Filed On 2/3/03 5:28pm ET · SEC Files 2-90309, 811-04000 · Accession Number 743773-3-2
As Of Filer Filing As/For/On Docs:Pgs
2/03/03 Summit Mutual Funds Inc 485BPOS 2/03/03 3:344
Summit Mutual Funds Inc
Document/Exhibit Description Pages Size
1: 485BPOS Post-Effective Amendment No. 38 to the Fund's 341± 1,344K
Registration Statement on Form N-1a
2: EX-23 Independent Auditor's Consent 1 6K
3: EX-99 Distribution and Shareholder Service Plan 2 14K
485BPOS · Post-Effective Amendment No. 38 to the Fund's Registration Statement on Form N-1a
Document Table of Contents
| Page | (sequential) | | | | (alphabetic) | Top |
|---|
| | |
- Alternative Formats (RTF, XML, et al.)
- Additional Information
- Additional Investment Policies - Money Market Fund
- Advisory Fee
- Appendix A: Ratings
- Appendix A: S&P, Frank Russell, NASDAQ, EAFE and Total Social Impact Disclaimers
- Asset-Backed and Mortgage-Backed Securities
- Automobile Receivable Securities
- Balanced Index Fund Profile
- Bond Fund Profile
- Business and other Connections of Investment Adviser
- Capital Stock
- Certain Risk Factors Relating to High Yield, High Risk Bonds
- Code of Ethics
- Collateralized Mortgage Obligations
- Commercial Paper Ratings
- Corporate Bond Ratings
- Credit Card Receivable Securities
- Determination of Net Asset Value
- Distributor
- Dividends and Capital Gains Distributions
- Eafe International Index Fund Profile
- Everest Fund Profile
- Excessive Trading
- Exhibits
- Expenses
- Federal Taxes
- Financial Highlights
- Foreign Currency Transactions
- Foreign Securities
- Fund Management
- Fund Profiles S&P 500 Index Fund Profile
- Fund Transactions and Brokerage
- Futures Contracts
- Futures Contracts and Options on Futures Contracts
- General Information
- High Yield Bond Fund Profile
- High Yield Bonds
- Hybrid Instruments
- Indemnification
- Independent Auditors
- Introduction
- Investment Adviser
- Investment Advisory Agreement and Administrative Services Agreement
- Investment Policies
- Investment Restrictions
- Investments in Foreign Securities
- Investment Strategies
- Investment Subadvisory Agreements
- Lehman Aggregate Bond Index Fund Profile
- Lending Fund Securities
- Lending Portfolio Securities
- License Agreement
- Loan Participations and Assignments
- Location of Accounts and Records
- Management of the Fund
- Management Services
- Money Market Fund
- Money Market Fund Profile
- Money Market Instruments, Other Securities and Investment Techniques
- Nasdaq
- Nasdaq-100 Index Fund Profile
- Options
- Options on Securities Indices
- Other Information
- Other Investment Policies, Strategies and Risks
- Payment of Expenses
- Persons Controlled by or Under Common Control with Registrant
- Portfolio Turnover
- Pricing of Fund Shares
- Primary Risks
- Principal Underwriters
- Purchase and Redemption of Shares
- Purchase of Shares
- Redemption of Shares
- Repurchase Agreements
- Reverse Repurchase Agreements
- Russell 2000 Small Cap Index Fund Profile
- Securities Activities of Adviser
- Service Agreement
- Shareholder Information
- Short Sales
- Short-Term Government Fund Profile
- S&P, Frank Russell, Nasdaq, Eafe and Total Social Impact Disclaimers
- S&P Midcap 400 Index Fund Profile
- State and Local Taxes
- Table of Contents
- Taxes
- Total Social Impact Fund Profile
- Types of Credit Support
- Undertakings
- Voting Rights
- Warrants
|
| 1 | 1st Page
|
| 5 | Table of Contents
|
| " | Introduction
|
| 6 | Fund Profiles S&P 500 Index Fund Profile
|
| " | Investment Strategies
|
| " | Primary Risks
|
| " | S&P Midcap 400 Index Fund Profile
|
| " | Russell 2000 Small Cap Index Fund Profile
|
| " | Nasdaq-100 Index Fund Profile
|
| " | Eafe International Index Fund Profile
|
| " | Total Social Impact Fund Profile
|
| " | Balanced Index Fund Profile
|
| " | Lehman Aggregate Bond Index Fund Profile
|
| " | Everest Fund Profile
|
| " | Bond Fund Profile
|
| " | Short-Term Government Fund Profile
|
| " | Money Market Fund Profile
|
| " | High Yield Bond Fund Profile
|
| " | Other Investment Policies, Strategies and Risks
|
| " | Foreign Securities
|
| " | Foreign Currency Transactions
|
| " | High Yield Bonds
|
| " | Repurchase Agreements
|
| " | Reverse Repurchase Agreements
|
| " | Futures Contracts and Options on Futures Contracts
|
| " | Options on Securities Indices
|
| " | Collateralized Mortgage Obligations
|
| " | Asset-Backed and Mortgage-Backed Securities
|
| " | Lending Fund Securities
|
| " | Other Information
|
| " | Fund Management
|
| " | Investment Adviser
|
| " | Advisory Fee
|
| " | Expenses
|
| " | Capital Stock
|
| " | Shareholder Information
|
| " | Pricing of Fund Shares
|
| " | Purchase of Shares
|
| " | Redemption of Shares
|
| " | Excessive Trading
|
| " | Dividends and Capital Gains Distributions
|
| " | Federal Taxes
|
| " | State and Local Taxes
|
| " | S&P, Frank Russell, Nasdaq, Eafe and Total Social Impact Disclaimers
|
| 7 | Financial Highlights
|
| 19 | Money Market Fund
|
| 20 | Appendix A: Ratings
|
| " | Corporate Bond Ratings
|
| " | Commercial Paper Ratings
|
| 24 | Investment Policies
|
| " | Money Market Instruments, Other Securities and Investment Techniques
|
| " | Types of Credit Support
|
| " | Automobile Receivable Securities
|
| " | Credit Card Receivable Securities
|
| " | Certain Risk Factors Relating to High Yield, High Risk Bonds
|
| " | Investments in Foreign Securities
|
| " | Futures Contracts
|
| " | Options
|
| " | Warrants
|
| " | Loan Participations and Assignments
|
| " | Short Sales
|
| " | Lending Portfolio Securities
|
| " | Hybrid Instruments
|
| " | Additional Investment Policies - Money Market Fund
|
| " | Investment Restrictions
|
| " | Portfolio Turnover
|
| " | Management of the Fund
|
| " | Payment of Expenses
|
| " | Investment Advisory Agreement and Administrative Services Agreement
|
| " | Investment Subadvisory Agreements
|
| " | Service Agreement
|
| " | License Agreement
|
| " | Securities Activities of Adviser
|
| " | Code of Ethics
|
| " | Determination of Net Asset Value
|
| " | Purchase and Redemption of Shares
|
| " | Taxes
|
| " | Fund Transactions and Brokerage
|
| " | Distributor
|
| " | General Information
|
| " | Voting Rights
|
| " | Additional Information
|
| " | Independent Auditors
|
| " | Appendix A: S&P, Frank Russell, NASDAQ, EAFE and Total Social Impact Disclaimers
|
| " | Nasdaq
|
| 55 | Item 23. Exhibits
|
| " | Item 24. Persons Controlled by or Under Common Control with Registrant
|
| " | Item 25. Indemnification
|
| " | Item 26. Business and other Connections of Investment Adviser
|
| " | Item 27. Principal Underwriters
|
| " | Item 28. Location of Accounts and Records
|
| " | Item 29. Management Services
|
| " | Item 30. Undertakings
|
Registration No. 2-90309
--------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ____ ___
Post-Effective Amendment No. 38 X
---- ---
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 39 X
---- ---
SUMMIT MUTUAL FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
1876 Waycross Road, Cincinnati, Ohio 45240
(Address of Principal Executive Offices)
(513) 595-2600
(Registrant's Telephone Number)
John F. Labmeier, Esq.
The Union Central Life Insurance Company
P.O. Box 40888
Cincinnati, Ohio 45240
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box)
immediately upon filing pursuant to paragraph (b) of Rule 485
X on February 1, 2003 pursuant to paragraph (b) of Rule 485
---
60 days after filing pursuant to paragraph (a)(1) of Rule 485
on (date) pursuant to paragraph (a)(1) of Rule 485
75 days after filing pursuant to paragraph (a)(2) of Rule 485
on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
This amendment No. 38 under the Securities Act of 1933, and
Amendment No. 39 under the Investment Company Act of 1940, to
the Registration Statement on Form N-1A of Summit Mutual Funds,
Inc. is filed solely to update the information in the Summit
Apex Funds' prospectus and statement of additional information
and does not otherwise delete, amend, or supersede any
prospectus, statement of additional information, exhibit,
undertaking, or other information contained in the Registration
Statement.
PART A
INFORMATION REQUIRED IN A PROSPECTUS
Summit Prospectus
Mutual
Funds
Summit Apex Series
S&P 500 Index Fund
S&P MidCap 400 Index Fund
Russell 2000 Small Cap Index Fund
Nasdaq-100 Index Fund
EAFE International Index Fund
Total Social Impact Fund
Balanced Index Fund
Lehman Aggregate Bond Index Fund
Everest Fund
Bond Fund
Short-term Government Fund
Money Market Fund
High Yield Bond Fund
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION ("SEC") NOR ANY STATE.
NEITHER THE SEC NOR ANY STATE HAS DETERMINED WHETHER THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
February 1, 2003 SUMMIT
MUTUAL
FUNDS
February 1, 2003
SUMMIT MUTUAL FUNDS, INC.
TABLE OF CONTENTS
INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . 2
FUND PROFILES
S&P 500 INDEX FUND PROFILE. . . . . . . . . . . . . . . . 3
S&P MIDCAP 400 INDEX FUND PROFILE . . . . . . . . . . . . 6
RUSSELL 2000 SMALL CAP INDEX FUND PROFILE . . . . . . . . 8
NASDAQ-100 INDEX FUND PROFILE . . . . . . . . . . . . . . 10
EAFE INTERNATIONAL INDEX FUND PROFILE . . . . . . . . . . 13
TOTAL SOCIAL IMPACT FUND PROFILE. . . . . . . . . . . . . 16
BALANCED INDEX FUND PROFILE . . . . . . . . . . . . . . . 19
LEHMAN AGGREGATE BOND INDEX FUND PROFILE. . . . . . . . . 23
EVEREST FUND PROFILE. . . . . . . . . . . . . . . . . . . 26
BOND FUND PROFILE . . . . . . . . . . . . . . . . . . . . 28
SHORT-TERM GOVERNMENT FUND PROFILE. . . . . . . . . . . . 31
MONEY MARKET FUND PROFILE . . . . . . . . . . . . . . . . 32
HIGH YIELD BOND FUND PROFILE. . . . . . . . . . . . . . . 34
FEES AND EXPENSES OF THE FUND . . . . . . . . . . . . . . . 37
OTHER INVESTMENT POLICIES, STRATEGIES AND RISKS . . . . . . 38
FOREIGN SECURITIES. . . . . . . . . . . . . . . . . . . . 38
FOREIGN CURRENCY TRANSACTIONS . . . . . . . . . . . . . . 39
HIGH YIELD BONDS. . . . . . . . . . . . . . . . . . . . . 40
REPURCHASE AGREEMENTS . . . . . . . . . . . . . . . . . . 40
REVERSE REPURCHASE AGREEMENTS . . . . . . . . . . . . . . 40
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. . . . 40
OPTIONS ON SECURITIES INDICES . . . . . . . . . . . . . . 42
COLLATERALIZED MORTGAGE OBLIGATIONS . . . . . . . . . . . 42
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES . . . . . . . 42
LENDING FUND SECURITIES . . . . . . . . . . . . . . . . . 43
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . 44
FUND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . 44
INVESTMENT ADVISER. . . . . . . . . . . . . . . . . . . . 44
ADVISORY FEE. . . . . . . . . . . . . . . . . . . . . . . 45
SUBADVISORS . . . . . . . . . . . . . . . . . . . . . . . 45
EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . 46
CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . 46
SHAREHOLDER INFORMATION . . . . . . . . . . . . . . . . . . 46
DISTRIBUTION AND SHAREHOLDER SERVICE (12b-1) PLAN . . . . 46
PRICING OF FUND SHARES. . . . . . . . . . . . . . . . . . 47
PURCHASE OF SHARES. . . . . . . . . . . . . . . . . . . . 47
REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . 50
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS . . . . . . . . . 53
FEDERAL TAXES . . . . . . . . . . . . . . . . . . . . . . . 54
STATE AND LOCAL TAXES . . . . . . . . . . . . . . . . . . . 55
S&P, FRANK RUSSELL, NASDAQ, EAFE AND
TOTAL SOCIAL IMPACT DISCLAIMERS. . . . . . . . . . . . . . 55
FINANCIAL HIGHLIGHTS. . . . . . . . . . . . . . . . . . . . 58
APPENDIX A: RATINGS. . . . . . . . . . . . . . . . . . . . 71
CORPORATE BOND RATINGS. . . . . . . . . . . . . . . . . . 72
COMMERCIAL PAPER RATINGS. . . . . . . . . . . . . . . . . 73
INTRODUCTION
This prospectus explains the objectives, risks and strategies of
thirteen of the twenty-two Funds comprising Summit Mutual Funds,
Inc. ("Summit Mutual Funds"). Each Fund Profile below
summarizes important facts about the Fund, including its
investment objective, strategy, risks and past investment
performance. More detailed information about some of the Funds'
investment policies and strategies is provided after the
Profiles, along with information about Fund expenses for each
Fund.
The thirteen Funds included in this Prospectus are part of the
Summit Mutual Funds' SUMMIT APEX SERIES, whose shares are
offered to institutional and retail investors. These Funds are
also offered to The Union Central Life Insurance Company ("Union
Central") and its exempt separate accounts.
This prospectus offers two classes of shares:
1) Each Fund offers shares without a sales charge, and
2) Three Funds (Everest Fund, Nasdaq-100 Index Fund and
Total Social Impact Fund) also offer shares (Class F
shares) that are subject to a Distribution and Share-
holder Service (12b-1) Plan.
It is anticipated that Union Central will have voting control of
Summit Mutual Funds. With voting control, Union Central could
make fundamental and substantial changes (such as electing a new
Board of Directors, changing the investment adviser or advisory
fee, changing a Fund's fundamental investment objectives and
policies, etc.) regardless of the views of other shareholders.
INDEX FUNDS
The S&P 500 Index Fund seeks investment results that correspond
to the total return performance of U.S. common stocks, as
represented by the S&P 500 Index.
The S&P MidCap 400 Index Fund seeks investment results that
correspond to the total return performance of U.S. common
stocks, as represented by the S&P MidCap 400 Index.
The Russell 2000 Small Cap Index Fund seeks investment results
that correspond to the investment performance of U.S. common
stocks, as represented by the Russell 2000 Index.
The Nasdaq-100 Index Fund seeks investment results that
correspond to the investment performance of U.S. common stocks,
as represented by the Nasdaq-100 Index.
The EAFE International Index Fund seeks investment results that
correspond to the total return performance of common stocks as
represented by the Morgan Stanley Capital International ("MSCI")
EAFE Index ("Index"). The EAFE Index emphasizes the stocks of
companies in major markets in Europe, Australasia, and the Far
East.
The Total Social Impact Fund seeks investment results that
closely correspond to the total return performance of U.S.
common stocks, as represented by the S&P 500 Index. To pursue
this objective, the Fund will invest in ALL stocks that are
included in the S&P 500 Index. The Fund also seeks to promote
better business practices by investing more in companies in the
Index that conduct their business commendably with respect to
their stakeholders.
The Balanced Index Fund seeks investment results, with respect
to 60% of its assets, that correspond to the total return
performance of U.S. common stocks, as represented by the S&P 500
Index and, with respect to 40% of its assets, that correspond to
the total return performance of investment grade bonds, as
represented by the Lehman Brothers Aggregate Bond Index.
The Lehman Aggregate Bond Index Fund seeks investment results
that correspond to the total return performance of the bond
market, as represented by the Lehman Brothers Aggregate Bond
Index ("Lehman Brothers Index").
MANAGED FUNDS
The Everest Fund seeks primarily long-term appreciation of
capital, without incurring unduly high risk, by investing
primarily in common stocks and other equity securities. Current
income is a secondary objective.
The Bond Fund seeks as high a level of current income as is
consistent with reasonable investment risk, by investing
primarily in long-term, fixed-income, investment-grade corporate
bonds.
The Short-term Government Fund seeks to provide a high level of
current income and preservation of capital by investing 100% of
its total assets in bonds issued by the U.S. government and its
agencies.
The Money Market Fund seeks to maintain stability of capital
and, consistent therewith, to maintain the liquidity of capital
and to provide current income.
The High Yield Bond Fund seeks high current income and capital
appreciation, secondarily.
FUND PROFILES
S&P 500 INDEX FUND PROFILE
Investment Objective
The S&P 500 Index Fund seeks investment results that correspond
to the total return performance of U.S. common stocks, as
represented by the S&P 500 Index.
Investment Strategies
The S&P 500 Index Fund seeks to substantially replicate the
total return of the securities comprising the S&P 500 Index,
taking into consideration redemptions, sales of additional
shares, and other adjustments described below. Precise
replication of the capitalization weighting of the securities in
the S&P 500 Index is not feasible. The Index Fund will attempt
to achieve, in both rising and falling markets, a correlation of
at least 95% between the total return of its net assets before
expenses and the total return of the S&P 500 INDEX. A
correlation of 100% would represent perfect correlation between
the Fund and index performance. The correlation of the Fund's
performance to that of the S&P 500 INDEX should increase as the
Fund grows. There can be no assurance that the Fund will
achieve a 95% correlation.
The S&P 500 Index Fund may invest up to 5% of its assets in
Standard & Poor's Depositary Receipts(R) ("SPDRs(R)"). SPDRs(R)
are units of beneficial interest in a unit investment trust,
representing proportionate undivided interests in a portfolio of
securities in substantially the same weighting as the common
stocks that comprise the S&P 500 Index .
The Fund may invest up to 20% of its assets in S&P 500 Index
futures contracts and options in order to invest uncommitted
cash balances, to maintain liquidity to meet shareholder
redemptions, or minimize trading costs. The Fund may also sell
covered calls on futures contracts or individual securities held
in the Fund.
Under normal circumstances, the Fund will invest at least 80% of
its assets in investments with economic characteristics similar
to the stocks represented in the S&P 500 Index. Although the
Adviser will attempt to invest as much of the S&P 500 Index
Fund's assets as is practical in stocks included among the S&P
500 Index and futures contracts and related options under normal
market conditions, a portion of the Fund may be invested in
money market instruments pending investment or to meet
redemption requests or other needs for liquid assets. In
addition, for temporary defensive purposes, the Fund may invest
in government securities, money market instruments, or other
fixed-income securities, or retain cash or cash equivalents.
Primary Risks
An investment in the Fund entails investment risk, including
possible loss of the principal amount invested. The Fund's
primary risks include:
o Market risk: The S&P 500 Index Fund's total return, like
stock prices generally, will fluctuate within a wide range
in response to stock market trends, so a share of the Fund
could drop in value over short or even long periods. Stock
markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
o Investment style risk: Stocks of large companies, such
as those listed among the S&P 500 Index occasionally go
through cycles of doing worse (or better) than the stock
markets in general or other types of investments.
o Correlation risk: Because the S&P Index Fund has expenses,
and the S&P 500 Index does not, the Fund may be unable to
replicate precisely the performance of the Index. While
the Fund remains small, it may have a greater risk that
its performance will not match that of the Index.
o Derivatives Risk: The Fund may invest in stock futures
and options, and stock index futures and options. The Fund
will not use these investments for speculative purposes or
as leveraged investments that might exacerbate gains or
losses. The Fund will invest in derivatives solely to meet
shareholder redemptions or to invest shareholder purchases
while maintaining exposure to the market. The principal
risks to derivatives used in this context is that it might
not be highly correlated with the security for which it is
being used as a substitute.
Bar Chart and Performance Table
The bar chart and table below provide some indication of the
risk of investing in the S&P 500 Index Fund. The bar chart shows
how the Fund's annual performance has varied from year to year
since its inception. The table shows how the Fund's average
annual returns for one year and since inception compare with
those of the S&P 500. The Fund's past performance (before and
after taxes) is not necessarily indicative of future
performance.
[GRAPHIC OMITTED]
S&P 500 Index Fund Total Returns
2001 2002
7.00%-
0.00%- ------/----/----/----/
/ / / /
-7.00%- / / / /
/----/ / /
-14.00%- -12.32% / /
/ /
-21.00%- / /
/----/
-28.00%- -22.49%
*Total return for the most recent fiscal year quarter ended
December 31, 2002 was 8.28%.
During the period shown in the bar chart, the highest return for
a calendar quarter was 10.5% (quarter ending 12/31/01) and the
lowest return for a quarter was -17.3% (quarter ending
09/30/02).
Average Annual Total Returns for Periods Ended December 31, 2002
[Download Table]
Life of the Fund
1 Year (since April 3, 2000
------ --------------------
Return Before Taxes -22.5% -16.8%
Return After Taxes on Distributions(1)(2) -22.9% -17.1%
Return After Taxes on Distributions
and Sale of Fund Shares(1)(2) -13.8% -13.1%
S&P 500 Index(3) -22.1% -16.4%
__________
(1) After-tax returns are calculated using the historical
highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes.
(2) Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns
shown are not relevant to investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) plans or
individual retirement accounts.
(3) Reflects no deduction for fees, expenses or taxes.
S&P MIDCAP 400 INDEX FUND PROFILE
Investment Objective
The S&P MidCap 400 Index Fund seeks investment results that
correspond to the total return performance of U.S. common
stocks, as represented by the S&P MidCap 400 Index.
Investment Strategies
The S&P MidCap 400 Index Fund seeks to substantially replicate
the total return of the securities comprising the S&P MidCap 400
Index, taking into consideration redemptions, sales of
additional shares, and other adjustments described below.
Precise replication of the capitalization weighting of the
securities in the S&P MidCap 400 Index is not feasible. The S&P
MidCap 400 Index Fund will attempt to achieve, in both rising
and falling markets, a correlation of at least 95% between the
total return of its net assets before expenses and the total
return of the S&P MidCap 400 Index. A correlation of 100% would
represent perfect correlation between the Fund and index
performance. The correlation of the Fund's performance to that
of the S&P MidCap 400 Index should increase as the Fund grows.
There can be no assurance that the Fund will achieve a 95%
correlation.
The S&P MidCap 400 Index Fund may invest up to 5% of its assets
in Standard & Poor's MidCap Depositary Receipts(R) ("MidCap
SPDRs(R)"). MidCap SPDRs(R) are units of beneficial interest in
a unit investment trust, representing proportionate undivided
interests in a portfolio of securities in substantially the same
weighting as the common stocks that comprise the S&P MidCap 400
Index.
The Fund may invest up to 20% of its assets in S&P MidCap 400
Index futures contracts and options in order to invest
uncommitted cash balances, to maintain liquidity to meet
shareholder redemptions, or minimize trading costs. The Fund
may also sell covered calls on futures contracts or individual
securities held in the Fund. As a temporary investment
strategy, until the Fund reaches $50 million in net assets, the
Fund may invest up to 100% of its assets in such futures and/or
options contracts.
Under normal circumstances, the fund will invest at least 80% of
its assets in investments with economic characteristics similar
to the stocks represented in the S&P MidCap 400 Index. Although
the Adviser will attempt to invest as much of the S&P MidCap 400
Index Fund's assets as is practical in stocks included among the
S&P MidCap 400 Index and futures contracts and options relating
thereto under normal market conditions, a portion of the Fund
may be invested in money market instruments pending investment
or to meet redemption requests or other needs for liquid assets.
In addition, for temporary defensive purposes, the Fund may
invest in government securities, money market instruments, or
other fixed-income securities, or retain cash or cash
equivalents.
Primary Risks
An investment in the Fund entails investment risk, including
possible loss of the principal amount invested. The Fund's
primary risks include:
o Market risk: The S&P MidCap 400 Index Fund's total return,
like stock prices generally, will fluctuate within a wide
range in response to stock market trends, so a share of the
Fund could drop in value over short or even long periods.
Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
o Investment style risk: Stocks of medium sized (mid-cap)
companies, such as those listed among the S&P MidCap 400
Index occasionally go through cycles of doing worse (or
better) than the stock markets in general or other types
of investments.
o Correlation risk: Because the S&P MidCap 400 Index Fund
has expenses, and the S&P MidCap 400 Index does not, the
Fund may be unable to replicate precisely the performance
of the Index. While the Fund remains small, it may have a
greater risk that its performance will not match that of
the Index.
o Derivatives Risk: The Fund may invest in stock futures
and options, and stock index futures and options. The Fund
will not use these investments for speculative purposes or
as leveraged investments that might exacerbate gains or
losses. The Fund will invest in derivatives solely to meet
shareholder redemptions or to invest shareholder purchases
while maintaining exposure to the market. The principal
risks to derivatives used in this context is that it might
not be highly correlated with the security for which it is
being used as a substitute.
Bar Chart and Performance Table
The bar chart and table below provide some indication of the
risk of investing in the S&P MidCap 400 Index Fund. The bar
chart shows how the Fund's annual performance has varied from
year to year since its inception. The table shows how the
Fund's average annual returns for one year and since inception
compare with those of the S&P MidCap 400 Index. The Fund's past
performance (before and after taxes) is not necessarily
indicative of future performance.
[GRAPHIC OMITTED]
S&P MidCap 400 Index Fund Total Returns
8.00%-
4.00%- 2001 2002
0.00%- ------/-----/----------
/-----/ / /
-4.00%- / /
-1.70% / /
-8.00%- / /
/ /
-12.00%- / /
/----/
-16.00%- -15.13%
*Total return for the most recent fiscal year quarter ended
December 31, 2002 was 5.69%.
During the period shown in the bar chart, the highest return for
a calendar quarter was 17.8% (quarter ending 12/31/01) and the
lowest return for a quarter was -16.7% (quarter ending
09/30/02).
Average Annual Total Returns for Periods Ended December 31, 2002
[Download Table]
Life of the Fund
1 Year (since December 28, 1999)
------ -------------------------
Return Before Taxes -15.1% -5.3%
Return After Taxes on Distributions(1)(2) -15.4% -5.7%
Return After Taxes on Distributions
and Sale of Fund Shares(1)(2) -9.3% -4.4%
S&P MidCap 400 Index(3) -14.5% -4.3%
__________
(1) After-tax returns are calculated using the historical
highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes.
(2) Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns
shown are not relevant to investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) plans or
individual retirement accounts.
(3) Reflects no deduction for fees, expenses or taxes.
RUSSELL 2000 SMALL CAP INDEX FUND PROFILE
Investment Objective
The Russell 2000 Small Cap Index Fund seeks investment results
that correspond to the investment performance of U.S. commons
stocks, as represented by the Russell 2000 Index.
Investment Strategies
The Russell 2000 Small Cap Index Fund seeks to substantially
replicate the total return of the securities comprising the
Russell 2000 Index, taking into consideration redemptions, sales
of additional shares, and other adjustments described below.
Precise replication of the capitalization weighting of the
securities in the Russell 2000 Index is not feasible. The
Russell 2000 Small Cap Index Fund will attempt to achieve, in
both rising and falling markets, a correlation of at least 95%
between the total return of its net assets before expenses and
the total return of the Russell 2000 Index. A correlation of
100% would represent perfect correlation between the Fund and
index performance. The correlation of the Fund's performance to
that of the Russell 2000 Index should increase as the Fund
grows. There can be no assurance that the Fund will achieve a
95% correlation.
Under normal circumstances, the fund will invest at least 80% of
its assets in investments with economic characteristics similar
to the stocks represented in the Russell 2000 Index. Although
the Adviser will attempt to invest as much of the Russell 2000
Small Cap Index Fund's assets as is practical in stocks included
among the Russell 2000 Index and futures contracts and options
relating thereto under normal market conditions, a portion of
the Fund may be invested in money market instruments pending
investment or to meet redemption requests or other needs for
liquid assets. The Fund may also temporarily invest in S&P 500
Index futures and/or S&P MidCap 400 futures if, in the opinion
of the Adviser, it is not practical to invest in Russell 2000
Index futures at a particular time due to liquidity or price
considerations. In addition, for temporary defensive purposes,
the Fund may invest in government securities, money market
instruments, or other fixed-income securities, or retain cash or
cash equivalents.
The Fund may invest up to 20% of its assets in Russell 2000
Index futures contracts or options (or S&P MidCap 400 or S&P 500
Index futures contracts and options if, in the opinion of the
Adviser, it is not practical to invest in Russell 2000 Index
futures at a particular time due to liquidity or price
considerations) in order to invest uncommitted cash balances, to
maintain liquidity to meet shareholder redemptions, or minimize
trading costs. The Fund may also sell covered calls on futures
contracts or individual securities held in the Fund. As a
temporary investment strategy, until the Fund reaches $50
million in net assets, the Fund may invest up to 100% of its
assets in such futures and/or options contracts.
Primary Risks
An investment in the Fund entails investment risk, including
possible loss of the principal amount invested. The Fund's
primary risks include:
o Market risk: The Russell 2000 Small Cap Index Fund's total
return, like stock prices generally, will fluctuate within
a wide range in response to stock market trends, so a share
of the Fund could drop in value over short or even long
periods. Stock markets tend to move in cycles, with periods
of rising prices and periods of falling prices.
o Investment style risk: Stocks of small sized (small-cap)
companies, such as those listed among the Russell 2000
Index occasionally go through cycles of doing worse (or
better) than the stock markets in general or other types
of investments.
o Correlation risk: Because the Russell 2000 Small Cap Index
Fund has expenses, and the Russell 2000 Index does not, the
Fund may be unable to replicate precisely the performance of
the Index. While the Fund remains small, it may have a
greater risk that its performance will not match that of the
Index.
o Derivatives Risk: The Fund may invest in stock futures
and options, and stock index futures and options. The Fund
will not use these investments for speculative purposes or
as leveraged investments that might exacerbate gains or
losses. The Fund will invest in derivatives solely to meet
shareholder redemptions or to invest shareholder purchases
while maintaining exposure to the market. The principal
risks to derivatives used in this context is that it might
not be highly correlated with the security for which it is
being used as a substitute.
Bar Chart and Performance Table
The bar chart and table below provide some indication of the
risk of investing in the Russell 2000 Small Cap Index Fund. The
bar chart shows how the Fund's annual performance has varied
from year to year since its inception. The table shows how the
Fund's average annual returns for one year and since inception
compare with those of the Russell 2000 Index. The Fund's past
performance (before and after taxes) is not necessarily
indicative of future performance.
