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Munder Accelerating Growth Fund Munder Framlington International Growth Fund
Munder Balanced Fund Munder Framlington Healthcare Fund
Munder Equity Selection Fund* Munder Bond Fund
Munder Index 500 Fund Munder Intermediate Bond Fund
Munder Growth & Income Fund Munder International Bond Fund
Munder International Equity Fund Munder Short Term Treasury Fund
Munder Micro-Cap Equity Fund Munder U.S. Government Income Fund
Munder Mid-Cap Growth Fund Munder Michigan Triple Tax-Free Bond Fund
Munder Multi-Season Growth Fund Munder Tax-Free Bond Fund
Munder Real Estate Equity Investment Fund Munder Tax-Free Intermediate Bond Fund
Munder Small-Cap Value Fund Munder Cash Investment Fund
Munder Small Company Growth Fund Munder Money Market Fund
Munder Value Fund Munder Tax-Free Money Market Fund
Munder Framlington Emerging Markets Fund Munder U.S. Treasury Money Market Fund
</TABLE>
(collectively, the "Funds")
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information, which has been filed with the
Securities and Exchange Commission (the "SEC"), provides supplementary
information pertaining to all classes of shares representing interests in each
of the investment portfolios listed above. The Munder Funds, Inc. (the
"Company") currently offers a selection of fourteen investment portfolios, ten
of which are described in this Statement of Additional Information; The Munder
Funds Trust (the "Trust") currently offers a selection of fifteen investment
portfolios, each of which is described in this Statement of Additional
Information; and The Munder Framlington Funds Trust ("Framlington") currently
offers a selection of three investment portfolios, each of which is described in
this Statement of Additional Information. This Statement of Additional
Information is not a prospectus, and should be read only in conjunction with the
Trust's, Framlington's and the Company's Prospectuses dated October 29, 1997. A
copy of each Prospectus may be obtained through Funds Distributor, Inc. (the
"Distributor"), or by calling (800) 438-5789. This Statement of Additional
Information is dated October 29, 1997.
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by any bank, and are not insured or guaranteed by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency. An
investment in the Funds involves investment risks, including the possible loss
of principal.
- ------------------------
* As of the date of this Statement of Additional Information, the Munder Equity
Selection Fund is not currently available for purchase.
<PAGE>
TABLE OF CONTENTS
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Page
General................................................................................................ 3
Fund Investments....................................................................................... 4
Risk Factors and Special Considerations -- Index 500 Fund...............................................21
Risk Factors and Special Considerations -- Michigan Bond Fund and
Tax-Free Intermediate Bond Fund...................................................................22
Investment Limitations..................................................................................24
Trustees, Directors and Officers........................................................................29
Investment Advisory and Other Service Arrangements......................................................34
Portfolio Transactions..................................................................................50
Additional Purchase and Redemption Information..........................................................53
Net Asset Value.........................................................................................56
Performance Information.................................................................................57
Taxes...................................................................................................66
Additional Information Concerning Shares................................................................73
Miscellaneous...........................................................................................75
Registration Statement..................................................................................89
Financial Statements....................................................................................89
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
each Prospectus in connection with the offering made by each 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 Prospectuses do not
constitute an offering by the Funds or by the Distributor in any jurisdiction in
which such offering may not lawfully be made.
<PAGE>
GENERAL
The following Funds are described in this Statement of Additional Information:
The Munder Funds Trust
Munder Accelerating Growth Fund ("Accelerating Growth Fund") Munder Balanced
Fund ("Balanced Fund") Munder Growth & Income Fund ("Growth & Income Fund")
Munder Index 500 Fund ("Index 500 Fund") Munder International Equity Fund
("International Equity Fund") Munder Small Company Growth Fund ("Small Company
Growth Fund") Munder Bond Fund ("Bond Fund") Munder Intermediate Bond Fund
("Intermediate Bond Fund") Munder U.S. Government Income Fund ("U.S. Income
Fund") Munder Michigan Triple Tax-Free Bond Fund ("Michigan Bond Fund") Munder
Tax-Free Bond Fund ("Tax-Free Bond Fund") Munder Tax-Free Intermediate Bond Fund
("Tax-Free Intermediate Bond Fund") Munder Cash Investment Fund ("Cash
Investment Fund") Munder Tax-Free Money Market Fund ("Tax-Free Money Market
Fund") Munder U.S. Treasury Money Market Fund ("U.S. Treasury Money Market
Fund")
The Munder Funds, Inc.
Munder Equity Selection Fund ("Equity Selection Fund") Munder Micro-Cap Equity
Fund ("Micro-Cap Fund") Munder Mid-Cap Growth Fund ("Mid-Cap Fund") Munder
Multi-Season Growth Fund ("Multi-Season Fund") Munder Real Estate Equity
Investment Fund ("Real Estate Fund") Munder Small-Cap Value Fund ("Small-Cap
Value Fund") Munder Value Fund ("Value Fund") Munder International Bond Fund
("International Bond Fund") Munder Short Term Treasury Fund ("Short Term
Treasury Fund") Munder Money Market Fund ("Money Market Fund")
The Munder Framlington Funds Trust
Munder Framlington Emerging Markets Fund ("Emerging Markets Fund")
Munder Framlington Healthcare Fund ("Healthcare Fund")
Munder Framlington International Growth Fund ("International Growth Fund")
The Trust was organized on August 30, 1989 under the name "PDB Fund," which
was changed in November, 1989 to "Opportunity Funds", in February, 1990 to
"Ambassador Funds" and in June, 1995 to "The Munder Funds Trust." The Tax-Free
Intermediate Bond Fund originally commenced operations on February 9, 1987 as a
separate portfolio of the St. Clair Tax-Free Fund, Inc. On November 20, 1992,
the St. Clair Tax-Free Intermediate Bond Fund was reorganized as the Ambassador
Tax-Free Intermediate Bond Fund. The Company was organized as a Maryland
corporation on November 18, 1992. Framlington was organized as a Massachusetts
business trust on October 30, 1996.
<PAGE>
As stated in each Prospectus, the investment advisor of each Fund is Munder
Capital Management (the "Advisor"). The principal partners of the Advisor are
Old MCM, Inc., Munder Group LLC, Woodbridge Capital Management, Inc. and WAM
Holdings, Inc. ("WAM"). Mr. Lee P. Munder, the Advisor's Chief Executive
Officer, indirectly owns or controls a majority of the partnership interests of
the Advisor.
Framlington Overseas Investment Management Limited (the "Sub-Advisor")
serves as sub-advisor for the three Framlington Funds. The Sub-Advisor is a
subsidiary of Framlington Group Limited, incorporated in England and Wales
which, through its subsidiaries, provides a wide range of investment services.
Framlington Group Limited is a wholly owned subsidiary of Framlington Holdings
Limited which is, in turn, owned 49% by the Advisor and 51% by Credit Commercial
de France S.A., a French banking corporation listed on the Societe des Bourses
Francaises.
Capitalized terms used herein and not otherwise defined have the same
meanings as are given to them in each Prospectus.
FUND INVESTMENTS
The following supplements the information contained in each Prospectus
concerning the investment objectives and policies of the Funds. With the
exception of the investment objectives of Multi-Season Fund, Real Estate Fund
and Money Market Fund, 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. The Tax-Free Bond Fund and Tax-Free Money
Market Fund each have a fundamental policy to invest at least 80% of its
respective assets in municipal obligations bearing tax-exempt interest; all
other investment policies, other than those specifically designated as
fundamental, are non-fundamental policies and may be changed without the
authorization of the holders of a majority of a Fund's outstanding shares. There
can be no assurance that a Fund will achieve its objective. A description of
applicable credit ratings is set forth in Appendix A hereto. For purposes of
this Statement of Additional Information, the Accelerating Growth Fund, Equity
Selection Fund, Growth & Income Fund, Index 500 Fund, International Equity Fund,
Micro-Cap Fund, Mid-Cap Fund, Multi-Season Fund, Real Estate Fund, Small-Cap
Value Fund, Small Company Growth Fund, Value Fund, International Growth Fund,
Emerging Markets Fund and Healthcare Fund are referred to as the "Equity Funds";
The Bond Fund, Intermediate Bond Fund, and U.S. Income Fund are referred to as
the "Bond Funds"; the Michigan Bond Fund, Tax-Free Bond Fund and Tax-Free
Intermediate Bond Fund are referred to as the "Tax-Free Bond Funds" and Cash
Investment Fund, Money Market Fund, Tax-Free Money Fund and U.S. Treasury Money
Market Fund are referred to as the "Money Market Funds."
Borrowing. The Funds are authorized to borrow money in amounts up to 5% of
the value of their total assets at the time of such borrowings for temporary
purposes, and are authorized to borrow money in excess of the 5% limit as
permitted by the Investment Company Act of 1940, as amended (the "1940 Act"), to
meet redemption requests. This borrowing may be unsecured. The 1940 Act requires
the Funds 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 Funds may be required to sell some of their 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 the 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 Funds.
Foreign Securities. Each Equity Fund (except Real Estate Fund,
International Equity Fund, International Growth Fund, Emerging Markets Fund and
Healthcare Fund), each Bond Fund, each Tax-Free Bond Fund, the Balanced Fund,
the Cash Investment Fund and the Money Market Fund may invest up to 25% of its
assets in foreign securities. Under normal market conditions, the International
Equity Fund, International Bond Fund and International Growth Fund will each
invest at least 65% of its assets in securities of issuers located in at least
three countries other than the United States. The Emerging Markets Fund will
invest at least 65% of its assets in emerging market countries. There is no
limit on the Healthcare Fund's investments in foreign securities. The Mid-Cap
Fund and the Multi-Season Fund typically will only purchase foreign securities
which are represented by American Depositary Receipts ("ADRs") listed on a
domestic securities exchange or included in the NASDAQ National Market System,
or foreign securities listed directly on a domestic securities exchange or
included in the NASDAQ National Market System. ADRs are receipts typically
issued by a United States bank or trust company evidencing ownership of the
underlying foreign securities. Certain such institutions issuing ADRs may not be
sponsored by the issuer. A non-sponsored depositary may not provide the same
shareholder information that a sponsored depositary is required to provide under
its contractual arrangements with the issuer.
The International Bond Fund will primarily invest in foreign debt
obligations denominated in foreign currencies, including the European Currency
Unit ("ECU"), which are issued by foreign governments and governmental agencies,
instrumentalities or political subdivisions; debt securities issued or
guaranteed by supranational organizations (as defined below); corporate debt
securities; bank or bank holding company debt securities and other debt
securities including those convertible into foreign stock. For the purposes of
the 65% minimum with respect to the International Bond Fund's designation as an
international bond fund, the securities described in this paragraph are
considered "international bonds."
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
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 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 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 East 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 to the actual market values and may be
adverse to a Fund.
The Advisor (Sub-Advisor with respect to the Framlington Funds)
endeavors to buy and sell foreign currencies on as favorable a basis as
practicable. Some price spread on currency exchange (to cover service charges)
may be incurred, particularly when the Fund changes investments from one country
to another or when proceeds of the sale of Fund shares in U.S. dollars are used
for the purchase of securities in foreign countries. Also, some countries may
adopt policies which would prevent the Fund from transferring cash out of the
country or withhold portions of interest and dividends at the source. There is
the possibility of expropriation, nationalization or confiscatory taxation,
withholding and other foreign taxes on income or other amounts, foreign exchange
controls (which may include suspension of the ability to transfer currency from
a given country), default in foreign government securities, political or social
instability or diplomatic developments that could affect investments in
securities of issuers in foreign nations.
Foreign securities markets have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when assets of a Fund are uninvested and no return is earned
thereon. The inability of a Fund to make intended security purchases due to
settlement problems could cause the fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to a Fund due to subsequent declines in
value of the portfolio security or, if the fund has entered into a contract to
sell the security, could result in possible liability to the purchaser.
A Fund may be affected either unfavorably or favorably by fluctuations
in the relative rates of exchange between the currencies of different nations,
by exchange control regulations and by indigenous economic and political
developments. Changes in foreign currency exchange rates will influence values
within a Fund from the perspective of U.S. investors, and may also affect the
value of dividends and interest earned, gains and losses realized on the sale of
securities, and net investment income and gains, if any, to be distributed to
shareholders by a Fund. The rate of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and demand in the foreign
exchange markets. These forces are affected by the international balance of
payments and other economic and financial conditions, government intervention,
speculation and other factors. The Advisor or Sub-Advisor, as the case may be,
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 Equity Funds (excluding the Real Estate Fund), the
Balanced Fund, the Bond Funds and the International Bond Fund are authorized 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 foreign currency exchange contract for the amount
of the purchase or sale price to protect against variations, between the date
the security is purchased or sold and the date on which payment is made or
received, in the value of the foreign currency relative to the U.S. dollar or
other foreign currency.
When the Advisor (Sub-Advisor with respect to the Framlington Funds)
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 foreign
currency exchange contracts and conversions of foreign currencies and U.S.
dollars.
A separate account consisting of cash or liquid securities equal to the
amount of a Fund's assets that could be required to consummate forward contracts
will be established with the Funds' Custodian except to the extent the contracts
are otherwise "covered." For the purpose of determining the adequacy of the
securities in the account, the deposited 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 placed in the account daily so that the value of the
account 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.
Futures Contracts and Related Options. The Equity Funds, the Balanced
Fund, the Bond Funds, the Tax-Free Bond Funds and the International Bond Fund
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. Each of the Bond Funds and the
International Bond Fund may enter into interest rate swap agreements for
purposes of attempting to obtain a particular desired return at a lower cost to
the Funds than if the Funds had invested directly in an instrument that yielded
that desired return. Interest rate swap transactions involve the exchange by a
Bond Fund or the International Bond 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 Bond Funds and the
International Bond 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 Bond Funds' and
the International Bond Fund's ability to engage in certain interest rate
transactions. Gains from transaction in interest rate swaps distributed to
shareholders of the Bond Funds and the International Bond Fund will be taxable
as ordinary income or, in certain circumstances, as long-term capital gains to
the shareholders.
Each of the Bond Funds' and the International Bond 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"). Each of
the Bond Funds' and the International Bond 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 a Fund's portfolio.
The Bond Funds and the International Bond 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 Bond Funds and the International Bond 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 each of the Bond Funds and the International Bond Fund
would be lower than it would have been if interest rate swaps were not used. The
swaps market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swaps market has
become relatively liquid in comparison with other similar instruments traded in
the interbank market. The swaps market is a relatively new market and is largely
unregulated. It is possible that developments in the swaps market, including
potential government regulation, could adversely affect the Bond Funds' and the
International Bond Fund's ability to terminate existing swap agreements or to
realize amounts to be received under such agreements.
Investment Company Securities. The Funds (other than the Short Term
Treasury Fund) may invest in securities issued by other investment companies. As
a shareholder of another investment company, a Fund would bear its pro rata
portion of the other investment company's expenses, including advisory fees.
These expenses would be in addition to the expenses each Fund bears directly in
connection with its own operations. Each Fund currently intends to limit its
investments in securities issued by other investment companies so that, as
determined immediately after a purchase of such securities is made: (i) not more
than 5% of the value of the Fund's total assets will be invested in the
securities of any one investment company; (ii) not more than 10% of the value of
its total assets will be invested in the aggregate in securities of investment
companies as a group; and (iii) not more than 3% of the outstanding voting stock
of any one investment company will be owned by the Fund.
Lending of Portfolio Securities. To enhance the return on its
portfolio, each of the Funds may lend securities in its portfolio (subject to a
limit of 25% of each Fund's, other than the Money Market Fund's, total assets;
and 33 1/3% of the Money Market Fund's 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 Funds will receive any interest or dividends
paid on the loaned securities. In addition, it is anticipated that a Fund may
share with the borrower some of the income received on the collateral for the
loan or the Fund will be paid a premium for the loan. The risk in lending
portfolio securities, as with other extensions of credit, consists of possible
delay in recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. In determining whether the Funds will lend
securities, the Advisor (Sub-Advisor with respect to the Framlington Funds) will
consider all relevant facts and circumstances. The Funds will only enter into
loan arrangements with broker-dealers, banks or other institutions which the
Advisor (Sub-Advisor with respect to the Framlington Funds) has determined are
creditworthy under guidelines established by the Boards of Trustees/Directors.
Lower-Rated Debt Securities. It is expected that each Fund (other than
the Money Market Funds, Index 500 Fund and Growth & Income Fund) will invest not
more than 5% of its total assets in securities that are rated below investment
grade by Standard & Poor's or Moody's. The Growth & Income Fund may invest up to
20% of the value of its total assets in such securities. Such securities are
also known as junk bonds. The yields on lower-rated debt and comparable unrated
securities generally are higher than the yields available on higher-rated
securities. However, investments in lower-rated debt and comparable unrated
securities generally involve greater volatility of price and risk of loss of
income and principal, including the possibility of default by or bankruptcy of
the issuers of such securities. Lower-rated debt and comparable unrated
securities (a) will likely have some quality and protective characteristics
that, in the judgment of the rating organization, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (b) are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. Accordingly,
it is possible that these types of factors could, in certain instances, reduce
the value of securities held in each Fund's portfolio, with a commensurate
effect on the value of each of the Fund's shares. Therefore, an investment in
the Funds should not be considered as a complete investment program and may not
be appropriate for all investors.
While the market values of lower-rated debt and comparable unrated
securities tend to react more to fluctuations in interest rate levels than the
market values of higher-rated securities, the market values of certain lower
rated debt and comparable unrated securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-rated securities. In addition, lower-rated debt securities and comparable
unrated securities generally present a higher degree of credit risk. Issuers of
lower-rated debt and comparable unrated securities often are highly leveraged
and may not have more traditional methods of financing available to them so that
their ability to service their debt obligations during an economic downturn or
during sustained periods of rising interest rates may be impaired. The risk of
loss due to default by such issuers is significantly greater because lower-rated
debt and comparable unrated securities generally are unsecured and frequently
are subordinated to the prior payment of senior indebtedness. The Funds may
incur additional expenses to the extent that they are required to seek recovery
upon a default in the payment of principal or interest on their portfolio
holdings. The existence of limited markets for lower-rated debt and comparable
unrated securities may diminish each of the Fund's ability to (a) obtain
accurate market quotations for purposes of valuing such securities and
calculating its net asset value and (b) sell the securities at fair value either
to meet redemption requests or to respond to changes in the economy or in
financial markets.
Lower-rated debt securities and comparable unrated securities may have
call or buy-back features that permit their issuers to call or repurchase the
securities from their holders. If an issuer exercises these rights during
periods of declining interest rates, the Funds may have to replace the security
with a lower yielding security, thus resulting in a decreased return to the
Funds.
Money Market Instruments. As described in their Prospectuses, the
Equity Funds, the Balanced Fund, the Bond Funds, the International Bond Fund,
the Tax-Free Bond Funds, and the Money Market Funds may invest from time to time
in "money market instruments," a term that includes, among other things, bank
obligations, commercial paper, variable amount master demand notes and corporate
bonds with remaining maturities of 397 days or less.
Bank obligations include bankers' acceptances, negotiable certificates
of deposit and non-negotiable time deposits, including U.S. dollar-denominated
instruments issued or supported by the credit of U.S. or foreign banks or
savings institutions. Although the Funds will invest in obligations of foreign
banks or foreign branches of U.S. banks only where the Advisor (Sub-Advisor with
respect to the Framlington Funds) 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.
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, a division of
McGraw-Hill Companies, Inc. ("S&P"), or Moody's Investors Service, Inc.
("Moody's"). In addition, the Funds may acquire unrated commercial paper and
corporate bonds that are determined by the Advisor (Sub-Advisor with respect to
the Framlington Funds) at the time of purchase to be of comparable quality to
rated instruments that may be acquired by such Fund as previously described.
The Funds may also purchase variable amount master demand notes which
are unsecured instruments that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate. Although the notes are
not normally traded and there may be no secondary market in the notes, a Fund
may demand payment of the principal of the instrument at any time. The notes are
not typically rated by credit rating agencies, but issuers of variable amount
master demand notes must satisfy the same criteria as set forth above for
issuers of commercial paper. If an issuer of a variable amount master demand
note defaulted on its payment obligation, a Fund might be unable to dispose of
the note because of the absence of a secondary market and might, for this or
other reasons, suffer a loss to the extent of the default. The Funds invest in
variable amount master notes only when the Advisor deems the investment to
involve minimal credit risk.
Mortgage-Related Securities. There are a number of important
differences among the agencies and instrumentalities of the U.S. Government that
issue mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
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.
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 Trust 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
Trust 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. Such
proposals, if enacted, might materially adversely affect the availability of
municipal obligations for investment by the Tax-Free Bond Funds and the Tax-Free
Money Market Fund and the liquidity and value of such Funds. In such an event
the Board of Trustees would reevaluate the Fund's investment objective and
policies and consider changes in its structure or possible dissolution.
The Cash Investment Fund and the Money Market Fund each 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 Cash Investment Fund and the Money Market Fund each do
not expect to invest more than 5% of its net assets in such municipal
obligations during the current fiscal year.
Non-Domestic Bank Obligations. 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.
Options. The Equity Funds, Balanced Fund, Bond Funds, International
Bond Fund and Tax-Free Bond Funds (other than Tax-Free Intermediate Bond Fund)
may write covered call options, buy put options, buy call options and write
secured put options. Such options may relate to particular securities and may or
may not be listed on a national securities exchange and issued by the Options
Clearing Corporation. Options trading is a highly specialized activity which
entails greater than ordinary investment risk. Options on particular securities
may be more volatile than the underlying securities, and therefore, on a
percentage basis, an investment in options may be subject to greater fluctuation
than an investment in the underlying securities themselves. For risks associated
with options on foreign currencies, see Appendix B to this Statement of
Additional Information.
A call option for a particular security gives the purchaser of the
option the right to buy, and a writer the obligation to sell, the underlying
security at the stated exercise price at any time prior to the expiration of the
option, regardless of the market price of the security. The premium paid to the
writer is in consideration for undertaking the obligations under the option
contract. A put option for a particular security gives the purchaser the right
to sell the underlying security at the stated exercise price at any time prior
to the expiration date of the option, regardless of the market price of the
security.
The writer of an option that wished to terminate its obligation may
effect a "closing purchase transaction." This is accomplished by buying an
option of the same series as the option previously written. The effect of the
purchase is that the writer's position will be canceled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after being notified of the exercise of an option. Likewise, an investor who is
the holder of an option may liquidate its position by effecting a "closing sale
transaction." The cost of such a closing purchase plus transaction costs may be
greater than the premium received upon the original option, in which event each
Fund will have incurred a loss in the transaction. There is no guarantee that
either a closing purchase or a closing sale transaction can be effected.
Effecting a closing transaction in the case of a written call option
will permit the Funds to write another call option on the underlying security
with either a different exercise price or expiration date or both, or in the
case of a written put option, will permit the Funds to write another put option
to the extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a 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 Equity Funds, Balanced Fund, Bond Funds, Tax-Free Bond Funds (other
than the Tax-Free Intermediate Bond Fund) and International Bond Fund may write
options in connection with buy-and-write transactions; that is, the Funds may
purchase a security and then write a call option against that security. The
exercise price of the call the Funds determine to write will depend upon the
expected price movement of the underlying security. The exercise price of a call
option may be below ("in-the-money"), equal to ("at-the-money") or above
("out-of-the-money") the current value of the underlying security at the time
the option is written. Buy-and-write transactions using in-the-money call
options may be used when it is expected that the price of the underlying
security will remain flat or decline moderately during the option period.
Buy-and-write transactions using out-of-the-money call options may be used when
it is expected that the premiums received from writing the call option plus the
appreciation in the market price of the underlying security up to the exercise
price will be greater than the appreciation in the price of the underlying
security alone. If the call options are exercised in such transactions, the
maximum gain to the relevant Fund will be the premium received by it for writing
the option, adjusted upwards or downwards by the difference between the Fund's
purchase price of the security and the exercise price. If the options are not
exercised and the price of the underlying security declines, the amount of such
decline will be offset in part, or entirely, by the premium received.
In the case of a call option on a security, the option is "covered" if
a Fund owns the security underlying the call or has an absolute and immediate
right to acquire that security without additional cash consideration (or, if
additional cash consideration is required, cash or liquid securities 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 liquid
securities 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 liquid
securities in a segregated account with its custodian. Each of the Funds will
limit its investment in uncovered call options purchased or written by the Fund
to 33 1/3% of the Fund's total assets. The Funds will write put options only if
they are "secured" by cash or liquid securities 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, each 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 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 security (in the case of a covered call
option) or liquidate the segregated account (in the case of a secured put
option) until the option expires or the optioned security is delivered upon
exercise with the result that the writer in such circumstances will be subject
to the risk of market decline or appreciation in the security during such
period.
There is no assurance that a Fund will be able to close an unlisted
option position. Furthermore, unlisted options are not subject to the
protections afforded purchasers of listed options by the Options Clearing
Corporation, which performs the obligations of its members who fail to do so in
connection with the purchase or sale of options.
In addition, a liquid secondary market for particular options, whether
traded over-the-counter or on a national securities exchange ("Exchange") may be
absent for reasons which include the following: there may be insufficient
trading interest in certain options; restrictions may be imposed by an Exchange
on opening transactions or closing transactions or both; trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; unusual or unforeseen
circumstances may interrupt normal operations on an Exchange; the facilities of
an Exchange or the Options Clearing Corporation may not at all times be adequate
to handle current trading value; or one or more Exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that Exchange (or in that class or series of options)
would cease to exist, although outstanding options that had been issued by the
Options Clearing Corporation as a result of trades on that Exchange would
continue to be exercisable in accordance with their terms.
Currency transactions, including options on currencies and currency
futures, are subject to risks different from those of other portfolio
transactions. Because currency control is of great importance to the issuing
governments and influences economic planning and policy, purchases and sales of
currency and related instruments can be negatively affected by government
exchange controls, blockages, and manipulations or exchange restrictions imposed
by governments. These can result in losses to the Fund if it is unable to
deliver or receive currency or funds in settlement of obligations and could also
cause hedges it has entered into to be rendered useless, resulting in full
currency exposure as well as the incurring of transaction costs. Buyers and
sellers of currency futures are subject to the same risks that apply to the use
of futures generally. Further, settlement of a currency futures contract for the
purchase of most currencies must occur at a bank based in the issuing nation.
Trading options on currency futures is relatively new, and the ability to
establish and close out positions on such options is subject to the maintenance
of a liquid market which may not always be available. Currency exchange rates
may fluctuate based on factors extrinsic to that country's economy.
