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MANAGEMENT INVESTMENT COMPANIES
BIRMINGHAM, MICHIGAN 48009
| (Name and Address of Agent for Service) | Copy to: | |
| STEPHEN SHENKENBERG 480 PIERCE STREET BIRMINGHAM, MICHIGAN 48009 | JANE KANTER DECHERT LLP 1775 I STREET, N.W. WASHINGTON, D.C. 20006 |
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| Save paper and receive this document electronically. Sign up for electronic delivery at www.munderfunds.com/ edelivery | ||||
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DEAR MUNDER FUND SHAREHOLDERS:
I am delighted to provide you with information about some very positive developments at Munder Capital Management, the investment advisor to The Munder Funds. By mutual agreement with Comerica Incorporated, Munder Capital’s partner for over 10 years, the management team and employees of Munder Capital, along with Crestview Capital Partners, L.P. and Grail Partners, LLC, are buying Comerica’s ownership position in the firm. We anticipate that the transfer of ownership will be completed prior to year end.
Because Munder Capital retained its own operational infrastructure throughout its partnership with Comerica, we expect the transition to independent ownership of Munder Capital to be seamless. Among the most important outcomes from Munder Capital’s perspective are the continuity in our people and processes, and the opportunity for increased employee ownership. We have always believed that employee ownership is the best way to align our interests with the interests of our clients, and to attract and retain talented professionals. This is a key outcome of the new ownership structure.
As I hope you can tell from this letter, I am very pleased with this announcement because of its positive implications for both The Munder Funds and for the Munder Capital team. The investment advisory agreement between The Munder Funds and the newly structured Munder Capital Management has been approved by the Board of Trustees of The Munder Funds. In the coming weeks, shareholders of the Funds will receive materials requesting their approval of the investment advisory agreement, which will be sought through a proxy statement. I encourage you to exercise your right to vote your shares.
Thank you for your confidence in The Munder Funds. We look forward to continuing to work with you toward meeting your investment goals.
| Very Truly Yours, | |
 | |
| John S. Adams | |
| President and Principal Executive Officer, The Munder Funds | |
| President and Chief Investment Officer, Munder Capital Management |
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Contents
ii | Management’s Discussion of Fund Performance | |
iv | Hypothetical and Total Returns | |
viii | Shareholder Fee Example | |
1 | Portfolio of Investments | |
6 | Statement of Assets and Liabilities | |
8 | Statement of Operations | |
9 | Statements of Changes in Net Assets | |
10 | Statements of Changes in Net Assets — Capital Stock Activity | |
12 | Financial Highlights | |
17 | Notes to Financial Statements | |
36 | Report of Independent Registered Public Accounting Firm |
Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed by any bank and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other agency. All mutual fund shares involve certain risks, including possible loss of principal.
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Fund Performance
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.munder.com.
The Fund concentrates its investments in health care-related securities and is therefore subject to higher market risk and price volatility than funds with more broadly diversified investments. Investors should also note that the Fund can invest all of its assets in foreign securities, and such investments involve additional risks due to currency fluctuations, economic and political conditions, and differences in financial reporting standards.
Fund holdings are subject to change and percentages shown below are based on net assets as of June 30, 2006. The following pie chart illustrates the allocation of the Fund’s investments by sub-industry. A complete list of holdings as of June 30, 2006 is contained in the Portfolio of Investments included in this report. The most currently available data regarding portfolio holdings can be found on our website, www.munder.com. You may also obtain currently available portfolio holdings data by calling (800) 438-5789.
SUB-INDUSTRY ALLOCATION
The performance data contained in the following commentary is based on Class Y Shares of the Fund for the year ended June 30, 2006. Performance of the other classes of shares will differ. The returns for the Fund reflect the reinvestment of dividends and capital gains, if any, and are reported after the deduction of all expenses. These returns do not, however, reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon redemption of Fund shares.
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Portfolio Management Team: Suresh Rajagopal and Thomas Wald
The Fund generated a -0.58% return for the one year ended June 30, 2006, compared to the 1.55% return for the Goldman Sachs Sector Index — Health Care and the 4.77% median return for the Lipper universe of health/biotechnology funds.
The Fund’s negative absolute return was a reflection of the weakness in healthcare investments in general during the period. Healthcare stocks struggled during the year ended June 30, 2006, with healthcare being the only sector of the S&P 500® Index to post a negative return for the year. The Fund also lagged its Goldman Sachs benchmark during the year, with strength in the pharmaceuticals holdings of the Fund offset by weakness in the Fund’s life sciences tools & services, health care equipment and health care supplies segments.
An overweight in AstraZeneca PLC (3.0% of the Fund) and an underweight in Pfizer, Inc. (3.4% of the Fund) contributed to the relative strength of the Fund’s pharmaceutical holdings. Gilead Sciences, Inc. (3.5% of the Fund), a biotechnology holding, and Express Scripts, Inc. (0.7% of the Fund) in the health care services segment also had a positive impact on the Fund’s relative performance.
In contrast, overweights in Medtronic, Inc. (3.7% of the Fund), St. Jude Medical, Inc. (0.8% of the Fund) and Stryker Corporation (1.7% of the Fund) in the health care equipment segment of the Fund, and Alcon, Inc. (1.4% of the Fund) in the health care supplies segment, held back relative performance. Invitrogen Corporation (0.3% of the Fund) and QIAGEN N.V. (0.6% of the Fund) detracted from relative returns in the life sciences tools & services segment.
Index and Lipper performance information was furnished by sources deemed reliable and is believed to be accurate, however, no warranty or representation is made as to the accuracy thereof and the information is subject to correction. The Goldman Sachs Sector Index — Health Care (GSSI Health Care Index) is a modified-capitalization weighted equity index designed to measure the performance of U.S. traded securities in the health care sector. The S&P 500® Index is a widely recognized unmanaged index that measures the performance of the large-cap sector of the U.S. stock market. You cannot invest directly in an index, securities in the Fund will not match those in the index, and performance of the Fund will differ. Although reinvestment of dividend and interest payments is assumed, no expenses are netted against an index’s returns.
The Lipper universe of health/biotechnology funds represents the universe of mutual funds that are categorized by Lipper, Inc. under the same investment objective as the Fund. You cannot invest directly in a Lipper universe.
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The following graph represents the performance of the Munder Healthcare Fund (the “Fund”) since the inception of its oldest class of shares, Class Y Shares. The table following the line graph sets forth performance information and the growth of a hypothetical $10,000 investment for each class of shares offered by the Fund. Differing sales charges and expenses of classes not shown in the line graph will have an effect on performance. In addition, the information contained in the graph and table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance is no guarantee of future results. Investment return and principal value of any investment will fluctuate so that an investor’s shares, upon redemption, may be worth more or less than original cost. Average annual total returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestment of dividends.
Munder Healthcare Fund
| CLASS Y SHARE HYPOTHETICAL | |
| A Hypothetical Illustration of a $10,000 Initial Investment |
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| GROWTH OF A $10,000 INVESTMENT | ||||||||||||||||||||
| S&P | Goldman Sachs | Lipper Health/ | ||||||||||||||||||
| Class and | With | Without | 500® | Sector Index — | Biotechnology | |||||||||||||||
| Inception Date | Load | Load | Index# | Health Care# | Funds Median** | |||||||||||||||
| CLASS A 2/14/97 | $ | 20,436 | * | $ | 21,629 | $ | 18,741 | $ | 23,729 | $ | 26,510 | |||||||||
| CLASS B 1/31/97 | N/A | 20,684 | 18,741 | 23,729 | 26,510 | |||||||||||||||
| CLASS C 1/13/97 | N/A | 21,897 | 19,905 | 25,693 | 27,870 | |||||||||||||||
| CLASS K 4/1/97 | N/A | 25,821 | 19,397 | 25,095 | 28,011 | |||||||||||||||
| CLASS R 7/29/04 | N/A | 11,387 | 11,942 | 11,638 | 11,616 | |||||||||||||||
| CLASS Y 12/31/96 | N/A | 24,994 | 19,905 | 25,693 | 27,870 | |||||||||||||||
| AVERAGE ANNUAL TOTAL RETURNS | ||||||||||||||||||||||||
| One | One | Five | Five | Since | Since | |||||||||||||||||||
| Class and | Year | Year | Years | Years | Inception | Inception | ||||||||||||||||||
| Inception Date | w/load | w/out load | w/load | w/out load | w/load | w/out load | ||||||||||||||||||
| CLASS A 2/14/97 | (6.24)% | * | (0.80)% | (2.50)% | * | (1.39)% | 7.92% | * | 8.58% | |||||||||||||||
| CLASS B 1/31/97 | (6.45)%† | (1.52)% | (2.52)%† | (2.12)% | N/A | 8.03% | ||||||||||||||||||
| CLASS C 1/13/97 | (2.51)%† | (1.52)% | N/A | (2.13)% | N/A | 8.64% | ||||||||||||||||||
| CLASS K 4/1/97 | N/A | (0.84)% | N/A | (1.41)% | N/A | 10.80% | ||||||||||||||||||
| CLASS R 7/29/04 | N/A | (1.05)% | N/A | N/A | N/A | 6.99% | ||||||||||||||||||
| CLASS Y 12/31/96 | N/A | (0.58)% | N/A | (1.14)% | N/A | 10.12% | ||||||||||||||||||
| * | Reflects the deduction of the maximum sales charge of 5.50% for Class A Shares. |
| † | Based on the declining contingent deferred sales charge (CDSC) schedule described in the prospectus. |
| # | The S&P 500® Index is a widely recognized unmanaged index that measures the performance of the large-cap sector of the U.S. stock market. The Goldman Sachs Sector Index — Health Care (GSSI™ Health Care Index) is a modified capitalization-weighted equity index designed |
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| to measure the performance of U.S. traded securities in the health care sector. Index since inception comparative returns for Class A, Class B, Class C, Class K, Class R, and Class Y Shares of the Fund are as of 2/1/97, 2/1/97, 1/1/97, 4/1/97, 8/1/04, and 1/1/97, respectively. | |
| ** | The Lipper Health/ Biotechnology Funds Median represents the median performance of a universe of mutual funds that have been in existence since the Fund’s inception and are categorized by Lipper, Inc. under the same investment objective as the Fund. Lipper since inception comparative returns for Class A, Class B, Class C, Class K, Class R, and Class Y Shares of the Fund are as of 2/1/97, 2/1/97, 1/1/97, 4/1/97, 8/1/04, and 1/1/97, respectively. |
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Example
Fund shareholders may incur two types of costs: (1) transaction costs, including front-end sales charges (loads) on purchases, contingent deferred sales charges on redemptions, redemption fees, and exchange fees; and (2) ongoing costs, including management fees, 12b-1 distribution and service fees, non-12b-1 service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example below is based on an investment of $1,000 made at the beginning of the period and held for the entire period from January 1, 2006 to June 30, 2006.
