MUNDER SHORT TERM TREASURY FUND
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 14, 1996
The Munder Short Term Treasury Fund (the "Fund") is a series of shares
issued by The Munder Funds, Inc. (the "Company"), an open-end management
investment company. The Fund's investment advisor is Munder Capital Management
(the "Advisor").
This Statement of Additional Information is intended to supplement the
information provided to investors in the Fund's Prospectuses dated December 14,
1996 and has been filed with the Securities and Exchange Commission ("SEC") as
part of the Company's Registration Statement. This Statement of Additional
Information is not a prospectus, and should be read only in conjunction with the
Fund's Prospectuses dated December 14, 1996. The contents of this Statement of
Additional Information are incorporated by reference in the Prospectuses in
their entirety. A copy of each Prospectus may be obtained through Funds
Distributor, Inc. (the "Distributor"), or by calling the Fund at (800) 438-5789.
This Statement of Additional Information is dated December 14, 1996.
SHARES OF THE FUND 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 FUND INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
GENERAL........................................................................... 3
FUND INVESTMENTS.................................................................. 3
Repurchase Agreements.......................................................... 3
Borrowing...................................................................... 3
Reverse Repurchase Agreements.................................................. 4
When-Issued Purchases and Forward Commitments (Delayed-Delivery Transactions).. 4
Lending of Portfolio Securities................................................ 5
ADDITIONAL INVESTMENT LIMITATIONS................................................. 5
DIRECTORS AND OFFICERS............................................................ 7
INVESTMENT ADVISORY AND OTHER SERVICE ARRANGEMENTS................................ 13
Investment Advisor............................................................. 13
Distribution Agreement......................................................... 13
Administration Agreement....................................................... 15
Custodian and Transfer Agency Agreements....................................... 15
PORTFOLIO TRANSACTIONS............................................................ 17
PURCHASE AND REDEMPTION INFORMATION............................................... 19
Purchases...................................................................... 19
Letter of Intent............................................................... 19
Retirement Plans............................................................... 20
In-Kind Purchases.............................................................. 20
Redemptions.................................................................... 20
Systematic Withdrawals......................................................... 20
Other Information.............................................................. 21
Exchanges...................................................................... 21
NET ASSET VALUE................................................................... 22
PERFORMANCE INFORMATION........................................................... 22
TAXES............................................................................. 24
ADDITIONAL INFORMATION CONCERNING SHARES.......................................... 27
MISCELLANEOUS..................................................................... 28
Counsel........................................................................ 28
Independent Auditors........................................................... 28
Shareholder Approvals.......................................................... 28
REGISTRATION STATEMENT............................................................ 29
</TABLE>
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No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information or in
the Prospectuses in connection with the offering made by the Prospectuses and,
if given or made, such information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. The Prospectuses do not
constitute an offering by the Fund or by the Distributor in any jurisdiction in
which such offering may not lawfully be made.
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GENERAL
The Company was organized as a Maryland corporation on November 18,
1992. As stated in each Prospectus, the investment advisor of the Fund is
Munder Capital Management (the "Advisor"). The principal partners of the
Advisor are Old MCM, Inc. ("Old MCM"), Munder Group LLC, Woodbridge Capital
Management, Inc. ("Woodbridge") 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. Capitalized terms used
herein and not otherwise defined have the same meanings as are given to them in
the Prospectuses.
FUND INVESTMENTS
The following supplements the information contained in the Fund's
Prospectuses concerning the investment objective and policies of the Fund. The
Fund's investment objective is a non-fundamental policy and may be changed
without the authorization of the holders of a majority of the Fund's outstanding
shares. There can be no assurance that the Fund will achieve its objective.
REPURCHASE AGREEMENTS. The Fund may agree to purchase securities from
financial institutions such as member banks of the Federal Reserve System, any
foreign bank or any domestic or foreign broker/dealer that is recognized as a
reporting government securities dealer, subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). The
Advisor will review and continuously monitor the creditworthiness of the seller
under a repurchase agreement, and will require the seller to maintain liquid
assets in a segregated account in an amount that is greater than the repurchase
price. Default by, or bankruptcy of the seller would, however, expose the Fund
to possible loss because of adverse market action or delays in connection with
the disposition of underlying obligations.
The repurchase price under the repurchase agreements described in the
Prospectuses generally equals the price paid by the Fund plus interest
negotiated on the basis of current short-term rates (which may be more or less
than the rate on the securities underlying the repurchase agreement).
Securities subject to repurchase agreements will be held by the
Company's custodian (or sub-custodian) in the Federal Reserve/Treasury book-
entry system or by another authorized securities depository. Repurchase
agreements are considered to be loans by the Fund under the Investment Company
Act of 1940, as amended (the "1940 Act").
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BORROWING. The Fund is authorized to borrow money in amounts up to 5%
of the value of its total assets at the time of such borrowings for temporary
purposes, and is authorized to borrow money in excess of the 5% limit as
permitted by the 1940 Act to meet redemption requests. This borrowing may be
unsecured. The 1940 Act requires the Fund to maintain continuous asset coverage
of 300% of the amount borrowed. If the 300% asset coverage should decline as a
result of market fluctuations or other reasons, the Fund may be required to sell
some of its portfolio holdings within three days to reduce the debt and restore
the 300% asset coverage, even though it may be disadvantageous from an
investment standpoint to sell securities at that time. Borrowing may exaggerate
the effect on the Fund's net asset value of any increase or decrease in the
market value of securities purchased with borrowed funds. Money borrowed will
be subject to interest costs which may or may not be recovered by an
appreciation of the securities purchased. The Fund may also be required to
maintain minimum average balances in connection with such borrowing or to pay a
commitment or other fees to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest rate.
The Fund may, in connection with permissible borrowings, transfer, as
collateral, securities owned by the Fund.
REVERSE REPURCHASE AGREEMENTS. The Fund may borrow funds for
temporary or emergency purposes by selling portfolio securities to financial
institutions such as banks and broker/dealers and agreeing to repurchase them at
a mutually specified date and price ("reverse repurchase agreements"). Reverse
repurchase agreements involve the risk that the market value of the securities
sold by the Fund may decline below the repurchase price. The Fund will pay
interest on amounts obtained pursuant to a reverse repurchase agreement. While
reverse repurchase agreements are outstanding, the Fund will maintain, in 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.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS (DELAYED-DELIVERY
TRANSACTIONS). When-issued purchases and forward commitments (delayed-delivery
transactions) are commitments by the Fund to purchase or sell particular
securities with payment and delivery to occur at a future date (perhaps one or
two months later). These transactions permit the Fund to lock-in a price or
yield on a security, regardless of future changes in interest rates.
