File Nos. 333-29511/811-08261
As filed with the Securities and Exchange Commission on November 12, 1997
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
Registration Statement Under the Securities Act of 1933 [ ]
Pre-Effective Amendment No. 2 [ X ]
Post-Effective Amendment No. [ ]
and
Registration Statement Under the Investment Company Act of 1940 [ ]
Amendment No. 2 [ X ]
-----------------------------------
MEMBERS Mutual Funds
5910 Mineral Point Road
Madison, WI 53705
(608) 238-5851
(Registrant's Exact Name, Address and Telephone Number)
Linda L. Lilledahl, Esq.
Assistant Vice President and Associate General Counsel
CUNA Mutual Group
5910 Mineral Point Road
Madison, WI 53705
(Name and Address of Agent for Service)
Copy to:
Stephen E. Roth, Esq.
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D. C. 20004-2404
Approximate Date of Proposed Public Offering:
As soon as practicable after effectiveness of the Registration Statement.
--------------------------------------------
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said
Section 8(a), shall determine.
<PAGE>
Cross Reference Sheet
Pursuant to Rule 481(a) under the Securities Act of 1933
Showing Location of Information Required by Form N-1A
in Part A (Prospectus) and Part B (Statement of
Additional Information) of the Registration Statement
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
Caption(s) in the Statement
Item of Form N-1A Caption(s) in the Prospectus of Additional Information
Part A: Information Required in a Prospectus
<S> <C> <C> <C>
1. Cover Page Cover page
2. Synopsis N/A
3. Condensed Financial N/A
Information
4. General Description Introduction; More About the General Information
MEMBERS Mutual Funds
5. Management's Discussion The Fund Pages; More About the
of the Fund Performance MEMBERS Mutual Funds -- Portfolio
Management
5A. Management's Discussion N/A
of Fund Performance
6. Capital Stock and Other Your Account Description of the Trust's Shares
Securities
7. Purchase of Securities Your Account More About Purchasing and Selling
Being Offered Shares; How Securities are Offered
8. Redemption or Repurchase Your Account More About Purchasing and Selling
Shares; How Securities are Offered
9. Pending Legal Proceedings None
Part B: Information Required in a Statement of Additional Information
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and General Information
History
13. Investment Objectives and Investment Practices; Investment
Policies Limitations
14. Management of the Fund Management of the Trust; Portfolio
Management
15. Control Persons and Management of the Trust --
Principal Holders of Substantial Shareholders
Securities
16. Investment Advisory and Management of the Trust --
Other Services Portfolio Management
17. Brokerage Allocation and Brokerage
Other Practices
18. Capital Stock and Other Description of the Trust's Shares
Securities
19. Purchase, Redemption and More About Purchasing and Selling
Pricing of Securities Shares; How Securities are Offered;
Being Offered Net Asset Value of Shares
20. Tax Status Dividends, Distributions and Taxes
21. Underwriters Distribution (12b-1) Plan and
Agreement; How Securities are
Offered
22. Calculation of Calculation of Yields and Total
Performance Data Returns
23. Financial Statements Financial Statements
</TABLE>
<PAGE>
MEMBERS Mutual Funds
CASH RESERVES FUND
BOND FUND
BALANCED FUND
HIGH INCOME FUND
GROWTH AND INCOME FUND
CAPITAL APPRECIATION FUND
INTERNATIONAL STOCK FUND
PROSPECTUS
, 1997
This prospectus provides essential information about these funds. For your own
benefit and protection, please read it before you invest, and keep it for future
reference.
Please note that an investment in any of these funds is not a deposit in a
credit union or other financial institution and is neither insured nor endorsed
in any way by any credit union, other financial institution, or government
agency. Such an investment involves certain risks, including loss of principal,
and is not guaranteed to result in positive investment gains. These funds may
not achieve their objectives.
An investment in the Cash Reserves Fund is neither insured nor guaranteed by the
U.S. Government. Although the Cash Reserves Fund attempts to maintain a stable
price of $1.00 per share, there is no assurance that it will be able to do so.
More detailed information on each of the funds described in this prospectus is
contained in the statement of additional information ("SAI"). A current SAI has
been filed with the Securities and Exchange Commission ("Commission") and is
incorporated into this prospectus by reference, making it legally a part of this
document. The SAI is available either from us or on the Commission's web site on
the Internet (http://www.sec.gov). To request it or any other information from
us, please write us at P.O. Box 5175, Westborough, MA 01581 or call
1-800-877-6089.
Shares in these funds have not been approved or disapproved by the Securities
and Exchange Commission, nor has the Commission passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
MEMBERS Mutual Funds
CUNA Mutual Group
5910 Mineral Point Road
Madison, WI 53705
TABLE OF CONTENTS
INTRODUCTION
A summary of the various expenses that you will bear, either directly or
indirectly, by investing in the MEMBERS Mutual Funds.
EXPENSES
The fund pages describe each portfolio (or "fund") of the MEMBERS Mutual Funds.
THE FUND PAGES
Cash Reserves Fund
Bond Fund
Balanced Fund
High Income Fund
Growth and Income Fund
Capital Appreciation Fund
International Stock Fund
Strategies used by more than one of the funds.
INVESTMENT STRATEGIES COMMON TO MULTIPLE FUNDS
Any investment entails risk. Please read this section carefully.
RISKS
Types of Investment Risk
Higher-Risk Securities and Practices
This section explains how to open, maintain, or close an account with the
MEMBERS Mutual Funds.
YOUR ACCOUNT
Choosing a Share Class
How Sales Charges Are Calculated
Other Expenses
Sales Charge Reductions and Waivers
Shareholders With Brokerage Accounts
Opening an Account
Buying Shares
Selling Shares
Selling Shares in Writing
Transaction Policies
Dividends and Account Policies
Additional Investor Services
This section will give you some additional information about the MEMBERS Mutual
Funds.
MORE ABOUT THE MEMBERS MUTUAL FUNDS
Organization
Portfolio Management
Use of Certain Brokers
Compensation of Brokers and their Representatives
INTRODUCTION
Welcome to the MEMBERS Mutual Funds, a group of open-end investment companies,
typically called mutual funds. Each fund is a separate investment portfolio with
its own investment objective, investment policies, restrictions, and attendant
risks. This prospectus describes each fund in significant detail -- please read
it and retain it for future reference.
The risk/return curve below demonstrates that for diversified portfolios of
securities of the various types, as short-term risk increases the potential for
long-term gains also increases. "Short-term risk" refers to the likely
volatility of a fund's total return and its potential for gain or loss over a
relatively short time period. "Long-term potential gains" means the expected
average annual total return over a relatively long time period, such as 20
years.
[GRAPHIC: funds and other types of investments placed on a curve; x-axis
labelled "Long Term Potential for Gains"; y-axis labelled "Short Term Risk
(Volatility of Returns)." A footnote indicates that "`Junk' bonds, including
those of the type in which the High Income Fund will invest, are relatively new
types of investments. Over time, these investments may prove to have higher
short term risk than is indicated above."]
This curve is not intended to indicate future volatility or performance. It is
merely intended to demonstrate the relationship between the on-going short-term
risk and the long-term potential for gain of each of the MEMBERS Mutual Funds
relative to the other funds and other types of investments.
EXPENSES
Fund investors pay various expenses, either directly or indirectly. Since the
funds are new, and have no operating history, we have estimated the expenses
each fund will incur in the coming year. These estimates are shown in the
following table. Actual expenses may be greater or less than those shown.
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
Cash Bond Balanced High Growth and Capital Int'l All
Reserves Income Income Appreciation Stock Funds
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum sales charge on 5.3% 4.3% 5.3% 4.3% 5.3% 5.3% 5.3% None
purchases
Maximum sales charge on None None None None None None None None
dividends
Maximum deferred sales None(1) None(1) None(1) None(1) None(1) None(1) None(1) 4.5%
charge
Redemption fee None None None None None None None None
Exchange fee None None None None None None None None
Annual account fee None None None None None None None None
Annual Fund Operating Expenses (as a percentage of average net assets)
Growth and Capital
Class or Cash Bond Balanced High Income Income Appre- Int'l Stock
Classes Reserves ciation
- --------------------------- ------------ ------------- ------------ ------------- ------------ ------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fee A&B .40% .50% .65% .55% .55% .75% 1.05%
- --------------------------- ------------ ------------- ------------ ------------- ------------ ------------- ------------ ----------
12b-1 fee(2) A None None None None None None None
------------ ------------- ------------ ------------- ------------ ------------- ------------ ----------
B .75% .75% .75% .75% .75% .75% .75%
- --------------------------- ------------ ------------- ------------ ------------- ------------ ------------- ------------ ----------
Service fee A&B None .25% .25% .25% .25% .25% .25%
- --------------------------- ------------ ------------- ------------ ------------- ------------ ------------- ------------ ----------
Other expenses(3) A&B .15% .15% .20% .20% .20% .20% .30%
- --------------------------- ------------ ------------- ------------ ------------- ------------ ------------- ------------ ----------
Total fund operating A .55% .90% 1.10% 1.00% 1.00% 1.20% 1.60%
------------ ------------- ------------ ------------- ------------ ------------- ------------ ----------
expenses B 1.30% 1.65% 1.85% 1.75% 1.75% 1.95% 2.35%
- --------------------------- ------------ ------------- ------------ ------------- ------------ ------------- ------------ ----------
<FN>
(1) Except for investments of $1,000,000 or more. (See "How Sales Charges Are
Calculated.")
(2) Because of the 12b-1 fee, long-term Class B shareholders may indirectly pay
more than the equivalent of the maximum permitted front-end sales charge.
(3) The funds' investment adviser, CIMCO Inc. (CIMCO), has placed a "cap" on the
funds' expenses by voluntarily agreeing to reimburse each fund's expenses, other
than its management, 12b-1, and service fees, that exceed a certain amount
(excluding taxes, interest, and other extraordinary items). Any reimbursements
made by CIMCO to a fund are subject to repayment by the fund within the
subsequent 18 months, to the extent that the fund is able to make the repayment
while remaining within its expense cap. The amounts shown represent the maximum
amounts that you could bear while this expense cap arrangement is in place.
Although CIMCO intends to continue to reimburse the funds in this way for the
foreseeable future, there is no guarantee that it will do so. Absent the expense
cap, the funds' estimated expenses in the coming year, for Class A and Class B
shares respectively, are 4.07% and 4.82% for the Cash Reserves Fund, 4.42% and
5.17% for the Bond Fund, 3.35% and 4.10% for the Balanced Fund, 2.55% and 3.30%
for the High Income Fund, 2.28% and 3.03% for the Growth and Income Fund, 2.85%
and 3.60% for the Capital Appreciation Fund, and 2.40% and 3.15% for the
International Stock Fund.
</FN>
</TABLE>
Examples
The tables below show what expenses you would pay if you invested $1,000 in each
fund over the various time periods indicated. The examples assume you reinvested
all dividends and that the average annual return for each fund was 5%.
Assuming that you redeemed your entire investment at the end of each period:
Class A Class B
Year 1 Year 3 Year 1 Year 3
Cash Reserves 58 70 58 76
Bond 52 70 61 87
Balanced 64 86 64 93
High Income 53 73 63 90
Growth and Income 63 83 63 90
Capital Appreciation 65 89 65 96
International Stock 68 101 69 108
Assuming that you did not redeem:
Class A Class B
Year 1 Year 3 Year 1 Year 3
Cash Reserves 58 70 13 41
Bond 52 70 17 52
Balanced 64 86 19 58
High Income 53 73 18 55
Growth and Income 63 83 18 55
Capital Appreciation 65 89 20 61
International Stock 68 101 24 73
These examples are for comparison purposes only and are not a representation of
the funds' actual expenses and returns, either past or future. Actual expenses
may be greater or less than those shown above.
THE FUND PAGES
The following pages present information about each fund in a concise, easy to
read format. The format is explained below. Of course, these fund pages do not
contain all of the relevant information about the funds and should be read in
the context of the entire prospectus.
[GRAPHIC: minaturized Growth and Income Fund page with arrows pointing at the
appropriate headings]
The fund's NAME appears at the top of each page.
You may want to invest more or less of your total investment assets in a
particular fund based upon your individual goals, preferences, and risk
tolerances. We highlight some of the reasons why you may want to consider
investing in a particular fund in the INVESTOR PROFILE section of the fund page.
Each fund has a distinct INVESTMENT OBJECTIVE or goal. These objectives are
"fundamental," meaning that they cannot be changed without shareholder approval.
Each fund page contains a short section describing the PRINCIPAL RISKS of an
investment in that fund. These risks, and the risks associated with other
higher-risk investments and investment practices that the funds may utilize, are
described in more detail later in this prospectus in a section entitled "Risks."
Every investment carries with it some degree of risk, and it is possible to lose
money by investing in any mutual fund. Before you invest, please carefully read
the fund page risk summary and the section later in the prospectus on "Risks."
Some funds are managed by a team of managers and some funds by one or more
subadvisers. The PORTFOLIO MANAGEMENT section of the fund page will provide
information about who makes the day-to-day investment decisions for the fund.
More information about our portfolio management styles and the individual
managers and subadvisers is contained later in this prospectus under the caption
"Portfolio Management."
The PRIMARY INVESTMENT STRATEGIES section of the fund page describes the type or
types of securities and investments in which the fund principally invests and
the main strategies used in attempting to achieve the fund's investment
objective. You should use this section in conjunction with the table and chart
on pages 19-24 that describe the funds' higher-risk investment practices. When
we describe a fund's investment policies, "assets" refers to the fund's total
assets unless stated otherwise.
Additional information about each fund's investments is available in the funds'
annual and semi-annual reports to shareholders. In particular, the funds' annual
reports will discuss the relevant market conditions and investment strategies
used by the funds' portfolio manager(s) that materially affected the funds'
performance during the prior fiscal year. You may obtain a copy of any of these
reports at 1-800-877-6089.ing
Cash Reserves Fund
Investor Profile
Who should consider investing in this fund?
You may want to invest more of your assets in this fund if you:
[bullet] require stability of principal
[bullet] are seeking a mutual fund for the cash portion of an asset
allocation program
[bullet] need to "park" your money temporarily
[bullet] consider yourself a saver rather than an investor
or
[bullet] are investing emergency reserves
You may want to invest fewer of your assets in this fund if you:
[bullet] want federal deposit insurance
[bullet] are seeking an investment that is likely to outpace inflation
[bullet] are investing for retirement or other goals that are many years
in the future
or
[bullet] are investing for growth or maximum current income
Investment Objective
What is this fund's goal?
The Cash Reserves Fund seeks high current income from money market instruments
consistent with the preservation of capital and liquidity. The fund intends to
maintain a stable value of $1.00 per share.
Principal Risks
What are the main risks of investing in this fund?
As with any money market fund, the yield paid by the fund will vary with changes
in interest rates. Also, there is a remote possibility that the fund's share
value could fall below $1.00, which could reduce the value of your account.
To the extent that it invests in certain securities, the fund may be affected by
additional risks relating to repurchase agreements (credit risk), short-term
trading (market risk, as well as potentially higher transaction costs),
when-issued securities (market, opportunity, and leverage risks), and foreign
money market securities (information, natural event and political risks).
However, these risks are lessened by the high quality of the securities in which
the fund invests.
These risks, and the risks associated with other higher-risk securities and
practices that the fund may utilize, are described in more detail later in this
prospectus. This fund is not a credit union or other financial institution
account and is not insured or guaranteed by any financial institution or
government body. Before you invest, please carefully read the section on
"Risks."
Portfolio Management
Who makes the investment decisions for this fund?
The fund is managed by a team of CIMCO's portfolio managers. More information
about each portfolio manager is provided later in this prospectus.
Primary Investment Strategies
How does this fund pursue its objective?
This fund invests exclusively in U.S. dollar-denominated money market securities
maturing in thirteen months or less from the date of purchase, including those
issued by U.S. and foreign financial institutions, corporate issuers, the U.S.
Government and its agencies and instrumentalities, municipalities, foreign
governments, and multi-national organizations, such as the World Bank. At least
95% of the fund's assets must be rated in the highest short-term category (or
its unrated equivalent), and 100% of the fund's assets must be invested in
securities rated in the two highest rating categories. A more detailed
description of the rating categories and the types of permissible issuers is
contained in the SAI. The fund maintains a dollar-weighted average portfolio
maturity of 90 days or less. The fund may also:
[bullet] Lend securities to financial institutions, enter into repurchase
agreements, engage in short-term trading and purchase securities
on a when-issued or forward commitment basis;
[bullet] Invest up to 10% of its assets in illiquid securities, although
it will not generally invest in such securities;
[bullet] Invest in U.S. dollar-denominated foreign money market
securities, although no more than 25% of the fund's assets may
be invested in foreign money market securities unless such
securities are backed by a U.S. parent financial institution;
and
[bullet] To the extent permitted by law and available in the market,
invest in mortgage-backed and asset-backed securities, including
those representing pools of mortgage, commercial or consumer
loans originated by credit unions.
Bond Fund
Investor Profile
Who should consider investing in this fund?
You may want to invest more of your assets in this fund if you:
[bullet] are seeking a regular stream of income
[bullet] are seeking higher potential returns than money market funds
and are willing to accept moderate risk of volatility
[bullet] want to diversify your investments
[bullet] are seeking a mutual fund for the income portion of an asset
allocation program
or
[bullet] are retired or nearing retirement
You may want to invest fewer of your assets in this fund if you:
[bullet] are investing for maximum return over a long time horizon
or
[bullet] require absolute stability of your principal
Investment Objective
What is this fund's goal?
The fund seeks to generate a high level of current income, consistent with the
prudent limitation of investment risk, primarily through investment in a
diversified portfolio of income bearing debt securities.
Principal Risks
What are the main risks of investing in this fund?
As with most income funds, the Bond Fund is subject to interest rate risk, the
risk that the value of your investment will fluctuate with changes in interest
rates. Typically, a rise in interest rates causes a decline in the market value
of income bearing securities. Other factors may affect the market price and
yield of the fund's securities, including investor demand and domestic and
worldwide economic conditions. In addition, the fund is subject to credit risk,
the risk that issuers of debt securities may not be able to meet their interest
or principal payment obligations when due. The ability of the fund to realize
interest under repurchase agreements and pursuant to loans of the fund's
securities is dependent on the ability of the seller or borrower, as the case
may be, to perform its obligation to the fund. To the extent that the fund
invests in non-investment grade securities, the fund is also subject to
above-average credit, market and other risks.
These risks, and the risks associated with other higher-risk securities and
practices that the fund may utilize, are described in more detail later in this
prospectus. Before you invest, please carefully read the section on "Risks."
Portfolio Management
Who makes the investment decisions for this fund?
The fund is managed by a team of CIMCO's portfolio managers. More information
about each portfolio manager is provided later in this prospectus.
Primary Investment Strategies
How does this fund pursue its objective?
To keep current income relatively stable and to limit share price volatility,
the fund emphasizes investment grade securities and maintains an intermediate
(typically 3-6 year) average portfolio duration. Under normal circumstances, the
fund invests at least 80% of its assets in such securities. The Fund may invest
in the following instruments:
[bullet] Corporate debt securities: securities issued by domestic and
foreign corporations which have a rating within the four highest
categories and, to a limited extent (up to 20% of its assets),
in securities not rated within the four highest categories;
[bullet] U.S. Government debt securities: securities issued or
guaranteed by the U.S. Government or its agencies or
instrumentalities;
[bullet] Foreign government debt securities: securities issued or
guaranteed by a foreign government or its agencies or
instrumentalities, payable in U.S. dollars, which have a rating
within the four highest categories; and
[bullet] Other issuer debt securities: securities issued or guaranteed
by corporations, financial institutions, and others which,
although not rated by a national rating service, are considered
by the fund's investment adviser to have an investment quality
equivalent to the four highest categories.
A detailed description of the rating categories is contained in the SAI. To the
extent permitted by law and available in the market, the fund may also invest in
asset-backed and mortgage-backed securities, including those representing
mortgage, commercial or consumer loans originated by credit unions.
Investment Adviser Performance Record
In the future, the prospectus will show how the MEMBERS Bond Fund has performed,
but because the fund was new when this prospectus was printed, its performance
could not be presented. However, performance data is set forth below relating to
the historic performance of the similarly managed Bond Fund of the Ultra Series
Fund (the "USF Bond Fund") for the periods indicated. The USF Bond Fund is a
variable insurance products fund that has investment objectives, policies,
strategies and risks substantially similar to those of the MEMBERS Bond Fund and
has been managed by members of CIMCO's portfolio management team who will be
managing the MEMBERS Bond Fund.
Performance of the Ultra Series Fund's Bond Fund
Average Annual Total Return One Year Five Years Ten Years
(as of December 31, 1996) 2.58% 6.10% 7.51%
[GRAPHIC: bar chart showing average annual total returns from 1987 through 1996
for the Ultra Series Fund's Bond Fund and the Lehman Brothers Intermediate
Corporate and Government Bond Index]
[GRAPHIC: line chart showing the ten year cumulative total return of a
hypothetical $10,000 investment made on January 1, 1987 for the Ultra Series
Fund's Bond Fund and the Lehman Brothers Intermediate Corporate and Government
Bond Index]
The data is provided to illustrate the past performance of CIMCO's investment
team in managing a substantially similar investment portfolio and does not
represent the performance of the MEMBERS Bond Fund. Investors should not
consider this performance data as an indication of future performance of the
MEMBERS Bond Fund.
The performance data was calculated after deducting all fees and charges
actually incurred by the USF Bond Fund. During the periods shown, CUNA Mutual
Life Insurance Company and its affiliates absorbed certain expenses for the USF
Bond Fund. If these expenses had been paid by the USF Bond Fund, the performance
shown would have been less favorable. The MEMBERS Bond Fund will likely have
different fees and expenses that would result in different performance data.
The investment results presented are not intended to predict or suggest the
returns that might be experienced by the MEMBERS Bond Fund or an individual
investing in the MEMBERS Bond Fund. Investors should also be aware that the use
of a methodology different from that used to calculate the performance presented
on this page would result in different performance data.
Balanced Fund
Investor Profile
Who should consider investing in this fund?
You may want to invest more of your assets in this fund if you:
[bullet] are looking for a more conservative alternative to a
growth-oriented fund
[bullet] want a well-diversified and relatively stable investment
allocation
[bullet] need a core investment
[bullet] seek above-average total return over the long term irrespective
of its form (i.e., capital gains or ordinary income)
or
[bullet] are retired or nearing retirement
You may want to invest fewer of your assets in this fund if you:
[bullet] are investing for maximum return over a long time horizon
[bullet] want your return to be either ordinary income or capital gains,
but not both
or
[bullet] require a high degree of stability of your principal
Investment Objective
What is this fund's goal?
The Balanced Fund seeks a high total return through the combination of income
and capital appreciation.
Principal Risks
What are the main risks of investing in this fund?
As with any fund that invests in stocks and bonds, the fund is subject to market
and interest rate risks, the risks that the value of your investment will
fluctuate in response to stock and bond market movements and changes in interest
rates. Loss of money is a risk of investing in this fund.
To the extent that it invests in certain securities, the fund may be affected by
additional risks relating to non-investment grade securities (above-average
credit, market and other risks), foreign securities (currency, information,
natural event and political risks), and mortgage-backed securities (credit,
extension, prepayment and interest rate risks). These risks, and the risks
associated with other higher-risk securities and practices that the fund may
utilize, are described in more detail later in this prospectus. Before you
invest, please carefully read the section on "Risks."
Portfolio Management Who makes the investment decisions for this fund?
The fund is managed by a team of CIMCO's portfolio managers. More information
about each portfolio manager is provided later in this prospectus.
Primary Investment Strategies
How does this fund pursue its objective?
The Balanced Fund invests in a broadly diversified array of securities including
common stocks, bonds and money market instruments. The percentage of the fund's
assets invested in equity securities, income bearing securities and money market
instruments may vary somewhat depending upon management's judgment of the
relative attractiveness of each sector and anticipated cash needs of the fund.
Generally, however, common stocks will constitute 60% to 40% of the fund's
assets, bonds will constitute 40% to 60% of the fund's assets and money market
instruments may constitute up to 20% of the fund's assets. The Balanced Fund
will invest in the same types of equity securities in which the Capital
Appreciation Fund and Growth and Income Fund invest, the same type of bonds in
which the Bond Fund invests, and the same types of money market instruments in
which the Cash Reserves Fund invests.
The fund may invest up to 15% of its assets in foreign securities.
Investment Adviser Performance Record
In the future, the prospectus will show how the Balanced Fund has performed over
time, but because the fund was new when this prospectus was printed, its
performance could not be presented. However, performance data is set forth below
relating to the historic performance of the similarly managed Balanced Fund of
the Ultra Series Fund (the "USF Balanced Fund") for the periods indicated. The
USF Balanced Fund is a variable insurance products fund that has investment
objectives, policies, strategies and risks substantially similar to those of the
MEMBERS Balanced Fund and has been managed by members of CIMCO's portfolio
management team who will be managing the MEMBERS Balanced Fund.
Performance of the Ultra Series Fund's Balanced Fund
Average Annual TotalReturn One Year FiveYears Ten Years
(as of December 31, 1996) 10.80% 9.72% 10.45%
[GRAPHIC: bar chart showing average annual total returns from 1987 through 1996
for the Ultra Series Fund's Balanced Fund and a blended comparative index]
[GRAPHIC: line chart showing the ten year cumulative total return of a
hypothetical $10,000 investment made on January 1, 1987 for the Ultra Series
Fund's Balanced Fund and a blended comparative index]
The data is provided to illustrate the past performance of CIMCO's investment
team in managing a substantially similar investment portfolio and does not
represent the performance of the MEMBERS Balanced Fund. Investors should not
consider this performance data as an indication of future performance of the
MEMBERS Balanced Fund.
The performance data was calculated after deducting all fees and charges
actually incurred by the USF Balanced Fund. During the periods shown, CUNA
Mutual Life Insurance Company and its affiliates absorbed certain expenses for
the USF Balanced Fund. If these expenses had been paid by the USF Balanced Fund,
the performance shown would have been less favorable. The MEMBERS Balanced Fund
will likely have different fees and expenses that would result in different
performance data.
The investment results presented are not intended to predict or suggest the
returns that might be experienced by the MEMBERS Balanced Fund or an individual
investing in the MEMBERS Balanced Fund. Investors should also be aware that the
use of a methodology different from that used to calculate the performance
presented on this page would result in different performance data.
High Income Fund
Investor Profile
Who should consider investing in this fund?
You may want to invest more of your assets in this fund if you:
[bullet] are seeking a regular stream of income
[bullet] are seeking higher potential returns than most bond funds and
are willing to accept significant risk of volatility
[bullet] want to diversify your investments
[bullet] are seeking a mutual fund for the income portion of an asset
allocation program
or
[bullet] are retired or nearing retirement
You may want to invest fewer of your assets in this fund if you:
[bullet] desire relative stability of your principal
or
[bullet] are investing for maximum return over a long time horizon
Investment Objective
What is this fund's goal?
The fund seeks high current income by investing primarily in a diversified
portfolio of lower-rated, higher-yielding income bearing securities. The fund
also seeks capital appreciation, but only when consistent with its primary goal.
Principal Risks
What are the main risks of investing in this fund?
This fund is subject to above-average interest rate and credit risks. Investors
should expect greater fluctuations in share price, yield and total return
compared to bond funds holding bonds and other income bearing securities with
higher credit ratings and/or shorter maturities. These fluctuations, whether
positive or negative, may be sharp and unanticipated. Loss of money is a
significant risk of investing in this fund.
Issuers of non-investment grade securities (i.e., "junk" bonds) are typically in
weak financial health and their ability to pay interest and principal is
uncertain. Compared to issuers of investment-grade bonds, they are more likely
to encounter financial difficulties and to be materially affected by these
difficulties when they do encounter them. "Junk" bond markets may react strongly
to adverse news about an issuer or the economy, or to the perception or
expectation of adverse news.
The fund may also invest in mortgage-backed securities that are subject to
extension and prepayment risks.
These risks, and the risks associated with other higher-risk securities and
practices that the fund may utilize, are described in more detail later in this
prospectus. Before you invest, please carefully read the section on "Risks."
Portfolio Management
Who makes the investment decisions for this fund?
CIMCO uses one or more subadvisers under a "manager of managers" approach to
make investment decisions for this fund. More information about these
subadvisers, their investment styles and the "manager of managers" approach is
provided later in this prospectus. Massachusetts Financial Services Company
("MFS") is the only subadviser currently used by CIMCO to manage the assets of
the fund.
Primary Investment Strategies
How does this fund pursue its objective?
The fund invests primarily in lower-rated, higher-yielding income bearing
securities, such as "junk" bonds. Because the performance of these securities
has historically been strongly influenced by economic conditions, the fund may
rotate securities selection by business sector according to the economic
outlook. Under normal market conditions, the fund invests at least 80% of its
assets in bonds rated lower than investment grade (BBB/Baa) and their unrated
equivalents or other high-yielding securities. Up to 10% of its assets may be
invested in bonds rated CC/Ca. Types of bonds and other securities include, but
are not limited to, domestic and foreign corporate bonds, debentures, notes,
convertible securities, preferred stocks, municipal obligations and government
obligations. The fund may invest in mortgage-backed securities.
Up to 25% of its assets may be invested in the securities of issuers in any one
industry.
The fund may also invest up to 50% of its assets in high-yielding foreign
securities, including up to 25% of its assets in emerging market securities.
Subadviser Performance Record
In the future, the prospectus will show how the MEMBERS High Income Fund has
performed over time, but because the fund was new when this prospectus was
printed, its performance could not be presented. However, performance data is
set forth below relating to the historic performance of the similarly managed
MFS [trademark symbol] High Income Fund (Class A shares) for the periods
indicated. The MFS [trademark symbol] High Income Fund has investment
objectives, policies, strategies and risks substantially similar to those of the
MEMBERS High Income Fund and has been managed for more than the last ten years
by MFS, the subadviser currently responsible for the day-to-day investment
decisions for the MEMBERS High Income Fund.
Performance of the MFS [trademark symbol] High Income Fund
Average Annual Total Return One Year Five Years Ten Years
(as of December 31, 1996) 12.56% 12.40% 9.32%
[GRAPHIC: bar chart showing average annual total returns from 1987 through 1996
for the MFS [registered trademark] High Income Fund and the Lehman Brothers High
Yield Index]
[GRAPHIC: line chart showing the ten year cumulative total return of a
hypothetical $10,000 investment made on January 1, 1987 for the MFS [registered
trademark] High Income Fund and the Lehman Brothers High Yield Index]
The data is provided to illustrate MFS's past performance in managing a
substantially similar investment portfolio and does not represent the
performance of the MEMBERS High Income Fund. Investors should not consider this
performance data as an indication of future performance of the MEMBERS High
Income Fund.
The performance data was calculated after deducting all fees and charges
actually incurred by the MFS [trademark symbol] High Income Fund. The MEMBERS
High Income Fund will likely have different fees and expenses that would result
in different performance data. In addition, the performance data shown is based
upon the calendar year, while the MFS [trademark symbol] High Income Fund's
fiscal year ends January 31st each year. Thus, the annual total return figures
will likely differ from those presented in the MFS [trademark symbol] High
Income Fund's prospectus.
The investment results presented are not intended to predict or suggest the
returns that might be experienced by the MEMBERS High Income Fund or an
individual investing in the MEMBERS High Income Fund. Investors should also be
aware that the use of a methodology different from that used to calculate the
performance presented on this page would result in different performance data.
Growth and Income Fund
Investor Profile
Who should consider investing in this fund?
You may want to invest more of your assets in this fund if you:
[bullet] are looking for a stock fund that has both growth and income
components
[bullet] are looking for a more conservative alternative to a
growth-oriented fund
[bullet] need a core investment
[bullet] seek above-average long-term total return through a combination
of capital gains and ordinary income
or
[bullet] are retired or nearing retirement
You may want to invest fewer of your assets in this fund if you:
[bullet] are investing for maximum return over a long time horizon
[bullet] desire your return to be either ordinary income or capital
gains, but not both
or
[bullet] require a high degree of stability of your principal
Investment Objective
What is this fund's goal?
The fund seeks long-term capital growth, with income as a secondary
consideration.
Principal Risks
What are the main risks of investing in this fund?
As with any fund that invests in stocks and also seeks income, this fund is
subject to market and interest rate risks, and the value of your investment will
fluctuate in response to stock market and interest rate movements. Loss of money
is a risk of investing in this fund.
To the extent that it invests in certain securities, the fund may be affected by
additional risks relating to foreign securities (currency, information, natural
event and political risks) and non-investment grade securities (credit, market,
interest rate, liquidity, valuation, and information risks).
These risks, and the risks associated with other higher-risk securities and
practices that the fund may utilize, are described in more detail later in this
prospectus. Before you invest, please carefully read the section on "Risks."
Portfolio Management
Who makes the investment decisions for this fund?
The fund is managed by a team of CIMCO's portfolio managers. More information
about each portfolio manager is provided later in this prospectus.
Primary Investment Strategies
How does this fund pursue its objective?
The fund will focus on stocks of companies with financial and market strength
and a long-term record of financial performance, and will, under normal market
conditions, maintain at least 80% of its assets in such stocks. Primarily
through ownership of a diversified portfolio of common stocks and securities
convertible into common stocks, the fund will seek a rate of return in excess of
returns typically available from less variable investment alternatives.
The fund will typically invest in securities representing every sector of the
S&P 500 in approximately (+/-50%) the same weightings as such sector has in the
S&P 500. (See "Investment Strategies Common to Multiple Funds -- S&P 500" for
more information on the S&P 500.) For example, if technology companies represent
10% of the S&P 500, the fund will typically have between 5% and 15% of its
assets invested in securities issued by technology companies.
The fund may also invest in warrants, preferred stocks and debt securities
(including non-investment grade debt securities).
The fund may invest up to 25% of its assets in foreign securities.
Investment Adviser Performance Record
In the future, the prospectus will show how the MEMBERS Growth and Income Fund
has performed over time, but because the fund was new when this prospectus was
printed, its performance could not be presented. However, performance data is
set forth below relating to the historic performance of the similarly managed
Growth and Income Stock Fund of the Ultra Series Fund (the "USF Growth and
Income Stock Fund") for the periods indicated. The USF Growth and Income Stock
Fund is a variable insurance products fund that has investment objectives,
policies, strategies and risks substantially similar to those of the MEMBERS
Growth and Income Fund and has been managed by members of CIMCO's portfolio
management team who will be managing the MEMBERS Growth and Income Fund.
Performance of the Ultra Series Fund's Growth and Income Fund
Average Annual Total Return One Year Five Years Ten Years
(as of December 31, 1996) 22.01% 14.83% 13.71%
[GRAPHIC: bar chart showing average annual total returns from 1987 through 1996
for the Ultra Series Fund's Growth and Income Stock Fund and the S&P 500]
[GRAPHIC: line chart showing the ten year cumulative total return of a
hypothetical $10,000 investment made on January 1, 1987 for the Ultra Series
Fund's Growth and Income Stock Fund and the S&P 500]
The data is provided to illustrate the past performance of CIMCO's investment
team in managing a substantially similar investment portfolio and does not
represent the performance of the MEMBERS Growth and Income Fund. Investors
should not consider this performance data as an indication of future performance
of the MEMBERS Growth and Income Fund.
The performance data was calculated after deducting all fees and charges
actually incurred by the USF Growth and Income Stock Fund. During the periods
shown, CUNA Mutual Life Insurance Company and its affiliates absorbed certain
expenses for the USF Growth and Income Stock Fund. If these expenses had been
paid by the USF Growth and Income Stock Fund, the performance shown would have
been less favorable. The MEMBERS Growth and Income Fund will likely have
different fees and expenses that would result in different performance data.
The investment results presented are not intended to predict or suggest the
returns that might be experienced by the MEMBERS Growth and Income Fund or an
individual investing in the MEMBERS Growth and Income Fund. Investors should
also be aware that the use of a methodology different from that used to
calculate the performance presented on this page would result in different
performance data.
Capital Appreciation Fund
Investor Profile
Who should consider investing in this fund?
You may want to invest more of your assets in this fund if you:
[bullet] have longer investment time horizons
[bullet] are willing to accept higher on-going short-term risk for the
potential of higher long-term returns
[bullet] want to diversify your investments
[bullet] are seeking funds for the growth portion of an asset allocation
program
or
[bullet] are investing for retirement or other goals that are many years
in the future
You may want to invest fewer of your assets in this fund if you:
[bullet] are investing with a shorter investment time horizon in mind
[bullet] are seeking income rather than capital gains
or
[bullet] are uncomfortable with an investment whose value may vary
substantially
Investment Objective
What is this fund's goal?
The fund seeks long-term capital appreciation.
Principal Risks
What are the main risks of investing in this fund?
As with any fund that invests in equity securities, this fund is subject to
market risk, the risk that the value of your investment will fluctuate in
response to stock market movements. Loss of money is a significant risk of
investing in this fund. Due to its focus on stocks that may appreciate in value
and lack of emphasis on those that provide current income, this fund will
typically experience greater volatility over time than the Growth and Income
Fund.
To the extent that the fund invests in higher-risk securities, it takes on
additional risks that could adversely affect its performance. For example, to
the extent that the fund invests in foreign securities, it will be subject to
the risks related to such securities.
These risks, and the risks associated with other higher-risk securities and
practices that the fund may utilize, are described in more detail later in this
prospectus. Before you invest, please carefully read the section on "Risks."
Portfolio Management Who makes the investment decisions for this fund?
The fund is managed by a team of CIMCO's portfolio managers. More information
about each portfolio manager is provided later in this prospectus.
Primary Investment Strategies
How does this fund pursue its objective?
The fund invests primarily in common stocks, and will, under normal market
conditions, maintain at least 80% of its assets in such securities. The fund
seeks stocks that have a low market price relative to the portfolio managers'
expected level and certainty of the issuing company's future earnings. Relative
to the Growth and Income Fund, the Capital Appreciation Fund will include some
smaller, less developed issuers and some companies undergoing more significant
changes in their operations or experiencing significant changes in their
markets. The fund will diversify its holdings among various industries and among
companies within those industries but will often be less diversified than the
Growth and Income Stock Fund. The combination of these factors introduces
greater investment risk than the Growth and Income Fund, but can also provide
higher long-term returns than are typically available from less risky
investments.
The fund will typically invest in securities representing every sector of the
S&P 500 in approximately (+/-100%) the same weightings as such sector has in the
S&P 500. (See "Investment Strategies Common to Multiple Funds -- S&P 500" for
more information on the S&P 500.) For example, if technology companies represent
10% of the S&P 500, the fund will typically have between 0% and 20% of its
assets invested in securities issued by technology companies.
The fund may also invest in warrants, preferred stocks and convertible debt
securities, and may invest up to 25% of its assets in foreign securities.
Investment Adviser Performance Record
In the future, the prospectus will show how the MEMBERS Capital Appreciation
Fund has performed over time, but because the fund was new when this prospectus
was printed, its performance could not be presented. However, performance data
is set forth below relating to the historic performance of the similarly managed
Capital Appreciation Stock Fund of the Ultra Series Fund (the "USF Capital
Appreciation Stock Fund") since its inception on January 3, 1994. The USF
Capital Appreciation Stock Fund is a variable insurance products fund that has
investment objectives, policies, strategies and risks substantially similar to
those of the MEMBERS Capital Appreciation Fund and has been managed by members
of CIMCO's portfolio management team who will be managing the MEMBERS Capital
Appreciation Fund.
Performance of the Ultra Series Fund's Capital Appreciation Stock Fund
Average Annual Total Return One Year Since Inception*
(as of December 31, 1996) 21.44% 18.74%
[GRAPHIC: bar chart showing average annual total returns from 1987 through 1996
for the Ultra Series Fund's Capital Appreciation Stock Fund and the S&P 400]
[GRAPHIC: line chart showing the ten year cumulative total return of a
hypothetical $10,000 investment made on January 1, 1987 for the Ultra Series
Fund's Capital Appreciation Stock Fund and the S&P 400]
The data is provided to illustrate the past performance of CIMCO's investment
team in managing a substantially similar investment portfolio and does not
represent the performance of the MEMBERS Capital Appreciation Fund. Investors
should not consider this performance data as an indication of future performance
of the MEMBERS Capital Appreciation Fund.
The performance data was calculated after deducting all fees and charges
actually incurred by the USF Capital Appreciation Stock Fund. During the periods
shown, CUNA Mutual Life Insurance Company and its affiliates absorbed certain
expenses for the USF Capital Appreciation Stock Fund. If these expenses had been
paid by the USF Capital Appreciation Stock Fund, the performance shown would
have been less favorable. The MEMBERS Capital Appreciation Fund will likely have
different fees and expenses that would result in different performance data.
The investment results presented are not intended to predict or suggest the
returns that might be experienced by the MEMBERS Capital Appreciation Fund or an
individual investing in the MEMBERS Capital Appreciation Fund. Investors should
also be aware that the use of a methodology different from that used to
calculate the performance presented on this page would result in different
performance data.
International Stock Fund
Investor Profile
Who should consider investing in this fund?
You may want to invest more of your assets in this fund if you:
[bullet] are seeking to diversify your domestic investments
[bullet] are seeking access to markets that can be less accessible to
individual investors in the U.S.
[bullet] are willing to accept high risk to achieve higher long-term
growth
[bullet] are seeking funds for the growth portion of an asset allocation
program
or
[bullet] are investing for goals that are many years in the future
You may want to invest fewer of your assets in this fund if you:
[bullet] are investing with a shorter investment time horizon in mind
[bullet] are uncomfortable with an investment whose value may vary
substantially
[bullet] are seeking income rather than capital gains
or
[bullet] want to limit your exposure to foreign markets or currencies or
income from foreign sources
Investment Objective
What is this fund's goal?
The fund seeks long-term growth of capital by investing primarily in foreign
equity securities (defined below).
Principal Risks
What are the main risks of investing in this fund?
As with any fund investing in stocks, the value of your investment will
fluctuate in response to stock market movements. Loss of money is a significant
risk of investing in this fund.
Because it invests in foreign securities, the fund carries additional risks,
including currency, information, natural event and political risks. These risks,
which may make the fund more volatile than a comparable domestic growth fund,
are described in more detail later in this prospectus. The risks of
international investing are higher in emerging markets such as those of Latin
America, Africa, Asia and Eastern Europe. To the extent that the fund invests in
smaller capitalization companies or utilizes higher-risk securities and
practices, it takes on further risks that could adversely affect its
performance.
<PAGE>
These risks, and the risks associated with other higher-risk securities and
practices that the fund may utilize, are described in more detail later in this
prospectus. Before you invest, please carefully read the section on "Risks."
Portfolio Management
Who makes the investment decisions for this fund?
CIMCO uses one or more subadvisers under a "manager of managers" approach to
make investment decisions for this fund. More information about these
subadvisers, their investment styles and the "manager of managers" approach is
provided later in this prospectus.
Primary Investment Strategies
How does this fund pursue its objective?
Under normal market conditions, the fund invests at least 80% of its assets in
foreign equity securities. Foreign securities are securities that are issued by
companies organized or whose principal operations are outside the U.S., are
issued by a foreign government, are principally traded outside of the U.S., or
are quoted or denominated in a foreign currency. Equity securities include
common stocks, securities convertible into common stocks, preferred stocks, and
other securities representing equity interests such as American depository
receipts ("ADRs"), European depository receipts ("EDRs") and global depository
receipts ("GDRs"). The fund may also invest in debt securities, foreign money
market instruments, and other income bearing securities as well as forward
foreign currency exchange contracts and other derivative securities and
contracts. The fund always holds securities of issuers located in at least three
countries other than the U.S.
The description of the International Stock Fund's primary investment strategies
is continued on the next page.
Primary Investment Strategies (continued from the previous page)
The fund allocates portions of its assets to one or more subadvisers to achieve
a blend of suitable investments. At the current time, at least two-thirds
(66.67%) of the fund's assets are managed by a subadviser that focuses on
acquiring relatively large capitalization stocks of issuers principally located
or operating in developed countries. Such securities are those generally
representative of the securities comprising the Morgan Stanley Capital
International, Europe, Australia, Far East ("EAFE") Index (an unmanaged index of
foreign common stocks). This subadviser typically maintains this segment of the
fund's portfolio in 30 to 45 such stocks which it believes have above average
potential for capital appreciation, but may also invest in foreign debt and
other income bearing securities at times when it believes that income bearing
securities have greater capital appreciation potential than equity securities.
At the current time, the fund's remaining assets are managed by a subadviser
that focuses on acquiring small capitalization stocks and stocks principally
traded in emerging securities markets or of issuers located in or having
substantial business operations in emerging economies. In selecting both small
capitalization stocks and emerging market stocks, the subadviser seeks
securities that are undervalued in the markets in which the securities
principally trade based on its analysis of the issuer's future prospects. Such
an analysis includes both quantitative (screening for high financial returns)
and qualitative (fundamental analysis of the business prospects of the issuer)
elements. The percentage of assets allocated to any subadviser will vary
depending upon CIMCO's perception of the relative attractiveness of the type of
securities that the subadviser specializes in under current market conditions.
INVESTMENT STRATEGIES COMMON TO MULTIPLE FUNDS
The following section provides you with more information about certain
investment strategies used by more than one of the MEMBERS Mutual Funds. Please
read this section in conjunction with the fund pages and the next section on
"Risks."
Money Market Securities. For liquidity and flexibility, each fund (other than
the Cash Reserves Fund) may invest up to 20% of its assets in investment-grade
short-term securities of the type in which the Cash Reserves Fund invests. (The
Cash Reserves Fund invests 100% of its assets in such securities.) Although each
fund expects to pursue its investment objective utilizing its primary investment
strategies regardless of market conditions, each fund may invest up to 100% in
money market securities as a defensive tactic in abnormal market conditions.
Foreign Securities. Each fund may invest in foreign securities (as defined
below), although only the International Stock Fund and High Income Fund
anticipate having significant investments in such securities. As described
above, the International Stock Fund may invest all and the High Income Fund may
invest half of its assets in foreign securities. No fund will concentrate its
investments in any particular foreign country.
Foreign securities means securities that are: (1) issued by companies organized
outside the U.S. or whose principal operations are outside the U.S. ("foreign
issuers"), (2) issued by foreign governments or their agencies or
instrumentalities (also "foreign issuers"), (3) principally traded outside of
the U.S., or (4) quoted or denominated in a foreign currency ("non-dollar
securities"). Foreign securities include EDRs, GDRs, and foreign money market
securities.
Investments in foreign securities and ADRs may offer potential benefits not
available from investments solely in securities of domestic issuers or U.S.
dollar denominated securities. Investing in foreign securities involves
significant risks that are not typically associated with investing in domestic
securities. Such investments may be affected by changes in currency rates,
changes in foreign or U.S. laws or restrictions applicable to such investments
and in exchange control regulations. Some foreign stock markets (and other
securities markets) may have substantially less volume than, for example, the
New York Stock Exchange (or other domestic markets) and securities of some
foreign issuers may be less liquid than securities of comparable domestic
issuers. Commissions and dealer mark-ups on transactions in foreign investments
may be higher than for similar transactions in the U.S. In addition, clearance
and settlement procedures may be different in foreign countries and, in certain
markets, on certain occasions, such procedures have been unable to keep pace
with the volume of securities transactions, thus making it difficult to conduct
such transactions. The inability of a fund to make intended investments due to
settlement problems could cause it to miss attractive investment opportunities.
Inability to dispose of portfolio securities or other investment due to
settlement problems could result either in losses to a fund due to subsequent
declines in value of the portfolio investment or, if the fund has entered into a
contract to sell the investment, could result in possible liability to the
purchaser.
Foreign issuers are not generally subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies, and there may be less publicly available information about a foreign
issuer than about a domestic one. In addition, there is generally less
government regulation of stock exchanges, brokers, and listed and unlisted
issuers in foreign countries than in the U.S. Furthermore, with respect to
certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, imposition of withholding taxes on dividend or interest
payments, limitations on the removal of cash or other assets of the fund, or
political or social instability or diplomatic developments which could affect
investments in those countries. Individual foreign economies also may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. The High Income Fund and
International Stock Fund may invest in securities principally traded in
countries with emerging securities markets or issued by issuers located in or
having substantial business operations in countries with emerging economies.
These countries are located primarily the Asia-Pacific region, Eastern Europe,
Central and South America, and Africa. Political and economic structures and
institutions in many of these countries are undergoing significant evolution and
rapid development, and such countries may lack the social, political and
economic stability characteristic of more developed countries. Certain of these
countries have in the past failed to recognize private property rights and have
at times nationalized or expropriated assets of private companies. In addition,
unanticipated political or social developments may affect the values of
investments in these countries and the ability of a fund to make additional
investments in these countries. The small size, inexperience and limited trading
volume of the securities markets in certain of these countries may also make
investments in such countries more volatile and less liquid than investments in
securities traded in markets in Japan and Western European countries. As a
result, the High Income Fund and International Stock Fund may be required to
establish special custody or other arrangements before making certain
investments in these countries. There may be little financial or accounting
information available with respect to issuers located in certain of these
countries, and it may be difficult as a result to assess the value or prospects
of an investment in such issuers. The laws of some foreign countries may limit
the ability of these funds to invest in securities of certain issuers located or
doing business in these countries.
Other Practices. Each fund (other than the Cash Reserves Fund) may also invest
in certain higher-risk investments, including derivative and leveraged
investments, and may engage in other investment practices. These investments and
practices are described in the following pages. The chart on page 24 provides
information as to the extent to which each fund may invest in higher risk
securities or engage in higher risk practices.
The S&P 500. As stated above, the Growth and Income Fund and Capital
Appreciation Fund base part of their investment strategies on the S&P 500
Composite Stock Price Index, commonly known as the S&P 500. The S&P 500 tracks
the common stock performance of large U.S. companies in the manufacturing,
utilities, transportation, and financial industries. It also tracks the
performance of common stocks issued by foreign and smaller U.S. companies in
similar industries. In total, the S&P 500 is comprised of 500 common stocks that
are traded on the New York Stock Exchange, American Stock Exchange, or the
Nasdaq National Market. "Standard & Poor's," "S&P," and "S&P 500" are trademarks
of Standard & Poor's ("S&P"). The S&P 500 is determined, composed and calculated
independently by S&P without regard to the either the Growth and Income Fund or
the Capital Appreciation Fund.
RISKS
A fund's risk profile is largely defined by the fund's primary securities and
investment practices. You will find the most concise description of each fund's
risk profile in the fund pages.
The funds are permitted to use, within limits established by the trustees,
certain other securities and investment practices that have higher risks and
opportunities associated with them. On the following pages are brief
descriptions of these securities and practices, along with their associated
risks. The funds follow certain policies that may reduce these risks.
There is no guarantee that the performance of any of the funds, or any other
mutual fund, will be positive over any period of time.
Types of Investment Risk
Correlation Risk. The risk that changes in the value of a hedging instrument or
hedging technique will not match those of the asset being hedged (hedging is the
use of one investment to offset the possible adverse effects of another
investment).
Credit Risk. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise not honor a financial obligation.
Currency Risk. The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect the U.S. dollar value of an
investment.
Extension Risk. The risk that an unexpected rise in prevailing interest rates
will extend the life of an outstanding mortgage-backed security by reducing the
expected number of mortgage prepayments, typically reducing the security's
value.
Hedging Risk. When a fund hedges an asset it holds (typically by using a
derivative contract or derivative security), any gain or loss generated by the
hedge should be substantially offset by losses or gains on the hedged asset.
Hedging is a useful way to reduce or eliminate risk of loss, but it will also
reduce or eliminate the potential for investment gains.
Information Risk. The risk that key information about a security or market is
inaccurate or unavailable.
Interest Rate Risk. The risk of declines in market value of an income bearing
investment due to changes in prevailing interest rates. With fixed-rate
securities, a rise in interest rates typically causes a decline in market
values, while a fall in interest rates typically causes an increase in market
values.
Leverage Risk. The risks associated with securities or investment practices that
enhance return (or loss) without increasing the amount of investment, such as
buying securities on margin or using certain derivative contracts or derivative
securities. A fund's gain or loss on a leveraged position may be greater than
the actual market gain or loss in the underlying security or instrument. A fund
may also incur additional costs in taking a leveraged position (such as interest
on borrowings) that may not be incurred in taking a non-leveraged position.
Liquidity Risk. The risk that certain securities or other investments may be
difficult or impossible to sell at the time the fund would like to sell them or
at the price the fund values them.
Management Risk. The risk that a strategy used by a fund's investment adviser or
subadviser may fail to produce the intended result. This risk is common to all
mutual funds.
Market Risk. The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably, due to factors that have nothing to do with
the issuer. This risk is common to all stocks and bonds and the mutual funds
that invest in them.
Natural Event Risk. The risk of losses attributable to natural disasters, crop
failures and similar events.
Opportunity Risk. The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments.
Political Risk. The risk of losses directly attributable to government actions
or political events of any sort.
Prepayment Risk. The risk that an unexpected fall in prevailing interest rates
will shorten the life of an outstanding mortgage-backed security by increasing
the expected number of mortgage prepayments, thereby reducing the security's
return.
Speculation Risk. Speculation is the assumption of risk in anticipation of gain
but recognizing a higher than average possibility of loss. To the extent that a
derivative contract or derivative security is used speculatively (i.e., not used
as a hedge), the fund is directly exposed to the risks of that derivative
contract or security. Gains or losses from speculative positions in a derivative
contract or security may be substantially greater than the derivative contract
or security's original cost.
Valuation Risk. The risk that the market value of an investment falls
substantially below the fund's valuation of the investment.
Higher-Risk Securities
and Practices
<TABLE>
<CAPTION>
Security or Practice Description Related Risks
- -------------------------------- ---------------------------------------------------- ------------------------------
<S> <C> <C>
American Depository Receipts ADRs are receipts typically issued by a U.S. Market, currency,
(ADRs) financial institution which evidence ownership of information, natural event,
underlying securities of foreign corporate and political risks (i.e.,
issuers. Generally, ADRs are in registered form the risks of foreign
and are designed for trading in U.S. markets. securities).
- -------------------------------- ---------------------------------------------------- ------------------------------
Asset-Backed Securities Securities backed by pools of commercial and/or Credit, extension,
consumer loans such as motor vehicle installment prepayment, and interest
sales, installment loan contracts, leases of rate risks.
various types of real and personal property,
receivables from revolving credit (i.e., credit
card) agreements and other categories of
receivables.
- -------------------------------- ---------------------------------------------------- ------------------------------
Borrowing The borrowing of money from financial institutions Leverage and credit risks.
or through reverse repurchase agreements.
- -------------------------------- ---------------------------------------------------- ------------------------------
Emerging Market Securities Any foreign securities primarily traded on Credit, market, currency,
exchanges located in or issued by companies information, liquidity,
organized or primarily operating in countries that interest rate, valuation,
are considered lesser developed than countries natural event, and political
like the U.S., Australia, Japan, or those of risks.
Western Europe.
- -------------------------------- ---------------------------------------------------- ------------------------------
European and Global Depository EDRs and GDRs are receipts evidencing an Market, currency,
Receipts (EDRs and GDRs) arrangement with a non-U.S. financial institution information, natural event,
similar to that for ADRs and are designed for use and political risks (i.e.,
in non-U.S. securities markets. EDRs and GDRs are the risks of foreign
not necessarily quoted in the same currency as the securities).
underlying security.
- -------------------------------- ---------------------------------------------------- ------------------------------
Foreign Money Market Securities Short-term debt obligations issued either by Market, currency,
foreign financial institutions or by foreign information, interest rate,
branches of U.S. financial institutions or foreign natural event, and political
issuers. risks.
- -------------------------------- ---------------------------------------------------- ------------------------------
Foreign Securities Securities issued by companies organized or whose Market, currency,
principal operations are outside the U.S., information, natural event,
securities issued by companies whose securities and political risks.
are principally traded outside the U.S., or
securities denominated or quoted in foreign
currency. The term "foreign securities" includes
ADRs, EDRs, GDRs, and foreign money market
securities.
- -------------------------------- ---------------------------------------------------- ------------------------------
Forward Foreign Currency Contracts involving the right or obligation to buy Currency, liquidity, and
Exchange Contracts or sell a given amount of foreign currency at a leverage risks. When used
specified price and future date. for hedging, also has
hedging, correlation, and
opportunity risks. When
used speculatively, also has
speculation risks.
- -------------------------------- ---------------------------------------------------- ------------------------------
Futures Contracts In general, an agreement to buy or sell a specific Interest rate, currency,
(including financial future amount of a commodity, financial instrument, or market, hedging or
contracts) index at a particular price on a stipulated future speculation, leverage,
date. Financial futures contracts include interest correlation, liquidity,
rate futures contracts, securities index futures credit, and opportunity
contracts and currency futures contracts. Unlike risks.
an option, a futures contract obligates the buyer
to buy and the seller to sell the underlying
commodity or financial instrument at the agreed-upon
price and date or to pay or receive money in an
amount equal to such price.
- -------------------------------- ---------------------------------------------------- ------------------------------
Illiquid Securities Any investment that may be difficult or impossible Liquidity, valuation and
to sell at the time the fund would like to sell it market risks.
for the price at which the fund values it.
- -------------------------------- ---------------------------------------------------- ------------------------------
Mortgage-Backed Securities Securities backed by pools of mortgages, including Credit, extension,
passthrough certificates, PACs, TACs, prepayment, and interest
collateralized mortgage obligations (CMOs), and rate risks.
when available, pools of mortgage loans generated
by credit unions.
- -------------------------------- ---------------------------------------------------- ------------------------------
Non-Investment Grade Securities Investing in debt securities rated below BBB/Baa Credit, market, interest
(i.e., "junk" bonds). rate, liquidity, valuation,
and information risks.
- -------------------------------- ---------------------------------------------------- ------------------------------
Options (including options In general, an option is the right to buy (called Interest rate, currency,
on financial futures contracts) a "call") or sell (called a "put") property for an market, hedging or
agreed-upon price at any time prior to an speculation, leverage,
expiration date. Both call and put options may be correlation, liquidity,
either written (i.e., sold) or purchased on credit, and opportunity
securities, indices, interest rate futures risks.
contracts, index futures contracts, or currency
futures contracts.
- -------------------------------- ---------------------------------------------------- ------------------------------
Repurchase Agreements The purchase of a security that the issuer agrees Credit risk.
to buy back later at the same price plus interest.
- -------------------------------- ---------------------------------------------------- ------------------------------
Restricted Securities Securities originally issued in a private Liquidity, valuation, and
placement rather than a public offering. These market risks.
securities often cannot be freely traded on the
open market.
- -------------------------------- ---------------------------------------------------- ------------------------------
Reverse Repurchase Agreements The lending of short-term debt securities; often Leverage and credit risks.
used to facilitate borrowing.
- -------------------------------- ---------------------------------------------------- ------------------------------
Securities Lending The lending of securities to financial Credit risk.
institutions, which provide cash or government
securities as collateral.
- -------------------------------- ---------------------------------------------------- ------------------------------
Shares of Other Investment The purchase of shares issued by other investment Market risks and the
Companies companies. These investments are subject to the layering of fees and
fees and expenses of both the MEMBERS Mutual Funds expenses.
and the other investment company.
