As filed with the Securities and Exchange Commission
on May 14, 1997
Registration Nos. 33-54748
811-7348
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 25 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[ X ]
Amendment No. 27 [ X ]
(Check appropriate box or boxes)
The Munder Funds, Inc.
(Exact Name of Registrant as Specified in Charter)
480 Pierce Street, Birmingham, Michigan 48009
(Address of Principal Executive Offices) (Zip code)
Registrant's Telephone Number: (810) 647-9200
Teresa M.R. Hamlin, Esq.
First Data Investor Services Group, Inc.
One Exchange Place, 8th Floor
Boston, Massachusetts 02109
Copies to:
Lisa Anne Rosen, Esq. Paul F. Roye, Esq.
Munder Capital Management Dechert Price & Rhoads
480 Pierce Street 1500 K Street, NW
Birmingham, Michigan 48009 Washington, DC 20005
[X] It is proposed that this filing will become effective
July 28, 1997 pursuant to paragraph (a)(2) of Rule 485.
The Registrant has elected to register an indefinite number
of shares under the Securities Act of 1933 pursuant to Rule 24f-2
under the Investment Company Act of 1940. Registrant filed the
notice required by Rule 24f-2 with respect to its fiscal year
ended June 30, 1996 on August 29, 1996.
THE MUNDER FUNDS, INC.
CROSS-REFERENCE SHEET
Pursuant to Rule 495(a)
Prospectus for The Munder Financial Services Fund
Part A
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Item Heading
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1. Cover Page Cover Page
2. Synopsis Prospectus Summary;
Expense Table
3. Condensed Financial Information Not Applicable
4. General Description of Registrant Cover Page;
Prospectus
Summary;
Investment
Objective and
Policies;
Portfolio
Instruments and
Practices and
Associated Risk
Factors;
Description of
Shares
5. Management of the Fund Management;
Investment
Objective and
Policies;
Dividends and
Distributions;
Performance
6. Capital Stock and Other Securities Management; How to
Purchase Shares;
How to Redeem
Shares; Dividends
and Distributions;
Taxes; Description
of Shares
7. Purchase of Securities Being Offered How to
Purchase
Shares;
Net Asset
Value
8. Redemption or Repurchase How to Redeem
Shares
9. Pending Legal Proceedings Not Applicable
Part B
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Item Heading
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History See Prospectus --
"Management;"
General; Directors
and Officers
13. Investment Objectives and Policies Fund Investments;
Investment
Limitations;
Portfolio
Transactions
14. Management of the Fund See Prospectus --
"Management;"
Directors and
Officers;
Miscellaneous
15. Control Persons and Principal See Prospectus --
Holders of Securities "Management;"
Miscellaneous
16. Investment Advisory and Other Services Investment
Advisory and Other
Service
Arrangements; See
Prospectus --
"Management"
17. Brokerage Allocation and Other Practices
Portfolio
Transactions
18. Capital Stock and Other Securities See Prospectus --
"Description of
Shares" and
"Management;"
Additional
Information
Concerning Shares
19. Purchase, Redemption and Pricing Purchase and
of Securities Being Offered Redemption
Information; Net
Asset Value;
Additional
Information
Concerning Shares
20. Tax Status Taxes
21. Underwriters Investment
Advisory and
Other Service
Agreements
22. Calculation of Performance Data Performance
Information
23. Financial Statements Not Applicable
THE MUNDER FUNDS, INC.
The purpose of this filing is to add a new portfolio to the
Registrant, namely, The Munder Financial Services Fund.
The Prospectuses and Statements of Additional Information for the
Money Market Fund, Small-Cap Value Fund, Equity Selection Fund,
Micro-Cap Equity Fund, Mid-Cap Growth Fund, Multi-Season Growth
Fund, Real Estate Equity Investment Fund, International Bond Fund,
Value Fund, Short Term Treasury Fund, NetNet Fund, All-Season
Maintenance Fund, All-Season Development Fund and All-Season
Accumulation Fund are not included in this filing.
PROSPECTUS
The Munder Financial Services Fund (the "Fund") is a mutual fund
portfolio that seeks to provide shareholders long term capital appreciation by
investing primarily in equity securities of companies in the financial services
industry. These companies include commercial, industrial and investment banks,
savings & loan associations, consumer and industrial finance companies,
securities brokerage companies, real estate and leasing companies, investment
management companies, and insurance companies. Because the Fund's portfolio
holdings will be concentrated in the financial services industry, an investment
in the Fund does not represent a balanced investment program. The Fund is a
separate portfolio of the Munder Funds, Inc. (the "Company"), an open-end
investment company that currently offers fifteen investment portfolios.
Munder Capital Management (the "Advisor") serves as the investment
advisor of the Fund.
This Prospectus contains information that a prospective investor should
know before investing. Investors are encouraged to read this Prospectus and
retain it for future reference. A Statement of Additional Information dated
_________ __, 1997, as amended or supplemented from time to time, has been filed
with the Securities and Exchange Commission (the "SEC") and is incorporated by
reference into this Prospectus. The Statement of Additional Information may be
obtained free of charge by calling the Fund at (800) 438-5789. In addition, the
SEC maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information and other information regarding the Fund.
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.
SECURITIES OFFERED BY THIS PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is __________ __, 1997.
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TABLE OF CONTENTS
Page
Prospectus Summary....................................................... __
Expense Table............................................................ __
The Fund................................................................. __
Investment Objective and Policies........................................ __
Portfolio Instruments and Practices
and Associated Risk Factors............................................ __
Investment Limitations................................................... __
How to Purchase Shares................................................... __
How to Redeem Shares..................................................... __
Dividends and Distributions.............................................. __
Net Asset Value.......................................................... __
Management............................................................... __
Taxes.................................................................... __
Description of Shares.................................................... __
Performance.............................................................. __
Shareholder Account Information.......................................... __
No person has been authorized to give any information, or to make any
representations not contained in this Prospectus, or in the Funds' Statement of
Additional Information incorporated herein by reference, in connection with the
offering made by this Prospectus, and, if given or made, such information or
representations must not be relied upon as having been authorized by the Funds
or Funds Distributor, Inc. (the "Distributor"). This Prospectus does not
constitute an offering by the Funds or by the Distributor in any jurisdiction in
which such offering may not lawfully be made.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing in this Prospectus.
Investment Objective and Policies
The Fund's investment objective is long term capital appreciation. It
seeks to achieve this objective by investing primarily in equity securities of
companies which are engaged in the financial services industry, focusing
specifically on commercial, industrial and investment banks, savings & loan
associations, consumer and industrial finance companies, securities brokerage
companies, real estate and leasing companies, investment management companies
and insurance companies which are likely to benefit from growth or consolidation
in the financial services industry. There is no assurance that the Fund will
achieve its investment objective.
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Purchasing Shares
Shares of the Fund are offered at net asset value. Shares of the
Fund are offered continuously and may be purchased from the Distributor or
through the Transfer Agent. See "How to Purchase Shares."
Minimum Investment
$1,000 minimum investment ($50 through Automatic Investment Plan).
$50 minimum for subsequent purchases.
Reinvestment
Automatic reinvestment of dividends and capital gains unless a
shareholder elects to receive cash.
Other Features
Automatic Investment Plan
Automatic Withdrawal Plan
Retirement Plans
Reinvestment Privilege
Dividends and Other Distributions
Dividends from net investment income are declared and paid at least
annually. Capital gains, if any, are distributed at least annually.
Net Asset Value
Determined once daily on each business day.
Redeeming Shares
Shares of the Fund may be redeemed at net asset value by
mail or telephone. See "How to Redeem Shares."
Investment Risks and Special Considerations
The Fund's performance and price per share will change daily based on
many factors, including national and international economic conditions, the
overall level of equity prices, general market conditions and international
exchange rates. Because the Fund will concentrate its investment in the
financial services industry, the net asset value of the Fund may be strongly
affected by changes in the economic climate, broad market shifts, interest rate
movements, moves in a particular dominant stock, or regulatory changes.
Depending on these factors, the net asset value of the Fund may decrease instead
of increase. An investment in the Fund does not represent a balanced investment
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program. See "Investment Objective and Policies."
Investment Advisor
As investment advisor for the Fund, Munder Capital Management provides
overall investment management for the Fund, provides research and credit
analysis, is responsible for all purchases and sales of portfolio securities,
maintains records relating to such purchases and sales, and provides reports to
the Company's Board of Directors. See "Management -- Investment Advisor."
Distributor
Funds Distributor, Inc.
EXPENSE TABLE
The following table sets forth certain costs and expenses that an
investor will incur either directly or indirectly as a shareholder of the Fund
based on estimated operating expenses.
Shareholder transaction expenses:
Maximum sales load on purchases None
Maximum sales load on reinvested dividends None
Maximum contingent deferred sales charge None
Redemption Fees None
Annual operating expenses:
(as percentage of average net assets)
Advisory fees .75%
Other expenses .25%
Total fund operating expenses 1.00%
With respect to the Fund, the amount of "Other Expenses" in the table
above is based on estimated expenses and projected assets for the current fiscal
year. See "Management" in this Prospectus for a further description of the
Fund's operating expenses. Any fees charged by institutions directly to customer
accounts for services provided in connection with investments in shares of the
Fund are in addition to the expenses shown in the above Expense Table and the
Example shown below. The Transfer Agent may deduct a wire redemption fee of
$7.50 for wire redemptions under $5,000.
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in the Fund. These amounts are based on payment by the
Fund of operating expenses at the levels set forth in the above table, and are
also based on the following assumptions:
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An investor would pay the following expenses on a $1,000 investment in
the Fund assuming (1) a hypothetical 5% annual return and (2) redemption at the
end of the following time periods:
1 Year 3 Years
[ ] [ ]
The foregoing Expense Table and Example are intended to assist
investors in understanding the various shareholder transaction expenses and
operating expenses of the Fund that investors bear either directly or
indirectly.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
FUTURE INVESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The Munder Financial Services Fund is a series of shares issued by the
Munder Funds, Inc. (the "Company"), an open-end management investment company.
The Company was incorporated under the laws of the State of Maryland on November
18, 1992 and has registered under the Investment Company Act of 1940, as amended
(the "1940 Act"). The Fund's principal office is located at 480 Pierce Street,
Birmingham, Michigan 48009 and its telephone number is (800) 438-5789.
INVESTMENT OBJECTIVE AND POLICIES
This Prospectus describes The Munder Financial Services Fund.
Purchasing shares of the Fund should not be considered a complete investment
program, but an important segment of a well- diversified investment program.
The investment objective of the Fund is to provide shareholders with
long term capital appreciation. The Fund seeks to achieve this objective by
investing primarily in companies principally engaged in providing financial
services, focusing specifically on securities of companies providing services to
consumers and industry that are likely to benefit from growth or consolidation
in the financial services industry. Income is not a primary consideration in the
selection of investments.
Under normal conditions, the Fund will invest at least 65% of its total
assets in equity securities of companies listed on U.S. securities exchanges or
NASDAQ National Market System ("NASDAQ") that are principally engaged in
commercial, industrial and investment banking, savings and loan, consumer and
industrial finance, securities brokerage, real estate and leasing, investment
management or the insurance business. Equity securities include common stock,
preferred stock and securities convertible into common stock. The specific risks
of investing
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<PAGE>
in financial services-related securities are summarized below and under
"Portfolio Instruments and Practices and Associated Risk Factors-Industry
Concentration."
In determining whether a company is principally engaged in the
financial services industry, the adviser must determine that the company derives
more than 50% of its gross income, net sales or net profits from activities in
the financial services industry; or that the company dedicates more than 50% of
its assets to the production of revenues from the financial services industry,
or, if based on available financial information, a question exists whether a
company meets one of these standards, the Adviser determines that the company's
primary business is within the financial services industry.
The Fund may also engage in short selling of securities, lend its
portfolio securities and borrow money for temporary purposes or to meet
redemption requests. In addition, the Fund may enter into transactions in
options on securities, securities indices and foreign currencies, forward
foreign currency contracts, and futures contracts and related options, all of
which may be classified as derivatives. The Fund may also invest in shares of
real estate investment trusts. When deemed appropriate by the Fund's investment
advisor, the Fund may invest cash balanced in repurchase agreements and other
money market investments pending investment in equity securities or to maintain
liquidity in an amount to meet expenses or redemption requests. These investment
techniques are described below and under the heading "Investment Objectives and
Policies" in the Statement of Additional Information.
The Fund's investment objective and all other investment policies,
unless otherwise noted, are non-fundamental and may be changed by the Board of
Directors without shareholder approval.
Under Securities and Exchange Commission regulations, the Fund may not
invest more than 5% of its assets in the equity securities of any company that
derives more than 15% of its revenues from brokerage or investment management
activities.
In addition to more general economic factors, the value of Fund shares
may be susceptible to factors affecting the financial services industry.
Companies in the financial services sector are often faced with the same
obstacles, issues or regulatory burdens, and their securities may react
similarly to and move in unison with these and other market conditions As a
result, investors should be prepared for volatile, short-term movement in net
asset value.
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Financial services companies are subject to extensive governmental
regulation which may limit both the amounts and types of loans and other
financial commitments they can make, and the interest rates and fees they can
charge. Changes in governmental policies and the need for regulatory approval
may have a material effect on these companies. Profitability is largely
dependent on the availability and costs of capital funds, and can fluctuate
significantly when interest rates change. Credit losses resulting from financial
difficulties of borrowers can negatively impact the industry. Legislation is
currently being considered which would reduce the separation between commercial
and investment banking businesses, which if enacted, could significantly impact
financial services companies and the Fund.
Commercial banks, savings and loan institutions and their holding
companies are especially influenced by adverse effects of volatile interest
rates, portfolio concentrations in loans to particular businesses, such as real
estate and energy, and competition from new entrants in their areas of business.
These institutions are subject to extensive federal regulation and, in some
cases, to state regulation as well. However, neither federal insurance of
deposits nor regulation of the bank and savings and loan industries ensures the
solvency or profitability of commercial banks or savings and loan institutions
or their holding companies, or insures against the risk of investing in the
equity securities issued by these institutions.
Investment banking, securities and commodities brokerage and investment
advisory companies also are subject to governmental regulation and investments
in those companies are subject to the risks related to securities and
commodities trading and securities underwriting activities. Insurance companies
also are subject to extensive governmental regulation, including the imposition
of maximum rate levels, which may be inadequate for some lines of business. The
performance of insurance companies will be affected by interest rates, severe
competition in the pricing of services, claims activities, marketing competition
and general economic conditions.
Although securities of large and well-established companies in the
financial services industry will be held in the Fund's portfolio, the Fund also
will invest in medium, small and/or newly-public companies which may be subject
to greater share price fluctuations and declining growth, particularly in the
event of rapid changes in the industry and/or increased competition. Securities
of those smaller and/or less seasoned companies may, therefore, expose
shareholders of the Fund to above-average risk.
The Fund may be appropriate for investors who want to pursue growth
aggressively by concentrating a portion of their
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<PAGE>
investment on domestic and foreign securities within the financial services
industry. The Fund is designed for those investors who are actively interested
in, and can accept the risks of, industry-focused investing. Because of its
narrow industry focus, the performance of the Fund is closely tied to and
affected by, the financial services industry.
PORTFOLIO INSTRUMENTS AND PRACTICES
Investment strategies that are available to the Fund are set forth
below. Additional information concerning certain of these strategies and their
related risks is contained in the Statement of Additional Information.
EQUITY SECURITIES. The Fund will invest in common stocks, and may
invest in warrants and similar rights to purchase common stock. The Fund may
invest up to 5% of its net assets at the time of purchase in warrants and
similar rights (other than those that have been acquired in units or attached to
other securities). Warrants represent rights to purchase securities at a
specific price valid for a specific period of time. The prices of warrants do
not necessarily correlate with the prices of the underlying securities. In
addition, the Fund may invest in convertible bonds and convertible preferred
stock. A convertible security is a security that may be converted either at a
stated price or rate within a specified period of time into a specified number
of shares of common stock. By investing in convertible securities, the Fund
seeks the opportunity, through the conversion feature, to participate in the
capital appreciation of the common stock into which the securities are
convertible, while earning higher current income than is available from the
common stock. Although the Fund may acquire convertible securities that are
rated below investment grade by Standard & Poor's Ratings Service, a division of
The McGraw-Hill Companies Inc. ("S&P") or Moody's Investors Service, Inc.
