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. [6]
and/or
Registration Statement Under the Investment Company Act of 1940 [ ]
Amendment No. 8 [ X ]
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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.
Associate 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
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It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on February 28, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[X] 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:
[ ] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE>
MEMBERS Mutual Funds
February 2001
Cash Reserves Fund
Bond Fund
Balanced Fund
High Income Fund
Growth and Income Fund
Capital Appreciation Fund
Mid-Cap Stock Fund
Emerging Growth Fund
International Stock Fund
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the shares in these funds, nor does the Commission
guarantee the accuracy or adequacy of the prospectus. Any statement to the
contrary is a criminal offense.
<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
Mid-Cap Stock Fund 13
Emerging Growth Fund 15
International Stock Fund 17
Expenses 19
This section explains how to open, maintain, or close an account with MEMBERS
Mutual Funds.
YOUR ACCOUNT 22
Buying Shares 23
Selling Shares 27
General Policies 29
Distributions and Taxes 30
Additional Investor Services 30
This section gives you some additional information about MEMBERS Mutual Funds.
PORTFOLIO MANAGEMENT 31
FINANCIAL HIGHLIGHTS 34
APPENDIX
Investment Adviser Past Performance 42
Expenses After Waivers and Reimbursements 44
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
<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 MEMBERS Capital Advisors' (formerly CIMCO)
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.
<PAGE>
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: ]
Best Calendar Quarter: _____ _____%
Worst Calendar Quarter: _____ _____%
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, 2000)
Since
Inception 1 Year
Class A Shares _____% _____%
Class B Shares _____% _____%
90-day U.S. Treasury Bill _____% _____%
Class A and B Share returns are net of applicable Sales Charges.
<PAGE>
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 MEMBERS Capital Advisors' 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 MEMBERS Capital Advisors' management team utilizes an approach that involves
frequent trading of the securities in the portfolio. 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.
<PAGE>
MEMBERS BOND FUND PERFORMANCE (1)
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: ]
Best Calendar Quarter: _____ _____%
Worst Calendar Quarter: _____ _____%
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) MEMBERS Capital Advisors waived its management fee for the Bond Fund from
June 1, 1998 through October 31, 1998. If the management fee were deducted,
returns would have been lower in 1998.
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, 2000)
Since
Inception 1 Year
Class A Shares _____% _____%
Class B Shares _____% _____%
Lehman Index _____% _____%
Class A and B Share returns are net of applicable Sales Charges.
<PAGE>
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 MEMBERS Capital Advisors' 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.
<PAGE>
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: ]
Best Calendar Quarter: _____ _____%
Worst Calendar Quarter: _____ _____%
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, 2000)
Since
Inception 1 Year
Class A Shares _____% _____%
Class B Shares _____% _____%
Blended Index* _____% _____%
Lehman Index _____% _____%
S&P 500 _____% _____%
90-day U.S.
Treasury Bill _____% _____%
Class A and B Share returns are net of applicable Sales Charges.
* The comparative index is a blend of the S&P 500 Index (45%), the Lehman
Brothers Intermediate Government and Corporate Bond Index (40%) and 90-day
U.S. Treasury Bills (15%).
<PAGE>
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 MEMBERS Capital Advisors' port-folio 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 MEMBERS Capital Advisors 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.
<PAGE>
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: ]
Best Calendar Quarter: _____ _____%
Worst Calendar Quarter: _____ _____%
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, 2000)
Since
Inception 1 Year
Class A Shares _____% _____%
Class B Shares _____% _____%
Lehman Index _____% _____%
Class A and B Share returns are net of applicable Sales Charges.
<PAGE>
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 MEMBERS Capital Advisors 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.
<PAGE>
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: ]
Best Calendar Quarter: _____ _____%
Worst Calendar Quarter: _____ _____%
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, 2000)
Since
Inception 1 Year
Class A Shares _____% _____%
Class B Shares _____% _____%
S&P 500 _____% _____%
Class A and B Share returns are net of applicable Sales Charges.
<PAGE>
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 MEMBERS Capital Advisors' 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 (such as investors' perception or sentiment about equity markets or
segments of equity markets) 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 the fund invests in smaller and midsize companies it takes on
greater risks than investments in larger, more established companies. Smaller
and midsize companies tend to have more narrow product lines, more limited
financial resources and a more limited trading market for their securities, as
compared to larger companies. To the extent the fund invests in foreign
securities, it will be subject to the risks related to such securities,
including risks associated with changes in the rate of currency exchange and
unstable political situations. A further discussion of 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.
<PAGE>
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: ]
Best Calendar Quarter: _____ _____%
Worst Calendar Quarter: _____ _____%
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 and S&P 1500 which
are measures of the performance of the relevant market. The S&P 1500 index is a
new benchmark for the Fund. We intend to include the S&P 1500, and not the S&P
400, going forward because the Adviser believes the S&P 1500 more accurately
reflects the securities held in the fund portfolio of investments.
Average Annual Total Returns
(As of December 31, 2000)
Since
Inception 1 Year
Class A Shares _____% _____%
Class B Shares _____% _____%
S&P 400 _____% _____%
S&P 1500 _____% _____%
Class A and B Share returns are net of applicable Sales Charges.
<PAGE>
MID-CAP 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 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
o are seeking exposure to smaller companies as part 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 an investment based on income rather than capital gain
or
o are uncomfortable with an investment whose value may vary substantially.
INVESTMENT OBJECTIVE
What is this fund's goal?
The Mid-Cap Stock Fund seeks long-term capital appreciation by investing in
midsize and small companies.
PORTFOLIO MANAGEMENT
Who makes the investment decisions for this fund?
The fund is managed by a team of MEMBERS Capital Advisors' 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.
Wellington management Company, llp ("Wellington") is the only subadviser
currently used by MEMBERS Capital Advisors to manage the assets of the funds.
PRINCIPAL RISKS
What are the main risks of investing in this fund?
As with any fund that invests in equity securities, this fund is subject to
market risk, the risk that the value of your investment will fluctuate in
response to stock market movements. Loss of money is a significant risk of
investing in this fund.
Due to its focus on smaller companies' 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 Stock Fund.
Securities issued by smaller companies may be less liquid than securities issued
by larger, more established companies. In addition, a "value" approach to
investing includes the risks that: 1. the securities markets will not recognize
the value of a security for an unexpectedly long period of time; and 2. a stock
that is believed to be undervalued actually is appropriately priced or
over-priced due to unanticipated problems associated with the issuer or
industry.
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 of changes in the rate
of currency exchange and varying political situations. The principal risks of
foreign securities are described in the International Stock Fund page and in the
SAI.
PRINCIPAL INVESTMENT STRATEGIES
How does this fund pursue its objective?
The Mid-Cap Stock Fund invests primarily in common stocks of midsize and smaller
companies (market capitalization of less than $10 billion at the time of
purchase), and will under normal market conditions, maintain at least 80% of its
assets in such securities. However, the fund will not automatically sell a stock
just because the company's market capitalization has grown beyond the $10
billion upper limit and such position may be increased through additional
purchases.
The fund seeks stocks in this midsize to smaller range that have a low market
price relative to their value as estimated based on fundamental analysis of the
issuing company and its prospects. This is sometimes referred to as a "value"
approach. Relative to both the Growth and Income Stock and Capital Appreciation
Stock Funds, the Mid-Cap Stock Fund includes more smaller, less developed
issuers. These midsize and smaller companies often have difficulty competing
with larger companies, but the successful ones tend to grow faster than larger
companies. They often use profits to expand rather than to pay dividends.
The fund diversifies its holdings among various industries and among companies
within those industries but is often less diversified than the Growth and Income
Stock fund. The combination of these factors introduces greater investment risk
than the Growth and Income Stock Fund, but can also provide higher long-term
returns than are typically available from less risky investments.
The fund typically invests in securities representing every sector of the S&P
400 Midcap Index in about (+/-100%) the same weightings as such sector has in
the S&P 400 Midcap Index. For example, if technology companies represent 10% of
the S&P 400 Midcap Index, 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 value or other stocks appear more
attractively priced relative to their values.
Note: The Mid-Cap Stock Fund does not have a calendar year of investment
performance, so there is not a bar chart showing the fund returns from year to
year. Once the fund has at least one calendar year of performance it will be
shown along with the performance of the S&P 400 Midcap Index and the Russell
Midcap Index, which we use to measure the performance of the relevant market.
