transaction by such person in such securities;
3. any position with such issuer or its affiliates; and
4. any present or proposed business relationship between such issuer
or its affiliates and such person or any party in which such
person has a significant interest.
C. Initial Public Offering and Limited Offering
--------------------------------------------
No Advisory Person shall acquire directly or indirectly any securities
in an initial public offering for his or her personal account except
initial public offerings of open-end investment companies.
No Advisory Person shall acquire directly or indirectly securities in
a "limited offering" except after receiving pre-clearance, as
specified in Section IV. A hereof. In all such instances, the Advisory
Person shall provide the Designated Supervisory Person (as hereinafter
defined) with full details of the proposed transaction (including
written certification that the investment opportunity did not arise by
virtue of the Advisory Person's activities on behalf of a Fund). The
Designated Supervisory Person may not approve any such transaction
unless, after consultation with other investment advisory personnel of
a Fund, he or she determines that the Fund has no foreseeable interest
in purchasing such securities. A "limited offering" means an offering
that is exempt from registration under the Securities Act of 1933, as
amended, pursuant to Section 4(2) or 4(6) thereof, or pursuant to
Regulation D thereunder.
D. Short-Term Trading Profits
--------------------------
No Advisory Person shall profit from the purchase and sale, or sale
and purchase, of the same (or equivalent) securities of which such
Advisory Person has beneficial ownership within 30 calendar days.
Subject to Section VI below, any profit so realized shall, unless the
Fund's Board approves otherwise, be paid over to the Fund or to a
charitable organization of the Fund's choosing.
E. Gifts
-----
No Advisory Person shall receive any gift or other things of more than
de minimis value from any person or entity that does business with or
on behalf of the Funds.
3
<PAGE>
F. Service as a Director
---------------------
No Advisory Person shall serve on the board of directors of any
publicly traded company without prior authorization from a committee
comprised of the Designated Supervisory Person, the President and a
Vice President of a Fund's investment adviser (the "Compliance
Committee") based upon a determination that such board service would
be consistent with the interests of the Fund and its shareholders.
In instances in which such service is authorized by the Compliance
Committee, the Advisory Person will be isolated from making investment
decisions relating to such company through the implementation of
appropriate "Chinese Wall" procedures established by the Compliance
Committee.
G. The limitations and restrictions specified in subsections C through F
of this Section II may only be modified by the Compliance Officer on a
case by case basis. Each such modification shall be documented in
writing by the Compliance Officer, including in particular the basis
for the modification.
III. Exempt Transactions
-------------------
A. For purposes of this Code, the term "security" shall not include the
following:
1. securities issued or guaranteed as to principal or interest by
the Government of the United States or its instrumentalities;
2. bankers' acceptances;
3. bank certificates of deposit;
4. commercial paper and high quality short term debt instruments
(including repurchase agreements); and
5. shares of registered open-end investment companies.
B. The prohibitions described in paragraphs (A) and (D) of Article II
shall not apply to:
1. Purchases or sales effected in any account over which the Covered
Person has no direct or indirect influence or control;
2. Purchases or sales that are non-volitional on the part of the
Covered Person or a Fund;
3. Purchases that are part of an automatic dividend reinvestment
plan;
4. Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities, to
--- ----
the extent such rights were acquired from the issuer, and sales
of such rights so acquired; or
5. Purchases or sales that are considered by the Designated
Supervisory Person to have, at most, a remote potential to harm
the Fund because such purchases or sales would be unlikely to
affect a highly institutional market, or because, for example,
such purchases or sales are clearly not related economically to
the
4
<PAGE>
securities held, purchased or sold by a Fund. All such purchases
and sales require pre-approval by the Designated Supervisory
Person.
IV. Compliance Procedures
---------------------
A. Pre-clearance
-------------
1. Pre-clearance by Covered Persons of all personal securities
transactions is required, except for exempt transactions
specified in Section III A and III B 1 through 4.
2. A written authorization for each personal security transaction
will be prepared and retained by the Designated Supervisory
Person to memorialize any authorization that was granted.
3. Pre-clearance approval under paragraph (1) above will expire at
the close of business on the trading day on which authorization
is received, and the Covered Person is required to renew such
pre-clearance if the pre-cleared trade is not completed before
the authority expires.
4. Pre-clearance should not be construed as an assurance that a
personal securities transaction complies with all provisions of
this Code. All personal securities transactions are subject to
review by the Designated Compliance Person in connection with the
quarterly reporting process described below.
B. Quarterly Reporting
-------------------
1. Every Covered Person must, on a quarterly basis, report certain
information about each transaction by which the Covered Person
acquires any direct or indirect beneficial ownership (as defined
in Attachment A to this Code) of a security, including
transactions in securities accounts held by any broker, dealer or
bank for the benefit of a Covered Person, provided, however, that
-------- -------
a Covered Person shall not be required to make a report with
respect to any exempt transaction specified in Section III A and
III B 1 through 4 or which would duplicate information reported
to the Fund pursuant to Rules 204-2(a)(12) or 204-2(a)(13) under
the Investment Advisers Act of 1940, as amended.
2. A Covered Person must submit the report required by this Article
IV to the Designated Supervisory Person no later than 10 days
after the end of the calendar quarter in which the transaction to
which the report relates was effected. A report must contain the
following information:
a. The date of the transaction, the title, the interest rate
and the maturity date, if applicable, the number of shares,
and the principal amount of each security involved;
b. The nature of the transaction (i.e., purchase, sale or other
acquisition or disposition);
c. The price at which the transaction was effected;
5
<PAGE>
d. The name of the broker, dealer or bank with or through whom
the transaction was effected; and
e. The date that the report is submitted by the Covered Person
3. With respect to any account established by the Covered Person in
which any securities were held during the prior calendar quarter
for the direct or indirect beneficial ownership interest of the
Covered Person, the following information must be provided in a
report submitted by the Covered Person:
a. The name of the broker, dealer or bank with whom the Covered
Person established the account;
b. The date the account was established; and
c. The date that the report is submitted by the Covered Person.