When the Fund agrees to purchase securities on a when-issued or
forward commitment basis, the Custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, the Custodian will set aside portfolio securities to satisfy a
purchase commitment, and in such a case the Fund may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitments. It
may be expected that the market value of the Fund's net assets will fluctuate to
a greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because the Fund's liquidity and
ability to
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manage its portfolio might be affected when it sets aside cash or portfolio
securities to cover such purchase commitments, the Advisor expects that its
commitments to purchase when-issued securities and forward commitments will not
exceed 25% of the value of the Fund's total assets absent unusual market
conditions.
The Fund will purchase securities on a when-issued or forward
commitment basis only with the intention of completing the transaction and
actually purchasing the securities. If deemed advisable as a matter of
investment strategy, however, the Fund may dispose of or renegotiate a
commitment after it is entered into, and may sell securities it has committed to
purchase before those securities are delivered to the Fund on the settlement
date. In these cases the Fund may realize a taxable capital gain or loss.
When the Fund engages in when-issued and forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase
or a forward commitment to purchase securities, and any subsequent fluctuations
in their market value, are taken into account when determining the net asset
value of the Fund starting on the day the Fund agrees to purchase the
securities. The Fund does not earn interest on the securities it has committed
to purchase until they are paid for and delivered on the settlement date.
LENDING OF PORTFOLIO SECURITIES. To enhance the return on its
portfolio, the Fund may lend securities in its portfolio (subject to a limit of
25% of its total assets) to securities firms and financial institutions,
provided that each loan is secured continuously by collateral in the form of
cash or short-term U.S. Government securities adjusted daily to have a market
value at least equal to the current market value of the securities loaned.
These
loans are terminable at any time, and the Fund will receive any interest or
dividends paid on the loaned securities. In addition, it is anticipated
that the
Fund may share with the borrower some of the income received on the collateral
for the loan or the Fund will be paid a premium for the loan. The risk in
lending
portfolio securities, as with other extensions of credit, consists of a
possible delay
in recovery of the securities or a possible loss of rights in the collateral
should the
borrower fail financially. In determining whether the Fund will lend
securities, the Advisor will consider all relevant facts and circumstances. The
Fund will only enter into loan arrangements with broker-dealers, banks or other
institutions which the Advisor has determined are creditworthy under guidelines
established by the Board of Directors.
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ADDITIONAL INVESTMENT LIMITATIONS
The Fund is subject to the investment limitations enumerated in this
section which may be changed only by a vote of the holders of a majority of the
Fund's outstanding shares (as defined under "Miscellaneous - Shareholder
Approvals").
The Fund may not:
1. With respect to 75% of the Fund's assets, invest more than 5% of
the Fund's assets (taken at market value at the time of purchase)
in the outstanding securities of any single issuer or own more
than 10% of the outstanding voting securities of any one issuer,
in each case other than securities issued or guaranteed by the
United States Government, its agencies or instrumentalities, at
the close of each quarter of its taxable year;
2. Invest more than 25% of its total assets in the securities of
issuers conducting their principal business activities in any one
industry (securities issued or guaranteed by the United States
Government, its agencies or instrumentalities are not considered
to represent industries);
3. Borrow money or enter into reverse repurchase agreements
except that the Fund may (i) borrow money or
enter into reverse repurchase agreements for temporary purposes
in amounts not exceeding 5% of its total assets and (ii) borrow
money for the purpose of meeting redemption requests, in amounts
(when aggregated with amounts borrowed under clause (i)) not
exceeding 33 1/3% of its total assets;
4. Pledge, mortgage or hypothecate its assets other than to secure
borrowings permitted by restriction 2 above;
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 (the "1933 Act") in selling portfolio
securities;
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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 purchase and sales of portfolio securities;
9. Make investments for the purpose of exercising control of
management; or
10. Invest in commodities or commodity futures contracts.
11. Issue any senior securities (as such term is defined in Section
18(f) of the 1940 Act) except as permitted under the 1940 Act.
Additional investment restrictions adopted by the Fund, which may be
changed by the Board of Directors, provide that the Fund may not:
1. Invest more than 15% of its net assets (taken at market value at
the time of purchase) in securities which cannot be readily
resold because of legal or contractual restrictions or which are
not otherwise marketable;
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2. Invest in other investment companies except as permitted under
the 1940 Act.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
the Fund's investments will not constitute a violation of such limitation,
except that any borrowing by the Fund that exceeds the fundamental investment
limitations stated above must be reduced to meet such limitations within the
period required by the 1940 Act (currently three days). In addition, if the
Fund's holdings of illiquid securities exceeds 15% because of changes in the
value of the Fund's investments, the Fund will take action to reduce its
holdings of illiquid securities within a time frame deemed to be in the best
interest of the Fund. Otherwise, the Fund may continue to hold a security even
though it causes the Fund to exceed a percentage limitation because of
fluctuation in the value of the Fund's assets.
DIRECTORS AND OFFICERS
The directors and executive officers of the Company, and their
business addresses and principal occupations during the past five years, are:
<TABLE>
<CAPTION>
Name, Address and Age Positions with Company Principal Occupations
During the Past Five Years ---------------------- ---------------------------
- ---------------------------
<S> <C> <C>
Charles W. Elliott 1/ Chairman of the Board Senior Advisor to the
3338 Bronson Boulevard of Directors President - Western
Kalmazoo, MI 49008 Michigan University since
Age: 64 July 1995; prior to that
Executive Vice President -
Administration & Chief
Financial Officer, Kellogg
Company from January 1987
through June 1995; before
that Price Waterhouse.
Board of Directors,
Steelcase Financial
Corporation.
</TABLE>
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<TABLE>
<S> <C> <C>
John Rakolta, Jr. Director and Vice Chairman, Walbridge
1876 Rathmor Chairman of the Board Aldinger Company
Bloomfield Hills, MI 48304 of Directors
Age: 49
Thomas B. Bender Director Investment Advisor,
7 Wood Ridge Road Financial & Investment
Glen Arbor, MI 49636 Management Group (since
Age: 63 April, 1991); Vice
President Institutional
Sales, Kidder, Peabody &
Co. (Retired April, 1991).
David J. Brophy Director Professor, University of
1025 Martin Place Michigan; Director, River
Ann Arbor, MI 48104 Place Financial Corp.;
Age: 60 Trustee, Renaissance
Assets Trust.