[GRAPHIC OMITTED]
Russell 2000 Small Cap Index Fund Total Returns
12.00%-
6.00%- 1.79%
/----/
0.00%- ------/----/-----------------/----/
/----/ / /
-6.00%- -2.63% / /
/ /
-12.00%- / /
/ /
-18.00%- / /
/----/
-24.00%- -20.88%
2000 2001 2002
*Total return for the most recent fiscal year quarter ended
December 31, 2002 was 5.97%.
During the period shown in the bar chart, the highest return for
a calendar quarter was 20.7% (quarter ending 12/31/01) and the
lowest return for a quarter was -21.6% (quarter ending
09/30/02).
Average Annual Total Return for Periods Ended December 31, 2002
[Download Table]
Life of the Fund
1 Year (since December 29, 1999)
------ -------------------------
Return Before Taxes -20.9% -6.8%
Return After Taxes on Distributions(1)(2) -21.1% -7.1%
Return After Taxes on Distributions
and Sale of Fund Shares(1)(2) -12.8% -5.5%
Russell 2000 Index(3) -20.5% -6.5%
__________
(1) After-tax returns are calculated using the historical
highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes.
(2) Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns
shown are not relevant to investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) plans or
individual retirement accounts.
(3) Reflects no deduction for fees, expenses or taxes.
NASDAQ-100 INDEX FUND PROFILE
Investment Objective
The Nasdaq-100 Index Fund seeks investment results that
correspond to the investment performance of U.S. common stocks,
as represented by the Nasdaq-100 Index.
Investment Strategies
The Nasdaq-100 Index Fund seeks to substantially replicate the
total return of the securities comprising the Nasdaq-100 Index,
taking into consideration redemptions, sales of additional
shares, and other adjustments described below. Precise
replication of the capitalization weighting of the securities in
the Nasdaq-100 Index is not feasible. The Nasdaq-100 Index Fund
will attempt to achieve, in both rising and falling markets, a
correlation of at least 95% between the total return of its net
assets before expenses and the total return of the Nasdaq-100
Index. A correlation of 100% would represent perfect
correlation between the Fund and index performance. The
correlation of the Fund's performance to that of the Nasdaq-100
Index should increase as the Fund grows. There can be no
assurance that the Fund will achieve a 95% correlation.
The Nasdaq-100 Index Fund may invest up to 5% of its assets in
Nasdaq-100 Shares(R). Nasdaq-100 Shares(R) are units of
beneficial interest in a unit investment trust, representing
proportionate undivided interests in a portfolio of securities
in substantially the same weighting as the common stocks that
comprise the Nasdaq-100 Index.
The Fund may invest up to 20% of its assets in Nasdaq-100 Index
futures contracts and options in order to invest uncommitted
cash balances, to maintain liquidity to meet shareholder
redemptions, or minimize trading costs. The Fund may also sell
covered calls on futures contracts or individual securities held
in the Fund. As a temporary investment strategy, until the Fund
reaches $50 million in net assets, the Fund may invest up to
100% of its assets in such futures and/or options contracts.
Under normal circumstances, the fund will invest at least 80% of
its assets in investments with economic characteristics similar
to the stocks represented in the Nasdaq-100 Index. Although the
Adviser will attempt to invest as much of the Nasdaq-100 Index
Fund's assets as is practical in stocks included among the
Nasdaq-100 Index and futures contracts and options relating
thereto under normal market conditions, a portion of the Fund
may be invested in money market instruments pending investment
or to meet redemption requests or other needs for liquid assets.
In addition, for temporary defensive purposes, the Fund may
invest in government securities, money market instruments, or
other fixed-income securities, or retain cash or cash
equivalents.
Primary Risks
An investment in the Fund entails investment risk, including
possible loss of the principal amount invested. The Fund's
primary risks include:
o Market risk: The Nasdaq-100 Index Fund's total return,
like stock prices generally, will fluctuate within a wide
range in response to stock market trends, so a share of
the Fund could drop in value over short or even long
periods. Stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices.
o Investment style risk: Stocks of companies or industries
that are heavily weighted in the Nasdaq-100 Index, such
as technology, telecommunications, internet and biotechnology
companies, occasionally go through cycles of doing worse
(or better) than the stock markets in general, as measured
by other more broad-based stock indexes, or other types of
investments.
o Concentration risk: The Nasdaq-100 Index Fund is subject
to the risk of an investment portfolio that may be highly
concentrated in a particular industry or related industries
(e.g., Technology) and, due to concentration in sectors
characterized by relatively higher volatility in price
performance, may be more volatile when compared to other
broad-based stock indexes. The Nasdaq-100 Index Fund is
also subject to the risks specific to the performance of
a few individual component securities that currently
represent a highly concentrated weighting in the Index
(e.g. Microsoft Corporation, Intel Corporation, Cisco
Systems Inc., etc.).
o Correlation risk: Because the Nasdaq-100 Index Fund has
expenses, and the Nasdaq-100 Index does not, the Fund may
be unable to replicate precisely the performance of the
Index. While the Fund remains small, it may have a greater
risk that its performance will not match that of the Index.
o Nondiversification risk: Under securities laws, the Fund is
considered a "nondiversified investment company." The Fund
is, however, subject to diversification limits under federal
tax law that permit it to invest more than 5%, but not more
than 25%, of its assets in a single issuer with respect to up
to 50% of its total assets as of the end of each of the
Fund's tax quarters. Consequently, the Fund could become
somewhat riskier because it would have the ability to hold
a larger position in a fewer number of securities than if
it were a diversified investment company. At any point in
time, if following the investment strategy outlined above
would put the Fund in jeopardy of failing the tax rules on
diversification, the Fund intends to immediately alter its
investment strategy to comply with the tax rules. Such
alteration could include reducing investment exposure, pro-
rata, to those investments causing the Fund to be in
jeopardy of violating the tax rules.
o Derivatives Risk: The Fund may invest in stock futures
and options, and stock index futures and options. The Fund
will not use these investments for speculative purposes or
as leveraged investments that might exacerbate gains or
losses. The Fund will invest in derivatives solely to meet
shareholder redemptions or to invest shareholder purchases
while maintaining exposure to the market. The principal
risks to derivatives used in this context is that it might
not be highly correlated with the security for which it is
being used as a substitute.
Bar Chart and Performance Table
The bar chart and table below provide some indication of the
risk of investing in the Nasdaq-100 Index Fund. The bar chart
shows how the Fund's annual performance has varied from year to
year since its inception. The table shows how the Fund's average
annual returns for one year and since inception compare with
those of the Nasdaq-100 Index. The Fund's past performance
(before and after taxes) is not necessarily indicative of future
performance.
[GRAPHIC OMITTED]
Nasdaq-100 Index Fund Total Returns
2000 2001 2002
10.00%-
0.00%- ------/-----/-----/-----/-----/-----/
/ / / / / /
-10.00%- / / / / / /
/ / / / / /
-20.00%- / / / / / /
/ / / / / /
-30.00%- / / / / / /
/ / /-----/ / /
/-----/ /-----/
-40.00%-
-36.84% -34.06% -38.08%
*Total return for the most recent fiscal year quarter ended
December 31, 2002 was 17.98%.
During the period shown in the bar chart, the highest return for
a calendar quarter was 34.4% (quarter ending 12/31/01) and the
lowest return for a quarter was -36.4% (quarter ending
09/30/01).
Average Annual Total Returns for Periods Ended December 31, 2002
[Download Table]
Life of the Fund
1 Year (since December 29, 1999)
------ ------------------------
Return Before Taxes -38.1% -35.6%
Return After Taxes on Distributions(1)(2) -38.1% -35.7%
Return After Taxes on Distributions
and Sale of Fund Shares(1)(2) -23.4% -25.5%
Nasdaq 100 Index(3) -37.5% -34.9%
__________
(1) After-tax returns are calculated using the historical
highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes.
(2) Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns
shown are not relevant to investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) plans or
individual retirement accounts.
(3) Reflects no deduction for fees, expenses or taxes.
Since shares of the Nasdaq-100 Index Fund Class F were first
available on July 1, 2002, comparable results for this class of
shares are shown.
EAFE INTERNATIONAL INDEX FUND PROFILE
Investment Objective
The EAFE International Index Fund seeks investment results that
correspond to the total return performance of common stocks as
represented by the Morgan Stanley Capital International ("MSCI")
EAFE Index ("Index"). The EAFE Index emphasizes the stocks of
companies in major markets in Europe, Australasia, and the Far
East.
Investment Strategies
The Fund will invest primarily in common stocks of the companies
that compose the EAFE Index. The EAFE Index is capitalization-
weighted, meaning that a company whose securities have a high
market capitalization will contribute more to the Index's value
than a company whose securities have a low market
capitalization.
The Fund will typically not hold all of the companies in the
EAFE Index. The Fund will typically choose to hold the stocks
that make up the largest portion of the Index's value in
approximately the same proportion as the Index. When choosing
the smaller stocks, the Fund will attempt to select a sampling
of stocks that will match the industry and risk characteristics
of all of the smaller companies in the EAFE Index without buying
all of those stocks. This attempts to maximize liquidity while
minimizing costs.
At such time as the Adviser believes the Fund has achieved
sufficient size, the Adviser may attempt to fully replicate the
Index. Full replication would be achieved when the Fund holds
all of the securities in the Index in the exact weightings as
the Index. Under normal circumstances, the fund will invest at
least 80% of its assets in investments with economic
characteristics similar to the stocks represented in the EAFE
Index. Although the Adviser will attempt to invest as much of
the Fund's assets as is practical in stocks included among the
EAFE Index and futures contracts and options relating thereto
under normal market conditions, a portion of the Fund may be
invested in money market instruments pending investment or to
meet redemption requests or other needs for liquid assets. In
addition, for temporary defensive purposes, the Fund may invest
in government securities, money market instruments, or other
fixed-income securities, or retain cash or cash equivalents.
The Fund may invest up to 20% of its assets in futures contracts
and options that provide exposure to the stocks in the Index.
The Fund may also sell covered calls on futures contracts or
individual securities held in the Fund. As a temporary
investment strategy, until the Fund reaches $50 million in net
assets, the Fund may invest up to 100% of its assets in such
futures and/or options contracts.
The Adviser may choose to invest in a foreign security
indirectly by purchasing American Depository Receipts ("ADRs").
ADRs are U.S. dollar-denominated receipts representing shares of
foreign corporations. ADRs are issued by U.S. banks or trust
companies and entitle the holder to all dividends and capital
gains on the underlying shares. ADRs offer the exposure to the
foreign security while reducing transaction, custody, and other
expenses.
Primary Risks
An investment in the Fund entails investment risk, including
possible loss of the principal amount invested. The Fund's
primary risks include:
o Market Risk: Deteriorating market conditions might cause
an overall decline in the prices of stocks in the market,
including those held by the Fund.
o Tracking Error Risk: The Fund may not track the performance
of the Index for various reasons, including, but not limited
to the following:
- The Fund incurs administrative expenses and trading costs.
The EAFE Index does not.
- The Fund may not hold all of the stocks in the Index or
may weight them differently than the Index.
- The composition of the Index and Fund may diverge.
- The timing and magnitude of cash inflows and outflows
from investor's purchases and redemptions may create
balances of uninvested cash.
o Foreign Stock Market Risk: Foreign stock markets may exhibit
periods of higher volatility than those in the United States.
Trading stocks on many foreign exchanges can be more
difficult, and costly, than trading stocks in the United
States. Taxes can also be imposed by foreign governments.
o Political Risk: Foreign governments have occasionally
limited the outflows of capital or profits to investors
abroad.
o Information Risk: Financial reporting and accounting
standards for companies in many foreign markets differ from
those of the United States and may present an incomplete,
or inaccurate picture of a foreign company.
o Liquidity Risk: On the whole, foreign exchanges are smaller
and less liquid than the U.S. markets. Stocks that trade
infrequently, or in lower volumes, can be more difficult or
costly to buy or sell. Relatively small transactions can
have a disproportionately large effect on the price of
stocks. In some situations, it may be impossible to sell a
stock in an orderly fashion.
o Regulatory Risk: There is typically less government
regulation of foreign markets, companies, and securities.
o Currency Risk: The Fund invests in foreign securities
denominated in foreign currencies. Thus, changes in foreign
exchange rates will affect the value of foreign securities
denominated in U.S. dollars.
o Derivatives Risk: The Fund may invest in stock futures and
options, and stock index futures and options. The Fund will
not use these investments for speculative purposes or as
leveraged investments that might exacerbate gains or losses.
The Fund will invest in derivatives solely to meet share-
holder redemptions or to invest shareholder purchases while
maintaining exposure to the market. The principal risks to
derivatives used in this context is that it might not be
highly correlated with the security for which it is being
used as a substitute.
Bar Chart and Performance Table
The bar chart and table below provide some indication of the
risk of investing in the EAFE International Index Fund. The bar
chart shows how the Fund's annual performance has varied from
year to year since its inception. The table shows how the
Fund's average annual returns for one year and since inception
compare with those of the EAFE Index. The Fund's past
performance (before and after taxes) is not necessarily
indicative of future performance.
[GRAPHIC OMITTED]
EAFE International Index Fund Total Returns
2001 2002
12.00%-
0.00% ------/-----/-----/-----/-----
/ / / /
/ / /
-12.00% / / / /
/ / /-----/
/-----/ -17.30%
-24.00%- -21.53%
*Total return for the most recent fiscal year quarter ended
December 31, 2002 was 6.28%.
During the period shown in the bar chart, the highest return for
a calendar quarter was 7.1% (quarter ending 12/31/01) and the
lowest return for a quarter was -20.6% (quarter ending
09/30/02).
Average Annual Total Returns for Periods Ended December 31, 2002
[Download Table]
Life of the Fund
1 Year (since December 29, 2000)
------ ------------------------
Return Before Taxes -17.3% -19.0%
Return After Taxes on Distributions(1)(2) -17.6% -19.2%
Return After Taxes on Distributions
and Sale of Fund Shares(1)(2) -10.6% -15.0%
EAFE International Index(3) -15.9% -18.3%
__________
(1) After-tax returns are calculated using the historical
highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes.
(2) Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns
shown are not relevant to investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) plans or
individual retirement accounts.
(3) Reflects no deduction for fees, expenses or taxes.
TOTAL SOCIAL IMPACT FUND PROFILE
Investment Objective
The Total Social Impact Fund seeks investment results that
closely correspond to the total return performance of U.S.
common stocks, as represented by the S&P 500 Index. To pursue
this objective, the Fund will invest in ALL stocks that are
included in the S&P 500 Index.
The Fund also seeks to promote better business practices by
investing more in companies in the Index that conduct their
business commendably with respect to their stakeholders.
Businesses have a role to play in improving the lives
of all their customers, employees, and shareholders
("stakeholders") by sharing with them the wealth they
have created. Suppliers and competitors as well should
expect businesses to honor their obligations in a spirit
of honesty and fairness. As responsible citizens of the
legal, national, regional and global communities in which
they operate, businesses share a part in shaping the
future of their communities.
Attributed to the Caux Institute for Global Responsibility
For example:
CUSTOMERS deserve high quality products, fair advertising,
remedies and respect.
EMPLOYEES deserve to be treated with dignity, to be paid a
living wage on a non-discriminatory basis, to work in a safe
environment and to associate freely.
OWNER/INVESTORS deserve a fair and competitive return,
transparency in company operations, and a voice in corporate
governance.
SUPPLIERS deserve mutual respect and long-term stability in
return for value, quality, competitiveness, reliability and
employment practices that respect human dignity.
COMPETITORS deserve fair and respectful competition.
COMMUNITIES deserve the support of public policies that promote
human development and raise the standards of health, education,
workplace safety and economic well-being.
The ENVIRONMENT deserves protection and improvement through
sustainable business practices.
Source: The Caux Institute For Global Responsibility Principles
For Business. The Caux Principles For Business
(published in 1994) are the first published worldwide
standard for ethical and responsible business practices
developed by global business leaders. They are
published in sixteen languages.
The use of the Caux principles for business does not in any way
constitute an endorsement by Caux of the financial prospects of
the Fund or its investment strategy.
Investment Strategies
To pursue its goals, the Fund will invest in all the stocks that
are included in the S&P 500 Index. However, the percentage
invested in each stock will vary from the S&P 500 Index
weighting to reflect the company's Total Social Impact (TSI)
rating. The TSI rating reflects the company's scoring on a
series of benchmarks corresponding to each of its stakeholders.
TSI is a concept developed and trademarked by The Total Social
Impact Foundation, Inc. The actual TSI ratings are the product
of collaborative research and analytical efforts conducted by
The Total Social Impact Foundation, Inc. in conjunction with a
group of academic institutions. Summit Investment Partners
receives and uses the TSI ratings from The Total Social Impact
Foundation, Inc. under an exclusive licensing agreement. TSI
ratings range from 1 to 20. Companies with high TSI ratings are
overweighted in the Fund at the expense of companies with low
TSI ratings, thus encouraging better business practices.
The Fund will give stocks with a TSI rating of 10 approximately
the weight that a traditional S&P 500 Index fund would give
them; stocks with a TSI rating of 20, about twice that weight
and ones with a TSI rating of 1 about 1/10 of that weight.
Summit Investment Partners reserves the right to modify the
weighting scheme based on a proprietary weighting system.
The Fund may invest up to 5% of its assets in Standard & Poor's
Depositary Receipts(R) ("SPDRs(R)"). SPDRs(R) are units of
beneficial interest in a unit investment trust, representing
proportionate undivided interests in a portfolio of securities
in substantially the same weighting as the common stocks that
comprise the S&P 500 Index.
The Fund may invest up to 20% of its assets in S&P 500 Index
futures contracts and options in order to invest uncommitted
cash balances, to maintain liquidity to meet shareholder
redemptions, or minimize trading costs. The Fund may also sell
covered calls on futures contracts or individual securities held
in the Fund. As a temporary investment strategy, until the Fund
reaches $50 million in net assets, the Fund may invest up to
100% of its assets in such futures and/or options contracts.
Investments in SPDRs(R), futures and options will not reflect
TSI ratings.
Under normal circumstances, the fund will invest at least 80% of
its assets in investments with economic characteristics similar
to the stocks represented in the S&P 500 Index. Although the
Adviser will attempt to invest as much of the Fund's assets as
is practical in stocks included among the S&P 500 Index and
futures contracts and related options under normal market
conditions, a portion of the Fund may be invested in money
market instruments pending investment or to meet redemption
requests or other needs for liquid assets. In addition, for
temporary defensive purposes, the Fund may invest in government
securities, money market instruments, or other fixed-income
securities, or retain cash or cash equivalents.
Primary Risks
An investment in the Fund entails investment risk, including
possible loss of the principal amount invested. The Fund's
primary risks include:
o Market risk: The Fund's total return, like stock prices
generally, will fluctuate within a wide range in response
to stock market trends, so a share of the Fund could drop
in value over short or even long periods. Stock markets
tend to move in cycles, with periods of rising prices and
periods of falling prices.
o Large company stock risk: Stocks of large companies, such
as those listed among the S&P 500 Index occasionally go
through cycles of doing worse (or better) than the stock
markets in general or other types of investments.
o Investment style risk: TSI ratings will result in
overweighting and underweighting most stocks in the
S&P 500 Index. These variances might result in worse
(or better) returns.
o Correlation risk: Because the Fund has expenses, and
the S&P 500 Index does not, the Fund may be unable to
replicate precisely the performance of the Index. While
the Fund remains small, it may have a greater risk that
its performance will not match that of the Index.
o Derivatives Risk: The Fund may invest in stock futures
and options, and stock index futures and options. The Fund
will not use these investments for speculative purposes or
as leveraged investments that might exacerbate gains or
losses. The Fund will invest in derivatives solely to meet
shareholder redemptions or to invest shareholder purchases
while maintaining exposure to the market. The principal
risks to derivatives used in this context is that it might
not be highly correlated with the security for which it is
being used as a substitute.
Bar Chart and Performance Table
The bar chart and table below provide some indication of the
risk of investing in the Total Social Impact Fund. The bar chart
shows how the Fund's annual performance has varied from year to
year since its inception. The table shows how the Fund's average
annual returns for one year and since inception compare with
those of the S&P 500 Index. The Fund's past performance (before
and after taxes) is not necessarily indicative of future
performance.
[GRAPHIC OMITTED]
Total Social Impact Fund Total Returns
2001 2002
12.00%-
0.00%- ------/-----/-----/-----/-----
/ / / /
-12.00%- /-----/ / /
-12.75% /-----/
-24.00%- -22.23%
*Total return for the most recent fiscal year quarter ended
December 31, 2002 was 8.20%.
During the period shown in the bar chart, the highest return for
a calendar quarter was 10.5% (quarter ending 12/31/01) and the
lowest return for a quarter was -17.1% (quarter ending
09/30/02).
Average Annual Total Returns for Periods Ended December 31, 2002
[Download Table]
Life of the Fund
1 Year (since December 28, 2000)
------ -------------------------
Return Before Taxes -22.2% -18.0%
Return After Taxes on Distributions(1)(2) -22.5% -18.3%
Return After Taxes on Distributions
and Sale of Fund Shares(1)(2) -13.7% -14.2%
S&P 500 Index(3) -22.1% -17.5%
__________
(1) After-tax returns are calculated using the historical
highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes.
(2) Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns
shown are not relevant to investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) plans or
individual retirement accounts.
(3) Reflects no deduction for fees, expenses or taxes.
Since shares of the Total Social Impact Fund Class F were first
available on July 1, 2002, comparable results for this class of
shares are not shown.
BALANCED INDEX FUND PROFILE
Investment Objective
The Balanced Index Fund seeks investment results, with respect
to 60% of its assets, that correspond to the total return
performance of U.S. common stocks, as represented by the S&P 500
Index and, with respect to 40% of its assets, that correspond to
the total return performance of investment grade bonds, as
represented by the Lehman Brothers Aggregate Bond Index.
Investment Strategies
The Fund will invest approximately 60% of its net assets in a
Fund of common stocks, futures (in combination with the
appropriate amount of U.S. Treasury securities or other liquid
assets as collateral), and Standard & Poor's Depositary
Receipts(R) ("SPDRs(R)") to track the S&P 500 Index and
approximately 40% of its net assets in a portfolio of investment
grade bonds designed to track the Lehman Brothers Aggregate Bond
Index (the "Lehman Brothers Index"). The Fund may also hold
cash or cash equivalent securities, although the amount of cash
and cash equivalent securities is expected to represent a small
percentage of the Fund's assets.
The Fund's common stock portfolio seeks to substantially
replicate the total return of the securities comprising the S&P
500 Index, taking into consideration redemptions, sales of
additional shares, and other adjustments described below.
Precise replication of the S&P 500 Index is not feasible. The
Fund will attempt to achieve, in both rising and falling
markets, a correlation of at least 95% between the total return
of its common stock portfolio before expenses and the total
return of the S&P 500 INDEX. A correlation of 100% would
represent perfect correlation between the Fund and index
performance. There can be no assurance that the Fund will
achieve a 95% correlation.
The Fund may invest up to 5% of its assets in SPDRs(R), which
are units of beneficial interest in a unit investment trust,
representing proportionate undivided interests in a portfolio of
securities in substantially the same weighting as the common
stocks that comprise the S&P 500 Index.
The Fund's bond portfolio seeks to substantially replicate the
total return of the securities comprising the Lehman Brothers
Index taking into consideration redemptions, sales of additional
shares, and other adjustments described below. Precise
replication of the Lehman Brothers Index is not feasible due to
the large number of securities in the index. The Fund will
invest in a representative sample of fixed income securities,
which, taken together, are expected to perform similarly to the
Lehman Brothers Index. The Fund will attempt to achieve, in
both rising and falling markets, a correlation of at least 95%
between the total return of its bond portfolio before expenses
and the total return of the Lehman Brothers Index. A
correlation of 100% would represent perfect correlation between
the Fund and index performance. There can be no assurance that
the Fund will achieve a 95% correlation.
Under normal circumstances, the fund will invest at least 80% of
its assets in investments with economic characteristics similar
to the stocks represented in the S&P 500 Index and the bonds
represented in the Lehman Brothers Index.
The Fund may invest up to 20% of its assets in financial futures
contracts and options and S&P 500 Index futures and options
contracts in order to invest uncommitted cash balances, to
maintain liquidity to meet shareholder redemptions, or minimize
trading costs. The Fund may also sell covered calls on futures
contracts or individual securities held in the Fund. As a
temporary investment strategy, until the Fund reaches $50
million in net assets, the Fund may invest up to 100% of its
assets in such futures and/or options contracts.
Primary Risks
An investment in the Fund entails investment risk, including
possible loss of the principal amount invested. The Fund's
primary risks include:
o Stock market risk: The Fund's common stock portfolio, like
stock prices generally, will fluctuate within a wide range
in response to stock market trends, so a share of the Fund
could drop in value over short or even long periods. Stock
markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
o Investment style risk: Stocks of large companies, such as
those listed among the S&P 500 Index occasionally go through
cycles of doing worse (or better) than the stock markets in
general or other types of investments.
o Interest rate risk: The Fund's bond portfolio is subject
to interest rate risk. Interest rate risk is the potential
for fluctuation in bond prices due to changing interest
rates. Bond prices generally fall when interest rates
rise. Furthermore, the price of bonds with a longer
maturity generally fluctuates more than bonds with a shorter
maturity. To compensate investors for larger fluctuations,
longer maturity bonds usually offer higher yields than
shorter maturity bonds. Interest rate risk is a risk
inherent in all bonds, regardless of credit quality. The
Fund's bond portfolio has an intermediate-term average
maturity (5 to 15 years), and is therefore expected to have
a moderate to high level of interest rate risk. The value
of the Fund's stock portfolio also may be affected by
changes of interest rates.
o Credit risk: The Fund's bond portfolio is subject to
credit risk. Credit risk is the risk that an issuer of a
security will be unable to make payments of principal and/
or interest on a security held by the Fund. When an issuer
fails to make a scheduled payment of principal or interest
on a security, or violates other terms and agreements of a
security, the issuer and security are in default. A default
by the issuer of a security generally has a severe
negative affect on the market value of that security.
The credit risk of the Fund is a function of the credit
quality of its underlying securities. The average credit
quality of the Fund is expected to be very high. Therefore,
the credit risk of the Fund is expected to be low. The
average quality of the Lehman Brothers Index, which the
Fund attempts to replicate, was AA2 using Moody's Investors
Service (See Appendix A: Ratings - Corporate Bond Ratings).
Other factors, including interest rate risk and prepayment
risk cause fluctuation in bond prices.
o Income risk: The Fund's bond portfolio is subject to
income risk. Income risk is the risk of a decline in the
Fund's income due to falling market interest rates. Income
risk is generally higher for portfolios with short term
average maturities and lower for portfolios with long term
average maturities. Income risk is also generally higher
for portfolios that are actively traded and lower for
portfolios that are less actively traded. The Fund's bond
portfolio is expected to maintain an intermediate average
maturity and have moderate trading activity. Therefore,
income risk is expected to be moderate.
o Prepayment risk: Prepayment risk is the risk that, during
periods of declining interest rates, the principal of
mortgage-backed securities and callable bonds will be
repaid earlier than scheduled, and the portfolio manager
will be forced to reinvest the unanticipated repayments
at generally lower interest rates. The Fund's exposure to
mortgage-backed securities and currently callable bonds is
generally low to moderate. Therefore, the prepayment risk
of the Fund is expected to be low to moderate.
Correlation risk: Because the Balanced Index Fund has
expenses, and the S&P 500 Index and Lehman Brothers
Index do not, the Fund may be unable to replicate
precisely the performance of the Index. In addition,
the Fund intends to hold a sampling of both the stocks
in the S&P 500 Index and the bonds in the Lehman Brothers
Index, rather than exactly matching the market weighting
of each security in its respective index. While the Fund
remains small, it may have a greater risk that its
performance will not match that of the Index.
o Derivatives Risk: The Fund may invest in stock futures
and options, and stock index futures and options. The Fund
will not use these investments for speculative purposes or
as leveraged investments that might exacerbate gains or
losses. The Fund will invest in derivatives solely to meet
shareholder redemptions or to invest shareholder purchases
while maintaining exposure to the market. The principal
risks to derivatives used in this context is that it might
not be highly correlated with the security for which it is
being used as a substitute.
Bar Chart and Performance Table
The bar chart and table below provide some indication of the
risk of investing in the Balanced Index Fund. The bar chart
shows how the Fund's annual performance has varied from year to
year since its inception. The table shows how the Fund's
average annual returns for one year and since inception compare
with those of the S&P 500 Index and the Lehman Brothers. The
Fund's past performance (before and after taxes) is not
necessarily indicative of future performance.
[GRAPHIC OMITTED]
Balanced Index Fund Total Returns
2001 2002
8.00%-
4.00%-
0.00%- ------/-----/----/-----/-----
/ / / /
-4.00%- /-----/ / /
-4.10% / /
-8.00%- / /
/-----/
-12.00%- -10.95%
-16.00%
*Total return for the most recent fiscal year quarter ended
December 31, 2002 was 6.02%.
During the period shown in the bar chart, the highest return for
a calendar quarter was 6.3% (quarter ending 12/31/01) and the
lowest return for a quarter was -9.0% (quarter ending 09/30/02).
Average Annual Total Returns for Periods Ended December 31, 2002
[Download Table]
Life of the Fund
1 Year (since April 3, 2000)
------ ---------------------
Return Before Taxes -11.0% -6.7%
Return After Taxes on Distributions(1)(2) -12.0% -7.8%
Return After Taxes on Distributions
and Sale of Fund Shares(1)(2) -6.7% -5.8%
S&P 500 Index(3) -22.1% -16.4%
Lehman Brothers Aggregate Bond Index(3) 10.3% 10.2%
__________
(1) After-tax returns are calculated using the historical
highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes.
(2) Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns
shown are not relevant to investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) plans or
individual retirement accounts.
(3) Reflects no deduction for fees, expenses or taxes.
LEHMAN AGGREGATE BOND INDEX FUND PROFILE
Investment Objective
The Lehman Aggregate Bond Index Fund seeks investment results
that correspond to the total return performance of the bond
market, as represented by the Lehman Brothers Aggregate Bond
Index ("Lehman Brothers Index").
The Lehman Brothers Index is a market-weighted, intermediate-
term bond index which encompasses U.S. Treasury and agency
securities and investment grade corporate and international
(dollar denominated) bonds.
Investment Strategies
Under normal circumstances, the Lehman Aggregate Bond Index Fund
will invest at least 80% of the value of its assets in:
o Obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities; or
o Publicly-traded or 144a debt securities rated BBB- or BAA3
or higher by a nationally recognized rating service such
as Standard & Poors or Moody's; or
o Cash and cash equivalents.
