As filed with Securities and Exchange Commission on February 10, 1999.
File Nos. 333-29511, 811-08261
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
Registration Statement Under the Securities Act of 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [2]
and/or
Registration Statement Under the Investment Company Act of 1940 [ ]
Amendment No. 4 [ X ]
-----------------------------------
MEMBERS Mutual Funds
5910 Mineral Point Road
Madison, WI 53705
(608) 238-5851
(Registrant's Exact Name, Address and Telephone Number)
Kevin S. Thompson, Esq.
Assistant 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
--------------------------------------------
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ X ] on February 24, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ X ] This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
<PAGE>
TABLE OF CONTENTS
The fund pages describe each portfolio (or "fund") of the MEMBERS Mutual Funds.
THE FUNDS
Cash Reserves Fund 1
Bond Fund 3
Balanced Fund 5
High Income Fund 7
Growth and Income Fund 9
Capital Appreciation Fund 11
International Stock Fund 13
Expenses 15
This section explains how to open, maintain, or close an account with MEMBERS
Mutual Funds.
YOUR ACCOUNT 18
Buying Shares 19
Selling Shares 23
General Policies 25
Distributions and Taxes 26
Additional Investor Services 27
This section gives you some additional information about MEMBERS Mutual Funds.
PORTFOLIO MANAGEMENT 27
FINANCIAL HIGHLIGHTS 31
APPENDIX
Investment Adviser Past Performance 38
Current Annual Fund Operating Expenses 40
Expenses After Waivers and Reimbursements 41
Additional information about each fund's investments is available in the funds'
annual and semiannual 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 get a copy of any of these
reports at no cost by calling 1-800-877-6089.
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.
Effective Date February 24, 1999.
<PAGE>
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:
o require stability of principal
o are seeking a mutual fund for the cash portion of an asset allocation
program
o need to "park" your money temporarily
o consider yourself a saver rather than an investor
or
o are investing emergency reserves
You may want to invest fewer of your assets in this fund if you:
o want federal deposit insurance
o are seeking an investment that is likely to outpace inflation
o are investing for retirement or other goals that are many years in the
future
or
o 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.
PORTFOLIO MANAGEMENT
Who makes the investment decisions for this fund?
The fund is managed by a team of CIMCO's portfolio managers.
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. Generally, if interest rates rise, the market value of income
bearing securities will decline. 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.
An investment in the Cash Reserves Fund is neither insured nor guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. 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 and it is possible to lose
money by investing in the fund.
PRINCIPAL INVESTMENT STRATEGIES
How does this fund pursue its objective?
The Cash Reserves Fund invests exclusively in U.S. dollar-denominated money
market securities maturing in thirteen months or less from the date of purchase.
It includes such securities 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:
o 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;
o 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
o 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.
The fund's current 7-day yield may be obtained by calling 1-800-877-6089.
MEMBERS CASH RESERVES FUND PERFORMANCE
How has the Cash Reserves Fund performed?
The following bar chart provides an illustration of the performance of the Class
A Shares of the Cash Reserves Fund. The bar chart does not reflect the deduction
of the Sales Charges imposed on the Class A Shares and also assumes the
reinvestment of any dividends and distributions. If the Sales Charges were
deducted from the annual total returns shown below, the return would have been
lower.
[GRAPHIC: bar chart showing the following total returns: Since Inception of
5.03% and 1998 4.98%]
Best Calendar Quarter: 3rd Q 98 1.25%
Worst Calendar Quarter: 4th Q 98 1.20%
Please remember that past performance is no guarantee of the results the Cash
Reserves Fund may achieve in the future. Future returns may be higher or lower
than the returns the fund achieved in the past.
How does the performance of the Cash Reserves Fund compare to the money market?
The following table compares the performance of each class of shares of the Cash
Reserves Fund with the performance of the 90-day U.S. Treasury Bill which is one
measure of the performance of the relevant market.
Average Annual Total Returns
(As of December 31, 1998)
Since Inception 1 Year
Class A Shares -0.91% -0.96%
Class B Shares 0.17% -0.37%
90-day U.S.
Treasury Bill 5.06% 5.05%
Class A and B Share returns are net of applicable Sales Charges.
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:
o are seeking a regular stream of income
o are seeking higher potential returns than money market funds and are
willing to accept moderate risk of volatility
o want to diversify your investments
o are seeking a mutual fund for the income portion of an asset allocation
program
or
o are retired or nearing retirement
You may want to invest fewer of your assets in this fund if you:
o are investing for maximum return over a long time horizon
or
o require absolute stability of your principal
INVESTMENT OBJECTIVE
What is this fund's goal?
The Bond 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.
PORTFOLIO MANAGEMENT
Who makes the investment decisions for this fund?
The fund is managed by a team of CIMCO's portfolio managers.
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. Loss of money is a risk of investing in this
fund.
In addition, the fund is subject to credit risk, the risk that issuers of debt
securities may be unable 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. There are also prepayment/extension risks, which is the chance that
a fall/rise in interest rates will reduce/extend the life of a mortgage backed
security by increasing/decreasing mortgage prepayments, typically reducing the
return.
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. 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.
PRINCIPAL INVESTMENT STRATEGIES
How does this fund pursue its objective?
To keep current income relatively stable and to limit share price volatility,
the Bond 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:
o 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;
o U.S. Government debt securities: securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities;
o 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
o 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.
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.
MEMBERS BOND FUND PERFORMANCE1
How has the Bond Fund performed?
The following bar chart provides an illustration of the performance of the Class
A Shares of the Bond Fund. The bar chart does not reflect the deduction of the
Sales Charges imposed on the Class A Shares and also assumes the reinvestment of
any dividends and distributions. If the Sales Charges were deducted from the
annual total returns shown below, the return would have been lower.
[GRAPHIC: bar chart showing the following total returns: Since Inception of
6.86% and 1998 6.82%]
Best Calendar Quarter: 3rd Q 98 3.47%
Worst Calendar Quarter: 4th Q 98 0.32%
Please remember that past performance is no guarantee of the results the Bond
Fund may achieve in the future. Future returns may be higher or lower than the
returns the Fund achieved in the past.
1. CIMCO waived its management fee for the Bond Fund from June 1, 1998 through
October 31, 1998. If the management fee was deducted, returns would be
lower.
How does the performance of the Bond Fund compare to the bond market?
The following table compares the performance of each class of shares of the Bond
Fund with the performance of the Lehman Brothers Intermediate Government
Corporate Bond Index which is one measure of the performance of the relevant
market.
Average Annual Total Returns
(As of December 31, 1998)
Since Inception 1 Year
Class A Shares 2.25% 2.22%
Class B Shares 1.98% 1.46%
Lehman Index 8.63% 8.42%
Class A and B Share returns are net of applicable Sales Charges.
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:
o are looking for a more conservative option to a growth-oriented fund
o want a well-diversified and relatively stable investment allocation
o need a core investment
o seek above-average total return over the long term irrespective of its form
(i.e., capital gains or ordinary income)
or
o are retired or nearing retirement
You may want to invest fewer of your assets in this fund if you:
o are investing for maximum return over a long time horizon
o want your return to be either ordinary income or capital gains, but not
both
or
o 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.
PORTFOLIO MANAGEMENT
Who makes the investment decisions for this fund?
The fund is managed by a team of CIMCO's portfolio managers.
PRINCIPAL RISKS
What are the main risks of investing in this fund?
The risks of this fund are similar to the risks described for the Bond, Cash
Reserves, Growth and Income and Capital Appreciation Funds because it invests in
the same types of securities. 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 o non-investment grade securities o foreign
securities o mortgage-backed securities
These items include risks that the issuer will not pay its debts, and the value
of the investment will fluctuate in response to market movements or changes in
interest rates. Foreign securities have additional risks relating to the rate of
currency exchange and varying political situations. These risks are more fully
explained in the other fund pages, specifically the International Stock Fund
page, and the SAI.
PRINCIPAL 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 fund employs regular
rebalancing to maintain a relatively static asset allocation. Stock, bond and
cash components will vary, however, reflecting the relative availability of
attractively priced stocks and bonds. 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 25% of its assets in foreign securities.
The fund typically sells a stock when the fundamental expectations for buying it
no longer apply, the price exceeds its intrinsic value or other stocks appear
more attractively priced relative to their intrinsic values.
MEMBERS BALANCED FUND PERFORMANCE
How has the Balanced Fund performed?
The following bar chart provides an illustration of the performance of the Class
A Shares of the Balanced Fund. The bar chart does not reflect the deduction of
the Sales Charges imposed on the Class A Shares and also assumes the
reinvestment of any dividends and distributions. If the Sales Charges were
deducted from the annual total returns shown below, the return would have been
lower.
[GRAPHIC: bar chart showing the following total returns: Since Inception of
15.87% and 1998 14.49%]insert
Best Calendar Quarter: 4th Q 98 10.56%
Worst Calendar Quarter: 3rd Q 98 -4.23%
Please remember that past performance is no guarantee of the results the
Balanced Fund may achieve in the future. Future returns may be higher or lower
than the returns the Fund achieved in the past.
How does the performance of the Balanced Fund compare to the balanced market?
The following table compares the performance of each class of shares of the
Balanced Fund with the performance of several market indexes which are measures
of the performance of the relevant market.
Average Annual Total Returns
(As of December 31, 1998)
Since Inception 1 Year
Class A Shares 9.67% 8.38%
Class B Shares 11.04% 9.24%
Blended Index* 18.29% 17.26%
Lehman Index 8.63% 8.42%
S&P 500 30.90% 28.60%
90-day U.S.
Treasury Bill 5.06% 5.05%
Class A and B Share returns are net of applicable Sales Charges.
* The comparative index is a blend of the S&P 500 (45%), the Lehman Brothers
Intermediate Government and Corporate Bond Index (40%) and 90-day U.S. Treasury
Bills (15%).
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:
o are seeking a regular stream of income
o are seeking higher potential returns than most bond funds and are willing
to accept significant risk of volatility
o want to diversify your investments
o are seeking a mutual fund for the income portion of an asset allocation
program
or
o are retired or nearing retirement
You may want to invest fewer of your assets in this fund if you:
o desire relative stability of your principal
or
o are investing for maximum return over a long time horizon
INVESTMENT OBJECTIVE
What is this fund's goal?
The High Income 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.
PORTFOLIO MANAGEMENT
Who makes the investment decisions for this fund?
The fund is managed by a team of CIMCO's portfolio managers, which may use one
or more subadvisers under a "manager of managers" approach to make investment
decisions for some or all of the assets of 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.
PRINCIPAL RISKS
What are the main risks of investing in this fund?
This fund is subject to above-average interest rate and credit risks, which are
risks that the value of your investment will fluctuate in response to changes in
interest rates or an issuer will not honor a financial obligation. 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
prepayment/extension risks described in the Bond Fund Principal Risks.
PRINCIPAL INVESTMENT STRATEGIES
How does this fund pursue its objective?
The High Income 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. 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 emerging market securities.
MEMBERS HIGH INCOME FUND PERFORMANCE
How has the High Income Fund performed?
The following bar chart provides an illustration of the performance of the Class
A Shares of the High Income Fund. The bar chart does not reflect the deduction
of the Sales Charges imposed on the Class A Shares and also assumes the
reinvestment of any dividends and distributions. If the Sales Charges were
deducted from the annual total returns shown below, the return would have been
lower.
[GRAPHIC: bar chart showing the following total returns: Since Inception of
- -0.11% and 1998 -0.15%]
Best Calendar Quarter: 4th Q 98 3.40%
Worst Calendar Quarter: 3rd Q 98 -6.77%
Please remember that past performance is no guarantee of the results the High
Income Fund may achieve in the future. Future returns may be higher or lower
than the returns the Fund achieved in the past.
How does the performance of the High Income Fund compare to the high yield
market?
The following table compares the performance of each class of shares of the High
Income Fund with the performance of the Lehman Brothers High Yield Index which
is one measure of the performance of the relevant market.
Average Annual Total Returns
(As of December 31, 1998)
Since Inceoption 1 Year
Class A Shares -4.39% -4.45%
Class B Shares -4.56% -5.07%
Lehman Index 2.07% 1.87%
Class A and B Share returns are net of applicable Sales Charges.
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:
o are looking for a stock fund that has both growth and income components
o are looking for a more conservative option to a growth-oriented fund
o need a core investment
o seek above-average long-term total return through a combination of capital
gains and ordinary income
or
o are retired or nearing retirement
You may want to invest fewer of your assets in this fund if you:
o are investing for maximum return over a long time horizon
o desire your return to be either ordinary income or capital gains, but not
both
or
o require a high degree of stability of your principal
INVESTMENT OBJECTIVE
What is this fund's goal?
The Growth and Income Fund seeks long-term capital growth, with income as a
secondary consideration.
PORTFOLIO MANAGEMENT
Who makes the investment decisions for this fund?
The fund is managed by a team of CIMCO's portfolio managers.
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, meaning the value of your investment
will fluctuate in response to stock market and interest rate movements. Some of
the funds investments may rise and/or fall based upon investor perception and
attitude rather than economic valuations.
Loss of money is a risk of investing in this fund.
The fund primarily invests in "value" orientated stocks which may help limit
downside risk to portfolio returns. However these "value" stocks are subject to
the risk that their intrinsic values may never be realized by the market.
To the extent that it invests in certain securities, the fund may be affected by
additional risks relating to foreign securities. The principal risks of foreign
securities are described in the International Stock Fund page.
PRINCIPAL INVESTMENT STRATEGIES
How does this fund pursue its objective?
The Growth and Income 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 generally follows what is known as a "value" approach
which generally means that the managers seek to invest in stocks at prices below
their intrinsic value as estimated based on fundamental analysis of the issuing
company and its prospects. By investing in value stocks, the fund attempts to
limit the downside risk over time but may also produce smaller gains than other
stock funds if their intrinsic values are not realized by the market.
The fund will typically invest in securities representing every sector of the
S&P 500 in about (+/-50%) the same weightings as such sector has in 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.
The fund typically sells a stock when the fundamental expectations for buying it
no longer apply, the price exceeds its intrinsic value or other stocks appear
more attractively priced relative to their intrinsic values.
MEMBERS GROWTH AND INCOME FUND PERFORMANCE
How has the Growth and Income Fund performed?
The following bar chart provides an illustration of the performance of the Class
A Shares of the Growth and Income Fund. The bar chart does not reflect the
deduction of the Sales Charges imposed on the Class A Shares and also assumes
the reinvestment of any dividends and distributions. If the Sales Charges were
deducted from the annual total returns shown below, the return would have been
lower.
[GRAPHIC: bar chart showing the following total returns: Since Inception of
19.31% and 1998 16.74%]
Best Calendar Quarter: 4th Q 98 16.83%
Worst Calendar Quarter: 3rd Q 98 -10.45%
Please remember that past performance is no guarantee of the results the Growth
and Income Fund may achieve in the future. Future returns may be higher or lower
than the returns the Fund achieved in the past.
How does the performance of the Growth and Income Fund compare to the growth and
income market?
The following table compares the performance of each class of shares of the
Growth and Income Fund with the performance of the S&P 500 which is one measure
of the performance of the relevant market.
Average Annual Total Returns
(As of December 31, 1998)
Since Inception 1 Year
Class A Shares 12.91% 10.57%
Class B Shares 14.35% 11.38%
S&P 500 30.90% 28.60%
Class A and B Share returns are net of applicable Sales Charges.
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:
o have a longer investment time horizon
o are willing to accept higher on-going short-term risk for the potential of
higher long-term returns
o want to diversify your investments
o are seeking a fund for the growth portion of an asset allocation program
or
o 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:
o are investing with a shorter investment time horizon in mind
o are seeking income rather than capital gains
or
o are uncomfortable with an investment whose value may vary substantially
INVESTMENT OBJECTIVE
What is this fund's goal?
The Capital Appreciation Fund seeks long-term capital appreciation.
PORTFOLIO MANAGEMENT
Who makes the investment decisions for this fund?
The fund is managed by a team of CIMCO's portfolio managers.
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 a security may move up and down due to
factors that have nothing to do with the issuer. 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, including the risks associated with
changes in the rate of currency exchange and unstable political situations. A
further discussion of the principal risks associated with foreign securities is
contained in the International Stock Fund page.
PRINCIPAL INVESTMENT STRATEGIES
How does this fund pursue its objective?
The Capital Appreciation 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 low market prices relative to their
intrinsic values as estimated based on fundamental analysis of the issuing
companies and their prospects. This is sometimes referred to as a "value"
approach which is further described on page 9, the Growth and Income Fund page.
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 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 400 in about (+/-100%) the same weightings as such sector has in the S&P
400. For example, if technology companies represent 10% of the S&P 400, 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.
The fund typically sells a stock when the fundamental expectations for buying it
no longer apply, the price exceeds its intrinsic value or other stocks appear
more attractively priced relative to their intrinsic values.
MEMBERS CAPITAL APPRECIATION FUND PERFORMANCE
How has the Capital Appreciation Fund performed?
The following bar chart provides an illustration of the performance of the Class
A Shares of the Capital Appreciation Fund. The bar chart does not reflect the
deduction of the Sales Charges imposed on the Class A Shares and also assumes
the reinvestment of any dividends and distributions. If the Sales Charges were
deducted from the annual total returns shown below, the return would have been
lower.
[GRAPHIC: bar chart showing the following total returns: Since Inception of
23.32% and 1998 20.19%]
Best Calendar Quarter: 4th Q 98 20.31%
Worst Calendar Quarter: 3rd Q 98 -11.80%
Please remember that past performance is no guarantee of the results the Capital
Appreciation Fund may achieve in the future. Future returns may be higher or
lower than the returns the Fund achieved in the past.
How does the performance of the Capital Appreciation Fund compare to the capital
appreciation market?
The following table compares the performance of each class of shares of the
Capital Appreciation Fund with the performance of the S&P 400 which is one
measure of the performance of the relevant market.
Average Annual Total Returns
(As of December 31, 1998)
Since Inception 1 Year
Class A Shares 16.68% 13.86%
Class B Shares 18.41% 15.03%
S&P 400 22.15% 19.10%
Class A and B Share returns are net of applicable Sales Charges.
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:
o are seeking to diversify your domestic investments
o are seeking access to markets that can be less accessible to individual
investors in the U.S.
o are willing to accept high risk to achieve higher long-term growth
o are seeking funds for the growth portion of an asset allocation program
or
o 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:
o are investing with a shorter investment time horizon in mind
o are uncomfortable with an investment whose value may vary substantially
o are seeking income rather than capital gains
or
o want to limit your exposure to foreign markets or currencies or income from
foreign sources
INVESTMENT OBJECTIVE
What is this fund's goal?
The International Stock Fund seeks long-term growth of capital by investing
primarily in foreign equity securities.
PORTFOLIO MANAGEMENT
Who makes the investment decisions for this fund?
The fund is managed by a team of CIMCO's portfolio managers, which may use one
or more subadvisers under a "manager of managers" approach to make investment
decisions for some or all of the assets of this fund. More information about
these subadvisers, their investment styles and the "manager of managers"
approach is provided later in this prospectus.
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 as described in the earlier fund
pages. Loss of money is a significant risk of investing in this fund.
Investing in foreign securities involves certain special considerations and
additional risks which are not typically associated with investing in securities
of domestic issuers or U.S. dollar denominated securities. These risks may make
the fund more volatile than a comparable domestic stock fund. For example,
foreign securities are typically subject to:
o Fluctuations in currency exchange rates.
o Higher trading and custody charges compared to securities of U.S.
companies.
o Different accounting and reporting practices than U.S. companies. As a
result, it is often more difficult to evaluate financial information from
foreign issuers. Also, the laws of some foreign countries limit the
information that is made available to investors.
o Less stringent securities regulation. Securities regulations in many
foreign countries are often more lax than those of the U.S.
o Potential political instability.
o Potential economic instability. The economies of individual foreign
countries may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national products, rate of inflation, and
industry diversification. Such differences may cause the economies of these
countries to be less stable than the U.S. economy and may make them more
sensitive to economic fluctuations.
The risks of international investing are higher in emerging markets such as
those of Latin America, Africa, Asia and Eastern Europe. Additionally, investing
in smaller companies involves a higher level of risk compared to larger, more
established companies. Some small capitalization companies often do not have the
financial strength needed to do well in difficult economic times. Also, they
often sell limited numbers of products, which can make it harder for them to
compete with larger companies. As a result, their stock prices may fluctuate
more over the short-term, but may also have more potential to grow. 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.
PRINCIPAL INVESTMENT STRATEGIES
How does this fund pursue its objective?
Under normal market conditions, the International Stock Fund invests at least
80% of its assets in foreign equity securities. Foreign equity 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"- receipts typically issued by a U.S.
financial institution which evidence ownership of underlying securities of
foreign corporate issuers), European depository receipts ("EDRs") and Global
depository receipts ("GDRs"). EDRs and GDRs are receipts evidencing an
arrangement with a non-U.S. financial institution similar to that for ADRs and
are designed for use in non-U.S. securities markets. 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 fund allocates portions of its assets to one or more subadvisers to achieve
a blend of suitable investments. Currently, 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 located or operating in developed
countries. Such securities are those generally representative of the securities
comprising the Morgan Stanley Capital International, Europe, Australia, and Far
East ("EAFE") Index. 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. It 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.
Currently, 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. The emerging economies in which the
fund invests are located primarily in the Asia-Pacific region, Eastern Europe,
Central and South America, and Africa. 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.
MEMBERS INTERNATIONAL STOCK FUND PERFORMANCE
How has the International Stock Fund performed?
The following bar chart provides an illustration of the performance of the Class
A Shares of the International Stock Fund. The bar chart does not reflect the
deduction of the Sales Charges imposed on the Class A Shares and also assumes
the reinvestment of any dividends and distributions. If the Sales Charges were
deducted from the annual total returns shown below, the return would have been
lower.
[GRAPHIC: bar chart showing the following total returns: Since Inception of
9.67% and 1998 6.79%]
Best Calendar Quarter: 4th Q 98 14.61%
Worst Calendar Quarter: 3rd Q 98 -14.41%
Please remember that past performance is no guarantee of the results the
International Stock Fund may achieve in the future. Future returns may be higher
or lower than the returns the Fund achieved in the past.
How does the performance of the International Stock Fund compare to the
international market?
The following table compares the performance of each class of shares of the
International Stock Fund with the performance of the MSCI EAFE Index which is
one measure of the performance of the relevant market.
Average Annual Total Returns
(As of December 31, 1998)
Since Inception 1 Year
Class A Shares 3.83% 1.17%
Class B Shares 4.82% 1.49%
MSCI EAFE 21.24% 20.34%
Class A and B Share returns are net of applicable Sales Charges.
EXPENSES
Fund investors pay various expenses, which are described in the tables below.
Shareholder transaction expenses are paid from your account on a transaction by
transaction basis and are not reflected in the fund's share price. Annual fund
operating expenses are paid out of fund assets and are reflected in the share
price. Actual expenses may be greater or less than those shown.
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
Growth Capital
CLASS Cash High and Appre- Int'l
Reserves Bond Balanced Income Income ciation Stock
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum sales charge (Load) on purchases A 5.3% 4.3% 5.3% 4.3% 5.3% 5.3% 5.3%
(as a % of offering price) B <------------------------------- None ------------------------------->
Maximum deferred sales charge (Load) A <------------------------------- None (1) ----------------------------->
B 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5%
<FN>
(1)Except for investments of $1,000,000 or more. (See "How Sales Charges Are Calculated.")
</FN>
Annual Fund Operating Expenses (as a percentage of average net assets)
CLASS A CLASS B
Service Service
FUNDS Management 12b-1 Fee Other Total Management 12b-1 Fee Other Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash Reserves .40% None None 4.36% 4.76% .40% .75% None 4.36% 5.51%
Bond .50% None .25% 4.08% 4.83% .50% .75% .25% 4.08% 5.58%
Balanced .65% None .25% 2.50% 3.40% .65% .75% .25% 2.50% 4.15%
High Income .55% None .25% 2.72% 3.52% .55% .75% .25% 2.72% 4.27%
Growth & Income .55% None .25% 1.61% 2.41% .55% .75% .25% 1.61% 3.16%
Capital Appreciation .75% None .25% 2.28% 3.28% .75% .75% .25% 2.28% 4.03%
International Stock 1.05% None .25% 1.46% 2.76% 1.05% .75% .25% 1.46% 3.51%
</TABLE>
The management fee is the amount paid to the investment adviser for managing
each fund's portfolio and assisting in other aspects of its operations. The
service fee is paid to the fund's distributor for account service and
maintenance. Distribution or "12b-1" Fees (Class B only) are the fees each fund
pays CUNA Brokerage Services, Inc. (CUNA Brokerage). 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. These fees are
paid out of the fund on an ongoing basis. Over time these fees will increase the
cost of investment and may make the Class B charges more than the Class A
charges.
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. These capped expenses
are shown in chart 2 of Appendix A. 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 can make the repayment while remaining within its expense
cap.
Examples
The examples shown below are intended to help you compare the cost of investing
in each fund with the cost of investing in other mutual funds.
The tables below show what expenses you would pay if you invested $10,000 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%. Expense tables including expense waivers and reimbursements can be found on
page 41.