- -------------------------------- ---------------------------------------------------- ------------------------------
Short-Term Trading Selling a security soon after purchase or Market risk.
purchasing it soon after it was sold (a fund
engaging in short-term trading will have
higher turnover and transaction expenses).
- -------------------------------- ---------------------------------------------------- ------------------------------
Smaller Capitalization The purchase of securities issued by a company Market risk.
Companies with a market capitalization (i.e., the price per
share of its common stock multiplied by the number
of shares of common stock outstanding) of less
than $1 billion.
- -------------------------------- ---------------------------------------------------- ------------------------------
When-Issued Securities and The purchase or sale of securities for delivery at Market, opportunity, and
Forward Commitments a future date; market value may change before leverage risks.
delivery.
- -------------------------------- ---------------------------------------------------- ------------------------------
</TABLE>
<PAGE>
Higher Risk Securities and Practices Table. The following table shows each
fund's investment limitations with respect to certain higher risk securities and
practices as a percentage of portfolio assets.
<TABLE>
<CAPTION>
Growth and Capital
Cash High Income Income Appre-ciation Int'l
Reserves Bond Balanced Stock
- ------------------------------------------ ------------ ------------ -------------- ------------ ------------ ------------ ---------
Investment Practices
- ------------------------------------------ ------------ ------------ -------------- ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Borrowing; Reverse Repurchase Agreements 30 30 30 30 30 30 30
- ------------------------------------------ ------------ ------------ -------------- ------------ ------------ ------------ ---------
Repurchase Agreement solid solid solid solid solid solid solid
- ------------------------------------------ ------------ ------------ -------------- ------------ ------------ ------------ ---------
Securities Lending X 30 30 30 30 30 30
- ------------------------------------------ ------------ ------------ -------------- ------------ ------------ ------------ ---------
Short-term Trading solid solid solid solid solid solid solid
- ------------------------------------------ ------------ ------------ -------------- ------------ ------------ ------------ ---------
When-Issued Securities; Forward 25 25 25 25 25 25 25
Commitments
- ------------------------------------------ ------------ ------------ -------------- ------------ ------------ ------------ ---------
Conventional Securities
- ------------------------------------------ ------------ ------------ -------------- ------------ ------------ ------------ ---------
Shares of Other Investment Companies X 10 hollow 10 hollow 10 hollow 10 hollow 10 hollow 10 hollow
- ------------------------------------------ ------------ ------------ -------------- ------------ ------------ ------------ ---------
Non-Investment Grade Securities X 20 10 solid 5 5 5
- ------------------------------------------ ------------ ------------ -------------- ------------ ------------ ------------ ---------
Foreign Securities 25(1) 20 25 50 25 25 solid
- ------------------------------------------ ------------ ------------ -------------- ------------ ------------ ------------ ---------
Emerging Market Securities X 10 10 25 X X 25
- ------------------------------------------ ------------ ------------ -------------- ------------ ------------ ------------ ---------
Illiquid Securities(2) 10 15 15 15 10 10 15
- ------------------------------------------ ------------ ------------ -------------- ------------ ------------ ------------ ---------
Restricted Securities 25 hollow 15 15 30 hollow 10 10 15
- ------------------------------------------ ------------ ------------ -------------- ------------ ------------ ------------ ---------
Mortgage-backed Securities; REITs X 30 15 30 10 X X
- ------------------------------------------ ------------ ------------ -------------- ------------ ------------ ------------ ---------
Derivative Securities and Contracts
- ------------------------------------------ ------------ ------------ -------------- ------------ ------------ ------------ ---------
Options and Futures Contracts
[bullet] Options on Securities or Indices X 10 hollow 10 hollow 10 hollow 10 hollow 10 hollow 10
[bullet] Futures Contracts(3) X 5 hollow 5 hollow 5 hollow 5 hollow 5 hollow 5
[bullet] Options on Futures Contract(3) X 10 hollow 10 hollow 10 hollow 10 hollow 10 hollow 10
- ------------------------------------------ ------------ ------------ -------------- ------------ ------------ ------------ ---------
Forward Foreign Currency Exchange X X X 10 X X 10
Contracts
- ------------------------------------------ ------------ ------------ -------------- ------------ ------------ ------------ ---------
(1) U.S. Dollar-denominated foreign money market securities only.
(2) Numbers in this row refer to net, rather than total, assets.
(3) Financial futures contracts and related options only.
Legend
30 A number indicates the maximum percentage of total assets (but see
note 2) that the fund is permitted to invest in that practice or type
of security. Numbers in this table show allowable usage only; for
actual usage, consult the fund's annual and semi-annual reports.
[solid] A solid check mark means that there is no policy limitation on the
fund's usage of that practice or type of security, and that the fund
may be currently using that practice or investing in that type of
security.
[hollow] A hollow check mark means that the fund is permitted to use that
practice or invest in that type of security, but is not expected to do
so on a regular basis.
[x] An "x" mark means that the fund is not permitted to use that practice
or invest in that type of security.
</TABLE>
<PAGE>
YOUR ACCOUNT
Choosing a Share Class
Two classes of shares are currently available, Class A and Class B. Each class
has its own cost structure, allowing you to choose the one that best meets your
needs. Your financial representative can help you decide between the share
classes. For estimated expenses of Class A and B shares, see the expense table
earlier in this prospectus.
<TABLE>
<CAPTION>
- ------------------------------------------------- ------------------------------------------------------------------
Class A Class B
- ------------------------------------------------- ------------------------------------------------------------------
<S> <C>
[bullet] Front-end sales charges, as described [bullet] No front-end sales charge: all your money goes to work for you right away
below. There are several ways to reduce
these charges, also described below.
[bullet] Higher annual expenses than Class A shares.
[bullet] Lower annual expenses than Class B
shares. [bullet] A deferred sales charge on shares you sell within five
years of purchase, as described below.
[bullet] Automatic conversion to Class A shares after seven
years, thus reducing annual expenses in subsequent years.
(Class B shares purchased by reinvesting Class B dividends
convert to Class A shares proportionately.)
- ------------------------------------------------- ------------------------------------------------------------------
</TABLE>
[GRAPHIC: rectangle divided into three parts labelled "Consider Class A",
"Consider Class B" and "Consult your financial representative"; x-axis labelled
"Investment Time Horizon"; y-axis labelled "Size of Investment"]
The decision as to which class of shares is better suited to your needs depends
on a number of factors which you should discuss with your financial
representative. The two most important factors are the size of your investment
and the length of time that you plan to hold your investment. The following
graphic focuses on these two factors and is intended only to provide you and
your financial representative with a framework to assist you in making your
decision. It is not intended to provide rigid guidelines, to be investment
advice, or to make specific investment recommendations. Your considerations and
circumstances will differ from those of other investors. When to consider Class
A. The combination of a lower Class A sales charge on larger purchases and lower
annual expenses make Class A shares more attractive as the size of your
investment increases. For this reason, we will not normally accept purchase
orders of $500,000 or more for Class B shares from a single investor.
When to consult your financial representative. The specific combination of the
size of your investment, your expected investment timeframe, and other factors
will help you and your financial representative decide which class is right for
you.
When to consider Class B. The combination of higher annual Class B expenses and
the Class B CDSC will not typically exceed the Class A sales charge on smaller
purchases (with the exception of income funds), regardless of your investment
timeframe. As the size of your investment increases, your investment time
horizon becomes more important to your decision because the Class B CDSC
decreases over time.
<PAGE>
How Sales Charges Are Calculated
Class A Sales Charges
<TABLE>
<CAPTION>
- ---------------------------- ------------------------------------------- -------------------------------------------
Cash Reserves Fund
Balanced Fund
Growth and Income Fund
Purchase Payment Capital Appreciation Fund Bond Fund
International Stock Fund High Income Fund
- ---------------------------- --------------------- --------------------- --------------------- ---------------------
As a % of Purchase As a % of Net As a % of Purchase As a % of Net
Payment Amount Invested Payment Amount Invested
- ---------------------------- --------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Under $50,000 5.3% 5.6% 4.3% 4.5%
- ---------------------------- --------------------- --------------------- --------------------- ---------------------
$50,000 to $99,999 4.3% 4.5% 3.8% 4.0%
- ---------------------------- --------------------- --------------------- --------------------- ---------------------
$100,000 to $249,999 3.3% 3.4% 3.3% 3.4%
- ---------------------------- --------------------- --------------------- --------------------- ---------------------
$250,000 to $499,999 2.3% 2.4% 2.3% 2.4%
- ---------------------------- --------------------- --------------------- --------------------- ---------------------
$500,000 to $999,999 1.9% 2.0% 1.9% 2.0%
- ---------------------------- --------------------- --------------------- --------------------- ---------------------
$1,000,000 and over(1) None None None None
- ---------------------------- --------------------- --------------------- --------------------- ---------------------
<FN>
(1) There is a contingent deferred sales charge (CDSC) assessed on
purchases of Class A shares of over $1,000,000. The CDSC will be calculated as
described below relating to the CDSC for Class B shares, except at a rate of 1%
in the first year and 0.5% in the second year following the purchase.
</FN>
</TABLE>
Class B Sales Charges
Class B Shares are offered at their net asset value per share, without any
initial sales charge. However, there is a contingent deferred sales charge
(CDSC) on shares you sell within five years of buying them. There is no CDSC on
shares acquired through reinvestment of dividends. The CDSC is based on the
original purchase cost or the current market value of the shares being sold,
whichever is less. The longer the time between the purchase and the sale of
shares, the lower the rate of the CDSC:
Years After Purchase 1 2 3 4 5 6
CDSC 4.5% 4.0% 3.5% 3.0% 2.0% None
For purposes of computing this CDSC, all purchases made during a calendar month
are counted as having been made on the first day of that month.
To minimize your CDSC, each time you place a request to sell shares we will
first sell any shares in your account that carry no CDSC. If there are not
enough of these to meet your request, we will sell those shares that have the
lowest CDSC. Specifically, we will sell shares that represent share price
increases (if any) first, then dividends, then the oldest-aged shares.
For example, assume that you purchased 100 shares of a fund on January 1, Year 1
for $10 per share, another 100 shares on January 1, Year 2 for $15 per share,
and another 100 shares on January 1, Year 3 for $20 per share. Also assume that
dividends of $1.50 and $2.00 per share were paid on December 31, Year 1 and Year
2, respectively, and reinvested. Your account can be summarized as:
<TABLE>
<CAPTION>
- --------------------------- --------------------------- ---------------- -------------- ------------ ---------------
Price Per Share Shares Total Account Value
Date Action Purchased Shares
- --------------------------- --------------------------- ---------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
January 1, Year 1 Purchased shares $10 100 100 $1,000
- --------------------------- --------------------------- ---------------- -------------- ------------ ---------------
December 31, Year 1 Reinvested dividends $15 10 110 $1,650
- --------------------------- --------------------------- ---------------- -------------- ------------ ---------------
January 1, Year 2 Purchased shares $15 100 210 $3,150
- --------------------------- --------------------------- ---------------- -------------- ------------ ---------------
December 31, Year 2 Reinvested dividends $20 21 231 $4,620
- --------------------------- --------------------------- ---------------- -------------- ------------ ---------------
January 1, Year 3 Purchased shares $20 100 331 $6,620
- --------------------------- --------------------------- ---------------- -------------- ------------ ---------------
</TABLE>
Assume further that you sell 200 shares in Year 3 and that the share price as of
the end of the day you sell your shares is $20. The $6,620 in your account can
be broken down into share price increases of $1,550 (100 shares appreciated from
$10 to $20 per share; 110 shares appreciated from $15 to $20 per share; and 121
shares have not appreciated), dividends of $570 ($150 on 12/31 in Year 1 and
$420 on 12/31 in Year 2), and purchase payments of $4,500 ($1,000 in Year 1,
$1,500 in Year 2, and $2,000 in Year 3). You would incur the following CDSC
charges:
<TABLE>
<CAPTION>
Type of Shares Sold (in order) Amount CDSC (%) CDSC ($)
- --------------------------------------------- ------------------------- ---------------------- --------------------
<S> <C> <C> <C>
Share price increases $1,550 None None
- --------------------------------------------- ------------------------- ---------------------- --------------------
Dividends $570 None None
- --------------------------------------------- ------------------------- ---------------------- --------------------
Aged Shares (oldest sold first):
- --------------------------------------------- ------------------------- ---------------------- --------------------
Purchased 1/1/95 $1,000 3.5%(1) $35
- --------------------------------------------- ------------------------- ---------------------- --------------------
Purchased 1/1/96 $880(2) 4.0%(1) $35
- --------------------------------------------- ------------------------- ---------------------- --------------------
Total $4,000 1.75%(3) $70
- --------------------------------------------- ------------------------- ---------------------- --------------------
<FN>
(1) As a percentage of original purchase payment.
(2) $620 of the original $1,500 purchase payment would remain available for redemption.
(3) As a percentage of the amount redeemed.
</FN>
</TABLE>
Certain withdrawals made through a Systematic Withdrawal Program are not subject
to a CDSC. See "Additional Investor Services."
Other Expenses
Service Fees. Each fund, other than the Cash Reserves Fund, pays its principal
underwriter, CUNA Brokerage Services, Inc. (CUNA Brokerage), a service fee equal
to 0.25% of the average daily net assets attributable to each class of shares of
that fund. The service fee is used by CUNA Brokerage to cover its costs of
servicing shareholder accounts or to compensate other dealers who sell shares of
the funds pursuant to agreements with CUNA Brokerage for their costs of
servicing shareholder accounts. CUNA Brokerage may retain any portion of the
service fee for which there is no dealer of record as partial consideration for
its services with respect to shareholder accounts.
Distribution or "12b-1" Fees (Class B only). Each fund pays CUNA Brokerage a fee
equal to 0.75% of the average daily net assets attributable to Class B shares of
that fund. This fee may be used by CUNA Brokerage to cover its
distribution-related expenses (including commissions paid to dealers) or
distribution-related expenses of dealers.
Sales Charge Reductions and Waivers
Class A shares may be offered without front-end sales charges to various
individuals and institutions, including:
[bullet] Trustees/directors, officers and employees of CUNA Mutual Group
or any of its affiliated companies (each, a "CUNA Mutual Group
employee"), any immediate family member of a CUNA Mutual Group
employee residing in the CUNA Mutual Group employee's
household, and any UGMA/UTMA custodial account sponsored by a
CUNA Mutual Group employee.
[bullet] Registered representatives of CUNA Brokerage.
[bullet] Financial representatives utilizing fund shares in fee-based
managed accounts under agreement with the MEMBERS Mutual Funds
(wrap fee investors).
[bullet] Certain credit union system-affiliated institutional investors.
There are several ways shareholders (including certain qualified pension plans)
can combine multiple purchases of Class A shares to take advantage of the
breakpoints in the sales charge schedule.
[bullet] Rights of Combination-- you may combine certain Class A shares,
such as those held in multiple accounts or those owned by
members of your immediate family, for purposes of calculating
the sales charge. See the SAI for information on rights of
combination.
[bullet] Rights of Accumulation-- you may add the value of any Class A
shares you already own to the amount of your next purchase of
Class A shares for purposes of calculating the sales charge.
[bullet] Letter of Intention -- you may purchase Class A shares of a
fund over a 13-month period and receive the same sales charge
as if all shares had been purchased at once.
In addition, Class A shares issued or purchased in the following transactions
are not subject to Class A sales charges:
[bullet] Shares purchased by the reinvestment of dividends or other
gains reinvested from one of the MEMBERS Mutual Funds or shares
exchanged from one MEMBERS fund to another.
[bullet] Shares purchased and paid for from the proceeds of shares of a
mutual fund (other than one of the MEMBERS Mutual Funds) on
which an initial sales charge or contingent deferred sales
charge was paid, subject to the following conditions:
1. You must request this waiver when you place your purchase ; order
2. You must have redeemed the shares of the other mutual fund ; within the past
60 days
3. If you purchased the shares of the other mutual fund in a lump sum purchase,
you must have purchased such shares within the past 3 ; and years
4. If you purchased the shares of the other mutual fund in a systematic
investment program, you must have begun such program within the past 5 years.
CUNA Brokerage may require evidence of your qualification for this waiver.
If you think you may be eligible for a sales charge waiver, contact your
financial representative or the MEMBERS Mutual Funds, or consult the SAI.
<PAGE>
Shareholders With Brokerage Accounts
The following pages describe how to open or add to an account and how to
purchase or sell shares, whether by check, exchange, wire or phone. However, a
large part of this information will not be relevant to you if you have a
brokerage account. If you have such an account, simply contact your brokerage
representative whenever you wish to buy, sell or transfer shares for your
account.
Opening or Adding to an Account (applicable to all shareholders)
1. Carefully read this prospectus.
2. Determine how much you want to invest. The minimum initial investments
are as follows:
-------------------------------- ---------------------------------------------
Type of Account Initial Minimum Subsequent Minimum
-------------------------------- ---------------------------------------------
Non-retirement account $2,000 per account $150 per account
($500 per fund) ($75 per fund)
-------------------------------- ---------------------------------------------
Retirement account $1,000 per account $150 per account
($500 per fund) ($75 per fund)
-------------------------------- ---------------------------------------------
Systematic investment programs $150 per account $150 per account(1)
($75 per fund) ($75 per fund)
------------------------------------------------------------------------------
(1) Systematic Investment programs may be conducted on a semi-monthly, monthly,
bi-monthly or quarterly basis.
------------------------------------------------------------------------------
3. Complete the appropriate parts of the account application, carefully
following the instructions. If you have questions, please contact your
financial representative or contact First Data Investor Services Group
Inc. ("First Data"), the transfer agent for the MEMBERS Mutual Funds, at
1-800-877-6089.
4. Complete the appropriate parts of the account privileges section of the
application. By applying for privileges now, you can avoid the delay and
inconvenience of having to file an additional application if you want to
add privileges later.
Contacting the MEMBERS Mutual Funds
You can reach MEMBERS Mutual Funds by calling 1-800-877-6089 on weekdays between
the hours of 8:00 a.m. and 4:00 p.m. (CST).
All shareholder inquiries and transaction requests should be mailed to:
MEMBERS Mutual Funds
P.O. Box 5175
Westborough, MA 01581
When are using an overnight delivery service, mail inquiries and requests to:
First Data Investors Services Group, Inc.
MEMBERS Mutual Funds
Attn: Work Management 1CE25
4400 Computer Drive
Westborough, MA 01581-5120
Buying Shares (not applicable to shareholders who have a brokerage account)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
OPENING AND ACCOUNT ADDING TO AN ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
BY CHECK
- ------------------------------------------------------ ---------------------------------------------------------------------
<S> <C>
Make out a check for the investment amount, payable Make out a check for the investment amount, payable to MEMBERS
to MEMBERS Mutual Funds. Mutual Funds.
- ------------------------------------------------------ ---------------------------------------------------------------------
Deliver the check and your completed application to Fill out the detachable investment slip from an account statement.
your financial representative, or mail them to: If no slip is available, include a note specifying the fund name,
CUNA Brokerage Services, Inc your share class, your account number and the name(s) in
which the 2000 Heritage Way account is registered.
Waverly, IA 50677
Attn: MEMBERS Mutual Funds
- ------------------------------------------------------ ---------------------------------------------------------------------
Mail the check and your investment slip as
instructed on the slip. If no investment slip is
available, mail your check and note to MEMBERS
Mutual Funds using the addresses shown above
under "Contacting MEMBERS Mutual Funds."
- ----------------------------------------------------------------------------------------------------------------------------
BY WIRE
- ------------------------------------------------------ ---------------------------------------------------------------------
Deliver your completed application to your financial Instruct your credit union or other financial institution to wire
representative, or mail it to: the amount of your investment to Boston Safe Deposit & Trust (see
CUNA Brokerage Services Inc "Transaction Policies -- Wiring Funds" for details).
2000 Heritage Way
Waverly, IA 50677
Attn: MEMBERS Mutual Funds
- ------------------------------------------------------ ---------------------------------------------------------------------
Obtain your account number by calling your financial Specify the fund name(s), your share class(es), your account
representative or MEMBERS Mutual Funds at number(s), the name(s) in which the account(s) is (are) registered,
1-800-877-6089. and the amount(s) of your investment in each fund. Your credit
union or other financial institution may charge a fee to wire funds.
- ------------------------------------------------------ ---------------------------------------------------------------------
Instruct your credit union or other financial
institution to wire the amount of your investment
to Boston Safe Deposit & Trust (see "Transaction
Policies -- Wiring Funds" for details). Your credit
union or other financial institution may charge a
fee to wire funds.
- ----------------------------------------------------------------------------------------------------------------------------
BY PHONE
For automated service 24 hours a day using your touch-tone phone, call 1-800-877-6089
- ------------------------------------------------------ ---------------------------------------------------------------------
Not currently available. Verify that your credit union or other financial
institution is a member of the Automated Clearing
House (ACH) system.
- ------------------------------------------------------ ---------------------------------------------------------------------
Complete the "Investing by Phone" and "Credit Union or Other
Financial Institution Information" sections on
your account application.
- ------------------------------------------------------ ---------------------------------------------------------------------
Call MEMBERS Mutual Funds at 1-800-877-6089 to
verify that these features are in place on your account.
- ------------------------------------------------------ ---------------------------------------------------------------------
Tell the MEMBERS Mutual Funds representative the
fund name(s), your share class(es), your account
number(s), the name(s) in which the account(s) is (are)
registered and the amount(s) of your investment in each fund.
- ------------------------------------------------------ ---------------------------------------------------------------------
Purchase orders received after 3:00 p.m. Central time will be processed
using the next day's net asset value.
Selling Shares (not applicable to shareholders who have a brokerage account)
- --------------------------------------------------------------------------------
BY LETTER (available for accounts of any type and sales of any amount)
- --------------------------------------------------------------------------------
Write a letter of instruction indicating your account number(s), the fund
name(s), your share class(es), the name(s) in which the account(s) is (are)
registered and the dollar value or number of shares you wish to with respect to
each fund.
- --------------------------------------------------------------------------------
Include all signatures and any additional documents that may be required (see
next page).
- --------------------------------------------------------------------------------
Mail the materials to MEMBERS Mutual Funds using the addresses shown above under
"Contacting MEMBERS Mutual Funds."
- --------------------------------------------------------------------------------
A check will be mailed to the name(s) and address in which the account is
registered.
- --------------------------------------------------------------------------------
BY PHONE (available for most accounts and sales of up to $50,000) For automated
service 24 hours a day using your touch-tone phone, call 1-800-877-6089
- --------------------------------------------------------------------------------
If you want to be able to make redemptions by phone, you must either fill out
the "Telephone Redemption" section of your new account application or complete
additional forms to add it to an existing account. To verify that the telephone
redemption privilege is in place on an account, or to request the forms to add
it to an existing account, call MEMBERS Mutual Funds at 1-800-877-6089.
- --------------------------------------------------------------------------------
To place your redemption order, call MEMBERS Mutual Funds between 8 a.m. and 4
p.m. Central time. Redemption requests may be placed on all business days
(excluding market holidays). Checks will be mailed the next business day after
the redemption request is effected.
- --------------------------------------------------------------------------------
Amounts of $1,000 or more can be wired on the next business day, provided that
you have preauthorized the wiring of funds and the necessary information is on
file with MEMBERS Mutual Funds. See "Transaction Policies -- Wiring Funds" below
for more information.
- --------------------------------------------------------------------------------
Amounts of less than $1,000 may be sent by EFT or by check. Funds from EFT
transactions are generally available by the second business day. Your credit
union or other financial institution may charge a fee for this service.
- --------------------------------------------------------------------------------
BY EXCHANGE (available for accounts of any type and sales of any amount)
- --------------------------------------------------------------------------------
Make sure that you have a current prospectus for the MEMBERS Mutual Funds, which
can be obtained by calling your financial representative or MEMBERS Mutual Funds
at 1-800-877-6089.
- --------------------------------------------------------------------------------
Call your financial representative or MEMBERS Mutual Funds at 1-800-877-6089 to
request an exchange.
- --------------------------------------------------------------------------------
Redemption requests received after 3:00 p.m. Central time will be processed
using the next day's net asset value.
</TABLE>
<PAGE>
Selling Shares in Writing (not applicable to shareholders who have a brokerage
account)
In certain circumstances, you will need to make your request to sell shares in
writing which may require additional documents with your request. In addition,
you will need to obtain a "signature guarantee" if your address of record has
changed within the past 30 days, you are selling more than $50,000 worth of
shares, or you are requesting payment other than by a check mailed to the
address of record and payable to the registered owner(s). You can generally
obtain a signature guarantee from a credit union or other financial institution,
a broker or securities dealer, or a securities exchange or clearing agency. A
notary public CANNOT provide a signature guarantee.
<TABLE>
<CAPTION>
- ------------------------------ -------------------------------------------------------------------------------------
If you are: To make a written request to sell shares, you must include:
- ------------------------------ -------------------------------------------------------------------------------------
<S> <C>
An owner of an individual, [bullet] Letter of instruction
joint, sole proprietorship, [bullet] On the letter, the signatures and titles of all persons authorized to sign
UGMA/UTMA (custodial for the account, exactly as the account is registered
accounts for minors) or a [bullet] Signature guarantee if applicable (see above)
general partner account
- ------------------------------ -------------------------------------------------------------------------------------
An owner of a corporate or [bullet] Letter of instruction
association account [bullet] Corporate resolution, certified within the past two years, specifying the
individual(s) authorized to sell securities
[bullet] On the letter and the resolution, the signature of the person(s)
authorized to sign for the account
[bullet] Signature guarantee if applicable (see above)
- ------------------------------ -------------------------------------------------------------------------------------
An owner or trustee of a [bullet] Letter of instruction containing the signature(s) of the trustee(s)
trust account [bullet] If the names of all trustees are not registered on the account, please
also provide a copy of the trust document certified within the past six months, specifying
the individual(s) authorized to sell securities
[bullet] Signature guarantee if applicable (see above)
- ------------------------------ -------------------------------------------------------------------------------------
A joint tenancy shareholder [bullet] Letter of instruction signed by the surviving tenant
whose co-tenant(s) are [bullet] Certified copy of death certificate(s) of the deceased co-tenant(s)
deceased [bullet] Signature guarantee if applicable (see above)
- ------------------------------ -------------------------------------------------------------------------------------
An executor of a [bullet] Letter of instruction signed by the executor
shareholder's estate [bullet] Copy of the order appointing the executor, certified within 60 days of
receipt by MEMBERS Mutual Funds
[bullet] Signature guarantee if applicable (see above)
- ------------------------------ -------------------------------------------------------------------------------------
An administrator, [bullet] Call MEMBERS Mutual Funds at 1-800-877-6089 for instructions
conservator, guardian or
other seller or the owner
of an account type not
listed above
- ------------------------------ -------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Transaction Policies
Limitation on Purchases. If you purchase shares by check and your check does not
clear, your purchase will be canceled and you could be liable for any losses or
fees incurred. We do not accept third-party checks, money orders, credit cards,
credit card checks or cash to purchase shares. All purchase payments must be
denominated in U.S. dollars and drawn on or from U.S. credit unions or other
financial institutions.
Valuation of Shares. The net asset value per share (NAV) for each fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (typically 3 p.m. Central time) by dividing the net assets of
each fund and class by the number of shares outstanding of that fund and class.
Transaction requests received after 3:00 p.m. Central time will be processed
using the next day's net asset value.
Buy and Sell Prices. When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable CDSC. Purchase orders and redemption requests will be
executed at the price next determined after the order or request is received in
good order by MEMBERS Mutual Funds.
Execution of Requests. Each fund is open on those days when the New York Stock
Exchange is open, typically Monday through Friday. Buy and sell requests are
executed at the next NAV to be calculated after your request is accepted by
MEMBERS Mutual Funds. In unusual circumstances, any fund may temporarily suspend
the processing of sell requests, or may postpone payment of proceeds for up to
three business days or longer, as allowed by federal securities laws.
Telephone Transactions. For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition, MEMBERS Mutual Funds will take
measures to verify the identity of the caller, such as asking for name, account
number, Social Security or other taxpayer ID number and other relevant
information. MEMBERS Mutual Funds is not responsible for any losses that may
occur to any account due to an unauthorized telephone call. Also for your
protection, telephone transactions are not permitted on accounts whose names or
addresses have changed within the past 30 days. Proceeds from telephone
transactions can only be mailed to the address of record or wired (if
pre-authorized) to a credit union or other financial institution account.
Wiring Funds. If you are purchasing shares, you may wire funds directly to
MEMBERS Mutual Funds at:
Boston Safe Deposit & Trust
ABA #011001234
FOR: MEMBERS Mutual Funds
A/C 143286
FBO [shareholder name and account number]
The instructions for wiring funds must specify the fund name(s), your choice of
share class(es), your account number(s), the name(s) in which the account(s) is
(are) registered, and the amount of your investment with respect to each fund.
Your credit union or other financial institution may charge a fee to wire the
funds.
If you are selling shares, you may request that the proceeds of the sale are
wired to you, provided that you have preauthorized the wiring of funds and the
necessary information is on file with MEMBERS Mutual Funds. Boston Safe Deposit
& Trust will deduct a $10 fee from your account to send the wire; your credit
union or other financial institution may charge an additional fee to accept the
wired funds.
Exchanges. The Trust permits exchanges of shares of any class of any fund for
shares of the same class in any other fund. Exchanges of Class A shares of a
fund for Class A shares of another fund are based on the respective NAVs of the
shares being exchanged, unless the exchanging shareholder paid an initial sales
charge for the shares being exchanged lower than that which such shareholder
would have paid for the shares received in the exchange if such shareholder had
purchased such shares directly. In such a case, a sales charge equal to the
difference between the initial sales charge actually paid and the initial sales
charge that would have been imposed will be assessed. No sales charge or
transactions charge is otherwise imposed. Class B shares will continue to "age"
from the date of purchase of the original fund and will retain the same CDSC
rate as they had before the exchange.
To protect the interests of other investors in the fund, a fund may refuse any
exchange order and may cancel the exchange privileges of any parties that, in
the opinion of the fund, are using market timing strategies or making more than
four exchanges per owner or controlling party per calendar year. A fund may
change or cancel its exchange policies at any time, upon 60 days' notice to its
shareholders.
You will be automatically eligible for telephone exchange privileges unless you
indicate otherwise in your application.
Certificated Shares. We do not issue share certificates. Instead, ownership of
all shares is electronically recorded. Sales in Advance of Purchase Payments.
When you place a request to sell shares for which the purchase payment has not
yet been collected, the request will be executed in a timely fashion, but the
fund will not release the proceeds to you until your purchase payment clears.
This may take up to ten business days after the purchase.
Eligibility by State. You may only invest in, or exchange into, fund shares
legally available in your state.
Dividends and Account Policies
Account Statements. In general, you will receive account statements every
quarter, as well as after every transaction (except for any systematic
reinvestment or transaction) that affects your account balance and after any
changes of name or address of the registered owner(s).
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends. The funds generally distribute most or all of their net earnings in
the form of dividends.
- ------------------------------- ------------------------ ----------------------
Timing of Dividend Payments
- ------------------------------- ------------------------ ----------------------
Fund Dividends Declared Dividends Paid
- ------------------------------- ------------------------ ----------------------
Cash Reserves Daily Monthly
- ------------------------------- ------------------------ ----------------------
Bond Daily Monthly
- ------------------------------- ------------------------ ----------------------
Balanced Monthly Monthly
- ------------------------------- ------------------------ ----------------------
High Income Daily Monthly
- ------------------------------- ------------------------ ----------------------
Growth and Income Quarterly Quarterly
- ------------------------------- ------------------------ ----------------------
Capital Appreciation Annually Annually
- ------------------------------- ------------------------ ----------------------
International Stock Annually Annually
Dividend Reinvestments. Many investors have their dividends reinvested in
additional shares of the same fund and class. If you choose this option, or if
you do not indicate any choice, your dividends will be reinvested on the
dividend record date. Alternatively, you can choose to have a check for your
dividends mailed to you. However, if, for any reason, the check is not
deliverable, your dividends will be reinvested and no interest will be paid on
amounts represented by the check.
Additionally, you may be able to invest the dividends from one of the MEMBERS
Mutual Funds in shares of another one of the MEMBERS Mutual Funds, subject to
certain minimum requirements. Call MEMBERS Mutual Funds at 1-800-877-6089 for
details about cross-fund dividend reinvestment.
Taxability of Dividends. As long as a fund meets the requirements for being a
tax-qualified regulated investment company, which each fund intends to do, it
pays no federal income tax on the earnings it distributes to shareholders.
Consequently, dividends you receive from a fund, whether reinvested or taken as
cash, are generally considered taxable. A fund's long-term capital gains
distributions are taxable as capital gains; dividends from other sources are
generally taxable as ordinary income. Some dividends paid in January may be
taxable as if they had been paid the previous December. Corporations may be
entitled to take a dividends-received deduction for a portion of certain
dividends they receive. The Form 1099 that is mailed to you every January
details your dividends and their federal tax category, although you should
verify your tax liability with your tax professional.
Taxability of Transactions. Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
Small Accounts (Non-retirement Only). We reserve the right, and currently
intend, to close any account (excluding systematic investment program accounts)
that has had a balance of less than $1,000 for 18 consecutive months. Your
account will not be closed if its drop in value is due to fund performance or
the effects of sales charges. We will mail you the proceeds if your account is
closed.
Additional Investor Services
Systematic Investment Program. You can set up regular investments from your
paycheck or credit union or other financial institution account to the fund(s)
of your choice. You determine the frequency and amount of your investments, and
you can terminate the program at any time. Investments must be made at least
once each quarter and must each be at least $150 per fund. Systematic
investments may be transacted semi-monthly, monthly, bi-monthly or quarterly. To
take advantage of the systematic investment program, simply complete the
appropriate parts of your account application or work with your financial
representative.
Systematic Withdrawal Program. If your account balance is at least $5,000, you
can make systematic withdrawals from your account. You must fill out the
relevant portion of your account application, specifying the payee(s) (which may
be yourself and/or any other party or parties) and the payment schedule
(semi-monthly, monthly, bi-monthly, quarterly, semi-annually or in selected
months). All payees must be on the same payment schedule. To begin taking
advantage of the systematic withdrawal program with an existing account, contact
your financial representative or CUNA Brokerage. No CDSC will be charged on
systematic withdrawals that are limited annually to no more than 12% of your
account's value. This 12% "free out" is in addition to other withdrawals
permitted free of CDSCs (see "How Sales Charges Are Calculated").
Systematic Exchange Program. If your account balance is at least $5,000, you can
exchange your shares for the same class of shares of other MEMBERS Mutual Funds
under the systematic exchange program. You determine the frequency (no less than
monthly), day of the month, and amount of your exchanges, and you can terminate
the program at any time. Each systematic exchange must be at least $150 per
fund. To take advantage of the systematic exchange program, simply complete the
appropriate parts of your account application or work with your financial
representative.
You should not use the systematic withdrawal or exchange
programs to sell shares of a fund that you are also planning to
buy. Buying shares during a period when you are also selling
shares of the same fund is not advantageous to you because of
sales charges.
Retirement Plans. Shares of MEMBERS Mutual Funds can be used to fund a variety
of retirement plans, including IRAs, SEPs, 401(k) plans, 403(b)(7) arrangements,
SIMPLE plans and other pension and profit-sharing plans. Using these plans, you
can invest in any fund with a minimum initial investment of $1,000. To find out
more, call your MEMBERS Mutual Funds representative at 1-800-877-6089.
MORE ABOUT THE MEMBERS MUTUAL FUNDS
Organization
Each fund is a separate investment portfolio of the MEMBERS Mutual Funds, an
open-end management investment company that is organized as a Delaware business
trust and governed by a board of trustees. Each fund is classified as
"diversified" under applicable federal securities laws. The board retains
various service providers to carry out each fund's operations, including the
investment adviser and any subadvisers, custodian, transfer agent and others.
The diagram on page 37 is intended to give you a sense of the relationships
among a fund and its various service providers. The board has the right (and the
obligation) to terminate a fund's relationship with a service provider and to
retain a different service provider if the board believes it is in the
shareholders' best interests to do so.
The board may include individuals who are affiliated with CIMCO, the funds'
investment adviser. However, the majority of board members are not affiliated
with CIMCO.
The funds do not hold annual shareholder meetings, but may hold special meetings
for such purposes as electing or removing board members, changing fundamental
policies, approving a management contract or approving a 12b-1 plan (12b-1 fees
are explained in "Sales Compensation").
The MEMBERS Mutual Funds issue a separate series of shares of beneficial
interest for each fund, subdivided into class A shares and class B shares. Each
series of shares represents a fractional undivided interest in its fund.
MEMBERS Mutual Funds
Organizational Chart
[GRAPHIC: an organizational chart with the following circles connected by either
solid, dotted or dashed lines and arrows. In the center, there is a circle (the
"fund circle") containing the words "MEMBERS Mutual Funds, Cash Reserves Fund,
Bond Fund, Balanced Fund, High Income Fund, Growth and Income Fund, Capital
Appreciation Fund, and International Stock Fund." Clockwise from the top, there
is a circle containing the words "You (a shareholder) - along with the other
shareholders, you own the fund and have the right to elect trustees" connected
to the fund circle by a solid arrow and connected to a circle (the "board
circle") containing the words "Board of Trustees - have overall management
responsibility over the funds" by a dotted arrow. The board circle is connected
to the fund circle by a dotted arrow. A circle containing the words "Custodian
State Street Bank and Trust Company - holds the assets of each fund separate
from any other account" is connected to the fund circle with a dashed arrow. A
circle containing the words "Independent Public Accountant KPMG Peat Marwick LLP
audits the funds' financial statements, books and reports" is connected to the
fund circle with a dashed arrow. A circle containing the words "Distributor
(also call ed the `Principal Underwriter') CUNA Brokerage Services, Inc. - buys
shares from the funds and sells them to you through its registered
representatives or to other broker-dealers" is connected to the fund circle with
a dashed arrow. A circle containing the words "Transfer Agent First Data
Investor Services Group, Inc. - performs shareholder servicing functions, such
as processing purchase and redemption requests, electronic recordkeeping and
paying dividends" is connected to the fund circle with a dashed arrow. A circle
(the "assets circle") containing the words "Portfolio Securities - the
investments held by each fund" is connected to the fund circle with a solid
arrow. A circle (the "subadviser circle") containing the words "Subadvisers
Massachusetts Financial Services Company IAI International Limited Lazard Asset
Management - manage certain portions of the assets of certain funds" is
connected to the asset circle with a dotted arrow. The subadviser circle is also
connected with a dashed arrow to a circle (the "adviser circle") containing the
words "Investment Adviser CIMCO Inc. - manages the assets of each of the funds."
The adviser circle is connected to the fund circle with a dashed arrow and
connected to the assets circle with a dotted arrow. A circle containing the
words "Fund Administrator First Data Investor Services Group, Inc. - conducts
daily fund accounting and SEC compliance reporting" is connected to the fund
circle with a dashed arrow. A legend at the bottom of the page states that a
dashed arrow indicates a contractual relationship, a solid arrow indicates an
ownership relationship, and a dotted arrow indicates a management relationship.]
Portfolio Management
CIMCO was established on July 6, 1982. It provides investment advice to the
investment portfolios of the CUNA Mutual Group (CUNA Mutual Insurance Society,
its "permanent affiliate" CUNA Mutual Life Insurance Company and their
subsidiaries and affiliates). The majority of CIMCO's board of directors are
independent of the MEMBERS Mutual Funds and the CUNA Mutual Group. CIMCO's
principal place of business is 5910 Mineral Point Road, Madison, WI 53705.
CIMCO employs a team approach in the management of all the funds. The Cash
Reserves, Bond, Balanced, Growth and Income, and Capital Appreciation funds are
managed by portfolio managers employed by CIMCO. As of the date of this
prospectus, CIMCO's team consisted of the following portfolio managers:
Lawrence R. Halverson, CFA (Chartered Financial Analyst), is co-manager of the
Cash Reserves, Bond, Balanced, Growth and Income and Capital Appreciation funds.
Since December 1, 1987, he has been employed with CIMCO and is now Senior Vice
President and Secretary of CIMCO.
Joseph L. Gogola, CFA, is co-manager of the Cash Reserves, Bond and Balanced
funds. He has been employed by CIMCO since January 1, 1992, and had been
employed in the Investment Department of CUNA Mutual Insurance Society for 13
years prior to that date.
Annette E. Hellmer, CFA, is co-manager of the Balanced, Growth and Income and
Capital Appreciation funds. She has been employed by CIMCO since August 1, 1996.
Daniel E. Julie, CFA, CPA, is co-manager of the Balanced, Growth and Income and
Capital Appreciation funds. He has been employed by CIMCO since June 1, 1993.
In addition to work on behalf of the MEMBERS Mutual Funds, each manager performs
advisory services for CIMCO's other clients. CIMCO may add or remove members of
their portfolio management team without gaining your approval.
CIMCO manages the assets of the High Income Fund and International Stock Fund
using a "manager of managers" approach under which CIMCO allocates each fund's
assets among one or more "specialist" subadvisers. CIMCO selects subadvisers
based on a continuing quantitative and qualitative evaluation of their skills
and proven abilities in managing assets pursuant to a particular investment
style. While superior performance is the ultimate goal, short-term performance
by itself will not be a significant factor in selecting or terminating
subadvisers, and CIMCO does not anticipate frequent changes in subadvisers.
Criteria for employment of subadvisers will include, but will not be limited to,
proven discipline and thoroughness in pursuit of stated investment objectives,
consistently above-average performance and an ability to conserve values in down
markets, and a high level of service and responsibility to clients (i.e., the
overall competence of the subadviser's staff and organization). The various
subadvisers may (but do not have to) have different investment styles and
security selection disciplines.
CIMCO monitors the performance of each subadviser and of each fund's portfolio
and, to the extent that it deems it appropriate to achieve a fund's investment
objective, reallocates fund assets among individual subadvisers or recommends to
the MEMBERS Mutual Funds board that a fund employ or terminate particular
subadvisers. For example, CIMCO may recommend a reallocation if, under its
strategic analysis, a subadviser's allocation has become overweighted as a
result of extended appreciation and CIMCO wants to allocate additional assets to
what it perceives to be more undervalued securities and management styles. CIMCO
might also reallocate a fund's assets based upon poor performance of the assets
under the management of a particular subadviser, concerns about the manner in
which a particular subadviser is conducting its business, or a change in a
subadviser's portfolio management team. MEMBERS Mutual Funds and CIMCO have
requested (and anticipate receiving) an order of the Commission that would
permit the MEMBERS Mutual Funds board to employ particular subadvisers without
shareholder approval. The MEMBERS Mutual Funds board will not employ any
subadviser, other than those described below, without shareholder approval
unless and until such an order is granted.
As of the date of this prospectus, Massachusetts Financial Services Company
("MFS") is the only subadviser managing the assets of the High Income Fund. MFS
also serves as investment adviser to each of the funds in the MFS family of
funds, America's oldest mutual fund organization. Net assets under the
management of the MFS organization were approximately $64.3 billion on behalf of
approximately 2.6 million investor accounts as of July 31, 1997. As of such
date, the MFS organization managed approximately $20.3 billion of assets in
fixed-income funds advised by MFS and fixed income portfolios advised by MFS's
wholly-owned subsidiary, MFS Institutional Advisors, Inc. MFS is a subsidiary of
Sun Life of Canada (U.S.) which in turn is an indirect wholly owned subsidiary
of Sun Life Assurance Company of Canada.
For its services to the fund, MFS receives a management fee from CIMCO, computed
and accrued daily and paid monthly, at the following annual rates:
Percentage Net Assets Managed by MFS
0.400% First $10,000,000
0.375% Next $90,000,000
0.350% Next $150,000,000
0.325% Next $250,000,000
0.300% Over $500,000,000
As of the date of this prospectus, the assets of the International Stock Fund
are managed in part by IAI International Limited ("IAI") and in part by Lazard
Asset Management ("Lazard").
In addition to the International Stock Fund, IAI furnishes investment advice to
other concerns, including other investment companies, pension and profit sharing
plans, portfolios of foundations, religious, educational and charitable
institutions, trusts, municipalities and individuals, and has total assets under
management in excess of $16 billion. The ultimate corporate parent of IAI is
Lloyds TSB Group plc, a publicly held financial services organization
headquartered in London, England. Lloyds TSB Group plc is one of the largest
personal and corporate financial services groups in the United Kingdom and is
engaged in a wide range of activities including commercial and retail banking.
For its services to the fund, IAI receives a management fee from CIMCO, computed
and accrued daily and paid monthly, at the following annual rates:
Percentage Net Assets Managed by IAI
0.75% First $25,000,000
0.60% Next $25,000,000
0.50% Over $50,000,000
Lazard began managing separate account international equity portfolios in 1985.
Lazard has 73 global investment professionals, with smaller teams responsible
for portfolio construction. Lazard is a division of LF&Co. which, based in New
York, provides financial advisory services to both institutional and private
clients regarding investment banking, corporate finance, and real estate
finance. LF&Co. established Lazard as its investment management division and
registered it with the Commission as an investment adviser on May 1, 1970.
Investment management services are also provided by Lazard Asset Management
Limited, based in London, Lazard Japan Asset Management KK, based in Tokyo, and
Lazard Asset Management Pacific Co., based in Sydney, Australia, all of which
are controlled by Lazard. Lazard also works closely with Lazard Freres - Gestion
Banque, based in Paris, which is affiliated with Lazard. Investment research is
undertaken on a global basis utilizing the global investment team members
worldwide. Lazard also has affiliates in Milan, Frankfurt, Singapore, Bombay,
and Beijing.
For its services to the fund, Lazard receives a management fee from CIMCO,
computed and accrued daily and paid monthly, equal on an annual basis to 1.05%
of net assets managed by Lazard and invested in emerging markets securities and
0.75% of net assets managed by Lazard and invested in international small
capitalization securities.
As noted above, MEMBERS Mutual Funds and CIMCO have requested an order from the
Commission that would permit the hiring of subadvisers without shareholder
approval. If the order is granted, you will receive an "information statement"
within 90 days of a change in subadvisers that will provide you with relevant
information about the reasons for the change and any new subadviser(s).
Even though subadvisers have day-to-day responsibility over the management of
the High Income Fund and International Stock Fund, CIMCO retains the ultimate
responsibility for the performance of these funds and will oversee the
subadvisers and recommend their hiring, termination, and replacement.
CIMCO may, at some future time, employ a subadvisory or "manager of managers"
approach to other new or existing funds in addition to the High Income Fund and
International Stock Fund.
Use of Certain Brokers
CIMCO may use brokerage firms that market the funds' shares or are affiliated
with companies in the CUNA Mutual Group to execute portfolio trades for the
funds, but only when CIMCO believes that no other firm offers a better
combination of quality execution (i.e., timeliness and completeness), favorable
price and value of research services.
Compensation of Dealers and their Representatives
The MEMBERS Mutual Funds pay compensation to CUNA Brokerage for selling the
funds' shares. CUNA Brokerage passes along a portion of this compensation to
your financial representative.
Compensation payments originate from two sources: from sales charges (front-end
sales charges for Class A shares and CDSCs for Class B shares) and from 12b-1
fees (for Class B shares) that are paid by you, the investor, out of the funds'
assets ("12b-1" refers to the federal securities regulation authorizing annual
fees of this type). The sales charges and 12b-1 fees paid by investors are
detailed in the section "Your Account -- How Sales Charges Are Calculated"
earlier in this prospectus. The portions of these expenses that are reallowed to
CUNA Brokerage are shown in the table below.
Distribution fees may be used to pay for sales compensation to financial
services firms, marketing and overhead expenses and interest expenses.
$0 to $49,999 Equity funds(1) 5.3% 5.0%
------------------------------------------------------
Income funds(2) 4.3% 4.0%
- --------------------------------------------------------------------------------
$50,000 to $99,999 Equity funds(1) 4.3% 4.0%
------------------------------------------------------
Income funds(2) 3.8% 3.5%
- --------------------------------------------------------------------------------
$100,000 to $249,999 All funds 3.3% 3.0%
- --------------------------------------------------------------------------------
$250,000 to $499,999 All funds 2.3% 2.0%
- --------------------------------------------------------------------------------
$500,000 to $999,999 All funds 1.9% 1.7%
- --------------------------------------------------------------------------------
More than $1,000,000 All funds 1.0%(3) 0.8(4)%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
All amounts All funds 4.5%(5) 4.0%
- --------------------------------------------------------------------------------
(1) Cash Reserves Fund, Balanced Fund, Growth and Income Fund,
Capital Appreciation Fund, and International Stock Fund.
(2) Bond Fund and High Income Fund.
(3) Maximum CDSC on A shares sold without payment of sales charges.
(4) The maximum reallowance or commission on A share purchases over
$3,000,000 is 0.5%.
(5) Maximum CDSC on B shares.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MEMBERS Mutual Funds
CUNA Mutual Group
5910 Mineral Point Road
Madison, Wisconsin 53705
This is not a prospectus. This statement of additional information
should be read in conjunction with the prospectus for the MEMBERS Mutual
Funds which is referred to herein. The prospectus concisely sets forth
information that a prospective investor should know before investing.
For a copy of the prospectus, dated , 1997, Call
1-800-877-6089 or write MEMBERS Mutual Funds, P.O. Box 5175,
Westborough, MA 01581.
<PAGE>
TABLE OF CONTENTS Page
GENERAL INFORMATION
INVESTMENT PRACTICES
Practices Authorized but not Used
Lending Portfolio Securities
Restricted and Illiquid Securities
Options on Securities and Securities Indices
Futures Contracts and Options on Futures Contracts
Foreign Transactions
Certain Bond Fund Practices
Lower-Rated Corporate Debt Securities
Other Debt Securities
Convertible Securities
Repurchase Agreements
Reverse Repurchase Agreements
Government Securities
Forward Commitment and When-Issued Securities
Mortgage-Backed and Asset-Backed Securities
Other Securities Related to Mortgages
Real Estate Investment Trusts
INVESTMENT LIMITATIONS
PORTFOLIO TURNOVER
MANAGEMENT OF THE TRUST
Trustees and Officers
Trustee Compensation
Initial Shareholders
PORTFOLIO MANAGEMENT
The Management Agreement with CIMCO Inc.
CIMCO Inc.
The Management Agreements with Subadvisers
The Subadviser for the High Income Fund
The Subadvisers for the International Stock Fund
DESCRIPTION OF THE TRUST'S SHARES
Shares of Beneficial Interest
Voting Rights
Limitation of Shareholder Liability
Limitation of Trustee and Officer Liability
Limitation of Interseries Liability
MORE ABOUT PURCHASING AND SELLING SHARES
Offering Price
Initial Sales Charge on Class A Shares
Deferred Sales Charge on Class B Shares
Special Redemptions
ADDITIONAL INVESTOR SERVICES AND PROGRAMS
Systematic Investment Program
Systematic Withdrawal Program
Exchange Privilege and Systematic Exchange Program
Reinstatement or Reinvestment Privilege
DISTRIBUTION (12b-1) PLANS AND AGREEMENT
CUSTODIAN
INDEPENDENT AUDITORS
BROKERAGE
HOW SECURITIES ARE OFFERED
Distributor
Transfer Agent
NET ASSET VALUE OF SHARES
Cash Reserves Fund
Valuation Procedures
DIVIDENDS, DISTRIBUTIONS AND TAXES
Options and Futures Transactions
Straddles
CALCULATION OF YIELDS AND TOTAL RETURNS
Cash Reserves Fund Yields
Other Fund Yields
Average Annual Total Returns
Other Total Returns
RATINGS
Ratings as Investment Criteria
Description of Bond Ratings
Description of Commercial Paper Ratings
LEGAL COUNSEL
FINANCIAL STATEMENTS
<PAGE>
GENERAL INFORMATION
The MEMBERS Mutual Funds (the "Trust") is an investment company consisting of
seven separate investment portfolios or funds (each, a "fund") each of which has
a different investment objective(s). Each fund is a diversified, open-end
management investment company, commonly known as a mutual fund. The seven funds
are: Cash Reserves, Bond, Balanced, High Income, Growth and Income, Capital
Appreciation and International Stock.
The Trust was formed as a business trust under the laws of the State of Delaware
on May 21, 1997. As a Delaware business trust, the Trust's operations are
governed by its Declaration of Trust dated May 16, 1997 (the "Declaration") and
Certificate of Trust, dated May 16, 1997 (the "Certificate"). The Certificate is
on file with the Office of the Secretary of State in Delaware. Each shareholder
agrees to be bound by the Declaration, as amended from time to time, upon such
shareholder's initial purchase of shares of beneficial interest in any one of
the funds.
INVESTMENT PRACTICES
The prospectus describes the investment objective and policies of each of the
seven funds. The following information is provided for those investors wishing
to have more comprehensive information than that contained in the prospectus.
Practices Authorized but not Used
No fund (other than the International Stock Fund) has a current intention of
investing in options, financial futures, stock index futures and related options
in the foreseeable future. No fund has a current intention of engaging in the
lending of portfolio securities in the foreseeable future. If any fund uses one
of these practices in the foreseeable future, no more than 10% of the fund's
total assets will be at risk thereby.
All of the funds may invest in foreign securities, although only the
International Stock Fund and the High Income Fund are expected to do so with any
regularity. However, all of the funds may, and are expected to, invest in
American Depository Receipts ("ADRs") traded on U.S. exchanges. ADRs represent
shares of foreign issues traded on foreign exchanges and may have many of the
risks associated with foreign securities.
If a fund enters into futures contracts or call options thereon, reverse
repurchase agreements, firm commitment agreements or standby commitment
agreements, the fund will obtain approval from the Board of Trustees to
establish a segregated account with the fund's custodian. The segregated account
will hold liquid assets and the cash value of the segregated account will be not
less than the market value of the futures contracts and call options thereon,
reverse repurchase agreements, firm commitment agreements and standby commitment
agreements.
Lending Portfolio Securities
All funds, except the Cash Reserves Fund, may lend portfolio securities. Such
loans will be made only in accordance with guidelines established by the
Trustees and on the request of broker-dealers or institutional investors deemed
qualified, and only when the borrower agrees to maintain cash or other liquid
assets as collateral with the fund equal at all times to at least 100% of the
value of the securities. The fund will continue to receive interest or dividends
on the securities loaned and will, at the same time, earn an agreed-upon amount
of interest on the collateral which will be invested in readily marketable
obligations of high quality. The fund will retain the right to call the loaned
securities and intends to call loaned voting securities if important shareholder
meetings are imminent. Such security loans will not be made if, as a result, the
aggregate of such loans exceeds 30% of the value of the fund's assets. The fund
may terminate such loans at any time. The primary risk involved in lending
securities is that the borrower will fail financially and not return the loaned
securities at a time when the collateral is sufficient to replace the full
amount of the loaned securities. To mitigate this risk, loans will be made only
to firms deemed by the funds' investment adviser, CIMCO Inc. ("CIMCO"), to be
creditworthy and will not be made unless, in CIMCO's judgment, the consideration
to be earned from such loans would justify the risk.
Restricted and Illiquid Securities
Each fund may invest in illiquid securities up to the percentage limits
described in the prospectus. CIMCO or the fund's subadviser (collectively
referred to herein as the "Investment Adviser") is responsible for determining
the value and liquidity of investments held by each fund. Investments may be
illiquid because of the absence of a trading market, making it difficult to
value them or dispose of them promptly at an acceptable price.
Illiquid investments include most repurchase agreements maturing in more than
seven days, currency swaps, time deposits with a notice or demand period of more
than seven days, certain over-the-counter option contracts (and assets used to
cover such options), participation interests in loans, and restricted
securities. A restricted security is one that has a contractual restriction on
resale or cannot be resold publicly until it is registered under the Securities
Act of 1933 (the "1933 Act").
Each fund may invest in restricted securities. Restricted securities are not,
however, considered illiquid if they are eligible for sale to qualified
institutional purchasers in reliance upon Rule 144A under the 1933 Act and that
are determined to be liquid by the Trust's board of trustees or by the
Investment Adviser under board-approved procedures. Such guidelines would take
into account trading activity for such securities and the availability of
reliable pricing information, among other factors. To the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities, a fund's holdings of those securities may become
illiquid. Purchases by the International Stock Fund and the High Income Fund of
securities of foreign issuers offered and sold outside the U.S., in reliance
upon the exemption from registration provided by Regulation S under the 1933
Act, also may be liquid even though they are restricted.
Options on Securities and Securities Indices
Writing Options. All of the funds (except the Cash Reserves Fund) may write
(sell) covered call and put options on any securities in which it may invest. A
call option written by a fund obligates such fund to sell specified securities
to the holder of the option at a specified price if the option is exercised at
any time before the expiration date. All call options written by a fund are
covered, which means that such fund will own the securities subject to the
option so long as the option is outstanding. A fund's purpose in writing covered
call options is to realize greater income than would be realized on portfolio
securities transactions alone. However, a fund may forego the opportunity to
profit from an increase in the market price of the underlying security.
A put option written by a fund would obligate such fund to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time before the expiration date. All put options written by a
fund would be covered, which means that such fund would have deposited with its
custodian cash or liquid high grade debt securities with a value at least equal
to the exercise price of the put option. The purpose of writing such options is
to generate additional income for the fund. However, in return for the option
premium, a fund accepts the risk that it will be required to purchase the
underlying securities at a price in excess of the securities' market value at
the time of purchase.
In addition, a written call option or put option may be covered by maintaining
cash or liquid, high grade debt securities (either of which may be denominated
in any currency) in a segregated account with its custodian, by entering into an
offsetting forward contract and/or by purchasing an offsetting option which, by
virtue of its exercise price or otherwise, reduces a fund's net exposure on its
written option position.
The funds (other than the Cash Reserves Fund) may also write and sell covered
call and put options on any securities index composed of securities in which it
may invest. Options on securities indices are similar to options on securities,
except that the exercise of securities index options requires cash payments and
does not involve the actual purchase or sale of securities. In addition,
securities index options are designed to reflect price fluctuations in a group
of securities or segment of the securities market rather than price fluctuations
in a single security.
A fund may cover call options on a securities index by owning securities whose
price changes are expected to be similar to those of the underlying index, or by
having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities in its portfolio. A fund may cover call and put options on a
securities index by maintaining cash or liquid high grade debt securities with a
value equal to the exercise price in a segregated account with its custodian.
A fund may terminate its obligations under an exchange traded call or put option
by purchasing an option identical to the one it has written. Obligations under
over-the-counter options may be terminated only by entering into an offsetting
transaction with the counterparty to such option. Such purchases are referred to
as "closing purchase" transactions.
Purchasing Options. The funds (other than the Cash Reserves Fund) may purchase
put and call options on any securities in which it may invest or options on any
securities index based on securities in which it may invest. A fund would also
be able to enter into closing sale transactions in order to realize gains or
minimize losses on options it had purchased.
A fund would normally purchase call options in anticipation of an increase in
the market value of securities of the type in which it may invest. The purchase
of a call option would entitle a fund, in return for the premium paid, to
purchase specified securities at a specified price during the option period. A
fund would ordinarily realize a gain if, during the option period, the value of
such securities exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise such a fund would realize a loss on the purchase of
the call option.