<PAGE>
EMERGING GROWTH 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
o are seeking exposure to smaller companies
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 an investment based on income rather than capital gain
or
o are uncomfortable with an investment whose value may vary substantially.
INVESTMENT OBJECTIVE
What is this fund's goal?
The Emerging Growth Fund seeks long-term capital appreciation.
PORTFOLIO MANAGEMENT
Who makes the investment decisions for this fund?
The fund is managed by a team of MEMBERS Capital Advisors' 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 MEMBERS Capital Advisors to manage the assets of the fund.
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 increase or decrease due
to factors that have nothing to do with the issuer. Loss of money is a very
significant risk of investing in this fund. Due to its focus on securities of
small capitalization companies, it will typically experience greater volatility
over time than the Capital Appreciation Fund. Securities of smaller
capitalization companies experience greater price volatility than securities of
larger capitalization companies because growth prospects for smaller companies
are less certain and the market for such securities is smaller. Securities of
smaller capitalization companies are often thinly traded and holders may have to
sell such securities at a discount from current market prices or in small lots
over an extended period of time. In addition, such securities are subject to the
risk that during certain periods their liquidity will shrink or disappear
suddenly and without warning as a result of adverse economic or market
conditions, or adverse investor perceptions, whether or not accurate. The fund
could lose money if it has to sell liquid securities at a disadvantageous time.
The costs of purchasing or selling securities of smaller capitalization
companies are often greater than those of more widely traded securities and
securities of smaller capitalization companies are often difficult to value.
Many emerging growth companies do not have established financial histories;
often have limited product lines, markets or financial resources; may depend on
a few key personnel for management; and may be susceptible to losses and risks
of bankruptcy.
To the extent that the fund invests in other 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 Emerging Growth Fund invests generally in common stocks, securities
convertible into common stocks and related equity securities. The fund seeks
securities of emerging growth companies, which are companies that are either:
o relatively small or early in their life cycle, but have the potential to
become much larger enterprises, or
o major enterprises whose rates of earnings growth are anticipated to
accelerate because of changes such as new management, new products, changes
in demand for the company's products, or changes in the economy or segments
of the economy affecting the company.
Emerging growth companies that the fund seeks may be of any size if they have
products, proprietary technologies, management, or market opportunities that can
support earnings growth over extended time periods in excess of the growth rate
of the economy and/or the rate of inflation. Nonetheless, most such companies
are small and have securities with smaller market capitalizations.
The subadviser generally follows a qualitative analysis (fundamental analysis of
the business prospects of each company) process in selecting securities for the
fund. The fund typically sells a security when: (1) the fundamental analysis of
the issuer no longer suggests that the issuer will meet the earnings growth
expectations that led to its purchase, (2) the price exceeds its intrinsic
value, or (3) other securities appear more attractively priced relative to their
intrinsic values.
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.
<PAGE>
MEMBERS EMERGING GROWTH FUND PERFORMANCE
How has the Emerging Growth Fund performed?
The following bar chart provides an illustration of the performance of the Class
A Shares of the Emerging Growth 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: ]
Best Calendar Quarter: _____ _____%
Worst Calendar Quarter: _____ _____%
Please remember that past performance is no guarantee of the results the
Emerging Growth 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 Emerging Growth Fund compare to the growth and
income market?
The following table compares the performance of each class of shares of the
Emerging Growth Fund with the performance of the S&P 500 and Russell 2000 which
are measures of the performance of the relevant market.
Average Annual Total Returns
(As of December 31, 2000)
Since
Inception 1 Year
Class A Shares _____% _____%
Class B Shares _____% _____%
S&P 500 _____% _____%
Russell 2000 _____% _____%
Class A and B Share returns are net of applicable Sales Charges.
<PAGE>
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 MEMBERS Capital Advisors' 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.
Lazard Asset Management is the only subadviser currently used by MEMBERS Capital
Advisors to manage the assets of the fund.
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.
Approximately two-thirds (66.67%) of the fund's assets are invested in
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. The 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 invested in 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.
<PAGE>
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: ]
Best Calendar Quarter: _____ _____%
Worst Calendar Quarter: _____ _____%
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, 2000)
Since
Inception 1 Year
Class A Shares _____% _____%
Class B Shares _____% _____%
MSCIEAFE _____% _____%
Class A and B Share returns are net of applicable Sales Charges.
<PAGE>
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.
<TABLE>
<CAPTION>
Shareholder Transaction Expenses
Growth Capital Mid- Emerg-
CLASS Cash Bal- High and Appre- Cap ing Int'l
Reserves Bond anced Income Income ciation Stock Growth Stock
<S> <C> <C> <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% 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% 4.5% 4.5%
(1) Except for investments of $1,000,000 or more. (See "Sales Charges.")
</TABLE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses (as a percentage of average net assets)
CLASS A
Service Expense Net
FUNDS Management 12b-1 Fee Other Total Reimbursement Expenses
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Reserves .40% None None 2.23% 2.63% 2.08% 0.55%
Bond .50% None .25% 1.27% 2.02% 1.12% 0.90%
Balanced .65% None .25% 0.57% 1.47% 0.37% 1.10%
High Income .55% None .25% 1.17% 1.97% 0.97% 1.00%
Growth & Income .55% None .25% 0.45% 1.25% 0.25% 1.00%
Capital Appreciation .75% None .25% 0.71% 1.71% 0.51% 1.20%
Mid-Cap Stock .95% None .25% 1.40%
Emerging Growth .75% None .25% 0.81% 1.81% 0.61% 1.20%
International Stock 1.05% None .25% 0.88% 2.18% 0.58% 1.60%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
Service Expense Net
FUNDS Management 12b-1 Fee Other Total Reimbursement Expenses
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Reserves .40% .75% None 2.23% 3.38% 2.08% 1.30%
Bond .50% .75% .25% 1.27% 2.77% 1.12% 1.65%
Balanced .65% .75% .25% 0.57% 2.22% 0.37% 1.85%
High Income .55% .75% .25% 1.17% 2.72% 0.97% 1.75%
Growth & Income .55% .75% .25% 0.45% 2.00% 0.25% 1.75%
Capital Appreciation .75% .75% .25% 0.71% 2.46% 0.51% 1.95%
Mid-Cap Stock .95% .75% .25% 2.15%
Emerging Growth .75% .75% .25% 0.81% 2.56% 0.61% 1.95%
International Stock 1.05% .75% .25% 0.88% 2.93% 0.58% 2.35%
</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. For this reason, and others we will not normally accept purchase orders
of $250,000 or more for Class B Shares from a single investor. Additionally,
Class B Shares automatically convert to Class A Shares after seven years, thus
reducing annual expenses in subsequent years. (Class B Shares purchased by
reinvesting Class B Dividends convert to Class A Shares proportionally.)
<PAGE>
The funds' investment adviser, MEMBERS Capital Advisors, Inc., has placed a
"cap" on the funds' expenses by contractually agreeing to reimburse each fund's
expenses, other than its management, 12b-1, and service fees, that exceed a
certain amount excluding taxes, interest, and other extraordinary items. Any
reimbursements made by MEMBERS Capital Advisors to a fund are subject to
repayment by the fund within the subsequent 3 years, 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 the expense waivers and reimbursements described
above can be found on page 44.
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 782 1304 1851 3337 791 1389 1960 3419
Bond 626 1036 1471 2677 730 1209 1664 2836
Balanced 672 970 1290 2194 675 1044 1390 2276
High Income 621 1022 1447 2627 725 1194 1640 2787
Growth and Income 651 906 1180 1961 653 977 1278 2043
Mid-Cap Stock
Capital Appreciation 695 1040 1409 2442 699 1117 1511 2525
Emerging Growth 704 1069 1458 2544 709 1146 1560 2626
International Stock 739 1176 1638 2910 746 1257 1743 2993
</TABLE>
Assuming gross expenses (without expense waivers and reimbursements) and that
you did not redeem 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 782 1304 1851 3337 341 1039 1760 3419
Bond 626 1036 1471 2677 280 859 1464 2836
Balanced 672 970 1290 2194 225 694 1190 2276
High Income 621 1022 1447 2627 275 844 1440 2787
Growth and Income 651 906 1180 1961 203 627 1078 2043
Capital Appreciation 695 1040 1409 2442 249 767 1311 2525
Mid-Cap Stock
Emerging Growth 704 1069 1458 2544 259 796 1360 2626
International Stock 739 1176 1638 2910 296 907 1543 2993
</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.