("Moodys"), it is expected that investments in lower-rated convertible
securities will not exceed 5% of the value of the total assets of the Fund at
the time of purchase.
FIXED INCOME SECURITIES. Generally, the market value of fixed-income
securities in the Fund can be expected to vary inversely to changes in
prevailing interest rates. The Fund may purchase zero-coupon bonds (i.e.,
discount debt obligations that do not make periodic interest payments).
Zero-coupon bonds are subject to greater market fluctuations from changing
interest rates than debt obligations of comparable maturities which make current
distributions of interest. The Funds investments in fixed income securities may
include stripped securities, asset- backed securities, and variable and floating
rate securities, which are described in the Statement of Additional Information.
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<PAGE>
CORPORATE OBLIGATIONS. The Fund may purchase corporate bonds and
commercial paper. These investments may include obligations issued by Canadian
and other foreign corporations and Canadian and other foreign counterparts of
U.S. corporations and europaper, which is U.S. dollar denominated commercial
paper of a foreign issuer.
[With the exception discussed above under "Equity Securities," the Fund
will purchase only those securities which are considered to be investment grade
or better (within the four highest rating categories of S&P or Moody's or, if
unrated, of comparable quality).] Obligations rated "Baa" by Moody's lack
outstanding investment characteristics and have speculative characteristics.
Adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of obligations rated "BBB" by S&P to pay interest and repay
principal than in the case of higher grade obligations. After purchase by the
Fund, a security may cease to be rated or its rating may be reduced below the
minimum required for purchase by the Fund. Neither event will require the Fund
to sell such security. However, the Advisor will reassess promptly whether the
security represents minimal credit risk and determine if continuing to hold the
security is in the best interests of the Fund. To the extent that the ratings
given by Moody's or S&P or another nationally recognized statistical ratings
organization for securities may change as a result of changes in the ratings
systems or because of corporate reorganization of such rating organizations the
Fund will attempt to use comparable ratings as standards for its investments in
accordance with the investment objective and policies of the Fund. Descriptions
of each rating category are included as Appendix A to the Statement of
Additional Information.
In addition, debt securities with longer maturities, which tend to
produce higher yields, are subject to potentially greater capital appreciation
and depreciation than obligations with shorter maturities. The market value of
the Fund's investments will change in response to changes in interest rates and
the relative financial strength of each issuer. During periods of falling
interest rates, the values of long-term fixed income securities generally rise.
Conversely, during periods of rising interest rates the values of such
securities generally decline. Changes in the financial strength of an issuer or
changes in the ratings of any particular security may also affect the value of
these investments. Fluctuations in the market value of fixed income securities
subsequent to their acquisitions will not affect cash income from such
securities but will be reflected in the Fund's net asset value.
FOREIGN SECURITIES. The Fund may invest up to 25% of its total assets
in the securities of foreign issuers. There are certain risks and costs
involved in investing in securities of
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companies and governments of foreign nations, which are in addition to the usual
risks inherent in U.S. investments. Investments in foreign securities involve
higher costs than investments in U.S. securities, including higher transaction
costs as well as the imposition of additional taxes by foreign governments. In
addition, foreign investments may include additional risks associated with the
level of currency exchange rates, less complete financial information about the
issuers, less market liquidity, and political instability. Future political and
economic developments, the possible imposition of withholding taxes on interest
income, the possible seizure or nationalization of foreign holdings, the
possible establishment of exchange controls, or the adoption of other
governmental restrictions might adversely affect the payment of principal and
interest on foreign obligations. Additionally, foreign banks and foreign
branches of domestic banks may be subject to less stringent reserve
requirements, and to different accounting, auditing and recordkeeping
requirements.
Although the Fund may invest in securities denominated in foreign
currencies, portfolio securities and other assets held by the Fund are valued in
U.S. dollars. As a result, the net asset value of the Fund's shares may
fluctuate with U.S. dollar exchange rates as well as with price changes of its
portfolio securities in the various local markets and currencies. In addition to
favorable and unfavorable currency exchange-rate developments, the Fund is
subject to the possible imposition of exchange control regulations or freezes on
convertibility of currency.
Investments in foreign securities may be in the form of American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") or similar
securities. These securities may not be denominated in the same currency as the
securities they represent. ADRs are receipts typically issued by a United States
bank or trust company evidencing ownership of the underlying foreign securities.
EDRs are receipts issued by a European financial institution evidencing a
similar arrangement. Generally, ADRs, in registered form, are designed for use
in United States securities markets, and EDRs, in bearer form, are designed for
use in the European securities markets.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund may enter into
forward foreign currency exchange contracts in an effort to reduce the level of
volatility caused by changes in foreign currency exchange rates. The Fund may
not enter into these contracts for speculative purposes. A forward currency
exchange contract is an obligation to purchase or sell 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 contract. The Fund
will segregate cash or liquid securities to cover its obligation to purchase
foreign
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currency under a forward foreign currency contract. Although such contracts tend
to minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time they tend to limit any potential gain that might be
realized should the value of such currency increase. The Fund will not enter
into forward foreign currency exchange contracts if as a result, the Fund will
have more than 20% of its total assets committed to consummation of such forward
foreign currency exchange contracts.
FUTURES CONTRACTS AND OPTIONS. The Fund may invest in futures contracts
and options on futures contracts for hedging purposes or to maintain liquidity.
However, the Fund may not purchase or sell a futures contract unless immediately
after any such transaction the sum of the aggregate amount of margin deposits on
its existing futures positions and the amount of premiums paid for related
options is 5% or less of its total assets.
Futures contracts obligate the Fund, at maturity, to take or make
delivery of certain securities or the cash value of a bond or securities index.
When interest rates are rising, futures contracts can offset a decline in value
of the Fund's portfolio securities. When rates are falling, these contracts can
secure higher yields for securities the Fund intends to purchase.
The Fund may purchase and sell call and put options on futures
contracts traded on an exchange or board of trade. When the Fund purchases an
option on a futures contract, it has the right to assume a position as a
purchaser or seller of a futures contract at a specified exercise price at any
time during the option period. When the Fund sells an option on a futures
contract, it becomes obligated to purchase or sell a futures contract if the
option is exercised. In anticipation of a market advance, the Fund may purchase
call options on futures contracts as a substitute for the purchase of futures
contracts to hedge against a possible increase in the price of securities which
the Fund intends to purchase. Similarly, if the value of the Fund's portfolio
securities is expected to decline, the Fund might purchase put options or sell
call options on futures contracts rather than sell futures contracts. In
connection with the Fund's position in a futures contract or option thereon, the
Fund will create a segregated account of liquid assets or will otherwise cover
its position in accordance with applicable requirements of the SEC.
In addition, the Fund, may write covered call options, buy put options,
buy call options and write secured put options on particular securities or
various stock indices. Options trading is a highly specialized activity which
entails greater than ordinary investment risks. 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
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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.
In contrast to an option on a particular security, an option on a stock index
provides the holder with the right to make or receive a cash settlement upon
exercise of the option.
The use of derivative instruments exposes the Fund to additional risks
and transaction costs. Risks inherent in the use of derivative instruments
include: (1) the risk that interest rates, securities prices and currency
markets will not move in the direction that a portfolio manager anticipates; (2)
imperfect correlation between the price of derivative instruments and movements
in the prices of the securities, interest rates or currencies being hedged; (3)
the fact that skills needed to use these strategies are different than those
needed to select portfolio securities; (4) inability to close out certain hedged
positions to avoid adverse tax consequences; (5) the possible absence of a
liquid secondary market for any particular instrument and possible
exchange-imposed price fluctuation limits, either of which may make it difficult
or impossible to close out a position when desired; (6) leverage risk, that is,
the risk that adverse price movements in an instrument can result in a loss
substantially greater than the Fund's initial investment in that instrument (in
some cases, the potential loss is unlimited); and (7) particularly in the case
of privately- negotiated instruments, the risk that the counterparty will fail
to perform its obligations, which could leave the Fund worse off than if it had
not entered into the position.
When the Fund invests in a derivative instrument, it may be required to
segregate cash and other high-grade liquid debt securities or certain portfolio
securities to "cover" the Fund's position. Assets segregated or set aside
generally may not be disposed of so long as the Fund maintains the positions
requiring segregation or cover. Segregating assets could diminish the Fund's
return due to the opportunity losses of foregoing other potential investments
with the segregated assets.
The Fund is not a commodity pool, and all futures transactions engaged
in by the Fund must constitute bona fide hedging or other permissible
transactions in accordance with the rules and regulations promulgated by the
Commodity Futures Trading Commission. Successful use of futures and options is
subject to special risk considerations.
For a further discussion see "Additional Information on Fund
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Investments" and the Appendix to the Statement of Additional Information.
REPURCHASE AGREEMENTS. The Fund may agree to purchase securities from
financial institutions subject to the seller's agreement to repurchase them at
an agreed-upon time and price ("repurchase agreements"). The financial
institutions with which the Fund may enter into repurchase agreements include
member banks of the Federal Reserve System, any foreign bank or any domestic or
foreign broker-dealer which is recognized as a reporting government securities
dealer. 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 the underlying obligations.
REVERSE REPURCHASE AGREEMENTS. The Fund may borrow funds for temporary
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 would pay interest on amounts
obtained pursuant to a reverse repurchase agreement.
LIQUIDITY MANAGEMENT. Pending investment, to meet anticipated
redemption requests, or as a temporary defensive measure if the Advisor
determines that market conditions warrant, the Fund may also invest without
limitation in short-term U.S. Government obligations, high quality money market
instruments, variable and floating rate instruments and repurchase agreements as
described above. Under normal market conditions, short-term money market
securities could comprise up to 35% of the Fund's total assets. The Fund could
invest a higher percentage of its assets in money market securities for
temporary defensive purposes.
High quality money market instruments may include obligations issued by
Canadian corporations and Canadian counterparts of U.S. corporations and
Europaper, which is U.S. dollar-denominated commercial paper of a foreign
issuer. The Fund may also purchase U.S. dollar-denominated bank obligations,
such as certificates of deposit, bankers' acceptances and interest-bearing
savings and time deposits, issued by U.S. or foreign banks or savings
institutions having total assets at the time of purchase in excess of $1
billion. Short-term obligations purchased by the Fund will either have
short-term debt ratings at the time of purchase in the top two categories by one
or more
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unaffiliated nationally recognized statistical rating organizations ("NRSROs")
or be issued by issuers with such ratings. Unrated instruments purchased by the
Fund will be of comparable quality as determined by the Advisor.
ILLIQUID SECURITIES. The Fund may invest up to 15% of the total value
of its net assets (determined at time of acquisition) in securities which are
illiquid. Illiquid securities would generally include repurchase agreements and
time deposits with notice/termination dates in excess of seven days, and certain
securities which are subject to trading restrictions because they are not
registered under the Securities Act of 1933, as amended (the "Act"). If, after
the time of acquisition, events cause this limit to be exceeded, the Fund will
take steps to reduce the aggregate amount of illiquid securities as soon as
reasonably practicable in accordance with the policies of the SEC.
The Fund may invest in commercial obligations issued in reliance on the
"private placement" exemption from registration afforded by Section 4(2) of the
Act ("Section 4(2) paper"). The Fund may also purchase securities that are not
registered under the Act, but which can be sold to qualified institutional
buyers in accordance with Rule 144A under the Act ("Rule 144A securities").
Section 4(2) paper is restricted as to disposition under the Federal securities
laws, and generally is sold to institutional investors which agree that they are
purchasing the paper for investment and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2) paper
normally is resold to other institutional investors through or with the
assistance of the issuer or investment dealers which make a market in the
Section 4(2) paper, thus providing liquidity. Rule 144A securities generally
must be sold only to other qualified institutional buyers. If a particular
investment in Section 4(2) paper or Rule 144A securities is not determined to be
liquid, that investment will be included within the Fund's limitation on
investment in illiquid securities. The Advisor will determine the liquidity of
such investments pursuant to guidelines established by the Company's Board of
Directors.
U.S. GOVERNMENT OBLIGATIONS. The Funds may purchase obligations issued
or guaranteed by the U.S. Government and U.S. Government agencies and
instrumentalities. Obligations of certain agencies and instrumentalities of the
U.S. Government, such as those of the Government National Mortgage Association,
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
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financial support to U.S. Government-sponsored instrumentalities if it is not
obligated to do so by law.
BORROWING. The Fund is authorized to borrow money in amounts up to 5%
of the value of the Fund's total assets at the time of such borrowing for
temporary purposes. However, the Fund is authorized to borrow money in amounts
up to 33 1/3% of its assets, as permitted by the 1940 Act, for the purpose of
meeting redemption requests. Borrowing by the Fund creates an opportunity for
greater total return but, at the same time, increases exposure to capital risk.
In addition, borrowed funds are subject to interest costs that may offset or
exceed the return earned on the borrowed funds. However, the Fund will not
purchase portfolio securities while borrowings exceed 5% of the Fund's total
assets. For more detailed information with respect to the risks associated with
borrowing, see the heading "Borrowing" in the Statement of Additional
Information.
LENDING OF PORTFOLIO SECURITIES. To enhance the return of the
portfolio, the Fund may lend securities in its portfolio representing up to 25%
of its total assets, taken at market value, 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. The risk in lending portfolio
securities, as with other extensions of credit, consists of possible delay in
the recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially.
SHORT SALES. The Fund may make short sales of securities. A short sale
is a transaction in which the Fund sells a security it does not own in
anticipation that the market price of that security will decline. When the Fund
makes a short sale, it must borrow the security sold short and deliver it to the
broker-dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. The Fund may
have to pay a fee to borrow particular securities and is often obligated to pay
over any payments received on such borrowed securities. The Fund's obligation to
replace the borrowed security will be secured by collateral deposited with the
broker-dealer, usually cash, U.S. Government securities or other highly liquid
securities similar to those borrowed. The Fund will also be required to deposit
similar collateral with its custodian to the extent necessary so that the value
of both collateral deposits in the aggregate is at all time equal to at least
100% of the current market value of the security sold short. Depending on
arrangements made with the broker-dealer from which it borrowed the security
regarding payment over any payments received by the Fund on such security, the
Fund may not receive any payments (including interest) on its collateral
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deposited with such broker-dealer.
If the price of the security sold short increases between the time of
the short sale and the time the Fund replaces the borrowed security, the Fund
will incur a loss; conversely, if the price declines, the Fund will realize a
capital gain. Any gain will be decreased, and any loss increased, by the
transaction costs described above. Although the Fund's gain is limited to the
price at which it sold the security short, its potential loss is theoretically
unlimited.
PORTFOLIO TRANSACTIONS AND TURNOVER. All orders for the purchase or
sale of securities on behalf of the Fund are placed by the Advisor with
broker/dealers that the Advisor selects. A high portfolio turnover rate involves
larger brokerage commission expenses or transaction costs which must be borne
directly by the Fund, and may result in the realization of short-term capital
gains which are taxable to shareholders as ordinary income. The Advisor will not
consider portfolio turnover rate a limiting factor in making investment
decisions consistent with the Fund's objective and policies. It is anticipated
that the Fund's annual portfolio turnover rate generally will be less than 100%.
INDUSTRY CONCENTRATION. There can be no assurance that a portfolio
consisting primarily of securities issued by companies engaged in the financial
services industry will achieve the Fund's investment objective. Because the Fund
concentrates its investments in securities of companies engaged in financial
services related-businesses, its shares do not represent a complete investment
program and their value may fluctuate more than shares of a portfolio invested
in a broader range of industries. The value of Fund shares will also be
especially susceptible to factors affecting companies engaged financial services
related activities. In addition to general economic factors, such companies are
generally subject to the changes in government regulations and policies,
interest rate changes, credit losses and price competition. For a discussion of
these and other factors, see "Investment Objectives and Policies".