A fund would normally purchase put options in anticipation of a decline in the
market value of securities in its portfolio ("protective puts") or in securities
in which it may invest. The purchase of a put option would entitle a fund, in
exchange for the premium paid, to sell specified securities at a specified price
during the option period. The purchase of protective puts is designed to offset
or hedge against a decline in the market value of a fund's securities. Put
options may also be purchased by a fund for the purpose of affirmatively
benefiting from a decline in the price of securities which it does not own. A
fund would ordinarily realize a gain if, during the option period, the value of
the underlying securities decreased below the exercise price sufficiently to
cover the premium and transaction costs; otherwise such a fund would realize no
gain or loss on the purchase of the put option. Gains and losses on the purchase
of protective put options would tend to be offset by countervailing changes in
the value of the underlying portfolio securities.
The fund would purchase put and call options on securities indices for the same
purposes as it would purchase options on individual securities.
Yield Curve Options. The Bond, Balanced, and High Income Funds may enter into
options on the yield "spread," or yield differential between two securities.
Such transactions are referred to as "yield curve" options. In contrast to other
types of options, a yield curve option is based on the difference between the
yields of designated securities, rather than the prices of the individual
securities, and is settled through cash payments. Accordingly, a yield curve
option is profitable to the holder if this differential widens (in the case of a
call) or narrows (in the case of a put), regardless of whether the yields of the
underlying securities increase or decrease.
These three funds may purchase or write yield curve options for the same
purposes as other options on securities. For example, the fund may purchase a
call option on the yield spread between two securities if it owns one of the
securities and anticipates purchasing the other security and wants to hedge
against an adverse change in the yield between the two securities. The fund may
also purchase or write yield curve options in an effort to increase its current
income if, in the judgment of the Investment Adviser, the fund will be able to
profit from movements in the spread between the yields of the underlying
securities. The trading of yield curve options is subject to all of the risks
associated with the trading of other types of options. In addition, however,
such options present risk of loss even if the yield of one of the underlying
securities remains constant, if the spread moves in a direction or to an extent
which was not anticipated.
Yield curve options written by the Bond, Balanced or High Income Funds will be
"covered." A call (or put) option is covered if the fund holds another call (or
put) option on the spread between the same two securities and maintains in a
segregated account with its custodian cash or liquid, high grade debt securities
sufficient to cover the fund's net liability under the two options. Therefore,
the fund's liability for such a covered option is generally limited to the
difference between the amount of the fund's liability under the option written
by the fund less the value of the option held by the fund. Yield curve options
may also be covered in such other manner as may be in accordance with the
requirements of the counterparty with which the option is traded and applicable
laws and regulations. Yield curve options are traded over-the-counter, and
because they have been only recently introduced, established trading markets for
these options have not yet developed.
Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on an options exchange will exist for any particular
exchange-traded option or at any particular time. If a fund is unable to effect
a closing purchase transaction with respect to covered options it has written,
the fund will not be able to sell the underlying securities or dispose of assets
held in a segregated account until the options expire or are exercised.
Similarly, if a fund is unable to effect a closing sale transaction with respect
to options it has purchased, it will have to exercise the options in order to
realize any profit and will incur transaction costs upon the purchase or sale of
underlying securities.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options on that exchange that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
The funds (other than the Cash Reserves Fund) may purchase and sell both options
that are traded on U.S. and foreign exchanges and options traded
over-the-counter with broker-dealers who make markets in these options. The
ability to terminate over-the-counter options is more limited than with
exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. Until
such time as the staff of the Securities and Exchange Commission (the
"Commission") changes its position, the funds will treat purchased over-the
counter options and all assets used to cover written over-the-counter options as
illiquid securities, except that with respect to options written with primary
dealers in U.S. Government securities pursuant to an agreement requiring a
closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to the formula.
Transactions by a fund in options on securities and stock indices will be
subject to limitations established by each of the exchanges, boards of trade or
other trading facilities governing the maximum number of options in each class
which may be written or purchased by a single investor or group of investors
acting in concert. Thus, the number of options which a fund may write or
purchase may be affected by options written or purchased by other investment
advisory clients of the Investment Adviser. An exchange, board of trade or other
trading facility may order the liquidations of positions found to be in excess
of these limits, and it may impose certain other sanctions.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of protective
puts for hedging purposes depends in part on the Investment Adviser's ability to
predict future price fluctuations and the degree of correlation between the
options and securities markets.
Futures Contracts and Options on Futures Contracts
The funds (other than the Cash Reserves Fund) may purchase and sell futures
contracts and purchase and write options on futures contracts. These funds may
purchase and sell futures contracts based on various securities (such as U.S.
Government securities), securities indices, foreign currencies and other
financial instruments and indices. A fund will engage in futures or related
options transactions only for bona fide hedging purposes as defined below or for
purposes of seeking to increase total returns to the extent permitted by
regulations of the Commodity Futures Trading Commission ("CFTC"). All futures
contracts entered into by a fund are traded on U.S. exchanges or boards of trade
that are licensed and regulated by the CFTC or on foreign exchanges.
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments for an
agreed price during a designated month (or to deliver the final cash settlement
price, in the case of a contract relating to an index or otherwise not calling
for physical delivery at the end of trading in the contract).
When interest rates are rising or securities prices are falling, a fund can seek
through the sale of futures contracts to offset a decline in the value of its
current portfolio securities. When rates are falling or prices are rising, a
fund, through the purchase of futures contracts, can attempt to secure better
rates or prices than might later be available in the market when it effects
anticipated purchases. Similarly, a fund (other than the Cash Reserves Fund) can
sell futures contracts on a specified currency to protect against a decline in
the value of such currency and its portfolio securities which are denominated in
such currency. These funds can purchase futures contracts on foreign currency to
fix the price in U.S. dollars of a security denominated in such currency that
such fund has acquired or expects to acquire.
Positions taken in the futures markets are not normally held to maturity, but
are instead liquidated through offsetting transactions which may result in a
profit or a loss. While a fund's futures contracts on securities or currency
will usually be liquidated in this manner, it may instead make or take delivery
of the underlying securities or currency whenever it appears economically
advantageous for the fund to do so. A clearing corporation (associated with the
exchange on which futures on a security or currency are traded) guarantees that,
if still open, the sale or purchase will be performed on the settlement date.
Hedging Strategies. Hedging by use of futures contracts seeks to establish more
certainly than would otherwise be possible the effective price, rate of return
or currency exchange rate on portfolio securities or securities that a fund owns
or proposes to acquire. A fund may, for example, take a "short" position in the
futures market by selling futures contracts in order to hedge against an
anticipated rise in interest rates or a decline in market prices or foreign
currency rates that would adversely affect the U.S. dollar value of the fund's
portfolio securities. Such futures contracts may include contracts for the
future delivery of securities held by the fund or securities with
characteristics similar to those of a fund's portfolio securities. Similarly, a
fund may sell futures contracts on a currency in which its portfolio securities
are denominated or in one currency to hedge against fluctuations in the value of
securities denominated in a different currency if there is an established
historical pattern of correlation between the two currencies.
If, in the opinion of the Investment Adviser, there is a sufficient degree of
correlation between price trends for a fund's portfolio securities and futures
contracts based on other financial instruments, securities indices or other
indices, the fund may also enter into such futures contracts as part of its
hedging strategy. Although under some circumstances prices of securities in a
fund's portfolio may be more or less volatile than prices of such futures
contracts, the Investment Adviser will attempt to estimate the extent of this
difference in volatility based on historical patterns and to compensate for it
by having the fund enter into a greater or lesser number of futures contracts or
by attempting to achieve only a partial hedge against price changes affecting
the fund's securities portfolio. When hedging of this character is successful,
any depreciation in the value of portfolio securities will substantially be
offset by appreciation in the value of the futures position. On the other hand,
any unanticipated appreciation in the value of the fund's portfolio securities
would be substantially offset by a decline in the value of the futures position.
On other occasions, a fund may take a "long" position by purchasing such futures
contracts. This would be done, for example, when a fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates than available in the applicable
market to be less favorable than prices or rates that are currently available.
Options on Futures Contracts. The acquisition of put and call options on futures
contracts will give a fund the right (but not the obligation), for a specified
price, to sell or to purchase, respectively, the underlying futures contract at
any time during the option period. As the purchaser of an option on a futures
contract, a fund obtains the benefit of the futures position if prices move in a
favorable direction but limits its risk of loss in the event of an unfavorable
price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of a fund's assets. By writing a call
option, a fund becomes obligated, in exchange for the premium, to sell a futures
contract which may have a value higher then the exercise price. Conversely, the
writing of a put option on a futures contract generates a premium, which may
partially offset an increase in the price of securities that the fund intends to
purchase. However, a fund becomes obligated to purchase a futures contract,
which may have a value lower than the exercise price. Thus, the loss incurred by
the fund in writing options on futures is potentially unlimited and may exceed
the amount of the premium received. A fund will incur transaction costs in
connection with the writing of options on futures.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same series. There
is no guarantee that such closing transactions can be effected. A fund's ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid market.
Other Considerations. Where permitted a fund will engage in futures transactions
and in related options transactions only for bona fide hedging or to seek to
increase total return to the extent permitted by CFTC regulations. A fund will
determine that the price fluctuations in the futures contracts and options on
futures used for hedging purposes are substantially related to price
fluctuations in securities held by the fund or which it expects to purchase.
Except as stated below, each fund's futures transactions will be entered into
for traditional hedging purposes--i.e., futures contracts will be used to
protect against a decline in the price of securities (or the currency in which
they are denominated) that the fund owns, or futures contracts will be purchased
to protect the fund against an increase in the price of securities (or the
currency in which they are denominated) it intends to purchase. As evidence of
this hedging intent, each fund expects that on 75% or more of the occasions on
which it takes a long futures or option position (involving the purchase of a
futures contract), the fund will have purchased, or will be in the process of
purchasing equivalent amounts of related securities (or assets denominated in
the related currency) in the cash market at the time when the futures or option
position is closed out. However, in particular cases, when it is economically
advantageous for a fund to do so, a long futures position may be terminated or
an option may expire without the corresponding purchase of securities or other
assets.
As an alternative to literal compliance with the bona fide hedging definition, a
CFTC regulation permits a fund to elect to comply with a different test, under
which the aggregate initial margin and premiums required to establish positions
in futures contracts and options on futures for the purpose of seeking to
increase total return will not exceed 5 percent of the net asset value of the
fund's portfolio, after taking into account unrealized profits and losses on any
such positions and excluding the amount by which such options were in-the-money
at the time of purchase. As permitted, each fund will engage in transactions in
futures contracts and in related options transactions only to the extent such
transactions are consistent with the requirements of the Internal Revenue Code
of 1986, as amended (the "Code") for maintaining its qualification as a
regulated investment company for federal income tax purposes (see "Dividends,
Distributions, and Taxes" below).
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating a fund to purchase securities or currencies, require the fund to
segregate with its custodian liquid high grade debt securities in an amount
equal to the underlying value of such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance for a fund than if it had not
entered into any futures contracts or options transactions. In the event of an
imperfect correlation between a futures position and portfolio position which is
intended to be protected, the desired protection may not be obtained and a fund
may be exposed to risk of loss.
Perfect correlation between a fund's futures positions and portfolio positions
may be difficult to achieve because no futures contracts based on individual
equity securities are currently available. The only futures contracts available
to hedge a fund's portfolio are various futures on U.S. Government securities,
securities indices and foreign currencies. In addition, it is not possible for a
fund to hedge fully or perfectly against currency fluctuations affecting the
value of securities denominated in foreign currencies because the value of such
securities is likely to fluctuate as a result of independent factors not related
to currency fluctuations.
Foreign Transactions
Foreign Securities. Each fund may invest in foreign securities (as defined
below), although the Cash Reserves Fund is limited to U.S. dollar-denominated
foreign money market securities (as defined below). The percentage limitations
on each fund's investment on foreign securities is set forth in the prospectus.
Foreign securities means securities that are: (1) issued by companies organized
outside the U.S. or whose principal operations are outside the U.S. ("foreign
issuers"), (2) issued by foreign governments or their agencies or
instrumentalities (also "foreign issuers"), (3) principally traded outside of
the U.S., or (4) quoted or denominated in a foreign currency ("non-dollar
securities"). Foreign securities include EDRs, GDRs, and foreign money market
securities.
Foreign securities may offer potential benefits that are not available from
investments exclusively in securities of domestic issuers or dollar denominated
securities. Such benefits may include the opportunity to invest in foreign
issuers that appear to offer better opportunity for long-term capital
appreciation or current earnings than investments in domestic issuers, the
opportunity to invest in foreign countries with economic policies or business
cycles different from those of the U.S. and the opportunity to invest in foreign
securities markets that do not necessarily move in a manner parallel to U.S.
markets.
Investing in foreign securities involves significant risks that are not
typically associated with investing in U.S. dollar denominated securities or in
securities of domestic issuers. Such investments may be affected by changes in
currency exchange rates, changes in foreign or U.S. laws or restrictions
applicable to such investments and in exchange control regulations (e.g.,
currency blockage). Some foreign stock markets may have substantially less
volume than, for example, the New York Stock Exchange and securities of some
foreign issuers may be less liquid than securities of comparable domestic
issuers. Commissions and dealer mark-ups on transactions in foreign investments
may be higher than for similar transactions in the U.S. In addition, clearance
and settlement procedures may be different in foreign countries and, in certain
markets, on certain occasions, such procedures have been unable to keep pace
with the volume of securities transactions, thus making it difficult to conduct
such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. There may be less publicly available information about a foreign
issuer than about a domestic one. In addition, there is generally less
government regulation of stock exchanges, brokers, and listed and unlisted
issuers in foreign countries than in the U.S. Furthermore, with respect to
certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, imposition of withholding taxes on dividend or interest
payments, limitations on the removal of funds or other assets of the fund making
the investment, or political or social instability or diplomatic developments
which could affect investments in those countries.
Investments in short-term debt obligations issued either by foreign issuers or
foreign financial institutions or by foreign branches of U.S. financial
institutions (collectively, "foreign money market securities") present many of
the same risks as other foreign investments. In addition, foreign money market
securities present interest rate risks similar to those attendant to an
investment in domestic money market securities.
Investments in ADRs, EDRs and GDRs. Many securities of foreign issuers are
represented by American depository receipts ("ADRs"), European depository
receipts ("EDRs") and global depository receipts ("GDRs"). Each of the funds may
invest in ADRs, and each of the funds other than the Cash Reserves Fund may
invest in GDRs and EDRs.
ADRs are receipts typically issued by a U.S. financial institution or trust
company which represent the right to receive securities of foreign issuers
deposited in a domestic bank or a foreign correspondent bank. Prices of ADRs are
quoted in U.S. dollars, and ADRs are traded in the U.S. on exchanges or
over-the-counter and are sponsored and issued by domestic banks. In general,
there is a large, liquid market in the U.S. for ADRs quoted on a national
securities exchange or the NASD's national market system. The information
available for ADRs is subject to the accounting, auditing and financial
reporting standards of the domestic market or exchange on which they are traded,
which standards are more uniform and more exacting than those to which many
foreign issuers may be subject.
EDRs and GDRs are receipts evidencing an arrangement with a non-U.S. bank
similar to that for ADRs and are designed for use in non-U.S. securities
markets. EDRs are typically issued in bearer form and are designed for trading
in the European markets. GDRs, issued either in bearer or registered form, are
designed for trading on a global basis. EDRs and GDRs are not necessarily quoted
in the same currency as the underlying security.
Depository receipts do not eliminate all the risk inherent in investing in the
securities of foreign issuers. To the extent that a fund acquires depository
receipts through banks which do not have a contractual relationship with the
foreign issuer of the security underlying the receipt to issue and service such
depository receipts, there may be an increased possibility that the fund would
not become aware of and be able to respond to corporate actions such as stock
splits or rights offerings involving the foreign issuer in a timely manner. The
market value of depository receipts is dependent upon the market value of the
underlying securities and fluctuations in the relative value of the currencies
in which the receipts and the underlying are quoted. In addition, the lack of
information may result in inefficiencies in the valuation of such instruments.
However, by investing in depository receipts rather than directly in the stock
of foreign issuers, a fund will avoid currency risks during the settlement
period for either purchases or sales.
Investments in Emerging Markets. The High Income and International Stock Funds
may invest in securities of issuers located in countries with emerging economies
and/or securities markets. These countries are located in the Asia Pacific
region, Eastern Europe, Central and South America and Africa. Political and
economic structures in many of these countries may be undergoing significant
evolution and rapid development, and such countries may lack the social,
political and economic stability characteristic of more developed countries.
Certain of these countries may have in the past failed to recognize private
property rights and have at times nationalized or expropriated the assets of
private companies. As a result, the risks of foreign investment generally,
including the risks of nationalization or expropriation of assets, may be
heightened. In addition, unanticipated political or social developments may
affect the values of a fund's investments in those countries and the
availability to the fund of additional investments in those countries.
The small size and inexperience of the securities markets in certain of these
countries and the limited volume of trading in securities in those countries may
also make the High Income and International Stock Funds' investments in such
countries illiquid and more volatile than investments in Japan or most Western
European countries, and these funds may be required to establish special custody
or other arrangements before making certain investments in those countries.
There may be little financial or accounting information available with respect
to issuers located in certain of such countries, and it may be difficult as a
result to assess the value or prospects of an investment in such issuers.
A fund's purchase or sale of portfolio securities in certain emerging markets
may be constrained by limitations as to daily changes in the prices of listed
securities, periodic trading or settlement volume and/or limitations on
aggregate holdings of foreign investors. Such limitations may be computed based
on aggregate trading volume by or holdings of a fund, CIMCO and its affiliates,
a subadviser and its affiliates, and each such person's respective clients and
other service providers. A fund may not be able to sell securities in
circumstances where price, trading or settlement volume limitations have been
reached.
Foreign investment in certain emerging securities markets is restricted or
controlled to varying degrees that may limit investment in such countries or
increase the administrative cost of such investments. For example, certain Asian
countries require government approval prior to investments by foreign persons or
limit investment by foreign persons to a specified percentage of an issuer's
outstanding securities or a specific class of securities which may have less
advantageous terms (including price) than securities of such company available
for purchase by nationals. In addition, certain countries may restrict or
prohibit investment opportunities in issuers or industries important to national
interests. Such restrictions may affect the market price, liquidity and rights
of securities that may be purchased by a fund.
Settlement procedures in emerging markets are frequently less developed and
reliable than those in the U.S. and may involve a fund's delivery of securities
before receipt of payment for their sale. In addition, significant delays are
common in certain markets in registering the transfer of securities. Settlement
or registration problems may make it more difficult for a fund to value its
portfolio assets and could cause a fund to miss attractive investment
opportunities, to have its assets uninvested or to incur losses due to the
failure of a counterparty to pay for securities that the fund has delivered or
due to the fund's inability to complete its contractual obligations.
Currently, there is no market or only a limited market for many management
techniques and instruments with respect to the currencies and securities markets
of emerging market countries. Consequently, there can be no assurance that
suitable instruments for hedging currency and market related risks will be
available at the times when the Investment Adviser of the fund wishes to use
them.
Foreign Currency Transactions Generally. Because investment in foreign issuers
will usually involve currencies of foreign countries, and because the High
Income and International Stock Funds may have currency exposure independent of
their securities positions, the value of the assets of these funds, as measured
in U.S. dollars, will be affected by changes in foreign currency exchange rates.
An issuer of securities purchased by a fund may be domiciled in a country other
than the country in whose currency the instrument is denominated or quoted. The
High Income and International Stock Funds may also invest in securities quoted
or denominated in the European Currency Unit ("ECU"), which is a "basket"
consisting of specified amounts of the currencies of certain of the twelve
member states of the European Economic Community. The specific amounts of
currencies comprising the ECU may be adjusted by the Council of Ministers of the
European Economic Community from time to time to reflect changes in relative
values of the underlying currencies. In addition, these two funds may invest in
securities quoted or denominated in other currency "baskets."
Currency exchange rates may fluctuate significantly over short periods of time
causing, along with other factors, a fund's NAV to fluctuate as well. They
generally are determined by the forces of supply and demand in the foreign
exchange markets and the relative merits of investments in different countries,
actual or anticipated changes in interest rates and other complex factors, as
seen from an international perspective. Currency exchange rates also can be
affected unpredictably by intervention by U.S. or foreign governments or central
banks, or the failure to intervene, or by currency controls or political
developments in the U.S. or abroad. The market in forward foreign currency
exchange contracts, currency swaps and other privately negotiated currency
instruments offers less protection against defaults by the other party to such
instruments than is available for currency instruments traded on an exchange. To
the extent that a substantial portion of a fund's total assets, adjusted to
reflect the fund's net position after giving effect to currency transactions, is
denominated or quoted in the currencies of foreign countries, the fund will be
more susceptible to the risk of adverse economic and political developments
within those countries.
In addition to investing in securities denominated or quoted in a foreign
currency, certain of the funds may engage in a variety of foreign currency
management techniques. These funds may hold foreign currency received in
connection with investments in foreign securities when, in the judgment of the
fund's Investment Adviser, it would be beneficial to convert such currency into
U.S. dollars at a later date, based on anticipated changes in the relevant
exchange rate. The funds will incur costs in connection with conversions between
various currencies.
Forward Foreign Currency Exchange Contracts. The High Income and International
Stock Funds may each purchase or sell forward foreign currency exchange
contracts for defensive or hedging purposes when the fund's Investment Adviser
anticipates that the foreign currency will appreciate or depreciate in value,
but securities denominated or quoted in that currency do not present attractive
investment opportunities and are not held in the fund's portfolio. In addition,
these two funds may enter into forward foreign currency exchange contracts in
order to protect against anticipated changes in future foreign currency exchange
rates and may engage in cross-hedging by using forward contracts in a currency
different from that in which the hedged security is denominated or quoted if the
fund's Investment Adviser determines that there is a pattern of correlation
between the two currencies.
These two funds may enter into contracts to purchase foreign currencies to
protect against an anticipated rise in the U.S. dollar price of securities it
intends to purchase. They may enter into contracts to sell foreign currencies to
protect against the decline in value of its foreign currency denominated or
quoted portfolio securities, or a decline in the value of anticipated dividends
from such securities, due to a decline in the value of foreign currencies
against the U.S. dollar. Contracts to sell foreign currency could limit any
potential gain which might be realized by a fund if the value of the hedged
currency increased.
If a fund enters into a forward foreign currency exchange contract to buy
foreign currency for any purpose, the fund will be required to place cash or
liquid high grade debt securities in a segregated account with the fund's
custodian in an amount equal to the value of the fund's total assets committed
to the consummation of the forward contract. If the value of the securities
placed in the segregated account declines, additional cash or securities will be
placed in the segregated account so that the value of the account will equal the
amount of the fund's commitment with respect to the contract.
Forward contracts are subject to the risk that the counterparty to such contract
will default on its obligations. Since a forward foreign currency exchange
contract is not guaranteed by an exchange or clearinghouse, a default on the
contract would deprive a fund of unrealized profits, transaction costs or the
benefits of a currency hedge or force the fund to cover its purchase or sale
commitments, if any, at the current market price. A fund will not enter into
such transactions unless the credit quality of the unsecured senior debt or the
claims-paying ability of the counterparty is considered to be investment grade
by the fund's Investment Adviser.
Options on Foreign Currencies. The High Income and International Stock Funds may
also purchase and sell (write) put and call options on foreign currencies for
the purpose of protecting against declines in the U.S. dollar value of foreign
portfolio securities and anticipated dividends on such securities and against
increases in the U.S. dollar cost of foreign securities to be acquired. These
funds may use options on currency to cross-hedge, which involves writing or
purchasing options on one currency to hedge against changes in exchange rates
for a different currency, if there is a pattern of correlation between the two
currencies. As with other kinds of option transactions, however, the writing of
an option on foreign currency will constitute only a partial hedge, up to the
amount of the premium received. A fund could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movements adverse to a fund's position, the fund may forfeit the entire amount
of the premium plus related transaction costs. In addition, these funds may
purchase call or put options on currency to seek to increase total return when
the fund's Investment Adviser anticipates that the currency will appreciate or
depreciate in value, but the securities quoted or denominated in that currency
do not present attractive investment opportunities and are not held in the
fund's portfolio. When purchased or sold to increase total return, options on
currencies are considered speculative. Options on foreign currencies to be
written or purchased by these funds will be traded on U.S. and foreign exchanges
or over-the-counter. See "Stock Index Futures and Related Options" above for a
discussion of the liquidity risks associated with options transactions.
Special Risks Associated With Options on Currency. An exchange traded options
position may be closed out only on an options exchange which provides a
secondary market for an option of the same series. Although a fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option, or at any particular time. For
some options no secondary market on an exchange may exist. In such event, it
might not be possible to effect closing transactions in particular options, with
the result that a fund would have to exercise its options in order to realize
any profit and would incur transaction costs upon the sale of underlying
securities pursuant to the exercise of put options. If a fund as a covered call
option writer is unable to effect a closing purchase transaction in a secondary
market, it will not be able to see the underlying currency (or security quoted
or denominated in that currency) until the option expires or it delivers the
underlying currency upon exercise.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facilities of the
Options Clearing Corporation inadequate, and thereby result in the institution
by an exchange of special procedures which may interfere with the timely
execution of customers' orders.
The High Income Fund and International Stock Fund may each purchase and write
over-the-counter options to the extent consistent with its limitation on
investments in restricted securities. See the "Higher Risk Securities and
Practices" chart in the prospectus for each fund's limitations on investments in
restricted securities. Trading in over-the-counter options is subject to the
risk that the other party will be unable or unwilling to close-out options
purchased or written by the fund.
The amount of the premiums which a fund may pay or receive may be adversely
affected as new or existing institutions, including other investment companies,
engage in or increase their option purchasing and writing activities.
Interest Rate Swaps, Currency Swaps and Interest Rate Caps, Floors and Collars.
The High Income Fund and International Stock Fund may each enter into interest
rate and currency swaps for hedging purposes and to seek to increase total
return. The High Income Fund may also enter into special interest rate swap
arrangements such as caps, floors and collars for both hedging purposes and to
seek to increase total return. The High Income Fund typically uses interest rate
swaps to shorten the effective duration of its portfolio. Interest rate swaps
involve the exchange by the High Income Fund with another party of their
respective commitments to pay or receive interest, such as an exchange of fixed
rate payments for floating rate payments. Currency swaps involve the exchange by
the funds with another party of their respective rights to make or receive
payments in specified currencies. The purchase of an interest rate cap entitles
the purchaser to receive from the seller of the cap payments of interest on a
notional amount equal to the amount by which a specified index exceeds a stated
interest rate. The purchase of an interest rate floor entitles the purchaser to
receive from the seller of the floor payments of interest on a notional amount
equal to the amount by which a specified index falls below a stated interest
rate. An interest rate collar is the combination of a cap and a floor that
perserves a certain return within a state range of interest rates. Since
interest rate swaps, currency swaps and interest rate caps, floors and collars
are individually negotiated, these two funds expect to achieve an acceptable
degree of correlation between their portfolio investments and their interest
rate or currency swap positions entered into for hedging purposes.
The High Income Fund only enters into interest rate swaps on a net basis, which
means the two payment streams are netted out, with the fund receiving or paying,
as the case may be, only the net amount of the two payments. Interest rate swaps
do not involve the delivery of securities, or underlying assets or principal.
Accordingly, the risk of loss with respect to interest rate swaps is limited to
the net amount of interest payments that the fund is contractually obligated to
make. If the other party to an interest rate swap defaults, the fund's risk of
loss consists of the net amount of interest payments that the fund is
contractually entitled to receive. In contrast, currency swaps usually involve
the delivery of the entire principal value of one designated currency in
exchange for the other designated currency. Therefore, the entire principal
value of a currency swap is subject to the risk that the other party to the swap
will default on its contractual delivery obligations. The Trust maintains in a
segregated account with its custodian, cash or liquid securities equal to the
net amount, if any, of the excess of each fund's obligations over its
entitlements with respect to swap transactions. Neither fund enters into swap
transactions unless the unsecured commercial paper, senior debt or claims paying
ability of the other party is considered investment grade by such fund's
Investment Adviser.
The use of interest rate and currency swaps (including caps, floors and collars)
is a highly specialized activity which involves investment techniques and risks
different from those associated with traditional portfolio securities
activities. If the fund's Investment Adviser is incorrect in its forecasts of
market values, interest rates and currency exchange rates, the investment
performance of the High Income Fund or International Stock Fund would be less
favorable than it would have been if this investment technique were not used.
Inasmuch as swaps are entered into for good faith hedging purposes or are offset
by a segregated account as described below, neither fund's Investment Adviser
believe that swaps constitute senior securities as defined in the Act and,
accordingly, will not treat swaps as being subject to such fund's borrowing
restrictions. An amount of cash or liquid, high grade debt securities having an
aggregate net asset value at least equal to the entire amount of the payment
stream payable by the fund will be maintained in a sewed account by the fund's
custodian. A fund will not enter into any interest rate swap (including caps,
floors and collars) or currency swap unless the credit quality of the unsecured
senior debt or the claim paying ability of the other party thereto is considered
to be investment grade by the fund's Investment Adviser. If there is a default
by the other party to such a transaction, the fund will have contractual
remedies pursuant to the agreement, related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid comparison with the markets for other similar instruments
which are traded in the interbank market. Nevertheless, the staff of the
Commission takes the position that currency swaps are illiquid investments
subject to these funds' 15% limitation on such investments.
Certain Bond Fund Practices
The Bond, High Income and Balanced Funds (collectively, the "Bond Funds") invest
a significant portion of their assets in debt securities. As stated in the
prospectus, the Bond Fund and Balanced Fund will emphasize investment grade,
primarily intermediate term securities. If an investment grade security is
downgraded by the rating agencies or otherwise falls below the investment
quality standards stated in the prospectus, management will retain that
instrument only if management believes it is in the best interest of the fund.
Management does not currently intend to invest more than ten percent (10%) of
the total assets of either the Bond Fund or Balanced Fund in corporate debt
securities which are not in the four highest ratings by Standard & Poor's Rating
Group ("Standard & Poor's") or by Moody's Investors Service, Inc. ("Moody's")
("non-investment grade" or "junk" securities), but, on occasion, each fund may
do so. The High Income Fund may invest all of its assets in non-investment grade
securities. See "Non-Investment Grade Securities" below for a description of
these securities and their attendant risks and "Ratings" below for a description
of the rating categories.
All three Bond Funds may also invest in debt options, interest rate futures
contracts, and options on interest rate futures contracts, and may utilize
interest rate futures and options to manage the risk of fluctuating interest
rates. These instruments will be used to control risk or obtain additional
income and not with a view toward speculation. The Bond Fund and Balanced Fund
will invest only in futures and options which are traded on U.S. exchanges or
boards of trade. The High Income Fund may invest in non-U.S. futures and
options.
In the debt securities market, purchases of some issues are occasionally made
under firm (forward) commitment agreements. Purchases of securities under such
agreements can involve risk of loss due to changes in the market rate of
interest between the commitment date and the settlement date. As a matter of
operating policy, no Bond Fund will commit itself to forward commitment
agreements in an amount in excess of 25% of total assets and will not engage in
such agreements for leveraging purposes. For purposes of this limitation,
forward commitment agreements are defined as those agreements involving more
than five business days between the commitment date and the settlement date.
Lower-Rated Corporate Debt Securities
As described in the prospectus, each fund, other than the Cash Reserves Fund,
may make certain investments including corporate debt obligations that are
unrated or rated in the lower rating categories (i.e., ratings of BB or lower by
Standard & Poor's or Ba or lower by Moody's). Bonds rated BB or Ba or below by
Standard & Poors or Moody's (or comparable unrated securities) are commonly
referred to as "lower-rated" securities or as "junk bonds" and are considered
speculative and may be questionable as to principal and interest payments. In
some cases, such bonds may be highly speculative, have poor prospects for
reaching investment standing and be in default. As a result, investment in such
bonds will entail greater speculative risks than those associated with
investment in investment-grade bonds (i.e., bonds rated AAA, AA, A or BBB by
Standard & Poor's or Aaa, Aa, A or Baa by Moody's). (See "Ratings" below for a
description of the rating categories.)
An economic downturn could severely affect the ability of highly leveraged
issuers of junk bonds to service their debt obligations or to repay their
obligations upon maturity. Factors having an adverse impact on the market value
of lower rated securities will have an adverse effect on a fund's net asset
value to the extent it invests in such securities. In addition, a fund may incur
additional expenses to the extent it is required to seek recovery upon a default
in payment of principal or interest on its portfolio holdings.
The secondary market for junk bond securities, which is concentrated in
relatively few market makers, may not be as liquid as the secondary market for
more highly rated securities, a factor which may have an adverse effect on a
fund's ability to dispose of a particular security when necessary to meet its
liquidity needs. Under adverse market or economic conditions, the secondary
market for junk bond securities could contract further, independent of any
specific adverse changes in the condition of a particular issuer. As a result,
the Investment Adviser could find it more difficult to sell these securities or
may be able to sell the securities only at prices lower than if such securities
were widely traded. Prices realized upon the sale of such lower rated or unrated
securities, under these circumstances, may be less than the prices used in
calculating a fund's net asset value.
Since investors generally perceive that there are greater risks associated with
lower-rated debt securities, the yields and prices of such securities may tend
to fluctuate more than those for higher rated securities. In the lower quality
segments of the fixed-income securities market, changes in perceptions of
issuers' creditworthiness tend to occur more frequently and in a more pronounced
manner than do changes in higher quality segments of the fixed-income securities
market resulting in greater yield and price volatility.
Another factor which causes fluctuations in the prices of fixed-income
securities is the supply and demand for similarly rated securities. In addition,
the prices of fixed-income securities fluctuate in response to the general level
of interest rates. Fluctuations in the prices of portfolio securities subsequent
to their acquisition will not affect cash income from such securities but will
be reflected in a fund's net asset value.
Lower-rated (and comparable non-rated) securities tend to offer higher yields
than higher-rated securities with the same maturities because the historical
financial condition of the issuers of such securities may not have been as
strong as that of other issuers. Since lower rated securities generally involve
greater risks of loss of income and principal than higher-rated securities,
investors should consider carefully the relative risks associated with
investment in securities which carry lower ratings and in comparable non-rated
securities. In addition to the risk of default, there are the related costs of
recovery on defaulted issues. The Investment Adviser will attempt to reduce
these risks through diversification of these funds' portfolios and by analysis
of each issuer and its ability to make timely payments of income and principal,
as well as broad economic trends in corporate developments.
Other Debt Securities
U.S. Government Securities. All of the funds may purchase U.S. Government
Securities. U.S. Government Securities are obligations issued or guaranteed by
the U.S. Government, its agencies, authorities or instrumentalities. Some U.S.
Government Securities, such as Treasury bills, notes and bonds, which differ
only in their interest rates, maturities and times of issuance, are supported by
the full faith and credit of the United States. Others, such as obligations
issued or guaranteed by U.S. Government agencies, authorities or
instrumentalities are supported either by (a) the full faith and credit of the
U.S. Government (such as securities of the Small Business Administration), (b)
the right of the issuer to borrow from the Treasury (such as securities of the
Federal Home Loan Banks), (c) the discretionary authority of the U.S. Government
to purchase the agency's obligations (such as securities of the Federal National
Mortgage Association), or (d) only the credit of the issuer. No assurance can be
given that the U.S. Government will provide financial support to U.S. Government
agencies, authorities or instrumentalities in the future. U.S. Government
Securities may also include zero coupon bonds.
Each fund may also invest in separately traded principal and interest components
of securities guaranteed or issued by the U.S. Treasury if such components are
traded independently under the Separate Trading of Registered Interest and
Principal of Securities program ("STRIPS").
Custody Receipts. All of the funds may also acquire securities issued or
guaranteed as to principal and interest by the U.S. Government, its agencies,
authorities or instrumentalities in the form of custody receipts. Such receipts
evidence ownership of future interest payments, principal payments or both on
certain notes or bonds issued by the U.S. Government, its agencies, authorities
or instrumentalities. For certain securities law purposes, custody receipts are
not considered obligations of the U.S. Government.
Zero Coupon, Deferred Interest, Pay-in-Kind and Capital Appreciation Bonds. The
High Income Fund may invest in zero coupon bonds as well as in deferred
interest, pay-in-kind and capital appreciation bonds. Zero coupon, deferred
interest, pay-in-kind and capital appreciation bonds are debt obligations which
are issued at a significant discount from face value. The original discount
approximates the total amount of interest the bonds will accrue and compound
over the period until maturity or the first interest accrual date at a rate of
interest reflecting the market rate of the security at the time of issuance.
Zero coupon bonds are debt obligations that do not entitle the holder to any
periodic payments of interest prior to maturity or provide for a specified cash
payment date when the bonds begin paying current interest. As a result, zero
coupon bonds are generally issued and traded at a significant discount from
their face value. The discount approximates the present value amount of interest
the bonds would have accrued and compounded over the period until maturer.
Zero coupon bonds benefit the issuer by mitigating its initial need for cash to
meet debt service, but generally provide a higher rate of return to compensate
investors for the deferment of cash interest or principal payments. Such
securities are often issued by companies that may not have the capacity to pay
current interest and so may be considered to have more risk than current
interest-bearing securities. In addition, the market price of zero coupon bonds
generally is more volatile than the market prices of securities that provide for
the periodic payment of interest. The market prices of zero coupon bonds are
likely to fluctuate more in response to changes in interest rates than those of
interest-bearing securities having similar maturities and credit quality.
Zero coupon bonds carry the additional risk that, unlike securities that provide
for the periodic payment of interest to maturity, the High Income Fund will
realize no cash until a specified future payment date unless a portion of such
securities is sold. If the issuer of such securities defaults, the fund may
obtain no return at all on their investment. In addition, the fund's investment
in zero coupon bonds may require it to sell certain of its portfolio securities
to generate sufficient cash to satisfy certain income distribution requirements.
See "Taxation" below.
While zero coupon bonds do not require the periodic payment of interest,
deferred interest bonds generally provide for a period of delay before the
regular payment of interest begins. Although this period of delay is different
for each deferred interest bond, a typical period is approximately one-third of
the bond's terms to maturity. Pay-in-kind securities are securities that have
interest payable by the delivery of additional securities. Such investments
benefit the issuer by mitigating its initial need for cash to meet debt service,
but some also provide a higher rate of return to attract investors who are
willing to defer receipt of such cash. Such investments experience greater
volatility in market value due to changes in interest rates than debt
obligations which provide for regular payments of interest. The fund will accrue
income on such investments for tax and accounting purposes, as required, which
is distributable to shareholders and which, because no cash is received at the
time of accrual, may require the liquidation of other portfolio securities to
satisfy the fund's distribution obligations.
Foreign Government Securities. All of the funds may invest in debt obligations
of foreign governments and governmental agencies, including those of emerging
countries. Investment in sovereign debt obligations involves special risks not
present in debt obligations of corporate issuers. The issuer of the debt or the
governmental authorities that control the repayment of the debt may be unable or
unwilling to repay principal or interest when due in accordance with the terms
of such debt, and the funds may have limited recourse in the event of a default.
Periods of economic uncertainty may result in the volatility of market prices of
sovereign debt, and in turn the fund's net asset value, to a greater extent than
the volatility inherent in debt obligations of U.S. issuers. A sovereign
debtor's willingness or ability to repay principal and pay interest in a timely
manner may be affected by, among other factors, its cash flow situation, the
extent of its foreign currency reserves, the availability of sufficient foreign
exchange on the date a payment is due, the relative size of the debt service
burden to the economy as a whole, the sovereign debtor's policy toward principal
international lenders and the political constraints to which a sovereign debtor
may be subject.
Structured Securities. The High Income Fund may invest in structured securities.
The value of the principal of and/or interest on such securities is determined
by reference to changes in the value of specific currencies, interest rates,
commodities, indices or other financial indicators (the "Reference") or the
relative change in two or more References. The interest rate or the principal
amount payable upon maturity or redemption may be increased or decreased
depending upon changes in the applicable Reference. The terms of the structured
securities may provide that in certain circumstances no principal is due at
maturity and, therefore, may result in the loss of the fund's investment.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
interest rates or the value of the security at maturity may be a multiple of
changes in the value of the Reference. Consequently, structured securities may
entail a greater degree of market risk than other types of fixed-income
securities. Structured securities may also be more volatile, less liquid and
more difficult to accurately price than less complex fixed-income investments.
Convertible Securities
The Balanced, High Income, Growth and Income, Capital Appreciation and
International Stock Funds may each invest in convertible securities. Convertible
securities may include corporate notes or preferred stock but are ordinarily a
long-term debt obligation of the issuer convertible at a stated conversion rate
into common stock of the issuer. As with all debt and income-bearing securities,
the market value of convertible securities tends to decline as interest rates
increase and, conversely, to increase as interest rates decline. Convertible
securities generally offer lower interest or dividend yields than
non-convertible securities of similar quality. However, when the market price of
the common stock underlying a convertible security exceeds the conversion price,
the price of the convertible security tends to reflect the value of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security tends to trade increasingly on a yield basis,
and thus may not decline in price to the same extent as the underlying common
stock. Convertible securities rank senior to common stocks in an issuer's
capital structure and are consequently of higher quality and entail less risk
than the issuer's common stock. In evaluating a convertible security, the fund's
Investment Adviser gives primary emphasis to the attractiveness of the
underlying common stock. The convertible securities in which the High Income
Fund invests are not subject to any minimum rating criteria. The convertible
debt securities in which the other funds may invest are subject to the same
rating criteria as that fund's investments in non-convertible debt securities.
Convertible debt securities, the market yields of which are substantially below
prevailing yields on non-convertible debt securities of comparable quality and
maturity, are treated as equity securities for the purposes of a fund's
investment policies or restrictions.
Repurchase Agreements
Each fund may enter into repurchase agreements. In a repurchase agreement, a
security is purchased for a relatively short period (usually not more than 7
days) subject to the obligation to sell it back to the issuer at a fixed time
and price plus accrued interest. The funds will enter into repurchase agreements
only with member banks of the Federal Reserve System and with "primary dealers"
in U.S. Government securities. The Investment Adviser will continuously monitor
the creditworthiness of the parties with whom the funds enter into repurchase
agreements.
The Trust has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Trust's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, a fund could experience delays in liquidating
the underlying securities during the period in which the fund seeks to enforce
its rights thereto, possible subnormal levels of income, declines in value of
the underlying securities or lack of access to income during this period and the
expense of enforcing its rights.
Reverse Repurchase Agreements
Each fund may also enter into reverse repurchase agreements which involve the
sale of U.S. Government securities held in its portfolio to a bank with an
agreement that the fund will buy back the securities at a fixed future date at a
fixed price plus an agreed amount of "interest" which may be reflected in the
repurchase price. Reverse repurchase agreements are considered to be borrowings
by the fund entering into them. Reverse repurchase agreements involve the risk
that the market value of securities purchased by the fund with proceeds of the
transaction may decline below the repurchase price of the securities sold by the
fund which it is obligated to repurchase. A fund that has entered into a reverse
repurchase agreement will also continue to be subject to the risk of a decline
in the market value of the securities sold under the agreements because it will
reacquire those securities upon effecting their repurchase. To minimize various
risks associated with reverse repurchase agreements, each fund will establish
and maintain with the Trust's custodian a separate account consisting of liquid
securities, of any type or maturity, in an amount at least equal to the
repurchase prices of the securities (plus any accrued interest thereon) under
such agreements. No fund will enter into reverse repurchase agreements and other
borrowings (except from banks as a temporary measure for extraordinary emergency
purposes) in amounts in excess of 30% of the fund's total assets (including the
amount borrowed) taken at market value. No fund will use leverage to attempt to
increase income. No fund will purchase securities while outstanding borrowings
exceed 5% of the fund's total assets. Each fund will enter into reverse
repurchase agreements only with federally insured banks which are approved in
advance as being creditworthy by the Trustees. Under procedures established by
the Trustees, the Investment Adviser will monitor the creditworthiness of the
banks involved.
Government Securities
Certain U.S. Government securities, including U.S. Treasury bills, notes and
bonds, and Government National Mortgage Association certificates ("Ginnie
Maes"), are supported by the full faith and credit of the U.S. Certain other
U.S. Government securities, issued or guaranteed by Federal agencies or
government sponsored enterprises, are not supported by the full faith and credit
of the U.S., but may be supported by the right of the issuer to borrow from the
U.S. Treasury. These securities include obligations of the Federal Home Loan
Mortgage Corporation ("Freddie Macs"), and obligations supported by the credit
of the instrumentality, such as Federal National Mortgage Association Bonds
("Fannie Maes"). No assurance can be given that the U.S. Government will provide
financial support to such Federal agencies, authorities, instrumentalities and
government sponsored enterprises in the future.
Ginnie Maes, Freddie Macs and Fannie Maes are mortgage-backed securities which
provide monthly payments which are, in effect, a "pass-through" of the monthly
interest and principal payments (including any prepayments) made by individual
borrowers on the pooled mortgage loans. Collateralized mortgage obligations
("CMOs") in which the fund may invest are securities issued by a corporation or
a U.S. Government instrumentality that are collateralized by a portfolio of
mortgages or mortgage-backed securities. Mortgage-backed securities may be less
effective than traditional debt obligations of similar maturity at maintaining
yields during periods of declining interest rates. (See "Mortgage-Backed and
Asset-Backed Securities.")
Forward Commitment and When-Issued Securities
Each fund may purchase securities on a when-issued or forward commitment basis.
"When-issued" refers to securities whose terms are available and for which a
market exists, but which have not been issued. Each fund will engage in
when-issued transactions with respect to securities purchased for its portfolio
in order to obtain what is considered to be an advantageous price and yield at
the time of the transaction. For when-issued transactions, no payment is made
until delivery is due, often a month or more after the purchase. In a forward
commitment transaction, a fund contracts to purchase securities for a fixed
price at a future date beyond customary settlement time.
When a fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date a fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the fund will segregate in a separate
account cash or liquid securities, of any type or maturity, equal in value to
the fund's commitment. These assets will be valued daily at market, and
additional cash or securities will be segregated in a separate account to the
extent that the total value of the assets in the account declines below the
amount of the when-issued commitments. Alternatively, a fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
Mortgage-Backed and Asset-Backed Securities
The Bond, Balanced, High Income and Growth and Income Funds may invest in
mortgage-backed securities, which represent direct or indirect participation in,
or are collateralized by and payable from, mortgage loans secured by real
property. These funds may also invest in asset-backed securities, which
represent participation in, or are secured by and payable from, assets such as
motor vehicle installment sales, installment loan contracts, leases of various
types of real and personal property, receivables from revolving credit (i.e.,
credit card) agreements and other categories of receivables. Such assets are
securitized though the use of trusts and special purpose corporations. Payments
or distributions of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit or a pool insurance
policy issued by a credit union or other financial institution unaffiliated with
the Trust, or other credit enhancements may be present.
Mortgage-backed and asset-backed securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying loans. A fund's
ability to maintain positions in such securities will be affected by reductions
in the principal amount of such securities resulting from prepayments, and its
ability to reinvest the returns of principal at comparable yields is subject to
generally prevailing interest rates at that time. To the extent that a fund
invests in mortgage-backed and asset-backed securities, the values of its
portfolio securities will vary with changes in market interest rates generally
and the differentials in yields among various kinds of U.S. Government
securities and other mortgage-backed and asset-backed securities.
Asset-backed securities present certain additional risks that are not presented
by mortgage backed securities because asset-backed securities generally do not
have the benefit of a security interest in collateral that is comparable to
mortgage assets. Credit card receivables are generally unsecured and the debtors
on such receivables are entitled to the protection of a number of state and
federal consumer credit laws, many of which give such debtors the right to
set-off certain amounts owed on the credit cards, thereby reducing the balance
due. Automobile receivables generally are secured, but by automobiles rather
than residential real property. Most issuers of automobile receivables permit
the loan servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would secure an interest superior to that of the holders of the
asset-backed securities. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of the automobile receivables may not have a proper
security interest in the underlying automobiles. Therefore, there is the
possibility that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.
The Cash Reserves Fund and Bond Fund may invest in mortgage-backed and
asset-backed securities that represent mortgage, commercial or consumer loans
originated by credit unions or other financial institutions. To the extent
permitted by law and available in the market, such investments may constitute a
significant portion of each fund's investments. Subject to the appropriate
regulatory approvals, the Cash Reserves Fund and Bond Fund may purchase
securities issued by pools that are structured, serviced, or otherwise supported
by CIMCO or its affiliates.
Other Securities Related to Mortgages
Mortgage Pass-Through Securities. The High Income Fund may invest in mortgage
pass-through securities. Mortgage pass-through securities are securities
representing interests in "pools" of mortgage loans. Monthly payments of
interest and principal by the individual borrowers on mortgages are passed
through to the holders of the securities (net of fees paid to the issue or
guarantor of the securities) as the mortgages in the underlying mortgage pools
are paid off. The average lives of mortgage pass-through securities are variable
when issued because their average lives depend on prepayment rates. The average
life of these securities is likely to be substantially shorter than their stated
final maturity as a result of unscheduled principal prepayment. Prepayments on
underlying mortgages result in a loss of anticipated interest, and all or part
of a premium if any has been paid, and the actual yield (or total return) to the
holder of a pass-through security may be different than the quoted yield on such
security. Mortgage prepayments generally increase with falling interest rates
and decrease with rising interest rates. Like other fixed income securities,
when interest rates rise the value of a mortgage pass-though security generally
will decline; however, when interest rates are declining, the value of mortgage
pass-through securities with prepayment features may not increase as much as
that of other fixed income securities.
Interests in pools or mortgage-related securities differ from other forms of
debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a "pass-through"
of the monthly payments made by the individual borrowers on their mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by prepayments of principal resulting from the
sale, refinancing or foreclosure of the underlying property, net of fees or
costs which may be incurred. Some mortgage pass-through securities (such as
securities issued by the Government National Mortgage Association ("GNMA"), are
described as "modified pass-through." These securities entitle the holder to
receive all interests and principal payments owned on the mortgages in the
mortgage pool, net of certain fees, at the scheduled payment dates regardless of
whether the mortgagor actually makes the payment.
The principal governmental guarantor of mortgage pass-through securities is
GNMA. GNMA is a wholly owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. Government, the timely payment of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks and mortgage bankers) and backed by
pools of Federal Housing Administration-insured or Veteran's Administration
("VA")-guaranteed mortgages. These guarantees, however, do not apply to the
market value or yield of mortgage pass-through securities. GNMA securities are
often purchased at a premium over the maturity value of the underlying
mortgages. This premium is not guaranteed and will be lost if prepayment occurs.
Government-related guarantors (i.e., whose guarantees are not backed by the full
faith and credit of the U.S. Government) include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
FNMA is a government-sponsored corporation owned entirely by private
stockholders. It is subject to general regulation by the Secretary of Housing
and Urban Development. FNMA purchases conventional residential mortgages (i.e.,
mortgages not insured or guaranteed by any governmental agency) from a list of
approved seller/services which include state and federally-chartered savings and
loan associations, mutual savings banks, commercial banks, credit unions and
mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to
timely payment by FNMA of principal and interest.
FHLMC was created by Congress in 1970 as a corporate instrumentality of the U.S.
Government for the purpose of increasing the availability of mortgage credit for
residential housing. FHLMC issues Participation Certificates ("PCS") which
represent interest in conventional mortgages (i.e., not federally insured or
guaranteed) from FHLMC's national portfolio. FHLMC guarantees timely payment of
interest and ultimate collection of principal regardless of the status of the
underlying mortgage loans.
Credit unions, commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of mortgage loans. Such issuers may also be the
originators and/or servicers of the underlying mortgage-related securities.
Pools created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government or agency guarantees of payments in the former
pools. However, timely payment of interest and principal of mortgage loans in
these pools may be supported by various forms of insurance or guarantees,
including individual loan, title, pool and hazard insurance and letters of
credit. The insurance and guarantees are issued by governmental entities,
private insurers and the mortgage poolers. There can be no assurance that the
private insurers or guarantors can meet their obligations under the insurance
policies or guarantee arrangements. The High Income Fund may also buy
mortgage-related securities without insurance or guarantees.
Collateralized Mortgage Obligations and Multiclass Pass-Through Securities. The
High Income Fund may invest a portion of its assets in collateralized mortgage
obligations or "CMOs", which are debt obligations collateralized by mortgage
loans or mortgage pass-through securities. Typically, CMOs are collateralized by
certificates issued by GNMA, FNMA or FHLMC, but also may be collateralized by
whole loans or private mortgage pass-through securities (such collateral
collectively hereinafter referred to as "Mortgage Assets"). The High Income Fund
may also invest a portion of its assets in multiclass pass-through securities
which are equity interests in a trust composed of Mortgage Assets. Unless the
context indicates otherwise, all references herein to CMOs include multiclass
pass-through securities. Payments of principal of and interest on the Mortgage
Assets, and any reinvestment income thereon, provide the funds to pay debt
service on the CMOs or make scheduled distributions on the multiclass
pass-through securities. CMOs may be issued by agencies or instrumentalities of
the United States government or by private originators of, or investors in,
mortgage loans, including credit unions, savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose subsidiaries of
the foregoing. The issuer of a series of CMOs may elect to be treated as a Real
Estate Mortgage Investment Conduit (a "REMIC").
In a CMO, a series of bonds or certificates are usually issued in multiple
classes with different maturities. Each class of CMOs, often referred to as a
"tranch", is issued at a specific fixed or floating coupon rate and has a stated
maturity or final distribution date. Principal prepayments on the Mortgage
Assets may cause the CMOs to be retired substantially earlier than their stated
maturities or final distribution dates, resulting in a loss of all or a part of
the premium if any has been paid. Interest is paid or accrues on all classes of
the CMOs on a monthly, quarterly or semiannual basis. The principal of and
interest on the Mortgage Assets may be allocated among the several classes of a
series of a CMO in innumerable ways. In a common structure, payments of
principal, including any principal pre-payments, on the Mortgage Assets are
applied to the classes of the series of a CMO in the order of their respective
stated maturities or final distribution dates, so that no payment of principal
will be made on any class of CMOs until all other classes having an earlier
stated maturity or final distribution date have been paid in full. Certain CMOs
may be stripped (securities which provide only the principal or interest factor
of the underlying security). See "Stripped Mortgage-Backed Securities" below for
a discussion of the risks of investing in these stripped securities and of
investing in classes consisting primarily of interest payments or principal
payments.
The High Income Fund may also invest in parallel pay CMOs and planned
Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class. These
simultaneous payments are taken into account in calculating the stated maturity
date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date, but may be retired earlier. PAC Bonds generally require payments of a
specified amount of principal on each payment date. PAC Bonds are always
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes.
Stripped Mortgage-Backed Securities. The High Income Fund may invest a portion
of its assets in stripped mortgage-backed securities ("SMBS") which are
derivative multiclass mortgage securities issued by agencies or
instrumentalities of the United States government or by private originators of,
or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks and investment banks.
SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions from a pool of Mortgage Assets. A
common type of SMBS will have one class receiving some of the interest and most
of the principal from the Mortgage Assets, while another class receives most of
the interest and the remainder of the principal. In the most extreme case, one
class will receive an "IO" (the right to receive all of the interest) while the
other class will receive a "PO" (the right to receive all of the principal). The
yield to maturity on an IO is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying Mortgage Assets, and
a rapid rate of principal payments may have a material adverse effect on such
security's yield to maturity. If the underlying Mortgage Assets experience
greater than anticipated prepayments of principal, the High Income Fund may fail
to fully recoup its initial investment in these securities. The market value of
the class consisting primarily or entirely of principal payments generally is
unusually volatile in response to changes in interest rates. Because SMBS were
only recently introduced, established trading markets for these securities have
not yet developed, although the securities are traded among institutional
investors and investment banking firms.
Mortgage Dollar Rolls. The High Income Fund may enter into mortgage "dollar
rolls" in which the fund sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase substantially
similar (same type, coupon and maturity) but not identical securities on a
specified future date. During the roll period, the fund loses the right to
receive principal and interest paid on the securities sold. However, the fund
would benefit to the extent of any difference between the price received for the
securities sold and the lower forward price for the future purchase or fee
income plus the interest earned on the cash proceeds of the securities sold
until the settlement date for the forward purchase. Unless such benefits exceed
the income, capital appreciation and gain or loss due to mortgage prepayments
that would have been realized on the securities sold as part of the mortgage
dollar roll, the use of this technique will diminish the investment performance
of the fund. Successful use of mortgage dollar rolls depends upon the Investment
Adviser's ability to predict correctly interest rates and mortgage prepayments.
There is no assurance that mortgage dollar rolls can be successfully employed.
The fund will hold and maintain in a segregated account until the settlement
date cash or liquid assets in an amount equal to the forward purchase price. For
financial reporting and tax purposes, each fund treats mortgage dollar rolls as
two separate transactions; one involving the purchase of a security and a
separate transaction involving a sale. The fund does not currently intend to
enter into mortgage dollar rolls that are accounted for as a financing.
Real Estate Investment Trusts
The Bond, Balanced, High Income and Growth and Income Funds may invest in shares
of real estate investment trusts ("REITs"). REITs are pooled investment vehicles
that invest primarily in income producing real estate or real estate related
loans or interests. REITs are generally classified as equity REITs, mortgage
REITs or a combination of equity and mortgage REITs. Equity REITs invest the
majority of their assets directly in real property and derive income primarily
from the collection of rents. Equity REITs can also realize capital gains by
selling properties that have appreciated in value. Mortgage REITs invest the
majority of their assets in real estate mortgages and derive income from the
collection of interest payments. REITs are not taxed on income distributed to
shareholders provided they comply with several requirements of the Code. A fund
will indirectly bear its proportionate share of any expenses paid by REITs in
which it invests in addition to the expenses paid by a fund.
Investing in REITs involves certain unique risks. Equity REITs may be affected
by changes in the value of the underlying property owned by such REITs, while
mortgage REITs may be affected by the quality of any credit extended. REITs are
dependent upon management skills, are not diversified (except to the extent the
Code requires), and are subject to the risks of financing projects. REITs are
subject to heavy cash flow dependency, default by borrowers, self-liquidation,
and the possibilities of failing to qualify for the exemption from tax for
distributed income under the Code and failing to maintain their exemptions from
the Investment Company Act of 1940, as amended (the "1940 Act"). REITs
(especially mortgage REITS) are also subject to interest rate risks.