<PAGE>
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 labeled
"Long Term Potential for Gains"; y-axis labeled "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.
<PAGE>
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 programs(1)
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 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.
<PAGE>
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
--------------------------------------------------------------------------------
Make out a check for the investment amount, Make out a check for the investment
payable to MEMBERS Mutual Funds. amount, payable to MEMBERS Mutual
Funds.
--------------------------------------------------------------------------------
Deliver the check and your completed Fill out the detachable investment
application to your financial slip from an account statement. If
representative, or mail them to: no slip is available, include a note
specifying the fund name, your share
CUNA Brokerage Services, Inc. class, your account number and the
2000 Heritage Way name(s) in which the account is
Waverly, IA 50677 registered. Mail to:
Attn: MEMBERS Mutual Funds
MEMBERS Mutual Funds
Post Office Box 8390
Boston, MA 02266-8390
--------------------------------------------------------------------------------
BY WIRE
--------------------------------------------------------------------------------
Deliver your completed application to your Instruct your credit union or other
financial representative, or mail it to: financial institution to wire the
amount of your investment to
CUNA Brokerage Services, Inc. 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 Specify the fund name(s), your share
financial representative or MEMBERS class(es), your account number(s),
Mutual Funds at 1-800-877-6089. the name(s) in which the 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.
<PAGE>
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
Mid-Cap Stock Fund
Emerging Growth 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
</TABLE>
(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 for Class B Shares, except at a rate of 1% in the first year and 0.5% in
the second year following the purchase.
Class 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. We will not normally
accept purchase orders of $250,000 or more for Class B Shares from a single
investor. Class B Shares automatically convert to Class A Shares, based on
relative net asset value, at the end of the seventh year after purchase. 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.
<PAGE>
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 $1,500 (100 shares appreciated from
$10 to $20 per share; 100 shares appreciated from $15 to $20 per share; and 100
shares have not appreciated), dividends of $620 ($200, $150 on 12/31 in Year 1
plus $50 in share price increases; 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 of purchased shares $1,500 None None
Dividends (including share price increases) $ 620 None None
Aged Shares (oldest sold first):
Purchased January 1, Year 1 $1,000 3.5%(1) $35.00
Purchased January 1, Year 2 $ 880(2) 4.0%(1) $35.20
Total $4,000 1.75%(3) $70.20
(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 - Systematic Withdrawal Program on
page 31.
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.
<PAGE>
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; and
2. You must have redeemed the shares of the other mutual fund within the
past 60 days; and
3. You must have purchased the shares of the other mutual fund in a lump
sum purchase within the past 3 years; or
4. You must have purchased the shares of the other mutual fund in a
systematic investment program within the past 5 years.
CUNA Brokerage may require evidence of your qualification for these waivers.
Please refer to the SAI for a description of Class B Share waivers and
additional Class A Share waivers.
<PAGE>
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, - Letter of instruction
sole proprietorship, UGMA/UTMA - On the letter, the signatures and titles of all persons
(custodial accounts for minors) or authorized to sign for the account, exactly as the
a general partner account account is registered
- Signature guarantee if applicable (see page 28)
-----------------------------------------------------------------------------------------------
An owner of a corporate or - Letter of instruction
association account - Corporate resolution, certified within the past two
years, specifying the individual(s) authorized to sell
securities
- On the letter and the resolution, the signature of the
person(s) authorized to sign for the account
- Signature guarantee if applicable (see page 28)
-----------------------------------------------------------------------------------------------
An owner or trustee of a trust - Letter of instruction containing the signature(s) of
the trustee(s) account
- 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
- Signature guarantee if applicable (see page 28)
-----------------------------------------------------------------------------------------------
A joint tenancy shareholder whose - Letter of instruction signed by the surviving tenant
co-tenant(s) are deceased - Certified copy of death certificate(s) of the deceased
co-tenant(s)
- Signature guarantee if applicable (see page 28)
------------------------------------------------------------------------------------------------
An executor of a shareholder's - Letter of instruction signed by the executor
estate - Copy of the order appointing the executor, certified
within 60 days of receipt by MEMBERS Mutual Funds
- Signature guarantee if applicable (see page 28)
------------------------------------------------------------------------------------------------
An administrator, conservator, - Call MEMBERS Mutual Funds at 1-800-877-6089 for
guardian or other seller or the instructions
owner of an account type not listed
above
</TABLE>
Mail the materials to MEMBERS Mutual Funds using the address on page 32. A
check will be mailed to the name(s) and address in which the account is
registered.
<PAGE>
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.
--------------------------------------------------------------------------------
BY INTERNET
--------------------------------------------------------------------------------
Please visit the MEMBERS Mutual Funds website at www.membersfunds.com and follow
the directions.
--------------------------------------------------------------------------------
Redemption requests accepted by the fund after 3:00 p.m. central time will be
processed using the next day's net asset value.
<PAGE>
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. Additionally, we will not normally accept purchase
orders of $250,000 or more for Class B Shares from a single investor.
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 charge. (Certain exchanges will incur additional sales charges; see the
SAI for more information on the exchange privilege). With the exception of the
Cash Reserves Fund, only five exchanges are allowed per fund in a calendar year.
If you establish a Systematic Exchange Program (see page 31) those exchanges are
not included in this exchange limit policy. 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 Householding. To save time, money and resources, MEMBERS Mutual Funds 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 Mutual Funds.
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.
<PAGE>
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
Mid-Cap Stock Annually Annually
Emerging Growth 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 20.) 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.
<PAGE>
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. On B Share accounts no CDSC will be charged on
systematic withdrawals that are limited annually to no more than 12% of your
account's value.
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.
PORTFOLIO MANAGEMENT
The investment adviser for MEMBERS Mutual Funds is MEMBERS Capital Advisors,
Inc., (formerly CIMCO Inc.) 5910 Mineral Point Road, Madison, WI 53701-0391.
MEMBERS Capital Advisors 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). MEMBERS Capital Advisors has over $8
billion of assets under management. MEMBERS Capital Advisors 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 MEMBERS Capital Advisors.
As payment for its services as the investment adviser for the MEMBERS Mutual
Funds, MEMBERS Capital Advisors receives a management fee based upon the assets
of each fund. The management fee paid to MEMBERS Capital Advisors 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%
Mid-Cap Stock Fund 0.95%
Emerging Growth Fund 0.75%
International Stock Fund 1.05%
<PAGE>
MEMBERS Capital Advisors manages the assets of the High Income Fund, Mid-Cap
Stock Fund, Emerging Growth Fund and International Stock Fund using a "manager
of managers" approach under which MEMBERS Capital Advisors 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. MEMBERS Capital Advisors 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 MEMBERS Capital Advisors does not expect frequent
changes in subadvisers.
MEMBERS Capital Advisors 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 MEMBERS Capital
Advisors 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 and
the Emerging Growth 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 $_____ billion on
behalf of over _____ million investor accounts as of December 31, 2000. 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, Wellington Management company, llp
("Wellington Management") is the only subadvisor managing the small-cap portion
of the assets within Mid-Cap Stock Fund. Wellington Management is a limited
liability partnership that traces its origins to 1928. Wellington Management
provides investment services to investment companies employee benefit plans,
endowments, foundations, and other institutions and had over $_____ billion in
assets under management as of December 31, 2000.
Stephen T. O'Brien, CFA is the Portfolio Manager from Wellington Management
primarily responsible for the Mid-Cap Stock Fund. Mr. O'Brien joined Wellington
Management in 1983 and has over 28 years of investment experience.
As of the date of this prospectus, Lazard Asset Management ("Lazard") is the
only subadviser managing the assets of the International Stock Fund. 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 Asset
Management (Deutschland) Gmblt, based in Frankfurt, Lazard Japan Asset
Management KK, based in Tokyo, Lazard Asset Management Egypt, based in Cairo,
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 transaction When using an overnight delivery
requests should be mailed to: service, mail inquiries and
MEMBERS Mutual Funds requests to:
Post Office Box 8390 Boston Financial Data Services
Boston, MA 02266-8390 MEMBERS Mutual Funds
66 Brooks Drive
Braintree, MA 02184
<PAGE>
Use of Certain Brokers
MEMBERS Capital Advisors 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 MEMBERS Capital Advisors 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.