Real Estate Securities. The Real Estate Fund may invest without limit
in shares of real estate investment trusts ("REITs"). REITs pool investors'
funds for investment primarily in income producing real estate or real estate
loans or interests. A REIT is not taxed on income distributed to shareholders if
it complies with several requirements relating to its organization, ownership,
assets, and income and a requirement that it distribute to its shareholders at
least 95% of it taxable income (other than net capital gains) for each taxable
year. REITs can generally be classified as Equity REITs, Mortgage REITs and
Hybrid REITs. Equity REITs, which invest the majority of their assets directly
in real property, derive their income primarily from rents. Equity REITs can
also realize capital gains by selling properties that have appreciated in value.
Mortgage REITs, which invest the majority of their assets in real estate
mortgages, derive their income primarily from interest payments. Hybrid REITs
combine the characteristics of both Equity REITs and Mortgage REITs. The Fund
will not invest in real estate directly, but only in securities issued by real
estate companies. However, the Real Estate Fund may be subject to risks similar
to those associated with the direct ownership of real estate (in addition to
securities markets risks) because of its policy of concentration in the
securities of companies in the real estate industry. These include declines in
the value of real estate, risks related to general and local economic
conditions, dependency on management skill, heavy cash flow dependency, possible
lack of availability of mortgage funds, overbuilding, extended vacancies of
properties, increased competition, increases in property taxes and operating
expenses, changes in zoning laws, losses due to costs resulting from the
clean-up of environmental problems, liability to third parties for damages
resulting from environmental problems, casualty or condemnation losses,
limitations on rents, changes in neighborhood values, the appeal of properties
to tenants and changes in interest rates.
In addition to these risks, Equity REITs may be affected by changes in
the value of the underlying property owned by the trusts, while Mortgage REITs
may be affected by the quality of any credit extended. Further, Equity and
Mortgage REITs are dependent upon management skills and generally may not be
diversified. Equity and Mortgage REITs are also subject to heavy cash flow
dependency, defaults by borrowers and self-liquidation. In addition, Equity and
Mortgage REITs could possibly fail to qualify for the beneficial tax treatment
available to real estate investment trusts under the Internal Revenue Code of
1986, as amended (the "Code"), or to maintain their exemptions from registration
under the 1940 Act. The above factors may also adversely affect a borrower's or
a lessee's ability to meet its obligations to the REIT. In the event of a
default by a borrower or lessee, the REIT may experience delays in enforcing its
rights as a mortgagee or lessor and may incur substantial costs associated with
protecting investments.
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 (Sub-Advisor with
respect to the Framlington Funds) 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. With
respect to the Money Market Funds, the securities held subject to a repurchase
agreement may have stated maturities exceeding thirteen months, provided the
repurchase agreement itself matures in 397 days or less.
The repurchase price under the repurchase agreements described in each
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 Trust's,
Framlington's or the Company's custodian (or sub-custodian) in the Federal
Reserve/Treasury book-entry system or by another authorized securities
depositary. Repurchase agreements are considered to be loans by a Fund under the
1940 Act.
Reverse Repurchase Agreements. Each Fund (except the Tax-Free Money
Market Fund and Tax-Free Bond 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 a Fund may
decline below the repurchase price. A Fund will pay interest on amounts obtained
pursuant to a reverse repurchase agreement. While reverse repurchase agreements
are outstanding, a Fund will maintain in a segregated account, cash, U.S.
Government securities or other liquid high-grade debt securities of an amount at
least equal to the market value of the securities, plus accrued interest,
subject to the agreement.
Rights and Warrants. As stated in their Prospectuses, the Equity Funds
and the Balanced 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.
Stand-by Commitments. The Balanced Fund, the Cash Investment Fund, the
Money Market Fund, the Tax-Free Bond Funds and the Tax-Free Money Market Fund
may each enter into stand-by commitments with respect to municipal obligations
held by it. Under a stand-by commitment, a dealer agrees to purchase at the
Fund's option a specified municipal obligation at its amortized cost value to
the Fund plus accrued interest, if any. Stand-by commitments may be exercisable
by a Fund at any time before the maturity of the underlying municipal
obligations and may be sold, transferred or assigned only with the instruments
involved.
The Trust expects that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for municipal obligations which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held by a Fund will not exceed 1/2
of 1% of the value of such Fund's total assets calculated immediately after each
stand-by commitment is acquired.
The Balanced Fund, Cash Investment Fund, Money Market Fund, Tax-Free
Bond Funds and the Tax-Free Money Market Fund intend to enter into stand-by
commitments only with dealers, banks and broker/dealers which, in the Advisor's
opinion, present minimal credit risks. The Tax-Free Bond Funds and the Tax-Free
Money Market Fund will acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. The acquisition of a stand-by commitment will not affect the
valuation of the underlying municipal obligation. The actual stand-by commitment
will be valued at zero in determining net asset value. Accordingly, where a Fund
pays directly or indirectly for a stand-by commitment, its cost will be
reflected as an unrealized loss for the period during which the commitment is
held by such Fund and will be reflected in realized gain or loss when the
commitment is exercised or expires.
Stock Index Futures, Options on Stock and Bond Indices and Options on
Stock and Bond Index Futures Contracts. The Equity Funds, the Balanced Fund, the
Bond Funds and the Tax-Free Bond Funds (other than the Tax-Free Intermediate
Bond Fund) may purchase and sell stock index futures, options on stock and bond
indices and options on stock index futures contracts as a hedge against
movements in the equity and bond markets. The Tax-Free Intermediate Bond Fund
may purchase and sell bond index futures contracts. The International Bond Fund
may purchase and sell options on bond index futures contracts as a hedge against
movements in the bond markets.
A stock index futures contract is an agreement in which one party
agrees to deliver to the other an amount of cash equal to a specific dollar
amount times the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of securities is made.
Options on stock and bond indices are similar to options on specific
securities, described above, except that, rather than the right to take or make
delivery of the specific security at a specific price, an option on a stock or
bond index gives the holder the right to receive, upon exercise of the option,
an amount of cash if the closing level of that stock or bond index is greater
than, in the case of a call option, or less than, in the case of a put option,
the exercise price of the option. This amount of cash is equal to such
difference between the closing price of the index and the exercise price of the
option expressed in dollars times a specified multiple. The writer of the option
is obligated, in return for the premium received, to make delivery of this
amount. Unlike options on specific securities, all settlements of options on
stock or bond indices are in cash, and gain or loss depends on general movements
in the stocks included in the index rather than price movements in particular
stocks.
If the Advisor (Sub-Advisor with respect to the Framlington Funds)
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 futures contract or index option resulting from the
increase in the index. If, on the other hand, the Advisor (Sub-Advisor with
respect to the Framlington Funds) expects general stock or bond market prices to
decline, it might sell a futures contract, or purchase a put option, on the
index. If that index does in fact decline, the value of some or all of the
securities in the Funds' 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 Equity Funds, the Balanced Fund, the Bond Funds and the Tax-Free
Bond Funds (other than Tax-Free Intermediate Bond Fund) may purchase and write
call and put options on stock index futures contracts and each such Fund and the
International Bond Fund may purchase and write call and put options on bond
index futures contracts. Each such 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, such Funds may purchase put
options or write call options on stock and bond index futures (only bond index
futures in the case of the International Bond Fund), rather than selling futures
contracts, in anticipation of a decline in general stock or bond market prices
or purchase call options or write put options on stock or bond index futures,
rather than purchasing such futures, to hedge against possible increases in the
price of securities which such Funds intend to purchase.
In connection with transactions in stock or bond index futures, stock
or bond index options and options on stock or bond index futures, such Funds
will be required to deposit as "initial margin" an amount of cash and short-term
U.S. Government securities equal to between 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 such 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. Certain Funds may acquire U.S. Government
obligations and their unmatured interest coupons that have been separated
("stripped") by their holder, typically a custodian bank or investment brokerage
firm. Having separated the interest coupons from the underlying principal of the
U.S. Government obligations, the holder will resell the stripped securities in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" ("TIGRs") and "Certificate of Accrual on Treasury
Securities" ("CATS"). The stripped coupons are sold separately from the
underlying principal, which is usually sold at a deep discount because the buyer
receives only the right to receive a future fixed payment on the security and
does not receive any rights to periodic interest (cash) payments. The underlying
U.S. Treasury bonds and notes themselves are held in book-entry form at the
Federal Reserve Bank or, in the case of bearer securities (i.e., unregistered
securities which are ostensibly owned by the bearer or holder), in trust on
behalf of the owners. Counsel to the underwriters of these certificates or other
evidences of ownership of U.S. Treasury securities have stated that, in their
opinion, purchasers of the stripped securities most likely will be deemed the
beneficial holders of the underlying U.S. Government obligations for federal tax
and securities purposes. The Trust is not aware of any binding legislative,
judicial or administrative authority on this issue.
Only instruments which are stripped by the issuing agency will be
considered U.S. Government obligations. Securities such as CATS and TIGRs which
are stripped by their holder do not qualify as U.S. Government obligations.
Within the past several years the Treasury Department has facilitated
transfers of ownership of zero coupon securities by accounting separately for
the beneficial ownership of particular interest coupon and principal payments on
Treasury securities through the Federal Reserve book-entry record-keeping
system. The Federal Reserve program as established by the Treasury Department is
known as "STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities." Under the STRIPS program, a Fund is able to have its beneficial
ownership of zero coupon securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificates or other evidences
of ownership of the underlying U.S. Treasury securities.
In addition, the Bond Fund, Intermediate Bond Fund, International Bond
Fund and U.S. Government Income Fund may invest in stripped mortgage-backed
securities ("SMBS"), which represent beneficial ownership interests in the
principal distributions and/or the interest distributions on mortgage assets.
SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions on a pool of mortgage assets. One
type of SMBS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class will receive most of
the interest and the remainder of the principal. In the most common case, one
class of SMBS will receive all of the interest (the interest-only or "IO"
class), while the other class will receive all of the principal (the
principal-only or "PO" class). SMBS may be issued by FNMA or FHLMC.
The original principal amount, if any, of each SMBS class represents
the amount payable to the holder thereof over the life of such SMBS class from
principal distributions of the underlying mortgage assets, which will be zero in
the case of an IO class. Interest distributions allocable to a class of SMBS, if
any, consist of interest at a specified rate on its principal amount, if any, or
its notional principal amount in the case of an IO class. The notional principal
amount is used solely for purposes of the determination of interest
distributions and certain other rights of holders of such IO class and does not
represent an interest in principal distributions of the mortgage assets.
Yields on SMBS will be extremely sensitive to the prepayment experience
on the underlying mortgage loans, and there are other associated risks. For IO
classes of SMBS and SMBS that were purchased at prices exceeding their principal
amounts there is a risk that a Fund may not fully recover its initial
investment.
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/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.
Supranational Bank Obligations. Supranational banks are international
banking institutions designed or supported by national governments to promote
economic reconstruction, development or trade between nations (e.g., The World
Bank). Obligations of supranational banks may be supported by appropriated but
unpaid commitments of their member countries and there is no assurance these
commitments will be undertaken or met in the future.
U.S. Government Obligations. The Funds may purchase obligations issued
or guaranteed by the U.S. Government and, except in the case of the U.S.
Treasury Money Market Fund, U.S. Government agencies and instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as those of the GNMA, are supported by the full faith and credit of the
U.S. Treasury. Others, such as those of the Export-Import Bank of the United
States, are supported by the right of the issuer to borrow from the U.S.
Treasury; and still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the agency or instrumentality
issuing the obligation. No assurance can be given that the U.S. Government would
provide financial support to U.S. government-sponsored instrumentalities if it
is not obligated to do so by law. Examples of the types of U.S. Government
obligations that may be acquired by the Funds include U.S. Treasury Bills,
Treasury Notes and Treasury Bonds and the obligations of Federal Home Loan
Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, FNMA, Government National Mortgage
Association, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, FHLMC, Federal Intermediate Credit
Banks and Maritime Administration.
Variable and Floating Rate Instruments. Debt instruments may be
structured to have variable or floating interest rates. Variable and floating
rate obligations purchased by a Fund may have stated maturities in excess of a
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). 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 a Fund, the
issuer's obligation to pay the principal of the instrument will be backed by an
unconditional bank letter or line of credit, guarantee or commitment to lend.
The Money Market Funds will invest in variable and floating rate instruments
only when the Advisor deems the investment to involve minimal credit risk.
In determining average weighted portfolio maturity of the Funds, an
instrument will usually be deemed to have a maturity equal to the longer of the
period remaining until the next interest rate adjustment or the time the Fund
involved can recover payment of principal as specified in the instrument.
Variable rate U.S. Government obligations held by the Funds, however, will be
deemed to have maturities equal to the period remaining until the next interest
rate adjustment.
The absence of an active secondary market for certain variable and
floating rate notes could make it difficult to dispose of the instruments, and a
Fund could suffer a loss if the issuer defaulted or during periods that a Fund
is not entitled to exercise its demand rights.
Variable and floating rate instruments 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.
Guaranteed Investment Contracts. The Bond Funds, the International Bond
Fund, the Cash Investment Fund and 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/Trustees. 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.
When-Issued Purchases and Forward Commitments (Delayed-Delivery
Transactions). When-issued purchases and forward commitments (delayed-delivery
transactions) are commitments by a Fund to purchase or sell particular
securities with payment and delivery to occur at a future date (perhaps one or
two months later). These transactions permit the Fund to lock-in a price or
yield on a security, regardless of future changes in interest rates.
When a Fund agrees to purchase securities on a when-issued or forward
commitment basis, the Custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, the Custodian will set aside portfolio securities to satisfy a
purchase commitment, and in such a case the Fund may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitments. It
may be expected that the market value of the Fund's net assets will fluctuate to
a greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because a Fund's liquidity and ability
to manage its portfolio might be affected when it sets aside cash or portfolio
securities to cover such purchase commitments, the Advisor expects that its
commitments to purchase when-issued securities and forward commitments will not
exceed 25% of the value of a Fund's total assets absent unusual market
conditions.
A 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, 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 market value of
a Fund starting on the day the Fund agrees to purchase the securities. The Fund
does not earn interest on the securities it has committed to purchase until they
are paid for and delivered on the settlement date.
Yields and Ratings. The yields on certain obligations, including the
money market instruments in which each Fund may invest (such as commercial paper
and bank obligations), are dependent on a variety of factors, including general
money market conditions, conditions in the particular market for the obligation,
the financial condition of the issuer, the size of the offering, the maturity of
the obligation and the ratings of the issue. The ratings of S&P, Moody's, Duff &
Phelps Credit Rating Co., Thomson Bank Watch, Inc., and other 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.
With respect to each of the Money Market Funds, securities (other than
U.S. Government securities) must be rated (generally, by at least two NRSROs)
within the two highest rating categories assigned to short-term debt securities.
In addition, each of the Cash Investment Fund and the Money Market Fund (a) will
not invest more than 5% of its total assets in securities rated in the second
highest rating category by such NRSROs and will not invest more than 1% of its
total assets in such securities of any one issuer, and (b) intends to limit
investments in the securities of any single issuer (other than securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities) to not
more than 5% of the Fund's total assets at the time of purchase, provided that
the Fund may invest up to 25% of its total assets in the securities of any one
issuer rated in the highest rating category by an NRSRO for a period of up to
three business days. Unrated and certain single rated securities (other than
U.S. Government securities) may be purchased by the Money Market Funds, but are
subject to a determination by the Advisor, in accordance with procedures
established by the Boards of Trustees and Directors, that the unrated and single
rated securities are of comparable quality to the appropriate rated securities.
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 Boards of Trustees and Directors or the Advisor
(Sub-Advisor with respect to the Framlington Funds), pursuant to guidelines
established by the Boards, will consider such an event in determining whether
the Fund involved should continue to hold the security in accordance with the
interests of the Fund and applicable regulations of the SEC.
It is possible that unregistered securities purchased by a Fund in
reliance upon Rule 144A under the Securities Act of 1933, as amended, could have
the effect of increasing the level of the 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 500 FUND
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 Index 500 Fund
are not managed in this manner. Instead, with the aid of a computer program, the
Advisor purchases and sells securities for the Fund in an attempt to produce
investment results that substantially duplicate the performance of the common
stocks included in the S&P 500 Index ("S&P 500"), taking into account
redemptions, sales of additional Fund shares, and other adjustments as described
below.
The Fund does not expect to hold at any particular time all of the
stocks included in the S&P 500. The Advisor believes, however, that through the
application of capitalization weighing and sector balancing techniques it will
be able to construct and maintain the Fund's investment portfolio so that it
reasonably tracks the performance of the S&P 500. 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 S&P 500. This comparison is made
because the Advisor believes that, unless the Fund holds all stocks included in
the S&P 500, 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 that are dominated by the larger
corporations, such as communications, automobile, oil and energy. As a result,
events disproportionately affecting such industries could affect the performance
of the Fund differently than the performance of the S&P 500. Conversely, if
smaller companies were not purchased by the Fund, the representation of
industries included in the S&P 500 that are not dominated by the most heavily
market-capitalized companies would be reduced or eliminated.
For these reasons, the Advisor will identify the sectors which are (or,
except for sector balancing, would be) most underrepresented in the Fund's
portfolio and will purchase balancing securities in these sectors until the
portfolio's sector weightings closely match those of the S&P 500. This process
continues until the portfolio is fully invested (except for cash holdings).
Redemptions of a substantial number of shares of the Fund could reduce
the number of issuers represented in the Fund's investment portfolio, which
could, in turn, adversely affect the accuracy with which the Fund tracks the
performance of the S&P 500.
If an issuer drops in ranking, or is eliminated entirely from the S&P
500, the Advisor may be required to sell some or all of the common stock of such
issuer then held by the Fund. Sales of portfolio securities may be made at times
when, if the Advisor were not required to effect purchases and sales of
portfolio securities in accordance with the S&P 500, such securities might not
be sold. Such sales may result in lower prices for such securities than may been
realized or in losses that may not have been incurred if the Advisor were not
required to effect the purchases and sales. The failure of an issuer to declare
or pay dividends, the institution against an issuer of potentially materially
adverse legal proceedings, the existence or threat of defaults materially and
adversely affecting an issuer's future declaration and payment of dividends, or
the existence of other materially adverse credit factors will not necessarily be
the basis for the disposition of portfolio securities, unless such event causes
the issuer to be eliminated entirely from the S&P 500. However, although the
Advisor does not intend to screen securities for investment by the Fund by
traditional methods of financial and market analysis, the Advisor will monitor
the Fund's investment with a view towards removing stocks of companies which
exhibit extreme financial distress or which may impair for any reason the Fund's
ability to achieve its investment objective.
The Fund will invest primarily in the common stocks that constitute the
S&P 500 in accordance with their relative capitalization and sector weightings
as described above. It is possible, however, that the Fund will from time to
time receive, as part of a "spin-off" or other corporate reorganization of an
issuer included in the S&P 500, securities that are themselves outside the S&P
500. Such securities will be disposed of by the Fund in due course consistent
with the Fund's investment objective.
In addition, the Index 500 Fund may invest in Standard & Poor's
Depository 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 the S&P 500. 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 S&P 500. SPDRs are traded on the American Stock Exchange.
The Fund may also purchase put and call options on the S&P 500 and S&P
100 stock indices, which are traded on national securities exchanges. In
addition, the Fund may enter into transactions involving futures contracts (and
futures options) on these two stock indices and may purchase securities of other
investment companies that are structured to seek a similar correlation to the
S&P 500. These transactions are effected in an effort to have fuller exposure to
price movements in the S&P 500 pending investment of purchase orders or while
maintaining liquidity to meet potential shareholder redemptions. Transactions in
option and stock index futures contracts may be desirable to hedge against a
price movement in the S&P 500 at times when the Fund is not fully invested in
stocks that are included in the S&P 500. For example, by purchasing a futures
contract, the Fund may be able to reduce the potential that cash inflows will
disrupt its ability to track the S&P 500, since the futures contracts may serve
as a temporary substitute for stocks which may then be purchased in an orderly
fashion. Similarly, because futures contracts only require a small initial
margin deposit, the Fund may be able, as an effective matter, to be fully
invested in the S&P 500 while keeping a cash reserve to meet potential
redemptions. See Appendix B to this Statement of Additional Information.
RISK FACTORS AND SPECIAL CONSIDERATIONS -- MICHIGAN BOND FUND AND
TAX-FREE INTERMEDIATE BOND FUND
The information set forth below is derived in substantial part from the
official statements prepared in connection with the issuance of Michigan
municipal bonds and similar obligations and other sources that are generally
available to investors. The information is provided as general information
intended to give a recent historical description and is not intended to indicate
future or continuing trends in the financial or other positions of the State of
Michigan (the "State"). The Company has not independently verified this
information.
The State's Constitution limits the amount of total State revenues
raised from taxes and other sources. State revenues (excluding federal aid and
revenues for payment of principal and interest on general obligation bonds) in
any fiscal year are limited to a specified percentage of State personal income
in the prior calendar year or average of the prior three calendar years,
whichever is greater. The percentage is based upon the ratio of the 1978-79
fiscal year revenues to total 1977 State personal income. If any fiscal year
revenues exceed the revenue limitation by 1%, the entire amount exceeding the
limitation must be rebated in the following fiscal year's personal income tax or
single business tax. Annual excesses of less than 1% may be transferred into the
State's Budget Stabilization Fund. The State may raise taxes in excess of the
limit in emergency situations.
The State Constitution limits the purposes for which State general
obligation debt may be issued. Such debt is limited to short-term debt for State
operating purposes, short and long-term debt for the purpose of making loans to
school districts and long-term debt for voter approved purposes. The State's
Constitution also directs or restricts the use of certain revenues.
The State finances its operations through the State's General Fund and
special revenue funds. The General Fund receives revenues of the State that are
not specifically required to be included in the special revenue funds. General
Fund revenues are obtained approximately 55% from the payment of State taxes and
45% from federal and non-tax revenue sources. Tax revenues credited to the
General Fund include the personal income tax, the single business tax and
approximately 15% of the sales tax collections.
Expenditures are not permitted by the State Constitution to exceed
available revenues. The State Constitution requires that the Governor, with the
approval of the appropriating committees of the State House and Senate, reduce
expenditures whenever it appears that the actual revenues will be less than the
originally projected revenues upon which the budget was based.
In 1994, a ballot proposal ("Proposal A") to implement extensive
property tax and school finance reform measures was subject to voter approval
and in fact approved on March 15, 1994. Under Proposal A as approved, effective
May 1, 1994, the State sales and use tax increased from 4% to 6%, the State
income tax decreased from 4.6% to 4.4%, the cigarette tax increased from $.25 to
$.75 per pack, and an additional tax of 16% of the wholesale price is imposed on
certain other tobacco products. As of January 1, 1995, a 0.75% real estate
transfer tax also became effective. In 1994, a State education property tax of 6
mills was imposed on all real property and personal property currently subject
to the general property tax. In addition, all school boards can now, with voter
approval, levy up to the lesser of 18 mills or the number of mills levied in
1993 for school operating purposes, on non-homestead property. Proposal A
contained additional provisions regarding the ability of local school districts
to levy taxes as well as a limit on assessment increases for each parcel of
property, beginning in 1995 to the lesser of 5% or the rate of inflation. When
property is subsequently sold, its assessed value is adjusted equal to 50% of
true cash value. Under Proposal A, much of the additional revenue generated by
these taxes is dedicated to the State School Aid Fund.
Proposal A shifts significant portions of the cost of local school
operations from local school districts to the State and raises additional State
revenues to fund these additional State expenses. These additional revenues will
be included within the State's constitutional revenue limitations and may impact
the State's ability to raise additional revenues in the future.
The State is a party to various legal proceedings seeking damages or
injunctive or other relief. In addition to routine litigation, certain of these
proceedings could, if unfavorably resolved from the point of view of the State,
substantially affect State programs or finances. These lawsuits involve programs
generally in the areas of corrections, highway maintenance, social services, tax
collection, commerce and budgetary reductions to school districts and
governmental units and court funding.
The principal sectors of Michigan's diversified economy are
manufacturing of durable goods (including automobiles and components and office
equipment), tourism and agriculture. The health of the State's economy, and in
particular its durable goods manufacturing industry, is susceptible to a
long-term increase in the cost of energy and energy related products. As
reflected in historical employment figures, the State's economy has lessened its
dependence upon durable goods manufacturing. In 1960, employment in such
industry accounted for 33% of the State's work force. By 1996, this figure had
fallen to 15%. However, manufacturing (including auto-related manufacturing)
continues to be an important part of the State's economy. The particular
industries are highly cyclical and in the period 1996-1997 are expected to
operate at somewhat less than full capacity, but at higher levels than in the
immediate prior years. This factor can usually adversely affect the revenue
streams of the State and its political subdivisions because it adversely impacts
tax sources, particularly sales, income taxes and single business taxes.
As of the date of this Statement of Additional Information, the State's
general obligation bonds are rated "A2" by Moody's and "AA" by Fitch. To the
extent that either the Michigan Bond Fund or the Tax-Free Intermediate Bond Fund
is comprised of revenue or general obligations of local governments or
authorities, rather than general obligations of the State of Michigan itself,
ratings on such Michigan obligations will be different from those given to the
State of Michigan and their value may be independently affected by economic
matters not directly impacting the State.
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 such Fund's outstanding shares (as defined under
"Miscellaneous Shareholder Approvals").
No Fund of the Trust may:
1. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or
certificates of deposit for any such securities) if more than 5% of the
value of the Fund's total assets (taken at current value) would be invested
in the securities of such issuer, or more than 10% of the issuer's
outstanding voting securities would be owned by the Fund or the Trust,
except that (a) with respect to each Fund, other than the Michigan Bond
Fund and the Tax-Free Intermediate Bond Fund, up to 25% of the value of the
Fund's total assets (taken at current value) may be invested without regard
to these limitations and (b) with respect to the Michigan Bond Fund and the
Tax-Free Intermediate Bond Fund, up to 50% of the value of the Fund's total
assets may be invested without regard to these limitations so long as no
more than 25% of the value of the Fund's total assets are invested in the
securities of any one issuer. For purposes of this limitation, a security
is considered to be issued by the entity (or entities) whose assets and
revenues back the security. A guarantee of a security is not deemed to be a
security issued by the guarantor when the value of all securities issued
and guaranteed by the guarantor, and owned by the Fund, does not exceed 10%
of the value of the Fund's total assets.
2. Borrow money or issue senior securities except that each Fund may borrow
from banks and enter into reverse repurchase agreements for temporary
purposes in amounts up to one-third of the value of its total assets at the
time of such borrowing; or mortgage, pledge or hypothecate any assets,
except in connection with any such borrowing and then in amounts not in
excess of one-third of the value of the Fund's total assets at the time of
such borrowing. No Fund will purchase securities while its aggregate
borrowings (including reverse repurchase agreements and borrowing from
banks) in excess of 5% of its total assets are outstanding. Securities held
in escrow or separate accounts in connection with a Fund's investment
practices are not deemed to be pledged for purposes of this limitation.
3. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation
with respect to (i) instruments that are issued (as defined in Investment
Limitation No. 1 above) or guaranteed by the United States, any state,
territory or possession of the United States, the District of Columbia or
any of their authorities, agencies, instrumentalities or political
subdivisions, (ii) with respect to the Money Market Funds only, instruments
issued by domestic branches of U.S. banks and (iii) repurchase agreements
secured by the instruments described in clauses (i) and, with respect to
the Money Market Funds, (ii); (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 the 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 a separate industry.
4. Purchase or sell real estate, except that each Fund may purchase securities
of issuers which deal in real estate and may purchase securities which are
secured by interests in real estate.
5. Acquire any other investment company or investment company security except
in connection with a merger, consolidation, reorganization or acquisition
of assets or where otherwise permitted by the 1940 Act.
6. Act as an underwriter of securities within the meaning of the Securities
Act of 1933, as amended, except to the extent that the purchase of
obligations directly from the issuer thereof, or the disposition of
securities, in accordance with the Fund's investment objective, policies
and limitations may be deemed to be underwriting.
7. Write or sell put options, call options, straddles, spreads, or any
combination thereof except for transactions in options on securities,
securities indices, futures contracts, options on futures contracts and
transactions in securities on a when-issued or forward commitment basis,
and except that each Equity and Bond Fund may enter into forward currency
contracts in accordance with its investment objectives and policies.
Notwithstanding the above, the Tax-Free Intermediate Bond Fund may not
write or purchase options, including puts, calls, straddles, spreads, or
any combination thereof.
8. Purchase securities of companies for the purpose of exercising control.
9. Purchase securities on margin, make short sales of securities or maintain a
short position, except that (a) this investment limitation shall not apply
to a Fund's transactions in futures contracts and related options, a Fund's
sale of securities short against the box or a Fund's transactions in
securities on a when-issued or forward commitment basis, and (b) a Fund may
obtain short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities.
10. Purchase or sell commodity contracts, or invest in oil, gas or mineral
exploration or development programs, except that each Fund may, to the
extent appropriate to its investment policies, purchase publicly traded
securities of companies engaging in whole or in part in such activities,
may enter into futures contracts and related options, and may engage in
transactions in securities on a when-issued or forward commitment basis,
and except that each Equity and Bond Fund may enter into forward currency
contracts in accordance with its investment objectives and policies.
11. Make loans, except that each Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately
negotiated), may enter into repurchase agreements and may lend portfolio
securities in accordance with its investment objective and policies.
In addition, the Tax-Free Intermediate Bond Fund may not:
1. Purchase or retain securities of any issuer if the officers or
Trustees of the Trust or its Advisor own beneficially more
than one-half of 1% of the securities of such issuer together
own beneficially more than 5% of such securities.
2. Invest more than 10% of its total assets in the securities of
issuers which together with any predecessors have a record of
less than three years continuous operation.
3. Participate on a joint or joint and several basis in any
securities trading account.
No Fund of Framlington may:
1. Purchase securities (except U.S. Government securities) if
more than 5% of its total assets will be invested in the
securities of any one issuer, except that up to 25% of the
assets of the Fund may be invested without regard to this 5%
limitation;
2. Invest 25% or more of its total assets in securities issued by
one or more issuers conducting their principal business
activities in the same industry (except that the Healthcare
Fund will invest more than 25% of its total assets in
securities of issuers conducting their principal business
activities in healthcare industries);
3. Borrow money or enter into reverse repurchase agreements
except that the Fund may (i) borrow money or enter into
reverse repurchase agreements for temporary purposes in
amounts not exceeding 5% of its total assets and (ii) borrow
money for the purpose of meeting redemption requests, in
amounts (when aggregated with amounts borrowed under clause
(i)) not exceeding 33 1/3% of its total assets;
4. Pledge, mortgage or hypothecate its assets other than to
secure borrowings permitted by restriction 3 above (collateral
arrangements with respect to margin requirements for options
and futures transactions are not deemed to be pledges or
hypothecations for this purpose);
5. Make loans of securities to other persons in excess of 25% of
the Fund's total assets; provided the Fund may invest without
limitation in short-term debt obligations (including
repurchase agreements) and publicly distributed debt
obligations;
6. Underwrite securities of other issuers, except insofar as the
Fund may be deemed an underwriter under the Securities Act of
1933, as amended, in selling portfolio securities;
7. 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.
8. 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, but the Fund may make margin deposits in
connection with transactions in options, futures and options
of futures;
9. Make investments for the purpose of exercising control or
management;
10. Invest in commodities or commodity futures contracts, provided
that this limitation shall not prohibit the purchase or sale
by the Fund or forward foreign currency exchange contracts,
financial futures contracts and options on financial futures
contracts, foreign currency futures contracts, and options on
securities, foreign currencies and securities indices, as
permitted by the Fund's Prospectus; or
11. Issue senior securities, except as permitted by the 1940 Act.
Additional investment restrictions adopted by each Fund of Framlington
which may be changed by the Board of Trustees, provide that each Fund may not:
1. Invest more than 15% of its net assets in illiquid securities;
2. Own more than 10% (taken at market value at the time of
purchase) of the outstanding voting securities of any single
issuer; or
3. Invest in other investment companies except as permitted
under the 1940 Act.
No Fund of the Company may:
1. Invest more than 25% of its total assets in any one industry
(securities issued or guaranteed by the United States
Government, its agencies or instrumentalities are not
considered to represent industries) (except that the Real
Estate Fund will invest more than 25% of its assets in
securities of issuers in the real estate industry);
2. (For each Fund except the International Bond Fund) with
respect to 75% of the Fund's assets, invest more than 5% of
the Fund's assets (taken at a 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;
3. (For each Fund except Short Term Treasury Fund) borrow money
or issue senior securities (as defined in the 1940 Act) except
that the Funds may borrow (i) for temporary purposes in
amounts not exceeding 5% of its total assets and (ii) to meet
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
a Fund's total assets and 33 1/3% of the Money Market Fund's
total assets; provided the Funds 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 a
Fund may be deemed an underwriter under the Securities Act of
1933, as amended, in selling portfolio securities;
7. (For each Fund except the Real Estate Fund) 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. The Real Estate
Fund may not buy or sell real estate; however, this
prohibition does not apply to the purchase or sale of (i)
securities which are secured by real estate, (ii) securities
representing interests in real estate, (iii) securities of
companies operating in the real estate industry including real
estate investment trusts, and (iv) the holding and sale of
real estate acquired as a result of the ownership of
securities.
8. 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, but the Funds (with the exception of the Money
Market Fund and Short Term Treasury 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 or
management; or
10. Invest in commodities or commodity futures contracts, provided
that this limitation shall not prohibit the purchase or sale
by the Mid-Cap, Multi-Season, Real Estate, Value and
International Bond Funds of forward foreign currency exchange
contracts, financial futures contracts and options on
financial futures contracts, and options on securities and on
securities, foreign currencies and on securities indices, as
permitted by each Fund's prospectus.
In addition, the Short Term Treasury Fund may not:
1. 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 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; or
2. Pledge, mortgage or hypothecate its assets other than to
secure borrowings permitted by restriction 1 above; or
3. 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 for the Company above may be deemed to give rise
to a senior security.
Additional investment restrictions adopted by each Fund of the Company,
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 and (in the case of
International Bond Fund and Short Term Treasury Fund only)
which are not otherwise marketable;
2. (For each Fund except the International Bond Fund and Short
Term Treasury Fund) own more than 10% (taken at market value
at the time of purchase) of the outstanding voting securities
of any single issuer;
3. (For each Fund except Short Term Treasury Fund) purchase or
sell interests in oil, gas or other mineral exploration or
development plans or leases);
4. Invest in other investment companies except as permitted under the
1940 Act.
In addition, the International Bond Fund may not with respect to 50% of
the Fund's assets, invest more than 5% of the Fund's assets (taken at a 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, at the close of each
quarter of its taxable year.
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). 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.
TRUSTEES, DIRECTORS AND OFFICERS
The trustees, directors and executive officers of the Trust,
Framlington and the Company, and their business addresses and principal
occupations during the past five years, are:
<TABLE>
<CAPTION>
<S> <C> <C>
Positions
With Trust, Company and Principal Occupation
Name, Address and Age Framlington During Past Five Years
Charles W. Elliott1 Chairman of the Board of Senior Advisor to the President - Western
3338 Bronson Boulevard Trustees and Directors Michigan University since July 1995;
Kalamazoo, MI 49008 Executive Vice President - Administration
Age: 65 & Chief Financial Officer, Kellogg Company from January 1987
through June 1995; before that Price Waterhouse. Board of
Directors, Steelcase Financial Corporation.
John Rakolta, Jr. Trustee/Director and Vice Chairman, Walbridge Aldinger
1876 Rathmor Chairman of the Boards of Company (construction company).
Bloomfield Hills, MI 48304 Trustees and Directors
Age: 50
Thomas B. Bender Trustee/Director Investment Advisor, Financial &
7 Wood Ridge Road Investment Management Group
Glen Arbor, MI 49636 (since April, 1991); Vice President
Age: 64 Institutional Sales, Kidder, Peabody & Co. (Retired April,
1991).
David J. Brophy Trustee/Director Professor, University of Michigan;
1025 Martin Place Director, River Place Financial Corp.;
Ann Arbor, MI 48104 Trustee, Renaissance Assets Trust.
Age: 61
Dr. Joseph E. Champagne Trustee/Director Corporate and Executive Consultant since
319 Snell Road September 1995; prior to that Chancellor,
Rochester, MI 48306 Lamar University from September 1994
Age: 59 until September 1995; before that Consultant to Management,
Lamar University; President and Chief Executive Officer,
Crittenton Corporation (holding company that owns
healthcare facilities) and Crittenton Development
Corporation until August 1993; before that President,
Oakland University of Rochester, MI, until August
1991; Member, Board of Directors, Ross Operating
Valve of Troy, MI.
Thomas D. Eckert Trustee/Director President and COO, Mid-Atlantic
10726 Falls Pointe Drive Group of Pulte Home Corporation
Great Falls, VA 22066 (developer of residential land and
Age: 50 construction of housing units).
Lee P. Munder President President and CEO of the Advisor; Chief
480 Pierce Street Executive Officer and President of Old
Suite 300 MCM; Chief Executive Officer of World
Birmingham, MI 48009 Asset Management; and Director, LPM
Age: 52 Investment Services, Inc. ("LPM").
Terry H. Gardner Vice President, Vice President and Chief Financial
480 Pierce Street Chief Financial Officer Officer of the Advisor,
Suite 300 and Treasurer Vice President and Chief
Birmingham, MI 48009 Financial Officer of Old MCM (February
Age: 37 1993 to present); Manager of Arthur Andersen & Co. (1991 to
February
1993); Secretary of LPM.
Paul Tobias Vice President Executive Vice President and Chief
480 Pierce Street Operating Officer of the
Suite 300 Advisor (since April 1995) and
Birmingham, MI 48009 Executive Vice President of
Age: 45 Comerica, Inc.
Gerald Seizert Vice President Executive Vice President and Chief
480 Pierce Street Investment Officer/Equities of the
Suite 300 Advisor (since April 1995);
Birmingham, MI 48009 Managing Director (1991-1995),
Age: 45 Director (1992-1995) and Vice President (1984-1991) of Loomis,
Sayles and Company, L.P.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Positions
With Trust, Company and Principal Occupation
Name, Address and Age Framlington During Past Five Years
Elyse G. Essick Vice President Vice President and Director of
480 Pierce Street Marketing for the Advisor;
Suite 300 Vice President and Director of
Birmingham, MI 48009 Client Services of Old MCM
Age: 38 (August 1988 to December 1994).
James C. Robinson Vice President Vice President and Chief Investment
480 Pierce Street Officer/Fixed Income for the Advisor;
Suite 300 Vice President and Director of Fixed
Birmingham, MI 48009 Income of Old MCM (1987-1994).
Age: 35
Leonard J. Barr, II Vice President Vice President and Director of Core
480 Pierce Street Equity Research of the Advisor;
Suite 300 Director and Senior Vice President
Birmingham, MI 48009 of Old MCM (since 1988);
Age: 52 Director of LPM.
Lisa A. Rosen Secretary, Assistant General Counsel of the Advisor since
480 Pierce Street Treasurer May, 1996; Formerly, Counsel, First Data
Suite 300 Investor Services Group, Inc.; Assistant
Birmingham, MI 48009 Vice President and Counsel with The
Age: 30 Boston Company Advisors, Inc.; Associate
with Hutchins, Wheeler & Dittmar.
Ann F. Putallaz Vice President Vice President and Director of
480 Pierce Street Fiduciary Services of the Advisor
Suite 300 (since January 1995); Director of
Birmingham, MI 48009 Client and Marketing Services of
Age: 51 Woodbridge.
Richard H. Rose Assistant Treasurer Senior Vice President, First Data
First Data Investor Services Investor Services Group, Inc.
Group, Inc. (since May 6, 1994). Formerly,
One Exchange Place Senior Vice President, The Boston
8th Floor Company Advisors, Inc. since
Boston, MA 02109 November 1989.
Age: 42
Teresa M.R. Hamlin Assistant Secretary Counsel, First Data Investor Services
First Data Investor Services Group, Inc. (since 1995). Formerly
Group, Inc. Paralegal Manager, The Boston Company
One Exchange Place Advisors, Inc.
8th Floor
Boston, MA 02109
Age: 33
Julie A. Tedesco Assistant Secretary Counsel, First Data Investor Services
First Data Investor Services Group, Inc. (since May, 1994); Formerly
Group, Inc. Assistant Vice President and Counsel
One Exchange Place of The Boston Company Advisors, Inc.
8th Floor (since July, 1992).
Boston, MA 02109
Age: 40
</TABLE>
Trustees of the Trust and Framlington and Directors of the Company receive
an aggregate fee from the Trust, Framlington the Company and St. Clair Funds,
Inc. ("St. Clair") for service on those organizations respective Boards
comprised of an annual retainer fee of $20,000, and a fee of $1,500 for each
Board meeting attended; and are reimbursed for all out-of-pocket expenses
relating to attendance at meetings.
The following table summarizes the compensation paid by the Trust,
Framlington, the Company and St. Clair to their respective Trustees/Directors
for the year ended June 30, 1997.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Aggregate Com-
pensation from Pension Estimated
the Trust, the Retirement Annual
Company, Benefits Accrued Benefits Total
Name of Person Framlington as Part of upon from the
Position and St. Clair Fund Expenses Retirement Fund Complex
Charles W. Elliott $20,000 None None $20,000
Chairman
John Rakolta, Jr. $18,500 None None $18,500
Vice Chairman
Thomas B. Bender $20,000 None None $20,000
Trustee and Director
David J. Brophy $20,000 None None $20,000
Trustee and Director
Dr. Joseph E. Champagne $20,000 None None $20,000
Trustee and Director
Thomas D. Eckert $20,000 None None $20,000
Trustee and Director
</TABLE>
No officer, director or employee of the Advisor, Sub-Advisor, Comerica
Incorporated ("Comerica"), the Sub-Custodian, the Distributor, the Administrator
or the Transfer Agent currently receives any compensation from the Trust,
Framlington or the Company. As of October 7, 1997, the Trustees and officers of
the Trust, as a group, owned less than 1% of all classes of outstanding shares
of the Funds of the Trust, the Trustees and officers of Framlington as a group
owned less than 1% of all classes of outstanding shares of the Funds of
Framlington except the Healthcare Fund in which Trustees and officers as a group
owned 2.90% of Class Y shares of the Fund, and the Directors and officers of the
Company, as a group, owned less than 1% of all classes of outstanding shares of
the Funds of the Company, except the Micro-Cap Equity Fund in which Directors
and officers as a group owned 2.60% of Class Y shares of the Fund.
Lee P. Munder and Terry H. Gardner are administrators of a pension plan
for employees of Munder Capital Management, which as of October 7, 1997, owned
102,610.490 Class Y shares of the Money Market Fund, 41,407.000 Class Y shares
of the International Bond Fund, 41,277.125 Class Y shares of the Bond Fund,
9,264.459 Class Y shares of the Emerging Markets Fund, 20,020.000 Class Y shares
of the International Growth Fund, 49,974.000 Class Y shares of the Multi-Season
Growth Fund, 18,408.729 Class Y shares of the Small-Cap Value Fund, 32,774.090
Class Y shares of the Value Fund, 15,845.000 Class Y shares of the Mid-Cap
Growth Fund, 20,583.528 Class Y shares of the Real Estate Equity Investment
Fund, 11,448.779 Class Y shares of the International Equity Fund, 10,035.000
Class Y shares of the Small Company Growth Fund and 12,594.000 Class Y shares of
the Accelerating Growth Fund, which represented less than 1% of the outstanding
Class Y shares of those Funds. As of the same date, the pension plan owned
9,017.000 Class Y shares of the Healthcare Fund and 5,238.095 Class Y shares of
the Micro-Cap Equity Fund, which represented 2.00% and 1.00%, respectively, of
the outstanding Class Y shares of those Funds.
As of October 7, 1997, Munder Capital Management and affiliates of
Munder Capital Management, through common ownership, owned beneficially 30,000
Class Y shares of the Real Estate Equity Investment Fund and 1,368,208.010 Class
Y shares of the Money Market Fund, which represented 0.77% and 1.98% of the
outstanding Class Y shares of those Funds, respectively.
Shareholder and Trustee Liability. Under Massachusetts law,
shareholders of a business trust may, under certain circumstances, be held
personally liable as partners for the obligations of the trust. However, the
Trust's and Framlington's Declaration of Trust, as amended, each provide that
shareholders shall not be subject to any personal liability in connection with
the assets of the Trust or Framlington for the acts or obligations of the Trust
or Framlington, and that every note, bond, contract, order or other undertaking
made by the Trust or Framlington shall contain a provision to the effect that
the shareholders are not personally liable thereunder. Each Declaration of
Trust, as amended, provides for indemnification out of the trust property of any
shareholder held personally liable solely by reason of his or her being or
having been a shareholder and not because of his or her acts or omissions or
some other reason. Each Declaration of Trust, as amended, also provides that the
Trust and Framlington shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of the Trust or Framlington,
and shall satisfy any judgment thereon. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust or Framlington itself would be unable to meet
its obligations.
Each Declaration of Trust, as amended, further provides that all
persons having any claim against the Trustees, the Trust or Framlington shall
look solely to the trust property for payment; that no Trustee of the Trust or
Framlington shall be personally liable for or on account of any contract, debt,
tort, claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust property or the conduct of any
business of the Trust or Framlington; and that no Trustee shall be personally
liable to any person for any action or failure to act except by reason of his
own bad faith, willful misfeasance, gross negligence or reckless disregard of
his duties as a trustee. With the exception stated, each Declaration of Trust,
as amended, provides that a Trustee is entitled to be indemnified against all
liabilities and expenses reasonably incurred by him in connection with the
defense or disposition of any proceeding in which he may be involved or with
which he may be threatened by reason of being or having been a Trustee, and that
the Trustees will indemnify officers, representatives and employees of the Trust
and Framlington to the same extent that Trustees are entitled to
indemnification.
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICE ARRANGEMENTS
Investment Advisor. The Advisor of each Fund is Munder Capital
Management, a Delaware general partnership. The Advisor replaced Woodbridge
Capital Management, Inc. ("Woodbridge") as investment advisor to the investment
portfolios of the Trust and replaced Munder Capital Management, Inc. as
investment advisor to the investment portfolios of the Company on January 31,
1995, upon the closing of an agreement (the "Joint Venture Agreement") among Old
MCM, Inc., Comerica, Woodbridge and WAM, pursuant to which Old MCM, Inc.
contributed its investment advisory business and Comerica contributed the
investment advisory businesses of its indirect subsidiaries, Woodbridge and
World Asset Management, to the Advisor. The general partners of the Advisor are
Woodbridge, WAM, Old MCM, and Munder Group, LLC. Woodbridge and WAM are
wholly-owned subsidiaries of Comerica Bank -- Ann Arbor, which in turn is a
wholly-owned subsidiary of Comerica Incorporated, a publicly-held bank holding
company.
New Investment Advisory Agreements ("Advisory Agreements") between the
Advisor and the Trust on behalf of each investment portfolio of the Trust were
approved by the Board of Trustees of the Trust on November 23, 1994 and by the
shareholders of those funds at a meeting on March 29, 1995. Advisory Agreements
between the Advisor and the Company on behalf of the Multi-Season Fund, Real
Estate Fund and Money Market Fund were approved by the Board of Directors of the
Company on November 9, 1994 and by the shareholders of those Funds at a meeting
on February 24, 1995. The Advisory Agreements for the Mid-Cap Growth and Value
Funds were approved by the Board of Directors of the Company on July 31, 1995
and by shareholders on August 14, 1995. The Advisory Agreement for the
International Bond Fund was approved by the Board of Directors of the Company on
May 6, 1996 and by the shareholders on October 1, 1996. The Advisory Agreements
for the Equity Selection Fund, Micro-Cap Fund and Small-Cap Value Fund were
approved by the Board of Directors of the Company on August 6, 1996 and by
shareholders on November 18, 1996. The Advisory Agreement for the Short Term
Treasury Fund was approved by the Board of Directors of the Company on November
7, 1996 and by the shareholders on December 16, 1996. Under the terms of the
Advisory Agreements, the Advisor furnishes continuing investment supervision to
the Funds and is responsible for the management of the Funds' portfolios. The
responsibility for making decisions to buy, sell or hold a particular security
rests with the Advisor, subject to review by the Trust's and the Company's
Boards of Trustees and Directors.
The Advisory Agreements between the Advisor and Framlington on behalf
of each investment portfolio of Framlington were approved by the Board of
Trustees of Framlington on November 7, 1996 and by shareholders on December 31,
1996. Under the terms of the Advisory Agreements, the Advisor furnishes overall
investment management for the International Growth Fund, the Emerging Markets
Fund and the Healthcare Fund, provides research and credit analysis, oversees
the purchase and sale of portfolio securities by the Sub-Advisor, maintains
books and records with respect to the Funds' securities transactions and
provides periodic and special reports to the Board of Trustees as requested.
The Company's and Framlington's Advisory Agreements will continue in
effect for a period of two years from their effective dates. The Trust's
Advisory Agreement was approved for an initial period from January 1, 1995 to
July 31, 1995. On July 31, 1995, the continuance of the Trust's Advisory
Agreement was approved and an amendment to the Trust's Advisory Agreement was
approved whereby the Advisor reduced the annual investment advisory fees payable
by certain portfolios of the Trust effective October 28, 1995. If not sooner
terminated, each 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 Trustees/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 affected Fund, or (ii) the vote of a majority of the Board of
Trustees/Directors. Each Advisory Agreement is terminable with respect to a Fund
by vote of the Board of Trustees/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 a Fund without penalty on 90 days' written
notice to the Trust, Framlington or the Company, as applicable. Each Advisory
Agreement terminates automatically in the event of its assignment (as defined in
the 1940 Act).
The Sub-Advisor is a subsidiary of Framlington Group Limited, which is
incorporated in England and Wales and, through its subsidiaries, provides a wide
range of investment services. Framlington Group Limited is a wholly owned
subsidiary of Framlington Holdings Limited which is, in turn, owned 49% by the
Advisor and 51% by Credit Commercial de France S.A., a French banking
corporation listed on the Societe des Bourses Francaises.
Under the terms of the sub-advisory agreement with the Sub-Advisor, the
Sub-Advisor provides sub-advisory services to the International Growth, Emerging
Markets and Healthcare Funds. Subject to supervision of the Advisor, the
Sub-Advisor is responsible for the management of each Fund's portfolio,
including all decisions regarding purchases and sales of portfolio securities by
the Funds. The Sub-Advisor is also responsible for arranging the execution of
all portfolio management decisions, including the selection of brokers to
execute trades and the negotiation of brokerage commissions in connection
therewith.
Framlington's Sub-Advisory Agreement, with respect to each Fund, will
continue in effect with respect to each Fund for a period of two years from its
effective date. If not sooner terminated, the Sub-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 Trustees who are not parties to the Sub-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) with respect to
a Fund, the vote of a majority of the outstanding voting securities of that
Fund, or (ii) the vote of a majority of the Board of Trustees. The Sub-Advisory
Agreement is terminable by vote of the Board of Trustees, or, with respect to a
Fund, by the holders of a majority of the outstanding voting securities of that
Fund, at any time without penalty, on 60 days' written notice to the
Sub-Advisor, or by the Advisor on 90 days' written notice to the Sub-Advisor.
The Sub-Advisor may also terminate its sub-advisory relationship with a Fund
without penalty on 90 days' written notice to Framlington. The Sub-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 computed daily and payable monthly at
the rates set forth below:
1.25% of average daily net assets
oEmerging Markets Fund
1.00% of the first $500 million of average daily net assets and .75%
of net assets in excess of $500 million oMulti-Season Fund*
1.00% of the first $250 million of average daily net assets and .75%
of net assets in excess of $250 million oInternational Growth
Fund
oHealthcare Fund**
1.00% of average daily net assets
oMicro-Cap Fund**
.75% of average daily net assets oAccelerating Growth Fund oEquity
Selection Fund oGrowth & Income Fund oInternational Equity
Fund oSmall-Cap Value Fund oSmall Company Growth Fund
.74% of average daily net assets
oMid-Cap Fund
oReal Estate Fund
oValue Fund
.65% of average daily net assets
oBalanced Fund
.50% of average daily net assets
oBond Fund
oIntermediate Bond Fund
oInternational Bond Fund
oU.S. Income Fund
oMichigan Bond Fund
oTax-Free Bond Fund
oTax-Free Intermediate Bond Fund
.40% of average daily net assets
oMoney Market Fund
.35% of average daily net assets
oCash Investment Fund
oTax-Free Money Fund
oU.S. Treasury Fund
.25% of average daily net assets
oShort Term Treasury Fund
.20% of the first $250 million of average daily net assets;
0.12 of the next $250 million of net assets and .07% of net
assets in excess of $500 million
oIndex 500 Fund*
- -------------------------------
* The Advisor expects to receive, after waivers, an advisory fee at the
annual rate of .75% of average daily net assets of Multi-Season Fund
and .07% of average daily net assets of the Index 500 Fund during the
current fiscal year.
** The Advisor expects to voluntarily reimburse expenses during the
current fiscal year with respect to the Micro-Cap Fund and the
Healthcare Fund.