INVESTMENT LIMITATIONS
The Fund's investment objective and policies stated above may be
changed by the Fund's Board of Directors without approval by a majority of the
Fund's outstanding shares. However, the Fund has also adopted certain
fundamental investment limitations that may be changed only with the approval of
a "majority of the outstanding shares of a Fund" (as defined in the Statement of
Additional Information). The Fund's investment policies and limitations are set
forth in full in the Statement of Additional Information.
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<PAGE>
HOW TO PURCHASE SHARES
Shares of the Fund are sold on a continuous basis and may be purchased
on any day the New York Stock Exchange is open for business directly from the
Distributor or the Transfer Agent. Only the Distributor is authorized to sell
shares of the Fund. The Distributor is a registered broker/dealer with principal
offices at 60 State Street, Boston, Massachusetts 02109.
Shares will be credited to a shareholder's account at the net asset
value next computed after an order is received by the Distributor. The issuance
of shares is recorded on the books of the Fund, and share certificates are not
issued unless expressly requested in writing. The Fund's management reserves the
right to reject any purchase order if, in its opinion, it is in the Fund's best
interest to do so and to suspend the offering of shares of any class for any
period of time.
The minimum initial investment is $1,000 and subsequent investments must be at
least $50.
An account may be opened by mailing a check or other negotiable bank
draft (payable to The Munder Funds) for $1,000 or more with a completed and
signed Account Application Form to The Munder Funds, c/o First Data, P.O. Box
9755 Providence, Rhode Island 02940-9755. An Account Application Form may be
obtained by calling (800) 438-5789. All such investments are made at the per
share net asset value of Fund shares next computed following receipt of payment
by the Transfer Agent. Confirmations of the opening of an account and of all
subsequent transactions in the account are forwarded by the Transfer Agent to
the shareholder's address of record.
The completed investment application must indicate a valid taxpayer
identification number and must be certified as such. Failure to provide a
certified taxpayer identification number may result in backup withholding at the
rate of 31%. Additionally, investors may be subject to penalties if they falsify
information with respect to their taxpayer identification numbers.
In addition, investors having an account with a commercial bank that is
a member of the Federal Reserve System may purchase shares of the Fund by
requesting their bank to transmit funds by wire to Boston Safe Deposit and Trust
Company, Boston, MA, ABA #011001234, DDA #16-798-3, Fund Name, Shareholder
Account Number, Account of (Registered Shareholder). Before wiring any funds, an
investor must contact the Fund by calling (800) 438-5789 to confirm the wire
instructions. The investor's name, account number, taxpayer identification or
social security number, and address must be specified in the wire. In addition,
an Account Application Form containing the investor's taxpayer identification
number should be forwarded within seven days of
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<PAGE>
purchase to The Munder Funds c/o First Data, P.O. Box 9755, Providence, Rhode
Island 02940-9755.
Additional investment may be made at any time through the wire
procedures described above, which must include the investor's name and account
number. The investor's bank may impose a fee for investments by wire.
Automatic Investment Plan ("AIP")
An investor in shares of the Fund may arrange for periodic investments
in the Fund through automatic deductions from a checking or savings account by
completing the AIP portion in the Application Form. The minimum pre-authorized
investment amount is $50.
HOW TO REDEEM SHARES
Generally, shareholders may require the Fund to redeem their shares by
sending a written request, signed by the record owner(s), to The Munder Funds,
c/o First Data, P.O. Box 9755, Providence, Rhode Island 02940-9755.
Signature Guarantee
If the proceeds of the redemption are greater than $50,000, or are to
be paid to someone other than the registered holder, or to other than the
shareholder's address of record, or if the shares are to be transferred, the
owner's signature must be guaranteed by a commercial bank, trust company,
savings association or credit union as defined by the Federal Deposit Insurance
Act, or by a securities firm having membership on a recognized national
securities exchange. If the proceeds of the redemption are less than $50,000, no
signature guarantees are required for shares for which certificates have not
been issued when an application is on file with the Transfer Agent and payment
is to be made to the shareholder of record at the shareholder's address of
record. The redemption price shall be the net asset value per share next
computed after receipt of the redemption request in proper order. See "Net Asset
Value."
Expedited Redemption
In addition, a shareholder redeeming at least $1,000 of shares and who
has authorized expedited redemption on the application form filed with the
Transfer Agent may, at the time of such redemption, request that funds be mailed
to the commercial bank or registered broker-dealer previously designated on the
application form by telephoning the Fund at (800) 438-5789 prior to 4:00 p.m.
New York City time. Redemption proceeds will be sent on the next business day
following receipt of the telephone redemption request. If a shareholder seeks to
use an
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<PAGE>
expedited method of redemption of shares recently purchased by check, the Fund
may withhold the redemption proceeds until it is reasonably assured of the
collection of the check representing the purchase, which may take up to 15 days.
The Company, the Distributor and the Transfer Agent reserve the right
at any time to suspend or terminate the expedited redemption 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 redemptions. The Transfer Agent has instituted procedures that it
believes are reasonably designed to insure that redemption 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. If
these procedures are followed, neither the Company, the Distributor nor the
Transfer Agent will be responsible for any loss, damages, expense or cost
arising out of any telephone redemptions effected upon instructions believed by
them to be genuine. Redemption proceeds will be mailed/wired only according to
the previously established instructions.
The right of redemption and payment of redemption proceeds are subject
to suspension for any period during which the New York Stock Exchange is closed,
or when trading on the New York Stock Exchange is restricted as determined by
the SEC; during any period when an emergency as defined by the rules and
regulations of the SEC exists; or during any period when the SEC has by order
permitted such suspension. The Fund will not mail redemption proceeds until
checks (including certified checks or cashier's checks) received for the shares
purchased have cleared, which can be as long as 15 days.
There is no minimum for telephone redemptions paid by check. However,
the Transfer Agent may deduct its current wire fee from the principal in the
shareholder's account for wire redemptions under $5,000. As of the date of this
Prospectus, this fee was $7.50 for each wire redemption. There is no charge for
wire redemptions of $5,000 or more.
The value of shares on repurchase may be more or less than the
investor's cost depending upon the market value of the Fund's portfolio
securities at the time of redemption.
Involuntary Redemption
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
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<PAGE>
the value of an investor's shares. An investor may be notified that the value of
the investor's account is less than $500, in which case the investor would be
allowed 60 days to make an additional investment before the redemption is
processed.
Automatic Withdrawal Plan ("AWP")
The Fund offers an Automatic Withdrawal Plan which may be used by
shareholders who wish to receive regular distributions from their accounts. Upon
commencement of the AWP, the account must have a current value of $2,500 or more
in the Fund. Shareholders may elect to receive automatic cash payments of $50 or
more on a monthly, quarterly, semi-annual or annual basis. Automatic withdrawals
are normally processed on the 20th day of the applicable month or, if such day
is not a day the New York Stock Exchange is open for business, on the next
business day and are paid promptly thereafter. An investor may utilize the AWP
by completing the AWP portion of the Application Form available through the
Transfer Agent.
Shareholders should realize that if withdrawals exceed capital
appreciation and/or income dividends their invested principal in the account
will be depleted. Thus, depending upon the frequency and amounts of the
withdrawal payments and/or any fluctuations in the net asset value per share,
their original investment could be exhausted entirely. To participate in the
AWP, shareholders must have their dividends automatically reinvested and may not
hold share certificates. Shareholders may change or cancel the AWP at any time,
upon written notice to the Transfer Agent.
No Exchanges
Exchanges with the other Munder mutual funds are not permitted. To
purchase shares of another Munder mutual fund, a shareholder may redeem his or
her shares of the Fund and use the redemption proceeds to purchase shares in
accordance with the purchase procedures of the other Munder mutual fund.
DIVIDENDS AND DISTRIBUTIONS
Shareholders of the Fund are entitled to dividends and distributions
from the net income and capital gains, if any, earned on investments held by the
Fund. The net income of the Fund is declared at least annually as a dividend.
The Fund's net realized capital gains (including net short-term capital
gains), if any, are distributed at least annually.
Dividends and capital gains are paid in the form of additional shares
of the Fund unless a shareholder requests that dividends and capital gains be
paid in cash. In the absence of
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<PAGE>
this request on the Account Application Form, each purchase of shares is made on
the understanding that the Fund's Transfer Agent is automatically appointed to
receive the dividends upon all shares in the shareholder's account and to
reinvest them in full and fractional shares of the same Fund at the net asset
value in effect at the close of business on the reinvestment date.
The Fund's expenses are deducted from the income of the Fund before
dividends are declared and paid. 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 fund of the Company are allocated
among all funds of the Company by or under the direction of the Board of
Directors in a manner that the Board determines to be fair and equitable. Except
as noted in this Prospectus and the Statement of Additional Information, the
Fund's service contractors bear expenses in connection with the performance of
their services, and the Fund bears the expenses incurred in its operations. The
Advisor, Administrator, Custodian and Transfer Agent may voluntarily waive all
or a portion of their respective fees from time to time.
NET ASSET VALUE
Net asset value for shares in the Fund is calculated by dividing the
value of all securities and other assets belonging to the Fund, less the
liabilities charged, by the number of outstanding shares.
The net asset value per share of the Fund for the purpose of pricing
purchase and redemption orders is determined as of the close of regular trading
on the New York Stock Exchange (currently 4:00 p.m., New York time) on each
business day.
With respect to the Fund, securities that are traded on a national
securities exchange or on NASDAQ are valued at the last sale price on such
exchange or market as of the close of business on the date of valuation.
Securities traded on a national securities exchange or on the NASDAQ for which
there were no
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<PAGE>
sales on the date of valuation and securities traded on other over-the-counter
markets, including listed securities for which the primary market is believed to
be over-the-counter, are valued at the mean between the most recently quoted bid
and asked prices. Options will be valued at market value or fair value if no
market exists. Futures contracts will be valued in like manner, except that open
futures contract sales will be valued using the closing settlement price or, in
the absence of such a price, the most recently quoted asked price. Portfolio
securities primarily traded on the London Stock Exchange are generally valued at
the mid-price between the current bid and asked prices. Portfolio securities
which are primarily traded on foreign securities exchanges, other than the
London Stock Exchange, are generally valued at the preceding closing values of
such securities on their respective exchanges, except when an occurrence
subsequent to the time a value was so established is likely to have changed such
value. In such an event, the fair value of those securities will be determined
through the consideration of other factors by or under the direction of the
Boards of Directors. Restricted securities and securities and assets for which
market quotations are not readily available are valued at fair value by the
Advisor under the supervision of the Boards of Directors. Debt securities with
remaining maturities of 60 days or less are valued at amortized cost, unless the
Boards of Directors determine that such valuation does not constitute fair value
at that time. Under this method, such securities are valued initially at cost on
the date of purchase (or the 61st day before maturity).
The Fund does not accept purchase and redemption orders on days the New
York Stock Exchange is closed. The New York Stock Exchange is currently
scheduled to be closed on New Year's Day, Presidents' Day, Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Thanksgiving and Christmas, and on
the preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively.
MANAGEMENT
Board of Directors
The Company is managed under the direction of its governing Boards of
Directors. The Statement of Additional Information contains the name and
background information of each Director.
Investment Advisor
The investment advisor of the Fund is Munder Capital Management, a
Delaware general partnership with its principal offices at 480 Pierce Street,
Birmingham, Michigan 48009. The principal partners of the Advisor are Old MCM,
Inc., Woodbridge
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<PAGE>
Capital Management, Inc. ("Woodbridge") and WAM Holdings, Inc. ("WAM").
Woodbridge and WAM are indirect, wholly-owned subsidiaries of Comerica
Incorporated. Mr. Lee P. Munder, the Advisor's chief executive officer,
indirectly owns or controls a majority of the partnership interests in the
Advisor. As of March 31, 1997, the Advisor and its affiliates had approximately
$__ billion in discretionary assets under management, of which $__ billion were
invested in equity securities, $__ billion were invested in money market or
other short-term instruments, and $__ billion were invested in other fixed
income securities.
Subject to the supervision of the Board of Directors of the Company,
the Advisor provides overall investment management for the Fund, provides
research and credit analysis, is responsible for all purchases and sales of
portfolio securities, maintains books and records with respect to the Fund's
securities transactions and provides periodic and special reports to the Board
of Directors as requested.
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 .75% of the average daily net assets of the Fund.
The Advisor may, from time to time, make payments to banks,
broker-dealers or other financial institutions for certain services to the Fund
and/or its shareholders, including sub- administration, sub-transfer agency and
shareholder servicing. Such payments are made out of the Advisor's own resources
and do not involve additional costs to the Fund or its shareholders.
Portfolio Managers
Paul D. Tobias, Executive Vice President and Chief Operating Officer of
the Advisor, and Joseph W. Skornicka, equity analyst for the Advisor, are
primarily responsible for the day-to-day management of the investment selections
of the Fund.
Prior to his 1995 association with the Advisor, Mr. Tobias was an
Executive Vice president of Comerica Incorporated responsible for strategic
planning, corporate development, marketing, corporate communications and public
affairs. From 1984 to 1990, Mr. Tobias was employed by McDonald and Company
Securities, Inc. as an investment banker specializing in mergers and
acquisitions. From 1975 to 1984, Mr. Tobias was employed by Comerica where he
held management positions in corporate banking, central loan administration,
small business banking and private banking. Mr. Tobias holds a Bachelor of Arts
Degree cum laude from Albion College and an MBA with distinction from the
University of Michigan. Mr. Tobias is on the Board of Directors of Framlington
Group Limited and Framlington Holdings Limited. He also serves on the Board of
Trustees for Albion College, the
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Board of Directors for the Goodwill Foundation and he is Treasurer and on the
Board of Trustees of the Judson Center. Mr. Tobias is an elder of the first
Presbyterian Church of Birmingham, Michigan.
Joe Skornicka is an Equity Analyst responsible for equity security
analysis in the banking, thrift, financial services and food industries. Prior
to joining the Advisor in 1994, Mr. Skornicka worked at Woodbridge Capital
management as an Equity Research Analyst. From 1988 to 1994, Mr. Skornicka
worked for Comerica Incorporated's Corporate Development department, most
recently as an Assistant Vice President. While at Comerica, Mr. Skornicka's
primary responsibilities included financial analysis and project management
related to the merger and acquisition activities of the company. Mr. Skornicka
received a B.A. in Financial Administration from Michigan State University and
an M.B.A. from the University of Michigan.
Administrator, Custodian and Transfer Agent
First Data Investor Services Group, Inc. ("First Data"), whose
principal business address is 53 State Street, Boston, Massachusetts 02109 (the
"Administrator"), serves as administrator for the Fund. First Data is a
wholly-owned subsidiary of First Data Corporation. The Administrator generally
assists the Company in all aspects of its administration and operations,
including the maintenance of financial records and fund accounting.
First Data also serves as the Fund's transfer agent and dividend
disbursing agent ("Transfer Agent"). Shareholder inquiries may be directed to
First Data at P.O. Box 9755, Providence, Rhode Island, 02940-9755.
As compensation for their services, the Administrator and Transfer
Agent are entitled to receive fees, based on the aggregate average daily net
assets of the Fund and certain other investment portfolios that are advised by
the Advisor, computed daily and payable monthly at the rates of: .12% of the
first $2.8 billion of net assets, plus .105% of the next $2.2 billion of net
assets, plus .10% of all net assets in excess of $5 billion with respect to the
Administrator and .02% of the first $2.8 billion of net assets, plus .015% of
the next $2.2 billion of net assets, plus .01% of all net assets in excess of $5
billion with respect to the Transfer Agent. Administration fees payable by the
Fund and certain other investment portfolios advised by the Advisor are subject
to a minimum annual fee of $1.2 million to be allocated among each series and
class thereof. The Administrator and Transfer Agent are also entitled to
reimbursement for out-of-pocket expenses. The Administrator has entered into a
Sub- Administration Agreement with the Distributor under which the Distributor
provides certain administrative services with respect
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<PAGE>
to the Fund. The Administrator pays the Distributor a fee for these services out
of its own resources at no cost to the Fund.