Actual Expenses
The section of the table below entitled “Actual” provides information about actual account values and actual expenses for each class of the Fund. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), and multiply the result by the number in the section entitled “Actual” under the heading “Expenses Paid During Period” corresponding to the class you own. If your Class A, Class B, or Class C Shares account balance was below the applicable minimum, your expenses may also have included a $6 quarterly small account fee. If your account is an IRA, your expenses may also have included a $10 annual fee. In either case, the amount of any fee paid through your account would increase the estimate of expenses you paid during the period and decrease your ending account value.
Hypothetical Example for Comparison Purposes
The section of the table below entitled “Hypothetical” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of the Fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of any class of the Fund. The hypothetical account values and expenses may not be used to estimate your actual ending account balance or the expenses you paid for the period. However, you may use this information to compare the ongoing costs of investing in the Fund to other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. As in the case of the actual expense example, if your account is subject to an additional small account fee or IRA fee, the amount of the fee paid through your account would increase the hypothetical expenses you would have paid during the period and decrease the hypothetical ending account value.
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Please note that the expenses shown in the table for the Fund and in similar tables for other funds are meant to highlight your ongoing costs only and do not reflect any applicable transactional costs, such as front-end sales charges (loads) on purchases, contingent deferred sales charges on redemptions, redemption fees or exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If any applicable transactional costs were included, your costs would be higher.
| Beginning | Ending | ||||||||||||||||
| Account | Account | Expenses Paid | Annualized | ||||||||||||||
| Value | Value | During Period* | Expense | ||||||||||||||
| 1/1/06 | 6/30/06 | 1/1/06-6/30/06 | Ratio | ||||||||||||||
Actual | |||||||||||||||||
| Class A | $1,000.00 | $ | 924.70 | $ | 9.02 | 1.89% | |||||||||||
| Class B | $1,000.00 | $ | 921.20 | $ | 12.53 | 2.63% | |||||||||||
| Class C | $1,000.00 | $ | 921.50 | $ | 12.58 | 2.64% | |||||||||||
| Class K | $1,000.00 | $ | 924.60 | $ | 8.97 | 1.88% | |||||||||||
| Class R | $1,000.00 | $ | 923.70 | $ | 10.16 | 2.13% | |||||||||||
| Class Y | $1,000.00 | $ | 925.90 | $ | 7.83 | 1.64% | |||||||||||
Hypothetical | |||||||||||||||||
| Class A | $1,000.00 | $ | 1,015.42 | $ | 9.44 | 1.89% | |||||||||||
| Class B | $1,000.00 | $ | 1,011.75 | $ | 13.12 | 2.63% | |||||||||||
| Class C | $1,000.00 | $ | 1,011.70 | $ | 13.17 | 2.64% | |||||||||||
| Class K | $1,000.00 | $ | 1,015.47 | $ | 9.39 | 1.88% | |||||||||||
| Class R | $1,000.00 | $ | 1,014.23 | $ | 10.64 | 2.13% | |||||||||||
| Class Y | $1,000.00 | $ | 1,016.66 | $ | 8.20 | 1.64% | |||||||||||
| * | Expenses are calculated by multiplying the Fund’s annualized expense ratio listed above for the applicable class by the average account value over the period and multiplying that number by 181/365 (to reflect the one-half year period). |
The expenses shown in the table do not reflect any fees that may be charged to you by brokers, financial intermediaries or other financial institutions.
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| Portfolio of Investments, June 30, 2006 |
| Shares | Value | |||||||
| COMMON STOCKS — 100.0% | ||||||||
| Health Care — 99.7% | ||||||||
| Biotechnology — 17.2% | ||||||||
| 119,075 | Amgen Inc. † | $ | 7,767,262 | |||||
| 6,875 | Amylin Pharmaceuticals, Inc. †,(a) | 339,419 | ||||||
| 36,525 | Biogen Idec Inc. † | 1,692,203 | ||||||
| 34,875 | Celgene Corporation †,(a) | 1,654,121 | ||||||
| 102,450 | Genentech, Inc. † | 8,380,410 | ||||||
| 14,775 | Genzyme Corporation † | 902,014 | ||||||
| 92,900 | Gilead Sciences, Inc. † | 5,495,964 | ||||||
| 9,575 | ImClone Systems Incorporated †,(a) | 369,978 | ||||||
| 10,450 | Vertex Pharmaceuticals Incorporated †,(a) | 383,620 | ||||||
| 26,984,991 | ||||||||
| Health Care Services — 4.4% | ||||||||
| 46,825 | Caremark Rx, Inc. | 2,335,163 | ||||||
| 15,450 | Express Scripts, Inc. † | 1,108,383 | ||||||
| 27,025 | Medco Health Solutions, Inc. † | 1,547,992 | ||||||
| 30,550 | Quest Diagnostics Incorporated | 1,830,556 | ||||||
| 6,822,094 | ||||||||
| Health Care Distributors — 3.3% | ||||||||
| 20,825 | AmerisourceBergen Corporation | 872,984 | ||||||
| 42,475 | Cardinal Health, Inc. | 2,732,417 | ||||||
| 31,325 | McKesson Corporation | 1,481,046 | ||||||
| 5,086,447 | ||||||||
| Health Care Equipment — 12.6% | ||||||||
| 92,050 | Baxter International, Inc. | 3,383,758 | ||||||
| 17,725 | Becton, Dickinson and Company | 1,083,529 | ||||||
| 25,550 | Biomet, Inc. | 799,460 | ||||||
| 121,847 | Boston Scientific Corporation † | 2,051,903 | ||||||
| 123,925 | Medtronic, Inc. | 5,814,561 | ||||||
| 27,150 | ResMed, Inc. †,(a) | 1,274,693 | ||||||
| 21,250 | Respironics, Inc. † | 727,175 | ||||||
| 36,950 | St. Jude Medical, Inc. † | 1,197,919 | ||||||
| 64,375 | Stryker Corporation | 2,710,831 | ||||||
| 11,700 | Zimmer Holdings, Inc. † | 663,624 | ||||||
| 19,707,453 | ||||||||
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| Portfolio of Investments, June 30, 2006 (continued) |
| Shares | Value | |||||||
| COMMON STOCKS (Continued) | ||||||||
| Health Care (Continued) | ||||||||
| Health Care Facilities — 2.0% | ||||||||
| 9,850 | Community Health Systems, Inc. † | $ | 361,988 | |||||
| 30,575 | HCA Inc. | 1,319,311 | ||||||
| 17,875 | Health Management Associates, Inc., Class A | 352,316 | ||||||
| 35,100 | VCA Antech, Inc. † | 1,120,743 | ||||||
| 3,154,358 | ||||||||
| Health Care Supplies — 1.4% | ||||||||
| 22,750 | Alcon, Inc. | 2,242,013 | ||||||
| Life Sciences Tools & Services — 3.0% | ||||||||
| 12,175 | Fisher Scientific International, Inc. † | 889,383 | ||||||
| 7,600 | Invitrogen Corporation †,(a) | 502,132 | ||||||
| 9,525 | Millipore Corporation † | 599,980 | ||||||
| 18,500 | Nektar Therapeutics †,(a) | 339,290 | ||||||
| 66,425 | QIAGEN N.V. †,(a) | 911,351 | ||||||
| 16,500 | Techne Corporation † | 840,180 | ||||||
| 17,225 | Thermo Electron Corporation † | 624,234 | ||||||
| 4,706,550 | ||||||||
| Managed Health Care — 11.2% | ||||||||
| 56,850 | Aetna, Inc. | 2,270,020 | ||||||
| 12,150 | CIGNA Corporation | 1,196,896 | ||||||
| 16,125 | Coventry Health Care, Inc. † | 885,908 | ||||||
| 12,175 | Health Net, Inc., Class A † | 549,945 | ||||||
| 16,800 | Humana, Inc. † | 902,160 | ||||||
| 6,425 | Sierra Health Services, Inc. † | 289,318 | ||||||
| 140,587 | UnitedHealth Group, Inc. | 6,295,486 | ||||||
| 71,190 | WellPoint, Inc. † | 5,180,496 | ||||||
| 17,570,229 | ||||||||
| Pharmaceuticals — 44.6% | ||||||||
| 169,225 | Abbott Laboratories | 7,379,902 | ||||||
| 15,250 | Allergan, Inc. | 1,635,715 | ||||||
| 78,650 | AstraZeneca PLC, ADR | 4,704,843 | ||||||
| 215,450 | Bristol-Myers Squibb Company | 5,571,537 | ||||||
| 124,150 | Eli Lilly and Company | 6,861,770 | ||||||
| 64,425 | GlaxoSmithKline PLC, ADR | 3,594,915 | ||||||
| 176,150 | Johnson & Johnson | 10,554,908 | ||||||
| 154,625 | Merck & Co. Inc. | 5,632,989 | ||||||
| 75,725 | Novartis AG, ADR | 4,083,092 | ||||||
| 228,650 | Pfizer, Inc. | 5,366,415 | ||||||
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| Shares | Value | |||||||
| Health Care (Continued) | ||||||||
| Pharmaceuticals (Continued) | ||||||||
| 22,750 | Sanofi-Aventis, ADR | $ | 1,107,925 | |||||
| 198,525 | Schering-Plough Corporation | 3,777,931 | ||||||
| 11,075 | Sepracor, Inc. †,(a) | 632,826 | ||||||
| 203,500 | Wyeth | 9,037,435 | ||||||
| 69,942,203 | ||||||||
| Total Health Care | 156,216,338 | |||||||
| Industrials — 0.3% | ||||||||
| Environmental & Facilities Services — 0.3% | ||||||||
| 7,250 | Stericycle, Inc. †,(a) | 471,975 | ||||||
| TOTAL COMMON STOCKS | ||||||||
| (Cost $147,357,355) | 156,688,313 | |||||||
| WARRANTS — 0.0% | ||||||||
| Biotechnology — 0.0% | ||||||||
| 50,000 | Aphton Corporation, expires 09/18/2008 (exercise price: $8.12) †,(b) | 0 | ||||||
| 52,500 | Axonyx, Inc., expires 01/08/2009 (exercise price: $7.25) †,(b) | 0 | ||||||
| TOTAL WARRANTS | ||||||||
| (Cost $330,613) | 0 | |||||||
| COLLATERAL FOR SECURITIES ON LOAN — 4.0% | ||||||||
| (Cost $6,298,275) | ||||||||
| 6,298,275 | State Street Navigator Securities Trust — Prime Portfolio (c) | 6,298,275 | ||||||
TOTAL INVESTMENTS | |||||||||
| (Cost $153,986,243) | 104.0 | % | 162,986,588 | ||||||
OTHER ASSETS AND LIABILITIES (Net) | (4.0 | ) | (6,326,961 | ) | |||||
NET ASSETS | 100.0 | % | $ | 156,659,627 | |||||
| † | Non-income producing security. |
| (a) | Security, or a portion thereof, is on loan. |
| (b) | Fair valued security as of June 30, 2006 (see Notes to Financial Statements, Note 2). |
| (c) | At June 30, 2006, the market value of the securities on loan is $6,261,424. |
ABBREVIATION:
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| Portfolio of Investments, June 30, 2006 (continued) |
At June 30, 2006, the country diversification (based on the country in which the company’s headquarters is located) of the Fund was as follows (assume United States unless otherwise indicated):
| % of | ||||||||
| Net Assets | Value | |||||||