INVESTMENT LIMITATIONS
The Trust has adopted the following restrictions and policies relating to the
investment of assets and the activities of each fund. The following restrictions
are fundamental and may not be changed for a fund without the approval of the
holders of a majority of the outstanding votes of that fund (which for this
purpose and under the 1940 Act means the lesser of (i) sixty-seven percent (67%)
of the outstanding votes attributable to shares represented at a meeting at
which more than fifty percent (50%) of the outstanding votes attributable to
shares are represented or (ii) more than fifty percent (50%) of the outstanding
votes attributable to shares). No fund may:
(1) with respect to 75% of the fund's total assets, purchase securities of
an issuer (other than the U.S. Government, its agencies or
instrumentalities), if (i) such purchase would cause more than 5% of the
fund's total assets taken at market value to be invested in the
securities of such issuer, or (ii) such purchase would at the time
result in more than 10% of the outstanding voting securities of such
issuer being held by the fund;
(2) invest 25% or more of its total assets in the securities of one or more
issuers conducting their principal business activities in the same
industry (excluding the U.S. Government or any of its agencies or
instrumentalities);
(3) borrow money, except (a) the fund may borrow from banks (as defined in
the 1940 Act) as through reverse repurchase agreements in amounts up to
30% of its total assets (including the amount borrowed), (b) the fund
may, to the extent permitted by applicable law, borrow up to an
additional 5% of its total assets for temporary purposes, (c) the fund
may obtain such short-term credits as may be necessary for the clearance
of purchases and sales of portfolio securities, (d) the fund may
purchase securities on margin to the extent permitted by applicable law
and (e) the fund may engage in transactions in mortgage dollar rolls
which are accounted for as financings;
(4) make loans, except through (a) the purchase of debt obligations in
accordance with the fund's investment objective and policies, (b)
repurchase agreements with banks, brokers, dealers and other financial
institutions, and (c) loans of securities as permitted by applicable
law;
(5) underwrite securities issued by others, except to the extent that the
sale of portfolio securities by the fund may be deemed to be an
underwriting;
(6) purchase, hold or deal in real estate, although a fund may purchase and
sell securities that are secured by real estate or interests therein,
securities of real estate investment trusts and mortgage-related
securities and may hold and sell real estate acquired by a fund as a
result of the ownership of securities;
(7) invest in commodities or commodity contracts, except that the fund may
invest in currency and financial instruments and contracts that are
commodities or commodity contracts; or
(8) issue senior securities to the extent such issuance would violate
applicable law.
The following restrictions are not fundamental policies and may be changed
without the approval of the shareholders in the affected fund. No fund will:
(1) sell securities short or maintain a short position except for short sales
against the box; or
(2) invest in foreign securities in excess of the following percentages of the
value of its total assets:
Cash Reserves Fund 25%, but limited to U.S. dollar denominated
foreign money market securities
Bond Fund 20%
Balanced Fund 25%
High Income Fund 50%
Growth and Income Fund 25%
Capital Appreciation Fund 25%
International Stock Fund 100%
(3) Purchase any security which is not readily marketable if more than 15%
(10% for the Cash Reserves, Growth and Income, and Capital Appreciation
Funds) of the net assets of the fund taken at market value, would be
invested in such securities.
Except for the limitations on borrowing from banks, if the above percentage
restrictions are adhered to at the time of investment, a later increase or
decrease in such percentage resulting from a change in values of securities or
amount of net assets will not be considered a violation of any of the foregoing
restrictions.
PORTFOLIO TURNOVER
While the Cash Reserves Fund is not subject to specific restrictions on
portfolio turnover, it generally does not seek profits by short-term trading.
However, it may dispose of a portfolio security prior to its maturity where
disposition seems advisable because of a revised credit evaluation of the issuer
or other considerations. Because money market instruments have short maturities,
the Cash Reserves Fund expects to have a high portfolio turnover, but since
brokerage commissions are not customarily charged on money market instruments, a
high turnover should not affect the fund's NAV or net investment income.
Each fund (other than the Cash Reserves Fund) will trade securities held by it
whenever, in the Investment Adviser's view, changes are appropriate to achieve
the stated investment objectives. The Investment Adviser does not anticipate
that unusual portfolio turnover will be required and intends to keep such
turnover to moderate levels consistent with the objectives of each fund.
Although the Investment Adviser makes no assurances, it is expected that the
annual portfolio turnover rate for each fund will be generally less than 100%.
This would mean that normally less than 100% of the securities held by the fund
would be replaced in any one year (excluding turnover of securities having a
maturity of one year or less).
MANAGEMENT OF THE TRUST
Trustees and Officers
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation
and Age with the Trust During Past Five Years
<S> <C> <C>
Michael S. Daubs* Trustee (Chairman) CIMCO Inc.
5910 Mineral Point Road 1997 - Present President, 1982 - Present
Madison, WI 53705
Age - 54 CUNA Mutual Insurance Society
Chief Investment Officer
1990 - Present
CUNA Mutual Life Insurance Company
Chief Investment Officer
1973 - Present
Michael S. Daubs* Trustee (Chairman) CIMCO Inc.
5910 Mineral Point Road 1997 - Present President, 1982 - Present
Madison, WI 53705
Age - 54 CUNA Mutual Life Insurance Company
Chief Investment Officer
1973 - Present
CUNA Mutual Insurance Society
Chief Investment Officer
1990 - Present
Lawrence R. Halverson* Trustee and President CIMCO Inc.
5910 Mineral Point Road 1997 - Present Senior Vice President, 1996 - Present
Madison, WI 53705 Vice President, 1987 - 1996
Age - 51 Secretary, 1992 - Present
CUNA Brokerage Services, Inc.
President, 1996 - Present
Scott R. Powell* Secretary and Principal CIMCO Inc.
5910 Mineral Point Road Financial and Accounting Investment Officer - Mutual Funds, 1997 - Present
Madison, WI 53705 Officer Investment Officer - Marketing, 1993 - 1996
Age - 35 1997 - Present
T. Rowe Price
Vice President, 1996 - 1997
Century Life of America
Area Sales Manager, 1992 - 1993
Gwendolyn M. Boeke Trustee Evangelical Lutheran Church in America (Chicago,
2000 Heritage Way 1997 - Present Illinois)
Waverly, IA 50677 Regional Director, ECLA Foundation
Age - 62 1990 - Present
Alfred L. Disrud Trustee Planned Giving Services (Waverly, Iowa)
2000 Heritage Way 1997 - Present Owner
Waverly, IA 50677 1986 - Present
Age - 76
Kieth S. Noah Trustee Noah, Smith, & Schuknecht, L.L.C. (Charles City,
2000 Heritage Way 1997 - Present Iowa)
Waverly, IA 50677 Partner
Age - 77 1948 - Present
Thomas C. Watt Trustee MidAmerica Energy Company (Waterloo, Iowa)
2000 Heritage Way 1997 - Present Manager, Business Initiatives
Waverly, IA 50677 1987 - Present
Age - 61
Midwest Power Systems, Inc. (Waterloo, Iowa)
District Manager
1992 - 1997
Iowa Public Service Company (Waterloo, Iowa)
Vice President - East District
1962 - 1992
- ---------------------------------- --------------------------- -----------------------------------------------------
<FN>
* "Interested person" as defined in the 1940 Act.
</FN>
</TABLE>
Trustee Compensation
Total Compensation from
Aggregate Compensation Trust and Fund
Name of Person, Position from Trust(1) Complex(1)(2)
Michael S. Daubs(3) None None
Lawrence R. Halverson(3) None None
Gwendolyn M. Boeke $4,000 $8,000
Alfred L. Disrud $4,000 $8,000
Kieth S. Noah $4,000 $8,000
Thomas C. Watt $4,000 $8,000
(1) Amounts estimated for the fiscal year ending October 31, 1998.
(2) "Fund Complex" includes the Trust and the Ultra Series Fund.
(3) Non-compensated interested trustee.
Initial Shareholders
As of the date of this SAI, CUNA Mutual Insurance Society, based upon its
$50,000 seed money investment in each fund other than the High Income Fund, owns
100% of the shares of each such fund. Also as of the date of this SAI, CUNA
Mutual Life Insurance Company, based upon its $50,000 seed money investment in
the High Income Fund, owns 100% of the shares of such fund.
Based upon seed money and other subsequent investments, it is anticipated that,
individually or combined, CUNA Mutual Insurance Society, CUNA Mutual Life
Insurance Company and CUMIS Insurance Society, Inc. will own more than 25% of
the shares of each fund and may be deemed to control each fund. The following
table sets forth each such company's anticipated approximate ownership of each
fund shortly after the commencement of the public offering of the funds' shares
(the figures below represent both seed money and anticipated subsequent
investments):
<TABLE>
<CAPTION>
Growth Capital
Cash High Income and Appre-ciation Int'l
Shareholder Reserves Bond Balanced Income Stock
<S> <C> <C> <C> <C> <C> <C> <C>
CUNA Mutual Insurance $1,500,000 $1,500,000 $3,000,000 $1,500,000 $1,500,000 $5,000,000
Society (50%) (50%) (100%) (50%) (50%) (25%)
CUNA Mutual Life $1,500,000 $1,500,000 $5,000,000 $3,000,000
Insurance Company (50%) (50%) (100%) (15%)
CUMIS Insurance $1,500,000 $1,500,000 $12,000,000
Society, Inc. (50%) (50%) (60%)
- ----------------------- ------------- ------------ ------------ ------------ ------------ ------------ -------------
</TABLE>
Until their ownership is diluted by the sale of shares to other shareholders or
the redemption of their seed money and initial investments, CUNA Mutual
Insurance Society, CUNA Mutual Life Insurance Company and CUMIS Insurance
Society, Inc. may each be able to significantly influence the outcome of any
shareholder vote.
PORTFOLIO MANAGEMENT
The Management Agreement with CIMCO Inc.
The Management Agreement ("Agreement") requires that CIMCO Inc. ("CIMCO")
provide continuous professional investment management of the investments of the
Trust, including establishing an investment program complying with the
investment objectives, policies and restrictions of each fund. As compensation
for its services, the Trust pays CIMCO a fee computed at an annualized
percentage rate of the average daily value of the net assets of each fund as
follows:
Fund Management Fee
Cash Reserves 0.40%
Bond 0.50%
Balanced 0.65%
High Income 0.55%
Growth and Income 0.55%
Capital Appreciation 0.75%
International Stock 1.05%
CIMCO has voluntarily agreed to absorb all ordinary business expenses, other
than management, 12b-1, and service fees, of each fund in excess of the
following percentages of the average daily net assets of the funds (excluding
taxes, interest and other extraordinary items):
Fund Expense "Cap"
Cash Reserves 0.15%
Bond 0.15%
Balanced 0.20%
High Income 0.20%
Growth and Income 0.20%
Capital Appreciation 0.20%
International Stock 0.30%
CIMCO makes the investment decisions and is responsible for the investment and
reinvestment of assets; performs research, statistical analysis, and continuous
supervision of the funds' investment portfolios; furnishes office space for the
Trust; provides the Trust with such accounting data concerning the investment
activities of the Trust as is required to be prepared and files all periodic
financial reports and returns required to be filed with the Commission and any
other regulatory agency; continuously monitors compliance by the Trust in its
investment activities with the requirements of the 1940 Act and the rules
promulgated pursuant thereto; and renders such periodic and special reports to
the Trust as may be reasonably requested with respect to matters relating to
CIMCO's duties.
On September 4, 1997, the Management Agreement was approved by the sole initial
shareholder of the Trust after approval and recommendation by the Trustees of
the Trust, including a majority of Trustees who are not parties to the
Management Agreement or interested persons to any such party as defined in the
1940 Act, on September 4, 1997. The Management Agreement, unless sooner
terminated, shall continue until two years from its effective date and
thereafter shall continue automatically for periods of one calendar year so long
as such continuance is specifically approved at least annually: (a) by the
Trustees or by a vote of a majority of the outstanding votes attributable to the
shares of the class representing an interest in the fund; and (b) by a vote of a
majority of those Trustees who are not parties to the Management Agreement or
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval, provided the Management Agreement may be
terminated as to any fund or to all funds by the Trust at any time, without the
payment of any penalty, by vote of a majority of the Trustees or by a majority
vote of the outstanding votes attributable to the shares of the applicable fund
or by CIMCO on sixty (60) days written notice to the other party. The Management
Agreement will terminate automatically in the event of its assignment.
The Management Agreement provides that CIMCO shall not be liable to the Trust or
any shareholder for anything done or omitted by it, or for any losses that may
be sustained in the purchase, holding or sale of any security, except for an act
or omission involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by the Management Agreement.
CIMCO Inc.
CUNA Mutual Life Insurance Company and CUNA Mutual Investment Corporation each
own a one-half interest in CIMCO. CUNA Mutual Insurance Society is the sole
owner of CUNA Mutual Investment Corporation. CUNA Mutual Investment Corporation
is the sole owner of CUNA Brokerage Services, Inc. ("CUNA Brokerage"), the
Trust's principal underwriter. CIMCO has servicing agreements with CUNA Mutual
Insurance Society and with CUNA Mutual Life Insurance Company. CUNA Mutual
Insurance Society and CUNA Mutual Life Insurance Company entered into a
permanent affiliation July 1, 1990. At the current time, all of the directors of
CUNA Mutual Insurance Society are also directors of CUNA Mutual Life Insurance
Company and the two companies are managed by the same group of senior executive
officers.
CIMCO's directors and principal officers are as follows:
Joyce A. Harris Director and Chair
James C. Hickman Director
Michael B. Kitchen Director
Michael S. Daubs Director and President
George A. Nelson Director and Vice Chair
Lawrence R. Halverson Senior Vice President and Secretary
Donald E. Heltner Vice President and Treasurer
Charles A. Knudsen Vice President
Daniel J. Larson Vice President
Thomas J. Merfeld Vice President
Lois A. O'Rourke Vice President
The Management Agreements with Subadvisers
As described in the prospectus, CIMCO manages the assets of the High Income and
International Stock Funds using a "manager of managers" approach under which
CIMCO allocates each fund's assets among one or more "specialist" subadvisers
(each, a "Subadviser"). The Trust and CIMCO have requested an order from the
Commission that would permit the hiring of Subadvisers without shareholder
approval. If the Trust and CIMCO receive such an order, shareholders will
receive an "information statement" within 90 days of a change in Subadvisers
that will provide relevant information about the reasons for the change and any
new Subadviser(s).
Even though Subadvisers have day-to-day responsibility over the management of
the High Income and International Stock Funds, CIMCO retains the ultimate
responsibility for the performance of these funds and will oversee the
Subadvisers and recommend their hiring, termination, and replacement.
CIMCO may, at some future time, employ a subadvisory or "manager of managers"
approach to other new or existing funds in addition to the High Income and
International Stock Funds.
The Subadviser for the High Income Fund
As of the date of the prospectus, Massachusetts Financial Services Company (MFS)
is the only subadviser managing the assets of the High Income Fund. The
prospectus contains a description of MFS and its fee for managing the assets of
the High Income Fund.
The Subadvisers for the International Stock Fund
As of the date of the prospectus, the assets of the International Stock Fund are
managed in part by IAI International Limited ("IAI") and in part by Lazard Asset
Management ("Lazard"). The prospectus contains descriptions of IAI and Lazard
and their fees for managing portions of the assets of the International Stock
Fund.
DESCRIPTION OF THE TRUST'S SHARES
Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest of the Trust without par
value. Under the Declaration of Trust, the Trustees have the authority to create
and classify shares of beneficial interest in separate series, without further
action by shareholders. As of the date of this SAI, the Trustees have authorized
shares of the seven funds described in the prospectus. Additional series may be
added in the future. The Declaration of Trust also authorizes the Trustees to
classify and reclassify the shares of the Trust, or new series of the Trust,
into one or more classes. As of the date of this SAI, the Trustees have
authorized the issuance of two classes of shares of the fund, designated as
Class A and Class B.
The shares of each class of each fund represent an equal proportionate interest
in the aggregate net assets attributable to that class of that fund. Holders of
Class A shares and Class B shares have certain exclusive voting rights on
matters relating to their respective distribution plans. The different classes
of a fund may bear different expenses relating to the cost of holding
shareholder meetings necessitated by the exclusive voting rights of any class of
shares.
Dividends paid by each fund, if any, with respect to each class of shares will
be calculated in the same manner, at the same time and on the same day and will
be in the same amount, except for differences resulting from the fact that: (i)
the distribution and service fees relating to Class A and Class B shares will be
borne exclusively by that class; (ii) Class B shares will pay higher
distribution and service fees than Class A shares; and (iii) each of Class A
shares and Class B shares will bear any other class expenses properly allocable
to such class of shares, subject to the requirements imposed by the Internal
Revenue Service on funds having a multiple-class structure. Similarly, the NAV
per share may vary depending on whether Class A shares or Class B shares are
purchased.
In the event of liquidation, shareholders of each class of each fund are
entitled to share pro rata in the net assets of the class of the fund available
for distribution to these shareholders. Shares entitle their holders to one vote
per dollar value of shares, are freely transferable and have no preemptive,
subscription or conversion rights. When issued, shares are fully paid and
non-assessable, except as set forth below.
Share certificates will not be issued.
Voting Rights
Unless otherwise required by the 1940 Act or the Declaration of Trust, the Trust
has no intention of holding annual meetings of shareholders. Fund shareholders
may remove a Trustee by the affirmative vote of at least two-thirds of the
Trust's votes attributable to the outstanding shares and the Trustees shall
promptly call a meeting for such purpose when requested to do so in writing by
the record holders of not less than 10% of the votes attributable to the
outstanding shares of the Trust. Shareholders may, under certain circumstances,
communicate with other shareholders in connection with requesting a special
meeting of shareholders. However, at any time that less than a majority of the
Trustees holding office were elected by the shareholders, the Trustees will call
a special meeting of shareholders for the purpose of electing Trustees.
Limitation of Shareholder Liability
Generally, Delaware business trust shareholders are not personally liable for
obligations of the Delaware business trust under Delaware law. The Delaware
Business Trust Act ("DBTA") provides that a shareholder of a Delaware business
trust shall be entitled to the same limitation of liability extended to
shareholders of private for-profit corporations. The Declaration expressly
provides that the Trust has been organized under the DBTA and that the
Declaration is to be governed by and interpreted in accordance with Delaware
law. It is nevertheless possible that a Delaware business trust, such as the
Trust, might become a party to an action in another state whose courts refuse to
apply Delaware law, in which case the Trust's shareholders could possibly be
subject to personal liability.
To guard against this risk, the Declaration: (i) contains an express disclaimer
of shareholder liability for acts or obligations of the Trust and provides that
notice of such disclaimer may be given in each agreement, obligation and
instrument entered into or executed by the Trust or its Trustees, (ii) provides
for the indemnification out of Trust property of any shareholders held
personally liable for any obligations of the Trust or any fund, and (iii)
provides that the Trust shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the Trust and satisfy
any judgment thereon. Thus, the risk of a shareholder incurring financial loss
beyond his or her investment because of shareholder liability is limited to
circumstances in which all of the following factors are present: (1) a court
refuses to apply Delaware law; (2) the liability arose under tort law or, if
not, no contractual limitation of liability was in effect; and (3) the Trust
itself would be unable to meet its obligations. In the light of DBTA, the nature
of the Trust's business, and the nature of its assets, the risk of personal
liability to a shareholder is remote.
Limitation of Trustee and Officer Liability
The Declaration further provides that the Trust shall indemnify each of its
Trustees and officers against liabilities and expenses reasonably incurred by
them, in connection with, or arising out of, any action, suit or proceeding,
threatened against or otherwise involving such Trustee or officer, directly or
indirectly, by reason of being or having been a Trustee or officer of the Trust.
The Declaration does not authorize the Trust to indemnify any Trustee or officer
against any liability to which he or she would otherwise be subject by reason of
or for willful misfeasance, bad faith, gross negligence or reckless disregard of
such person's duties.
Limitation of Interseries Liability
All persons dealing with a fund must look solely to the property of that
particular fund for the enforcement of any claims against that fund, as neither
the Trustees, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of a fund or the Trust. No fund is liable for
the obligations of any other fund. Since the funds use a combined prospectus,
however, it is possible that one fund might become liable for a misstatement or
omission in the prospectus regarding another fund with which its disclosure is
combined. The Trustees have considered this factor in approving the use of the
combined prospectus.
MORE ABOUT PURCHASING AND SELLING SHARES
The following discussion expands upon the section entitled "Your Account" in the
prospectus.
Shares of each fund are offered at a price equal to their NAV next determined
after receipt of the purchase order for such shares (see "Net Asset Value of
Shares" below) plus a sales charge which, depending upon the class of shares
purchased, may be imposed either at the time of purchase (Class A shares) or on
a contingent deferred basis (Class B shares). The Trustees reserve the right to
change or waive the fund's minimum investment requirements and to reject any
order to purchase shares (including purchase by exchange) when in the judgment
of the Investment Adviser such rejection is in the fund's best interest.
Initial Sales Charge on Class A Shares
The sales charges applicable to purchases of Class A shares of the Trust are
described in the prospectus. In calculating the sales charge applicable to
current purchases of Class A shares of the Trust, the investor is entitled to
accumulate current purchases with the greater of the current value (at offering
price) of the Class A shares of the Trust, or if CUNA Brokerage is notified by
the investor's dealer or the investor at the time of the purchase, the cost of
the Class A shares owned.
In addition to the methods of obtaining a reduced Class A sales charge described
in the prospectus, Class A shares of a fund may also be purchased without an
initial sales charge in connection with certain liquidation, merger or
acquisition transactions involving other investment companies or personal
holding companies.
Rights of Combination. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined to reduce
sales charges if made by: (a) an individual, his or her spouse and their
children under the age of 21, purchasing securities for his or their own
account; (b) a trustee or other fiduciary purchasing for a single trust, estate
or fiduciary account; and (c) groups which qualify for the Group Investment
Program (see below). Further information about combined purchases, including
certain restrictions on combined group purchases, is available from CUNA
Brokerage.
Rights of Accumulation. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount then being invested but
also the purchase price or current value of the Class A shares of all funds
which carry a sales charge already held by such person.
Letter of Intention. The reduced sales charges are also applicable to
investments made pursuant to a Letter of Intention (the "LOI"), which should be
read carefully prior to its execution by an investor, pursuant to which
investors make their investment over a specified period of thirteen (13) months.
Such an investment (including accumulations and combinations) must aggregate
$50,000 or more invested during the 13-month period from the date of the LOI or
from a date within ninety (90) days prior thereto, upon written request to CUNA
Brokerage. The sales charge applicable to all amounts invested under the LOI is
computed as if the aggregate amount intended to be invested had been invested
immediately. If such aggregate amount is not actually invested, the difference
in the sales charge actually paid and the sales charge payable had the LOI not
been in effect is due from the investor. However, for the purchases actually
made within the 13-month period, the sales charge applicable will not be higher
than that which would have applied (including accumulations and combinations)
had the LOI been for the amount actually invested.
The LOI authorizes CUNA Brokerage to hold in escrow sufficient Class A shares
(approximately 5% of the aggregate) to make up any difference in sales charges
on the amount intended to be invested and the amount actually invested, until
such investment is completed within the specified period, at which time the
escrow shares will be released. If the total investment specified in the LOI is
not completed, the Class A shares held in escrow may be redeemed and the
proceeds used as required to pay such sales charge as may be due. By signing the
LOI, the investor authorizes CUNA Brokerage to act as the investor's
attorney-in-fact to redeem any escrowed shares and adjust the sales charge, if
necessary. A LOI does not constitute a binding commitment by an investor to
purchase, or by the Trust to sell, any additional shares and may be terminated
at any time.
Deferred Sales Charge on Class B Shares
Investments in Class B shares are purchased at NAV per share without the
imposition of an initial sales charge so the fund will receive the full amount
of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within five
years of purchase will be subject to a contingent deferred sales charge ("CDSC")
at the rates set forth in the prospectus as a percentage of the dollar amount
subject to the CDSC. The charge will be assessed on an amount equal to the
lesser of the current market value or the original purchase cost of the Class B
shares being redeemed. No CDSC will be imposed on increases in account value
above the initial purchase prices, including Class B shares derived from
reinvestment of dividends or capital gains distributions.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of shares, all payments
during a month will be aggregated and deemed to have been made on the first day
of the month.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that a redemption comes first from any increases in the
redeeming shareholder's shares' value above their initial purchase prices, then
from shares the shareholder acquired through dividend and capital gain
reinvestment, then from shares the shareholder has held beyond the five-year
CDSC redemption period ("aged shares"). Such aged shares will be redeemed in
order from the shares which have been held the longest during the five-year
period.
Unless otherwise requested, redemption requests will be "grossed up" by the
amount of any applicable CDSC charge and/or transaction charges such that the
investor will receive the net amount requested.
Proceeds from the CDSC are paid to CUNA Brokerage and are used in whole or in
part by CUNA Brokerage to defray its expenses related to providing
distribution-related services to the Trust in connection with the sale of the
Class B shares, such as the payment of compensation to select Selling Brokers
for selling Class B shares. The combination of the CDSC and the distribution and
service fees facilitates the ability of the Trust to sell the Class B shares
without a sales charge being deducted at the time of the purchase.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares, unless indicated otherwise, in these
circumstances:
For all account types:
[bullet] Redemptions made pursuant to the Trust's right to liquidate
small accounts (see "Dividends and Account Policies -- Small
Accounts" in the prospectus).
[bullet] Redemptions made under certain liquidation, merger or
acquisition transactions involving other investment companies
or personal holding companies.
[bullet] Redemptions due to death or disability.
[bullet] Redemptions made under the Reinstatement Privilege, as
described in "Reinstatement or Reinvestment Privilege" below.
[bullet] Redemptions of Class B shares made under the Systematic
Withdrawal Program, as long as annual redemptions do not exceed
(on an annualized basis) 12% of the redeeming shareholder's
account value at the time of the withdrawal.
For Retirement Accounts (such as IRA, Rollover IRA, TSA, 457, 403(b), 401(k)
plans) and other qualified plans as described in the Internal Revenue Code of
1986, as amended (the "Code"), unless otherwise noted.
[bullet] Redemptions made to effect mandatory or life expectancy
distributions under the Code.
[bullet] Returns of excess contributions made to these plans.
[bullet] Redemptions made to effect distributions to participants or
beneficiaries from employer sponsored retirement under section
401(a) of the Code (such as 401(k) plans).
Please see the following chart for more information on Class B CDSC waivers.
Class B CDSC Waiver Chart
<TABLE>
<CAPTION>
ERISA Plans NON-ERISA Plans
Type of Distribution 401(a) Plan Supplemental IRA or Non-Retirement
401(k) Plan or 403(b) Plan 457 Plan IRA Rollover Plan
403(b) Plan
<S> <C> <C> <C> <C> <C>
Death or Disability Waived Waived Waived Waived Waived
Over 70 1/2 Waived Waived Waived Waived for Waived for up to
mandatory 12% of account
distributions or value annually
up to 12% of in periodic
account value payments
annually in
periodic payments
Between Waived Waived Waived Waived for Life Waived for up to
59 1/2and 70 1/2 Expectancy or up 12% of account
to 12% of value annually
account value in periodic
annually in payments
periodic payments
Under 59 1/2 Waived Waived for Waived for Waived for Waived for up to
annuity payments annuity payments annuity payments 12% of account
(72t) or up to (72t) or up to (72t) or up to value annually
12% of account 12% of account 12% of account in periodic
value annually value annually value annually payments
in periodic in periodic in periodic
payments payments payments
Loans Waived Waived N/A N/A N/A
Termination of Plan Not Waived Not Waived Not Waived Not Waived N/A
Hardships Waived Waived Waived N/A N/A
Return of Excess Waived Waived Waived Waived N/A
</TABLE>
Any shareholder who qualifies for a CDSC waiver under one of these situations
must notify the funds' transfer agent, First Data Investor Services Group, Inc.
("First Data"), at the time such shareholder requests a redemption. (See
"Contacting the Funds' Transfer Agent" in the prospectus.) The waiver will be
granted once First Data has confirmed that the shareholder is entitled to the
waiver.
Special Redemptions
Although no fund would normally do so, each fund has the right to pay the
redemption price of shares of the fund in whole or in part in portfolio
securities held by the fund as prescribed by the Trustees. When the shareholder
were to sell portfolio securities received in this fashion the shareholder would
incur a brokerage charge. Any such securities would be valued for the purposes
of making such payment at the same value as used in determining NAV. The Trust
has, however, elected to be governed by Rule 18f-1 under the 1940 Act. Under
that rule, each fund must redeem its shares for cash except to the extent that
the redemption payments to any shareholder during any 90-day period would exceed
the lesser of $250,000 or 1% of the fund's NAV at the beginning of such period.
ADDITIONAL INVESTOR SERVICES AND PROGRAMS
The following discussion expands upon the section entitled "Additional Investor
Services" in the prospectus.
Systematic Investment Program
As explained in the prospectus, the Trust has established a Systematic
Investment Program. The program is subject to the following conditions:
[bullet] The investments will be drawn on or about the day of the month
indicated.
[bullet] Any shareholder's privilege of making investments through the
Systematic Investment Program may be revoked by the Trust
without prior notice if any investment by the shareholder is
not honored by the shareholder's credit union or other
financial institution.
[bullet] The program may be discontinued by the shareholder either by
calling MEMBERS Mutual Funds or upon written notice to MEMBERS
Mutual Funds which is received at least five (5) business days
prior to the due date of any investment.
Systematic Withdrawal Program
As explained in the prospectus, the Trust has established a Systematic
Withdrawal Program. Payments under this program represent proceeds arising from
the redemption of fund shares. The maintenance of a Systematic Withdrawal
Program concurrently with purchases of additional shares of the fund could be
disadvantageous to a shareholder because of the sales charges that may be
imposed on new purchases. Therefore, a shareholder should not purchase shares of
a fund at the same time as a Systematic Withdrawal Program is in effect for such
shareholder with respect to that fund. The Trust reserves the right to modify or
discontinue the Systematic Withdrawal Program for any shareholder on 30 days'
prior written notice to such shareholder, or to discontinue the availability of
such plan to all shareholders in the future. Any shareholder may terminate the
program at any time by giving proper notice.
Exchange Privilege and Systematic Exchange Program
Shares of a fund which are subject to a CDSC may be exchanged into shares of any
of other fund that are subject to a CDSC without incurring the CDSC; however,
the shares acquired in the exchange will be subject to the CDSC schedule of the
shares acquired if and when such shares are redeemed. For purposes of computing
the CDSC payable upon redemption of shares acquired in an exchange, the holding
period of the original shares is added to the holding period of the shares
acquired in an exchange.
The Trust reserves the right to require that previously exchanged shares (and
reinvested dividends) be in a fund for 90 days before a shareholder is permitted
a new exchange. The Trust may refuse any exchange order. The Trust may change or
cancel its exchange policies at any time, upon 60 days' notice to its
shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for federal income tax purposes. An exchange may
result in a taxable gain or loss. (See "Dividends, Distributions and Taxes.")
As explained in the prospectus, the Trust has established a Systematic Exchange
Program. The Trust reserves the right to modify or discontinue the Systematic
Exchange Program for any shareholder on 30 days' prior written notice to such
shareholder, or to discontinue the availability of such plan to all shareholders
in the future. Any shareholder may terminate the program at any time by giving
proper notice to First Data.
Reinstatement or Reinvestment Privilege
If First Data is notified prior to reinvestment, a shareholder who has redeemed
fund shares may, within 90 days after the date of redemption, reinvest without
payment of a sales charge any part of the redemption proceeds in shares of the
same class of the same or another fund, subject to the minimum investment limit
of that fund. The proceeds from the redemption of Class A shares may be
reinvested at NAV without paying a sales charge in Class A shares of the same or
any other fund. If a CDSC was paid upon a redemption, a shareholder may reinvest
the proceeds from the redemption at NAV in additional shares of the class and
fund from which the redemption was made. The new shares will not be subject to
any CDSC.
To protect the interests of other investors in the funds, the Trust may cancel
the reinvestment privilege of any parties that, in the opinion of the Trust, are
using market timing strategies or making more than four exchanges per owner or
controlling party per calendar year above and beyond any systematic or automated
exchanges. Also, the Trust may refuse any reinvestment request.
The fund may change or cancel its reinvestment policies at any time.
A redemption or exchange of fund shares is a taxable transaction for federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
fund shares will be treated for tax purposes as described under the caption
"Dividends, Distributions and Taxes."
DISTRIBUTION (12b-1) PLANS AND AGREEMENT
The Trust has entered into a Distribution Agreement with CUNA Brokerage. Under
the Distribution Agreement, CUNA Brokerage is obligated to use its best efforts
to sell shares of the Trust. Shares of the Trust may be sold by selected
broker-dealers (the "Selling Brokers") which have entered into selling agency
agreements with CUNA Brokerage. CUNA Brokerage accepts orders for the purchase
of the shares of the Trust at NAV next determined plus any applicable sales
charge. In connection with the sale of Class A or Class B shares of the Trust,
CUNA Brokerage and Selling Brokers receive compensation from a sales charge
imposed, in the case of Class A shares, at the time of sale or, in the case of
Class B shares, on a deferred basis. The sales charges are discussed further in
the prospectus.
The Trust's Board of Trustees also adopted Distribution Plans with respect to
the Trust's Class A and Class B shares (the "Plans") pursuant to Rule 12b-1
under the 1940 Act. Under the Plans, the Trust will pay service fees for Class A
and Class B shares at an aggregate annual rate of 0.25% of each fund's daily net
assets attributable to the respective class of shares. The Trust will also pay
distribution fees for Class B shares at an aggregate annual rate of 0.75% of
each fund's daily net assets attributable to Class B. The distribution fees will
be used to reimburse CUNA Brokerage for its distribution expenses with respect
to Class B shares only, including but not limited to: (i) initial and ongoing
sales compensation to Selling Brokers and others engaged in the sale of fund
shares, (ii) marketing, promotional and overhead expenses incurred in connection
with the distribution of fund shares, and (iii) interest expenses on
unreimbursed distribution expenses. The service fees will be used to compensate
Selling Brokers and others for providing personal and account maintenance
services to shareholders. In the event that CUNA Brokerage is not fully
reimbursed for expenses it incurs under the Class B Plan in any fiscal year,
CUNA Brokerage may carry these expenses forward, provided, however, that the
Trustees may terminate the Class B Plan and thus the Trust's obligation to make
further payments at any time. Accordingly, the Trust does not treat unreimbursed
expenses relating to the Class B shares as a liability.
The Plans were approved by the initial shareholder of the Trust. The Plans have
also been approved by a majority of the Trustees, including a majority of the
Trustees who are not interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plan (the "Independent
Trustees"), by votes cast in person at meetings called for the purpose of voting
on such Plans.
Pursuant to the Plans, at least quarterly, CUNA Brokerage provides the Trust
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on a
quarterly basis to determine their continued appropriateness.
The Plans provide that they continue in effect only so long as their continuance
is approved at least annually by a majority of both the Trustees and the
Independent Trustees. Each Plan provides that it may be terminated without
penalty: (a) by vote of a majority of the Independent Trustees; (b) by a vote of
a majority of the votes attributable to the fund's outstanding shares of the
applicable class in each case upon 60 days' written notice to CUNA Brokerage;
and (c) automatically in the event of assignment. Each of the Plans further
provides that it may not be amended to increase the maximum amount of the fees
for the services described therein without the approval of a majority of the
votes attributable to the outstanding shares of the class of the Trust which has
voting rights with respect to the Plan. And finally, each of the Plans provides
that no material amendment to the Plan will, in any event, be effective unless
it is approved by a majority vote of both the Trustees and the Independent
Trustees of the Trust. The holders of Class A shares and Class B shares have
exclusive voting rights with respect to the Plan applicable to their respective
class of shares. In adopting the Plans, the Trustees concluded that, in their
judgment, there is a reasonable likelihood that each Plan will benefit the
holders of the applicable class of shares of the fund.
Amounts paid to CUNA Brokerage by any class of shares of the Trust will not be
used to pay the expenses incurred with respect to any other class of shares of
the Trust; provided, however, that expenses attributable to the Trust as a whole
will be allocated, to the extent permitted by law, according to a formula based
upon gross sales dollars and/or average daily net assets of each such class, as
may be approved from time to time.
CUSTODIAN
State Street Bank and Trust Company is the current custodian for the securities
and cash of each fund. The custodian holds all securities and cash owned by each
fund and receives all payments of income, payments of principal or capital
distributions with respect to such securities for each fund. Also, the custodian
receives payment for the shares issued by the Trust. The custodian releases and
delivers securities and cash upon proper instructions from the Trust. Pursuant
to and in furtherance of a Custody Agreement with the custodian, the custodian
uses automated instructions and a cash data entry system to transfer monies to
and from each fund's account at the custodian.
INDEPENDENT AUDITORS
The financial statements have been included herein in reliance upon the report
of KPMG Peat Marwick, 4200 Norwest Center, 90 S. Seventh Street, Minneapolis, MN
55402, independent auditors, and upon the authority of said firm as experts in
accounting and auditing.
BROKERAGE
It is the Trust's policy, in effecting transactions in portfolio securities, to
seek best execution of orders at the most favorable prices. The determination of
what may constitute best execution and price in the execution of a securities
transaction by a broker involves a number of considerations, including without
limitation, the overall direct net economic result (involving both price paid or
received and any commissions and other costs paid), the efficiency with which
the transaction is effected, the ability to effect the transaction at all where
a large block is involved, the availability of the broker to stand ready to
execute potentially difficult transactions in the future and the financial
strength and stability of the broker. Such considerations are judgmental and are
weighed by the Investment Adviser in determining the overall reasonableness of
brokerage commissions paid.
Subject to the foregoing, a factor in the selection of brokers is the receipt of
research services, analyses and reports concerning issuers, industries,
securities, economic factors and trends and other statistical and factual
information. Any such research and other statistical and factual information
provided by brokers to the Trust or CIMCO is considered to be in addition to and
not in lieu of services required to be performed by CIMCO under its contract
with the Trust. Research obtained on behalf of the Trust may be used by CIMCO in
connection with CIMCO's other clients. Conversely, research received from
placement of brokerage for other accounts may be used by CIMCO in managing
investments of the Trust. Therefore, the correlation of the cost of research to
CIMCO's individual clients, including the Trust, is indeterminable and cannot
practically be allocated among the Trust and CIMCO's other clients. Consistent
with the above, the Trust may effect principal transactions with a broker-dealer
that furnishes brokerage and/or research services, or designate any such
broker-dealer to receive selling commissions, discounts or other allowances, or
otherwise deal with any broker-dealer, in connection with the acquisition of
securities in underwritings. Accordingly, the net prices or commission rates
charged by any such broker-dealer may be greater than the amount another firm
might charge if the Investment Adviser determines in good faith that the amount
of such net prices and commissions is reasonable in relation to the value of the
services and research information provided by such broker-dealer to the Trust.
The Trust expects that purchases and sales of money market instruments usually
will be principal transactions. Money market instruments are normally purchased
directly from the issuer or from an underwriter or market maker for the
securities. There usually will be no brokerage commissions paid for such
purchases. Purchases from underwriters will include the underwriting commission
or concession and purchases from dealers serving as market makers will include
the spread between the bid and asked price. Where transactions are made in the
over-the-counter market, the Trust will deal with the primary market makers
unless equal or more favorable prices are otherwise obtainable.
Where advantageous, the Trust may participate with CIMCO's other clients in
"bunching of trades" wherein one purchase or sale transaction representing
several different client accounts is placed with a broker. CIMCO has established
various policies and procedures that assure equitable treatment of all accounts.
The policy with respect to brokerage is and will be reviewed by the Trustees
from time to time. Because of the possibility of further regulatory developments
affecting the securities exchanges and brokerage practices generally, the
foregoing practices may be changed, modified or eliminated.
HOW SECURITIES ARE OFFERED
Distributor
Shares of the Trust are currently issued and redeemed through the distributor,
CUNA Brokerage, pursuant to a Distribution Agreement between the Trust and CUNA
Brokerage. The principal place of business of CUNA Brokerage is 5910 Mineral
Point Road, Madison, Wisconsin 53705. CUNA Brokerage is owned by CUNA Mutual
Investment Corporation which in turn is owned by CUNA Mutual Insurance Society.
Shares of the Trust are purchased and redeemed at NAV (see "Net Asset Value of
Shares" below). The Distribution Agreement provides that CUNA Brokerage will use
its best efforts to render services to the Trust, but in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations, it will not be liable to the Trust or any shareholder for any error
of judgment or mistake of law or any act or omission or for any losses sustained
by the Trust or its shareholders.
Transfer Agent
First Data Investor Services Group, Inc. ("First Data"), 4400 Computer Drive,
Westborough, Massachusetts 01581-5120, is the funds' transfer agent.
Shareholders can reach a MEMBERS Mutual Funds representative at First Data at
1-800-877-6089. Shareholder inquiries and transaction requests should be sent
to:
MEMBERS Mutual Funds
P.O. Box 5175
Westborough, Massachusetts 01581
Certain overnight delivery services do not deliver to post office boxes.
Shareholders using such a service should send inquiries and transaction requests
to:
First Data Investor Services Group, Inc.
MEMBERS Mutual Funds
Attn: Work Management 1CE25
4400 Computer Drive
Westborough, Massachusetts 01581-5120
NET ASSET VALUE OF SHARES
The NAV per share is calculated as of 3:00 p.m. Central Time on each day on
which the New York Stock Exchange is open for business. NAV per share is
determined by dividing each fund's total net assets by the number of shares of
such fund outstanding at the time of calculation. Total net assets are
determined by adding the total current value of portfolio securities, cash,
receivables, and other assets and subtracting liabilities. Shares will be sold
and redeemed at the NAV per share next determined after receipt of the purchase
order or request for redemption.
The NAV per share was initially set at $10.00 per share for each fund other than
the Cash Reserves Fund. The NAV per share was initially set at $1.00 per share
for the Cash Reserves Fund (see "Cash Reserves Fund" below).
Cash Reserves Fund
The Trustees have determined that the best method currently available for
determining the NAV for the Cash Reserves Fund is the amortized cost method. The
Trustees will utilize this method pursuant to Rule 2a-7 of the 1940 Act. The use
of this valuation method will be continuously reviewed and the Trustees will
make such changes as may be necessary to assure that assets are valued fairly as
determined by the Trustees in good faith. Rule 2a-7 obligates the Trustees, as
part of their responsibility within the overall duty of care owed to the
shareholders, to establish procedures reasonably designed, taking into account
current market conditions and the investment objectives, to stabilize the NAV
per share as computed for the purpose of distribution and redemption at $1.00
per share. The Trustees' procedures include periodically monitoring, as they
deem appropriate and at such intervals as are reasonable in light of current
market conditions, the relationship between the amortized cost value per share
and the NAV per share based upon available market quotations. The Trustees will
consider what steps should be taken, if any, in the event of a difference of
more than 1/2 of one percent (0.5%) between the two. The Trustees will take such
steps as they consider appropriate, (e.g., redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other unfair
results which might arise from differences between the two. The Rule requires
that the Cash Reserves Fund limit its investments to instruments which the
Trustees determine will present minimal credit risks and which are of high
quality as determined by a major rating agency, or, in the case of any
instrument that is not so rated, of comparable quality as determined by the
Trustees. It also calls for the Cash Reserves Fund to maintain a dollar weighted
average portfolio maturity (not more than 90 days) appropriate to its objective
of maintaining a stable NAV of $1.00 per share and precludes the purchase of any
instrument with a remaining maturity of more than 397 days. Should the
disposition of a portfolio security result in a dollar weighted average
portfolio maturity of more than 90 days, the Cash Reserves Fund will invest its
available cash in such manner as to reduce such maturity to 90 days or less as
soon as reasonably practicable.
It is the normal practice of the Cash Reserves Fund to hold portfolio securities
to maturity. Therefore, unless a sale or other disposition of a security is
mandated by redemption requirements or other extraordinary circumstances, the
Cash Reserves Fund will realize the par value of the security. Under the
amortized cost method of valuation traditionally employed by institutions for
valuation of money market instruments, neither the amount of daily income nor
the NAV is affected by any unrealized appreciation or depreciation. In periods
of declining interest rates, the indicated daily yield on shares the Cash
Reserves Fund has computed by dividing the annualized daily income by the NAV
will tend to be higher than if the valuation were based upon market prices and
estimates. In periods of rising interest rates, the indicated daily yield on
shares the Cash Reserves Fund has computed by dividing the annualized daily
income by the NAV will tend to be lower than if the valuation were based upon
market prices and estimates.
Valuation Procedures
Common stocks that are traded on an established exchange or over-the-counter are
valued on the basis of market price as of the end of the valuation period,
provided that a market quotation is readily available. Otherwise, they are
valued at fair value as determined in good faith by or at the direction of the
Trustees.
Stripped treasury securities, long-term straight debt obligations, and
non-convertible preferred stocks are valued using readily available market
quotations, if available. When exchange quotations are used, the latest quoted
sale price is used. If an over-the-counter quotation is used, the last bid price
will normally be used. If readily available market quotations are not available,
these securities are valued at market value as determined in good faith by or at
the direction of the Trustees. Readily available market quotations will not be
deemed available if an exchange quotation exists for a debt security, preferred
stock, or security convertible into common stock, but it does not reflect the
true value of the fund's holdings because sales have occurred infrequently, the
market for the security is thin, or the size of the reported trade is considered
not comparable to the fund's institutional size holdings. When readily available
market quotations are not available, the fund will use an independent pricing
service which provides valuations for normal institutional size trading units of
such securities. Such a service may utilize a matrix system which takes into
account appropriate factors such as institutional size trading in similar groups
of securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data in determining valuations. These
valuations are reviewed by CIMCO. If CIMCO believes that a valuation still does
not represent a fair value, it will present for approval of the Trustees such
other valuation as CIMCO considers to represent a fair value. The specific
pricing service or services to be used will be presented for approval of the
Trustees.
Short-term instruments having maturities of sixty (60) days or less will be
valued at amortized cost. Short-term instruments having maturities of more than
sixty (60) days will be valued at market values or values based on current
interest rates.
Options, stock index futures, interest rate futures, and related options which
are traded on U.S. exchanges or boards of trade are valued at the closing price
as of the close of the New York Stock Exchange.
CIMCO, at the direction of the Trustees, values the following at prices it deems
in good faith to be fair:
1. Securities (including restricted securities) for which complete
quotations are not readily available;
2. Listed securities if, in CIMCO's opinion, the last sale price
does not reflect the current market value or if no sale
occurred; and
3. Other assets.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each fund has qualified, and intends to continue to qualify, for treatment as a
regulated investment company ("RIC") under the Code. In order to qualify for
that treatment, each fund must must distribute to its shareholders for each
taxable year at least 90% of its investment company taxable income (consisting
generally of taxable net investment income and net short-term capital gain) and
must meet several additional requirements. With respect to each fund, these
requirements include the following: (1) the fund must derive at least 90% of its
gross income each taxable year from dividends, interest, payments with respect
to securities loans and gains from the sale or other disposition of securities,
or other income (including gains from futures contracts) derived with respect to
its business of investing in securities; (2) at the close of each quarter of the
fund's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. Government securities, securities of
other RICs and other securities, with these other securities limited, in respect
of any one issuer, to an amount that does not exceed 5% of the value of the
fund's total assets and that does not represent more than 10% of the outstanding
voting securities of the issuer; and (3) at the close of each quarter of the
fund's taxable year, not more than 25% of the value of its total assets may be
invested in securities (other than U.S. government securities or the securities
of other RICs) of any one issuer.
A fund will be subject to a nondeductible 4% excise tax to the extent it fails
to distribute by the end of any calendar year substantially all of its ordinary
income for that year and capital gain net income for the one-year period ending
on October 31 of that year, plus certain other amounts. Each fund intends to
distribute annually a sufficient amount of any taxable income and capital gains
so as to avoid liability for this excise tax.
Dividends and interest received by a fund may be subject to income, withholding
or other taxes imposed by foreign countries and U.S. possessions that would
reduce the yield on its securities. Tax conventions between certain countries
and the U.S. may reduce or eliminate these foreign taxes, however, and foreign
countries generally do not impose taxes on capital gains in respect of
investments by foreign investors. If more than 50% of the value of the
International Stock Fund's total assets at the close of its taxable year
consists of securities of foreign corporations, it will be eligible to, and may,
file an election with the Internal Revenue Service that will enable its
shareholders, in effect, to receive the benefit of the foreign tax credit with
respect to any foreign and U.S. possessions income taxes paid by it. Pursuant to
the election, a fund will treat those taxes as dividends paid to its
shareholders and each shareholder will be required to (1) include in gross
income, and treat as paid by him, his proportionate share of those taxes, (2)
treat his share of those taxes and of any dividend paid by the fund that
represents income from foreign or U.S. possessions sources as his own income
from those sources, and (3) either deduct the taxes deemed paid by him in
computing his taxable income or, alternatively, use the foregoing information in
calculating the foreign tax credit against his federal income tax. The
International Stock Fund will report to its shareholders shortly after each
taxable year their respective shares of the income from sources within, and
taxes paid to, foreign countries and U.S. possessions if it makes this election.
Each fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of the
following tests: (1) at least 75% of its gross income is passive or (2) an
average of at least 50% of its assets produce, or are held for the production
of, passive income. Under certain circumstances, a fund will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock of a PFIC or of any gain on disposition of that stock (collectively "PFIC
income"), plus interest thereon, even if the fund distributes the PFIC income as
a taxable dividend to its shareholders. The balance of the PFIC income will be
included in the fund's investment company taxable income and, accordingly, will
not be taxable to it to the extent that income is distributed to its
shareholders. If a fund invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund," then in lieu of the foregoing tax and interest
obligation, the fund will be required to include in income each year its pro
rata share of the qualified electing fund's annual ordinary earnings and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss), even if they are not distributed to the fund; those amounts would
be subject to the distribution requirements described above. In most instances
it will be very difficult, if not impossible, to make this election because of
certain requirements thereof.
The use of hedging strategies, such as writing (selling) and purchasing options
and futures contracts and entering into forward contracts, involves complex
rules that will determine for income tax purposes the character and timing of
recognition of the income received in connection therewith by a fund. Income
from foreign currencies (except certain gains therefrom that may be excluded by
future regulations), and income from transactions in options, futures and
forward contracts derived by a fund with respect to its business of investing in
securities or foreign currencies, will qualify as permissible income under the
income requirement. However, income from the disposition of foreign currencies
that are not directly related to the fund's principal business of investing in
securities (or options and futures with respect thereto) also will be subject to
the Short-Short Limitation if the securities are held for less than three
months.
If a fund satisfies certain requirements, any increase in value on a position
that is part of a "designated hedge" will be offset by any decrease in value
(whether realized or not) of the offsetting hedging position during the period
of the hedge for purposes of determining whether the fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. Each
fund intends that, when it engages in hedging transactions, they will qualify
for this treatment, but at the present time it is not clear whether this
treatment will be available for all of the fund's hedging transactions. To the
extent this treatment is not available, a fund may be forced to defer the
closing out of certain options and futures contracts beyond the time when it
otherwise would be advantageous to do so, in order for the fund to continue to
qualify as a RIC.
The treatment of income dividends and capital gain distributions by a fund to
shareholders under the various state income tax laws may not parallel that under
the federal law. Qualification as a regulated investment company does not
involve supervision of a fund's Investment Adviser or of its investment policies
and practices by any governmental authority.
Shareholders are urged to consult their own tax advisers with specific reference
to their own tax situations, including their state and local tax liabilities.
It is the intention of the Trust to distribute substantially all of the net
investment income, if any, of each fund thereby avoiding the imposition of any
fund-level income or excise tax as follows:
(i) Dividends on the Cash Reserves, Bond, and High Income Funds
will be declared daily and reinvested monthly in additional
full and fractional shares of the respective fund;
(ii) Dividends of ordinary income from the Balanced Fund will be
declared and reinvested monthly in additional full and
fractional shares of the Balanced Fund;
(iii) Dividends of ordinary income, if any, from the Growth and
Income Fund will be declared and reinvested quarterly in
additional full and fractional shares of the Growth and Income
Fund;
(iv) Dividends of ordinary income, if any, from the Capital
Appreciation and International Stock Funds will be declared and
reinvested annually in additional full and fractional shares of
the respective fund; and
(v) All net realized short-term and long-term capital gains of each
fund, if any, will be declared and distributed at least
annually, but in any event, no more frequently than allowed
under Commission rules, to the shareholders of each fund to
which such gains are attributable.
Options and Futures Transactions
The tax consequences of options transactions entered into by a fund will vary
depending on the nature of the underlying security, whether the option is
written or purchased and finally, whether the "straddle" rules, discussed
separately below, apply to the transaction. When a fund writes a call or a put
option on an equity or convertible debt security, the treatment for federal
income tax purposes of the premium that it receives will, subject to the
straddle rules, depend on whether the option is exercised. If the option expires
unexercised, or if the fund enters into a closing purchase transaction, the fund
will realize a gain (or loss if the cost of the closing purchase transaction
exceeds the amount of the premium) without regard to any unrealized gain or loss
on the underlying security. Any such gain or loss will be short-term capital
gain or loss, except that any loss on a "qualified" covered call stock option
that is not treated as part of a straddle may be treated as long-term capital
loss. If a call option written by a fund is exercised, the fund will recognize a
capital gain or loss from the sale of the underlying security, and will treat
the premium as additional sales proceeds. Whether the gain or loss will be
long-term or short-term will depend on the holding period of the underlying
security. If a put option written by a fund is exercised, the amount of the
premium will reduce the tax basis of the security that the fund then purchases.
If a put or call option that a fund has purchased on an equity or convertible
debt security expires unexercised, the fund will realize a capital loss equal to
the cost of the option. If the fund enters into a closing sale transaction with
respect to the option, it will realize a capital gain or loss (depending on
whether the proceeds from the closing transaction are greater or less than the
cost of the option). The gain or loss will be short-term or long-term depending
on the fund's holding period in the option. If the fund exercises such a put
option, it will realize a short-term gain or loss (long-term if the fund holds
the underlying security for more than one year before it purchases the put) from
the sale of the underlying security measured by the sales proceeds decreased by
the premium paid. If the fund exercises such a call option, the premium paid for
the option will be added to the tax basis of the security purchased.
One or more funds may invest in Section 1256 contracts. Section 1256 contracts
generally include options on nonconvertible debt securities (including
securities of U.S. Government agencies or instrumentalities), options on stock
indexes, futures contracts, options on futures contracts and certain foreign
currency contracts. Options on foreign currency, futures contracts on foreign
currency, and options on foreign currency futures will qualify as Section 1256
contracts if the options or futures are traded on or subject to the rules of a
qualified board or exchange. In general, gain or loss on Section 1256 contracts
will be treated as 60% long-term and 40% short-term capital gain or loss
("60/40"), regardless of the period of time particular positions are actually
held by a fund. In addition, any Section 1256 contracts held at the end of each
taxable year (and on October 31 of each year for purposes of determining the
amount of capital gain net income that a fund must distribute to avoid liability
for the 4% excise tax) are "marked to market" with the result that unrealized
gains or losses are treated as though they were realized and the resulting gain
or loss is treated as 60/40 gain or loss. This deemed realization does not cause
a disposition for purposes of the "short-short" rule.
Straddles
Hedging transactions undertaken by a fund may result in "straddles" for federal
income tax purposes. Straddles are defined to include "offsetting positions" in
actively-traded personal property. Under current law, it is not clear under what
circumstances one investment made by a fund, such as an option or futures
contract, would be treated as "offsetting" another investment also held by the
fund, such as the underlying security (or vice versa) and, therefore, whether
the fund would be treated as having entered into a straddle. In general,
investment positions may be "offsetting" if there is a substantial diminution in
the risk of loss from holding one position by reason of holding one or more
other positions (although certain "qualified" covered call stock options written
by a fund may be treated as not creating a straddle).
To the extent that the straddle rules apply to positions established by a fund,
losses realized by the fund may be either deferred or recharacterized as
long-term losses, and long-term gains realized by the fund may be converted to
short-term gains.
Each fund may make one or more of the elections available under the Code which
are applicable to straddles. If a fund makes any of the elections, the amount,
character, and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections operate to
accelerate the recognition of gains or losses from the affected straddle
positions.
Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to a fund that did not engage in such hedging transactions.
CALCULATION OF YIELDS AND TOTAL RETURNS
From time to time, the Trust may disclose yields, total returns, and other
performance data. Such performance data will be computed, or accompanied by
performance data computed in accordance with the standards defined by the
Commission.
Cash Reserves Fund Yields
From time to time, sales literature may quote the current annualized yield of
the Cash Reserves Fund for a seven-day period in a manner which does not take
into consideration any realized or unrealized gains or losses on portfolio
securities.
This current annualized yield is computed by determining the net change
(exclusive of realized gains and losses on the sale of securities and unrealized
appreciation and depreciation) at the end of the seven-day period in the value
of a hypothetical account having a balance of one share at the beginning of the
period, dividing such net change in account value by the value of the
hypothetical account at the beginning of the period to determine the base period
return, and annualizing this quotient on a 365-day basis. The net change in
value reflects net income from the fund attributable to the hypothetical
account. Current yield is calculated according to the following formula:
Current Yield = ((NCS - ES)/UV) x (365/7)
Where:
NCS = the net change in the value of the Cash Reserves Fund
(exclusive of realized gains or losses on the sale of securities
and unrealized appreciation and depreciation) for the seven-day
period attributable to a hypothetical account having a balance of
one share.
ES = per share expenses attributable to the hypothetical account
for the seven-day period.
UV = the share value for the first day of the seven-day period.
Effective yield is calculated according to the following formula:
Effective yield = (1 + ((NCS-ES)/UV))365/7 - 1
Where:
NCS = the net change in the value of the Cash Reserves Fund
(exclusive of realized gains or losses on the sale of securities
and unrealized appreciation and depreciation) for the seven-day
period attributable to a hypothetical account having a balance of
one share.
ES = per share expenses attributable to the hypothetical account
for the seven-day period.
UV = the share value for the first day of the seven-day period.
The current and effective yields on amounts held in the Cash Reserves Fund
normally fluctuate on a daily basis. Therefore, the disclosed yield for any
given past period is not an indication or representation of future yields or
rates of return. The Cash Reserves Fund's actual yield is affected by changes in
interest rates on money market securities, average portfolio maturity, the types
and quality of portfolio securities held and operating expenses. Yields on
amounts held in the Cash Reserves Fund may also be presented for periods other
than a seven-day period.
Other Fund Yields
From time to time, sales literature may quote the current annualized yield of
one or more of the funds (other than the Cash Reserves Fund) for 30-day or
one-month periods. The annualized yield of a fund refers to income generated by
the fund during a 30-day or one-month period and is assumed to be generated each
period over a 12-month period.
The yield is computed by: 1) dividing the net investment income of the fund for
the period; by 2) the maximum offering price per share on the last day of the
period times the daily average number of shares outstanding for the period; by
3) compounding that yield for a six-month period; and by 4) multiplying that
result by 2. The
30-day or one-month yield is calculated according to the following formula:
Yield = 2 x (((NI - ES)/(U x UV)) + 1)6 - 1)
Where:
NI = net income of the fund for the 30-day or one-month period
attributable to the fund's shares.
ES = expenses of the fund for the 30-day or one-month period.
U = the average number of shares outstanding.
UV = the share value at the close (highest) of the last day in the
30-day or one-month period.
The yield normally fluctuates over time. Therefore, the disclosed yield for any
given past period is not an indication or representation of future yields or
rates of return. A fund's actual yield is affected by the types and quality of
portfolio securities held and operating expenses.
Average Annual Total Returns
From time to time, sales literature may also quote average annual total returns
for one or more of the funds for various periods of time.
When a fund has been in operation for 1, 5, and 10 years, respectively, the
average annual total returns for these periods will be provided. Average annual
total returns for other periods of time may, from time to time, also be
disclosed.
Standard average annual total returns represent the average annual compounded
rates of return that would equate an initial investment of $1,000 to the
redemption value of that investment as of the last day of each of the periods.
The ending date for each period for which total return quotations are provided
will be for the most recent month or calendar quarter-end practicable,
considering the type of the communication and the media through which it is
communicated.
The total return is calculated according to the following formula:
TR = ((ERV/P)1/N) - 1
Where:
TR = the average annual total return net of any fund recurring
charges.