Comerica Bank (the "Custodian"), whose principal business address is
One Detroit Center, 500 Woodward Avenue, Detroit, Michigan 48226, provides
custodial services to the Fund. As compensation for its services, the Custodian
is entitled to receive fees, based on the aggregate average daily net assets of
the Fund and other Funds of the Company and The Munder Funds Trust, computed
daily and payable monthly at an annual rate of .03% of the first $100 million of
average daily net assets, .02% of the next $500 million of net assets and .01%
of net assets in excess of $600 million. The Custodian also receives certain
transaction based fees.
For an additional description of the services performed by the
Administrator, Transfer Agent and Custodian, see the Statement of Additional
Information.
TAXES
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification generally relieves the Fund of liability for Federal income taxes
to the extent its earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that the Fund distribute to its
shareholders an amount equal to at least 90% of its investment company taxable
income for such year. In general, the Fund's investment company income will be
its taxable income (including dividends, interest, and short-term capital gains)
subject to certain adjustments and excluding the excess of any net long term
capital gain for the taxable year over the net short-term capital loss, if any,
for such year. The Fund intends to distribute substantially all of its
investment company taxable income each taxable year. Such distributions will be
taxable as ordinary income to the Fund's shareholders who are not currently
exempt from Federal income taxes, whether such income is received in cash or
reinvested in additional shares. (Federal income taxes for distributions to an
IRA or qualified retirement plan are deferred under the Code if applicable
requirements are met.) The dividends received deduction for corporations will
apply to such distributions by the Fund to the extent of the total qualifying
dividends received by the distributing Fund from domestic corporations for the
taxable year and if other applicable tax requirements are met.
Substantially all of the Fund's net realized long term capital gains,
if any, will be distributed at least annually. The
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<PAGE>
Fund generally will have no tax liability with respect to such gains, and the
distributions will be taxable to shareholders who are not currently exempt from
Federal income taxes as long term capital gains, no matter how long the
shareholders have held their shares.
Dividends declared in October, November, or December of any year
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
Before purchasing shares in the Fund, the impact of dividends or
distributions which are expected to be declared or have been declared, but not
paid, should be carefully considered. Any dividend or distribution declared
shortly after a purchase of such shares prior to the record date will have the
effect of reducing the per share net asset value by the per share amount of the
dividend or distribution. All or a portion of such dividend or distribution,
although in effect a return of capital, may be subject to tax.
A taxable gain or loss may also be realized by a holder of shares in
the Fund upon the redemption, exchange or transfer of shares depending upon the
tax basis of the shares and their price at the time of the transaction.
On an annual basis, the Fund will send written notices to record owners
of shares regarding the Federal tax status of distributions made by them.
Foreign Taxes
Income or gain from investments in foreign securities may be subject to
foreign withholding or other taxes. It is expected the Fund may be subject to
foreign withholding taxes with respect to income received from sources within
foreign countries.
If the Fund invests in certain "passive foreign investment companies"
("PFICs"), it will be subject to Federal income tax (and possibly additional
interest charges) on a portion of any "excess distribution" or gain from the
disposition of such shares even if it distributes such income to its
shareholders. If the Fund elects to treat the PFIC as a "qualified electing
fund" ("QEF") and the PFIC furnishes certain financial information in the
required form to the Fund, the Fund will instead be required to include in
income each year its allocable share of the ordinary earnings and net capital
gains on the QEF, regardless of whether received, and such amounts will be
subject to the various distribution requirements described above.
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<PAGE>
The foregoing summarizes some of the important tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. State and local tax laws may differ from
the Federal laws summarized above. Accordingly, potential investors in the Fund
should consult their tax advisors with respect to their own tax situation.
DESCRIPTION OF SHARES
The Fund operates as one series of the Company.
The Company was organized as a Maryland corporation on November 18,
1992 and is also registered under the 1940 Act as an open-end management
investment company. The Company's Articles of Incorporation authorize the
Directors to classify and reclassify any unissued shares into one or more
classes of shares. Pursuant to such authority, the Directors have authorized the
issuance of shares of common stock, representing interests in the Financial
Services Fund, the All-Season Maintenance Fund, the All-Season Development Fund,
the All-Season Accumulation Fund, the Equity Selection Fund, the Micro-Cap
Equity Fund, the Small-Cap Value Fund, the Multi-Season Growth Fund, the Real
Estate Equity Investment Fund, the Mid-Cap Growth Fund, the Value Fund, the
International Bond Fund, the NetNet Fund, the Money Market Fund, and the Short
Term Treasury Fund, each of which, except the International Bond Fund, is
classified as a diversified investment company under the 1940 Act. Each share of
the Fund has a par value of $.01 per share and represents a proportionate
interest in the assets of the Fund.
Shareholders are entitled to one vote for each full share held and
proportionate fractional votes for fractional shares held, and will vote in the
aggregate and not by Fund, except where otherwise required by law or when the
Directors determine that the matter to be voted upon affects only the interests
of the shareholders of a particular Fund. The Fund is not required and do not
currently intend to hold annual meetings of shareholders for the election of
Board members except as required under the 1940 Act. A meeting of shareholders
will be called upon the written request of at least 10% of the outstanding
shares of the Company. To the extent required by law, the Fund will assist in
shareholder communications in connection with such a meeting. For a further
discussion of the voting rights of shareholders, see "Additional Information
Concerning Shares" in the Statement of Additional Information.
Reports to Shareholders
The Fund has eliminated duplicate mailings of prospectuses and
shareholder reports to accounts which have the same primary record owner, and
with respect to joint tenant accounts or tenant
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<PAGE>
in common accounts and accounts which have the same address. Additional copies
of prospectuses and reports to shareholders are available upon request by
calling the Fund at (800) 438-5789.
PERFORMANCE
From time to time, the Fund may quote performance data for the Shares
in advertisements or in communications to shareholders. The total return of
Shares in the Fund may be calculated on an average annual total return basis,
and may also be calculated on an aggregate total return basis, for various
periods. Average annual total return reflects the average percentage change in
value of an investment in the Fund from the beginning date of the measuring
period to the end of the measuring period. Aggregate total return reflects the
total percentage change in value over the measuring period. Both methods of
calculating total return assume that dividends and capital gains distributions
made during the period are reinvested in the same class of shares.
The yield of shares in the Fund is computed based on the net income of
such Fund during a 30-day (or one month) period (which period will be identified
in connection with the particular yield quotation). More specifically, the
Fund's yield is computed by dividing the per share net income for the class
during a 30-day (or one-month) period by the maximum offering price per share on
the last day of the period and annualizing the results on a semi-annual basis.
The Fund may compare the performance of the Shares to the performance
of other mutual funds with similar investment objectives and to other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds, including,
for example, Lipper Analytical Services, Inc., the Standard & Poor's 500 Index,
an unmanaged index of a group of common stocks, the Consumer Price Index, or the
Dow Jones Industrial Average, an unmanaged index of common stocks of 30
industrial companies listed on the New York Stock Exchange. Performance and
yield data as reported in national financial publications such as Morningstar,
Inc., Money Magazine, Forbes, Barron's, The Wall Street Journal and The New York
Times, or in publications of a local or regional nature, may also be used in
comparing the performance of the Fund.
Performance will fluctuate and any quotation of performance should not
be considered as representative of future performance of a class of shares in
the Fund. Shareholders should remember that performance is generally a function
of the kind and quality of the instruments held in the Fund, portfolio maturity,
operating expenses, and market conditions. Any fees charged by
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<PAGE>
institutions directly to their Customers' accounts in connection with
investments in the Fund will not be included in calculations of yield and
performance.
SHAREHOLDER ACCOUNT INFORMATION
Shareholders may place purchase and redemption orders directly through
the Transfer Agent. See "How to Purchase Shares" and "How to Redeem Shares" for
more information. The Transfer Agent for the Fund is First Data Investor
Services Group, Inc.
Investment by Mail
Send the completed Account Application Form (if initial purchase) or
letter stating Fund name, shareholder's registered name and account number (if
subsequent purchase) with a check to:
First Data
The Munder Funds
P.O. Box 9755
Providence, Rhode Island 02940-9755
Investments by Bank Wire
An investor opening a new account should call the Funds at (800)
438-5789 to obtain an account number. Within seven days of purchase such an
investor must send a completed Account Application Form containing the
investor's certified taxpayer identification number to First Data Investor
Services Group, Inc. at the address provided above under "Investments by Mail."
Wire instructions must state the Fund name, the shareholder's registered name
and the shareholder account number. Bank wires should be sent through the
Federal Reserve Bank Wire System to:
Boston Safe Deposit and Trust Company
Boston, MA
ABA#: 011001234
DDA#: 16-798-3
Account No.
(State Fund name, shareholder's registered name and
shareholder account number)
Before wiring any funds an investor must call the Fund at (800)
438-5789 to confirm the wire instructions.
Redemptions by Telephone
Call the Fund at (800) 438-5789.
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<PAGE>
Redemptions by Mail
Send complete instructions, including amount of redemption,
shareholder's registered name, account number, and, if a certificate has been
issued, an endorsed share certificate, to:
First Data
The Munder Funds
P.O. Box 9755
Providence, Rhode Island 02940-9755
Additional Questions
Shareholders with additional questions regarding purchase and
redemption procedures may call the Fund at (800) 438-5789.
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<PAGE>
THE MUNDER FINANCIAL SERVICES FUND
STATEMENT OF ADDITIONAL INFORMATION
The Munder Financial Services Fund (the "Fund") is currently one of
fifteen series of shares of 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 Prospectus dated ______ __, 1997
(the "Prospectus") 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 Prospectus. The contents of this Statement of Additional
Information are incorporated by reference in the Prospectus in their entirety. A
copy of the Prospectus may be obtained through Funds Distributor, Inc. (the
"Distributor"), or by calling (800) 438-5789. This Statement of Additional
Information is dated ____________, 1997.
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.
TABLE OF CONTENTS
Page
General............................................................... 2
Fund Investments...................................................... 2
Investment Limitations................................................ 24
Directors and Officers................................................ 26
Investment Advisory and other Service Arrangements.................... 29
Portfolio Transactions................................................ 32
Purchase and Redemption Information................................... 35
Net Asset Value....................................................... 36
Performance Information............................................... 37
<PAGE>
Taxes................................................................. 38
ADDITIONAL INFORMATION CONCERNING SHARES.............................. 45
MISCELLANEOUS......................................................... 46
REGISTRATION STATEMENT................................................ 47
APPENDIX A............................................................ 49
APPENDIX B............................................................ 53
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information or in
the Prospectus in connection with the offering made by the Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. The Prospectus does not
constitute an offering by the Fund or by the Distributor in any jurisdiction in
which such offering may not lawfully be made.
GENERAL
The Company was organized as a Maryland corporation on November 18,
1992.
As stated in the Prospectus, the investment advisor of the Fund is
Munder Capital Management (the "Advisor"). The principal partners of the Advisor
are Old MCM, Inc., 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 Prospectus.
FUND INVESTMENTS
The following supplements the information contained in the Prospectus
concerning the investment objective and policies of the Fund. The Fund's
investment objective is a non-fundamental policy and may be changed by the
Fund's Board of Directors without shareholder approval. Compliance with all
percentage limitations described below is determined at the time of investment
unless otherwise indicated.
Asset-Backed Securities. Subject to applicable credit criteria, the
Fund may invest up to 5% of its net assets in asset-backed securities (i.e.,
securities backed by mortgages, installment sales contracts, credit card
receivables or other
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assets). The average life of asset-backed securities varies with the maturities
of the underlying instruments which, in the case of mortgages, have maximum
maturities of forty years. The average life of a mortgage-backed instrument, in
particular, is likely to be substantially less than the original maturity of the
mortgage pools and underlying the securities as the result of scheduled
principal payments and mortgage prepayments. The rate of such mortgage
prepayments, and hence the life of the certificates, will be primarily a
function of current market rates and current conditions in the relevant housing
markets. The relationship between mortgage prepayment and interest rates may
give some high-yielding mortgage-related securities less potential for growth in
value than conventional bonds with comparable maturities. In addition, in
periods of falling interests rates, the rate of mortgage prepayment tends to
increase. During such periods, the reinvestment of prepayment proceeds by a Fund
will generally be at lower rates than the rates that were carried by the
obligations that have been prepaid. Because of these and other reasons, an
asset-backed security's total return may be difficult to predict precisely. To
the extent that the Fund purchases mortgage-related or mortgage-backed
securities at a premium, mortgage prepayments (which may be made at any time
without penalty) may result in some loss of the Fund's principal investment to
the extent of premium paid.
Presently there are several type of mortgage-backed securities issued
or guaranteed by U.S. Government agencies, including guaranteed mortgage
pass-through certificates, which provide the holder with a pro rata interest in
the underlying mortgages, and collateralized mortgage obligations ("CMOs"),
which provide the holder with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage-backed securities. Issuers of CMOs
frequently elect to be taxed as a pass-through entity known as real estate
mortgage investment conduits, or REMICs. CMOs are issued in multiple classes,
each with a specified fixed or floating interest rate and a final distribution
date. The relative payment rights of the various CMO classes may be structured
in many ways. In most cases, however, payments of principal are applied to the
CMO classes in the order of their respective stated maturities, so that no
principal payments will be made on a CMO class until all other classes having an
earlier stated maturity date are paid in full. The classes may include accrual
certificates (also known as "Z-Bonds"), which only accrue interest at a
specified rate until other specified classes have been retired and are converted
thereafter to interest-paying securities. They may also include planned
amortization classes ("PAC") which generally require, within
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<PAGE>
certain limits, that specified amounts of principal be applied on each payment
date, and generally exhibit less yield and market volatility than other classes.
The Fund will not purchase "residual" CMO interests, which normally exhibit the
greatest price volatility.
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.
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
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<PAGE>
Investment Company Act of 1940, as amended, (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 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 a minimum average balance 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.
Foreign Securities. The Fund may invest up to 25% of its net assets in
securities of foreign issuers. [The 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.
Income and gains on such securities may be subject to foreign
withholding taxes. Investors should consider carefully the substantial risks
involved in securities of companies and governments of foreign nations, which
are in addition to the usual risks inherent in domestic investments.
There may be less publicly available information about foreign
companies comparable to the reports and ratings published about companies in the
United States. Foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards, and auditing practices
and requirements may not be comparable to those
- 5 -
<PAGE>
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.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
These risks include (i) less social, political and economic stability; (ii) the
small current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interest; (iv) foreign taxation; (v)
the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private property; (vi)
the absence, until recently in certain Eastern European countries, of a capital
market structure or market-oriented economy; and (vii) the possibility that
recent favorable economic developments in Eastern Europe may be slowed or
reversed by unanticipated political or social events in such countries.
Investments in Eastern European countries may involve risks of
nationalization, expropriation and confiscatory taxation. The Communist
governments of a number of 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 Fund shareholders.
The Advisor endeavors to buy and sell foreign currencies on as
favorable a basis as practicable. Some price spread on currency exchange (to
cover service charges) may be incurred, particularly when the Fund changes
investments from one
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<PAGE>
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.
The Fund may be affected either unfavorably or favorably by
fluctuations in the relative rates of exchange between the currencies of
different nations, by exchange control regulations and by indigenous economic
and political developments. Changes in foreign currency exchange rates will
influence values within the Fund from the perspective of U.S. investors, and may
also affect the value of dividends and interest earned, gains and losses
realized on the sale of securities, and net investment income and gains, if any,
to be distributed to shareholders by the Fund. The rate of exchange between the
U.S. dollar and other currencies is determined by the forces of supply and
demand in the foreign exchange markets. These forces are affected by the
international balance of payments and other economic and financial conditions,
government intervention, speculation and other factors. The Advisor will attempt
to avoid unfavorable consequences and to take advantage of favorable
developments in particular nations where, from time to time, it places the
Fund's investments.