4. The Designated Supervisory Person shall review quarterly reports
received and as appropriate compare the reports with the written
pre-clearance authorization provided.
5. Any report submitted to comply with the requirements of this
Article IV may contain a statement that the report shall not be
construed as an admission by the person making such report that
such person has any direct or indirect beneficial ownership (as
defined in Attachment A to this Code) in the securities to which
the report relates.
6. Each Covered Person shall provide or ensure that duplicate copies
of supporting documentation (e.g., brokerage statements,
confirmations or similar documents) of all personal securities
transactions required to be reported hereunder are provided to
the Designated Supervisory Person.
C. Disclosure of Personal Holdings
-------------------------------
1. No later than 10 days after becoming a Covered Person and no more
than 30 days after the end of each calendar year, each Covered
Person shall be required to submit a report with respect to each
security, other than securities exempted from this Code in
accordance with Section III hereof, in which such Covered Person
had any direct or indirect beneficial ownership at such time.
Each report shall include the following information:
a. The title, number of shares and principal amount of each
security;
b. The name of each broker, dealer or bank with whom the
Covered Person maintained an account in which such
securities were held; and
c. The date that the report is submitted by the Covered Person.
6
<PAGE>
2. A non-interested trustee/director, as defined below, who would be
required to make a report solely by reason of being a
trustee/director need not make an initial holdings report or
annual holdings report.
3. Covered Persons shall provide or ensure that reports or duplicate
copies of supporting documentation (e.g., brokerage statements or
similar documents) of securities holdings required to be reported
herein are provided to the Designated Supervisory Person.
D. Non-Interested Trustees/Directors
---------------------------------
Any person who is a Covered Person with respect to a Fund by virtue of
being a trustee/director of a Fund, but who is not an "interested
person" (as defined in the Investment Company Act of 1940, as amended)
of a Fund (a "non-interested trustee/director"), shall be required to
comply with paragraphs A. and B. above with respect to a personal
securities transaction only if such non-interested trustee/director,
at the time of that transaction, knew, or in the ordinary course of
fulfilling his or her official duties as a trustee/director of a Fund
should have known, that during the 15-day period immediately preceding
the date of the transaction by such person, the security such person
purchased or sold is or was purchased or sold by a Fund or was being
considered for purchase or sale by a Fund or its investment adviser.
E. Certification of Compliance
---------------------------
1. Each Covered Person is required to certify annually that he or
she has read and understood the Trust's Code and recognizes that
he or she is subject to such Code. Further, each Covered Person
is required to certify annually that he or she has complied with
all the requirements of the Code and that he or she has disclosed
or reported all personal securities transactions required to be
disclosed or reported pursuant to the requirements of the Code.
A form of certification is attached to this Code as Attachment B.
2. Before approving this Code for the Funds, the Funds' Board must
receive a certification from the Funds that it has adopted
procedures reasonably necessary to prevent Covered Persons from
violating the Code.
F. Reports to the Boards of Trustees/Directors by the Designated
-------------------------------------------------------------
Supervisory Person
------------------
1. Annual Reports. The Designated Supervisory Person shall prepare
---------------
an annual report for the Board of each Fund for the investment adviser
and any sub-adviser. At a minimum, the report shall: summarize the
existing Code procedures concerning personal investing and any changes
in the procedures made during the year; describe any issues arising
under the Code since the last report to the Board, including, but not
limited to, information about material violations of the Code or the
Procedures, and sanctions imposed in response to the material
violations; certify to the Boards that the Funds have adopted
procedures reasonably necessary to prevent Covered Persons from
violating the Code; and identify any recommended changes in existing
restrictions or procedures.
7
<PAGE>
2. Quarterly Reports. At each quarterly meeting of the Funds'
------------------
Boards, the investment adviser or any sub-adviser of a Fund shall
report to the Boards concerning:
a. Any transaction that appears to evidence a possible
violation of this Code;
b. Apparent violations of the reporting requirements of this
Code;
c. Any securities transactions that occurred during the prior
quarter that may have been inconsistent with the provisions
of the codes of ethics adopted by a Fund's investment
adviser, sub-adviser or principal underwriter; and
d. Any significant remedial action taken in response to such
violations described in paragraph c. above.
G. Maintenance of Reports
----------------------
The Designated Supervisory Person shall maintain such reports and such
other records as are required by this Code.
V. General Policy
--------------
It shall be a violation of this Code for any Covered Person or principal
underwriter for any Fund, or any affiliated person of an investment adviser
or sub-adviser to or the principal underwriter of any Fund in connection
with the purchase or sale, directly or indirectly, by such person of a
security held or to be acquired by any Fund to:
1. employ any device, scheme or artifice to defraud a Fund;
2. make to a Fund any untrue statement of a material fact or to
omit to state to a Fund a material fact necessary in order to
make the statements made, in light of the circumstances under
which they are made, not misleading;
3. engage in any act, practice or course of business that operates
or would operate as a fraud or deceit upon a Fund; or
4. engage in any manipulative practice with respect to a Fund.
8
<PAGE>
VI. Sanctions
---------
Upon discovering that a Covered Person has not complied with the
requirements of this Code, the Designated Supervisory Person shall submit
findings to the Compliance Committee. The Compliance Committee may impose
on that Covered Person whatever sanctions the Compliance Committee deems
appropriate, including, among other things, the unwinding of the
transaction and the disgorgement of profits, letter of censure, suspension
or termination of employment. Any significant sanction imposed shall be
reported to the Funds' Boards in accordance with Section IV.F. above.
Notwithstanding the above, the Designated Supervisory Person shall have
discretion to determine, on a case-by-case basis, that no material
violation shall be deemed to have occurred. The Designated Supervisory
Person may recommend that no action be taken, including waiving the
requirement to disgorge profits under Section II.D. of this Code. A
written memorandum for any such finding shall be filed with reports made
pursuant to this Code.