The Advisor may discontinue such fee waivers and/or expense
reimbursements at any time, in its sole discretion.
For its services, the Advisor pays the Sub-Advisor a monthly fee equal
on an annual basis to up to 0.50% of average daily net assets up to $250
million, reduced to .375% of average daily net assets in excess of $250 million
for the International Growth Fund and the Healthcare Fund, and up to .625% of
average daily net assets for the Emerging Markets Fund.
For the period February 1, 1995 through February 28, 1995, the Advisor
received fees, after waivers, of: $144,906 Accelerating Growth Fund, $22,937 -
Balanced Fund, $0 - Growth & Income Fund, $5,407 - Index 500 Fund, $75,502 -
International Equity Fund, $68,046 - Small Company Growth Fund, $67,126 - Bond
Fund, $172,014 - Intermediate Bond Fund, $67,252 - U.S. Government Income Fund,
$0 - Michigan Bond Fund, $96,599 - Tax-Free Bond Fund, $137,594 - Tax-Free
Intermediate Bond Fund, $246,455 - Cash Investment Fund, $62,910 - Tax-Free
Money Market Fund and $83,125 - U.S. Treasury Money Market Fund.
Net fees accrued to Old MCM, Inc., the Company's former investment
advisor, for services provided pursuant to the former advisory agreements (which
provided for the same fee rates as the Advisory Agreements) for the year ended
December 31, 1994 (and for the Real Estate Fund for the period from commencement
of operations to December 31, 1994) were $555,273 for the Multi-Season Fund,
$3,166 for the Real Estate Fund and $620,204 for the Money Market Fund. For such
periods, the Advisor voluntarily reimbursed expenses for the Multi-Season, Real
Estate and Money Market Funds in the following amounts of $285,571, $68,336 and
$218,109, respectively.
For the period March 1, 1995 through June 30, 1995, the Advisor
received fees after waivers of: $659,256 - Accelerating Growth Fund, $103,145 -
Balanced Fund, $243,681 - Growth & Income Fund, $27,024 - Index 500 Fund,
$357,460 - International Equity Fund, $316,025 - Small Company Growth Fund,
$300,222 - Bond Fund, $767,122 - Intermediate Bond Fund, $304,666 - U.S.
Government Income Fund, $0 - Michigan Bond Fund, $410,093 - Tax-Free Bond Fund,
$593,601 - Tax-Free Intermediate Bond Fund, $1,144,037 - Cash Investment Fund,
$273,285 - Tax-Free Money Market Fund and $373,285 - U.S. Treasury Money Market
Fund.
For the period from January 1, 1995 through June 30, 1995, the Advisor
received fees after waivers of $272,521 for the Multi-Season Fund, $0 for the
Real Estate Fund and $431,213 for the Money Market Fund. For such period, the
Advisor voluntarily reimbursed expenses for the Multi-Season and Real Estate
Funds, in the following amounts of $34,525 and $141,161, respectively.
For the period from July 1, 1995 through October 27, 1995, the Advisor
received fees after waivers of $709,799 for the Accelerating Growth Fund,
$107,536 for the Balanced Fund, $364,938 for the Growth & Income Fund, $31,087
for the Index 500 Fund, $379,355 for the International Equity Fund, $358,622 for
the Small Company Growth Fund, $300,502 for the Bond Fund, $771,815 for the
Intermediate Bond Fund, $290,956 for the U.S. Government Fund, $0 for the
Michigan Bond Fund, $367,467 for the Tax-Free Bond Fund, $572,916 for the
Tax-Free Intermediate Fund, $1,159,247 for the Cash Investment Fund, $266,552
for the Tax-Free Money Market Fund and $341,421 for the U.S. Treasury Money
Market Fund.
For the period from October 28, 1995 through June 30, 1996, the Advisor
received fees after waivers of $1,411,737 for the Accelerating Growth Fund,
$246,967 for the Balanced Fund, $970,328 for the Growth & Income Fund, $72,265
for the Index 500 Fund, $946,880 for the International Equity Fund, $920,847 for
the Small Company Growth Fund, $537,663 for the Bond Fund, $1,809,598 for the
Intermediate Bond Fund, $661,896 for the U.S. Government Fund, $0 for the
Michigan Bond Fund, $709,274 for the Tax-Free Bond Fund, $1,185,441 for the
Tax-Free Intermediate Fund, $2,478,073 for the Cash Investment Fund, $660,687
for the Money Market Fund, $610,215 for the Tax-Free Money Market Fund and
$823,717 for the U.S. Treasury Money Market Fund.
For the fiscal year ended June 30, 1996 (and for the period from
commencement of operations to June 30, 1996 for the Mid-Cap and Value Funds) the
Advisor received fees after waivers, if any, of $2,275,469 for the Multi-Season
Fund, $114,330 for the Real Estate Fund, $1,025,924 for the Money Market Fund,
$113,145 for the Mid-Cap Fund and $189,909 for the Value Fund.
For the fiscal year ended June 30, 1996, the Advisor voluntarily
reimbursed expenses in the following amounts: $34,671 for the Real Estate Fund,
$24,500 for the Mid-Cap Fund, $70,016 for the Value Fund and $21,376 for the
Index 500 Fund.
For the fiscal year ended June 30, 1997 (and for the period from
commencement of operations to June 30, 1997 for the International Growth,
Emerging Markets, Healthcare, Micro-Cap, Small-Cap Value, Short Term Treasury
and International Bond Funds), the Advisor received fees after waivers, if any,
of $2,040,543 for the Accelerating Growth Fund, $445,259 for the Balanced Fund,
$1,650,704 for the Growth & Income Fund, $249,764 for the Index 500 Fund,
$1,720,496 for the International Equity Fund, $1,884,242 for the Small Company
Growth Fund, $751,954 for the Bond Fund, $2,554,647 for the Intermediate Bond
Fund, $1,175,733 for the U.S. Government Fund, $132,451 for the Michigan Bond
Fund, $1,006,688 for the Tax-Free Bond Fund, $1,584,769 for the Tax-Free
Intermediate Fund, $3,454,159 for the Cash Investment Fund, $879,155 for the
Tax-Free Money Market Fund, $1,101,183 for the U.S. Treasury Money Market Fund,
$3,189,742 for the Multi-Season Fund, $259,015 for the Real Estate Fund,
$599,286 for the Money Market Fund, $180,531 for the Mid-Cap Fund, $401,505 for
the Value Fund, $71,843 for the International Growth Fund, $25,210 for the
Emerging Markets Fund, $11,440 for the Healthcare Fund, $6,479 for the Micro-Cap
Equity Fund, $20,442 for the Small-Cap Value Fund, $51,885 for the Short Term
Treasury Fund and $143,476 for the International Bond Fund.
The Sub-Advisor is entitled to an advisory fee equal to up to one-half
of the fee paid to the Advisor by each of the Framlington Funds as compensation
for its services as Sub-Advisor. The Advisor pays fees to the Sub-Advisor and
the Framlington Funds pay no fees directly to the Sub-Advisor.
For the fiscal year ended June 30, 1997 the Advisor voluntarily waived
advisory fees and/or reimbursed expenses in the amounts of $1,063,248 for the
Multi-Season Fund, $10,143 for the Real Estate Fund, $52,965 for the Mid-Cap
Fund, $17,688 for the Value Fund, $360,721 for the Index 500 Fund and $51,815
for the Michigan Bond Fund.
For the period ended June 30, 1997, the Advisor voluntarily reimbursed
expenses in the amounts of $41,485 for the Micro-Cap Fund, $16,708 for the
Small-Cap Value Fund, $72,552 for the International Growth Fund, $73,369 for the
Emerging Markets Fund, and $66,145 for the Healthcare Fund, $9,944 for the
International Bond Fund and $5,153 for the Short Term Treasury Fund.
The Equity Selection Fund was not available for purchase as of the date
of this Statement of Additional Information.
Distribution Agreements. The Trust, Framlington and the Company have
entered into distribution agreements, under which the Distributor, as agent,
sells shares of each Fund on a continuous basis. The Distributor has agreed to
use appropriate efforts to solicit orders for the purchase of shares of each
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 shares of the Funds (excluding preparation and printing
expenses necessary for the continued registration of the shares) and of printing
and distributing all sales literature. The Distributor's principal offices are
located at 60 State Street, Boston, Massachusetts 02109.
Distribution Services Arrangements - Class A, Class B and Class C
Shares. Each Fund has adopted a Service and Distribution Plan with respect to
its Class A Shares pursuant to which it uses its assets to finance activities
relating to the provision of certain shareholder services. Under the Service and
Distribution Plans for Class A Shares, the Distributor is paid an annual service
fee at the rate of up to 0.25% of the value of average daily net assets of the
Class A Shares of each Fund. Each Fund has also adopted a Service and
Distribution Plan with respect to its Class B and Class C Shares, pursuant to
which it uses its assets to finance activities relating to the distribution of
its shares to investors and provision of certain shareholder services. Under the
Service and Distribution Plans for Class B and Class C Shares, the Distributor
is paid an annual service fee of up to 0.25% of the value of average daily net
assets of the Class B and Class C Shares of each Fund and an annual distribution
fee at the rate of up to 0.75% of the value of average daily net assets of the
Class B and Class C Shares of each Fund.
Under the terms of the Service and Distribution Plans (collectively,
the "Plans"), each Plan continues from year to year, provided such continuance
is approved annually by vote of the Board of Trustees/Directors, including a
majority of the Board of Trustees/Directors who are not interested persons of
the Trust, Framlington or 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 Plans 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 Plans also must be approved by the Trustees/Directors
in the manner described above. Each 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 relevant class of the
respective Fund (as defined in the 1940 Act) on not more than 30 days' written
notice to any other party to the Plan. Pursuant to each Plan, the Distributor
will provide the Boards of Trustees and Directors periodic reports of amounts
expended under the Plan and the purpose for which such expenditures were made.
The Trustees/Directors have determined that the Plans will benefit the
Trust, Framlington, the Company and their respective shareholders by (i)
providing an incentive for broker or bank personnel to provide continuous
shareholder servicing after the time of sale; (ii) retention of existing
accounts; (iii) facilitating portfolio management flexibility through continued
cash flow into the Funds; and (iv) maintaining a competitive sales structure in
the mutual fund industry.
With respect to Class B and Class C Shares of each Fund, the
Distributor expects to pay sales commissions to dealers authorized to sell a
Fund's Class B and Class C Shares at the time of sale. The Distributor will use
its own funds (which may be borrowed) to pay such commissions pending
reimbursement by the relevant Service and Distribution Plan. In addition, the
Advisor may use its own resources to make payments to the Distributor or dealers
authorized to sell the Funds' shares to support their sales efforts.
<PAGE>
Fees paid to the Distributor Pursuant to Class A Service Plans
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- -------------------------------------------- ----------------- ---------------- ----------------- ----------------
FISCAL YEAR FISCAL YEAR FISCAL
ENDED PERIOD ENDED ENDED YEAR
2/28/95 6/30/95 6/30/96 ENDED
FUNDS OF THE TRUST 6/30/97
- -------------------------------------------- ----------------- ---------------- ----------------- ----------------
Accelerating Growth Fund $1,339.97 $51.86 $1,916.29 $16,419
Balanced Fund $116.01 $0.17 $136.95 $981
Growth & Income Fund $0.00 $76.92 $268.00 $5,324
Index 500 Fund $176.46 $203.84 $23,640.46 $48,763
International Equity Fund $617.32 $1.38 $1,946.82 $13,505
Small Company Growth Fund $794.65 $10.80 $1,158.43 $17,843
Bond Fund $17.48 $15.24 $29.40 $2,203
Intermediate Bond Fund $230.93 $0.51 $345.66 $13,919
Michigan Triple Tax-Free Bond Fund $663.53 $0.00 $23.32 $1,206
Tax-Free Bond Fund $0.00 $0.00 $0.03 $4,973
Tax-Free Intermediate Bond Fund $6.17 $10.80 $85.26 $14,678
- -------------------------------------------- ----------------- ---------------- ----------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -------------------------------------------- ----------------- ---------------- -----------------
FISCAL YEAR FISCAL
PERIOD ENDED ENDED YEAR
6/30/95 6/30/96 ENDED
FUNDS OF THE COMPANY 6/30/97
- -------------------------------------------- ----------------- ---------------- -----------------
Multi-Season Fund $427.88 $1,945.49 $30,811
Real Estate Fund $422.10 $179.10 $1,559
Mid-Cap Fund N/A $51.87 $373
Value Fund N/A $41.77 $2,347
Money Market Fund N/A N/A $1,198*
Micro-Cap Fund N/A N/A $79*
Small-Cap Value Fund N/A N/A $558*
International Bond Fund N/A N/A $39*
- -------------------------------------------- ----------------- ---------------- -----------------
</TABLE>
- -----------------------------------
* Figures reflect period from commencement of operations to June 30, 1997.
- -------------------------------------------- -----------------
FISCAL
PERIOD ENDED
6/30/97
FUNDS OF FRAMLINGTON
- -------------------------------------------- -----------------
International Growth Fund $759
Emerging Markets Fund $285
Healthcare Fund $241
- -------------------------------------------- -----------------
<PAGE>
Fees paid to the Distributor Pursuant to Class B Service and Distribution Plans
for the fiscal year ended June 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
--------------------- ------------------
DISTRIBUTION
AND SERVICER
FEES CDSC's
- --------------------------------------------
--------------------- ------------------
Accelerating Growth Fund $3,607 $150.00
Balanced Fund $1,249 $0.00
Growth & Income Fund $3,519 $535.41
Index 500 Fund $153,426 $0.00
International Equity Fund $10,398 $318.86
Micro-Cap Fund* $513 $0.00
Mid-Cap Fund $658 $0.00
Multi-Season Fund $731,958 $26,020.64
Real Estate Fund $27,446 $0.00
Small-Cap Value Fund* $648 $0.00
- -------------------------------------------- --------------------- ------------------
--------------------- ------------------
DISTRIBUTION
AND SERVICER
FEES CDSC's
- -------------------------------------------- --------------------- ------------------
Small Company Growth Fund $21,679 $930.13
Value Fund $2,689 $0.00
International Growth Fund* $175 $0.00
Emerging Markets Fund* $95 $0.00
Healthcare Fund* $1,240 $0.00
Bond Fund $5,482 $447.26
International Bond Fund* $11 $0.00
Intermediate Bond Fund $2,627 $0.00
Short Term Treasury Fund* $116 $0.00
U.S. Government Income Fund $13,452 $0.00
Michigan Bond Fund $2,779 $0.00
Tax-Free Bond Fund $566 $0.00
Tax-Free Intermediate Bond Fund $1,782 $0.00
Money Market Fund $1,925 $711.20
- -------------------------------------------- --------------------- ------------------
- -------------------------------
* Figures reflect period from commencement of operations to June 30, 1997.
</TABLE>
<PAGE>
Fees paid to the Distributor Pursuant to Class B Service and Distribution Plans
for the fiscal year ended June 30, 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
--------------------- ------------------ -------------------
DISTRIBUTION SERVICER FEES CDSC's
FEES
- --------------------------------------------
--------------------- ------------------ -------------------
Accelerating Growth Fund $1,268.42 $422.83 $238.16
Balanced Fund $400.45 $133.48 $199.11
Growth & Income Fund $1,147.15 $382.37 $300.00
Index 500 Fund $15,750.66 $4,500.20 $1,207.75
International Equity Fund $3,131.06 $1,043.68 $1.008.01
Mid-Cap Growth Fund $88.71 $29.54 $0.00
Multi-Season Fund $454,197.35 $151,399.12 $155,014.33
Real Estate Fund $12,014.27 $4,004.75 $4,278.33
Small Company Growth Fund $2,247.94 $749.31 $100.00
Value Fund $424.07 $141.36 $181.56
Bond Fund $590.01 $196.67 $861.49
Intermediate Bond Fund $206.34 $68.79 $0.00
U.S. Government Income Fund $3,656.37 $1,218.79 $199.27
Michigan Bond Fund $1,923.70 $641.24 $405.63
Tax-Free Bond Fund $131.90 $43.96 $979.34
Tax-Free Intermediate Bond Fund $298.44 $99.48 $0.53
Money Market Fund $1,496.13 $498.72 $0.00
- -------------------------------------------- --------------------- ------------------ -------------------
Fees paid to the Distributor Pursuant to Class B Service and Distribution Plans
for the period ended June 30, 1995*
--------------------- ----------------- -------------------
DISTRIBUTION SERVICER FEES CDSC's
FEES
- --------------------------------------------
--------------------- ----------------- -------------------
Accelerating Growth Fund $137.64 $45.26 $350.16
Balanced Fund $44.96 $15.16 $200.96
Growth & Income Fund $135.37 $44.52 $0.00
International Equity Fund $311.35 $103.16 $0.00
Multi-Season Fund** $187,381.57 $62,460.53 $101,519.47
Real Estate Fund** $4,532.31 $1,510.77 $430.62
Small Company Growth Fund $107.62 $35.70 $0.00
Intermediate Bond Fund $19.61 $6.50 $0.00
Michigan Triple Tax Free Fund $631.87 $208.93 $361.42
Tax-Free Bond Fund $2.85 $0.95 $0.00
Money Market Fund** $1,774.98 $591.66 $0.00
- -------------------------------------------- --------------------- ----------------- -------------------
<FN>
* As of June 30, 1995, the following funds had not commenced selling Class B Shares: Bond Fund, Index 500 Fund, U.S. Government
Income Fund, Tax Free Intermediate Bond Fund.
** Figures reflect the period 01/01/95 - 06/30/95. All other funds reflect the period 03/01/95 - 06/30/95.
</FN>
</TABLE>
<PAGE>
Fees paid to the Distributor Pursuant to Class B Service and Distribution Plans
for the fiscal year ended February 28, 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C>
---------------------- ----------------- -----------------
DISTRIBUTION SERVICER FEES CDSC's
FEES
- -------------------------------------------- ---------------------- ----------------- -----------------
Accelerating Growth Fund $113.37 $15.95 $0.00
Balanced Fund $66.05 $7.42 $0.00
Growth & Income Fund $117.51 $20.45 $0.00
International Equity Fund $315.98 $49.15 $0.00
Multi-Season Growth Fund* $481,834.00 $0.00 $159,185.00
- -------------------------------------------- ---------------------- ----------------- -----------------
---------------------- ----------------- -----------------
DISTRIBUTION SERVICER FEES CDSC's
FEES
- -------------------------------------------- ---------------------- ----------------- -----------------
Real Estate Fund** $1,064.00 $0.00 $0.00
Small Company Growth Fund $72.07 $14.30 $0.00
Intermediate Bond Fund $16.61 $2.96 $0.00
Michigan Triple Tax Free Fund $515.28 $91.47 $0.00
Tax-Free Bond Fund $0.12 $0.04 $0.00
Money Market Fund** $1,799 $0.00 $0.00
- -------------------------------------------- ---------------------- ----------------- -----------------
<FN>
* Figures reflect period from 01/01/94 - 12/31/94. Such amounts were paid to a previous distributor.
** Figures reflect period from commencement of operations to 12/31/94. Such amounts were paid to a previous distributor.
</FN>
</TABLE>
Fees paid to the Distributor Pursuant to Class C Service and Distribution Plans
for the fiscal year ended June 30, 1997*
<TABLE>
<CAPTION>
<S> <C> <C>
---------------------- ----------------
DISTRIBUTION
AND SERVICER
FEES CDSC's
- --------------------------------------------
---------------------- ----------------
Accelerating Growth Fund $2,146 $0.00
Balanced Fund $337 $0.00
Growth & Income Fund $2,683 $0.00
International Growth Fund** $63 $0.00
Emerging Markets Fund** $49 $0.00
Healthcare Fund** $125 $0.00
International Equity Fund $18,452 $0.00
Mid-Cap Fund $985 $0.00
Multi-Season Fund $73,808 $391.84
Real Estate Fund $1,829 $2.38
Micro-Cap Fund** $48 $0.00
Small-Cap Value Fund** $223 $0.00
Small Company Growth Fund $13,938 $212.00
Value Fund $4,397 $0.00
Bond Fund $787 $0.00
Intermediate Bond Fund $1,136 $0.00
U.S. Government Income Fund $93 $0.00
Michigan Bond Fund $568 $0.00
Money Market Fund $5,932 $0.00
- -------------------------------------------- ---------------------- ---------
</TABLE>
- ---------------------------------
* As of June 30, 1997, the following funds had not commenced selling Class
C Shares: Tax-Free Bond Fund, Tax-Free Intermediate Bond Fund,
International Bond Fund and Short Term Treasury Fund.
** Figures reflect period from commencement of operations to June 30, 1997.
Fees paid to the Distributor Pursuant to Class C Service and Distribution Plans
for the fiscal year ended June 30, 1996*
<TABLE>
<CAPTION>
<S> <C> <C> <C>
--------------------- ----------------- ----------------
DISTRIBUTION SERVICER FEES CDSC's
FEES
- --------------------------------------------
--------------------- ----------------- ----------------
Accelerating Growth Fund $263.46 $87.82 $188.66
Balanced Fund $3.69 $1.21 $100.01
Growth & Income Fund $89.74 $29.90 $0.00
International Equity Fund $3,585.39 $1,195.13 $293.87
Mid-Cap Growth Fund $129.03 $43.00 $2.18
Multi-Season Growth Fund $32,127.47 $10,709.17 $798.25
Real Estate Fund $13.33 $4.43 $7.50
Small Company Growth Fund $171.21 $57.06 $149.87
Value Fund $855.88 $285.29 $0.00
Bond Fund $92.46 $30.80 $0.00
Intermediate Bond Fund $73.80 $24.58 $0.00
- -------------------------------------------- --------------------- ----------------- ----------------
* As of June 30, 1996, the following funds had not commenced selling Class
C Shares: Index 500 Fund, U.S. Government Income Fund, Michigan Bond
Fund, Tax-Free Bond Fund, Tax-Free Intermediate Bond Fund and Money
Market Fund.
Fees paid to the Distributor Pursuant to Class C Service and Distribution Plan
for the fiscal period ended June 30, 1995*
--------------------- ----------------- ----------------
DISTRIBUTION SERVICER FEES CDSC's
FEES
- -------------------------------------------- --------------------- ----------------- ----------------
Multi-Season Growth Fund** $9,464.61 $3,154.86 $256.15
Real Estate Fund** $1.28 $0.43 $0.00
- -------------------------------------------- --------------------- ----------------- ----------------
<FN>
* As of June 30, 1995, the Funds of the Trust had not commenced selling Class C Shares.
** Figures reflect period 01/01/95-06/30/95.
The following amounts were paid by each Fund under its Class B Service
and Distribution Plans during the fiscal year ended June 30, 1997.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Printing and
Mailing of Interest,
Prospectuses Carrying or
to other than other
Current Compensation to Compensation Compensation Financing
Advertising Shareholders Underwriters to Dealers to Personnel Charges
Accelerating Growth Fund $0 $0 $0 $387 $0 $889
Balanced Fund $0 $0 $0 $128 $0 $284
Index 500 Fund $0 $0 $0 $4,061 $0 $54,546
International Growth Fund* $0 $0 $0 $0 $0 $183
Emerging Markets Fund* $0 $0 $0 $0 $0 $85
Healthcare Fund* $0 $0 $0 $0 $0 $809
Growth & Income Fund $0 $0 $0 $297 $0 $936
International Equity Fund $0 $0 $0 $739 $0 $2,264
Micro-Cap Equity Fund* $0 $0 $0 $0 $0 $351
Mid-Cap Growth Fund $0 $0 $0 $77 $0 $127
Multi-Season Fund $0 $0 $0 $152,100 $0 $38,460
Real Estate Fund $0 $0 $0 $4,337 $0 $5,926
Short Term Treasury Fund* $0 $0 $0 $0 $0 $35
Small-Cap Value Fund* $0 $0 $0 $0 $0 $289
Small Company Growth Fund $0 $0 $0 $278 $0 $7,962
Value Fund $0 $0 $0 $235 $0 $749
Bond Fund $0 $0 $0 $119 $0 $`0
Intermediate Bond Fund $0 $0 $0 $240 $0 $168
International Bond Fund $0 $0 $0 $0 $0 $15
U.S. Government Fund $0 $0 $0 $326 $0 $0
Michigan Bond Fund $0 $0 $0 $646 $0 $192
Tax-Free Bond Fund $0 $0 $0 $8 $0 $223
Tax-Free Intermediate Bond
Fund $0 $0 $0 $8 $0 $615
Money Market Fund $0 $0 $0 $483 $0 $0
- ----------------------------
* Figures reflect period from commencement of operations to June 30, 1997.
<PAGE>
The following amounts were paid by each Fund under its Class C Service
and Distribution Plans during the fiscal year ended June 30, 1997.
Printing and
Mailing of Interest,
Prospectuses Carrying or
to other than Compensation other
Current to Underwriters Compensation to Compensation Financing
Advertising Shareholders Dealers to Personnel Charges
Accelerating Growth Fund $0 $0 $0 $129 $0 $80
Balanced Fund $0 $0 $0 $4 $0 $11
International Growth Fund* $0 $0 $0 $0 $0 $10
Emerging Markets Fund* $0 $0 $0 $0 $0 $4
Healthcare Fund* $0 $0 $0 $0 $0 $24
Growth & Income Fund $0 $0 $0 $89 $0 $5
International Equity Fund $0 $0 $0 $3,352 $0 $354
Micro-Cap Equity Fund* $0 $0 $0 $0 $0 $11
Mid-Cap Growth Fund $0 $0 $0 $114 $0 $37
Multi-Season Fund $0 $0 $0 $22,863 $0 $0
Real Estate Fund $0 $0 $0 $17 $0 $148
Short Term Treasury Fund* $0 $0 $0 $0 $0 $0
Small-Cap Value Fund* $0 $0 $0 $0 $0 $30
Small Company Growth Fund $0 $0 $0 $29 $0 $364
Value Fund $0 $0 $0 $833 $0 $57
Bond Fund $0 $0 $0 $37 $0 $0
Intermediate Bond Fund $0 $0 $0 $79 $0 $1,411
U.S. Government Fund $0 $0 $0 $8 $0 $0
Michigan Bond Fund $0 $0 $0 $0 $0 $0
Tax-Free Bond Fund $0 $0 $0 $0 $0 $40
Tax-Free Intermediate Bond
Fund $0 $0 $0 $0 $0 $0
Money Market Fund $0 $0 $0 $5,277 $0 $0
- ------------------------------------
* Figures reflect fiscal period from commencement of operations to June 30,
1997.