The exercise of this flexible policy may include decisions to purchase
securities with substantial risk characteristics and other decisions such as
changing the emphasis on investments from one nation to another and from one
type of security to another. Some of these decisions may later prove profitable
and others may not. No assurance can be given that profits, if any, will exceed
losses.
Forward Foreign Currency Transactions. In order to protect against a
possible loss on investments resulting from a decline or appreciation in the
value of a particular foreign currency against the U.S. dollar or another
foreign currency, the Fund is authorized to enter into forward foreign currency
exchange 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
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<PAGE>
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow the Fund to establish a rate of exchange for a future point in
time.
When entering into a contract for the purchase or sale of a security,
the Fund may enter into a forward 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 anticipates that a particular foreign currency may
decline substantially relative to the U.S. dollar or other leading currencies,
in order to reduce risk, the Fund may enter into a forward contract to sell, for
a fixed amount, the amount of foreign currency approximating the value of some
or all of the Fund's securities denominated in such foreign currency. Similarly,
when the obligations held by the Fund create a short position in a foreign
currency, the Fund may enter into a forward contract to buy, for a fixed amount,
an amount of foreign currency approximating the short position. With respect to
any forward foreign currency contract, it will not generally be possible to
match precisely the amount covered by that contract and the value of the
securities involved due to the changes in the values of such securities
resulting from market movements between the date the forward contract is entered
into and the date it matures. In addition, while forward contracts may offer
protection from losses resulting from declines or appreciation in the value of a
particular foreign currency, they also limit potential gains which might result
from changes in the value of such currency. The 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 the Fund's assets that could be required to consummate forward
contracts will be established with the Fund's 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 the Fund owns the
currency (or securities denominated in the currency) underlying the contract, or
holds a forward contract (or call option)
- 8 -
<PAGE>
permitting the Fund to buy the same currency at a price no higher than the
Fund's price to sell the currency. A forward contract to buy a foreign currency
is "covered" if the Fund holds a forward contract (or put option) permitting the
Fund to sell the same currency at a price as high as or higher than the Fund's
price to buy the currency.
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 the 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 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 possible delay in recovery of
the securities or 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 Boards of Directors.
Lower-Rated Debt Securities. The Fund may acquire convertible
securities rated below investment grade by Standard & Poor's Corporation ("S&P")
or Moody's Investors Service, Inc. ("Moody's") in an amount up to [5%] of the
value of its total assets. 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 debts 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
- 9 -
<PAGE>
is possible that these types of factors could, in certain instances, reduce the
value of securities held in the Fund's portfolio, with a commensurate effect on
the value of each of the Fund's shares.
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 that
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 down turn 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 Fund may incur
additional expenses to the extent that it is 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 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 the
periods of declining interest rates, the Fund may have to replace the security
with a lower yielding securities, thus resulting in a decreased return to the
fund. See Appendix A of the SAI for a description of ratings.
Money Market Instruments. As described in the Prospectus, the Fund 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.
- 10 -
<PAGE>
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 Fund will invest in obligations of foreign
banks or foreign branches of U.S. banks only where the Advisor deems the
instrument to present minimal credit risks, such investments may nevertheless
entail risks that are different from those of investments in domestic
obligations of U.S. banks due to differences in political, regulatory and
economic systems and conditions. All investments in bank obligations are limited
to the obligations of financial institutions having more than $1 billion in
total assets at the time of purchase, and investments by the Fund in the
obligations of foreign banks and foreign branches of U.S. banks will not exceed
25% of the Fund's total assets at the time of purchase.
Investments by the Fund in commercial paper will consist of issues
rated at the time A-1 and/or P-1 by Standard & Poor's Ratings Service, a
division of McGraw-Hill Companies ("S&P") or Moody's. In addition, the Fund may
acquire unrated commercial paper and corporate bonds that are determined by the
Advisor at the time of purchase to be of comparable quality to rated instruments
that may be acquired by the Fund as previously described.
The Fund may also purchase variable amount master demand notes, which
are unsecured instruments that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate. Although the notes are
not normally traded and there may be no secondary market in the notes, the Fund
may demand payment of the principal of the instrument at any time. The notes are
not typically rated by credit rating agencies, but issuers of variable amount
master demand notes must satisfy the same criteria as set forth above for
issuers of commercial paper. If an issuer of a variable amount master demand
note defaulted on its payment obligation, the 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 Fund will invest
in variable amount master notes only when the Advisor deems the investment to
involve minimal credit risk.
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
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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 Fund may write covered call options, buy put options, buy
call options and write secured put options in an amount not exceeding 5% of its
net assets. Such options may relate to particular securities and may or may not
be listed on a national securities exchange and issued by the Options Clearing
Corporation. Options trading is a highly specialized activity which entails
greater than ordinary investment risk. Options on particular securities may be
more volatile than the underlying securities, and therefore, on a percentage
basis, an investment in options may be subject to greater fluctuation than an
investment in the underlying securities themselves.
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 the
Fund will have incurred a loss in writing the option contract. There is no
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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 Fund to write another call option on the underlying security
with either a different exercise price or expiration date or both, or in the
case of a written put option, will permit the Fund to write another put option
to the extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
The Fund may write options in connection with buy-and-write
transactions; that is, the Fund may purchase a security and then write a call
option against that security. The exercise price of the call the Fund determines
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 Fund's maximum gain 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.
The Fund will write call options only if they are "covered." In the
case of a call option on a security, the option is "covered" if the portfolio
owns the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if additional
cash consideration is required, cash or cash equivalents in such amount as are
held in a segregated
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account by its custodian) upon conversion or exchange of other securities held
by it. For a call option on an index, the option is covered if the portfolio
maintains with its Custodian cash or cash equivalents equal to the contract
value. A call option is also covered if the Fund holds a call on the same
security or index as the call written where the exercise price of the call held
is (i) equal to or less than the exercise price of the call written, or (ii)
greater than the exercise price of the call written provided the difference is
maintained by the portfolio in cash or cash equivalents in a segregated account
with its custodian. The Fund may also write call options that are not covered
for cross-hedging purposes. The Fund will limit its investment in uncovered put
and call options purchased or written by the Fund to 5% of the Fund's total
assets. The Fund will write put options only if they are "secured" by cash or
cash equivalents maintained in a segregated account by the 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 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.
The Fund may purchase put options to hedge against a decline in the
value of its portfolio. By using put options in this way, the Fund will reduce
any profit it might otherwise have realized in the underlying security by the
amount of the premium paid for the put option and by transaction costs. The Fund
may purchase call options to hedge against an increase in the price of
securities that it anticipates purchasing in the future. The premium paid for
the call option plus any transaction costs will reduce the benefit, if any,
realized by the Fund upon exercise of the option, and, unless the price of the
underlying security rises sufficiently, the option may expire worthless to the
Fund.
When the Fund purchases an option, the premium paid by it is recorded
as an asset of the Fund. When the Fund writes an option, an amount equal to the
net premium (the premium less the commission) received by the Fund is included
in the
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liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of this asset or deferred credit will be
subsequently marked-to-market to reflect the current value of the option
purchased or written. The current value of the traded option is the last sale
price or, in the absence of a sale, the average of the closing bid and asked
prices. If an option purchased by the Fund expires unexercised the Fund realizes
a loss equal to the premium paid. If the Fund enters into a closing sale
transaction on an option purchased by it, the Fund will realize a gain if the
premium received by the Fund on the closing transaction is more than the premium
paid to purchase the option, or a loss if it is less. If an option written by
the Fund expires on the stipulated expiration date or if the Fund enters into a
closing purchase transaction, it will realize a gain (or loss if the cost of a
closing purchase transaction exceeds the net premium received when the option is
sold) and the deferred credit related to such option will be eliminated. If an
option written by the Fund is exercised, the proceeds of the sale will be
increased by the net premium originally received and the Fund will realize a
gain or loss.
There are several risks associated with transactions in options on
securities and indices. For example, there are significant differences between
the securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its
objectives. An option writer, unable to effect a closing purchase transaction,
will not be able to sell the underlying security (in the case of a covered call
option) or liquidate the segregated account (in the case of a secured put
option) until the option expires or the optioned security is delivered upon
exercise with the result that the writer in such circumstances will be subject
to the risk of market decline or appreciation in the security during such
period.
There is no assurance that the Fund will be able to close an unlisted
option position. Furthermore, unlisted options are not subject to the
protections afforded purchasers of listed options by the Options Clearing
Corporation, which performs the obligations of its members who fail to do so in
connection with the purchase or sale of options.
In addition, a liquid secondary market for particular options, whether
traded over-the-counter or on a national securities exchange ("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
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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.
The Fund will not write covered call options against more than 30% of
the value of the equity securities held in the portfolio.
Real Estate Securities. The Fund may invest up to 5% of its net assets
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 be 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 risk
characteristics of REITS 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 and the appeal of properties to tenants and changes in interest rates.
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<PAGE>
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, 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 Fund may agree to purchase securities from
financial institutions such as member banks of the Federal Reserve System, and
foreign bank or domestic or foreign broker/dealer that is recognized as a
reporting government securities dealer, subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). The
Advisor will review and continuously monitor the creditworthiness of the seller
under a repurchase agreement, and will require the seller to maintain liquid
assets in a segregated account in an amount that is greater than the repurchase
price. Default by, or bankruptcy of, the seller would, however, expose a Fund to
possible loss because of adverse market action or delays in connection with the
disposition of underlying obligations except with respect to repurchase
agreements secured by U.S.
Government securities.
The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by 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 depositary. Repurchase
agreements are considered to be loans by a Fund under the 1940 Act.
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Rights and Warrants. As stated in the Prospectus, the Fund may purchase
warrants, which are privileges issued by corporations enabling the owners to
subscribe to and purchase a specified number of shares of the corporation at a
specified price during a specified period of time. Subscription rights normally
have a short life span to expiration. The purchase of warrants involves the risk
that the Fund could lose the purchase value of a warrant if the right to
subscribe to additional shares is not exercised prior to the warrant's
expiration. Also, the purchase of warrants involves the risk that the effective
price paid for the warrant added to the subscription price of the related
security may exceed the value of the subscribed security's market price such as
when there is no movement in the level of the underlying security. The Fund will
not invest more than 5% of its net assets in warrants. Warrants acquired by the
Fund in units or attached to other securities are not subject to this
restriction.
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 a
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.
Futures Contracts and Related Options. The Fund currently expects that
it may purchase and sell futures contracts on securities or securities indices,
and may purchase and sell call and put options on futures contracts. For a
detailed description of futures contracts and related options, see below and
Appendix B to this Statement of Additional Information.
Stock Index Futures, Options on Stock and Bond Indices and Options on
Stock and Bond Index Futures Contracts. The Fund may purchase and sell stock
index futures, options on stock and bond indices and options on stock and bond
index futures contracts as a hedge against movements in the equity and bond
markets.
A stock index futures contract is an agreement in which one party
agrees to deliver to the other an amount of cash
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equal to a specific dollar amount times the difference between the value of a
specific stock index at the close of the last trading day of the contract and
the price at which the agreement is made. No physical delivery of securities is
made.
Options on stock and bond indices are similar to options on specific
securities, described above, except that, rather than the right to take or make
delivery of the specific security at a specific price, an option on a stock or
bond index gives the holder the right to receive, upon exercise of the option,
an amount of cash if the closing level of that stock or bond index is greater
than, in the case of a call option, or less than, in the case of a put option,
the exercise price of the option. This amount of cash is equal to such
difference between the closing price of the index and the exercise price of the
option expressed in dollars times a specified multiple. The writer of the option
is obligated, in return for the premium received, to make delivery of this
amount. Unlike options on specific securities, all settlements of options on
stock or bond indices are in cash, and gain or loss depends on general movements
in the stocks included in the index rather than price movements in particular
stocks.
If the Advisor expects general stock or bond market prices to rise, it
might purchase a stock index futures contract, or a call option on that index,
as a hedge against an increase in prices of particular securities it ultimately
wants to buy. If in fact the index does rise, the price of the particular
securities intended to be purchased may also increase, but that increase would
be offset in part by the increase in the value of the Fund's futures contract or
index option resulting from the increase in the index. If, on the other hand,
the Advisor expects general stock or bond market prices to decline, it might
sell a futures contract, or purchase a put option, on the index. If that index
does in fact decline, the value of some or all of the securities in the Fund's
portfolio may also be expected to decline, but that decrease would be offset in
part by the increase in the value of the Fund's position in such futures
contract or put option.
The Fund may purchase and write call and put options on stock or bond
index futures contracts. The Fund may use such options on futures contracts in
connection with its hedging strategies in lieu of purchasing and selling the
underlying futures or purchasing and writing options directly on the underlying
securities or indices. For example, the Fund may purchase put options or write
call options on stock and bond index futures, rather than selling futures
contracts, in anticipation of a decline in general stock or bond market
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prices or purchase call options or write put options on stock or bond index
futures, rather than purchasing such futures, to hedge against possible
increases in the price of securities which the Fund intends to purchase.
In connection with transactions in stock or bond index futures, stock
or bond index options and options on stock index or bond futures, the Fund will
be required to deposit as "initial margin" an amount of cash and short-term U.S.
Government securities equal to from 5% to 8% of the contract amount. Thereafter,
subsequent payments (referred to as "variation margin") are made to and from the
broker to reflect changes in the value of the option or futures contract. The
Fund may not at any time commit more than 5% of its total assets to initial
margin deposits on futures contracts, index options and options on futures
contracts.
Stripped Securities. The Fund may invest up to 5% of its net assets in
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 received 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 have stated that, in their opinion, purchasers of the
stripped securities most likely will be deemed the beneficial holders of the
underlying U.S. Government obligations for federal tax and securities purposes.
The Company is not aware of any binding legislative, judicial or administrative
authority on this issue.
Only instruments which are stripped by the issuing agency will be
considered U.S. Government obligations. Securities such as CATS and TIGRs which
are stripped by their holder do not qualify as U.S. Government obligations.
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Within the past several years the Treasury Department has facilitated
transfers of ownership of zero coupon securities by accounting separately for
the beneficial ownership of particular interest coupon and principal payments or
Treasury securities through the Federal Reserve book-entry record-keeping
system. The Federal Reserve program as established by the Treasury Department is
known as "STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities." Under the STRIPS program, the Fund is able to have its beneficial
ownership of zero coupon securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificates or other evidences
of ownership of the underlying U.S. Treasury securities.
In addition, the Fund may invest in stripped mortgage-backed securities
("SMBS"), which represent beneficial ownership interests in the principal
distributions and/or the interest distributions on mortgage assets. SMBS are
usually structured with two classes that receive different proportions of the
interest and principal distributions on a pool of mortgage assets. One type of
SMBS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class will receive most of
the interest and the remainder of the principal. In the most common case, one
class of SMBS will receive all of the interest (the interest-only or "IO"
class), while the other class will receive all of the principal (the
principal-only or "PO" class). SMBS may be issued by 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 of 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 the Fund may not fully recover its initial
investment.
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The determination of whether a particular government-issued IO or PO
backed by fixed-rate mortgages is liquid may be made under guidelines and
standards established by the Board of Directors. Such securities may be deemed
liquid if they can be disposed of promptly in the ordinary course of business at
a value reasonably close to that used in the calculation of the Fund's net asset
value per share.
U.S. Government Obligations. The Fund may purchase obligations issued
or guaranteed by the U.S. Government and U.S. Government agencies and
instrumentalities. 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 Fund includes 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. The Fund may invest up to 5% of
its net assets in variable and floating rate instruments. Debt instruments may
be structured to have variable or floating interest rates. These instruments may
include variable amount master demand notes that permit the indebtedness to vary
in addition to providing for periodic adjustments in the interest rates. The
Adviser will consider the earning power, cash flows and other liquidity ratios
of the issuers and guarantors of such instruments and, if the instrument is
subject to a demand feature, will continuously monitor their financial ability
to meet payment on demand. Where necessary to ensure that a variable or floating
rate instrument is equivalent to the quality standards applicable to the Fund,
the issuer's obligation to pay the principal of the instrument will be backed by
an unconditional bank letter or line of credit, guarantee or commitment to lend.