ERV = the ending redeemable value of the hypothetical account at the
end of the period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
Other Total Returns
From time to time, sales literature may also disclose cumulative total returns
in conjunction with the standard formats described above. The cumulative total
returns will be calculated using the following formula:
CTR = (ERV/P) - 1
Where:
CTR = The cumulative total return net of any fund recurring charges
for the period.
ERV = The ending redeemable value of the hypothetical investment at
the end of the period.
P = A hypothetical single payment of $1,000.
RATINGS
Ratings as Investment Criteria
In general, the ratings of Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Ratings Group ("S&P") represent the opinions of these agencies
as to the quality of the securities which they rate. It should be emphasized,
however, that such ratings are relative and subjective and are not absolute
standards of quality. These ratings will be used by certain funds as initial
criteria for the selection of portfolio securities. Among the factors which will
be considered are the long-term ability of the issuer to pay principal and
interest and general economic trends.
Description of Bond Ratings (As Published by the Rating Services)
Moody's Investors Service, Inc.
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in
the future.
Baa Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics, and in fact, have speculative
characteristics as well.
Ba Bonds which are rated Ba and below are judged to have speculative
elements; their future cannot be considered as well secured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa Bonds which are rated Caa are a poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from Aa through B in its corporate bond
rating system. The modifier 1 indicates that the security ranks
in the higher end of this generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end of its generic rating category.
Standard & Poor's Corporation
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher rated categories.
BB Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly
B speculative with respect to the issuer's capacity to pay interest and
CCC repay principal in accordance with the terms CCC of the obligation. BB
CC indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions.
Note: Standard & Poor's applies the modifiers of (+) or (-) in each generic
rating classification from "AA" through "B" in its corporate bond
rating system. The plus sign indicates that the security ranks in the
higher end of this generic rating category; the lack of a modifier
indicates a mid-range ranking; and the minus sign indicates that the
issue ranks in the lower end of its generic rating category.
Description of Commercial Paper Ratings (As Published by the Rating Services)
Moody's Investors Service, Inc.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its commercial paper obligations are
supported by the credit of another entity or entities, Moody's, in assigning
ratings to such issuers, evaluates the financial strength of the indicated
affiliated corporations, commercial banks, insurance companies, foreign
governments or other entities, but only as one factor in the total rating
assessment.
Standard & Poor's Corporation
A brief description of the applicable Standard & Poor's rating symbols for
investment grade commercial paper and their meanings follows:
A Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2, and 3 to indicate the relative degree of safety.
A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined
to possess overwhelming safety characteristics will be denoted with a
plus (+) sign designation.
A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated "A-1."
A-3 Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
LEGAL COUNSEL
Sutherland, Asbill & Brennan LLP, 1275 Pennsylvania Avenue, N.W., Washington,
D.C. 20004, serves as counsel to the Trust and certain of its affiliates.
FINANCIAL STATEMENTS
MEMBERS Mutual Funds
Statements of Assets and Liabilities
November 10, 1997
<TABLE>
<CAPTION>
Cash High Growth and Capital Inter-
Reserves Bond Balanced Income Income Appreciation national
Fund Fund Fund Fund Fund Fund Stock Fund
ASSETS:
<S> <C> <C> <C> <C> <C> <C> <C>
Cash .......................... $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000
Deferred organizational expenses
and offering costs (Note 1).... 66,951 66,951 66,951 66,951 66,951 66,951 66,951
Total Assets ............. 116,951 116,951 116,951 116,951 116,951 116,951 116,951
LIABILITIES:
Payable due to Investment
Adviser for reimbursement of
organization expenses
and offering costs (Note 1).... 66,951 66,951 66,951 66,951 66,951 66,951 66,951
NET ASSETS : ....................... $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000
NET ASSETS :
Class A Shares ................ $49,000 $49,000 $49,000 $49,000 $49,000 $49,000 $49,000
Class B Shares ................ $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000
NET ASSETS : ....................... $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000
SHARES OF BENEFICIAL
INTEREST OUTSTANDING:
Class A Shares ................ 49,000 4,900 4,900 4,900 4,900 4,900 4,900
Class B Shares ................ 1,000 100 100 100 100 100 100
CLASS A SHARES:
Net asset value per share of
beneficial interest outstanding* ... $1.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
CLASS B SHARES:
Net asset value and offering price
per share of beneficial interest* .. $1.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
- ----------------------
<FN>
* Redemption price is equal to NAV less any applicable CDSC.
</FN>
</TABLE>
NOTES TO STATEMENTS OF ASSETS AND LIABILITIES
1. Organization
MEMBERS Mutual Funds, a Delaware Business Trust (the "Trust"), is registered
under the Investment Company Act of 1940, as amended (the "1940 Act") as an
open-end, diversified management investment company. As of the date of this
report, the Trust offers seven Portfolios (individually, a "Portfolio",
collectively, the "Portfolios") each with two classes of shares: Class A and
Class B. Each class of shares represents interests in the assets of the
Portfolio and have identical voting, dividend, liquidation and other rights on
the same terms and conditions, except that each class of shares bears its own
distribution fees and its proportional share of fund level expenses, is subject
to its own sales charges, if any, and has exclusive voting rights on matters
pertaining to the Rule 12b-1 plan as it relates to that class. The accompanying
financial statements include the Cash Reserves Fund, Bond Fund, Balanced Fund,
High Income Fund, Growth and Income Fund, Capital Appreciation Fund and
International Stock Fund. The Trust has had no operations other than
organizational matters and the issuance of 4,900 Class A and 100 Class B Shares
of each of the Portfolios except for the Cash Reserve Fund which issued 49,000
Class A and 1,000 Class B Shares.
Costs incurred by the Portfolios in connection with its organization and the
initial offering of its shares are estimated to be $66,951 for each Portfolio.
The organizational costs will be deferred and amortized on a straight-line basis
over the period of benefit not to exceed sixty months from the date upon which
each Portfolio commences its investment operations. If any of the initial shares
are redeemed during the amortization period by any holder thereof, the
redemption proceeds will be reduced by a pro rata portion of the then
unamortized organization costs.
2. Agreements and Transactions with Affiliates
The Trust has entered into an Investment Advisory Agreement with CIMCO (the
"Investment Adviser"). For its investment advisory services to the Portfolios,
CIMCO is entitled to receive a fee, which is calculated daily and paid monthly,
at an annual rate based upon the following percentages of average daily net
asset value: 0.40% for the Cash Reserves Fund; 0.50% for the Bond Fund; 0.65%
for the Balanced Fund; 0.55% for the High Income Fund and Growth and Income
Fund; 0.75% for the Capital Appreciation Fund and 1.05% for the International
Stock Fund. The Manager has entered into Sub-Adviser Agreements for the
management of the investments of the High Income Fund and the International
Stock Fund. The Manager is solely responsible for the payment of all fees to the
Sub Advisers. The Sub-Advisers for these funds are Massachusetts Financial
Services Company for the High Income Fund and Lazard Asset Management and IAI
International Limited for the International Stock Fund.
The Investment Adviser voluntarily agrees to waive a portion of its fees and to
reimburse the Funds for certain expenses so that total expenses will not exceed
certain expense limitations. The Investment Adviser at its discretion, may
revise or discontinue the voluntary fee waivers and expense reimbursements at
any time. The Investment Adviser has agreed to waive fees and /or reimburse
expenses with respect to the Funds in order that total expenses will not exceed
the following amounts:
Fund Class A Class B
- ---- ------- -------
Cash Reserves Fund 0.55% 1.30%
Bond Fund 0.90% 1.65%
Balanced Fund 1.10% 1.85%
High Income Fund 1.00% 1.75%
Growth and Income Fund 1.00% 1.75%
Capital Appreciation Fund 1.20% 1.95%
International Stock Fund 1.60% 2.35%
Any reimbursements made by the Investment Adviser to a fund are subject to
repayment by the fund within the subsequent eighteen months, to the extent that
the fund is able to make the repayment within its expense cap.
The Trust and First Data Investor Services Group, Inc. ("Investor Services
Group"), which is a wholly-owned subsidiary of First Data Corporation, are
parties to an administration agreement under which First Data Investor Services
Group provides services for a fee, calculated daily and paid monthly, at the
annual rate of 0.15% of the first $500 million of the combined daily net assets
of the Portfolios, 0.12% of the next $500 million of combined average daily net
assets and 0.09% of combined average daily net assets over $1 billion. In
addition, Investor Services Group also provides certain fund accounting and
transfer agency services.
CUNA Brokerage serves as distributor of the Funds. The Trust adopted
Distribution Plans with respect to the Trust's Class A and Class B shares
pursuant to Rule 12b-1 under the 1940 Act (the "Plans"). Under the Plans, the
Trust will pay service fees for Class A and Class B shares at an aggregate
annual rate of 0.25% of each Fund's daily net assets attributable to the
respective class of shares. The Trust will also pay distribution fees for Class
B shares at an aggregate annual rate of 0.75% of each Fund's daily net assets
attributable to Class B. The distribution fees will be used to reimburse CUNA
Brokerage for its distribution expenses with respect to Class B shares only,
including but not limited to: (i) initial and ongoing sales compensation to
Selling Brokers and others engaged in the sale of Fund shares, (ii) marketing,
promotional and overhead expenses incurred in connection with the distribution
of Fund shares, and (iii) interest expenses on unreimbursed distribution
expenses. The service fees will be used to compensate Selling Brokers and others
for providing personal and account maintenance services to shareholders.
3. Use of Estimates in the preparation of the Statement of Assets and
Liabilities
The preparation of the Statement of Assets and Liabilities in conformity with
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. Actual results differ from those
estimates.
Independent Auditors' Report
The Shareholder and Board of Directors of
MEMBERS Mutual Funds:
We have audited the accompanying statements of assets and liabilities of Cash
Reserves Fund, Bond Fund, Balanced Fund, High Income Fund, Growth and Income
Fund, Capital Appreciation Fund and International Stock Fund, series within
MEMBERS Mutual Funds, as of November 10, 1997. These financial statements are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit of a financial statement includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statement. Our procedures included confirmation of cash owned with the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the statements of assets and liabilities referred to above
present fairly, in all material respects, the financial position of Cash
Reserves Fund, Bond Fund, Balanced Fund, High Income Fund, Growth and Income
Fund, Capital Appreciation Fund and International Stock Fund as of November 10,
1997, in conformity with generally accepted principles.
Minneapolis, Minnesota
November 10, 1997
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Included in Part A (Prospectus)
N/A
(2) Included in Part B (Statement of Additional Information)
Statements of Assets and Liabilities, as of November 10, 1997
Notes to Statements of Assets and Liabilities
Independent Auditors' Report
(b) Exhibits
(1) Declaration of Trust incorporated herein by reference to
Registration Statement on Form N-1A (333-25511) filed on June 19,
1997.
(2) N/A
(3) N/A
(4) N/A
(5)(a) Investment Management Agreement with CIMCO Inc. incorporated
herein by reference to Registration Statement on Form N-1A
(333-25511) filed on September 17, 1997.
(5)(b) Investment Sub-Advisory Agreement with Massachusetts Financial
Services Company incorporated herein by reference to Registration
Statement on Form N-1A (333-25511) filed on September 17, 1997.
(5)(c) Investment Sub-Advisory Agreement with IAI International Limited
incorporated herein by reference to Registration Statement on Form
N-1A (333-25511) filed on September 17, 1997.
(5)(d) Investment Sub-Advisory Agreement with Lazard Asset Management
incorporated herein by reference to Registration Statement on Form
N-1A (333-25511) filed on September 17, 1997.
(6) Distribution Agreement with CUNA Brokerage Services, Inc.
incorporated herein by reference to Registration Statement on Form
N-1A (333-25511) filed on September 17, 1997.
(7) N/A
(8) Custody Agreement with State Street Bank and Trust Company.
(9)(a) Administration Agreement with First Data Investors Services Group,
Inc.
(9)(b) Transfer Agency and Services Agreement with First Data Investors
Services Group, Inc.
(10) Opinion and Consent of Sutherland, Asbill & Brennan LLP.
(11) Consent of KPMG Peat Marwick LLP.
(12) N/A
(13)(a)Subscription Agreement with CUNA Mutual Insurance Society.
(13)(b)Subscription Agreement with CUNA Mutual Life Insurance Company.
(14) N/A
(15)(a)Distribution Plan for Class A Shares incorporated herein by
reference to Registration Statement on Form N-1A (333-25511) filed
on September 17, 1997.
(15)(b)Distribution Plan for Class B Shares incorporated herein by
reference to Registration Statement on Form N-1A (333-25511) filed
on September 17, 1997.
(16) Schedule for Computation of Performance Quotations.
(17) N/A
(18) Plan of Multiple Classes of Shares
(19) Powers of Attorney incorporated herein by reference to
Registration Statement on Form N-1A (333-25511) filed on September
17, 1997.
Item 25. Persons Controlled by or Under Common Control With Registrant
See the caption in Part A entitled "MORE ABOUT THE MEMBERS MUTUAL FUNDS" and
Part B "THE INVESTMENT ADVISER" for a description of related parties.
CUNA Mutual Insurance Society is a mutual life insurance company and therefore
is controlled by its contractowners. Various companies and other entities are
controlled by CUNA Mutual Insurance Society and various companies may be
considered to be under common control with CUNA Mutual Insurance Society. Such
other companies and entities, together with the identity of their controlling
persons (where applicable), are set forth in the following organization charts.
In addition, by virtue of an Agreement of Permanent Affiliation with CUNA Mutual
Life Insurance Company, CUNA Mutual Insurance Society could be considered to be
an affiliated person or an affiliated person of an affiliated person of CUNA
Mutual Life Insurance Company. Likewise, CUNA Mutual Life Insurance Company and
its affiliates, together with the identity of their controlling persons (where
applicable), are set forth on the following organization charts. Because CUNA
Mutual Insurance Society and CUNA Mutual Life Insurance Company own CIMCO Inc.,
the investment adviser to the MEMBERS Mutual Funds, each of the entities set
forth below could be considered affiliated persons of the MEMBERS Mutual Funds
or affiliated persons of such affiliated persons.
CUNA Mutual Insurance Society
ORGANIZATIONAL CHART
AS OF OCTOBER 31, 1997
CUNA Mutual Insurance Society
Business: Life, Health & Disability Insurance
May 20, 1935*
State of domicile: Wisconsin
CUNA Mutual Insurance Society, either directly or indirectly is the
controlling company of the following wholly-owned subsidiaries:
1. CUNA Mutual Investment Corporation
Business: Holding Company
September 15, 1972*
State of domicile: Wisconsin
CUNA Mutual Investment Corporation is the owner of the following
subsidiaries:
a. CUMIS Insurance Society, Inc.
Business: Corporate Property/Casualty Insurance
May 23, 1960*
State of domicile: Wisconsin
CUMIS Insurance Society, Inc. is the 100% owner of the
following subsidiary:
(1)Credit Union Mutual Insurance Society New Zealand Ltd.
Business: Fidelity Bond Coverages
November l, 1990*
State of domicile: Wisconsin
b. League General Insurance Company
Business: Individual Property/Casualty
January 1, 1983*
State of domicile: Michigan
c. CUNA Brokerage Services, Inc.
Business: Brokerage
July 19, 1985*
State of domicile: Wisconsin
d. CUNA Mutual General Agency of Texas, Inc.
Business: Managing General Agent
August 14, 1991*
State of domicile: Texas
e. MEMBERS Life Insurance Company
Business: Credit Disability/Life/Health
February 27, 1976*
State of domicile: Wisconsin
Formerly CUMIS Life & CUDIS
f. International Commons, Inc.
Business: Special Events
January 13, 1981 *
State of domicile: Wisconsin
g. CUNA Mortgage Corporation
Business: Mortgage Servicing
November 20, 1978*
State of domicile: Wisconsin
h. Investors Equity Insurance Company, Inc.
Business: Private Mortgage Insurance
April 14, 1994*
State of Domicile: California
i. CUNA Mutual Insurance Agency, Inc.
Business: Leasing/Brokerage
March 1, 1974*
State of domicile: Wisconsin
Formerly CMCI Corporation
CUNA Mutual Insurance Agency, Inc. is the 100% owner of the
following subsidiaries:
(1)CM Field Services, Inc.
Business: Serves Agency Field Staff
January 26,1994*
State of domicile: Wisconsin
(2)CUNA Mutual Insurance Agency of Alabama, Inc.
Business: Property & Casualty Agency
May 27, 1993*
State of domicile: Alabama
(3)CUNA Mutual Insurance Agency of New Mexico, Inc.
Business: Brokerage of Corporate & Personal Lines
June 10, 1993*
State of domicile: New Mexico
(4)CUNA Mutual Insurance Agency of Hawaii, Inc.
Business: Property & Casualty Agency
June 10, 1993*
State of domicile: Hawaii
(5)CUNA Mutual Casualty Insurance Agency of Mississippi, Inc.
Business: Property & Casualty Agency
June 24, 1993 *
State of domicile: Mississippi
(6)CUNA Mutual Insurance Agency of Kentucky, Inc.
Business: Brokerage of Corporate & Personal Lines
October 5, 1994*
State of domicile: Kentucky
(7)CUNA Mutual Insurance Agency of Massachusetts, Inc.
Business: Brokerage of Corporate & Personal Lines
January 27, 1995*
State of domicile: Massachusetts
2. C.U.I.B.S. Pty. Ltd.
Business: Brokerage
February 18,1981 *
Country of domicile: Australia
* Dates shown are dates of acquisition, control or organization.
CUNA Mutual Insurance Society, either directly or through a wholly-owned
subsidiary, has a partial ownership interest in the following:
1. C. U. Family Insurance Services, Inc./Colorado
50% ownership by CUNA Mutual Insurance Agency, Inc.
50% ownership by Colleague Services Corporation
September 1, 1981
2. C. U. Insurance Services, Inc./Oregon
50% ownership by CUNA Mutual Insurance Agency, Inc.
50% ownership by Oregon Credit Union League
December 27, 1989
3. CUFIS of New York, Inc.
50% ownership by CUNA Mutual Insurance Agency, Inc.
50% ownership by CUC Services, Inc.
March 28, 1991
4. The CUMIS Group Limited
63.4% ownership by CUNA Mutual Insurance Society (as of 12-31 -96)
5. CIMCO Inc. (CIMCO)
50% ownership by CUNA Mutual Investment Corporation
50% ownership by CUNA Mutual Life Insurance Company
January 1, 1992
6. Cooperative Savings and Credit Unions Insurance Society "Benefit" SA(Poland)
70.9% ownership by CUNA Mutual Insurance Society
15.3% ownership by CUMIS Insurance Society, Inc.
13.8% ownership by Foundation for Polish Credit Unions
September 1, 1992
7. GWARANT, Ltd.
50% ownership by CUNA Mutual Insurance Society
50% ownership by Foundation for Polish Credit Unions
February 18, 1994
8. CUNA Mutual Insurance Agency of Ohio, Inc.
1% of value owned by Michael Corcoran (CUNA Mutual Employee)
subject to a voting
trust agreement, Michael B. Kitchen as Voting Trustee.
99% of value-owned by CUNA Mutual Insurance Agency, Inc. Due to Ohio
regulations, CUNA Mutual Insurance Agency, Inc. holds no voting stock
in this corporation.
June 14, 1993
9. SECURITY Management Company, Ltd. (Hungary)
90% ownership by CUNA Mutual Insurance Society
10% ownership by: Federation of Savings Cooperatives
Savings Cooperative of Szoreg
Savings Cooperative of Szekkutas
(collectively called Hungarian Associates)
September 5, 1992
10. CMG Mortgage Insurance Company
55% ownership by CUNA Mutual Investment Corporation 45% ownership by PMI
Mortgage Insurance Co.
April 14, 1994
Limited Liability Companies
1. CUNA Mortgage Assistance, L.L.C.
50% interest by CUNA Mortgage Corporation
50% interest by CUNA Service Group, Inc.
November 7, 1995
2. "Sofia LTD." (Ukraine)
99.96% CUNA Mutual Insurance Society
.04% CUMIS Insurance Society, Inc.
March 6, 1996
3. 'FORTRESS' (Ukraine)
80% "Sofia LTD."
19% The Ukrainian National Association of Savings and Credit Unions
1% Service Center by UNASCU
September 25, 1996
Stock Corporation - CUNA Mutual Group owns less than 50%
1. Cooperators Life Assurance Society Limited (Jamaica)
CUNA Mutual Insurance Society owns 122,500 shares
Jamaica Co-op Credit Union League owns 127,500 shares
(NOTE: Awaiting authority to write business)
May 10, 1990
2. CUNA Caribbean Insurance Society Limited (Trinidad and Tobago, W.I.)
47.96% ownership by CUNA Mutual Insurance Society
July 4, 1985
3. CU Interchange Group, Inc.
Owned by CUNA Mutual Investment Corporation, CUNA Service Group and various
state league organizations December 15, 1993 - CUNA Mutual Investment
Corporation purchased 100 shares stock
4. CUNA Service Group, Inc.
April 22, 1974 - CUNA Mutual Insurance Society purchased 200.71 shares
5. "Benevita LKS" (Russia)
49% CUNA Mutual Insurance Society
51 % League of Credit Unions
December 7, 1995
6. Credit Union Service Corporation
Owned by CUNA Mutual Investment Corporation, Credit Union National
Association, Inc. and 18 state league organizations March 29, 1996 - CUNA
Mutual Investment Corporation purchased 1,300,000 shares of stock
Partnerships
1. LeaSo Partners, a California partnership
CUNA Mutual Insurance Society - 50% Partner
California Credit Union League - 50% Partner
December 29, 1981
2. CM CUSO Limited Partnership, a Washington Partnership
CUMIS Insurance Society, Inc. - General Partner
Credit Unions in Washington - Limited Partners
June 14, 1993
Affiliated (Nonstock)
1. NARCUP, Inc.
August 8, 1978
2. CUNA Mutual Group Foundation, Inc.
July 5, 1967
3. CUNA Mutual Life Insurance Company
July 1, 1990
4. Aseguradora Solidaria de Colombia (formerly Seguros UCONAL Lirnitada)
17.2% membership by CUNA Mutual Insurance Society
July 2, 1985
CUNA Mutual Life Insurance Company
ORGANIZATIONAL CHART AS OF OCTOBER 31, 1996
CUNA Mutual Life Insurance Company
An Iowa mutual life insurance company
Fiscal Year End: December 31
CUNA Mutual Life Insurance Company is the controlling company for the
following subsidiaries:
1. Red Fox Motor Hotel Corporation
An Iowa Business Act Corporation.
100% ownership by CUNA Mutual Life Insurance Company
Business: Operation of Red Fox Inn, a motel
Classes of Stock: Common only
Authorized Shares: 1,000 nonpar
Issued Shares: 242.7821
Capital Structure:
Stated capital: $242,782
Add. paid-in: $0
Ret. earn: ($ 14,447)
Total Equity: $257,229
Sole Shareholder: CUNA Mutual Life Insurance Company
Fiscal Year End: December 31
2. CIMCO Inc.
An Iowa Business Act Corporation
50% ownership by CUNA Mutual Life Insurance Company
50% ownership by CUNA Mutual Investment Corporation
Business: Registered investment Advisor
Classes of Stock: Non-assessable
Authorized Shares: 500,000 nonpar
Issued Shares: 100
Capital Structure:
Stated capital: $10,000
Add. paid-in: $520,000
Ret. earn.: $435,660
Total Equity: $965,660
Equal Shareholders: CUNA Mutual Life Insurance Company &
CUNA Mutual Investment Corporation
Fiscal Year End: December 31
CIMCO Inc. is the investment adviser of:
The Ultra Series Fund
A Massachusetts Business Trust
Domiciled in Iowa
Business: Open-end diversified management investment company
offered through insurance contracts
Shareholders: Three separate accounts of CUNA Mutual Life Insurance
Company hold legal title for the
benefit of policy owners.
Principal Underwriter: CUNA Brokerage Services, Inc.
Fiscal Year End: December 31
3. Plan America Program, Inc.
A Maine Business Act Corporation
100% ownership by CUNA Mutual Life Insurance Company
Business: Quasi-public corporation, operating an insurance business
Classes of Stock: Voting common only
Authorized Shares: 5,000 of $ I .00 par
Issued Shares: 100
Capital Structure:
Stated capital: $500
Sole Shareholder: CUNA Mutual Life Insurance Company
Fiscal Year End: December 31
Item 26. Number of Holders of Securities
Number of Record Holders
Fund Class A Class B
Cash Reserves 1 1
Bond 1 1
Balanced 1 1
High Income 1 1
Growth and Income 2 1
Capital Appreciation 2 1
International Stock 2 1
Item 27. Indemnification
As a Delaware business trust, Registrant's operations are governed by its
Declaration of Trust dated May 16, 1997 (the Declaration of Trust). Generally,
Delaware business trust shareholders are not personally liable for obligations
of the Delaware business trust under Delaware law. The Delaware Business Trust
Act (the DBTA) provides that a shareholder of a trust shall be entitled to the
same limitation of liability extended to shareholders of private for-profit
Delaware corporations. Registrant's Declaration of Trust expressly provides that
it has been organized under the DBTA and that the Declaration of Trust is to be
governed by Delaware law. It is nevertheless possible that a Delaware business
trust, such as Registrant, might become a party to an action in another state
whose courts refuse to apply Delaware law, in which case Registrant's
shareholders could be subject to personal liability.
To protect Registrant's shareholders against the risk of personal liability,
the Declaration of Trust: (i) contains an express disclaimer of shareholder
liability for acts or obligations of Registrant and provides that notice of such
disclaimer may be given in each agreement, obligation and instrument entered
into or executed by Registrant or its Trustees; (ii) provides for the
indemnification out of Trust property of any shareholders held personally liable
for any obligations of Registrant or any series of Registrant; and (iii)
provides that Registrant shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of Registrant and satisfy
any judgment thereon. Thus, the risk of a shareholder incurring financial loss
beyond his or her investment because of shareholder liability is limited to
circumstances in which all of the following factors are present: (i) a court
refuses to apply Delaware law; (ii) the liability arose under tort law or, if
not, no contractual limitation of liability was in effect; and (iii) Registrant
itself would be unable to meet its obligations. In the light of Delaware law,
the nature of Registrant's business and the nature of its assets, the risk of
personal liability to a shareholder is remote.
The Declaration of Trust further provides that Registrant shall indemnify
each of its Trustees and officers against liabilities and expenses reasonably
incurred by them, in connection with, or arising out of, any action, suit or
proceeding, threatened against or otherwise involving such Trustee or officer,
directly or indirectly, by reason of being or having been a Trustee or officer
of Registrant. The Declaration of Trust does not authorize Registrant to
indemnify any Trustee or officer against any liability to which he or she would
otherwise be subject by reason of or for willful misfeasance, bad faith, gross
negligence or reckless disregard of such person's duties.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to Trustees, officers and controlling persons, or
otherwise, Registrant has been advised that in the opinion of the Commission
such indemnification may be against public policy as expressed in the Act and
may be, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a Trustee, officer or controlling person of Registrant in
the successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 28. Business and Other Connections of Investment Adviser
The Investment Adviser for the MEMBERS Mutual Fund is CIMCO Inc. See the
caption in Part A entitled "MORE ABOUT THE MEMBERS MUTUAL FUNDS - Portfolio
Management" for a more complete description.
The officers and directors of the Investment Adviser are as follows:
NAME/ADDRESS POSITION HELD
Michael S. Daubs CIMCO Inc.
5910 Mineral Point Rd. President
Madison, WI 53705 1982-Present
Director
1995-Present
CUNA Mutual Insurance Society
Chief Investment Officer
1990-Present
CUNA Mutual Life Insurance Company
Chief Investment Officer
1989-Present
Lawrence R. Halverson CIMCO Inc.
5910 Mineral Point Rd. Senior Vice President and Secretary
Madison, WI 53705 1996-Present
Vice President and Secretary
1992-1996
CUNA Brokerage Services, Inc.
President
1996-Present
Joyce A. Harris CIMCO Inc.
PO Box 7130 Director and Chair
Madison, WI 53707 1992 - Present
Telco Community Credit Union
President, Chief Executive Officer
1978- Present
James C. Hickman CIMCO Inc.
975 University Avenue Director
Madison, WI 53706 1992 - Present
University of Wisconsin
Professor
1972 - Present
Michael B. Kitchen CIMCO Inc.
5910 Mineral Point Rd. Director
Madison, WI 53705 1995 - Present
CUNA Mutual Insurance Society
President and Chief
Executive Officer
1995- Present
CUNA Mutual Life Insurance Company
President and Chief
Executive Officer
1995 - Present
George A. Nelson CIMCO Inc.
PO Box 44965 Director and Vice Chair
Madison, WI 53744 1992 - Present
Evening Telegram Co. - WISC-TV
Vice President
1982 - Present
Item 29. Distributor
a. CUNA Brokerage Services, Inc., a registered broker-dealer, is the
principal Distributor of the shares of the MEMBERS Mutual Funds. CUNA
Brokerage Services, Inc. does not act as principal underwriter,
depositor or investment adviser for any investment company other than
the Registrant, the Ultra Series Fund, CUNA Mutual Life Variable
Account, and CUNA Mutual Life Variable Annuity Account.
b. The officers and directors of CUNA Brokerage Services, Inc. are as
follows:
<TABLE>
<CAPTION>
Name and Principal Position with Positions and Offices
Business Address Distributor with Registrant
<S> <C> <C>
Michael G. Joneson Director None
2000 Heritage Way Secretary and Treasurer
Waverly, IA 50677
John M. Waggoner Chief Legal Officer None
5910 Mineral Point Road
Madison, WI 53705
Campbell D. McHugh Compliance Officer None
5910 Mineral Point Road
Madison, WI 53705
Brian Lasko Managing Principal None
2000 Heritage Way
Waverly, IA 50677
Lawrence R. Halverson Director Trustee and
5910 Mineral Point Road President President
Madison, WI 53705
Marc A. Krasnick Director None
5910 Mineral Point Road Vice President
Madison, WI 53705
Sandra K. Steffeney Vice President None
33320 9th Avenue South
Suite 250
Federal Way, WA 98063-3919
</TABLE>
c. There have been no commissions or other compensation paid by
Registrant to unaffiliated principal underwriters.
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules promulgated thereunder are maintained by:
a. CIMCO Inc.
5910 Mineral Point Road
Madison, Wisconsin 53705
b. CUNA Mutual Insurance Society
5910 Mineral Point Road
Madison, Wisconsin 53705
c. First Data Investors Services Group, Inc.
4400 Computer Drive
Westborough, Massachusetts 01581-5120
d. State Street Bank & Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Inapplicable.
(b) The Registrant hereby undertakes to file a post-effective
amendment, to this registration statement containing reasonably current
financial statements (which need not be audited), within four to six months of
the date this registration statement is declared effective under the 1933 Act.
(c) The Registrant hereby undertakes to furnish, upon request and
without charge, each person to whom a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders.
(d) The Registrant hereby undertakes, if requested to do so by the
holders of at least 10% of the Registrant's outstanding shares, to call a
meeting of shareholders for the purpose of voting upon any question of removal
of a trustee or trustees, and to assist in communications with other
shareholders as required by Section 16(c) of the Investment Company Act of
1940, as amended.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, Registrant, MEMBERS Mutual Funds, has duly caused this
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Madison and State of
Wisconsin, on the 12th day of November, 1997.
MEMBERS MUTUAL FUND
By: Lawrence R. Halverson
Lawrence R. Halverson
Trustee, President and
Principal Executive Officer
<PAGE>
Pursuant to the Securities Act of 1933, this Amendment to the Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
SIGNATURES AND TITLE DATE
Michael S. Daubs November 12, 1997
Michael S. Daubs, Chairman
Lawrence R. Halverson November 12, 1997
Lawrence R. Halverson, Trustee, President
and Principal Executive Officer
Scott R. Powell November 12, 1997
Scott R. Powell, Secretary, Principal
Financial and Accounting Officer
Gwendolyn M. Boeke* November 12, 1997
Gwendolyn M. Boeke, Trustee
Alfred L. Disrud* November 12, 1997
Alfred L. Disrud, Trustee
Keith S. Noah* November 12, 1997
Keith S. Noah, Trustee
Thomas C. Watt* November 12, 1997
Thomas C. Watt, Trustee
*Pursuant to Powers of Attorney
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
(8) Custody Agreement with State Street Bank and Trust Company
(9)(a) Administration Agreement with First Data Investors Services Group, Inc.
(9)(b) Transfer Agency and Services Agreement with First Data Investors
Services Group, Inc.
(10) Opinion and Consent of Sutherland, Asbill & Brennan LLP.
(11) Consent of KPMG Peat Marwick LLP.
(13) (a) Subscription Agreement with CUNA Mutual Insurance Society.
(13) (b) Subscription Agreement with CUNA Mutual Life Insurance Company.
(16) Schedule for Computation of Performance Quotations.
(18) Plan for Multiple Classes of Shares.
<PAGE>
EXHIBIT 8
CUSTODIAN AGREEMENT
This Agreement between MEMBERS MUTUAL FUNDS, a business trust organized
and existing under the laws of the state of Delaware with its principal place of
business at 5910 Mineral Point Road, Madison, Wisconsin (the "Fund"), and STATE
STREET BANK AND TRUST COMPANY, a Massachusetts trust company with its principal
place of business at 225 Franklin Street, Boston, Massachusetts 02110 (the
"Custodian"),
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends that this Agreement be initially applicable
to seven series, The Strategic Reserves Fund, The Conservative Bond Fund, The
Conservative Balanced Fund, The High Income Fund, The Growth and Income Stock
Fund, The Capital Appreciation Fund, and The International Stock Fund (such
series together with all other series subsequently established by the Fund and
made subject to this Agreement in accordance with Section 18, be referred to
herein as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
SECTION 1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Fund's
Declaration of Trust. The Fund on behalf of the Portfolio(s) agrees to deliver
to the Custodian all securities and cash of the Portfolios, and all payments of
income, payments of principal or capital distributions received by it with
respect to all securities owned by the Portfolio(s) from time to time, and the
cash consideration received by it for such new shares of beneficial interest of
the Fund representing interests in the Portfolios ("Shares") as may be issued or
sold from time to time. The Custodian shall not be responsible for any property
of a Portfolio held or received by the Portfolio and not delivered to the
Custodian.
<PAGE>
Upon receipt of "Proper Instructions" (as such term is defined in
Section 6 hereof), the Custodian shall on behalf of the applicable Portfolio(s)
from time to time employ one or more sub-custodians located in the United
States, but only in accordance with an applicable vote by the Board of Trustees
of the Fund (the "Board of Trustees") on behalf of the applicable Portfolio(s),
and provided that the Custodian shall have no more or less responsibility or
liability to the Fund on account of any actions or omissions of any
sub-custodian so employed than any such sub-custodian has to the Custodian. The
Custodian may employ as sub-custodian for the Fund's foreign securities on
behalf of the applicable Portfolio(s) the foreign banking institutions and
foreign securities depositories designated in Schedules A and B hereto but only
in accordance with the applicable provisions of Sections 3 and 4.
SECTION 2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY
THE CUSTODIAN IN THE UNITED STATES
SECTION 2.1 HOLDING SECURITIES. The Custodian shall hold and physically
segregate for the account of each Portfolio all non-cash property, to be held by
it in the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to Section
2.8 in a clearing agency which acts as a securities depository or in a
book-entry system authorized by the U.S. Department of the Treasury (each, a
"U.S. Securities System") and (b) commercial paper of an issuer for which State
Street Bank and Trust Company acts as issuing and paying agent ("Direct Paper")
which is deposited and/or maintained in the Direct Paper System of the Custodian
(the "Direct Paper System") pursuant to Section 2.9.
SECTION 2.2 DELIVERY OF SECURITIES. The Custodian shall release and
deliver domestic securities owned by a Portfolio held by the Custodian or in a
U.S. Securities System account of the Custodian or in the Custodian's Direct
Paper book entry system account ("Direct Paper System Account") only upon
receipt of Proper Instructions on behalf of the applicable Portfolio, which may
be continuing instructions when deemed appropriate by the parties, and only in
the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a U.S. Securities System,
in accordance with the provisions of Section 2.8 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of
the Portfolio or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.7 or into the name or nominee name of any
sub-custodian appointed pursuant to Section 1; or for exchange for
a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
delivered to the Custodian;
7) Upon the sale of such securities for the account of the Portfolio,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom; provided
that in any such case, the Custodian shall have no responsibility
or liability for any loss arising from the delivery of such
securities prior to receiving payment for such securities except
as may arise from the Custodian's own negligence or willful
misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of securities made by
the Portfolio, but only against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Fund on
behalf of the Portfolio, which may be in the form of cash or
obligations issued by the United States government, its agencies
or instrumentalities, except that in connection with any loans for
which collateral is to be credited to the Custodian's account in
the book-entry system authorized by the U.S. Department of the
Treasury, the Custodian will not be held liable or responsible for
the delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by the
Fund on behalf of the Portfolio requiring a pledge of assets by
the Fund on behalf of the Portfolio, but only against receipt of
amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Securities Exchange Act of 1934
(the "Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with the
rules of The Options Clearing Corporation and of any registered
national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian, and a
Futures Commission Merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any Contract Market,
or any similar organization or organizations, regarding account
deposits in connection with transactions by the Portfolio of the
Fund;
14) Upon receipt of instructions from the transfer agent for the Fund
(the "Transfer Agent") for delivery to such Transfer Agent or to
the holders of Shares in connection with distributions in kind, as
may be described from time to time in the currently effective
prospectus and statement of additional information of the Fund
related to the Portfolio (the "Prospectus"), in satisfaction of
requests by holders of Shares for repurchase or redemption; and
15) For any other proper trust purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a copy of a resolution of the Board of
Trustees or of the Executive Committee thereof signed by an
officer of the Fund and certified by the Secretary or an Assistant
Secretary thereof (a "Certified Resolution"), specifying the
securities of the Portfolio to be delivered, setting forth the
purpose for which such delivery is to be made, declaring such
purpose to be a proper trust purpose, and naming the person or
persons to whom delivery of such securities shall be made.
SECTION 2.3 REGISTRATION OF SECURITIES. Domestic securities held by the
Custodian (other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the Portfolio
or of any nominee of the Custodian which nominee shall be assigned exclusively
to the Portfolio, unless the Fund has authorized in writing the appointment of a
nominee to be used in common with other registered investment companies having
the same investment adviser as the Portfolio, or in the name or nominee name of
any agent appointed pursuant to Section 2.7 or in the name or nominee name of
any sub-custodian appointed pursuant to Section 1. All securities accepted by
the Custodian on behalf of the Portfolio under the terms of this Agreement shall
be in "street name" or other good delivery form. If, however, the Fund directs
the Custodian to maintain securities in "street name", the Custodian shall
utilize its best efforts only to timely collect income due the Fund on such
securities and to notify the Fund on a best efforts basis only of relevant
corporate actions including, without limitation, pendency of calls, maturities,
tender or exchange offers.
SECTION 2.4 BANK ACCOUNTS. The Custodian shall open and maintain a
separate bank account or accounts in the United States in the name of each
Portfolio of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Agreement, and shall hold in such account or
accounts, subject to the provisions hereof, all cash received by it from or for
the account of the Portfolio, other than cash maintained by the Portfolio in a
bank account established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940, as amended (the "1940 Act"). Funds held by the
Custodian for a Portfolio may be deposited by it to its credit as Custodian in
the Banking Department of the Custodian or in such other banks or trust
companies as it may in its discretion deem necessary or desirable; provided,
however, that every such bank or trust company shall be qualified to act as a
custodian under the 1940 Act and that each such bank or trust company and the
funds to be deposited with each such bank or trust company shall on behalf of
each applicable Portfolio be approved by vote of a majority of the Board of
Trustees. Such funds shall be deposited by the Custodian in its capacity as
Custodian and shall be withdrawable by the Custodian only in that capacity.
SECTION 2.5 COLLECTION OF INCOME. Subject to the provisions of Section
2.3, the Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which each
Portfolio shall be entitled either by law or pursuant to custom in the
securities business, and shall collect on a timely basis all income and other
payments with respect to bearer domestic securities if, on the date of payment
by the issuer, such securities are held by the Custodian or its agent thereof
and shall credit such income, as collected, to such Portfolio's custodian
account. Without limiting the generality of the foregoing, the Custodian shall
detach and present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest when due on
securities held hereunder. Income due each Portfolio on securities loaned
pursuant to the provisions of Section 2.2 (10) shall be the responsibility of
the Fund. The Custodian will have no duty or responsibility in connection
therewith, other than to provide the Fund with such information or data as may
be necessary to assist the Fund in arranging for the timely delivery to the
Custodian of the income to which the Portfolio is properly entitled.
SECTION 2.6 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions
on behalf of the applicable Portfolio, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall pay out monies of a
Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the 1940 Act
to act as a custodian and has been designated by the Custodian
as its agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
U.S. Securities System, in accordance with the conditions set
forth in Section 2.8 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.9; (d) in the case of
repurchase agreements entered into between the Fund on behalf
of the Portfolio and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against delivery
of the securities either in certificate form or through an
entry crediting the Custodian's account at the Federal Reserve
Bank with such securities or (ii) against delivery of the
receipt evidencing purchase by the Portfolio of securities
owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from
the Portfolio or (e) for transfer to a time deposit account of
the Fund in any bank, whether domestic or foreign; such
transfer may be effected prior to receipt of a confirmation
from a broker and/or the applicable bank pursuant to Proper
Instructions from the Fund as defined herein;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued as set forth
in Section 5 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares declared pursuant
to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper trust purpose, but only upon receipt of,
in addition to Proper Instructions from the Fund on behalf of
the Portfolio, a copy of a Certified Resolution specifying the
amount of such payment, setting forth the purpose for which
such payment is to be made, declaring such purpose to be a
proper trust purpose, and naming the person or persons to whom
such payment is to be made.
SECTION 2.7 APPOINTMENT OF AGENTS. The Custodian may at any time or
times in its discretion appoint (and may at any time remove) any other bank or
trust company which is itself qualified under the 1940 Act to act as a
custodian, as its agent to carry out such of the provisions of this Section 2 as
the Custodian may from time to time direct; provided, however, that the
appointment of any agent shall not relieve the Custodian of its responsibilities
or liabilities hereunder.
SECTION 2.8 DEPOSIT OF FUND ASSETS IN U.S. SECURITIES SYSTEMS. The
Custodian may deposit and/or maintain securities owned by a Portfolio in a
clearing agency registered with the United States Securities and Exchange
Commission (the "SEC") under Section 17A of the Exchange Act , which acts as a
securities depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively referred
to herein as "U.S. Securities System" in accordance with applicable Federal
Reserve Board and SEC rules and regulations, if any, and subject to the
following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are
represented in an account of the Custodian in the U.S.
Securities System (the "U.S. Securities System Account") which
account shall not include any assets of the Custodian other
than assets held as a fiduciary, custodian or otherwise for
customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System
shall identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from the
U.S. Securities System that such securities have been
transferred to the U.S. Securities System Account, and (ii)
the making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of the
Portfolio. The Custodian shall transfer securities sold for
the account of the Portfolio upon (i) receipt of advice from
the U.S. Securities System that payment for such securities
has been transferred to the U.S. Securities System Account,
and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account
of the Portfolio. Copies of all advices from the U.S.
Securities System of transfers of securities for the account
of the Portfolio shall identify the Portfolio, be maintained
for the Portfolio by the Custodian and be provided to the Fund
at its request. Upon request, the Custodian shall furnish the
Fund on behalf of the Portfolio confirmation of each transfer
to or from the account of the Portfolio in the form of a
written advice or notice and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction sheets
reflecting each day's transactions in the U.S. Securities
System for the account of the Portfolio;
4) The Custodian shall provide the Fund with any report obtained
by the Custodian on the U.S. Securities System's accounting
system, internal accounting control and procedures for
safeguarding securities deposited in the U.S. Securities
System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case
may be, required by Section 15 hereof;
6) Anything to the contrary in this Agreement notwithstanding,
the Custodian shall be liable to the Fund for the benefit of
the Portfolio for any loss or damage to the Portfolio
resulting from use of the U.S. Securities System by reason of
any negligence, misfeasance or misconduct of the Custodian or
any of its agents or of any of its or their employees or from
failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the U.S.
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the U.S. Securities System or any
other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the
Portfolio has not been made whole for any such loss or damage.
SECTION 2.9 FUND ASSETS HELD IN THE CUSTODIAN'S DIRECT PAPER SYSTEM.
The Custodian may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in
the Direct Paper System Account, which account shall not
include any assets of the Custodian other than assets held as
a fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for
the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio, in the form of a written advice or notice,
of Direct Paper on the next business day following such
transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the Direct Paper System for the account
of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal accounting
control as the Fund may reasonably request from time to time.
SECTION 2.10 SEGREGATED ACCOUNT. The Custodian shall upon receipt of
Proper Instructions on behalf of each applicable Portfolio establish and
maintain a segregated account or accounts for and on behalf of each such
Portfolio, into which account or accounts may be transferred cash and/or
securities, including securities maintained in an account by the Custodian
pursuant to Section 2.8 hereof, (i) in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Exchange Act and a member of the NASD (or any
futures commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing Corporation and of
any registered national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Portfolio, (ii) for purposes of segregating cash or
government securities in connection with options purchased, sold or written by
the Portfolio or commodity futures contracts or options thereon purchased or
sold by the Portfolio, (iii) for the purposes of compliance by the Portfolio
with the procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the SEC relating to the maintenance of
segregated accounts by registered investment companies and (iv) for other proper
trust purposes, but only, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the applicable
Portfolio, a copy of a Certified Resolution setting forth the purpose or
purposes of such segregated account and declaring such purpose(s) to be a proper
trust purpose.
SECTION 2.11 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian
shall execute ownership and other certificates and affidavits for all federal
and state tax purposes in connection with receipt of income or other payments
with respect to domestic securities of each Portfolio held by it and in
connection with transfers of securities.
SECTION 2.12 PROXIES. The Custodian shall, with respect to the domestic
securities held hereunder, cause to be promptly executed by the registered
holder of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting materials
and all notices relating to such securities.
SECTION 2.13 COMMUNICATIONS RELATING TO PORTFOLIO SECURITIES. Subject
to the provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without limitation,
pendency of calls and maturities of domestic securities and expirations of
rights in connection therewith and notices of exercise of call and put options
written by the Fund on behalf of the Portfolio and the maturity of futures
contracts purchased or sold by the Portfolio) received by the Custodian from
issuers of the securities being held for the Portfolio. With respect to tender
or exchange offers, the Custodian shall transmit promptly to the Portfolio all
written information received by the Custodian from issuers of the securities
whose tender or exchange is sought and from the party (or his agents) making the
tender or exchange offer. If the Portfolio desires to take action with respect
to any tender offer, exchange offer or any other similar transaction, the
Portfolio shall notify the Custodian at least three business days prior to the
date on which the Custodian is to take such action.
SECTION 3. THE CUSTODIAN AS FOREIGN CUSTODY MANAGER OF THE PORTFOLIOS
SECTION 3.1. DEFINITIONS. The following capitalized terms shall have
the indicated meanings:
"Country Risk" means all factors reasonably related to the systemic risk of
holding Foreign Assets in a particular country including, but not limited to,
such country's political environment; economic and financial infrastructure
(including financial institutions such as any Mandatory Securities Depositories
operating in the country); prevailing or developing custody and settlement
practices; and laws and regulations applicable to the safekeeping and recovery
of Foreign Assets held in custody in that country.
"Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of Rule
17f-5 promulgated under Section 17(f) of the 1940 Act ("Rule 17f-5"), except
that the term does not include Mandatory Securities Depositories.
"Foreign Assets" means any of the Portfolios' investments (including foreign
currencies) for which the primary market is outside the United States and such
cash and cash equivalents as are reasonably necessary to effect the Portfolios'
transactions in such investments.
"Foreign Custody Manager" has the meaning set forth in section (a)(2) of Rule
17f-5.
"Mandatory Securities Depository" means a foreign securities depository or
clearing agency that, either as a legal or practical matter, must be used if the
Fund, on the Portfolios' behalf, determines to place Foreign Assets in a country
outside the United States (i) because required by law or regulation; (ii)
because securities cannot be withdrawn from such foreign securities depository
or clearing agency; or (iii) because maintaining or effecting trades in
securities outside the foreign securities depository or clearing agency is not
consistent with prevailing or developing custodial or market practices.
SECTION 3.2. DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER.
The Fund, by resolution adopted by the Board of Trustees, hereby delegates to
the Custodian with respect to the Portfolios, subject to Section (b) of Rule
17f-5, the responsibilities set forth in this Section 3 with respect to Foreign
Assets of the Portfolios held outside the United States, and the Custodian
hereby accepts such delegation, as Foreign Custody Manager with respect to the
Portfolios.
SECTION 3.3. COUNTRIES COVERED. The Foreign Custody Manager shall be
responsible for performing the delegated responsibilities defined below only
with respect to the countries and custody arrangements for each such country
listed on Schedule A of this Contract, which may be amended from time to time by
the Foreign Custody Manager. The Foreign Custody Manager shall list on Schedule
A the Eligible Foreign Custodians selected by the Foreign Custody Manager to
maintain the assets of the Portfolios. Mandatory Securities Depositories are
listed on Schedule B to this Contract, which may be amended from time to time by
the Foreign Custody Manager. The Foreign Custody Manager will provide amended
versions of Schedules A and B in accordance with Section 3.7 hereof.
Upon the receipt by the Foreign Custody Manager of Proper Instructions
to open an account or to place or maintain Foreign Assets in a country listed on
Schedule A, and the fulfillment by the Fund on behalf of the Portfolios of the
applicable account opening requirements for the country, the Foreign Custody
Manager shall be deemed to have been delegated by the Board of Trustees on
behalf of the Portfolios responsibility as Foreign Custody Manager with respect
to that country and to have accepted such delegation. Following the receipt of
Proper Instructions directing the Foreign Custody Manager to close the account
of a Portfolio with the Eligible Foreign Custodian selected by the Foreign
Custody Manager in a designated country, the delegation by the Board of Trustees
on behalf of the Portfolios to the Custodian as Foreign Custody Manager for that
country shall be deemed to have been withdrawn and the Custodian shall
immediately cease to be the Foreign Custody Manager of the Portfolios with
respect to that country.
The Foreign Custody Manager may withdraw its acceptance of delegated
responsibilities with respect to a designated country upon written notice to the
Fund. Thirty days (or such longer period as to which the parties agree in
writing) after receipt of any such notice by the Fund, the Custodian shall have
no further responsibility as Foreign Custody Manager to the Fund with respect to
the country as to which the Custodian's acceptance of delegation is withdrawn.
SECTION 3.4. SCOPE OF DELEGATED RESPONSIBILITIES.
3.4.1. Selection of Eligible Foreign Custodians. Subject to the
provisions of this Section 3, the Portfolios' Foreign Custody Manager may place
and maintain the Foreign Assets in the care of the Eligible Foreign Custodian
selected by the Foreign Custody Manager in each country listed on Schedule A, as
amended from time to time.
In performing its delegated responsibilities as Foreign Custody Manager
to place or maintain Foreign Assets with an Eligible Foreign Custodian, the
Foreign Custody Manager shall determine that the Foreign Assets will be subject
to reasonable care, based on the standards applicable to custodians in the
country in which the Foreign Assets will be held by that Eligible Foreign
Custodian, after considering all factors relevant to the safekeeping of such
assets, including, without limitation:
(i) the Eligible Foreign Custodian's practices, procedures, and
internal controls, including, but not limited to, the physical
protections available for certificated securities (if
applicable), its methods of keeping custodial records, and its
security and data protection practices;
(ii) whether the Eligible Foreign Custodian has the financial
strength to provide reasonable care for Foreign Assets;
(iii) the Eligible Foreign Custodian's general reputation and
standing and, in the case of a foreign securities depository
or clearing agency which is not a Mandatory Securities
Depository, the foreign securities depository's or clearing
agency's operating history and the number of participants in
the foreign securities depository or clearing agency; and
(iv) whether the Fund will have jurisdiction over and be able to
enforce judgments against the Eligible Foreign Custodian, such
as by virtue of the existence of any offices of the Eligible
Foreign Custodian in the United States or the Eligible Foreign
Custodian's consent to service of process in the United
States.
3.4.2. Contracts With Eligible Foreign Custodians. The Foreign Custody
Manager shall determine that the contract (or the rules or established practices
or procedures in the case of an Eligible Foreign Custodian that is a foreign
securities depository or clearing agency) governing the foreign custody
arrangements with each Eligible Foreign Custodian selected by the Foreign
Custody Manager will provide reasonable care for the Foreign Assets held by that
Eligible Foreign Custodian based on the standards applicable to custodians in
the particular country. Each such contract shall include provisions that
provide:
(i) for indemnification or insurance arrangements (or any
combination of the foregoing) such that each Portfolio will be
adequately protected against the risk of loss of the Foreign
Assets held in accordance with such contract;
(ii) that the Foreign Assets will not be subject to any right,
security interest, or lien or claim of any kind in favor of
the Eligible Foreign Custodian or its creditors except a claim
of payment for their safe custody or administration or, in the
case of cash deposits, liens or rights in favor of creditors
of the Eligible Foreign Custodian arising under bankruptcy,
insolvency, or similar laws;
(iii) that beneficial ownership of the Foreign Assets will be freely
transferable without the payment of money or value other than
for safe custody or administration;
(iv) that adequate records will be maintained identifying the
Foreign Assets as belonging to the applicable Portfolio or as
being held by a third party for the benefit of such Portfolio;
(v) that the independent public accountants for each Portfolio
will be given access to those records or confirmation of the
contents of those records; and
(vi) that the Fund will receive periodic reports with respect to
the safekeeping of the Foreign Assets, including, but not
limited to, notification of any transfer of the Foreign Assets
to or from a Portfolio's account or a third party account
containing the Foreign Assets held for the benefit of the
Portfolio,
or, in lieu of any or all of the provisions set forth in (i) through (vi) above,
such other provisions that the Foreign Custody Manager determines will provide,
in their entirety, the same or greater level of care and protection for the
Foreign Assets as the provisions set forth in (i) through (vi) above, in their
entirety.
3.4.3. Monitoring. In each case in which the Foreign Custody Manager
maintains Foreign Assets with an Eligible Foreign Custodian selected by the
Foreign Custody Manager, the Foreign Custody Manager shall establish a system to
monitor (i) the appropriateness of maintaining the Foreign Assets with such
Eligible Foreign Custodian and (ii) the contract governing the custody
arrangements established by the Foreign Custody Manager with the Eligible
Foreign Custodian. In the event the Foreign Custody Manager determines that the
custody arrangements with an Eligible Foreign Custodian it has selected are no
longer appropriate, the Foreign Custody Manager shall notify the Board of
Trustees in accordance with Section 3.7 hereunder.
SECTION 3.5. GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY. For
purposes of this Section 3, the Board of Trustees shall be deemed to have
considered and determined to accept such Country Risk as is incurred by placing
and maintaining the Foreign Assets in each country for which the Custodian is
serving as Foreign Custody Manager of the Portfolios. The Fund, on behalf of the
Portfolios, and the Custodian each expressly acknowledge that the Foreign
Custody Manager shall not be delegated any responsibilities under this Section 3
with respect to Mandatory Securities Depositories.
SECTION 3.6. STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF THE
PORTFOLIOS. In performing the responsibilities delegated to it, the Foreign
Custody Manager agrees to exercise reasonable care, prudence and diligence such
as a person having responsibility for the safekeeping of assets of management
investment companies registered under the 1940 Act would exercise.
SECTION 3.7. REPORTING REQUIREMENTS. The Foreign Custody Manager shall
report the withdrawal of the Foreign Assets from an Eligible Foreign Custodian
and the placement of such Foreign Assets with another Eligible Foreign Custodian
by providing to the Board of Trustees amended Schedules A or B at the end of the
calendar quarter in which an amendment to either Schedule has occurred. The
Foreign Custody Manager shall make written reports notifying the Board of
Trustees of any other material change in the foreign custody arrangements of the
Portfolios described in this Article 3 after the occurrence of the material
change.
SECTION 3.8. REPRESENTATIONS WITH RESPECT TO RULE 17f-5. The Foreign
Custody Manager represents to the Fund that it is a U.S. Bank as defined in
section (a)(7) of Rule 17f-5. The Fund represents to the Custodian that the
Board of Trustees has determined that it is reasonable for the Board of Trustees
to rely on the Custodian to perform the responsibilities delegated pursuant to
this Agreement to the Custodian as the Foreign Custody Manager of the
Portfolios.
SECTION 3.9. EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN
CUSTODY MANAGER. The Board of Trustees' delegation to the Custodian as Foreign
Custody Manager of the Portfolios shall be effective as of the date of execution
of this Agreement and shall remain in effect until terminated at any time,
without penalty, by written notice from the terminating party to the
non-terminating party. Termination will become effective thirty (30) days after
receipt by the non-terminating party of such notice. The provisions of Section
3.3 hereof shall govern the delegation to and termination of the Custodian as
Foreign Custody Manager of the Portfolios with respect to designated countries.
SECTION 4. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE PORTFOLIOS
HELD OUTSIDE OF THE UNITED STATES
SECTION 4.1 DEFINITIONS. Capitalized terms in this Section 4 shall have
the following meanings:
"Foreign Securities System" means either a clearing agency or a securities
depository listed on Schedule A hereto or a Mandatory Securities Depository
listed on Schedule B hereto.
"Foreign Sub-Custodian" means a foreign banking institution serving as an
Eligible Foreign Custodian or a Permissible Foreign Custodian.
"Permissible Foreign Custodian" means any person with whom property of the
Portfolios may be placed and maintained outside of the United States under (i)
section 17(f) or 26(a) of the 1940 Act without regard to Rule 17f-5 or (ii) an
order of the SEC.
SECTION 4.2. HOLDING SECURITIES. The Custodian shall identify on its
books as belonging to the Portfolios the foreign securities held by each Foreign
Sub-Custodian or Foreign Securities System. The Custodian may hold foreign
securities for all of its customers, including the Portfolios, with any Foreign
Sub-Custodian in an account that is identified as belonging to the Custodian for
the benefit of its customers, provided however, that (i) the records of the
Custodian with respect to foreign securities of the Portfolios which are
maintained in such account shall identify those securities as belonging to the
Portfolios and (ii) the Custodian shall require that securities so held by the
Foreign Sub-Custodian be held separately from any assets of such Foreign
Sub-Custodian or of other customers of such Foreign Sub-Custodian.
SECTION 4.3. FOREIGN SECURITIES SYSTEMS. Foreign securities shall be
maintained in a Foreign Securities System in a designated country only through
arrangements implemented by the Foreign Sub-Custodian in such country pursuant
to the terms of this Agreement.
SECTION 4.4. HOLDING OF FOREIGN ASSETS WITH PERMISSIBLE FOREIGN
CUSTODIANS. Subject to the requirements of Sections 17(f) and 26(a) of the 1940
Act (and any other applicable law or order), the Custodian may place and
maintain Foreign Assets (as such term is defined in Section 3 hereof) in the
care of any Permissible Foreign Custodian. Section 3 hereof shall not apply to
placement of Foreign Assets by the Custodian with a Permissible Custodian.