The Fund may invest up to 20% of its assets in financial futures
contracts or options in order to invest uncommitted cash
balances, to maintain liquidity to meet shareholder redemptions,
or minimize trading costs. The Fund may also sell covered calls
on futures contracts or individual securities held in the Fund.
As a temporary investment strategy, until the Fund reaches $50
million in net assets, the Fund may invest up to 100% of its
assets in such futures and/or options contracts.
The Fund will NOT purchase bonds rated below investment grade,
commonly known as junk bonds. However, if a bond held in the
Fund is downgraded to a rating below investment grade, the Fund
may continue to hold the security until such time as the Adviser
deems it most advantageous to dispose of the security.
The Fund will NOT directly purchase common stocks. However, it
may retain up to 5% of the value of its total assets in common
stocks acquired either by conversion of fixed-income securities
or by the exercise of warrants attached thereto. The Fund may
also write covered call options on U.S. Treasury Securities and
options on futures contracts for such securities. A description
of the corporate bond ratings assigned by Standard & Poor's and
Moody's is included in the Appendix.
The Fund will be unable to hold all of the individual securities
which comprise the Lehman Brothers Index because of the large
number of securities involved. Therefore, the Fund will hold a
representative sample of the securities designed to replicate
the total return performance of the Lehman Brothers Index. The
Fund will attempt to achieve, in both rising and falling
markets, a correlation of at least 95% between the total return
of its net assets before expenses and the total return of the
Lehman Brothers Index. A correlation of 100% would represent
perfect correlation between the Fund and index performance. The
correlation of the Fund's performance to that of the Lehman
Brothers Index should increase as the Fund grows. There can be
no assurance that the Fund will achieve a 95% correlation.
Although the Adviser will attempt to invest as much of the
Fund's assets as is practical in bonds included in the Lehman
Brothers Index, futures contracts and options relating thereto
under normal market conditions, a portion of the Fund may be
retained in cash or cash equivalents, or invested in money
market instruments pending investment or to meet redemption
requests or other needs for liquid assets.
Primary Risks
An investment in the Fund entails investment risk, including
possible loss of the principal amount invested. The Fund's
primary risks include:
o Interest rate risk: Interest rate risk is the potential
for fluctuation in bond prices due to changing interest
rates. Bond prices generally fall when interest rates
rise. Furthermore, the price of bonds with a longer
maturity generally fluctuates more than bonds with a
shorter maturity. To compensate investors for larger
fluctuations, longer maturity bonds usually offer higher
yields than shorter maturity bonds. Interest rate risk is
a risk inherent in all bonds, regardless of credit quality.
Since the Fund is an intermediate term bond portfolio, the
interest rate risk is expected to be moderate.
o Credit risk: Credit risk is the risk that an issuer of a
security will be unable to make payments of principal and/
or interest on a security held in the Fund. When an issuer
fails to make a scheduled payment of principal or interest
on a security, or violates other terms and agreements of a
security, the issuer and the security are in default. A
default by the issuer of a security generally has severe
negative affect on the market value of that security. The
credit risk of the Fund is a function of the credit quality
of its underlying securities. The average credit quality of
the Fund is expected to be very high. Therefore, the credit
risk of the Fund is expected to be low.
o Income risk: Income risk is the risk of a decline in the
Fund's income due to falling market interest rates. Income
risk is generally higher for portfolios with short term
average maturities and lower for portfolios with long term
average maturities. Income risk is also generally higher
for portfolios that are actively traded and lower for
portfolios that are less actively traded. The Fund
maintains an intermediate average maturity and is expected
to be less actively traded. Therefore, its income risk
is expected to be moderate-to-low.
o Prepayment risk: Prepayment risk is the risk that, during
periods of declining interest rates, the principal of
mortgage-backed securities and callable bonds will be
repaid earlier than scheduled, and the portfolio manager
will be forced to reinvest the unanticipated repayments at
generally lower interest rates. The Fund's exposure to
mortgage-backed securities and callable bonds is expected
to be moderate. Therefore, the prepayment risk of the Fund
is expected to be moderate.
o Correlation risk: Because the Fund has expenses, and the
Lehman Brothers Index does not, the Fund may be unable to
replicate precisely the performance of the Index. While
the Fund remains small, it may have a greater risk that
its performance will not match that of the Index.
Bar Chart and Performance Table
The bar chart and table below provide some indication of the
risk of investing in the Lehman Aggregate Bond Index Fund. The
bar chart shows how the Fund's annual performance has varied
from year to year since its inception. The table shows how the
Fund's average annual returns for one year and since inception
compare with those of the Lehman Brothers Index. The Fund's
past performance (before and after taxes) is not necessarily
indicative of future performance.
[GRAPHIC OMITTED]
Lehman Aggregate Bond Index Fund Total Returns
10.00%-
8.60%
8.00%- 7.19% /-----/
/-----/ / /
6.00%- / / / /
/ / / /
4.00%- / / / /
/ / / /
2.00%- / / / /
/ / / /
0.00%- ------/-----/-----/-----/-----
2001 2002
*Total return for the most recent fiscal year quarter ended
December 31, 2002 was 1.67%.
During the period shown in the bar chart, the highest return for
a calendar quarter was 4.4% (quarter ending 09/30/02) and the
lowest return for a quarter was -0.4% (quarter ending 03/31/02).
Average Annual Total Returns for Periods Ended December 31, 2002
[Download Table]
Life of the Fund
1 Year (since April 3, 2000)
------ ---------------------
Return Before Taxes 8.6% 9.2%
Return After Taxes on Distributions(1)(2) 6.2% 6.4%
Return After Taxes on Distributions
and Sale of Fund Shares(1)(2) 5.5% 6.1%
Lehman Brothers Aggregate Bond Index(3) 10.3% 10.2%
__________
(1) After-tax returns are calculated using the historical
highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes.
(2) Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns
shown are not relevant to investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) plans or
individual retirement accounts.
(3) Reflects no deduction for fees, expenses or taxes.
EVEREST FUND PROFILE
Investment Objective
The Everest Fund seeks primarily long-term appreciation of
capital, without incurring unduly high risk, by investing
primarily in common stocks and other equity securities. Current
income is a secondary objective.
Investment Strategies
A major portion of the Everest Fund will be invested in common
stocks. The Fund seeks special opportunities in securities that
are selling at a discount from theoretical price/earnings ratios
and that seem capable of recovering from their temporary out-of-
favor status (a "value" investment style). The Fund may invest
all or a portion of its assets in preferred stocks, bonds, con-
vertible preferred stocks, convertible bonds, and convertible
debentures. When market conditions for equity securities are
adverse, and for temporary defensive purposes, the Fund may
invest in Government securities, money market instruments, or
other fixed-income securities, or retain cash or cash
equivalents. However, the Fund normally will remain primarily
invested in common stocks.
The Everest Fund's investment strategy is based upon the belief
of the Fund's Adviser that the pricing mechanism of the
securities market lacks total efficiency and has a tendency to
inflate prices of some securities and depress prices of other
securities in different market climates. The Adviser believes
that favorable changes in market prices are more likely to begin
when:
o securities are out-of-favor,
o price/earnings ratios are relatively low,
o investment expectations are limited, and
o there is little interest in a particular
security or industry.
The Adviser believes that securities with relatively low
price/earnings ratios in relation to their profitability are
better positioned to benefit from favorable but generally
unanticipated events than are securities with relatively high
price/earnings ratios which are more susceptible to unexpected
adverse developments.
The Fund may invest up to 20% of its assets in financial futures
contracts and options and stock index futures contracts and
options in order to invest uncommitted cash balances, to
maintain liquidity to meet shareholder redemptions, or minimize
trading costs. As a temporary investment strategy, until the
Fund reaches $50 million in net assets, the Fund may invest up
to 100% of its assets in such futures and/or options contracts.
The Fund may also sell covered calls on futures contracts or
individual securities held in the Fund.
Primary Risks
An investment in the Fund entails investment risk, including
possible loss of the principal amount invested. The Fund's
primary risks include:
o Market risk: The Fund's total return, like stock prices
generally, will fluctuate within a wide range in response
to stock market trends. As a result, shares of the Fund
could drop in value over short or even long periods. Stock
markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
o Financial risk: The Fund's total return will fluctuate
with fluctuations in the earnings stability or overall
financial soundness of the companies whose stock the Fund
purchases.
o Investment style risk: The Fund's investment style risks
that returns from "value" stocks it purchases will trail
returns from other asset classes or the overall stock market.
Bar Chart and Performance Table
The bar chart and table below provide some indication of the
risk of investing in the Everest Fund. The bar chart shows how
the Fund's annual performance has varied from year to year since
its inception. The table shows how the Fund's average annual
returns for one year and since inception compare with those of
the Russell 1000 Value Index. The Fund's past performance
(before and after taxes) is not necessarily indicative of future
performance.
[GRAPHIC OMITTED]
Everest Fund Total Returns
20.00%-
15.00%- 12.40%
/-----/ 10.45%
10.00%- / / /-----/
/ / / /
5.00%- / / / / 2002
/ / / /
0.00%- ------/-----/-----/-----/-----/-----/
/ /
-10.00%- 2000 2001 / /
/ /
-20.00%- / /
/-----/
-30.00% -23.81%
*Total return for the most recent fiscal year quarter ended
December 31, 2002 was 7.17%.
During the period shown in the bar chart, the highest return for
a calendar quarter was 10.8% (quarter ending 12/31/01) and the
lowest return for a quarter was -21.4% (quarter ending
09/30/02).
Average Annual Total Returns for Periods Ended December 31, 2002
[Download Table]
Life of the Fund
1 Year (since December 29, 1999)
------ ------------------------
Return Before Taxes -23.8% -1.7%
Return After Taxes on Distributions(1)(2) -24.4% -3.1%
Return After Taxes on Distributions
and Sale of Fund Shares(1)(2) -14.6% -1.8%
Russell 1000 Value Index(3) -15.5% -4.8%
Russell 2000 Index(3) -20.5% -6.5%
*The Everest Fund's focus since 12/99 has been on large-cap
value positions. The fund's benchmark had been the Russell 2000
Index, a widely recognized measure of small-cap performance.
The Russell 1000 Value Index more closely matches the Fund's
focus.
__________
(1) After-tax returns are calculated using the historical
highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes.
(2) Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns
shown are not relevant to investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) plans or
individual retirement accounts.
(3) Reflects no deduction for fees, expenses or taxes.
Since shares of the Everest Fund Class F were first available on
July 1, 2002, comparable results for this class of shares are
not shown.
BOND FUND PROFILE
Investment Objective
The Bond Fund seeks as high a level of current income as is
consistent with reasonable investment risk, by investing
primarily in long-term, fixed-income, investment-grade corporate
bonds.
Investment Strategies
Under normal circumstances, the Bond Fund will invest at least
80% of the value of its assets in fixed income securities.
Further, the Bond Fund normally will invest at least 75% of the
value of its assets in:
o publicly-traded or 144a debt securities rated BBB
or BAA3 or higher by a nationally recognized rating
service such as Standard & Poor's or Moody's,
o obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, or
o cash and cash equivalents.
Up to 25% of the Bond Fund's total assets may be invested in
debt securities that are unrated or below investment-grade bonds
("high yield" or "junk" bonds). Up to 20% of the Bond
Portfolio's total assets may be invested in:
o convertible debt securities,
o convertible preferred and preferred stocks, or
o other securities.
The Bond Fund will not directly purchase common stocks. However,
it may retain up to 10% of the value of its total assets in
common stocks acquired either by conversion of fixed-income
securities or by the exercise of warrants attached thereto.
The Fund may invest up to 20% of its assets in financial futures
contracts or options in order to invest uncommitted cash
balances, to maintain liquidity to meet shareholder redemptions,
or minimize trading costs. The Fund may also sell covered calls
on futures contracts or individual securities held in the Fund.
A description of the corporate bond ratings assigned by Standard
& Poor's and Moody's is included in the Appendix.
Primary Risks
An investment in the Fund entails investment risk, including
possible loss of the principal amount invested. The Fund's
primary risks include:
o Interest rate risk: Interest rate risk is the potential
for fluctuation in bond prices due to changing interest
rates. Bond prices generally fall when interest rates
rise. Furthermore, the price of bonds with a longer
maturity generally fluctuates more than bonds with a
shorter maturity. To compensate investors for larger
fluctuations, longer maturity bonds usually offer higher
yields than shorter maturity bonds. Interest rate risk is
a risk inherent in all bonds, regardless of credit quality.
The Fund maintains an intermediate-term average maturity,
and is therefore subject to a moderate level of interest
rate risk.
o Credit risk: Credit risk is the risk that an issuer of
a security will be unable to make payments of principal
and/or interest on a security held by the Fund. When an
issuer fails to make a scheduled payment of principal or
interest on a security, or violates other terms and
agreements of a security, the issuer and security are in
default. A default by the issuer of a security generally
has a severe negative effect on the market value of that
security.
The credit risk of the Fund is a function of the credit
quality of its underlying securities. The average credit
quality of the Fund is expected to be very high. Therefore,
the credit risk of the Fund is expected to be low. However,
certain individual securities held in the Fund may have
substantial credit risk. The Fund may contain up to 25% of
securities rated below investment grade. Securities rated
below investment grade generally have substantially more
credit risk than securities rated investment grade.
Securities rated below investment grade are defined as
having a rating below Baa by Moody's Investors Services
and below BBB by Standard & Poor's Corporation (See
Appendix A: Ratings - Corporate Bond Ratings).
o Income risk: Income risk is the risk of a decline in the
Fund's income due to falling market interest rates. Income
risk is generally higher for portfolios with short term
average maturities and lower for portfolios with long term
average maturities. Income risk is also generally higher
for portfolios that are actively traded and lower for
portfolios that are less actively traded. The Fund
maintains an intermediate average maturity and is actively
traded. Therefore, income risk is expected to be moderate
to high.
o Prepayment risk: Prepayment risk is the risk that, during
periods of declining interest rates, the principal of
mortgage-backed securities and callable bonds will be
repaid earlier than scheduled, and the Adviser will be
forced to reinvest the unanticipated repayments at
generally lower interest rates. The Fund's exposure to
mortgage-backed securities and currently callable bonds is
generally low to moderate. Therefore, the prepayment risk
of the Fund is expected to be low to moderate. Other
factors, including interest rate risk and credit risk can
cause fluctuation in bond prices.
Bar Chart and Performance Table
The bar chart and table below provide some indication of the
risk of investing in the Bond Fund. The bar chart shows how the
Fund's annual performance has varied from year to year since its
inception. The table shows how the Fund's average annual
returns for one year and since inception compare with those of
the Lehman Brothers Aggregate Bond Index. The Fund's past
performance (before and after taxes) is not necessarily
indicative of future performance.
[GRAPHIC OMITTED]
Bond Fund Total Returns
8.00%- 7.22%
/-----/
6.00%- / / 5.44%
/ / /-----/
4.00%- / / / /
/ / / /
2.00% - / / / /
/ / / /
0.00%- ------/-----/-----/-----/
2001 2002
*Total return for the most recent fiscal year quarter ended
December 31, 2002 was 1.16%.
During the period shown in the bar chart, the highest return for
a calendar quarter was 3.8% (quarter ending 03/31/01) and the
lowest return for a quarter was 0.0% (quarter ending 06/30/01).
Average Annual Total Returns for Periods Ended December 31, 2002
[Download Table]
Life of the Fund
1 Year (since April 3, 2000
------ --------------------
Return Before Taxes 5.4% 6.6%
Return After Taxes on Distributions(1)(2) 3.1% 4.0%
Return After Taxes on Distributions
and Sale of Fund Shares(1)(2) 3.3% 4.0%
Lehman Brothers Aggregate Bond Index(3) 10.3% 10.2%
__________
(1) After-tax returns are calculated using the historical
highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes.
(2) Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns
shown are not relevant to investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) plans or
individual retirement accounts.
(3) Reflects no deduction for fees, expenses or taxes.
SHORT-TERM GOVERNMENT FUND PROFILE
Investment Objective
The Short-term Government Fund seeks to provide a high level of
current income and preservation of capital by investing 100% of
its total assets in bonds issued by the U.S. government and its
agencies.
Investment Strategies
Under normal market conditions, the Fund will invest 100% of its
assets in bonds issued by, or derivatives related to, the U.S.
government and its agencies. The majority of the Fund's
holdings will have a maturity or average life of five years or
less. The Fund will maintain a dollar-weighed average maturity
of less than three years. The Fund may invest up to 20% of its
total assets in financial futures contracts and options in order
to invest uncommitted cash balances, to maintain liquidity to
meet shareholder redemptions, or minimize trading costs. The
Fund will not use these instruments for speculative purposes.
The reasons the Fund will invest in derivatives is to reduce
transaction costs, for hedging purposes, or to add value when
these instruments are favorably priced.
Primary Risks
An investment in the Fund entails investment risk, including
possible loss of the principal amount invested. The Fund's
primary risks include:
o Interest rate risk: Interest rate risk is the potential
for fluctuation in bond prices due to changing interest
rates. Bond prices generally fall when interest rates
rise. Furthermore, the price of bonds with a longer
maturity generally fluctuates more than bonds with a
shorter maturity. The Fund will maintain a short average
maturity and is therefore subject to a low level of
interest rate risk.
o Credit risk: Credit risk is the risk that an issuer of a
security will be unable to make payments of principal
and/or interest on a security held by the Fund. Given
that 100% of the assets held by the Fund are issued by
the U.S. government and its agencies, the credit risk to
the Fund is low.
o Income risk: Income risk is the risk of a decline in the
Fund's income due to falling market interest rates. Income
risk is generally higher for short-term bonds.
o Prepayment risk: Prepayment risk is the risk that, during
periods of declining interest rates, the principal of
mortgage-backed securities and callable bonds will be
repaid earlier than scheduled, resulting in reinvestment
of the unanticipated repayments at generally lower
interest rates. The Fund's exposure to mortgage-backed
securities and callable bonds will be low to moderate.
Bar Chart and Performance Table
The bar chart and table below provide some indication of the
risk of investing in the Short-term Government Fund. The bar
chart shows how the Fund's annual performance has varied from
year to year since its inception. The table shows how the
Fund's average annual returns for one year and since inception
compare with those of the Salomon 1-5 Year Treasury Index. The
Fund's past performance (before and after taxes) is not
necessarily indicative of future performance.
[GRAPHIC OMITTED]
Short-term Government Fund Total Returns
8.00% 6.83%
/-----/ 6.42%
6.00% ------/ / /-----/
/ / / /
4.00% ------/ / / /
/ / / /
2.00% ------/ / / /
/ / / /
0.00% ------/-----/-----/-----/
2001 2002
*Total return for the most recent fiscal year quarter ended
December 31, 2002 was 0.65%.
During the period shown in the bar chart, the highest return for
a calendar quarter was 3.6% (quarter ending 09/30/01) and the
lowest return for a quarter was 0.0% (quarter ending 12/31/01).
Average Annual Total Returns for Periods Ended December 31, 2002
[Download Table]
Life of the Fund
1 Year (since April 3, 2000)
------ ---------------------
Return Before Taxes 6.4% 7.5%
Return After Taxes on Distributions(1)(2) 5.1% 5.4%
Return After Taxes on Distributions
and Sale of Fund Shares(1)(2) 4.0% 5.0%
Salomon 1-5 Year Treasury Index(3) 7.5% 8.5%
__________
(1) After-tax returns are calculated using the historical
highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes.
(2) Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns
shown are not relevant to investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) plans or
individual retirement accounts.
(3) Reflects no deduction for fees, expenses or taxes.
MONEY MARKET FUND PROFILE
Investment Objective
The Money Market Fund seeks to maintain stability of capital
and, consistent therewith, to maintain the liquidity of capital
and to provide current income.
Investment Strategies
It does this by investing exclusively in high quality short-term
securities.
The Fund may buy securities from many types of issuers,
including the U.S. government, banks (both U.S. and foreign),
corporations and municipalities. However, everything the Fund
buys must meet the rules for money market fund investments (see
Money Fund Rules below). In addition, the Fund currently intends
to only buy securities that are in the top two credit grades for
short-term securities.
Working in conjunction with credit analysts, the portfolio
managers screen potential securities and develop a list of those
that the Fund may buy. The managers then decide which securities
on this list to buy, looking for attractive yield and weighing
considerations such as credit quality, economic outlook and
possible interest rate movements. The managers may adjust the
Fund's exposure to interest rate risk, typically seeking to take
advantage of possible rises in interest rates and to preserve
yield when interest rates appear likely to fall.
Money Fund Rules
To be called a money market fund, a mutual fund must operate
within strict federal rules. Designed to help maintain a stable
$1.00 share price, these rules limit money funds to particular
types of securities and strategies. Some of the rules include:
o Individual securities must have remaining maturities
of no more than 397 days.
o The dollar-weighted average maturity of the Fund's
holdings cannot exceed 90 days.
o All securities must be in the top two credit grades for
short-term securities and be denominated in U.S. dollars.
Primary Risks
Money market funds are generally considered to have lower risks
than other types of mutual funds. Even so, there are several
risk factors that could reduce the yield you get from the Fund
or make it perform less well than other investments.
AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR
INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY
INVESTING IN THE FUND.
o Market interest rate risk: As with most money market
funds, the most important factor affecting performance
is market interest rates. The Fund's yields tend to
reflect current interest rates, which means that when
these rates fall, the Fund's yield generally falls as well.
o Credit quality risk: If a portfolio security declines
in credit quality or goes into default, it could hurt
the Fund's performance. To the extent that the Fund
emphasizes certain sectors of the short-term securities
market, the portfolio increases its exposure to factors
affecting these sectors. For example, banks' repayment
abilities could be compromised by broad economic declines
or sharp rises in interest rates. Securities from foreign
banks may have greater credit risk than comparable U.S.
securities, for reasons ranging from political and
economic uncertainties to less stringent banking
regulations.
o Other risks: Other factors that could affect performance
include:
- The managers could be incorrect in their analysis
of interest rate trends, credit quality or other
matters.
- Securities that rely on outside insurers to raise
their credit quality could fall in price or go into
default if the financial condition of the insurer
deteriorates.
Bar Chart and Performance Table
The bar chart and table below provide some indication of the
risk of investing in the Money Market Fund. The bar chart shows
how the Fund's annual performance has varied from year to year
since its inception. The table shows the Fund's average annual
returns. The Fund's past performance (before and after taxes)
is not necessarily indicative of future performance.
[GRAPHIC OMITTED]
Money Market Fund Total Returns
8.00%-
3.90%
4.00%- /-----/
/ / 1.43%
/ / /-----/
0.00%- ------/-----/----/-----/
2001 2002
*Total return for the most recent fiscal year quarter ended
December 31, 2002 was 0.32%.
During the period shown in the bar chart, the highest return for
a calendar quarter was 1.4% (quarter ending 03/31/01) and the
lowest return for a quarter was 0.3% (quarter ending 12/31/02).
Average Annual Total Returns for Periods Ended December 31, 2002
[Download Table]
Life of the Fund
1 Year (since June 28, 2000)
------ ---------------------
Money Market Fund 1.4% 3.4%
Money Fund's First Tier Retail 1.1% 3.1%
To obtain the Fund's current 7-day yield, please call the Fund's
toll-free telephone number (1-888-259-7565) or visit the fund's
website (www.summitfunds.com).
HIGH YIELD BOND FUND PROFILE
Investment Objective
The High Yield Bond Fund seeks high current income and capital
appreciation, secondarily.
Investment Strategies
The Fund invests primarily in high yield, high risk ("junk")
bonds, with intermediate maturities. For its investments, the
Fund seeks to identify high yield bonds of companies that have
the ability to make timely payments of principal and interest.
Using fundamental credit analysis of companies, the Fund seeks
to invest in companies whose financial condition gives them
greater value relative to other companies in the high yield
market, providing the further potential for capital
appreciation. Consequently, capital appreciation is a secondary
objective of the Fund. Under normal circumstances, the Fund
will invest at least 80% of its assets in high yield, high risk
bonds, also known as "junk" bonds.
The Adviser will actively manage the Fund to take advantage of
relative values of various sectors of the high yield market in
order to seek high current income and secondarily, capital
appreciation. Among the factors that are important in the
Adviser's securities selection are credit fundamentals and
technical trading factors. The Adviser researches the bonds it
purchases to make its own determination of the issuer's
creditworthiness and underlying strength. By using this
strategy, the Adviser seeks to outperform the high yield bond
market as a whole by choosing individual securities that may be
overlooked by other investors, or bonds that are likely to
improve in credit quality.
The Adviser makes a decision to sell a portfolio security held
by the Fund when (1) the security has appreciated in value due
to market conditions and the issuing company's financial
condition; (2) the issuing company's financial position
indicates the company will not perform well and the price of the
security could fall; or (3) the Adviser identifies another
security that is potentially more valuable for current income or
capital appreciation compared to securities held by the Fund.
When a corporation or a government entity issues a bond, it
generally submits the security to one or more rating
organizations, such as Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Group ("Standard &
Poor's"). These services evaluate the creditworthiness of the
issuer and assign a rating, based on their evaluation of the
issuer's ability to repay the bond. Bonds with ratings below
Baa (Moody's) or BBB (Standard & Poor's) are considered below
investment grade and are commonly referred to as junk bonds.
Some bonds are not rated at all. The Adviser determines the
comparable rating quality of bonds that are not rated.
High yield, high-risk bonds present both an opportunity and a
danger. These junk bonds generally offer higher interest
payments because the company that issues the bond -- the issuer
-- is at greater risk of default (failure to repay the bond).
This may be because the issuer is small or new to the market,
the issuer has financial difficulties, or the issuer has a
greater amount of debt.
In response to unfavorable conditions in the high yield bond
market, the Fund may make temporary investments, without
limitation, such as shifting its investments to money market
securities, cash or higher rated bonds, which could cause the
Fund not to meet its principal investment objective and
policies.
The Fund will buy and sell securities based on its overall
objective of achieving the highest possible total return, which
may translate into higher than average portfolio turnover. If
the Fund buys and sells securities frequently, there will be
increased transaction costs and may be additional taxable gains
to shareholders.
The Fund may have other investments that are not part of its
principal investment strategies. The Fund may invest in loan
participations, convertible securities and preferred stocks.
Other types of investments the Fund may use include, without
llimitation, mortgage- backed or asset-backed securities,
collateralized mortgage obligations, stripped mortgage-backed
securities, zero-coupon and pay-in-kind bonds, equity
securities, warrants, private placements, and foreign
securities. See the Statement of Additional Information for more
information about these investments.
Primary Risks
There are numerous and significant risks involved in investing
in high yield securities. While bonds are generally considered
safer than stocks for investors seeking diversification into
high yield markets, there are several types of risks that should
be considered.
OVERALL, THIS FUND MUST BE CONSIDERED A HIGH-RISK INVESTMENT
SUITABLE ONLY FOR A PORTION OF AN INDIVIDUAL'S PORTFOLIO.
An investment in the Fund entails investment risk, including
possible loss of the principal amount invested. The Fund's
primary risks include:
o Interest rate risk: High yield bonds are affected by
interest rate changes. Generally, when interest rates
rise, the prices of these bonds fall. The longer
the maturity of these bonds, the greater is this impact
from interest rate changes. The value of the Fund's
investments also will vary with bond market conditions.
Since the Fund is an intermediate term bond portfolio,
the interest rate risk is expected to be moderate.
o Credit risk: Credit risk is the risk that an issuer of a
security will be unable to make payments of principal
and/or interest on a security held by the Fund. When
an issuer fails to make a scheduled payment of principal
or interest on a security, or violates other terms and
agreements of a security, the issuer and security are in
default. A default by the issuer of a security generally
has a severe negative affect on the market value of that
security. High yield bonds are below investment grade
instruments because of the significant risk of issuer
default. The credit risk of the Fund's investments is
very high.
o Liquidity and other risks: Other risks of high yield
bonds include the market's relative youth, price
volatility, sensitivity to economic changes, limited
liquidity, valuation difficulties and special tax
considerations. There are fewer investors willing to
buy high yield bonds than there are for higher rated,
investment grade securities. Therefore, it may be more
difficult to sell these securities or to receive a fair
market price for them. There is a risk that prolonged
economic downturn would negatively affect the ability
of issuers to repay their debts, leading to increased
defaults and overall losses to the Fund.
o Foreign securities risk: Investing in emerging markets
debt securities involves political, social and economic
risks including the risk of nationalization or
expropriation of assets and the risk of war. Certain
countries may impose restrictions on foreign investors
and on the movement of assets out of the country for
periods of one year or more. Such restrictions reduce the
liquidity of securities held in such countries and make
it difficult or impossible for the Fund to sell the
securities at opportune times. Certain trading practices,
such as settlement delays or differing hours and days of
operation, may also expose the Fund to risks not customary
with U.S. investments. Furthermore, it may be more
difficult to obtain a judgment in a court outside the U.S.
Several European countries are participating in the European
Economic and Monetary Union, which established a common
European currency for participating countries. This currency
is commonly known as the "Euro." Each participating country
replaced its existing currency with the Euro on January 1,
1999 for electronic commerce. Other European countries may
participate after that date. This conversion presented
unique uncertainties, including whether the payment and
operational systems of banks and other financial
institutions were ready by the scheduled launch date; the
legal treatment of certain outstanding financial contracts
after January 1, 1999 that refer to existing currencies
rather than the Euro; the establishment of exchange rates
for existing currencies and the Euro; and the creation of
suitable clearing and settlement payment systems for the
new currency. These or other factors, including political
and economical risks, could adversely affect the value of
securities held by the Fund. The conversion has not had a
material impact on the Fund to date, however, because the
Fund invests predominantly, normally over 90% of its assets,
in U.S. dollar denominated securities.
o Nondiversification risk: Under securities laws, the Fund
is considered a "nondiversified investment company." The
Fund is, however, subject to diversification limits under
federal tax law that permit it to invest more than 5%, but
not more than 25%, of its assets in a single issuer with
respect to up to 50% of its total assets as of the end of
each of the Fund's tax quarters. Consequently, the Fund
could become somewhat riskier because it would have the
ability to hold a larger position in a fewer number of
securities than if it were a diversified investment company.
Bar Chart and Performance Table
The bar chart and table below provide some indication of the
risk of investing in the High Yield Bond Fund. The bar chart
shows how the Fund's annual performance has varied from year to
year since its inception. The table shows how the Fund's
average annual returns for one year and since inception compare
with those of the Merrill Lynch U.S. High Yield Master II Index.
The Fund's past performance (before and after taxes) is not
necessarily indicative of future performance.