</TABLE>
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<TABLE>
<S> <C> <C>
Dr. Joseph E. Champagne Director Corporate and Executive
319 Snell Road Consultant since September
Rochester, MI 48306 1995; prior to that
Age: 58 Chancellor, Lamar
University from September
1994 until September 1995;
before that Consultant to
Management, Lamar
University; President and
Chief Executive Officer,
Crittenton Corporation,
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 Director President and COO,
10726 Falls Pointe Drive Mid-Atlantic Group of
Great Falls, VA 22066 Pulte Home Corporation
Age: 49
Jack L. Otto Director Retired; Director of
6532 W. Beech Tree Road Standard Federal Bank;
Glen Arbor, MI 49636 Executive Director,
Age: 70 McGregor Fund (a private
philanthropic foundation)
1981-1985; Managing
Partner, Detroit office of
Ernst & Young, until 1981.
</TABLE>
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<TABLE>
<S> <C> <C>
Arthur DeRoy Rodecker Director President, Rodecker &
4000 Town Center Company, Investment
Suite 101 Brokers, Inc. since
Southfield, MI 48075 November 1976; President,
Age: 69 RAC Advisors, Inc.,
Registered Investment
Advisor since February
1979; President and
Trustee, Helen L. DeRoy
Foundation, a charitable
foundation; Vice President
and Trustee, DeRoy
Testamentary Foundation, a
charitable foundation;
Trustee, Providence
Hospital Foundation.
Lee P. Munder President President and CEO of the
480 Pierce Street Advisor; Chief Executive
Suite 300 Officer and President of
Birmingham, MI 48009 Old MCM, Inc.; Chief
Age: 51 Executive Officer of World
Asset Management; and
Director, LPM Investment
Services, Inc. ("LPM").
Terry H. Gardner Vice President, Chief Vice President and Chief
480 Pierce Street Financial Officer and Financial Officer of the
Suite 300 Treasurer Advisor; Vice President
Birmingham, MI 48009 and Chief Financial
Age: 36 Officer of Old MCM, Inc.
(February 1993 to
present); Audit Manager
Arthur Andersen & Co.
(1991 to February 1993);
Secretary of LPM
</TABLE>
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<TABLE>
<S> <C> <C>
Paul Tobias Vice President Executive Vice President
480 Pierce Street and Chief Operating
Suite 300 Officer of the Advisor
Birmingham, MI 48009 (since April 1995) and
Age: 45 Executive Vice President
of Comerica, Inc.
Gerald Seizert Vice President Executive Vice President
480 Pierce Street and Chief Investment
Suite 300 Officer/Equities of the
Birmingham, MI 48009 Advisor (since April
Age: 44 1995); Managing Director
(1991-1995), Director
(1992-1995) and Vice
President (1984-1991) of
Loomis, Sayles and
Company, L.P.
Elyse G. Essick Vice President Vice President and
480 Pierce Street Director of Marketing for
Suite 300 the Advisor; Vice
Birmingham, MI 48009 President and Director of
Age: 38 Client Services of Old
MCM, Inc. (August 1988 to
December 1994).
James C. Robinson Vice President Vice President and Chief
480 Pierce Street Investment Officer/Fixed
Suite 300 Income for the Advisor;
Birmingham, MI 48009 Vice President and
Age: 35 Director of Fixed Income
of Old MCM, Inc.
(1987-1994).
</TABLE>
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<TABLE>
<S> <C> <C>
Leonard J. Barr, II Vice President Vice President and
480 Pierce Street Director of Core Equity
Suite 300 Research of the Advisor;
Birmingham, MI 48009 Director and Senior Vice
Age: 52 President of Old MCM, Inc.
(since 1988); Director of
LPM.
Ann F. Putallaz Vice President Vice President and
480 Pierce Street Director of Fiduciary
Suite 300 Services of the Advisor
Birmingham, MI 48009 (since January 1995);
Age: 51 Director of Client and
Marketing Services of
Woodbridge Capital
Management, Inc.
Richard H. Rose Assistant Treasurer Senior Vice President,
First Data Investor First Data Investor
Services Services Group, Inc.
Group, Inc. (since May 6, 1994).
One Exchange Place Formerly, Senior Vice
6th Floor President, The Boston
Boston, MA 02109 Company Advisors, Inc.
Age: 41 since November 1989.
</TABLE>
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<TABLE>
<S> <C> <C>
Lisa A. Rosen Secretary, Assistant General Counsel of the
480 Pierce Street Treasurer Advisor since May, 1996;
Suite 300 Formerly Counsel, First
Birmingham, MI 48009 Data Investor Services
Age: 29 Group, Inc.; Assistant
Vice President and Counsel
with The Boston Company
Advisors, Inc.; Associate
with Hutchins, Wheeler &
Dittmar.
Teresa M. R. Hamlin Assistant Secretary Counsel, First Data
First Data Investor Investor Services Group,
Services Group, Inc. Inc.; Formerly Paralegal
One Exchange Place Manager, The Boston
6th Floor Company Advisors, Inc.
Boston, MA 02109
Age: 33
</TABLE>
1/ Director is an "interested person" of the Company as defined in the 1940
Act.
Directors of the Company receive an aggregate fee from the Company, The
Munder Funds Trust (the "Trust"), The Munder Framlington Funds Trust
("Framlington Trust") and St. Clair Funds, Inc. ("St. Clair") comprised of an
annual retainer fee and a fee for each Board meeting attended, and are
reimbursed for all out-of-pocket expenses relating to attendance at meetings.
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The following table summarizes the compensation paid by the Company and the
Trust to their respective Directors/Trustees for the fiscal year ended June 30,
1996. Neither Framlington Trust or St. Clair had operations during the fiscal
year ended June 30, 1996.
<TABLE>
<CAPTION>
Aggregate Pension
Compensation Retirement Estimated
Name of from the Trust and Benefits Accrued Annual Benefits Total from
Person the as Part of upon the Fund
and Position Company Fund Expenses Retirement Complex
------------ ------------------ ---------------- --------------- ----------
<S> <C> <C> <C> <C>
Charles W. Elliott $14,000.00 None None $14,000.00
Chairman
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
John Rakolta, Jr. $14,000.00 None None $14,000.00
Vice Chairman
Thomas B. Bender $14,000.00 None None $14,000.00
David J. Brophy $14,000.00 None None $14,000.00
Trustee and Director
Dr. Joseph E. Champagne $14,000.00 None None $14,000.00
Trustee and Director
Thomas D. Eckert $14,000.00 None None $14,000.00
Trustee and Director
Jack L. Otto $14,000.00 None None $14,000.00
Trustee and Director
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Arthur DeRoy Rodecker $14,000.00 None None $14,000.00
Trustee and Director
</TABLE>
No officer, director or employee of the Advisor, Comerica, the Distributor,
the Administrator or the Transfer Agent currently receives any compensation from
the Trust, the Company, St. Clair or Framlington Trust.