SECTION 4.5. TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.
4.5.1. Delivery of Foreign Securities. The Custodian or a Foreign
Sub-Custodian shall release and deliver foreign securities of the Portfolios
held by such Foreign Sub-Custodian, or in a Foreign Securities System account,
only upon receipt of Proper Instructions, which may be continuing instructions
when deemed appropriate by the parties, and only in the following cases:
(i) upon the sale of such foreign securities for the Portfolios in
accordance with reasonable market practice in the country
where such foreign securities are held or traded, including,
without limitation: (A) delivery against expectation of
receiving later payment; or (B) in the case of a sale effected
through a Foreign Securities System in accordance with the
rules governing the operation of the Foreign Securities
System;
(ii) in connection with any repurchase agreement related to foreign
securities;
(iii) to the depository agent in connection with tender or other
similar offers for foreign securities of the Portfolios;
(iv) to the issuer thereof or its agent when such foreign
securities are called, redeemed, retired or otherwise become
payable;
(v) to the issuer thereof, or its agent, for transfer into the
name of the Custodian (or the name of the respective Foreign
Sub-Custodian or of any nominee of the Custodian or such
Foreign Sub-Custodian) or for exchange for a different number
of bonds, certificates or other evidence representing the same
aggregate face amount or number of units;
(vi) to brokers, clearing banks or other clearing agents for
examination or trade execution in accordance with market
custom; provided that in any such case the Foreign
Sub-Custodian shall have no responsibility or liability for
any loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise from
the Foreign Sub-Custodian's own negligence or willful
misconduct;
(vii) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
(viii) in the case of warrants, rights or similar foreign securities,
the surrender thereof in the exercise of such warrants, rights
or similar securities or the surrender of interim receipts or
temporary securities for definitive securities;
(ix) or delivery as security in connection with any borrowings by
the Portfolios requiring a pledge of assets by the Portfolios;
(x) in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
(xi) in connection with the lending of foreign securities; and
(xii) for any other proper trust purpose, but only upon receipt of,
in addition to Proper Instructions, a copy of a Certified
Resolution specifying the foreign securities to be delivered,
setting forth the purpose for which such delivery is to be
made, declaring such purpose to be a proper trust purpose, and
naming the person or persons to whom delivery of such
securities shall be made.
4.5.2. Payment of Portfolio Monies. Upon receipt of Proper
Instructions, which may be continuing instructions when deemed appropriate by
the parties, the Custodian shall pay out, or direct the respective Foreign
Sub-Custodian or the respective Foreign Securities System to pay out, monies of
a Portfolio in the following cases only:
(i) upon the purchase of foreign securities for the Portfolio,
unless otherwise directed by Proper Instructions, by (A)
delivering money to the seller thereof or to a dealer therefor
(or an agent for such seller or dealer) against expectation of
receiving later delivery of such foreign securities; or (B) in
the case of a purchase effected through a Foreign Securities
System, in accordance with the rules governing the operation
of such Foreign Securities System;
(ii) in connection with the conversion, exchange or surrender of
foreign securities of the Portfolio;
(iii) for the payment of any expense or liability of the Portfolio,
including but not limited to the following payments: interest,
taxes, investment advisory fees, transfer agency fees, fees
under this Agreement, legal fees, accounting fees, and other
operating expenses;
(iv) for the purchase or sale of foreign exchange or foreign
exchange contracts for the Portfolio, including transactions
executed with or through the Custodian or its Foreign
Sub-Custodians;
(v) in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
(vii) in connection with the borrowing or lending of foreign
securities; and
(viii) for any other proper trust purpose, but only upon receipt of,
in addition to Proper Instructions, a copy of a Certified
Resolution specifying the amount of such payment, setting
forth the purpose for which such payment is to be made,
declaring such purpose to be a proper trust purpose, and
naming the person or persons to whom such payment is to be
made.
4.5.3. Market Conditions. Notwithstanding any provision of this
Agreement to the contrary, settlement and payment for Foreign Assets received
for the account of the Portfolios and delivery of Foreign Assets maintained for
the account of the Portfolios may be effected in accordance with the customary
established securities trading or processing practices and procedures in the
country or market in which the transaction occurs, including, without
limitation, delivering Foreign Assets to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) with the expectation of
receiving later payment for such Foreign Assets from such purchaser or dealer.
SECTION 4.6. REGISTRATION OF FOREIGN SECURITIES. The foreign securities
maintained in the custody of a Foreign Custodian (other than bearer securities)
shall be registered in the name of the applicable Portfolio or in the name of
the Custodian or in the name of any Foreign Sub-Custodian or in the name of any
nominee of the foregoing, and the Fund on behalf of such Portfolio agrees to
hold any such nominee harmless from any liability as a holder of record of such
foreign securities. The Custodian or a Foreign Sub-Custodian shall not be
obligated to accept securities on behalf of a Portfolio under the terms of this
Agreement unless the form of such securities and the manner in which they are
delivered are in accordance with reasonable market practice.
SECTION 4.7. BANK ACCOUNTS. A bank account or bank accounts opened and
maintained outside the United States on behalf of a Portfolio with a Foreign
Sub-Custodian shall be subject only to draft or order by the Custodian or such
Foreign Sub-Custodian, acting pursuant to the terms of this Agreement to hold
cash received by or from or for the account of the Portfolio.
SECTION 4.8. COLLECTION OF INCOME. The Custodian shall use reasonable
endeavors to collect all income and other payments in due course with respect to
the Foreign Assets held hereunder to which the Portfolios shall be entitled and
shall credit such income, as collected, to the applicable Portfolio. In the
event that extraordinary measures are required to collect such income, the Fund
and the Custodian shall consult as to such measures and as to the compensation
and expenses of the Custodian relating to such measures.
SECTION 4.9. PROXIES. The Custodian will generally with respect to the
foreign securities held under this Section 4 use its reasonable endeavors to
facilitate the exercise of voting and other shareholder proxy rights, subject
always to the laws, regulations and practical constraints that may exist in the
country where such securities are issued. The Fund acknowledges that local
conditions, including lack of regulation, onerous procedural obligations, lack
of notice and other factors may have the effect of severely limiting the ability
of the Fund to exercise shareholder rights.
SECTION 4.10. COMMUNICATIONS RELATING TO FOREIGN SECURITIES. The
Custodian shall transmit promptly to the Fund written information (including,
without limitation, pendency of calls and maturities of foreign securities and
expirations of rights in connection therewith) received by the Custodian via the
Foreign Sub-Custodians from issuers of the foreign securities being held for the
account of the Portfolios. With respect to tender or exchange offers, the
Custodian shall transmit promptly to the Fund written information so received by
the Custodian from issuers of the foreign securities whose tender or exchange is
sought or from the party (or its agents) making the tender or exchange offer.
The Custodian shall not be liable for any untimely exercise of any tender,
exchange or other right or power in connection with foreign securities or other
property of the Portfolios at any time held by it unless (i) the Custodian or
the respective Foreign Sub-Custodian is in actual possession of such foreign
securities or property and (ii) the Custodian receives Proper Instructions with
regard to the exercise of any such right or power, and both (i) and (ii) occur
at least three (3) business days prior to the date on which such right or power
is to be exercised.
SECTION 4.11. LIABILITY OF FOREIGN SUB-CUSTODIANS AND FOREIGN
SECURITIES SYSTEMS. Each agreement pursuant to which the Custodian employs as a
Foreign Sub-Custodian shall, to the extent possible, require the Foreign
Sub-Custodian to exercise reasonable care in the performance of its duties and,
to the extent possible, to indemnify, and hold harmless, the Custodian from and
against any loss, damage, cost, expense, liability or claim arising out of or in
connection with the Foreign Sub-Custodian's performance of such obligations. At
the Fund's election, the Portfolios shall be entitled to be subrogated to the
rights of the Custodian with respect to any claims against a Foreign
Sub-Custodian as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Portfolios have not been made
whole for any such loss, damage, cost, expense, liability or claim.
SECTION 4.12. TAX LAW. The Custodian shall have no responsibility or
liability for any obligations now or hereafter imposed on the Fund, the
Portfolios or the Custodian as custodian of the Portfolios by the tax law of the
United States or of any state or political subdivision thereof. It shall be the
responsibility of the Fund to notify the Custodian of the obligations imposed on
the Fund with respect to the Portfolios or the Custodian as custodian of the
Portfolios by the tax law of countries other than those mentioned in the above
sentence, including responsibility for withholding and other taxes, assessments
or other governmental charges, certifications and governmental reporting. The
sole responsibility of the Custodian with regard to such tax law shall be to use
reasonable efforts to assist the Fund with respect to any claim for exemption or
refund under the tax law of countries for which the Fund has provided such
information.
SECTION 4.13. CONFLICT. If the Custodian is delegated the
responsibilities of Foreign Custody Manager pursuant to the terms of Section 3
hereof, in the event of any conflict between the provisions of Sections 3 and 4
hereof, the provisions of Section 3 shall prevail.
SECTION 5. PAYMENTS FOR SALES OR REPURCHASES OR REDEMPTIONS OF SHARES
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent and deposit into the account of the appropriate Portfolio
such payments as are received for Shares thereof issued or sold from time to
time by the Fund. The Custodian will provide timely notification to the Fund on
behalf of each such Portfolio and the Transfer Agent of any receipt by it of
payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Fund's Declaration of Trust and any applicable votes of the
Board of Trustees pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares, the Custodian is authorized upon receipt of instructions
from the Transfer Agent to wire funds to or through a commercial bank designated
by the redeeming shareholders. In connection with the redemption or repurchase
of Shares, the Custodian shall honor checks drawn on the Custodian by a holder
of Shares, which checks have been furnished by the Fund to the holder of Shares,
when presented to the Custodian in accordance with such procedures and controls
as are mutually agreed upon from time to time between the Fund and the
Custodian.
SECTION 6. PROPER INSTRUCTIONS
Proper Instructions as used throughout this Agreement means a writing
signed or initialed by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Trustees accompanied
by a detailed description of procedures approved by the Board of Trustees,
Proper Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Board of Trustees and
the Custodian are satisfied that such procedures afford adequate safeguards for
the Portfolios' assets. For purposes of this Section, Proper Instructions shall
include instructions received by the Custodian pursuant to any three - party
agreement which requires a segregated asset account in accordance with Section
2.10.
SECTION 7. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Agreement, provided that all such payments
shall be accounted for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Portfolio except as otherwise directed by the Board of
Trustees.
SECTION 8. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a Certified Resolution as conclusive
evidence (a) of the authority of any person to act in accordance with such
resolution or (b) of any determination or of any action by the Board of Trustees
pursuant to the Fund's Declaration of Trust as described in such resolution, and
such resolution may be considered as in full force and effect until receipt by
the Custodian of written notice to the contrary.
SECTION 9. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND
CALCULATION OF NET ASSET VALUE AND NET INCOME
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees to keep the books of
account of each Portfolio and/or compute the net asset value per Share of the
outstanding Shares or, if directed in writing to do so by the Fund on behalf of
the Portfolio, shall itself keep such books of account and/or compute such net
asset value per Share. If so directed, the Custodian shall also calculate daily
the net income of the Portfolio as described in the Prospectus and shall advise
the Fund and the Transfer Agent daily of the total amounts of such net income
and, if instructed in writing by an officer of the Fund to do so, shall advise
the Transfer Agent periodically of the division of such net income among its
various components. The calculations of the net asset value per Share and the
daily income of each Portfolio shall be made at the time or times described from
time to time in the Prospectus.
SECTION 10. RECORDS
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Agreement in
such manner as will meet the obligations of the Fund under the 1940 Act, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder.
All such records shall be the property of the Fund and shall at all times during
the regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Fund and employees and agents of
the SEC. The Custodian shall, at the Fund's request, supply the Fund with a
tabulation of securities owned by each Portfolio and held by the Custodian and
shall, when requested to do so by the Fund and for such compensation as shall be
agreed upon between the Fund and the Custodian, include certificate numbers in
such tabulations.
SECTION 11. OPINION OF FUND'S INDEPENDENT ACCOUNTANT
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A, and Form N-SAR or other annual reports to the SEC and with respect to
any other requirements thereof.
SECTION 12. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a U.S. Securities System or a Foreign Securities System (collectively
referred to herein as the "Securities Systems"), relating to the services
provided by the Custodian under this Agreement; such reports, shall be of
sufficient scope and in sufficient detail, as may reasonably be required by the
Fund to provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
SECTION 13. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
SECTION 14. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Agreement and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Agreement,
but shall be kept indemnified by and shall be without liability to the Fund for
any action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice. The Custodian shall be
without liability to the Fund and the Portfolios for any loss, liability, claim
or expense resulting from or caused by anything which is (A) part of Country
Risk (as defined in Section 3 hereof), including without limitation
nationalization, expropriation, currency restrictions, or acts of war,
revolution, riots or terrorism, or (B) part of the "prevailing country risk" of
the Portfolios, as such term is used in SEC Release Nos. IC-22658; IS-1080 (May
12, 1997) or as such term or other similar terms are now or in the future
interpreted by the SEC or by the staff of the Division of Investment Management
thereof.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by; (i) events or circumstances beyond
the reasonable control of the Custodian or any sub-custodian or Securities
System or any agent or nominee of any of the foregoing, including, without
limitation, the interruption, suspension or restriction of trading on or the
closure of any securities market, power or other mechanical or technological
failures or interruptions, computer viruses or communications disruptions, work
stoppages, natural disasters, or other similar events or acts; (ii) errors by
the Fund or the Investment Advisor in their instructions to the Custodian
provided such instructions have been in accordance with this Agreement; (iii)
the insolvency of or acts or omissions by a Securities System; (iv) any delay or
failure of any broker, agent or intermediary, central bank or other commercially
prevalent payment or clearing system to deliver to the Custodian's sub-custodian
or agent securities purchased or in the remittance or payment made in connection
with securities sold; (v) any delay or failure of any company, corporation, or
other body in charge of registering or transferring securities in the name of
the Custodian, the Fund, the Custodian's sub-custodians, nominees or agents or
any consequential losses arising out of such delay or failure to transfer such
securities including non-receipt of bonus, dividends and rights and other
accretions or benefits; (vi) delays or inability to perform its duties due to
any disorder in market infrastructure with respect to any particular security or
Securities System; and (vii) any provision of any present or future law or
regulation or order of the United States of America, or any state thereof, or
any other country, or political subdivision thereof or of any court of competent
jurisdiction.
The Custodian shall be liable for the acts or omissions of a Foreign
Sub-Custodian (as defined in Section 4 hereof) to the same extent as set forth
with respect to sub-custodians generally in this Agreement.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement) or
in the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Agreement, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable Portfolio shall
be security therefor and should the Fund fail to repay the Custodian promptly,
the Custodian shall be entitled to utilize available cash and to dispose of such
Portfolio's assets to the extent necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
SECTION 15. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
This Agreement shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than sixty (60) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.8 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees has approved the
initial use of a particular Securities System by such Portfolio, as required by
Rule 17f-4 under the 1940 Act and that the Custodian shall not with respect to a
Portfolio act under Section 2.9 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board of
Trustees has approved the initial use of the Direct Paper System by such
Portfolio; provided further, however, that the Fund shall not amend or terminate
this Agreement in contravention of any applicable federal or state regulations,
or any provision of the Fund's Declaration of Trust, and further provided, that
the Fund on behalf of one or more of the Portfolios may at any time by action of
its Board of Trustees (i) substitute another bank or trust company for the
Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Agreement in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Agreement, the Fund on behalf of each
applicable Portfolio shall pay to the Custodian such compensation as may be due
as of the date of such termination and shall likewise reimburse the Custodian
for its costs, expenses and disbursements.
SECTION 16. SUCCESSOR CUSTODIAN
If a successor custodian for one or more Portfolios shall be appointed
by the Board of Trustees, the Custodian shall, upon termination, deliver to such
successor custodian at the office of the Custodian, duly endorsed and in the
form for transfer, all securities of each applicable Portfolio then held by it
hereunder and shall transfer to an account of the successor custodian all of the
securities of each such Portfolio held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a Certified Resolution, deliver at the office of
the Custodian and transfer such securities, funds and other properties in
accordance with such resolution.
In the event that no written order designating a successor custodian or
Certified Resolution shall have been delivered to the Custodian on or before the
date when such termination shall become effective, then the Custodian shall have
the right to deliver to a bank or trust company, which is a "bank" as defined in
the 1940 Act, doing business in Boston, Massachusetts, or New York, New York, of
its own selection, having an aggregate capital, surplus, and undivided profits,
as shown by its last published report, of not less than $25,000,000, all
securities, funds and other properties held by the Custodian on behalf of each
applicable Portfolio and all instruments held by the Custodian relative thereto
and all other property held by it under this Agreement on behalf of each
applicable Portfolio, and to transfer to an account of such successor custodian
all of the securities of each such Portfolio held in any Securities System.
Thereafter, such bank or trust company shall be the successor of the Custodian
under this Agreement.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the Certified Resolution to appoint a successor
custodian, the Custodian shall be entitled to fair compensation for its services
during such period as the Custodian retains possession of such securities, funds
and other properties and the provisions of this Agreement relating to the duties
and obligations of the Custodian shall remain in full force and effect.
SECTION 17. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Agreement, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Agreement as may in their joint opinion be consistent with the general tenor of
this Agreement. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Fund's Declaration of
Trust. No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Agreement.
SECTION 18. ADDITIONAL FUNDS
In the event that the Fund establishes one or more series of Shares in
addition to The Strategic Reserves Fund, The Conservative Bond Fund, The
Conservative Balanced Fund, The High Income Fund, The Growth and Income Stock
Fund, The Capital Appreciation Stock Fund, and The International Stock Fund with
respect to which it desires to have the Custodian render services as custodian
under the terms hereof, it shall so notify the Custodian in writing, and if the
Custodian agrees in writing to provide such services, such series of Shares
shall become a Portfolio hereunder.
SECTION 19. MASSACHUSETTS LAW TO APPLY
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.
SECTION 20. PRIOR AGREEMENTS
This Agreement supersedes and terminates, as of the date hereof, all
prior Agreements between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
SECTION 21. NOTICES.
Any notice, instruction or other instrument required to be given
hereunder may be delivered in person to the offices of the parties as set forth
herein during normal business hours or delivered prepaid registered mail or by
telex, cable or telecopy to the parties at the following addresses or such other
addresses as may be notified by any party from time to time.
To the Fund: MEMBERS MUTUAL FUNDS
c/o CUNA Mutual Group
5910 Mineral Point Road
Madison, Wisconsin 53705-0391
Attention: Scott Powell
Telephone: (608) 238-8424
Telecopy: (608) 238-2316
To the Custodian: STATE STREET BANK AND TRUST COMPANY
108 Myrtle Street, AHO2
North Quincy, Massachusetts 02171
Attention: Shaun M. Flavin
Telephone: (617) 985-5303
Telecopy: (617) 985-3914
Such notice, instruction or other instrument shall be deemed to have
been served in the case of a registered letter at the expiration of five
business days after posting, in the case of cable twenty-four hours after
dispatch and, in the case of telex, immediately on dispatch and if delivered
outside normal business hours it shall be deemed to have been received at the
next time after delivery when normal business hours commence and in the case of
cable, telex or telecopy on the business day after the receipt thereof. Evidence
that the notice was properly addressed, stamped and put into the post shall be
conclusive evidence of posting.
SECTION 22. REPRODUCTION OF DOCUMENTS
This Agreement and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
all/each agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
SECTION 23. SHAREHOLDER COMMUNICATIONS ELECTION
SEC Rule 14b-2 requires banks which hold securities for the account of
customers to respond to requests by issuers of securities for the names,
addresses and holdings of beneficial owners of securities of that issuer held by
the bank unless the beneficial owner has expressly objected to disclosure of
this information. In order to comply with the rule, the Custodian needs the Fund
to indicate whether it authorizes the Custodian to provide the Fund's name,
address, and share position to requesting companies whose securities the Fund
owns. If the Fund tells the Custodian "no", the Custodian will not provide this
information to requesting companies. If the Fund tells the Custodian "yes" or
does not check either "yes" or "no" below, the Custodian is required by the rule
to treat the Fund as consenting to disclosure of this information for all
securities owned by the Fund or any funds or accounts established by the Fund.
For the Fund's protection, the Rule prohibits the requesting company from using
the Fund's name and address for any purpose other than corporate communications.
Please indicate below whether the Fund consents or objects by checking one of
the alternatives below.
YES [ X ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of October 28, 1997.
MEMBERS MUTUAL FUNDS FUND SIGNATURE ATTESTED TO BY:
By: Scott R. Powell By: Holly S. Baggot
Name: Scott R. Powell Name: Holly S. Baggot
Title: Secretary & Principal Financial Title: Investment Project Mgr.
and Accounting Officer
STATE STREET BANK AND TRUST COMPANY SIGNATURE ATTESTED TO BY:
By: Mark J. Bowler By: Thomas M. Lenz
Name: Mark J. Bowler Name: Thomas M. Lenz
Title: Senior Vice President Title: Vice President
<PAGE>
EXHIBIT (9)(a)
ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT is made as of October 28, 1997 (the
"Agreement"), by and between FIRST DATA INVESTOR SERVICES GROUP, INC., a
Massachusetts corporation ("FDISG"), and MEMBERS Mutual Funds, a Delaware
business trust (the "Company").
WHEREAS, the Company is registered as a diversified open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Company desires to retain FDISG to render certain
administrative services with respect to each investment portfolio listed in
Schedule A hereto, as the same may be amended from time to time by the parties
hereto (collectively, the "Funds"), and FDISG is willing to render such
services;
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Company hereby appoints FDISG to act as Administrator
of the Company on the terms set forth in this Agreement. FDISG accepts such
appointment and agrees to render the services herein set forth for the
compensation herein provided. In the event that the Company decides to retain
FDISG to act as Administrator hereunder with respect to one or more portfolios
other than the Funds, the Company shall notify FDISG in writing. If FDISG is
willing to render such services, it shall notify the Company in writing
whereupon such portfolio shall become a Fund hereunder.
2. Delivery of Documents. The Company has furnished FDISG with copies
properly certified or authenticated of each of the following:
(a) Resolutions of the Company's Board of Trustees authorizing the
appointment of FDISG to provide certain administrative services required by the
Company for each Fund and approving this Agreement;
(b) The Company's Declaration of Trust (the "Declaration of Trust") filed
with the Delaware and all amendments thereto;
(c) The Investment Advisory Agreement between CIMCO Inc. (the "Adviser")
and the Company dated as of October 1, 1997 and all amendments thereto (the
"Advisory Agreement");
(d) The Custody Agreement between State Street Bank and Trust Company
(the "Custodian") and the Company dated as of October 1, 1997 and all amendments
thereto (the "Custody Agreement");
(e) The Transfer Agency and Services Agreement between First Data
Investor Services Group, Inc. (the "Transfer Agent") and the Company dated as of
October 1, 1997 and all amendments thereto;
(f) The Distribution Agreement between CUNA Brokerage Services, Inc. (the
"Distributor") and the Company dated as of October 1, 1997 and all amendments
thereto (the "Distribution Agreement");
(g) The Company's Registration Statement on Form N-1A (the "Registration
Statement") under the Securities Act of 1933 and under the 1940 Act (File Nos.
33-29511 and 811-08261), as declared effective by the Securities and Exchange
Commission ("SEC") relating to shares of the Company's Common Stock; and
(h) Each Fund's most recent prospectus and Statement of Additional
Information and all amendments and supplements thereto (collectively, the
"Prospectuses").
The Company will furnish FDISG from time to time with copies, properly
certified or authenticated, of all amendments of or supplements to the
foregoing. Furthermore, the Company will provide FDISG with any other documents
that FDISG may reasonably request and will notify FDISG as soon as possible of
any matter materially affecting the performance of FDISG of its services under
this Agreement.
3. Duties as Administrator. Subject to the supervision and direction of
the Board of Trustees of the Company, FDISG, as Administrator, will assist in
supervising various aspects of the Company's administrative operations and
undertakes to perform the following specific services in accordance with the
Performance Standards annexed hereto as Schedule E and incorporated herein:
(a) Maintaining office facilities (which may be in the offices of FDISG
or a corporate affiliate) and furnishing corporate officers for the Company;
(b) Accounting and bookkeeping services (including the maintenance of
such accounts, books and records of the Company as may be required by Section
31(a) of the 1940 Act and the rules thereunder);
(c) Internal auditing;
(d) Performing all functions ordinarily performed by the office of a
corporate treasurer, and furnishing the services and facilities ordinarily
incident thereto, including calculating the net asset value of the shares in
conformity with the fund(s) prospectus;
(e) Preparing reports to the Company's shareholders of record and the SEC
including, but not necessarily limited to, Annual Reports and Semi-Annual
Reports for shareholders and all related Form N-SAR;
(f) Preparing and filing various reports or other documents required by
federal, state and other applicable laws and regulations and by stock exchanges
on which the shares of the Company are listed, other than those filed or
required to be filed by the Adviser or Transfer Agent;
(g) Preparing and filing the Company's tax returns;
(h) Assisting the Adviser, at the Adviser's request, in monitoring and
developing compliance procedures for the Company which will include, among other
matters, procedures to assist the Adviser in monitoring compliance with each
Fund's investment objective, policies, restrictions, tax matters and applicable
laws and regulations;
(i) As requested by Company, assist in the performance of functions
ordinarily performed by the office of a corporate secretary, and furnishing the
services and facilities incident thereto, including all functions pertaining to
matters organic to the organization, existence and maintenance of the corporate
franchise of the Company, including preparation for, conduct of, and recording
trustees' meetings and shareholder meetings. Trustees' meetings in excess of
five in any calendar year and shareholder meetings in excess of one in any two
year period shall be for an additional reasonable charge as may be agreed upon
by the Company and FDISG;
(j) Performing "Blue Sky" compliance functions, including
maintaining notice filings, registrations or "Blue Chip" exemptions (if
available) in all U.S. jurisdictions requested by the Company, monitoring sales
of shares in all such jurisdictions and filing such additional notice or
applying for such additional or amended registrations as may be reasonably
anticipated to be necessary to permit continuous sales of the shares of the
Funds in all such jurisdictions, filing sales literature and advertising
materials to the extent required, with such Blue Sky authorities, and making and
filing all other applications, reports, notices, documents and exhibits in
connection with the foregoing; and
(k) Furnishing all other services identified on Schedule B annexed
hereto and incorporated herein which are not otherwise specifically set forth
above.
In performing its duties under this Agreement, FDISG: (a) will act in
accordance with the Declaration of Trust, Prospectuses and with the instructions
and directions of the Company and will conform to and comply with the
requirements of the 1940 Act and all other applicable federal or state laws and
regulations; and (b) will consult with legal counsel to the Company, as
necessary and appropriate. Furthermore, FDISG shall not have or be required to
have any authority to supervise the investment or reinvestment of the securities
or other properties which comprise the assets of the Company or any of its Funds
and shall not provide any investment advisory services to the Company or any of
its Funds.
4. Compensation and Allocation of Expenses. FDISG shall bear all expenses
in connection with the performance of its services under this Agreement, except
as indicated below.
(a) FDISG will from time to time employ or associate with itself
such person or persons as FDISG may believe to be particularly suited to assist
it in performing services under this Agreement. Such person or persons may be
officers and employees who are employed by both FDISG and the Company. The
compensation of such person or persons shall be paid by FDISG and no obligation
shall be incurred on behalf of the Company in such respect.
(b) FDISG shall not be required to pay any of the following
expenses incurred by the Company: membership dues in the Investment Company
Institute or any similar organization; investment advisory expenses; costs of
printing and mailing stock certificates, prospectuses, reports and notices;
interest on borrowed money; brokerage commissions; stock exchange listing fees;
taxes and fees payable to Federal, state and other governmental agencies; fees
of Trustees of the Company who are not affiliated with FDISG; outside auditing
expenses; outside legal expenses; or other expenses not specified in this
Section 4 which may be properly payable by the Company.
(c) The Company on behalf of each of the Funds will compensate
FDISG for the performance of its obligations hereunder and its services under
the Transfer Agency and Services Agreement entered into by the parties and dated
the same date as this Agreement, in accordance with the fees set forth in the
written Joint Fee Agreement annexed hereto as Schedule B and incorporated herein
and subject to the Performance Standards set forth in Schedule E. Schedule B may
be amended to add fee schedules for any additional Funds for which FDISG has
been retained as Administrator and will be renegotiated and amended by mutual
consent of the parties upon other additions or reduction in services under this
Agreement or the Transfer Agency and Services Agreement referred to above.
(d) The Company will compensate FDISG for its services rendered
pursuant to this Agreement in accordance with the fees set forth above. Such
fees do not include out-of-pocket disbursements of FDISG for which FDISG shall
be entitled to bill separately. Out-of-pocket disbursements shall include, but
shall not be limited to, the items specified in Schedule C, annexed hereto and
incorporated herein, which schedule may be modified by FDISG upon not less than
thirty days' prior written notice to the Company and the Special Projects
outlined in Schedule D hereto.
(e) FDISG will bill the Company as soon as practicable after the
end of each calendar month, and said billings will be detailed in accordance
with the out-of-pocket schedule. The Company will pay to FDISG the amount of
such billing by Federal Funds Wire within fifteen (15) business days after the
Company's receipt of said bill. In addition, FDISG may charge a past due service
fee equal to the lesser of (i) one and one half percent (1-1/2%) per month or
(ii) the highest interest rate legally permitted on any past due billed amount.
(f) The Company acknowledges that the fees that FDISG charges the
Company under this Agreement reflect the allocation of risk between the parties,
including the disclaimer of warranties in Section 7 and the limitations on
liability in Section 5. Modifying the allocation of risk from what is stated
here would affect the fees that FDISG charges, and in consideration of those
fees, the Company agrees to the stated allocation of risk.
5. Limitation of Liability.
(a) FDISG shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Company in connection with the
performance of its obligations and duties under this Agreement, except a loss
resulting from FDISG's willful misfeasance, bad faith or negligence in the
performance of such obligations and duties, or by reason of its reckless
disregard thereof.
(b) Notwithstanding any provision in this Agreement to the
contrary, FDISG's cumulative liability (to the Company) for all losses, claims,
suits, controversies, breaches, or damages for any cause whatsoever (including
but not limited to those arising out of or related to this Agreement) and
regardless of the form of action or legal theory shall not exceed the lesser of
(i) $1,000,000 or (ii) the twelve months fees annualized based on the monthly
fees paid to FDISG for the month immediately preceding the occurrence of such
loss or damage; provided, however, that the limitation on liability shall not
apply for losses or damages resulting from gross negligence on the part of
FDISG. The Company understands the limitation on FDISG's damages to be a
reasonable allocation of risk and the Company expressly consents with respect to
such allocation of risk.
(c) Neither party may assert any cause of action against the
other party under this Agreement that accrued more than two (2) years prior to
the filing of the suit (or commencement of arbitration proceedings) alleging
such cause of action.
(d) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY,
IN NO EVENT SHALL FDISG, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE UNDER ANY THEORY OF
TORT, CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR LOST
PROFITS, EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL
DAMAGES, EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES REGARDLESS
OF WHETHER SUCH DAMAGES WERE FORESEEABLE OR WHETHER EITHER PARTY OR ANY ENTITY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
6. Indemnification.
(a) The Company shall indemnify and hold FDISG harmless from and
against any and all claims, costs, expenses (including reasonable attorneys'
fees), losses, damages, charges, payments and liabilities of any sort or kind
which may be asserted against FDISG or for which FDISG may be held to be liable
in connection with this Agreement or FDISG's performance hereunder (a "Claim"),
unless such Claim resulted from a negligent act or omission to act or bad faith
by FDISG in the performance of its duties hereunder.
(b) In any case in which the Company may be asked to indemnify or
hold FDISG harmless, FDISG will notify the Company promptly after identifying
any situation which it believes presents or appears likely to present a claim
for indemnification against the Company and shall keep the Company advised with
respect to all developments concerning such situation. The Company shall have
the option to defend FDISG against any Claim which may be the subject of this
indemnification, and, in the event that the Company so elects, such defense
shall be conducted by counsel chosen by the Company, and thereupon the Company
shall take over complete defense of the Claim and FDISG shall sustain no further
legal or other expenses in respect of such Claim. FDISG will not confess any
Claim or make any compromise in any case in which the Company will be asked to
provide indemnification, except with the Company's prior written consent. The
obligations of the parties hereto under this Section 6 shall survive the
termination of this Agreement.
7. EXCLUSION OF WARRANTIES. THIS IS A SERVICE AGREEMENT. EXCEPT AS
EXPRESSLY PROVIDED IN THIS AGREEMENT, FDISG DISCLAIMS ALL OTHER REPRESENTATIONS
OR WARRANTIES, EXPRESS OR IMPLIED, MADE TO THE FUND OR ANY OTHER PERSON,
INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES REGARDING QUALITY, SUITABILITY,
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE (IRRESPECTIVE OF
ANY COURSE OF DEALING, CUSTOM OR USAGE OF TRADE) OF ANY SERVICES OR ANY GOODS
PROVIDED INCIDENTAL TO SERVICES PROVIDED UNDER THIS AGREEMENT. FDISG DISCLAIMS
ANY WARRANTY OF TITLE OR NON-INFRINGEMENT EXCEPT AS OTHERWISE SET FORTH IN THIS
AGREEMENT.
8. Termination of Agreement.
(a) This Agreement shall be effective on the date first written
above and shall continue for a period of three (3) years (the "Initial Term"),
unless earlier terminated pursuant to the terms of this Agreement. Thereafter,
this Agreement shall automatically be renewed for successive terms of three (3)
year ("Renewal Terms") each; provided, however, that Company may terminate this
Agreement on 180 days' prior written notice at any time after completion of the
Initial Term upon its determination to transfer any or all of the services
provided hereunder by FDISG to a member of the CUNA Mutual Group. CUNA Mutual
Group shall include CUNA Mutual Insurance Society, its permanent affiliate CUNA
Mutual Life Insurance Company, and their subsidiaries and affiliates.
(b) Either party may terminate this Agreement at the end of the
Initial Term or at the end of any subsequent Renewal Term upon not than less
than ninety (90) days or more than one hundred-eighty (180) days prior written
notice to the other party.
(c) This Agreement may be terminated by the Company prior to the
expiration of the Initial Term or any Renewal Term in the event FDISG has failed
to meet the Priority Performance Standards, as set forth and defined in Schedule
E, in three months of any rolling six month period. The Company will provide
FDISG with 60 days' notice in writing after the third month of FDISG's failure
to meet the Performance Standards if the Company intends to exercise this option
under this Section 8(c). Notwithstanding the foregoing, the Company's right
under this Section 8(c) shall not commence until ninety (90) days after FDISG
has begun providing services under this Agreement.
(d) In the event a termination notice is given by the Company,
all expenses associated with movement of records and materials and conversion
thereof will be borne by the Company. Upon termination and as determined by the
Company, transfer of some or all of the services of FDISG hereunder may be made
to another provider or to the Company. All records and materials necessary for
conversion will be transferred as requested by Company and will include
accounting and data files since inception of this Agreement.
(e) If a party hereto is guilty of a material failure to perform
its duties and obligations hereunder (a "Defaulting Party") resulting in a
material loss to the other party, such other party (the "Non-Defaulting Party")
may give written notice thereof to the Defaulting Party, and if such material
breach shall not have been remedied within thirty (30) days after such written
notice is given, then the Non-Defaulting Party may terminate this Agreement by
giving thirty (30) days written notice of such termination to the Defaulting
Party. If FDISG is the Non-Defaulting Party, its termination of this Agreement
shall not constitute a waiver of any other rights or remedies of FDISG with
respect to services performed prior to such termination or rights of FDISG to be
reimbursed for out-of-pocket expenses. In all cases, termination by the
Non-Defaulting Party shall not constitute a waiver by the Non-Defaulting Party
of any other rights it might have under this Agreement or otherwise against the
Defaulting Party.
9. Modifications and Waivers. No change, termination, modification, or
waiver of any term or condition of the Agreement shall be valid unless in
writing signed by each party. No such writing shall be effective as against
FDISG unless said writing is executed by a Senior Vice President, Executive Vice
President or President of FDISG. A party's waiver of a breach of any term or
condition in the Agreement shall not be deemed a waiver of any subsequent breach
of the same or another term or condition.
10. No Presumption Against Drafter. FDISG and the Company have jointly
participated in the negotiation and drafting of this Agreement. The Agreement
shall be construed as if drafted jointly by the Company and FDISG, and no
presumptions arise favoring any party by virtue of the authorship of any
provision of this Agreement.
11. Publicity. Neither FDISG nor the Company shall release or publish
news releases, public announcements, advertising or other publicity relating to
this Agreement or to the transactions contemplated by it without prior review
and written approval of the other party; provided, however, that either party
may make such disclosures as are required by legal, accounting or regulatory
requirements after making reasonable efforts in the circumstances to consult in
advance with the other party.
12. Severability. The parties intend every provision of this Agreement to
be severable. If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or invalidity
shall not affect the validity of the remainder of this Agreement. In such case,
the parties shall in good faith modify or substitute such provision consistent
with the original intent of the parties. Without limiting the generality of this
paragraph, if a court determines that any remedy stated in this Agreement has
failed of its essential purpose, then all other provisions of this Agreement,
including the limitations on liability and exclusion of damages, shall remain
fully effective.
13. Miscellaneous.
(a) Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Company or FDISG shall be sufficiently
given if addressed to the party and received by it at its office set forth below
or at such other place as it may from time to time designate in writing.
To the Company:
MEMBERS Mutual Funds
c/o CIMCO Inc.
5910 Mineral Point Road
Madison, Wisconsin 53705
Attention: Scott Powell
with a copy to:
Linda L. Lilledahl
Assistant Vice President and Associate General Counsel
CUNA Mutual Group
5910 Mineral Point Road
Location 3B-2
Madison, Wisconsin 53705
To FDISG:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to FDISG's General Counsel
(b) This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns and
is not intended to confer upon any other person any rights or remedies
hereunder. This Agreement may not be assigned or otherwise transferred by either
party hereto, without the prior written consent of the other party, which
consent shall not be unreasonably withheld; provided, however, that FDISG may,
in its sole discretion, assign all its right, title and interest in this
Agreement to an affiliate, parent or subsidiary, or to the purchaser of
substantially all of its business. FDISG may, in its sole discretion, engage
subcontractors to perform any of the obligations contained in this Agreement to
be performed by FDISG; provided, however, that FDISG shall be responsible for
the provisions of services of such subcontractors to the same extent as if the
services were performed by FDISG.
(c) The laws of the Commonwealth of Massachusetts, excluding the
laws on conflicts of laws, shall govern the interpretation, validity, and
enforcement of this Agreement. All actions arising from or related to this
Agreement shall be brought in the state and federal courts sitting in the City
of Boston, and FDISG and the Company hereby submit themselves to the exclusive
jurisdiction of those courts.
(d) This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original and which collectively shall be
deemed to constitute only one instrument.
(e) The captions of this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
(f) The Company and FDISG agree that the obligations of the
Company under the Agreement shall not be binding upon any of the Trustees,
shareholders, nominees, officers, employees or agents, whether past, present or
future, of the Company individually, but are binding only upon the assets and
property of the Company, as provided in the Declaration of Trust. The execution
and delivery of this Agreement have been authorized by the Trustees of the
Company, and signed by an authorized officer of the Company, acting as such, and
neither such authorization by such Trustees nor such execution and delivery by
such officer shall be deemed to have been made by any of them or any shareholder
of the Company individually or to impose any liability on any of them or any
shareholder of the Company personally, but shall bind only the assets and
property of the Company as provided in the Declaration of Trust.
(g) The parties are independent contractors engaged in their
own and entirely separate business. Neither party is an agent or employee of the
other for any purpose whatsoever, and, except as may be expressly permitted in
writing by the other, no party shall have any right, power or authority to bind
the other, transact any business in it's name or on its behalf, or make any
promises or representations on it's behalf.
14. Confidentiality and Market Protection.
(a) The parties agree that the Proprietary Information (defined
below) and the contents of this Agreement (collectively "Confidential
Information") are confidential information of the parties and their respective
licensers. The Company and FDISG shall exercise reasonable care to safeguard the
confidentiality of the Confidential Information of the other. The Company and
FDISG may each use the Confidential Information only to exercise its rights or
perform its duties under this Agreement. The Company and FDISG shall not
duplicate, sell or disclose to others the Confidential Information of the other,
in whole or in part, without the prior written permission of the other party.
The Company and FDISG may, however, disclose Confidential Information to its
employees who have a need to know the Confidential Information to perform work
for the other, provided that each shall use reasonable efforts to ensure that
the Confidential Information is not duplicated or disclosed by its employees in
breach of this Agreement. The Company and FDISG may also disclose the
Confidential Information to independent contractors, auditors and professional
advisors, provided they first agree in writing to be bound by the
confidentiality obligations substantially similar to this Section 14.
Notwithstanding the previous sentence, in no event shall either the Company or
FDISG disclose the Confidential Information to any competitor of the other
without specific, prior written consent.
(b) Proprietary Information means:
(i) any data or information that is completely sensitive
material, and not generally known to the public, including, but not limited to,
information about product plans, marketing strategies, finance, operations,
customer relationships (including names of credit union organizations and credit
union members), customer profiles, sales estimates, business plans, and internal
performance results relating to the past, present or future business activities
of the Company or FDISG, their respective subsidiaries and affiliated companies
and the customers, clients and suppliers of any of them;
(ii) any scientific or technical information, design,
process, procedure, formula, or improvement that is commercially valuable and
secret in the sense that its confidentiality affords the Company or FDISG a
competitive advantage over its competitors; and
(iii) all confidential or proprietary concepts,
documentation, reports, data, specifications, computer software, source code,
object code, flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable.
(c) Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either party
which now exist or come into the control or possession of the other.
(d) The parties recognize the importance and value to CUNA Mutual
Group of the credit union market to which the Company will be marketing shares.
In recognition of this, FDISG agrees that all lists of credit unions and credit
union members obtained for solicitation, processing or other purposes and all
lists and records relating to the identity of credit unions and credit union
members, and investors that may be compiled as a result of the Agreement are and
shall remain the exclusive property of CUNA Mutual Group and shall be returned
to CUNA Mutual Group at the termination of the Agreement or, as to any
individual records, when those records are no longer needed for purposes of the
Agreement. Provided, however, that FDISG may retain any records or copies of any
such lists and records to the extent it may be required by law to do so.
FDISG agrees that all such lists and records that it may at any time
possess will not be used by it or any subsidiary and it will not assist any
other affiliate to use such lists or records, except as necessary to carry out
its obligations under the Agreement. FDISG specifically recognizes that any
lists or records of actual credit unions or credit union member investors that
may be compiled as a result of the Agreement shall not be used by FDISG or any
subsidiary and FDISG will not assist any other affiliate to use the names, for
the purposes of soliciting, developing or writing any insurance or financial
service products business.
This Section shall survive the termination of the Agreement.
(e) During the term of this Agreement and for a one year
period thereafter, neither FDISG nor any subsidiary of FDISG, shall, directly or
indirectly, seek any relationship, or assist any affiliate of FDISG to seek any
relationship, with any credit union organization or credit union member that
purchases Company shares, for the purpose of soliciting, developing or writing
any insurance or financial services products business directed at credit union
organizations or credit union members; or engage in any business, marketing
plan, arrangement or program that emphasizes, targets or focuses on efforts to
solicit, develop or write any such business for credit union organizations or
credit union members, as such. In addition, during the term of the Agreement and
for a one year period thereafter, neither FDISG nor any subsidiary of FDISG
shall engage or in any manner assist any affiliate of FDISG to engage in an
effort to specifically market or target credit union organizations as a group on
a state, regional or national level for the purpose of soliciting, developing or
writing any insurance or financial services products business.
It is understood that, in the ordinary course of its business of
marketing its products to the general public, FDISG or its subsidiaries or
affiliates are likely to contact a certain number of businesses and members of
the general public who happen to be credit union organizations or members of
credit unions, without emphasizing, targeting or focusing upon them as such, and
this Section is not intended to prohibit these contacts or business resulting
from these contacts so long as they neither result from nor are the product of
activity otherwise prohibited by this Section.
This Section shall survive the termination of the Agreement for the
period stated above.
(f) The Company and FDISG acknowledge that breach of the
restrictions on use, dissemination or disclosure of any Confidential Information
would result in immediate and irreparable harm, and money damages would be
inadequate to compensate FDISG or Company for that harm. Company and FDISG shall
be entitled to equitable relief, in addition to all other available remedies, to
redress any such breach.
15. Force Majeure. No party shall be liable for any default or delay in
the performance of its obligations under this Agreement if and to the extent
such default or delay is caused, directly or indirectly, by (i) fire, flood,
elements of nature or other acts of God; (ii) any outbreak or escalation of
hostilities, war, riots or civil disorders in any country in which primary
operations of FDISG or Company exist, (iii) any act or omission of the other
party or any governmental authority; (iv) any labor disputes (whether or not the
employees' demands are reasonable or within the party's power to satisfy); or
(v) nonperformance by a third party ("third party" as used in this section shall
not include subcontractors retained by FDISG) or any similar cause beyond the
reasonable control of such party, including without limitation, failures or
fluctuations in telecommunications or other equipment. In any such event, the
non-performing party shall be excused from any further performance and
observance of the obligations so affected only for so long as such circumstances
prevail and such party continues to use commercially reasonable efforts to
recommence performance or observance as soon as practicable.
16. Entire Agreement. This Agreement, including all Schedules hereto,
constitutes the entire Agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed and delivered by their duly authorized officers as of the date
first written above.
FIRST DATA INVESTOR SERVICES GROUP, INC.
By: Jack P. Kutner
Name: Jack P. Kutner
Title: President
MEMBERS Mutual Funds
By: Scott Powell
Name: Scott Powell
Title: Secretary/Treasurer
SCHEDULE A
LIST OF PORTFOLIOS
MEMBERS Mutual Funds
Cash Reserves Fund
Bond Fund
Balanced Fund
High Income Fund
Growth and Income Fund
Capital Appreciation Fund
International Stock Fund
SCHEDULE B
JOINT FEE AGREEMENT
This Joint Fee Agreement is made as of October 28, 1997, by and between
FIRST DATA INVESTOR SERVICES GROUP, INC. ("FDISG"), a Massachusetts corporation,
and MEMBERS MUTUAL FUND (the "Company"), a Delaware corporation.
WHEREAS, FDISG and the Company have entered into an Administration
Agreement dated as of October 28, 1997, and a Transfer Agency Services Agreement
dated as of October 28, 1997 (collectively, the "Agreements"); and
WHEREAS, the Company and FDISG wish to set forth the fees to be paid by
the Company to FDISG.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. In consideration of the services which FDISG shall perform for the
Company pursuant to which the Company hereby agrees to pay FDISG an aggregate
monthly fee under the Agreements as follows:
$3,500.00 per class per Fund (as defined in the Agreements) per
month until the aggregate assets of the Funds have reached $500
million on any day.
if aggregate assets are less than $500 million, 0.15% of
aggregate average daily net assets or a minimum of $3,500 per
class, whichever is greater.
if aggregate assets are at least $500 million, but less than $1
billion, 0.12% of aggregate average daily net assets.
if aggregate assets are at least $1 billion, 0.09% of aggregate
average daily net assets.
The Company shall also pay FDISG the following fees relating to the
Transfer Agency Services Agreement:
Programming Costs
Dedicated Team:
Programmer $100,000 per annum
BSA $ 85,000 per annum
Tester $ 65,000 per annum
System Enhancements (Non Dedicated Team):
Programmer $135.00 per hour
The above rates are subject to an annual 5% increase after the
one year anniversary of the effective date of this Joint Fee
Agreement.
2. After the one year anniversary of the effective date of this Fee
Agreement, FDISG may adjust the above fees once per calendar year, upon thirty
(30) days prior written notice in an amount not to exceed the cumulative
percentage increase in the Consumer Price Index for All Urban Consumers (CPI-U)
U.S. City Average, All items (unadjusted) - (1982-84=100), published by the U.S.
Department of Labor since the last such adjustment in the Client's monthly fees
(or the Effective Date absent a prior such adjustment).
3. The penalties for the failure of FDISG to meet the Priority
Performance Standards (as such term is defined in the Administration Agreement)
shall be as follows:
If FDISG fails to meet a Priority Performance Standard in any
month, the Company shall provide written notice to FDISG.
If FDISG fails to meet the same Priority Performance Standard for
two (2) months in succession, FDISG's fee for the second month
shall be reduced by five (5) percent.
If FDISG fails to meet the same Priority Performance Standard for
three (3) months in any rolling six (6) month period, then the
Company shall have the right to terminate the Agreements in
accordance with their terms.
The penalties for the failure of FDISG to meet the Regular Performance
Standards (as such term is defined in the Administration Agreement) shall be as
follows:
If FDISG fails to meet a Regular Performance Standard in any
month (any quarter with respect to the Regular Performance
Standard relating to Legal Administration), the Company shall
provide written notice to FDISG.
If FDISG fails to meet the same Regular Performance Standard for
two (2) months in succession ) (two (2) quarters in succession
with respect to the Regular Performance Standard relating to Legal
Administration), FDISG's fee for the second month (or second
quarter as the case may be) shall be reduced by one (1) percent.
4. The Company agrees to pay all fees to FDISG by Federal Funds Wire
within fifteen (15) business days following the receipt of the invoice. In
addition, with respect to all fees under this Joint Fee Agreement, FDISG may
charge a past due service fee equal to the lesser of (a) one and one-half
percent (1 1/2%) per month or (b) the highest interest rate legally permitted on
any past due invoiced amounts.
5. FDISG shall also be entitled to receive out-of-pocket expenses as
set forth in each of the Agreements.
6. This Joint Fee Agreement may be amended from time to time by the
written agreement of the parties. FDISG recognizes that the pricing of this
Agreement and the previously described fees are subject to review by both
parties in the event that any portion of the listed services to be provided by
FDISG in the Agreements are performed internally by the Company or its Adviser
and affiliates (e.g. fund accounting or fund administration). The Company shall
give FDISG 180 days' notice of any decision by the Company to "internalize"
services and the Agreements will remain in force subject to mutually agreed upon
revisions to this Joint Fee Agreement.
7. This Joint Fee Agreement may be executed in any number of
counterparts each of which shall be deemed to be an original and which
collectively shall be deemed to constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed and delivered by their duly authorized officers, as of the day
and year first above written.
FIRST DATA INVESTOR SERVICES
GROUP, INC.
By: Jack P. Kutner
Title: President
MEMBERS MUTUAL FUNDS
By: Scott Powell
Title: Secretary/Treasurer
SCHEDULE C
OUT-OF-POCKET EXPENSES
Out-of-pocket expenses include, but are not limited to, the following:
- Postage of Board meeting materials and other materials to the
Company's Board members and service providers (including
overnight or other courier services)
- Telecommunications charges (including FAX) with respect to
communications with the Company's directors, officers and service
providers
- Duplicating charges with respect to filings with federal and state
authorities and Board meeting materials
- Courier services
- Pricing services
- Forms and supplies for the preparation of Board meetings and other
materials for the Company
- Vendor set-up charges for Blue Sky services
- Customized programming requests
- Such other expenses as are agreed to by FDISG and the Company
SCHEDULE D
Fund Accounting and Administrative Services
Routine Projects
o Daily, Weekly, and Monthly Reporting
o Portfolio and General Ledger Accounting
o Daily Pricing of all Securities
o Daily Valuation and NAV Calculation
o Comparison of NAV to market movement
o Review of price tolerance/fluctuation report
o Research items appearing on the price exception report
o Weekly cost monitoring along with market-to-market valuations in accordance
with Rule 2a7
o Preparation of monthly ex-dividend monitor
o Daily cash reconciliation with the custodian bank
o Daily updating of price and rate information to the Transfer Agent/Insurance
Agent
o Daily support and report delivery to Portfolio Management
o Daily calculation of fund advisor fees and waivers
o Daily calculation of distribution rates
o Daily maintenance of each fund's general ledger including expense accruals
o Daily price notification to other vendors as required
o Calculation of 30-day adjusted SEC yields
o Preparation of month-end reconciliation package
o Monthly reconciliation of fund expense records
o Preparation of monthly pay down gain/loss summaries
o Preparation of all annual and semi-annual audit work papers
o Preparation and Printing of Financial Statements
o Providing Shareholder Tax Information to Transfer Agent
o Producing Drafts of IRS and State Tax Returns
o Treasury Services including:
Provide Officer for the fund
Expense Accrual Monitoring
Determination of Dividends
Prepare materials for review by the board, e.g., 2a-7,10f-3, 17a-7,
17e-1, Rule 144a Tax and Financial Counsel
o Monthly Compliance Testing including section 817H
Distribution and Legal, Regulatory and Board of Trustees Support
Routine Projects (to the extent requested by Company)*
o Provide 1940 Act Attorney to assist in organization
o Prepare agenda and background materials for legal approval at Board
Meetings; make presentations where appropriate; prepare minutes; follow up
on issues
o Review and filing of Form N-SAR
o Review and filing of Annual and Semi-Annual Financial Reports
o Assistance in Preparation of Fund Registration Statements
o Review of all Sales Material and Advertising
o Coordinate all aspects of the printing and mailing process with outside
printers for all shareholder publications
o Support for all quarterly board meetings
o Preparation of proxy materials for one meeting per two year period
o Annual update Post-Effective Amendment (PEA)
o Prospectus supplements as needed
o Consultations regarding legal issues as needed
o SEC audit report
o Arrange insurance and fidelity bond coverage
o Support for one special board meeting per year and consent votes where
needed
o One additional PEA (other than annual update)
o One exemptive order application
o Assist with marketing strategy and product development
Special Projects*
o Proxy material preparation for additional meetings beyond one per two
year period
o N-14 preparation (merger document)
o Additional PEAs beyond two per year
o Prospectus simplification
o Additional exemptive order applications beyond one per year
o Extraordinary non-recurring projects - e.g., arranging CDSC financing
programs
o Basic sales, mutual funds, and product training to branch and sales
representatives
*Charged on a project-by-project basis.
SCHEDULE E
FIRST DATA SERVICE
PERFORMANCE STANDARDS
Fund Accounting/Custody Liaison
NAV's calculated accurately, provided that all information received
from external vendors or Fund managers is correct*
Information to NASADQ is reported accurately and within appropriate
time frames
Daily bulletin is released by 6:30 p.m. eastern time, provided that
all information received from external vendors or Fund managers is
received on a timely basis
Accurate Cash Availability will be provided by 9:30 a.m. eastern time
The above standards will be adhered to at least 98% of the time measured on a
monthly basis.
Fund Administration (Treasury and Reporting)/Tax/Compliance
All SEC and IRS regulatory requirements will be met according to the
deadlines set forth by the SEC and the IRS*
The above standard will be met 100% of the time.
Legal Administration
Board materials will be sent to the Company for review fourteen (14)
business days prior to the Board meeting
The above standard will be met 98% of the time as measured on a quarterly basis.
- -----------------------------
*Such standards shall be considered "Priority Performance Standards" for
purposes of this Agreement. All other standards shall be referred to as "Regular
Performance Standards."
<PAGE>
EXHIBIT (9)(b)
TRANSFER AGENCY AND SERVICES AGREEMENT
THIS AGREEMENT, dated as of this 28th day of October, 1997 between
MEMBERS Mutual Funds (the "Fund"), a Delaware business trust having its
principal place of business at 5910 Mineral Point Road, Madison, Wisconsin 53705
and FIRST DATA INVESTOR SERVICES GROUP, INC. ("FDISG"), a Massachusetts
corporation with principal offices at 4400 Computer Drive, Westboro,
Massachusetts 01581.
WITNESSETH
WHEREAS, the Fund is authorized to issue Shares in separate series,
with each such series representing interests in a separate portfolio of
securities or other assets.
WHEREAS, the Fund initially intends to offer Shares in those Portfolios
identified in the attached Exhibit 1, each such Portfolio, together with all
other Portfolios subsequently established by the Fund shall be subject to this
Agreement in accordance with Article 14;
WHEREAS, the Fund on behalf of the Portfolios, desires to appoint FDISG
as its transfer agent, dividend disbursing agent and agent in connection with
certain other activities and FDISG desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and FDISG agree as follows:
Article 1 Definitions.
1.1 Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, or other similar organizational
document as the case may be, of the Fund as the same may be amended
from time to time.
(b) "Authorized Person" shall be deemed to include (i) any
authorized officer of the Fund; or (ii) any person, whether or not such
person is an officer or employee of the Fund, duly authorized to give
Oral Instructions or Written Instructions on behalf of the Fund as
indicated in writing to FDISG from time to time.
(c) "Board of Directors" shall mean the Board of Directors
or Board of Trustees of the Fund, as the case may be.
(d) "Commission" shall mean the Securities and Exchange
Commission.
(e) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time
deposit, or cause to be deposited or held under the name or account of
such a custodian pursuant to a Custodian Agreement.
(f) "1934 Act" shall mean the Securities Exchange Act of
1934 and the rules and regulations promulgated thereunder, all as
amended from time to time.
(g) "1940 Act" shall mean the Investment Company Act of 1940
and the rules and regulations promulgated thereunder, all as amended
from time to time.
(h) "Oral Instructions" shall mean instructions, other than
Written Instructions, actually received by FDISG from a person
reasonably believed by FDISG to be an Authorized Person;
(i) "Portfolio" shall mean each separate series of shares
offered by the Fund representing interests in a separate portfolio of
securities and other assets;
(j) "Prospectus" shall mean the most recently dated Fund
Prospectus and Statement of Additional Information, including any
supplements thereto if any, which has become effective under the
Securities Act of 1933 and the 1940 Act.
(k) "Shares" refers collectively to such shares of capital
stock or beneficial interest, as the case may be, or class thereof, of
each respective Portfolio of the Fund as may be issued from time to
time.
(l) "Shareholder" shall mean a record owner of Shares of
each respective Portfolio of the Fund.
(m) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by FDISG to be an Authorized
Person and actually received by FDISG. Written Instructions shall
include manually executed originals and authorized electronic
transmissions, including telefacsimile of a manually executed original
or other process.
Article 2 Appointment of FDISG.
The Fund, on behalf of the Portfolios, hereby appoints and constitutes
FDISG as transfer agent and dividend disbursing agent for Shares of each
respective Portfolio of the Fund and as shareholder servicing agent for the Fund
and FDISG hereby accepts such appointments and agrees to perform the duties
hereinafter set forth.
Article 3 Duties of FDISG.
3.1 FDISG shall be responsible for:
(a) Administering and/or performing the customary services of
a transfer agent; acting as service agent in connection with dividend
and distribution functions; and for performing shareholder account and
administrative agent functions in connection with the issuance,
transfer and redemption or repurchase (including coordination with the
Custodian) of Shares of each Portfolio, as more fully described in the
written schedule of Duties of FDISG annexed hereto as Schedule A and
incorporated herein, and in accordance with the terms of the Prospectus
of the Fund on behalf of the applicable Portfolio, applicable law and
the procedures established from time to time between FDISG and the Fund
and in accordance with the Performance Standards annexed hereto as
Schedule E and incorporated herein.