| COMMON STOCKS: | ||||||||
| United States | 89.4 | % | $ | 140,044,174 | ||||
| United Kingdom | 5.3 | 8,299,758 | ||||||
| Switzerland | 4.0 | 6,325,105 | ||||||
| France | 0.7 | 1,107,925 | ||||||
| Netherlands | 0.6 | 911,351 | ||||||
TOTAL COMMON STOCKS | 100.0 | 156,688,313 | ||||||
WARRANTS | 0.0 | — | ||||||
COLLATERAL FOR SECURITIES ON LOAN | 4.0 | 6,298,275 | ||||||
TOTAL INVESTMENTS | 104.0 | 162,986,588 | ||||||
OTHER ASSETS AND LIABILITIES (Net) | (4.0 | ) | (6,326,961 | ) | ||||
NET ASSETS | 100.0 | % | $ | 156,659,627 | ||||
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| Statement of Assets and Liabilities, June 30, 2006 |
ASSETS: | |||||
| Investments, at value* (see accompanying schedule) | $ | 162,986,588 | |||
| Dividends receivable | 111,352 | ||||
| Receivable for investment securities sold | 1,807,863 | ||||
| Receivable for Fund shares sold | 10,411 | ||||
| Prepaid expenses and other assets | 50,867 | ||||
| Total Assets | 164,967,081 | ||||
LIABILITIES: | |||||
| Custodian overdraft payable | 199,213 | ||||
| Payable for Fund shares redeemed | 671,205 | ||||
| Payable for investment securities purchased | 724,908 | ||||
| Payable upon return of securities loaned | 6,298,275 | ||||
| Transfer agency/record keeping fees payable | 118,508 | ||||
| Investment advisory fees payable | 117,044 | ||||
| Distribution and shareholder servicing fees payable — Class A, B, C and R Shares | 76,378 | ||||
| Trustees’ fees and expenses payable | 50,211 | ||||
| Administration fees payable | 17,486 | ||||
| Custody fees payable | 2,469 | ||||
| Shareholder servicing fees payable — Class K Shares | 16 | ||||
| Accrued expenses and other payables | 31,741 | ||||
| Total Liabilities | 8,307,454 | ||||
NET ASSETS | $ | 156,659,627 | |||
| Investments, at cost | $ | 153,986,243 | |||
| * | Including $6,261,424 of securities loaned. |
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NET ASSETS consist of: | ||||
| Accumulated net investment loss | $ | (39,125 | ) | |
| Accumulated net realized loss on investments sold | (142,304,321 | ) | ||
| Net unrealized appreciation of investments | 9,000,345 | |||
| Par value | 6,863 | |||
| Paid-in capital in excess of par value | 289,995,865 | |||
| $ | 156,659,627 | |||
NET ASSETS: | ||||
| Class A Shares | $ | 71,711,024 | ||
| Class B Shares | $ | 43,131,224 | ||
| Class C Shares | $ | 30,947,804 | ||
| Class K Shares | $ | 84,503 | ||
| Class R Shares | $ | 5,692 | ||
| Class Y Shares | $ | 10,779,380 | ||
SHARES OUTSTANDING: | ||||
| Class A Shares | 3,039,870 | |||
| Class B Shares | 1,962,574 | |||
| Class C Shares | 1,409,579 | |||
| Class K Shares | 3,588 | |||
| Class R Shares | 242 | |||
| Class Y Shares | 446,731 | |||
CLASS A SHARES: | ||||
| Net asset value and redemption price per share | $23.59 | |||
| Maximum sales charge | 5.50 | % | ||
| Maximum offering price per share | $24.96 | |||
CLASS B SHARES: | ||||
| Net asset value and offering price per share* | $21.98 | |||
CLASS C SHARES: | ||||
| Net asset value and offering price per share* | $21.96 | |||
CLASS K SHARES: | ||||
| Net asset value, offering price and redemption price per share | $23.55 | |||
CLASS R SHARES: | ||||
| Net asset value, offering price and redemption price per share | $23.48 | |||
CLASS Y SHARES: | ||||
| Net asset value, offering price and redemption price per share | $24.13 | |||
| * | Redemption price per share is equal to net asset value per share less any applicable contingent deferred sales charge (“CDSC”). |
7
Table of Contents
| Statement of Operations, For the Year Ended June 30, 2006 |
INVESTMENT INCOME: | ||||||
| Interest | $ | 51,445 | ||||
| Dividends(a) | 1,922,677 | |||||
| Securities lending | 24,478 | |||||
| Total Investment Income | 1,998,600 | |||||
EXPENSES: | ||||||
| Distribution and shareholder servicing fees: | ||||||
| Class A Shares | 194,663 | |||||
| Class B Shares | 701,658 | |||||
| Class C Shares | 384,303 | |||||
| Class R Shares | 30 | |||||
| Shareholder servicing fees: | ||||||
| Class K Shares | 246 | |||||
| Investment advisory fees | 1,979,799 | |||||
| Transfer agency/record keeping fees | 575,094 | |||||
| Administration fees | 287,777 | |||||
| Printing and mailing fees | 72,991 | |||||
| Legal and audit fees | 63,225 | |||||
| Registration and filing fees | 58,565 | |||||
| Trustees’ fees and expenses | 32,003 | |||||
| Custody fees | 26,586 | |||||
| Other | 34,115 | |||||
| Total Expenses | 4,411,055 | |||||
NET INVESTMENT LOSS | (2,412,455 | ) | ||||
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS: | ||||||
| Net realized gain/(loss) from: | ||||||
| Security transactions | 17,421,772 | |||||
| Foreign currency-related transactions | (24,838 | ) | ||||
| Net change in unrealized appreciation/(depreciation) of: | ||||||
| Securities | (15,171,173 | ) | ||||
| Foreign currency-related translations | 1,663 | |||||
| Net realized and unrealized gain on investments | 2,227,424 | |||||
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | (185,031 | ) | |||
| (a) | Net of foreign withholding taxes of $19,084. |
8
Table of Contents
| Statements of Changes in Net Assets |
| Year Ended | Year Ended | ||||||||
| June 30, 2006 | June 30, 2005(a) | ||||||||
| Net investment loss | $ | (2,412,455 | ) | $ | (4,467,566 | ) | |||
| Net realized gain from security transactions and foreign currency-related transactions | 17,396,934 | 19,642,349 | |||||||
| Net change in unrealized appreciation/ (depreciation) of securities and foreign currency-related transactions | (15,169,510 | ) | (14,715,657 | ) | |||||
| Net increase/(decrease) in net assets resulting from operations | (185,031 | ) | 459,126 | ||||||
| Net increase/(decrease) in net assets from Fund share transactions: | |||||||||
| Class A Shares | (2,778,317 | ) | (22,676,528 | ) | |||||
| Class B Shares | (44,544,367 | ) | (30,992,138 | ) | |||||
| Class C Shares | (10,311,637 | ) | (14,310,980 | ) | |||||
| Class K Shares | (58,569 | ) | (26,443 | ) | |||||
| Class R Shares | — | 5,000 | |||||||
| Class Y Shares | 33,372 | (395,450 | ) | ||||||
| Short-term trading fees | 6,129 | 22,094 | |||||||
| Voluntary contribution from Advisor | 176,297 | — | |||||||
| Net decrease in net assets | (57,662,123 | ) | (67,915,319 | ) | |||||
NET ASSETS: | |||||||||
| Beginning of year | 214,321,750 | 282,237,069 | |||||||
| End of year | $ | 156,659,627 | $ | 214,321,750 | |||||
| Accumulated net investment loss | $ | (39,125 | ) | $ | (52,147 | ) | |||
| (a) | Class R Shares of the Fund commenced operations on July 29, 2004. |
9
Table of Contents
| Statements of Changes in Net Assets — Capital Stock Activity |
| Year Ended | Year Ended | |||||||
| June 30, 2006 | June 30, 2005(a) | |||||||
Amount | ||||||||
Class A Shares: | ||||||||
| Sold* | $ | 29,689,162 | $ | 18,041,279 | ||||
| Redeemed | (32,467,479 | ) | (40,717,807 | ) | ||||
| Net decrease | $ | (2,778,317 | ) | $ | (22,676,528 | ) | ||
Class B Shares: | ||||||||
| Sold | $ | 1,710,087 | $ | 4,509,314 | ||||
| Redeemed* | (46,254,454 | ) | (35,501,452 | ) | ||||
| Net decrease | $ | (44,544,367 | ) | $ | (30,992,138 | ) | ||
Class C Shares: | ||||||||
| Sold | $ | 1,626,958 | $ | 1,935,581 | ||||
| Redeemed | (11,938,595 | ) | (16,246,561 | ) | ||||
| Net decrease | $ | (10,311,637 | ) | $ | (14,310,980 | ) | ||
Class K Shares: | ||||||||
| Redeemed | $ | (58,569 | ) | $ | (26,443 | ) | ||
| Net decrease | $ | (58,569 | ) | $ | (26,443 | ) | ||
Class R Shares: | ||||||||
| Sold | $ | — | $ | 5,000 | ||||
| Net increase | $ | — | $ | 5,000 | ||||
Class Y Shares: | ||||||||
| Sold | $ | 1,026,485 | $ | 624,004 | ||||
| Redeemed | (993,113 | ) | (1,019,454 | ) | ||||
| Net increase/(decrease) | $ | 33,372 | $ | (395,450 | ) | |||
| * | May include amounts automatically converted from Class B Shares to Class A Shares. |
| (a) | Class R Shares of the Fund commenced operations on July 29, 2004. |
10
Table of Contents
| Year Ended | Year Ended | |||||||
| June 30, 2006 | June 30, 2005(a) | |||||||
Shares | ||||||||
Class A Shares: | ||||||||
| Sold* | 1,179,686 | 798,315 | ||||||
| Redeemed | (1,317,730 | ) | (1,848,840 | ) | ||||
| Net decrease | (138,044 | ) | (1,050,525 | ) | ||||
Class B Shares: | ||||||||
| Sold | 73,403 | 216,134 | ||||||
| Redeemed* | (1,977,724 | ) | (1,681,957 | ) | ||||
| Net decrease | (1,904,321 | ) | (1,465,823 | ) | ||||
Class C Shares: | ||||||||
| Sold | 69,196 | 92,830 | ||||||
| Redeemed | (518,041 | ) | (775,479 | ) | ||||
| Net decrease | (448,845 | ) | (682,649 | ) | ||||
Class K Shares: | ||||||||
| Redeemed | (2,354 | ) | (1,162 | ) | ||||
| Net decrease | (2,354 | ) | (1,162 | ) | ||||
Class R Shares: | ||||||||
| Sold | — | 242 | ||||||
| Net increase | — | 242 | ||||||
Class Y Shares: | ||||||||
| Sold | 39,531 | 27,492 | ||||||
| Redeemed | (39,605 | ) | (45,779 | ) | ||||
| Net decrease | (74 | ) | (18,287 | ) | ||||
| * | May include amounts automatically converted from Class B Shares to Class A Shares. |
| (a) | Class R Shares of the Fund commenced operations on July 29, 2004. |
11
Table of Contents
| Financial Highlights, For a Share Outstanding Throughout Each Period |
| A Shares | ||||||||||||||||||||
| Year | Year | Year | Year | Year | ||||||||||||||||
| Ended | Ended | Ended | Ended | Ended | ||||||||||||||||
| 6/30/06(c) | 6/30/05(c) | 6/30/04(c) | 6/30/03(c) | 6/30/02(c) | ||||||||||||||||
| Net asset value, beginning of period | $ | 23.78 | $ | 23.22 | $ | 17.67 | $ | 16.11 | $ | 25.31 | ||||||||||
Income/(loss) from investment operations: | ||||||||||||||||||||
| Net investment loss | (0.20 | ) | (0.33 | ) | (0.36 | ) | (0.29 | ) | (0.32 | ) | ||||||||||