The Company will not employ Rodecker & Company, Investment Brokers, Inc. to
effect brokerage transactions for the Funds.
INVESTMENT ADVISORY AND OTHER SERVICE ARRANGEMENTS
INVESTMENT ADVISOR. The Advisor of the Fund is Munder Capital
Management, a Delaware general partnership. The general partners of the Advisor
are 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.
Under the terms of the Advisory Agreement, the Advisor furnishes
continuing investment supervision to the Fund and is responsible for the
management of the Fund's portfolio. The responsibility for making decisions to
buy, sell or hold a particular security rests with the Advisor, subject to
review by the Company's Board of Directors.
For the advisory services provided and expenses assumed by it, the
Advisor has agreed to a fee from the Fund, computed daily and payable monthly,
at an annual rate of 0.25% of average daily net assets of the Fund.
The Fund's Advisory Agreement will continue in effect for a period of
two years from its effective date. If not sooner terminated, the Advisory
Agreement will continue in effect for successive one year periods thereafter,
provided that each continuance is
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specifically approved annually by (a) the vote of a majority of the Board of
Directors who are not parties to the Advisory Agreement or interested persons
(as defined in the 1940 Act), cast in person at a meeting called for the purpose
of voting on approval, and (b) either (i) the vote of a majority of the
outstanding voting securities of the Fund, or (ii) the vote of a majority of the
Board of Directors. The Advisory Agreement is terminable by vote of the Board of
Directors, or by the holders of a majority of the outstanding voting securities
of the Fund, at any time without penalty, upon 60 days' written notice to the
Advisor. The Advisor may also terminate its advisory relationship with the Fund
without penalty upon 90 days' written notice to the Company. The Advisory
Agreement terminates automatically in the event of its assignment (as defined in
the 1940 Act).
DISTRIBUTION AGREEMENT. The Company has entered into a distribution
agreement, under which the Distributor, as agent, sells shares of the Fund on a
continuous basis. The Distributor has agreed to use appropriate efforts to
solicit orders for the purchase of shares of the Fund, although it is not
obligated to sell any particular amount of shares. The Distributor pays the
cost of printing and distributing prospectuses to persons who are not holders of
shares of the Fund (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. The Fund has adopted a Service 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 Plans, the
Distributor is paid an annual service fee at the rate of 0.25% of the value of
average daily net assets of the Class A Shares of the Fund. The Fund has
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 the provision of certain
shareholder services. Under the Service and Distribution Plans, the Distributor
is paid an annual service fee of 0.25% of the value of average daily net assets
of the Class B and Class C Shares of the Fund and an annual distribution fee at
the rate of 0.75% of the value of average daily net assets of the Class B and
Class C Shares of the Fund.
Under the terms of the Service Plan and both 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
Directors, including a majority of the Board of Directors who are not interested
persons of the Company, as applicable, and who have no direct or indirect
financial interest in the operation of that Plan (the "Non-Interested Plan
Directors"). The 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 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 Fund
(as defined in the 1940 Act) upon not
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more than 30 days' written notice to any other party to the Plan. Pursuant to
each Plan, the Distributor will provide the Board of Directors periodic reports
of amounts expended under the Plan and the purposes for which such expenditures
were made.
With respect to Class B and Class C Shares of the Fund, the
Distributor expects to pay sales commissions to dealers authorized to sell the
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 pursuant to 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 Fund's shares to support their
sales efforts.
SHAREHOLDER SERVICING ARRANGEMENTS - CLASS K SHARES. As stated in the
Fund's Prospectus, Class K Shares are sold to investors through institutions
which enter into Shareholder Servicing Agreements with the Company to provide
support services to their Customers who beneficially own Class K Shares in
consideration of the Fund's payment of not more than 0.25% (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 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 Company's
arrangements with institutions; and (x) providing such other similar services
the Company may reasonably request to the extent the institutions are permitted
to do so under applicable statues, rules and regulations.
Pursuant to the Company's agreements with such institutions, the Board
of Directors will review, at least quarterly, a written report of the amounts
expended under 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 Board of Directors
including a majority of the Directors who are not "interested persons" as
defined in the 1940 Act, and have no direct or indirect financial interest in
such arrangements.
20
<PAGE>
The Board of Directors has approved the arrangements with the
institutions based on information provided by the service contractors that there
is a reasonable likelihood that the arrangements will benefit the Fund and its
shareholders by affording the Fund greater flexibility in connection with the
servicing of the accounts of the beneficial owners of their shares in an
efficient manner.
ADMINISTRATION AGREEMENT. First Data Investor Services Group, Inc.
("First Data") located at 53 State Street, Boston, Massachusetts 02109 serves as
administrator for the Company pursuant to an administration agreement (the
"Administration Agreement"). First Data has agreed to maintain office
facilities for the Company; provide accounting and bookkeeping services for the
Fund, including the computation of the Fund's net asset value, net income and
realized capital gains, if any; furnish statistical and research data, clerical
services, and stationery and office supplies; prepare and file various reports
with the appropriate regulatory agencies; and prepare various materials required
by the SEC or any state securities commission having jurisdiction over the
Company.
The Administration Agreement provides that the Administrator
performing services thereunder shall not be liable under the Agreement except
for its willful misfeasance, bad faith or gross negligence in the performance of
its duties or from the reckless disregard by it of its duties and obligations
thereunder.
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. Comerica Bank (the
"Custodian"), whose principal business address is One Detroit Center, 500
Woodward Avenue, Detroit, MI 48226, maintains custody of the Fund's assets
pursuant to a custodian agreement ("Custody Agreement") with the Company. Under
the Custody Agreement, the Custodian (i) maintains a separate account in the
name of the Fund, (ii) holds and transfers portfolio securities on account of
the Fund, (iii) accepts receipts and makes disbursements of money on behalf of
the Fund, (iv) collects and receives all income and other payments and
distributions on account of the Fund's securities and (v) makes periodic reports
to the Board of Directors concerning the Fund's operations. 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 Fund.
First Data also serves as the transfer and dividend disbursing agent
for the Fund pursuant to a transfer agency agreement (the "Transfer Agency
Agreement") with the Company, under which First Data (i) issues and redeems
shares of the Fund, (ii) addresses and mails all communications by the Fund to
its record owners, including reports to shareholders, dividend and distribution
notices and proxy materials for its meetings of shareholders, (iii) maintains
shareholder accounts, (iv) responds to correspondence by shareholders of the
Fund and (v) makes periodic reports to the Board of Directors
21
<PAGE>
concerning the operations of the Fund.