</TABLE>
Shareholder Servicing Arrangements - Class K Shares. As stated in each
Fund's Prospectus, Class K Shares are sold to investors through institutions
which enter into Shareholder Servicing Agreements with the Trust, Framlington or
the Company to provide support services to their Customers who beneficially own
Class K Shares in consideration of the Funds' payment of not more than .25% (on
an annualized basis) of the average daily net asset value 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 the Trust, the Framlington Trust
or the Company (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 the Trust's or Framlington's or the Company's arrangements
with institutions; and (x) providing such other similar services as the Trust,
Framlington or the Company may reasonably request to the extent the institutions
are permitted to do so under applicable statutes, rules and regulations.
Pursuant to the Trust's, Framlington's and the Company's agreements
with such institutions, the Boards of Trustees and Directors will review, at
least quarterly, a written report of the amounts expended under Trust's, the
Framlington's and the Company'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 Boards of Trustees
and Directors, including a majority of the Trustees/Directors who are not
"interested persons" as defined in the 1940 Act, and have no direct or indirect
financial interest in such arrangements.
The Boards of Trustees and 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.
Administration Agreement. State Street Bank and Trust Company ("State
Street"), whose principal business address is 225 Franklin Street, Boston,
Massachusetts, 02110, serves as administrator for the Trust, Framlington and the
Company pursuant to administration agreements (each, an "Administration
Agreement"). State Street has agreed to maintain office facilities for the
Trust, Framlington and the Company; provide accounting and bookkeeping services
for the Funds, 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. 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.
Each Administration Agreement provides that the Administrator
performing services thereunder shall not be liable under the Agreement except
for its bad faith, negligence or willful misconduct in the performance of its
duties and obligations thereunder.
Prior to November 1, 1997, First Data Investor Services Group, Inc.
("Investor Services Group") located at 53 State Street, Boston, Massachusetts
02109 served as administrator to the Funds.
For the period ended February 28, 1995, the administration fees of
Investor Services Group accrued as follows: Accelerating Growth Fund - $198,140;
Balanced Fund - $34,625; Growth & Income Fund - $41,047; Index 500 Fund -
$69,871; International Equity Fund - $94,485; Small Company Growth Fund -
$83,027; Bond Fund - $133,388; Intermediate Bond Fund - $335,642; U.S.
Government Income Fund - $142,297; Michigan Bond Fund - $17,168; Tax-Free Bond
Fund - $217,868; Tax-Free Intermediate Bond Fund - $272,285; Cash Investment
Fund - $669,287; Tax-Free Money Market Fund $179,189; and U.S. Treasury Money
Market Fund - $212,383.
For the period ended June 30, 1995 and the fiscal years ended June 30,
1996 and June 30, 1997, the administration fees of Investor Services Group
accrued as follows: Accelerating Growth Fund - $101,130, $322,120 and $307,521;
Balanced Fund - $18,258, $62,095 and $77,364; Growth & Income Fund - $48,503,
$202,655 and $248,644; Index 500 Fund - $44,411, $188,416 and $405,016;
International Equity Fund - $54,832, $201,299 and $259,162; Small Company Growth
Fund - $48,480, $194,176 and $283,755; Bond Fund - $69,084, 190,967 and
$169,932; Intermediate Bond Fund - $176,525, $587,790 and $577,425; U.S.
Government Income Fund - $70,106, $216,970 and $265,637; Michigan Bond Fund -
$10,784, $31,899 and $41,620; Tax-Free Bond Fund - $94,378, $245,271 and
$227,508; Tax-Free Intermediate Bond Fund - $136,609, $400,485 and $358,214;
Cash Investment Fund - $376,101, $1,183,419 and $1,115,110; Tax-Free Money
Market Fund - $89,841 $285,214 and $283,803; and U.S. Treasury Money Market Fund
- - $122,730, $378,955 and $355,592, respectively.
For the period May 1, 1995 through June 30, 1995, administration fees
of Investor Services Group accrued were $17,266, $1,150 and $48,129, for the
Multi-Season Fund, Real Estate Fund and Money Market Fund, respectively.
For the fiscal year ended June 30, 1996, administration fees of
Investor Services Group accrued were: $345,388 - Multi-Season Fund, $19,120 -
Real Estate Fund and $292,172 - Money Market Fund. For the period ended June 30,
1996, administration fees of the Administrator accrued were: $18,006 - Mid-Cap
Fund and $29,705 - Value Fund.
For the fiscal year ended June 30, 1997, administration fees of
Investor Services Group accrued were $480,310-Multi-Season Fund; $39,493-Real
Estate Fund, $27,562-Mid-Cap Growth Fund; $169,405-Money Market Fund and
$61,224-Value Fund.
For the period ended June 30, 1997, administration fees of Investor
Services Group accrued were $730-Micro-Cap Fund; $14,220-Small-Cap Value Fund;
$32,343-International Bond Fund and $23,349-Short Term Treasury Fund.
For the period ended June 30, 1997, administration fees of Investor
Services Group accrued were $9,644- Emerging Markets Fund; $9,644-Healthcare
Fund and $9,644-International Growth Fund.
Custodian, Sub-Custodian and Transfer Agency Agreements. Comerica Bank,
whose principal business address is One Detroit Center, 500 Woodward Avenue,
Detroit, MI 48226, maintains custody of the Funds' assets pursuant to custodian
agreements (each, a "Custody Agreement") with each of the Trust, Framlington and
the Company. Under each Custody Agreement, the Custodian (i) maintains a
separate account in the name of each Fund, (ii) holds and transfers portfolio
securities on account of each Fund, (iii) accepts receipts and makes
disbursements of money on behalf of each Fund, (iv) collects and receives all
income and other payments and distributions on account of each Fund's securities
and (v) makes periodic reports to the Boards of Trustees and Directors
concerning each Fund's operations. For the period ended June 30, 1997, the
Custodian earned $122,406 for its services to the Funds of the Company, $691,406
for its services to the Funds of the Trust and $8,713 for its services to the
Funds of Framlington. Effective November 1, 1997, no compensation will be paid
to the Custodian for its services. The Custodian has entered into a Sub-Custody
Agreement with State Street pursuant to which State Street will serve as
Sub-Custodian to the Funds. As compensation for its services, State Street is
entitled to receive fees, based on the aggregate average daily net assets of the
Funds and certain other investment portfolios that are advised by the Advisor
for which the Sub-Custodian provides services, computed daily and payable
monthly at an annual rate of .01% of average daily net assets. The Sub-Custodian
also receives certain transaction based fees.
The Custodian is authorized to select one or more domestic or foreign
banks or trust companies to serve as sub-custodian on behalf of the Trust,
Framlington or the Company. In addition, the Trust, Framlington and the Company
and the Custodian have entered into respective sub-custody agreements with
Morgan Stanley Trust Company ("Morgan Stanley") relating to the custody of
foreign securities held by certain Funds of the Trust and each Fund of
Framlington and the Company (except the Real Estate Fund), and Morgan Stanley,
in turn, has entered into additional agreements with financial institutions and
depositories located in foreign countries with respect to the custody of such
securities. As of October 1997, State Street will replace Morgan Stanley as
Sub-Custodian relating to the custody of foreign securities held by the Funds.
Investor Services Group serves as the transfer and dividend disbursing
agent for the Funds pursuant to transfer agency agreements (the "Transfer Agency
Agreement") with each of the Trust, Framlington and 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 the Funds and (v)
makes periodic reports to the Boards of Trustees and Directors concerning the
operations of each Fund.
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 the Company, the Trust and
Framlington providing for shareholder services for their customers.
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from underwriting securities, but such banking laws and regulations do not
prohibit such a holding company or affiliate or banks generally from acting as
investment advisor, administrator, transfer agent or custodian to such an
investment company, or from purchasing shares of such a company as agent for and
upon the order of customers. The Advisor and the Custodian are subject to such
banking laws and regulations.
The Advisor and the Custodian believe they may perform the services for
the Trust, Framlington and the Company contemplated by their respective
agreements with each of them without violation of applicable banking laws and
regulations. It should be noted, however, that there have been no cases deciding
whether bank and non-bank subsidiaries of a registered bank holding company may
perform services comparable to those that are to be performed by these
companies, and future changes in either Federal or state statutes and
regulations relating to permissible activities of banks and their subsidiaries
or affiliates, as well as future judicial or administrative decisions or
interpretations of current and future statutes and regulations, could prevent
these companies from continuing to perform certain services for the Funds.
Should future legislative, judicial or administrative action prohibit
or restrict the activities of such companies in connection with the provision of
services on behalf of the Trust, Framlington or the Company, the Trust,
Framlington or the Company might be required to alter materially or discontinue
the arrangements with the institutions and change the method of operations. It
is not anticipated, however, that any change in the Funds' method of operations
would affect the net asset value per share of the Funds or result in a financial
loss to any shareholder of the Funds.
It should be noted that future changes in either Federal or state
statutes and regulations relating to permissible activities of banks and their
subsidiaries or affiliates, as well as future judicial or administrative
decisions or interpretations of current and future statutes and regulations,
could prevent Comerica and certain other institutions from continuing to perform
certain services for Class K shares of the Funds.
Should future legislative, judicial or administrative action prohibit
or restrict the activities of Comerica and/or other institutions in connection
with the provision of services on behalf of Class K shares of the Fund, the
Trust, Framlington or the Company might be required to alter materially or
discontinue the arrangements with the institutions and change the method of
operations with respect to Comerica and certain other institutions. It is not
anticipated, however, that any change in the Funds' method of operations would
affect the net asset value per share of the Funds or result in a financial loss
to any holder of Class K shares of the Funds.
<PAGE>
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Board Members, the Advisor or
the Sub-Advisor, as the case may be, makes decisions with respect to and places
orders for all purchases and sales of portfolio securities for the Funds.
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.
For the period from March 1, 1995 to June 30, 1995, the Accelerating
Growth Fund, Balanced Fund, Growth & Income Fund, Index 500 Fund, International
Equity Fund and Small Company Growth Fund paid in brokerage commissions
$123,045, $13,238, $62,706, $5,047, $127,871 and $65,661, respectively. The
other Funds of the Trust did not pay brokerage commissions for the period from
March 1, 1995 to June 30, 1995.
For the period from January 1, 1995 to June 30, 1995, the Multi-Season
Fund and the Real Estate Fund paid $62,889 and $14,627, respectively, in
brokerage commissions. The other Funds of the Company did not pay brokerage
commissions for the period from January 1, 1995 to June 30, 1995.
For the fiscal year ended June 30, 1996, the Funds paid brokerage
commissions as follows: $474,252 - Accelerating Growth Fund, $52,376-Balanced
Fund, $202,292 - Growth & Income Fund, $41,009 - Index 500 Fund, $428,699 -
International Equity Fund, $424,580 - Multi-Season Fund, $40,182 - Real Estate
Fund and $203,936 - Small Company Growth Fund. The other Funds of the Company
and the Trust did not pay brokerage commissions during the fiscal year ended
June 30, 1996.
For the period ended June 30, 1996, the Mid-Cap Fund and the Value Fund
paid brokerage commissions of $83,397 and $169,335, respectively.
For the fiscal year ended June 30, 1997, the Funds paid brokerage
commissions as follows: $506,861-Accelerating Growth Fund, $54,221-Balanced
Fund, $336,161-Growth & Income Fund, $61,393 - Index 500 Fund,
$155,081-International Equity Fund, $366,346-Multi-Season Fund, $50,137-Mid-Cap
Fund, $66,879-Real Estate Fund and $355,997-Small Company Growth Fund. The other
Funds of the Company and the Trust did not pay brokerage commissions during the
fiscal year ended June 30, 1997.
For the period ended June 30, 1997, Funds paid brokerage commissions as
follows: $2,045-Micro-Cap Fund, $82,304-Small-Cap Value Fund, $228,545-Value
Fund, $0-International Bond Fund, $0-Short Term Treasury Fund., $43,256-Emerging
Markets Fund, $87,694-International Growth Fund and $3,325-Healthcare Fund.
Over-the-counter issues, including corporate debt and government
securities, are normally traded on a "net" basis (i.e., without commission)
through dealers, or otherwise involve transactions directly with the issuer of
an instrument. With respect to over-the-counter transactions, the Advisor will
normally deal directly with dealers who make a market in the instruments
involved except in those circumstances where more favorable prices and execution
are available elsewhere. The cost of foreign and domestic securities purchased
from underwriters includes an underwriting commission or concession, and the
prices at which securities are purchased from and sold to dealers include a
dealer's mark-up or mark-down.
The Funds may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
The Funds will engage in this practice, however, only when the Advisor or
Sub-Advisor, as the case may be, believes such practice to be in the Funds'
interests.
Since the Money Market Funds will invest only in short-term debt
instruments, their annual portfolio turnover rates will be relatively high, but
brokerage commissions are normally not paid on money market instruments, and
portfolio turnover is not expected to have a material effect on the net
investment income of a Money Market Fund. The portfolio turnover rate of a Fund
is calculated by dividing the lesser of a Fund's annual sales or purchases of
portfolio securities (exclusive of purchases or sales of securities whose
maturities at the time of acquisition were thirteen months or less for the Money
Market Funds or one year or less for the Equity and Bond Funds) by the monthly
average value of the securities held by the Fund during the year. The Equity and
Bond Funds may engage in short-term trading to achieve their investment
objectives. Portfolio turnover may vary greatly from year to year as well as
within a particular year.
Each Fund's portfolio turnover rate is included in the prospectuses
under the section entitled "Financial Highlights." For the fiscal year ended
June 30, 1997, the portfolio turnover rate for the Bond Fund and the
Intermediate Bond Fund was 279% and 325%, respectively. The portfolio turnover
of the Bond Fund and the Intermediate Bond Fund was affected by fluctuating
interest rate conditions which at times required increased dispositions and
acquisitions of securities to maintain each Fund's maturity structure.
In its Advisory Agreements, the Advisor (and, in the case of the Funds
of Framlington, the Sub-Advisor pursuant to the Sub-Advisory Agreement) agrees
to select broker-dealers in accordance with guidelines established by the Boards
of Trustees and Directors from time to time and in accordance with applicable
law. In assessing the terms available for any transaction, the Advisor or
Sub-Advisor, as the case may be, 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 and Sub-Advisory Agreements
authorize the Advisor or Sub-Advisor, as the case may be, subject to the prior
approval of the Boards of Trustees and Directors, to cause the Funds 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 or Sub-Advisor, as the
case may be, 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 Funds. 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 or Sub-Advisor,
as the case may be, and does not reduce the advisory fees payable to the Advisor
or Sub-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, a Fund may be the primary beneficiary of the research or
services received as a result of portfolio transactions effected for such other
account or investment company.
Portfolio securities will not be purchased from or sold to the Advisor,
Sub-Advisor, 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 and Sub-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 a Fund is concerned, in other cases it is believed to be
beneficial to a Fund. To the extent permitted by law, the Advisor or
Sub-Advisor, as the case may be, may aggregate the securities to be sold or
purchased for a Fund with those to be sold or purchased for other investment
companies or accounts in executing transactions.
A Fund will not purchase securities during the existence of any
underwriting or selling group relating to such securities of which the Advisor,
Sub-Advisor or any affiliated person (as defined in the 1940 Act) thereof is a
member except pursuant to procedures adopted by the Trust's or Framlington Board
of Trustees and the Company's Board of Directors in accordance with Rule 10f-3
under the 1940 Act.
The Trust and the Company are 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 state the value of such holdings. As of June 30, 1997,
Accelerating Growth Fund held securities of Lehman Brothers valued at
$12,289,000; Balanced Fund held securities of Lehman Brothers valued at
$6,364,000; Index 500 Fund held securities of Merrill Lynch & Company, Inc.
valued at $14,635,000, J.P. Morgan & Company, Inc. valued at $1,472,000, Morgan
Stanley Group, Inc. valued at $1,890,000, Merrill Lynch & Company, Inc. valued
at $1,509,000 and Salomon, Inc. valued at $462,000; Growth & Income Fund held
securities of Lehman Brothers valued at $17,927,000; Micro-Cap Fund held
securities of Lehman Brothers valued at $392,000; Mid-Cap Fund held securities
of Lehman Brothers valued at $2,820,000; Multi-Season Fund held securities of
Lehman Brothers valued at $45,933,000; Real Estate Fund held securities of
Lehman Brothers valued at $5,052,000; Small-Cap Value Fund held securities of
Lehman Brothers valued at $5,329,000; Small Company Growth Fund held securities
of Lehman Brothers valued at $19,459,000; Value Fund held securities of Lehman
Brothers valued at $2,072,000, Morgan Stanley, Dean Witter, Discover & Co.
valued at $1,662,000 and Salomon, Inc. valued at $1,641,000; Bond Fund held
securities of Lehman Brothers valued at $10,102,000; Intermediate Bond Fund held
securities of Lehman Brothers valued at $11,428,000; International Bond Fund
held securities of J.P. Morgan Securities valued at $400,000 and Lehman Brothers
valued at $2,495,000; Short Term Treasury Fund held securities of Lehman
Brothers valued at $767,000; U.S. Income Fund held securities of Lehman Brothers
valued at $8,975,000; Cash Investment Fund held securities of J.P. Morgan &
Company, Inc. valued at $48,000,000, Sanwa Securities Company valued at
$117,972,000, Lehman Brothers valued at $70,724,000, Societe Generale Securities
Corp. valued at $45,000,000, and PaineWebber valued at $48,000,000; Money Market
Fund held securities of Sanwa Business Credit Corporation valued at $4,990,000,
Lehman Brothers valued at $26,198,000 and Morgan Guaranty Trust & Co. valued at
$4,998,000; and U.S. Treasury Money Market Fund held securities of J.P. Morgan &
Company, Inc. valued at $13,000,000, Goldman Sachs Group, L.P. valued at
$13,000,000, Merrill Lynch & Company, Inc. valued at $13,000,000, Lehman
Brothers valued at $70,507,000, PaineWebber, Inc. valued at $13,000,000 and
Sanwa Securities Company valued at $13,000,000.
Except as noted in the Prospectuses and this Statement of Additional
Information the Funds' service contractors bear all expenses in connection with
the performance of their services and the Funds bear the expenses incurred in
their operations. These expenses include, but are not limited to, fees paid to
the Advisor, Sub-Advisor, Administrator, Custodian, Sub-Custodian and Transfer
Agent; fees and expenses of officers and Board of Trustees/Directors; taxes;
interest; legal and auditing fees; certain fees and expenses in registering and
qualifying the Fund and its shares for distribution under Federal and state
securities laws; expenses of preparing prospectuses and statements of additional
information and of printing and distributing prospectuses and statements of
additional information to existing shareholders; the expense of reports to
shareholders, shareholders' meetings and proxy solicitations; fidelity bond and
directors' and officers' liability insurance premiums; the expense of using
independent pricing services; and other expenses which are not assumed by the
Administrator. Any general expenses of the Trust, Framlington or the Company
that are not readily identifiable as belonging to a particular investment
portfolio of the Trust, Framlington or the Company are allocated among all
investment portfolios of the Trust, Framlington or the Company by or under the
direction of the Boards of Trustees and Directors in a manner that the Boards of
Trustees and Directors determine to be fair and equitable. The Advisor,
Sub-Advisor, Administrator, Custodian, Sub-Custodian and Transfer Agent may
voluntarily waive all or a portion of their respective fees from time to time.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchases and redemptions are discussed in the Funds' Prospectuses and
such information is incorporated herein by reference.
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 more
beneficial depending on the amount of the purchase, the length of time the
investor expects to hold shares and other relevant circumstances. An investor
may place orders directly through the Transfer Agent or the Distributor or
through arrangements with his/her authorized broker.
Retirement Plans. Shares of any of the Funds may be purchased in
connection with various types of tax deferred retirement plans, including
individual retirement accounts ("IRAs"), qualified plans, deferred compensation
for public schools and charitable organizations (403(b) plans) and simplified
employee pension IRAs. An individual or organization considering the
establishment of a retirement plan should consult with an attorney and/or an
accountant with respect to the terms and tax aspects of the plan. A $10.00
annual custodial fee is also charged on IRAs. This custodial fee is due by
December 15 of each year and may be paid by check or shares liquidated from a
shareholder's account.
Redemptions. As described in the Fund's Prospectuses, shares of the Funds
may be redeemed in a number of different ways:
o By Mail
o By Telephone
o Automatic Withdrawal Plan
The redemption price for Fund shares is the net asset value next determined
after receipt of the redemption request in proper order. The redemption proceeds
will be reduced by the amount of any applicable contingent deferred sales charge
("CDSC").
Contingent Deferred Sales Charge - Class B Shares. Class B Shares
redeemed within six years of purchase are subject to a CDSC. The CDSC is based
on the original net asset value at the time of investment or the net asset value
at the time of redemption, whichever is lower.
The CDSC Schedule for Class B Shares of the Trust Funds purchased
before June 27, 1995 is set forth below. The Prospectuses describe the CDSC
Schedule for Class B Shares of Funds of the Trust, the Company and Framlington
purchased after June 27, 1995.
Class B Shares of the Trust Funds
Purchased on or before June 27, 1995
<TABLE>
<CAPTION>
<S> <C>
Redemption During CDSC
----------------- ----
1st Year Since Purchase ................................ 4.00%
2nd Year Since Purchase ............................... 4.00%
3rd Year Since Purchase 3.00%
4th Year Since Purchase ................................ 3.00%
5th Year Since Purchase ................................ 2.00%
6th Year Since Purchase ................................ 1.00%
</TABLE>
CDSC Waivers - Class B Shares of the Trust Funds Purchased on or before
June 27, 1995. The CDSC will be waived with respect to Class B Shares of the
Trust Funds purchased on or before June 27, 1995 in the following circumstances:
(1) total or partial redemptions made within one year following the death or
disability of a shareholder or registered joint owner;
(2) minimum required distributions made in connection with an IRA or other
retirement plan following attainment of age 59 1/2; and
(3) redemptions pursuant to a Fund's right to liquidate a shareholder's account
involuntarily.
CDSC Waivers - Class B Shares of the Company Funds Purchased on or
before June 27, 1995. The CDSC will be waived on the following types of
redemptions with respect to Class B Shares of the Company Funds purchased on or
before June 27, 1995:
(1) redemptions by investors who have invested a lump sum amount of $1 million
or more in the Fund;
(2) redemptions by the officers, directors, and employees of the Advisor or the
Distributor and such persons' immediate families;
(3) dealers or brokers who have a sales agreement with the Distributor, for
their own accounts, or for retirement plans for their employees or sold to
registered representatives or full time employees (and their families) that
certify to the Distributor at the time of purchase that such purchase is
for their own account (or for the benefit of their families);
(4) involuntary redemptions effected pursuant to the Fund's right to liquidate
shareholder accounts having an aggregate net asset value of less than $500;
and
(5) redemptions the proceeds of which are reinvested in the Fund within 90 days
of the redemption.
Contingent Deferred Sales Charge - Class A and Class C Shares. The
Prospectuses describe the CDSC for Class A or C Shares of the Funds of the
Trust, the Company and Framlington purchased after June 27, 1995.
Class A Shares of the Trust Funds purchased on or before June 27, 1995
without a sales charge by reason of a purchase of $500,000 or more are subject
to a CDSC of 1.00% of the lower of the original purchase price or the net asset
value at the time of redemption if such shares are redeemed within two years of
the date of purchase. Class A Shares of the Trust Funds purchased on or before
June 27, 1995 that are redeemed will not be subject to the CDSC to the extent
that the value of such shares represents: (1) reinvestment of dividends or other
distributions; (2) Class A Shares redeemed more than two years after their
purchase; (3) a minimum required distribution made in connection with IRA or
other retirement plans following attainment of age 59 1/2; or (4) total or
partial redemptions made within one year following the death or disability of a
shareholder or registered joint owner.
No CDSC is imposed to the extent that the current market value of the
shares redeemed does not exceed (a) the current net asset value of shares
purchased through reinvestment of dividends or capital gain distributions plus
(b) the current net asset value of shares purchased more than one year prior to
the redemption, plus (c) increases in the net asset value of the shareholder's
shares above the purchase payments made during the preceding one year.
The holding period of Class A or Class C Shares of a Fund acquired
through an exchange of the corresponding class of shares of the Munder Money
Market Fund (which are available only by exchange of Class A or Class C Shares
of the Fund, as the case may be) and the Company Funds and the non-money market
funds of the Trust will be calculated from the date that the Class A or Class C
Shares of the Fund were initially purchased.
In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing all
Class A Shares on which a front-end sales charge has been assessed; then of
shares acquired pursuant to the reinvestment of dividends and distributions; and
then of amounts representing the cost of shares purchased one year or more prior
to the redemption.
Other Information. Redemption proceeds are normally paid in cash;
however, each Fund may pay the redemption price in whole or part by a
distribution in kind of securities from the portfolio of the 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.
The Funds reserve the right to suspend or postpone redemptions during
any period when: (i) trading on the New York Stock Exchange is restricted, as
determined by the SEC, or the New York Stock Exchange is closed for other than
customary weekend and holiday closings; (ii) the SEC has by order 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 a Fund not reasonably practicable.
The Funds may involuntarily redeem an investor's shares if the net
asset value of such shares is less than $500; provided that involuntary
redemptions will not result from fluctuations in the value of an investor's
shares. A notice of redemption, sent by first-class mail to the investor's
address of record, will fix a date not less than 30 days after the mailing date,
and shares will be redeemed at the net asset value at the close of business on
that date unless sufficient additional shares are purchased to bring the
aggregate account value up to $500 or more. A check for the redemption proceeds
payable to the investor will be mailed to the investor at the address of record.
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., New York City
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.
<PAGE>
NET ASSET VALUE
Money Market Funds. The value of the portfolio securities of the Money
Market Funds is calculated using the amortized cost method of valuation. Under
this method the market value of an instrument is approximated by amortizing the
difference between the acquisition cost and value at maturity of the instrument
on a straight-line basis over the remaining life of the instrument. The effect
of changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline.
As indicated, the amortized cost method of valuation may result in the
value of a security being higher or lower than its market price, the price a
Fund would receive if the security were sold prior to maturity. The Boards of
Trustees and Directors have established procedures reasonably designed, taking
into account current market conditions and the Funds' investment objectives, for
the purpose of maintaining a stable net asset value of $1.00 per share for each
Fund for purposes of sales and redemptions. These procedures include a review by
the Board of Trustees and Directors, at such intervals as they deem appropriate,
of the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for a Fund, the Boards of Trustees and Directors will
promptly consider whether any and, if any, what action should be initiated. If
the Board of Trustees or Directors believes that the extent of any deviation
from a Fund's $1.00 amortized cost price per share may result in material
dilution of other unfair results to new or existing investors, it will take such
steps as it considers appropriate to eliminate or reduce any such dilution or
unfair results to the extent reasonably practicable. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends, shortening the average portfolio maturity,
reducing the number of outstanding shares without monetary consideration, and
utilizing a net asset value per share as determined by using available market
quotations.