[GRAPHIC OMITTED]
2.00%-
-----------/-----/--------
-2.00%- / /
/ /
-6.00% / /
/-----/
-10.00%- -8.41%
2002
*Total return for the most recent fiscal year quarter ended
December 31, 2002 was 5.32%.
*Total return for the most recent fiscal year quarter ended
December 31, 2002 was 5.23%
During the period shown in the bar chart, the highest return for
a calendar quarter was 5.2% (quarter ending 12/31/02) and the
lowest return for a quarter was -5.8% (quarter ending 09/30/02).
Average Annual Total Returns for Years Ended December 31, 2002
[Download Table]
Life of the Fund
1 Year (since July 9, 2001)
Return Before Taxes -8.4% -6.8%
Return After Taxes on Distributions(1)(2) -11.5% -10.1%
Return After Taxes on Distributions
and Sale of Fund Shares(1)(2) -5.2% -6.9%
Merrill Lynch U.S. High Yield Master II Index(3) -1.9% -0.9%
__________
(1) After-tax returns are calculated using the historical
highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes.
(2) Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns
shown are not relevant to investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) plans or
individual retirement accounts.
(3) Reflects no deduction for fees, expenses or taxes.
FEES AND EXPENSES OF THE FUNDS
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Funds. All expense ratios are
adjusted for current expenses.
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
[Download Table]
Total
Annual
Distribution Fund
Management and Service Other Operating
Fees (12b-1)fees Expenses Expenses
----------------------------------------------
S&P 500 Index Fund .30% .28% .58%
S&P MidCap 400 Index Fund .30% .30% .60%*
Russell 2000 Small Cap Index Fund .35% .40% .75%*
Nasdaq-100 Index Fund .35% .30% .65%*
EAFE International Index Fund .56% .69% 1.25%*
Total Social Impact Fund .45% .30% .75%*
Balanced Index Fund .30% .30% .60%*
Lehman Aggregate Bond Index Fund .30% .30% .60%*
Everest Fund .64% .32% .96%
Bond Fund .47% .24% .71%
Short-term Government Fund .45% .28% .73%*
Money Market Fund .35% .10% .45%*
High Yield Bond Fund .65% .57% 1.22%
Nasdaq-100 Index Fund Class F .35% .25% .30% .90%*
Total Social Impact Fund Class F .45% .25% .30% 1.00%*
Everest Fund Class F .64% .25% .32% 1.21%*
* Total Annual Fund Operating Expenses in excess of 1.25%
for the EAFE International Index Fund in excess of 1.00% for
the Total Social Impact Fund Class F, in excess of .90% for
the Nasdaq-100 Index Fund Class F, in excess of .75% for
the Russell 2000 Small Cap Index and Total Social Impact
Funds, in excess of .73% for the Short-term Government
Fund, in excess of .65% for the Nasdaq-100 Index Fund, in
excess of .60% for the S&P MidCap 400 Index, Balanced
Index and Lehman Aggregate Bond Index Funds, and in
excess of .45% for the Money Market Fund are paid by
the investment adviser.
Example
This Example is intended to help you compare the cost of
investing in the Funds with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in each Fund for the
time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your invest-
ment has a 5% return each year and that the Funds' operating
expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
[Download Table]
1 Year 3 Years 5 Years 10 Years
S&P 500 Index Fund $59 $186 $325 $727
S&P MidCap 400 Index Fund $62 $193 $336 $752
Russell 2000 Small Cap Index Fund $77 $241 $418 $933
Nasdaq-100 Index Fund $67 $209 $363 $812
EAFE International Index Fund $128 $399 $690 $1,518
Total Social Impact Fund $77 $241 $418 $933
Balanced Index Fund $62 $193 $336 $752
Lehman Aggregate Bond Index Fund $62 $193 $336 $752
Everest Fund $98 $307 $533 $1,182
Bond Fund $73 $228 $396 $885
Short-term Government Fund $75 $234 $407 $909
Money Market Fund $46 $145 $253 $568
High Yield Bond Fund $125 $389 $674 $1,484
Nasdaq-100 Index Fund Class F $92 $288 N/A N/A
Total Social Impact Fund Class F $103 $320 N/A N/A
Everest Fund Class F $124 $386 N/A N/A
This table should not be considered a representation of past or
future expenses. Actual expenses may be more or less than those
shown.
OTHER INVESTMENT POLICIES, STRATEGIES AND RISKS
FOREIGN SECURITIES
Each Fund may invest in foreign securities that are suitable for
the Fund's investment objectives and policies. The High Yield
Bond Fund may invest without limitation in securities (payable
in U.S. Dollars) of foreign issuers and in the securities of
foreign branches of U.S. banks such as negotiable certificates
of deposit (Eurodollars). The High Yield Bond Fund may invest
up to 20% of its net assets in non-U.S. dollar-denominated fixed
income securities principally traded in financial markets
outside of the United States.
Foreign securities investments are limited to 25% of net assets
for the Everest and Bond Funds. The S&P 500 Index Fund, S&P
MidCap 400 Index Fund, Russell 2000 Small Cap Index Fund,
Nasdaq-100 Index Fund, EAFE International Index Fund, Total
Social Impact Fund, Balanced Index Fund and Lehman Aggregate
Bond Index Fund are limited to investing in those foreign
securities included in the respective Indexes. Each Fund that
invests in foreign securities, other than the High Yield Bond
Fund, limits not only its total purchases of foreign securities,
but also its purchases for any single country. For "major
countries," the applicable limit is 10% of Fund net assets; for
other countries, the applicable limit is 5% for each Fund.
"Major countries" currently include: The United Kingdom,
Germany, France, Italy, Switzerland, Netherlands, Spain,
Belgium, Canada, Mexico, Argentina, Chile, Brazil, Australia,
Japan, Singapore, New Zealand, Hong Kong, Sweden and Norway.
Investing in foreign securities involves risks which are not
ordinarily associated with investing in domestic securities,
including:
o political or economic instability in the foreign country;
o diplomatic developments that could adversely affect the
value of the foreign security;
o foreign government taxes;
o costs incurred by a Fund in converting among various
currencies;
o fluctuation in currency exchange rates;
o the possibility of imposition of currency controls,
expropriation or nationalization measures or withholding
dividends at the source;
o in the event of a default on a foreign debt security,
possible difficulty in obtaining or enforcing a judgment
against the issuer;
o less publicly available information about foreign
issuers than domestic issuers;
o foreign accounting and financial reporting requirements
are generally less extensive than those in the U.S.;
o securities of foreign issuers are generally less liquid
and more volatile than those of comparable domestic
issuers;
o there is often less governmental regulation of exchanges,
broker-dealers and issuers and brokerage costs may be
higher than in the United States.
Foreign securities purchased by the Funds may include securities
issued by companies located in countries not considered to be
major industrialized nations. Such countries are subject to more
economic, political and business risk than major industrialized
nations, and the securities they issue may be subject to abrupt
or erratic price fluctuations, and are expected to be more
volatile and more uncertain as to payments of interest and
principal. Developing countries may have relatively unstable
governments, economies based only on a few industries, and
securities markets that trade only a small number of securities.
The secondary market for such securities is expected to be less
liquid than for securities of major industrialized nations.
FOREIGN CURRENCY TRANSACTIONS
The EAFE International Index Fund, Everest Fund, Bond Fund and
High Yield Bond Fund may engage in forward foreign currency
contracts ("forward contracts") in connection with the purchase
or sale of a specific security. A forward contract involves an
obligation to purchase or sell a specific foreign currency at a
future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at
the time of the contract.
Funds will not enter into forward contracts for longer-term
hedging purposes. The possibility of changes in currency
exchange rates will be incorporated into the long-term
investment considerations when purchasing the investment and
subsequent considerations for possible sale of the investment.
HIGH YIELD BONDS
The High Yield Bond Fund invests without limitation in high
yield bonds. The Bond Fund may invest up to 25% of its assets
in bonds rated below the four highest grades used by Standard &
Poor's or Moody's (frequently referred to as "junk" bonds).
These bonds present greater credit and market risks than higher
rated bonds. Such risks relate not only to the greater financial
weakness of the issuers of such securities but also to other
factors including:
o greater likelihood that an economic downturn or rising
interest rates could create financial stress on the
issuers of such bonds, possibly resulting in their
defaulting on their obligations than is the case with
higher-rated bonds;
o greater likelihood that redemption or call provisions,
if exercised in a period of lower interest rates, would
result in the bonds being replaced by lower yielding
securities;
o limited trading markets that may make it more difficult
to dispose of the bonds and more difficult to determine
their fair value.
REPURCHASE AGREEMENTS
Each Fund may invest in Repurchase Agreements. A repurchase
agreement is a transaction where a Fund buys a security at one
price and simultaneously agrees to sell that same security back
to the original owner at a higher price. None of the Funds
engage extensively in repurchase agreements, but each may engage
in them from time to time. The Adviser reviews the credit-
worthiness of the other party to the agreement and must find it
satisfactory before engaging in a repurchase agreement. A
majority of these agreements will mature in seven days or less.
In the event of the bankruptcy of the other party, a Fund could
experience delays in recovering its money, may realize only a
partial recovery or even no recovery, and may also incur
disposition costs.
REVERSE REPURCHASE AGREEMENTS
Each Fund may enter into reverse repurchase agreements. Under
reverse repurchase agreements, the Fund transfers possession of
Fund securities to banks or broker-dealers in return for cash in
an amount equal to a percentage of the Fund securities' market
value and agrees to repurchase the securities at a future date
by repaying the cash with interest. The Fund retains the right
to receive interest and principal payments from the securities
while they are in the possession of the financial institutions.
While a reverse repurchase agreement is in effect, the Custodian
(when required) will segregate from other Fund assets an amount
of cash or liquid high quality debt obligations equal in value
to the repurchase price (including any accrued interest).
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Each Fund except the Money Market Fund may enter into futures
contracts for hedging purposes, including protecting the price
or interest rate of securities that the Fund intends to buy,
that relate to securities in which it may directly invest and
indices comprised of such securities and may purchase and write
call and put options on such contracts. Each eligible Fund may
invest up to 20% of its assets in such futures and/or options
contracts.
A financial futures contract is a contract to buy or sell a
specified quantity of financial instruments (such as U.S.
Treasury bills, notes and bonds, commercial paper and bank
certificates of deposit or the cash value of a financial
instrument index) at a specified future date at a price agreed
upon when the contract is made. A stock index futures contract
is a contract to buy or sell specified units of a stock index at
a specified future date at a price agreed upon when the contract
is made. The value of a unit is based on the current value of
the contract index. Under such contracts no delivery of the
actual stocks making up the index takes place. Rather, upon
expiration of the contract, settlement is made by exchanging
cash in an amount equal to the difference between the contract
price and the closing price of the index at expiration, net of
variation margin previously paid.
Substantially all futures contracts are closed out before
settlement date or called for cash settlement. A futures
contract is closed out by buying or selling an identical
offsetting futures contract. Upon entering into a futures
contract, the Fund is required to deposit an initial margin with
the Custodian for the benefit of the futures broker. The
initial margin serves as a "good faith" deposit that the Fund
will honor their futures commitments. Subsequent payments
(called "variation margin") to and from the broker are made on a
daily basis as the price of the underlying investment
fluctuates. In the event of the bankruptcy of the futures
broker that holds margin on behalf of the Fund, the Fund may be
entitled to return of margin owed to it only in proportion to
the amount received by the broker's other customers. The
Adviser will attempt to minimize this risk by monitoring the
creditworthiness of the futures brokers with which the Fund does
business.
Because the value of an index future depends primarily on the
value of its underlying index, the performance of the broad-
based contracts will generally reflect broad changes in market
prices. However, because a particular Fund may not be invested
in precisely the same proportion as a particular Index, it is
likely that the price changes of the Fund's index futures
positions will not match the price changes of the Fund's other
investments.
Options on futures contracts give the purchaser the right to
assume a position at a specified price in a futures contract at
any time before expiration of the option contract.
All Funds except the Money Market Fund may engage in certain
limited options strategies as hedging techniques as it relates
to options on futures contracts. These options strategies are
limited to selling/writing call option contracts on futures
contracts on such securities held by the Fund (covered calls).
These Funds may purchase call option contracts to close out a
position acquired through the sale of a call option. These Funds
will only write options that are traded on a domestic exchange
or board of trade.
All Funds except the Money Market Fund may write and purchase
covered put and call options on securities in which it may
directly invest. Option transactions of the eligible Funds will
be conducted so that the total amount paid on premiums for all
put and call options outstanding will not exceed 5% of the value
of the Fund's total assets. Further, the Fund will not write
put or call options or combination thereof if, as a result, the
aggregate value of all securities or collateral used to cover
its outstanding options would exceed 25% of the value of the
Fund's total assets.
A call option is a short-term contract (generally nine months or
less) which gives the purchaser of the option the right to
purchase from the seller of the option (the Fund) the underlying
security or futures contract at a fixed exercise price at any
time prior to the expiration of the option period regardless of
the market price of the underlying instrument during the period.
A futures contract obligates the buyer to purchase and the
seller to sell a predetermined amount of a security at a
predetermined price at a selected time in the future. A call
option on a futures contract gives the purchaser the right to
assume a "long" position in a futures contract, which means that
if the option is exercised the seller of the option (the Fund)
would have the legal right (and obligation) to sell the
underlying security to the purchaser at the specified price and
future time.
As consideration for the call option, the buyer pays the seller
(the Fund) a premium, which the seller retains whether or not
the option is exercised. The selling of a call option will
benefit the Fund if, over the option period, the underlying
security or futures contract declines in value or does not
appreciate to a price higher than the total of the exercise
price and the premium. The Fund risks an opportunity loss of
profit if the underlying instrument appreciates to a price
higher than the exercise price and the premium. When the Adviser
anticipates that interest rates will increase, the Fund may
write call options in order to hedge against an expected decline
in value of Fund securities.
The Fund may close out a position acquired through selling a
call option by buying a call option on the same security or
futures contract with the same exercise price and expiration
date as the option previously sold. A profit or loss on the
transaction will result depending on the premium paid for buying
the closing call option. If a call option on a futures contract
is exercised, the Fund intends to close out the position
immediately by entering into an offsetting transaction or by
delivery of the underlying security (or other related
securities).
Options transactions may increase the Fund's portfolio turnover
rate and attendant transaction costs, and may be somewhat more
speculative than other investment strategies. It may not always
be possible to close out an options position, and with respect
to options on futures contracts there is a risk of imperfect
correlation between price movements of a futures contract (or
option thereon) and the underlying security.
OPTIONS ON SECURITIES INDICES
The S&P 500 Index Fund, S&P MidCap 400 Index Fund, Russell 2000
Small Cap Index Fund, Nasdaq-100 Index Fund, EAFE International
Index Fund and the Total Social Impact Fund may purchase or sell
options on their respective Indexes, subject to the limitations
set forth above and provided such options are traded on a
national securities exchange or in the over-the-counter market.
The Balanced Index Fund may purchase or sell options on the S&P
500 Index, subject to the limitations set forth above and
provided such options are traded on a national securities
exchange or in the over-the-counter market. Options on
securities indices are similar to options on securities except
there is no transfer of a security and settlement is in cash. A
call option on a securities index grants the purchaser of the
call, for a premium paid to the seller, the right to receive in
cash an amount equal to the difference between the closing value
of the index and the exercise price of the option times a
multiplier established by the exchange upon which the option is
traded.
COLLATERALIZED MORTGAGE OBLIGATIONS
The Balanced Index Fund, Lehman Aggregate Bond Index Fund,
Everest Fund, Bond Fund, Short-term Government Fund, Money
Market Fund and High Yield Bond Fund may invest in
collateralized mortgage obligations ("CMOs") or mortgage-backed
bonds issued by financial institutions such as commercial banks,
savings and loan associations, mortgage banks and securities
broker-dealers (or affiliates of such institutions established
to issue these securities). To a limited extent, the Funds may
also invest in a variety of more risky CMOs, including interest
only, principal only, inverse floaters, or a combination of
these securities.
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES
The Balanced Index Fund, Lehman Aggregate Bond Index Fund,
Everest Fund, Bond Fund, Money Market Fund and High Yield Bond
Fund may invest in asset-backed securities. Asset-backed
securities may be classified either as pass-through certificates
or collateralized obligations. Pass-through certificates are
asset-backed securities which represent an undivided fractional
ownership interest in an underlying pool of assets. Asset-
backed securities issued in the form of debt instruments, also
known as collateralized obligations, are generally issued as the
debt of a special purpose entity organized solely for the
purpose of owning such assets and issuing such debt. Asset-
backed securities may be of short maturity, such as commercial
paper, or longer, such as bonds, and may be issued with only one
class of security or have more than one class with some classes
having rights to payments on the asset-backed security
subordinate to the rights of the other classes. These
subordinated classes will take the risk of default before the
classes to which they are subordinated.
The High Yield Bond Fund may invest up to 10% of its total
assets in asset-backed securities. The Balanced Index Fund,
Lehman Aggregate Bond Index Fund, Everest Fund, Bond Fund and
Money Market Fund Market Fund may invest without limitation in
asset-backed securities whose characteristics are consistent
with the Fund's investment program and are not further limited
below. The credit quality of most asset-backed securities
depends primarily on the credit quality of the assets underlying
such securities, how well the entity issuing the security is
insulated from the credit risk of the originator of the debt
obligations or any other affiliated entities and the amount and
quality of any credit support provided to the securities. The
rate of principal payment on asset-backed securities generally
depends on the rate of principal payments received on the
underlying assets which in turn may be affected by a variety of
economic and other factors. As a result, the yield on any
asset-backed security is difficult to predict with precision and
actual yield to maturity may be more or less than the
anticipated yield to maturity. In addition, for asset-backed
securities purchased at a premium, the premium may be lost in
the event of early pre-payment which may result in a loss to the
Fund.
The Balanced Index Fund, Lehman Aggregate Bond Index Fund,
Everest Fund, Bond Fund, Short-term Government Fund and High
Yield Bond Fund may invest in mortgage-backed securities.
Mortgage-backed securities are securities representing interests
in a pool of mortgages. Principal and interest payments made on
the mortgages in the underlying mortgage pool are passed through
to the Fund. The High Yield Bond Fund may invest up to 10% of
its total assets in mortgage-backed securities. The Balanced
Index Fund, Lehman Aggregate Bond Index Fund, Everest Fund, Bond
Fund and Short-term Government Fund may invest without
limitation in mortgage-backed securities whose characteristics
are consistent with the Fund's investment program and are not
further limited below. The actual prepayment experience of a
pool of mortgage loans or other obligations may cause the yield
realized by the Fund to differ from the yield calculated on the
basis of the average life of the pool. (When a mortgage in the
underlying mortgage pool is prepaid, an unscheduled principal
prepayment is passed through to the Fund. This principal is
returned to the Fund at par. As a result, if a mortgage
security were trading at a premium, its total return would be
lowered by prepayments, and if a mortgage security were trading
at a discount, its total return would be increased by
prepayments.) The value of these securities also may change
because of changes in the market's perception of the
creditworthiness of the federal agency that issued them. In
addition, the mortgage securities market in general may be
adversely affected by changes in governmental regulation or tax
policies. In addition, for mortgage-backed securities purchased
at a premium, the premium may be lost in the event of early
prepayment which may result in a loss to the Fund.
LENDING FUND SECURITIES
All Funds except the Money Market Fund may lend portfolio
securities with a value up to 33 1/3% of its total assets. Such
loans may be terminated at any time. The Fund will continuously
maintain collateral equal to at least 100% of the current market
value (on a daily market-to-market basis) of the loaned
securities plus declared dividends and accrued interest.
The Fund will retain most rights of beneficial ownership,
including the right to receive dividends, interest or other
distributions on loaned securities. Should the borrower of the
securities fail financially, the Fund may experience delay in
recovering the securities or loss of rights in the collateral.
Loans will be made only to borrowers that the Adviser deems to
be of good financial standing.
OTHER INFORMATION
In addition to the investment policies described above, each
Fund's investment program is subject to further restrictions
which are described in the Statement of Additional Information.
Unless otherwise specified, each Fund's investment objectives,
policies and restrictions are not fundamental policies and may
be changed without shareholder approval. Shareholder inquiries
and requests for the Fund's Statement of Additional Information
or annual report should be directed to Summit Mutual Funds, c/o
U. S. Bancorp Fund Services, LLC, (888) 259-7565, or at P.O. Box
701, Milwaukee, WI 53201-0701.
FUND MANAGEMENT
INVESTMENT ADVISER
The Adviser is Summit Investment Partners, Inc., 312 Elm Street,
Suite 1212, Cincinnati, Ohio 45202. The Adviser was incorporated
under the laws of Ohio on August 18, 1986, as successor to the
advisory business of Carillon Investments, Inc., the investment
adviser for Summit Mutual Funds since 1984. The Adviser is a
wholly-owned subsidiary of The Union Central Life Insurance
Company ("Union Central"), a mutual life insurance company
organized in 1867 under the laws of Ohio. Subject to the
direction and authority of Summit Mutual Funds' board of
directors, the Adviser manages the investment and reinvestment
of the assets of each Fund and provides administrative services
and manages Summit Mutual Funds' business affairs.
Gary R. Rodmaker, CFA and David M. Weisenburger, CFA lead the
team primarily responsible for the day-to-day management of the
S&P 500 Index Fund, S&P MidCap 400 Index Fund, Russell 2000
Small Cap Index Fund, Nasdaq-100 Index Fund, EAFE International
Index Fund, Balanced Index Fund and Lehman Aggregate Bond Index
Fund.
Mr. Rodmaker is Managing Director - Fixed Income of the Adviser
and has been affiliated with the Adviser and Union Central since
1989. Mr. Weisenburger is the Portfolio Manager of the Adviser
and has been affiliated with the Adviser and Union Central since
July, 1996.
Stephen J. Dillenburg, CFA and Mr. Weisenburger lead the team
primarily responsible for the day-to-day management of the Total
Social Impact Fund.
Mr. Dillenburg is a Managing Partner of the Adviser and has been
affiliated with the Adviser and Union Central since November,
1999. Prior thereto, he was Director of Socially Responsible
Investing at Scudder Kemper Investments, Inc.
James R. McGlynn leads the team primarily responsible for the
day-to-day management of the Everest Fund. Mr. McGlynn, prior to
joining the Adviser and Union Central on December 1, 1999, was
employed by Tom Johnson Investment Management in Oklahoma, where
he served since May, 1991, as Vice President and Co-Portfolio
Manager for the UAM TJ Core Equity Fund.
Mr. Rodmaker and Michael J. Schultz lead the team primarily
responsible for the day-to-day management of the Bond Fund. Mr.
Schultz is Managing Director - Fixed Income of the Adviser and
has been affiliated with the Adviser and Union Central since
1992.
Mr. Schultz leads the team primarily responsible for the day-to-
day management of the Short-term Government Fund.
Mr. Rodmaker leads the team primarily responsible for the day-
to-day management of the High Yield Bond Fund.
ADVISORY FEE
The Fund pays the Adviser, as full compensation for all
facilities and services furnished, a monthly fee computed
separately for each Fund on a daily basis, at an annual rate, as
follows:
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Fund Advisory Fee
S&P 500 Index Fund .30% of the current value of the net assets.
S&P MidCap 400 Index Fund .30% of the current value of the net assets.
Russell 2000 Small Cap Index Fund .35% of the current value of the net assets.
Nasdaq-100 Index Fund .35% of the current value of the net assets.
EAFE International Index Fund .56% of the current value of the net assets.
Total Social Impact Fund .45% of the current value of the net assets.
Balanced Index Fund .30% of the current value of the net assets.
Lehman Aggregate Bond Index Fund .30% of the current value of the net assets.
Everest Fund .64% of the current value of the net assets.
Bond Fund .47% of the current value of the net assets.
Short-term Government Fund .45% of the current value of the net assets.
Money Market Fund .35% of the current value of the net assets.
High Yield Bond Fund .65% of the current value of the net assets.
The effective rates paid by each Fund are set forth in the "Fees
and Expenses of the Fund" section on page 37.
SUBADVISERS
World Asset Management, a division of Munder Capital Management,
255 E. Brown Street, Suite 250, Birmingham, Michigan 48009, is
the investment subadviser to the EAFE International Index Fund.
Munder Capital is a general partnership with Munder Capital
employees owning a minority interest and Comerica Bank owning
the majority interest.
Deutsche Investment Management Americas Inc. ("DIMA") is the
investment subadviser to the Money Market Fund. DIMA is part of
the Deutsche Asset Management Group (DeAM"), the world's largest
asset management firm based on assets under management. As of
December 31, 2002, DeAM had $742 billion in assets and DIMA had
$391.1 billion in assets under management.
Each Subadviser provides, subject to the Adviser=s direction, a
portion of the investment advisory services for which the
Adviser is responsible. The services include investment
research and advice with respect to securities, investments and
cash equivalents in the Fund.
As compensation for its services, World Asset Management
receives a monthly fee computed on a daily basis, at an annual
rate, equal to .10% of the current value of the Fund's net
assets. The fee is paid by the Adviser, not the Fund.
As compensation for its services, DIMA receives a monthly fee
computed on a daily basis, at an annual rate, equal to .20% of
the first $50,000,000, .15% of the next $200,000,000, .12% of
the next $750,000,000, and .10% of all over $1 billion of the
current value of the net assets. The fee is paid by the
Adviser, not the Fund.
EXPENSES
The Fund's expenses are deducted from total income before
dividends are paid. These expenses, which are accrued daily,
include: the fee of the Adviser; taxes; legal, dividend
disbursing, bookkeeping and transfer agent, custodian and
auditing fees; and printing and other expenses relating to the
Fund's operations which are not expressly assumed by the Adviser
under its investment advisory agreement with the Fund. Certain
expenses are paid by the particular Fund that incurs them, while
other expenses are allocated among the Funds on the basis of
their relative size (i.e., the amount of their net assets). The
Adviser will pay any expenses of the Short-term Government Fund,
other than the advisory fee for that Fund, to the extent that
such expenses exceed .28% of that Fund's net assets. The
Adviser will pay any expenses of the S&P 500 Index Fund, the S&P
MidCap 400 Index Fund, the Balanced Index Fund, the Nasdaq-100
Fund, the Total Social Impact Fund and the Lehman Aggregate Bond
Index Fund, other than the advisory fee for that Fund, to the
extent that such expenses exceed .30% of that Fund's net assets.
The Adviser will pay any expenses of the Money Market Fund,
other than the advisory fee for that Fund, to the extent that
such expenses exceed .10% of that Fund's net assets. The Adviser
will pay any expenses of the Russell 2000 Small Cap Index Fund,
other than the advisory fee for that Fund, to the extent that
such expenses exceed .40% of that Fund's net assets. The Adviser
will pay any expenses of the EAFE International Index Fund,
other than the advisory fee for that Fund, to the extent that
such expenses exceed .69% of that Fund's net assets. The
Adviser will pay any expenses of the Nasdaq-100 Index Fund Class
F and the Total Social Impact Fund Class F, other than the
advisory fee for the Fund, to the extent that such expenses
exceed .55% of that Fund's net assets.
CAPITAL STOCK
Summit Mutual Funds currently offers twenty-two series of stock,
one for each of twenty-two funds that are offered, and two
classes of stock of the three funds among the twenty-two funds
(Nasdaq-100 Index Fund, Total Social Impact Fund and Everest
Fund) that also are offered subject to a Distribution and
Shareholder Service (12b-1) Plan. Shares (including fractional
shares) of each fund have equal rights with regard to voting,
redemptions, dividends, distributions, and liquidations with
respect to that fund. When issued, shares are fully paid and
nonassessable and do not have preemptive or conversion rights or
cumulative voting rights.
SHAREHOLDER INFORMATION
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN (12b-1) PLAN
Summit Mutual Funds has established a new class of shares that
is subject to a Distribution and Shareholder Service Plan
approved by the Company's Board of Directors on March 1, 2002.
The three Funds offering the new class of shares are:
1) Everest Fund Class F
2) Nasdaq-100 Index Fund Class F
3) Total Social Impact Fund Class F (each a
"Distribution Plan Class")
Each Distribution Plan Class pays the Distributor, Carillon
Investments, Inc., a fee for payments the Distributor makes to
banks, financial planners, retirement plan service providers,
broker/dealers and other institutions for distribution
assistance and/or shareholder services in connection with the
Distribution Plan Class shares. The fee will not exceed, on an
annual basis, 0.25% of the average daily net asset value of each
Distribution Plan Class. Because the fee is paid out of the
assets of the Distribution Plan Class on an ongoing basis, over
time, the fee will increase the cost and reduce the return of an
investment and may cost you more than paying other types of
sales charges. During the three-month period ended September
30, 2002, the three Funds paid $0 to Carillon Investments in
fees pursuant to the Distribution and Shareholder Service Plan.
The Adviser or Distributor may pay additional fees to
institutions out of their own assets in exchange for sales
and/or administrative services performed on behalf of the
institution's customers.
PRICING OF FUND SHARES
The net asset value of the Funds' shares is determined once
daily, Monday through Friday as of the close of regular trading
on the New York Stock Exchange (normally 4:00 p.m. Eastern
Time), on days there are purchases or redemptions of Fund
shares. The net asset value will not be determined when the New
York Stock Exchange is closed (for example, on national
holidays), or on any day on which changes in the value of the
portfolio securities of the Funds are immaterial. The net asset
value is calculated by adding the values of all securities and
other assets of a Fund, subtracting liabilities and expenses,
and dividing the resulting figure by the number of the Fund's
outstanding shares. Expenses, including the advisory fee
payable to the Adviser, are charged to each Fund daily.
Securities held by each Fund are valued at market price.
Securities and assets for which market quotations are not
readily available are valued at fair value as determined in good
faith by, or under procedures adopted by, the Board of
Directors. Money market instruments maturing in 60 days or less
are valued at the amortized cost method.
Sometimes foreign securities markets are open on days when U.S.
markets are closed. Because some Funds holds foreign
securities, there may be days when the net asset value of Fund
shares changes even when the shares are not priced, and Fund
shareholders cannot purchase or redeem shares.
PURCHASE OF SHARES
Shares of the Funds are offered and sold on a continuous basis
by the distributor for the Funds, Carillon Investments, Inc.
(the "Distributor"), which is affiliated with the Adviser. The
Distributor is a registered broker-dealer with offices at 1876
Waycross Road, Cincinnati, Ohio 45240.
Not all of the Funds may be available for sale in a particular
state. Please consult a registered representative in your state
or the Distributor for information on the availability of the
Funds.