Assuming gross expenses (without expense waivers and reimbursements) and that
you redeemed your entire investment at the end of each period:
<TABLE>
<CAPTION>
Class A Class B
Year 1 Year 3 Year 5 Year 10 Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash Reserves 981 1887 2797 5092 997 1985 2915 5172
Bond 893 1820 2751 5092 1004 2003 2944 5222
Balanced 855 1519 2206 4019 867 1611 2320 4101
High Income 769 1463 2178 4059 879 1645 2374 4202
Growth and Income 761 1242 1747 3131 769 1324 1854 3213
Capital Appreciation 843 1486 2151 3917 855 1577 2264 3999
International Stock 794 1341 1912 3456 804 1427 2022 3538
Assuming gross expenses (without expense waivers and reimbursements) and that
you did not redeem your entire investment at the end of each period:
Class A Class B
Year 1 Year 3 Year 5 Year 10 Year 1 Year 3 Year 5 Year 10
Cash Reserves 981 1887 2797 5092 550 1640 2720 5172
Bond 893 1820 2751 5092 556 1659 2750 5222
Balanced 855 1519 2206 4019 417 1261 2120 4101
High Income 769 1463 2178 4059 429 1295 2174 4202
Growth and Income 761 1242 1747 3131 319 974 1654 3213
Capital Appreciation 843 1486 2151 3917 405 1227 2064 3999
International Stock 794 1341 1912 3456 354 1077 1822 3538
</TABLE>
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.
RISK COMPARISON
The risk/return curve below demonstrates that, in general 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.
Although each fund expects to pursue its investment objective using its primary
investment strategies regardless of market conditions, each fund may invest up
to 100% of its assets in money market securities as a defensive tactic in
abnormal market conditions.
YOUR ACCOUNT
The following pages describe how to open or add to an account and how to
purchase or sell shares. 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. Regardless of the type of account, however,
the first step to investing with MEMBERS Mutual Funds is to carefully read this
entire prospectus.
Two classes of shares are currently available, Class A and Class B. Other share
classes may be available through other distribution channels. Each Class has its
own cost structure which allows you to choose the one that best meets your
needs. For a description of the changes that are imposed on each class, please
see the expense table earlier in this prospectus. The following pages describe
the differences between the two classes of shares and tell you how you can get
started investing with MEMBERS Mutual Funds.
Opening or Adding to an Account (applicable to all shareholders)
1. Carefully read this prospectus.
2. Determine how much you want to invest. Regardless of which class of shares
you choose, your initial investment in MEMBERS Mutual Funds must meet certain
minimum investment amounts.
The minimum investments are as follows:
Type of Account Initial Minimum Subsequent Minimum
Non-retirement account $1,000 $150
($250 per fund) ($50 per fund)
Retirement account $500 $150
($250 per fund) ($50 per fund)
Systematic investment programs1
Twice Monthly(24 per year) $50 $50
($50 per fund) ($50 per fund)
Monthly $50 $50
($50 per fund) ($50 per fund)
Bimonthly (every other month) $100 $100
($50 per fund) ($50 per fund)
Quarterly $150 $150
($50 per fund) ($50 per fund)
(1)Systematic investment programs may be conducted on a twice monthly,
monthly, bimonthly or quarterly basis, however the total annual deposits,
regardless of frequency, must be at least $600.
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.
Buying Shares (not applicable to shareholders who have a brokerage account) The
following explains how to buy shares by check, wire, or phone.
<TABLE>
<CAPTION>
Buying Shares (not applicable to shareholders who have a brokerage account)
The following explains how to buy shares by check, wire, or phone.
- ------------------------------------------------------- -----------------------------------------------------
OPENING AN 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 Mutual Funds. to MEMBERS Mutual Funds.
- ------------------------------------------------------- -----------------------------------------------------
Deliver the check and your completed application to Fill out the detachable investment slip from an
your financial representative, or mail them to: account statement. If no slip is available,
include a note specifying the fund name, your share
CUNA Brokerage Services, Inc. class, your account number and the name(s) in which
2000 Heritage Way the account is registered. Mail to:
Waverly, IA 50677
Attn: MEMBERS Mutual Funds MEMBERS Mutual funds
Post Office Box 60569
King of Prussia, PA 19406-0569
- -------------------------------------------------------------------------------------------------------------
BY WIRE
- ------------------------------------------------------- -----------------------------------------------------
Deliver your completed application to your financial Instruct your credit union or other financial
representative, or mail it to: institution to wire the amount of your investment
CUNA Brokerage Services, Inc. to Boston Safe Deposit & Trust:
2000 Heritage Way ABA# 011001234
Waverly, IA 50677 FOR: MEMBERS Mutual Funds
Attn: MEMBERS Mutual Funds A/C 143286
FBO (Shareholder name and account number)
- ------------------------------------------------------- -----------------------------------------------------
Obtain your account number by calling your financial Specify the fund name(s), your share class(es),
representative or MEMBERS Mutual Funds at your account number(s), the name(s) in which the
1-800-877-6089. account(s) is (are) registered, and the amount(s)
of your investment in each fund.
- ------------------------------------------------------- -----------------------------------------------------
Instruct your credit union or other financial
institution to wire the amount of your investment to
Boston Safe Deposit & Trust
ABA# 011001234
FOR: MEMBERS Mutual Funds
A/C 143286
FBO (Shareholder name and account number)
- -------------------------------------------------------------------------------------------------------------
BY PHONE
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.
- ------------------------------------------------------- -----------------------------------------------------
You are automatically eligible to purchase shares
by phone, upon set-up of ACH electronic funds
transfer, unless you indicate otherwise in the
account options section of your 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 accepted by the fund after 3:00 p.m. Central time will be processed using the next day's
net asset value.
</TABLE>
Sales Charges
The following explains how sales charges are calculated.
Class A Sales Charges
<TABLE>
<CAPTION>
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 As a % of Net As a % of As a % of Net
Purchase Payment Amount Invested Purchase 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 Shares Total Account
Date Action Share Purchased Shares Value
<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 $2,000 in Year 3). You would incur the following CDSC
charges:
Type of Shares Sold (in order) Amount CDSC (%) CDSC ($)
Share price increases $1,550 None None
Dividends $ 570 None None
Aged Shares (oldest sold first):
Purchased January 1, Year 1 $1,000 3.5%(1) $35
Purchased January 1, Year 2 $ 880(2) 4.0%(1) $35
Total $4,000 1.75%(3) $70
(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.
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:
o Trustees/directors, officers and employees of the CUNA Mutual Group or any of
its affiliated companies (each, a "CUNA Mutual Group employee"), anyone who
was a CUNA Mutual Group employee within the previous twelve months, 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.
o Registered representatives of CUNA Brokerage.
o Financial representatives utilizing fund shares in fee-based managed accounts
under agreement with the MEMBERS Mutual Funds (wrap fee investors).
o Certain credit union system-affiliated institutional investors and other
non-profit organizations as described in section 501(c)(3) of the internal
revenue code.
o Certain defined benefit or defined contribution pension plans, including
401(k) plans, with over $250,000 of assets.
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.
o 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.
o 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.
o 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:
o 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.
o 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 years; and
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.
Selling Shares (not applicable to shareholders who have a brokerage account)
The following explains how to sell your shares by letter, phone or exchange. You
may sell shares at any time. Upon request, your shares will be sold at the next
NAV calculated after your order is accepted by the fund's transfer agent. Your
order will be processed promptly.
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 sell with
respect to each fund.
<TABLE>
<CAPTION>
- ------------------------------------ --------------------------------------------------------------------------------
If you are: To make a written request to sell shares, you must include:
- ------------------------------------ --------------------------------------------------------------------------------
<S> <C>
An owner of an individual, joint, o Letter of instruction
sole proprietorship, UGMA/UTMA o On the letter, the signatures and titles of all persons authorized to
(custodial accounts for minors) or sign for the account, exactly as the account is registered
a general partner account o Signature guarantee if applicable (see page 24)
- ------------------------------------ --------------------------------------------------------------------------------
An owner of a corporate or o Letter of instruction
association account o Corporate resolution, certified within the past two years, specifying
the individual(s) authorized to sell securities
o On the letter and the resolution, the signature of the person(s)
authorized to sign for the account
o Signature guarantee if applicable (see page 24)
- ------------------------------------ --------------------------------------------------------------------------------
An owner or trustee of a trust o Letter of instruction containing the signature(s) of the trustee(s)
account o 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
o Signature guarantee if applicable (see page 24)
- ------------------------------------ --------------------------------------------------------------------------------
A joint tenancy shareholder whose o Letter of instruction signed by the surviving tenant
co-tenant(s) are deceased o Certified copy of death certificate(s) of the deceased co-tenant(s)
o Signature guarantee if applicable (see page 24)
- ------------------------------------ --------------------------------------------------------------------------------
An executor of a shareholder's o Letter of instruction signed by the executor
estate o Copy of the order appointing the executor, certified within 60 days
of receipt by MEMBERS Mutual Funds
o Signature guarantee if applicable (see page 24)
- ------------------------------------ --------------------------------------------------------------------------------
An administrator, conservator, o Call MEMBERS Mutual Funds at 1-800-877-6089 for instructions
guardian or other seller or the
owner of an account type not
listed above
</TABLE>
Mail the materials to MEMBERS Mutual Funds using the address on page 29. A check
will be mailed to the name(s) and address in which the account is registered.
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, you are requesting payment other than by a check mailed to the address
of record and payable to the registered owner(s), or for certain individual
retirement account transactions (Call MEMBERS Mutual Funds at 1-800-877-6089).
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.
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 Standard 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 effective.
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 needed information is on file
with MEMBERS Mutual Funds.
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.
Amounts of less than $1,000 may be sent by electronic funds transfer (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 accepted by the fund after 3:00 p.m. Central time
will be processed using the next day's net asset value.
General Policies
o 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.
o 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.
o 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 determine after the order or request is received in
good order by MEMBERS Mutual Funds.
o 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 law.
o Telephone Transactions. For your protection, telephone request 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.
o Exchanges. Within an account, you may exchange shares of one fund for shares
of the same class of any other fund, generally without paying any additional
sales charges. (Certain exchanges will incur small additional sales charges; see
the SAI for more information on the exchange privilege.) 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.
o Year 2000. The MEMBERS funds, like all funds, could be adversely affected by
computer systems that do not properly process date-related information on and
after January 1, 2000. This is often referred to as "Year 2000" or "Y2K". While
Year 2000 problems could have a negative effect on funds, CIMCO and its
affiliated entities are working to avoid such problems. We are also obtaining
assurances from service providers that they are taking similar steps. As a
result of these efforts, it is not anticipated that you will experience negative
affects on your investments from the Year 2000 transition.
o Euro Conversion. On January 1, 1999, the European Monetary Union ("EMU") plans
to implement a new currency unit, the Euro. In effect, the Euro will become the
official currency of the EMU and will replace the individual currencies
previously used by countries such as Italy and France. It is expected that
approximately 46% of the stock exchange capitalization of the entire European
market may be reflected in Euros, and participating governments will issue their
bonds in Euros. The implementation of the Euro may adversely affect financial
markets world-wide and may result in changes in the relative strength of other
major currencies, including the U.S. dollar. It is not possible to accurately
predict what effect, if any, the conversion to the Euro by the EMU will have on
the operation of the accounts. However, to the extent that a fund such as the
International Stock Fund invests in securities denominated by the Euro, the fund
may be exposed to certain risks relating to the Euro conversion. For more detail
please refer to the SAI.
o Householding. To save time, money and resources, MEMBERS intends to send only
one copy of its reports to a household regardless of the number of investors at
the household or the number of accounts held. However, any investor can obtain
additional reports upon request to MEMBERS.
o 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.
o 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.
o 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.
o Market Timing. 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.
Distributions and Taxes
The funds generally distribute most or all of their net earnings in the form of
dividends and capital gains.
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.
Taxability of Distributions. 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. Any time you sell
or exchange shares, it may result in you owing taxes. You are responsible for
any tax liabilities generated by your transactions. 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. For
more information on taxes generally, please refer to the SAI.
Taxability of Transactions. Any time you sell or exchange shares, it is
considered a taxable event to 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.
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 can be as little as $50 per transaction ($50 minimum per
fund). (Please see the table on page 18.) Systematic investments may be
transacted twice monthly, monthly, bimonthly 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, and the payment schedule. 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.
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 $50 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.
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 open an account with either a minimum initial investment of $1,000 or by
setting up a systematic investment program. To find out more, call your MEMBERS
Mutual Funds representative at 1-800-877-6089.
Payment of Broker Account Fees. CUNA Brokerage charges its customers certain
account fees, including an inactive account fee. If an investor maintains a CUNA
Brokerage account with a $15,000 minimum monthly account balance in MEMBERS
funds for each month of the calendar year, CIMCO agrees to pay the annual
inactive account fee, out of its management fee, up to a limit of .10% of the
amount invested in MEMBERS funds.
PORTFOLIO MANAGEMENT
The investment adviser for MEMBERS Funds is CIMCO Inc., 5910 Mineral Point Road,
Madison, WI 53701-0391. 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). CIMCO has over $7 billion of
assets under management.
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 teams of portfolio managers employed by CIMCO.
As payment for its services as the investment adviser for the MEMBERS Mutual
Funds, CIMCO receives a management fee based upon the assets of each fund. The
management fee paid to CIMCO is computed and accrued daily and paid monthly, at
the following annual rates:
Cash Reserves Fund 0.40%
Bond Fund 0.50%
Balanced Fund 0.65%
High Income Fund 0.55%
Growth and Income Fund 0.55%
Capital Appreciation Fund 0.75%
International Stock Fund 1.05%
CIMCO manages the assets of the High Income Fund and International Stock Fund
using a "manager of managers" approach under which CIMCO may manage some or all
of the funds' assets and may allocate some or all of the funds' 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 expect frequent changes in subadvisers.
CIMCO monitors the performance of each subadviser to the extent that it deems it
appropriate to achieve a fund's investment objective, reallocates fund assets
among its own portfolio management team and individual subadvisers or recommends
to the MEMBERS Mutual Funds board that a fund employ or terminate particular
subadvisers. MEMBERS Mutual Funds and CIMCO received an order of the Commission
that permits the MEMBERS Mutual Funds board to employ particular subadvisers
without shareholder approval. If there is a change in subadvisers, you will
receive an "information statement" within 90 days of the change. The statement
will provide you with relevant information about the reason for the change and
information about any new subadvisers.
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 about $97.9 billion on behalf of over
3.7 million investor accounts as of December 31, 1998. 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.
As of the date of this prospectus, IAI International Limited ("IAI") in part and
Lazard Asset Management ("Lazard") in part manage the assets of the
International Stock Fund.
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 $6 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.
Lazard began managing separate account international equity portfolios in 1985.
Lazard has over 100 global investment professionals, with smaller teams
responsible for portfolio construction. Lazard is a New York based division of
Lazard Freres & Co. LLC (Lazard Freres) a New York limited liability company.
Lazard provides its institutional and private clients with a wide variety of
investment banking brokerage and related services. Lazard Freres 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, all of which are controlled by Lazard Freres.
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.
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 When using an overnight delivery
transaction requests should be service, mail inquiries and requests to:
mailed to:
MEMBERS Mutual Funds First Data Investors Services Group, Inc.
Post Office Box 60569 MEMBERS Mutual Funds
King of Prussia, PA 19406-0569 211 South Gulph Road
King of Prussia, PA 19406
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 Brokers 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. Additionally, CIMCO may pay CUNA Brokerage for
certain account fees as described in the "Additional Investor Services" section.
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. From time to time, CIMCO, at its
discretion, may reallow the entire sales charge as part of a sales promotion
program.
Distribution fees may be used to pay for sales compensation to financial
services firms, marketing and overhead expenses and interest expenses.
Amount of Type Sales Charge Maximum
Purchase of Paid by Reallowance
Payment Fund Investors or Commission
CLASS A
Equity funds(1) 5.3% 5.0%
$0 to $49,999
Income funds(2) 4.3% 4.0%
Equity funds(1) 4.3% 4.0%
$50,000 to $99,999
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.
Financial Highlights
The financial highlights table is intended to help you understand the Fund's
financial performance for the past year. Certain information reflects financial
results for a single Fund share. The total returns in the table represent the
rate that an investor would have earned (or lost) on an investment in the Fund,
assuming reinvestment of all dividends and distributions. This information has
been audited by KPMG Peat Marwick LLP, whose report, along with the Fund's
financial statements, are included in the SAI or annual report, which are
available upon request.
<TABLE>
<CAPTION>
Financial Highlights for a Share Outstanding during the period ended October 31, 1998
Cash Reserves Fund
--------------------------------
Class A Class B
---------- ----------
Period Period
Ended Ended
10/31/98(a) 10/31/98(a)
------------ ------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 $ 1.00
Income from Investment Operations:
Net investment income 0.04 0.03
--------- ---------
Total from investment operations 0.04 0.03
--------- ---------
Less Distributions:
Distributions from net investment income (0.04) (0.03)
--------- ---------
Total distributions (0.04) (0.03)
--------- ---------
Net increase in net asset value -- --
--------- ---------
Net Asset Value, End of Period $ 1.00 $ 1.00
========= =========
Total Return2+ 4.21% 3.50%
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 4,339 $ 894
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser1 4.76% 5.51%
After reimbursement of expenses by Adviser1 0.55% 1.30%
Ratios of net investment income to average net assets:
Before reimbursement of expenses by Adviser1 0.67% (0.08)%
After reimbursement of expenses by Adviser1 4.88% 4.13%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
1 Annualized.
2 Not annualized.
+ Total return without applicable sales charge.
(a) Cash Reserves Fund Class A and Cash Reserves Fund Class B commenced investment operations on December 29, 1997.
</FN>
Financial Highlights for a Share Outstanding during the period ended October 31, 1998
Bond Fund
--------------------------------
Class A Class B
---------- ----------
Period Period
Ended Ended
10/31/98(a) 10/31/98(a)
------------ ------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 10.00 $ 10.00
Income from Investment Operations:
Net investment income 0.45 0.39
Net realized and unrealized gain on investments 0.14 0.14
--------- ---------
Total from investment operations 0.59 0.53
--------- ---------
Less Distributions:
Distributions from net investment income (0.45) (0.39)
--------- ---------
Total distributions (0.45) (0.39)
--------- ---------
Net increase in net asset value 0.14 0.14
--------- ---------
Net Asset Value, End of Period $ 10.14 $ 10.14
========= =========
Total Return2+ 6.08% 5.36%
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 4,797 $ 2,225
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser1 4.83% 5.58%
After reimbursement of expenses by Adviser1 0.60% 1.35%
Ratios of net investment income to average net assets:
Before reimbursement of expenses by Adviser1 1.14% 0.39%
After reimbursement of expenses by Adviser1 5.37% 4.62%
Portfolio Turnover 95% 95%
- ------------------------------------------------------------------------------------------------------------------------------------
1 Annualized.
2 Not annualized.
+ Total return without applicable sales charge.
(a) Bond Fund Class A and Bond Fund Class B commenced investment operations on December 29, 1997.
Financial Highlights for a Share Outstanding during the period ended October 31, 1998
Balanced Fund
--------------------------------
Class A Class B
---------- ----------
Period Period
Ended Ended
10/31/98(a) 10/31/98(a)
------------ ------------
Net Asset Value, Beginning of Period $ 10.00 $ 10.00
Income from Investment Operations:
Net investment income 0.21 0.14
Net realized and unrealized gain on investments 0.68 0.68
--------- ---------
Total from investment operations 0.89 0.82
--------- ---------
Less Distributions:
Distributions from net investment income (0.21) (0.14)
--------- ---------
Total distributions (0.21) (0.14)
--------- ---------
Net increase in net asset value 0.68 0.68
--------- ---------
Net Asset Value, End of Period $ 10.68 $ 10.68
========= =========
Total Return2+ 8.92% 8.24%
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 15,670 $ 7,440
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser1 3.40% 4.15%
After reimbursement of expenses by Adviser1 1.10% 1.85%
Ratios of net investment income to average net assets:
Before reimbursement of expenses by Adviser1 0.23% (0.52)%
After reimbursement of expenses by Adviser1 2.53% 1.78%
Portfolio Turnover 60% 60%
- ------------------------------------------------------------------------------------------------------------------------------------
1 Annualized.
2 Not annualized.
+ Total return without applicable sales charge.
(a) Balanced Fund Class A and Balanced Fund Class B commenced investment operations on December 29, 1997.
Financial Highlights for a Share Outstanding during the period ended October 31, 1998
High Income Fund
--------------------------------
Class A Class B
---------- ----------
Period Period
Ended Ended
10/31/98(a) 10/31/98(a)
------------ ------------
Net Asset Value, Beginning of Period $ 10.00 $ 10.00
Income from Investment Operations:
Net investment income 0.61 0.55
Net realized and unrealized (loss) on investments (1.15) (1.15)
--------- ---------
Total from investment operations (0.54) (0.60)
--------- ---------
Less Distributions:
Distributions from net investment income (0.61) (0.55)
--------- ---------
Total distributions (0.61) (0.55)
--------- ---------
Net decrease in net asset value (1.15) (1.15)
--------- ---------
Net Asset Value, End of Period $ 8.85 $ 8.85
========= =========
Total Return2+ (5.78)% (6.39)%
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 6,045 $ 3,632
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser1 3.52% 4.27%
After reimbursement of expenses by Adviser1 1.00% 1.75%
Ratios of net investment income to average net assets:
Before reimbursement of expenses by Adviser1 4.95% 4.20%
After reimbursement of expenses by Adviser1 7.47% 6.72%
Portfolio Turnover 56% 56%
- ------------------------------------------------------------------------------------------------------------------------------------
1 Annualized.
2 Not annualized.
+ Total return without applicable sales charge.
(a) High Income Fund Class A and High Income Fund Class B commenced investment operations on December 29, 1997.
Financial Highlights for a Share Outstanding during the period ended October 31, 1998
Growth and Income Fund
--------------------------------
Class A Class B
---------- ----------
Period Period
Ended Ended
10/31/98(a) 10/31/98(a)
------------ ------------
Net Asset Value, Beginning of Period $ 10.00 $ 10.00
Income from Investment Operations:
Net investment income 0.07 0.01
Net realized and unrealized gain on investments 0.89 0.89
--------- ---------
Total from investment operations 0.96 0.90
--------- ---------
Less Distributions:
Distributions from net investment income (0.07) (0.01)
Distributions in excess of net investment income (0.01) (0.01)
--------- ---------
Total distributions (0.08) (0.02)
--------- ---------
Net increase in net asset value 0.88 0.88
--------- ---------
Net Asset Value, End of Period $ 10.88 $ 10.88
========= =========
Total Return2+ 9.57% 8.97%
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 11,169 $ 14,408
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser1 2.41% 3.16%
After reimbursement of expenses by Adviser1 1.00% 1.75%
Ratios of net investment income to average net assets:
Before reimbursement of expenses by Adviser1 (0.60)% (1.35)%
After reimbursement of expenses by Adviser1 0.81% 0.06%
Portfolio Turnover 5% 5%
- ------------------------------------------------------------------------------------------------------------------------------------
1 Annualized.
2 Not annualized.
+ Total return without applicable sales charge.
(a) Growth and Income Fund Class A and Growth and Income Fund Class B commenced investment operations on December 29, 1997.
Financial Highlights for a Share Outstanding during the period ended October 31, 1998
Capital Appreciation Fund
--------------------------------
Class A Class B
---------- ----------
Period Period
Ended Ended
10/31/98(a) 10/31/98(a)
------------ ------------
Net Asset Value, Beginning of Period $ 10.00 $ 10.00
Income from Investment Operations:
Net investment income (loss) 0.01 (0.02)
Net realized and unrealized gain on investments 1.04 1.01
--------- ---------
Total from investment operations 1.05 0.99
--------- ---------
Less Distributions:
Distributions in excess of net investment income (0.01) (0.01)
--------- ---------
Total distributions (0.01) (0.01)
--------- ---------
Net increase in net asset value 1.04 0.98
--------- ---------
Net Asset Value, End of Period $ 11.04 $ 10.98
========= =========
Total Return2+ 10.51% 9.91%
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 13,410 $ 7,025
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser1 3.28% 4.03%
After reimbursement of expenses by Adviser1 1.20% 1.95%
Ratios of net investment income to average net assets:
Before reimbursement of expenses by Adviser1 (1.97)% (2.72)%
After reimbursement of expenses by Adviser1 0.11% (0.64)%
Portfolio Turnover 10% 10%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
1 Annualized.
2 Not annualized.
+ Total return without applicable sales charge.
(a) Capital Appreciation Fund Class A and Capital Appreciation Fund Class B commenced investment operations on December 29, 1997.
</FN>
Financial Highlights for a Share Outstanding during the period ended October 31, 1998
International Stock Fund
--------------------------------
Class A Class B
---------- ----------
Period Period
Ended Ended
10/31/98(a) 10/31/98(a)
------------ ------------
Net Asset Value, Beginning of Period $ 10.00 $ 10.00
Income from Investment Operations:
Net investment income 0.08 0.03
Net realized and unrealized gain on investments 0.27 0.26
--------- ---------
Total from investment operations 0.35 0.29
--------- ---------
Less Distributions:
Distributions from net investment income (0.01) (0.01)
--------- ---------
Total distributions (0.01) (0.01)
--------- ---------
Net increase in net asset value 0.34 0.28
--------- ---------
Net Asset Value, End of Period $ 10.34 $ 10.28
========= =========
Total Return2+ 3.60% 2.90%
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 27,656 $ 1,350
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser1 2.76% 3.51%
After reimbursement of expenses by Adviser1 1.60% 2.35%
Ratios of net investment income to average net assets:
Before reimbursement of expenses by Adviser1 (0.01)% (0.76)%
After reimbursement of expenses by Adviser1 1.15% 0.40%
Portfolio Turnover 60% 60%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
1 Annualized.
2 Not annualized.
+ Total return without applicable sales charge.