Pursuant to Rule 2a-7, each of the Money Market Funds will maintain a
dollar-weighted average portfolio maturity appropriate to its objective of
maintaining a stable net asset value per share, provided that such Funds will
not purchase any security with a remaining maturity (within the meaning of Rule
2a-7 under the 1940 Act) greater than 397 days (securities subject to repurchase
agreements, variable and floating rate securities, and certain other securities
may bear longer maturities), nor maintain a dollar-weighted average portfolio
maturity which exceeds 90 days. In addition, the Funds 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 nationally
recognized security rating organizations 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 Advisor 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 or Trustees.
There can be no assurance that a constant net asset value will be maintained for
each Money Market Fund.
All Funds. In determining the approximate market value of portfolio
investments, the Trust, Framlington or 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
Trust's, Framlington's or 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 Members.
In-Kind Purchases
With the exception of the Real Estate Fund, 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 Prospectuses. Shares
of the Real Estate Fund will not be issued for consideration other than cash.
For further information about this form of payment please contact the Transfer
Agent. In connection with an in-kind securities payment, a Fund will require,
among other things, that the securities (a) meet the investment objectives and
policies of the Funds; (b) are acquired for investment and not for resale; (c)
are liquid securities that are not restricted as to transfer either by law or
liquidity of markets; (d) have a value that is readily ascertainable by a
listing on a nationally recognized securities exchange; and (e) are valued on
the day of purchase in accordance with the pricing methods used by the Fund and
that the Fund receive satisfactory assurances that (i) it will have good and
marketable title to the securities received by it; (ii) that the securities are
in proper form for transfer to the Fund; and (iii) adequate information will be
provided concerning the basis and other tax matters relating to the securities.
PERFORMANCE INFORMATION
Yield of the Money Market Funds
The Money Market Funds' 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. Based on the foregoing computations,
the annualized yields for all share classes of the Cash Investment, Money
Market, Tax-Free Money Market and U.S. Treasury Money Market Funds for the
seven-day period ended June 30, 1997 were: 5.19% (Class Y) and 5.04% (Class K)
and 4.94% (Class A) for the Cash Investment Fund; 4.80% (Class A), 4.04% (Class
B), and 5.05% (Class Y) for the Money Market Fund; 3.60% (Class Y), 3.45% (Class
K) and 3.35% (Class A) for the Tax-Free Money Market Fund; and 4.96% (Class Y),
4.81% (Class K) and 4.82% (Class A) for the U.S. Treasury Money Market Fund.
The effective yields for all share classes of the Money Market, Cash
Investment, Tax-Free Money Market and U.S. Treasury Money Market Funds for the
seven-day period ended June 30, 1997 were: 4.91% (Class A), 4.12% (Class B) and
5.18% (Class Y) for the Money Market Fund; 5.32% (Class Y), 5.17% (Class K) and
5.06% (Class A) for the Cash Investment Fund; 3.66% (Class Y), 3.51% (Class K)
and 3.41% (Class A) for the Tax-Free Money Market Fund; and 5.08% (Class Y),
4.93% (Class K) and 4.71% (Class A) for the U.S. Treasury Money Market Fund.
In addition, a standardized "tax-equivalent yield" may be quoted for
the Tax-Free Money Market Fund, which is computed by: (a) dividing the portion
of the Fund's yield (as calculated above) that is exempt from Federal income tax
by one minus a stated Federal income tax rate; and (b) adding the figure
resulting from (a) above to that portion, if any, of the yield that is not
exempt from Federal income tax. For the seven-day period ended June 30, 1997,
the tax-equivalent yield for Class Y, Class K and Class A Shares of the Tax-Free
Money Market Fund was 5.22% (Class Y), 5.00% (Class K) and 4.94% (Class A)
calculated for all share classes based on a stated tax rate of 31%. The fees
which may be imposed by institutions on their Customers are not reflected in the
calculations of yields for the Funds.
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yields of each Fund will fluctuate, they 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 each 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 and Performance of the Non-Money Market Funds
The Bond Funds', International Bond Fund's and Short Term Treasury
Fund's 30-day (or one month) standard yield described in the applicable
Prospectus is calculated for each Fund in accordance with the method prescribed
by the SEC for mutual funds:
......... a - b
......... YIELD = 2[(------+1)6 - 1]
......... cd
Where: a = dividends and interest earned by a Fund during the
period;
b = expenses accrued for the period (net of
reimbursements and waivers);
c = average daily number of shares outstanding during the
period entitled to receive dividends;
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 a Fund at a discount or premium (variable "a" in the formula), each
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 a 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 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). A Fund's maximum offering price per share for purposes of the formula
includes the maximum sales charge imposed -- currently 5.50% of the per share
offering price for Class A Shares of the Equity Funds (with the exception of the
Index 500 Fund) and the Balanced Fund and 4.00% of the per share offering price
for Class A Shares of the Bond Fund, International Bond Fund, Short Term
Treasury Fund and Tax-Free Bond Funds. Effective September 20, 1995, the maximum
sales charge imposed by Class A Shares of the Index 500 Fund was reduced from
5.50% to 2.50% of the per share offering price of such shares. The
tax-equivalent yield for each Fund below is based on a stated federal tax rate
of 31% and, with respect to Michigan Bond Fund, a Michigan state tax rate of 4%.
Class A Shares
The standard yields and/or tax-equivalent yields of the Class A Shares
of the following Funds for the 30-day period ended June 30, 1997 were:
<TABLE>
<CAPTION>
<S> <C> <C>
30-Day Tax-Equivalent
Yield 30-Day Yield
Bond Fund 5.45% N/A
Intermediate Bond Fund 5.47% N/A
U.S. Government Income Fund 5.77% N/A
International Bond Fund 3.46% N/A
Short Term Treasury Fund N/A N/A
Michigan Bond Fund 4.24% 4.42%
Tax-Free Bond Fund 4.27% 6.19%
Tax-Free Intermediate Bond Fund 3.63% 5.26%
Class B Shares
The standard yields and/or tax-equivalent yields of the Class B Shares
of the following Funds for the 30-day period ended June 30, 1997 were:
30-Day Tax-Equivalent
Yield 30-Day Yield
Bond Fund 4.93% N/A
Intermediate Bond Fund 4.96% N/A
U.S. Government Income Fund 5.25% N/A
International Bond Fund N/A N/A
Short Term Treasury Fund 4.46% N/A
Michigan Bond Fund 3.67% 3.82%
Tax-Free Bond Fund 3.68% 5.33%
Tax-Free Intermediate Bond Fund 3.03% 4.39%
Class C Shares
The standard yields and/or tax-equivalent yields of the Class C Shares
of the following Funds for the 30-day period ended June 30, 1997 were:
<PAGE>
30-Day Tax-Equivalent
Yield 30-Day Yield
Bond Fund 4.92% N/A
Intermediate Bond Fund 4.93% N/A
U.S. Government Income Fund 5.24% N/A
International Bond Fund N/A N/A
Short Term Treasury Fund N/A N/A
Michigan Bond Fund 3.67% 3.82%
Tax-Free Bond Fund N/A N/A
Tax-Free Intermediate Bond Fund N/A N/A
Class K Shares
The standard yields and/or tax-equivalent yields of the Class K Shares
of the following Funds for the 30-day period ended June 30, 1997 were:
30-Day Tax-Equivalent
Yield 30-Day Yield
Bond Fund 5.69% N/A
Intermediate Bond Fund 5.71% N/A
U.S. Government Income Fund 6.01% N/A
International Bond Fund 3.61% N/A
Short Term Treasury Fund 5.22% N/A
Michigan Bond Fund 4.42% 4.60%
Tax-Free Bond Fund 4.44% 6.43%
Tax-Free Intermediate Bond Fund 3.78% 5.48%
Class Y Shares
The standard yields and/or tax-equivalent yields of the Class Y Shares
of the following Funds for the 30-day period ended June 30, 1997 were:
30-Day Tax-Equivalent
Yield 30-Day Yield
Bond Fund 5.94% N/A
Intermediate Bond Fund 5.96% N/A
U.S. Government Income Fund 6.26% N/A
Short Term Treasury Fund 5.47% N/A
International Bond Fund 3.86% N/A
Michigan Bond Fund 4.67% 4.86%
Tax-Free Bond Fund 4.70% 6.81%
Tax-Free Intermediate Bond Fund 4.02% 5.83%
</TABLE>
Each Fund that advertises its "average annual total return" computes
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:
T = (ERV)1/n -1
P
Where: T = average annual total return
ERV = ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of the 1, 5 or 10 year
(or other) periods at the end of the
applicable period (or a fractional
portion thereof)
P = hypothetical initial payment of $1,000
n = period covered by the computation,
expressed in years.
Each Fund that advertises its "aggregate total return" computes such
returns by determining the aggregate compounded rates of return during specified
periods that likewise equate the initial amount invested to the ending
redeemable value of such investment. The formula for calculating aggregate total
return is as follows:
(ERV) - 1
Aggregate Total Return = P
The calculations are made assuming that (1) all dividends and capital
gain distributions are reinvested on the reinvestment dates at the price per
share existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all non-recurring charges at the end of the
measuring period. The Funds' average annual total return and load adjusted
aggregate total return quotations for Class A Shares will reflect the deduction
of the maximum sales charge charged in connection with the purchase of such
shares; and the Funds' load adjusted average annual total return and load
adjusted aggregate total return quotations for Class B Shares will reflect any
applicable CDSC; provided that the Funds may also advertise total return data
without reflecting any applicable CDSC sales charge imposed on the purchase of
Class A Shares or Class B Shares in accordance with the views of the SEC.
Quotations which do not reflect the sales charge will, of course, be higher than
quotations which do.
Based on the foregoing calculation, set forth below are the average
annual total return figures for the Class A, B, C, K and Y Shares of each of the
following Funds for the 12 month and 5 year periods ended June 30, 1997 and
since commencement of operations.
Fund-Inception Date
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
12 Month 5 Year Inception 12 Month 5 Year Inception
Accelerating Period Ended Period Ended through Period Ended Period Ended through
Growth Fund 6/30/97* 6/30/97* 6/30/97* 6/30/97** 6/30/97** 6/30/97**
- ----------- -------- -------- -------- --------- --------- ---------
Class A - 11/23/92 4.83% N/A 12.69% (.93)% N/A 11.32%
Class B - 4/25/94 4.15% N/A 13.08% (.55)% N/A 12.36%
Class C - 9/26/95 3.89% N/A 8.00% 2.95% N/A 8.00%
Class K - 11/23/92 4.83% N/A 12.69% 4.83% N/A 12.69%
Class Y - 12/1/91 5.07% 14.91% 13.88% 5.09% 14.91% 13.88%
<PAGE>
12 Month 5 Year Inception 12 Month 5 Year Inception
Period Ended Period Ended through Period Ended Period Ended through
Balanced Fund 6/30/97* 6/30/97* 6/30/97* 6/30/97** 6/30/97** 6/30/97**
- ------------- -------- -------- -------- --------- --------- ---------
Class A - 4/30/93 13.63% N/A 10.46% 7.38% N/A 8.97%
Class B - 6/21/94 12.73% N/A 14.25% 7.73% N/A 13.49%
Class C - 1/24/96 12.84% N/A 13.43% 11.84% N/A 13.43%
Class K-4/16/93 13.64% N/A 10.11% 13.64% N/A 10.11%
Class Y - 4/13/93 13.91% N/A 10.20% 13.91% N/A 10.20%
12 Month 5 Year Inception 12 Month 5 Year Inception
Growth & Period Ended Period Ended through Period Ended Period Ended through
Income Fund 6/30/97* 6/30/97* 6/30/97* 6/30/97** 6/30/97** 6/30/97**
- ----------- -------- -------- -------- --------- --------- ---------
Class A - 8/8/94 28.10% N/A 21.65% 21.05% N/A 19.30%
Class B - 8/9/94 27.16% N/A 20.81% 22.16% N/A 20.08%
Class C - 12/5/95 27.17% N/A 20.64% 26.17% N/A 20.64%
Class K - 7/5/94 28.12% N/A 21.36% 28.12% N/A 21.36%
Class Y - 7/5/94 28.43% N/A 21.63% 28.43% N/A 21.63%
12 Month 5 Year Inception 12 Month 5 Year Inception
Index 500 Period Ended Period Ended through Period Ended Period Ended through
Fund 6/30/97* 6/30/97* 6/30/97* 6/30/97** 6/30/97** 6/30/97**
- ---- -------- -------- -------- --------- --------- ---------
Class A - 12/9/92 33.97% N/A 19.26% 30.62% N/A 18.60%
Class B - 10/31/95 33.57% N/A 30.39% 30.57% N/A 29.13%
Class K - 12/7/92 33.79% N/A 19.20% 33.79% N/A 19.20%
Class Y - 12/1/91 34.19% 19.40% 19.27% 34.19% 19.40% 19.27%
12 Month 5 Year Inception 12 Month 5 Year Inception
International Period Ended Period Ended through Period Ended Period Ended through
Equity Fund 6/30/97* 6/30/97* 6/30/97* 6/30/97** 6/30/97** 6/30/97**
- ----------- -------- -------- -------- --------- --------- ---------
Class A - 11/30/92 17.98% N/A 12.63% 11.49% N/A 11.25%
Class B - 3/9/94 17.18% N/A 8.64% 12.18% N/A 7.88%
Class C - 9/29/95 17.18% N/A 13.81% 16.18% N/A 13.81%
Class K - 11/23/92 18.09% N/A 12.92% 18.09% N/A 12.92%
Class Y - 12/1/91 18.35% 11.42% 11.64% 18.35% 11.42% 11.64%
12 Month 5 Year Inception 12 Month 5 Year Inception
International Growth Period Ended Period Ended through Period Ended Period Ended through
Fund 6/30/97* 6/30/97* 6/30/97* 6/30/97 6/30/97** 6/30/97**
Class A- 2/20/97 N/A N/A 12.38%++ N/A N/A 6.20%++
Class B - 3/19/97 N/A N/A 14.92%++ N/A N/A 9.92%++
Class C - 2/13/97 N/A N/A 12.96%++ N/A N/A 11.96%++
Class K - 1/10/97 N/A N/A 14.99%++ N/A N/A 14.99%++
Class Y - 12/31/96 N/A N/A 13.50%++ N/A N/A 13.50%++
12 Month 5 Year Inception 12 Month 5 Year Inception
Emerging Period Ended Period Ended through Period Ended Period Ended through
Markets Fund 6/30/97* 6/30/97* 6/30/97* 6/30/97** 6/30/97** 6/30/97**
- ------------ -------- -------- -------- --------- --------- ---------
Class A - 1/14/97 N/A N/A 27.16%++ N/A N/A 20.16%++
Class B - 2/25/97 N/A N/A 16.21%++ N/A N/A 11.21%++
Class C - 3/3/97 N/A N/A 18.03%++ N/A N/A 17.03%++
Class K - 1/10/97 N/A N/A 28.69%++ N/A N/A 28.69%++
Class Y - 12/31/96 N/A N/A 29.51%++ N/A N/A 29.51%++
<PAGE>
12 Month 5 Year Inception 12 Month 5 Year Inception
Period Ended Period Ended through Period Ended Period Ended through
Healthcare Fund 6/30/97* 6/30/97* 6/30/97* 6/30/97** 6/30/97** 6/30/97**
- --------------- -------- -------- -------- --------- --------- ---------
Class A - 2/14/97 N/A N/A (3.63)%++ N/A N/A (8.93)%++
Class B - 1/31/97 N/A N/A (1.54)%++ N/A N/A (6.47)%++
Class C - 1/13/97 N/A N/A 4.42%++ N/A N/A 3.42%++
Class K - 4/1/97 N/A N/A 15.24%++ N/A N/A 15.24%++
Class Y - 12/31/96 N/A N/A 8.90%++ N/A N/A 8.90%++
12 Month 5 Year Inception 12 Month 5 Year Inception
Period Ended Period Ended through Period Ended Period Ended through
Micro-Cap Fund 6/30/97* 6/30/97* 6/30/97* 6/30/97** 6/30/97** 6/30/97**
- -------------- -------- -------- -------- --------- --------- ---------
Class A - 12/26/96 N/A N/A 28.10%++ N/A N/A 21.05%++
Class B - 2/24/97 N/A N/A 16.27%++ N/A N/A 11.27%++
Class C - 3/31/97 N/A N/A 26.26%++ N/A N/A 25.26%++
Class K - 12//31/96 N/A N/A 26.68%++ N/A N/A 26.68%++
Class Y - 12/26/96 N/A N/A 28.30%++ N/A N/A 28.30%++
12 Month 5 Year Inception 12 Month 5 Year Inception
Period Ended Period Ended through Period Ended Period Ended through
Small-Cap Fund 6/30/97* 6/30/97* 6/30/97* 6/30/97** 6/30/97** 6/30/97**
- -------------- -------- -------- -------- --------- --------- ---------
Class A - 1/10/97 N/A N/A 18.20%++ N/A N/A 11.70%++
Class B - 2/11/97 N/A N/A 12.03%++ N/A N/A 7.03%++
Class C - 1/13/97 N/A N/A 17.92%++ N/A N/A 16.92%++
Class K - 12/31/96 N/A N/A 19.85%++ N/.A N/A 19.85%++
Class Y - 12/26/96 N/A N/A 20.86%++ N/A N/A 20.86%++
12 Month 5 Year Inception 12 Month 5 Year Inception
Period Ended Period Ended through Period Ended Period Ended through
Mid-Cap Fund 6/30/97* 6/30/97* 6/30/97* 6/30/97** 6/30/97** 6/30/97**
- ------------ -------- -------- -------- --------- --------- ---------
Class A - 12/22/95 .90% N/A 6.81% (4.65)% N/A 2.92%
Class B - 1/26/96 .07% N/A 6.32% (4.42)% N/A 3.64%
Class C - 11/9/95 .17% N/A 6.48% (.73)% N/A 6.48%
Class K -10/2/95 .90% N/A 6.04% .90% N/A 6.04%
Class Y - 8/14/95 1.07% N/A 8.73% 1.07% N/A 8.73%
12 Month 5 Year Inception 12 Month 5 Year Inception
International Period Ended Period Ended through Period Ended Period Ended through
-
Bond Fund 6/30/97* 6/30/97* 6/30/97* 6/30/97** 6/30/97** 6/30/97**
- --------- -------- -------- -------- --------- --------- ---------
Class A - 10/17/96 N/A N/A (.84)%++ N/A N/A (4.81)%
Class B - 6/9/97 N/A N/A (.20)%++ N/A N/A (5.19)%++
Class K - 3/24/97 N/A N/A 3.04%++ N/A N/A 3.04%++
Class Y - 10/2/96 N/A N/A (.90)%++ N/A N/A (.90)%++
<PAGE>
12 Month 5 Year Inception 12 Month 5 Year Inception
Period Ended Period Ended through Period Ended Period Ended through
Multi-Season Fund 6/30/97* 6/30/97* 6/30/97* 6/30/97** 6/30/97** 6/30/97**
Class A - 8/4/93 27.57% N/A 18.37% 20.55% N/A 16.67%
Class B - 4/29/93 26.61% N/A 16.75% 21.61% N/A 16.46%
Class C - 9/20/93 26.66% N/A 18.04% 25.66% N/A 18.09%
Class K - 6/23/95 27.55% N/A 26.32% 27.55% N/A 26.32%
Class Y - 8/16/93 27.96% N/A 18.78% 27.96% N/A 18.78%
<PAGE>
12 Month 5 Year Inception 12 Month 5 Year Inception
Period Ended Period Ended through Period Ended Period Ended through
Real Estate Fund 6/30/97* 6/30/97* 6/30/97* 6/30/97** 6/30/97** 6/30/97**
- ---------------- -------- -------- -------- --------- --------- ---------
Class A - 9/30/94 33.51% N/A 19.08% 26.17% N/A 16.66%
Class B - 10/3/94 32.52% N/A 18.25% 27.52% N/A 17.43%
Class C - 1/5/96 32.57% N/A 25.78% 31.57% N/A 25.78%
Class K - 10/3/96 N/A N/A 23.11%++ N/A N/A 23.11%++
Class Y - 10/3/94 33.79% N/A 19.42% 33.79% N/A 19.42%
12 Month 5 Year Inception 12 Month 5 Year Inception
Small Company Period Ended Period Ended through Period Ended Period Ended through
Growth Fund 6/30/97* 6/30/97* 6/30/97* 6/30/97** 6/30/97** 6/30/97**
- ----------- -------- -------- -------- --------- --------- ---------
Class A - 11/23/92 18.88% N/A 19.04% 12.34% N/A 17.59%
Class B - 4/28/94 18.06% N/A 23.39% 13.06% N/A 22.79%
Class C - 9/26/95 18.26% N/A 28.76% 17.26% N/A 28.76%
Class K - 11/23/92 18.93% N/A 19.05% 18.93% N/A 19.05%
Class Y - 12/1/91 19.26% 21.94% 20.16% 19.26% 21.94% 20.16%
12 Month 5 Year Inception 12 Month 5 Year Inception
Period Ended Period Ended through Period Ended Period Ended through
Value Fund 6/30/97* 6/30/97* 6/30/97* 6/30/97** 6/30/97** 6/30/97**
- ---------- -------- -------- -------- --------- --------- ---------
Class A - 9/14/95 34.38% N/A 25.55% 26.99% N/A 21.66%
Class B - 9/19/95 33.24% N/A 24.63% 28.24% N/A 22.73%
Class C - 2/9/96 33.36% N/A 24.67% 32.36% N/A 24.67%
Class K - 11/30/95 34.37% N/A 26.02% 34.37% N/A 26.02%
Class Y - 8/18/95 34.66% N/A 27.26% 34.66% N/A 27.26%
12 Month 5 Year Inception 12 Month 5 Year Inception
Period Ended Period Ended through Period Ended Period Ended through
Bond Fund 6/30/97* 6/30/97* 6/30/97* 6/30/97** 6/30/97** 6/30/97**
- --------- -------- -------- -------- --------- --------- ---------
Class A - 12/9/92 6.84% N/A 6.32% 2.56% N/A 5.37%
Class B - 3/13/96 5.97% N/A 4.74% .97% N/A 1.73%
Class C - 3/25/96 6.19% N/A 4.45% 5.19% N/A 4.45%
Class K - 11/23/92 6.72% N/A 6.24% 6.72% N/A 6.24%
Class Y - 12/1/91 7.09% 5.40% 6.05% 6.99% 5.40% 6.05%
12 Month 5 Year Inception 12 Month 5 Year Inception
Intermediate Period Ended Period Ended through Period Ended Period Ended through
Bond Fund 6/30/97* 6/30/97* 6/30/97* 6/30/97** 6/30/97** 6/30/97**
- --------- -------- -------- -------- --------- --------- ---------
Class A - 11/24/92 6.34% N/A 5.19% 2.08% N/A 4.26%
Class B - 10/25/94 5.60% N/A 6.37% .60% N/A 5.35%
Class C - 4/19/96 5.77% N/A 5.14% 4.77% N/A 5.14%
Class K - 11/20/92 6.34% N/A 5.18% 6.34% N/A 5.18%
Class Y - 12/1/91 6.60% 5.54% 5.86% 6.60% N/A 5.86%
12 Month 5 Year Inception 12 Month 5 Year Inception
U.S. Government Period Ended Period Ended through Period Ended Period Ended through
Income Fund 6/30/97* 6/30/97* 6/30/97* 6/30/97** 6/30/97** 6/30/97**
- ----------- -------- -------- -------- --------- --------- ---------
Class A - 7/28/94 7.50% N/A 7.51% 3.20% N/A 6.02%
Class B - 9/6/95 6.77% N/A 5.04% 1.77% N/A 2.96%
Class C - 8/12/96 N/A N/A 4.87%++ N/A N/A 3.88%++
Class K - 7/5/94 7.49% N/A 7.43% 7.49% N/A 7.43%
Class Y - 7/5/94 7.75% N/A 7.70% 7.75% N/A 7.70%
<PAGE>
12 Month 5 Year Inception 12 Month 5 Year Inception
Short Term Treasury Period Ended Period Ended through Period Ended Period Ended through
Fund 6/30/97* 6/30/97* 6/30/97* 6/30/97** 6/30/97** 6/30/97**
Class B - 4/4/97 N/A N/A 1.44%++ N/A N/A (3.56)%++
Class K - 4/2/97 N/A N/A 1.78%++ N/A N/A 1.78%++
Class Y - 1/29/97 N/A N/A 2.30%++ N/A N/A 2.30%++
12 Month 5 Year Inception 12 Month 5 Year Inception
Michigan Period Ended Period Ended through Period Ended Period Ended through
Bond Fund 6/30/97* 6/30/97* 6/30/97* 6/30/97** 6/30/97** 6/30/97**
- --------- -------- -------- -------- --------- --------- ---------
Class A - 2/15/94 7.88% N/A 4.03% 3.57% N/A 2.78%
Class B - 7/5/94 7.09% N/A 6.04% 2.09% N/A 5.13%
Class C - 10/4/96 N/A N/A 3.57%++ N/A N/A 2.57%++
Class K - 1/3/94 8.00% N/A 3.75% 8.00% N/A 3.75%
Class Y - 1/3/94 8.26% N/A 4.02% 8.26% N/A 4.02%
12 Month 5 Year Inception 12 Month 5 Year Inception
Period Ended Period Ended through Period Ended Period Ended through
Tax-Free Bond Fund 6/30/97* 6/30/97* 6/30/97* 6/30/97** 6/30/97** 6/30/97**
- ------------------ -------- -------- -------- --------- --------- ---------
Class A - 10/9/95 7.13% N/A 5.20% 2.85% N/A 2.74%
Class B - 12/6/94 6.43% N/A 7.47% 1.43% N/A 6.42%
Class K - 7/5/94 7.13% N/A 6.73% 7.13% N/A 6.73%
Class Y - 7/21/94 7.40% N/A 6.85% 7.40% N/A 6.85%
Tax-Free 12 Month 5 Year Inception 12 Month 5 Year Inception
Intermediate Period Ended Period Ended through Period Ended Period Ended through
Bond Fund 6/30/97* 6/30/97* 6/30/97* 6/30/97** 6/30/97** 6/30/97**
- --------- -------- -------- -------- --------- --------- ---------
Class A - 11/30/92 5.04% N/A 4.52% .84% N/A 3.60%
Class B - 5/16/96 4.24% N/A 4.13% (.76)% N/A .58%
Class K - 2/9/87+++ 5.04% 4.83% 5.58% 5.04% N/A 5.58%
Class Y - 12/17/92 5.40% N/A 4.74% 5.40% N/A 4.74%
<FN>
* Figures do not include the effect of the sales charge.