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 -Sale Charges" 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, MEMBERS Capital Advisors, 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
$0 to $49,999 Equity funds(1) 5.3% 5.0%
Income funds(2) 4.3% 4.0%
$50,000 to $99,999 Equity funds(1) 4.3% 4.0%
Income funds(2) 3.8% 3.5%
$100,000 to $249,999 All funds 3.3% 3.0%
$250,000 to $499,999 All funds 2.3% 2.0%
$500,000 to $999,999 All funds 1.9% 1.7%
More than $1,000,000 All funds 1.0%(3) 0.8%(4)
CLASS B
All amounts All funds 4.5%(5) 4.0%
(1) Cash Reserves Fund, Balanced Fund, Growth and Income Fund, Capital
Appreciation Fund, Mid-Cap Stock Fund, Emerging Growth 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 since inception. Certain information reflects financial
results for a single fund share outstanding for the period presented. 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. The Mid-Cap Stock Fund does not have a calendar year of
performance and therefore does not appear in the financial highlights. This
information has been audited by PricewaterhouseCoopers LLP, whose report, along
with the Fund's financial statements, are included in the SAI or annual report,
which are available upon request.
<PAGE>
Financial Highlights will be filed by post-effective amendment.
<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 ("USF") for the periods
indicated. The USF are a series of variable insurance products funds that have
investment objectives, policies, strategies and risks substantially similar to
those of the MEMBERS Mutual Funds. They have been managed by members of MEMBERS
Capital Advisors' portfolio management team who also manage the MEMBERS Mutual
Funds. Similar performance data is also set forth below regarding the MFS(R)
High Income Fund and MFS Emerging Growth Fund. The MFS(R) High Income and
Emerging Growth funds are open-ended mutual funds that are managed by the same
portfolio management team that provides subadvisory services for the MEMBERS
High Income Fund and MEMBERS Emerging Growth Fund. The investment objectives,
policies, strategies and risks are substantially similar between the MFS and
MEMBERS Mutual 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 Mutual Funds.
Investors should not consider this performance data as an indication of future
performance of the MEMBERS Mutual Funds.
The performance data was calculated after deducting all fees and charges
actually incurred by the USF and MFS(R) Funds. 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:]
AVERAGE ANNUAL TOTAL RETURNS
(As of December 31, 2000)
ONE-YEAR FIVE-YEAR TEN-YEAR
USF MONEY MARKET FUND % % %
90-DAY U.S. TREASURY BILL % % %
BEST CALENDAR QUARTER: %
WORST CALENDAR QUARTER: %
Ultra Series Bond Fund Performance
[GRAPHIC: bar chart showing the total returns for the past ten years as
follows:]
AVERAGE ANNUAL TOTAL RETURNS
(As of December 31, 2000)
ONE-YEAR FIVE-YEAR TEN-YEAR
USF BOND FUND % % %
LEHMAN BROS. INT. GOV./
CORP. BOND INDEX % % %
BEST CALENDAR QUARTER: %
WORST CALENDAR QUARTER: %
Ultra Series Balanced Fund Performance
[GRAPHIC: bar chart showing the total returns for the past ten years as
follows:]
AVERAGE ANNUAL TOTAL RETURNS
(As of December 31, 2000)
ONE-YEAR FIVE-YEAR TEN-YEAR
USF BALANCED FUND % % %
BLENDED INDEX* % % %
BEST CALENDAR QUARTER: %
WORST CALENDAR QUARTER: %
* The comparative index is a blend of the S&P 500 Index (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:]
AVERAGE ANNUAL TOTAL RETURNS
(As of December 31, 2000)
ONE-YEAR FIVE-YEAR TEN-YEAR
MFS(R) HIGH INCOME
FUND CLASS A % % %
LEHMAN BROTHERS
HIGH YIELD INDEX % % %
BEST CALENDAR QUARTER: %
WORST CALENDAR QUARTER: %
Ultra Series Growth and Income Stock Fund Performance
[GRAPHIC: bar chart showing the total returns for the past ten years as
follows:]
AVERAGE ANNUAL TOTAL RETURNS
(As of December 31, )
ONE-YEAR FIVE-YEAR TEN-YEAR
USF GROWTH AND
INCOME STOCK FUND % % %
S&P 500
(LARGE CAP INDEX) % % %
BEST CALENDAR QUARTER: %
WORST CALENDAR QUARTER: %
Ultra Series Capital Appreciation Stock Fund Performance
[GRAPHIC: bar chart showing the total returns for the past ten years as
follows:]
AVERAGE ANNUAL TOTAL RETURNS
(As of December 31, 2000)
ONE-YEAR FIVE-YEAR(1) TEN-YEAR
USF CAPITAL APPRE-
CIATION STOCK FUND % % N/A
S&P 400 (MID-CAP INDEX) % % %
S&P 1500 SUPER-COMPOSITE
INDEX % % N/A
BEST CALENDAR QUARTER: %
WORST CALENDAR QUARTER: %
(1) The fund began operations on January 3, 1994. 1994 data is for the period
from January 3 through December 31, 1994.
Ultra Series Fund Mid-Cap Stock Fund Performance
[GRAPHIC: bar chart showing the total returns for the past ten years as
follows:]
AVERAGE ANNUAL TOTAL RETURNS
(As of December 31, 2000)
ONE-YEAR FIVE-YEAR TEN-YEAR
USF MID-CAP STOCK % % %
S&P 400 MIDCAP INDEX % % %
RUSSELL MIDCAP INDEX % % %
BEST CALENDAR QUARTER: %
WORST CALENDAR QUARTER: %
MFS(R) Emerging Growth Fund Performance
[GRAPHIC: bar chart showing the total returns for the past ten years as
follows:]
AVERAGE ANNUAL TOTAL RETURNS
(As of December 31, 2000)
ONE-YEAR FIVE-YEAR TEN-YEAR
MFS(R) EMERGING GROWTH
FUND CLASS A % % N/A
S&P 500 INDEX % % %
RUSSELL 2000 INDEX % % %
BEST CALENDAR QUARTER: %
WORST CALENDAR QUARTER: %
<PAGE>
CHART 2
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
Mid-Cap Stock
Emerging Growth 646 891 1155 1907 648 962 1252 1989
International Stock 684 1008 1355 2329 688 1083 1455 2412
</TABLE>
Assuming operating expenses after expense waivers and reimbursements and that
you did not redeem 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 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
Mid-Cap Stock
Emerging Growth 646 891 1155 1907 198 612 1052 1989
International Stock 684 1008 1355 2329 238 733 1255 2412
</TABLE>
<PAGE>
CUNA MUTUAL GROUP PRIVACY NOTE
Your privacy is our priority. This is our pledge to you and, as you will see by
reading this statement of our privacy practices, we take our promise very
seriously.
The companies of the CUNA Mutual Group are dedicated to support credit unions in
meeting the financial needs of their members. We work closely with credit unions
so that together we may provide you with competitive products and services such
as insurance, annuities and mutual funds to meet your financial goals.
We also proudly serve individuals who purchase products from CUNA Mutual Life
Insurance Company that do not have credit union relationships. We are equally
dedicated to providing well-priced, high-quality insurance and investment
products that contribute to your financial security.
This notice describes the privacy policy and practices followed by each of the
affiliated companies of the CUNA Mutual Group; these companies include, but are
not limited to, CUNA Mutual Insurance Society, which provides accident, health
and life insurance; its permanent affiliate, CUNA Mutual Life Insurance Company,
which provides life and long term care insurance and annuities; CUNA Brokerage
Services, Inc., which is a registered broker dealer making available investments
and mutual funds to our customers; MEMBERS Capital Advisors, Inc., formerly
known as CIMCO Inc., our registered investment advisor; CUNA Mutual Mortgage
Corporation, which provides mortgage loan origination, purchasing and servicing;
CMG Mortgage Insurance Company, which provides private mortgage insurance; and
CUNA Mutual Insurance Agency, Inc., which helps distribute insurance and annuity
products to meet special needs of our customers.
Our privacy policy begins with this basic promise: We will demonstrate and
maintain an unwavering commitment to protect the privacy of our customers. We
will also align our practices to support the privacy policies credit unions
adopt to protect their members. As the financial services market place becomes
more competitive with large conglomerates offering a wide range of products and
services, credit unions will need to work closely with strategic partners to
serve their members' needs. These close working relationships will require
exchanges of information to provide members loans or credit, savings accounts,
life and accident insurance, mutual funds or other future products to meet
financial needs.