(a) International Stock Fund Class A and International Stock Fund Class B commenced investment operations on
December 29, 1997.
</FN>
</TABLE>
<PAGE>
APPENDIX A
CHART 1
Investment Adviser Past Performance
The performance data set forth below relates to the historic performance of the
similarly managed funds of the Ultra Series Fund (the "USF Funds") for the
periods indicated. The USF Funds are variable insurance products funds that have
investment objectives, policies, strategies and risks substantially similar to
those of the MEMBERS Funds. They have been managed by members of CIMCO's
portfolio management team who also manage the MEMBERS Funds. Similar performance
data is also set forth below regarding the MFS(R) High Income Fund. The MFS(R)
High Income Fund is an open-ended mutual fund that is managed by the same
portfolio management team that provides subadvisory services for the MEMBERS
High Income Fund. The investment objectives, policies, strategies and risks are
substantially similar between the two funds. The performance data is provided to
illustrate the past performance of the investment teams in managing
substantially similar investment portfolios and does not represent the
performance of the MEMBERS Funds. Investors should not consider this performance
data as an indication of future performance of the MEMBERS Funds.
The performance data was calculated after deducting all fees and charges
actually incurred by the USF Funds and MFS(R) Fund. During the periods shown,
CUNA Mutual Life Insurance Company and its affiliates and MFS absorbed certain
expenses for the funds. If the funds paid these expenses, the performance shown
would have been less favorable.
Ultra Series Money Market Fund Performance
[GRAPHIC: bar chart showing the total returns for the past ten years as follows:
8.39 for 89, 7.53 for 90, 5.36 for 91, 3.05 for 92, 2.86 for 93, 3.34 for 94,
5.21 for 95, 5.17 for 96, 4.75 for 97, and 5.12 for 98.]
AVERAGE ANNUAL TOTAL RETURNS
(As of December 31, 1998)
ONE-YEAR FIVE-YEAR TEN-YEAR
USF MONEY MARKET FUND 5.12% 4.79% 5.15%
90-DAY U.S. TREASURY BILL 5.05% 5.10% 5.44%
BEST CALENDAR QUARTER: 2ND Q 89 2.31%
WORST CALENDAR QUARTER: 2ND Q 93 0.60%
Ultra Series Bond Fund Performance
[GRAPHIC: bar chart showing the total returns for the past ten years as follows:
11.74 for 89, 7.41 for 90, 14.70 for 91, 6.47 for 92, 8.87 for 93, -3.06 for 94,
16.37 for 95, 2.86 for 96, 7.45 for 97, and 6.19 for 98.]
AVERAGE ANNUAL TOTAL RETURNS
(As of December 31, 1998)
ONE-YEAR FIVE-YEAR TEN-YEAR
USF BOND FUND 6.19% 5.77% 7.77%
LEHMAN BROS. INT. GOV./
CORP. BOND INDEX 8.42% 6.59% 8.51%
BEST CALENDAR QUARTER: 2ND Q 89 5.94%
WORST CALENDAR QUARTER: 1ST Q 94 -2.50%
Ultra Series Balanced Fund Performance
[GRAPHIC: bar chart showing the total returns for the past ten years as follows:
18.03 for 89, 3.75 for 90, 18.53 for 91, 6.85 for 92, 10.47 for 93, -0.46 for
94, 22.27 for 95, 10.79 for 96, 16.87 for 97, and 13.40 for 98.]
AVERAGE ANNUAL TOTAL RETURNS
(As of December 31, 1998)
ONE-YEAR FIVE-YEAR TEN-YEAR
USF BALANCED FUND 13.40% 12.30% 11.83%
BLENDED INDEX* 17.26% 14.17% 12.94%
BEST CALENDAR QUARTER: 4TH Q 98 11.43%
WORST CALENDAR QUARTER: 3RD Q 90 -5.69%
*The compartive index is a blend of the S&P 500 (45%), the Lehman Brothers
Intermediate Government and Corporate Bond Index (40%) and 90-day U.S. Treasury
Bills (15%).
MFS(R) High Income Fund Performance
[GRAPHIC: bar chart showing the total returns for the past ten years as follows:
- -1.98 for 89, 16.73 for 90, 48.90 for 91, 17.05 for 92, 19.41 for 93, -2.63 for
94, 17.15 for 95, 12.56 for 96, 12.86 for 97, and 0.98 for 98.]
AVERAGE ANNUAL TOTAL RETURNS
(As of December 31, 1998)
ONE-YEAR FIVE-YEAR TEN-YEAR
MFS(R) HIGH INCOME
FUND CLASS A 0.98% 7.91% 9.53%
LEHMAN BROTHERS
HIGH YIELD INDEX 12.77% 11.65% 11.65%
BEST CALENDAR QUARTER: 1ST Q 91 20.69%
WORST CALENDAR QUARTER: 3RD Q 98 -7.78%
Ultra Series Growth and Income Stock Fund Performance
[GRAPHIC: bar chart showing the total returns for the past ten years as follows:
24.37 for 89, -1.98 for 90, 25.66 for 91, 7.66 for 92, 13.77 for 93, 1.42 for
94, 31.75 for 95, 22.02 for 96, 31.42 for 97, and 17.94 for 98.]
AVERAGE ANNUAL TOTAL RETURNS
(As of December 31, 1998)
ONE-YEAR FIVE-YEAR TEN-YEAR
USF GROWTH AND
INCOME STOCK FUND 17.94% 20.37% 16.84%
S&P 500
(LARGE CAP INDEX) 28.60% 24.05% 19.18%
BEST CALENDAR QUARTER: 4TH Q 98 17.81%
WORST CALENDAR QUARTER: 3RD Q 90 -13.69%
Ultra Series Capital Appreciation Stock Fund Performance
[GRAPHIC: bar chart showing the total returns for the past five years as
follows: 5.44 for 94, 30.75 for 95, 21.44 for 96, 31.57 for 97, and 20.91 for
98.]
AVERAGE ANNUAL TOTAL RETURNS
(As of December 31, 1998)
ONE-YEAR FIVE-YEAR(1) TEN-YEAR
USF CAPITAL APPRE-
CIATION STOCK FUND 20.91% 21.64% N/A
S&P 400 (MID-CAP INDEX) 19.10% 18.84% 19.26%
BEST CALENDAR QUARTER: 4TH Q 98 20.84%
WORST CALENDAR QUARTER: 3RD Q 98 -12.04%
(1) The fund began operations on January 3, 1994. 1994 data is for the period
from January 3 through December 31, 1994.
CHART2
CURRENT ANNUAL FUND OPERATING EXPENSES
As indicated earlier in the prospectus, CIMCO has placed a "cap" on the funds'
expenses. The chart below shows the maximum charge you could bear while this
expense cap arrangement is in place.
Current Annual Fund Operating Expenses After Expense Waivers and Reimbursements
(as a percentage of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B
Service Service
FUNDS Management 12b-1 Fee Other Total Management 12b-1 Fee Other Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash Reserves .40% None None .15% .55% .40% .75% None .15% 1.30%
Bond .50% None .25% .15% .90% .50% .75% .25% .15% 1.65%
Balanced .65% None .25% .20% 1.10% .65% .75% .25% .20% 1.85%
High Income .55% None .25% .20% 1.00% .55% .75% .25% .20% 1.75%
Growth & Income .55% None .25% .20% 1.00% .55% .75% .25% .20% 1.75%
Capital Appreciation .75% None .25% .20% 1.20% .75% .75% .25% .20% 1.95%
International Stock 1.05% None .25% .30% 1.60% 1.05% .75% .25% .30% 2.35%
</TABLE>
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. Additionally,
CIMCO waived its management fee for the Bond Fund from June 1, 1998 through
October 31, 1998. If the management fee was deducted, returns would be lower.
CHART3
EXPENSES AFTER WAIVERS AND REIMBURSEMENTS
The examples shown below are intended to help you compare the cost of investing
in each fund with the cost of investing in other mutual funds.
The tables below show what expenses you would pay if you invested $10,000 in
each fund over the various time periods indicated with the expenses charged
after waivers and reimbursements. The examples assume you reinvested all
dividends and that the average annual return for each fund was 5%.
Assuming operating expenses after expense waivers and reimbursements and that
you redeemed your entire investment at the end of each period:
<TABLE>
<CAPTION>
Class A Class B
Year 1 Year 3 Year 5 Year 10 Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash Reserves 583 697 821 1183 582 762 913 1264
Bond 518 705 907 1490 618 870 1097 1661
Balanced 636 861 1104 1799 638 932 1201 1881
High Income 528 735 959 1602 628 901 1149 1771
Growth and Income 627 832 1053 1690 628 901 1149 1771
Capital Appreciation 646 891 1155 1907 648 962 1252 1989
International Stock 684 1008 1355 2329 688 1083 1455 2412
Assuming operating expenses after expense waivers and reimbursements and that
you did not redeem your entire investment at the end of each period:
Class A Class B
Year 1 Year 3 Year 5 Year 10 Year 1 Year 3 Year 5 Year 10
Cash Reserves 583 697 821 1183 132 412 713 1264
Bond 518 705 907 1490 168 520 897 1661
Balanced 636 861 1104 1799 188 582 1001 1881
High Income 528 735 959 1602 178 551 949 1771
Growth and Income 627 832 1053 1690 178 551 949 1771
Capital Appreciation 646 891 1155 1907 198 612 1052 1989
International Stock 684 1008 1355 2329 238 733 1255 2412
</TABLE>
<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 February 1999, call 1-800-877-6089
or write MEMBERS Mutual Funds, P.O. Box 60569, King
of Prussia, PA 19406-0569.
February 24, 1999
<PAGE>
TABLE OF CONTENTS Page
GENERAL INFORMATION........................................................1
INVESTMENT PRACTICES.......................................................1
Lending Portfolio Securities......................................1
Restricted and Illiquid Securities................................1
Options on Securities and Securities Indices......................2
Futures Contracts and Options on Futures Contracts................5
Foreign Transactions..............................................8
Certain Bond Fund Practices......................................14
Lower-Rated Corporate Debt Securities............................14
Other Debt Securities............................................15
Convertible Securities...........................................17
Repurchase Agreements............................................18
Reverse Repurchase Agreements....................................18
Government Securities............................................19
Forward Commitment and When-Issued Securities....................19
Mortgage-Backed and Asset-Backed Securities......................19
Other Securities Related to Mortgages............................20
Real Estate Investment Trusts....................................23
Practices that are Authorized but not Presently Employed.........24
Types of Investment Risk.........................................24
Higher-Risk Securities and Practices.............................26
INVESTMENT LIMITATIONS....................................................30
TEMPORARY DEFENSIVE POSITIONS.............................................31
PORTFOLIO TURNOVER........................................................31
MANAGEMENT OF THE TRUST...................................................31
Trustees and Officers............................................32
Trustee Compensation.............................................33
Sales Load Waivers for Certain Affiliated Persons of the Trust............33
Control Persons and Principal Holders of the Trust's Securities...........34
PORTFOLIO MANAGEMENT......................................................35
The Management Agreement with CIMCO Inc..........................35
CIMCO Inc........................................................36
The Management Agreements with Subadvisers.......................37
The Subadviser for the High Income Fund..........................37
The Subadvisers for the International Stock Fund.................38
DISTRIBUTION (12b-1) PLANS AND AGREEMENT..................................38
TRANSFER AGENT............................................................39
CUSTODIAN.................................................................40
INDEPENDENT AUDITORS......................................................40
BROKERAGE.................................................................40
HOW SECURITIES ARE OFFERED................................................42
Shares of Beneficial Interest....................................42
Voting Rights....................................................42
Limitation of Shareholder Liability..............................43
Limitation of Trustee and Officer Liability......................43
Limitation of Interseries Liability..............................43
MORE ABOUT PURCHASING AND SELLING SHARES..................................44
Offering Price...................................................44
Initial Sales Charge on Class A Shares...........................44
Deferred Sales Charge on Class B Shares..........................45
Special Redemptions..............................................47
NET ASSET VALUE OF SHARES.................................................47
Cash Reserves Fund...............................................48
Valuation Procedures.............................................49
ADDITIONAL INVESTOR SERVICES AND PROGRAMS.................................49
Systematic Investment Program....................................49
Systematic Withdrawal Program....................................50
Exchange Privilege and Systematic Exchange Program...............50
Reinstatement or Reinvestment Privilege..........................51
DIVIDENDS, DISTRIBUTIONS AND TAXES........................................51
Options and Futures Transactions.................................53
Straddles........................................................54
Distributor......................................................55
CALCULATION OF YIELDS AND TOTAL RETURNS...................................55
Cash Reserves Fund Yields........................................55
Other Fund Yields................................................56
Average Annual Total Returns.....................................57
Other Total Returns..............................................58
LEGAL COUNSEL.............................................................58
FINANCIAL STATEMENTS......................................................58
<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
MEMBERS Mutual Funds is a diversified open-end management investment company
consisting of seven individual investment portfolio or funds, each with its own
investment objective and policies. 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.
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 on page 25 (Higher risk securities and practice table). 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.
<PAGE>
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 ADRs, 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 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
preserves a certain return within a stated 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 matured.
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.
Practices that are Authorized but not Presently Employed
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.
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.
<PAGE>
<TABLE>
<CAPTION>
Higher-Risk Securities and Practices
- -------------------------------- ---------------------------------------------------- ------------------------------
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 (including In general, an agreement to buy or sell a specific Interest rate, currency,
financial futures contracts) amount of a commodity, financial instrument, or market, hedging or
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>
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 Capital
Cash High and Appre- Int'l
Reserves Bond Balanced Income Income ciation Stock
- -------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Investment Practices
- -------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Borrowing; Reverse Repurchase Agreements 30 30 30 30 30 30 30
- -------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Repurchase Agreements * * * * * * *
- -------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Securities Lending X 30 30 30 30 30 30
- -------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Short-term Trading * * * * * * *
- -------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
When-Issued Securities; Forward Commitments 25 25 25 25 25 25 25
- -------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Conventional Securities
- -------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Shares of Other Investment Companies X 10** 10** 10** 10** 10** 10**
- -------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Non-Investment Grade Securities X 20 10 * 5 5 5
- -------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Foreign Securities 25(1) 20 25 50 25 25 *
- -------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Emerging Market Securities X 10 10 25 X X 25
- -------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Illiquid Securities(2) 10 15 15 15 10 10 15
- -------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Restricted Securities 25** 15 15 30** 10 10 15
- -------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Mortgage-backed Securities; REITs X 30 15 30 10 X X
- -------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Derivative Securities and Contracts
- -------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Options and Futures Contracts
- -------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
o Options on Securities or Indices X 10** 10** 10** 10** 10** 10
- -------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
o Futures Contracts(3) X 5** 5** 5** 5** 5** 5
- -------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
o Options on Futures Contracts(3) X 10** 10** 10** 10** 10** 10
- -------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Forward Foreign Currency Exchange Contracts X X X 10 X X 10
- -------------------------------------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
<FN>
(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.
</FN>
</TABLE>
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.
* One asterisk 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.
** Two asterisks mean 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.
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.
TEMPORARY DEFENSIVE POSITIONS
Although each fund expects to pursue its investment objective utilizing its
principal 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.
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
MEMBERS Funds are governed by a Board of Trustees. The Trustees have the duties
and responsibilities set forth under the applicable laws of the State of
Delaware, including but not limited to the management and supervision of the
funds.
The board, from time to time, may include individuals who may be deemed to be
affiliated persons of CIMCO, the fund's adviser. At all times, however, the
majority of board members will not be affiliated with CIMCO or the funds.
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 certain management contracts, approving or amending a 12b-1
plan, or as otherwise required by the 1940 Act.
<TABLE>
<CAPTION>
Trustees and Officers
Name, Address Position(s) Held Principal Occupation
and Age with the Fund 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 - 55 CUNA Mutual Insurance Society
Chief Officer - Investments
1990 - Present
CUNA Mutual Life Insurance Company
Chief Officer - Investments
1973 - Present
Lawrence R. Halverson* Trustee, President and CIMCO Inc.
5910 Mineral Point Road Principal Executive Senior Vice President, 1996 - Present
Madison, WI 53705 Officer Vice President, 1987 - 1996
Age - 53 1997 - Present Secretary, 1992 - Present
CUNA Brokerage Services, Inc.
President
1996 - 1998
Scott R. Powell* Vice President and CIMCO Inc.
5910 Mineral Point Road Secretary Vice President - Sales, Marketing, & Client Services
Madison, WI 53705 1998 - Present 1998 - Present
Age - 36 Investment Officer - Mutual Funds, 1997 - 1998
Secretary and Treasurer Investment Officer - Marketing, 1993 - 1996
1997 - 1998
T. Rowe Price
Vice President, 1996 - 1997
Mary E. Hoffmann* Treasurer CIMCO Inc.
5910 Mineral Point Road 1998 - Present Product Operations and Finance Manager
Madison, WI 53705 1998 - Present
Age - 29
CUNA Mutual Insurance Society
Investment Accounting Supervisor
1996 - 1998
McGladrey and Pullen, LLP
(Madison, Wisconsin)
Financial Auditor
1993 - 1996
Gwendolyn M. Boeke Trustee Evangelical Lutheran Church in America
2000 Heritage Way 1997 - Present (Chicago, Illinois)
Waverly, IA 50677 Regional Director, ECLA Foundation
Age - 64 1990 - Present
Alfred L. Disrud Trustee Planned Giving Services
2000 Heritage Way 1997 - Present (Waverly, Iowa)
Waverly, IA 50677 Owner
Age - 77 1986 - Present
Keith S. Noah Trustee Noah, Smith, & Schuknecht, L.L.C.
2000 Heritage Way 1997 - Present (Charles City, Iowa)
Waverly, IA 50677 Partner
Age - 78 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 - 62
Midwest Power Systems, Inc. (Waterloo, Iowa)
District Manager
1992 - 1997
<FN>
* "Interested person" as defined in the 1940 Act.
</FN>
</TABLE>
Trustee Compensation
Aggregate Compensation Total Compensation from
Name of Person, Position from Trust(1) Trust and Fund 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
Keith S. Noah $4,000 $8,000
Thomas C. Watt $4,000 $8,000
(1) Amounts for the fiscal year ending October 31, 1998.
(2) "Fund Complex" includes the Trust and the Ultra Series Fund.
(3) Non-compensated interested trustee.
Sales Load Waivers for Certain Affiliated Persons of the Trust
Class A shares may be offered without front-end sales charges to
Trustee/directors, officers, and employees of CUNA Mutual Group or any of its
affiliated companies (each a "CUNA Mutual Group employee"), anyone who was a
CUNA Mutual Group employee within the previous twelve months, any immediate
family member of a CUNA Mutual Group employee residing in a CUNA Mutual Group
employee's household and any UGMA/UTMA custodial account sponsored by a CUNA
Mutual Group employee.
Control Persons and Principal Holders of the Trust's Securities
Based upon seed money and other subsequent investments, individually or
combined, CUNA Mutual Insurance Society, CUNA Mutual Life Insurance Company and
CUMIS Insurance Society, Inc. own more than 25% of the shares of each fund and
may be deemed to control each fund. The following table sets forth 5% or more
ownership of each fund as of January 31, 1999:
<TABLE>
<CAPTION>
Growth Capital
Cash High and Appre Int'l
Shareholder Reserves Bond Balanced Income Income ciation* Stock
- ---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CUNA Mutual Insurance Society
5910 Mineral Point Road 37.286% 26.589% 30.613% 18.606%
Madison, WI 53705
- ---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
CUNA Mutual Life Insurance Co.
5910 Mineral Point Road 37.311% 26.606% 29.619% 71.586% 11.166%
Madison, WI 53705
- ---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
CUMIS Insurance Society, Inc.
5910 Mineral Point Road 18.955% 66.473%
Madison, WI 53705
- ---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Donald N. Bottolfson
1037 Apple River Ct 6.768%
Amery WI 54001-5243
- ---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Jerald R. Hinrichs
148 Weeburn Drive 6.235%
New Canaan CT 06840
- ---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
R. Kent Russell
Rt #3 Box 23B 13.290%*
Clinchport VA 24244-9310
- ---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Sandra N. Powers
514 Emory Church Road 13.064%*
Kingsport TN 37664-5006
- ---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Jimmy P. Larkin
426 Spruce Street 8.389%*
Mount Carmel, TN 37645-3329
- ---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Alvan C. Moore
6428 State Route 405 7.871%*
Owensboro KY 42303-9751
- ---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Olga Hernandez
3361 SW 17th Street 6.607%*
Fort Lauderdale, FL 33312-3642
- ---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Albert C. Maxfield
504 Cody Street 6.566%*
Sulphur LA 70663-4710
- ---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Julia S. Madyun
13675 Old Greensboro Road 5.907%*
Tuscaloosa AL 35405-9014
- ---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<FN>
* Class B Shares
** As of January 31, 1999 Capital Appreciation Fund did not have any
ownership over 5%.
</FN>
</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.
The funds' board members, officers and directors, as a group, owned 1.06% of the
Cash Reserves Fund and less than 1% of the other funds' outstanding voting
securities on January 31, 1999.
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:
Total Advisory Fees
Paid during the Fiscal Year Ended
Fund Management Fee October 31, 1998
---- -------------- ----------------
Cash Reserves 0.40% $13,907
Bond 0.50%* 18,516
Balanced 0.65% 43,515
High Income 0.55% 34,493
Growth and Income 0.55% 60,851
Capital Appreciation 0.75% 54,599
International Stock 1.05% 203,368
-------
Total $429,249
* For the period June 1, 1998 through October 31, 1998, the Funds'
investment adviser, CIMCO Inc. agreed to waive the .50% management fee
applicable to the MEMBERS Bond Fund. The total advisory fees paid during
the fiscal year ended October 31, 1998 net of the waiver was $417,955.
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 Other 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.
CUNA Brokerage Services, Inc. 5910 Mineral Point Road, Madison, WI 53705 is the
Trust's principal underwriter.
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
Jeffrey B. Pantages Senior Vice President
Daniel J. Larson Vice President
Thomas J. Merfeld Vice President
Scott R. Powell 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 received an order from the
Commission that permits the hiring of Subadvisers without shareholder approval.
If CIMCO hires a new Subadviser pursuant to the 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. 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
Pursuant to the above formula, CIMCO paid a management fee to MFS in the amount
of $25,085 for the fiscal year ending October 31, 1998.
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").
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
Pursuant to the above formula, CIMCO paid a management fee to IAI in the amount
of $105,960 for the fiscal year ending October 31, 1998.
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. Pursuant to the above formula, CIMCO paid a
management fee to Lazard in the amount of $46,357 for the fiscal year ending
October 31, 1998.
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.
The table below shows the dollar amount spent by the fund for the fiscal year
ending October 31, 1998 for each of the following items:
-------------------------------------------------------------------- ---------
1) Advertising; $0
-------------------------------------------------------------------- ---------
2) Printing and mailing of prospectuses to other than $0
current shareholder;
-------------------------------------------------------------------- ---------
3) Compensation to underwriters; $0
-------------------------------------------------------------------- ---------
4) Compensation to broker-dealers; $0
-------------------------------------------------------------------- ---------
5) Compensation to sales personnel; $79,963
-------------------------------------------------------------------- ---------
6) Interest, carrying, or other financing charges; and $0
-------------------------------------------------------------------- ---------
7) Other (specify) Expense Reimbursements to other companies $152,566
that are paying distributor expenses on behalf of CUNA
Brokerage Services, Inc. (the distributor)
-------------------------------------------------------------------- ---------
TRANSFER AGENT
First Data Investor Services Group, Inc. ("First Data"), 221 South Gulph Road,
King of Prussia, Pennsylvania 19406, 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
Post Office Box 60569
King of Prussia, Pennsylvania 19406-0569
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
211 South Gulph Road
King of Prussia, Pennsylvania 19406
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110 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 and elsewhere in the
Registration Statement in reliance upon the reports 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
CIMCO chooses brokers based on among other factors commission rates, efficiency,
availability to execute difficult transactions in the future, financial strength
and stability of the brokerage firm, research services available, integrity, and
areas of a firm's expertise.
While transaction execution at the most favorable price is a primary criteria, a
broker whose commissions exceed those charged by another broker may be chosen
if, in CIMCO's opinion, the value of brokerage and research services warrants
it. Research provided by a broker may be made available without charge to other
clients of CIMCO, and may benefit all clients, including the client for whom the
transactions are executed.
In addition to the general research services described above, CIMCO receives
various specific research products and services under "soft dollar"
arrangements. These services are paid for by directing that a portion of
commissions on specified transactions up to a specified amount for each service
be paid by the brokers handling the transactions to the vendors of the products.
The commission rates on such transactions are sometimes higher than on "non-soft
dollar" transactions. These services generally benefit all accounts and involve
trades for all accounts.
Where advantageous for all affected accounts, CIMCO may employ "bunching of
trades" wherein one 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.
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.
The fund paid $51,759 for brokerage commission for the fiscal year ending
October 31, 1998.