VII. Investment Adviser and Principal Underwriter Codes
--------------------------------------------------
Each Fund's investment adviser, sub-adviser and principal underwriter
shall adopt, maintain and enforce separate codes of ethics with respect to
their personnel in compliance with Rule 17j-1 and Rule 204-2(a)(12) of the
Investment Advisers Act of 1940 or Section 15(f) of the Securities
Exchange Act of 1934, as applicable, and shall forward to the Fund's
administrator and counsel to the Funds copies of such codes and all future
amendments and modifications thereto. The Funds' Boards, including a
majority of non-interested trustees/directors of the Boards, must approve
the Funds' Code and the code of any investment adviser, sub-adviser or
principal underwriter of a Fund.
VIII. Recordkeeping
-------------
This Code, the codes of the investment adviser, sub-adviser and principal
underwriter, a copy of each report by a Covered Person, any written report
by the investment adviser, sub-adviser or principal underwriter and lists
of all persons required to make reports shall be preserved with the Fund's
records for the period required by Rule 17j-1.
IX. Confidentiality
---------------
All information obtained from any Covered Person hereunder shall be kept
in strict confidence, except that reports of securities transactions
hereunder may be made available to the Securities and Exchange Commission
or any other regulatory or self-regulatory organization, and may otherwise
be disclosed to the extent required by law or regulation.
X. Other Laws, Rule and Statements of Policy
-----------------------------------------
Nothing contained in this Code shall be interpreted as relieving any
Covered Person from acting in accordance with the provisions of any
applicable law, rule, or regulation or any other statement of policy or
procedures governing the conduct of such person adopted by a Fund. No
9
<PAGE>
exception to a provision in the Code shall be granted where such exception
would result in a violation of Rule 17j-1.
XI. Further Information
-------------------
If any person has any questions with regard to the applicability of the
provisions of this Code generally or with regard to any securities
transaction or transactions, such person should consult with the
Designated Supervisory Person.
Dated: February 14, 2000.
As modified on August 6, 1996, May 6, 1997, February 22, 1999, August 3, 1999
and February 14, 2000.
10
<PAGE>
Attachment A
------------
The term "beneficial ownership" as used in the attached Code of Ethics (the
"Code") is to be interpreted by reference to Rule 16a-1(a)(2) under the
Securities Exchange Act of 1934 (the "Rule"), except that the determination of
direct or indirect beneficial ownership for purposes of this Code must be made
with respect to all securities that a Covered Person has or acquires. Under the
Rule, a person is generally deemed to have beneficial ownership of securities if
the person, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares a direct or indirect
pecuniary interest in the securities.
The term "pecuniary interest" in particular securities is generally defined
in the Rule to mean the opportunity, directly or indirectly, to profit or share
in any profit derived from a transaction in the securities. A person is
refutably deemed to have an "indirect pecuniary interest" within the meaning of
the Rule in any securities held by members of the person's immediate family
sharing the same household, the term "immediate family" including any child,
stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-
in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-
law, as well as adoptive relationships. Under the Rule, an indirect pecuniary
interest also includes, among other things: a general partner's proportionate
interest in the portfolio securities held by a general or limited partnership; a
performance-related fee, other than an asset-based fee, received by any broker,
dealer, bank, insurance company, investment company, investment adviser,
investment manager, trustee or person or entity performing a similar function; a
person's right to dividends that is separated or separable from the underlying
securities; a person's interest in securities held by certain trusts; and a
person's right to acquire equity securities through the exercise or conversion
of any derivative security, whether or not presently exercisable, the term
"derivative security" being generally defined as any option, warrant,
convertible security, stock appreciation right, or similar right with an
exercise or conversion privilege at a price related to an equity security, or
similar securities with, or value derived from, the value of an equity security.
For purposes of the Rule, a person who is a shareholder of a corporation or
similar entity is not deemed to have a pecuniary interest in portfolio
---
securities held by the corporation or entity, so long as the shareholder is not
a controlling shareholder of the corporation or the entity and does not have or
share investment control over the corporation's or the entity portfolio.
11
<PAGE>
Attachment B
------------
The Munder Funds Trust
The Munder Funds, Inc.
St. Clair Funds, Inc.
Annual Certificate
Pursuant to the requirements of the Amended and Restated Code of Ethics of
The Munder Funds Trust, The Munder Funds, Inc. and St. Clair Funds, Inc. (the
"Amended and Restated Code of Ethics"), the undersigned hereby certifies as
follows:
1. I have read the Amended and Restated Code of Ethics.
2. I understand the Amended and Restated Code of Ethics and acknowledge
that I am subject to it.
3. Since the date of the last Annual Certificate (if any) given pursuant
to the Amended and Restated Code of Ethics, I have reported all
personal securities transactions and holdings required to be reported
under the requirement of the Amended and Restated Code of Ethics.
Date: _____________________________
Signature
_____________________________
Print Name
12
<PAGE>
Exhibit 99(p)(2)
FUNDS DISTRIBUTOR, INC.
-----------------------
CODE OF ETHICS
--------------
October 1, 1996
I. Introduction
All employees are expected to help protect and enhance the assets and
reputation of Fund Distributor, Inc. (the "Company"). Every individual with whom
we come into contact must believe in our honesty, integrity and dependability.
In the rapidly evolving businesses in which we are engaged, each employee
is challenged by a complex environment often requiring fast responses under high
pressure. No written policy can definitively state for employees the appropriate
action for all business situations. Accordingly, this Code emphasizes a norm or
standard of conduct that must permeate all business dealings and relationships
rather than a set of specific rules.
In addition, this Code requires all employees to adhere to all Company
policies, including, without limitation, those governing insider trading, equal
employment opportunity, and sexual harassment.
II. Management Responsibility
Managers by virtue of their positions of authority play a particularly
important role in developing the commitment and ability of their associates to
make sound ethical judgments. This requires recognition of the ethical issues
often inherent in business decisions, analysis of the ethical aspects of very
complex situations, and knowing when to seek assistance in determining the
ethical course of action. Other aspects of ethical leadership include:
. Ensuring that your own conduct is above reproach.