The CUNA Mutual Group and your credit union are committed to protecting your
privacy as together we provide you competitive products and services today and
into the future. Likewise, in order to promote the financial security of all our
customers, we will work closely with strategic partners to broaden our offerings
of insurance and investment products, increasing the quality and quantity of
products our representatives can make available to you.
Given these objectives, our privacy practices can be explained as follows:
o Your Medical Information is Confidential: CUNA Mutual's policy and practice is
to keep your medical information confidential. Although it is sometimes
necessary for us to collect medical information to issue you a product, we will
not use or share it, internally or with credit unions or other third parties,
for any purpose except to underwrite insurance; administer your policy, account
or claim; as required by law; or as authorized by you.
o What "nonpublic personal information" do we collect? In order for CUNA Mutual
to provide and administer insurance, annuity, mutual funds, or securities
brokerage services, we collect personal information about you - some of which is
"nonpublic." The nonpublic personal information we collect varies depending upon
the product you purchase. We collect nonpublic personal information about you
from the following sources:
- Information we receive from you on applications or other forms (such as,
name, address, age, social security number or tax I.D. number, name of
beneficiary, etc.);
- Information about your transactions with us, our affiliates, your credit
union, or others (such as, the type of product you buy, the premium you pay, the
shares you purchase, the method of your purchase, etc.);
<PAGE>
- Information we receive from a consumer reporting agency (when part of our
insurance underwriting practices) or other third parties such as general
consumer purchasing and census data.
We use this information to issue and administer competitive financial products
and services and to develop marketing programs so you and your credit union may
learn about products, services and economic trends that can affect your
financial decisions. Our practices are designed to manage it carefully.
o What nonpublic personal information does CUNA Mutual disclose? CUNA Mutual is
dedicated to strong partner relationships with credit unions to bring their
members and our customers competitive financial products and services. We also
structure these relationships to protect personal information. CUNA Mutual does
not disclose or sell customer information to telemarketing companies. However,
as permitted by law, we may disclose all of the information we collect as
described above with the following:
- The affiliates of the CUNA Mutual Group to provide financial products and
services such as group or individual credit, life, health, accident or mortgage
insurance, annuities, mutual funds or securities brokerage services;
- Credit unions, credit union service organizations or other financial
institutions with whom we have joint marketing agreements; and
- Companies that perform marketing or other services on our behalf.
In order to conduct our business, we also disclose nonpublic personal
information to other non-affiliated third parties but only as necessary to
administer products and services we provide or as required or permitted by law.
o We maintain strong confidentiality protections with credit unions and other
strategic partners. CUNA Mutual may disclose all of the information we collect,
as described above to credit unions, credit union service organizations and
other financial institutions as permitted by law and subject to contractual
confidentiality provisions which restrict the release and use of such
information. These disclosures are made to make available competitive products
and services to you and your credit union's membership. CUNA Mutual may enter
into other strategic alliances with financial services companies in the future
to improve our ability to offer competitive products and services to credit
unions and their members as well as our non-credit union customers. Any future
alliance which includes sharing personal information will follow the privacy
practices described in this notice.
o Information Sharing Restrictions: Other than the disclosures referenced above,
CUNA Mutual does not release your nonpublic personal information to unaffiliated
third parties.
o Information About Former Customers: It is our practice to retire information
obtained from a former customer and not use it for future marketing purposes.
CUNA Mutual does not disclose personal information of former customers with
unaffiliated third parties or affiliates of the CUNA Mutual Group unless
required by law.
o How does CUNA Mutual protect the security of nonpublic personal information?
CUNA Mutual maintains strong security controls to ensure that the nonpublic
personal information in our files and computers is protected. We restrict access
to nonpublic personal information about you to designated personnel who need to
know that information to provide products or services to you or may be
responsible to maintain information security practices. We also maintain
physical, electronic, and procedural safeguards that comply with federal
regulations to guard your nonpublic personal information.
Our goal is to provide you with the best financial products and services
available. By partnering with credit unions, we believe we can deliver
meaningful financial products, services and information to help achieve the
financial goals of members. Our commitment is to protect your privacy in all
situations and to work closely with credit unions in meeting member needs.
<PAGE>
The following documents contain more information about the funds and are
available free upon request:
Statement of Additional Information (SAI). The SAI contains additional
information about all aspects of the funds. A current SAI has been filed with
the Securities and Exchange Commission and is incorporated herein by reference.
Annual and Semiannual Reports. The funds' annual and semiannual reports provide
additional information about the funds' investments. The annual report contains
a discussion of the market conditions and investment strategies that
significantly affected each fund's performance during the last fiscal year.
Requesting documents. You may request a free copy of the SAI and these reports,
make shareholder inquiries or request further information about the funds either
by contacting your broker or by contacting the funds at:
MEMBERS Mutual Funds
Post Office Box 8390
Boston, MA 02266-8390
Telephone: 1-800-877-6089 (Toll Free)
Public Information. You can review and copy information about the funds,
including the SAI, at the Securities and Exchange Commission's Public Reference
Room in Washington D.C. You may obtain information on the operation of the
public reference room by calling the Commission at 1-800-SEC-0330. Reports and
other information about the funds also are available on the Commission's
Internet site at http://www.sec.gov. You may obtain copies of this information,
upon payment of a duplicating fee, by writing the Public Reference Section of
the Securities and Exchange Commission, Washington, D.C. 20549-6009.
Investment Company
File No. 811-08261
<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 2000, call 1-800-877-6089 or write MEMBERS Mutual Funds, P.O. Box
8390, Boston, MA 02266-8390.
February 28, 2001
<PAGE>
TABLE OF CONTENTS Page
GENERAL INFORMATION...........................................................3
INVESTMENT PRACTICES..........................................................3
Lending Portfolio Securities.........................................3
Restricted and Illiquid Securities...................................3
Options on Securities and Securities Indices.........................4
Futures Contracts and Options on Futures Contracts...................6
Foreign Transactions.................................................9
Certain Bond Fund Practices.........................................14
Lower-Rated Corporate Debt Securities...............................14
Other Debt Securities...............................................15
Convertible Securities..............................................17
Repurchase Agreements...............................................17
Reverse Repurchase Agreements.......................................17
Government Securities...............................................18
Forward Commitment and When-Issued Securities.......................18
Mortgage-Backed and Asset-Backed Securities.........................19
Other Securities Related to Mortgages...............................19
Real Estate Investment Trusts.......................................22
Practices that are Authorized but not Presently Employed............22
Types of Investment Risk............................................23
Higher-Risk Securities and Practices................................24
INVESTMENT LIMITATIONS.......................................................29
TEMPORARY DEFENSIVE POSITIONS................................................30
PORTFOLIO TURNOVER...........................................................30
MANAGEMENT OF THE TRUST......................................................31
Trustees and Officers...............................................31
Trustee Compensation................................................32
SALES LOAD WAIVERS FOR CERTAIN AFFILIATED PERSONS OF THE TRUST...............33
CONTROL PERSONS AND PRINCIPAL HOLDERS OF THE TRUST'S SECURITIES..............33
PORTFOLIO MANAGEMENT.........................................................34
The Management Agreement with MEMBERS Capital Advisors, Inc.........34
MEMBERS Capital Advisors, Inc.......................................36
The Management Agreements with Subadvisers..........................36
The Subadviser for the High Income Fund.............................37
The Subadviser for the Mid-Cap Stock Fund.............................
The Subadviser for the Emerging Growth Fund.........................37
The Subadviser for the International Stock Fund.....................37
DISTRIBUTION (12b-1) PLANS AND AGREEMENT.....................................38
TRANSFER AGENT...............................................................39
CUSTODIAN....................................................................39
<PAGE>
BROKERAGE....................................................................40
HOW SECURITIES ARE OFFERED...................................................41
Shares of Beneficial Interest.......................................41
Voting Rights.......................................................42
Limitation of Shareholder Liability.................................42
Limitation of Trustee and Officer Liability.........................43
Limitation of Interseries Liability.................................43
MORE ABOUT PURCHASING AND SELLING SHARES.....................................43
Offering Price......................................................43
Initial Sales Charge on Class A Shares..............................43
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.......................................50
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...................................................57
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
nine 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 nine funds
are: Cash Reserves, Bond, Balanced, High Income, Growth and Income, Capital
Appreciation, Mid-Cap Stock, Emerging Growth 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 nine individual investment portfolios or funds, each with its own
investment objective and policies. The prospectus describes the investment
objective and policies of each of the nine 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, MEMBERS Capital Advisors, Inc.