HOW SECURITIES ARE OFFERED
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 and/or
classes 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. Additional classes of shares may be offered in the future.
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.
Offering Price
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:
o Redemptions made pursuant to the Trust's right to liquidate small
accounts (see "General Policy -- Small Accounts" in the prospectus).
o Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
o Redemptions due to death or disability.
o Redemptions made under the Reinstatement Privilege, as described in
"Reinstatement or Reinvestment Privilege" below.
o 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 Code, unless otherwise
noted.
o Redemptions made to effect mandatory or life expectancy distributions
under the Code.
o Returns of excess contributions made to these plans.
o 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 chart following for more information on Class B CDSC waivers.
Class B CDSC Waiver Chart
<TABLE>
<CAPTION>
ERISA Plans Non-ERISA Plans
- --------------------- ------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
401(a) Plan,
Type of Distribution 401(k) Plan or Supplemental IRA or Non-Retirement
403(b) Plan 403(b) Plan 457 Plan IRA Rollover Plan
- --------------------- ------------------ ------------------ ------------------ ------------------ ------------------
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.
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 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.
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:
o The investments will be drawn on or about the day of the month
indicated.
o 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.
o 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."
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each fund has qualified, and intends to continue to qualify, for treatment as a
regulated investment company ("RIC") under Subchapter M of the Code. In order to
qualify for that treatment, each fund 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.
For federal income tax purposes, the High Income Fund, Growth and Income Fund,
and Capital Appreciation Fund have loss carryovers of $66,186, $1,433, and $219,
respectively, as of October 31, 1998, which is not offset by subsequent capital
gains, will expire in 2006.
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.
Distributor
Shares of the Trust are offered continuously. The shares 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.
The aggregate dollar amount of underwriting commission paid to and retained by
the underwriter was $47,895 for the fiscal year ending October 31, 1998.
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.
The current yield based on the 7 days ended on the date of the balance sheet
included in the registration statement is 4.76% for Class A and 4.01% for Class
B. The current effective yield based on the 7 days ended on the date of the
balance sheet included in the registration statement is 4.87% for Class A and
4.09% for Class B.
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. The one year average
annual total return for the calendar year ending December 31, 1998 for each of
the funds is:
Average Annual Total Returns as of December 31, 1998
Cash Reserves Fund -0.96%
Bond Fund 2.22%
Balanced Fund 8.38%
High Income Fund -4.45%
Growth and Income Fund 10.57%
Capital Appreciation Fund 13.86%
International Stock Fund 1.17%
When a fund has been in operation for 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.
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
Data from the most recent annual report begins on the next page.
<PAGE>
CASH REVERSES FUND - Portfolio of Investments
Value
Par Value (Note 2)
COMMERCIAL PAPER (A) - 71.22%
Finance - 50.03%
$ 200,000 American Express Credit Corp.
5.210%, 11/30/98 $ 199,169
200,000 American General Finance Co.
5.030%, 01/27/99 197,569
200,000 Associates Corp. of North America
5.150%, 01/06/99 198,112
200,000 Caterpillar Financial Services
5.351%, 01/04/99 198,098
260,000 CIT Group Holdings, Inc.
5.160%, 12/08/98 258,621
161,000 Ford Motor Credit Corp.
5.120%, 01/08/99 159,443
100,000 Ford Motor Credit Corp.
5.090%, 01/27/99 98,752
260,000 G.E. Capital Corp.
5.450%, 11/09/98 259,685
280,000 General Motors Acceptance Corp.
5.440%, 11/10/98 279,619
225,000 Goldman Sachs Group LP
5.320%, 12/14/98 223,570
100,000 Household Finance Corp.
5.049%, 01/05/99 99,088
200,000 Merrill Lynch & Co., Inc.
5.411%, 11/18/98 199,489
250,000 Norwest Financial, Inc.
5.220%, 01/21/99 247,064
2,618,279
Durable Goods - 5.07%
268,000 Deere & Co.
5.430%, 01/11/99 265,130
Consumer Staples - 4.75%
250,000 Procter & Gamble Co.
5.330%, 12/16/98 248,334
Media - 3.80%
200,000 Disney (Walt) Co.
5.130%, 12/08/98 198,946
Technology - 3.79%
200,000 Motorola, Inc.
5.171%, 12/22/98 198,535
Chemicals - 3.78%
200,000 du Pont (E.I.) de Nemours & Co.
5.000%, 01/14/99 197,946
Total Commercial Paper 3,727,170
( Cost $3,727,170 )
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (A) - 25.96%
Federal Home Loan Mortgage Corp. - 10.40%
$ 100,000 5.249%, 12/17/98 $ 99,329
250,000 5.180%, 01/15/99 247,302
200,000 5.050%, 01/19/99 197,784
544,415
U.S. Treasury Bill - 8.11%
425,000 5.040%, 11/12/98 424,345
Federal Home Loan Bank - 5.57%
194,000 5.360%, 11/27/98 193,249
100,000 4.950%, 03/17/99 98,130
291,379
Federal National Mortgage Association - 1.88%
100,000 4.570%, 03/23/99 98,197
Total U.S. Government and Agency
Obligations 1,358,336
( Cost $1,358,336 )
CERTIFICATE OF DEPOSIT - 2.89%
150,985 State Street Eurodollar
4.750%, 11/02/98 150,985
Total Certificate of Deposit 150,985
( Cost $150,985 )
TOTAL INVESTMENTS - 100.07% 5,236,491
( Cost 5,236,491** )
NET OTHER ASSETS AND LIABILITIES - (0.07)% (3,410)
TOTAL NET ASSETS - 100.00% $5,233,081
** Aggregate cost for Federal tax purposes.
(A) Rate noted represents annualized yield at time of purchase.
See accompanying Notes to Financial Statements
BOND FUND - Portfolio of Investments
Value
Par Value (Note 2)
CORPORATE NOTES AND BONDS - 64.60%
Finance - 14.20%
$ 200,000 Aetna Services, Inc.
6.970%, 08/15/36 $ 208,049
100,000 Caterpillar Financial Services,
Series F, MTN
6.400%, 04/16/01 102,751
250,000 Carramerica Realty Corp.
6.625%, 10/01/00 248,111
150,000 General Motors Acceptance Corp., MTN
6.050%, 10/04/99 151,398
300,000 Kimco Realty Corp., MTN
6.960%, 07/16/07 286,560
996,869
Asset - Backed Securities - 11.43%
200,000 Chase Commercial Mortgage
Securities Corp.
Series 1997-2, Class C, CMO
6.600%, 12/19/07 199,382
200,000 Citibank Credit Card Master Trust I,
Series 1998-6 Class A, ABS
5.850%, 04/10/03 204,220
200,000 Deutsche Mortgage and
Asset Receiving Corp.,1998, Class C, CMO
6.861%, 03/15/08 196,942
200,000 Residential Funding Mortgage
Securities II Series 1998-HI2, Step
Coupon, Class A2, ABS (F) 6.290%, 07/25/13 201,906
802,450
Industrials - 7.23% 350,000 Motorola, Inc.
5.800%, 10/15/08 350,992
150,000 WMX Technologies, Inc.
7.000%, 05/15/05 156,425
507,417
Brokerage Services - 5.88%
200,000 Goldman Sachs LP 144A, MTN (C)
6.250%, 02/01/03 202,571
200,000 Travelers Group, Inc.
7.200%, 02/01/04 210,157
412,728
Utilities - 4.44%
$ 150,000 Cincinnati Gas & Electric Co.
6.450%, 02/15/04 $ 157,427
150,000 GTE North, Inc., Series A, Debenture
6.000%, 01/15/04 154,485
311,912
Communication - 4.39%
100,000 Cox Communication, Inc.
6.500%, 11/15/02 103,556
200,000 Worldcom, Inc.
6.125%, 8/15/01 204,760
308,316
Consumer Staples - 4.30%
300,000 Nabisco, Inc.
6.700%, 06/15/02 302,109
Consumer Products - 3.04%
100,000 Carter Holt Harvey, Ltd.,Yankee
8.875%, 12/01/04 107,456
100,000 International Paper Co.
7.500%, 05/15/04 106,254
213,710
Defense - 2.23%
150,000 Martin Marietta Technologies, Inc.
6.500%, 04/15/03 156,703
Energy - 2.16%
150,000 Transcontinental Gas Pipeline Corp.
6.125%, 01/15/05 151,345
Health Services - 2.12%
150,000 Columbia/HCA Healthcare Corp.
6.125%, 12/15/00 148,889
Metals and Mining - 1.61%
100,000 MAGMA Copper Co.
8.700%, 05/15/05 113,019
Retail - 1.57%
100,000 American Stores Co.
9.125%, 04/01/02 110,381
Total Corporate Notes and Bonds 4,535,848
( Cost $4,501,585 )
See accompanying Notes to Financial Statements.
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 27.94%
U.S. Treasury Notes - 20.62%
$ 700,000 5.625%, 04/30/00 $ 712,688
400,000 5.500%, 03/31/03 418,625
300,000 5.750%, 04/30/03 316,875
1,448,188
Federal Home Loan Mortgage Corp. - 4.31%
298,127 6.500%, 10/15/13 302,435
Federal National Mortgage
Association - 3.01%
200,000 6.000%, 05/15/08 211,670
Total U.S. Government and Agency
Obligations 1,962,293
( Cost $1,919,509 )
U.S. DENOMINATED FOREIGN GOVERNMENT BOND - 2.02%
150,000 United Mexican States, Global
9.875%, 01/15/07 141,750
Total U.S. Denominated Government
Foreign Bond 141,750
( Cost $156,551 )
CERTIFICATE OF DEPOSIT - 0.54%
38,124 State Street Eurodollar
4.750%, 11/02/98 38,124
Total Certificate of Deposit 38,124
( Cost $38,124 )
Shares Value
(Note 2)
INVESTMENT COMPANY - 2.85%
200,000 State Street Prime Money Market
5.48% $ 200,000
Total Investment Company 200,000
( Cost $200,000 )
TOTAL INVESTMENTS - 97.95% 6,878,015
( Cost $6,815,769** )
NET OTHER ASSETS AND LIABILITIES - 2.05% 144,282
TOTAL NET ASSETS - 100.00% $7,022,297
** Aggregate cost for Federal tax purposes.
(C) Security sold within the terms of private placement memorandum exempt
from registration under section 144A of the Securities Act of 1933,
as amended, and may be sold only to dealers in that program or other
"qualified institutional investors." These securities have been
determined to be liquid under guidelines established by the Board of
Directors.
(F) Represents a security whose interest rate increases at predetermined
dates. The rate disclosed is the rate currently in effect.
MTN Medium Term Note
CMO Collateralized Mortgage Obligation
ABS Asset Backed Security
See accompanying Notes to Financial Statements.
BALANCED FUND - Portfolio of Investments
Value
Shares (Note 2)
COMMON STOCKS - 51.57%
Technology - 9.28%
4,300 3Com Corp.* $ 155,069
5,700 EMC Corp.* 366,930
3,100 Gateway, Inc.* 173,016
2,700 Hewlett-Packard Co. 162,506
3,500 Interim Services, Inc.* 74,375
2,200 International Business Machines Corp. 326,563
3,700 Micron Technology, Inc.* 140,600
3,100 Motorola, Inc. 161,200
2,300 Philips Electronics N.V. 126,213
5,500 Seagate Technology, Inc.* 145,063
2,900 Texas Instruments, Inc. 185,419
6,000 Wang Laboratories, Inc.* 128,250
2,145,204
Finance - 6.43%
5,900 Allstate Corp. 254,069
4,690 Banc One Corp. 229,224
5,096 BankAmerica Corp. 292,702
2,000 Bankers Trust Corp. 125,625
4,200 Citigroup, Inc. 197,663
3,500 Edwards (A.G.), Inc. 120,969
3,400 Everest Reinsurance Holdings, Inc. 117,088
2,300 Morgan Stanley Dean Witter & Co. 148,925
1,486,265
Retail - 4.64%
3,900 CVS Corp. 178,181
4,600 Dayton Hudson Corp. 194,925
3,700 Safeway, Inc.* 176,906
3,800 Sears Roebuck & Co. 170,763
4,700 Tiffany & Co. 151,869
2,900 Wal-Mart Stores, Inc. 200,100
1,072,744
Chemicals - 4.50%
5,500 American Home Products Corp. 268,125
2,300 Bristol-Myers Squibb Co. 254,294
3,500 Centocor, Inc.* 155,750
2,500 Glaxo Wellcome PLC, ADR 155,625
3,900 Pharmacia & Upjohn, Inc. 206,456
1,040,250
Consumer Staples - 3.98%
4,100 Kimberly-Clark Corp. 197,825
2,000 General Mills, Inc. 147,000
6,300 Nabisco Holdings Corp., Class A 237,825
2,700 Sara Lee Corp. 161,156
7,600 Tyson Foods, Inc., Class A 174,800
918,606
Consumer Cyclical - 3.96%
3,400 Cox Communications, Inc., Class A $ 186,575
2,900 Crown Cork & Seal Co., Inc. 92,438
7,600 MediaOne Group, Inc.* 321,575
6,500 Owens-Illinois, Inc.* 198,656
10,800 Primedia, Inc.* 116,775
916,019
Energy - 3.95%
2,500 Amoco Corp. 140,313
2,000 Exxon Corp. 142,500
3,200 Kerr-McGee Corp. 127,600
3,400 Schlumberger Ltd. 178,500
4,500 Unocal Corp. 152,719
5,200 USX-Marathon Group 169,975
911,607
Communication - 3.54%
4,900 AirTouch Communications, Inc.* 274,400
2,800 Ameritech Corp. 151,025
2,600 Bell Atlantic Corp. 138,125
2,700 GTE Corp. 158,456
1,800 Telefonos de Mexico SA, Class L, ADR 95,063
817,069
Basic Materials - 3.36%
2,000 Dow Chemical, Inc. 187,250
5,400 Pall Corp. 136,350
3,300 Praxair, Inc. 132,825
5,000 Rohm & Haas Co. 168,750
4,900 Willamette Industries, Inc. 151,900
777,075
Durable Goods - 2.58%
1,400 General Motors Corp. 88,288
3,600 Raychem Corp. 110,025
3,000 Rockwell International Corp. 123,188
1,500 United Technologies, Inc. 142,875
2,942 Waste Management, Inc. 132,758
597,134
Health Services - 2.28%
3,500 Aetna, Inc. 261,188
6,900 Columbia\ HCA Healthcare Corp. 144,900
1,800 IMS Health, Inc. 119,700
525,788
See accompanying Notes to Financial Statements.
COMMON STOCKS (continued)
Transportation - 1.59%
1,200 Delta Air Lines, Inc. $ 126,675
2,400 FDX Corp.* 126,150
3,500 Norfolk Southern Corp. 115,281
368,106
Utilities - 1.48%
3,400 Northern States Power Co. 91,800
2,700 PG & E Corp. 82,181
6,100 Williams Companies, Inc. 167,369
341,350
Total Common Stocks 11,917,217
( Cost $11,589,250 )
Par Value
CORPORATE NOTES AND BONDS - 21.68%
Finance - 9.44%
$ 200,000 Aetna Services, Inc.
6.970%, 08/15/36 208,049
1,000,000 Associates Corp. of North America
5.750%, 11/01/03 1,000,420
50,000 Caterpillar Financial Services,
Series F, MTN
6.400%, 04/16/01 51,376
50,000 General Motors Acceptance Corp., MTN
6.050%, 10/04/99 50,466
700,000 Kimco Realty Corp., MTN
6.960%, 07/16/07 668,640
200,000 Residential Funding Mortgage
Securities II, Series 1998-HI2, Step
Coupon, Class A2, ABS (F)
6.290%, 07/25/13 201,906
2,180,857
Consumer Staples - 3.05%
700,000 Nabisco, Inc.
6.700%, 06/15/02 704,921
Asset-Backed Securities - 2.60%
200,000 Chase Commercial Mortgage Securities
Corp. Series 1997-2, Class C, CMO
6.600%, 12/19/07 199,382
200,000 Citibank Credit Card Master Trust I,
Series 1998-6 Class A, ABS
5.850%, 04/10/03 204,220
200,000 Deutsche Mortgage and
Asset Receiving Corp., 1998, Class C,
CMO
6.861%, 03/15/08 196,942
600,544
Brokerage Services - 1.79%
$ 200,000 Goldman Sachs LP 144A, MTN (C)
6.250%, 02/01/03 $ 202,571
200,000 Travelers Group, Inc.
7.200%, 02/01/04 210,157
412,728
Communication - 1.12%
50,000 Cox Communication, Inc.
6.500%, 11/15/02 51,778
200,000 Worldcom, Inc.
6.400%, 08/15/05 207,887
259,665
Consumer Products - 0.92%
100,000 Carter Holt Harvey, Ltd.,Yankee
8.875%, 12/01/04 107,456
100,000 International Paper Co.
7.500%, 05/15/04 106,254
213,710
Utilities - 0.92%
50,000 Cincinnati Gas & Electric Co.
6.450%, 02/15/04 52,476
100,000 GTE Hawaiian Telephone Co., Debenture
7.375%, 09/01/06 109,120
50,000 GTE North, Inc., Series A, Debenture
6.000%, 01/15/04 51,495
213,091
Energy - 0.68%
100,000 Coastal Corp., Senior Note
8.125%, 09/15/02 107,376
50,000 Transcontinental Gas Pipeline Corp.
6.125%, 01/15/05 50,448
157,824
Metals and Mining - 0.49%
100,000 MAGMA Copper Co.
8.700%, 05/15/05 113,019
Defense - 0.23%
50,000 Martin Marietta Technologies, Inc.
6.500%, 04/15/03 52,234
Industrials - 0.23%
50,000 WMX Technologies, Inc.
7.000%, 05/15/05 52,142
See accompanying Notes to Financial Statements.
CORPORATE NOTES AND BONDS (continued)
Health Services - 0.21%
$ 50,000 Columbia/HCA Healthcare Corp.
6.125%, 12/15/00 $ 49,630
Total Corporate Notes and Bonds 5,010,365
( Cost $4,989,830 )
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 19.70%
U.S. Treasury Notes - 16.53%
1,000,000 4.500%, 09/30/00 1,005,000
1,000,000 5.500%, 03/31/03 1,046,563
700,000 5.625%, 04/30/00 712,688
1,000,000 5.750%, 04/30/03 1,056,250
3,820,501
Federal National Mortgage Association. - 3.17%
722,956 6.500%, 06/01/13 733,402
Total U.S. Government and Agency
Obligations 4,553,903
( Cost $4,489,916 )
U.S. DENOMINATED FOREIGN GOVERNMENT BOND - 0.20%
50,000 United Mexican States, Global
9.875%, 01/15/07 47,250
Total U.S. Denominated Government
Foreign Bond 47,250
( Cost $52,183 )
CERTIFICATE OF DEPOSIT - 0.30%
68,625 State Street Eurodollar
4.750%, 11/02/98 68,625
Total Certificate of Deposit 68,625
( Cost $68,625 )
Shares
INVESTMENT COMPANY- 4.33%
1,000,000 State Street Prime Money Market
5.48% $ 1,000,000
Total Investment Company 1,000,000
( Cost $1,000,000 )
TOTAL INVESTMENTS - 97.78% 22,597,360
(Cost $22,189,804**)
NET OTHER ASSETS AND LIABILITIES - 2.22% 512,487
TOTAL NET ASSETS - 100.00% $23,109,847
* Non-income producing security.
** Aggregate cost for Federal tax purposes.
(C) Security sold within the terms of private placement memorandum exempt
from registration under section 144A of the Securities Act of 1933,
as amended, and may be sold only to dealers in that program or other
"qualified institutional investors." These securities have been
determined to be liquid under guidelines established by the Board of
Directors.
(F) Represents a security whose interest rate increases at predetermined
dates. The rate disclosed is the rate currently in effect.
ADR American Depositary Receipt
CMO Collaterized Mortgage Obligation
MTN Medium Term Note
ABS Asset Backed Security
See accompanying Notes to Financial Statements.
HIGH INCOME FUND - Portfolio of Investments
Value
Par Value (Note 2)
CORPORATE NOTES AND BONDS - 90.95%
Communication - 19.41%
$ 135,000 Allegiance Telecom, Inc., 144A, Step
Coupon With Warrants (B)(C)
11.750%, 02/15/08 $ 55,355
25,000 American Cellular, 144A (C)
Senior Note
10.500%, 05/15/08 23,500
95,000 Charter Communication South East, L.P.
Series B, Senior Note
11.250%, 03/15/06 101,887
30,000 Convergent Communication, 144A (C)
With Warrants
13.000%, 04/01/08 20,100
130,000 Dolphin Telecom PLC, Step Coupon, 144A
Senior Discount Note (B)(C)(D)
11.500%, 06/01/08 41,275
60,000 Esprit Telecom Group PLC, Yankee (D)
Senior Note
10.875%, 06/15/08 52,200
90,000 Exodus Communications, Inc., 144A (C)
Senior Note
11.250%, 07/01/08 80,325
25,000 Flag, Ltd., 144A, Senior Note (C)(D)
8.250%, 01/30/08 23,125
60,000 Intelcom Group (USA), Inc.
StepCoupon (B)
12.500%, 05/01/06 40,200
55,000 Intermedia Communication,
Step Coupon, Series B (B)
11.250%, 07/15/07 36,575
50,000 ITC Deltacom, 144A (C)
Senior Note
9.750%, 11/15/08 50,000
10,000 Lenfest Communications
8.375%, 11/01/05 10,450
50,000 Lenfest Communications, 144A (C)
Senior Subordinate Note
8.250%, 02/15/08 49,750
35,000 Lenfest Communications
Senior Subordinate Note
10.500%, 06/15/06 39,288
175,000 Metronet Communications, Yankee,
Step Coupon Senior Discount Note (B)(D)
9.950%, 06/15/08 95,813
45,000 Metronet Communications, Yankee,
Step Coupon Senior Discount Note (B)(D)
10.750%, 11/01/07 26,550
100,000 Millicom International Cellular, Yankee
Senior Discount Note, Step Coupon (B)(D)
13.500%, 06/01/06 60,000
55,000 MJD Communications, 144A (C)
Senior Subordinate Note
9.500%, 05/01/08 53,350
Communication (continued)
$ 50,000 Mobile Telecommunication Technology
Senior Note
13.500%, 12/15/02 $ 54,375
90,000 Nextel Communications, Step Coupon (B)
9.950%, 02/15/08 48,600
100,000 Nextel Communications, Step Coupon
Senior Discount Note (B)
9.750%, 10/31/07 55,500
45,000 Nextel International, Inc., 144A, Step
Coupon Senior Discount Note (B) (C)
12.125%, 04/15/08 16,650
50,000 Nextlink Communications
Senior Note
9.625%, 10/01/07 46,250
70,000 Pagemart Wireless, Inc., Step Coupon, 144A
Senior Discount Note (B) (C)
11.250%, 02/01/08 36,400
50,000 Paging Network
Senior Subordinate Note
8.875%, 02/01/06 46,500
3,000 Pathnet, Inc., 144A (C)
With Warrants
12.250%, 04/15/08 2,175
55,000 PSINET, Inc., 144A, Senior Note (C)
10.000%, 02/15/05 53,213
65,000 Rural Cellular Corp. Series B
Senior Subordinate Note
9.625%, 05/15/08 61,263
31,000 Rural Cellular Corp., Series B, PIK
11.375%, 05/15/10 26,505
25,000 Qwest Communications International,
Step Coupon Senior Discount Note (B)
9.470%, 10/15/07 19,625
75,000 Qwest Communications International,
144A (C) Senior Note
7.500%, 11/01/08 74,685
15,000 RCN Corp., Step Coupon
Senior Discount Note (B)
11.125%, 10/15/07 7,800
30,000 Telesystem International, Yankee, Step
Coupon Senior Discount Note (B)(D)
13.250%, 06/30/07 12,000
25,000 Telesystem International, Yankee, Step
Coupon Senior Discount Note (B)(D)
10.500%, 11/01/07 8,000
25,000 Telewest Communications PLC, Yankee (D)
Debenture
9.625%, 10/01/06 24,500
170,000 Triton Communications, 144A, Step Coupon
Senior Discount Note (B)(C)
11.000%, 05/01/08 65,450
50,000 Versatel Telecom BV, 144A (D)(E)
With Warrants
Senior Note
13.250%, 05/15/08 46,500
See accompanying Notes to Financial Statements.
CORPORATE NOTES AND BONDS (continued)
Communication (continued)
$ 89 Viatel, Inc.,Series A, PIK
10.000%, 04/15/10 $ 53
20,000 Viatel, Inc.,144A, Senior Note (C)
11.250, 04/15/08 17,600
160,000 Viatel, Inc.,Step Coupon, 144A (B) (C)
Senior Discount Note
12.500%, 04/15/08 78,400
220,000 United International Holdings, Step Coupon,
Series B Senior Discount Note (B)
10.750%, 02/15/08 103,400
110,000 Western Wireless
Senior Subordinate Note
10.500%, 02/01/07 113,300
1,878,487
Telecommunications - 12.12%
110,000 Chancellor Media Corp., Series B
8.750%, 06/15/07 108,350
90,000 Classic Cable, Inc., 144A (C)
Senior Subordinate Note
9.875%, 08/01/08 89,550
60,000 Cumulus Media, Inc.