. Communicating personal support for, and the seriousness of, ethical
conduct.
. Educating your associates in all aspects of ethical conduct.
. Creating an environment that encourages employees to voice ethical concerns
and supporting those who speak out for honesty and integrity.
. Avoiding creating pressures and circumstances which influence employees to
produce results which are not reasonable and which may inadvertently cloud
the judgment of otherwise ethical employees.
<PAGE>
. Ensuring that claims about our own products and services are valid and
honest while avoiding disparagement or unfair treatment of competitors.
III. Financial Records and Reporting
Each employee involved in the preparation of the Company's financial
statements, records and reports must do so in accordance with the letter and
spirit of generally accepted accounting standards and all other applicable laws,
regulations and standards. All records must accurately and completely reflect
the financial condition of the Company.
Federal and other laws require accurate recordkeeping and accounting and
impose civil and criminal penalties on individuals and companies that violate
these requirements. Any attempts to create false or misleading records are
forbidden. Both law and company policy require that no undisclosed funds or
accounts shall be established for any purpose. Moreover, Company policy
prohibits any employee from knowingly making a misleading, incomplete or false
statement to an accountant or an attorney in connection with an audit or any
filing with a governmental or regulatory agency.
IV. Conflicts of Interest
Every employee must avoid conduct that conflicts, or appears to conflict,
with his or her duty to the Company. All employees should conduct themselves
such that a reasonable observer, whether a client, supplier, fellow employee, or
regulator, would have no grounds for belief that a conflict of interest exists.
Employees are not permitted to self-deal or otherwise to use their
positions with the Company to further their own or any other related person's
business opportunities. A related person is any family member, any person
residing in the same household as the employee, any person with whom the
employee has a direct or indirect personal relationship, or any organization or
business activity in which the employee has an interest.
From time to time, situations will arise that are not clear-cut. If you are
uncertain about the propriety of your conduct or business relationships consult
your manager. If you determine that a conflict does exist please report it
immediately to the General Counsel of the Company. In either case, you can be
sure that any such discussion will be held in confidence.
Employees should be aware of the following specific guidelines regarding
conflicts of interest
A. No employee should use his or her position with the Company or information
acquired during employment in a manner that may create a conflict, or the
appearance of a conflict, between personal interests and those of the
Company. If
2
<PAGE>
a conflict or potential conflict arises, report it immediately to the
General Counsel of the Company.
For example, Company policy does not permit you to:
1. Accept, directly or indirectly, any money or object of value from any
person or enterprise which has or is seeking business with the Company
which may affect, or appear to influence, your business judgment. You
should not offer excessive gifts or entertainment to others whose business
the Company may be seeking. You may accept business-related meals,
entertainment, gifts or favors when the value involved is not significant
and clearly will not place you under any obligation to the donor.
2. Accept simultaneous employment with any concern that does business or
competes with the Company, or with any other concern if that employment
would interfere with your full-time and efficient service as an employee of
the Company. In addition, if a related person works for a company or firm
either in direct competition with or which does business with the Company
and occupies a position that can influence decisions affecting lines of
business of such other company or firm which compete with the Company's
businesses or which relate to the business such other company conducts with
the Company, you must disclose such related person's position on the
attached agreement.
B. Certain situations require approval before you become involved.
Specifically, you must submit a request to the General Counsel before you:
1. Serve as a director, general partner, or officer of any unaffiliated
business organization. This rule does not apply to charitable, civic,
religious, public, political, or social organizations, the activities of
which do not conflict with the interests of the Company and do not impose
excessive demands on your time.
2. Obtain an interest in any enterprise which has or is seeking to establish
business relations with the Company. However, employees may invest in stock
or other securities of publicly-owned companies.
C. From time to time situations also occur that must be disclosed to the
Company's General Counsel. Examples of such situations include:
1. Business opportunities, commissions or other financial arrangements that
are offered to related persons by persons or firms that are customers,
vendors, or business partners of the Company. The Company requires such
disclosure to make a determination of the appropriateness of such offers
beforehand and to prevent even the appearance that Company employees might
be improperly using their positions in the Company to promote the Dersona1
or financial interests of related persons.
2. Acquisitions of Company property or services on terms other than those
available to the general public or other than those established by Company
policy.
3
<PAGE>
These guidelines are intended to protect both you and the Company from
conflicts of interest, divided loyalties, and situations that create the
perception of impropriety. They will help to prevent you from compromising your
ability to act solely in the Company's interest and aid you in complying with
existing laws and regulations.
V. Proprietary Information and Trade Secrets
All persons who work for the Company learn, to a greater or lesser degree,
facts about the Company's business methods that are not known to the general
public or to competitors. For example, customer lists, the terms or fees offered
to a particular customer, or marketing or strategic plans, may give the Company
an advantage and must not be disclosed. In addition, such things as internal
processing arrangements or proprietary systems developments must not be
disclosed. These are just a few examples.
Because these trade practices or methods are developed by employees in the
course of their jobs for which the Company pays them a salary, these matters are
the property of the Company, and it is important to the continued success of the
Company that they remain known only to the Company.
Therefore, except as a duly authorized senior officer of the Company may
otherwise consent in writing, you shall not at any time disclose or use, either
during or subsequent to your employment by the Company, any information,
knowledge or data you receive or develop during your employment which is
considered proprietary by the Company. This includes, but is not limited to,
information stored for business purposes on any computer system (e.g.,
mainframes, individual terminals and personal computers) and software used by
the Company.
In addition, no employee shall disclose information which relates to the
Company's secrets as contained in business processes, methods, compositions,
improvements, inventions, discoveries or otherwise, or which the Company has
received in confidence from others. On the other hand, the Company will not ask
you to reveal, and no employee shall disclose to the Company, the proprietary
information or trade secrets of others.
VI. Insider Trading
The Company believes that it is inconsistent with its reputation for
integrity (as well as being illegal) for any employee to trade in securities on
the basis of material, nonpublic, or "inside," information about the issuer
obtained as a result of the employee's affiliation with the Company.