MINIMUM INVESTMENTS
The minimum initial investment for shares in a Fund is
1) $5,000; or
2) $1,000 ($500 in the case of an Individual Retirement
Account) if the purchaser of shares is any one of the
following:
a) Directors, officers, current or retired employees
("employees"), or agents of The Union Central Life
Insurance Company ("Union Central"), or affiliates
thereof, or their spouses or dependents; or
b) Directors, officers, employees, or agents of broker-
dealers that have entered into selling agreements
with the Distributor relating to the Funds, or
their spouses or dependents; or
c) Directors, officers, employees, or affiliates of
Summit Mutual Funds or investment advisers or sub-
advisers or distributors thereof, or their spouses
or dependents.
The minimum subsequent investment is $50.
BUYING SHARES
Purchase requests accompanied by a check or wire payment for any
Fund which are received by the transfer agent before 4:00 p.m.
Eastern Time on a business day for the Funds will be
executed the same day, at that day's closing price, provided
that payment is received by the close of regular trading hours.
Orders received after 4:00 p.m. Eastern Time and orders for
which payment is not received by the close of regular trading
hours on the New York Stock Exchange will be executed on the
next business day after receipt of both order and payment in
proper form.
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F
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
BY MAIL BY MAIL
Complete an application and mail it along Make your check payable to Summit Mutual
with a check payable to Summit Mutual Funds. Please include your sixteen-
Funds, to: digit account number on your check
The Summit Mutual Funds and mail it to the address at the left.
c/o U. S. Bancorp Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701.
For overnight or express delivery, mail to:
The Summit Mutual Funds
c/o U. S. Bancorp Fund Services, LLC
615 East Michigan Street, 3rd Floor
Milwaukee, WI 53202-5207.
AUTOMATICALLY AUTOMATICALLY
Call 1-888-259-7565 to obtain a purchase Complete a Periodic Investment Plan
application, which includes information for Application to automatically purchase
a Periodic Investment Plan. more shares.
BY WIRE BY WIRE
Call 1-888-259-7565 prior to sending Call 1-888-259-7565 prior to sending
the wire in order to obtain a the wire in order to obtain a
confirmation number and to confirmation number and to
ensure prompt and accurate handling ensure prompt and accurate handling
of funds. Ask your bank to transmit of funds. Ask your bank to transmit
immediately available funds by wire immediately available funds by wire
in the amount of your purchase to: as described at the left.
U.S. Bancorp
777 East Wisconsin Avenue Please include your sixteen-digit
Milwaukee, WI 53202ABA Number: 075000022 account number.
Credit to: U. S. Bancorp Fund The Summit Mutual Funds and its transfer
Services, LLC agent are not responsible for the
Account Number: 112-952-137 consequences of delays resulting
Further credit to: Summit Mutual Funds from the banking or Federal Reserve
(account name and account number) Wire system, or from incomplete
Summit Mutual Funds and its transfer wiring instructions.
agent are not responsible
for the consequences of delays
resulting from the banking or Federal
Reserve Wire system, or from
incomplete wiring instructions.
INTERNET INTERNET
Complete an application online at Call 1-888-259-7565 for a temporary PIN
www.summitfunds.com. You must also mail number. This number will allow you to
the signed application along with a transact online at www.summitfunds.com.
check payable to Summit Mutual Funds to: You will be asked to change this nubmer the
The Summit Mutual Funds first time that you log on.
c/o U. S. Bancorp Fund Services, LLC Please make sure that your account is set up
P.O. Box 701 with bank account instructions to wire funds
Milwaukee, WI 53201-0701. for purchases. Also, you must indicate on
For overnight or express delivery, mail to: your apllication that telephone transactions
The Summit Mutual Funds are suthorized in order to complete internet
c/o U. S. Bancorp Fund Services, LLC transactions.
615 East Michigan Street, 3rd Floor
Milwaukee, WI 53202-5207.
Please be sure to indicate on the application
that you wish to have telephone and internet
transaction privileges.
BY TELEPHONE EXCHANGE TELEPHONE EXCHANGE
Call 1-888-259-7565 to exchange from Call 1-888-259-7565 to exchange from
another Summit Mutual Funds account with another Summit Mutual Funds account with
the same registration including name, the same registration including name,
address and taxpayer ID number. address and taxpayer ID number.
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PLEASE NOTE: All checks must be drawn on a bank located within
the United States and must be payable in U.S. dollars to Summit
Mutual Funds. A $25 fee will be imposed by the Funds' transfer
agent if any check used for investment in an account does not
clear, and the investor involved will be responsible for any
loss incurred by a Fund. Prior to the transfer agent receiving a
completed application, investors may make an initial investment.
However, redemption proceeds will not be paid until the transfer
agent has received the completed application.
---------------------------------------------------------------
ADDITIONAL INFORMATION ON BUYING SHARES
o The Funds will not accept payment in cash or third party
checks for the purchase of shares.
o Each Fund reserves the right to reject or refuse, in its
discretion, any order for the purchase of the Funds'
shares, in whole or in part.
o Federal regulations require that each investor provide a
Social Security number or other certified taxpayer
identification number upon opening or reopening an account.
The Funds reserve the right to reject applications without
such a number or an indication that a number has been
applied for. If a number has been applied for, the number
must be provided and certified within sixty days of the
date of the application. Any accounts opened without a
proper number will be subject to backup withholding at a
rate of 31% on all liquidations and dividend and capital
gain distributions.
o Payment for shares of a Fund in the amount of $1,000,000
or more may, at the discretion of the Adviser, be made in
the form of securities that are permissible investments
for the respective Fund.
REDEMPTION OF SHARES
SELLING SHARE
Redemption requests for any of the Funds received by the
transfer agent before the close of regular trading on the New
York Stock Exchange (normally 4:00 p.m. Eastern Time) on a
business day for the Funds will be executed the same day, at
that day's closing price. Orders received after the close will
receive the next business day's closing price.
If the redemption amount exceeds $50,000, or if the proceeds are
to be sent elsewhere than the address of record, or the address
of record has been changed by telephone within the preceding 15
days, each signature must be guaranteed in writing by either a
commercial bank that is a member of the FDIC, a trust company, a
credit union, a savings association, a member firm of a national
securities exchange or other eligible guarantor institution.
BY TELEPHONE
Call 1-888-259-7565 with your account name, sixteen-digit
account number and amount of redemption (minimum $500).
Redemption proceeds will only be sent to a shareholder's address
or bank account of a commercial bank located within the United
States as shown on the transfer agent's records. (Available only
if telephone redemptions have been authorized on the account
application and if there has been no change of address by
telephone within the preceding 15 days).
BY MAIL
Mail your instructions to Summit Mutual Funds, P.O. Box 3011,
Milwaukee, WI 53201-3011 (via overnight delivery to 615 E.
Michigan Street, Milwaukee, WI 53202). Include the number of
shares or the amount to be redeemed, your sixteen-digit account
number and Social Security number or other taxpayer
identification number. Your instructions must be signed by all
persons required to sign for transactions exactly as their names
appear on the account.
INTERNET
Call 1-888-259-7565 for a temporary PIN number. This number
will allow you to make transactions online at
www.summitfunds.com.
Redemption proceeds will only be sent to a shareholder's address
or bank account of a commercial bank located within the United
States as shown on the transfer agent's records. (Available
only if telephone redemptions have been authorized on the
account application and if there has been no change of address
within the preceding 15 days.)
AUTOMATICALLY
Call 1-888-259-7565 for a Systematic Withdrawal Plan application
($5,000 account minimum and $50 minimum per transaction).
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Guarantees must be signed by an eligible guarantor institution
and "Signature Guaranteed" must appear with the signature.
---------------------------------------------------------------
The Funds may require additional supporting documents for
redemptions made by corporations, executors, administrators,
trustees and guardians. A redemption request will not be deemed
to be properly received until the transfer agent receives all
required documents in proper form.
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ADDITIONAL TRANSACTION INFORMATION
TELEPHONE REQUESTS
In order to arrange for telephone redemptions after you have
opened your account or to change the bank or account designated
to receive redemption proceeds, send a written request to the
U.S. Bancorp Fund Services, LLC or contact your registered
representative. Each shareholder of the account must sign the
request. The Funds may request further documentation from
corporations, executors, administrators, trustees and guardians.
The Funds reserve the right to modify or terminate telephone
redemption privileges at any time if they believe it is
advisable to do so.
DURING PERIODS OF SUBSTANTIAL ECONOMIC OR MARKET CHANGE,
TELEPHONE REDEMPTIONS MAY BE DIFFICULT TO IMPLEMENT. IF A
SHAREHOLDER IS UNABLE TO CONTACT THE TRANSFER AGENT BY
TELEPHONE, SHARES MAY ALSO BE REDEEMED BY DELIVERING THE
REDEMPTION REQUEST TO THE TRANSFER AGENT.
In an effort to prevent unauthorized or fraudulent purchase and
redemption requests by telephone or internet, U. S. Bancorp
employs reasonable procedures to confirm that such instructions
are genuine. Among the procedures used to determine
authenticity, investors electing to transact by telephone will
be required to provide their account number (unless opening a
new account). Investors electing to transfer by internet must
enter a personal identification number (PIN). All telephone
transactions will be recorded and confirmed in writing.
Statements of accounts shall be conclusive if not objected to in
writing within 10 days after transmitted by mail. Summit Mutual
Funds may implement other procedures from time to time. If
reasonable procedures are not implemented, Summit Mutual Funds
may be liable for any loss due to unauthorized or fraudulent
transactions. In all other cases, the shareholder is liable for
any loss for unauthorized transactions.
INTERNET OPTIONS
Internet exchange privileges automatically apply to each
shareholder who holds telephone exchange privileges and who has
requested a temporary PIN from a shareholder service
representative. All internet transaction privileges are ONLY
available if the shareholder has elected telephone and internet
privileges for those same transactions.
ADDITIONAL REDEMPTION INFORMATION
The Funds will make payment for redeemed shares typically within
one or two business days, but no later than the seventh day
after receipt by the transfer agent of a request in proper form,
except as provided by SEC rules. However, if any portion of the
shares to be redeemed represents an investment made by check,
the funds will delay the payment of the redemption proceeds
until the transfer agent is reasonably satisfied that the check
has been collected, which may take twelve days from the purchase
date. An investor must have filed a purchase application before
any redemption requests can be paid.
ACCOUNTS BELOW THE MINIMUM BALANCE
If your account falls below $1,000, the Funds may redeem your
account. The Fund will impose no charge and will give you sixty
days' written notice prior to any redemption.
REDEMPTION IN KIND
Each Fund intends to pay cash for all shares redeemed, unless
the redemption request is for more than $250,000 or 1% of the
net assets of a Fund by a single shareholder over any 90-day
period. If such a redemption request is presented and the Fund
deems it to be detrimental to existing shareholders to pay the
redemption in cash, the Fund may pay all or part of the
redemption in the Fund's portfolio securities at their then-
current market value equal to the redemption price. If you
received securities in kind and converted them to cash, you
would incur brokerage costs. Redemptions in kind, like all
redemptions, are taxable transactions.
EXCHANGE OF SHARES
Without a sales charge, you may exchange shares of a Fund for
shares of another Fund. An exchange is treated as a redemption
of Fund Shares, and a purchase of another Fund's shares.
For federal income tax purposes, an exchange of shares is a
taxable event and, accordingly, an investor may realize a
capital gain or loss. Before making an exchange request, an
investor should consult a tax or other financial adviser to
determine the tax consequences of a particular exchange. No
exchange fee is currently imposed by Summit Mutual Funds on
exchanges. However, Summit Mutual Funds reserves the right to
impose a charge in the future. Summit Mutual Funds reserves the
right to reject any exchange request with prior notice to a
shareholder and the exchange privilege may be modified or
terminated at any time. At least sixty days' notice will be
given to shareholders of any material modification or
termination except where notice is not required under SEC
regulations. Also keep in mind:
o Exchanges are available only in states where exchanges may
be legally made.
o The minimum amount which may be exchanged is the lesser of
$1,000 or all the shares of that Fund.
o If any portion of the shares to be exchanged represents an
investment made by check, a Fund will delay the acquisition
of new shares in an exchange until the transfer agent is
reasonably satisfied that the check has been collected,
which may take up to twelve days from the purchase date.
o It may be difficult to make telephone exchanges in times of
drastic economic or market changes.
EXCESSIVE TRADING
The Adviser may bar excessive traders from purchasing shares of
a Fund. Frequent trades, involving either substantial Fund
assets or a substantial portion of your account or accounts
controlled by you, can disrupt management of the Fund and raise
its expenses. The Fund defines "excessive trading" as exceeding
one purchase and sale involving the Funds within any 120-day
period. For example, assume you are invested in a Fund. You can
move substantial assets from that Fund to another Fund and,
within the next 120 days, sell your shares in that Fund to
return to the first Fund. If you exceed the number of trades
described above, you may be barred indefinitely from further
purchases of shares of the Funds. Two types of transactions are
exempt from the excessive trading guidelines: (1) redemptions
that are not part of exchanges; and (2) systematic purchases or
redemptions made through an automatic investment plan or an
automatic withdrawal plan.
SHAREHOLDER REPORTS
Shareholders will be provided with a report showing portfolio
investments and other information at least semiannually; and
after the close of a Fund's fiscal year with an annual report
containing audited financial statements. To eliminate
unnecessary duplication, only one copy of shareholder reports
will be sent to shareholders with the same mailing address.
Shareholders may request duplicate copies free of charge.
Account statements generally will be mailed after each purchase,
reinvestment of dividends and redemption. Statements of accounts
shall be conclusive if not objected to in writing within 10 days
after transmitted by mail. Generally, the Fund does not send
statements for Funds held in brokerage, retirement or other
similar accounts.
AUTOMATED TELERESPONSE SERVICE
Shareholders using a touch-tone telephone can access information
on the Funds twenty-four hours a day, seven days a week. When
calling U. S. Bancorp Fund Services, LLC at 1-888-259-7565,
shareholders may choose to use the automated information feature
or, during regular business hours (8:00 a.m. to 7:00 p.m.
Central time, Monday through Friday), speak with a U. S. Bancorp
representative.
INTERNET SERVICES
You may also access information about the Funds and your account
balances by visiting our website at www.summitfunds.com.
RETIREMENT PLANS
The Fund offers individual retirement accounts including SIMPLE
and SEP IRAs. For details concerning Retirement Accounts
(including service fees), please call U. S. Bancorp Fund
Services, LLC at 1-888-259-7565.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Dividends from net investment income of the Money Market Fund
are declared daily and paid monthly. Dividends from net
investment income of the other Funds are declared and paid as
follows:
[Download Table]
Annually: Quarterly:
S&P 500 Index Fund Balanced Index Fund
S&P MidCap 400 Index Fund Lehman Aggregate Bond Index Fund
Russell 2000 Small Cap Index Fund Bond Fund
Nasdaq-100 Index Fund Short-term Government Fund
EAFE International Index Fund High Yield Bond Fund
Total Social Impact Fund
Everest Fund
Any capital gains are distributed annually. Your dividends and
capital gains distributions will be reinvested automatically in
additional shares unless you notify Summit Mutual Funds that you
elect to receive distributions in cash. Class F shares may pay
lower dividends due to their higher levels of operating
expenses.
If you have elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service
is unable to deliver checks to your address of record, your
distribution option will automatically be converted to having
all dividend and other distributions reinvested in additional
shares. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
FEDERAL TAXES
Each Fund contemplates declaring as dividends each year all, or
substantially all, of its taxable income, including its net
capital gain (the excess of long-term capital gain over short-
term capital loss). You will be subject to income tax on these
distributions regardless of whether they are paid in cash or
reinvested in additional Fund shares. Distributions attributable
to the net long-term capital gains of a Fund will be taxable to
you as long-term capital gain, regardless of how long you have
held your Fund shares. Other Fund distributions will generally
be taxable as ordinary income. You will be notified annually of
the tax status of distributions to you.
You should note that if you purchase Fund shares just prior to a
dividend or capital gain distribution, the purchase price will
reflect the amount of the upcoming dividend or distribution, but
you will be taxable on the entire amount of the dividend or
distribution received, even though, as an economic matter, the
dividend or distribution simply constitutes a return of capital.
This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale, exchange or
redemption of your Fund shares, including an exchange for Fund
shares of another Fund, based on the difference between your tax
basis in the Fund shares and the amount you receive for them.
(To aid in computing your tax basis, you generally should retain
your account statements for the periods during which you held
Fund shares.) Any loss realized on Fund shares held for six
months or less will be treated as a long-term capital loss to
the extent of any capital gain dividends that were received on
the Fund shares.
The one major exception to these tax principles is that
distributions on, and sales, exchanges and redemptions of, Fund
shares held in an IRA (or other tax-qualified plan) will not be
currently taxable.
The foregoing is only a summary of certain tax considerations
under current law, which may be subject to change in the future.
You should consult your tax adviser for further information
regarding federal, state, local and/or foreign tax consequences
relevant to your specific situation.
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on
distributions and redemptions. State income taxes may not apply,
however, to the portions of each Fund's distributions, if any,
that are attributable to interest on Federal securities or
interest on securities of the particular state. Shareholders
should consult their tax advisers regarding the tax status of
distributions in their state and locality.
S&P, FRANK RUSSELL, NASDAQ, EAFE AND TOTAL SOCIAL IMPACT
DISCLAIMERS
The S&P 500 Index is an unmanaged index of common stocks
comprised of 500 industrial, financial, utility and
transportation companies. "Standard & Poor's(RP", "S&P(R) ",
"S&P 500(R) ", "Standard & Poor's 500", "500", "S&P MidCap 400
Index", and "Standard & Poor's MidCap 400 Index" are trademarks
of The McGraw-Hill Companies, Inc. and have been licensed for
use by Summit Mutual Funds. Summit Mutual Funds is not
sponsored, endorsed, sold or promoted by Standard & Poor's
("S&P"). S&P makes no representation or warranty, express or
implied, to the beneficial owners of Summit Mutual Funds or any
member of the public regarding the advisability of investing in
securities generally or in Summit Mutual Funds particularly or
the ability of the S&P 500 Index or the S&P MidCap 400 Index to
track general stock market performance. S&P's only relationship
to Summit Mutual Funds is the licensing of certain trademarks
and trade names of S&P and of the S&P 500 Index and the S&P
MidCap 400 Index which is determined, composed and calculated by
S&P without regard to Summit Mutual Funds or the Funds. S&P has
no obligation to take the needs of Summit Mutual Funds or the
beneficial owners of the Funds into consideration in
determining, composing or calculating the S&P 500 Index and the
S&P MidCap 400 Index. S&P is not responsible for and has not
participated in the determination of the prices and amount of
the Funds or the timing of the issuance or sale of the Funds or
in the determination or calculation of the equation by which the
Funds are to be converted into cash. S&P has no obligation or
liability in connection with the administration, marketing or
trading of Summit Mutual Funds.
The Russell 2000 Index is a trademark/service mark of the Frank
Russell Company. Russell is a trademark of the Frank Russell
Company. Summit Mutual Funds and the Russell 2000 Small Cap
Index Fund are not promoted, sponsored or endorsed by, nor in
any way affiliated with Frank Russell Company. Frank Russell is
not responsible for and has not reviewed the Prospectus, and
Frank Russell makes no representation or warranty, express or
implied, as to its accuracy, or completeness, or otherwise.
Frank Russell Company reserves the right, at any time and
without notice, to alter, amend, terminate or in any way change
its Index. Frank Russell has no obligation to take the needs of
any particular fund or its participants or any other product or
person into consideration in determining, composing or
calculating the Index.
Frank Russell Company's publication of the Index in no way
suggests or implies an opinion by Frank Russell Company as to
the attractiveness or appropriateness of the investment in any
or all securities upon which the Index is based. FRANK RUSSELL
COMPANY MAKES NO REPRESENTATION, WARRANTY, OR GUARANTEE AS TO
THE ACCURACY, COMPLETENESS, RELIABILITY, OR OTHERWISE OF THE
INDEX OR DATA INCLUDED IN THE INDEX. FRANK RUSSELL COMPANY
MAKES NO REPRESENTATION OR WARRANTY REGARDING THE USE, OR THE
RESULTS OF USE, OF THE INDEX OR ANY DATA INCLUDED THEREIN, OR
ANY SECURITY (OR COMBINATION THEREOF) COMPRISING THE INDEX.
FRANK RUSSELL COMPANY MAKES NO OTHER EXPRESS OR IMPLIED
WARRANTY, AND EXPRESSLY DISCLAIMS ANY WARRANTY OF ANY KIND,
INCLUDING, WITHOUT MEANS OF LIMITATION, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT
TO THE INDEX OR ANY DATA OR ANY SECURITY (OR COMBINATION
THEREOF) INCLUDED THEREIN.
"Nasdaq" and related marks are trademarks or service marks of
The Nasdaq Stock Market, Inc. "Nasdaq" and have been licensed
for use for certain purposes by Summit Mutual Funds, Inc. and
the Nasdaq-100 Index Fund. The Nasdaq-100 Index is composed and
calculated by Nasdaq without regard to Summit Mutual Funds.
Nasdaq makes no warranty, express or implied, and bears no
liability with respect to the Nasdaq-100 Index Fund. Nasdaq
makes no warranty, express or implied, and bears no liability
with respect to Summit Mutual Funds, its use, or any data
included therein.
The EAFE International Index Fund is not sponsored, endorsed,
sold or promoted by Morgan Stanley Capital International
("MSCI") or any affiliate of MSCI. Neither MSCI nor any other
party makes any representation or warranty, express or implied,
to the owners of this fund or any member of the public regarding
the advisability of investing in funds generally or in this fund
particularly or the ability of the EAFE index to track general
stock market performance. MSCI is the licensor of certain
trademarks, service marks and trade names of MSCI and of the
EAFE index which is determined, composed and calculated by MSCI
without regard to the issuer of this fund. MSCI has no
obligation to take the needs of the issuer of this fund or the
owners of this fund into consideration in determining, composing
or calculating the EAFE index. MSCI is not responsible for and
has not participated in the determination of the timing of,
prices at, or quantities of this fund to be issued or in the
determination or calculation of the equation by which this fund
is redeemable for cash. Neither MSCI nor any other party has
any obligation or liability to owners of this fund in connection
with the administration, marketing or trading of this fund.
ALTHOUGH MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR
USE IN THE CALCULATION OF THE INDEXES FROM SOURCES WHICH MSCI
CONSIDERS RELIABLE, NEITHER MSCI NOR ANY OTHER PARTY GUARANTEES
THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEXES OR ANY DATA
INCLUDED THEREIN. NEITHER MSCI NOR ANY OTHER PARTY MAKES ANY
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY
LICENSEE, LICENSEE'S CUSTOMERS AND COUNTERPARTIES, OWNERS OF THE
FUNDS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEXES
OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS
LICENSED HEREUNDER OR FOR ANY OTHER USE. NEITHER MSCI NOR ANY
OTHER PARTY MAKES ANY EXPRESS OR IMPLIED WARRANTIES, AND MSCI
HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE INDEXES OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL MSCI OR ANY OTHER PARTY HAVE ANY
LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE,
CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN
IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The Total Social Impact Fund is not sponsored, endorsed, sold
or promoted by The Total Social Impact Foundation, Inc. ("TSI").
TSI makes no representation or warranty, express or implied, to
the owners of this Fund or any member of the public regarding
the advisability of investing in securities generally or in the
Fund particularly or the ability of The Total Social Impact
Ratings ("TSI Ratings") to track general stock market
performance. TSI's only relationship to Summit Investment
Partners, Inc. and Summit Mutual Funds is the licensing of
certain trademarks and trade names of the TSI and of the TSI
Ratings which are determined, composed and calculated by TSI
without regard to Summit Investment Partners, Inc. or this Fund.
TSI has no obligation to take the needs of the Summit Investment
Partners, Inc., Summit Mutual Funds or the owners of this Fund
into consideration in determining, encompassing or calculating
the TSI Ratings. TSI is not responsible for and has not
participated in the determination of the prices and amount of
this Fund or the timing of the issuance or sale of this Fund or
in the determination or calculation of the equation by which
this Fund is to be converted into cash. TSI has no obligation or
liability in connection with the administration, marketing or
trading of this Fund.
TSI DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF
THE TSI RATINGS OR ANY DATA INCLUDED THEREIN AND TSI SHALL HAVE
NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS
THEREIN. TSI MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO
RESULTS TO BE OBTAINED BY SUMMIT INVESTMENT PARTNERS, INC.,
SUMMIT MUTUAL FUNDS, OWNERS OF THIS FUND, OR ANY OTHER PERSON OR
ENTITY FROM THE USE OF THE TSI RATINGS OR ANY DATA INCLUDED
THEREIN. TSI MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND
EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE TSI RATINGS
OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL TSI HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING
LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH
DAMAGES.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you
understand the Fund's financial performance for the periods
indicated. Certain information reflects financial results for a
single Fund share. The total returns in the table represent the
rate that an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been derived from
information audited by Deloitte & Touche LLP, independent
auditors, whose report, along with the Fund's most recent
financial statements, is included in the Statement of Additional
Information and is available upon request. This information
should be read in conjunction with the financial statements and
notes thereto included in the Statement of Additional
Information.
Computed on the basis of a share of capital stock outstanding
throughout the period. All share amounts and net asset values
have been adjusted as a result of the 1-for-5 reverse stock
split on February 15, 2002, except for the Money Market Fund.
[Download Table]
S&P 500 Index Fund
Period from
April 3, 2000(1)
Year Ended September 30, to September 30,
------------------------ ----------------
2002 2001 2000
------ ------ ------
Net Assets Value,
Beginning of period $34.90 $48.00 $50.00
------ ------ ------
Investment Activities:
Net investment income .35 .40 .20
Net realized and unrealized
gain/(loss) (7.57) (13.25) (2.05)
------ ------ ------
Total from Investment Activities (7.22) (12.85) (1.85)
------ ------ ------
Distributions:
Net investment income (.23) (.25) (.15)
Return of capital -- -- --
Net realized gains -- -- --
------ ------ ------
Total Distributions (.23) (.25) (.15)
------ ------ ------
Net Asset Value,
End of Period $27.45 $34.90 $48.00
====== ====== ======
Total Return (20.88%) (26.88%) (3.71%)
Ratios/Supplemental Data:
Ratio of Expenses to
Average Net Assets -Net(2) 0.49% 0.42% 0.40%(3)
Ratio of Expenses
to Average Net Assets -Gross 0.53% 0.43% 0.42%(3)
Ratio of Net Investment
Income/(Loss) to
Average Net Assets 1.01% 0.87% 0.82%(3)
Portfolio Turnover Rate 2.52% 4.52% 17.82%(3)
Net Assets,
End of Period (000's) $110,001 $129,931 $160,899
----------
(1) Commencement of operations.
(2) Net expenses represent gross expenses reduced by fees
waived and/or reimbursed by the Adviser.
(3) Annualized.
FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock outstanding
throughout the period. All share amounts and net asset values
have been adjusted as a result of the 1-for-5 reverse stock
split on February 15, 2002, except for the Money Market Fund.
[Download Table]
S&P MidCap 400 Index Fund
Period from
December 28, 1999(1)
Year Ended September 30, to September 30,
------------------------ --------------------
2002 2001 2000
------ ------ ------
Net Assets Value,
Beginning of period $42.25 $53.55 $50.00
------ ------ ------
Investment Activities:
Net investment income .24 .40 .25
Net realized and unrealized
gain/(loss) (2.49) (10.90) 3.45
------ ------ ------
Total from Investment Activities (2.25) (10.50) 3.70
------ ------ ------
Distributions:
Net investment income (.18) (.35) (.15)
Return of capital -- -- --
Net realized gains -- (.45) --
------ ------ ------
Total Distributions (.18) (.80) (.15)
------ ------ ------
Net Asset Value,
End of Period $39.82 $42.25 $53.55
====== ====== ======
Total Return (5.41%) (19.81%) 7.41%
Ratios/Supplemental Data:
Ratio of Expenses to
Average Net Assets - Net(2) 0.60% 0.59% 0.59%(3)
Ratio of Expenses to
Average Net Assets - Gross 0.85% 0.80% 0.78%(3)
Ratio of Net Investment
Income/(Loss) to
Average Net Assets 0.54% 0.90% 1.09%(3)
Portfolio Turnover Rate 15.62% 39.02% 96.90%(3)
Net Assets,
End of Period (000's) $19,202 $14,234 $24,015
----------
(1) Commencement of operations.
(2) Net expenses represent gross expenses reduced by fees
waived and/or reimbursed by the Adviser.
(3) Annualized.
FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock outstanding
throughout the period. All share amounts and net asset values
have been adjusted as a result of the 1-for-5 reverse stock
split on February 15, 2002, except for the Money Market Fund.
[Download Table]
Russell 2000 Small Cap Index Fund
Period from
December 29, 1999(1)
Year Ended September 30, to September 30,
------------------------ --------------------
2002 2001 2000
------ ------ ------
Net Assets Value,
Beginning of period $41.80 $53.65 $50.00
------ ------ ------
Investment Activities:
Net investment income .30 .45 .25
Net realized and unrealized
gain/(loss) (4.37) (11.85) 3.60
------ ------ ------
Total from Investment Activities (4.07) (11.40) 3.85
------ ------ ------
Distributions:
Net investment income (.25) (.40) (.20)
Return of capital -- -- --
Net realized gains -- (.05) --
------ ------ ------
Total Distributions (.25) (.45) (.20)
------ ------ ------
Net Asset Value,
End of Period $37.48 $41.80 $53.65
====== ====== ======
Total Return (9.88%) (21.40%) 7.70%
Ratios/Supplemental Data:
Ratio of Expenses to
Average Net Assets - Net(2) 0.75% 0.75% 0.75%(3)
Ratio of Expenses to
Average Net Assets - Gross 1.21% 1.17% 1.69%(3)
Ratio of Net Investment
Income/(Loss) to
Average Net Assets 0.63% 0.97% 1.05%(3)
Portfolio Turnover Rate 28.12% 42.59% 67.92%(3)
Net Assets,
End of Period (000's) $15,464 $17,761 $15,889
(1) Commencement of operations.
(2) Net expenses represent gross expenses reduced by fees
waived and/or reimbursed by the Adviser.
(3) Annualized.
FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock outstanding
throughout the period. All share amounts and net asset values
have been adjusted as a result of the 1-for-5 reverse stock
split on February 15, 2002, except for the Money Market Fund.