(b) Recording the issuance of Shares and maintaining pursuant
to Rule 17Ad-10(e) of the 1934 Act a record of the total number of
Shares of each Portfolio which are authorized, based upon data provided
to it by the Fund, and issued and outstanding. FDISG shall provide the
Fund on a regular basis with the total number of Shares of each
Portfolio which are authorized and issued and outstanding and shall
have no obligation, when recording the issuance of Shares, to monitor
the issuance of such Shares or to take cognizance of any laws relating
to the issue or sale of such Shares, which functions shall be the sole
responsibility of the Fund.
(c) In addition to providing the foregoing services, the Fund
hereby engages FDISG as a service provider with respect to the
Print/Mail Services as set forth in Schedule B for the fees also
identified in Schedule B. FDISG agrees to perform the services and its
obligations subject to the terms and conditions of this Agreement. This
Agreement does not restrict the Fund from using other service providers
(including its sponsor companies) for print/mail services at its
discretion.
(d) Notwithstanding any of the foregoing provisions of this
Agreement, FDISG shall be under no duty or obligation to inquire into,
and shall not be liable for: (i) the legality of the issuance or sale
of any Shares or the sufficiency of the amount to be received therefor;
(ii) the legality of the redemption of any Shares, or the propriety of
the amount to be paid therefor; (iii) the legality of the declaration
of any dividend by the Board of Directors, or the legality of the
issuance of any Shares in payment of any dividend; or (iv) the legality
of any recapitalization or readjustment of the Shares.
3.2 In addition, the Fund shall (i) identify to FDISG in writing those
transactions and assets to be treated as exempt from blue sky reporting for each
State and (ii) verify the establishment of transactions for each State on the
system prior to activation and thereafter monitor the daily activity for each
State. The responsibility of FDISG for the Fund's blue sky State registration
status is shall include the initial establishment of transactions and ongoing
monitoring and reporting subject to blue sky compliance by the Fund and the
reporting of such transactions to the Fund as provided above.
3.3 In addition to the duties set forth herein, FDISG shall perform
such other duties and functions, and shall be paid such amounts therefor, as may
from time to time be agreed upon in writing between the Fund and FDISG.
Article 4 Recordkeeping and Other Information.
4.1 FDISG shall create and maintain all records required of it pursuant
to its duties hereunder and as set forth in Schedule A in accordance with all
applicable laws, rules and regulations, including records required by Section
31(a) of the 1940 Act. Where applicable, such records shall be maintained by
FDISG for the periods and in the places required by Rule 31a-2 under the 1940
Act.
4.2 To the extent required by Section 31 of the 1940 Act, FDISG agrees
that all such records prepared or maintained by FDISG relating to the services
to be performed by FDISG hereunder are the property of the Fund and will be
preserved, maintained and made available in accordance with such section, and
will be surrendered promptly to the Fund on and in accordance with the Fund's
request.
4.3 In case of any requests or demands for the inspection of
Shareholder records of the Fund, FDISG will endeavor to notify the Fund of such
request and secure Written Instructions as to the handling of such request.
FDISG reserves the right, however, to exhibit the Shareholder records to any
person whenever it is advised by its counsel that it may be held liable for the
failure to comply with such request; provided, however, FDISG shall be liable
for any inappropriate or illegal sharing of information or Confidential
Information.
Article 5 Fund Instructions.
5.1 FDISG will have no liability when acting upon Written or Oral
Instructions reasonably believed to have been executed or orally communicated by
an Authorized Person and will not be held to have any notice of any change of
authority of any person until receipt of a Written Instruction thereof from the
Fund.
5.2 At any time, FDISG may request Written Instructions from the Fund
and may seek advice from legal counsel for the Fund, or its own legal counsel,
with respect to any matter arising in connection with this Agreement, and it
shall not be liable for any action taken or not taken or suffered by it in good
faith in accordance with such Written Instructions or in accordance with the
opinion of counsel for the Fund. Written Instructions requested by FDISG will be
provided by the Fund within a reasonable period of time.
5.3 FDISG, its officers, agents or employees, shall accept Oral
Instructions or Written Instructions given to them by any person representing or
acting on behalf of the Fund only if said representative is an Authorized
Person. The Fund agrees that all Oral Instructions shall be followed within one
business day by confirming Written Instructions, and that the Fund's failure to
so confirm shall not impair in any respect FDISG's right to rely on Oral
Instructions.
Article 6 Compensation.
6.1 The Fund on behalf of each of the Portfolios will compensate FDISG
for the performance of its obligations hereunder and its services under the
Administration Agreement entered into by the parties and dated the same date as
this Agreement, in accordance with the fees set forth in the written Joint Fee
Agreement annexed hereto as Schedule B and incorporated herein.
6.2 In addition to those fees set forth in Section 6.1 above, the Fund
on behalf of each of the Portfolios agrees to pay, and will be billed separately
for, out-of-pocket expenses incurred by FDISG in the performance of its duties
hereunder. Out-of-pocket expenses shall include, but shall not be limited to,
the items specified in the written schedule of out-of-pocket charges annexed
hereto as Schedule C and incorporated herein. Schedule C may be modified by
written agreement between the parties. Unspecified out-of-pocket expenses shall
be limited to those out-of-pocket expenses reasonably incurred by FDISG in the
performance of its obligations hereunder.
6.3 The Fund on behalf of each of the Portfolios agrees to pay all fees
and out-of-pocket expenses to FDISG by Federal Funds Wire within fifteen (15)
business days following the receipt of the respective invoice. In addition, with
respect to all fees under this Agreement, FDISG may charge a past due service
fee equal to the lesser of (i) one and one half percent (1 1/2%) per month or
(ii) the highest interest rate legally permitted on any past due invoiced
amounts.
6.4 Schedule B may be amended to add fee schedules for any additional
Funds for which FDISG has been retained and will be renegotiated and amended by
mutual consent of the parties upon other additions or reduction in services
under this Agreement or the Administration Agreement referred to above.
6.5 The Fund acknowledges that the fees that FDISG charges the Fund
under this Agreement reflect the allocation of risk between the parties,
including the disclaimer of warranties in Section 9.3 and the limitations on
liability and exclusion of remedies in Section 11.2 and Article 12. Modifying
the allocation of risk from what is stated here would affect the fees that FDISG
charges, and in consideration of those fees, the Fund agrees to the stated
allocation of risk.
Article 7 Documents.
In connection with the appointment of FDISG, the Fund shall, on or
before the date this Agreement goes into effect, but in any case within a
reasonable period of time for FDISG to prepare to perform its duties hereunder,
deliver or cause to be delivered to FDISG the documents set forth in the written
schedule of Fund Documents annexed hereto as Schedule D.
Article 8 Transfer Agent System.
8.1 FDISG shall retain title to and ownership of any and all data
bases, computer programs, screen formats, report formats, interactive design
techniques, derivative works, inventions, discoveries, patentable or
copyrightable matters, concepts, expertise, patents, copyrights, trade secrets,
and other related legal rights utilized by FDISG in connection with the services
provided by FDISG to the Fund herein (the "FDISG System").
8.2 FDISG hereby grants to the Fund a limited license to the FDISG
System for the sole and limited purpose of having FDISG provide the services
contemplated hereunder and nothing contained in this Agreement shall be
construed or interpreted otherwise and such license shall immediately terminate
with the termination of this Agreement.
8.3 In the event that the Fund, including any affiliate or agent of the
Fund or any third party acting on behalf of the Fund is provided with direct
access to the FDISG System for either account inquiry or to transmit transaction
information, including but not limited to maintenance, exchanges, purchases and
redemptions, such direct access capability shall be limited to direct entry to
the FDISG System by means of on-line mainframe terminal entry or PC emulation of
such mainframe terminal entry and any other non-conforming method of
transmission of information to the FDISG System is strictly prohibited without
the prior written consent of FDISG.
Article 9 Representations and Warranties.
9.1 FDISG represents and warrants to the Fund that:
(a) it is a corporation duly organized, existing and in good
standing under the laws of the Commonwealth of Massachusetts;
(b) it is empowered under applicable laws and by its
Articles of Incorporation to enter into and perform this Agreement;
(c) all requisite corporate proceedings have been taken to
authorize it to enter into this Agreement;
(d) it is duly registered with its appropriate regulatory
agency as a transfer agent and such registration will remain in effect
for the duration of this Agreement; and
(e) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
9.2 The Fund represents and warrants to FDISG that:
(a) it is duly organized, existing and in good standing
under the laws of the jurisdiction in which it is organized;
(b) it is empowered under applicable laws and by its
Articles of Incorporation to enter into this Agreement;
(c) all corporate proceedings required by said Articles of
Incorporation and applicable laws have been taken to authorize it to
enter into this Agreement;
(d) a registration statement under the Securities Act of 1933,
as amended, and the 1940 Act on behalf of each of the Portfolios will
become and will remain effective throughout the term of this Agreement
with respect to all Shares of the Fund being offered for sale; and
(e) all outstanding Shares are validly issued, fully paid and
non-assessable and when Shares are hereafter issued in accordance with
the terms of the Fund's Articles of Incorporation and its Prospectus
with respect to each Portfolio, such Shares shall be validly issued,
fully paid and non-assessable.
9.3 THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, FDISG DISCLAIMS ALL OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR
IMPLIED, MADE TO THE FUND OR ANY OTHER PERSON, INCLUDING, WITHOUT LIMITATION,
ANY WARRANTIES REGARDING QUALITY, SUITABILITY, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR OTHERWISE (IRRESPECTIVE OF ANY COURSE OF DEALING, CUSTOM
OR USAGE OF TRADE) OF ANY SERVICES OR ANY GOODS PROVIDED INCIDENTAL TO SERVICES
PROVIDED UNDER THIS AGREEMENT. FDISG DISCLAIMS ANY WARRANTY OF TITLE OR
NON-INFRINGEMENT EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT.
Article 10 Indemnification.
10.1 FDISG shall not be responsible for and the Fund on behalf of each
Portfolio shall indemnify and hold FDISG harmless from and against any and all
claims, costs, expenses (including reasonable attorneys' fees), losses, damages,
charges, payments and liabilities of any sort or kind which may be asserted
against FDISG or for which FDISG may be held to be liable (a "Claim") arising
out of or attributable to any of the following:
(a) any actions of FDISG required to be taken pursuant to this
Agreement unless such Claim resulted from a negligent act or omission
to act or bad faith by FDISG in the performance of its duties
hereunder;
(b) FDISG's reasonable reliance on, or reasonable use of
information, data, records and documents (including but not limited to
magnetic tapes, computer printouts, hard copies and microfilm copies)
received by FDISG from the Fund, or any authorized third party acting
on behalf of the Fund, including but not limited to the prior transfer
agent for the Fund, in the performance of FDISG's duties and
obligations hereunder;
(c) the reliance on, or the implementation of, any Written or
Oral Instructions or any other instructions or requests of the Fund on
behalf of the applicable Portfolio;
(d) the offer or sale of shares in violation of any
requirement under the securities laws or regulations of any state that
such shares be registered in such state or in violation of any stop
order or other determination or ruling by any state with respect to the
offer or sale of such shares in such state for which FDISG has informed
the Fund; and
(e) the Fund's refusal or failure to comply with the terms of
this Agreement, or any Claim which arises out of the Fund's negligence
or misconduct or the breach of any representation or warranty of the
Fund made herein.
10.2 In any case in which the Fund may be asked to indemnify or hold
FDISG harmless, FDISG will notify the Fund promptly after identifying any
situation which it believes presents or appears likely to present a claim for
indemnification against the Fund and shall keep the Fund advised with respect to
all developments concerning such situation. The Fund shall have the option to
defend FDISG against any Claim which may be the subject of this indemnification,
and, in the event that the Fund so elects, such defense shall be conducted by
counsel chosen by the Fund, and thereupon the Fund shall take over complete
defense of the Claim and FDISG shall sustain no further legal or other expenses
in respect of such Claim. FDISG will not confess any Claim or make any
compromise in any case in which the Fund will be asked to provide
indemnification, except with the Fund's prior written consent. The obligations
of the parties hereto under this Article 10 shall survive the termination of
this Agreement.
10.3 Any claim for indemnification under this Agreement must be made
prior to the earlier of:
(a) one year after the Fund becomes aware of the event for
which indemnification is claimed; or
(b) one year after the earlier of the termination of this
Agreement or the expiration of the term of this Agreement.
10.4 Except for remedies that cannot be waived as a matter of law (and
injunctive or provisional relief), the provisions of this Article 10 shall be
FDISG's sole and exclusive remedy for claims or other actions or proceedings to
which the Fund's indemnification obligations pursuant to this Article 10 may
apply.
Article 11 Standard of Care.
11.1 FDISG shall at all times act in good faith and agrees to use its
best efforts within commercially reasonable limits to ensure the accuracy of all
services performed under this Agreement, but assumes no responsibility for loss
or damage to the Fund unless said errors are caused by FDISG's own, or any
subcontractor's engaged by FDISG pursuant to Article 17, negligence, bad faith
or willful misconduct or that of its employees.
11.2 Notwithstanding any provision in this Agreement to the contrary,
FDISG's cumulative liability (to the Fund) for all losses, claims, suits,
controversies, breaches, or damages for any cause whatsoever (including but not
limited to those arising out of or related to this Agreement) and regardless of
the form of action or legal theory shall not exceed the lesser of (i) $1,000,000
or (ii) the twelve months fees annualized based on the monthly fees paid to
FDISG for the month immediately preceding the occurrence of such loss or damage;
provided, however, that the limitation on liability shall not apply for losses
or damages resulting from gross negligence on the part of FDISG. Fund
understands the limitation on FDISG's damages to be a reasonable allocation of
risk and Fund expressly consents with respect to such allocation of risk. In
allocating risk under the Agreement, the parties agree that the damage
limitation set forth above shall apply to any alternative remedy ordered by a
court in the event such court determines that sole and exclusive remedy provided
for in the Agreement fails of its essential purpose.
11.3 Neither party may assert any cause of action against the other
party under this Agreement that accrued more than two (2) years prior to the
filing of the suit (or commencement of arbitration proceedings) alleging such
cause of action.
Article 12 Consequential Damages.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL FDISG, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE UNDER ANY THEORY OF TORT,
CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR LOST PROFITS,
EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES,
EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES REGARDLESS OF
WHETHER SUCH DAMAGES WERE FORESEEABLE OR WHETHER EITHER PARTY OR ANY ENTITY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Article 13 Term and Termination.
13.1 This Agreement shall be effective on the date first written above
and shall continue for a period of three (3) years (the "Initial Term").
13.2 Upon the expiration of the Initial Term, this Agreement shall
automatically renew for successive terms of three (3) years ("Renewal Terms")
each, provided, however, that the Fund may terminate this Agreement on 180 days'
prior written notice at any time after completion of the Initial Term upon its
determination to transfer any or all of the services provided hereunder by FDISG
to a member of the CUNA Mutual Group. CUNA Mutual Group shall include CUNA
Mutual Insurance Society, its permanent affiliate CUNA Mutual Life Insurance
Company, and their subsidiaries and affiliates. Either party may give written
notice not to renew at the end of the Initial Term or any Renewal Term not less
than ninety (90) days and not more than one-hundred eighty (180) days prior to
the expiration of the Initial Term or the then current Renewal Term.
13.3 This Agreement may be terminated by the Fund prior to the
expiration of the Initial Term or any Renewal Term in the event FDISG has failed
to meet a Priority Performance Standard (as such term is defined in the
Administration Agreement between the Fund and FDISG) in three months of any
rolling six month period. The Fund will provide FDISG with 60 days' notice in
writing after the third month of FDISG's failure to meet the Performance
Standards if the Fund intends to exercise this option under this Section 13.3.
Notwithstanding the foregoing, the Fund's right under this Section 13.3 shall
not become effective until ninety (90) days after FDISG has begun providing
services under this Agreement.
13.4 In the event a termination notice is given by the Fund, all
expenses associated with movement of records and materials and conversion
thereof to a successor transfer agent will be borne by the Fund.
13.5 If a party hereto is guilty of a material failure to perform its
duties and obligations hereunder (a "Defaulting Party") the other party (the
"Non-Defaulting Party") may give written notice thereof to the Defaulting Party,
and if such material breach shall not have been remedied within thirty (30) days
after such written notice is given, then the Non-Defaulting Party may terminate
this Agreement by giving thirty (30) days written notice of such termination to
the Defaulting Party. If FDISG is the Non-Defaulting Party, its termination of
this Agreement shall not constitute a waiver of any other rights or remedies of
FDISG with respect to services performed prior to such termination of rights of
FDISG to be reimbursed for out-of-pocket expenses. In all cases, termination by
the Non-Defaulting Party shall not constitute a waiver by the Non-Defaulting
Party of any other rights it might have under this Agreement or otherwise
against the Defaulting Party.
Article 14 Additional Portfolios
14.1 In the event that the Fund establishes one or more Portfolios in
addition to those identified in Exhibit 1, with respect to which the Fund
desires to have FDISG render services as transfer agent under the terms hereof,
the Fund shall so notify FDISG in writing, and if FDISG agrees in writing to
provide such services, Exhibit 1 shall be amended to include such additional
Portfolios.
Article 15 Confidentiality.
15.1 The parties agree that the Proprietary Information (defined below)
and the contents of this Agreement (collectively "Confidential Information") are
confidential information of the parties and their respective licensors. The Fund
and FDISG shall exercise at least the same degree of care, but not less than
reasonable care, to safeguard the confidentiality of the Confidential
Information of the other as it would exercise to protect its own confidential
information of a similar nature. The Fund and FDISG shall not duplicate, sell or
disclose to others the Confidential Information of the other, in whole or in
part, without the prior written permission of the other party. The Fund and
FDISG may, however, disclose Confidential Information to their respective parent
corporation, their respective affiliates, their subsidiaries and affiliated
companies and employees, provided that each shall use reasonable efforts to
ensure that the Confidential Information is not duplicated or disclosed in
breach of this Agreement. The Fund and FDISG may also disclose the Confidential
Information to independent contractors, auditors, and professional advisors,
provided they first agree in writing to be bound by the confidentiality
obligations substantially similar to this Section 15.1. Notwithstanding the
previous sentence, in no event shall either the Fund or FDISG disclose the
Confidential Information to any competitor of the other without specific, prior
written consent.
15.2 Proprietary Information means:
(a) any data or information that is competitively sensitive
material, and not generally known to the public, including, but not
limited to, information about product plans, marketing strategies,
finance, operations, customer relationships (including names of credit
union organizations and credit union members),, customer profiles,
sales estimates, business plans, and internal performance results
relating to the past, present or future business activities of the Fund
or FDISG, their respective subsidiaries and affiliated companies and
the customers, clients and suppliers of any of them;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and
secret in the sense that its confidentiality affords the Fund or FDISG
a competitive advantage over its competitors; and
(c) all confidential or proprietary concepts, documentation,
reports, data, specifications, computer software, source code, object
code, flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable.
15.3 Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either party
which now exist or come into the control or possession of the other.
15.4 The parties recognize the importance and value to CUNA Mutual
Group of the credit union market to which the Fund will be marketing shares. In
recognition of this, FDISG agrees that all lists of credit unions and credit
union members obtained for solicitation, processing or other purposes and all
lists and records relating to the identity of credit unions and credit union
members, and investors that may be compiled as a result of the Agreement are and
shall remain the exclusive property of CUNA Mutual Group and shall be returned
to CUNA Mutual Group at the termination of the Agreement or, as to any
individual records, when those records are no longer needed for purposes of the
Agreement. Provided, however, that FDISG may retain any records or copies of any
such lists and records to the extent it may be required by law to do so.
FDISG agrees that all such lists and records that it may at any time
possess will not be used by it or any subsidiary and it will not assist any
other affiliate to use such lists or records, except as necessary to carry out
its obligations under the Agreement. FDISG specifically recognizes that any
lists or records of actual credit unions or credit union member investors that
may be compiled as a result of the Agreement shall not be used by FDISG or any
subsidiary and FDISG will not assist any other affiliate to use the names, for
the purposes of soliciting, developing or writing any insurance or financial
service products business.
This Section shall survive the termination of the Agreement.
15.5 During the term of this Agreement and for a one year period
thereafter, neither FDISG nor any subsidiary of FDISG, shall, directly or
indirectly, seek any relationship, or assist any affiliate of FDISG to seek any
relationship, with any credit union organization or credit union member that
purchases Fund shares, for the purpose of soliciting, developing or writing any
insurance or financial services products business directed at credit union
organizations or credit union members; or engage in any business, marketing
plan, arrangement or program that emphasizes, targets or focuses on efforts to
solicit, develop or write any such business for credit union organizations or
credit union members, as such. In addition, during the term of the Agreement and
for a one year period thereafter, neither FDISG nor any subsidiary of FDISG
shall engage or in any manner assist any affiliate of FDISG to engage in an
effort to specifically market or target credit union organizations as a group on
a state, regional or national level for the purpose of soliciting, developing or
writing any insurance or financial services products business.
It is understood that, in the ordinary course of its business of
marketing its products to the general public, FDISG or its subsidiaries or
affiliates are likely to contact a certain number of businesses and members of
the general public who happen to be credit union organizations or members of
credit unions, without emphasizing, targeting or focusing upon them as such, and
this Section is not intended to prohibit these contacts or business resulting
from these contacts so long as they neither result from nor are the product of
activity otherwise prohibited by this Section.
This Section shall survive the termination of the Agreement for the
period stated above.
Article 16 Force Majeure.
No party shall be liable for any default or delay in the performance of
its obligations under this Agreement if and to the extent such default or delay
is caused, directly or indirectly, by (i) fire, flood, elements of nature or
other acts of God; (ii) any outbreak or escalation of hostilities, war, riots or
civil disorders in any country where FDISG or Fund have primary operations
located, (iii) any act or omission of the other party or any governmental
authority; (iv) any labor disputes (whether or not the employees' demands are
reasonable or within the party's power to satisfy); or (v) nonperformance by a
third party or any similar cause beyond the reasonable control of such party,
including without limitation, failures or fluctuations in telecommunications or
other equipment. In any such event, the non-performing party shall be excused
from any further performance and observance of the obligations so affected only
for as long as such circumstances prevail and such party continues to use
commercially reasonable efforts to recommence performance or observance as soon
as practicable.
Article 17 Assignment and Subcontracting.
This Agreement, its benefits and obligations shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. This Agreement may not be assigned or otherwise transferred by either
party hereto, without the prior written consent of the other party, which
consent shall not be unreasonably withheld; provided, however, that FDISG may,
in its sole discretion, assign all its right, title and interest in this
Agreement to an affiliate, parent or subsidiary, or to the purchaser of
substantially all of its business. FDISG may, in its sole discretion, engage
subcontractors to perform any of the obligations contained in this Agreement to
be performed by FDISG; provided, however, that FDISG shall be responsible for
the provisions of services of such subcontractors to the same extent as if the
services were performed by FDISG.
Article 18 Arbitration.
18.1 Any claim or controversy arising out of or relating to this
Agreement, or breach hereof, shall be settled by arbitration administered by the
American Arbitration Association in Boston, Massachusetts in accordance with its
applicable rules, except that the Federal Rules of Evidence and the Federal
Rules of Civil Procedure with respect to the discovery process shall apply.
18.2 The parties hereby agree that judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction.
18.3 The parties acknowledge and agree that the performance of the
obligations under this Agreement necessitates the use of instrumentalities of
interstate commerce and, notwithstanding other general choice of law provisions
in this Agreement, the parties agree that the Federal Arbitration Act shall
govern and control with respect to the provisions of this Article 18.
Article 19 Notice.
Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Fund or FDISG, shall be sufficiently given if
addressed to that party and received by it at its office set forth below or at
such other place as it may from time to time designate in writing.
To the Fund:
MEMBERS Mutual Funds
c/o CIMCO Inc.
5910 Mineral Point Road
Madison, Wisconsin 53705
Attention: Scott Powell
with a copy to:
Linda L. Lilledahl
Assistant Vice President and Associate General Counsel
CUNA Mutual Group
5910 Mineral Point Road
Location 3B-2
Madison, Wisconsin 53705
To FDISG:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to FDISG's General Counsel
Article 20 Governing Law/Venue.
The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, shall govern the interpretation, validity, and enforcement of
this agreement. All actions arising from or related to this Agreement shall be
brought in the state and federal courts sitting in the City of Boston, and FDISG
and Client hereby submit themselves to the exclusive jurisdiction of those
courts.
Article 21 Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.
Article 22 Captions.
The captions of this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
Article 23 Publicity.
Neither FDISG nor the Fund shall release or publish news releases,
public announcements, advertising or other publicity relating to this Agreement
or to the transactions contemplated by it without the prior review and written
approval of the other party; provided, however, that either party may make such
disclosures as are required by legal, accounting or regulatory requirements
after making reasonable efforts in the circumstances to consult in advance with
the other party.
Article 24 Relationship of Parties/Non-Solicitation.
24.1 The parties agree that they are independent contractors and not
partners or co-venturers and nothing contained herein shall be interpreted or
construed otherwise.
24.2 During the term of this Agreement and for one (1) year afterward,
the Fund shall not recruit, solicit, employ or engage, for the Fund or others,
FDISG's employees.
Article 25 Entire Agreement; Severability.
25.1 This Agreement, including Schedules, Addenda, and Exhibits hereto,
constitutes the entire Agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof. No change,
termination, modification, or waiver of any term or condition of the Agreement
shall be valid unless in writing signed by each party. No such writing shall be
effective as against FDISG unless said writing is executed by a Senior Vice
President, Executive Vice President, or President of FDISG. A party's waiver of
a breach of any term or condition in the Agreement shall not be deemed a waiver
of any subsequent breach of the same or another term or condition.
25.2 The parties intend every provision of this Agreement to be
severable. If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or invalidity
shall not affect the validity of the remainder of this Agreement. In such case,
the parties shall in good faith modify or substitute such provision consistent
with the original intent of the parties. Without limiting the generality of this
paragraph, if a court determines that any remedy stated in this Agreement has
failed of its essential purpose, then all other provisions of this Agreement,
including the limitations on liability and exclusion of damages, shall remain
fully effective.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, as of the day and year first above
written.
MEMBERS Mutual Funds
By: Scott R. Powell
Title: Secretary/Treasurer
FIRST DATA INVESTOR SERVICES GROUP, INC.
By: Jack P. Kutner
Title: President
<PAGE>
Exhibit 1
LIST OF PORTFOLIOS
MEMBERS Mutual Funds
Cash Reserves Fund
Bond Fund
Balanced Fund
High Income Fund
Growth and Income Fund
Capital Appreciation Fund
International Stock Fund
Schedule A
DUTIES OF FDISG
1. Shareholder Information. FDISG shall maintain a record of the number
of Shares held by each Shareholder of record which shall include name, address,
taxpayer identification and which shall indicate whether such Shares are held in
certificates or uncertificated form.
2. Shareholder Services. FDISG shall respond as appropriate to all
inquiries and communications from Shareholders relating to Shareholder accounts
with respect to its duties hereunder and as may be from time to time mutually
agreed upon between FDISG and the Fund.
3. Mailing Communications to Shareholders; Proxy Materials. FDISG will
address and mail to Shareholders of the Fund, all reports to Shareholders,
dividend and distribution notices and proxy material for the Fund's meetings of
Shareholders. In connection with meetings of Shareholders, FDISG will prepare
Shareholder lists, mail and certify as to the mailing of proxy materials,
process and tabulate returned proxy cards, report on proxies voted prior to
meetings, act as inspector of election at meetings and certify Shares voted at
meetings.
4. Sales of Shares
(a) FDISG shall not be required to issue any Shares of the
Fund where it has received a Written Instruction from the Fund or official
notice from any appropriate authority that the sale of the Shares of the Fund
has been suspended or discontinued. The existence of such Written Instructions
or such official notice shall be conclusive evidence of the right of FDISG to
rely on such Written Instructions or official notice.
(b) In the event that any check or other order for the payment
of money is returned unpaid for any reason, FDISG will endeavor to: (i) give
prompt notice of such return to the Fund or its designee; (ii) place a stop
transfer order against all Shares issued as a result of such check or order; and
(iii) take such actions as FDISG may from time to time deem appropriate.
5. Exchange and Repurchase
(a) FDISG shall process all requests to exchange or redeem
Shares in accordance with the transfer or repurchase procedures set forth in the
Fund's Prospectus.
(b) FDISG will exchange or repurchase Shares upon receipt of
Oral or Written Instructions or otherwise pursuant to the Prospectus and Share
certificates, if any, properly endorsed for transfer or redemption, accompanied
by such documents as FDISG reasonably may deem necessary.
(c) FDISG reserves the right to refuse to transfer or
repurchase Shares until it is satisfied that the endorsement on the instructions
is valid and genuine. FDISG also reserves the right to refuse to transfer or
repurchase Shares until it is satisfied that the requested transfer or
repurchase is legally authorized, and it shall incur no liability for the
refusal, in good faith, to make transfers or repurchases which FDISG, in its
good judgment, deems improper or unauthorized, or until it is reasonably
satisfied that there is no basis to any claims adverse to such transfer or
repurchase.
(d) When Shares are redeemed, FDISG shall, upon receipt of the
instructions and documents in proper form, deliver to the Custodian and the Fund
or its designee a notification setting forth the number of Shares to be
repurchased. Such repurchased shares shall be reflected on appropriate accounts
maintained by FDISG reflecting outstanding Shares of the Fund and Shares
attributed to individual accounts.
(e) FDISG shall upon receipt of the monies provided to it by
the Custodian for the repurchase of Shares, pay such monies as are received from
the Custodian, all in accordance with the procedures described in the written
instruction received by FDISG from the Fund.
(f) FDISG shall not process or effect any repurchase with
respect to Shares of the Fund after receipt by FDISG or its agent of
notification of the suspension of the determination of the net asset value of
the Fund.
6. Dividends
(a) Upon the declaration of each dividend and each capital
gains distribution by the Board of Directors of the Fund with respect to Shares
of the Fund, the Fund shall furnish or cause to be furnished to FDISG Written
Instructions setting forth the date of the declaration of such dividend or
distribution, the ex-dividend date, the date of payment thereof, the record date
as of which Shareholders entitled to payment shall be determined, the amount
payable per Share to the Shareholders of record as of that date, the total
amount payable on the payment date and whether such dividend or distribution is
to be paid in Shares at net asset value.
(b) On or before the payment date specified in such resolution
of the Board of Directors, the Fund will provide FDISG with sufficient cash to
make payment to the Shareholders of record as of such payment date.
(c) If FDISG does not receive sufficient cash from the Fund to
make total dividend and/or distribution payments to all Shareholders of the Fund
as of the record date, FDISG will, upon notifying the Fund, withhold payment to
all Shareholders of record as of the record date until sufficient cash is
provided to FDISG.
7. In addition to and neither in lieu nor in contravention of the
services set forth above, FDISG shall: (i) perform all the customary services of
a transfer agent, registrar, dividend disbursing agent and agent of the dividend
reinvestment and cash purchase plan as described herein consistent with those
requirements in effect as at the date of this Agreement. The detailed
definition, frequency, limitations and associated costs (if any) set out in the
attached fee schedule, include but are not limited to: maintaining all
Shareholder accounts, preparing Shareholder meeting lists, mailing proxies,
tabulating proxies, mailing Shareholder reports to current Shareholders,
withholding taxes on U.S. resident and non-resident alien accounts where
applicable, preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions by
federal authorities for all Shareholders.
Schedule B
JOINT FEE AGREEMENT
This Joint Fee Agreement is made as of October 28, 1997, by and between
FIRST DATA INVESTOR SERVICES GROUP, INC. ("FDISG"), a Massachusetts corporation,
and MEMBERS MUTUAL FUND (the "Company"), a Delaware corporation.
WHEREAS, FDISG and the Company have entered into an Administration
Agreement dated as of October 28, 1997, and a Transfer Agency Services Agreement
dated as of October 28, 1997 (collectively, the "Agreements"); and
WHEREAS, the Company and FDISG wish to set forth the fees to be paid by
the Company to FDISG.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. In consideration of the services which FDISG shall perform for the
Company pursuant to which the Company hereby agrees to pay FDISG an aggregate
monthly fee under the Agreements as follows:
$3,500.00 per class per Fund (as defined in the Agreements) per
month until the aggregate assets of the Funds have reached $500
million on any day.
if aggregate assets are less than $500 million, 0.15% of
aggregate average daily net assets or a minimum of $3,500 per
class, whichever is greater.
if aggregate assets are at least $500 million, but less than $1
billion, 0.12% of aggregate average daily net assets.
if aggregate assets are at least $1 billion, 0.09% of aggregate
average daily net assets.
The Company shall also pay FDISG the following fees relating to the
Transfer Agency Services Agreement:
Programming Costs
Dedicated Team:
Programmer $100,000 per annum
BSA $ 85,000 per annum
Tester $ 65,000 per annum
System Enhancements (Non Dedicated Team):
Programmer $135.00 per hour
The above rates are subject to an annual 5% increase after the
one year anniversary of the effective date of this Joint Fee
Agreement.
2. After the one year anniversary of the effective date of this Fee
Agreement, FDISG may adjust the above fees once per calendar year, upon thirty
(30) days prior written notice in an amount not to exceed the cumulative
percentage increase in the Consumer Price Index for All Urban Consumers (CPI-U)
U.S. City Average, All items (unadjusted) - (1982-84=100), published by the U.S.
Department of Labor since the last such adjustment in the Client's monthly fees
(or the Effective Date absent a prior such adjustment).
3. The penalties for the failure of FDISG to meet the Priority
Performance Standards (as such term is defined in the Administration Agreement)
shall be as follows:
If FDISG fails to meet a Priority Performance Standard in any
month, the Company shall provide written notice to FDISG.
If FDISG fails to meet the same Priority Performance Standard for
two (2) months in succession, FDISG's fee for the second month
shall be reduced by five (5) percent.
If FDISG fails to meet the same Priority Performance Standard for
three (3) months in any rolling six (6) month period, then the
Company shall have the right to terminate the Agreements in
accordance with their terms.
The penalties for the failure of FDISG to meet the Regular Performance
Standards (as such term is defined in the Administration Agreement) shall be as
follows:
If FDISG fails to meet a Regular Performance Standard in any
month (any quarter with respect to the Regular Performance
Standard relating to Legal Administration), the Company shall
provide written notice to FDISG.
If FDISG fails to meet the same Regular Performance Standard for
two (2) months in succession ) (two (2) quarters in succession
with respect to the Regular Performance Standard relating to Legal
Administration), FDISG's fee for the second month (or second
quarter as the case may be) shall be reduced by one (1) percent.
4. The Company agrees to pay all fees to FDISG by Federal Funds Wire
within fifteen (15) business days following the receipt of the invoice. In
addition, with respect to all fees under this Joint Fee Agreement, FDISG may
charge a past due service fee equal to the lesser of (a) one and one-half
percent (1 1/2%) per month or (b) the highest interest rate legally permitted on
any past due invoiced amounts.
5. FDISG shall also be entitled to receive out-of-pocket expenses as
set forth in each of the Agreements.
6. This Joint Fee Agreement may be amended from time to time by the
written agreement of the parties. FDISG recognizes that the pricing of this
Agreement and the previously described fees are subject to review by both
parties in the event that any portion of the listed services to be provided by
FDISG in the Agreements are performed internally by the Company or its Adviser
and affiliates (e.g. fund accounting or fund administration). The Company shall
give FDISG 180 days' notice of any decision by the Company to "internalize"
services and the Agreements will remain in force subject to mutually agreed upon
revisions to this Joint Fee Agreement.
7. This Joint Fee Agreement may be executed in any number of
counterparts each of which shall be deemed to be an original and which
collectively shall be deemed to constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed and delivered by their duly authorized officers, as of the day
and year first above written.
FIRST DATA INVESTOR SERVICES
GROUP, INC.
By: Jack P. Kutner
Title: President
MEMBERS MUTUAL FUNDS
By: Scott R. Powell
Title: Secretary/Treasurer
<PAGE>
Schedule C
OUT-OF-POCKET EXPENSES
The Fund shall reimburse FDISG monthly for applicable out-of-pocket
expenses, including, but not limited to the following items:
Microfiche/microfilm production
Magnetic media tapes and freight
Printing costs, including certificates, envelopes, checks and
stationery
Postage (bulk, pre-sort, ZIP+4, barcoding, first class)
direct pass through to the Fund
Due diligence mailings
Telephone and telecommunication costs, including all lease,
maintenance and line costs
Ad hoc reports
Proxy solicitations, mailings and tabulations
Daily & Distribution advice mailings
Shipping, Certified and Overnight mail and insurance
Year-end form production and mailings
Duplicating services
Courier services
Incoming and outgoing wire charges
Federal Reserve charges for check clearance
Overtime, as approved by the Fund
Temporary staff, as approved by the Fund
Travel and entertainment, as approved by the Fund
Record retention, retrieval and destruction costs, including,
but not limited to exit fees charged by third party record
keeping vendors
Third party audit reviews
Ad hoc SQL time
Insurance
Such other miscellaneous expenses reasonably incurred by FDISG in
performing its duties and responsibilities under this Agreement.
The Fund agrees that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with FDISG. In addition, the Fund will
promptly reimburse FDISG for any other unscheduled expenses incurred by FDISG
whenever the Fund and FDISG mutually agree that such expenses are not otherwise
properly borne by FDISG as part of its duties and obligations under the
Agreement.
Schedule D
FUND DOCUMENTS
Certified copy of the Articles of Incorporation of the Fund, as
amended
Copy of the resolution of the Board of Directors authorizing the
execution and delivery of this Agreement
All account application forms and other documents relating to
Shareholder accounts or to any plan, program or service offered
by the Fund
Certified list of Shareholders of the Fund with the name, address
and taxpayer identification number of each Shareholder, and the
number of Shares of the Fund held by each, certificate numbers and
denominations (if any certificates have been issued), lists of any
accounts against which stop transfer orders have been placed,
together with the reasons therefore, and the number of Shares
redeemed by the Fund
All notices issued by the Fund with respect to the Shares in
accordance with and pursuant to the Articles of Incorporation of
the Fund or as required by law and shall perform such other
specific duties as are set forth in the Articles of Incorporation
including the giving of notice of any special or annual meetings
of shareholders and any other notices required thereby.
SCHEDULE E
FIRST DATA SERVICE
REGULAR PERFORMANCE STANDARDS
Phones
The average speed of answering calls will be twenty(20) seconds
or less.
The abandonment rate for phone calls will be three (3) percent or
less.
Service levels will be at least 85%.
Primary representative will be monitored and graded by their
manager at least eight (8) times per month, secondary
representatives will be monitored and graded at least three (3)
times per month. These reviews will them be forwarded to the Fund
for review at the end of each month.
The VRU (Voice Response Unit) will be available for inquiry at
least 98% of the time.
Fulfillment
FDISG will send all fulfillment requests to the Fund or is agent
daily at 1:00 p.m. and 5:30 p.m. eastern time.
Processing
New accounts will be in Good Order; set up will be completed on
the same day it is received.
Correspondence will be completed within five (5) business days
from receipt.
Maintenance items will be completed within five (5) business days
from receipt.
Research will be completed within four (4) business days from
receipt.
Print/Mail
Quarterly statements will be mailed out to shareholders within
five (5) business days from quarter end.
Daily confirmations will be mailed to shareholders on Trade Date
+ two (2) business days.
Checks will be mailed to shareholders on Trade Date + one (1)
business day.
Ad hoc projects will be completed within five (5) business days
from request.
The above standards will be met 98% of the time as measured on a monthly basis.
<PAGE>
EXHIBIT 10
[SUTHERLAND, ASBILL & BRENNAN LLP LETTERHEAD]
November 10, 1997
Board of Trustees
MEMBERS Mutual Funds
5910 Mineral Point Road
Madison, Wisconsin 53705
Re: MEMBERS Mutual Funds
Form N-1A Registration Statement
(File Nos. 333-29511 and 811-08261)
Trustees:
We have acted as counsel to MEMBERS Mutual Funds (the
"Trust"), a business trust organized under the laws of the State of Delaware, in
connection with its registration as an open-end management investment company
under the Investment Company Act of 1940, as amended, and in connection with its
registration of an indefinite number of shares of beneficial interest in the
Trust (the "Shares") under the Securities Act of 1933, as amended (the "1933
Act"). In this connection, we have prepared the initial registration statement,
pre-effective amendment number one to the registration statement filed by you,
and pre-effective amendment number two to the registration statement to be filed
by you with the Securities and Exchange Commission on Form N-1A (File Nos.
333-29511 and 811-08261) (collectively, the "registration statements"). We also
are familiar with the actions taken by you by written consent on May 20, 1997
and at the board of trustees meetings on September 4, 1997 and October 28, 1997
in connection with the authorization, issuance and sale of the Shares.
We have examined such Trust records, certificates and other
documents and reviewed such questions of law as we have considered necessary or
appropriate for purposes of this opinion. In our examination of such materials,
we have assumed the genuineness of all signatures and the conformity to the
original documents of all copies submitted to us. As to certain questions of
fact material to our opinion, we have relied upon statements of officers of the
Trust and upon representations of the Trust made in the registration statements.
Based upon the foregoing, we are of the opinion that the
Shares, when issued and sold in the manner described in the registration
statements, will be legally issued, fully paid and non-assessable.
We are attorneys licensed to practice only in the State of
Georgia and the District of Columbia.
We hereby consent to the reference to our name in the
prospectuses and statement of additional information filed as part of the
registration statements. In giving this consent, we do not admit that we are in
the category of persons whose consent is required under Section 7 of the 1933
Act.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN LLP
By: /s/ Stephen E. Roth
Stephen E. Roth
<PAGE>
EXHIBIT 11
Independent Auditors' Consent
The Board of Directors
MEMBERS Mutual Funds:
We consent to the use of our report included herein and to the reference to our
Firm under the heading INDEPENDENT AUDITORS in Part B of the Registration
Statement.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 10, 1997
<PAGE>
EXHIBIT (13)(a)
MEMBERS MUTUAL FUNDS
SUBSCRIPTION AGREEMENT
MEMBERS Mutual Funds, a business trust organized under the laws of the
State of Delaware (the "Trust"), and CUNA Mutual Insurance Society ("CMIS"), an
insurance company organized under the laws of the State of Wisconsin, agree as
follows:
1. Offer and Purchase.
The Trust offers to CMIS, and CMIS agrees to purchase, the number and
amount of Class A and Class B shares (the "Shares") shown on the Schedule
attached to this Agreement, of Bond Fund, Balanced Fund, High Income Fund,
Growth and Income Fund, Capital Appreciation Fund, International Stock Fund, and
Cash Reserves Fund, each a series of the Trust. CMIS acknowledges receipt from
the Trust of the Shares and the Trust acknowledges receipt from CMIS of an
aggregate of $300,000 in full payment for the Shares.
2. Representation by CMIS.
CMIS represents and warrants to the Trust that the Shares are being
acquired for investment purposes and not with a view to resale or further
distribution.
3. Reduction of Redemption Proceeds.
CMIS agrees that, if any of the Shares are redeemed before five years
after the effective date of this Agreement by CMIS or by any other holder, the
proceeds of the redemption will be reduced by the unamortized portion of the
organization expenses in the same proportion as the number of Shares being
redeemed bears to the number of initial shares of the Funds outstanding at the
time of the redemption.
4. Filing of Certificate of Trust.
The Trust represents that a copy of its Certificate of Trust dated May
16, 1997, as amended from time to time, is on file with the Secretary of State
of the State of Delaware. The Trust represents that a copy of its Declaration of
Trust dated May 16, 1997, as amended from time to time, is maintained by the
Trust
5. Limitation of Liability.
The Trust and CMIS agree that the obligations of the Trust under this
Agreement will not be binding upon any of the Trustees, shareholders, nominees,
officers, employees or agents, whether past, present or future, of the Trust,
individually, but are binding only upon the assets and property of the Trust.
The execution and delivery of this Agreement has been authorized by the Trustees
of the Trust, and signed by an authorized officer of the Trust, acting as such,
and neither the authorization by the Trustees nor the execution and delivery by
the officer will be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but will bind only the trust
property of the Trust. No series of the Trust will be liable for any claims
against any other series.
6. No Right of Assignment.
CMIS's right under this Agreement to purchase the Shares is not
assignable.
7. Dates.
This Agreement will become effective as of the date the Trust's
Registration Statement on Form N-1A becomes effective.
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Agreement as of the 7th day of November, 1997.
MEMBERS Mutual Funds
By: Scott R. Powell
Name: Scott R. Powell
Title:
Secretary/Treasurer
ATTEST:
Holly S. Baggot
CUNA Mutual Insurance Society
By: Michael S. Daubs
Name: Michael S. Daubs
Title: Chief Investment
Officer
ATTEST:
Jeanne M. Mraz
<PAGE>
CMIS SCHEDULE
Amount of Amount of Price per
Name of Fund A Shares B Shares Shares Total
Bond Fund 4,900 100 $10.00 $50,000
Balanced Fund 4,900 100 $10.00 $50,000
High Income Fund 0 0 NA $0
Growth and Income Fund 4,900 100 $10.00 $50,000
Capital Appreciation Fund 4,900 100 $10.00 $50,000
International Stock Fund 4,900 100 $10.00 $50,000
Cash Reserves Fund 49,000 1,000 $1.00 $50,000
-------
Total $300,000
<PAGE>
EXHIBIT 13(b)
MEMBERS MUTUAL FUNDS
SUBSCRIPTION AGREEMENT
MEMBERS Mutual Funds, a business trust organized under the laws of the
State of Delaware (the "Trust"), and CUNA Mutual Life Insurance Company
("CMLIC"), an insurance company organized under the laws of the State of Iowa,
agree as follows:
1. Offer and Purchase.
The Trust offers to CMLIC, and CMLIC agrees to purchase, the number and
amount of Class A and Class B shares (the "Shares") shown on the Schedule
attached to this Agreement, of Bond Fund, Balanced Fund, High Income Fund,
Growth and Income Fund, Capital Appreciation Fund, International Stock Fund, and
Cash Reserves Fund, each a series of the Trust. CMLIC acknowledges receipt from
the Trust of the Shares and the Trust acknowledges receipt from CMLIC of an
aggregate of $50,000 in full payment for the Shares.
2. Representation by CMLIC.
CMLIC represents and warrants to the Trust that the Shares are being
acquired for investment purposes and not with a view to resale or further
distribution.
3. Reduction of Redemption Proceeds.
CMLIC agrees that, if any of the Shares are redeemed before five years
after the effective date of this Agreement by CMLIC or by any other holder, the
proceeds of the redemption will be reduced by the unamortized portion of the
organization expenses in the same proportion as the number of Shares being
redeemed bears to the number of initial shares of the Funds outstanding at the
time of the redemption.
4. Filing of Certificate of Trust.
The Trust represents that a copy of its Certificate of Trust dated May
16, 1997, as amended from time to time, is on file with the Secretary of State
of the State of Delaware. The Trust represents that a copy of its Declaration of
Trust dated May 16, 1997, as amended from time to time, is maintained by the
Trust
5. Limitation of Liability.
The Trust and CMLIC agree that the obligations of the Trust under this
Agreement will not be binding upon any of the Trustees, shareholders, nominees,
officers, employees or agents, whether past, present or future, of the Trust,
individually, but are binding only upon the assets and property of the Trust.
The execution and delivery of this Agreement has been authorized by the Trustees
of the Trust, and signed by an authorized officer of the Trust, acting as such,
and neither the authorization by the Trustees nor the execution and delivery by
the officer will be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but will bind only the trust
property of the Trust. No series of the Trust will be liable for any claims
against any other series.
6. No Right of Assignment.
CMLIC's right under this Agreement to purchase the Shares is not
assignable.
7. Dates.
This Agreement will become effective as of the date the Trust's
Registration Statement on Form N-1A becomes effective.
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Agreement as of the 7th day of November, 1997.
MEMBERS Mutual Funds
By: Scott R. Powell
Name: Scott R. Powell
Title:
Secretary/Treasurer
ATTEST:
Holly S. Baggot
CUNA Mutual Life Insurance Company
By: Michael S. Daubs
Name: Michael S. Daubs
Title: Chief Investment
Officer
ATTEST:
Jeanne M. Mraz
<PAGE>
CMLIC SCHEDULE
Amount of Amount of Price per
Name of Fund A Shares B Shares Shares Total
Bond Fund 0 0 NA $0
Balanced Fund 0 0 NA $0
High Income Fund 4,900 100 $10.00 $50,000
Growth and Income Fund 0 0 NA $0
Capital Appreciation Fund 0 0 NA $0
International Stock Fund 0 0 NA $0
Cash Reserves Fund 0 0 NA $0
--
Total $50,000
<PAGE>
MEMBERS Mutual Funds SEC Filing
Exhibit 16 - Schedule of Performance Information
Attachments
Growth of $10,000 Computation for the Ultra Series:
Balanced Fund
Bond Fund
Capital Appreciation Stock Fund
Growth and Income Stock Fund
Growth of $10,000 Computation for the following indexes:
Lehman Brothers Intermediate Corporate and Government Index
Standard & Poors 500 Index
Standard & Poors 400 Index
Synthetic Index
Calculation of Synthetic Index (Blended)
Growth of $10,000 for Lehman Brothers High Yield Index and MFS High Income Class
A Shares.
MFS High Income Fund A Calculation of Annual Returns including reinvestment of
all gains and dividends.
Sample Calculation of USF Capital Appreciation Stock Fund Annual Returns
including reinvestment of all gains and dividends.