Comerica Bank. As stated in the Fund's Class K Shares Prospectus,
Class K Shares of the Fund are sold to customers of banks and other
institutions. Such banks and institutions may include Comerica Incorporated (a
publicly-held bank holding company) and its affiliates and subsidiaries and
other institutions that have entered into agreements with the Company 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 Company contemplated by their respective agreements with the Company
without violation of applicable banking laws or regulations. It should be
noted, however, that there have been no cases deciding whether bank and non-bank
subsidiaries of a registered bank holding company may perform services
comparable to those that are to be performed by these companies, and future
changes in either Federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well as
future judicial or administrative decisions or interpretations of current and
future statutes and regulations, could prevent these companies from continuing
to perform such service for the Company.
Should future legislative, judicial or administrative action prohibit
or restrict the activities of such companies in connection with the provision of
services on behalf of the Company, the Company might be required to alter
materially or discontinue its arrangements with such companies and change its
method of operations. It is not anticipated, however, that any change in the
Company's method of operations would affect the net asset value per share of the
Fund or result in a financial loss to any shareholder of the Fund.
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
22
<PAGE>
statutes and regulations, could prevent Comerica and certain other institutions
from continuing to perform certain services for Class K Shares of the Fund.
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
Company might be required to alter materially or discontinue its arrangements
with the institutions and change its method of operations with respect to
Comerica and certain other institutions. It is not anticipated, however, that
any change in the Fund's method of operations would affect the net asset value
per share of the Fund or result in a financial loss to any holder of Class K
Shares of the Fund.
OTHER INFORMATION PERTAINING TO DISTRIBUTION, ADMINISTRATION,
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. As stated in the Prospectuses, the
Administrator and Transfer Agent each receives, as compensation for its
services, fees from the Fund based on the aggregate average daily net assets of
the Fund and other investment portfolios advised by the Advisor. The Custodian
receives a separate fee for its services. In approving the Administration
Agreement and Transfer Agency Agreement, the Board of Directors did consider the
services that are to be provided under their respective agreements, the
experience and qualifications of the respective service contractors, the
reasonableness of the fees payable by the Company in comparison to the charges
of competing vendors, the impact of the fees on the estimated total ordinary
operating expense ratio of the Fund and the fact that neither the Administrator
nor the Transfer Agent is affiliated with the Company or the Advisor. The Board
also considered its responsibilities under federal and state law in approving
these agreements.
Comerica Bank provides custodial services to the Fund. As
compensation for its services, Comerica Bank is entitled to receive fees, based
on the aggregate average daily net assets of the Fund and certain other
investment portfolios for which Comerica Bank provides services, computed daily
and payable monthly at an annual rate of 0.03% of the first $100 million of
average daily net assets, plus 0.02% of the next $500 million of net assets,
plus 0.01% of all net assets in excess of $600 million. Comerica Bank also
receives certain transaction based fees.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Board Members, the Advisor
makes decisions with respect to and places orders for all purchases and sales of
portfolio securities for the Fund.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. Transactions on foreign
stock exchanges involve payment for brokerage commissions which are generally
fixed.
23
<PAGE>
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 Fund may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
The Fund will engage in this practice, however, only when the Advisor believes
such practice to be in the Fund's interests.
The portfolio turnover rate of the Fund is calculated by dividing the
lesser of the Fund's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of securities whose maturities at the time of
acquisition were one year or less) by the monthly average value of the
securities held by the Fund during the year. The Fund may engage in short-term
trading to achieve its investment objective. Portfolio turnover may vary
greatly from year to year as well as within a particular year.
In its Advisory Agreements, the Advisor agrees to select broker-
dealers in accordance with guidelines established by the Company's Board of
Directors from time to time and in accordance with applicable law. In assessing
the terms available for any transaction, the Advisor shall consider all factors
it deems relevant, including the breadth of the market in the security, the
price of the security, the financial condition and execution capability of the
broker-dealer, and the reasonableness of the commission, if any, both for the
specific transaction and on a continuing basis. In addition, the Advisory
Agreements authorize the Advisor, subject to the prior approval of the Company's
Board of Directors, to cause the Fund to pay a broker-dealer which furnishes
brokerage and research services a higher commission than that which might be
charged by another broker-dealer for effecting the same transaction, provided
that the Advisor determines in good faith that such commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either the particular transaction or the
overall responsibilities of the Advisor to the Fund. Such brokerage and
research services might consist of reports and statistics on specific companies
or industries, general summaries of groups of bonds and their comparative
earnings and yields, or broad overviews of the securities markets and the
economy.
Supplementary research information so received is in addition to, and
not in lieu of, services required to be performed by the Advisor and does not
reduce the advisory fees payable to the Advisor by the Fund. It is possible
that certain of the supplementary
24
<PAGE>
research or other services received will primarily benefit one or more other
investment companies or other accounts for which investment discretion is
exercised. Conversely, the Fund may be the primary beneficiary of the research
or services received as a result of portfolio transactions effected for such
other account or investment company.
Portfolio securities will not be purchased from or sold to the
Advisor, the Distributor or any affiliated person (as defined in the 1940 Act)
of the foregoing entities except to the extent permitted by SEC exemptive order
or by applicable law.
Investment decisions for the Fund and for other investment accounts
managed by the Advisor are made independently of each other in the light of
differing conditions. However, the same investment decision may be made for two
or more of such accounts. In such cases, simultaneous transactions are
inevitable. Purchases or sales are then averaged as to price and allocated as
to amount in a manner deemed equitable to each such account. While in some
cases this practice could have a detrimental effect on the price or value of the
security as far as the Fund is concerned, in other cases it is believed to be
beneficial to the Fund. To the extent permitted by law, the Advisor may
aggregate the securities to be sold or purchased for the Fund with those to be
sold or purchased for other investment companies or accounts in executing
transactions.
The Fund will not purchase securities during the existence of any
underwriting or selling group relating to such securities of which the Advisor
or any affiliated person (as defined in the 1940 Act) thereof is a member except
pursuant to procedures adopted by the Company's Board of Directors in accordance
with Rule 10f-3 under the 1940 Act.