[Download Table]
Nasdaq-100 Index Fund
Period from
December 29, 1999(1)
Year Ended September 30, to September 30,
------------------------ --------------------
2002 2001 2000
------ ------ ------
Net Assets Value,
Beginning of period $15.85 $49.55 $50.00
------ ------ ------
Investment Activities:
Net investment income -- .05 .25
Net realized and unrealized
gain/(loss) (4.67) (33.55) (.55)
------ ------ ------
Total from Investment Activities (4.67) (33.50) (.30)
------ ------ ------
Distributions:
Net investment income -- (.15) (.15)
Return of capital -- (.05) --
Net realized gains -- -- --
------ ------ ------
Total Distributions -- (.20) (.15)
------ ------ ------
Net Asset Value,
End of Period $11.18 $15.85 $49.55
====== ====== ======
Total Return (29.46%) (67.85%) (0.62%)
Ratios / Supplemental Data:
Ratio of Expenses to
Average Net Assets - Net(2) 0.65% 0.65% 0.61%(3)
Ratio of Expenses to
Average Net Assets - Gross 1.35% 1.14% 1.14%(3)
Ratio of Net Investment
Income/(Loss) to
Average Net Assets (0.17%) 0.10% 1.09%(3)
Portfolio Turnover Rate 1.94% 13.94% 113.32%(3)
Net Assets,
End of Period (000's) $6,430 $7,406 $13,093
_____________
(1) Commencement of operations.
(2) Net expenses represent gross expenses reduced by fees
waived and/or reimbursed by the Adviser.
(3) Annualized.
FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock outstanding
throughout the period. All share amounts and net asset values
have been adjusted as a result of the 1-for-5 reverse stock
split on February 15, 2002, except for the Money Market Fund.
[Download Table]
EAFE International Index Fund
Period from
Year Ended December 29, 2000(1)
September 30, to September 30,
------------- --------------------
2002 2001
------ ------
Net Assets Value,
Beginning of period $36.90 $50.00
Investment Activities:
Net investment income .24 .25
Net realized and unrealized
gain/(loss) (6.38) (13.25)
------ ------
Total from Investment Activities (6.14) (13.00)
------ ------
Distributions:
Net investment income (.15) (.10)
Return of capital -- --
Net realized gains -- --
------ ------
Total Distributions (.15) (.10)
------ ------
Net Asset Value,
End of period $30.61 $36.90
------ ------
Total Return (16.73%) (26.04%)
Ratios/Supplemental Data:
Ratio of Expenses to
Average Net Assets - Net(2) 1.25% 1.25%(3)
Ratio of Expenses to
Average Net Assets - Gross 1.67% 1.55%(3)
Ratio of Net Investment
Income/(Loss) to
Average Net Assets 0.65% 0.77%(3)
Portfolio Turnover Rate 20.12% 0.58%(3)
Net Assets,
End of Period (000's) $15,553 $17,911
----------
(1) Commencement of operations.
(2) Net expenses represent gross expenses reduced by fees
waived and/or reimbursed by the Adviser.
(3) Annualized.
FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock outstanding
throughout the period.
[Download Table]
Total Social Impact Fund
Period from
Year Ended December 28, 2000(1)
September 30, to September 30,
------------- --------------------
2002 2001
------ ------
Net Assets Value,
Beginning of period $38.95 $50.00
------ ------
Investment Activities:
Net investment income .28 .25
Net realized and unrealized
gain/(loss) (8.22) (11.20)
Total from Investment Activities (7.94) (10.95)
------ ------
Distributions:
Net investment income (.21) (.10)
Return of capital -- --
Net realized gains -- --
------ ------
Total Distributions (.21) (.10)
------ ------
Net Asset Value,
End of period $30.80 $38.95
====== ======
Total Return (20.55%) (21.94%)
Ratios/Supplemental Data:
Ratio of Expenses to
Average Net Assets - Net(2) 0.75% 0.75%(3)
Ratio of Expenses to
Average Net Assets - Gross 2.29% 2.57%(3)
Ratio of Net Investment
Income/(Loss) to
Average Net Assets 0.72% 0.79%(3)
Portfolio Turnover Rate 3.82% 0.62(3)%
Net Assets,
End of Period (000's) $3,251 $3,921
----------
(1) Commencement of operations.
(2) Net expenses represent gross expenses reduced by fees
waived and/or reimbursed by the Adviser.
(3) Annualized.
FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock outstanding
throughout the period. All share amounts and net asset values
have been adjusted as a result of the 1-for-5 reverse stock
split on February 15, 2002, except for the Money Market Fund.
[Download Table]
Balanced Index Fund
Period from
April 3, 2000(1)
Year Ended September 30, to September 30,
------------------------ ----------------
2002 2001 2000
------ ------ ------
Net Assets Value,
Beginning of period $41.90 $49.35 $50.00
------ ------ ------
Investment Activities:
Net investment income 1.23 1.35 .80
Net realized and
unrealized gain/(loss) (5.55) (7.35) (.85)
------ ------ ------
Total from Investment Activities (4.32) (6.00) (.05)
------ ------ ------
Distributions:
Net investment income (1.20) (1.35) (.60)
Return of capital -- -- --
Net realized gains (.13) (.10) --
------ ------ ------
Total Distributions (1.33) (1.45) (.60)
------ ------ ------
Net Asset Value,
End of Period $36.25 $41.90 $49.35
====== ====== ======
Total Return (10.72%) (12.45%) (0.12%)
Ratios/Supplemental Data:
Ratio of Expenses to
Average Net Assets - Net(2) 0.60% .0.60% 0.59%(3)
Ratio of Expenses to
Average Net Assets - Gross 0.78% .0.60% 0.60%(3)
Ratio of Net Investment
Income/(Loss)
to Average Net Assets 2.87% 2.92% 3.13%(3)
Portfolio Turnover Rate 16.89% 29.89% 30.16%(3)
Net Assets,
End of Period (000's) $21,348 $27,078 $34,140
----------
(1) Commencement of operations.
(2) Net expenses represent gross expenses reduced by fees
and/or reimbursed by the Adviser.
(3) Annualized.
FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock outstanding
throughout the period. All share amounts and net asset values
have been adjusted as a result of the 1-for-5 reverse stock
split on February 15, 2002, except for the Money Market Fund.
[Download Table]
Lehman Aggregate Bond Index Fund
Period from
April 3, 2000(1)
Year Ended September 30, to September 30,
------------------------ --------------------
2002 2001 2000
------ ------ ------
Net Assets Value,
Beginning of period $53.90 $51.10 $50.00
------ ------ ------
Investment Activities:
Net investment income 2.81 3.15 1.55
Net realized and unrealized
gain/(loss) .63 2.80 .70
------ ------ ------
Total from Investment Activities 3.44 5.95 2.25
------ ------ ------
Distributions:
Net investment income (2.89) (3.10) (1.15)
Return of capital -- -- --
Net realized gains (1.12) (.05) --
------ ------ ------
Total Distributions (4.01) (3.15) (1.15)
------ ------ ------
Net Asset Value,
End of Period $53.33 $53.90 $51.10
====== ====== ======
Total Return 6.79% 12.06% 4.55%
Ratios/Supplemental Data:
Ratio of Expenses to
Average Net Assets - Net(2) 0.60% .0.59% 0.59%(3)
Ratio of Expenses to
Average Net Assets - Gross 0.88% .0.67% 0.81%(3)
Ratio of Net Investment
Income/(Loss) to
Average Net Assets 5.31% 5.95% 6.29%(3)
Portfolio Turnover Rate 74.65% 63.26% 18.43%(3)
Net Assets,
End of Period (000's) $16,964 $16,653 $16,290
_____________
(1) Commencement of operations.
(2) Net expenses represent gross expenses reduced by fees
waived and/or reimbursed by the Adviser.
(3) Annualized.
FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock outstanding
throughout the period. All share amounts and net asset values
have been adjusted as a result of the 1-for-5 reverse stock
split on February 15, 2002, except for the Money Market Fund.
[Download Table]
Everest Fund
Period from
December 29, 1999(1)
Year Ended September 30, to September 30,
------------------------ --------------------
2002 2001 2000
------ ------ ------
Net Assets Value,
Beginning of period $54.35 $51.30 $50.00
------ ------ ------
Investment Activities:
Net investment income .74 .95 .40
Net realized and unrealized
gain/(loss) (11.12) 3.80 1.20
------ ------ ------
Total from Investment Activities (10.38) 4.75 1.60
------ ------ ------
Distributions:
Net investment income (.53) (.70) (.30)
Return of capital -- -- --
Net realized gains (3.59) (1.00) --
------ ------ ------
Total Distributions (4.12) (1.70) (.30)
------ ------ ------
Net Asset Value,
End of Period $39.85 $54.35 $51.30
====== ====== ======
Total Return (21.24%) 9.01% 3.21%
Ratios/Supplemental Data:
Ratio of Expenses to
Average Net Assets - Net(2) 0.96% 0.78% 0.81%(3)
Ratio of Expenses to
Average Net Assets - Gross 0.96% 0.80% 0.85%(3)
Ratio of Net Investment
Income/(Loss) to
Average Net Assets 1.33% 1.67% 1.51%(3)
Portfolio Turnover Rate 66.74% 105.91% 138.39%(3)
Net Assets,
End of Period (000's) $42,198 $57,497 $49,440
(1) Commencement of operations.
(2) Net expenses represent gross expenses reduced by fees
waived and/or reimbursed by the Adviser.
(3) Annualized.
FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock outstanding
throughout the period. All share amounts and net asset values
have been adjusted as a result of the 1-for-5 reverse stock
split on February 15, 2002, except for the Money Market Fund.
[Download Table]
Bond Fund
Period from
April 3, 2000(1)
Year Ended September 30, to September 30,
------------------------ ----------------
2002 2001 2000
------ ------ ------
Net Assets Value,
Beginning of period $51.45 $50.20 $50.00
------ ------ ------
Investment Activities:
Net investment income 3.10 3.35 1.80
Net realized and unrealized
gain/(loss) (.98) 1.40 (.30)
------ ------ ------
Total from Investment Activities 2.12 4.75 1.50
------ ------ ------
Distributions:
Net investment income (3.13) (3.40) (1.30)
Return of capital -- -- --
Net realized gains (.09) (.10) --
------ ------ ------
Total Distributions (3.22) (3.50) (1.30)
------ ------ ------
Net Asset Value,
End of Period $50.35 $51.45 $50.20
====== ====== ======
Total Return 4.29% 9.78% 3.04%
Ratios/Supplemental Data:
Ratio of Expenses to
Average Net Assets - Net(2) 0.71% .0.61% 0.64%(3)
Ratio of Expenses to
Average Net Assets - Gross 0.71% .0.62% 0.66%(3)
Ratio of Net Investment
Income/(Loss)
to Average Net Assets 6.17% 6.72% 7.19%(3)
Portfolio Turnover Rate 51.52% 76.96% 80.03%(3)
Net Assets,
End of Period (000's) $103,505 $102,056 $69,875
----------
(1) Commencement of operations.
(2) Net expenses represent gross expenses reduced by fees
waived and/or reimbursed by the Adviser.
(3) Annualized.
FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock outstanding
throughout the period. All share amounts and net asset values
have been adjusted as a result of the 1-for-5 reverse stock
split on February 15, 2002, except for the Money Market Fund.
[Download Table]
Short-term Government Fund
Period from
April 3, 2000(1)
Year Ended September 30, to September 30,
------------------------ ----------------
2002 2001 2000
------ ------ ------
Net Assets Value,
Beginning of period $53.10 $50.95 $50.00
------ ------ ------
Investment Activities:
Net investment income 1.74 2.55 1.50
Net realized and unrealized
gain/(loss) 1.18 2.45 .55
------ ------ ------
Total from Investment Activities 2.92 5.00 2.05
------ ------ ------
Distributions:
Net investment income (1.79) (2.60) (1.10)
Return of capital -- -- --
Net realized gains (.75) (.25) --
------ ------ ------
Total Distributions (2.54) (2.85) (1.10)
------ ------ ------
Net Asset Value,
End of Period $53.48 $53.10 $50.95
====== ====== ======
Total Return 5.72% 10.11% 4.14%
Ratios/Supplemental Data:
Ratio of Expenses to
Average Net Assets - Net(2) 0.73% 0.73% 0.73%(3)
Ratio of Expenses to
Average Net Assets - Gross 0.97% .0.91% 1.25%(3)
Ratio of Net Investment
Income/(Loss) to
Average Net Assets 3.55% 5.08% 5.89%(3)
Portfolio Turnover Rate 64.75% 48.30% 99.38%(3)
Net Assets,
End of Period (000's) $25,646 $16,826 $10,199
----------
(1) Commencement of operations.
(2) Net expenses represent gross expenses reduced by fees
waived and/or reimbursed by the Adviser.
(3) Annualized.
FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock outstanding
throughout the period. All share amounts and net asset values
have been adjusted as a result of the 1-for-5 reverse stock
split on February 15, 2002, except for the Money Market Fund.
[Download Table]
High Yield Bond Fund
Period from
Year Ended July 9, 2001(1)
September 30, to September 30,
------------- ----------------
2002 2001
------ ------
Net Assets Value,
Beginning of period $27.60 $30.30
------ ------
Investment Activities:
Net investment income 2.39 .65
Net realized and unrealized
gain/(loss) (3.98) (3.15)
------ ------
Total from Investment Activities (1.59) (2.50)
------ ------
Distributions:
Net investment income (2.53) (.20)
Return of capital -- --
Net realized gains -- --
------ ------
Total Distributions (2.53) (.20)
------ ------
Net Asset Value,
End of period $23.48 $27.60
====== ======
Total Return (6.61%) (8.31%)
Ratios/Supplemental Data:
Ratio of Expenses to
Average Net Assets - Net(2) 1.22% 1.30%(3)
Ratio of Expenses to
Average Net Assets - Gross 1.22% 1.30%(3)
Ratio of Net Investment
Income/(Loss) to
to Average Net Assets 8.86% 9.11%(3)
Portfolio Turnover Rate 185.02% 111.21%(3)
Net Assets,
End of Period (000's) $16,420 $18,850
_____________
(1) Commencement of operations.
(2) Net expenses represent gross expenses reduced by fees
waived and/or reimbursed by the Adviser.
(3) Annualized.
FINANCIAL HIGHLIGHTS
Computed on the basis of a share of capital stock outstanding
throughout the period. All share amounts and net asset values
have been adjusted as a result of the 1-for-5 reverse stock
split on February 15, 2002, except for the Money Market Fund.
[Download Table]
Money Market Fund
Period from
June 28, 2000(1)
Year Ended September 30, to September 30,
------------------------ --------------------
2002 2001 2000
------ ------ ------
Net Assets Value,
Beginning of period $ 1.00 $ 1.00 $ 1.00
------ ------ ------
Investment Activities:
Net investment income .02 .05 .02
Net realized and
unrealized gain/(loss) -- -- --
------ ------ ------
Total from Investment Activities .02 .05 .02
------ ------ ------
Distributions:
Net investment income (.02) (.05) (.02)
Return of capital -- -- --
Net realized gains -- -- --
------ ------ ------
Total Distributions (.02) (.05) (.02)
------ ------ ------
Net Asset Value,
End of Period $ 1.00 $ 1.00 $ 1.00
====== ====== ======
Total Return 1.64% 4.99% 1.64%
Ratios/Supplemental Data:
Ratio of Expenses to
Average Net Assets - Net(2) 0.44% .0.43% 0.45%(3)
Ratio of Expenses to
Average Net Assets - Gross 0.60% 0.48% 0.54%(3)
Ratio of Net Investment
Income/(Loss) to
to Average Net Assets 1.62% 4.78% 6.41%(3)
Portfolio Turnover Rate -- -- --
Net Assets,
End of Period (000's) $120,401 $86,889 $64,489
_____________
(1) Commencement of operations.
(2) Net expenses represent gross expenses reduced by fees
waived and/or reimbursed by the Adviser.
(3) Annualized.
APPENDIX A: RATINGS
CORPORATE BOND RATINGS
Moody's Investors Services, Inc.
Aaa Bonds which 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 which 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 which 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 which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. 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 which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger
with respect to principal or interest.
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
Standard & Poor's Rating Services
AAA This is the highest rating assigned by Standard & Poor's to
a debt obligation and indicates an extremely strong capacity to
pay principal and interest.
AA Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very
strong, and in the majority of instances they differ from AAA
issues only in a small degree.
A Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the
adverse effect of changes in circumstances and economic
conditions.
BBB Bonds rated BBB are regarded as having an adequate capacity
to pay principal and interest. Whereas they normally exhibit
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to
pay principal and interest for bonds in this category than for
bonds in the A category.
BB, B, CCC, CC Bonds rated BB, B, CCC, and CC are regarded, on
balance, as predominately speculative with respect to the
issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC 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.
COMMERCIAL PAPER RATINGS
Moody's Investors Services, Inc.
A Prime rating is the highest commercial paper rating assigned
by Moody's Investors Services, Inc. Issuers rated Prime are
further referred to by use of numbers 1, 2 and 3 to denote
relative strength within this highest classification. Among the
factors considered by Moody's in assigning ratings for an issuer
are the following:
? management;
? economic evaluation of the industry and an appraisal of
speculative type risks which may be inherent in certain areas;
? competition and customer acceptance of products;
? liquidity;
? amount and quality of long-term debt;
? ten-year earnings trends;
? financial strength of a parent company and the relationships
which exist with the issuer; and
? recognition by management of obligations which may be present
or may arise as a result of public interest questions and
preparations to meet such obligations.
Standard & Poor's Rating Services
Commercial paper rated A by Standard & Poor's Rating Services
has the following characteristics:
? Liquidity ratios are better than the industry average.
? Long-term senior debt rating is "A" or better. In some cases,
BBB credits may be acceptable.
? The issuer has access to at least two additional channels of
borrowing.
? Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances.
? Typically, the issuer's industry is well established, the
issuer has a strong position within its industry and the
reliability and quality of management is unquestioned.
Issuers rated A are further referred to by use of numbers 1, 2
and 3 to denote relative strength within this classification.
[Back Cover Page]
A Statement of Additional Information dated February 1, 2003,
which contains further information about the Funds, has been
filed with the Securities and Exchange Commission and is
incorporated by reference into this Prospectus. Additional
information about the Funds' investments is available in Summit
Mutual Funds' annual and semi-annual reports to shareholders.
In Summit Mutual Funds' annual report, you will find a
discussion of the market conditions and investment strategies
that significantly affected the Funds' performance during its
last fiscal year. A copy of the Statement of Additional
Information or its annual and semi-annual reports may be
obtained without charge by calling Summit Mutual Funds, c/o U.
S. Bancorp Fund Services, LLC, (888) 259-7565, or by writing
Summit Mutual Funds, c/o U. S. Bancorp Fund Services, LLC, at
P.O. Box 701, Milwaukee, WI 53201-0701.
Summit Mutual Funds' Statement of Additional Information, annual
and semi-annual reports and certain other information about the
Funds can be reviewed and copied at the SEC's Public Reference
Room. Information about the operation of the SEC's Public
Reference Room may be obtained by calling the SEC at 1-202-942-
8090. Copies of Fund documents may be obtained, after paying a
duplication fee, by writing to the Public Reference Section of
the SEC, Washington, D.C. 20549-6009, or by electronic request
to publicinfo@sec.gov.
These fund documents and other information about the Funds are
also available without charge at the SEC's web site:
http://www.sec.gov.
File 811-0400
SMFI 514APEX 2/03
PART B
INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION
SUMMIT MUTUAL FUNDS, INC.
Summit Apex Series
STATEMENT OF ADDITIONAL INFORMATION
February 1, 2003
This Statement of Additional Information regarding fourteen of
the twenty-two Funds of Summit Mutual Funds, Inc. ("Summit
Mutual Funds"), is not a prospectus. Much of the information
contained in this Statement of Additional Information expands
upon subjects discussed in the Prospectus. Accordingly, this
Statement should be read in conjunction with Summit Mutual
Funds' current Prospectus, dated February 1, 2003, which may be
obtained by calling Summit Mutual Funds, c/o U. S. Bancorp Fund
Services, LLC, (888) 259-7565, or by writing Summit Mutual
Funds, c/o U. S. Bancorp Fund Services, LLC, at P.O. Box 701,
Milwaukee, WI 53201-0701.
Summit Mutual Funds is an open-end management investment
company.
TABLE OF CONTENTS
Page
Investment Policies (39) . . . . . . . . . . . . . . . . . . .
2
Money Market Instruments, Other Securities
and Investment Techniques. . . . . . . . . . . . . . . . .
2
Certain Risk Factors Relating to High Yield,
High Risk Bonds. . . . . . . . . . . . . . . . . . . . . .
10
Investments in Foreign Securities . . . . . . . . . . . . . .
11
Futures Contracts . . . . . . . . . . . . . . . . . . . . . .
16
Options . . . . . . . . . . . . . . . . . . . . . . . . . . .
19
Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . .
22
Loan Participations and Assignments . . . . . . . . . . . . .
23
Short Sales . . . . . . . . . . . . . . . . . . . . . . . . .
23
Lending Portfolio Securities. . . . . . . . . . . . . . . . .
24
Hybrid Instruments. . . . . . . . . . . . . . . . . . . . . .
24
Additional Investment Policies - Money Market Fund. . . . . .
25
Investment Restrictions. . . . . . . . . . . . . . . . . . . .
27
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . .
30
Management of the Fund (45). . . . . . . . . . . . . . . . . .
31
Directors and Officers. . . . . . . . . . . . . . . . . . . .
31
Investment Adviser. . . . . . . . . . . . . . . . . . . . . .
34
Payment of Expenses . . . . . . . . . . . . . . . . . . . . .
34
Advisory Fee . . . . . . . . . . . . . . . . . . . . . . . .
35
Investment Advisory Agreement and Administrative
Services Agreement . . . . . . . . . . . . . . . . . . . .
36
Investment Subadvisory Agreements . . . . . . . . . . . . . .
37
Service Agreement . . . . . . . . . . . . . . . . . . . . . .
37
License Agreement . . . . . . . . . . . . . . . . . . . . . .
37
Securities Activities of Adviser. . . . . . . . . . . . . . .
37
Code of Ethics. . . . . . . . . . . . . . . . . . . . . . . .
38
Determination of Net Asset Value (47). . . . . . . . . . . . .
38
Purchase and Redemption of Shares (48) . . . . . . . . . . . .
39
Taxes (54) . . . . . . . . . . . . . . . . . . . . . . . . . .
39
Fund Transactions and Brokerage. . . . . . . . . . . . . . . .
39
Distributor. . . . . . . . . . . . . . . . . . . . . . . . . .
40
General Information (2). . . . . . . . . . . . . . . . . . . .
40
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . .
40
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . .
41
Additional Information. . . . . . . . . . . . . . . . . . . .
42
Independent Auditors . . . . . . . . . . . . . . . . . . . . .
42
Appendix A: S&P, Frank Russell, NASDAQ, EAFE
and Total Social Impact Disclaimers. . . . . . . . . . . .
42
________
( ) indicates page on which the corresponding section appears in
the Prospectus.
----------------------------------------------------------------
SMFI 515 SAI-APEX 2/03
SUMMIT MUTUAL FUNDS, INC.
INVESTMENT POLICIES
The following specific policies supplement the Fund's
"Investment Objectives and Policies" set forth in the
Prospectus.
Money Market Instruments, Other Securities and Investment
Techniques
Each Fund may invest in money market instruments whose
characteristics are consistent with the Fund's investment
program and are described below unless explicitly excluded in
the text.
Small Bank Certificates of Deposit. Each Fund, except for the
Short-term Government Fund, may invest in certificates of
deposit issued by commercial banks, savings banks, and savings
and loan associations having assets of less than $1 billion,
provided that the principal amount of such certificates is
insured in full by the Federal Deposit Insurance Corporation
("FDIC"). The FDIC presently insures accounts up to $100,000,
but interest earned above such amount is not insured by the
FDIC.
Repurchase Agreements. A repurchase agreement is an instrument
under which the purchaser (i.e., one of the Funds) acquires
ownership of the obligation (the underlying security) and the
seller (the "issuer" of the repurchase agreement) agrees, at the
time of sale, to repurchase the obligation at a mutually agreed
upon time and price, thereby determining the yield during the
purchaser's holding period. This results in a fixed rate of
return insulated from market fluctuations during such period.
Repurchase agreements usually are for short periods, normally
under one week, and are considered to be loans under the
Investment Company Act of 1940. Funds will not enter into a
repurchase agreement which does not provide for payment within
seven days if, as a result, more than 10% of the value of each
Fund's net assets would then be invested in such repurchase
agreements and other illiquid securities. The Funds will enter
into repurchase agreements only where: (i) the underlying
securities are of the type (excluding maturity limitations)
which the Funds' investment guidelines would allow it to
purchase directly, either in normal circumstances or for
temporary defensive purposes; (ii) the market value of the
underlying securities, including interest accrued, will at all
times equal or exceed the value of the repurchase agreement; and
(iii) payment for the underlying security is made only upon
physical delivery or evidence of book-entry transfer to the
account of the custodian or a bank acting as agent. The
investments by a Fund in repurchase agreements may at times be
substantial when, in the view of the Adviser, unusual market,
liquidity, or other conditions warrant.
If the issuer of the repurchase agreement defaults and does not
repurchase the underlying security, the Fund might incur a loss
if the value of the underlying security declines, and the Fund
might incur disposition costs in liquidating the underlying
security. In addition, if the issuer becomes involved in
bankruptcy proceedings, the Fund may be delayed or prevented
from obtaining the underlying security for its own purposes. In
order to minimize any such risk, the Fund will only engage in
repurchase agreements with recognized securities dealers and
banks determined to present minimal credit risk by the Adviser,
under the direction and supervision of the Board of Directors.
Reverse Repurchase Agreements. Each Fund may enter into reverse
repurchase agreements. Under reverse repurchase agreements, the
Fund transfers possession of Fund securities to banks in return
for cash in an amount equal to a percentage of the Fund
securities' market value and agrees to repurchase the securities
at a future date by repaying the cash with interest. The Fund
retains the right to receive interest and principal payments
from the securities while they are in the possession of the
financial institutions. While a reverse repurchase agreement is
in effect, the Custodian will segregate from other Fund assets
an amount of cash or liquid high quality debt obligations equal
in value to the repurchase price (including any accrued
interest).
U.S. Government Obligations. Securities issued and guaranteed
as to principal and interest by the United States Government
include a variety of Treasury securities, which differ only in
their interest rates, maturities and times of issuance.
Treasury bills have a maturity of one year or less. Treasury
notes have maturities of one to ten years at the time they are
issued and Treasury bonds generally have a maturity of greater
than ten years at the time they are issued.
Government Agency Securities. Government agency securities that
are permissible investments consist of securities either issued
or guaranteed by agencies or instrumentalities of the United
States Government. Agencies of the United States Government
which issue or guarantee obligations include, among others,
Export-Import Banks of the United States, Farmers Home
Administration, Federal Housing Administration, Government
National Mortgage Association ("GNMA"), Maritime Administration,
Small Business Administration and The Tennessee Valley
Authority. Obligations of instrumentalities of the United States
Government include securities issued or guaranteed by, among
others, the Federal National Mortgage Association ("FNMA"),
Federal Home Loan Banks, Federal Home Loan Mortgage Corporation
("FHLMC"), Federal Intermediate Credit Banks, Banks for
Cooperatives, and the U.S. Postal Service. Some of these
securities, such as those guaranteed by GNMA, are supported by
the full faith and credit of the U.S. Treasury; others, such as
those issued by The Tennessee Valley Authority, are supported by
the right of the issuer to borrow from the Treasury; while still
others, such as those issued by the Federal Land Banks, are
supported only by the credit of the instrumentality. The Fund's
primary usage of these types of securities will be GNMA
certificates and FNMA and FHLMC mortgage-backed obligations
which are discussed in more detail below.
Certificates of Deposit. Each Fund, except for the Short-term
Government Fund, may invest in certificates of deposit.
Certificates of deposit are generally short-term, interest-
bearing negotiable certificates issued by banks or savings and
loan associations against funds deposited in the issuing
institution.
Time Deposits. Each Fund, except for the Short-term Government
Fund, may invest in time deposits. Time Deposits are deposits
in a bank or other financial institution for a specified period
of time at a fixed interest rate for which a negotiable
certificate is not received.
Bankers' Acceptance. Each Fund, except for the Short-term
Government Fund, may invest in bankers' acceptances. A bankers'
acceptance is a time draft drawn on a commercial bank by a
borrower usually in connection with an international commercial
transaction (to finance the import, export, transfer or storage
of goods). The borrower is liable for payment as well as the
bank, which unconditionally guarantees to pay the draft at its
face amount on the maturity date. Most acceptances have
maturities of six months or less and are traded in secondary
markets prior to maturity.
Commercial Paper. Each Fund, except for the Short-term
Government Fund, may invest in commercial paper. Commercial
paper refers to short-term, unsecured promissory notes issued by
corporations to finance short-term credit needs. Commercial
paper is usually sold on a discount basis and has a maturity at
the time of issuance not exceeding nine months.
Short Term Corporate Debt Securities. Each Fund, except for the
Short-term Government Fund, may invest in investment grade short
term corporate debt securities with a remaining maturity of one
year or less. The High Yield Bond Fund and the Bond Fund may
invest in below investment grade ("junk") corporate debt
securities. Corporate debt securities with a remaining maturity
of less than one year tend to become extremely liquid and are
traded as money market securities. Such issues tend to have
greater liquidity and considerably less market value
fluctuations than longer-term issues.
When-issued and Delayed-delivery Securities. From time to time,
in the ordinary course of business, each Fund may purchase
securities on a when-issued or delayed-delivery basis - i.e.,
delivery and payment can take place a month or more after the
date of the transactions. The securities so purchased are
subject to market fluctuation and no interest accrues to the
purchaser during this period. At the time a Fund makes the
commitment to purchase securities on a when-issued or delayed-
delivery basis, the Fund will record the transaction and
thereafter reflect the value, each day, of such security in
determining the net asset value of such Fund. At the time of
delivery of the securities, the value may be more or less than
the purchase price. Each Fund will also establish a segregated
account with the Summit Mutual Funds' custodian bank in which it
will maintain cash or cash equivalents or other Fund securities
equal in value to commitments for such when-issued or delayed-
delivery securities.
Asset-Backed Securities. Each Fund, except the S&P 500 Index
Fund, the S&P MidCap 400 Index Fund, the Russell 2000 Small Cap
Index Fund, the Nasdaq -100 Index Fund, the EAFE International
Index Fund, the Total Social Impact Fund and the Short-term
Government Fund may invest in asset-backed securities. Asset-
backed securities may be classified either as pass-through
certificates or collateralized obligations. Pass-through
certificates are asset-backed securities which represent an
undivided fractional ownership interest in an underlying pool of
assets. Asset-backed securities issued in the form of debt
instruments, also known as collateralized obligations, are
generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and
issuing such debt. Asset-backed securities may be of short
maturity, such as commercial paper, or longer, such as bonds,
and may be issued with only one class of security or have more
than one class with some classes having rights to payments on
the asset-backed security subordinate to the rights of the other
classes. These subordinated classes will take the risk of
default before the classes to which they are subordinated.