** Figures include the effect of the applicable sales charge.
++ Aggregate total return.
+++ For the 10 year period ended June 30, 1997, the average annual total return for Class K Shares was 5.27%.
</FN>
</TABLE>
As of June 30, 1997, the following Classes had not commenced
operations: Class A Shares of Short Term Treasury Fund, Class B Shares of
International Bond Fund, Class C Shares of each of Tax-Free Bond, Intermediate
Bond Fund, Short Term Treasury Fund and Tax-Free Intermediate Bond Fund.
The Equity Selection Fund was not available for purchase as of the date
of this Statement of Additional Information.
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, a
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, a 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. In addition, as stated in the Funds'
Prospectuses, the tax-equivalent yield (and hypothetical examples illustrating
the effect of tax-equivalent yields) of a Fund may be quoted in advertisements
or reports to shareholders. Hypothetical examples showing the difference between
a taxable and a tax-free investment may also be provided to shareholders.
The foregoing performance data reflects the imposition of the maximum
sales load on Class A Shares but does not reflect payments under the Trust's
Class K Plan or Class A Plan, which were not imposed before December 31, 1993.
TAXES
The following summarizes certain additional federal and state income
tax considerations generally affecting the Funds and their shareholders that are
not described in the Funds' Prospectuses. No attempt is made to present a
detailed explanation of the tax treatment of the Funds or their shareholders,
and the discussion here and in the applicable Prospectus is not intended as a
substitute for careful tax planning. This discussion is based upon present
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
regulations promulgated thereunder, and judicial and administrative ruling
authorities, all of which are subject to change, which change may be
retroactive. Prospective investors should consult their own tax advisors with
regard to the federal tax consequences of the purchase, ownership and
disposition of Fund shares, as well as the tax consequences arising under the
laws of any state, foreign country, or other taxing jurisdiction.
General. Each Fund intends to elect and qualify to be taxed separately
as a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, each Fund generally is
exempt from federal income tax on its net investment income and realized capital
gains which it distributes to 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 Code that are
described below. Distributions of investment company taxable income and net
tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement.
In addition to satisfaction of the Distribution Requirement, each Fund
must derive with respect to a taxable year at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans and gains
from the sale or other disposition of stock or securities or foreign currencies,
or from other income derived with respect to its business of investing in such
stock, securities, or currencies (the "Income Requirement"); also, for taxable
years beginning before August 6, 1997, each Fund must derive less than 30% of
its gross income from the sale or other disposition of securities and certain
other investments held for less than three months (the "Short-Short Test").
Interest (including original issue discount and "accrued market discount")
received by a Fund at maturity or on disposition of a security held for less
than three months will not be treated (in contrast to other income which is
attributable to realized market appreciation) as gross income from the sale or
other disposition of securities held for less than three months for this
purpose.
In addition to the foregoing requirements, at the close of each quarter
of its taxable year, at least 50% of the value of each Fund's assets must
consist of cash and cash items, U.S. Government securities, securities of other
regulated investment companies, and securities of other issuers (as to which a
Fund has not invested more than 5% of the value of its total assets in
securities of such issuer and as to which a 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 such Fund controls and
which are engaged in the same or similar trades or businesses.
Distributions of net investment income received by a Fund from
investments in debt securities (other than interest on tax-exempt municipal
obligations held by the Tax-Free Bond Funds and Tax-Free Money Market Fund) and
any net realized short-term capital gains distributed by a Fund will be taxable
to shareholders as ordinary income and will not be eligible for the dividends
received deduction for corporations.
Each Fund intends to distribute to shareholders any excess of net
long-term capital gain over net short-term capital loss ("net capital gain") for
each taxable year. Such gain is distributed as a capital gain dividend and is
taxable to shareholders as gain from the sale or exchange of a capital asset
held for more than one year, regardless of the length of time a shareholder has
held his or her 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 mid-term or long-term gain. 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 any 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 such
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 Funds each year.
The Code imposes a non-deductible 4% excise tax on regulated investment
companies that fail to distribute in each calendar year 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.
The Trust, the Framlington Trust and the Company will be required in
certain cases to withhold and remit to the United States Treasury 31% of taxable
distributions, including gross proceeds realized upon sale or other dispositions
paid to any shareholder (i) who has provided 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 that he is not
subject to backup withholding or that he is an "exempt recipient."
Disposition of Shares. Upon a redemption, sale or exchange of his or
her shares, a shareholder will realize a taxable 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, mid-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 through reinvestment of dividends) within a period of 61 days
beginning 30 days before and ending 30 days after the shares are disposed of. 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 the sale 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 or
treated as having been 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.
In some cases, shareholders will not be permitted to take sales charges
into account for purposes of determining the amount of gain or loss realized on
the disposition of their stock. This prohibition generally applies where (1) the
shareholder incurs a sales charge in acquiring the stock of a Fund, (2) the
stock is disposed of before the 91st day after the date on which it was
acquired, and (3) the shareholder subsequently acquires the stock of the same or
another fund and the otherwise applicable sales charge is reduced under a
"reinvestment right" received upon the initial purchase of regulated investment
company shares. The term "reinvestment right" means any right to acquire stock
of one or more funds without the payment of a sales charge or with the payment
of a reduced sales charge. Sales charges affected by this rule are treated as if
they were incurred with respect to the stock acquired under the reinvestment
right. This provision may be applied to successive acquisitions of Fund shares.
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, each Fund
may be subject to the tax laws of such states or localities.
Tax-Free Bond Funds and Tax-Free Money Market Fund. The Michigan Bond
Fund, Tax-Free Bond Fund, Tax-Free Intermediate Bond Fund, and Tax-Free Money
Market Fund are designed to provide investors with current tax-exempt interest
income. Shares of the Funds would not be suitable for tax-exempt institutions
and may not be suitable for retirement plans qualified under Section 401 of the
Code, H.R. 10 plans and individual retirement accounts since such plans and
accounts are generally tax-exempt and, therefore, not only would not gain any
additional benefit from the Funds' dividends being tax-exempt but also such
dividends would be taxable when distributed to the beneficiary. In addition, the
Funds may not be an appropriate investment for entities which are "substantial
users" of facilities financed by private activity bonds or "related persons"
thereof. "Substantial user" is defined under U.S. Treasury Regulations to
include a non-exempt person who regularly uses a part of such facilities in his
trade or business and (a) whose gross revenues derived with respect to the
facilities financed by the issuance of bonds are more than 5% of the total
revenues derived by all users of such facilities, (b) who occupies more than 5%
of the entire usable area of such facilities, or (c) for whom such facilities or
a part thereof were specifically constructed, reconstructed or acquired.
"Related persons" generally include certain related natural persons, affiliated
corporations, a partnership and its partners and an S corporation and its
shareholders.
In order for the Funds to pay exempt-interest dividends with respect to
any taxable year, at the close of each quarter of each Fund's taxable year at
least 50% of the value of the Fund's assets must consist of tax-exempt municipal
obligations. Exempt-interest dividends distributed to shareholders are not
included in the shareholder's gross income for regular federal income tax
purposes. However, all shareholders required to file a federal income tax return
are required to report the receipt of exempt-interest dividends and other
tax-exempt interest on their returns. Moreover, while such dividends and
interest are exempt from regular federal income tax, they may be subject to
alternative minimum tax in two circumstances. First, exempt-interest dividends
derived from certain "private activity" bonds issued after August 7, 1986 will
generally constitute an item of tax preference for both corporate and
non-corporate taxpayers. Second, exempt-interest dividends derived from all
bonds, regardless of the date of issue, must be taken into account by corporate
taxpayers in determining the amount of certain adjustments for alternative
minimum tax purposes. Receipt of exempt-interest dividends may result in
collateral federal income tax consequences to certain other taxpayers, including
financial institutions, property and casualty insurance companies, individual
recipients of Social Security or Railroad Retirement benefits, and foreign
corporations engaged in a trade or business in the United States. Prospective
investors should consult their own tax advisors as to such consequences.
The percentage of total dividends paid by the Fund with respect to any
taxable year which qualifies as federal exempt-interest dividends will be the
same for all shareholders receiving dividends during such year. If a shareholder
receives an exempt-interest dividend with respect to any share and such share is
held for six months or less, any loss on the sale or exchange of such share will
be disallowed to the extent of the amount of such dividends.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Funds generally is not deductible for federal income tax purposes
if the Funds distribute exempt-interest dividends during the shareholder's
taxable year.
Investors may be subject to state and local taxes on income derived
from an investment in a Fund. In certain states, income derived from a Fund
which is attributable to interest on obligations of that state or any
municipality or political subdivision thereof may be exempt from taxation.
Shareholders are advised to consult their own tax advisers with respect
to the particular tax consequences to them of an investment in a Fund. Persons
who may be "substantial users" (or "related persons" of substantial users) of
facilities financed by industrial development bonds should consult their tax
advisers before investing in a Fund.
Michigan Tax Considerations - Michigan Bond Fund and Tax-Free
Intermediate Bond Fund. As stated in the Michigan Bond Fund Prospectus and the
Tax-Free Intermediate Bond Fund Prospectus, dividends paid by the Fund that are
derived from interest attributable to tax-exempt Michigan Municipal Obligations
will be exempt from Michigan Income Tax, Michigan Intangibles Tax and Michigan
Single Business Tax. Conversely, to the extent that the Fund's dividends are
derived from interest on obligations other than Michigan Municipal Obligations,
such dividends will be subject to Michigan Income, Intangibles and Michigan
Single Business Taxes, even though the dividends may be exempt for federal
Income Tax purposes.
In particular, gross interest income and dividends derived from
obligations or securities of the State of Michigan and its political
subdivisions, exempt from federal Income Tax, are exempt from Michigan Income
Tax under Act No. 281, Public Acts of Michigan, 1967, as amended, and are exempt
from Michigan Single Business Tax under Act No. 228, Public Acts of Michigan,
1975, as amended. The Michigan Income Tax act levies a flat-rate income tax on
individuals, estates, and trusts. The Single Business Tax Act levies a tax upon
the "adjusted tax base" of most individuals, corporations, financial
organizations, partnerships, joint ventures, estates, and trusts with "business
activity" in Michigan.
Bonds or other similar obligations of the State of Michigan or of a
political subdivision of the State of Michigan are exempt from Michigan
Intangibles Tax under Act No. 301, Public Acts of Michigan, 1939, as amended. In
1986, the Michigan Department of Treasury issued a Bulletin stating that holders
of interests in investment companies who are subject to the Michigan intangibles
tax will be exempt from the tax to the extent that the investment portfolio
consists of items such as Michigan Municipal Obligations.
The transfer of obligations or securities of the State of Michigan and
its political subdivisions by the Fund, as well as the transfer of Fund shares
by a shareholder, is subject to Michigan taxes measured by gain on the sale,
payment, or other disposition thereof.
International Equity Fund, International Growth Fund, Emerging Markets
Fund and International Bond Fund. Income received by the International Equity
Fund, the International Growth Fund, the Emerging Markets Fund and the
International Bond Fund from sources within foreign countries may be subject to
withholding and other foreign taxes. The payment of such taxes will reduce the
amount of dividends and distributions paid to the Funds' shareholders. So long
as a Fund qualifies as a regulated investment company, certain distribution
requirements are satisfied, and more than 50% of the value of the Fund's assets
at the close of the taxable year consists of securities of foreign corporations,
the Fund may elect, subject to limitation, to pass through its foreign tax
credits to its shareholders. The Fund may qualify for and make this election in
some, but not necessarily all, of its taxable years. If a Fund were to make an
election, an amount equal to the foreign income taxes paid by the Fund would be
included in the income of its shareholders and the shareholders would be
entitled to credit their portions of this amount against their U.S. tax due, if
any, or to deduct such portions from their U.S. taxable income, if any. Shortly
after any year for which it makes such an election, a Fund will report to its
shareholders, in writing, the amount per share of such foreign tax that must be
included in each shareholder's gross income and the amount which will be
available for deduction or credit. No deduction for foreign taxes may be claimed
by a shareholder who does not itemize deductions. Certain limitations are
imposed on the extent to which the credit (but not the deduction) for foreign
taxes may be claimed.
Shareholders who choose to utilize a credit (rather than a deduction)
for foreign taxes will be subject to limitations, including the restriction that
the credit may not exceed the shareholder's United States tax (determined
without regard to the availability of the credit) attributable to his or her
total foreign source taxable income. For this purpose, the portion of dividends
and distributions paid by the Fund from its foreign source income will be
treated as foreign source income. The Fund's gains and losses from the sale of
securities will generally be treated as derived from United States sources and
certain foreign currency gains and losses likewise will be treated as derived
from United States sources. The limitation on the foreign tax credit is applied
separately to foreign source "passive income", such as the portion of dividends
received from the Fund which qualifies as foreign source income. In addition,
only a portion of the foreign tax credit will be allowed to offset any
alternative minimum tax imposed on corporations and individuals. Because of
these limitations, shareholders may be unable to claim a credit for the full
amount of their proportionate shares of the foreign income taxes paid by the
Fund.
Taxation of Certain Financial Instruments. Special rules govern the
Federal income tax treatment of financial instruments that may be held by some
of the Funds. These rules may have a particular impact on the amount of income
or gain that the Funds must distribute to their respective shareholders to
comply with the Distribution Requirement, on the income or gain qualifying under
the Income Requirement and on their ability to comply with the Short-Short Test,
all described above.
Market Discount. If a Fund purchases a debt security at a price lower
than the stated redemption price of such debt security, the excess of the stated
redemption price over the purchase price is "market discount". If the amount of
market discount is more than a de minimis amount, a portion of such market
discount must be included as ordinary income (not capital gain) by the Fund in
each taxable year in which the Fund owns an interest in such debt security and
receives a principal payment on it. In particular, the Fund will be required to
allocate that principal payment first to the portion of the market discount on
the debt security that has accrued but has not previously been includable in
income. In general, the amount of market discount that must be included for each
period is equal to the lesser of (i) the amount of market discount accruing
during such period (plus any accrued market discount for prior periods not
previously taken into account) or (ii) the amount of the principal payment with
respect to such period. Generally, market discount accrues on a daily basis for
each day the debt security is held by a Fund at a constant rate over the time
remaining to the debt security's maturity or, at the election of the Fund, at a
constant yield to maturity which takes into account the semi-annual compounding
of interest. Gain realized on the disposition of a market discount obligations
must be recognized as ordinary interest income (not capital gain) to the extent
of the "accrued market discount."
Original Issue Discount. Certain debt securities acquired by the Funds
may be treated as debt securities that were originally issued at a discount.
Very generally, original issue discount is defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income on account of such discount is actually
received by a Fund, original issue discount that accrues on a debt security in a
given year generally is treated for federal income tax purposes as interest and,
therefore, such income would be subject to the distribution requirements
applicable to regulated investment companies.
Some debt securities may be purchased by the Fund, at a discount that
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes
(see above).
Hedging Transactions. The taxation of equity options and
over-the-counter options on debt securities is governed by Code section 1234.
Pursuant to 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 and foreign currency contracts and certain
options (namely, nonequity options and dealer equity options) in which a Fund
may invest may be "section 1256 contracts." Gains (or losses) on these contracts
generally are considered to be 60% long-term and 40% short-term capital gains or
losses. Also, section 1256 contracts held by a Fund at the end of each taxable
year) and on certain other dates prescribed in the Code) are "marked to market"
with the result that unrealized gains or losses are treated as though they were
realized.
Generally, hedging transactions, if any, undertaken by a Fund may
result in "straddles" for federal income tax purposes. The straddle rules may
affect the character of gains (or losses) realized by the Funds. 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 such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences of hedging transactions to the Funds are
not entirely clear. The hedging transactions may increase the amount of
short-term capital gain realized by the Funds which is taxed as ordinary income
when distributed to shareholders.
The Funds may make one or more of the elections available under the
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 application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not engage in such hedging transactions.
The Short-Short Test for taxable years beginning before August 6, 1997,
and the diversification requirements applicable to the Funds' assets may limit
the extent to which the Funds will be able to engage in transactions in options,
futures or forward contracts.
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 Code.
Currency Fluctuations-"Section 988" Gains or Losses. Under the 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 and loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain futures, forward contracts and options, gains or
losses attributable to fluctuations in the value of the 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 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.
Passive Foreign Investment Companies. Certain Funds may invest in
shares of foreign corporations that may be classified under the Code as passive
foreign investment companies ("PFICs"). In general, a foreign corporation is
classified as a PFIC if at least on-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 stock, 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 any 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.
Other Taxation
The foregoing discussion relates only to U.S. federal income tax law and
certain state taxes as applicable to U.S. persons (i.e., U.S. citizens and
residents and domestic corporations, partnerships, trusts and estates).
Distributions by the Funds, and dispositions of Fund shares also may be subject
to other state and local taxes, and their treatment under state and local income
tax laws may differ from the U.S. federal income tax treatment. Shareholders
should consult their tax advisers with respect to particular questions of U.S.
federal, state and local taxation.
Shareholders who are not U.S. persons should consult their tax advisers
regarding U.S. and foreign tax consequences of ownership of shares of the Fund,
including the likelihood that distributions to them would be subject to
withholding of U.S. federal income tax at a rate of 30% (or at a lower rate
under a tax treaty).
ADDITIONAL INFORMATION CONCERNING SHARES
The Trust and Framlington are Massachusetts business trusts. Under each
Declaration of Trust, the beneficial interest in the Trust or Framlington may be
divided into an unlimited number of full and fractional transferable shares. The
Company is a Maryland corporation. The Trust's and Framlington's Declaration of
Trust and the Company's Articles of Incorporation authorize the Boards of
Trustees and Directors to classify or reclassify any unissued shares of the
Trust, Framlington and the Company into one or more classes by setting or
changing, in any one or more respects, their respective designations,
preferences, conversion or other rights, voting powers, restrictions,
limitations, qualifications and terms and conditions of redemption. Pursuant to
such authority, the Trust's Board of Trustees has authorized the issuance of an
unlimited number of shares of beneficial interest in the Trust, representing
interests in the Accelerating Growth, Balanced, Growth & Income, Index 500,
International Equity, Small Company Growth, Bond, Intermediate Bond, U.S.
Government Income, Michigan Bond, Tax-Free Bond, Tax-Free Intermediate Bond,
Cash Investment, Tax-Free Money Market and U.S. Treasury Money Market Funds. The
shares of each Fund (other than the Cash Investment Fund, Tax-Free Money Market
Fund and U.S. Treasury Money Market Fund) are offered in five separate classes:
Class A, Class B, Class C, Class K and Class Y Shares. Class C Shares of the
Index 500 Fund are not currently available for purchase. The Cash Investment
Fund, Tax-Free Money Market Fund and U.S. Treasury Money Market Fund offer only
Class Y Shares, Class K Shares and Class A Shares. Pursuant to the authority of
Framlington's Declaration of Trust, the Trustees have authorized the issuance of
an unlimited number of shares of beneficial interest in Framlington representing
interests in the International Growth Fund, Emerging Markets Fund and Healthcare
Fund. The shares of each Fund are offered in five separate classes: Class A,
Class B, Class C, Class K and Class Y shares. Pursuant to the authority of the
Company's Articles of Incorporation, the Directors have authorized the issuance
of shares of common stock representing interests in the Equity Selection Fund,
Micro-Cap Fund, Mid-Cap Fund, Multi-Season Fund, Real Estate Fund, Small-Cap
Value Fund, Value Fund, International Bond Fund, Money Market Fund, All-Season
Conservative Fund, All-Season Moderate Fund and All-Season Aggressive Fund,
Financial Services Fund and NetNet Fund, respectively. The shares of each Fund
(other than the Money Market Fund, All-Season Conservative Fund, All-Season
Moderate Fund and All-Season Aggressive Fund, Financial Services Fund and the
NetNet Fund) are offered in five separate classes: Class A, Class B, Class C,
Class K and Class Y Shares. The Money Market Fund offers only Class A, Class B
and Class C Shares (which may be acquired only through an exchange of shares
from the corresponding classes of other funds of the Trust, Framlington the
Company) and Class Y Shares. The All-Season Conservative Fund, All-Season
Moderate Fund and All-Season Aggressive Fund offer only Class A, Class B and
Class Y Shares. The NetNet Fund and Financial Services Fund each offer only one
class of shares.
At a meeting on April 25 and 26, 1995, the Boards of the Trust and the
Company, and at a meeting on November 7, 1996, the Board of Framlington Trust
adopted plans pursuant to Rule 18f-3 under the 1940 Act ("Multi-Class Plans") on
behalf of each Fund. At a meeting on February 4, 1997, the Trust, Framlington
and the Company adopted Amended and Restated Multi-Class Plans on behalf of each
Fund. Each 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.
In the event of a liquidation or dissolution of each of the Trust,
Framlington or 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 Trust's, Framlington Trust's or the Company's
respective 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 on
liquidation, based on the number of shares of the Fund that are held by each
shareholder.
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 A Shares of a Fund will be entitled to vote on matters submitted to a vote
of shareholders pertaining to the Fund's Class A Plan, only Class B Shares will
be entitled to vote on matters submitted to a vote of shareholders pertaining to
the Fund's Class B Plan, only Class C Shares of a Fund will be entitled to vote
on matters submitted to a vote of shareholders pertaining to the Fund's Class C
Plan, and 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. Further,
shareholders of all of the Funds, as well as those of any other investment
portfolio now or hereafter offered by the Trust, Framlington or 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 Boards of Trustees
and 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 Trust, Framlington or 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 each Fund in
the matter are substantially identical or that the matter does not affect any
interest of the Fund. Under the Rule, the approval of an investment advisory
agreement, sub-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 trustees may be
effectively acted upon by shareholders of the Trust, Framlington or the Company
voting together in the aggregate without regard to a particular Fund.
Shares of each of the Trust, Framlington and the Company have
noncumulative voting rights and, accordingly, the holders of more than 50% of
each of the Trust's, Framlington's and the Company's outstanding shares
(irrespective of class) may elect all of the trustees or directors. Shares have
no preemptive rights and only such conversion and exchange rights as the Board
may grant in its discretion. When issued for payment as described in the
applicable Prospectus, shares will be fully paid and non-assessable by each of
the Trust, Framlington and the Company.
Shareholder meetings to elect trustees or directors will not be held
unless and until such time as required by law. At that time, the trustees then
in office will call a shareholders' meeting to elect trustees. Except as set
forth above, the trustees will continue to hold office and may appoint successor
trustees. Meetings of the shareholders of the Trust, Framlington or the Company
shall be called by the trustees or directors upon the written request of
shareholders owning at least 10% of the outstanding shares entitled to vote.
The Trust's and Framlington's Declaration of Trust, as amended,
authorizes the Board of Trustees, without shareholder approval (unless otherwise
required by applicable law), to: (i) sell and convey the assets belonging to a
class of shares to another management investment company for consideration which
may include securities issued by the purchaser and, in connection therewith, to
cause all outstanding shares of such class to be redeemed at a price which is
equal to their net asset value and which may be paid in cash or by distribution
of the securities or other consideration received from the sale and conveyance;
(ii) sell and convert the assets belonging to one or more classes of shares into
money and, in connection therewith, to cause all outstanding shares of such
class to be redeemed at their net asset value; or (iii) combine the assets
belonging to a class of shares with the assets belonging to one or more other
classes of shares if the Board of Trustees reasonably determines that such
combination will not have a material adverse effect on the shareholders of any
class participating in such combination and, in connection therewith, to cause
all outstanding shares of any such class to be redeemed or converted into shares
of another class of shares at their net asset value. However, the exercise of
such authority may be subject to certain restrictions under the 1940 Act. The
Trust's and Framlington's Board of Trustees may authorize the termination of any
class of shares after the assets belonging to such class have been distributed
to its shareholders.
MISCELLANEOUS
Counsel. The law firm of Dechert Price & Rhoads, 1500 K Street, N.W.,
Washington, DC 20005, has passed upon certain legal matters in connection with
the shares offered by the Funds and serves as counsel to the Trust, Framlington
and the Company.
Independent Auditors. Ernst & Young LLP, 200 Clarendon Street, Boston,
Massachusetts 02116, serves as the Trust's, Framlington's and the Company's
independent auditors.
As of October 7, 1997, Comerica Bank, One Detroit Center, 500 Woodward
Ave., Detroit, Michigan 48226, held of record substantially all of the
outstanding shares of the Funds as agent, custodian or trustee for its
customers. As of such date, 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>
<S> <C> <C>
Percent of
Total Shares
Name of Fund Name and Address Outstanding
Cash Investment Fund - A National Financial Services 99.219%
for the exclusive benefit of
its customers
P.O. Box 3908 Church Street Station
New York, NY 10008-3908
Tax-Free Money Market - A National Financial Services 83.783%
for the exclusive benefit of
its customers
P.O. Box 3908 Church Street Station
New York, NY 10008-3908
Paxton Mendelssohn II 11.152%
100 Renaissance Center
Ste 2750
Detroit, MI 48243
U.S. Treasury Money Market - A Var & Co. 83.769%
First Trust Co.