Employees should consult the Company's Policy on Insider Trading and Other
Misuse of Nonpublic Information for a more detailed discussion of this issue.
4
<PAGE>
VII. Compliance With Laws and Regulations
The policy of the Company is to comply in all respects with all applicable
SEC and NASD rules and regulations and with all applicable federal, state and
local laws and regulations in the United States and in any other countries in
which we operate. To this end, the Company has established and maintained
various practices and procedures (including assigning management oversight
responsibilities) which collectively comprise a corporate program intended to
promote ethical behavior of employees and agents and to prevent and detect
criminal conduct. These practices and procedures must be periodically reviewed
and compliance activities properly recorded in order to assure compliance with
the standards that have been established in the Guidelines for Sentencing of
Organizations promulgated by the U.S. Sentencing Commission. The Company has
established and will periodically augment an effective compliance program that
conforms to the standards established in the Sentencing Guidelines.
In addition, employees should be sensitive to the various equal employment
opportunity laws and to the Company's strong policy against sexual harassment.
The Company will exercise due diligence in attempting to detect and to
prevent criminal conduct by employees and agents. In this regard from time to
time the General Counsel may circulate specific laws and regulations because of
their high degree of relevance to your activities. However, all employees are
expected to be familiar with the laws and regulations that relate to the
performance of their jobs and, if in doubt, to seek advice from the General
Counsel as to what those laws and regulations are.
VIII. Administration
The Company's Code of Ethics calls for you to abide by the policies set
forth above. Exceptions to these policies may be granted only by the General
Counsel, who is responsible for the interpretation of the Code.
To the extent that the Company has adopted or in the future may adopt
specific policies pertaining to any of the matters covered in the Code of
Ethics, the Code also mandates your agreement to abide by the terms of such
policies. Neither this Code nor your agreement to abide it is meant to vary or
supersede the regular terms and conditions of your employment by the Company or
to constitute an employment contract.
All employees are required to review the Code of Ethics annually and to
complete, sign and return a statement acknowledging their agreement to abide by
the Code. The Company takes the matters discussed in this Code very seriously.
Violations of the Code may result in disciplinary actions up to and including
termination of employment.
5
<PAGE>
FUNDS DISTRIBUTOR, INC.CODE OF ETHICS AGREEMENT & DISCLOSURE
I acknowledge receipt of Funds Distributor's Code of Ethics dated October
1, 1996 and, in consideration of my employment with the Company, agree to abide
by the terms of the policies set forth therein. I understand that my obligations
under these policies may not be changed or modified, released, discharged,
abandoned or terminated, in whole or in part, except by an instrument in writing
signed by a duly authorized officer of the Company. I further understand that my
obligation to abide by these policies is ongoing (both during and after my
employment with the Company) and I agree to promptly disclose to the General
Counsel any exceptions to or potential conflicts with this agreement that exist
now or may arise in the future. I acknowledge that neither this agreement nor
the Code of Ethics is meant to vary or supersede the regular terms and
conditions of my employment with the Company or to constitute an employment
contract.
In the space below list any exceptions to the Code of Ethics or other
matters that you feel should be disclosed. Specifically, you should list any
existing or potential conflicts of interest and any directorships, partnerships,
officerships, or other positions held in unaffiliated business organizations.
You should list those positions even if you serve at the request of or with the
permission of the Company. Please also disclose the positions of any related
persons if so required by the Company's policy on conflicts of interests.
All necessary disclosures should be made on this form even if they have
been previously disclosed to the Company.
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Employee Signature:_______________________________________Date:________________
Employee Name (please print or type):__________________________________________
Title:______________________________________ Phone extension:__________________
PLEASE COMPLETE, SIGN AND DATE THIS AGREEMENT, DETACH THIS PAGE AND SEND IT
UNDER CONFIDENTIAL COVER TO THE ATTENTION OF PATRICK W. MCKEON, V.P.-DIRECTOR OF
COMPLIANCE. YOU SHOULD RETAIN A COPY OF THIS AGREEMENT FOR YOUR OWN RECORDS.
6
<PAGE>
Exhibit 99(p)(3)
- -----------------------------------------------------------------------------
Title: Code of Conduct / Conflict of Interest Policy Number: C 5
- -----------------------------------------------------------------------------
Date: January, 2000 Page Number: 1 of 7
- -----------------------------------------------------------------------------
Munder Capital Management
Code of Conduct/Conflict of Interest
- ------------------------------------
Personal Transactions and Conflicts of Interest
- -----------------------------------------------
Personal trading by any Company employee shall not interfere with or take
precedence over Company business. All Company personnel must exercise extreme
care in handling personal investments, in order to avoid actual or perceived
conflicts with the execution of orders for customers.
Specific restrictions apply to Company employees actively involved in making
investment decisions, herein referred to as "Designated Employees." This
specifically includes:
. Senior officers and Managing Directors
. Trading personnel
. Portfolio managers
. Support personnel for the above (i.e. assistants, secretaries, etc.) who
may have access to information regarding investment decisions.
. Any other persons deemed required to report such transactions as determined
by the Compliance Officer.
A personal transaction is defined as a transaction for the Designated Employee's
own account, family accounts and accounts in which he or she has discretionary
investment control in terms of purchase or disposition. This could include but
is not limited to accounts of the employee's husband, wife, minor children or
other dependent relations, or a trust in which he or she is an income or
principal beneficiary. If the person also has discretionary investment control
over family-related accounts, the definition of personal transactions would also
include discretionary transactions for sisters, brothers, parents or parents-in-
law and brothers/sisters-in-law.
The following restrictions and procedures apply to all Company Designated
Employees:
Prohibition Against Use of Material Inside Information
- ------------------------------------------------------
Investment personnel often have access to proprietary and market sensitive
information, through contact with company management for example, that may be
deemed to be "material inside information". Strict standards of confidentiality
must be observed in order to prevent misuse of this information and to protect
the Company's professional reputation and integrity.