The High Yield Bond Fund may invest up to 10% of its total
assets in asset-backed securities. The Balanced Index Fund,
Lehman Aggregate Bond Index Fund, Everest Fund, Bond Fund and
Money Market Fund may invest without limitation in asset-backed
securities whose characteristics are consistent with the Fund's
investment program and are not further limited below. The
credit quality of most asset-backed securities depends primarily
on the credit quality of the assets underlying such securities,
how well the entity issuing the security is insulated from the
credit risk of the originator of the debt obligations or any
other affiliated entities and the amount and quality of any
credit support provided to the securities. The rate of
principal payment on asset-backed securities generally depends
on the rate of principal payments received on the underlying
assets which in turn may be affected by a variety of economic
and other factors. As a result, the yield on any asset-backed
security is difficult to predict with precision and actual yield
to maturity may be more or less than the anticipated yield to
maturity. In addition, for asset-backed securities purchased at
a premium, the premium may be lost in the event of early pre-
payment which may result in a loss to the Fund.
Pass-through certificates usually provide for payments of
principal and interest received to be passed through to their
holders, usually after deduction for certain costs and expenses
incurred in administering the pool. Because pass-through
certificates represent an ownership interest in the underlying
assets, the holders thereof bear directly the risk of any
defaults by the obligors on the underlying assets not covered by
any credit support. See "Types of Credit Support" below.
Collateralized obligations are most often trade, credit card or
automobile receivables. The assets collateralizing such asset-
backed securities are pledged to a trustee or custodian for the
benefit of the holders thereof. Such issuers generally hold no
assets other than those underlying the asset-backed securities
and any credit support provided. As a result, although payments
on such asset-backed securities are obligations of the issuers,
in the event of defaults on the underlying assets not covered by
any credit support (see "Types of Credit Support" below), the
issuing entities are unlikely to have sufficient assets to
satisfy their obligations on the related asset-backed
securities.
Mortgage-Backed Securities. Each Fund, except the S&P 500 Index
Fund, the S&P MidCap 400 Index Fund, the Russell 2000 Small Cap
Index Fund, the Nasdaq-100 Index Fund, the EAFE International
Index Fund, the Total Social Impact Fund and the Money Market
Fund, may invest in mortgage-backed securities. Mortgage-backed
securities are securities representing interests in a pool of
mortgages. Principal and interest payments made on the mortgages
in the underlying mortgage pool are passed through to the Fund.
The High Yield Bond Fund may invest up to 10% of its total
assets in mortgage-backed securities. The Balanced Index Fund,
Lehman Aggregate Bond Index Fund, Everest Fund, Bond Fund and
Short-term Government Fund may invest without limitation in
mortgage-backed securities whose characteristics are consistent
with the Fund's investment program and are not further limited
below. The actual prepayment experience of a pool of mortgage
loans or other obligations may cause the yield realized by the
Fund to differ from the yield calculated on the basis of the
average life of the pool. (When a mortgage in the underlying
mortgage pool is prepaid, an unscheduled principal prepayment is
passed through to the Fund. This principal is returned to the
Fund at par. As a result, if a mortgage security were trading
at a premium, its total return would be lowered by prepayments,
and if a mortgage security were trading at a discount, its total
return would be increased by prepayments.) The value of these
securities also may change because of changes in the market's
perception of the creditworthiness of the federal agency that
issued them. In addition, the mortgage securities market in
general may be adversely affected by changes in governmental
regulation or tax policies. In addition, for mortgage-backed
securities purchased at a premium, the premium may be lost in
the event of early prepayment which may result in a loss to the
Fund.
Methods Of Allocating Cash Flows. While many asset-backed
securities are issued with only one class of security, many
asset-backed securities are issued in more than one class, each
with different payment terms. Multiple class asset-backed
securities are issued for two main reasons. First, multiple
classes may be used as a method of providing credit support.
This is accomplished typically through creation of one or more
classes whose right to payments on the asset-backed security is
made subordinate to the right to such payments of the remaining
class or classes. See "Types of Credit Support." Second,
multiple classes may permit the issuance of securities with
payment terms, interest rates or other characteristics differing
both from those of each other and from those of the underlying
assets. Examples include so-called "strips" (asset-backed
securities entitling the holder to disproportionate interests
with respect to the allocation of interest and principal of the
assets backing the security), and securities with class or
classes having characteristics which mimic the characteristics
of non-asset-backed securities, such as floating interest rates
(i.e., interest rates which adjust as a specified benchmark
changes) or scheduled amortization of principal.
Asset-backed securities in which the payment streams on the
underlying assets are allocated in a manner different than those
described above may be issued in the future. A Fund may invest
in such asset-backed securities if such investment is otherwise
consistent with its investment objective and policies and with
the investment restrictions of the Fund.
Types Of Credit Support. Asset-backed securities are often
backed by a pool of assets representing the obligations of a
number of different parties. To lessen the effect of failures
by obligors on underlying assets to make payments, such
securities may contain elements of credit support. Such credit
support falls into two classes: liquidity protection and
protection against ultimate default by an obligor on the
underlying assets. Liquidity protection refers to the provision
of advances, generally by the entity administering the pool of
assets, to ensure that scheduled payments on the underlying pool
are made in a timely fashion. Protection against ultimate
default ensures ultimate payment of the obligations on at least
a portion of the assets in the pool. Such protection may be
provided through guarantees, insurance policies or letters of
credit obtained from third parties, through various means of
structuring the transaction or through a combination of such
approaches. Examples of asset-backed securities with credit
support arising out of the structure of the transaction include
"senior-subordinated securities" (multiple class asset-backed
securities with certain classes subordinate to other classes as
to the payment of principal thereon, with the result that
defaults on the underlying assets are borne first by the holders
of the subordinated class) and asset-backed securities that have
"reserve funds" (where cash or investments, sometimes funded
from a portion of the initiating payments on the underlying
assets, are held in reserve against future losses) or that have
been "over-collateralized" (where the scheduled payments on, or
the principal amount of, the underlying assets substantially
exceeds that required to make payment of the asset-backed
securities and pay any servicing or other fees). The degree of
credit support provided on each issue is based generally on
historical information respecting the level of credit risk
associated with such payments. Delinquency or loss in excess of
that anticipated could adversely affect the return on an
investment in an asset-backed security.
Automobile Receivable Securities. Each Fund, except the S&P 500
Index Fund, the S&P MidCap 400 Index Fund, the Russell 2000
Small Cap Index Fund, the Nasdaq-100 Index Fund, the EAFE
International Index Fund, the Total Social Impact Fund, and the
Short-term Government Fund may invest in automobile receivable
securities. Automobile receivable securities are asset-backed
securities which are backed by receivables from motor vehicle
installment sales contracts or installment loans secured by
motor vehicles ("Automobile Receivable Securities"). Since
installment sales contracts for motor vehicles or installment
loans related thereto ("Automobile Contracts") typically have
shorter durations and lower incidences of prepayment, Automobile
Receivable Securities generally will exhibit a shorter average
life and are less susceptible to prepayment risk.
Most entities that issue Automobile Receivable Securities create
an enforceable interest in their respective Automobile Contracts
only by filing a financing statement and by having the servicer
of the Automobile Contracts, which is usually the originator of
the Automobile Contracts, take custody thereof. In such
circumstances, if the servicer of the Automobile Contracts were
to sell the same Automobile Contracts to another party, in
violation of its obligation not to do so, there is a risk that
such party could acquire an interest in the Automobile Contracts
superior to that of the holders of Automobile Receivable
Securities. Also, although most Automobile Contracts grant a
security interest in the motor vehicle being financed, in most
states the security interest in a motor vehicle must be noted on
the certificate of title to create an enforceable security
interest against competing claims of other parties. Due to the
large number of vehicles involved, however, the certificate of
title to each vehicle financed, pursuant to the Automobile
Contracts underlying the Automobile Receivable Security, usually
is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the
Automobile Receivable Securities. Therefore, there is the
possibility that recoveries on repossessed collateral may not,
in some cases, be available to support payments on the
securities. In addition, various state and federal laws give
the motor vehicle owner the right to assert against the holder
of the owner's Automobile Contract certain defenses such owner
would have against the seller of the motor vehicle. The
assertion of such defenses could reduce payments on the
Automobile Receivable Securities.
Credit Card Receivable Securities. Each Fund, except the S&P
500 Index Fund, the S&P MidCap 400 Index Fund, the Russell 2000
Small Cap Index Fund, the Nasdaq-100 Index Fund, the EAFE
International Index Fund, the Total Social Impact Fund, and the
Short-term Government Fund may invest in credit card receivable
securities. Credit card receivable securities are asset-backed
securities backed by receivables from revolving credit card
agreements ("Credit Card Receivable Securities"). Credit
balances on revolving credit card agreements ("Accounts") are
generally paid down more rapidly than are Automobile Contracts.
Most of the Credit Card Receivable Securities issued publicly to
date have been pass-through certificates. In order to lengthen
the maturity of Credit Card Receivable Securities, most such
securities provide for a fixed period during which only interest
payments on the underlying Accounts are passed through to the
security holder and principal payments received on such Accounts
are used to fund the transfer to the pool of assets supporting
the related Credit Card Receivable Securities of additional
credit card charges made on an Account. The initial fixed
period usually may be shortened upon the occurrence of specified
events which signal a potential deterioration in the quality of
the assets backing the security, such as the imposition of a cap
on interest rates. The ability of the issuer to extend the life
of an issue of Credit Card Receivable Securities thus depends
upon the continued generation of additional principal amounts in
the underlying accounts during the initial period and the non-
occurrence of specified events. An acceleration in cardholders'
payment rates or any other event which shortens the period
during which additional credit card charges on an Account may be
transferred to the pool of assets supporting the related Credit
Card Receivable Security could shorten the weighted average life
and yield of the Credit Card Receivable Security.
Credit cardholders are entitled to the protection of a number of
state and federal consumer credit laws, many of which give such
holder the right to set off certain amounts against balances
owed on the credit card, thereby reducing amounts paid on
Accounts. In addition, unlike most other asset-backed
securities, Accounts are unsecured obligations of the
cardholder.
Other Assets. The Adviser anticipates that asset-backed
securities backed by assets other than those described above
will be issued in the future. Each Fund, except the S&P 500
Index Fund, the S&P MidCap 400 Index Fund, the Russell 2000
Small Cap Index Fund, the Nasdaq-100 Index Fund, EAFE
International Index Fund, the Total Social Impact Fund and the
Short-term Government Fund may invest in such securities in the
future if such investment is otherwise consistent with its
investment objective, policies and restrictions. There are, of
course, other types of securities that are, or may become,
available, which are similar to the foregoing.
GNMA Certificates. GNMA certificates are mortgage-backed
securities representing part ownership of a pool of mortgage
loans on which timely payment of interest and principal is
guaranteed by the full faith and credit of the U.S. government.
GNMA certificates differ from typical bonds because principal is
repaid monthly over the term of the loan rather than returned in
a lump sum at maturity. Because both interest and principal
payments (including prepayments) on the underlying mortgage
loans are passed through to the holder of the certificate, GNMA
certificates are called "pass-through" securities.
Although the mortgage loans in the pool have maturities of up to
30 years, the actual average life of the GNMA certificates
typically will be substantially less because the mortgages are
subject to normal principal amortization and may be prepaid
prior to maturity. Prepayment rates vary widely and may be
affected by changes in market interest rates. In periods of
falling interest rates, the rate of prepayment tends to
increase, thereby shortening the actual average life of the GNMA
certificates. Conversely, when interest rates are rising, the
rate of prepayment tends to decrease, thereby lengthening the
actual average life of the GNMA certificates. Accordingly, it is
not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayments may occur at higher
or lower rates that the original yield on the certificates. Due
to the prepayment feature and the need to reinvest prepayments
of principal at current rates, GNMA certificates can be less
effective than typical bonds of similar maturities at "locking-
in" yields during periods of declining interest rates, although
they may have comparable risks of decline in value during
periods of rising interest rates.
FNMA and FHLMC Mortgage-Backed Obligations. Each Fund may
invest in FNMA and FHLMC mortgage-backed obligations. The
Federal National Mortgage Association ("FNMA"), a federally
chartered and privately owned corporation, issues pass-through
securities representing an interest in a pool of conventional
mortgage loans. FNMA guarantees the timely payment of principal
and interest but this guarantee is not backed by the full faith
and credit of the U.S. government. The Federal Home Loan
Mortgage Corporation ("FHLMC"), a corporate instrumentality of
the United States, issues participation certificates that
represent an interest in a pool of conventional mortgage loans.
FHLMC guarantees the timely payment of interest and the ultimate
collection of principal and maintains reserves to protect
holders against losses due to default, but the certificates are
not backed by the full faith and credit of the U.S. government.
As is the case with GNMA certificates, the actual maturity of
and realized yield on particular FNMA and FHLMC pass-through
securities will vary based on the prepayment experience of the
underlying pool of mortgages.
Collateralized Mortgage Obligations ("CMOs"). Each Fund other
than the S&P 500 Index Fund, the S&P MidCap 400 Index Fund, the
Russell 2000 Small Cap Index Fund, the Nasdaq-100 Index Fund,
the EAFE International Index Fund, and the Total Social Impact
Fund, may invest in collateralized mortgage obligations ("CMOs")
or mortgage-backed bonds issued by financial institutions such
as commercial banks, savings and loan associations, mortgage
banks and securities broker-dealers (or affiliates of such
institutions established to issue these securities). CMOs are
obligations fully collateralized directly or indirectly by a
pool of mortgages on which payments of principal and interest
are dedicated to payment of principal and interest on the CMOs.
Payments on the underlying mortgages (both interest and
principal) are passed through to the holders, although not
necessarily on a pro rata basis, on the same schedule as they
are received. Mortgage-backed bonds are general obligations of
the issuer fully collateralized directly or indirectly by a pool
of mortgages. The mortgages serve as collateral for the issuer's
payment obligations on the bonds, but interest and principal
payments on the mortgages are not passed through either directly
(as with GNMA certificates and FNMA and FHLMC pass-through
securities) or on a modified basis (as with CMOs). Accordingly,
a change in the rate of prepayments on the pool of mortgages
could change the effective maturity of a CMO but not that of a
mortgage-backed bond (although, like many bonds, mortgage-backed
bonds may be callable by the issuer prior to maturity).
Each Fund other than the S&P 500 Index Fund, the S&P MidCap 400
Index Fund, the Russell 2000 Small Cap Index Fund, the Nasdaq-
100 Index Fund, the EAFE International Index Fund, and the Total
Social Impact Fund, may also invest in a variety of more risky
CMOs, including interest only ("IOs"), principal only ("POs"),
inverse floaters, or a combination of these securities.
Stripped mortgage-backed securities ("SMBS") are usually
structured with several classes that receive different
proportions of the interest and principal distributions from a
pool of mortgage assets. A common type of SMBS will have one
class receiving all of the interest from the mortgage assets (an
IO), while the other class will receive all of the principal (a
PO). However, in some instances, one class will receive some of
the interest and most of the principal while the other class
will receive most of the interest and the remainder of the
principal. If the underlying mortgage assets experience greater-
than-anticipated or less-than-anticipated prepayments of
principal, the Fund may fail to fully recoup its initial
investment or obtain its initially assumed yield on some of
these securities. The market value of the class consisting
entirely of principal payments generally is unusually volatile
in response to changes in interest rates. The yields on classes
of SMBS that have more uncertain timing of cash flows are
generally higher than prevailing market yields on other
mortgage-backed securities because there is a greater risk that
the initial investment will not be fully recouped or received as
planned over time.
Each Fund other than the S&P 500 Index Fund, the S&P MidCap 400
Index Fund, the Russell 2000 Small Cap Index Fund, the Nasdaq-
100 Index Fund, the EAFE International Index Fund, the Total
Social Impact Fund, and the Money Market Fund, may invest in
another CMO class known as leveraged inverse floating rate debt
instruments ("inverse floaters"). The interest rate on an
inverse floater resets in the opposite direction from the market
rate of interest to which the inverse floater is indexed. An
inverse floater may be considered to be leveraged to the extent
that its interest rate varies by a magnitude that exceeds the
magnitude of the change in the index rate of interest. The
higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values.
Accordingly, the duration of an inverse floater may exceed its
stated final maturity.
The staff of the Securities and Exchange Commission ("SEC" or
the "Commission") has taken the position that IOs and POs, other
than government-issued IOs or POs backed by fixed-rate
mortgages, should be treated as illiquid securities and,
accordingly, each Fund, except for the High Yield Bond Fund,
will limit its investments in such securities, together with all
other illiquid securities, to 10% of the Fund's net assets. The
High Yield Bond Fund will limit its investments in such
securities, together with all other illiquid securities, to 15%
of the Fund's net assets. Furthermore, each Fund, other than the
High Yield Bond Fund, limits investments in more risky CMOs
(IOs, POs, inverse floaters) to no more than 5% of its total
assets. The Funds will treat non-government-issued IOs and POs
not backed by fixed-rate mortgages as illiquid unless and until
the SEC modifies its position. Under the staff's position, the
determination of whether a particular government-issued IO and
PO backed by fixed-rate mortgages is liquid may be made on a
case by case basis under guidelines and standards established by
the Board of Directors. The Directors have delegated to the
Adviser the authority to determine the liquidity of these
investments based on the following guidelines: the type of
issuer; type of collateral, including age and prepayment
characteristics; rate of interest on coupon relative to current
market rates and the effect of the rate on the potential for
prepayments; complexity of the issue's structure, including the
number of tranches; size of the issue and the number of dealers
who make a market in the IO or PO.
Zero-Coupon and Pay-In-Kind Bonds. Each Fund, other than the
S&P 500 Index Fund, the S&P MidCap 400 Index Fund, the Russell
2000 Small Cap Index Fund, the Nasdaq-100 Index Fund, the EAFE
International Index Fund, and the Total Social Impact Fund may
invest in zero-coupon bonds. The High Yield Bond Fund may
invest up to 25% of its total assets in zero-coupon bonds. A
zero-coupon bond is a security that has no cash coupon payments.
Instead, the issuer sells the security at a substantial discount
from its maturity value. The interest received by the investor
from holding this security to maturity is the difference between
the maturity value and the purchase price. The advantage to the
investor is that reinvestment risk of the income received during
the life of the bond is eliminated. However, zero-coupon bonds,
like other bonds, retain interest rate and credit risk and
usually display more price volatility than those securities that
pay a cash coupon. Since there are no periodic interest
payments made to the holder of a zero-coupon security, when
interest rates rise, the value of such a security will fall more
dramatically than a bond paying out interest on a current basis.
When interest rates fall, however, zero-coupon securities rise
more rapidly in value because the bonds have locked in a
specific rate of return which becomes more attractive the
further interest rates fall.
Each Fund, other than the S&P 500 Index Fund, the S&P MidCap 400
Index Fund, the Russell 2000 Small Cap Index Fund, the Nasdaq-
100 Index Fund, the EAFE International Index Fund, the Total
Social Impact Fund and the Money Market Fund, may invest in pay-
in-kind bonds. The High Yield Fund and Emerging Markets Fund
may invest up to 25% of its total assets in pay-in-kind bonds.
Pay-in-kind ("PIK") bonds are securities that pay interest in
either cash or additional securities, at the issuer's option,
for a specified period. PIKs, like zero-coupon bonds, are
designed to give an issuer flexibility in managing cash flow.
PIK bonds can be either senior or subordinated debt and trade
flat (i.e., without accrued interest). The price of PIK bonds
is expected to reflect the market value of the underlying debt
plus an amount representing accrued interest since the last
payment. PIKs are usually less volatile than zero-coupon bonds,
but more volatile than securities paid in cash.
Convertible Bonds. Each Fund, except the S&P 500 Index Fund,
the S&P 400 MidCap Index Fund, the Russell 2000 Small Cap Index
Fund, the Nasdaq-100 Index Fund, the EAFE International Index
Fund, the Total Social Impact Fund, the Balanced Index Fund, the
Lehman Aggregate Bond Index Fund, the Short-term Government
Fund, and the Money Market Fund, may invest in convertible
bonds. The High Yield Bond Fund may invest up to 10% of its
assets in convertible bonds. The Bond Fund may invest up to 25%
of its assets in convertible bonds and other securities.
Convertible bonds are debt instruments convertible into equity
of the issuing company at certain times in the future and
according to a certain exchange ratio. Typically, convertible
bonds are callable by the issuing company, which may, in effect,
force conversion before the holder would otherwise choose.
While the High Yield Fund and Emerging Market Bond Fund intend
to invest primarily in debt securities, they may invest in
convertible bonds. While some countries or companies may be
regarded as favorable investments, pure fixed income
opportunities may be unattractive or limited due to insufficient
supply, or legal or technical restrictions. In such cases, the
High Yield Fund and Emerging Markets Fund may consider
convertible bonds to gain exposure to such markets.
Equity Securities. The S&P 500 Index Fund, the S&P MidCap 400
Index Fund, the Russell 2000 Small Cap Index Fund, the Nasdaq-
100 Index Fund, the EAFE International Index Fund, the Total
Social Impact Fund and the Everest Fund may invest in equity
securities without restriction. The Balanced Index Fund
generally invests 60% of the Fund in equity securities. The
Bond Fund, High Yield Bond Fund may invest up to 25% of its
assets in equities. The Lehman Aggregate Bond Index Fund and
the Short-term Government Fund may not invest in equity
securities.
Unit Investment Trusts. Any Index-based Fund may invest in
shares of a unit investment trust ("UIT"), which is currently in
existence or is created in the future, that is designed to track
the performance of the Fund's underlying Index. UIT shares are
units of beneficial interest in a UIT, representing
proportionate undivided interests in a portfolio of securities
in substantially the same weighting as the component common
stocks of an underlying Index. While the investment objective
of such a UIT is to provide investment results that generally
correspond to the price and yield performance of the component
common stocks of the underlying Index, there can be no assurance
that this investment objective will be met fully. As UITs are
securities issued by an investment company, non-fundamental
restriction (5) below restricts their purchases to 10% of the
Fund's assets.
Private Placements (Restricted Securities). Each Fund other
than the S&P 500 Index Fund, the S&P MidCap 400 Index Fund, the
Russell 2000 Small Cap Index Fund, the Nasdaq-100 Index Fund,
the EAFE International Index Fund, the Total Social Impact Fund
and the Short-term Government Fund, may invest in securities,
including restricted securities (privately-placed debt
securities), which are not readily marketable. The High Yield
Bond Fund will not acquire such securities if, as a result, it
would comprise, together with all other illiquid securities,
more than 15% of the value of the Fund's net assets.
Certain restricted securities may be sold only in privately
negotiated transactions or in a public offering with respect to
which a registration statement is in effect under the Securities
Act of 1933, as amended (the "1933 Act"). Where registration is
required, a Fund may be obligated to pay all or part of the
registration expenses and a considerable period may elapse
between the time of the decision to sell and the time the Fund
may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse
market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell.
Restricted securities without readily available market
quotations will be priced at fair value as determined in good
faith by the Board of Directors.
Some restricted securities are eligible for purchase and sale
under Rule 144A under the 1933 Act. This rule permits certain
qualified institutional buyers, such as the Funds, to trade in
privately-placed securities, including various debt securities,
even though such securities are not registered under the 1933
Act. Securities purchased under Rule 144A, although restricted,
may nevertheless be liquid, and the Adviser, under the
supervision of the Directors, on a case-by-case basis will make
this determination. In making this determination, the Adviser
will consider the trading markets for the specific security,
taking into account the unregistered nature of a Rule 144A
security. In addition, the Adviser could consider the: (i)
frequency of trades and quotes; (ii) number of dealers and
potential purchasers; (iii) dealer undertakings to make a
market; and (iv) nature of the security and of marketplace
trades (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer). The
liquidity of Rule 144A securities will be monitored, and if, as
a result of changed conditions, it is determined that a 144A
security held in the High Yield Bond Fund is no longer liquid,
the affected Fund's holdings of illiquid securities will be
reviewed to determine what, if any, steps are required, to
assure that the High Yield Bond Fund does not invest more than
15% of its net assets in illiquid securities. Investing in Rule
144A securities could have the effect of increasing the amount
of a Fund's assets invested in illiquid securities if qualified
institutional buyers are unwilling to purchase such securities.
Certain Risk Factors Relating to High Yield, High Risk Bonds
The descriptions below are intended to supplement the material
in the Prospectus regarding high-yield, high-risk. Because of
its investment policies, the High Yield Fund may not be suitable
or appropriate for all investors. The Funds are designed for
intermediate to long-term investors who can accept the risks
entailed in seeking a high level of current income available
from investments in intermediate to long-term, high yield, high
risk, medium- and lower-quality, fixed-income securities.
Consistent with an intermediate to long-term investment
approach, investors in these Funds should not rely on these
Funds for their short-term financial needs. The principal value
of the lower-quality securities in which these Funds invest will
be affected by interest rate levels, general economic
conditions, specific industry conditions and the
creditworthiness of the individual issuer. Although these Funds
seek to reduce risk by portfolio diversification, credit
analysis and attention to trends in the economy, industries and
financial markets, such efforts will not eliminate all risk.
There can, of course, be no assurance that these Funds will
achieve these results.
The Funds' prospectus, for the Bond Fund and the High Yield Bond
Fund, in the sections entitled "Investment Strategies" and
"Primary Risks", describe the special considerations and
additional risk factors associated with each Fund's investments
in lower-rated debt securities commonly referred to as "junk
bonds."
EMERGING MARKETS
The economies, markets, and political structures of a number of
the countries in which the EAFE International Index Fund can
invest do not compare favorably with the U.S. and other mature
economies in terms of wealth and stability. Therefore,
investments in these countries will be riskier and more subject
to erratic and abrupt price movements. This is particularly
true for emerging market nations.
Some economies are less well developed, overly reliant on
particular industries, and more vulnerable to the ebb and flow
of international trade, trade barriers, and other protectionist
or retaliatory measures. Certain countries have histories of
political instability and upheaval that could cause their
governments to act in a detrimental or hostile manner toward
private enterprise or foreign investment. Actions such as
nationalizing a company or industry, expropriating assets, or
imposing punitive taxes could have a severe effect on security
prices and impair the Fund's ability to repatriate capital or
income. Significant external risks, including war, currently
affect some countries.
Additional factors which may influence the ability or
willingness of a country to service debt include, but are not
limited to, the country's cash flow situation, the availability
of sufficient foreign exchange on the date payment is due, the
relative size of the country's debt service burden to the
economy as a whole, its government policy toward particular
international agencies and any political restrictions that may
be imposed.
HIGH YIELD/HIGH RISK SECURITIES
Larger bond issues are evaluated by nationally recognized
statistical rating organizations (each, an "NRSRO") such as
Moody's Investors Service, Inc. ("Moody's") and Standard &
Poor's Ratings Group ("Standard & Poor's") on the basis of the
issuer's ability to meet all required interest and principal
payments. The highest ratings are assigned to issuers perceived
to be the best credit risks. The Adviser's research analysts
also evaluate all portfolio holdings of the Funds, including
those rated by an NRSRO. Other things being equal, lower-rated
bonds generally have higher yields due to greater risk. High
yield, high risk securities are those rated below "Baa" by
Moody's or "BBB" by Standard & Poor's or those that are not
rated but judged by the Adviser to be of comparable quality.
While the Funds are permitted to purchase defaulted bonds, the
Adviser will acquire such securities only if the portfolio
manager foresees the potential for significant capital
appreciation.
Sensitivity to Interest Rates and Economic Changes. High-yield
bonds are very sensitive to adverse economic changes and
corporate developments and their yields will fluctuate over
time. During an economic downturn or substantial period of
rising interest rates, highly leveraged issuers may experience
financial stress that would adversely affect their ability to
service their principal and interest payment obligations, to
meet projected business goals, and to obtain additional
financing. If the issuer of a bond defaulted on its obligations
to pay interest or principal or entered into bankruptcy
proceedings, the Fund may incur losses or expenses in seeking
recovery of amounts owed to it. In addition, periods of
economic uncertainty and changes can be expected to result in
increased volatility of market prices of high-yield bonds and
the Portfolio's net asset value.
Payment Expectations. High-yield bonds may contain redemption
or call provisions. If an issuer exercised these provisions in
a declining interest rate market, the Fund would have to replace
the security with a lower-yielding security, resulting in a
decreased return for investors. Conversely, a high-yield bond's
value will decrease in a rising interest rate market, as will
the value of the Fund's assets. If the Fund experiences
unexpected net redemptions, this may force it to sell high-yield
bonds without regard to their investment merits, thereby
decreasing the asset base upon which expenses can be spread and
possibly reducing the Fund's rate of return.
Liquidity and Valuation. There may be little trading in the
secondary market for particular bonds, which may affect
adversely the Fund's ability to value accurately or dispose of
such bonds. Adverse publicity and investor perceptions, whether
or not based on fundamental analysis, may decrease the values
and liquidity of high-yield bonds, especially in a thin market.
Investments in Foreign Securities
American Depositary Receipts. All Funds, except the Short-term
Government Fund, the Lehman Aggregate Bond Index Fund, and the
Money Market Fund, may invest in American Depository Receipts.
American Depositary Receipts ("ADRs") may be issued in sponsored
or unsponsored programs. In sponsored programs, the issuer makes
arrangements to have its securities traded in the form of ADRs;
in unsponsored programs, the issuer may not be directly involved
in the creation of the program. Although the regulatory
requirements with respect to sponsored and unsponsored programs
are generally similar, the issuers of unsponsored ADRs are not
obligated to disclose material information in the United States
and, therefore, such information may not be reflected in the
market value of the ADRs.
European and Global Depository Receipts The EAFE International
Index Fund, the High Yield Bond Fund may invest indirectly in
securities of emerging market issuers through sponsored or
unsponsored European Depositary Receipts ("DRs") or Global
Depositary Receipts ("GDRs"). EDRs represent securities of
foreign issuers and are designed for use in European markets.
GDR's represents ownership in a non-U.S. company's publicly
traded securities that are traded on foreign stock exchanges or
foreign over-the-counter markets. Holders of unsponsored EDRs
or GDRs generally bear all the costs of such facilities and the
depository of an unsponsored facility frequently is under no
obligation to distribute investor communications received from
the issuer of the deposited security or to pass through voting
rights to the holders of such receipts in respect of the
deposited securities.
Foreign Sovereign Debt Securities The Bond Fund, the High Yield
Bond Fund may invest in foreign sovereign debt securities,
including those of emerging market nations, and Brady Bonds.