10.375%, 07/01/08 61,200
110,000 Fox/Liberty Networks
Senior Note
8.875%, 08/15/07 106,425
50,000 Frontiervision
Senior Subordinate Note
11.000%, 10/15/06 55,000
40,000 Frontiervision Holdings LP, Step Coupon
Senior Discount Note (B)
11.875%, 09/15/07 32,000
90,000 Granite Broadcasting Corp.
10.375%, 05/15/05 85,500
50,000 Intermedia Capital Partners
Senior Note
11.250%, 08/01/06 54,750
50,000 LIN Television Corp.
8.375%, 03/01/08 47,500
40,000 Northeast Optic Network
Senior Note
12.750%, 08/15/08 35,200
40,000 NTL, Inc., 144A, Step Coupon
Senior Note (B) (C)
9.750%, 04/01/08 21,850
100,000 NTL, Inc., 144A, Step Coupon
Senior Note (B) (C)
12.375%, 10/01/08 55,505
110,000 Rogers Cablesystem, Yankee (D)
9.625%, 08/01/02 117,425
Telecommunications (continued)
$ 100,000 Spectrasite Holdings, Inc., 144A,
Step Coupon Senior Discount Note (B)(C)
12.000%, 07/15/08 $ 39,000
150,000 Telemundo Holdings, Inc., 144A, Step
Coupon Senior Discount Note (B) (C)
11.500%, 08/15/08 73,500
85,000 Time Warner, Inc., LLC
Senior Note
9.750%, 07/15/08 85,638
50,000 Verio, Inc.
Senior Note
10.375%, 04/01/05 47,500
60,000 Young Broadcasting, Inc., Series B
8.750%, 06/15/07 57,000
1,172,893
Retail - 5.56%
25,000 Chiles Offshore
10.000%, 05/01/08 20,000
50,000 Cole National Group
Senior Subordinate Note
8.625%, 08/15/07 48,000
110,000 Friendly Ice Cream Corp.
10.500%, 12/01/07 100,100
60,000 Jitney-Jungle Stores
12.000%, 03/01/06 64,800
25,000 Musicland Group, 144A (C)
Senior Note
9.875%, 03/15/08 23,500
100,000 Pathmark Stores
Senior Subordinate Note
11.625%, 06/15/02 95,000
25,000 Planet Hollywood, 144A (C)
Senior Subordinate Note
12.000%, 04/01/05 11,750
100,000 Red Roof Inns, Senior Note
9.625%, 12/15/03 98,500
75,000 Williams Scotsman, Inc.
9.875%, 06/01/07 75,750
537,400
Technology - 5.43%
110,000 Argo-Tech Corp.
Senior Subordinate Note
8.625%, 10/01/07 101,750
50,000 Be Aerospace, Inc., 144A (C)
Senior Note
9.500%, 11/01/08 51,250
75,000 Be Aerospace, Inc., Series B, 144A (C)
Senior Note
8.000%, 03/01/08 70,125
75,000 Level 3 Communications, Inc., 144A (C)
Senior Note
9.1250%, 05/01/08 70,500
See accompanying Notes to Financial Statements.
Technology (continued)
$ 150,000 K & F Industries, Series B
Senior Subordinate Note
9.250%, 10/15/07 $ 142,500
80,000 Unisys Corp., Series B
Senior Discount Note
12.000%, 04/15/03 88,900
525,025
Metals and Mining - 4.87%
45,000 AK Steel Corp., Senior Note
9.125%, 12/15/06 46,463
100,000 Commonwealth Aluminum
Senior Subordinate Note
10.750%, 10/01/06 92,000
100,000 CSC Holdings, Inc., Senior Note
9.250%, 11/01/05 105,000
75,000 Doe Run Resources Corp., Series B
11.250%, 03/15/05 56,250
50,000 Fibermark, Inc.
Senior Note
9.375%, 10/15/06 49,125
25,000 Keystone Consolidated Industries
Senior Note
9.625%, 08/01/07 23,000
50,000 Metal Management, Inc., 144A (C)
Senior Subordinate Note
10.000%, 05/15/08 29,000
30,000 Schuff Steel Company
10.500%, 06/01/08 23,700
50,000 WCI Steel, Inc., Series B
Senior Note
10.000%, 12/01/04 47,000
471,538
Finance - 4.70%
30,000 AMSC Acquisition Co., Inc., Series B
With Warrants
12.250%, 04/01/08 13,800
65,000 DTI Holdings, 144A
Step Coupon (B)(C)
With Warrants
12.500%, 03/01/08 21,450
50,000 Global Crossing Holding LTD, 144A (C)
Senior Note
9.625%, 05/15/08 48,375
125,000 Grove Holdings LLC, 144A, Step Coupon
Debenture (B)(C)
11.625%, 05/01/09 46,250
105,000 Pinnacle Holdings, Step Coupon
Senior Discount Note (B)
10.000%, 03/15/08 48,300
75,000 P & L Coal Holdings Corp., 144A (C)
Senior Subordinate Note
9.625%, 05/15/08 74,250
Finance (continued)
$ 60,000 Silgan Holdings, Inc.
Senior Subordinate Note
9.000%, 06/01/09 $ 56,850
80,000 Thermadyne Holdings Corp.
9.875%, 06/01/08 72,800
160,000 Thermadyne Holdings Corp., Step
Coupon (B) Debenture
12.500%, 06/01/08 72,400
454,475
Energy - 4.41%
110,000 Anacomp, Inc.
Senior Subordinate Note
10.875%, 04/01/04 107,525
70,000 Chesapeake Energy, 144A (C)
Senior Note
9.625%, 05/01/05 59,500
75,000 Clark R&M, Inc., 144A (C)
Senior Note
8.625%, 08/15/08 70,125
45,000 Continental Resources, 144A (C)
Senior Subordinate Note
10.250%, 08/01/08 36,225
75,000 Ocean Energy, Inc., Series B
8.875%, 07/15/07 73,875
50,000 Pride International, Inc.
Senior Note
9.375%, 05/01/07 45,500
25,000 Petsec Energy, Series B
Senior Subordinate Note
9.500%, 06/15/07 20,000
15,000 Pool Energy Services, 144A (C)
Senior Subordinate Note
8.375%, 04/01/08 14,325
427,075
Basic Materials - 4.19%
65,000 Buckeye Cellulos
Senior Subordinate Note
9.250%, 09/15/08 64,838
50,000 Florida Coast Paper LLC
12.750%, 06/01/03 32,500
25,000 Galey & Lord, Inc.
9.125%, 03/01/08 22,250
100,000 Polymer Group, Inc.
9.000%, 07/01/07 93,000
100,000 Repap New Brunswick, Yankee (D)
Senior Note
10.625%, 04/15/05 65,500
See accompanying Notes to Financial Statements.
Basic Materials (continued)
$ 25,000 Synthetic Industries, Inc., Series B
Senior Subordinate Note
9.250%, 02/15/07 $ 24,125
110,000 US Timberlands Co.
Senior Note
9.625%, 11/15/07 103,400
405,613
Consumer Staples - 3.51%
15,000 Finlay Enterprises, Inc.
Debentures
9.000%, 05/01/08 11,325
20,000 Globe Manufacturing Corp., 144A (C)
Senior Subordinate Note
10.000%, 08/01/08 15,600
25,000 International Utility Structures, Yankee,
144A (C)(D)
Senior Subordinate Note
10.750%, 02/01/08 20,750
115,000 Pierce Leahy Corp.
Senior Subordinate Note
11.125%, 07/15/06 124,200
75,000 Remington Products Co. LLC, Series B
Senior Subordinate Note
11.000%, 05/15/06 52,500
35,000 Samsonite Corp.
Senior Subordinate Note
10.750%, 06/15/08 24,675
100,000 Revlon Consumer Products, 144A (C)
Senior Subordinate Note
8.625%, 02/01/08 90,250
339,300
Media - 3.50%
50,000 Albritton Communications, Series B
Senior Subordinate Debenture Bond
9.750%, 11/30/07 51,000
110,000 AMC Entertainment
Senior Subordinate Note
9.500%, 03/15/09 102,300
100,000 Cinemark USA, Series B
Senior Subordinate Note
9.625%, 08/01/08 99,000
60,000 HMV Media Group PLC, 144A (C)(D)
Senior Subordinate Note
10.250%, 05/15/08 49,200
60,000 Satelites Mexicanos SA, 144A (C)(D)
10.125%, 11/01/04 37,200
338,700
Chemicals and Drugs - 3.04%
$ 110,000 Acetex Corp.
Senior Note
9.750%, 10/01/03 $ 102,300
120,000 NL Industries
Senior Note
11.750%, 10/15/03 124,800
25,000 PCI Chemical Canada, Inc., Yankee (D)
9.250%, 10/15/07 18,750
65,000 Sterling Chemicals, Inc., Series A
Senior Subordinate Note
11.250%, 04/01/07 48,750
294,600
Durable Goods - 2.88%
110,000 Hayes Wheels International, Inc.
Senior Subordinate Note
11.000%, 07/15/06 118,938
25,000 International Knife & Saw
Senior Subordinate Note
11.375%, 11/15/06 24,500
75,000 Oxford Automotive, Inc.
10.125%, 06/15/07 69,000
65,000 Simonds Industries, 144A (C)
Senior Subordinate Note
10.250%, 07/01/08 61,750
5,000 Talon Automotive, 144A (C)
Senior Subordinate Note
9.625%, 05/01/08 4,400
278,588
Consumer Services - 2.17%
75,000 Eldorado Resorts
Senior Subordinate Note
10.500%, 08/15/06 78,000
40,000 Iron Mountain, Inc.
10.125%, 10/01/06 41,800
50,000 Iron Mountain, Inc.
8.750%, 09/30/09 49,500
50,000 Specialty Foods Acquisition, Series B
Senior Note
10.250%, 08/15/01 41,000
210,300
Recreation - 2.06%
150,000 Boyd Gaming Corp.
Senior Subordinate Note
9.500%, 07/15/07 145,500
50,000 Casino America, Inc.
Senior Note
12.500%, 08/01/03 53,375
198,875
See accompanying Notes to Financial Statements.
Building & Construction - 1.89%
$ 25,000 American Standard Companies, Inc.
7.375%, 02/01/08 $ 24,563
50,000 American Standard Companies, Inc.
7.625%, 02/15/10 49,688
50,000 Building Material Corp., Series B
Senior Note
8.625%, 12/15/06 49,625
60,000 Nortek, Inc., Series B
Senior Note
9.250%, 03/15/07 59,400
183,276
Health Care Services - 1.78%
35,000 Alaris Medical, Inc., Step Coupon, 144A
Senior Discount Note (B)(C)
11.125%, 08/01/08 15,925
30,000 Oxford Health Plans, 144A (C)
Senior Note
11.000%, 05/15/05 24,300
25,000 Pharmerica, Inc., 144A (C)
Senior Note
8.375%, 04/01/08 21,500
30,000 Prime Medical Services, 144A(C)
Senior Note
8.750%, 04/01/08 27,300
80,000 Tenet Healthcare Corp.
Senior Subordinate Note
8.625%, 01/15/07 83,200
172,225
Capital Goods - 1.70%
50,000 Agco Corp., Senior Subordinate Note
8.500%, 03/15/06 47,500
20,000 Johnstown America Industries, Inc., Series C
Senior Note
11.750%, 08/15/05 20,675
20,000 Johnstown America Industries, Inc.
Senior Subordinate Note
11.750%, 08/15/05 20,675
90,000 Newcor, Inc., 144A (C)
Senior Subordinate Note
9.875%, 03/01/08 75,600
164,450
Printing - 1.63%
110,000 Big Flower Press, Inc.
Senior Subordinate Note
8.875%, 07/01/07 105,870
50,000 Hollinger International, Inc.
9.250%, 03/15/07 52,125
157,995
Defense Electronics - 1.38%
$ 125,000 L-3 Communications Corp., Series B
Senior Subordinate Note
10.375%, 05/01/07 $ 133,438
Transportation - 1.37%
35,000 Gulfmark Offshore
8.750%, 06/01/08 31,850
110,000 Mark IV Industrial
Senior Subordinate Note
7.500%, 09/01/07 101,013
132,863
Industrial - 1.13%
65,000 GCI, Inc., Senior Note
9.750%, 08/01/07 60,938
55,000 Numatics, Inc., 144A (C)
Senior Subordinate Note
9.625%, 04/01/08 48,400
109,338
Schools - 1.09%
110,000 Kindercare Learning Centers, Inc.
Senior Subordinate Note
9.500%, 02/15/09 105,875
Containers / Packaging - 1.04%
15,000 Ball Corp., 144A (C)
Senior Subordinate Note
8.250%, 08/01/08 15,544
85,000 Gaylord Container, Corp., 144A (C)
Senior Subordinate Note
9.875%, 02/15/08 37,400
50,000 Graham Packaging Co., 144A (C)
Senior Subordinate Note
8.750%, 01/15/08 47,500
100,444
Machinery - 0.09%
10,000 Grove Worldwide, 144A (C)
Senior Subordinate Note
9.250%, 05/01/08 8,500
Total Corporate Notes and Bonds 8,801,273
( Cost $9,887,440 )
Shares
PREFERRED STOCK - 0.23%
Media - 0.23%
250 Primedia, Inc., Series H 22,500
Total Preferred Stock 22,500
( Cost $24,850 )
See accompanying Notes to Financial Statements.
Par Value
CERTIFICATE OF DEPOSIT - 8.32%
$ 804,779 State Street Eurodollar
4.750%, 11/02/98 $ 804,779
Total Certificate of Deposit 804,779
( Cost $804,779 )
TOTAL INVESTMENTS - 99.50% 9,628,552
( Cost $10,717,069** )
NET OTHER ASSETS AND LIABILITIES - 0.50% 48,702
TOTAL NET ASSETS 100.00% $9,677,254
- -------------------------------
** Aggregate cost for Federal tax purposes was $10,718,409.
PIK Payment-In-Kind
(B) Represents securities that remain zero coupon until predetermined
date, at which the stated coupon rate becomes the effective rate.
(C) Security sold within the terms of private placement memorandum
exempt from registration under section 144A of the Securities Act of
1933, as amended, and may be sold only to dealers in that program or
other "qualified institutional investors." These securities have been
determined to be liquid under guidelines established by the Board of
Directors.
(D) Notes and bonds, issued by foreign entities, denominated in U.S.
dollars. The aggregate of these securities are 7.40% of total net
assets.
(E) Securities purchased as part of a private placement which have not
been registered with the Securities and Exchange Commission under the
Securities act of 1933 and are considered illiquid. On October 31,
1998, the total market value of these investments was $46,500 or
0.01% of the total net assets.
Security Par Date Acquired Cost Basis
Versatel Telecom BV, 144A
Senior Note, With Warrants
13.250%, 05/15/08 $ 25,000 05/21/98 $ 25,000
Versatel Telecom BV, 144A
Senior Note, With Warrants
13.250%, 05/15/08 25,000 07/01/98 26,375
OTHER INFORMATION (UNAUDITED):
S&P Ratings: % of Portfolio
BBB 1.14%
BB 16.09
B 66.89
CCC 6.17
NOTRATED 9.71
100.00%
See accompanying Notes to Financial Statements.
GROWTH AND INCOME FUND - Portfolio of Investments
Value
Shares (Note 2)
COMMON STOCKS - 94.36%
Technology - 16.30%
14,400 Computer Associates International, Inc. $ 567,000
13,500 EMC Corp.* 869,062
10,600 Harris Corp. 371,662
7,400 Hewlett-Packard Co. 445,386
4,600 International Business Machines Corp. 682,812
7,300 Motorola, Inc. 379,600
6,600 Philips Electronics N.V. 362,173
7,700 Texas Instruments, Inc. 492,317
4,170,012
Finance - 12.72%
11,700 Allstate Corp. 503,831
11,470 Banc One Corp. 560,596
10,692 BankAmerica Corp. 614,122
5,000 Bankers Trust Corp. 314,063
10,200 Citigroup, Inc. 480,038
6,500 Edwards (A.G.), Inc. 224,656
7,100 Everest Reinsurance Holdings, Inc. 244,506
4,800 Morgan Stanley Dean Witter & Co. 310,800
3,252,612
Consumer Staples - 8.44%
6,700 General Mills, Inc. 492,450
10,800 Kimberly-Clark Corp. 521,100
12,400 Nabisco Holdings Corp., Class A 468,100
6,000 Sara Lee Corp. 358,125
13,900 Tyson Foods, Inc., Class A 319,700
2,159,475
Drugs - 8.31%
14,400 American Home Products Corp. 702,000
5,500 Bristol-Myers Squibb Co. 608,094
6,900 Glaxo Wellcome PLC, ADR 429,525
7,300 Pharmacia & Upjohn, Inc. 386,444
2,126,063
Energy - 8.10%
5,900 Amoco Corp. 331,138
4,500 Exxon Corp. 320,625
7,000 Schlumberger Ltd. 367,500
5,400 Texaco, Inc. 320,288
9,500 Unocal Corp. 322,406
12,500 USX-Marathon Group 408,594
2,070,551
Communication - 7.01%
7,100 AirTouch Communications, Inc.* 397,600
7,400 Ameritech Corp. 399,138
4,700 Bell Atlantic Corp. 249,688
Communication (continued)
5,900 GTE Corp. $ 346,256
5,200 Sprint Corp. 399,100
1,791,782
Consumer Cyclical - 6.67%
4,700 Cox Communications, Inc., Class A* 257,913
11,000 Crown Cork & Seal Co., Inc. 350,625
18,000 MediaOne Group, Inc.* 761,625
11,000 Owens-Illinois, Inc.* 336,188
1,706,351
Durable Goods - 6.62%
7,538 Dana Corp. 315,183
4,100 General Motors Corp. 258,556
8,400 Rockwell International Corp. 344,925
2,252 SPX Corp.* 122,593
3,600 United Technologies, Inc. 342,900
6,852 Waste Management, Inc. 309,197
1,693,354
Retail - 6.14%
10,300 CVS Corp. 470,581
10,800 Sears Roebuck & Co. 485,325
8,900 Wal-Mart Stores, Inc. 614,100
1,570,006
Basic Materials - 3.96%
4,900 Dow Chemical, Inc. 458,763
9,700 Dexter Corp. 283,725
5,200 Georgia Pacific Co. 269,100
1,011,588
Utility - 3.77%
2,800 Duke Energy Corp. 181,125
8,400 Northern States Power Co. 226,800
7,000 PG & E Corp. 213,063
12,500 Williams Companies, Inc. 342,969
963,957
Health Services - 3.68%
6,700 Aetna, Inc. 499,988
15,800 Tenet Healthcare Corp.* 441,413
941,401
Transportation - 2.64%
7,000 Burlington Northern Santa Fe Corp. 216,125
2,200 Delta Air Lines, Inc. 232,238
6,900 Norfolk Southern Corp. 227,269
675,632
Total Common Stocks 24,132,784
( Cost $24,092,593 )
See accompanying Notes to Financial Statements.
Par Value
CERTIFICATE OF DEPOSIT - 1.61%
$ 412,791 State Street Eurodollar
4.750%, 11/02/98 $ 412,791
Total Certificate of Deposit 412,791 ( Cost $412,791 )
Shares
INVESTMENT COMPANY - 3.91%
1,000,000 State Street Prime Money Market
5.48% 1,000,000
Total Investment Company 1,000,000 ( Cost $1,000,000 )
TOTAL INVESTMENTS - 99.88% 25,545,575
( Cost $25,505,384** )
NET OTHER ASSETS AND LIABILITIES - 0.12% 31,454
TOTAL NET ASSETS - 100.00% $25,577,029
- ------------------------------
* Non-income producing security.
** Aggregate cost for Federal tax purposes was $25,505,779.
ADR American Depositary Receipt
See accompanying Notes to Financial Statements.
CAPITAL APPRECIATION FUND - Portfolio of Investments
Value
Shares (Note 2)
COMMON STOCKS - 96.22%
Technology - 17.07%
7,100 3Com Corp.* $ 256,044
7,500 Dallas Semiconductor Corp. 277,500
10,600 EMC Corp. * 682,375
6,100 Gateway, Inc. 340,456
16,400 Interim Services, Inc.* 348,500
2,200 International Business Machines Corp. 326,563
6,600 Micron Technology, Inc.* 250,800
9,500 Seagate Technology, Inc* 250,563
5,600 Texas Instruments, Inc. 358,050
18,600 Wang Laboratories, Inc.* 397,575
3,488,426
Finance - 12.83%
8,300 Allstate Corp. 357,419
6,370 Banc One Corp. 311,334
3,300 Bankers Trust Corp. 207,281
10,800 Citigroup, Inc. 508,275
7,700 Edwards (A.G.), Inc. 266,131
7,200 Everest Reinsurance Holdings, Inc. 247,950
3,700 Morgan Stanley Dean Witter & Co. 239,575
14,300 Mutual Risk Management Ltd. 483,519
2,621,484
Retail - 12.20%
7,500 Consolidated Stores Corp.* 123,281
13,800 Dayton Hudson Corp. 584,775
11,600 Rite Aid Corp. 460,375
13,400 Safeway, Inc.* 640,688
8,100 Tiffany & Co. 261,731
12,500 TJX Companies, Inc. 236,719
2,700 Wal-Mart Stores, Inc. 186,300
2,493,869
Consumer Cyclical - 9.48%
8,200 Cox Communications, Inc., Class A* 449,975
15,100 MediaOne Group, Inc.* 638,919
18,200 Owens-Illinois, Inc.* 556,238
27,100 Primedia, Inc.* 293,019
1,938,151
Drugs - 9.18%
7,000 ALZA Corp.* 335,125
2,400 Biogen, Inc.* 166,800
2,300 Bristol-Myers Squibb Co. 254,294
5,600 Centocor, Inc.* 249,200
4,200 Elan Corp., PLC, ADR* 294,263
3,900 Glaxo Wellcome PLC, ADR 242,775
6,300 Pharmacia & Upjohn, Inc. 333,506
1,875,963
Basic Materials - 6.31%
2,500 Dow Chemical, Inc. $ 234,063
8,900 Pall Corp. 224,725
7,100 Praxair, Inc. 285,775
7,600 Rohm & Haas Co. 256,500
9,300 Willamette Industries, Inc. 288,300
1,289,363
Energy - 5.27%
5,000 Kerr-McGee Corp. 199,375
7,300 Unocal Corp. 247,744
11,300 USX-Marathon Group 369,369
9,600 Weatherford International, Inc.* 261,000
1,077,488
Health Services - 5.01%
6,100 Aetna, Inc. 455,213
11,900 Columbia\ HCA Healthcare Corp. 249,900
4,800 IMS Health, Inc. 319,200
1,024,313
Communication - 4.72%
12,700 AirTouch Communications, Inc.* 711,200
4,800 Telefonos de Mexico SA, Class L, ADR 253,500
964,700
Consumer Staples - 4.61%
8,400 Nabisco Holdings Corp., Class A 317,100
4,700 Sara Lee Corp. 280,531
15,000 Tyson Foods, Inc., Class A 345,000
942,631
Durable Goods - 3.75%
9,300 Raychem Corp. 284,231
5,000 Rockwell International Corp. 205,313
6,110 Waste Management, Inc. 275,714
765,258
Transportation - 2.94%
1,600 Delta Air Lines, Inc. 168,900
4,300 FDX Corp.* 226,012
6,500 Midwest Express Holdings, Inc.* 205,563
600,475
Utilities - 2.85%
5,400 PG & E Corp. 164,363
6,000 Sonat, Inc. 181,875
8,600 Williams Companies., Inc. 235,963
582,201
Total Common Stocks 19,664,322
( Cost $19,282,305 )
See accompanying Notes to Financial Statements.
Par Value Value
(Note 2)
CERTIFICATE OF DEPOSIT - 0.02%
$ 3,227 State Street Eurodollar
4.750%, 11/02/98 $ 3,227
Total Certificate of Deposit 3,227
( Cost $3,227 )
Shares
INVESTMENT COMPANY - 2.45%
500,000 State Street Prime Money Market
5.48% 500,000
Total Investment Company 500,000
( Cost $500,000 )
TOTAL INVESTMENTS - 98.69% 20,167,549
( Cost $19,785,532** )
NET OTHER ASSETS AND LIABILITIES - 1.31% 267,839
TOTAL NET ASSETS - 100.00% $20,435,388
- -------------------------------
* Non-income producing security.