"Material inside information" can be defined as any information about a company
which has not been generally disclosed to the marketplace, the dissemination of
which is likely to significantly affect the market price of the company's
securities or to be considered important by reasonable investors in determining
whether to trade in such securities.
<PAGE>
Title: Code of Conduct / Conflict of Interest Policy Number: C 5
- --------------------------------------------------------------------------------
Date: January, 2000 Page Number: 2 of 7
- --------------------------------------------------------------------------------
Employees in possession of material inside information should communicate that
information to the Compliance Officer of the Company without otherwise
discussing the information with co-workers or others. The employee is prohibited
from trading on the information or from discussing the information inside or
outside the Company until the Compliance Officer determines the information
either is not material or has been made public. The use or disclosure of such
information may subject an employee, the Company, or persons outside of the
Company to whom the information is communicated to severe liabilities, both
civil and criminal, under federal and state securities laws. The Compliance
Officer will regularly review client and employee accounts and investigate for
patterns of heavy or inappropriate trading in particular securities.
Employees are prohibited from soliciting or accepting disclosure of inside
information from fellow employees or soliciting or accepting access to files
that contain inside information.
Fair Dealing vs. Self Dealing
- -----------------------------
All Company personnel must act in a manner consistent with the obligation to
deal fairly with all customers when disseminating information or taking
investment action. Self-dealing for personal benefit or the benefit of the
Company at the expense of clients will not be tolerated.
Front Running
- -------------
Employees are prohibited from "front running" an order or recommendation, even
if he or she is not handling either the order or recommendation. Front running
consists of executing a personal transaction in the same or underlying
securities, options, rights, warrants, convertible securities or other related
securities in advance of corporate transactions of a similar nature based on the
knowledge of the forthcoming transaction or recommendation. For purposes of this
restriction, personal transactions which are executed seven calendar days or
less prior to a client transaction, and where the employee directly handles such
client transactions, shall be considered front running and are expressly
prohibited. Notwithstanding the above time limit, care should be taken with any
personal transaction executed for securities that the Company recommends to
clients to avoid the appearance of front running or self dealing.
Restriction on Purchasing Initial Public Offerings
- --------------------------------------------------
No underwritten new or secondary issues, whether offered on a firm or best
efforts basis, may be purchased except in the open market after official
termination of the underwriting. The only exception is in the case of mutual
funds, which can be purchased on the initial offering.
<PAGE>
Title: Code of Conduct / Conflict of Interest Policy Number: C 5
- --------------------------------------------------------------------------------
Date: January, 2000 Page Number: 3 of 7
- --------------------------------------------------------------------------------
Private Placements
- ------------------
No Designated Employee may acquire, directly or indirectly, any securities in a
private placement without the prior approval of the Compliance Officer, who must
be provided with full details of the proposed transaction (including
certification that the investment opportunity did not arise by virtue of the
designated person's activities on behalf of any fund advised by the Company).
Trading
- -------
No trades may be done directly through the institutional trading desk of a
broker/dealer that also handles any of the Company's or its client's business;
only a normal retail relationship is permitted.
Short-term trading is prohibited. Short-term trading is defined to include any
combination of purchases and sales, or sales and purchases, where the securities
are held for less than 60 calendar days. You will be required to disgorge any
profits if you violate this short term trading rule. The prohibition on short-
term trading does not apply to mutual funds, including funds advised by the
Company.
Designated Employees are prohibited from executing transactions in securities
within seven days before and after a transaction for a client account for which
that person is responsible.
Designated Employees are prohibited from executing transactions in securities
for which a registered investment company advised by the Company has pending buy
or sell orders.
In order to assist employees in maintaining compliance with these provisions,
personal securities transactions MUST be pre-cleared with the compliance officer
or trading desk, with appropriate written documentation obtained. Any deviation
from these trading policies must be pre-cleared with the Compliance Officer or
General Counsel. An example of this form is located in the back of this handbook
(Exhibit B). If a securities transaction is not pre-cleared it will be
considered a violation.
Comerica Stock
- --------------
Comerica stock may be purchased by employees of Munder Capital, subject to the
normal procedures contained in this policy, and any procedures that may be
directed to MCM employees by Comerica compliance personnel. Should such
procedures be received from Comerica compliance personnel, Munder employees will
be notified of appropriate changes to these procedures.
<PAGE>
- -------------------------------------------------------------------------------
Title: Code of Conduct / Conflict of Interest Policy Number: C 5
- -------------------------------------------------------------------------------
Date: January, 2000 Page Number: 4 of 7
- -------------------------------------------------------------------------------
Commissions
- -----------
Commissions on personal transactions may be negotiated, but payment of a
commission rate which is lower than the rate available to retail customers
through similar negotiations is prohibited.
Appointment to Investment Advisory Position
- -------------------------------------------
Before taking on any position which involves giving investment advice or acting
in a fiduciary capacity, i.e., acting as an administrator, co-trustee, joining
the board of an endowment fund, etc., Designated Employees must obtain written
approval from the Compliance Officer or CEO of the Company. Annually, all
employees will be required to identify and confirm those organizations for which
they serve on Boards or with which they have other reportable relationships. An
example of this form is located in the back of this handbook. (Exhibit C)
Reporting Requirements
- ----------------------
Within 10 days following the end of the calendar quarter, each access person
defined above must submit to the Compliance Officer a statement of all
securities purchased and sold during the previous calendar quarter.
An example of this form is located in the back of this handbook. (Exhibit D)
Within 10 days of becoming an access person, and annually thereafter, you will
be required to report/confirm the accounts and securities over which you are
responsible under these guidelines. Appropriate forms and reports will be
disseminated at that time. An example of this form is located in the back of
this handbook. (Exhibit E)
Reporting of Personal Brokerage Accounts and Investments
- --------------------------------------------------------
Certain Designated Employees may be required to report all cash and margin
accounts and investments involving the beneficial ownership of securities to the
Compliance Officer of the Company. In addition, securities that are beneficially
owned but not held in any account must be reported to the Compliance Officer.