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The absence of an active secondary market for certain variable and
floating rate notes could make it difficult to dispose of the instruments, and
the Fund could suffer a loss if the issuer defaulted or during periods that the
Fund is not entitled to exercise its demand rights.
Variable and floating rate instruments held by the Fund will be subject
to the Fund's limitation on illiquid investments when the Fund may not demand
payment of the principal amount within seven days absent a reliable trading
market.
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 month 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 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.
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When the Fund engages in when-issued and forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase
or a forward commitment to purchase securities, and any subsequent fluctuations
in their market value, are taken into account when determining the market value
of the Fund starting on the day the Fund agrees to purchase the securities. The
Fund does not earn interest on the securities it has committed to purchase until
they are paid for an delivered on the settlement date.
INVESTMENT LIMITATIONS
The Fund is subject to the investment limitations enumerated in this
section which may be changed with respect to the Fund only by a vote of the
holders of a majority of the Fund's outstanding shares (as defined under
"Miscellaneous Shareholder Approvals").
The Fund may not:
1. With respect to 75% of the Fund's assets, invest more than 5%
of the Fund's assets (taken at 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;
2. Borrow money or issue senior securities (as defined in the
1940 Act) except that Fund 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 including the amount borrowed;
3. 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;
4. Underwrite securities of other issuers, except insofar as the
Fund may be deemed an underwriter
- 24 -
<PAGE>
under the Securities Act of 1933, as amended, in selling
portfolio securities;
5. Purchase or sell real estate or any interest therein, except
securities issued by companies (including real estate
investment trusts) that invest in real estate or interests
therein.
6. Invest in commodities or commodity futures contracts,
provided that this limitation shall not prohibit the
purchase or sale by the Fund of 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
7. Invest more than 25% of its total assets in the securities
of issuers conducting their principal business in any one
industry (securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, are not
considered to represent industries), except that the Fund
will invest more than 25% of its total assets in securities
of companies engaged in the financial services industry, as
defined in the Prospectus.
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 in illiquid securities;
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
- 25 -
<PAGE>
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.
<TABLE>
DIRECTORS AND OFFICERS
<CAPTION>
The directors and executive officers of the Company, and their business addresses and principal occupations
during the past five years, are:
<S> <C> <C>
Principal Occupation
Name, Address and Age Positions with Company During Past Five Years
Charles W. Elliott 1/ Chairman of the Board of Senior Advisor to the President -
3338 Bronson Boulevard Directors Western Michigan University since
Kalmazoo, MI 490008 July 1995; prior to that
Age: 64 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.
John Rakolta, Jr. Director and Vice Chairman of the Chairman, Walbridge Aldinger
1876 Rathmor Board of Directors Company (construction company).
Bloomfield Hills, MI 48304
Age: 49
Thomas B. Bender Director Investment Advisor, Financial &
7 Wood Ridge Road Investment Management Group
Glen Arbor, MI 49636 (since April, 1991); Vice
Age: 63 President Institutional Sales,
Kidder, Peabody & Co. (Retired
April, 1991).
David J. Brophy Director Professor, University of
1025 Martin Place Michigan; Director, River Place
Ann Arbor, MI 48104 Financial Corp.; Trustee,
Age: 60 Renaissance Assets Trust.
Dr. Joseph E. Champagne Director Corporate and Executive
319 Snell Road Consultant since September 1995;
Rochester, MI 48306 prior to that Chancellor, Lamar
Age: 58 University from September 1994
until September 1995; before that
Consultant to Management, Lamar
University; President and Chief
Executive Officer, Crittenton
Corporation (parent holding
company that owns health care
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 Value of Troy, MI.
Thomas D. Eckert Director President and CEO, Mid-Atlantic
10726 Falls Pointe Drive Group of Pulte Home Corporation
Great Falls, VA 22066 (developer of residential land
Age: 49 and construction of housing
units)
- 26 -
<PAGE>
Lee P. Munder President President and CEO of the Advisor;
480 Pierce Street Chief Executive Officer and
Suite 300 President of Old MCM, Inc.; Chief
Birmingham, MI 48009 Executive Officer of World Asset
Age: 51 Management; Director, LPM
Investment Services, Inc.
("LPM").
Terry H. Gardner Vice President, Chief Financial Vice President and Chief
480 Pierce Street Officer and Treasurer Financial Officer of the Advisor
Suite 300 and World Asset Management; Vice
Birmingham, MI 48009 President and Chief Financial
Age: 36 Officer of Old MCM, Inc.; Audit
Manager Arthur of Andersen & Co.
(1991 to February 1993);
Secretary of LPM
Paul Tobias Vice President Executive Vice President and
480 Pierce Street Chief 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
480 Pierce Street Chief Investment Officer/Equities
Suite 300 of the Advisor (since April
Birmingham, MI 48009 1995); Managing Director (1991-
Age: 44 1995), Director (1992-1995) and
Vice President (1984-1991) of
Loomis, Sayles and Company, L.P.
Elyse G. Essick Vice President Vice President and Director of
480 Pierce Street Marketing for the Advisor; Vice
Suite 300 President and Director of Client
Birmingham, MI 48009 Services of Old MCM, Inc. (August
Age: 38 1988 to December 1994).
James C. Robinson Vice President Vice President and Chief
480 Pierce Street Investment Officer/Fixed Income
Suite 300 for the Advisor; Vice President
Birmingham, MI 48009 and Director of Fixed Income of
Age: 35 Old MCM, Inc. (1987-1994).
Leonard J. Barr, II Vice President Vice President and Director of
480 Pierce Street Core Equity Research of the
Suite 300 Advisor; Director and Senior Vice
Birmingham, MI 48009 President of Old MCM, Inc. (since
Age: 52 1988); Director of LPM.
Ann F. Putallaz Vice President Vice President and Director of
480 Pierce Street Fiduciary Services (since January
Suite 300 1995); Director of Client and
Birmingham, MI 48009 Marketing Services of Woodbridge
Age: 51 Capital Management, Inc.
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: 41
- 27 -
<PAGE>
Lisa A. Rosen Secretary, Assistant Treasurer General Counsel of the Advisor
480 Pierce Street since May 1996; Formerly Counsel,
Suite 300 First Data Investor Services
Birmingham, MI 48009 Group, Inc.; Assistant Vice
Age: 29 President and Counsel with The
Boston Company Advisors, Inc.;
Associate with Hutchins, Wheeler
& Dittmar.
Teresa M.R. Hamlin Assistant Secretary Counsel, First Data Investor
First Data Investor Services Service Group, Inc. (since 1995);
Group, Inc. Formerly, Paralegal Manager, The
One Exchange Place Boston Company Advisors, Inc.
8th Floor
Boston, MA 02109
Age: 33
Julia A. Tedesco Assistant Secretary Counsel, First Data Investors
First Data Investor Services Services Group, Inc. (since May
Group, Inc. 1994). Formerly, Assistant Vice
One Exchange Place President and Counsel of The
8th Floor Boston Company [____________]
Boston, MA 02109
Age: [ ]
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 ("Munder
Framlington") and St. Clair Funds, Inc. ("St. Clair") for service on those
organizations' respective Boards of Directors/Trustees 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.
The following table summarizes the compensation paid by the Trust and
the Company to the Trustees of the Trust and Directors of the Company for the
fiscal year ended June 30, 1996. Neither Munder Framlington nor St. Clair had
operations during the fiscal year ended June 30, 1996.
- 28 -
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Aggregate Pension
Compensation Retirement Estimated
from the Benefits Accrued Annual Total
Trust and as Part of Benefits from the
Name of Person Position Company Fund Expenses upon Retirement Fund Complex
Charles W. Elliott $14,000.00 None None $14,000.00
Chairman
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
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 Transfer Agent currently receives any
compensation from the Trust or the
Company.
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 0.75% of average daily net assets of the Fund.
- 29 -
<PAGE>
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 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, on
60 days' written notice to the Advisor. The Advisor may also terminate its
advisory relationship with the Fund without penalty on 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.
Administration Agreement. First Data Investor Services Group, Inc.
("First Data" or the "Administrator") 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; provided 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.
- 30 -
<PAGE>
The Administration Agreement provides that the Administrator performing
services thereunder shall not be liable under the Agreement except for its
willful misfeasance, bad faith or 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 concerning the
operations of the Fund.
Other Information Pertaining to Distribution, Administration, Custodian
and Transfer Agency Agreements. As stated in the Prospectus, [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
- 31 -
<PAGE>
fact that neither the Administrator nor the Transfer Agent is affiliated with
the Company or the Advisor. The Board also considered its responsibility 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.
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 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. Purchases and
- 32 -
<PAGE>
sales are made for the Fund whenever necessary, in management's opinion, to meet
the Fund's investment objective. The Fund may engage in short-term trading to
achieve its investment objectives. Portfolio turnover may vary greatly from year
to year as well as within a particular year.
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.
In the Advisory Agreement, the Advisor agrees to select broker-dealers
in accordance with guidelines established by the Company's Board of Directors
from time to time and in accordance with applicable law. In assessing the terms
available for any transaction, the Advisor shall consider all factors it deems
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker-dealer,
and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. In addition, the Advisory Agreement
authorizes the Advisor, subject to the prior approval of the Company's Board of
Directors, to cause the Fund to pay a broker-dealer which furnishes brokerage
and research services a higher commission than that which might be charged by
another broker-dealer for effecting the same transaction, provided that the
Advisor determines in good faith that such commission is reasonable in relation
to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either the particular transaction or the
overall responsibilities of the Advisor to the Fund. Such brokerage and research
services might consist of reports and statistics on specific companies or
industries, general summaries of groups of bonds and their comparative earnings
and yields, or broad overviews of the securities markets and the economy.
Supplementary research information so received is in addition to, and
not in lieu of, services required to be performed by the Advisor and does not
reduce the advisory fees payable to the Advisor by the Fund. It is possible that
certain of the supplementary research or other services received will primarily
benefit one or more other investment companies or other accounts for which
investment discretion is exercised. Conversely, the Fund may be the primary
beneficiary of the research or services received as a result of portfolio
transactions effected for such other account or investment company.
- 33 -
<PAGE>
Portfolio securities will not be purchased from or sold to the Advisor,
the Distributor or any affiliated person (as defined in the 1940 Act) of the
foregoing entities except to the extent permitted by SEC exemptive order or by
applicable law.
Investment decisions for 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 Prospectus 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
- 34 -
<PAGE>
of the Company by or under the direction of the Board of Directors in a manner
that the Board of Directors determine 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.
PURCHASE AND REDEMPTION INFORMATION
Purchases and redemptions are discussed in the Fund's Prospectus and
such information is incorporated herein by reference.
Purchases. In addition to the methods of purchasing shares described in
the 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.
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.
Redemptions
Systematic Withdrawals. In addition to the methods of redemption
described in the Fund's 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
- 35 -
<PAGE>
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
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.
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
- 36 -
<PAGE>
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.
In-Kind Purchases
Payment for shares may, in the discretion of the Advisor, be made in
the form of securities that are permissible investments for the Fund as
described in the Prospectus. For further information about this form of payment
please contact the Transfer Agent. In connection with an in-kind securities
payment, the Fund will require, among other things, that the securities be
valued on the day of purchase in accordance with the pricing methods used by the
Fund and that the Fund receive satisfactory assurances that (1) it will have
good and marketable title to the securities received by it; (2) that the
securities are in proper form for transfer to the Fund; and (3) adequate
information will be provided concerning the basis and other tax matters relating
to the securities.
PERFORMANCE INFORMATION
The Fund, in advertising its "average annual total return" computes its
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);
P = hypothetical initial payment of $1,000;
and
n = period covered by the computation,
expressed in years.
The Fund, in advertising its "aggregate total return" computes its
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
- 37 -
<PAGE>
such investment. The formula for calculating aggregate total return is as
follows:
(ERV) - 1
Aggregate Total Return = -----
P
The calculations are made assuming that (1) all dividends and capital
gain distributions are reinvested on the reinvestment dates at the price per
share existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all non-recurring charges at the end of the
measuring period.
The performance of any investment is generally a function of portfolio
quality and maturity, type of investment and operating expenses.
From time to time, in advertisements or in reports to shareholders, the
Fund's total returns may be quoted and compared to those of other mutual funds
with similar investment objectives and to stock or other relevant indices.
TAXES
The following summarizes certain additional tax considerations generally
affecting the Fund and its shareholders that are not described in the Fund's
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning. Potential
investors should consult their tax Advisors with specific reference to their own
tax situations.
General. The Fund 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
- 38 -
<PAGE>
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 companies), or in two or more issuers which the Fund controls and
which are engaged in the same or similar trades or businesses.
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.
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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 gains dividends are not eligible for the
dividends received deduction for corporations.
In the case of corporate shareholders, distributions of the Fund for any
taxable year generally qualify for the dividends received deduction to the
extent of the gross amount of "qualifying dividends" received by the Fund for
the year and if certain holding period requirements are met. Generally, a
dividend will be treated as a "qualifying dividend" if it has been received from
a domestic corporation.
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 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
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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.
Disposition of Shares. Upon a redemption, sales 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 or short-term, generally, depending upon shareholder's holding period
for the shares. Any loss realized on a redemption, sale or exchange will be
disallowed to the 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.
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
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for less than six months.
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.
Other Taxation. The foregoing discussion related only to U.S. Federal
income tax law as applicable to U.S. persons (i.e., U.S. citizens and resident
and domestic corporations, partnerships, trust and estates). Distributions by
the Fund also may be subject to 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).
Taxation of Certain Financial Instruments. Special rules govern the
Federal income tax treatment of financial instruments that may be held by the
Fund. These rules may have a particular impact on the amount of income or gain
that the Fund 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-Gain Test, all
described above.
Generally, futures contracts, options on futures contracts and certain
foreign currency contracts held by the Fund (collectively, the "Instruments") at
the close of their taxable year are treated for Federal income tax purposes as
sold for their fair market value on the last business day of such year, a
process known as "marking-to-market." Forty percent of any gain or loss
resulting from such constructive sales will be treated as short-term capital
gain or loss and 60% of such gain or loss will be treated as long-term capital
gain or loss without regard to the period the Fund hold the Instruments ("the
40%-60% rule"). The amount of any capital gain or loss actually realized by the
Fund in a subsequent sale or other disposition of those Instruments is adjusted
to
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reflect any capital gain or loss taken into account by the Fund in a prior year
as a result of the constructive sale of the Instruments. Losses with respect to
futures contracts to sell, related options and certain foreign currency
contracts which are regarded as parts of a "mixed straddle" because their values
fluctuate inversely to the values of specific securities held by the Fund are
subject to certain loss deferral rules which limit the amount of loss currently
deductible on either part of the straddle to the amount thereof which exceeds
the unrecognized gain (if any) with respect to the other part of the straddle,
and to certain wash sales regulations. Under short sales rules, which are also
applicable, the holding period of the securities forming part of the straddle
will (if they have not been held for the long-term holding period) be deemed not
to begin prior to termination of the straddle. With respect to certain
Instruments, deductions for interest and carrying charges may not be allowed.
Notwithstanding the rules described above, with respect to futures contracts
which are part of a "mixed straddle" to sell related options, and certain
foreign currency contracts which are properly identified as such, the Fund may
make an election which will exempt (in whole or in part) those identified
futures contracts, options and foreign currency contracts from the Rules of
Section 1256(g) of the Code including "the 40%-60% rule" and the mark-to-market
on gains and losses being treated for Federal income tax purposes as sold on the
last business day of the Fund's taxable year, but gains and losses will be
subject to such short sales, wash sales and loss deferral rules and the
requirement to capitalize interest and carrying charges. Under Temporary
Regulations, the Fund would be allowed (in lieu of the foregoing) to elect to
either (1) offset gains or losses from portions which are part of a mixed
straddle by separately identifying each mixed straddle to which such treatment
applies, or (2) establish a mixed straddle account for which gains and losses
would be recognized and offset on a periodic basis during the taxable year.