** Aggregate cost for Federal tax purposes was $ 19,787,320.
ADR American Depositary Receipt
INTERNATIONAL STOCK FUND - Portfolio of Investments
Value
Shares (Note 2)
COMMON STOCKS - 89.51%
Argentina - 1.17%
3,300 Telefonica de Argentina S.A., ADR $ 109,106
4,400 YPF S.A., ADR 127,325
11,100 Quilmes Industrial SA, ADR 101,981
338,412
Austria - 0.22%
736 Eybl International AG* 17,054
700 KTM Motorradholding AG* 48,359
65,413
Australia - 5.28%
126,770 Boral, Ltd. 206,151
63,196 Broken Hill Proprietary Co., Ltd. 537,553
24,300 Cochlear, Ltd. 123,199
31,882 Commonwealth Bank of Australia 396,618
547,916 M.I.M. Holdings, Ltd. 267,301
1,530,822
Belgium - 0.36%
2,020 Compagnie Maritime Belge S.A. 103,984
Brazil - 2.50%
14,200 Banco Bradesco S.A., ADR 80,947
5,700 Comanhia Brasileira de Distribuicao
Grupo Pao de Acucar, ADR 91,913
9,700 Companhia Cervejaria Brahma, ADR 93,363
3,358 Companhia Enegetica de Minaas
Gerais S.A., ADR 65,309
10,000 Companhia Paranaense de Energia-Copel, ADR 77,500
162,800 Companhia Riograndense de Telecomunicacoes 47,766
1,230,000 Eletropaulo Metropolitana* 41,450
16,500 Souza Cruz S.A., ADR 112,038
1,500 Telecomunicacoes Brasileiras S.A., ADR 113,906
724,192
Canada - 0.26%
5,900 Club Monaco, Inc.* 12,427
3,300 Maple Leaf Foods, Inc. 27,803
2,100 Queensway Financial Holdings, Ltd.* 36,066
76,296
China - 0.18%
232,000 Shenzhen Expressway Co., Ltd. 52,421
Chile - 0.70%
6,700 Administradora de Fondos de Pensiones
Provida, ADR 95,056
2,100 Banco BHIF, ADR 23,100
7,500 Quinenco S.A., ADR* 54,375
5,200 Santa Isabel S.A., ADR 30,225
202,756
Columbia - 0.15%
5,900 Banco Ganadero S.A., ADR $ 42,406
Czech Republic - 0.22%
2,900 Czeske Energeticke Zavody * 65,643
Denmark - 0.11%
400 Falck A/S 31,123
Finland - 2.75%
4,900 Amer Group, Ltd.* 55,439
2,560 Asko Oyj, Class A 42,430
305 Orion-YHTYMA Oy, Class B* 7,261
3,300 Rocla Oyj 28,166
1,600 Sampo Insurance Co.,Ltd, Class A 49,861
3,500 Santasalo-Jot Oyj 29,873
22,670 UPM-Kymmene Oyj 542,226
600 Vaisala Oy, Class A 42,517
797,773
France - 12.62%
1,100 Carbone Lorraine* 63,364
429 C.E.A. Industries 47,879
1,100 Cie des Signaux S.A.* 75,225
9,946 CNP Assurances* 338,206
340 Compagnie Plastic Omnium S.A.* 32,193
4,462 Dexia France 657,830
3,354 Eridania Beghin-Say S.A. 603,759
2,544 Groupe Danone 672,728
10,694 Michelin, Class B 440,835
900 Scor, ADR 51,525
3,781 Suez Lyonnaise des Eaux 677,220
3,660,764
Germany - 6.22%
4,790 BASF AG 202,101
11,067 Bayer AG 445,900
6,730 BHF-Bank AG 259,580
600 Data Modul AG 21,187
2,040 Deutche Bank AG* 131,817
6,034 Deutsche Telekom AG 163,170
300 DIS Deutscher Industrie Service AG 14,684
800 Hawesko Holdings AG* 40,080
400 Kamps AG* 18,106
210 KSB AG Vorzug 33,970
7,500 Marseille-Kliniken AG* 122,230
6,430 Veba AG* 352,800
1,805,625
Greece - 0.30%
3,811 Hellenic Telecommunication
Organization S.A. 86,607
See accompanying Notes to Financial Statements.
COMMON STOCKS (continued)
Hong Kong - 1.89%
132,000 CDL Hotels International, Ltd. $ 33,746
154,000 Esprit Holdings, Ltd. 57,166
69,000 Giordano International, Ltd. 8,285
7,000 Guangshen Railway Co., Ltd. 52,500
185,310 Jardine Strategic Holdings, Ltd. 296,496
75,000 Peregrine Investments Holdings, Ltd* (A) 0
30,000 Shaw Brothers, Ltd. 12,395
49,000 Yue Yuen Industrial Holdings 87,308
547,896
India - 0.96%
10,600 Larsen & Toubro, Ltd. GDR 72,369
4,400 Hindalco Industries Ltd. GDR 51,590
9,400 State Bank of India GDR, 144A(C) 75,200
7,300 Mahanagar Tele Nigam GDR 78,475
277,634
Italy - 3.76%
5,600 Banca Popolare di Brescia 131,857
1,154 Banca Popolare di Milano 9,130
2,700 Industrie Natuzzi SpA, ADR* 49,106
6,900 Interpump Group SpA* 27,863
18,300 Manuli Rubber Industries SpA 55,647
49,300 Premafin Finanziaria SpA* 27,216
157,050 Telecom Italia SpA 791,309
1,092,128
Ireland - 0.40%
7,800 Adare Printing Group PLC 73,833
19,100 Anglo Irish Bank Corp. PLC 41,612
115,445
Israel - 0.72%
3,700 ECI Telecommunications, Ltd. 122,563
6,800 Supersol, Ltd., ADR* 86,700
209,263
Japan - 11.99%
3,000 ADERANS Co., Ltd. 84,942
43,000 Eisai Co., Ltd. 674,423
109,000 Hitachi, Ltd. 554,586
1,000 Honma Golf Co., Ltd.* 4,033
1,000 Kawasumi Laboratories 16,731
3,000 Laox 18,816
109,000 Mazda Motor Corp.* 406,821
13,000 Namco, Ltd. 286,100
44 Nippon Telegraph & Telephone Corp. 344,299
Japan (contined)
148,000 Nippon Yusen Kabushiki Kaisha $ 490,159
3,600 Paris Miki, Inc.* 60,448
98,460 Sekisui Chemical Co., Ltd. 536,440
3,477,798
Korea - 0.89%
4,456 Samsung Electronics, GDR 101,263
15,300 SK Telecom Co., Ltd., ADR* 157,781
259,044
Malaysia - 0.08%
31,000 Jaya Tiasa Holdings Berhad* 23,576
Mexico - 2.51%
33,880 Cemex S.A. de C.V., CPO 80,611
1,800 Fomento Economico Mexicano, ADR 46,913
15,200 Fomento Economico Mexicano,
S.A. de C.V., Class B, ADR* 39,098
66,000 Grupo Financiero Banamex Accival,
S.A. de C.V., Class B* 68,560
3,300 Grupo Televisa SA, GDR* 89,513
10,800 Grupo Industrial Maseca S.A. de C.V., ADR 133,650
32,100 Kimberly-Clark de Mexico, Class A 93,366
3,200 Panamerican Beverage, Class A 64,800
8,500 Pepsi-Gemex S.A., ADR 55,250
6,700 Tubos de Acero de Mexico S.A., ADR 56,950
728,711
Norway - 0.27%
730 Electric Farm ASA* 0
19,000 P4 Radio Hele Norge ASA* 77,414
77,414
Netherlands - 1.74%
11,000 KLM-Konin Luchtvaart Mij N.V.* 332,058
3,900 N.V. Holdingmaatschappij de Telegraaf 98,525
11,700 Scala Business Solutions N.V.* 75,306
505,889
New Zealand - 0.54%
191,337 Carter Holt Harvey, Ltd. 156,037
Portugal - 2.69%
21,732 Banco Pinto and Sotto Mayor 416,440
4 Banco Totta & Acores, S.A., Registered 111
1,278 Brisa-Auto Estradas de Portugal,S.A.,
Registered 59,419
See accompanying Notes to Financial Statements.
COMMON STOCKS (continued)
Portugal (continued)
4,156 Brisa-Auto Estradas de Portugal,
S.A., Private Placement* $ 201,300
2,900 Companhia de Seguros Mundial
Confianca, S.A.* 78,510
500 Portugal Telecom S.A., ADR 23,625
779,405
Phillipines - 0.22%
466,000 Benpres Holdings Corp.* 50,238
5,600 Benpres Holdings Corp., ADR* 12,074
900 Benpres Holdings Corp., GDR* 1,440
63,752
Poland - 0.32%
8,000 Bank Handlowly W. Warszawie, 144A (C) 91,600
Peru - 0.35%
2,700 Credicorp, Ltd.* 18,225
6,500 Telefonica del Peru S.A., ADR 84,500
102,725
Russia - 0.03%
4,200 A.O. Tatneft, ADR 8,138
South Africa - 1.47%
17,600 ABSA Group, Ltd. 95,900
15,671 Barlow, Ltd. 74,191
13,300 JD Group, Ltd. 61,778
12,900 Rembrandt Group, Ltd. 85,962
5,600 South African Breweries, Ltd.* 108,849
426,680
Singapore - 3.72%
75,959 Singapore Airlines, Ltd.,
Foreign Registered 466,722
119,597 United Overseas Bank, Ltd.,
Foreign Registered 562,161
43,000 Want Want Holdings, Ltd.* 51,170
1,080,053
Spain - 3.73%
1,800 Banco Pastor, S.A. 96,223
42,575 Fuerzas Electricas de Cataluna,
S.A., Class A 429,196
34,438 Iberdrola, S.A. 556,201
1,081,620
Sweden - 0.91%
5,800 Caran AB, Class B 44,607
3,100 Elanders AB, Class B 56,822
4,700 Getinge Industrier AB, Class B 72,294
3,900 IFS AB, Class B* 36,993
9,100 Monark Stiga AB 43,158
1,372 Ortivus AB, Class B* 9,321
263,195
Switzerland - 4.63%
340 Edipresse, S.A.* $ 92,814
100 Eichhof Holding AG, Registered 113,620
780 Gretag Imaging Group* 70,784
80 Liechtenstein Global Trust AG 99,336
55 Moevenpick Holding AG 24,185
130 SAIA-Burgess Electronics AG* 31,459
993 The Swatch Group 547,271
934 Swisscom AG, Registered* 316,295
520 Swisslog Holdings AG, Registered 47,381
1,343,145
Thailand - 0.12%
43,000 Bangkok Expressway Public Co., Ltd.,
Foreign Registered* 33,937
United Kingdom - 12.12%
15,800 Ashtead Group PLC 51,844
71,490 Blue Circle Industries PLC 390,161
230,030 BTR PLC 402,422
8,700 Carpetright PLC 26,653
29,269 Cookson Group PLC 60,759
20,400 Corporate Services Group PLC 51,227
3,100 Denison International PLC, ADR* 45,725
12,100 Devro PLC 57,124
24,700 Dialog Corp. PLC* 64,610
35,800 Enterprise Oil PLC* 244,526
1,947 Euromoney Publications PLC 47,262
5,100 Games Workshop Group PLC 47,385
5,200 Goode Durrant PLC* 27,248
43,215 Greenalls Group PLC 235,125
20,600 Hogg Robinson PLC 76,905
8,500 Hozelock Group PLC 29,527
31,864 Imperial Tobacco Group PLC 328,063
13,900 JBA Holdings PLC 67,483
2,400 Manganese Bronze Holdings PLC* 8,699
15,100 Man (Ed&F) Group PLC* 83,168
126,720 Rolls-Royce PLC 467,773
9,088 Seton Healthcare Group PLC 115,628
5,700 Signet Group PLC, ADR* 91,913
78,542 Tomkins PLC 363,562
11,926 United Biscuits Holdings PLC* 46,918
19,700 Victrex PLC 46,831
8,800 Westminster Health Care Holdings PLC 38,156
3,516,697
Venezuela - 0.41%
3,500 Compania Anonima Nacional Telefonos
de Venezuela, ADR 54,250
16,000 Mavesa, S.A., ADR 64,000
118,250
Total Common Stocks 25,964,269
( Cost $26,900,288 )
See accompanying Notes to Financial Statements.
PREFERRED STOCKS - 1.62%
Brazil - 0.85%
180,000 Banco Itau S.A. $ 87,519
410,000 Companhia Cimento Portland Itau 54,992
437,169 Telecomunicacoes de Sao Paulo S.A.* 73,295
580,000 Telecomunicacoes de Sao Paulo
Celular S.A., Class B 28,686
244,492
Germany - 0.77%
2,900 Fielmann AG 129,535
1,900 ProSbien Media AG 94,616
224,151
Total Preferred Stocks 468,643
( Cost $488,695 )
Par Value
CERTIFICATE OF DEPOSIT - 13.05%
$3,785,761 State Street Eurodollar
4.750%, 11/02/98 $ 3,785,761
Total Certificate of Deposit 3,785,761
( Cost $3,785,761 )
TOTAL INVESTMENTS - 104.18% 30,218,673
( Cost $31,174,744** )
NET OTHER ASSETS AND LIABILITIES - (4.18)% 1,212,905)
TOTAL NET ASSETS - 100.00% $29,005,768
- ----------------------------------
* Non-income producing security.
** Aggregate cost for Federal tax purposes was $31,201,088.
(A) As of January 8, 1998, security trading has been suspended.
(C) Security sold within the terms of private placement memorandum
exempt from registration under section 144A of the Securities Act of
1933, as amended, and may be sold only to dealers in that program or
other "qualified institutional investors." These securities have been
determined to be liquid under guidelines established by the Board of
Directors.
ADR American Depository Receipt
GDR Global Depository Receipt
As of October 31, 1998, the Fund had entered into the following forward foreign
currency exchange contracts resulting in net unrealized appreciation of $18,592.
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
Contracts to Deliver In Exchange For Settlement Date (Depreciation)
<S> <C> <C> <C>
Japanese Yen 109,158,283 U.S. Dollars 946,325 12/02/98 $ (4,320)
Singapore Dollars538,497 U.S.Dollars 311,000 03/19/99 22,912
$ 18,592
</TABLE>
OTHER INFORMATION (UNAUDITED):
Industry Concentration as a Percentage of Net Assets:
% of Net Assets % of Net Assets
Finance 17.66% Basic Materials 4.44%
Certificate of Deposit 13.05 Chemicals & Drugs 4.11
Consumer Staples 8.82 Health 4.04
Communication 8.60 Metals & Mining 3.99
Transportation 7.57 Agriculture 2.08
Energy 7.01 Technology 1.87
Building & Construction 6.21 Media 1.73
Industrial 5.92 Business Services 1.16
Consumer Cyclical 5.92 Net Other Assets
and Liabilities (4.18)
100.00%
See accompanying Notes to Financial Statements.
Statements of Assets and Liabilities
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Reserves Bond
Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments (Note 2):
Investments at cost $ 5,236,491 $ 6,815,769
Net unrealized appreciation (depreciation) -- 62,246
----------------- -----------------
Total investments at value 5,236,491 6,878,015
Cash -- --
Foreign currency (Cost $1,235,539)(Note 2) -- --
Receivables:
Investments sold -- --
Fund shares sold 71 35,329
Dividends and interest 40 103,141
Dividend tax reclaim -- --
Due from Adviser, net 12,794 14,399
Net unrealized appreciation on forward currency contracts -- --
Deferred organization and offering costs 39,060 39,060
Prepaid insurance 121 121
----------------- -----------------
Total Assets 5,288,577 7,070,065
----------------- -----------------
Liabilities:
Payables:
Investments purchased -- --
Fund shares repurchased 12,000 1,566
Due to custodian 210 205
Administration and transfer agent fees 7,673 8,145
Trustees' fees 171 221
Distribution fees - Class B 568 1,324
Shareholder servicing fees -- 1,423
Accrued expenses and other payables 34,874 34,884
----------------- -----------------
Total Liabilities 55,496 47,768
----------------- -----------------
Net Assets $ 5,233,081 $ 7,022,297
================= =================
Net Assets consist of
Paid-in capital $ 5,209,323 $ 6,926,107
Accumulated undistributed (distribution in excess of) net investment income 23,338 23,446
Accumulated net realized gain (loss) on investments sold,
foreign currency related transactions and futures contracts 420 10,498
Net unrealized appreciation (depreciation) of investments (including
appreciation of foreign currency related transactions of $31,501 in
the International Stock Fund) -- 62,246
----------------- -----------------
Total Net Assets $ 5,233,081 $ 7,022,297
================= =================
Class A Shares:
Net Assets $ 4,338,718 $ 4,797,089
Shares of beneficial interest outstanding 4,338,098 472,995
Net Asset Value and redemption price per share $ 1.00 $ 10.14
Sales charge of offering price* 0.06 0.46
----------------- -----------------
Maximum offering price per share $ 1.06 $ 10.60
================= =================
Class B Shares:
Net Assets $ 894,363 $ 2,225,208
Shares of beneficial interest outstanding 894,343 219,351
Net Asset Value and offering price per share** $ 1.00 $ 10.14
================= =================
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
* Sales charge of offering price is 5.3% for the Cash Reserves Fund, 4.3% for
the Bond Fund, 5.3% for the Balanced Fund, 4.3% for the High Income Fund
and 5.3% for the Growth and Income Fund, Capital Appreciation Fund and
International Stock Fund.
** Redemption price per share is equal to the Net Asset Value per share less
any applicable deferred sales charge.
</FN>
See accompanying Notes to Financial Statements.
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced High Income Growth and Income Capital Appreciation International Stock
Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 22,189,804 $ 10,717,069 $ 25,505,384 $ 19,785,532 $ 31,174,744
407,556 (1,088,517) 40,191 382,017 (956,071)
------------------ ------------------ ------------------ ------------------ -----------------
22,597,360 9,628,552 25,545,575 20,167,549 30,218,673
-- -- 36 -- 13,673
-- -- -- -- 1,238,210
112,843 33,090 15,010 129,780 277,565
280,312 91,342 326,435 131,324 13,731
131,966 210,259 21,345 11,368 52,186
-- -- -- -- 7,890
7,017 11,795 4,345 5,508 67
-- -- -- -- 18,592
39,060 39,060 39,060 39,060 39,060
121 203 121 121 813
------------------ ------------------ ------------------ ------------------ -----------------
23,168,679 10,014,301 25,951,927 20,484,710 31,880,460
------------------ ------------------ ------------------ ------------------ -----------------
-- 281,262 314,670 -- 2,809,373
2,150 -- 4,782 1,456 504
133 875 -- 75 --
9,244 9,850 9,892 8,849 12,076
479 306 757 470 763
4,233 2,208 8,204 3,994 789
3,090 1,975 4,882 3,028 4,917
39,503 40,571 31,711 31,450 46,270
------------------ ------------------ ------------------ ------------------ -----------------
58,832 337,047 374,898 49,322 2,874,692
------------------ ------------------ ------------------ ------------------ -----------------
$ 23,109,847 $ 9,677,254 $ 25,577,029 $ 20,435,388 $ 29,005,768
================== ================== ================== ================== =================
$ 22,676,985 $ 10,808,901 $ 25,519,363 $ 25,045,308 $ 28,401,933
22,711 23,986 19,303 10,070 321,481
2,595 (67,116) (1,828) (2,007) 1,206,924
407,556 (1,088,517) 40,191 382,017 (924,570)
------------------ ------------------ ------------------ ------------------ -----------------
$ 23,109,847 $ 9,677,254 $ 25,577,029 $ 20,435,388 $ 29,005,768
================== ================== ================== ================== =================
$ 15,670,183 $ 6,044,667 $ 11,169,102 $ 13,410,216 $ 27,656,348
1,467,763 682,660 1,026,186 1,214,721 2,674,063
$ 10.68 $ 8.85 $ 10.88 $ 11.04 $ 10.34
0.60 0.40 0.61 0.62 0.58
------------------ ------------------ ------------------ ------------------ -----------------
$ 11.28 $ 9.25 $ 11.49 $ 11.66 $ 10.92
================== ================== ================== ================== =================
$ 7,439,664 $ 3,632,587 $ 14,407,927 $ 7,025,172 $ 1,349,420
696,605 410,272 1,324,848 639,902 131,268
$ 10.68 $ 8.85 $ 10.88 $ 10.98 $ 10.28
================== ================== ================== ================== =================
Statements of Operations
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Reserves Bond
Fund(1) Fund(1)
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period Ended For the Period Ended
October 31, 1998 October 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
<S> <C> <C>
Dividends $ -- $ --
Interest 188,747 221,039
Less: Foreign taxes withheld -- --
----------------- -----------------
Total investment income 188,747 221,039
----------------- -----------------
EXPENSES:
Management fees (Note 3) 13,907 18,516
Administration and transfer agent fees (Note 3) 75,502 77,720
Registration expenses 28,218 27,178
Custodian fees 4,301 2,088
Professional fees 11,248 11,373
Reports to shareholder expense 1,023 1,216
Trustees' fees (Note 3) 1,033 1,084
Distribution fees - Class B (Note 3) 1,858 4,966
Shareholder servicing fees - Class A (Note 3) -- 7,603
Shareholder servicing fees - Class B (Note 3) -- 1,655
Amortization of organization and offering costs (Note 2) 28,717 28,717
Other expenses 1,455 1,644
----------------- -----------------
Total expenses before reimbursement 167,262 183,760
Less reimbursement (Note 3) (146,288) (145,479)
Less Management fee waiver (Note 3) -- (11,294)
----------------- -----------------
Total expenses net of reimbursement/waiver 20,974 26,987
----------------- -----------------
net investment income (loss) 167,773 194,052
----------------- -----------------
net realized and unrealized gain (loss) on investments (Note 2):
Net realized gain (loss) on investments (including a net realized gain on
foreign currency transactions of $92,467 in the International Stock Fund) 420 10,498
Net realized gain (loss) on futures contracts -- --
Net change in unrealized appreciation (depreciation) on investments
(including a net unrealized appreciation on foreign currency related
transactions of $31,501 in the International Stock Fund) -- 62,246
----------------- -----------------
NET realized and unrealized GAIN (LOSS) ONINVESTMENTS 420 72,744
----------------- -----------------
NET INCREASE (DECREASE)IN NET ASSETS FROM OPERATIONS $ 168,193 $ 266,796
================== =================
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Funds commenced operations on December 29, 1997.
</FN>
See accompanying Notes to Financial Statements.
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced High Income Growth and Income Capital Appreciation International Stock
Fund(1) Fund(1) Fund(1) Fund(1) Fund(1)
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period Ended For the Period Ended For the Period Ended For the Period Ended For the Period Ended
October 31, 1998 October 31, 1998 October 31, 1998 October 31, 1998 October 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 42,716 $ 1,418 $ 156,852 $ 61,570 $ 458,903
200,044 530,054 44,058 33,622 123,750
-- -- -- -- (50,892)
------------------ ----------------- ------------------ ------------------ -----------------
242,760 531,472 200,910 95,192 531,761
------------------ ----------------- ------------------ ------------------ -----------------
43,515 34,493 60,851 54,599 203,368
83,366 89,844 86,233 81,355 114,723
28,188 28,557 29,347 28,047 28,642
8,025 4,855 10,141 7,887 69,130
12,530 12,512 14,296 12,821 18,988
2,344 1,868 3,824 2,475 5,624
1,798 1,844 2,852 1,951 6,157
17,148 11,472 38,574 18,777 3,781
11,020 11,855 14,802 11,940 47,161
5,716 3,823 12,859 6,260 1,260
28,717 28,717 28,717 28,717 28,717
2,385 2,637 3,203 2,635 9,861
------------------ ----------------- ------------------ ------------------ -----------------
244,752 232,477 305,699 257,464 537,412
(153,963) (158,311) (156,486) (151,327) (223,725)
-- -- -- -- --
------------------ ----------------- ------------------ ------------------ -----------------
90,789 74,166 149,213 106,137 313,687
------------------ ----------------- ------------------ ------------------ -----------------
151,971 457,306 51,697 (10,945) 218,074
------------------ ----------------- ------------------ ------------------ -----------------
11,081 (67,321) (40,804) (46,187) 1,306,953
(8,486) -- 38,976 44,180 --
407,556 (1,088,517) 40,191 382,017 (924,570)
------------------ ----------------- ------------------ ------------------ -----------------
410,151 (1,155,838) 38,363 380,010 382,383
------------------ ----------------- ------------------ ------------------ -----------------
$ 562,122 $ (698,532) $ 90,060 $ 369,065 $ 600,457
================== ================= ================== ================== =================
Statements of Changes in Net Assets
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Reserves Bond
Fund(1) Fund(1)
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period Ended For the Period Ended
October 31, 1998 October 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS at beginning of period $ 50,000 $ 50,000
----------------- ----------------
Increase in net assets from operations:
Net investment income 167,773 194,052
Net realized gain (loss) 420 10,498
Net change in unrealized appreciation (depreciation) -- 62,246
----------------- ----------------
Net increase (decrease) in net assets from operations 168,193 266,796
----------------- ----------------
Distributions to shareholders from:
Net investment income
Class A (157,807) (163,646)
Class B (9,966) (30,406)
Distributions in excess of net investment income
Class A -- --
Class B -- --
----------------- ----------------
Total distributions (167,773) (194,052)
----------------- ----------------
Capital Stock transactions:
Class A Shares
Shares sold 5,496,824 4,702,204
Issued to shareholders in reinvestment of distributions 157,329 163,461
Shares redeemed (1,364,778) (174,114)
----------------- ----------------
Net increase from capital stock transactions 4,289,375 4,691,551
----------------- ----------------
Class B Shares
Shares sold 1,315,996 2,223,002
Issued to shareholders in reinvestment of distributions 9,489 28,634
Shares redeemed (432,199) (43,634)
----------------- ----------------
Net increase from capital stock transactions 893,286 2,208,002
----------------- ----------------
Total increase in net assets 5,183,081 6,972,297
----------------- ----------------
NETASSETS at end of period (including line A) $ 5,233,081 $ 7,022,297
================= ================
(A) Undistributed (distribution in excess of) net investment income $ 23,338 $ 23,446
================= ================
OTHER INFORMATION:
Capital Share transactions:
Class A Shares
Shares sold 5,496,384 469,093
Issued to shareholders in reinvestment of distributions 157,376 16,269
Shares redeemed (1,364,662) (17,267)
----------------- ----------------
Net increase in shares outstanding 4,289,098 468,095
----------------- ----------------
Class B Shares
Shares sold 1,314,093 220,718
Issued to shareholders in reinvestment of distributions 9,643 2,834
Shares redeemed (430,393) (4,301)
----------------- ----------------
Net increase in shares outstanding 893,343 219,251
----------------- ----------------
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Funds commenced operations on December 29, 1997.