Except as noted in the Prospectuses and this Statement of Additional
Information the Fund's service contractors bear all expenses in connection with
the performance of its services and the Fund bears the expenses incurred in its
operations. These expenses include, but are not limited to, fees paid to the
Advisor, Administrator, Custodian and Transfer Agent; fees and expenses of
officers and directors; taxes; interest; legal and auditing fees; brokerage fees
and commissions; certain fees and expenses in registering and qualifying the
Fund and its shares for distribution under Federal and state securities laws;
expenses of preparing prospectuses and statements of additional information and
of printing and distributing prospectuses and statements of additional
information to existing shareholders; the expense of reports to shareholders,
shareholders' meetings and proxy solicitations; fidelity bond and directors'
and officers' liability insurance premiums; the expense of using independent
pricing services; and other expenses which are not assumed by the Administrator.
Any general expenses of the Company that are not readily identifiable as
belonging to a particular investment portfolio of the Company are allocated
among all investment portfolios of the Company by or under the direction of the
Board of Directors in a manner that the Board of Directors determines to be fair
and equitable. The Advisor, Administrator, Custodian and Transfer Agent may
voluntarily waive all or a portion of their respective fees from time to time.
25
<PAGE>
PURCHASE AND REDEMPTION INFORMATION
Purchases and redemptions are discussed in the Fund's Prospectuses and
such information is incorporated herein by reference.
PURCHASES. In addition to the methods of purchasing shares described
in each Prospectus, the Fund also offers a pre-authorized checking plan by which
investors may accumulate shares of the Fund regularly each month by means of
automatic debits to their checking accounts. There is a $50 minimum on each
automatic debit. Shareholders may choose this option by checking the
appropriate part of the application form or by calling the Fund at (800) 438-
5789. Such a plan is voluntary and may be discontinued by the shareholder at
any time or by the Company on 30 days' written notice to the shareholder.
LETTER OF INTENT. Purchasers who intend to invest $100,000 or more in
Class A Shares of the Fund within 13 months (whether in one lump sum or in
installments the first of which may not be less than 5% of the total intended
amount and each subsequent installment not less than $100, including automatic
investment and payroll deduction plans), and to beneficially hold the total
amount of such shares fully paid for and outstanding simultaneously for at least
one full business day before the expiration of that period, should complete the
Letter of Intent ("LOI") section in the Application. Payment for not less than
5% of the total intended amount must accompany the executed LOI. Those shares
purchased with the first 5% of the intended amount stated in the LOI will be
held as "escrowed shares" for as long as the LOI remains unfulfilled. Although
the escrowed shares are registered in the investor's name, his full ownership of
them is conditional upon fulfillment of the LOI. No escrowed shares can be
redeemed by the investor for any purpose until the LOI is fulfilled or
terminated. If the LOI is terminated for any reason other than fulfillment, the
Transfer Agent will redeem that portion of the escrowed shares required and
apply the proceeds to pay any adjustment that may be appropriate to the sales
commission on all shares (including the escrowed shares) already purchased under
the LOI and apply any unused balance to the investor's account. The LOI is not
a binding obligation to purchase any amount of shares, but its execution will
result in the purchaser paying a lower sales charge at the appropriate quantity
purchase level. A purchase not originally made pursuant to an LOI may be
included under a subsequent LOI executed within 90 days of such purchase. In
this case, an adjustment will be made at the end of 13 months from the effective
date of the LOI at the net asset value per share then in effect, unless the
investor makes an earlier written request to the Funds' Distributor upon
fulfilling the purchase of Shares under the LOI. In addition, the aggregate
value of any shares purchased prior to the 90-day period referred to above may
be applied to purchases under a current LOI in fulfilling the total intended
purchases under the LOI. However, no adjustment of sales charge previously paid
on purchases prior to the 90-day period will be made. Shares acquired through
reinvestment of dividends and capital gain distributions are considered in
connection with an investor's fulfillment of the LOI.
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<PAGE>
RETIREMENT PLANS. Shares of the Fund may be purchased in connection
with various types of tax deferred retirement plans, including individual
retirement accounts ("IRAs"), qualified plans, deferred compensation for public
schools and charitable organizations (403(b) plans) and simplified employee
pension IRAs. An individual or organization considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan. A $10.00 annual custodial fee
is also charged on IRAs. This custodial fee is due by December 15 of each year
and may be paid by check or shares liquidated from a shareholder's account.
IN-KIND PURCHASES
Payment for shares may, in the discretion of the Advisor, be made in
the form of securities that are permissible investments for the Fund as
described in each Prospectus. For further information about this form of payment
please contact the Transfer Agent. In connection with an in-kind securities
payment, the Fund will require, among other things, that the securities (a) meet
the investment objectives and policies of the Fund; (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; 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.
REDEMPTIONS
SYSTEMATIC WITHDRAWALS. In addition to the methods of redemption
described in each Prospectus, a systematic withdrawal plan is available in which
a shareholder of the Fund may elect to receive a fixed amount ($50 minimum),
monthly, quarterly, semi-annually, or annually, for accounts with a value of
$2,500 or more. Checks are mailed on or about the 10th of each designated
month. All certified shares must be placed on deposit under the plan and
dividends and capital gain distributions, if any, are automatically reinvested
at net asset value for shareholders participating in the plan. If the checks
received by a shareholder through the systematic withdrawal plan exceed the
dividends and capital appreciation of the shareholder's account, the systematic
withdrawal plan will have the effect of reducing the value of the account. Any
gains and/or losses realized from redemptions through the systematic withdrawal
plan are considered a taxable event by the Internal Revenue Service and must be
reported on the shareholders' income tax return. Shareholders should consult
with a tax advisor for information on their specific financial situations. At
the time of initial investment, a shareholder may request that the check for the
systematic withdrawal be sent to an address other than the address of record.
The address to which the payment is mailed may be changed by submitting a
written request, signed by all registered owners, with their signatures
guaranteed. Shareholders may add this option after the account is already
established or change the
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<PAGE>
amount on an existing account by calling the Fund at (800) 438-5789. The Fund
may terminate the plan on 30 days' written notice to the shareholder.
OTHER INFORMATION. The Fund reserves 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 the Fund not
reasonably practicable.
The Fund 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.
Redemption proceeds are normally paid in cash; however, the Fund may
pay the redemption price in whole or part by a distribution in kind of
securities from the portfolio of the Fund, in lieu of cash, in conformity with
applicable rules of the SEC. If shares are redeemed in kind, the redeeming
Shareholder might incur transaction costs in converting the assets into cash.
The Fund is obligated to redeem Shares solely in cash up to the lesser of
$250,000 or 1% of its net assets during any 90-day period for any one
Shareholder.