The Compliance Officer will determine those personnel required to submit copies
of supporting documentation (e.g., brokerage statements, confirmations, or
similar documents) on a timely basis.
Accounts to be reported could include, but are not limited to, joint accounts,
trust accounts, and investment partnerships or clubs in which the employee
participates that are eligible to trade in securities. A security could include
but is not limited to any note, stock, treasury stock, bond debenture or
evidence of indebtedness.
<PAGE>
- -------------------------------------------------------------------------------
Title: Code of Conduct / Conflict of Interest Policy Number: C 5
- -------------------------------------------------------------------------------
Date: January, 2000 Page Number: 5 of 7
- -------------------------------------------------------------------------------
Securities that you beneficially own include securities, whether or not
registered in your name, over which you can exert direct or indirect control in
terms of voting rights, purchase or disposition. This also includes securities
which you may not currently own but have the right to acquire, through the
exercise of an option, for example. Securities held in the name of other
individuals or in the name of an estate, trust or partnership, where you have
the power to directly control the purchase or sale of securities, such as the
authority to exercise voting rights or to indirectly influence such decisions,
are considered beneficially owned by you. Additionally, securities held by your
spouse, child or other relative sharing your home are considered beneficially
owned by you on the theory that, absent special circumstances, you are able to
exercise a controlling influence over the purchase, sale or voting of such
securities.
Compliance
- ----------
Monthly Reporting Requirements
- ------------------------------
For those persons designated by the Compliance Officer, duplicate monthly
account statement(s), confirmations, or similar documentation of each
transaction in all accounts over which you have beneficial ownership must be
submitted to the Compliance Officer directly from the broker/custodian. Have
all duplicate transaction confirmations and/or statements mailed directly to:
Compliance Officer
Munder Capital Management
PO Box 1840
Birmingham, MI 48012-1840
In the event a securities transaction is completed without the use of a
brokerage firm, you should immediately report the transaction directly to the
Compliance Officer.
Reporting of security holdings of family members over which you do not have
beneficial ownership (i.e. securities owned by your parents, in-laws, children
above minor age not living at home) is not required. However, this information
must be provided upon request of the Compliance Officer.
Each monthly statement must include all transaction activity conducted during
the month in each account, as well as all transfers in and out of the account.
Excluded Transactions
- ---------------------
Transactions that are specifically excluded from required reporting are:
. Transactions in securities that are direct obligations of the United
States Government.
. Any transaction involving a "non-security", i.e. savings account,
certificate of deposit, etc.
<PAGE>
- -------------------------------------------------------------------------------
Title: Code of Conduct / Conflict of Interest Policy Number: C 5
- -------------------------------------------------------------------------------
Date: January, 2000 Page Number: 6 of 7
- -------------------------------------------------------------------------------
. Transactions that are non-volitional, including, but not limited to
automatic reinvestments under dividend reinvestment plans, conversions of
stock under warrants, options or mergers.
. Transactions effected in any account over which the Designated Person has
no direct or indirect influence or control, including discretionary
accounts in which the Designated Person has no influence or control over
trades.
. Purchases or sales of options on indices.
. Transactions involving mutual funds and money market funds.
Role of Compliance
- ------------------
The Compliance Officer or his/her designee reviews the records of all personal
accounts and securities transactions to ensure that no abuse of these guidelines
and procedures has occurred. Information collected and maintained by the
Compliance Officer is kept in strict confidence. In addition, on a case-by-case
basis, the Compliance Officer may provide advance approval of purchases or sales
which would otherwise be prohibited by this Code of Conduct upon his or her
determination that such purchase or sale is only remotely potentially harmful to
clients of the Company because such purchase or sale would be unlikely to affect
a high institutional market, or because such purchase or sale is clearly not
related economically to the securities held, purchased or sold by clients of the
Company.
Risk of Non-Compliance
- ----------------------
Any violation of these guidelines can be grounds for the immediate termination
of your employment at the Company. In some cases, such as the use of material
inside information, a breach may violate federal and state civil and criminal
statutes and may subject you to fines, imprisonment and/or monetary damages. You
will be expected to conduct your activities in accordance with these guidelines,
and to reaffirm each year that you have thoroughly read and understand this Code
of Conduct by signing a statement of acknowledgment.
Notwithstanding the above, in order to underscore the importance of compliance
with these provisions, the following penalties will apply to violations of these
policies (in addition to the possible disgorging of any profits and other
sanctions noted in the above paragraph):
First violation: no monetary penalty
Second violation: $250 penalty
Any subsequent violation: appropriate disciplinary action, as determined by
the CEO and the Compliance Officer.
<PAGE>
- -------------------------------------------------------------------------------
Title Code of Conduct / Conflict of Interest Policy Number: C 5
- -------------------------------------------------------------------------------
Date: January, 2000 Page Number: 7 of 7
- -------------------------------------------------------------------------------
Summary
- -------
It is impossible to anticipate all possible conflict of interest situations that
may arise. In dealing with such situations, you should act according to the
guidelines outlined here as well as abide by legal and regulatory requirements.
When there is any doubt about the propriety of certain conduct, or if a
situation is unclear, you should seek the counsel of the Compliance Officer.
Acknowledgment
- --------------
It shall be the responsibility of each present employee to file with the
Compliance Officer of the Company a written statement certifying that the
employee has received and reviewed this policy. Signature constitutes agreement
to abide by such Code. New employees shall complete an Acknowledgment of Receipt
coincident with employment. Statements for all employees shall be filed at one-
year intervals. An example of this form is located in the back of this Handbook.