(2) Represents less than 1/2 of a share.
</FN>
See accompanying Notes to Financial Statements.
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced High Income Growth and Income Capital Appreciation International Stock
Fund(1) Fund(1) Fund(1) Fund(1) Fund(1)
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period Ended For the Period Ended For the Period Ended For the Period Ended For the Period Ended
October 31, 1998 October 31, 1998 October 31, 1998 October 31, 1998 October 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
151,971 457,306 51,697 (10,945) 218,074
2,595 (67,321) (1,828) (2,007) 1,306,953
407,556 (1,088,517) 40,191 382,017 (924,570)
562,122 (698,532) 90,060 369,065 600,457
(114,070) (352,444) (48,609) -- (19,999)
(37,901) (104,862) (3,088) -- (1)
(590) -- (3,054) (2,999) --
(306) -- (2,653) (1) --
(152,867) (457,306) (57,404) (3,000) (20,000)
15,586,877 6,528,079 11,287,655 13,061,416 26,957,663
114,515 350,011 51,706 2,999 19,999
(458,280) (149,760) (439,612) (198,712) (66,752)
15,243,112 6,728,330 10,899,749 12,865,703 26,910,910
7,559,659 4,060,617 15,004,465 7,326,656 1,487,111
37,560 92,006 5,698 1 1
(189,739) (97,861) (415,539) (173,037) (22,711)
7,407,480 4,054,762 14,594,624 7,153,620 1,464,401
23,059,847 9,627,254 25,527,029 20,385,388 28,955,768
$ 23,109,847 $ 9,677,254 $ 25,577,029 $ 20,435,388 $ 29,005,768
$ 22,711 $ 23,986 $ 19,303 $ 10,070 $ 321,481
1,494,109 657,540 1,057,206 1,227,548 2,672,922
10,884 36,216 4,825 293 1,949
(42,130) (15,996) (40,745) (18,020) (5,708)
1,462,863 677,760 1,021,286 1,209,821 2,669,163
710,854 410,828 1,363,973 656,474 133,396
3,588 9,755 557 --(2) --(2)
(17,937) (10,411) (39,782) (16,672) (2,228)
696,505 410,172 1,324,748 639,802 131,168
Financial Highlights for a Share Outstanding during the period ended October 31, 1998
<CAPTION>
Cash Reserves Fund
--------------------------------
Class A Class B
---------- ----------
Period Period
Ended Ended
10/31/98(a) 10/31/98(a)
------------ ------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 $ 1.00
Income from Investment Operations:
Net investment income 0.04 0.03
--------- ---------
Total from investment operations 0.04 0.03
--------- ---------
Less Distributions:
Distributions from net investment income (0.04) (0.03)
--------- ---------
Total distributions (0.04) (0.03)
--------- ---------
Net increase in net asset value -- --
--------- ---------
Net Asset Value, End of Period $ 1.00 $ 1.00
========= =========
Total Return2+ 4.21% 3.50%
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 4,339 $ 894
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser1 4.76% 5.51%
After reimbursement of expenses by Adviser1 0.55% 1.30%
Ratios of net investment income to average net assets:
Before reimbursement of expenses by Adviser1 0.67% (0.08)%
After reimbursement of expenses by Adviser1 4.88% 4.13%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
1 Annualized.
2 Not annualized.
+ Total return without applicable sales charge.
(a) Cash Reserves Fund Class A and Cash Reserves Fund Class B commenced investment operations on December 29, 1997.
</FN>
See accompanying Notes to Financial Statements.
Financial Highlights for a Share Outstanding during the period ended October 31, 1998
Bond Fund
--------------------------------
Class A Class B
---------- ----------
Period Period
Ended Ended
10/31/98(a) 10/31/98(a)
------------ ------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 10.00 $ 10.00
Income from Investment Operations:
Net investment income 0.45 0.39
Net realized and unrealized gain on investments 0.14 0.14
--------- ---------
Total from investment operations 0.59 0.53
--------- ---------
Less Distributions:
Distributions from net investment income (0.45) (0.39)
--------- ---------
Total distributions (0.45) (0.39)
--------- ---------
Net increase in net asset value 0.14 0.14
--------- ---------
Net Asset Value, End of Period $ 10.14 $ 10.14
========= =========
Total Return2+ 6.08% 5.36%
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 4,797 $ 2,225
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser1 4.83% 5.58%
After reimbursement of expenses by Adviser1 0.60% 1.35%
Ratios of net investment income to average net assets:
Before reimbursement of expenses by Adviser1 1.14% 0.39%
After reimbursement of expenses by Adviser1 5.37% 4.62%
Portfolio Turnover 95% 95%
- ------------------------------------------------------------------------------------------------------------------------------------
1 Annualized.
2 Not annualized.
+ Total return without applicable sales charge.
(a) Bond Fund Class A and Bond Fund Class B commenced investment operations on December 29, 1997.
Financial Highlights for a Share Outstanding during the period ended October 31, 1998
Balanced Fund
--------------------------------
Class A Class B
---------- ----------
Period Period
Ended Ended
10/31/98(a) 10/31/98(a)
------------ ------------
Net Asset Value, Beginning of Period $ 10.00 $ 10.00
Income from Investment Operations:
Net investment income 0.21 0.14
Net realized and unrealized gain on investments 0.68 0.68
--------- ---------
Total from investment operations 0.89 0.82
--------- ---------
Less Distributions:
Distributions from net investment income (0.21) (0.14)
--------- ---------
Total distributions (0.21) (0.14)
--------- ---------
Net increase in net asset value 0.68 0.68
--------- ---------
Net Asset Value, End of Period $ 10.68 $ 10.68
========= =========
Total Return2+ 8.92% 8.24%
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 15,670 $ 7,440
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser1 3.40% 4.15%
After reimbursement of expenses by Adviser1 1.10% 1.85%
Ratios of net investment income to average net assets:
Before reimbursement of expenses by Adviser1 0.23% (0.52)%
After reimbursement of expenses by Adviser1 2.53% 1.78%
Portfolio Turnover 60% 60%
- ------------------------------------------------------------------------------------------------------------------------------------
1 Annualized.
2 Not annualized.
+ Total return without applicable sales charge.
(a) Balanced Fund Class A and Balanced Fund Class B commenced investment operations on December 29, 1997.
See accompanying Notes to Financial Statements.
Financial Highlights for a Share Outstanding during the period ended October 31, 1998
High Income Fund
--------------------------------
Class A Class B
---------- ----------
Period Period
Ended Ended
10/31/98(a) 10/31/98(a)
------------ ------------
Net Asset Value, Beginning of Period $ 10.00 $ 10.00
Income from Investment Operations:
Net investment income 0.61 0.55
Net realized and unrealized (loss) on investments (1.15) (1.15)
--------- ---------
Total from investment operations (0.54) (0.60)
--------- ---------
Less Distributions:
Distributions from net investment income (0.61) (0.55)
--------- ---------
Total distributions (0.61) (0.55)
--------- ---------
Net decrease in net asset value (1.15) (1.15)
--------- ---------
Net Asset Value, End of Period $ 8.85 $ 8.85
========= =========
Total Return2+ (5.78)% (6.39)%
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 6,045 $ 3,632
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser1 3.52% 4.27%
After reimbursement of expenses by Adviser1 1.00% 1.75%
Ratios of net investment income to average net assets:
Before reimbursement of expenses by Adviser1 4.95% 4.20%
After reimbursement of expenses by Adviser1 7.47% 6.72%
Portfolio Turnover 56% 56%
- ------------------------------------------------------------------------------------------------------------------------------------
1 Annualized.
2 Not annualized.
+ Total return without applicable sales charge.
(a) High Income Fund Class A and High Income Fund Class B commenced investment operations on December 29, 1997.
See accompanying Notes to Financial Statements.
Financial Highlights for a Share Outstanding during the period ended October 31, 1998
Growth and Income Fund
--------------------------------
Class A Class B
---------- ----------
Period Period
Ended Ended
10/31/98(a) 10/31/98(a)
------------ ------------
Net Asset Value, Beginning of Period $ 10.00 $ 10.00
Income from Investment Operations:
Net investment income 0.07 0.01
Net realized and unrealized gain on investments 0.89 0.89
--------- ---------
Total from investment operations 0.96 0.90
--------- ---------
Less Distributions:
Distributions from net investment income (0.07) (0.01)
Distributions in excess of net investment income (0.01) (0.01)
--------- ---------
Total distributions (0.08) (0.02)
--------- ---------
Net increase in net asset value 0.88 0.88
--------- ---------
Net Asset Value, End of Period $ 10.88 $ 10.88
========= =========
Total Return2+ 9.57% 8.97%
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 11,169 $ 14,408
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser1 2.41% 3.16%
After reimbursement of expenses by Adviser1 1.00% 1.75%
Ratios of net investment income to average net assets:
Before reimbursement of expenses by Adviser1 (0.60)% (1.35)%
After reimbursement of expenses by Adviser1 0.81% 0.06%
Portfolio Turnover 5% 5%
- ------------------------------------------------------------------------------------------------------------------------------------
1 Annualized.
2 Not annualized.
+ Total return without applicable sales charge.
(a) Growth and Income Fund Class A and Growth and Income Fund Class B commenced investment operations on December 29, 1997.
See accompanying Notes to Financial Statements.
Financial Highlights for a Share Outstanding during the period ended October 31, 1998
Capital Appreciation Fund
--------------------------------
Class A Class B
---------- ----------
Period Period
Ended Ended
10/31/98(a) 10/31/98(a)
------------ ------------
Net Asset Value, Beginning of Period $ 10.00 $ 10.00
Income from Investment Operations:
Net investment income (loss) 0.01 (0.02)
Net realized and unrealized gain on investments 1.04 1.01
--------- ---------
Total from investment operations 1.05 0.99
--------- ---------
Less Distributions:
Distributions in excess of net investment income (0.01) (0.01)
--------- ---------
Total distributions (0.01) (0.01)
--------- ---------
Net increase in net asset value 1.04 0.98
--------- ---------
Net Asset Value, End of Period $ 11.04 $ 10.98
========= =========
Total Return2+ 10.51% 9.91%
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 13,410 $ 7,025
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser1 3.28% 4.03%
After reimbursement of expenses by Adviser1 1.20% 1.95%
Ratios of net investment income to average net assets:
Before reimbursement of expenses by Adviser1 (1.97)% (2.72)%
After reimbursement of expenses by Adviser1 0.11% (0.64)%
Portfolio Turnover 10% 10%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
1 Annualized.
2 Not annualized.
+ Total return without applicable sales charge.
(a) Capital Appreciation Fund Class A and Capital Appreciation Fund Class B commenced investment operations on December 29, 1997.
</FN>
See accompanying Notes to Financial Statements.
Financial Highlights for a Share Outstanding during the period ended October 31, 1998
International Stock Fund
--------------------------------
Class A Class B
---------- ----------
Period Period
Ended Ended
10/31/98(a) 10/31/98(a)
------------ ------------
Net Asset Value, Beginning of Period $ 10.00 $ 10.00
Income from Investment Operations:
Net investment income 0.08 0.03
Net realized and unrealized gain on investments 0.27 0.26
--------- ---------
Total from investment operations 0.35 0.29
--------- ---------
Less Distributions:
Distributions from net investment income (0.01) (0.01)
--------- ---------
Total distributions (0.01) (0.01)
--------- ---------
Net increase in net asset value 0.34 0.28
--------- ---------
Net Asset Value, End of Period $ 10.34 $ 10.28
========= =========
Total Return2+ 3.60% 2.90%
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 27,656 $ 1,350
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser1 2.76% 3.51%
After reimbursement of expenses by Adviser1 1.60% 2.35%
Ratios of net investment income to average net assets:
Before reimbursement of expenses by Adviser1 (0.01)% (0.76)%
After reimbursement of expenses by Adviser1 1.15% 0.40%
Portfolio Turnover 60% 60%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
1 Annualized.
2 Not annualized.
+ Total return without applicable sales charge.
(a) International Stock Fund Class A and International Stock Fund Fund Class B commenced investment operations on
December 29, 1997.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Notes to Financial Statements
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, management investment company. As of the date of this report, the
Trust offers seven Funds (individually, a "Fund," collectively, the "Funds")
each with two classes of shares: Class A and Class B. Each class of shares
represents an interest in the assets of the respective Fund and has identical
voting, dividend, liquidation and other rights, 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, each commencing operations on December 29,
1997.
The only transactions of the Funds prior to commencement of operations were the
sale of 49,000 Class A shares and 1,000 Class B shares of Cash Reserves Fund at
$1 per share and the sale of 4,900 Class A shares and 100 Class B shares of Bond
Fund, Balanced Fund, High Income Fund, Growth and Income Fund, Capital
Appreciation Fund and International Stock Fund at $10 per share on November 10,
1997.
2. Significant Accounting Policies
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by each Fund in the
preparation of its financial statements
Portfolio Valuation: Investments in securities which are traded on a
recognized stock exchange or for which price quotations are available will
normally be valued on the basis of market quotations furnished by a pricing
service which has been approved by The Board of Trustees. Short-term
obligations that mature in sixty days or less are valued at amortized cost,
which constitutes fair value. All other securities and other assets are
appraised at their fair values as determined in good faith by and under the
general supervision of The Board of Trustees.
Security Transactions and Investment Income: Security transactions are
accounted for on a trade date basis. Net realized gains or losses on sales
are determined by the identified cost method. Interest income is recorded
on the accrual basis. Dividend income is recorded on ex-dividend date.
Federal Income Taxes: It is each Fund's intention to qualify as a regulated
investment company for federal income tax purposes by complying with the
appropriate provisions of the Internal Revenue Code of 1986, as amended.
Accordingly, no provisions for federal income taxes are required in the
accompanying financial statements.
Classes: Class-specific expenses are borne by that class. Income, non-class
specific expenses, and realized and unrealized gains/losses are allocated
to the respective classes on the basis of relative net assets.
Expenses: Expenses that are directly related to one of the Funds are
charged directly to that Fund. Other operating expenses of the Fund are
prorated to the Funds on the basis of relative net assets.
Organization and Offering Costs: Each Fund bears all costs in connection
with its organization, including registration and notification fees and
expenses with respect to the sale of their shares under federal and state
securities regulation. These organization and offering costs are being
amortized on a straight-line basis over five years and one year,
respectively. In the event any of the initial shares of a Fund are redeemed
by any holder thereof during the amortization period, the proceeds of such
redemptions will be reduced by an amount equal to the pro-rata portion of
unamortized deferred organizational expenses in the same proportion as the
number of shares being redeemed bears to the number of initial shares of
such Fund outstanding at the time of such redemption. To the extent that
proceeds of the redemptions are less than such pro-rata portion of any
unamortized organizational expenses, CIMCO has agreed to reimburse the Fund
promptly.
Repurchase Agreements: Each Fund may engage in 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.
Foreign Currency Transactions: The books and records are maintained in U.S.
dollars. Foreign currency amounts are translated into U.S. dollars on the
following basis:
(1) market value of investment securities, assets and liabilities at the
current rate of exchange; and
(2) purchases and sales of investment securities, income, and expenses at
the relevant rates of exchange prevailing on the respective dates of
such transactions.
The High Income and International Stock Funds report certain foreign
currency-related transactions as components of realized gains or losses for
financial reporting purposes, whereas such components are treated as
ordinary income for federal income tax purposes.
The Funds do not isolate the portion of gains and losses on investments in
securities that is due to changes in the foreign exchange rates from that
which is due to change in market prices of securities. Such amounts are
catergorized as gain or loss on investments for financial reporting
purposes.
Forward Foreign Currency Exchange Contracts: The High Income and
International Stock Funds may each purchase or sell forward foreign
currency contracts for defensive or hedging purposes when the Fund's
Investment Adviser anticipates that the foreign currency will appreciate or
depreciate in value. The Funds realize a gain or a loss at the time the
forward contracts are closed out or offset by a matching contract. As of
October 31, 1998, International Stock Fund had open forward foreign
currency contracts.
Futures Contracts: The Funds (other than the Cash Reserves Fund) may
purchase and sell futures contracts and purchase and write options on
futures contracts. Cash or securities are deposited with brokers in order
to establish and maintain a position. Subsequent payments made or received
by the Fund based on the daily change in the market value of the position
are recorded as unrealized gains or losses until the contract is closed
out, at which time the gains or losses are realized.
Reclassification Adjustments: Paid in Capital, undistributed net investment
income, and accumulated net realized gain (loss) have been adjusted in the
Statement of Assets and Liabilities for permanent book-tax differences for
all Funds for the period from the commencement of investment operations to
October 31, 1998 as follows:
Decrease Increase Accumulated
Paid-in Undistributed Net Realized
Fund capital Investment Income Gain
Cash Reserves $ (23,338) $ 23,338 --
Bond (23,446) 23,446 --
Balanced (23,607) 23,607 --
High Income (24,191) 23,986 205
Growth & Income (25,010) 25,010 --
Capital Appreciation (24,015) 24,015 --
International Stock (23,378) 123,407 (100,029)
For federal income tax purposes, the High Income Fund, Growth and Income
Fund, and Capital Appreciation Fund have capital loss carryovers of
$66,186, $1,433, and $219, respectively, as of October 31, 1998, which if
not offset by subsequent capital gains, will expire in 2006.
3. Advisory, Administration and Distribution Agreements
The Trust has entered into an Investment Advisory Agreement with CIMCO Inc. (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
assets: 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 Investment Adviser has entered into Subadviser Agreements for the management
of the investments of the High Income Fund and the International Stock Fund. The
Investment Adviser is solely responsible for the payment of all fees to the
Subadvisers. The Subadvisers for these funds are Massachusetts Financial
Services Company for the High Income Fund and IAI International Limited and
Lazard Asset Management 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%
* For the period June 1, 1998 through October 31, 1998, the Investment
Adviser has also agreed to waive its 0.50% management fee on the Bond Fund,
which resulted in a net expense for that period of 0.40% and 1.15% for Class
A and Class B, respectively.
For the period from commencement of Fund operations on December 29, 1997 through
October 31, 1998, the Investment Adviser reimbursed expenses of $146,288 for the
Cash Reserves Fund, $145,479 for the Bond Fund, $153,963 for the Balanced Fund,
$158,311 for the High Income Fund, $156,486 for the Growth and Income Fund,
$151,327 for the Capital Appreciation Fund, and $223,725 for the International
Stock Fund. In addition, for the period from June 1, 1998 through October 31,
1998 the Investment Adviser waived its management fee of $11,294 for the Bond
Fund.
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. ("First Data"), which is
a wholly-owned subsidiary of First Data Corporation, are parties to an agreement
under which First Data provides administration services for a fee calculated
daily and paid monthly, at the annual rate of 0.15% of the first $500 million of
the combined average daily net assets and 0.12% of the next $500 million of the
combined average daily net assets and 0.09% of the combined average daily net
assets over $1 billion. Currently, at October 31, 1998, the Funds are at the
minimum of $3,500 per Fund, per Class, per month until aggregate net assets
reach $392 million.
In addition, First Data also provides certain fund accounting, custody
administration and transfer agency services pursuant to certain fee
arrangements. Pursuant to such fee arrangements, First Data compensates the
Trust's custodian bank, State Street, for its services in addition to the fees
First Data receives.
CUNA Brokerage Services, Inc. (CUNA Brokerage) serves as distributor of the
Funds. The Trust adopted Distribution Plans (the "Plans") with respect to the
Trust's Class A and Class B shares 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 for all Funds except the Cash
Reserves Fund. 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 are used to reimburse CUNA Brokerage for its
distribution expenses with respect to Class B shares only, including but not
limited to: (1) initial and ongoing sales compensation to selling brokers and
others engaged in the sale of Fund shares, (2) marketing, promotional and
overhead expenses incurred in connection with the distribution of Fund shares,
and (3) 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 addition to
distribution fees, CUNA Brokerage received sales charges paid by the purchasers
or redeemers of the Funds' shares. For the period ended October 31, 1998, sales
charges received by CUNA Brokerage were as follows:
Cash Reserves $ 71,116
Bond 141,066
Balanced 477,159
High Income 205,263
Growth & Income 895,319
Capital Appreciation 467,163
International Stock 90,775
Certain officers and trustees of the Funds are also officers of the Trust. The
Funds do not compensate its officers or affiliated trustees. Effective September
4, 1997, the Trust pays each unaffiliated trustee $1,000 per Board of Trustees
meeting attended.
4. Dividends from Net Investment Income and Distributions of Capital Gains
With respect to the Cash Reserves Fund, Bond Fund, and High Income Fund,
dividends from net investment income are declared daily and net realized gains
from investment transactions, if any, are distributed to shareholders annually.
The Balanced Fund declares dividends from net investment income monthly and net
realized gains from investment transactions, if any, are distributed to
shareholders annually. The Growth and Income Fund declares dividends from net
investment income quarterly and net realized gains from investment transactions,
if any, are distributed to shareholders annually. The Capital Appreciation Fund
and the International Stock Fund declare dividends from net investment income
annually and net realized gains from investment transactions, if any, are
distributed to shareholders annually.
5. Securities Transactions
For the period from commencement of fund operations on December 29, 1997 through
October 31, 1998, aggregate cost of purchases and proceeds from sales of
securities, other than short-term investments, were as follows:
<TABLE>
<CAPTION>
U.S. Government Other Investment
Securities Securities
------------------------------ -----------------------------
<S> <C> <C> <C> <C>
Fund Purchases Sales Purchases Sales
Bond $ 3,534,211 $ 1,817,023 $ 6,407,956 $ 1,548,557
Balanced 6,709,484 3,542,248 18,701,027 750,544
High Income -- -- 13,320,723 3,362,220
Growth & Income -- -- 24,654,126 520,707
Capital Appreciation -- -- 20,141,463 812,924
International Stock -- -- 37,601,699 11,426,887
</TABLE>
At October 31, 1998, the aggregate gross unrealized appreciation (depreciation)
and net unrealized appreciation (depreciation) for all securities as computed on
a federal income tax basis for each fund were as follows:
Fund Appreciation (Depreciation) Net
Bond $ 91,278 $ (29,032) $ 62,246
Balanced 1,009,195 (601,639) 407,556
High Income 11,880 (1,101,737) (1,089,857)
Growth & Income 1,972,371 (1,932,575) 39,796
Capital Appreciation 1,672,448 (1,292,219) 380,229
International Stock 2,398,432 (3,380,847) (982,415)
6. Foreign Securities
Each Fund may invest in foreign securities, although only the High Income Fund
and International Stock Fund anticipate having significant investments in such
securities. The International Stock Fund may invest all of its assets in foreign
securities and the High Income Fund may invest up to 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 the
U.S., or (4) quoted or denominated in a foreign currency ("non-dollar
securities").
Foreign securities include ADR's, EDR's, GDR's, and foreign money market
securities.
7. Financial Instruments
Investing in certain financial instruments including forward foreign currency
contracts and futures contracts involves risk other than that reflected in the
Statement of Assets and Liabilities. Risk associated with these instruments
include potential for an imperfect correlation between the movements in the
prices of instruments and the prices of the underlying securities and interest
rates, an illiquid secondary market for the instruments or inability of
counterparties to perform under the terms of the contracts, and changes in the
value of foreign currency relative to the U.S. dollar. The High Income Fund and
International Stock Fund enter into these contracts primarily to protect these
Funds from adverse currency movement.
8. Concentration of Risk
The High Income Fund invests in securities offering high current income which
generally will be in the lower rating categories of recognized ratings agencies
(so-called "junk bonds"). These securities generally involve more credit risk
than securities in the higher rating categories. In addition, the trading market
for high yield securities may be relatively less liquid than the market for
higher-rated securities. The Fund generally invests at least 80% of its assets
in high yield securities.
9. Capital shares and affiliated Ownership
Each fund is authorized to issue an unlimited number of shares of beneficial
interest with no par value. Each Fund currently offers two classes of shares,
Class A and Class B. At October 31, 1998, investments in the Funds by affiliates
were as follows:
<TABLE>
<CAPTION>
CUNA Mutual CUNA Mutual CUMIS
Fund Class Life Insurance Company Insurance Society Insurance Society, Inc.