| Net realized and unrealized gain/(loss) on investments | (0.01 | ) | 0.89 | 5.91 | 1.85 | (8.88 | ) | |||||||||||||
| Total from investment operations | (0.21 | ) | 0.56 | 5.55 | 1.56 | (9.20 | ) | |||||||||||||
| Short-term trading fees | 0.00 | (e) | 0.00 | (e) | 0.00 | (e) | — | — | ||||||||||||
| Voluntary contribution from Advisor | 0.02 | — | — | — | — | |||||||||||||||
| Net asset value, end of period | $ | 23.59 | $ | 23.78 | $ | 23.22 | $ | 17.67 | $ | 16.11 | ||||||||||
Total return(b) | (0.80 | )%(f) | 2.41 | % | 31.41 | %(d) | 9.62 | % | (36.28 | )% | ||||||||||
Ratios to average net assets/ supplemental data: | ||||||||||||||||||||
| Net assets, end of period (in 000’s) | $ | 71,711 | $ | 75,570 | $ | 98,196 | $ | 67,456 | $ | 81,129 | ||||||||||
| Ratio of operating expenses to average net assets | 1.83 | % | 1.92 | % | 1.91 | % | 2.14 | % | 1.63 | % | ||||||||||
| Ratio of net investment loss to average net assets | (0.81 | )% | (1.46 | )% | (1.68 | )% | (2.02 | )% | (1.54 | )% | ||||||||||
| Portfolio turnover rate | 47 | % | 118 | % | 68 | % | 46 | % | 38 | % | ||||||||||
| Ratio of operating expenses to average net assets without expense waivers and/or reimbursements | 1.83 | % | 1.92 | % | 1.93 | % | 2.17 | % | 1.72 | % | ||||||||||
| (a) | Class A Shares and Class B Shares of the Fund commenced operations on February 14, 1997 and January 31, 1997, respectively. |
| (b) | Total return represents aggregate total return for the period indicated and does not reflect any applicable sales charges. |
| (c) | Per share numbers have been calculated using the average shares method. |
| (d) | If the Sub-Advisor had not reimbursed the Fund for the realized loss on the disposal of an investment in violation of policies, the total return would have been 31.30% for Class A Shares and 30.23% for Class B Shares. |
| (e) | Amount is less than $0.01 per share. |
| (f) | If the Advisor had not made a voluntary capital contribution to the Fund, the total return would have been (0.88)% for Class A Shares and (1.61)% for Class B Shares |
12
Table of Contents
| B Shares | ||||||||||||||||||||
| Year | Year | Year | Year | Year | ||||||||||||||||
| Ended | Ended | Ended | Ended | Ended | ||||||||||||||||
| 6/30/06(c) | 6/30/05(c) | 6/30/04(c) | 6/30/03(c) | 6/30/02(c) | ||||||||||||||||
| $ | 22.32 | $ | 21.96 | $ | 16.84 | $ | 15.47 | $ | 24.48 | |||||||||||
| (0.37 | ) | (0.46 | ) | (0.49 | ) | (0.39 | ) | (0.45 | ) | |||||||||||
| 0.01 | 0.82 | 5.61 | 1.76 | (8.56 | ) | |||||||||||||||
| (0.36 | ) | 0.36 | 5.12 | 1.37 | (9.01 | ) | ||||||||||||||
| 0.00 | (e) | 0.00 | (e) | 0.00 | (e) | — | — | |||||||||||||
| 0.02 | — | — | — | — | ||||||||||||||||
| $ | 21.98 | $ | 22.32 | $ | 21.96 | $ | 16.84 | $ | 15.47 | |||||||||||
| (1.52 | )%(f) | 1.64 | % | 30.40 | %(d) | 8.86 | % | (36.78 | )% | |||||||||||
| $ | 43,131 | $ | 86,320 | $ | 117,126 | $ | 104,007 | $ | 119,253 | |||||||||||
| 2.58 | % | 2.67 | % | 2.66 | % | 2.89 | % | 2.38 | % | |||||||||||
| (1.58 | )% | (2.21 | )% | (2.43 | )% | (2.77 | )% | (2.29 | )% | |||||||||||
| 47 | % | 118 | % | 68 | % | 46 | % | 38 | % | |||||||||||
| 2.58 | % | 2.67 | % | 2.68 | % | 2.92 | % | 2.47 | % | |||||||||||
13
Table of Contents
| Financial Highlights, For a Share Outstanding Throughout Each Period (continued) |
| C Shares | ||||||||||||||||||||
| Year | Year | Year | Year | Year | ||||||||||||||||
| Ended | Ended | Ended | Ended | Ended | ||||||||||||||||
| 6/30/06(c) | 6/30/05(c) | 6/30/04(c) | 6/30/03(c) | 6/30/02(c) | ||||||||||||||||
| Net asset value, beginning of period | $ | 22.30 | $ | 21.94 | $ | 16.82 | $ | 15.45 | $ | 24.46 | ||||||||||
Income/(loss) from investment operations: | ||||||||||||||||||||
| Net investment loss | (0.36 | ) | (0.46 | ) | (0.49 | ) | (0.39 | ) | (0.45 | ) | ||||||||||
| Net realized and unrealized gain/(loss) on investments | 0.00 | (e) | 0.82 | 5.61 | 1.76 | (8.56 | ) | |||||||||||||
| Total from investment operations | (0.36 | ) | 0.36 | 5.12 | 1.37 | (9.01 | ) | |||||||||||||
| Short-term trading fees | 0.00 | (e) | 0.00 | (e) | 0.00 | (e) | — | — | ||||||||||||
| Voluntary contribution from Advisor | 0.02 | — | — | — | — | |||||||||||||||
| Net asset value, end of period | $ | 21.96 | $ | 22.30 | $ | 21.94 | $ | 16.82 | $ | 15.45 | ||||||||||
Total return(b) | (1.52 | )%(f) | 1.64 | % | 30.44 | %(d) | 8.80 | % | (36.77 | )% | ||||||||||
Ratios to average net assets/ supplemental data: | ||||||||||||||||||||
| Net assets, end of period (in 000’s) | $ | 30,948 | $ | 41,443 | $ | 55,756 | $ | 49,725 | $ | 61,925 | ||||||||||
| Ratio of operating expenses to average net assets | 2.58 | % | 2.67 | % | 2.66 | % | 2.89 | % | 2.38 | % | ||||||||||
| Ratio of net investment loss to average net assets | (1.57 | )% | (2.21 | )% | (2.43 | )% | (2.77 | )% | (2.29 | )% | ||||||||||
| Portfolio turnover rate | 47 | % | 118 | % | 68 | % | 46 | % | 38 | % | ||||||||||
| Ratio of operating expenses to average net assets without expense waivers and/or reimbursements | 2.58 | % | 2.67 | % | 2.68 | % | 2.92 | % | 2.47 | % | ||||||||||
| (a) | Class C Shares and Class K Shares of the Fund commenced operations on January 13, 1997 and April 1, 1997, respectively. |
| (b) | Total return represents aggregate total return for the period indicated and does not reflect any applicable sales charges. |
| (c) | Per share numbers have been calculated using the average shares method. |
| (d) | If the Sub-Advisor had not reimbursed the Fund for the realized loss on the disposal of an investment in violation of policies, the total return would have been 30.26% for Class C Shares and 31.24% for Class K Shares. |
| (e) | Amount is less than $0.01 per share. |
| (f) | If the Advisor had not made a voluntary capital contribution to the Fund, the total return would have been (1.61)% for Class C Shares and (0.93)% for Class K Shares. |
14
Table of Contents
| K Shares | ||||||||||||||||||||
| Year | Year | Year | Year | Year | ||||||||||||||||
| Ended | Ended | Ended | Ended | Ended | ||||||||||||||||
| 6/30/06(c) | 6/30/05(c) | 6/30/04(c) | 6/30/03(c) | 6/30/02(c) | ||||||||||||||||
| $ | 23.75 | $ | 23.18 | $ | 17.64 | $ | 16.09 | $ | 25.29 | |||||||||||
| (0.20 | ) | (0.33 | ) | (0.36 | ) | (0.29 | ) | (0.32 | ) | |||||||||||
| (0.02 | ) | 0.90 | 5.90 | 1.84 | (8.88 | ) | ||||||||||||||
| (0.22 | ) | 0.57 | 5.54 | 1.55 | (9.20 | ) | ||||||||||||||
| 0.00 | (e) | 0.00 | (e) | 0.00 | (e) | — | — | |||||||||||||
| 0.02 | — | — | — | — | ||||||||||||||||
| $ | 23.55 | $ | 23.75 | $ | 23.18 | $ | 17.64 | $ | 16.09 | |||||||||||
| (0.84 | )%(f) | 2.41 | % | 31.46 | %(d) | 9.63 | % | (36.35 | )% | |||||||||||
| $ | 85 | $ | 141 | $ | 165 | $ | 184 | $ | 437 | |||||||||||
| 1.84 | % | 1.92 | % | 1.91 | % | 2.14 | % | 1.63 | % | |||||||||||
| (0.82 | )% | (1.46 | )% | (1.68 | )% | (2.02 | )% | (1.54 | )% | |||||||||||
| 47 | % | 118 | % | 68 | % | 46 | % | 38 | % | |||||||||||
| 1.84 | % | 1.92 | % | 1.93 | % | 2.17 | % | 1.72 | % | |||||||||||
15
Table of Contents
| Financial Highlights, For a Share Outstanding Throughout Each Period (continued) |
| R Shares | Y Shares | |||||||||||||||||||||||||||
| Year | Period | Year | Year | Year | Year | Year | ||||||||||||||||||||||
| Ended | Ended | Ended | Ended | Ended | Ended | Ended | ||||||||||||||||||||||
| 6/30/06(c) | 6/30/05(c) | 6/30/06(c) | 6/30/05(c) | 6/30/04(c) | 6/30/03(c) | 6/30/02(c) | ||||||||||||||||||||||
| Net asset value, beginning of period | $ | 23.73 | $ | 20.62 | $ | 24.26 | $ | 23.64 | $ | 17.94 | $ | 16.32 | $ | 25.57 | ||||||||||||||
Income/(loss) from investment operations: | ||||||||||||||||||||||||||||
| Net investment loss | (0.26 | ) | (0.35 | ) | (0.14 | ) | (0.28 | ) | (0.31 | ) | (0.26 | ) | (0.27 | ) | ||||||||||||||
| Net realized and unrealized gain/(loss) on investments | (0.01 | ) | 3.46 | (0.01 | ) | 0.90 | 6.01 | 1.88 | (8.98 | ) | ||||||||||||||||||
| Total from investment operations | (0.27 | ) | 3.11 | (0.15 | ) | 0.62 | 5.70 | 1.62 | (9.25 | ) | ||||||||||||||||||
| Short-term trading fees | 0.00 | (e) | 0.00 | (e) | 0.00 | (e) | 0.00 | (e) | 0.00 | (e) | — | — | ||||||||||||||||
| Voluntary contribution from Advisor | 0.02 | — | 0.02 | — | — | — | — | |||||||||||||||||||||
| Net asset value, end of period | $ | 23.48 | $ | 23.73 | $ | 24.13 | $ | 24.26 | $ | 23.64 | $ | 17.94 | $ | 16.32 | ||||||||||||||
Total return(b) | (1.05 | )%(g) | 15.08 | % | (0.58 | )%(g) | 2.66 | % | 31.77 | %(d) | 9.93 | % | (36.15 | )% | ||||||||||||||
Ratios to average net assets/supplemental data: | ||||||||||||||||||||||||||||
| Net assets, end of period (in 000’s) | $ | 6 | $ | 6 | $ | 10,779 | $ | 10,841 | $ | 10,994 | $ | 7,031 | $ | 5,997 | ||||||||||||||
| Ratio of operating expenses to average net assets | 2.09 | % | 2.17 | %(f) | 1.58 | % | 1.67 | % | 1.66 | % | 1.89 | % | 1.38 | % | ||||||||||||||
| Ratio of net investment loss to average net assets | (1.07 | )% | (1.70 | )%(f) | (0.56 | )% | (1.21 | )% | (1.43 | )% | (1.77 | )% | (1.29 | )% | ||||||||||||||
| Portfolio turnover rate | 47 | % | 118 | % | 47 | % | 118 | % | 68 | % | 46 | % | 38 | % | ||||||||||||||
| Ratio of operating expenses to average net assets without expense waivers and/or reimbursements | 2.09 | % | 2.17 | %(f) | 1.58 | % | 1.67 | % | 1.68 | % | 1.92 | % | 1.47 | % | ||||||||||||||
| (a) | Class R Shares and Class Y Shares of the Fund commenced operations on July 29, 2004 and December 31, 1996, respectively. |
| (b) | Total return represents aggregate total return for the period indicated. |
| (c) | Per share numbers have been calculated using the average shares method. |