Under either election, "the 40%-60% rule" will apply to the net gain or loss
attributable to the Instruments, but in the case of a mixed straddle account
election, not more than 50% of any net gain may be treated as long-term and no
more than 40% of any net loss may be treated as short-term.
A foreign currency contract must meet the following conditions in order
to be subject to the marking-to-market rules described above: (1) the contract
must require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contract depends;
(2) the contract must be entered into at arm's length at a price determined by
reference to the price
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in the interbank market; and (3) the contract must be traded in the interbank
market. The Treasury Department has broad authority to issue regulations under
the provisions respecting foreign currency contracts. As of the date of this
Statement of Additional Information, the Treasury Department has not issued any
such regulations. Other foreign currency contracts entered into by a Fund may
result in the creation of one or more straddles for Federal income tax purposes,
in which case certain loss deferral, short sales, and wash sales rules and the
requirement to capitalize interest and carrying charges may apply.
Some of the non-U.S. dollar denominated investments that the Fund may
make, such as foreign securities, European Deposit Receipts and foreign currency
contracts, may be subject to the provisions of Subpart J of the Code, which
govern the Federal income tax treatment of certain transactions denominated in
terms of a currency other than the U.S. dollar or determined by reference to the
value of one or more currencies other than the U.S dollar. The types of
transactions covered by these provisions include the following: (1) the
acquisition of, or becoming the obligor under, a bond or other debt instrument
(including, to the extent provided in Treasury regulations, preferred stock);
(2) the accruing of certain trade receivables and payables; and (3) the entering
into or acquisition of any forward contract, futures contract, option and
similar financial instrument, if such instrument is not marked to market. The
disposition of a currency other than the U.S. dollar by a U.S. taxpayer is also
treated as a transaction subject to the special currency rules. However, foreign
currency-related regulated futures contracts and non equity options are
generally not subject to the special currency rules if they are or would be
treated as sold for their fair market value at year-end under the
marking-to-market rules unless an election is made to have such currency rules
apply. With respect to transactions covered by the special rules, foreign
currency gain or loss is calculated separately from any gain or loss on the
underlying transaction and is normally taxable as ordinary gain or loss. A
taxpayer may elect to treat as capital gain or loss foreign currency gain or
loss arising from certain identified forward contracts, futures contracts and
options that are capital assets in the hands of the taxpayer and which are not
part of a straddle. In accordance with Treasury regulations, certain
transactions that are part of a "Section 988 hedging transaction" (as defined in
the Code and Treasury regulations) may be integrated and treated as a single
transaction or otherwise treated consistently for purposes of the Code. "Section
988 hedging transactions" are not subject to the marking-to-market or loss
deferral rules under the Code. Gain
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or loss attributable to the foreign currency component of transactions engaged
in by the Funds which are not subject to the special currency rules (such as
foreign equity investments other than certain preferred stocks) is treated as
capital gain or loss and is not segregated from the gain or loss on the
underlying transaction.
The Fund may be subject to U.S. Federal income tax on a portion of any
"excess distribution" or a gain from the distribution of passive foreign
investment companies.
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 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 15 series of
shares. The Fund is currently offered in one class.
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.
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
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any interest of the Fund. Under the Rule, the approval of an investment advisory
agreement or any change in a fundamental investment policy would be effectively
acted upon with respect to 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 Prospectus, 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, 200 Clarendon Street, Boston,
Massachusetts 02116 serves as the Company's independent auditors.
Banking Laws. Banking laws and regulations currently prohibit a bank
holding company registered under the Federal Bank Holding Company Act of 1956 or
any bank or non-bank affiliate thereof from sponsoring, organizing, controlling
or distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from underwriting securities, but such banking laws and regulations do not
prohibit such a holding company or affiliate or banks generally from acting as
investment Advisor, administrator, transfer agent or custodian
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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.
Shareholder Approvals. As used in this Statement of Additional
Information and in the Prospectus, a "majority of the outstanding shares" of the
Fund means the lesser of (a) 67% of the shares of the Fund represented at a
meeting at which the holders of more than 50% of the outstanding shares of the
Fund are present in person or by proxy, or (b) more than 50% of the outstanding
shares of the Fund.
REGISTRATION STATEMENT
This Statement of Additional Information and the Fund's Prospectus do
not contain all the information included in the Fund's registration statement
filed with the SEC under the 1933 Act with respect to the securities offered
hereby, certain portions of which have been omitted pursuant to the rules and
regulations of the SEC. The registration statement, including the exhibits filed
therewith, may be examined at the offices of the SEC in Washington, D.C.
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Statements contained herein and in the Fund's Prospectus as to the
contents of any contract of other documents referred to are not necessarily
complete, and, in such instance, reference is made to the copy of such contract
or other documents filed as an exhibit to the Fund's registration statement,
each such statement being qualified in all respect by such reference.
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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.
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"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 I 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.
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
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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- I " 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-l+." Commercial paper rated "A-2" by S&P indicates that capacity for timely
payment is strong. However, the relative degree of safety is not as high as for
issues designated "A-1."
Rated Investments -
Commercial Paper
Rated commercial paper purchased by the 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 or Underlying 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-l" 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.
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Those issues determined to possess overwhelming safety characteristics are
denoted "A-l+".
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APPENDIX B
As stated in the Prospectus, the Fund may enter into certain futures
transactions and options for hedging purposes. Such transactions are described
in this Appendix B.
I. Index Futures Contracts
General. A bond index assigns relative values of the bonds included in
the index bind 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 indexed,
such as the Standard & Poor's 500 or the New York Stock Exchange Composite
Index. In contrast, certain exchanges offer futures contracts on narrower market
indexes, such as the Standard & Poor's 100 or indexes based on an industry or
market segment, such as oil and gas stocks.
Futures contracts are traded on organized exchanges regulated by the
Commodity Futures Trading Commission. Transactions on such exchanges are cleared
through a clearing corporation, which guarantees the performance of the parties
to each contract.
The 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. The 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, the Fund may utilize index futures contracts in
anticipation of changes in the composition of its portfolio holdings. For
example, in the event that the Fund expects to narrow the range of industry
groups represented in its holdings it
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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. The Fund may also sell futures
contracts in connection with this strategy, in order to protect against the
possibility that the value of the securities to be sold as part of the
restructuring of the portfolio will decline prior to the time of sale.
Examples of Stock Index Futures Transactions. The following are
examples of transactions in stock index futures (net of commissions and
premiums, if any).
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
-Day Hedge is Placed-
Anticipate buying $62,500 in Buying 1 Index Futures at 125
Equity Securities Value of Futures =
$62,500/Contract
-Day Hedge is Lifted-
Buy Equity Securities with Actual Sell 1 Index Futures at 130
Cost + $65,000 Value of Futures =
Increase in Purchase Price = $65,000/Contract
$2,500 Gain on Futures = $2,500
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
Portfolio Futures
-Day Hedge is Placed-
Anticipate Selling $1,000,000 in Sell 16 Index Futures at 125
Equity Securities 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
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II. Margin Payments
Unlike purchase or sales of portfolio securities, no price is paid or
received by the 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 the 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 may elect to
close the position by taking an opposite position, subject to the availability
of a secondary market, which will operate to terminate the Fund's position in
the futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund, and the Fund
realizes a loss or gain.
III. Risks of Transactions in Futures Contracts
There are several risks in connection with the use of futures by the
Fund 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
- 55 -
<PAGE>
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 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. Conversely, the Fund 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. 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 the 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 Fund
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 Fund,
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
- 56 -
<PAGE>
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 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 Fund
intends 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 Fund 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.
- 57 -
<PAGE>
Successful use of futures by the Fund is also subject to the Advisor's
ability to predict correctly movements in the direction of the market. For
example, if the 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 Fund may have to sell
securities at a time when they may be disadvantageous to do so.
IV. Options on Futures Contracts
The Fund 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. The 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
- 58 -
<PAGE>
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). The writing of an option on a futures contract involves
risks similar to those risks relating to the sale of futures contracts.
V. Other Matters
Accounting for futures contracts will be in accordance with generally
accepted accounting principles.
- 59 -
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
----------------------------------------
(a) Financial Statements:
Included in Part A:
None
Included in Part B:
None
(b) Exhibits (the number of each exhibit relates to the exhibit
designation in Form N-1A):
(1) (a) Articles of Incorporation10
(b) Articles of Amendment10
(c) Articles Supplementary10
(d) Articles Supplementary for The Munder Small-Cap Value
Fund, The Munder Equity Selection Fund, The Munder Micro-Cap
Equity Fund, and the NetNet Fund11
(e) Articles Supplementary for The Munder Short Term
Treasury Fund12
(f) Articles Supplementary for The Munder All-Season
Conservative Fund, The Munder All-Season Moderate Fund and The
Munder All-Season Aggressive Fund13
(g) Articles Supplementary with respect to the name
changes of The Munder All-Season Conservative Fund, The Munder
All-Season Moderate Fund and The Munder All-Season Aggressive Fund
to The Munder All-Season Maintenance Fund, The Munder All-Season
Development Fund and The Munder All-Season Accumulation Fund is
filed herein.
(h) Articles Supplementary for The Munder Financial
Services Fund*
(2) By-Laws1
(3) Not Applicable
(4) Not Applicable
(5) (a) Form of Investment Advisory Agreement for The
Munder Multi-Season Growth Fund5
(b) Form of Investment Advisory Agreement for The Munder
Money Market Fund5
(c) Form of Investment Advisory Agreement for The Munder
Real Estate Equity Investment Fund5
(d) Investment Advisory Agreement for The Munder Value
Fund8
(e) Investment Advisory Agreement for The Munder Mid-Cap
Growth Fund8
(f) Form of Investment Advisory Agreement for The Munder
International Bond Fund10
(g) Form of Investment Advisory Agreement for the NetNet
Fund9
(h) Form of Investment Advisory Agreement for The Munder
Small-Cap Value Fund10
(i) Form of Investment Advisory Agreement for The Munder
Micro-Cap Equity Fund10
(j) Form of Investment Advisory Agreement for The Munder
Equity Selection Fund10
(k) Form of Investment Advisory Agreement for The Munder
Short Term Treasury Fund12
(l) Form of Investment Advisory Agreement for The Munder
All-Season Conservative Fund, The Munder All-Season Moderate Fund
and The Munder All-Season Aggressive Fund13
(m) Form of Investment Advisory Agreement for The Munder
Financial Services Fund*
(6) (a) Underwriting Agreement8
(b) Notice to Underwriting Agreement with respect to The
Munder Value Fund and The Munder Mid-Cap Growth Fund8
(c) Notice to Underwriting Agreement with respect to The
Munder International Bond Fund8
(d) Notice to Underwriting Agreement with respect to The
Munder Small-Cap Value Fund, The Munder Equity Selection Fund, The
Munder Micro-Cap Equity Fund, and the NetNet Fund10
(e) Form of Notice to Underwriting Agreement with respect
to the Munder Short Term Treasury Fund12
(f) Form of Distribution Agreement with respect to The
Munder All-Season Conservative Fund, The Munder All-Season
Moderate Fund and The Munder All-Season Aggressive Fund13
(g) Form of Distribution Agreement with respect to The
Munder Financial Services Fund*
(7) Not Applicable
(8) (a) Form of Custodian Contract8
(b) Notice to Custodian Contract with respect to The
Munder Value Fund and The Munder Mid-Cap Growth Fund8
(c) Notice to Custodian Contract with respect to the
Munder International Bond Fund8
(d) Notice to Custodian Contract with respect to The
Munder Small-Cap Value Fund, The Munder Equity Selection Fund, The
Munder Micro-Cap Equity Fund and the NetNet Fund10
(e) Form of Notice to the Custodian Contract with respect
to The Munder Short Term Treasury Fund12
(f) Form of Sub-Custodian Agreement13
(g) Form of Notice to the Custody Agreement with respect
to The Munder All-Season Conservative Fund, The Munder All-Season
Moderate Fund and The Munder All-Season Aggressive Fund13
(h) Form of Amendment to the Custodian Agreement with
respect to The Munder Financial Services Fund*
(9) (a) Transfer Agency and Service Agreement8
(b) Notice to Transfer Agency and Service Agreement with
respect to the Munder Value Fund and the Munder Mid-Cap Growth
Fund8
(c) Notice to Transfer Agency and Service Agreement with
respect to the Munder International Bond Fund8
(d) Notice to Transfer Agency and Service Agreement with
respect to The Munder Small-Cap Value Fund, The Munder Equity
Selection Fund, The Munder Micro-Cap Equity Fund and the NetNet
Fund10
(e) Form of Notice to Transfer Agency and Service
Agreement with respect to The Munder Short Term Treasury Fund12
(f) Form of Amendment to the Transfer Agency and Registrar
Agreement with respect to The Munder All-Season Conservative Fund,
The Munder All-Season Moderate Fund and The Munder All-Season
Aggressive Fund13
(g) Form of Amendment to the Transfer Agency and Registrar
Agreement with respect to The Munder Financial Services Fund*
(h) Administration Agreement8
(i) Notice to Administration Agreement with respect to The
Munder Value and The Munder Mid-Cap Growth Fund8
(j) Notice to Administration Agreement with respect to The
Munder International Bond Fund8
(k) Notice to Administration Agreement with respect to The
Munder Small-Cap Value Fund, The Munder Equity Selection Fund, The
Munder Micro-Cap Equity Fund and the NetNet Fund10
(l) Form of Notice to Administration Agreement with
respect to The Munder Short Term Treasury Fund12
(m) Form of Amendment to the Administration Agreement with
respect to The Munder All-Season Conservative Fund, The Munder
All-Season Moderate Fund and The Munder All-Season Aggressive
Fund13
(n) Form of Amendment to the Administration Agreement with
respect to The Munder Financial Services Fund*
(10) (a) Opinion and Consent of Counsel with respect to The
Munder Multi-Season Growth Fund2
(b) Opinion and Consent of Counsel with respect to The
Munder Money Market Fund4
(c) Opinion and Consent of Counsel with respect to The
Munder Real Estate Equity Investment Fund3
(d) Opinion and Consent of Counsel with respect to the
Munder Value Fund and The Munder Mid-Cap Growth Fund8
(e) Opinion and Consent of Counsel with respect to the
Munder International Bond Fund8
(f) Opinion and Consent of Counsel with respect to the
NetNet Fund9
(g) Opinion and Consent of Counsel with respect to the
Munder Small-Cap Value Fund, the Munder Equity Selection Fund, and
the Munder Micro-Cap Equity Fund11
(h) Opinion and Consent of Counsel with respect to Munder
Short Term Treasury Fund12
(i) Opinion and Consent of Counsel with respect to The
Munder All-Season Conservative Fund, The Munder All-Season
Moderate Fund and The Munder All-Season Aggressive Fund is
filed herein.
(j) Opinion and Consent of Counsel with respect to The
Munder Financial Services Fund*
(11) (a) Consent of Dechert Price & Rhoads (included with
Exhibit 10 a-i)
(b) Consent of Ernst & Young LLP11
(c) Consent of Arthur Andersen LLP7
(d) Letter of Arthur Andersen LLP regarding change in
independent auditor required by Item 304 of Regulation S-K7
(e) Powers of Attorney13
(f) Certified Resolution of Board authorizing signature on
behalf of Registrant pursuant to power of attorney is filed
herein.