(formerly CIMCO Inc.), to be creditworthy and will not be made unless, in
MEMBERS Capital Advisors' 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 24 (Higher risk securities and practice table). MEMBERS
Capital Advisors 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").
<PAGE>
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.
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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.
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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).
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When interest rates are rising or securities prices are falling, a fund can seek
through the sale of futures contracts to offset a decline in the value of its
current portfolio securities. When rates are falling or prices are rising, a
fund, through the purchase of futures contracts, can attempt to secure better
rates or prices than might later be available in the market when it effects
anticipated purchases. Similarly, a fund (other than the Cash Reserves Fund) can
sell futures contracts on a specified currency to protect against a decline in
the value of such currency and its portfolio securities which are denominated in
such currency. These funds can purchase futures contracts on foreign currency to
fix the price in U.S. dollars of a security denominated in such currency that
such fund has acquired or expects to acquire.
Positions taken in the futures markets are not normally held to maturity, but
are instead liquidated through offsetting transactions which may result in a
profit or a loss. While a fund's futures contracts on securities or currency
will usually be liquidated in this manner, it may instead make or take delivery
of the underlying securities or currency whenever it appears economically
advantageous for the fund to do so. A clearing corporation (associated with the
exchange on which futures on a security or currency are traded) guarantees that,
if still open, the sale or purchase will be performed on the settlement date.
Hedging Strategies. Hedging by use of futures contracts seeks to establish more
certainly (than would otherwise be possible) the effective price, rate of return
or currency exchange rate on portfolio securities or securities that a fund owns
or proposes to acquire. A fund may, for example, take a "short" position in the
futures market by selling futures contracts in order to hedge against an
anticipated rise in interest rates or a decline in market prices or foreign
currency rates that would adversely affect the U.S. dollar value of the fund's
portfolio securities. Such futures contracts may include contracts for the
future delivery of securities held by the fund or securities with
characteristics similar to those of a fund's portfolio securities. Similarly, a
fund may sell futures contracts on a currency in which its portfolio securities
are denominated or in one currency to hedge against fluctuations in the value of
securities denominated in a different currency if there is an established
historical pattern of correlation between the two currencies.
If, in the opinion of the Investment Adviser, there is a sufficient degree of
correlation between price trends for a fund's portfolio securities and futures
contracts based on other financial instruments, securities indices or other
indices, the fund may also enter into such futures contracts as part of its
hedging strategy. Although under some circumstances prices of securities in a
fund's portfolio may be more or less volatile than prices of such futures
contracts, the Investment Adviser will attempt to estimate the extent of this
difference in volatility based on historical patterns and to compensate for it
by having the fund enter into a greater or lesser number of futures contracts or
by attempting to achieve only a partial hedge against price changes affecting
the fund's securities portfolio. When hedging of this character is successful,
any depreciation in the value of portfolio securities will substantially be
offset by appreciation in the value of the futures position. On the other hand,
any unanticipated appreciation in the value of the fund's portfolio securities
would be substantially offset by a decline in the value of the futures position.
On other occasions, a fund may take a "long" position by purchasing such futures
contracts. This would be done, for example, when a fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates than available in the applicable
market to be less favorable than prices or rates that are currently available.
Options on Futures Contracts. The acquisition of put and call options on futures
contracts will give a fund the right (but not the obligation), for a specified
price, to sell or to purchase, respectively, the underlying futures contract at
any time during the option period. As the purchaser of an option on a futures
contract, a fund obtains the benefit of the futures position if prices move in a
favorable direction but limits its risk of loss in the event of an unfavorable
price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of a fund's assets. By writing a call
option, a fund becomes obligated, in exchange for the premium, to sell a futures
contract which may have a value higher then the exercise price. Conversely, the
writing of a put option on a futures contract generates a premium, which may
partially offset an increase in the price of securities that the fund intends to
purchase. However, a fund becomes obligated to purchase a futures contract,
which may have a value lower than the exercise price. Thus, the loss incurred by
the fund in writing options on futures is potentially unlimited and may exceed
the amount of the premium received. A fund will incur transaction costs in
connection with the writing of options on futures.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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, Emerging Growth 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, Emerging Growth 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, MEMBERS Capital Advisors
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.
<PAGE>
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, Emerging Growth, 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, Emerging Growth, 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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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 & Poor's 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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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, Mid-Cap
Stock, Emerging Growth 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.
<PAGE>
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.
<PAGE>
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 MEMBERS Capital Advisors or its affiliates.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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, Emerging Growth 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. 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.
<PAGE>
Types of Investment Risk
Active or Frequent Trading Risk. The risk of the realization and distribution to
shareholders of higher capital gains as compared to a series with less active
trading policies. Frequent trading also increases transaction costs, which could
detract from the performance.
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.
<PAGE>
Opportunity Risk. The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments.
Political Risk. The risk of losses directly attributable to government actions
or political events of any sort.
Prepayment Risk. The risk that an unexpected fall in prevailing interest rates
will shorten the life of an outstanding mortgage-backed security by increasing
the expected number of mortgage prepayments, thereby reducing the security's
return.
Speculation Risk. Speculation is the assumption of risk in anticipation of gain
but recognizing a higher than average possibility of loss. To the extent that a
derivative contract or derivative security is used speculatively (i.e., not used
as a hedge), the fund is directly exposed to the risks of that derivative
contract or security. Gains or losses from speculative positions in a derivative
contract or security may be substantially greater than the derivative contract
or security's original cost.
Valuation Risk. The risk that the market value of an investment falls
substantially below the fund's valuation of the investment.
Higher-Risk Securities and Practices
<TABLE>
<CAPTION>
Security or Practice Description Related Risks
<S> <C> <C>
American Depository Receipts ADRs are receipts typically issued by a U.S. Market, currency,
(ADRs) financial institution which evidence ownership of information, natural event,
underlying securities of foreign corporate and political risks (i.e.,
issuers. Generally, ADRs are in registered form the risks of foreign
and are designed for trading in U.S. markets. securities).
Asset-Backed Securities Securities backed by pools of commercial and/or Credit, extension,
consumer loans such as motor vehicle installment prepayment, and interest
sales, installment loan contracts, leases of rate risks.
various types of real and personal property,
receivables from revolving credit (i.e., credit
card) agreements and other categories of
receivables.
Borrowing The borrowing of money from financial institutions Leverage and credit risks.
or through reverse repurchase agreements.
Emerging Market Securities Any foreign securities primarily traded on Credit, market, currency,
exchanges located in or issued by companies information, liquidity,
organized or primarily operating in countries interest rate, valuation,
that are considered lesser developed than natural event, and political
countries like the U.S., Australia, Japan, or risks.
those of 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.
<PAGE>
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, planned amortization prepayment, and interest
classes (PACs), targeted amortization classes rate risks.
(TACs), collateralized mortgage obligations
(CMOs), and 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 on In general, an option is the right to buy (called Interest rate, currency,
financial futures contracts) a "call") or sell (called a "put") property for an market, hedging or
agreed-upon price at any time prior to an speculation, leverage,
expiration date. Both call and put options may be correlation, liquidity,
either written (i.e., sold) or purchased on credit, and opportunity
securities, indices, interest rate futures risks.
contracts, index futures contracts, or currency
futures contracts.
Repurchase Agreements The purchase of a security that the issuer agrees Credit risk.
to buy back later at the same price plus interest.
Restricted Securities Securities originally issued in a private Liquidity, valuation, and
placement rather than a public offering. These market risks.
securities often cannot be freely traded on the
open market.
Reverse Repurchase Agreements The lending of short-term debt securities; often Leverage and credit risks.
used to facilitate borrowing.
Securities Lending The lending of securities to financial Credit risk.
institutions, which provide cash or government
securities as collateral.
Shares of Other Investment The purchase of shares issued by other investment Market risks and the
Companies companies. These investments are subject to the layering of fees and
fees and expenses of both the MEMBERS Mutual Funds expenses.
and the other investment company.
Short-Term Trading Selling a security soon after purchase or Market risk.
purchasing it soon after it was sold (a fund
engaging in short-term trading will have
higher turnover and transaction expenses).
Smaller Capitalization The purchase of securities issued by a company Market risk.
Companies with a market capitalization (i.e., the price per
share of its common stock multiplied by the number
of shares of common stock outstanding) of less
than $1 billion.
When-Issued Securities and The purchase or sale of securities for delivery at Market, opportunity, and
Forward Commitments a future date; market value may change before leverage risks.
delivery.