| (d) | If the Sub-Advisor had not reimbursed the Fund for the realized loss on the disposal of an investment in violation of policies, the total return would have been 31.61% for Class Y Shares. |
| (e) | Amount is less than $0.01 per share. |
| (f) | Annualized. |
| (g) | If the Advisor had not made a voluntary capital contribution to the Fund, the total return would have been (1.14)% for Class R Shares and (0.66)% for Class Y Shares. |
16
Table of Contents
| Notes to Financial Statements, June 30, 2006 |
1. Organization
As of June 30, 2006, the Munder Funds (sometimes referred to as the “Funds”) consisted of 25 portfolios, each of which is a series of Munder Series Trust (“MST”), Munder Series Trust II (“MSTII”) or The Munder @Vantage Fund (“@Vantage”). Information presented in these financial statements pertains only to the Munder Healthcare Fund (the “Fund”), the only series of MSTII. Financial statements for the other Munder Funds are presented in separate reports.
MSTII is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company, and was organized as a Massachusetts business trust on October 30, 1996. The Fund is classified as a diversified management investment company under the 1940 Act. The Fund’s goal is to provide long-term capital appreciation. The Fund is authorized to issue an unlimited number of shares of beneficial interest, each with a par value of $0.001.
The Fund has 6 classes of shares — Class A, Class B, Class C, Class K, Class R and Class Y Shares. Class A Shares are sold at their offering price, which is normally net asset value plus a front-end sales charge. Class B and Class C Shares are sold without a front-end sales charge but may be subject to a contingent deferred sales charge (“CDSC”). Class B Shares automatically convert to Class A Shares on a date based on the initial purchase date of Class B Shares and the passage of a specified period of time since that date. Class K, Class R and Class Y Shares are sold only to certain eligible investors, as described in the Fund’s prospectus, without either a front-end sales charge or a CDSC. All classes of shares have identical rights and voting privileges.
2. Significant Accounting Policies
The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets resulting from operations during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements:
Security Valuation: Securities and other investments are generally valued using readily available market quotations, which may be obtained from various pricing sources approved by the Board of Trustees. Equity securities are generally valued at the last quoted sale price on the primary market or
17
Table of Contents
| Notes to Financial Statements, June 30, 2006 (continued) |
exchange on which such securities are traded or the official close price of such exchange. Lacking any sales, equity securities (other than depositary receipts) are valued at the mean of the bid and asked prices, and depositary receipts are valued based on the underlying security’s value and relevant exchange rate. In the event that a price for a security is not available through the means described above, the security may be valued using broker-dealer quotations, last reported market quotations, or at fair value by a pricing committee in accordance with guidelines approved by the Board of Trustees. Securities that are primarily traded on foreign securities exchanges may also be subject to fair valuation by such pricing committee should a significant event occur subsequent to the close of the foreign securities exchanges. Fair valuations involve a review of relevant factors, including without limitation, company-specific information, industry information, comparable publicly-traded securities information, movements in U.S. equity markets following the close of foreign markets, and/or country-specific information. Debt securities with remaining maturities of 60 days or less at the time of purchase are valued on an amortized cost basis, which approximates current market value, unless the Board of Trustees determines that such valuation does not constitute fair value at that time.
Foreign Currency: The books and records of the Fund are maintained in U.S. dollars. Investment securities, other assets and liabilities, securities transactions, and items of income and expense denominated in foreign currencies are translated into U.S. dollars.
Unrealized gains and losses resulting from changes in foreign currency exchange rates on all assets and liabilities denominated in foreign currencies other than investment securities are included in the net change in unrealized appreciation/(depreciation) of foreign currency-related transactions. Net realized gains and losses from foreign currency-related transactions include foreign currency gains and losses between trade date and settlement date on investment security, foreign currency and foreign interest and dividend income transactions.
Unrealized gains and losses resulting from changes in foreign currency exchange rates on investment securities denominated in foreign currencies are included in the net change in unrealized appreciation/(depreciation) of securities. The portion of foreign currency gains and losses related to fluctuation in exchange rates between the initial purchase trade date and subsequent sale trade date of securities denominated in foreign currencies is included in realized gains and losses from security transactions.
18
Table of Contents
| Notes to Financial Statements, June 30, 2006 (continued) |
Forward Foreign Currency Exchange and Spot Contracts: The Fund may engage in forward foreign currency exchange and spot contracts in an effort to facilitate transactions in foreign securities and to reduce exposure to foreign currency exchange rates. The value of such contracts is translated into U.S. dollars. Forward foreign currency exchange and spot contracts are marked to market daily. The change in market value is recorded as unrealized appreciation/(depreciation) from foreign currency-related transactions. When the contract is closed, the Fund records a realized gain or loss from foreign currency-related transactions equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
The use of forward foreign currency exchange and spot contracts does not eliminate fluctuations in the underlying prices of the Fund’s securities, but it does establish a rate of exchange on a particular date. When a contract is used to hedge against movements in exchange rates, it will limit the risk of loss due to a decline in the value of the hedged currency during the relevant period, but will also limit any potential gain that might result should the value of the currency increase during that period. In addition, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts.
Repurchase Agreements: Each repurchase agreement entered into by the Fund provides that the seller must transfer to the Fund initial collateral at least equal to the total amount of the repurchase obligation, including interest, and transfer upon request additional collateral any time the value of the collateral falls below such level. Each repurchase agreement also provides that in the event of counterparty default, the Fund has the right to accelerate the seller’s repurchase obligation and/or use the collateral to satisfy the seller’s repurchase obligation. However, there could be potential loss to the Fund in the event the Fund is delayed or prevented from exercising its right to dispose of the collateral securities, including the risk of possible decline in the value of the collateral securities during the period in which the Fund seeks to assert its rights.
Loans of Portfolio Securities: The Fund may loan portfolio securities in an amount up to 25% of the value of its total assets to certain approved borrowers. Each loan is secured by collateral which is adjusted daily to have a market value at least equal to 100% of securities loaned at the close of business on the preceding business day. The Fund may share with the borrower a portion of the income received on collateral for the loan, or will be paid a premium on the loan. The Fund also continues to receive the equivalent of the interest and dividends paid on the loaned securities. The Fund has the right under the lending agreement to recover the securities from the borrower on
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| Notes to Financial Statements, June 30, 2006 (continued) |
demand. If the borrower defaults or bankruptcy proceedings commence with respect to the borrower of the security, realization of the value of the securities loaned may be delayed or limited.
Security Transactions, Net Investment Income and Gains and Losses: For purposes of financial statement presentation, security transactions are recorded on a trade date basis. The cost of investments sold is determined by use of the specific identification method for both financial reporting and income tax purposes. Interest income is recorded on the accrual basis and includes the amortization of premiums and accretion of discounts. Dividends are recorded on the ex-dividend date. Certain dividends from foreign securities are recorded as soon as the Fund is informed of the ex-dividend date if such information is obtained subsequent to the ex-dividend date. General expenses of the Munder Funds are allocated to the Fund based upon the relevant driver of such expenses. General expenses, income and realized and unrealized gains and losses of the Fund are then prorated among the share classes based on the relative average net assets of each class.