(Exhibit J)
<PAGE>
Exhibit B
----------------------------------------
[LOGO] PREAUTHORIZATION FORM FOR
PERSONAL SECURITIES TRANSACTIONS
----------------------------------------
PLEASE COMPLETE AND RETURN THIS FORM TO THE COMPLIANCE OFFICER
- ---------------------------------------------------------------------------
TRANSACTION
DATE OF TYPE NAME OF SECURITY SYMBOL
TRANSACTION (Buy, Sell, (If known)
(Trade Date) Exchg, Gift,
etc.)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Only one security per form*
- ---------------------------------------------------------------------------
- ----------------------------------------------------------------------------
DATE EMPLOYEE
SIGNATURE
- ----------------------------------------------------------------------------
PRINTED NAME
--------------------------------------
- ----------------------------------------------------------------------------
DATE TRADING ROOM
AUTHORIZATION
- ----------------------------------------------------------------------------
[_] NO OPEN ORDERS TIME STAMP
- ----------------------------------------------------------------------------
**Your trade must be placed immediately following authorization to avoid any
conflict with incoming orders on the trading desk. If the transaction is not
executed on the trade date listed, you must obtain a new pre-authorization prior
to execution.**
<PAGE>
Exhibit C
- --------------------------------------------------------------------------------
M E M O R A N D U M
- --------------------------------------------------------------------------------
Date:
To: All Personnel
From: Terry H. Gardner
RE: Compliance Questionnaire
In order to help us identify potential conflicts of interest, please complete
the following questionnaire.
Please list any organizations in which you serve as an officer, director,
partner, etc., whether for compensation or not (including charities, etc.), or
any public elected or appointed office.
To the best of your knowledge, do any of the organizations described above have
a material business relationship with either Munder Capital Management or
Comerica Incorporated or any subsidiaries of Comerica Incorporated?
____________________________ ___________________
Signature Date
____________________________
Print Name
<PAGE>
Exhibit D
Munder Capital Management
480 Pierce Street, Suite 300
Birmingham, MI 48009
QUARTERLY REPORT FOR PERIOD ENDING 3/31/2000
This form must be returned to the compliance officer no later than the 10th day
of the month following the quarter end noted above.
Dear Sir/Madam:
As required by Rule 204-2(a)(12) of the Investment Advisers Act of 1940, I
submit the following information concerning transactions during the most recent
calendar quarter in SECURITIES* in which I have or had direct or indirect
beneficial ownership, except transactions effected in an account over which
neither you nor I had any direct or indirect influence or control.
<TABLE>
<CAPTION>
Nature of
transaction
Date of (Purchase, Sale, Number of Principal Broker, Dealer
transaction Gift, etc.) Title of Security Shares Price/Share Amount** or Bank
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
New account(s) established in which any securities were held during the quarter
for my direct or indirect benefit:
Name of the broker, dealer or bank with whom the account was established:
Account Number:
Date the account was established:
*For purposes of reporting quarterly transactions, the term "Security" does not
include (1) securities issued or guaranteed as to principal or interest by the
U.S. Government or its instrumentalities; (2) bankers' acceptances; (3) bank
certificates of deposit; (4) commercial paper and high quality short-term debt
instruments (including repurchase agreements); and (5) shares of registered
open-end investment companies. For purposes of reporting new accounts
established during the quarter, there is no limitation on the term "security."
**Principal amount equals the amount paid or received excluding any commissions.
By signing this form, you are indicating that you have complied with the Firm's
Code of Conduct policy with respect to personal SECURITIES TRANSACTIONS, and
that all such transactions are listed above or attached. You are also indicating
that you have reported all reportable accounts established with a broker, dealer
or bank during the quarter.
Date: Signed:
----------------------- --------------------------------
Print Name:
----------------------------
<PAGE>
Exhibit E
Annual Report of Personal Brokerage Accounts and Investments
Name: ____________________________
Position: ___________________________
To comply with SEC regulations and the Munder Capital Management Code of
Conduct, all access persons are required to provide an annual holdings report
containing the following information (which information must be current as of a
date no more than 30 days before the report is submitted):
(i) The title, number of shares and principal amount of each reportable
security* in which you have any direct or indirect beneficial ownership;
and
(ii) The name of any broker, dealer, or bank with whom you maintain an
account in which any securities are held for your direct or indirect
benefit.
Please fill out the form below listing those broker, dealer and bank accounts
that meet the Code of Conduct reporting requirements. You must attach a list of
the reportable securities held in each account, including the information listed
in item (i) above. A copy of the most recent statement for each account may be
attached for this purpose if it is currently accurate and provides all the
required information.
Following is a listing of accounts which meet the Firm's reporting guidelines:*
<TABLE>
<CAPTION>
Account Owner Account Number Firm
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
By signing this form, you are indicating that you have complied with the Firm's
Code of Conduct policy and that all reportable accounts and securities are
listed above or attached.
Signed: _____________________________________ Date: _____________
*Please refer to the Code of Conduct provided in the Munder Capital Management
Employee Handbook for a description of reportable securities.
<PAGE>
Initial Report of Personal Brokerage Accounts and Investments
Name: _______________________________
Position: ___________________________
To comply with SEC regulations and the Munder Capital Management Code of
Conduct, all access persons are required to provide an initial holdings report
containing the following information:
(i) The title, number of shares and principal amount of each reportable
security* in which you had any direct or indirect beneficial ownership when
you became an access person; and
(ii) The name of any broker, dealer, or bank with whom you maintained an account
in which any securities were held for your direct or indirect benefit as of
the date you became an access person.
Please fill out the form below listing those broker, dealer and bank accounts
that meet the Code of Conduct reporting requirements. You must attach a list of
the reportable securities held in each account, including the information listed
in item (i) above. A copy of the most recent statement for each account may be
attached for this purpose if it is currently accurate and provides all the
required information.
Following is a listing of accounts which meet the Firm's reporting guidelines:*
<TABLE>
<CAPTION>
Account Owner Account Number Firm
- -------------------------------------------------------------------------------
<S> <C> <C>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
By signing this form, you are indicating that you have complied with the Firm's
Code of Conduct policy and that all reportable accounts and securities are
listed above or attached.
Signed: _____________________________________ Date: _____________
*Please refer to the Code of Conduct provided in the Munder Capital Management
Employee Handbook for a description of reportable securities.