EXCHANGES. In addition to the method of exchanging shares described
in the Fund's 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 Fund at (800) 438-5789. Telephone exchange
instructions must be received by the Transfer Agent by 4:00 p.m., New York City
time. The Fund, 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 Fund 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.
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<PAGE>
NET ASSET VALUE
In determining the approximate market value of portfolio investments,
the Company may employ outside organizations, which may use matrix or formula
methods that take into consideration market indices, matrices, yield curves and
other specific adjustments. This may result in the securities being valued at a
price different from the price that would have been determined had the matrix or
formula methods not been used. All cash, receivables and current payables are
carried on the Company's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith under the supervision of the
Board of Directors.
PERFORMANCE INFORMATION
The Fund may, from time to time, include information regarding its
yield or total return in advertisements, sales literature, or reports to
shareholders or prospective investors.
The Fund's 30-day (or one month) standard yield described in each
Prospectus is calculated for the Fund in accordance with the method prescribed
by the SEC for mutual funds:
YIELD = 2[((a - b)+1)/6 /- 1]
-----
cd
Where: a = dividends and interest earned by a Fund during the period;
b = expenses accrued for the period (net of reimbursements);
c = average daily number of shares outstanding during the period
entitled to receive dividends; and
d = maximum offering price per share on the last day of the period.
For the purpose of determining interest earned on debt obligations
purchased by the Fund at a discount or premium (variable "a" in the formula),
the Fund computes the yield to maturity of such instrument based on the market
value of the obligation (including actual accrued interest) at the close of
business on the last business day of each month, or, with respect to obligations
purchased during the month, the purchase price (plus actual accrued interest).
Such yield is then divided by 360 and the quotient is multiplied by the
29
<PAGE>
market value of the obligation (including actual accrued interest) in order to
determine the interest income on the obligation for each day of the subsequent
month that the obligation is in the portfolio. It is assumed in the above
calculation that each month contains 30 days. The maturity of a debt obligation
with a call provision is deemed to be the next call date on which the obligation
reasonably may be expected to be called or, if none, the maturity date. For the
purpose of computing yield on equity securities held by the Fund, dividend
income is recognized by accruing 1/360 of the stated dividend rate of the
security for each day that the security is held by the Fund.
Interest earned on tax-exempt obligations that are issued without original
issue discount and 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 discount 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 the Fund to all shareholder accounts in proportion to the length of
the base period and the Fund's mean (or median) account size. Undeclared earned
income will be subtracted from the offering price per share (variable "d" in the
formula). The Fund's maximum offering price per share for purposes of the
formula includes the maximum sales charge imposed -- currently 4.00% of the per
share offering price for Class A Shares of the Fund.
The Fund may advertise its "average annual total return" and will compute
such return by determining the average annual compounded rate of return during
specified periods that equates the initial amount invested to the ending
redeemable value of such investment according to the following formula:
P (1 + T)/n/ = ERV
Where: 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);
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<PAGE>
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
The Fund may advertise its "aggregate total return" and will compute such
return by determining the aggregate compounded rates of return during specified
periods that likewise equate the initial amount invested to the ending
redeemable value of such investment. The formula for calculating aggregate
total return is as follows:
(ERV) - 1
-----
Aggregate Total Return = P
The calculations are made assuming that (1) all dividends and capital gain
distributions are reinvested on the reinvestment 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 Fund's average annual total return and 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
Fund's average annual total return and aggregate total return quotations for
Class B Shares will reflect any applicable CDSC; provided that Fund 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.
The performance of any investment is generally a function of portfolio
quality and maturity, type of investment and operating expenses.
From time to time, in advertisements or in reports to shareholders, the
Fund's yields or total returns may be quoted and compared to those of other
mutual funds with similar investment objectives and to stock or other relevant
indices. For example, the Fund's yield may be compared to the IBC/Donoghue's
Money Fund Average, which is an average compiled by Donoghue's MONEY FUND REPORT
of Holliston, MA 01746, a widely recognized independent publication that
monitors the performance of money market funds, or to the data prepared by
Lipper Analytical Services, Inc., a widely recognized independent service that
monitors the performance of mutual funds. In addition, as stated in the Fund's
Prospectuses, the tax-equivalent yield (and hypothetical examples illustrating
the effect of tax-equivalent yields) of the 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.
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<PAGE>
TAXES
The following summarizes certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in the
Fund's Prospectuses. No attempt is made to present a detailed explanation of the
tax treatment of the Fund or its shareholders, and the discussion here and in
the Prospectuses is not intended as a substitute for careful tax planning.
Potential investors should consult their tax Advisors with specific reference to
their own tax situations.
The Fund will elect to be taxed separately as a regulated investment
company under Subchapter M, of the Internal Revenue Code of 1986, as amended
(the "Code"). As a regulated investment company, the Fund generally is exempt
from Federal income tax on its net investment income and realized capital gains
which it distributes to 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, the Fund
must derive with respect to a taxable year at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans and gains
from the sale or other disposition of stock or securities or foreign currencies,
or from other income derived with respect to its business of investing in such
stock, securities, or currencies (the "Income Requirement") and 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 Gain
Test"). Interest (including original issue discount and "accrued market
discount") received by the Fund at maturity or on disposition of a security held
for less than three months will not be treated (in contrast to other income
which is attributable to realized market appreciation) as gross income from the
sale or other disposition of securities held for less than three months for this
purpose.
In addition to the foregoing requirements, at the close of each
quarter of its taxable year, at least 50% of the value of the Fund's assets must
consist of cash and cash items, U.S. Government securities, securities of other
regulated investment companies, and securities of other issuers (as to which the
Fund has not invested more than 5% of the value of its total assets in
securities of such issuer and as to which the Fund does not hold more than 10%
of the outstanding voting securities of such issuer) and no more than 25% of the
value of the Fund's total assets may be invested in the securities of any one
issuer (other than U.S. Government securities and securities of other regulated
investment
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companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses. Repurchase agreements
collateralized by U.S. treasury securities are not treated for purposes of the
diversification requirement described in this paragraph as U.S. Government
securities.
Certain debt instruments acquired by the Fund may include "original
issue discount" or "market discount". As a result, the Fund may be deemed under
tax law rules to have earned discount income in taxable periods in which it does
not actually receive any payments on the particular debt instruments involved.
This income, however, will be subject to the Distribution Requirements and must
also be distributed in accordance with the excise tax distribution rules
discussed above, which may cause the Fund to have to borrow or liquidate
securities to generate cash in order to timely meet these requirements (even
though such borrowing or liquidating securities at that time may be detrimental
from the standpoint of optimal portfolio management). Gain from the sale of a
debt instrument having market discount may be treated for tax purposes as
ordinary income to the extent that market discount accrued during the Fund's
ownership of that instrument.