Short-Term Trading (Redemption) Fees: During the year ended June 30, 2006, a short-term trading fee of 2% was assessed on certain redemptions of Fund Shares made within 60 days of purchase as described in the Fund’s prospectus. The fee, which was retained by the Fund, is accounted for as an addition to paid-in capital. These fees (if any) are shown in the accompanying Statements of Changes in Net Assets and Financial Highlights as short-term trading fees.
Dividends and Distributions to Shareholders: Dividends from net investment income are declared and paid annually (if available) by the Fund. The Fund’s net realized capital gains (including net short-term capital gains), if any, are declared and distributed at least annually. Dividends and distributions to shareholders are recorded on the ex-dividend date.
Federal Income Taxes: The Fund intends to continue to qualify as a regulated investment company by complying with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its earnings to its shareholders. Therefore, no Federal income or excise tax provision is required.
| 3. | Investment Advisor, Sub-Advisor, Administrator and Other Related Party Transactions |
For its advisory services, Munder Capital Management (the “Advisor”) is entitled to receive from the Fund a fee, computed daily and payable monthly, based on the average daily net assets of the Fund at an annual rate of 1.00%
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| Notes to Financial Statements, June 30, 2006 (continued) |
based on assets up to $250 million and 0.75% based on assets of $250 million or more. During the year ended June 30, 2006, the Fund paid an annual effective rate of 1.00% for advisory services.
The Advisor is also the administrator for the Munder Funds. In its capacity as administrator, the Advisor is entitled to receive from the Fund an administration fee, computed daily and payable monthly, based on the average daily net assets of the Fund at the following annual rates subject to a Fund minimum fee.
| Fund Net Assets | Annual Fee | |||
| First $100 million | 0.153% | |||
| Next $150 million | 0.128% | |||
| Next $250 million | 0.104% | |||
| Next $500 million | 0.079% | |||
| Thereafter | 0.055% | |||
In addition, the Advisor is entitled to receive from the Fund an annual financial reporting fee in the amount of $8,000.
For the year ended June 30, 2006, the Advisor earned $287,777 before payment of sub-administration fees and $189,243 after payment of sub-administration fees for its administrative services to the Fund. During the year ended June 30, 2006, the Fund paid an annual effective rate of 0.1453% for administrative services.
The Advisor made a voluntary capital contribution to the Fund during the year ended June 30, 2006 of $176,297 after completing a review of the application of the Fund’s redemption fee policy in prior years.
During the period from the Fund’s inception through January 25, 2005, the Fund was managed by Framlington Overseas Investment Management Limited (the “Sub-Advisor”).
Comerica Incorporated (”Comerica”), through its wholly-owned subsidiary Comerica Bank, owned approximately 96% of the Advisor (87% on a fully diluted basis) as of June 30, 2006. Comerica Bank provides administrative, record keeping and other related services associated with maintaining accounts for Comerica Bank clients whose shares are held of record in omnibus accounts. As compensation for these services, Comerica Bank receives a fee of 0.01% of the average daily net assets of the Fund beneficially owned by Comerica Bank and its customers. Comerica Bank earned $810 for its administrative, record keeping and other related services provided to the Fund for the year ended June 30, 2006.
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| Notes to Financial Statements, June 30, 2006 (continued) |
Each Trustee of MST and MSTII is paid quarterly an aggregate fee consisting of a $78,000 annual retainer ($114,000 for the Chairman) for services provided as a Board member, plus out-of-pocket expenses related to attendance at Board and Committee meetings. Each Trustee of @Vantage is paid quarterly an annual retainer of $6,000 for services provided as a Board member, plus out-of-pocket expenses related to attendance at Board and Committee meetings. A Board member who is Chairman of a committee (Audit Committee, Board Process and Governance Committee, and/or Nominating Committee) also receives an annual retainer of $3,000 for such service. Trustees may elect to defer all or a portion of the fees earned under a deferred compensation plan. Under this plan, amounts deferred are valued as if they are invested in one or more of the Munder Funds selected by the Trustee. These amounts are not, however, actually invested in shares of the Munder Funds, and the obligations of MST, MSTII and @Vantage to make payments of deferred amounts are unsecured general obligations of the Munder Funds. No officer, director or employee of the Advisor, Comerica or any of Comerica’s affiliates receives any compensation from MST, MSTII or @Vantage.
4. Distribution and Service Plan
The Fund has a Distribution and Service Plan (the ”Plan”) with respect to the Class A, Class B, Class C, Class R and Class K Shares, that was adopted pursuant to Rule 12b-1 under the 1940 Act except with respect to Class K Shares. Under the Plan, service fees may be collected from the Fund primarily to pay securities dealers and other financial institutions and organizations (collectively, the ”Service Organizations”) who provide shareholder services for the Fund. Additional fees may also be collected from the Fund with respect to Class B, Class C and Class R Shares to pay for certain shareholder services and the distribution of Fund shares to investors. These fees may be used as a form of compensation, including compensation to Service Organizations to obtain various distribution-related services for the Fund.
The maximum rates, as a percentage of average daily net assets, payable under the Plan are as follows:
| Class A | Class B | Class C | Class R | Class K | ||||||||||||||
| Shares | Shares | Shares | Shares | Shares | ||||||||||||||
| 12b-1 Fees | 12b-1 Fees | 12b-1 Fees | 12b-1 Fees | Service Fees | ||||||||||||||
| 0.25% | 1.00% | 1.00% | 1.00% | 0.25% | ||||||||||||||
For Class R Shares, the 12b-1 fees have been limited to 0.50% pursuant to the Fund’s contract with the Distributor. No payments are made under the Plan with regard to Class Y Shares.
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| Notes to Financial Statements, June 30, 2006 (continued) |
Comerica Securities, Inc. (”Comerica Securities”), a wholly-owned subsidiary of Comerica Bank, and Comerica Bank are among the Service Organizations who may receive fees from the Fund under the Plan. For the year ended June 30, 2006, the Fund paid $26 to Comerica Securities and $105 to Comerica Bank for shareholder and/or distribution-related services provided to Class A, Class B, Class C, Class K and Class R shareholders.
5. Securities Transactions
Cost of purchases and proceeds from sales of securities other than short-term investments and U.S. government securities were $92,861,322 and $148,193,042, respectively, for the year ended June 30, 2006.
At June 30, 2006, aggregate gross unrealized appreciation for all securities for which there was an excess of value over tax cost was $14,222,108, aggregate gross unrealized depreciation for all securities for which there was an excess of tax cost over value was $6,764,373 and net appreciation for Federal income tax purposes was $7,457,735. At June 30, 2006, aggregate cost for Federal income tax purposes was $155,528,853.
6. Investment Concentration
The Fund primarily invests in equity securities of U.S. and, to a lesser extent, foreign companies providing healthcare, medical services and medical products worldwide. By concentrating its investments, the Fund is subject to higher market risk and price volatility than funds with more broadly diversified investments. The value of stocks of health care and health care-related companies is particularly vulnerable to rapid changes in technology product cycles, government regulations and cost containment measures. In addition, adverse economic, business or political developments affecting the health care sector could have a major effect on the value of the Fund’s investments.
7. Revolving Line of Credit
Effective December 14, 2005, the Munder Funds renewed a one-year revolving line of credit with State Street Bank and Trust Company in which the Fund, and other Munder Funds, participate. Borrowings under the line may not exceed the lesser of $75,000,000 or 15% of the value of the total assets of the Fund. Interest is payable on outstanding borrowings at the Federal Funds Rate plus 0.50%. Additionally, the line of credit includes an annual commitment fee equal to 0.10% per annum through December 13, 2006 on the daily amount of the unused commitment. During the year ended June 30, 2006, the Fund did not utilize the revolving line of credit. For the year ended June 30, 2006, total commitment fees for the Fund were $2,612.
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| Notes to Financial Statements, June 30, 2006 (continued) |
8. Indemnification Obligations
The Fund has a variety of indemnification obligations under contracts with its service providers. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
9. Income Tax Information
Income dividends and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences and differing characterization of distributions made by the Fund as a whole. The Fund also may utilize earnings and profits distributed to shareholders on redemption of shares as a part of the dividends paid deduction for income tax purposes.
As determined on June 30, 2006, permanent differences resulting primarily from foreign currency gains and losses and net operating losses were reclassified at year end. The following reclassifications had no effect on net income, net assets or net asset value per share:
| Undistributed | Accumulated | |||
| Net Investment | Net Realized | Paid in | ||
| Income | Gain | Capital | ||
| $2,425,477 | $24,837 | $(2,450,314) | ||
At June 30, 2006, the components of distributable earnings on a tax basis were as follows:
| Post | ||||||
| October | Capital Loss | Unrealized | ||||
| Loss | Carryover | Appreciation | Total | |||
| (2,107) | $(140,761,710) | $7,457,735 | $(133,306,082) | |||
The differences between book and tax distributable earnings are primarily due to wash sales and deferred trustees’ fees.
As determined at June 30, 2006, the Fund had available for Federal income tax purposes, $140,761,710 of unused capital losses of which $1,386,470, $95,698,037 and $43,677,203 expire in 2010, 2011 and 2012, respectively. In addition, the losses expiring in 2010, may be further limited as they were acquired in the reorganization with the Munder Bio(Tech)2 Fund that occurred on May 9, 2003.
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| Notes to Financial Statements, June 30, 2006 (continued) |
Certain capital and net foreign currency losses realized after October 31 within the taxable year may be deferred and treated as occurring on the first day of the following tax year. The Fund has elected to defer net foreign currency losses arising between November 1, 2005 and June 30, 2006 of $2,107.
The Fund utilized capital loss carryforwards during the year ended June 30, 2006 in the amount of $17,331,591.
| 10. | Tax Information (Unaudited) |
For the fiscal year ended June 30, 2006, the Fund designated approximately $1,941,760 pursuant to the Internal Revenue Code as qualified dividend income eligible for reduced tax rates.
| 11. | Subsequent Events (Unaudited) |
On August 4, 2006, the management team of the Advisor announced that it has partnered with Grail Partners, LLC and private equity firm Crestview Partners, L.P. to acquire Comerica’s controlling interest in the Advisor. If, as expected, the transaction closes, the Advisor’s current investment advisory agreement with the Fund will automatically terminate under applicable law at the time of the closing. On August 22, 2006, the Board of Trustees of the Munder Funds approved a new investment advisory agreement with the Advisor subject to approval by shareholders of the Fund at a Special Meeting called for October 26, 2006. The new investment advisory agreement is expected to become effective on the date of the closing of the transaction.