<S> <C> <C> <C> <C>
Cash Reserves A $ 1,563,090 $ 1,562,048 $ --
B -- 1,035 --
Bond A 1,569,535 1,568,489 --
B -- 1,039 --
Balanced A 3,004,118 3,061,604 5,006,869
B -- 1,014 --
High Income A 5,313,073 -- --
B 1,056 -- --
Growth and Income A -- 1,510,512 1,511,519
B -- 1,002 --
Capital Appreciation A -- 1,500,499 6,501,500
B -- 1,001 --
International Stock A 3,003,000 5,003,999 18,012,000
B -- 1,001 --
Total Investments $14,453,872 $14,213,243 $31,031,888
</TABLE>
<PAGE>
Report of Independent Accountants
The Board of Trustees and Shareholders
MEMBERS Mutual Funds:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Cash Reserves Fund, Bond Fund, Balanced Fund,
High Income Fund, Growth and Income Fund, Capital Appreciation Fund and
International Stock Fund (funds within MEMBERS Mutual Funds) as of October 31,
1998, and the related statements of operations and changes in net assets and the
financial highlights for the period from December 29, 1997 (commencement of
operations) to October 31, 1998. These financial statements and the financial
highlights are the responsibility of the funds' management. Our responsibility
is to express an opinion on these financial statements and the financial
highlights 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 and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased and sold, but not received or delivered,
we request confirmations from brokers and, where replies are not received, we
carry out other appropriate auditing procedures. 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 financial statements and the financial highlights 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
October 31, 1998, and the results of their operations, the changes in their net
assets and the financial highlights for the period stated in the first paragraph
above, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
December 11, 1998
PART C
OTHER INFORMATION
Item 23. Exhibits
(a) Declaration of Trust incorporated herein by reference to Registration
Statement on Form N-1A (333-29511) filed on June 19, 1997 as exhibit 1.
(b) N/A
(c) N/A
(d)(1) Investment Management Agreement with CIMCO Inc. incorporated herein by
reference to Registration Statement on Form N-1A (333-29511) filed on
September 17, 1997 as exhibit 5(a).
(d)(2) Investment Sub-Advisory Agreement with Massachusetts Financial Services
Company incorporated herein by reference to Registration Statement on
Form N-1A (333-29511) filed on September 17, 1997 as exhibit 5(b).
(d)(3) Investment Sub-Advisory Agreement with IAI International Limited
incorporated herein by reference to Registration Statement on Form N-1A
(333-29511) filed on September 17, 1997 as exhibit 5(c).
(d)(4) Investment Sub-Advisory Agreement with Lazard Asset Management
incorporated herein by reference to Registration Statement on Form N-1A
(333-29511) filed on September 17, 1997 as exhibit 5(d).
(e) Distribution Agreement with CUNA Brokerage Services, Inc. incorporated
herein by reference to Registration Statement on Form N-1A (333-29511)
filed on September 17, 1997 as exhibit 6.
(f) N/A
(g) Custody Agreement with State Street Bank and Trust Company incorporated
herein by reference to Registration Statement on Form N-1A (333-29511)
filed on November 12, 1997 as exhibit 8.
(h)(1) Administration Agreement with First Data Investors Services Group, Inc.
incorporated herein by reference to Registration Statement on Form N-1A
(333-29511) filed on November 12, 1997 as exhibit 9(a).
(h)(2) Transfer Agency and Services Agreement with First Data Investors
Services Group, Inc. incorporated herein by reference to Registration
Statement on Form N-1A (333-29511) filed on November 12, 1997 as
exhibit 9(b).
(i) Opinion and Consent of Sutherland, Asbill & Brennan LLP. incorporated
herein by reference to Registration Statement on Form N-1A (333-29511)
filed on November 12, 1997 as exhibit 10.
(j) Consent of KPMG Peat Marwick LLP.
(k) N/A
(l)(1) Subscription Agreement with CUNA Mutual Insurance Society incorporated
herein by reference to Registration Statement on Form N-1A (333-29511)
filed on November 12, 1997 as exhibit 13(a).
(l)(2) Subscription Agreement with CUNA Mutual Life Insurance Company
incorporated herein by reference to Registration Statement on Form N-1A
(333-29511) filed on November 12, 1997 as exhibit 13(b).
(l)(3) Subscription Agreement with CUMIS
(m)(1) Service Plan for Class A Shares incorporated herein by reference to
Registration Statement on Form N-1A (333-29511) filed on September 17,
1997 as exhibit 15(a).
(m)(2) Distribution Plan for Class B Shares incorporated herein by reference
to Registration Statement on Form N-1A (333-29511) filed on September
17, 1997 as exhibit 15(b).
(m)(3) Service Plan for Class D Shares Shares incorporated herein by reference
to Registration Statement on Form N-1A (333-29511) filed on December
11, 1998.
(n) Financial Data Schedules
(o) Plan of Multiple Classes of Shares Shares incorporated herein by
reference to Registration Statement on Form N-1A (333-29511) filed on
December 11, 1998.
Other Exhibits
Powers of Attorney incorporated herein by reference to Registration Statement on
Form N-1A (333-29511) filed on December 11, 1998.
Item 24. Persons Controlled by or Under Common Control With Registrant
See the caption in Part A entitled "Portfolio Management" and Part B "Management
of the Trust" 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.
<PAGE>
CUNA Mutual Insurance Society
ORGANIZATIONAL CHART AS OF DECEMBER 31, 1998
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 Coverage
November l, 1990*
State of domicile: Wisconsin
b. CUNA Brokerage Services, Inc.
Business: Brokerage
July 19, 1985*
State of domicile: Wisconsin
c. CUNA Mutual General Agency of Texas, Inc.
Business: Managing General Agent
August 14, 1991*
State of domicile: Texas
d. MEMBERS Life Insurance Company
Business: Credit Disability/Life/Health
February 27, 1976*
State of domicile: Wisconsin
Formerly CUMIS Life & CUDIS
e. International Commons, Inc.
Business: Special Events
January 13, 1981*
State of domicile: Wisconsin
f. CUNA Mortgage Corporation
Business: Mortgage Servicing
November 20, 1978*
State of domicile: Wisconsin
(1) CU Mortgage Corporation Inc.
Business: Mortgage Servicing
May 28, 1987*
State of domicile: California
g. Investors Equity Insurance Company, Inc.
Business: Private Mortgage Insurance
April 14, 1994*
State of Domicile: California
h. CUNA Mutual Insurance Agency, Inc.
Business: Leasing/Brokerage
March 1, 1974*
State of domicile: Wisconsin
Formerly CMCI Corporation
i. Stewart Associates Incorporated
Business: Credit Insurance
March 6, 1998
State of domicile: Wisconsin
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
3. CUNA Caribbean Insurance Society Limited
Business: Life and Health
July 4, 1985*
Country of domicile: Trinidad and Tobago
* 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
63.449% 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. GWARANT, Ltd.
50% ownership by CUNA Mutual Insurance Society
50% ownership by Foundation for Polish Credit Unions
February 18, 1994
7. 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
8. 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
9. CMG Mortgage Insurance Company
50% ownership by CUNA Mutual Investment Corporation
50% ownership by
PMI Mortgage Insurance Co.
April 14, 1994
10. 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
11. 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
12. CUNA Service Group, Inc.
April 22, 1974 - CUNA Mutual Insurance Society purchased 200.71 shares
13. 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
Limited Liability Companies
1. "Sofia LTD." (Ukraine)
99.96% CUNA Mutual Insurance Society
.04% CUMIS Insurance Society, Inc.
March 6, 1996
2. 'FORTRESS' (Ukraine)
80% "Sofia LTD."
19% The Ukrainian National Association of Savings and Credit Unions
1% Service Center by UNASCU
September 25, 1996
Affiliated (Nonstock)
1. MEMBERS Prime Club, Inc.
August 8, 1978
2. CUNA Mutual Group Foundation, Inc.
July 5, 1967
3. CUNA Mutual Life Insurance Company
July 1, 1990
CUNA Mutual Life Insurance Company
ORGANIZATIONAL CHART AS OF DECEMBER 31, 1998
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
2. CIMCO Inc.
An Iowa Business Act Corporation
50% ownership by CUNA Mutual Life Insurance Company
50% ownership by CUNA Mutual Investment Corporation
CIMCO Inc. is the investment adviser of:
Ultra Series Fund
MEMBERS Mutual Funds
3. Plan America Program, Inc.
A Maine Business Act Corporation
100% ownership by CUNA Mutual Life Insurance Company
4. CMIA Wisconsin Inc.
A Wisconsin Business Act Corporation
100% ownership by CUNA Mutual Life Insurance Company
Item 25. 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 26. 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 "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 Officer - Investment
1990-Present
CUNA Mutual Life Insurance Company
Chief Officer - Investment
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
1996-1998
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 & Chief Executive Officer
1995- Present
CUNA Mutual Life Insurance Company
President & 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
Jeffrey B. Pantages CIMCO Inc.
5910 Mineral Point Road Senior Vice President
Madison, WI 53705 1998-Present
Aquila Energy
Vice President
1997-1998
Security Benefit
Senior Vice President
1991-1997
Item 27. 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>
Wayne A. Benson Director None
5910 Mineral Point Road President
Madison, WI 53705
Lawrence R. Halverson Director Trustee and
5910 Mineral Point Road President & Principal
Madison, WI 53705 Executive Officer
John W. Henry Director None
5910 Mineral Point Road Vice President
Madison, WI 53705
Michael G. Joneson Director None
2000 Heritage Way Secretary and Treasurer
Waverly, IA 50677
Brian Lasko Managing Principal None
2000 Heritage Way
Waverly, IA 50677
Campbell D. McHugh Compliance Officer None
5910 Mineral Point Road
Madison, WI 53705
Sandra K. Steffeney Vice President None
33320 9th Avenue South
Suite 250
Federal Way, WA 98063-3919
Scott Vignovich Director None
2000 Heritage Way Vice President
Waverly, IA 50677
John M. Waggoner Chief Legal Officer None
5910 Mineral Point Road
Madison, WI 53705
</TABLE>
c. There have been no commissions or other compensation paid by Registrant
to unaffiliated principal underwriters.
Item 28. 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.
211 South Gulph Road
King of Prussia, PA 19406
d. State Street Bank & Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Item 29. Management Services
Not applicable.
Item 30. Undertakings
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Fund has duly caused this registration statement to be
signed on its behalf by the undersigned, duly authorized, in the City of Madison
and State of Wisconsin, on the 9th day of February, 1999.
MEMBERS Mutual Funds
By: /s/ Lawrence R. Halverson
Lawrence R. Halverson
Trustee, President and Principal Executive Officer
<PAGE>
Pursuant to the requirements of the Securities Act and Investment Company Act,
the Fund certifies that it meets all of the requirement for effectiveness of
this registration statement under rule 485(b) under the Securities Act and has
duly caused this registration statement to be signed on its behalf by the
undersigned, duly authorized, in the City of Madison, and State of Wisconsin on
the 9th day of February, 1999.
SIGNATURES AND TITLE DATE
/s/ Michael S. Daubs 02/09/99
Michael S. Daubs, Trustee and Chairman
/s/ Lawrence R. Halverson 02/09/99
Lawrence R. Halverson, Trustee, President
and Principal Executive Officer
/s/ Scott R. Powell 02/09/99
Scott R. Powell, Vice President and Secretary
Gwendolyn M. Boeke*
Gwendolyn M. Boeke, Trustee
Alfred L. Disrud*
Alfred L. Disrud, Trustee
Keith S. Noah*
Keith S. Noah, Trustee
Thomas C. Watt*
Thomas C. Watt, Trustee
*Pursuant to Powers of Attorney
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
(j) Consent of KPMG Peat Marwick LLP
(l)(3) Subscription Agreement with CUMIS
(n) Financial Data Schedules
Exhibit j
Independent Auditors' Consent
The Board of Trustees
MEMBERS Mutual Funds:
We consent to the use of our report dated December 11, 1998 included herein and
to the references to our Firm under the headings "FINANCIAL HIGHLIGHTS" in Part
A and "INDEPENDENT AUDITORS" in Part B of the Registration Statement.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 10, 1999
Exhibit (l)(3)
MEMBERS MUTUAL FUNDS
SUBSCRIPTION AGREEMENT
MEMBERS Mutual Funds, a business trust organized under the laws of the
State of Delaware (the "Trust"), and CUMIS Insurance Society, Inc. ("CUMIS"), an
insurance company organized under the laws of the State of Wisconsin, agree as
follows:
1. Offer and Purchase.
The Trust offers to CUMIS, and CUMIS agrees to purchase, the number and
amount of Class A 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. CUMIS acknowledges receipt from the Trust of
the Shares and the Trust acknowledges receipt from CUMIS of an aggregate of
$15,000,000 in full payment for the Shares.
2. Representation by CUMIS.
CUMIS 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. 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
4. Limitation of Liability.
The Trust and CUMIS 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.
<PAGE>
5. No Right of Assignment.
CUMIS's right under this Agreement to purchase the Shares is not
assignable.
6. 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: /s/ Lawrence R. Halverson
Name: Lawrence R. Halverson
Title: President
ATTEST:
Dian M. Fisher
CUMIS Insurance Society, Inc.
By: /s/ Michael B. Kitchen
Name: Michael B. Kitchen
Title: President & Chief Executive Officer
ATTEST:
Karyn Ann Gross
<PAGE>
CUMIS SCHEDULE
Amount Price per
Name of Fund of Shares Shares Total
Bond Fund 0 NA $ 0
Balanced Fund 0 NA $ 0
High Income Fund 0 NA $ 0
Growth and Income Fund 150,000 $10.00 $ 1,500,000
Capital Appreciation Fund 150,000 $10.00 $ 1,500,000
International Stock Fund 1,200,000 $10.00 $ 12,000,000
Cash Reserves Fund 0 NA $ 0
------
Total $15,000,000
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> MEMBERS Cash Reserves - Class A
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 5,236,491
<INVESTMENTS-AT-VALUE> 5,236,491
<RECEIVABLES> 12,905
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 39,181
<TOTAL-ASSETS> 5,288,577
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 55,496
<TOTAL-LIABILITIES> 55,496
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,209,323
<SHARES-COMMON-STOCK> 4,338,098
<SHARES-COMMON-PRIOR> 49,000
<ACCUMULATED-NII-CURRENT> 23,338
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 420
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,233,081
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 188,747
<OTHER-INCOME> 0
<EXPENSES-NET> 20,974
<NET-INVESTMENT-INCOME> 167,773
<REALIZED-GAINS-CURRENT> 420
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 168,193
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 157,807
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,496,824
<NUMBER-OF-SHARES-REDEEMED> 1,364,778
<SHARES-REINVESTED> 157,329
<NET-CHANGE-IN-ASSETS> 5,183,081
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 13,907
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 167,262
<AVERAGE-NET-ASSETS> 3,839,090
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.04
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> MEMBERS Cash Reserves - Class B
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 5,236,491
<INVESTMENTS-AT-VALUE> 5,236,491
<RECEIVABLES> 12,905
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 39,181
<TOTAL-ASSETS> 5,288,577
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 55,496
<TOTAL-LIABILITIES> 55,496
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,209,323
<SHARES-COMMON-STOCK> 894,343
<SHARES-COMMON-PRIOR> 1,000
<ACCUMULATED-NII-CURRENT> 23,338
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 420
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,233,081
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 188,747
<OTHER-INCOME> 0
<EXPENSES-NET> 20,974
<NET-INVESTMENT-INCOME> 167,773
<REALIZED-GAINS-CURRENT> 420
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 168,193
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,966
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,315,996
<NUMBER-OF-SHARES-REDEEMED> 432,199
<SHARES-REINVESTED> 9,489
<NET-CHANGE-IN-ASSETS> 5,183,081
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 13,907
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 167,262
<AVERAGE-NET-ASSETS> 294,559
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> MEMBERS Bond - Class A
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 6,815,769
<INVESTMENTS-AT-VALUE> 6,878,015
<RECEIVABLES> 152,869
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 39,181
<TOTAL-ASSETS> 7,070,065
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 47,768
<TOTAL-LIABILITIES> 47,768
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,926,107
<SHARES-COMMON-STOCK> 472,995
<SHARES-COMMON-PRIOR> 4,900
<ACCUMULATED-NII-CURRENT> 23,446
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10,498
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 62,246
<NET-ASSETS> 7,022,297
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 221,039
<OTHER-INCOME> 0
<EXPENSES-NET> 26,987
<NET-INVESTMENT-INCOME> 194,052
<REALIZED-GAINS-CURRENT> 10,498
<APPREC-INCREASE-CURRENT> 62,246
<NET-CHANGE-FROM-OPS> 266,796
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 163,646
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,702,204
<NUMBER-OF-SHARES-REDEEMED> 174,114
<SHARES-REINVESTED> 163,461
<NET-CHANGE-IN-ASSETS> 6,972,297
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18,516
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 183,760
<AVERAGE-NET-ASSETS> 3,615,764
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.45
<PER-SHARE-GAIN-APPREC> 0.14
<PER-SHARE-DIVIDEND> 0.45
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.14
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> MEMBERS Bond - Class B
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 6,815,769
<INVESTMENTS-AT-VALUE> 6,878,015
<RECEIVABLES> 152,869
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 39,181
<TOTAL-ASSETS> 7,070,065
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 47,768
<TOTAL-LIABILITIES> 47,768
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,926,107
<SHARES-COMMON-STOCK> 219,351
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 23,446
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10,498
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 62,246
<NET-ASSETS> 7,022,297
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 221,039
<OTHER-INCOME> 0
<EXPENSES-NET> 26,987
<NET-INVESTMENT-INCOME> 194,052
<REALIZED-GAINS-CURRENT> 10,498
<APPREC-INCREASE-CURRENT> 62,246
<NET-CHANGE-FROM-OPS> 266,796
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 30,406
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,223,002
<NUMBER-OF-SHARES-REDEEMED> 43,634
<SHARES-REINVESTED> 28,634
<NET-CHANGE-IN-ASSETS> 6,972,297
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18,516
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 183,760
<AVERAGE-NET-ASSETS> 787,167
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 0.14
<PER-SHARE-DIVIDEND> 0.39
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.14
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> MEMBERS Balanced - Class A
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 22,189,804
<INVESTMENTS-AT-VALUE> 22,597,360
<RECEIVABLES> 532,138
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 39,181
<TOTAL-ASSETS> 23,168,679
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 58,832
<TOTAL-LIABILITIES> 58,832
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22,676,985
<SHARES-COMMON-STOCK> 1,467,763
<SHARES-COMMON-PRIOR> 4,900
<ACCUMULATED-NII-CURRENT> 22,711
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,595
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 407,556
<NET-ASSETS> 23,109,847
<DIVIDEND-INCOME> 42,716
<INTEREST-INCOME> 200,044
<OTHER-INCOME> 0
<EXPENSES-NET> 90,789
<NET-INVESTMENT-INCOME> 151,971
<REALIZED-GAINS-CURRENT> 2,595
<APPREC-INCREASE-CURRENT> 407,556
<NET-CHANGE-FROM-OPS> 562,122
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 114,070
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 590
<NUMBER-OF-SHARES-SOLD> 15,586,877
<NUMBER-OF-SHARES-REDEEMED> 458,280
<SHARES-REINVESTED> 114,515
<NET-CHANGE-IN-ASSETS> 23,059,847
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 43,515
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 244,752
<AVERAGE-NET-ASSETS> 5,240,912
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> 0.68
<PER-SHARE-DIVIDEND> 0.21
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.68
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> MEMBERS Balanced - Class B
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 22,189,804
<INVESTMENTS-AT-VALUE> 22,597,360
<RECEIVABLES> 532,138
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<OTHER-ITEMS-ASSETS> 39,181
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<TOTAL-LIABILITIES> 58,832
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<PAID-IN-CAPITAL-COMMON> 22,676,985
<SHARES-COMMON-STOCK> 696,605
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 22,711
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,595
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 407,556
<NET-ASSETS> 23,109,847
<DIVIDEND-INCOME> 42,716
<INTEREST-INCOME> 200,044
<OTHER-INCOME> 0
<EXPENSES-NET> 90,789
<NET-INVESTMENT-INCOME> 151,971
<REALIZED-GAINS-CURRENT> 2,595
<APPREC-INCREASE-CURRENT> 407,556
<NET-CHANGE-FROM-OPS> 562,122
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 37,901
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 306
<NUMBER-OF-SHARES-SOLD> 7,559,659
<NUMBER-OF-SHARES-REDEEMED> 189,739
<SHARES-REINVESTED> 37,560
<NET-CHANGE-IN-ASSETS> 23,059,847
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 244,752
<AVERAGE-NET-ASSETS> 2,718,418
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.14
<PER-SHARE-GAIN-APPREC> 0.68
<PER-SHARE-DIVIDEND> 0.14
<PER-SHARE-DISTRIBUTIONS> 0.00
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<PER-SHARE-NAV-END> 10.68
<EXPENSE-RATIO> 1.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 041
<NAME> MEMBERS High Income - Class A
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 10,717,069
<INVESTMENTS-AT-VALUE> 9,628,552
<RECEIVABLES> 346,486
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 39,263
<TOTAL-ASSETS> 10,014,301
<PAYABLE-FOR-SECURITIES> 281,262
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 55,785
<TOTAL-LIABILITIES> 337,047
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,808,901
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<SHARES-COMMON-PRIOR> 4,900
<ACCUMULATED-NII-CURRENT> 23,986
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (67,116)
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<ACCUM-APPREC-OR-DEPREC> (1,088,517)
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<DIVIDEND-INCOME> 1418
<INTEREST-INCOME> 530,054
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<EXPENSES-NET> 74,166
<NET-INVESTMENT-INCOME> 457,306
<REALIZED-GAINS-CURRENT> (67,321)
<APPREC-INCREASE-CURRENT> (1,088,517)
<NET-CHANGE-FROM-OPS> (698,532)
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<DISTRIBUTIONS-OF-INCOME> 352,444
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<NUMBER-OF-SHARES-SOLD> 6,528,079
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<SHARES-REINVESTED> 350,011
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<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 34,493
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<GROSS-EXPENSE> 232,477
<AVERAGE-NET-ASSETS> 5,637,530
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.61
<PER-SHARE-GAIN-APPREC> (1.15)
<PER-SHARE-DIVIDEND> 0.61
<PER-SHARE-DISTRIBUTIONS> 0.00
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<EXPENSE-RATIO> 1.00
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 042
<NAME> MEMBERS High Income - Class B
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 10,717,069
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<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 39,263
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<PAYABLE-FOR-SECURITIES> 281,262
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<TOTAL-LIABILITIES> 337,047
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<PAID-IN-CAPITAL-COMMON> 10,808,901
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<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 23,986
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (67,116)
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<NET-ASSETS> 9,677,254
<DIVIDEND-INCOME> 1418
<INTEREST-INCOME> 530,054
<OTHER-INCOME> 0
<EXPENSES-NET> 74,166
<NET-INVESTMENT-INCOME> 457,306
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<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 232,477
<AVERAGE-NET-ASSETS> 1,818,600
<PER-SHARE-NAV-BEGIN> 10.00
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<PER-SHARE-GAIN-APPREC> (1.15)
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<EXPENSE-RATIO> 1.75
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 051
<NAME> MEMBERS Growth and Income - Class A
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 25,505,384
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<NUMBER-OF-SHARES-SOLD> 11,287,655
<NUMBER-OF-SHARES-REDEEMED> 439,612
<SHARES-REINVESTED> 51,706
<NET-CHANGE-IN-ASSETS> 25,527,029
<ACCUMULATED-NII-PRIOR> 0
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 60,851
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 305,699
<AVERAGE-NET-ASSETS> 7,039,178
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.07
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<EXPENSE-RATIO> 1.00
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 052
<NAME> MEMBERS Growth and Income - Class B
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 25,505,384
<INVESTMENTS-AT-VALUE> 25,545,575
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<PAID-IN-CAPITAL-COMMON> 25,519,363
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<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 19,303
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 15,004,465
<NUMBER-OF-SHARES-REDEEMED> 415,539
<SHARES-REINVESTED> 5,698
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<ACCUMULATED-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 60,851
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 305,699
<AVERAGE-NET-ASSETS> 6,114,912
<PER-SHARE-NAV-BEGIN> 10.00
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<PER-SHARE-GAIN-APPREC> 0.89
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<EXPENSE-RATIO> 1.75
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 061
<NAME> MEMBERS Capital Appreciation - Class A
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 19,785,532
<INVESTMENTS-AT-VALUE> 20,167,549
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<NET-INVESTMENT-INCOME> (10,945)
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<NUMBER-OF-SHARES-SOLD> 13,061,416
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<SHARES-REINVESTED> 2,999
<NET-CHANGE-IN-ASSETS> 20,385,388
<ACCUMULATED-NII-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 257,464
<AVERAGE-NET-ASSETS> 5,678,620
<PER-SHARE-NAV-BEGIN> 10.00
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<PER-SHARE-NAV-END> 11.04
<EXPENSE-RATIO> 1.20
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 062
<NAME> MEMBERS Capital Appreciation - Class B
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 19,785,532
<INVESTMENTS-AT-VALUE> 20,167,549
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<SHARES-COMMON-STOCK> 639,902
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 10,070
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<ACCUMULATED-NET-GAINS> (2,007)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 382,017
<NET-ASSETS> 25,435,388
<DIVIDEND-INCOME> 61,570
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<OTHER-INCOME> 0
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<NET-INVESTMENT-INCOME> (10,945)
<REALIZED-GAINS-CURRENT> (2,007)
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<DISTRIBUTIONS-OF-INCOME> 1
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<NUMBER-OF-SHARES-SOLD> 7,326,656
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<SHARES-REINVESTED> 1
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<GROSS-EXPENSE> 257,464
<AVERAGE-NET-ASSETS> 2,976,645
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.02)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 071
<NAME> MEMBERS International Stock - Class A
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 31,174,744
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<PER-SHARE-NAV-BEGIN> 10.00
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 072
<NAME> MEMBERS International Stock - Class B
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 31,174,744
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<ACCUM-APPREC-OR-DEPREC> (924,570)
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<NUMBER-OF-SHARES-SOLD> 1,487,111
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<SHARES-REINVESTED> 1
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</TABLE>