Sample Calculation of Total Return - USF Balanced Fund
<PAGE>
<TABLE>
<CAPTION>
GROWTH OF $10,000 FOR BALANCED FUND GROWTH OF $10,000 FOR BOND FUND
----------------------------------- -------------------------------
Monthly Quarter Annual Index Monthly Quarter Annual Index
date Return Return Return Value Return Return Return Value
------ ------ ------ ----- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
01/31/87 0.0669 0.0187
02/28/87 0.0333 0.0038
03/31/87 0.0083 11.16% 11,115.78 -0.0027 1.98% 10,198.10
04/30/87 -0.0212 -0.0212
05/31/87 0.0041 -0.0054
06/30/87 0.0218 0.42% 11,162.89 0.011 -1.58% 10,037.21
07/31/87 0.0199 0.0012
08/31/87 0.0134 -0.0079
09/30/87 -0.0244 0.83% 11,256.08 -0.021 -2.76% 9,760.50
10/31/87 -0.0806 0.0264
11/30/87 -0.0133 0.0162
12/31/87 0.0339 -6.21% 5.57% 10,557.36 0.0123 5.59% 3.06% 10,305.69
01/31/88 0.0359 0.0256
02/28/88 0.0331 0.0155
03/31/88 -0.0096 5.99% 11,189.89 -0.0083 3.29% 10,644.25
04/30/88 -0.0019 0.0015
05/31/88 -0.0007 -0.0059
06/30/88 0.0293 2.66% 11,487.83 0.0225 1.80% 10,835.76
07/31/88 -0.008 -0.002
08/31/88 -0.0097 0.0031
09/30/88 0.033 1.48% 11,657.80 0.0169 1.80% 11,030.94
10/31/88 0.0097 0.0157
11/30/88 -0.0154 -0.0088
12/31/88 0.0101 0.42% 10.89% 11,706.67 0.0028 0.96% 8.06% 11,136.63
01/31/89 0.0333 0.0133
02/28/89 -0.0086 -0.0033
03/31/89 0.0106 3.53% 12,119.59 0.0018 1.18% 11,267.75
04/30/89 0.0287 0.0141
05/31/89 0.0305 0.0196
06/30/89 0.0031 6.34% 12,887.51 0.0246 5.94% 11,937.19
07/31/89 0.033 0.0161
08/31/89 0.0083 -0.0075
09/30/89 0.0072 4.91% 13,519.94 0.0027 1.12% 12,070.91
10/31/89 0.0011 0.0194
11/30/89 0.0098 0.0088
12/31/89 0.011 2.20% 18.03% 13,817.79 0.0026 3.10% 11.75% 12,445.65
01/31/90 -0.0279 -0.0099
02/28/90 0.0082 0.0055
03/31/90 0.0155 -0.47% 13,752.33 0.0023 -0.22% 12,418.71
04/30/90 -0.002 -0.0072
05/31/90 0.0377 0.023
06/30/90 0.0067 4.26% 14,337.67 0.0124 2.82% 12,769.27
07/31/90 -0.003 0.013
08/31/90 -0.0361 -0.01
09/30/90 -0.0186 -5.69% 13,522.34 0.0021 0.50% 12,832.81
10/31/90 0.0051 0.0093
11/30/90 0.0349 0.02
12/31/90 0.0192 6.01% 3.75% 14,335.70 0.0117 4.15% 7.39% 13,365.76
01/31/91 0.0274 0.005
02/28/91 0.0296 0.0111
03/31/91 0.0201 7.91% 15,469.27 0.0106 2.69% 13,725.66
04/30/91 0.0126 0.0106
05/31/91 0.0185 0.0092
06/30/91 -0.0233 0.73% 15,582.24 0.0012 2.11% 14,015.57
07/31/91 0.0132 0.0109
08/31/91 0.0217 0.0192
09/30/91 0.003 3.83% 16,178.92 0.0159 4.67% 14,669.97
10/31/91 0.011 0.0105
11/30/91 -0.0163 0.0079
12/31/91 0.0561 5.03% 18.54% 16,992.93 0.0262 4.52% 14.72% 15,332.57
01/31/92 -0.0002 -0.0094
02/28/92 0.0045 0.0021
03/31/92 -0.0111 -0.68% 16,876.55 -0.0036 -1.09% 15,165.55
04/30/92 0.0107 0.0081
05/31/92 0.0065 0.015
06/30/92 -0.0063 1.09% 17,059.84 0.0138 3.73% 15,731.86
07/31/92 0.0279 0.0201
08/31/92 -0.0048 0.0094
09/30/92 0.0118 3.50% 17,657.57 0.0138 4.39% 16,422.47
10/31/92 0.004 -0.0131
11/30/92 0.0099 -0.0054
12/31/92 0.0141 2.82% 6.85% 18,156.15 0.0128 -0.59% 6.48% 16,326.15
01/31/93 0.017 0.0171
02/28/93 0.0044 0.0177
03/31/93 0.0147 3.65% 18,818.68 0.0035 3.87% 16,958.38
04/30/93 -0.005 0.0076
05/31/93 0.0134 -0.0008
06/30/93 0.0026 1.10% 19,024.83 0.0152 2.21% 17,333.12
07/31/93 0.0014 0.0036
08/31/93 0.0199 0.0162
09/30/93 0.0087 3.02% 19,599.64 0.0049 2.49% 17,763.94
10/31/93 0.0129 0.0039
11/30/93 -0.006 -0.0084
12/31/93 0.0163 2.32% 10.46% 20,055.01 0.0052 0.06% 8.88% 17,775.38
01/31/94 0.0244 0.0113
02/28/94 -0.0124 -0.0167
03/31/94 -0.0295 -1.81% 19,691.06 -0.0195 -2.50% 17,331.35
04/30/94 0.0079 -0.0075
05/31/94 0.0053 0.0008
06/30/94 -0.0186 -0.56% 19,580.70 -0.0002 -0.69% 17,211.69
07/31/94 0.0188 0.0135
08/31/94 0.0221 0.0017
09/30/94 -0.0153 2.54% 20,077.73 -0.0108 0.43% 17,284.98
10/31/94 0.0058 -0.0014
11/30/94 -0.0189 -0.0045
12/31/94 0.0075 -0.58% -0.47% 19,961.10 0.0026 -0.33% -3.08% 17,227.79
01/31/95 0.017 0.0168
02/28/95 0.0291 0.0216
03/31/95 0.0158 6.31% 21,221.26 0.0051 4.41% 17,986.85
04/30/95 0.0143 0.0131
05/31/95 0.0327 0.0316
06/30/95 0.0099 5.78% 22,448.65 0.0075 5.30% 18,939.30
07/31/95 0.0213 -0.0016
08/31/95 0.0079 0.0108
09/30/95 0.0167 4.66% 23,493.83 0.0072 1.64% 19,250.83
10/31/95 -0.0038 0.0135
11/30/95 0.0267 0.0155
12/31/95 0.015 3.81% 22.19% 24,389.90 0.0119 4.15% 16.38% 20,048.91
01/31/96 0.0181 0.006
02/28/96 -0.0004 -0.0191
03/31/96 0.0071 2.49% 24,997.65 -0.007 -2.01% 19,645.48
04/30/96 0.005 -0.0094
05/31/96 0.005 -0.0017
06/30/96 -0.0033 0.67% 25,164.94 0.0118 0.06% 19,656.98
07/31/96 -0.0246 0.0029
08/31/96 0.0133 -0.0014
09/30/96 0.0266 1.47% 25,533.94 0.0175 1.90% 20,030.89
10/31/96 0.0184 0.0233
11/30/96 0.0382 0.0143
12/31/96 0.001 5.84% 10.80% 27,024.11 -0.0082 2.94% 2.85% 20,620.24
01/31/97 0.0247 0.0026
02/28/97 0.0044 0.0034
03/31/97 -0.0203 0.83% 27,248.83 -0.0121 -0.62% 20,493.14
<PAGE>
GROWTH OF $10,000 FOR GROWTH OF $10,000 FOR
CAPITAL APPRECIATION STOCK FUND FOR GROWTH & INCOME STOCK FUND
Monthly Quarter Annual Index Monthly Quarter Annual Index
date Return Return Return Value Return Return Return Value
------ ------ ------ ----- ------ ------ ------ -----
01/31/87 0.1118
02/28/87 0.0556
03/31/87 0.0144 19.05% 11,905.16
04/30/87 -0.024
05/31/87 0.0162
06/30/87 0.0347 2.62% 12,217.40
07/31/87 0.0455
08/31/87 0.0343
09/30/87 -0.026 5.32% 12,867.92
10/31/87 -0.2142
11/30/87 -0.0593
12/31/87 0.0654 -21.25% 1.34% 10,134.08
01/31/88 0.0631
02/28/88 0.057
03/31/88 -0.0145 10.74% 11,222.51
04/30/88 -0.0112
05/31/88 0.0068
06/30/88 0.0388 3.42% 11,605.76
07/31/88 -0.0114
08/31/88 -0.0264
09/30/88 0.0514 1.20% 11,744.72
10/31/88 0.0085
11/30/88 -0.0193
12/31/88 0.0175 0.63% 16.63% 11,819.23
01/31/89 0.0516
02/28/89 -0.0158
03/31/89 0.0195 5.52% 12,471.26
04/30/89 0.0456
05/31/89 0.0427
06/30/89 -0.0195 6.90% 13,331.62
07/31/89 0.0634
08/31/89 0.0177
09/30/89 0.008 9.09% 14,543.19
10/31/89 -0.0191
11/30/89 0.0135
12/31/89 0.0166 1.06% 24.36% 14,698.00
01/31/90 -0.0597
02/28/90 0.0089
03/31/90 0.0311 -2.18% 14,377.18
04/30/90 -0.0051
05/31/90 0.0674
06/30/90 -0.0001 6.19% 15,266.41
07/31/90 -0.0183
08/31/90 -0.0751
09/30/90 -0.0494 -13.69% 13,176.75
10/31/90 0.0009
11/30/90 0.0607
12/31/90 0.0299 9.34% -1.98% 14,407.43
01/31/91 0.0463
02/28/91 0.0555
03/31/91 0.0358 14.39% 16,480.75
04/30/91 0.0167
05/31/91 0.0315
06/30/91 -0.052 -0.58% 16,385.04
07/31/91 0.0184
08/31/91 0.0282
09/30/91 -0.0103 3.63% 16,980.36
10/31/91 0.0141
11/30/91 -0.0379
12/31/91 0.0929 6.63% 25.67% 18,106.24
01/31/92 0.0063
02/28/92 0.007
03/31/92 -0.02 -0.69% 17,980.90
04/30/92 0.0145
05/31/92 0.0003
06/30/92 -0.0284 -1.40% 17,728.88
07/31/92 0.0407
08/31/92 -0.0187
09/30/92 0.0108 3.23% 18,300.96
10/31/92 0.0199
11/30/92 0.0255
12/31/92 0.0184 6.52% 7.66% 19,493.30
01/31/93 0.0193
02/28/93 -0.0069
03/31/93 0.0278 4.04% 20,280.99
04/30/93 -0.0185
05/31/93 0.0299
06/30/93 -0.0088 0.20% 20,320.56
07/31/93 -0.0001
08/31/93 0.0274
09/30/93 0.0136 4.13% 21,159.16
10/31/93 0.0234
11/30/93 -0.0057
12/31/93 0.0299 4.80% 13.76% 22,174.63
01/31/94 0.0532 0.0419
02/28/94 -0.02 -0.0129
03/31/94 -0.0365 -0.55% 9,944.63 -0.0436 -1.64% 21,811.38
04/30/94 0.0194 0.0231
05/31/94 0.0241 0.0124
06/30/94 -0.0287 1.40% 10,083.91 -0.0361 -0.16% 21,776.36
07/31/94 0.0163 0.0254
08/31/94 0.0512 0.0441
09/30/94 -0.0087 5.90% 10,679.27 -0.0216 4.75% 22,810.62
10/31/94 0.0164 0.0122
11/30/94 -0.0348 -0.0369
12/31/94 0.0065 -1.26% 5.45% 10,544.77 0.0114 -1.40% 1.42% 22,490.43
01/31/95 0.0191 0.0201
02/28/95 0.0416 0.0407
03/31/95 0.0374 10.12% 11,611.84 0.0232 8.62% 24,430.18
04/30/95 0.0136 0.0202
05/31/95 0.0255 0.033
06/30/95 0.0202 6.04% 12,313.71 0.0131 6.77% 26,083.43
07/31/95 0.0468 0.0403
08/31/95 0.0056 0.0013
09/30/95 0.0162 6.97% 13,172.16 0.0368 8.00% 28,169.71
10/31/95 -0.0189 -0.0111
11/30/95 0.0435 0.04
12/31/95 0.0223 4.66% 30.74% 13,786.09 0.0226 5.17% 31.73% 29,626.06
01/31/96 0.0365 0.0306
02/28/96 0.0245 0.0073
03/31/96 0.0235 8.68% 14,983.39 0.0191 5.80% 31,342.94
04/30/96 0.0297 0.0028
05/31/96 0.0121 0.0201
06/30/96 -0.0301 1.08% 15,145.07 -0.0056 1.72% 31,882.91
07/31/96 -0.0618 -0.0489
08/31/96 0.0307 0.0298
09/30/96 0.0387 0.44% 15,212.10 0.0432 2.18% 32,576.51
10/31/96 0.015 0.0205
11/30/96 0.0594 0.0848
12/31/96 0.0235 10.06% 21.44% 16,741.83 0.0023 10.96% 22.01% 36,146.39
01/31/97 0.0496 0.0451
02/28/97 0.0062 0.0051
03/31/97 -0.0311 2.33% 17,131.29 -0.0262 2.29% 36,974.46
<PAGE>
GROWTH OF $10,000 FOR LEHMAN BROTHERS
INTERMEDIATE GOVT./CORPORATE BOND INDEX
GROWTH OF $10,000 FOR STANDARD & POORS 500 STOCK
INDEX
Monthly Quarter Annual Index Monthly Quarter Annual Index
date Return Return Return Value Return Return Return Value
------ ------ ------ ----- ------ ------ ------ -----
01/31/87 1.01% 13.43%
02/28/87 0.51% 0.0413
03/31/87 -0.21% 1.31% 10,131.19 0.0272 21.33% 12,132.74
04/30/87 -1.83% -0.0088
05/31/87 -0.23% 0.0103
06/30/87 1.21% -0.87% 10,042.99 0.0499 5.14% 12,756.11
07/31/87 0.23% 0.0498
08/31/87 -0.26% 0.0385
09/30/87 -1.30% -1.33% 9,909.39 -0.022 6.62% 13,600.98
10/31/87 2.86% -0.2152
11/30/87 0.64% -0.0819
12/31/87 1.05% 4.61% 3.66% 10,365.75 0.0738 -22.63% 5.23% 10,523.08
01/31/88 2.56% 0.0427
02/28/88 1.11% 0.047
03/31/88 -0.38% 3.30% 10,708.27 -0.0302 5.87% 11,141.17
04/30/88 -0.17% 0.0108
05/31/88 -0.44% 0.0078
06/30/88 1.59% 0.97% 10,812.25 0.0464 6.60% 11,875.95
07/31/88 -0.21% -0.004
08/31/88 0.15% -0.0331
09/30/88 1.74% 1.68% 10,993.75 0.0424 0.39% 11,921.85
10/31/88 1.36% 0.0273
11/30/88 -0.85% -0.0142
12/31/88 0.09% 0.59% 6.68% 11,058.49 0.0181 3.10% 16.81% 12,291.93
01/31/89 1.05% 0.0723
02/28/89 -0.42% -0.0249
03/31/89 0.42% 1.05% 11,174.41 0.0236 7.03% 13,155.76
04/30/89 2.00% 0.0516
05/31/89 1.98% 0.0402
06/30/89 2.52% 6.64% 11,916.49 -0.0054 8.80% 14,313.03
07/31/89 2.05% 0.0898
08/31/89 -1.29% 0.0193
09/30/89 0.47% 1.21% 12,060.32 -0.0039 10.65% 15,837.39
10/31/89 2.12% -0.0233
11/30/89 0.95% 0.0208
12/31/89 0.28% 3.38% 12.74% 12,467.81 0.0236 2.05% 31.49% 16,162.76
01/31/90 -0.64% -0.0671
02/28/90 0.37% 0.0129
03/31/90 0.13% -0.14% 12,450.02 0.0263 -3.02% 15,674.42
04/30/90 -0.35% -0.0247
05/31/90 2.20% 0.0975
06/30/90 1.34% 3.21% 12,849.29 -0.007 6.29% 16,660.33
07/31/90 1.39% -0.0032
08/31/90 -0.41% -0.0903
09/30/90 0.77% 1.75% 13,074.38 -0.0492 -13.78% 14,364.12
10/31/90 1.16% -0.0037
11/30/90 1.52% 0.0644
12/31/90 1.37% 4.10% 9.17% 13,611.03 0.0274 8.95% -3.17% 15,649.97
01/31/91 1.02% 0.0442
02/28/91 0.80% 0.0716
03/31/91 0.68% 2.52% 13,954.11 0.0238 14.56% 17,928.55
04/30/91 1.09% 0.0028
05/31/91 0.61% 0.0428
06/30/91 0.07% 1.78% 14,202.20 -0.0457 -0.21% 17,891.44
07/31/91 1.12% 0.0468
08/31/91 1.91% 0.0235
09/30/91 1.72% 4.82% 14,887.29 -0.0164 5.38% 18,854.52
10/31/91 1.14% 0.0134
11/30/91 1.15% -0.0404
12/31/91 2.44% 4.80% 14.63% 15,601.78 0.1143 8.36% 30.55% 20,430.96
01/31/92 -0.91% -0.0186
02/28/92 0.39% 0.0128
03/31/92 -0.39% -0.91% 15,459.57 -0.0196 -2.55% 19,909.56
04/30/92 0.88% 0.0291
05/31/92 1.55% 0.0054
06/30/92 1.48% 3.96% 16,071.74 -0.0145 1.97% 20,300.88
07/31/92 1.99% 0.0403
08/31/92 1.00% -0.0202
09/30/92 1.36% 4.41% 16,780.63 0.0115 3.10% 20,930.36
10/31/92 -1.30% 0.0036
11/30/92 -0.38% 0.0337
12/31/92 1.34% -0.36% 7.17% 16,720.64 0.0131 5.10% 7.67% 21,998.05
01/31/93 1.94% 0.0073
02/28/93 1.58% 0.0135
03/31/93 0.40% 3.96% 17,383.59 0.0215 4.28% 22,940.62
04/30/93 0.80% -0.0245
05/31/93 -0.22% 0.027
06/30/93 1.57% 2.16% 17,758.61 0.0033 0.51% 23,058.64
07/31/93 0.24% -0.0047
08/31/93 1.59% 0.0381
09/30/93 0.41% 2.25% 18,158.42 -0.0074 2.56% 23,648.37
10/31/93 0.27% 0.0203
11/30/93 -0.56% -0.0094
12/31/93 0.46% 0.17% 8.78% 18,188.77 0.0123 2.31% 9.99% 24,195.61
01/31/94 1.11% 0.0335
02/28/94 -1.48% -0.027
03/31/94 -1.65% -2.03% 17,819.53 -0.0435 -3.81% 23,272.60
04/30/94 -0.68% 0.013
05/31/94 0.07% 0.0163
06/30/94 0.01% -0.60% 17,712.51 -0.0247 0.41% 23,367.62
07/31/94 1.44% 0.0331
08/31/94 0.31% 0.0407
09/30/94 -0.92% 0.82% 17,857.46 -0.0241 4.92% 24,518.15
10/31/94 -0.01% 0.0229
11/30/94 -0.45% -0.0367
12/31/94 0.35% -0.11% -1.93% 17,837.54 0.0146 -0.03% 1.31% 24,511.92
01/31/95 1.68% 0.0259
02/28/95 2.07% 0.0389
03/31/95 0.57% 4.38% 18,618.17 0.0295 9.72% 26,895.68
04/30/95 1.24% 0.0294
05/31/95 3.02% 0.0399
06/30/95 0.67% 5.00% 19,548.38 0.0232 9.53% 29,459.05
07/31/95 0.01% 0.0331
08/31/95 0.91% 0.0025
09/30/95 0.72% 1.65% 19,870.28 0.0422 7.94% 31,797.76
10/31/95 1.11% -0.0036
11/30/95 1.31% 0.0439
12/31/95 1.05% 3.51% 15.31% 20,567.75 0.0193 6.02% 37.54% 33,712.52
01/31/96 0.86% 0.034
02/28/96 -1.17% 0.0093
03/31/96 -0.51% -0.83% 20,397.36 0.0096 5.36% 35,520.69
04/30/96 -0.35% 0.0147
05/31/96 -0.08% 0.0257
06/30/96 1.06% 0.63% 20,524.99 0.0038 4.47% 37,109.63
07/31/96 0.30% -0.0442
08/31/96 0.08% 0.0211
09/30/96 1.39% 1.78% 20,889.42 0.0562 3.08% 38,253.22
10/31/96 1.77% 0.0276
11/30/96 1.32% 0.0757
12/31/96 -0.64% 2.45% 4.06% 21,401.93 -0.0198 8.35% 22.94% 41,447.47
01/31/97 0.39% 0.0624
02/28/97 0.19% 0.0079
03/31/97 -0.69% -0.11% 21,377.69 -0.041 2.69% 42,562.01
<PAGE>
GROWTH OF $10,000 FOR GROWTH OF $10,000 FOR SYNTHETIC INDEX (45% S&P
500, 40% LEHMAN INTERMEDIATE GOVT./CORPORATE
STANDARD & POORS 400 STOCK INDEX BOND INDEX, 15% 90-DAY TREASURY BILLS)
Monthly Quarter Annual Index Monthly Quarter Annual Index
date Return Return Return Value Return Return Return Value
------ ------ ------ ----- ------ ------ ------ -----
01/31/87 0.00% 6.45%
02/28/87 0.00% 2.06%
03/31/87 20.92% 20.92% 1.35% 10.11% 11,010.80
04/30/87 0.00% -1.13%
05/31/87 0.00% 0.37%
06/30/87 -0.85% -0.85% 2.95% 2.16% 11,249.06
07/31/87 0.00% 2.33%
08/31/87 0.00% 1.63%
09/30/87 4.49% 4.49% -1.29% 2.66% 11,548.64
10/31/87 0.00% -8.54%
11/30/87 0.00% -3.43%
12/31/87 -21.08% -21.08% -1.13% 3.97% -8.17% 6.05% 10,604.84
01/31/88 0.00% 2.95%
02/28/88 0.00% 2.56%
03/31/88 13.03% 13.03% -1.28% 4.23% 11,053.76
04/30/88 0.00% 0.42%
05/31/88 0.00% 0.18%
06/30/88 5.50% 5.50% 2.99% 3.60% 11,451.58
07/31/88 0.00% -0.18%
08/31/88 0.00% -1.34%
09/30/88 -1.31% -1.31% 2.69% 1.13% 11,581.43
10/31/88 0.00% 1.86%
11/30/88 0.00% -0.88%
12/31/88 2.72% 2.72% 20.89% 0.95% 1.92% 11.31% 11,804.34
01/31/89 0.00% 3.78%
02/28/89 0.00% -1.18%
03/31/89 9.54% 9.54% 1.34% 3.92% 12,267.36
04/30/89 0.00% 3.23%
05/31/89 0.00% 2.70%
06/30/89 10.00% 10.00% 0.87% 6.94% 13,118.46
07/31/89 0.00% 4.96%
08/31/89 0.00% 0.45%
09/30/89 10.91% 10.91% 0.11% 5.55% 13,845.90
10/31/89 0.00% -0.11%
11/30/89 0.00% 1.41%
12/31/89 1.40% 1.40% 35.51% 1.27% 2.59% 20.33% 14,204.66
01/31/90 0.00% -3.18%
02/28/90 0.00% 0.82%
03/31/90 -3.13% -3.13% 1.33% -1.08% 14,051.25
04/30/90 0.00% -1.15%
05/31/90 0.00% 5.37%
06/30/90 5.93% 5.93% 0.32% 4.48% 14,680.64
07/31/90 0.00% 0.51%
08/31/90 0.00% -4.13%
09/30/90 -17.78% -17.78% -1.82% -5.40% 13,887.88
10/31/90 0.00% 0.39%
11/30/90 0.00% 3.59%
12/31/90 12.44% 12.44% -5.13% 1.87% 5.94% 3.58% 14,713.48
01/31/91 0.00% 2.48%
02/28/91 0.00% 3.62%
03/31/91 22.95% 22.95% 1.42% 7.69% 15,844.53
04/30/91 0.00% 0.63%
05/31/91 0.00% 2.24%
06/30/91 -0.73% -0.73% -1.96% 0.87% 15,982.56
07/31/91 5.95% 2.62%
08/31/91 3.62% 1.89%
09/30/91 -0.30% 9.46% 0.02% 4.58% 16,714.53
10/31/91 3.93% 1.12%
11/30/91 -3.38% -1.30%
12/31/91 11.69% 12.16% 49.83% 6.17% 5.97% 20.38% 17,711.98
01/31/92 1.82% -1.15%
02/28/92 1.59% 0.78%
03/31/92 -3.78% -0.47% -0.99% -1.36% 17,470.31
04/30/92 -1.18% 1.71%
05/31/92 0.96% 0.91%
06/30/92 -2.86% -3.08% -0.01% 2.62% 17,927.99
07/31/92 4.97% 2.65%
08/31/92 -2.42% -0.47%
09/30/92 1.37% 3.83% 1.10% 3.29% 18,517.85
10/31/92 2.40% -0.32%
11/30/92 5.59% 1.40%
12/31/92 3.31% 11.70% 11.88% 1.17% 2.26% 6.91% 18,935.50
01/31/93 1.26% 1.14%
02/28/93 -1.35% 1.28%
03/31/93 3.41% 3.30% 1.16% 3.63% 19,622.41
04/30/93 -2.59% -0.75%
05/31/93 4.53% 1.16%
06/30/93 0.53% 2.36% 0.82% 1.23% 19,863.41
07/31/93 -0.22% -0.08%
08/31/93 4.15% 2.39%
09/30/93 1.03% 4.99% -0.13% 2.18% 20,295.49
10/31/93 0.32% 1.06%
11/30/93 -2.22% -0.61%
12/31/93 4.63% 2.63% 13.94% 10,000.00 0.78% 1.23% 8.50% 20,544.18
01/31/94 2.32% 1.99%
02/28/94 -1.40% -1.77%
03/31/94 -4.63% -3.78% 9,621.64 -2.57% -2.39% 20,053.11
04/30/94 0.71% 0.36%
05/31/94 -0.91% 0.81%
06/30/94 -3.46% -3.66% 9,269.56 -1.05% 0.11% 20,075.15
07/31/94 3.37% 2.12%
08/31/94 5.23% 2.01%
09/30/94 -1.85% 6.76% 9,896.54 -1.39% 2.72% 20,621.75
10/31/94 1.10% 1.09%
11/30/94 -4.51% -1.77%
12/31/94 0.92% -2.57% -3.58% 9,642.06 0.87% 0.16% 0.54% 20,655.50
01/31/95 1.04% 1.91%
02/28/95 5.24% 2.64%
03/31/95 1.74% 8.18% 10,431.23 1.63% 6.31% 21,957.91
04/30/95 2.01% 1.89%
05/31/95 2.41% 3.08%
06/30/95 4.07% 8.72% 11,340.87 1.38% 6.48% 23,380.38
07/31/95 5.21% 1.57%
08/31/95 1.84% 0.55%
09/30/95 2.43% 9.75% 12,446.54 2.25% 4.42% 24,413.51
10/31/95 -2.57% 0.35%
11/30/95 4.34% 2.57%
12/31/95 -0.25% 1.40% 30.90% 12,621.33 1.36% 4.32% 23.30% 25,468.83
01/31/96 1.45% 1.94%
02/28/96 3.39% 0.01%
03/31/96 1.20% 6.15% 13,397.27 0.29% 2.25% 26,041.99
04/30/96 3.06% 0.58%
05/31/96 1.35% 1.19%
06/30/96 -1.50% 2.88% 13,783.72 0.66% 2.45% 26,679.66
07/31/96 -6.75% -1.80%
08/31/96 5.78% 1.05%
09/30/96 4.36% 2.94% 14,189.04 3.15% 2.35% 27,306.41
10/31/96 0.29% 2.02%
11/30/96 5.65% 4.00%
12/31/96 0.11% 6.07% 19.25% 15,050.73 -1.08% 4.95% 12.52% 28,656.88
01/31/97 3.75% 3.03%
02/28/97 -0.82% 0.49%
03/31/97 -4.26% -1.48% 14,827.34 -2.06% 1.41% 29,059.72
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BLENDED INDEX
date lb g/c int 40.00% S&P 500 45.00% 3 mo bill 15.00% BLENDED
---------- ------ ------- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
01/31/85 1.74% 0.70% 7.68% 3.46% 0 0.00% 4.15%
02/28/85 -1.09% -0.44% 1.37% 0.62% 0 0.00% 0.18%
03/31/85 1.66% 0.66% 0.18% 0.08% 0.0205 0.31% 1.05%
04/30/85 1.92% 0.77% -0.32% -0.14% 0 0.00% 0.62%
05/31/85 3.82% 1.53% 6.15% 2.77% 0 0.00% 4.30%
06/30/85 1.01% 0.40% 1.59% 0.72% 0.0189 0.28% 1.40%
07/31/85 -0.01% -0.00% -0.26% -0.12% 0 0.00% -0.12%
08/31/85 1.45% 0.58% -0.61% -0.27% 0 0.00% 0.31%
09/30/85 0.75% 0.30% -3.21% -1.44% 0.0178 0.27% -0.88%
10/31/85 1.51% 0.60% 4.47% 2.01% 0 0.00% 2.62%
11/30/85 1.73% 0.69% 7.16% 3.22% 0 0.00% 3.91%
12/31/85 2.32% 0.93% 4.67% 2.10% 0.018 0.27% 3.30%
01/31/86 6.40% 2.56% 0.44% 0.20% 0 0.00% 2.76%
02/28/86 2.35% 0.94% 7.61% 3.42% 0 0.00% 4.36%
03/31/86 2.63% 1.05% 5.54% 2.49% 0.0173 0.26% 3.80%
04/30/86 0.67% 0.27% -1.24% -0.56% 0 0.00% -0.29%
05/31/86 -1.16% -0.46% 5.49% 2.47% 0 0.00% 2.01%
06/30/86 2.32% 0.93% 1.66% 0.75% 0.0154 0.23% 1.91%
07/31/86 1.01% 0.40% -5.69% -2.56% 0 0.00% -2.16%
08/31/86 2.25% 0.90% 7.48% 3.37% 0 0.00% 4.27%
09/30/86 -0.82% -0.33% -8.22% -3.70% 0.0139 0.21% -3.82%
10/31/86 1.30% 0.52% 5.56% 2.50% 0 0.00% 3.02%
11/30/86 0.95% 0.38% 2.56% 1.15% 0 0.00% 1.53%
12/31/86 0.34% 0.14% -2.64% -1.19% 0.0131 0.20% -0.86%
01/31/87 1.01% 0.40% 13.43% 6.04% 0 0.00% 6.45%
02/28/87 0.51% 0.20% 4.13% 1.86% 0 0.00% 2.06%
03/31/87 -0.21% -0.08% 2.72% 1.22% 0.0139 0.21% 1.35%
04/30/87 -1.83% -0.73% -0.88% -0.40% 0 0.00% -1.13%
05/31/87 -0.23% -0.09% 1.03% 0.46% 0 0.00% 0.37%
06/30/87 1.21% 0.48% 4.99% 2.25% 0.0145 0.22% 2.95%
07/31/87 0.23% 0.09% 4.98% 2.24% 0 0.00% 2.33%
08/31/87 -0.26% -0.10% 3.85% 1.73% 0 0.00% 1.63%
09/30/87 -1.30% -0.52% -2.20% -0.99% 0.015 0.23% -1.29%
10/31/87 2.86% 1.14% -21.52% -9.68% 0 0.00% -8.54%
11/30/87 0.64% 0.26% -8.19% -3.69% 0 0.00% -3.43%
12/31/87 1.05% 0.42% 7.38% 3.32% 0.0151 0.23% 3.97%
01/31/88 2.56% 1.02% 4.27% 1.92% 0 0.00% 2.95%
02/28/88 1.11% 0.44% 4.70% 2.12% 0 0.00% 2.56%
03/31/88 -0.38% -0.15% -3.02% -1.36% 0.0157 0.24% -1.28%
04/30/88 -0.17% -0.07% 1.08% 0.49% 0 0.00% 0.42%
05/31/88 -0.44% -0.18% 0.78% 0.35% 0 0.00% 0.18%
06/30/88 1.59% 0.64% 4.64% 2.09% 0.017565 0.26% 2.99%
07/31/88 -0.21% -0.08% -0.40% -0.18% 0.005607 0.08% -0.18%
08/31/88 0.15% 0.06% -3.31% -1.49% 0.005842 0.09% -1.34%
09/30/88 1.74% 0.70% 4.24% 1.91% 0.006014 0.09% 2.69%
10/31/88 1.36% 0.54% 2.73% 1.23% 0.0061 0.09% 1.86%
11/30/88 -0.85% -0.34% -1.42% -0.64% 0.0064 0.10% -0.88%
12/31/88 0.09% 0.04% 1.81% 0.81% 0.0067 0.10% 0.95%
01/31/89 1.05% 0.42% 7.23% 3.25% 0.0069 0.10% 3.78%
02/28/89 -0.42% -0.17% -2.49% -1.12% 0.007 0.11% -1.18%
03/31/89 0.42% 0.17% 2.36% 1.06% 0.0073 0.11% 1.34%
04/30/89 2.00% 0.80% 5.16% 2.32% 0.0072 0.11% 3.23%
05/31/89 1.98% 0.79% 4.02% 1.81% 0.0067 0.10% 2.70%
06/30/89 2.52% 1.01% -0.54% -0.24% 0.0068 0.10% 0.87%
07/31/89 2.05% 0.82% 8.98% 4.04% 0.0066 0.10% 4.96%
08/31/89 -1.29% -0.52% 1.93% 0.87% 0.0064 0.10% 0.45%
09/30/89 0.47% 0.19% -0.39% -0.18% 0.0064 0.10% 0.11%
10/31/89 2.12% 0.85% -2.33% -1.05% 0.0063 0.09% -0.11%
11/30/89 0.95% 0.38% 2.08% 0.94% 0.0064 0.10% 1.41%
12/31/89 0.28% 0.11% 2.36% 1.06% 0.0064 0.10% 1.27%
01/31/90 -0.64% -0.26% -6.71% -3.02% 0.0064 0.10% -3.18%
02/28/90 0.37% 0.15% 1.29% 0.58% 0.0064 0.10% 0.82%
03/31/90 0.13% 0.05% 2.63% 1.18% 0.0065 0.10% 1.33%
04/30/90 -0.35% -0.14% -2.47% -1.11% 0.0065 0.10% -1.15%
05/31/90 2.20% 0.88% 9.75% 4.39% 0.0065 0.10% 5.37%
06/30/90 1.34% 0.54% -0.70% -0.32% 0.0064 0.10% 0.32%
07/31/90 1.39% 0.56% -0.32% -0.14% 0.0062 0.09% 0.51%
08/31/90 -0.41% -0.16% -9.03% -4.06% 0.0062 0.09% -4.13%
09/30/90 0.77% 0.31% -4.92% -2.21% 0.006 0.09% -1.82%
10/31/90 1.16% 0.46% -0.37% -0.17% 0.006 0.09% 0.39%
11/30/90 1.52% 0.61% 6.44% 2.90% 0.0059 0.09% 3.59%
12/31/90 1.37% 0.55% 2.74% 1.23% 0.0062 0.09% 1.87%
01/31/91 1.02% 0.41% 4.42% 1.99% 0.0053 0.08% 2.48%
02/28/91 0.80% 0.32% 7.16% 3.22% 0.005 0.08% 3.62%
03/31/91 0.68% 0.27% 2.38% 1.07% 0.0049 0.07% 1.42%
04/30/91 1.09% 0.44% 0.28% 0.13% 0.0047 0.07% 0.63%
05/31/91 0.61% 0.24% 4.28% 1.93% 0.0046 0.07% 2.24%
06/30/91 0.07% 0.03% -4.57% -2.06% 0.0047 0.07% -1.96%
07/31/91 1.12% 0.45% 4.68% 2.11% 0.0047 0.07% 2.62%
08/31/91 1.91% 0.76% 2.35% 1.06% 0.0045 0.07% 1.89%
09/30/91 1.72% 0.69% -1.64% -0.74% 0.0044 0.07% 0.02%
10/31/91 1.14% 0.46% 1.34% 0.60% 0.0042 0.06% 1.12%
11/30/91 1.15% 0.46% -4.04% -1.82% 0.0039 0.06% -1.30%
12/31/91 2.44% 0.98% 11.43% 5.14% 0.003466 0.05% 6.17%
01/31/92 -0.91% -0.36% -1.86% -0.84% 0.003225 0.05% -1.15%
02/28/92 0.39% 0.16% 1.28% 0.58% 0.003234 0.05% 0.78%
03/31/92 -0.39% -0.16% -1.96% -0.88% 0.003394 0.05% -0.99%
04/30/92 0.88% 0.35% 2.91% 1.31% 0.003193 0.05% 1.71%
05/31/92 1.55% 0.62% 0.54% 0.24% 0.003073 0.05% 0.91%
06/30/92 1.48% 0.59% -1.45% -0.65% 0.003105 0.05% -0.01%
07/31/92 1.99% 0.80% 4.03% 1.81% 0.002749 0.04% 2.65%
08/31/92 1.00% 0.40% -2.02% -0.91% 0.002636 0.04% -0.47%
09/30/92 1.36% 0.54% 1.15% 0.52% 0.002401 0.04% 1.10%
10/31/92 -1.30% -0.52% 0.36% 0.16% 0.002385 0.04% -0.32%
11/30/92 -0.38% -0.15% 3.37% 1.52% 0.00258 0.04% 1.40%
12/31/92 1.34% 0.54% 1.31% 0.59% 0.002725 0.04% 1.17%
01/31/93 1.94% 0.78% 0.73% 0.33% 0.002572 0.04% 1.14%
02/28/93 1.58% 0.63% 1.35% 0.61% 0.002474 0.04% 1.28%
03/31/93 0.40% 0.16% 2.15% 0.97% 0.002499 0.04% 1.16%
04/30/93 0.80% 0.32% -2.45% -1.10% 0.002418 0.04% -0.75%
05/31/93 -0.22% -0.09% 2.70% 1.22% 0.002482 0.04% 1.16%
06/30/93 1.57% 0.63% 0.33% 0.15% 0.002604 0.04% 0.82%
07/31/93 0.24% 0.10% -0.47% -0.21% 0.002564 0.04% -0.08%
08/31/93 1.59% 0.64% 3.81% 1.71% 0.002564 0.04% 2.39%
09/30/93 0.41% 0.16% -0.74% -0.33% 0.002482 0.04% -0.13%
10/31/93 0.27% 0.11% 2.03% 0.91% 0.002547 0.04% 1.06%
11/30/93 -0.56% -0.22% -0.94% -0.42% 0.00262 0.04% -0.61%
12/31/93 0.46% 0.18% 1.23% 0.55% 0.002588 0.04% 0.78%
01/31/94 1.11% 0.44% 3.35% 1.51% 0.002531 0.04% 1.99%
02/28/94 -1.48% -0.59% -2.70% -1.22% 0.002693 0.04% -1.77%
03/31/94 -1.65% -0.66% -4.35% -1.96% 0.002952 0.04% -2.57%
04/30/94 -0.68% -0.27% 1.30% 0.59% 0.003137 0.05% 0.36%
05/31/94 0.07% 0.03% 1.63% 0.73% 0.003515 0.05% 0.81%
06/30/94 0.01% 0.00% -2.47% -1.11% 0.003507 0.05% -1.05%
07/31/94 1.44% 0.58% 3.31% 1.49% 0.003675 0.06% 2.12%
08/31/94 0.31% 0.12% 4.07% 1.83% 0.003763 0.06% 2.01%
09/30/94 -0.92% -0.37% -2.41% -1.08% 0.003883 0.06% -1.39%
10/31/94 -0.01% -0.00% 2.29% 1.03% 0.00404 0.06% 1.09%
11/30/94 -0.45% -0.18% -3.67% -1.65% 0.00439 0.07% -1.77%
12/31/94 0.35% 0.14% 1.46% 0.66% 0.0047 0.07% 0.87%
01/31/95 1.68% 0.67% 2.59% 1.17% 0.0046 0.07% 1.91%
02/28/95 2.07% 0.83% 3.89% 1.75% 0.0044 0.07% 2.64%
03/31/95 0.57% 0.23% 2.95% 1.33% 0.0049 0.07% 1.63%
04/30/95 1.24% 0.50% 2.94% 1.32% 0.0048 0.07% 1.89%
05/31/95 3.02% 1.21% 3.99% 1.80% 0.0049 0.07% 3.08%
06/30/95 0.67% 0.27% 2.32% 1.04% 0.0047 0.07% 1.38%
07/31/95 0.01% 0.00% 3.31% 1.49% 0.0048 0.07% 1.57%
08/31/95 0.91% 0.36% 0.25% 0.11% 0.0046 0.07% 0.55%
09/30/95 0.72% 0.29% 4.22% 1.90% 0.0043 0.06% 2.25%
10/31/95 1.11% 0.44% -0.36% -0.16% 0.0046 0.07% 0.35%
11/30/95 1.31% 0.52% 4.39% 1.98% 0.0044 0.07% 2.57%
12/31/95 1.05% 0.42% 1.93% 0.87% 0.0046 0.07% 1.36%
01/31/96 0.86% 0.34% 3.40% 1.53% 0.0045 0.07% 1.94%
02/28/96 -1.17% -0.47% 0.93% 0.42% 0.0041 0.06% 0.01%
03/31/96 -0.51% -0.20% 0.96% 0.43% 0.0042 0.06% 0.29%
04/30/96 -0.35% -0.14% 1.47% 0.66% 0.0041 0.06% 0.58%
05/31/96 -0.08% -0.03% 2.57% 1.16% 0.0043 0.06% 1.19%
06/30/96 1.06% 0.42% 0.38% 0.17% 0.0042 0.06% 0.66%
07/31/96 0.30% 0.12% -4.42% -1.99% 0.0043 0.06% -1.80%
08/31/96 0.08% 0.03% 2.11% 0.95% 0.0044 0.07% 1.05%
09/30/96 1.39% 0.56% 5.62% 2.53% 0.0043 0.06% 3.15%
10/31/96 1.77% 0.71% 2.76% 1.24% 0.0044 0.07% 2.02%
11/30/96 1.32% 0.53% 7.57% 3.41% 0.0042 0.06% 4.00%
12/31/96 -0.64% -0.26% -1.98% -0.89% 0.0043 0.06% -1.08%
01/31/97 0.39% 0.16% 6.24% 2.81% 0.0043 0.06% 3.03%
02/28/97 0.19% 0.08% 0.79% 0.36% 0.0039 0.06% 0.49%
03/31/97 -0.69% -0.28% -4.10% -1.85% 0.0044 0.07% -2.06%
04/30/97 1.18% 0.47% 5.96% 2.68% 0.0043 0.06% 3.22%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Growth of $10,000 for Lehman Growth of $10,000 for MFS
Brothers High-Yield Index High Income A Shares
Date Quarter Annual Index Date Quarter Annual Index
Return Return Value Return Return Value
<S> <C> <C> <C> <C> <C> <C> <C>
Mar-87 7.08% $10,708 Mar-87 6.84% $10,684
Jun-87 -1.54% $10,543 Jun-87 -1.16% $10,560
Sep-87 -2.29% $10,302 Sep-87 -1.89% $10,360
Dec-87 1.91% 4.98% $10,498 Dec-87 -3.21% 0.28% $10,028
Mar-88 5.58% $11,084 Mar-88 5.40% $10,569
Jun-88 2.38% $11,348 Jun-88 2.22% $10,804
Sep-88 1.78% $11,550 Sep-88 2.87% $11,114
Dec-88 2.29% 12.54% $11,815 Dec-88 1.38% 12.36% $11,268
Mar-89 1.19% $11,955 Mar-89 2.29% $11,526
Jun-89 3.64% $12,390 Jun-89 3.61% $11,942
Sep-89 -1.47% $12,208 Sep-89 -2.10% $11,691
Dec-89 -2.41% 0.84% $11,914 Dec-89 -5.53% -1.98% $11,044
Mar-90 -1.65% $11,717 Mar-90 -5.55% $10,431
Jun-90 4.22% $12,212 Jun-90 3.29% $10,775
Sep-90 -10.22% $10,964 Sep-90 -9.21% $9,782
Dec-90 -1.75% -9.59% $10,772 Dec-90 -5.98% -16.72% $9,197
Mar-91 20.70% $13,002 Mar-91 20.69% $11,100
Jun-91 7.37% $13,960 Jun-91 9.95% $12,205
Sep-91 7.04% $14,943 Sep-91 7.89% $13,168
Dec-91 5.37% 46.17% $15,745 Dec-91 3.99% 48.88% $13,693
Mar-92 7.39% $16,909 Mar-92 8.19% $14,814
Jun-92 2.75% $17,374 Jun-92 2.77% $15,225
Sep-92 3.89% $18,050 Sep-92 3.97% $15,829
Dec-92 0.97% 15.75% $18,225 Dec-92 1.25% 17.05% $16,027
Mar-93 6.07% $19,331 Mar-93 7.55% $17,237
Jun-93 4.21% $20,145 Jun-93 4.58% $18,027
Sep-93 2.06% $20,560 Sep-93 1.86% $18,362
Dec-93 3.78% 17.08% $21,337 Dec-93 4.21% 19.39% $19,135
Mar-94 -1.95% $20,921 Mar-94 -1.27% $18,892
Jun-94 -0.32% $20,854 Jun-94 -2.27% $18,463
Sep-94 1.58% $21,183 Sep-94 1.57% $18,753
Dec-94 -0.29% -1.01% $21,122 Dec-94 -0.65% -2.63% $18,631
Mar-95 5.97% $22,383 Mar-95 4.76% $19,518
Jun-95 6.12% $23,753 Jun-95 5.08% $20,509
Sep-95 2.82% $24,422 Sep-95 4.37% $21,406
Dec-95 3.10% 19.21% $25,180 Dec-95 1.96% 17.14% $21,825
Mar-96 1.77% $25,625 Mar-96 2.14% $22,292
Jun-96 1.66% $26,051 Jun-96 1.83% $22,700
Sep-96 3.99% $27,090 Sep-96 5.45% $23,937
Dec-96 3.50% 11.35% $28,038 Dec-96 2.63% 12.56% $24,567
</TABLE>
<PAGE>
MFS Investment Management
Disclosure Page
Standardized Average Annual Total Returns for Period Ended 06/30/97
Returns for periods of less than one year are nor annualized
<TABLE>
<CAPTION>
Inception Maximum Since
Fund Name Date Sales Charge 1 Year 5 Years 10Years Inception
<S> <C> <C> <C> <C> <C> <C>
MFS High Income Fund A 02/17/78 4.75% Front 9.04% 10.22% 8.90% -
MFS High Income Fund B 02/17/78 4.00% CDSC 9.69% 10.36% 9.10% -
MFS High Income Fund C 02/17/78 1.00% CDSC 12.92% 10.74% 9.15% -
</TABLE>
This information has been prepared by Massachusetts Financial Services. Data and
information provided by CDA/Wiesenberger.
This hypothetical illustration represents past performance and should not be
considered indicative of future results. Principal value and investment return
will fluctuate, so that an investor's shares/units when redeemed may be worth
more or less than the original investment.
MFS High Income Fund Class B and Class C share performance includes the
performance of the fund's Class A shares for periods prior to the commencement
of offering of Class B shares on 9/27/93 and of Class C shares on 1/3/94. Sales
charges and operating expenses for Class A, Class B, and Class C shares differ.
The Class A share performance, which is included within the Class B and Class C
share SEC Performance, has been adjusted to reflect the CDSC generally
applicable to Class B and Class C shares rather than the initial sales charge
generally applicable to Class A shares. Class B and Class C share performance
has not been adjusted, however, to reflect differences in operating expenses
(e.g. Rule 12b-1 fees), which generally are lower for Class A shares.
The effects of taxes on this investment have not been reflected in the
illustration.
The sales charge shown for MFS High Income Fund A in this illustration has been
set manually and may not be consistent with the sales charge outlined in the
prospectus. You should refer to a current prospectus for the fund for a complete
list of fees and expenses.
This illustration includes a fund which invests in "High Yield" securities.
These lower rated securities involve special additional risks due to the lower
credit quality. You should be aware of the possible higher level of volatility
and increased risk of default involved with these securities.
Performance results reflect any applicable expense subsidies and waivers,
without which the performance results would have been less favorable. Subsidies
and waivers may be rescinded at any time. See prospectus for details.
The "Average Annual Return on the Account" figure found on the fund table
represents the overall growth rate realized on the investment taking into
account all investments and withdrawals, as well as the assumed sales charge and
taxes (if included). While it is a useful measure of the results of a
hypothetical investment, it should not be used to determine whether a fund has
performed well or poorly. For comparative purposes, please refer to the
Standardized Average Annual Total Returns listed above.
The Standardized Average Annual Total Return figures shown above are calculated
using the formula in form N-1A as mandated by the Securities and Exchange
Commission. Class A results include the maximum initial sales charge Class B
results reflect the applicable contingent deferred sales charge (CDSC), which
declines over six years from 4% to 0%. For funds with Class C shares: Class C
shares have no initial charge but, along with Class B shares, have higher annual
fees and expenses than Class A shares as of April 1, 1996, Class C shares
redeemed within 12 months of purchase will be subject to a 1% CDSC. See
prospectus for details. All results are historical and assume the reinvestment
of dividends and capital gains. The figures assume a one-time lump sum
investment and do not include the effect of taxation.
This illustration, including any accompanying reports and graphs, must be
preceded or accompanied by the fund's current prospectus. The prospectus
contains full details on fees and expenses and should be read carefully before
investing.
Inception date is the commencement of investment operations of the share
class(es) noted.
The information in this illustration has been obtained from public sources
believed to be reliable, however, CDA/Wiesenberger does not guarantee the
accuracy or completeness thereof.
<PAGE>
MFS High Income Fund A
MFS High Income Fund: $10,000 initial investment on 01/01/87 which was subject
to a sales charge of 0.00%.
Prepared by: Massachusetts Financial Services
500 Roylston Street
<TABLE>
<CAPTION>
Reinvest Tax Rates
Income CapGains Income CapGains Load Fee Redemp Fee 12b-1 Fee
Yes Yes 0.00% 0.00% 0.00% Schedule 0.35%
Cash Inflows and Outflows Holdings
Period Dividends MktVal
End InvestWithdrawal Income CapGains Reinvest Taxes Due Market Value Shares NAV % Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
01/01/87 10,000 0 0 0 0 0 10,000 1,445 6.92 0.00
03/31/87 0 0 315 0 315 0 10,684 1,490 7.17 6.84
06/30/87 0 0 325 0 325 0 10,560 1,537 6.87 -1.16
09/30/87 0 0 336 0 336 0 10,361 1,587 6.53 -1.89
12/31/87 0 0 485 0 485 0 10,029 1,666 6.02 -3.21
03/31/88 0 0 205 83 288 0 10,570 1,713 6.17 5.40
06/30/88 0 0 317 0 317 0 10,804 1,765 6.12 2.22
09/30/88 0 0 326 0 326 0 11,115 1,819 6.11 2.87
12/30/88 0 0 488 0 488 0 11,269 1,900 5.93 1.38
03/31/89 0 0 241 0 241 0 11,527 1,941 5.94 2.29
06/30/89 0 0 371 0 371 0 11,943 2,004 5.96 3.61
09/29/89 0 0 383 0 383 0 11,692 2,069 5.65 -2.10
12/29/89 0 0 531 0 531 0 11,045 2,170 5.09 -5.53
03/30/90 0 0 275 0 275 0 10,432 2,229 4.68 -5.55
06/29/90 0 0 427 0 427 0 10,775 2,322 4.64 3.29
09/28/90 0 0 421 0 421 0 9,782 2,415 4.05 -9.21
12/31/90 0 0 523 0 523 0 9,197 2,555 3.60 -5.98
03/29/91 0 0 268 0 268 0 11,100 2,624 4.23 20.69
06/28/91 0 0 409 0 409 0 12,205 2,718 4.49 9.95
09/30/91 0 0 407 0 407 0 13,169 2,808 4.69 7.89
12/31/91 0 0 527 0 527 0 13,694 2,920 4.69 3.99
03/31/92 0 0 270 0 270 0 14,816 2,975 4.98 8.19
06/30/92 0 0 405 0 405 0 15,225 3,057 4.98 2.77
09/30/92 0 0 413 0 413 0 15,829 3,141 5.04 3.97
12/31/92 0 0 544 0 544 0 16,028 3,251 4.93 1.25
03/31/93 0 0 261 0 261 0 17,238 3,302 5.22 7.55
06/30/93 0 0 383 0 383 0 18,028 3,376 5.34 4.58
09/30/93 0 0 505 0 505 0 18,363 3,471 5.29 1.86
12/31/93 0 0 390 0 390 0 19,137 3,544 5.40 4.21
This table is not complete unless accompanied by the disclosure page.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Cash Inflows and Outflows Holdings
Period Dividends MktVal
End Invest Withdrawal Income CapGains Reinvest Taxes Due Market Value Shares NAV % Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
03/31/94 0 0 407 0 407 0 18,893 3,619 5.22 -1.27
06/30/94 0 0 407 0 407 0 18,464 3,700 4.99 -2.27
09/30/94 0 0 403 0 403 0 18,755 3,781 4.96 1.57
12/30/94 0 0 411 0 411 0 18,634 3,866 4.82 -0.65
03/31/95 0 0 421 0 421 0 19,521 3,952 4.94 4.76
06/30/95 0 0 438 0 438 0 20,512 4,038 5 08 5.08
09/29/95 0 0 451 0 451 0 21,410 4,125 5.19 4.37
12/29/95 0 0 461 0 461 0 21,830 4,214 5 18 1.96
03/29/96 0 0 471 0 471 0 22,297 4,304 5.18 2.14
06/28/96 0 0 496 0 496 0 22,706 4,400 5.16 1.83
09/30/96 0 0 524 0 524 0 23,942 4,500 5.32 5.45
12/31/96 0 0 537 0 537 0 24,571 4,601 5.34 2.63
</TABLE>
Total: 10,000 0 16,177 83 16,261 0
Mkt Val Shares
Ending Amount Attributable to Principal: 7,717 1,445
Income: 16,781 3,143
Capital Gain: 73 14
Total Ending Amount: 24,571 4,601
Average Annual Return on the Account: 9.41%
Cumulative Return on the Account: 145.71%
This table is not complete unless accompanied by the disclosure page.
<PAGE>
CAPITAL APPRECIATION STOCK FUND CASH INFLOWS AND OUTFLOWS
DIVIDENDS
INVEST WITHDRAW INCOME CAPGAINS REINVEST TAXES DUE
------ -------- ------ -------- -------- ----- ---
01/01/94 $10,000 $0 $0 $0 $0 $0
03/31/94 0 0 0 0 0 0
06/30/94 0 0 32 0 32 0
09/30/94 0 0 26 0 26 0
12/31/94 0 0 61 452 513 0
03/31/95 0 0 3 11 15 0
06/30/95 0 0 38 0 38 0
09/30/95 0 0 36 0 36 0
12/31/95 0 0 88 367 455 0
03/31/96 0 0 2 0 2 0
06/30/96 0 0 30 0 30 0
09/30/96 0 0 29 0 29 0
12/31/96 0 0 52 537 590 0
- - -- --- --- -
TOTAL $10,000 $0 $398 $1,367 $1,766 $0
HOLDINGS
Market MKT VAL
Value Shares NAV % CHG
$10,000 1,000 $10.00 0.00%
9,944 1,000 9.94 -0.55%
10,082 1,003 10.05 1.40%
10,678 1,006 10.62 5.90%
10,544 1,057 9.97 -1.26%
11,611 1,059 10.97 10.12%
12,314 1,062 11.59 6.04%
13,172 1,065 12.37 6.97%
13,785 1,102 12.51 4.66%
14,982 1,102 13.60 8.68%
15,144 1,104 13.72 1.08%
15,212 1,106 13.75 0.44%
$16,741 1,147 $14.60 10.06%
Mkt Val Shares
Ending Amount Attributable to Principal: $14,597 1,000
Income: $483 33
Capital Gain: $1,661 114
Total Ending Amount: $16,741 1,147
Average Annual Return on the Account: 18.74%
Cumulative Return on the Account: 67.41%
<PAGE>
Ending Investment Values for Balanced Fund
10 year 5 year 1 year Current Year
12-31-86 12-31-91 12-31-95 12-31-96
10,000 16,993 24,390 27,024
AVG. ANNUAL TOTAL RETURN
1 YEAR: 10.80%
5 YEAR: 9.72%
(12-31-1991)
10 YEAR: 10.45%
(12-31-1986)
Average annual total return = ((((X-Y)/Y) +1)^(1/n))-1
Where:
X = Ending redeemable value
Y = Redeemable value for at 1, 5 or 10 year period
n = Time elapsed (number of years)
<PAGE>
EXHIBIT (18)
MEMBERS Mutual Funds
Plan for Multiple Classes of Shares
A. MEMBERS Mutual Funds (the "Trust") is an open-end management investment
company registered with the Securities and Exchange Commission (the "SEC") under
the Investment Company Act of 1940, as amended (the "Act"). The Trust is
organized as a business trust pursuant to the laws of the state of Delaware.
B. The Fund's Declaration of Trust authorizes the Trust to issue multiple series
of shares of beneficial interest, each of which represents a fractional
undivided interest in a separate investment portfolio (a "Fund"). The
Declaration of Trust also authorizes the Trust to divide each series of shares
into multiple classes. Initially, the Trust will designate and issue two classes
of capital shares: Class A shares and Class B shares. As described in more
detail below: Class A shares are subject to a front-end sales charge, an
asset-based shareholder service fee, and on purchases of over $1,000,000, a
contingent deferred sales charge ("CDSC"); and, Class B shares are subject to an
asset-based distribution fee, an asset-based shareholder service fee, and a
CDSC.
C. Each Class B share will automatically convert to a Class A share on the
"Conversion Date" occurring on the first business day of the 85th month of the
issuance of that Class B share.
D. This Plan for Multiple Classes of Shares (the "Plan") is a plan as
contemplated by Rule 18f-3(d) under the Act.
E. The Board of Trustees of the Trust, including a majority of the Trustees who
are not interested persons of the Trust (as defined in Section 2(a)(19) of the
Act), have approved and adopted the Plan for each Fund and determined that the
Plan is or will be: (i) in the best interests of the holders of Class A shares
of each series; (ii) in the best interests of holders of Class B shares of each
series; and (iii) in the best interests of the Trust as a whole.
F. The Plan will remain in effect until such time as the Board of Trustees
terminates the Plan or makes a material change to the Plan. Any material change
to the Plan must be approved by the Board of Trustees, including a majority of
the Trustees who are not interested persons of the Trust, as being in the best
interests of each series and class of shares to which such change would apply
and the Trust as a whole.
SECTION I
Class Distribution Fees and Shareholder Services
1.1 Class A Shares. Class A shares are sold through CUNA Brokerage
Services, Inc. ("CBS"), or other registered broker-dealers authorized by CBS,
that take a front-end sales charge or load calculated as a percentage of the
offering price at the time of purchase. The following table indicates the
charge:
<PAGE>
Cash Reserves Fund
Balanced Fund
Growth and Income Fund
Capital Appreciation Fund Bond Fund
Purchase Payment International Stock Fund High Income Fund
- -------------------------------------------------------------------------------
(As a % of Purchase Payment)
Under $50,000 5.3% 4.3%
$50,000 to $99,999 4.3% 3.8%
$100,000 to $249,999 3.3% 3.3%
$250,000 to $499,999 2.3% 2.3%
$500,000 to $999,999 1.9% 1.9%
$1,000,000 and over(1) None None
(1) There is a contingent deferred sales charge (CDSC) assessed on
purchases of Class A shares of over $1,000,000. The CDSC will be calculated as
described below relating to the CDSC for Class B shares, except at a rate of 1%
in the first year and 0.5% in the second year following the purchase.
Class A shares also support an asset-based shareholder service fee
equal to 0.25% of the average daily net assets of each Fund other than the Cash
Reserves Fund attributable to Class A shares on an annual basis (This charge is
more fully described in the distribution plan adopted by the Board of Trustees
pursuant to Rule 12b-1 under the Act.)
Class A shares may be offered without front-end sales charges to
various individuals and institutions including:
Trustees/directors, officers and employees of the Trust, the Trust's
investment adviser, CIMCO Inc., or the Trust's principal underwriter, CBS.
Registered representatives of CBS.
Certain credit union system-affiliated institutional investors.
Financial representatives utilizing fund shares in fee-based managed
accounts under agreement with the Trust (wrap fee investors).
There are several ways shareholders (including certain qualified
pension plans) can combine multiple purchases of Class A shares to take
advantage of the breakpoints in the sales charge schedule
Rights of Accumulation - by adding the value of any Class A shares already
owned to the amount of the next purchase of Class A shares for purposes of
calculating the sales charge.
Group Purchases - by purchasing Class A shares with others in a group (as
defined in the Statement of Additional Information of the Trust) for
purposes of calculating the sales charge.
Letter of Intention - by purchasing Class A shares of a Fund over a
13-month period and receiving the same sales charge as if all shares had
been purchased at once.
Rights of Combination - by combining Class A shares of multiple Funds for
purposes of calculating the sales charge.
In addition, Class A shares issued or purchased in the following
transactions are not subject to Class A sales charges:
Shares purchased by the reinvestment of dividends or other distributions
reinvested from one of the Funds or which are exchanged from one Fund to
another.
Shares purchased and paid for from the proceeds of shares of a mutual fund
(other than one of the Funds) on which an initial sales charge or
contingent deferred sales charge was paid, subject to the following
conditions:
- waiver must be requested when order is placed,
- shares of the other mutual fund must have been redeemed within the
past 60 days,
- if shares of the other mutual fund were a lump sum purchase, they
must have been purchased within the past three years.
- if shares of the other mutual fund were a systematic investment
program purchase, they must have been purchased within the past five
years.
- CBS may require evidence of qualification for this waiver.
1.2 Class B Shares. Class B shares are sold through CBS, or other
registered broker-dealers authorized by CBS, at their net asset value without
the imposition of a sales charges at the time of purchase, but are subject to a
CDSC at the time of redemption (as explained in more detail below). Class B
shares also support: (1) an asset-based distribution fee (as provided for by a
distribution plan adopted by the Board of Trustees pursuant to Rule 12b-1 under
the Act) equal to 0.75% of the average daily net assets of the Trust
attributable to Class B shares on an annual basis, and (2) an asset-based
shareholder service fee equal to 0.25% of the average daily net assets of the
Trust attributable to Class B shares on an annual basis. The imposition of the
CDSC and asset-based fees must, however, remain consistent with the requirements
of the National Association of Securities Dealers, Inc. ("NASD")'s Conduct
Rules.
At redemption, the amount of a CDSC, if any, charged to a holder of
Class B shares depends upon the number of months or years that have elapsed
since the holder purchased the shares. The amount of the CDSC is determined by
multiplying the CDSC percentage charge shown in the following table by the
lesser of: (1) the net asset value of the redeemed shares at the time of
purchase, or (2) the net asset value of the redeemed shares at the time of
redemption. The CDSC is deducted from the redemption proceeds otherwise payable
to the shareholder.
Years After Purchase 1 2 3 4 5 6
- --------------------------------------------------------------------------
CDSC 4.5% 4.0% 3.5% 3.0% 2.0% None
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the first day of that month.
In determining whether a CDSC is payable, the Trust will comply with
the provisions of Rule 6c-10 under the Act as currently adopted. Under Rule
6c-10, no CDSC is imposed with respect to: (1) the portion of redemption
proceeds attributable to the increase in the value of an account above the net
cost of the investment due to increases in the net asset value per share of
Class B shares; (2) shares of Class B shares acquired through reinvestment of
income dividends or capital gain distributions; or (3) shares of Class B shares
held for more than five years after purchase.
1.3 Overall Limits. Notwithstanding the foregoing, the aggregate
amounts of any front-end sales charge, any asset-based distribution plan fee and
any CDSC imposed by the Trust must comply with the requirements of Section 2830
of the NASD Conduct Rules, as amended from time to time, and any other rules or
regulations promulgated by the NASD applicable to mutual fund distribution and
service fees.
SECTION II
Allocation of Expenses
2.1 Class Distinctions. Class A shares and Class B shares each
represent interests in the same series of the Trust. Both classes of shares are
identical in all respects except that: (1) Class B shares may be subject to a
distinct distribution fee (as described above); (2) each class will bear
different Class Expenses (as defined below); (3) each class will have exclusive
voting rights with respect to matters that exclusively affect that class (such
as approval of any distribution plan for Class B shares); and (4) each class
will bear a different name or designation.
2.2 Class Expenses. The Fund's Board of Trustees, acting in its sole
discretion, has determined that those expenses attributable to the shares of a
particular class ("Class Expenses") will be borne solely by the class to which
they are attributable. For example, the asset-based distribution plan fees and
the asset-based shareholder service fees of Class B shares, are Class Expenses
of Class B shares. Class Expenses also include the following as they each relate
to a particular class of shares: (1) transfer agency fees; (2) expenses related
to preparing, printing, mailing and distributing materials such as shareholder
reports, prospectuses and proxy statements to current shareholders; (3) state
and federal registration fees; (4) extraordinary expenses such as litigation
expenses; (5) trustees' fees and expenses incurred as a result of issues
relating solely to a particular class; (6) accounting, audit and tax expenses;
(7) the expenses of administrative personnel and services required to support
the shareholders; and (8) fees and other payments made to entities performing
services, including account maintenance, dividend, disbursing or subaccounting
services or administration of a dividend reinvestment or systematic investment
or withdrawal plan. However, to the extent that allocation of expenses to a
particular share class is not practical or would not significantly differ from a
pro-rata allocation, such expenses will be allocated as provided in Section 3.1.
SECTION III
Allocation of Trust Income and Expenses
3.1 Allocation of Income and Expenses. All income earned and expenses
incurred by the Trust and not allocable to a particular share class are borne on
a pro-rata basis by each outstanding share of each class based on the value of
the net assets of the Trust attributable to that class as represented by the
daily net asset value of shares of that class. On a daily basis, the total
interest, dividends or other income accrued and common expenses incurred are
multiplied by the ratio of the Fund's net assets attributable to each class to
determine the income and expenses attributable to that class for the day.
Expenses properly attributable to each class are recorded separately and charges
to that class. Net income for each class is then determined for the day and
segregated on the Fund's general ledger. Because of the distribution fee and
other Class Expenses borne by Class B shares, the net income attributable to and
the dividends payable on Class B shares are anticipated to be lower (although it
may be higher) than that of the Class A shares. Dividends, however, are declared
and paid on both classes of shares on the same days and at the same times.
SECTION IV
Conversions
4.1 Conversions. Class B shares contain a conversion feature. On the
Conversation Date occurring after the 85th month of the issuance of a share of
Class B shares, the share automatically converts into a Class A share on the
basis of the relative net asset values of the two Classes, without the
imposition of any sales charge, fee, or other charge upon the conversion. After
conversion, the converted shares are not subject to any Class B distribution
plan fees or CDSC.
All Class B shares in a shareholder's account that are purchased
through the reinvestment of dividends and other distributions paid with respect
to Class B shares (and which have not converted to Class A shares) are
considered to be held in a separate subaccount. Each time any Class B shares in
the shareholder's account are converted to Class A shares, a pro-rata portion of
the Class B shares then in the subaccount are also converted to Class A shares.
The portion converting is determined by the ratio that the shareholder's Class B
shares converting to Class A shares bears to the shareholder's total Class B
shares not acquired through dividends and distributions.
SECTION V
Redemptions
5.1 Redemptions. Redemption requests placed by holders of shares of
both Class A and Class B shares are satisfied first by redeeming the holder's
Class A shares, unless the holder has made a specific election to redeem Class B
shares. Class B shares will be redeemed with the most aged shares being redeemed
first.
SECTION VI
Amendments
6.1 Amendments. This Plan may not be amended to change any material
provision unless such amendment is approved by the vote of the majority of the
Board of Trustees, including a majority of the Trustees who are not interested
persons of the Trust, based on their finding that the amendment is in the best
interests of each class individually and the Trust as a whole.
SECTION VII
Recordkeeping
7.1 Recordkeeping. The Trust shall preserve copies of this Plan and any
related agreements for a period of not less than six years from the date of this
Plan or agreement, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the Trust has executed this Plan for Multiple
Classes of Shares on the day and year set forth below.
Dated: 09/22/97
MEMBERS Mutual Funds
By: Lawrence R. Halverson
Lawrence R. Halverson, President
Attest:
Deborah K. Thompson