On August 22, 2006, the Board of Trustees approved a change in the structure of the fee paid to the Advisor for its advisory services. Effective August 22, 2006, the Advisor is entitled to receive from the Fund a fee, computed daily and payable monthly at an annual rate of 1.00% on the first $100 million of average daily net assets; 0.90% of the next $100 million; 0.85% of the next $50 million; and 0.75% of average daily net assets in excess of $250 million.
| 12. | Quarterly Portfolio Schedule (Unaudited) |
The Fund files with the Securities and Exchange Commission its complete schedule of portfolio holdings on Form N-Q for the first and third quarters of each fiscal year. The Fund’s Forms N-Q are available on the Securities and Exchange Commission’s website at www.sec.gov. The Fund’s Forms N-Q may be reviewed and copied at the Securities and Exchange Commission’s Public Reference Room in Washington, D.C. Information on the operation of the
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| Notes to Financial Statements, June 30, 2006 (continued) |
Public Reference Room may be obtained by calling 1-800-SEC-0330. The most recent Form N-Q is available without charge, upon request, by calling (800) 438-5789. In addition, the most currently available list and the three most recently published lists of the Fund’s portfolio holdings are available on our website, www.munder.com.
| 13. | Proxy Voting Policies and Procedures (Unaudited) |
A description of the Advisor’s proxy voting policies and procedures, which have been adopted by the Fund is available without charge, upon request, by calling (800) 438-5789 or visiting our website at www.munder.com or the Securities and Exchange Commission’s website at www.sec.gov.
| 14. | Proxy Voting Record (Unaudited) |
The Fund files with the Securities and Exchange Commission its proxy voting record on Form N-PX for each 12-month period ending June 30. Form N-PX must be filed by the Fund each year by August 31. The most recent Form N-PX or voting record information is available without charge, upon request, by calling (800) 438-5789 or visiting our website at www.munder.com or the Securities and Exchange Commission’s website at www.sec.gov.
| 15. | Approval of Investment Advisory Agreement (Unaudited) |
The Advisor provides investment advisory services to the Fund under a Combined Investment Advisory Agreement dated June 13, 2003 and amended most recently as of May 16, 2006 (“Advisory Agreement”). On May 16, 2006, the Board of Trustees approved the continuation of the Advisory Agreement with respect to the Fund for an additional one-year period commencing on July 1, 2006. In determining whether to approve the continuation of the Advisory Agreement, the Board requested, and received from the Advisor, the information that the Board believed to be reasonably necessary to reach its conclusion, including the information described below. Both in meetings specifically dedicated to renewal of the Advisory Agreement and in other meetings during the course of the year, the Board received materials relating to the services provided to the Munder Funds by the Advisor. In evaluating the Advisory Agreement, the Board conducted a review that was specifically focused upon the renewal of the Advisory Agreement, and relied upon their knowledge, resulting from their meetings throughout the year, of the Advisor, its services and the Munder Funds.
The Board considered many factors in evaluating whether the Advisory Agreement and the fees provided therein with respect to the Fund should be
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| Notes to Financial Statements, June 30, 2006 (continued) |
continued for an additional one-year period. The Board was advised by legal counsel to the Munder Funds and the “Non-Interested Trustees” also were advised by their independent legal counsel with respect to their deliberations regarding the continuation of the Advisory Agreement. (A Trustee is deemed to be a “Non-Interested Trustee” to the extent the Trustee is not an “interested person” of the Munder Funds, as that term is defined in Section 2(a)(19) of the 1940 Act.)
Among other factors, the Board requested, considered and evaluated information regarding:
(a) The nature, extent and quality of the services provided by the Advisor to the Fund under the Advisory Agreement: With respect to this factor, the Board considered:
| • | the qualifications of management of the Advisor and of persons providing portfolio management services to the Fund. In this regard, the Board was presented with detailed information concerning the Advisor’s efforts in hiring, promoting and retaining qualified investment personnel, including enhancements in the quality and depth in the Advisor’s investment, trading, and administrative services departments due to the recruiting and hiring of additional staff in 2005 and the promotion of employees from within the Advisor in 2005 and 2006, recent changes within key management positions at the Advisor, the Advisor’s personnel retention efforts, and the Advisor’s current intentions regarding future changes in its organizational structure; | |
| • | the Advisor’s efforts in recent years and on an ongoing basis to: |
| (1) | enhance its research capabilities and make investments in compliance, fund accounting and other technologies relating to the Funds’ operations in order to improve their effectiveness and efficiencies of operations; | |
| (2) | grow Fund assets through increased marketing efforts and a focus on asset retention; | |
| (3) | focus on determining the reasonableness of the investment advisory fees for each of the Munder Funds and, as appropriate, to adjust its investment advisory fees (including through the addition of contractual fee breakpoints or reducing its advisory fees), although no such adjustments were made with respect to the Fund in the current period; |
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| Notes to Financial Statements, June 30, 2006 (continued) |
| (4) | renegotiate the fee arrangements with certain of the other service providers for the Munder Funds in order to reduce the total expense ratios of the Munder Funds and their classes of shares, although no such reductions were made in the current period; and | |
| (5) | seek to better allocate the costs of services across the Munder Funds; |
| • | the Advisor’s performance, both generally with respect to all the Munder Funds and more specifically with respect to the Fund, as further described below; | |
| • | the information provided by the Advisor in its Form ADV and in response to a detailed series of questions submitted by counsel to the Munder Funds; | |
| • | the terms of the Advisory Agreement; and | |
| • | the general experience, business, operations and financial condition of the Advisor. |
Based on these and other factors, the Board concluded that the facts presented to and considered by the Board justified approval of the continuance of the Advisory Agreement.
(b) The investment performance of the Fund and the Advisor: The Board considered the one-, three- and five-year and since inception total investment performance, on both a gross and net basis, of the Fund’s Class Y Shares as of December 31, 2005 and compared this information to the performance of the Fund’s benchmark index and the median performance of the Fund’s “peer group” as categorized by Lipper, Inc. (“Lipper”).
In addition, the Board considered the Fund’s one-, three- and five-year Lipper “ranking” within the Fund’s peer group on a numeric, percentile and quartile ranking basis, as well as the three- and five-year and the overall “star” ratings of the Fund by Morningstar, Inc. The Board also considered the Fund’s one-, three- and five-year total return for Class A Shares as of December 31, 2005 as compared to the performance of a small group of funds deemed by the Advisor to be the most comparable to the Fund. In this regard, the Board considered that: (1) the Fund’s average annual total returns for Class Y Shares, on both a gross and net basis, exceeded the performance of the benchmark for the three-year and since inception periods and trailed for the one- and five-year periods, (2) the Fund’s total returns for Class Y Shares on a gross basis exceeded the median performance of the Fund’s Lipper peer group for the one-year period and, on both a gross and net basis for the
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| Notes to Financial Statements, June 30, 2006 (continued) |
three-year period, but trailed on both a gross and net basis for the five-year period, and (3) the Fund had favorable Morningstar ratings.
Based on these considerations and comparisons, the Board concluded that the investment performance of the Fund supported approval of the continuance of the Advisory Agreement.
(c) The costs of the services to be provided and profits to be realized by the Advisor and its affiliates from the relationship with the Fund: The Board considered detailed information provided by the Advisor as to the costs and profitability of the Advisor over the 12 months ended on December 31, 2005 and projections by the Advisor as to the costs and profitability of the Advisor over the 12 months ending on December 31, 2006, with respect to all services provided by the Advisor and its affiliates to the Fund and based on certain stated assumptions. Based on these facts, the Board concluded that the costs of the Advisor’s services and the profitability of the Advisor under the Advisory Agreement were not unreasonable.
(d) The extent to which economies of scale may be realized as the Fund grows and whether fee levels reflect economies of scale: The Board considered the Advisor’s willingness in recent years and on an on-going basis to review the advisory and other fees of all the Munder Funds for reasonableness and market rate comparability, and, where appropriate, to renegotiate contracts on behalf of the Funds and reduce fees (both directly and through the implementation of contractual breakpoints in certain of the Funds’ advisory fees) in an overall effort to reduce the Funds’ total operating expenses. The Board considered the Advisor’s representation that it will seek to share economies of scale with the Fund’s shareholders through appropriate mechanisms in the future. Based on these facts, the Board concluded that the Advisor’s efforts in this regard strongly supported approving continuance of the Advisory Agreement.
(e) A comparison of fee levels of the Fund with those of comparable funds: The Board considered the Fund’s advisory fees and total expenses as they compared to those of comparable funds identified by Lipper in the case of the advisory fee comparisons and to the funds included in the Fund’s respective Lipper category in the case of total expense comparisons. The Board also considered the Fund’s total operating expense ratio (and certain components of the total expense ratio) of the Fund’s Class A Shares in comparison to those of each comparable fund in the Fund’s Lipper peer group and in comparison to the average, median, high and low net effective advisory fees of the funds in the Fund’s Lipper peer group. The Board also received separate information prepared by Strategic Insight Mutual Fund Research and Consulting, LLC, a third-party data mutual fund provider, that compared the Fund’s advisory fees
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| Notes to Financial Statements, June 30, 2006 (continued) |
at varying asset levels to the fees charged to the Fund’s peers. Based on these facts, the Board concluded that the current advisory fee and total fee levels of the Fund should not preclude approval of the continuance of the Advisory Agreement.
(f) Benefits derived or to be derived by the Advisor from the relationship with the Fund: The Board considered the Advisor’s representation that, beyond the fees earned by the Advisor and its affiliates for providing services to the Fund, the Advisor may benefit from its relationship with the Fund in the sense that separately managed account clients may view the additional assets under management resulting from managing the Munder Funds as a positive attribute. In addition, the Board noted that the Advisor also may obtain increased reputational prestige from managing a nationally recognized mutual fund family that shares the Advisor’s name. The Board also considered the Advisor’s representation that, although money managers may benefit from the use of “soft dollars” obtained from broker-dealers through payment of commissions on trades in client accounts, the Advisor believes that soft dollars should be used for the benefit of clients to the maximum extent possible. Based on these facts, the Board concluded that these additional benefits should not preclude approval of the continuance of the Advisory Agreement.
Based upon its review and evaluation of the information requested and provided and the factors addressed above, among others, and following discussion and having reached certain conclusions as addressed above, the Board unanimously approved the Advisory Agreement for an additional annual period commencing on July 1, 2006.