</TABLE>
<PAGE>
Higher Risk Securities and Practices Table. The following table shows each
fund's investment limitations with respect to certain higher risk securities and
practices as a percentage of portfolio assets.
<TABLE>
<CAPTION>
Growth Capital
Cash High and Appre- Emerging Int'l Mid-Cap
Reserves Bond Balanced Income Income ciation Growth Stock Stock
Investment Practices
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Borrowing; Reverse Repurchase Agreements 30 30 30 30 30 30 30 30 30
Repurchase Agreements * * * * * * * * *
Securities Lending X 30 30 30 30 30 30 30 30
Short-term Trading * * * * * * * * *
When-Issued Securities; Forward Commitments 25 25 25 25 25 25 * 25 25
Conventional Securities
Shares of Other Investment Companies 10 10** 10** 10** 10** 10** 10** 10** 10**
Non-Investment Grade Securities X 20 10 * 5 5 5 5 5
Foreign Securities 25(1) 20 25 50 25 25 25 * 25
Emerging Market Securities X 10 10 25 X X 10 25
Illiquid Securities(2) 10 15 15 15 10 10 15 15
Restricted Securities 25** 15 15 30** 10 10 15 15 15
Mortgage-backed Securities; REITs X 30 15 30 10 X 0 X
Derivative Securities and Contracts
Options and Futures Contracts
o Options on Securities or Indices X 10** 10** 10** 10** 10** 10** 10
o Futures Contracts(3) X 5** 5** 5** 5** 5** 5** 5
o Options on Futures Contracts(3) X 10** 10** 10** 10** 10** 10** 10
Forward Foreign Currency Exchange Contracts X X X 10 X X 10 10
</TABLE>
(1) U.S. Dollar-denominated foreign money market securities only.
(2) Numbers in this row refer to net, rather than total, assets.
(3) Financial futures contracts and related options only.
Legend
30 A number indicates the maximum percentage of total assets (but see note
2) that the fund is permitted to invest in that practice or type of
security. Numbers in this table show allowable usage only; for actual
usage, consult the fund's annual and semi-annual reports.
* 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.
<PAGE>
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
<PAGE>
(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%
Mid-Cap Stock Fund 25%
Emerging Growth 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. Other than the Bond, Balanced and Emerging
Growth Funds, 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 (other than the Bond, Balanced and Emerging Growth Funds) 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). Conversely, the
Bond and Balanced Funds turnover rates are much higher than in past years. The
Investment Adviser anticipates that this increased turnover will continue in the
future and rates may exceed 100%. The increased turnover results from a more
aggressive management style to take fuller advantage of opportunities in the
bond market. In the Investment Adviser's view, market illiquidity and dealer
risk aversion have distorted traditional trading relationships. More
specifically, the turnover has recently exceeded 500% as the Investment Adviser
has actively swapped between different bonds it believes are mispriced.
<PAGE>
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 MEMBERS Capital Advisors, the fund's adviser. At all
times, however, the majority of board members will not be affiliated with
MEMBERS Capital Advisors 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) MEMBERS Capital Advisors, Inc.
5910 Mineral Point Road 1997 - Present President, 1982 - Present
Madison, WI 53705
Age - 56 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 MEMBERS Capital Advisors, Inc.
5910 Mineral Point Road Principal Executive Senior Vice President, 1996 - Present
Madison, WI 53705 Officer Vice President, 1987 - 1996
Age - 54 1997 - Present Secretary, 1992 - Present
CUNA Brokerage Services, Inc.
President
1996 - 1998
Holly S. Baggot* Secretary and Assistant MEMBERS Capital Advisors, Inc.
5910 Mineral Point Road Treasurer Operations & Administration Manager - MEMBERS Mutual
Madison, WI 53705 1999 - Present Funds
Age - 39 1998 - Present
Investment Project Mgr. - Mutual Funds, 1997
Mayor, City of Madison
Secretary to Mayor
1989 - 1997
Mary E. Hoffmann* Treasurer MEMBERS Capital Advisors, Inc.
5910 Mineral Point Road 1998 - Present Product Operations and Finance Manager
Madison, WI 53705 1998 - Present
Age - 30
CUNA Mutual Insurance Society
Investment Accounting Supervisor
1996 - 1998
McGladrey and Pullen, LLP
(Madison, Wisconsin)
Financial Auditor
1993 - 1996
Dan Owens Assistant Treasurer MEMBERS Capital Advisors, Inc.
5910 Mineral Point Road 2000 - Present Investment Operations Manager
Madison, WI 53705 1999 - Present
Age - 34
AmerUS Capital Management
Manager, Investment Accounting - Reporting
1998 to 1999
AmerUs Life Holdings, Inc.
Senior Investment Accountant
1994 - 1998
Gwendolyn M. Boeke Trustee Evangelical Lutheran Church in America
2000 Heritage Way 1997 - Present (Chicago, Illinois)
Waverly, IA 50677 Regional Director, ECLA Foundation
Age - 65 1990 - Present
Alfred L. Disrud Trustee Planned Giving Services
2000 Heritage Way 1997 - Present (Waverly, Iowa)
Waverly, IA 50677 Owner
Age - 78 1986 - Present
Thomas C. Watt Trustee MidAmerica Energy Company (Waterloo, Iowa)
2000 Heritage Way 1997 - Present Manager, Business Initiatives
Waverly, IA 50677 1987 - 1999
Age - 63
Midwest Power Systems, Inc. (Waterloo, Iowa)
District Manager
1992 - 1997
</TABLE>
* "Interested person" as defined in the 1940 Act.
<PAGE>
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) $2,000 $4,000
Thomas C. Watt $4,000 $8,000
(1) Amounts for the fiscal year ending October 31, 2000.
(2) "Fund Complex" includes the Trust and the Ultra Series Fund.
(3) Non-compensated interested trustee.
(4) Mr. Noah resigned his commission on May 9, 2000.
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 certain funds
as indicated in the chart below and may be deemed to control each fund. The
following table sets forth 5% or more ownership of Class A shares of each fund
as of January 31, 2001. Class B shares did not have any ownership over 5% for
any fund.
<TABLE>
<CAPTION>
Growth Capital
Cash High and Appre- Mid-Cap Emerging Int'l
Shareholder Reserves Bond Balanced Income Income* ciation Stock Growth** Stock
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CUNA Mutual Insurance Society
5910 Mineral Point Road
Madison, WI 53705
CUNA Mutual Life Insurance Co.
5910 Mineral Point Road
Madison, WI 53705
CUMIS Insurance Society, Inc.
5910 Mineral Point Road
Madison, WI 53705
CUNA Brokerage Services
2000 Heritage Way
Waverly, IA 50677
</TABLE>
* As of January 31, 2001, Growth & Income Fund and Capital Appreciation Fund
did not have any ownership over 5%.
<PAGE>
** The anticipated approximate ownership of Emerging Growth Fund shortly after
the commencement of the public offering of the Fund's shares on February 28,
2000, represents both seed money and anticipated subsequent investments.
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 less than 1%
of all of the funds' outstanding voting securities on January 31, 2001.
PORTFOLIO MANAGEMENT
The Management Agreement with MEMBERS Capital Advisors, Inc.
The Management Agreement ("Agreement") requires that MEMBERS Capital Advisors,
Inc. (formerly CIMCO Inc.) 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 MEMBERS Capital Advisors
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
Incurred during the Fiscal
Fund Management Fee Year Ended October 31, 2000
---- -------------- ----------------
Cash Reserves 0.40% $
Bond 0.50%
Balanced 0.65%
High Income 0.55%
Growth and Income 0.55%
Capital Appreciation 0.75%
Mid-Cap Stock 0.95%
Emerging Growth 0.75%
International Stock 1.05%
---------
Total $
<PAGE>
MEMBERS Capital Advisors has contractually 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%
Mid-Cap Stock
Emerging Growth 0.20%
International Stock 0.30%
MEMBERS Capital Advisors 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 MEMBERS Capital Advisors' 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. Since September 4, 1997, the Management
Agreement has been amended twice to include the Emerging Growth and Mid-Cap
Stock funds. 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
MEMBERS Capital Advisors 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 MEMBERS Capital Advisors 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.
<PAGE>
MEMBERS Capital Advisors, Inc.
CUNA Mutual Life Insurance Company and CUNA Mutual Investment Corporation each
own a one-half interest in MEMBERS Capital Advisors. 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. MEMBERS Capital Advisors 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.