Sovereign obligors in emerging market nations are among the
world's largest debtors to commercial banks, other governments,
international financial organizations and other financial
institutions. Some of these obligors have in the past
experienced substantial difficulties in servicing their external
debt obligations, leading to defaults on certain obligations and
the restructuring of certain indebtedness. Restructuring
arrangements have included, among other things, reducing and
rescheduling interest and principal payments by negotiating new
or amended credit agreements or converting outstanding principal
and unpaid interest to Brady Bonds, and obtaining new credit to
finance interest payments. Holders of certain foreign sovereign
debt securities may be requested to participate in the
restructuring of such obligations and to extend further loans to
their issuers. There can be no assurance that the Brady Bonds
and other foreign sovereign debt securities in which the Funds
may invest will not be subject to similar restructuring
arrangements or to requests for new credit which may adversely
affect the Funds' holdings. Furthermore, certain participants
in the secondary market for such debt may be directly involved
in negotiating the terms of these arrangements and may therefore
have access to information not available to other market
participants.
Brady Bonds are debt securities issued under the framework of
the Brady Plan, an initiative announced by U.S. Treasury
Secretary Nicholas F. Brady in 1989 as a mechanism for debtor
nations to restructure their outstanding external indebtedness.
In restructuring external debt under the Brady Plan framework, a
debtor nation negotiates with its existing bank lenders as well
as multilateral institutions such as the International Bank for
Reconstruction and Development (the "World Bank") and the
International Monetary Fund (the "IMF"). The Brady Plan
framework, as it has developed, contemplates the exchange of
commercial bank debt for newly-issued bonds. The World Bank
and/or the IMF support the restructuring by providing funds
pursuant to loan agreements or other arrangements which enable
the debtor nation to collateralize the new Brady Bonds or to
repurchase outstanding bank debt at a discount. Under these
arrangements with the World Bank or the IMF, debtor nations have
been required to agree to implement certain domestic monetary
and fiscal reforms. Such reforms have included liberalization
of trade and foreign investment, privatization of state-owned
enterprises and setting targets for public spending and
borrowing. These policies and programs seek to promote the
debtor country's economic growth and development. Investors
should recognize that the Brady Plan only sets forth general
guiding principles for economic reform and debt reduction,
emphasizing that solutions must be negotiated on a case-by-case
basis between debtor nations and their creditors. The Adviser
believes that economic reforms undertaken by countries in
connection with the issuance of Brady Bonds make the debt of
countries which have issued or have announced plans to issue
Brady Bonds an attractive opportunity for investment.
Investors should recognize that Brady Bonds have been issued
somewhat recently and, accordingly, do not have a long payment
history. The financial packages offered by each country differ.
The types of options have included the exchange of outstanding
commercial bank debt for bonds issued at 100% of face value of
such debt, which carry a below-market stated rate of interest
(generally known as par bonds), bonds issued at a discount of
face value of such debt (generally known as discount bonds), and
bonds bearing an interest rate which increases over time and the
advancement of new money by existing lenders. The principal of
certain Brady Bonds has been collateralized by U.S. Treasury
zero-coupon bonds with a maturity equal to the final maturity of
such Brady Bonds. Collateral purchases are financed by the IMF,
the World Bank and the debtor nations' reserves. In addition,
the first two or three interest payments on certain types of
Brady Bonds may be collateralized by cash or securities agreed
upon by creditors. Subsequent interest payments may be
uncollateralized or may be collateralized over specified periods
of time. The Funds may purchase Brady Bonds with no or limited
collateralization, and will be relying for payment of interest
and principal primarily on the willingness of the foreign
government to make payment in accordance with the terms of the
Brady Bonds. Brady Bonds issued to date are generally purchased
and sold in secondary markets through U.S. securities dealers
and maintained through European transnational securities
depositories. A substantial portion of Brady Bonds and other
sovereign debt securities in which the Funds may invest are
likely to be acquired at a discount.
Investing in foreign sovereign debt securities will expose the
Funds to the direct or indirect consequences of political,
social or economic changes in the emerging market nations that
issue the securities. The ability and willingness of sovereign
obligors in emerging market nations or the governmental
authorities that control repayment of their external debt to pay
principal and interest on such debt when due may depend on
general economic and political conditions within the relevant
country. Countries such as those in which the Funds may invest
have historically experienced, and may continue to experience,
high rates of inflation, high interest rates, exchange rate
trade difficulties and extreme poverty and unemployment. Many
of these countries are also characterized by political
uncertainty or instability. Additional factors which may
influence the ability or willingness to service debt include,
but are not limited to, a country's cash flow situation, the
availability of sufficient foreign exchange on the date a
payment is due, the size of its debt service burden relative to
the economy as a whole, and its government's policy towards the
IMF, the World Bank and other international agencies.
The ability of a foreign sovereign obligor to make timely
payments on its external debt obligations will also be strongly
influenced by the obligor's balance of payments, including
export performance, its access to international credits and
investments, fluctuations in interest rates and the extent of
its foreign reserves. A country whose exports are concentrated
in a few commodities or whose economy depends on certain
strategic imports could be vulnerable to fluctuations in
international prices of these commodities or imports. To the
extent that a country receives payment for its exports in
currencies other than dollars, its ability to make debt payments
denominated in dollars could be adversely affected. If a
foreign sovereign obligor cannot generate sufficient earnings
from foreign trade to service its external debt, it may need to
depend on continuing loans and aid from foreign governments,
commercial banks and multilateral organizations, and inflows of
foreign investment. The commitment on the part of these foreign
governments, multilateral organizations and others to make such
disbursements may be conditioned on the government's
implementation of economic reforms and/or economic performance
and the timely service of its obligations. Failure to implement
such reforms, achieve such levels of economic performance or
repay principal or interest when due may result in the
cancellation of such third parties' commitments to lend funds,
which may further impair the obligor's ability or willingness to
timely service its debts. The cost of servicing external debt
will also generally be adversely affected by rising
international interest rates, because many external debt
obligations bear interest at rates which are adjusted based upon
international interest rates. The ability to service external
debt will also depend on the level of the relevant government's
international currency reserves and its access to foreign
exchange. Currency devaluations may affect the ability of a
sovereign obligor to obtain sufficient foreign exchange to
service its external debt.
As a result of the foregoing, a governmental obligor may default
on its obligations. If such an event occurs, a Fund may have
limited legal recourse against the issuer and/or guarantor.
Remedies must, in some cases, be pursued in the courts of the
defaulting party itself, and the ability of the holder of
foreign sovereign debt securities to obtain recourse may be
subject to the political climate in the relevant country. In
addition, no assurance can be given that the holders of
commercial bank debt will not contest payments to the holders of
other foreign sovereign debt obligations in the event of default
under their commercial bank loan agreements.
Foreign Exchange. If a foreign country cannot generate
sufficient earnings from foreign trade to service its external
debt, it may need to depend on continuing loans and aid from
foreign governments, commercial banks, multilateral
organizations, and inflows of foreign investment. The cost of
servicing external debt will also generally be adversely
affected by rising international interest rates because many
external debt obligations bear interest at rates which are
adjusted based upon international interest rates. The ability to
service external debt will also depend on the level of the
relevant government's international currency reserves and its
access to foreign currencies. Currency devaluations may affect
the ability of an obligor to obtain sufficient foreign
currencies to service its external debt.
Foreign Currency Exchange Transactions. Each Fund that engages
in foreign currency exchange transactions may do so on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign
exchange currency market, or on a forward basis to "lock in" the
U.S. dollar price of the security. A forward foreign currency
exchange contract (a "forward contract") involves 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 the
contract. These contracts are principally traded in the
interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward
contract generally has no deposit requirement, and no
commissions are charged at any stage for trades. Forwards will
be used primarily to adjust the foreign exchange exposure of a
Fund with a view to protecting the portfolios from adverse
currency movements, based on the Adviser's outlook. Forwards
involve other risks, including, but not limited to, significant
volatility in currency markets. In addition, currency movements
may not occur exactly as the Adviser expected, so the use of
forwards could adversely affect a Fund's total return.
The Funds may enter into forward foreign currency exchange
contracts under the following circumstances. First, when a Fund
enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock in"
the U.S. dollar price of the security. By entering into a
forward contract for the purchase or sale, for a fixed amount of
dollars, of the amount of foreign currency involved in the
underlying security transactions, the Fund will be able to
protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the
subject foreign currency during the period between the date the
security is purchased or sold, and the date on which payment is
made or received.
Second, when the Adviser believes that the currency of a
particular foreign country may suffer or enjoy a substantial
movement against another currency, it may enter into a forward
contract to sell or buy the amount of the former foreign
currency, approximating the value of some or all of a Fund's
portfolio securities denominated in such foreign currency.
Alternatively, where appropriate, a Fund may hedge all or part
of its foreign currency exposure through the use of a basket of
currencies or a proxy currency where such currency or currencies
act as an effective proxy for other currencies. In such a case,
the Funds may enter into a forward contract where the amount of
the foreign currency to be sold exceeds the value of the
securities denominated in such currency. The use of this basket
hedging technique may be more efficient and economical than
entering into separate forward contracts for each currency held
in a Fund. The precise matching of the forward contract amounts
and the value of the securities involved will not generally be
possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in
the value of those securities between the date the forward
contract is entered into and the date it matures. The
projection of short-term currency market movement is extremely
difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. The Adviser does not intend to
enter into such forward contracts under this second circumstance
if, as result, a Fund will have more than 20% of the value of
its net assets committed to the consummation of such contracts.
Other than as set forth above, and immediately below, a Fund
will not enter into such forward contracts or maintain a net
exposure to such contracts where the consummation of the
contracts would obligate the Fund to deliver an amount of
foreign currency in excess of the value of the Fund's portfolio
securities or other assets denominated in that currency. Each
Fund, however, in order to avoid excess transactions and
transaction costs, may maintain a net exposure to forward
contracts in excess of the value of the Fund's portfolio
securities or other assets to which the forward contracts relate
(including accrued interest to the maturity of the forward on
such securities), provided the excess amount is "covered" by
liquid, high-grade debt securities, denominated in any currency,
at least equal at all times to the amount of such excess. For
these purposes "the securities or other assets to which the
forward contract relate" may be securities or assets denominated
in a single currency, or where proxy forwards are used,
securities denominated in more than one currency. Under normal
circumstances, consideration of the prospect for currency
parities will be incorporated into the longer term investment
decisions made with regard to overall diversification
strategies. However, the Adviser believes that it is important
to have the flexibility to enter into such forward contracts
when it determines that the best interests of the Funds will be
served. At the maturity of a forward contract, a Fund may
either sell the portfolio security and make delivery of the
foreign currency, or it may retain the security and terminate
its contractual obligation to deliver the foreign currency by
purchasing an "offsetting" contract obligating it to purchase,
on the same maturity date, the same amount of the foreign
currency. It is often not possible to effectively hedge the
currency risk associated with emerging market nation debt
securities because their currency markets are not sufficiently
developed.
As indicated above, it is impossible to forecast with absolute
precision the market value of portfolio securities at the
expiration of the forward contract. Accordingly, it may be
necessary for a Fund to purchase additional foreign currency on
the spot market (and bear the expense of such purchase) if the
market value of the security is less than the amount of foreign
currency the Fund is obligated to deliver and if a decision is
made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot
market some of the foreign currency received upon the sale of
the portfolio security if its market value exceeds the amount of
foreign currency the Fund is obligated to deliver. However, as
noted, in order to avoid excessive transactions and transaction
costs, the Funds may use liquid securities, denominated in any
currency, to cover the amount by which the value of a forward
contract exceeds the value of the securities to which it
relates.
If a Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss (as
described below) to the extent that there has been movement in
forward contract prices. If a Fund engages in an offsetting
transaction, it may subsequently enter into a new forward
contract to sell the foreign currency. Should forward prices
decline during the period between a Fund's entering into a
forward contract for the sale of a foreign currency and the date
it enters into an offsetting contract for the purchase of the
foreign currency, the Fund will realize a gain to the extent the
price of the currency it has agreed to sell exceeds the price of
the currency it has agreed to purchase. Should forward prices
increase, a Fund will suffer a loss to the extent the price of
the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
Costs Of Hedging. When a Fund purchases a foreign bond with a
higher interest rate than is available on U.S. bonds of a
similar maturity, the additional yield on the foreign bond could
be substantially lost if the Fund were to enter into a direct
hedge by selling the foreign currency and purchasing the U.S.
Dollar. This is what is commonly referred to as the "cost" of
hedging. Proxy hedging attempts to reduce this cost through an
indirect hedge back to the U.S. Dollar. It is important to note
that the hedging costs are treated as capital transactions and
are not, therefore, deducted from the Fund's dividend
distribution and are not reflected in its yield. Instead, such
costs will, over time, be reflected in the Fund's net asset
value.
Foreign Markets. Delays in settlement which may occur in
connection with transactions involving foreign securities could
result in temporary periods when a portion of the assets of a
Fund is uninvested and no return is earned thereon. The
inability of a Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result in losses to
a Fund due to subsequent declines in values of the portfolio
securities or, if the Fund has entered into a contract to sell
the security, possible liability to the purchaser. Certain
foreign markets, especially emerging markets, may require
governmental approval for the repatriation of investment income,
capital or the proceeds of sales of securities by foreign
investors. A Fund could be adversely affected by delays in, or a
refusal to grant, any required governmental approval for
repatriation of capital, as well as by the application to the
portfolio of any restrictions on investments.
Foreign Debt Securities. Investing in foreign debt securities
will expose the Funds to the direct or indirect consequences of
political, social or economic changes in the industrialized
developing and emerging countries that issue the securities. The
ability and willingness of obligor or the governmental
authorities that control repayment of their external debt to pay
principal and interest on such debt when due may depend on
general economic and political conditions within the relevant
country. Additional country-related factors unique to foreign
issuers which may influence the ability or willingness to
service debt include, but are not limited to, a country's cash
flow situation, the availability of sufficient foreign exchange
on the date a payment is due, the relative size of its debt
service burden to the economy as a whole, and its government's
relationships with the International Monetary Fund, the World
Bank and other international agencies.
Foreign Securities. The EAFE International Index Fund may
invest 100% of its net assets in foreign securities. Subject to
the Fund's quality and maturity standards, the High Yield Bond
Fund may invest without limitation in the securities (payable in
U.S. dollars) of foreign issuers and in the securities of
foreign branches of U.S. banks such as negotiable certificates
of deposit (Eurodollars). The High Yield Bond Fund may invest
up to 20% of its net assets in non-U.S. dollar-denominated
fixed-income securities principally traded in financial markets
outside the United States. Because the Funds may invest in
foreign securities, investments in the Funds involve risks that
are different in some respects from investments in a fund which
invests only in debt obligations of U.S. domestic issuers.
Foreign investments may be affected favorably or unfavorably by
changes in currency rates and exchange control regulations.
There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not
be subject to accounting, auditing and financial reporting
standards and requirements comparable to those applicable to
U.S. companies. There may be less governmental supervision of
securities markets, brokers and issuers of securities.
Securities of some foreign companies are less liquid or more
volatile than securities of U.S. companies, and foreign
brokerage commissions and custodian fees are generally higher
than in the United States. Settlement practices may include
delays and may differ from those customary in U.S. markets.
Investments in foreign securities may also be subject to other
risks different from those affecting U.S. investments, including
local political or economic developments, expropriation or
nationalization of assets, restrictions on foreign investment
and repatriation of capital, imposition of withholding taxes on
dividend or interest payments, currency blockage (which would
prevent cash from being brought back to the United States), and
difficulty in enforcing legal rights outside the United States.
In addition to the foreign securities listed above, the High
Yield Bond Fund may invest in foreign sovereign debt securities
which involve certain additional risks. See "Foreign Sovereign
Debt Securities" above.
Futures Contracts
For hedging purposes, including protecting the price or interest
rate of securities that the Fund intends to buy, all Funds
except the Money Market Fund may enter into futures contracts
that relate to securities in which it may directly invest and
indices comprised of such securities and may purchase. As a
temporary investment strategy, until a Fund reaches $50 million
in net assets, the Everest Fund, the S&P MidCap 400 Fund, the
Russell 2000 Small Cap Index Fund, the Nasdaq-100 Index Fund,
the EAFE International Index Fund, the Total Social Impact Fund,
the Lehman Aggregate Bond Index Fund, the Balanced Index Fund
and the Short-term Government Fund may invest up to 100% of
their assets in such futures and/or options contracts.
Thereafter, the above mentioned Funds may invest up to 20% of
the Fund's assets in such futures and/or options contracts. In
addition, the S&P 500 Index Fund and the Bond Fund may invest up
to 20% of the Fund's assets in such futures and/or options
contracts. There is not a temporary investment strategy for the
S&P 500 Index Fund or the Bond Fund. Lastly, the High Yield
Bond Fund may invest in futures contracts or options thereon as
a bona-fide hedge if immediately thereafter the sum of the
amounts of initial margin deposits on the Fund's existing
futures and premiums paid for options on futures would not
exceed 5% of the market value of the Fund's total assets;
provided, however, that in the case of an option that is in-the-
money at the time of purchase, the in-the-money amount may be
excluded in the calculation of the 5% limitation. The Funds do
not intend to enter into futures contracts that are not traded
on exchanges or boards of trade.
A financial futures contract is a contract to buy or sell a
specified quantity of financial instruments such as U.S.
Treasury bills, notes and bonds, commercial paper and bank
certificates of deposit or the cash value of a financial
instrument index at a specified future date at a price agreed
upon when the contract is made. A stock index futures contract
is a contract to buy or sell specified units of a stock index at
a specified future date at a price agreed upon when the contract
is made. The value of a unit is based on the current value of
the contract index. Under such contracts no delivery of the
actual stocks making up the index takes place. Rather, upon
expiration of the contract, settlement is made by exchanging
cash in an amount equal to the difference between the contract
price and the closing price of the index at expiration, net of
variation margin previously paid.
Substantially all futures contracts are closed out before
settlement date or called for cash settlement. A futures
contract is closed out by buying or selling an identical
offsetting futures contract. Upon entering into a futures
contract, the Fund is required to deposit an initial margin with
the Custodian for the benefit of the futures broker. The
initial margin serves as a "good faith" deposit that the Fund
will honor their futures commitments. Subsequent payments
(called "variation margin") to and from the broker are made on a
daily basis as the price of the underlying investment
fluctuates. In the event of the bankruptcy of the futures
broker that holds margin on behalf of the Fund, the Fund may be
entitled to return of margin owed to it only in proportion to
the amount received by the broker's other customers. The
Adviser will attempt to minimize this risk by monitoring the
creditworthiness of the futures brokers with which the Fund does
business.
Because the value of index futures depends primarily on the
value of their underlying indexes, the performance of the broad-
based contracts will generally reflect broad changes in common
stock prices. However, because a Fund may not be invested in
precisely the same proportion as an Index, it is likely that the
price changes of the Fund's index futures positions will not
match the price changes of the Fund's other investments.
Options on futures contracts give the purchaser the right to
assume a position at a specified price in a futures contract at
any time before expiration of the option contract.
The Funds will enter into futures contracts which are traded on
national futures exchanges and are standardized as to maturity
date and underlying financial instrument. The principal
financial futures exchanges in the United States are the Board
of Trade of the City of Chicago, the Chicago Mercantile
Exchange, the New York Futures Exchange and the Kansas City
Board of Trade. Futures exchanges and trading in the United
States are regulated under the Commodity Exchange Act by the
Commodity Futures Trading Commission ("CFTC"). Although
techniques other than the sale and purchase of futures contracts
could be used for the above-referenced purposes, futures
contracts offer an effective and relatively low cost means of
implementing the Funds' objectives in these areas.
Regulatory Limitations. The Funds will engage in transactions
in futures contracts and options thereon only for bona fide
hedging, risk management and other permissible purposes, in each
case in accordance with the rules and regulations of the CFTC,
and not for speculation.
In instances involving the purchase of futures contracts or call
options thereon or the writing of put options thereon by the
Funds, an amount of cash, U.S. Government securities or other
liquid securities, equal to the market value of the futures
contracts and options thereon (less any related margin
deposits), will be deposited in a segregated account with the
Funds' custodian to cover the position, or alternative cover
will be employed thereby insuring that the use of such futures
contracts and options is unleveraged.
In addition, CFTC regulations may impose limitations on the
Funds' ability to engage in certain yield enhancement and risk
management strategies. If the CFTC or other regulatory
authorities adopt different (including less stringent) or
additional restrictions, the Funds would comply with such new
restrictions.
SPECIAL RISKS OF FUTURES CONTRACTS
Volatility And Leverage. The prices of futures contracts are
volatile and are influenced, among other things, by actual and
anticipated changes in the market and interest rates, which in
turn are affected by fiscal and monetary policies and national
and international policies and economic events.
Most United States futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the minimum amount
that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading
session. Once the daily limit has been reached in a particular
type of futures contract, no trades may be made on that day at a
price beyond that limit. The daily limit governs only price
movement during a particular trading day and therefore does not
limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices
have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
Because of the low margin deposits required, futures trading
involves an extremely high degree of leverage. As a result, a
relatively small price movement in a futures contract may result
in immediate and substantial loss, as well as gain, to the
investor. For example, if at the time of purchase, 10% of the
value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract
would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then
closed out. A 15% decrease would result in a loss equal to 150%
of the original margin deposit, if the contract were closed out.
Thus, a purchase or sale of a futures contract may result in
losses in excess of the amount invested in the futures contract.
However, a Fund would presumably have sustained comparable
losses if, instead of the futures contract, it had invested in
the underlying instrument and sold it after the decline.
Furthermore, in the case of a futures contract purchase, in
order to be certain that a Fund has sufficient assets to satisfy
its obligations under a futures contract, the Fund earmarks to
the futures contract money market instruments equal in value to
the current value of the underlying instrument less the margin
deposit.
Liquidity. Each Fund that is eligible to use futures contracts
may elect to close some or all of its futures positions at any
time prior to their expiration. A Fund would do so to reduce
exposure represented by long futures positions or increase
exposure represented by short futures positions. A Fund may
close its positions by taking opposite positions which would
operate to terminate the Fund's position in the futures
contracts. Final determinations of variation margin would then
be made, additional cash would be required to be paid by or
released to the Fund, and the Fund would realize a loss or a
gain.
Futures contracts may be closed out only on the exchange or
board of trade where the contracts were initially traded.
Although each Fund intends to purchase or sell futures contracts
only on exchanges or boards of trade where there appears to be
an active market, there is no assurance that a liquid market on
an exchange or board of trade will exist for any particular
contract at any particular time. In such event, it might not be
possible to close a futures contract, and in the event of
adverse price movements, each 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 the
underlying instruments, the Funds would continue to hold the
underlying instruments subject to the hedge until the futures
contracts could be terminated. In such circumstances, an
increase in the price of the underlying instruments, if any,
might partially or completely offset losses on the futures
contract. However, as described below, there is no guarantee
that the price of the underlying instruments will in fact
correlate with the price movements in the futures contract and
thus provide an offset to losses on a futures contract.
Hedging Risk. A decision of whether, when, and how to hedge
involves skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of unexpected market
behavior, or market or interest rate trends. There are several
risks in connection with the use by the Funds of futures
contract as a hedging device. One risk arises because of the
imperfect correlation between movements in the prices of the
futures contracts and movements in the prices of the underlying
instruments which are the subject of the hedge. The Adviser
will, however, attempt to reduce this risk by entering into
futures contracts whose movements, in its judgment, will have a
significant correlation with movements in the prices of each
Fund's underlying instruments sought to be hedged.
Successful use of futures contracts by the Funds for hedging
purposes is also subject to the Adviser's ability to correctly
predict movements in the direction of the market. It is
possible that, when a Fund has sold futures to hedge its
portfolio against a decline in the market, the index, indices,
or underlying instruments on which the futures are written might
advance and the value of the underlying instruments held in the
Fund's portfolio might decline. If this were to occur, the Fund
would lose money on the futures and also would experience a
decline in value in its underlying instruments. However, while
this might occur to a certain degree, the Adviser believes that
over time the value of a Fund's portfolio will tend to move in
the same direction as the market indices which are intended to
correlate to the price movements of the underlying instruments
sought to be hedged. It is also possible that if a Fund were to
hedge against the possibility of a decline in the market
(adversely affecting the underlying instruments held in its
portfolio) and prices instead increased, the Fund would lose
part or all of the benefit of increased value of those
underlying instruments that it has hedged, because it would have
offsetting losses in its futures positions. In addition, in
such situations, if a Fund had insufficient cash, it might have
to sell underlying instruments to meet daily variation margin
requirements. Such sales of underlying instruments might be,
but would not necessarily be, at increased prices (which would
reflect the rising market). The Funds might have to sell
underlying instruments at a time when it would be
disadvantageous to do so.
In addition to the possibility that there might be an imperfect
correlation, or no correlation at all, between price movements
in the futures contracts and the portion of the portfolio being
hedged, the price movements of futures contracts might not
correlate perfectly with price movements in the underlying
instruments due to certain market distortions. First, all
participants in the futures market are subject to margin deposit
and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors might close futures
contracts through offsetting transactions which could distort
the normal relationship between the underlying instruments and
futures markets. Second, the margin requirements in the futures
market are less onerous than margin requirements in the
securities markets, and as a result the futures market might
attract more speculators than the securities markets do.
Increased participation by speculators in the futures market
might also cause temporary price distortions. Due to the
possibility of price distortion in the futures market and also
because of the imperfect correlation between price movements in
the underlying instruments and movements in the prices of
futures contracts, even a correct forecast of general market
trends by the Adviser might not result in a successful hedging
transaction over a very short time period
Options
The Total Social Impact Fund, the Bond Fund, the Balanced Index
Fund, the Lehman Aggregate Bond Index Fund, the Short-term
Government Fund, the High Yield Bond Fund may sell (write)
listed options on U.S. Treasury Securities and options on
contracts for the future delivery of U.S. Treasury Securities as
a means of hedging the value of such securities owned by the
Fund. The S&P 500 Index Fund, the S&P MidCap 400 Index Fund,
the Russell 2000 Small Cap Index Fund, the Nasdaq-100 Index
Fund, the EAFE International Index Fund, the Total Social Impact
Fund, the Everest Fund and the Balanced Index Fund may enter
into options on futures contracts that relate to securities in
which it may directly invest and indices comprised of such
securities and may purchase and write call and put options on
such contracts. In addition, each of the above Funds may write
covered call options on any security in which it is eligible to
invest.
As a writer of a call option, a Fund may terminate its
obligation by effecting a closing purchase transaction. This is
accomplished by purchasing an option of the same series as the
option previously written. However, once the Fund has been
assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction. There can be no assurance that a
closing purchase transaction can be effected when the Fund so
desires.
The Fund will realize a profit from a closing transaction if the
price of the transaction is less than the premium received from
writing the option; the Fund will realize a loss from a closing
transaction if the price of the transaction is more than the
premium received from writing the option. Since the market
value of call options generally reflects increases in the value
of the underlying security, any loss resulting from the closing
transaction may be wholly or partially offset by unrealized
appreciation of the underlying security. Conversely, any gain
resulting from the closing transaction may be wholly or
partially offset by unrealized depreciation of the underlying
security. The principal factors affecting the market value of
call options include supply and demand, the current market price
and price volatility of the underlying security, and the time
remaining until the expiration date.
Although the Funds will write only options and options on
futures contracts with respect to such securities which are
traded on a national exchange or Board of Trade, there is no
assurance that a liquid secondary market will exist for any
particular option. In the event it is not possible to effect a
closing transaction, the Funds will not be able to sell the
underlying security, until the option expires or the option is
exercised by the holder.
Possible reasons for the absence of a liquid secondary market on
an exchange include the following: (a) insufficient trading
interest in certain options; (b) restrictions on transactions
imposed by an exchange; (c) trading halts, suspensions or other
restrictions imposed with respect to particular classes or
series of options or underlying securities; (d) inadequacy of
the facilities of an exchange or the Clearing Corporation to
handle trading volume; or (e) a decision by one or more
exchanges to discontinue the trading of options or impose
restrictions on types of orders. There can be no assurance that
higher than anticipated trading activity or order flow or other
unforeseen events might not at times render the trading
facilities inadequate and thereby result in the institution of
special trading procedures or restrictions which could interfere
with the Fund's ability to effect closing transactions.
The Total Social Impact Fund, the Balanced Index Fund, the
Lehman Aggregate Bond Index Fund, the Bond Fund, the Short-term
Government Fund, the High Yield Bond Fund may write call options
on futures contracts on U.S. Treasury Securities as a hedge
against the adverse effect of expected increases in interest
rates on the value of Portfolio securities, in order to
establish more definitely the effective return on securities
held by the Portfolio. The S&P 500 Index Fund, the S&P MidCap
400 Index Fund, the Russell 2000 Small Cap Index Fund, the
Nasdaq-100 Index Fund, the EAFE International Index Fund, the
Total Social Impact Fund, the Balanced Index Fund and the
Everest Fund may write call options on futures contracts on the
Index in which they are eligible to invest, or securities
included therein, only for hedging purposes to protect the price
of securities it intends to buy and when such transactions
enable it to better meet its investment objectives. The Funds
will not write options on futures contracts for speculative
purposes.
A futures contract on a debt security is a binding contractual
commitment which will result in an obligation to make or accept
delivery, during a specified future time, of securities having
standardized face value and rate of return. Selling a futures
contract on debt securities (assuming a short position) would
give the Portfolio a legal obligation and right as seller to
make future delivery of the security against payment of the
agreed price.
Upon the exercise of a call option on a futures contract, the
writer of the option (the Fund) is obligated to sell the futures
contract (to deliver a long position to the option holder) at
the option exercise price, which will presumably be lower than
the current market price of the contract in the futures market.
However, as with the trading of futures, most participants in
the options markets do not seek to realize their gains or losses
by exercise of their option rights. Instead, the holder of an
option will usually realize a gain or loss by buying or selling
an offsetting option at a market price that will reflect an
increase or a decrease from the premium originally paid.
Nevertheless, if an option on a futures contract written by the
Fund is exercised, the Fund intends to either close out the
futures contract by purchasing an offsetting futures contract,
or deliver the underlying securities immediately, in order to
avoid assuming a short position. There can be no assurance that
the Fund will be able to enter into an offsetting transaction
with respect to a particular contract at a particular time, but
it may always deliver the underlying security.
As a writer of options on futures contracts, the Fund will
receive a premium but will assume a risk of adverse movement in
the price of the underlying futures contract. If the option is
not exercised, the Portfolio will gain the amount of the
premium, which may partially offset unfavorable changes in the
value of securities held in the Fund. If the option is
exercised, the Fund might incur a loss in the option transaction
which would be reduced by the amount of the premium it has
received.
While the holder or writer of an option on a futures contract
may normally terminate its position by selling or purchasing an 