Distributions of net investment income received by the Fund from
investments in debt securities and any net realized short-term capital gains
distributed by the Fund will be taxable to shareholders as ordinary income and
will not be eligible for the dividends received deduction for corporations.
The Fund intends to distribute to shareholders any excess of net long-
term capital gain over net short-term capital loss ("net capital gain") for each
taxable year. Such gain is distributed as a capital gain dividend and is
taxable to shareholders as long-term capital gain, regardless of the length of
time the shareholder has held the shares, whether such gain was recognized by
the Fund prior to the date on which a shareholder acquired shares of the Fund
and whether the distribution was paid in cash or reinvested in shares. In
addition, investors should be aware that any loss realized upon the sale,
exchange or redemption of shares held for six months or less will be treated as
a long-term capital loss to the extent any capital gain dividends have been paid
with respect to such shares. Capital gain dividends are not eligible for the
dividends received deduction for corporations.
Ordinary income of individuals is taxable at a maximum nominal rate of
39.6%, although because of limitations on itemized deductions otherwise
allowable and the phase-out of personal exemptions, the maximum effective
marginal rate of tax for some taxpayers may be higher. An individual's long-
term capital gains are taxable at a maximum rate of 28%. Capital gains and
ordinary income of corporate taxpayers are both taxed at a nominal maximum rate
of 35%.
If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders. In
such event, all distributions (whether or not derived from exempt-interest
income) would be taxable as ordinary income and
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would be eligible for the dividends received deduction in the case of corporate
shareholders to the extent of the Fund's current and accumulated earnings and
profits.
Shareholders will be advised annually as to the Federal income tax
consequences of distributions made by the Fund each year.
The Code imposes a non-deductible 4% excise tax on regulated
investment companies that fail to currently distribute an amount equal to
specified percentages of their ordinary taxable income and capital gain net
income (excess of capital gains over capital losses). The 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 Company will be required in certain cases to withhold and remit to
the United States Treasury 31% of taxable dividends or 31% of gross proceeds
realized upon sale paid to any shareholder (i) who has provided either an
incorrect tax identification number or no number at all, (ii) who is subject to
backup withholding by the Internal Revenue Service for failure to report the
receipt of taxable interest or dividend income properly, or (iii) who has failed
to certify to the Company that he is not subject to backup withholding or that
he is an "exempt recipient."
The foregoing general discussion of Federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the date
of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Although the Fund expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all Federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located or in which it is otherwise deemed to be conducting business, the Fund
may be subject to the tax laws of such states or localities.
ADDITIONAL INFORMATION CONCERNING SHARES
The Company is a Maryland corporation. The Company's Articles of
Incorporation authorize the Board of Directors to classify or reclassify any
unissued shares of the Company into one or more classes by setting or changing,
in any one or more
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respects, their respective designations, preferences, conversion or other
rights, voting powers, restrictions, limitations, qualifications and terms and
conditions of redemption. 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 Equity
Fund, Mid-Cap Growth Fund, Multi-Season Growth Fund, Real Estate Equity
Investment Fund, Small-Cap Value Fund, Value Fund, International Bond Fund,
Short Term Treasury Fund, Money Market Fund, and NetNet Fund, respectively. The
Shares of each Fund (other than the Money Market 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 Company and the Munder Funds Trust) and Class Y
Shares. The NetNet Fund offers only one Class of Shares.
In the event of a liquidation or dissolution of the Company or the
Fund, shareholders of the Fund would be entitled to receive the assets available
for distribution belonging to the Fund, and a proportionate distribution, based
upon the relative net asset value of the Fund, of any general assets not
belonging to the Fund which are available for distribution. Shareholders of the
Fund are entitled to participate in the net distributable assets of the Fund,
based on the number of shares of the Fund that are held by each shareholder.
Holders of all outstanding shares of the Fund will vote together in
the aggregate and not by class on all matters, except that only Class A Shares
of the 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 the 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 the Fund will be entitled to vote on
matters submitted to a vote of shareholders pertaining to the Class K Plan.
Shareholders of the Fund, as well as those of any other investment
portfolio now or hereafter offered by the Company, will vote together in the
aggregate and not separately on a Fund-by-Fund basis, except as otherwise
required by law or when permitted by the Boards of Directors. Rule 18f-2 under
the 1940 Act provides that any matter required to be submitted to the holders of
the outstanding voting securities of an investment company such as the Company
shall not be deemed to have been effectively acted upon unless approved by the
holders of a majority of the outstanding shares of each Fund affected by the
matter. The Fund is affected by a matter unless it is clear that the interests
of the Fund in the matter are substantially identical to the interests of other
portfolios of the Company or that the matter does not affect any interest of the
Fund. Under the Rule, the approval of an investment advisory agreement or any
change in a
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Fundamental investment policy would be effectively acted upon with respect to
the Fund only if approved by a majority of the outstanding shares of the 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
Company voting together in the aggregate without regard to a particular
portfolio.
Shares of the Company have noncumulative voting rights and,
accordingly, the holders of more than 50% of the Company's outstanding shares
may elect all of the 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 Prospectuses, shares will be fully paid
and non-assessable by the Company.
Shareholder meetings to elect directors will not be held unless and
until such time as required by law. At that time, the directors then in office
will call a shareholders' meeting to elect directors. Except as set forth
above, the directors will continue to hold office and may appoint successor
directors. Meetings of the shareholders of the Company shall be called by the
directors upon the written request of shareholders owning at least 10% of the
outstanding shares entitled to vote.
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 Fund and serves as counsel to the Company.
INDEPENDENT AUDITORS. Ernst & Young LLP, serves as the Company's
independent auditors.
SHAREHOLDER APPROVALS. As used in this Statement of Additional
Information and in the Prospectuses, a "majority of the outstanding shares" of
the Fund means the lesser of (a) 67% of the shares of the Fund represented at a
meeting at which the holders of more than 50% of the outstanding shares of the
Fund are present in person or by proxy, or (b) more than 50% of the outstanding
shares of the Fund.
REGISTRATION STATEMENT
This Statement of Additional Information and 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.
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Statements contained herein and in the Fund's Prospectuses as to the
contents of any contract or other documents referred to are not necessarily
complete, and, in such instance, reference is made to the copy of such contract
or other documents filed as an exhibit to the Fund's registration statement,
each such statement being qualified in all respect by such reference.
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