180 East 5th Street
St. Paul, MN 55101
National Financial Services 99.965%
for the exclusive benefit of
its customers
P.O. Box 3908 Church Street Station
New York, NY 10008-3908
Accelerating Growth Fund - A Donaldson Lufkin & Jenrette 9.102%
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
Appel Equity Group LTD 8.018%
150 Great Neck Road #301
Great Neck, NY 11021
Credit Suisse First Boston Corp. 21.833%
11 Madison Avenue 4th Floor
New York, NY 10010
Marin Associates LTD 6.224%
150 Great Neck Road # 301
Great Neck, NY 11021-3309
Pembroke Limited 15.042%
P.O. Box 5430
Incline Village, NV 89450
Accelerating Growth Fund - B Donaldson Lufkin & Jenrette 5.057%
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
First of Michigan Corp. on behalf 37.703%
of its clients
300 River Place Ste 4000
Detroit, MI 48207
MLPF&S for the sole benefit of
its 29.824% customers 4800 Deer
Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
<PAGE>
Accelerating Growth Fund - C Ira H. Buchalter 8.365%
Madelyn Buchalter JTWROS
P.O. Box 9497
Saint Thomas, VI 00801
MLPF&S for the sole benefit of
its 91.186% customers 4800 Deer
Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Small Company Growth Fund - Y Morgan Stanley Trust Company 6.767%
on behalf of its clients
One Pierrepoint Plaza 8th Floor
Brooklyn, NY 11201
Donaldson Lufkin & Jenrette 23.389%
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
Credit Suisse First Boston Corp. 14.864%
11 Madison Avenue 4th Floor
New York, NY 10010
MLPF&S for the sole benefit of
its 7.346% customers 4800 Deer
Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Small Company Growth Fund - B MLPF&S for the sole benefit of its 75.696%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Small Company Growth Fund - C MLPF&S for the sole benefit of its 66.466%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Abner Sheffer 5.603%
7 Piccadilly Road
Great Neck, NY 11023
Index 500 Fund - A MLPF&S for the sole benefit of its 55.089%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
<PAGE>
Key Trust Company TTEE 7.034%
for the benefit of its clients
P.O. Box 94871
Cleveland, OH 44101-4871
Index 500 Fund - B MLPF&S for the sole benefit of its 65.517%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
International Equity - A MLPF&S for the sole benefit of its 49.578%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
International Equity - C MLPF&S for the sole benefit of its 63.273%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Prudential Securities 34.544%
for the benefit of its clients
199 Water Street, 33rd Floor
New York, NY 10292
Intermediate Bond Fund - A MLPF&S for the sole benefit of its 7.803%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Intermediate Bond Fund - B MLPF&S for the sole benefit of its 66.352%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Bear Stearns Securities Corp. 9.708%
1 Metrotech Center North
Brooklyn, NY 11201-3872
Intermediate Bond Fund - C MLPF&S for the sole benefit of its 79.370%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
First of Michigan Corp. on behalf 15.110%
of its clients
300 River Place Ste 4000
Detroit, MI 48207
Bond Fund - A Arcadia Bank Successor TTEE 9.908%
for the Jack L. Barry Estate Trust
P.O. Box 50566
Kalamazoo, MI 49005-0566
Paine Webber for the benefit of 5.977%
The Grand Rapids Foundation
99 Monroe NW Ste 500
Grand Rapids, MI 49503-2931
Bond Fund - B MLPF&S for the sole benefit of its 92.906%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Bond Fund - C MLPF&S for the sole benefit of its 100.000%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Tax-Free Intermediate Bond - A MLPF&S for the sole benefit of its 11.821%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Tax-Free Intermediate Bond - B MLPF&S for the sole benefit of its 98.040%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Balanced Fund - A Kaye J. Clark 5.592%
31821 Hickory Lane
Warren, MI 48093
Paul Ochmanek IRA 6.118%
732 Dover
Dearborn Heights, MI 48127
Carl Ottman TTEE 15.365%
The Carl Ottman Trust
10627 South Grayling Road
Roscommon, MI 48653
John B. Baum 5.462%
2474 Chippewa Trail
Hastings, MI 49058
Julie A. Prince TTEE 6.539%
The Jessie Fund Irrvoc. Trust
124 Quarton Drive
Orange Park, FL 32073
Balanced Fund - B MLPF&S for the sole benefit of its 75.711%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Donaldson Lufkin & Jenrette 14.540
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
Balanced Fund - C First of Michigan Corp. on behalf 8.394%
of its clients
300 River Place Ste 4000
Detroit, MI 48207
MLPF&S for the sole benefit of
its 71.615% customers 4800 Deer
Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Scienstry Inc. 19.989%
811 East Plano Parkway, Ste 110A
Plano, TX 75074
Michigan Triple Tax-Free Bond Fund - A MLPF&S for the sole benefit of its 17.978%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Stephen Stubbs & Mary Louise Stubbs 5.729%
co-TTEES Stephen Stubbs Trust
27027 Mound Road
Warren, MI 48092
Donald Dick 10.650%
Catherine Dick
Deborah Evans
15810 Stout Street
Detroit, MI 48223
Reino Kellman 11.843%
27095 Bennett
Redford, MI 48240
Charles Schwab & Co., Inc. for the 8.850%
benefit
of its clients
101 Montgomery Street
San Francisco, CA 94104
Leora Smith 5.253%
40 Greble
Battle Creek, MI 49017
Michigan Triple Tax-Free Bond Fund - B Henry Oelkers 24.633%
3004 Geneva
Dearborn, MI 48124
Jeanne Brown TTEE Jeanne Brown Rev 13.868%
Trust
210 Artesian Street
Harbor Springs, MI 49740-9405
Sophie Czerwinski 11.698%
22160 Cloverlawn
Oak Park, MI 48237
Martin G. Janower 23.329%
Rena Janower
6216 Cromwell
West Bloomfield, MI 48322
Michigan Triple Tax-Free Bond Fund - C MLPF&S for the sole benefit of its 99.988%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Tax-Free Bond Fund - A Miaz & Co. 12.775%
1000 North Water St. 14th Floor
Milwaukee, WI 53202
Barnett Banks Trust Co. 6.340%
P.O. Box 40200
Jacksonville, FL 32203-0200
MLPF&S for the sole benefit of
its 11.177% customers 4800 Deer
Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Tax-Free Bond Fund - B MLPF&S for the sole benefit of its 99.831%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Tax-Free Bond Fund - C MLPF&S for the sole benefit of its 99.973%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Growth & Income Fund - A MLPF&S for the sole benefit of its 17.517%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Deborah Butcher 9.412%
c/o Precious Moments, Inc.
2210 Dean Street Unit G
St. Charles, IL 60175
Growth & Income Fund - B MLPF&S for the sole benefit of its 69.994%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Growth & Income Fund - C Marian Sherman 10.863%
8469 Ridge Road
East Jordan, MI 49727-8469
MLPF&S for the sole benefit of
its 83.549% customers 4800 Deer
Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
U.S. Government Income Fund - A MLPF&S for the sole benefit of its 17.777%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Riggs Bank NA 19.686%
P.O. Box 96211
Washington, DC 20090-6211
U.S. Government Income Fund - B MLPF&S for the sole benefit of its 99.268%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
U.S. Government Income Fund - C Raymond James & Assoc. Custodian
Ellen L. Konrad IRA 66.394%
6624 Southeast Knight Street
Portland, OR 97206
MLPF&S for the sole benefit of
its 33.605% customers 4800 Deer
Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
<PAGE>
Multi-Season Growth Fund - C MLPF&S for the sole benefit of its 94.864%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Real Estate Equity Investment - A MLPF&S for the sole benefit of its 30.452%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Delaware Charter GTEE & Tr. Co. 5.353%
120 West 12th Street
Kansas City, MO 64105
Painewebber for the benefit of 5.341%
Sharron Catallo Living Trust
29 Buffalo
Clarkston, MI 48346-2101
Real Estate Equity Investment - B MLPF&S for the sole benefit of its 68.398%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Real Estate Equity Investment - C MLPF&S for the sole benefit of its 66.055%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Money Market Fund - A IBJ Schroder Bank & Trust Co. 96.387%
for the benefit of its clients
One State Street
New York, NY 10004
Money Market Fund - B Raymond James & Assoc. Custodian 7.650%
for Robert Burgo IRA
534 Princeton Street
DesPlaines, IL 60016-2002
JMS Inc. 35.228%
845 Medway Road
Philadelphia, PA 19115
A.G. Edwards & Sons Custodian 9.340%
Wayland Stephenson IRA
321 Samarkand Drive
Santa Barbara, CA 93105
<PAGE>
First of Michigan Corp. on behalf 5.266%
of its clients
300 River Place Ste 4000
Detroit, MI 48207
Prudential Securities 17.326%
for the benefit of its clients
199 Water Street, 33rd Floor
New York, NY 10292
Gruntal & Co 11.623%
14 Wall Street
New York, NY 10005
Money Market Fund - C William Harold Newman 23.168%
1205 Longleaf Drive
Fayetteville, NC 28305
Abe Rosenblatt 11.162%
Doris Rosenblatt JTWROS
19706 Waters Pond Lane #501
Boca Raton, FL 33434
Mid-Cap Growth Fund - A Lesli Babbs 23.812%
1846 D North Sedgwick #D
Chicago, IL 60614-5329
Painewebber for the benefit of 16.834%
Jenness Hollidge
357 Devonshire #115
Rochester Hills, MI 48307-4020
Prudential Securities 16.544%
for the benefit of its clients
199 Water Street, 33rd Floor
New York, NY 10292
Smith Barney Inc. for the benefit of its 5.762%
clients
388 Greenwich Street
New York, NY 10013
Mid-Cap Growth Fund - B MLPF&S for the sole benefit of its 88.210%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
<PAGE>
Mid-Cap Growth Fund - C MLPF&S for the sole benefit of its 75.952%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Prudential Securities 12.274%
for the benefit of its clients
199 Water Street, 33rd Floor
New York, NY 10292
Value Fund - A Smith Barney Inc. for the benefit of its 5.058%
clients
388 Greenwich Street
New York, NY 10013
MLPF&S for the sole benefit of
its 11.616% customers 4800 Deer
Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Value Fund - B MLPF&S for the sole benefit of its 82.369%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Value Fund - C Prudential Securities 6.322%
for the benefit of its clients
199 Water Street, 33rd Floor
New York, NY 10292
MLPF&S for the sole benefit of
its 67.329% customers 4800 Deer
Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
International Bond Fund - A Delaware Charter Gtee & Trust Co. 93.845%
120 West 12th Street
Kansas City, MO 64105
International Bond Fund - B MLPF&S for the sole benefit of its 74.132%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Micro-Cap Equity Fund - A National Financial Services 8.228%
for the exclusive benefit of
its customers
P.O. Box 3908 Church Street Station
New York, NY 10008-3908
MLPF&S for the sole benefit of
its 31.037% customers 4800 Deer
Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Gregory Naden 15.723%
938 Pebble Beach Drive
Madison, WI 53717-1173
Micro-Cap Equity Fund - B MLPF&S for the sole benefit of its 38.090%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Micro-Cap Equity Fund - C Donaldson Lufkin Jenrette 7.896%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
MLPF&S for the sole benefit of
its 53.093% customers 4800 Deer
Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Small-Cap Value Fund - A MLPF&S for the sole benefit of its 6.017%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
McDonald & Co. Securities 22.215%
on behalf of its clients
260 Brown Street
Birmingham, MI 48009
Small-Cap Value Fund - B MLPF&S for the sole benefit of its 44.100%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Paine Webber for the benefit of 5.687%
The Dreiford Group
6508 80th Street
Cabin John, MD 20818-1209
Small-Cap Value Fund - C MLPF&S for the sole benefit of its 13.793%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
<PAGE>
Short Term Treasury Fund - Y First Bank NA 27.821%
P.O. Box 64010
St. Paul, MN 55164-0010
First Trust National Association 13.962%
535 Griswold Street Ste 740
Detroit, MI 48226
Short Term Treasury Fund - B MLPF&S for the sole benefit of its 98.053%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Framlington International Growth - A Paine Webber for the benefit of 18.182%
RDM Holding LTD
350 North Woodward
Birmingham, MI 48009-5388
Framlington International Growth - B MLPF&S for the sole benefit of its 63.390%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Framlington International Growth - C MLPF&S for the sole benefit of its 87.365%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Smith Barney Inc. 7.833%
388 Greenwich Street
New York, NY 10013
Framlington Emerging Markets - A Paine Webber for the benefit of 28.159
RDM Holding LTD
350 North Woodward
Birmingham, MI 48009-5388
Delaware Charter GTEE & Tr. Co. 13.533%
120 West 12th Street
Kansas City, MO 64105
Framlington Emerging Markets - B Wexford Clearing Services Corp. 50.682%
C/O CTC Illinois Trust Company
Attn: Sonny Panaligan
Chicago, IL 60606-6905
<PAGE>
MLPF&S for the sole benefit of
its 12.239 customers 4800 Deer
Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Framlington Emerging Markets - C MLPF&S for the sole benefit of its 49.379%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Framlington Healthcare - A MLPF&S for the sole benefit of its 66.478%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Framlington Healthcare - B MLPF&S for the sole benefit of its 42.642%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Framlington Healthcare - B MLPF&S for the sole benefit of its 90.803%
customers
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
</TABLE>
As of October 7, 1997, Munder Capital Management, on behalf of their
clients owned 24.488% of the Accelerating Growth Fund Class Y Shares, 6.776% of
the Balanced Fund Class Y shares, 85.128% of the Bond Fund Class Y shares,
50.845% of the Michigan Triple Tax-Free Bond Fund Class Y shares, 29.054% of the
Growth & Income Fund Class Y shares, 73.195% of the International Equity Class Y
shares, 44.936% of the Small Company Growth Fund Class K shares, 65.658% of the
Intermediate Bond Fund Class Y shares, 99.990% of the International Bond Fund
Class K shares, 99.114% of the International Bond Fund Class Y shares, 65.499%
of the Tax-Free Bond Fund Class K shares, 98.323% of the Real Estate Equity
Investment Fund Class Y shares, 13.830% of the Mid-Cap Growth Fund Class K
shares, 99.135% of the Mid-Cap Growth Fund Class Y shares, 91.453% of the
Micro-Cap Equity Fund Class Y shares, 67.190% of the Micro-Cap Equity Fund Class
K shares, 9.511% of the Multi-Season Growth Fund Class A shares, 52.239% of the
Multi-Season Growth Fund Class Y shares, 22.007% of the Tax-Free Intermediate
Bond Fund Class Y shares, 87.862% of the U.S. Government Income Fund Class Y
shares, 99.438% of the Money Market Fund Class Y shares, 86.314% of the Short
Term Treasury Fund Class Y shares, 58.373% of the Value Fund Class A shares,
19.141% of the Value Fund Class K shares, 94.790% of the Value Fund Class Y
shares, 28.563% of the Index 500 Fund Class Y shares, 61.175% of the Framlington
Emerging Markets Fund Class A shares, 85.440% of the Framlington Emerging
Markets Fund Class Y shares, 8.327% of the Framlington Healthcare Fund Class A
shares, 24.911% Framlington Healthcare Fund Class K shares, 96.574% of the
Framlington Healthcare Fund Class Y shares, 89.226% of the Framlington
International Growth Fund Class A shares, 68.299% of the Framlington
International Growth Fund Class K shares, 99.260% of the Framlington
International Growth Fund Class Y shares, 89.297% of the Small-Cap Value Fund
Class Y shares, and 42.845% of the Small-Cap Value Fund Class A shares.
The Munder All-Season Aggressive Fund, as of October 7, 1997, held the
following positions in Class Y shares of The Munder Funds: 21.58% of the
Framlington Emerging Markets Fund, 31.87% of the Framlington Healthcare Fund,
10.95% of the Framlington International Growth Fund, 33.56% of the Micro-Cap
Equity Fund, 13.54% of the Mid-Cap Growth Fund, 5.87% of the Real Estate Equity
Investment Fund, 14.05% of the Small-Cap Value Fund, and 5.09% of the Value
Fund.
Shareholder Approvals. As used in this Statement of Additional
Information and in each 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 or 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 each of the Fund's
Prospectuses 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.
Statements contained herein and in each of the Fund's Prospectuses 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 respects by such
reference.
FINANCIAL STATEMENTS
The financial statements for the Trust, Framlington and the Company
including the notes thereto, dated June 30, 1997 have been audited by Ernst &
Young LLP and are incorporated by reference into this Statement of Additional
Information from the Annual Reports of the Trust, Framlington and the Company
dated as of June 30, 1997. The information under the caption "Financial
Highlights" of the Funds for the period from commencement of operations through
June 30, 1997, appearing in the related Prospectuses dated October 29, 1997 has
been derived from the financial statements audited by Ernst & Young LLP except
for periods ended prior to June 30, 1995 for the Multi-Season Fund and Money
Market Fund, which have been derived from the financial statements audited by
other independent auditors. Such financial statements and financial highlights
are included or incorporated by reference herein in reliance upon their reports
given upon the authority of such firms as experts in accounting and auditing.
<PAGE>
A-3
APPENDIX A
- Rated Investments -
Corporate Bonds
Excerpts from Moody's Investors Services, Inc. ("Moody's") description
of its bond ratings:
"Aaa": Bonds that are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
"Aa": Bonds that are rated "Aa" are judged to be of high-quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as "high-grade" bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A": Bonds that are rated "A" possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
"Baa": Bonds that are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appears adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
"Ba": Bonds that are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
"B": Bonds that are rated "B" generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
"Caa": Bonds that are rated "Caa" are of poor standing. These issues
may be in default or present elements of danger may exist with respect to
principal or interest.
Moody's applies numerical modifiers (1, 2 and 3) with respect to bonds
rated "Aa" through "B". The modifier 1 indicates that the bond being rated ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category.
<PAGE>
Excerpts from Standard & Poor's Corporation ("S&P") description of its
bond ratings:
"AAA": Debt rated "AAA" has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
"AA": Debt rated "AA" has a very strong capacity to pay interest
and repay principal and differs from "AAA" issues by a small degree.
"A": Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
"BBB": Bonds rated "BBB" are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than for bonds in higher rated categories.
"BB", "B" and "CCC": Bonds rated "BB" and "B" are regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligations. "BB" represents a
lower degree of speculation than "B" and "CCC" the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
To provide more detailed indications of credit quality, the "AA" or "A"
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
Commercial Paper
The rating "Prime-1" is the highest commercial paper rating assigned by
Moody's. These issues (or related supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.
Issues rated "Prime-2" (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics of "Prime-1" rated issues, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions.
Ample alternate liquidity is maintained.
Commercial paper ratings of S&P are current assessments of the
likelihood of timely payment of debt having original maturities of no more than
365 days. Commercial paper rated "A-1" by S&P indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
"A-1+." Commercial paper rated "A-2" by S&P indicates that capacity for timely
payment is strong. However, the relative degree of safety is not as high as for
issues designated "A-1."
<PAGE>
APPENDIX A
- Rated Investments -
Commercial Paper
Rated commercial paper purchased by a Fund must have (at the time of
purchase) the highest quality rating assigned to short-term debt securities or,
if not rated, or rated by only one agency, are determined to be of comparative
quality pursuant to guidelines approved by a Fund's Boards of Trustees and
Directors. Highest quality ratings for commercial paper for Moody's and S&P are
as follows:
Moody's: The rating "Prime-1" is the highest commercial paper rating
category assigned by Moody's. These issues (or related supporting institutions)
are considered to have a superior capacity for repayment of short-term
promissory obligations.
S&P: Commercial paper ratings of S&P are current assessments of the
likelihood of timely payment of debts having original maturities of no more than
365 days. Commercial paper rated in the "A-1" category by S&P indicates that the
degree of safety regarding timely payment is either overwhelming or very strong.
Those issues determined to possess overwhelming safety characteristics are
denoted "A-1+".
<PAGE>
B-8
APPENDIX B
As stated in the applicable Prospectuses, the Equity Funds, the
Balanced Fund and the Bond Funds may enter into certain futures transactions and
options for hedging purposes. Such transactions are described in this Appendix.
I. Interest Rate Futures Contracts
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate futures
contracts as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
The Funds presently could accomplish a similar result to that which it
hopes to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market, the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Funds, through using futures contracts.
Description of Interest Rate Futures Contracts. An interest rate
futures contract sale would create an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by the Fund, as purchaser, to take delivery of the specific
type of financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until or at near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without making or taking of delivery of securities.
Closing out a futures contract sale is effected by the Fund's entering into a
futures contract purchase for the same aggregate amount of the specific type of
financial instrument and the same delivery date. If the price of the sale
exceeds the price of the offsetting purchase, the Fund is immediately paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the Fund entering into
a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes, Government National Mortgage Association (GNMA) modified pass-through
mortgage backed securities, three-month United States Treasury Bills, and
ninety-day commercial paper. The Funds may trade in any interest rate futures
contracts for which there exists a public market, including, without limitation,
the foregoing instruments.
Example of Futures Contract Sale. The Funds would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security held by a particular
Fund tends to move in concert with the futures market prices of long-term United
States Treasury bonds ("Treasury Bonds"). The adviser 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 adviser believes that,
because of an anticipated rise in interest rates, the value will decline to 95.
The fund might enter into futures contract sales of Treasury bonds for an
equivalent of 98. If the market value of the portfolio security does indeed
decline from 100 to 95, the equivalent futures market price for the Treasury
bonds might also decline from 98 to 93.
In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The adviser 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 adviser 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 adviser believes that, because of an
anticipated fall in interest rates, the price will have risen to 105 (and the
yield will have dropped to about 91/2%) in four months. The Fund might enter
into futures contracts purchases of Treasury bonds for an equivalent price of
98. At the same time, the Fund would assign a pool of investments in short-term
securities that are either maturing in four months or earmarked for sale in four
months, for purchase of the long-term bond at an assumed market price of 100.
Assume these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury bonds might also rise from 98 to 103. In that case, the 5
point 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 adviser could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for
long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rated,
it is possible that the Fund would discontinue its purchase program for
long-term bonds. The yield on short-term securities in the portfolio, including
those originally in the pool assigned to the particular long-term bond, would
remain higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase. In each transaction, expenses would also be incurred.
II. Index Futures Contracts
General. A bond index assigns relative values of the bonds included in
the index and the index fluctuates with changes in the market values of the
bonds included. The Chicago Board of Trade has designed a futures contract based
on the Bond Buyer Municipal Bond Index. This Index is composed of 40 term
revenue and general obligation bonds and its composition is updated regularly as
new bonds meeting the criteria of the Index are issued and existing bonds
mature. The Index is intended to provide an accurate indicator of trends and
changes in the municipal bond market. Each bond in the Index is independently
priced by six dealer-to-dealer municipal bond brokers daily. The 40 prices then
are averaged and multiplied by a coefficient. The coefficient is used to
maintain the continuity of the Index when its composition changes.
A stock index assigns relative values to the stocks included in the
index and the index fluctuates with changes in the market values of the stocks
included. Some stock index futures contracts are based on broad market indices,
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
indices, such as the Standard & Poor's 100 or indices 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.
<PAGE>
Examples of Stock Index Futures Transactions. The following are examples
of transactions in stock index futures (net of commissions and premiums,
if any).
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<CAPTION>
<S> <C>
Portfolio Futures
-Day Hedge is Placed-
Anticipate buying $62,500 in Equity Securities Buying 1 Index Futures at 125
Value of Futures = $62,500/Contract
-Day Hedge is Lifted-
Buy Equity Securities with Actual Cost = $65,000 Sell 1 Index Futures at 130
Increase in Purchase Price = $2,500 Value of Futures = $65,000/Contract
Gain on Futures = $2,500
</TABLE>
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000 Value of Futures Contract - 125 X $500 =
$62,500 Portfolio Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
<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 purchase or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with the Custodian an amount of cash or cash equivalents, known as initial
margin, based on the value of the contract. The nature of initial margin in
futures transactions is different from that of margin in security transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions. Rather, the initial margin is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instruments fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking-to-the-market. For 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 Adviser or
Sub-Advisor may elect to close the position by taking an opposite position,
subject to the availability of a secondary market, which will operate to
terminate the Fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or gain.
IV. Risks of Transactions in Futures Contracts
There are several risks in connection with the use of futures by the
Funds as hedging devices. One risk arises because of the imperfect correlation
between movements in the price of the futures and movements in the price of the
instruments which are the subject of the hedge. The price of the future may move
more than or less than the price of the instruments being hedged. If the price
of the futures moves less than the price of the instruments which are the
subject of the hedge, the hedge will not be fully effective but, if the price of
the instruments being hedged has moved in an unfavorable direction, the Fund
would be in a better position than if it had not hedged at all. If the price of
the instruments being hedged has moved in a favorable direction, this advantage
will be partially offset by the loss on the futures. If the price of the futures
moves more than the price of the hedged instruments, the Fund involved will
experience either a loss or gain on the futures which will not be completely
offset by movements in the price of the instruments which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
instruments being hedged and movements in the price of futures contracts, the
Fund may buy or sell futures contracts in a greater dollar amount than the
dollar amount of instruments being hedged if the volatility over a particular
time period of the prices of such instruments has been greater than the
volatility over such time period of the futures, or if otherwise deemed to be
appropriate by the Adviser or Sub-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 Adviser or Sub-Advisor. It is also possible that, when the
Fund had sold futures to hedge its portfolio against a decline in the market,
the market may advance and the value of instruments held in the Fund may
decline. If this occurred, the Fund would lose money on the futures and also
experience a decline in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the Funds
will realize a loss on the futures contract that is not offset by a reduction in
the price of the instruments that were to be purchased.
In instances involving the purchase of futures contracts by the Funds,
an amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Custodian and/or
in a margin account with a broker to collateralize the position and thereby
insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
instruments being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which 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 Adviser or Sub-Advisor
may still not result in a successful hedging transaction over a short time
frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, the Funds would continue to be required to make daily cash payments
of variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in
a futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions. The
trading of futures contracts is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
Successful use of futures by the Funds is also subject to the Adviser's
or Sub-Advisor's ability to predict correctly movements in the direction of the
market. For example, if a particular Fund has hedged against the possibility of
a decline in the market adversely affecting securities held by it and securities
prices increase instead, the Fund will lose part or all of the benefit to the
increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising market. The Funds
may have to sell securities at a time when they may be disadvantageous to do so.
V. Options on Futures Contracts
The Funds may purchase and write options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of, the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer, of
an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing an option of the same series,
at which time the person entering into the closing transaction will realize a
gain or loss. A Fund 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. Currency Transactions
The Fund may engage in currency transactions in order to hedge the
value of portfolio holdings denominated in particular currencies against
fluctuations in relative value. Currency transactions include forward currency
contracts, currency futures, options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies and operates similarly to an interest rate swap as described
in the Statement of Additional Information. The Fund may enter into currency
transactions with counterparties which have received (or the guarantors of the
obligations which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or are
determined to be of equivalent credit quality by the Advisor.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
The Fund will not enter into a transaction to hedge currency exposure
to an extent greater after netting all transactions intended wholly or partially
to offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging as described below.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage proxy
hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Advisor or Sub-Advisor
considers that the Austrian schilling is correlated to the German mark (the
"D-mark"), the Fund holds securities denominated in shillings and the Advisor or
Sub-Advisor believes that the value of the schillings will decline against the
U.S. dollar, the Advisor or Sub-Advisor may enter into a commitment or option to
sell D-marks and buy dollars. Currency hedging involves some of the same risks
and considerations as other transactions with similar instruments. Currency
transactions can result in losses to the Fund if the currency being hedged
fluctuates in value to a degree or in a direction that is not anticipated.
Further, there is the risk that the perceived correlation between various
currencies may not be present or may not be present during the particular time
that the Fund is engaging in proxy hedging. If a Fund enters into a currency
hedging transaction, the Fund will comply with the asset segregation
requirements. Under such requirements, the Fund will segregate liquid, high
grade assets with the custodian to the extent the Fund's obligations are not
otherwise "covered" through ownership of the underlying currency.
Currency transactions are subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transaction
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close to positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
VII. Other Matters
Accounting for futures contracts will be in accordance with generally
accepted accounting principles.