(12) Not Applicable
(13) Initial Capital Agreement2
(14) Not Applicable
(15) (a) Service Plan for The Munder Multi-Season Growth
Fund Class A Shares5
(b) Service and Distribution Plan for The Munder Multi-
Season Growth Fund Class B Shares5
(c) Service and Distribution Plan for The Munder Multi-
Season Growth Fund Class D Shares5
(d) Service Plan for The Munder Money Market Fund Class A
Shares5
(e) Service and Distribution Plan for The Munder Money
Market Fund Class B Shares5
(f) Service and Distribution Plan for The Munder Money
Market Fund Class D Shares5
(g) Service Plan for The Munder Real Estate Equity
Investment Fund Class A Shares5
(h) Service and Distribution Plan for The Munder Real
Estate Equity Investment Fund Class B Shares5
(i) Service and Distribution Plan for The Munder Real
Estate Equity Investment Fund Class D Shares5
(j) Form of Service Plan for The Munder Multi-Season
Growth Fund Investor Shares6
(k) Form of Service Plan for Class K Shares of The Munder
Funds, Inc.10
(l) Form of Service Plan for Class A Shares of The Munder
Funds, Inc.10
(m) Form of Distribution and Service Plan for Class B
Shares for The Munder Funds, Inc.10
(n) Form of Distribution and Service Plan for Class C
Shares for The Munder Funds, Inc.10
(o) Form of Distribution and Service Plan for the NetNet
Fund9
(16) Schedule for Computation of Performance
Quotations12
(17) Not Applicable
(18) Form of Amended and Restated Multi-Class Plan13
- --------------------------------
1. Filed in Registrant's initial Registration Statement
on November 18, 1992 and incorporated by reference herein.
2. Filed in Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement on February 26, 1993 and
incorporated by reference herein.
3. Filed in Post-Effective Amendment No. 7 to the
Registrant's Registration Statement on August 26, 1994 and
incorporated by reference herein.
4. Filed in Post-Effective Amendment No. 2 to the
Registrant's Registration Statement on July 9, 1993 and
incorporated by reference herein.
5. Filed in Post-Effective Amendment No. 8 to the
Registrant's Registration Statement on February 28, 1995 and
incorporated by reference herein.
6. Filed in Post-Effective Amendment No. 9 to the
Registrant's Registration Statement on April 13, 1995 and
incorporated by reference herein.
7. Filed in Post-Effective Amendment No. 12 to the
Registrant's Registration Statement on August 29, 1995 and
incorporated by reference herein.
8. Filed in Post-Effective Amendment No. 16 to the
Registrant's Registration Statement on June 25, 1996 and
incorporated by reference herein.
9. Filed in Post-Effective Amendment No. 17 to the
Registrant's Registration Statement on August 9, 1996 and
incorporated by reference herein.
10. Filed in Post-Effective Amendment No. 18 to the
Registrant's Registration Statement on August 14, 1996 and
incorporated by reference herein.
11. Filed in Post-Effective Amendment No. 20 to the
Registrant's Registration Statement on October 28, 1996 and
incorporated by reference herein.
12. Filed in Post-Effective Amendment No. 21 to the
Registrant's Registration Statement on December 13, 1996 and
incorporated by reference herein.
13. Filed in Post-Effective Amendment No. 23 to the
Registrant's Registration Statement on February 18, 1997 and
incorporated by reference herein.
Item 25. Persons Controlled by or Under Common Control with
Registrant.
--------------------------------------------------
Not Applicable
Item 26. Number of Holders of Securities.
-------------------------------
As of May 13, 1997, the number of shareholders of
record of each Class of shares of each Series of the Registrant
that was offered as of that date was as follows:
Class A Class B Class C Class K Class Y
- -----------------------------------------------------------------------
Munder Multi-Season Growth Fund 468 1661 39 139 147
Munder Money Market Fund 14 16 7 0 75
Munder Real Estate Equity 47 52 24 3 51
Investment Fund
Munder Mid-Cap Growth Fund 13 19 3 2 24
Munder Value Fund 44 27 8 2 61
Munder International Bond Fund 3 1 1 2 9
Munder Small-Cap Value Fund 18 11 8 2 58
Munder Micro-Cap Equity Fund 12 25 2 2 49
Munder Equity Selection Fund 1 1 1 1 1
Munder Short Term Treasury Fund 2 2 1 3 6
Munder All-Season Maintenance Fund 1 1 0 0 2
Munder All-Season Development Fund 2 1 0 0 4
Munder All-Season Accumulation Fund 1 1 0 0 19
NetNet Fund - as of May 13, 1997, the NetNet Fund had 98 accounts
open.
Item 27. Indemnification.
-------------------
Article VII, Section 7.6 of the Registrant's Articles
of Incorporation ("Section 7.6") provides that the Registrant,
including its successors and assigns, shall indemnify its
directors and officers and make advance payment of related
expenses to the fullest extent permitted, and in accordance with
the procedures required, by the General Laws of the State of
Maryland and the Investment Company Act of 1940. Such
indemnification shall be in addition to any other right or claim
to which any director, officer, employee or agent may otherwise be
entitled. In addition, Article VI of the Registrant's By-laws
provides that the Registrant shall indemnify its employees and/or
agents in any manner as shall be authorized by the Board of
Directors and within such limits as permitted by applicable law.
The Board of Directors may take such action as is necessary to
carry out these indemnification provisions and is expressly
empowered to adopt, approve and amend from time to time such
resolutions or contracts implementing such provisions or such
further indemnification arrangements as may be permitted by law.
The Registrant may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of
the Registrant or is serving at the request of the Registrant as a
director, officer, partner, trustee, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust
or other enterprise or employee benefit plan, against any
liability asserted against and incurred by such person in any such
capacity or arising out of such person's position, whether or not
the Registrant would have had the power to indemnify against such
liability. The rights provided by Section 7.6 shall be
enforceable against the Registrant by such person who shall be
presumed to have relied upon such rights in serving or continuing
to serve in the capacities indicated therein.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933, as amended, may be permitted to
directors, officers and controlling persons of the Registrant by
the Registrant pursuant to the Fund's Articles of Incorporation,
its By-Laws or otherwise, the Registrant is aware that in the
opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act
and, therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by directors,
officers or controlling persons of the Registrant in connection
with the successful defense of any act, suit or proceeding) is
asserted by such directors, officers or controlling persons in
connection with shares being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed
by the final adjudication of such issues.
Item 28. Business and Other Connections of Investment Advisor.
------------------------------------------------------
- ------------
Munder Capital Management
- --------------------------------------
Position
Name with Adviser
--------- -------------
Old MCM, Inc. Partner
Munder Group LLC Partner
WAM Holdings, Inc. Partner
Woodbridge Capital Management, Inc. Partner
Lee P. Munder President and
Chief Executive
Officer
Leonard J. Barr, II Senior Vice
President and
Director of
Research
Ann J. Conrad Vice President and
Director of
Special Equity
Products
Terry H. Gardner Vice President and
Chief Financial
Officer
Elyse G. Essick Vice President and
Director of Client
Services
Sharon E. Fayolle Vice President and
Director of Money
Market Trading
Otto G. Hinzmann Vice President and
Director of Equity
Portfolio
Management
Anne K. Kennedy Vice President and
Director of
Corporate Bond
Trading
Ann F. Putallaz Vice President and
Director of
Fiduciary Services
Peter G. Root Vice President and
Director of
Government
Securities Trading
Lisa A. Rosen General Counsel
and Director of
Mutual Fund
Operations
James C. Robinson Vice President and
Chief Investment
Officer/Fixed
Income
Gerald L. Seizert Executive Vice
President and
Chief Investment
Officer/Equity
Paul D. Tobias Executive Vice
President and
Chief Operating
Officer
For further information relating to the Investment Adviser's
officers, reference is made to Form ADV filed under the Investment
Advisers Act of 1940 by Munder Capital Management. SEC File No.
801-32415.
Item 29. Principal Underwriters.
---------------------------
(a) Funds Distributor, Inc. ("FDI"), located at 60 State
Street, Boston, Massachusetts 02109, is the principal underwriter
of the Funds. FDI is an indirectly wholly-owned subsidiary of
Boston Institutional Group, Inc. a holding company, all of whose
outstanding shares are owned by key employees. FDI is a broker
dealer registered under the Securities Exchange Act of 1934, as
amended. FDI acts as principal underwriter of the following
investment companies other than the Registrant:
Harris Insight Funds Trust
The Munder Funds Trust
St. Clair Funds, Inc.
The Munder Framlington Funds Trust
BJB Investment Funds
PanAgora Funds
RCM Equity Funds, Inc.
Waterhouse Investors Cash Management Fund, Inc.
LKCM Fund
Pierpont Funds
JPM Institutional Funds
Skyline Funds
Fremont Mutual Funds, Inc.
RCM Capital Funds, Inc.
Monetta Funds, Inc.
Burridge Funds
The JPM Series Trust
The JPM Series Trust II
(b) The information required by this Item 29(b) with
respect to each director, officer or partner of FDI is
incorporated by reference to Schedule A of Form BD filed by FDI
with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934 (SEC File No. 8-20518).
(c) Not Applicable
Item 30. Location of Accounts and Records.
------------------------------------------
The account books and other documents required to be
maintained by Registrant pursuant to Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder will be
maintained at the offices of:
(1) Munder Capital Management, 480 Pierce Street or 255 East
Brown Street, Birmingham, Michigan 48009 (records relating to its
function as investment advisor)
(2) First Data Investor Services Group, Inc., 53 State Street,
Exchange Place, Boston, Massachusetts 02109 or 4400 Computer
Drive, Westborough, Massachusetts 01581 (records relating to its
functions as administrator and transfer agent)
(3) Funds Distributor, Inc., 60 State Street, Boston,
Massachusetts 02109 (records relating to its function as
distributor)
(4) Comerica Bank, 1 Detroit Center, 500 Woodward Avenue,
Detroit, Michigan 48226 (records relating to its function as
custodian)
Item 31. Management Services.
--------------------------
Not Applicable
Item 32. Undertakings.
----------------
(a) Not Applicable
(b) Registrant undertakes to call a meeting of
Shareholders for the purpose of voting upon the question of
removal of a Director or Directors when requested to do so by the
holders of at least 10% of the Registrant's outstanding shares of
common stock and in connection with such meeting to comply with
the shareholders' communications provisions of Section 16(c) of
the Investment Company Act of 1940.
(c) Registrant undertakes to furnish to each person to
whom a prospectus is delivered a copy of the Registrant's latest
annual report to shareholders upon request and without charge.
(d) Registrant undertakes to file a Post-Effective
Amendment relating to the Munder Financial Services Fund, using
reasonably current financial statements which need not be
certified, within four to six months from the effective date of
the Registration Statement describing the Fund.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
the Registrant has duly caused this Post-Effective Amendment
No. 25 to the Registration Statement to be signed on its behalf by
the undersigned, thereto duly authorized, in the City of Boston
and the Commonwealth of Massachusetts on the 14th day of May,
1997.
The Munder Funds, Inc.
By: *
Lee P. Munder
*By: _____________________
Teresa M.R. Hamlin
as Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933,
as amended, this Registration Statement has been signed by the
following persons in the capacities and on the date indicated.
Signatures Title Date
* President and Chief May 14, 1997
Lee P. Munder Executive Officer
* Director May 14, 1997
Charles W. Elliott
* Director May 14, 1997
Joseph E. Champagne
* Director May 14, 1997
Arthur DeRoy Rodecker
* Director May 14, 1997
Jack L. Otto
* Director May 14, 1997
Thomas B. Bender
* Director May 14, 1997
Thomas D. Eckert
* Director May 14, 1997
John Rakolta, Jr.
* Director May 14, 1997
David J. Brophy
* Vice President, May 14, 1997
Terry H. Gardner Treasurer and
Chief Financial
Officer
* By: _____________________
Teresa M.R. Hamlin
as Attorney-in-Fact
* The Powers of Attorney are incorporated by reference to
Post-Effective Amendment No. 23 filed with the Securities and
Exchange Commission on February 18, 1997.
EXHIBIT INDEX
Exhibit Description
1(g) Articles Supplementary with respect to the
name changes of The Munder All-Season Conservative Fund, The
Munder All-Season Moderate Fund and The Munder All-Season
Aggressive Fund to The Munder All-Season Maintenance Fund, The
Munder All-Season Development Fund and The Munder All-Season
Accumulation Fund.
10(i) Opinion and Consent of Counsel with
respect to The Munder All-Season Conservative Fund, The Munder All-
Season Moderate Fund and The Munder All-Season Aggressive
Fund.
11(b) Certified Resolution relating to Power of
Attorney.
* To be filed by Amendment.
* To be filed by Amendment.
* To be filed by Amendment.
* To be filed by Amendment.
18
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Ex 1(g)
THE MUNDER FUNDS, INC.
ARTICLES SUPPLEMENTARY
THE MUNDER FUNDS, INC., a Maryland corporation registered as an
open-end investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), having its principal office in
the State of Maryland in Baltimore City, Maryland (hereinafter
called the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: The Board of Directors of the Corporation, by a resolution
contained in a Unanimous Written Consent dated as of March 12,
1997, has changed the names of "The Munder All-Season Conservative
Fund", "The Munder All-Season Moderate Fund" and "The Munder All-
Season Aggressive Fund", previously designated series of the
Corporation, including each class thereof, to "The Munder All-
Season Maintenance Fund", "The Munder All-Season Development
Fund", and "The Munder All-Season Accumulation Fund",
respectively, pursuant to Section 2-605(a)(4) of the Maryland
General Corporate Law.
SECOND: The Corporation is registered as an open-end investment
company under the 1940 Act.
IN WITNESS WHEREOF, the Corporation has caused these Articles
Supplementary to be signed in its name on its behalf by its
authorized officers who acknowledge that these Articles
Supplementary are the act of the Corporation, that to the best of
their knowledge, information and belief, all matters and facts set
forth herein relating to the authorization and approval of these
Articles Supplementary are true in all material respects and that
this statement is made under the penalties of perjury.
Date: March 12, 1997
THE MUNDER FUNDS, INC.
[CORPORATE SEAL]
By: /s/ Terry H. Gardner
Terry H. Gardner
Vice President
Attest:
/s/ Lisa Anne Rosen
Lisa Anne Rosen
Secretary
shared/bankgrp/munder/parta\exh1g.doc
DECHERT PRICE & RHOADS
1500 K Street, N.W.
Suite 500
Washington, D.C. 20005-1208
May 12, 1997
The Munder Funds, Inc.
480 Pierce Street
Birmingham, MI 48009
Dear Sirs:
In connection with the registration under the Securities Act of
1933 of an indefinite number of shares of common stock (the
"'Shares") of The Munder All-Season Conservative Fund, The Munder
All-Season Moderate Fund, and The Munder All-Season
Aggressive Fund (the "Funds"), which are series of The Munder
Funds, Inc. (the "Company"), we have examined such matters as we
have deemed necessary, and we are of the opinion that, as
permitted by its Articles of Incorporation, and assuming that the
Company or its agent receives consideration for the Shares in
accordance with the provisions of its Articles of Incorporation,
the Shares will be legally and validly issued, will be fully paid,
and will be non-assessable by the Company.
We hereby consent to the use of this opinion as an exhibit to
Post-Effective Amendment No. 25 to the Company's Registration
Statement on Form N-1A filed with the Securities and Exchange
Commission (File No. 33-54748), and to the use of our name in the
prospectuses and statements of additional information contained n
the Registration Statement or incorporated therein by reference,
and any amendments thereto.
Very truly yours,
DECHERT PRICE & RHOADS
Dechert Price & Rhoads
ASSISTANT SECRETARY'S CERTIFICATE
I, Julie A. Tedesco, Assistant Secretary of The Munder Funds, Inc.
(the "Company"), hereby certify that the following resolution
authorizing Paul Roye, Julie Tedesco and Teresa Hamlin to sign the
Company's Registration Statements on behalf of Lee Munder,
President of the Company, has been adopted, at a meeting of the
Board of Directors duly called and held on May 6, 1997, at which a
quorum was present and acting throughout:
RESOLVED, that the Board of Directors hereby authorizes Paul Roye,
Julie Tedesco and Teresa M.R. Hamlin to execute and sign on behalf
of Lee Munder, President of the Company, all amendments and
supplements to the Company's Registration Statements on Form N-1A
pursuant to a power of attorney from Lee Munder and hereby
ratifies the execution of such Registration Statements by such
persons.
Dated: May 8, 1997
JULIE A. TEDESCO
Julie A. Tedesco, Assistant Secretary
The Munder Funds, Inc.
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