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| Notes to Financial Statements, June 30, 2006 (continued) |
16. Trustees and Executive Officers (Unaudited)
Information about the Trustees and Executive Officers of the Munder Funds as of June 30, 2006, including their business addresses, ages and principal occupations during the past five years, and other directorships of publicly traded companies or funds, are set forth in the table below.
| Number of | ||||||||||
| Portfolios | ||||||||||
| Term of | in Fund | Other | ||||||||
| Office(1) and | Principal Occupation(s) | Complex | Directorships | |||||||
| Position(s) with | Length of Time | During | Overseen | Held by | ||||||
| Name, Address and Age | the Funds | Served(2) | Past 5 Years | by Trustee | Trustee | |||||
Non-Interested Trustees | ||||||||||
| Thomas D. Eckert c/o The Munder Funds 480 Pierce Street Suite 300 Birmingham, MI 48009 Age 58 | Trustee and Chairman | Indefinite; Trustee since 2/93; Chairman since 11/04 | President and Chief Executive Officer, Capital Automotive Real Estate Services, Inc. (real estate investment operating company specializing in retail automotive properties) (since 12/05); Director, President and Chief Executive Officer, Capital Automotive REIT (10/97 to 12/05). | 25 | Fieldstone Investment Corporation (since 11/03). | |||||
| John Rakolta, Jr. c/o The Munder Funds 480 Pierce Street Suite 300 Birmingham, MI 48009 Age 59 | Trustee and Vice Chairman | Indefinite; since 2/93 | Chairman and Chief Executive Officer, Walbridge Aldinger Company (construction/real estate/manufacturing company) (since 1991). | 25 | None | |||||
| David J. Brophy c/o The Munder Funds 480 Pierce Street Suite 300 Birmingham, MI 48009 Age 69 | Trustee | Indefinite; since 5/93 | Professor of Finance, University of Michigan-Business School (since 8/66). | 25 | Nighthawk Radiology Holdings, Inc. (since 3/04). | |||||
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| Notes to Financial Statements, June 30, 2006 (continued) |
| Number of | ||||||||||
| Portfolios | ||||||||||
| Term of | in Fund | Other | ||||||||
| Office(1) and | Principal Occupation(s) | Complex | Directorships | |||||||
| Position(s) with | Length of Time | During | Overseen | Held by | ||||||
| Name, Address and Age | the Funds | Served(2) | Past 5 Years | by Trustee | Trustee | |||||
| Joseph E. Champagne c/o The Munder Funds 480 Pierce Street Suite 300 Birmingham, MI 48009 Age 68 | Trustee | Indefinite; since 11/89 | Vice President, Macomb Community College (since 7/01); Dean, Macomb Community College (since 9/97). | 25 | None | |||||
| John Engler c/o The Munder Funds 480 Pierce Street Suite 300 Birmingham, MI 48009 Age 57 | Trustee | Indefinite; since 2/03 | President and Chief Executive Officer, National Association of Manufacturers (public advocacy for manufacturing) (since 10/04); President of State and Local Government/Vice President of Government Solutions for North America, Electronic Data Systems Corp. (computer services) (1/03 to 8/04); Governor of the State of Michigan (1/91 to 1/03). | 25 | Universal Forest Products, Inc. (manufacturer and distributor of lumber products) (since 1/03); Northwest Airlines (since 4/03); Dow Jones & Company (financial news and information company) (since 5/05). | |||||
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| Notes to Financial Statements, June 30, 2006 (continued) |
| Number of | ||||||||||
| Portfolios | ||||||||||
| Term of | in Fund | Other | ||||||||
| Office(1) and | Principal Occupation(s) | Complex | Directorships | |||||||
| Position(s) with | Length of Time | During | Overseen | Held by | ||||||
| Name, Address and Age | the Funds | Served(2) | Past 5 Years | by Trustee | Trustee | |||||
| Lisa A. Payne c/o The Munder Funds 480 Pierce Street Suite 300 Birmingham, MI 48009 Age 47 | Trustee(3) | Indefinite; since 3/05 | Director, Vice Chairman and Chief Financial Officer of Taubman Centers, Inc. (real estate investment trust specializing in developing and operating regional shopping centers) (since 6/05); Director, Executive Vice President, Chief Financial Officer and Chief Administrative Officer of Taubman Centers, Inc. (1/97 to 6/05). | 24 | Taubman Centers, Inc. (since 1/97). | |||||
| Arthur T. Porter c/o The Munder Funds 480 Pierce Street Suite 300 Birmingham, MI 48009 Age 50 | Trustee | Indefinite; since 2/01 | Executive Director, McGill University Health Centre (since 4/04); Chairman and Chief Executive Officer, University Radiation Oncology Physicians PC, Griffon Companies (10/03 to 4/04); President and Chief Executive Officer of the Detroit Medical Center (3/99 to 9/03). | 25 | Adherex Technologies, Inc. (biopharmaceutical company) (since 3/04); LMS Medical Systems (health care technology company) (since 1/06). | |||||
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| Notes to Financial Statements, June 30, 2006 (continued) |
| Number of | ||||||||||
| Portfolios | ||||||||||
| Term of | in Fund | Other | ||||||||
| Office(1) and | Principal Occupation(s) | Complex | Directorships | |||||||
| Position(s) with | Length of Time | During | Overseen | Held by | ||||||
| Name, Address and Age | the Funds | Served(2) | Past 5 Years | by Trustee | Trustee | |||||
Interested Trustee | ||||||||||
| Michael T. Monahan(4) 3707 West Maple Rd. Suite 102 Bloomfield Hills, MI 48301 Age 67 | Trustee | Indefinite; since 8/00 | President of Monahan Enterprises, LLC (consulting company) (since 6/99). | 25 | CMS Energy Corporation (energy company) (since 12/02). | |||||
| (1) | The Trustee may serve until his death, resignation, removal or retirement. Pursuant to the By-Laws, any Trustee shall retire as Trustee at the end of the calendar year in which he attains the age of 75 years. |
| (2) | Length of time served is measured from the earliest date of service as a Trustee of any of the Munder Funds or their predecessors. |
| (3) | Ms. Payne is a Trustee of MST and MSTII only. |
| (4) | Mr. Monahan is an “interested person” as defined in the 1940 Act. Mr. Monahan owns stock in Comerica Incorporated, the indirect parent company of the Advisor. Mr. Monahan also receives retirement and health benefits from Comerica Incorporated. |
| Term of | ||||||
| Office(1) and | ||||||
| Position(s) with | Length of Time | |||||
| Name, Address and Age | the Funds | Served(2) | Principal Occupation(s) During Past 5 Years | |||
Executive Officers | ||||||
| John S. Adams 480 Pierce Street Suite 300 Birmingham, MI 48009 Age 48 | President & Principal Executive Officer | through 2/07; since 4/06 | President and Chief Investment Officer of Munder Capital Management (investment advisor) (since 3/06); President and Chief Investment Officer of Pierce Street Advisors, LLC (investment advisor) (since 3/06); Managing Director and Chief Investment Officer, Equities of Munder Capital Management (12/04 to 3/06); Senior Portfolio Manager of Munder Capital Management (6/87 to 12/04). | |||
| Stephen J. Shenkenberg 480 Pierce Street Suite 300 Birmingham, MI 48009 Age 48 | Vice President, Secretary, Chief Legal Officer & Chief Compliance Officer | through 2/07; since 8/00 | Managing Director, General Counsel, Chief Compliance Officer and Secretary of Munder Capital Management (investment advisor) (since 2/05); General Counsel and Chief Compliance Officer of Pierce Street Advisors, LLC (investment advisor) (since 5/05); General Counsel of Munder Capital Management (7/00 to 2/05); Director of Diversified Strategy Hedge Fund, Ltd. (since 1/06). | |||
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| Notes to Financial Statements, June 30, 2006 (continued) |
| Term of | ||||||
| Office(1) and | ||||||
| Position(s) with | Length of Time | |||||
| Name, Address and Age | the Funds | Served(2) | Principal Occupation(s) During Past 5 Years | |||
| Peter K. Hoglund 480 Pierce Street Suite 300 Birmingham, MI 48009 Age 40 | Vice President & Principal Financial Officer | through 2/07; since 2/01 | Managing Director and Chief Administrative Officer of Munder Capital Management (investment advisor) (since 2/05); Chief Administrative Officer of Pierce Street Advisors, LLC (investment advisor) (since 5/05); Chief Administrative Officer of Munder Capital Management (5/00 to 2/05). | |||
| Chérie N. Ugorowski 480 Pierce Street Suite 300 Birmingham, MI 48009 Age 37 | Treasurer & Principal Accounting Officer | through 2/07; since 8/01 | Controller of Munder Capital Management (investment advisor) (since 6/01); Corporate Accounting Manager, DaimlerChrysler Corporation (automotive manufacturer) (9/99 to 6/01). | |||
| (1) | The officers are elected annually by the Board. |
| (2) | Length of time served is measured from the earliest date of service as an officer of any of the Munder Funds or their predecessors. |
The Statement of Additional Information for the Fund includes additional information about the Trustees and is available, without charge, upon request, by calling (800) 438-5789.
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Table of Contents
To the Shareholders of Munder Healthcare Fund and
Board of Trustees of Munder Series Trust II
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Munder Healthcare Fund (the portfolio comprising Munder Series Trust II (the “Fund”) as of June 30, 2006, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of June 30, 2006, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Munder Healthcare Fund of Munder Series Trust II at June 30, 2006, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
 |
August 11, 2006
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| Thomas D. Eckert, Chairman | |
| John Rakolta, Jr., Vice Chairman | |
| David J. Brophy | |
| Joseph E. Champagne | |
| John Engler | |
| Michael T. Monahan | |
| Lisa A. Payne | |
| Arthur T. Porter |
| John S. Adams, President and Principal Executive Officer | |
| Peter K. Hoglund, Vice President and Principal Financial Officer | |
| Stephen J. Shenkenberg, Vice President, Secretary, Chief Legal Officer, | |
| and Chief Compliance Officer | |
| Cherie N. Ugorowski, Treasurer and Principal Accounting Officer | |
| Amy D. Eisenbeis, Assistant Secretary | |
| Mary Ann Shumaker, Assistant Secretary | |
| Melanie Mayo West, Assistant Secretary | |
| Kevin R. Kuhl, Assistant Treasurer | |
| David W. Rumph, Assistant Treasurer | |
| Bradford E. Smith, Assistant Treasurer |
| Munder Capital Management | |
| Munder Capital Center | |
| 480 Pierce Street | |
| Birmingham, MI 48009 |
| PFPC Inc. | |
| 4400 Computer Drive | |
| Westborough, MA 01581 |
| State Street Bank and Trust Company | |
| One Lincoln Street | |
| Boston, MA 02111 |
| Funds Distributor, Inc. | |
| 100 Summer Street | |
| Boston, MA 02110 |
| Dechert LLP | |
| 1775 I Street, N.W. | |
| Washington, D.C. 20006 |
| Ernst & Young LLP | |
| 200 Clarendon Street | |
| Boston, MA 02116 |
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| ANNHC606 |
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| By: | /s/ John S. Adams | |||
| President and Principal Executive Officer |
| By: | /s/ John S. Adams | |||
| President and Principal Executive Officer |
| By: | /s/ Peter K. Hoglund | |||
| Vice President and Principal Financial Officer |