MEMBERS Capital Advisors' 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
Jeffrey B. Pantages Senior Vice President
Thomas J. Merfeld Vice President and Secretary - Treasurer
Kimberly M. Gant Assistant Treasurer
Janice C. Doyle Assistant Secretary
Tracy K. Gunderson Assistant Secretary
The Management Agreements with Subadvisers
As described in the prospectus, MEMBERS Capital Advisors manages the assets of
the High Income, Mid-Cap Stock, Emerging Growth and International Stock Funds
using a "manager of managers" approach under which MEMBERS Capital Advisors
allocates each fund's assets among one or more "specialist" subadvisers (each, a
"Subadviser"). The Trust and MEMBERS Capital Advisors have received an order
from the Commission that permits the hiring of Subadvisers without shareholder
approval. If MEMBERS Capital Advisors 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
High Income, Mid-Cap Stock, Emerging Growth and International Stock Funds,
MEMBERS Capital Advisors retains the ultimate responsibility for the performance
of these funds and will oversee the Subadvisers and recommend their hiring,
termination, and replacement.
MEMBERS Capital Advisors 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, Mid-Cap Stock, Emerging Growth and International Stock Funds.
<PAGE>
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 MEMBERS Capital
Advisors, 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, MEMBERS Capital Advisors paid a management fee to
MFS in the amount of $ _____ for the fiscal year ending October 31, 2000.
The Subadviser for the Mid-Cap Stock Fund
As of the date of the prospectus, Wellington Management Company llp (Wellington)
is the only subadviser managing some of the assets of the Mid-Cap Stock Fund.
For its services to the fund, Wellington receives a management fee from MEMBERS
Capital Advisors, computed and accrued daily and paid monthly, equal on an
annual basis to 0.060% of net assets managed by Wellington.
The Subadviser for the Emerging Growth Fund
As of the date of the prospectus, Massachusetts Financial Services Company (MFS)
is the only subadviser managing the assets of the Emerging Growth Fund. For its
services to the fund, MFS receives a management fee from MEMBERS Capital
Advisors, computed and accrued daily and paid monthly, at the following annual
rates:
Percentage Net Assets Managed by MFS
---------- -------------------------
0.450% First $200,000,000
0.400% Over $200,000,000
Pursuant to the above formula, MEMBERS Capital Advisors paid a management fee to
MFS in the amount of $ _____ for the fiscal year ending October 31, 2000.
The Subadviser for the International Stock Fund
As of the date of the prospectus, Lazard Asset Management ("Lazard") is the only
subadviser managing the assets of the International Stock Fund.
For its services to the fund, Lazard receives a management fee from MEMBERS
Capital Advisors, 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, MEMBERS Capital Advisors paid a management fee to
Lazard in the amount of $ _____ for the fiscal year ending October 31, 2000.
<PAGE>
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.
<PAGE>
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, 2000 for each of the following items:
1) Advertising; $
2) Printing and mailing of prospectuses to other than current $
shareholder;
3) Compensation to underwriters; $
4) Compensation to broker-dealers; $
5) Compensation to sales personnel; $
6) Interest, carrying, or other financing charges; and $
7) Other (specify) Expense Reimbursements to other companies that $
are paying distributor expenses on behalf of CUNA Brokerage
Services, Inc. (the distributor)
TRANSFER AGENT
Boston Financial Data Services ("BFDS"), 66 Brooks Drive, Braintree, MA 02184,
is the funds' transfer agent. Shareholders can reach a MEMBERS Mutual Funds
representative at BFDS at 1-800-877-6089. Shareholder inquiries and transaction
requests should be sent to:
MEMBERS Mutual Funds
Post Office Box 8390
Boston, Massachusetts 02266-8390
Certain overnight delivery services do not deliver to post office boxes.
Shareholders using such a service should send inquiries and transaction requests
to:
Boston Financial Data Services
MEMBERS Mutual Funds
66 Brooks Drive
Braintree, Massachusetts 02184
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.
<PAGE>
INDEPENDENT AUDITORS
The financial statements for fiscal year ended October 31, 2000 have been
included herein and elsewhere in the Registration Statement in reliance upon the
report of PricewaterhouseCoopers, 100 East Wisconsin Avenue, Milwaukee, WI
53202, independent auditors, and upon the authority of said firm as experts in
accounting and auditing.
BROKERAGE
MEMBERS Capital Advisors 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 MEMBERS Capital Advisors 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 MEMBERS Capital Advisors, and may benefit all
clients, including the client for whom the transactions are executed.
In addition to the general research services described above, MEMBERS Capital
Advisors 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, MEMBERS Capital Advisors may
employ "bunching of trades" wherein one transaction representing several
different client accounts is placed with a broker. MEMBERS Capital Advisors 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 MEMBERS Capital Advisors is considered to be
in addition to and not in lieu of services required to be performed by MEMBERS
Capital Advisors under its contract with the Trust. Research obtained on behalf
of the Trust may be used by MEMBERS Capital Advisors in connection with MEMBERS
Capital Advisors' other clients. Conversely, research received from placement of
brokerage for other accounts may be used by MEMBERS Capital Advisors in managing
investments of the Trust. Therefore, the correlation of the cost of research to
MEMBERS Capital Advisors' individual clients, including the Trust, is
indeterminable and cannot practically be allocated among the Trust and MEMBERS
Capital Advisors' 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.
<PAGE>
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 MEMBERS Capital Advisors'
other clients in "bunching of trades" wherein one purchase or sale transaction
representing several different client accounts is placed with a broker. MEMBERS
Capital Advisors 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 $ for brokerage commission for the fiscal year ending October 31,
2000.
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 nine 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 three classes of shares of the fund, designated
as Class A, Class B and Class D. Additional classes of shares may be offered in
the future. At this time, Class D has been authorized by the Trustees, but not
yet offere.
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
Class A shares may be offered without front-end sales charges to various
individuals and institutions, including:
o Employees of credit unions designated by MEMBERS Capital Advisors, Inc.,
when purchasing MEMBERS Funds directly.
o Employees, clients or direct referrals of the investment adviser, MEMBERS
Capital Advisors, Inc.
o Class A Shares may be purchased at a sales charge that is less than the
charge shown in the Class A Sales Charges table in the prospectus if the
transaction is placed with the assistance of a MEMBERS Financial Services
Center representative under the CUNA Mutual Business Services' IRA Program
and other specified programs.
In addition, Class A Shares issued or purchased in the following transactions
are not subject to Class A sales charges:
o Shares purchased and paid for from the proceeds of sales within the last 60
days of shares of loaded mutual funds having investment objectives similar
to those of the fund(s) sold, if the purchase is accompanied by a written
statement from your registered representative that the purchase is for the
sole purpose of simplifying or consolidating your existing mutual fund
investment portfolio.
o Shares purchased through consultation with a CUNA Mutual Group Pension
Department employee and paid for from the liquidation of a CUNA
Mutual-affiliated pension product.
o Shares purchased for an individual retirement account of an existing
Shareholder from the proceeds of shares of a MEMBERS Mutual Fund, or vice
versa.
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.
<PAGE>
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:
<PAGE>
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
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
<S> <C> <C> <C> <C> <C>
Death or Disability Waived Waived Waived Waived Waived
Over 70 1/2 Waived Waived Waived Waived for Waived for up to
mandatory 12% of account
distributions or value annually
up to 12% of in periodic
account value payments
annually in
periodic payments
Between Waived Waived Waived Waived for Life Waived for up to
59 1/2and 70 1/2 Expectancy or up 12% of account
to 12% of value annually
account value in periodic
annually in payments
periodic payments
Under 59 1/2 Waived Waived for Waived for Waived for Waived for up to
annuity payments annuity payments annuity payments 12% of account
(72t) or up to (72t) or up to (72t) or up to value annually
12% of account 12% of account 12% of account in periodic
value annually value annually value annually payments
in periodic in periodic in periodic
payments payments payments
Loans Waived Waived N/A N/A N/A
Termination of Plan Not Waived Not Waived Not Waived Not Waived N/A
Hardships Waived Waived Waived N/A N/A
Return of Excess Waived Waived Waived Waived N/A
</TABLE>
<PAGE>
Any shareholder who qualifies for a CDSC waiver under one of these situations
must notify the funds' transfer agent, Boston Financial Data Services ("BFDS"),
at the time such shareholder requests a redemption. (See "Contacting the Funds'
Transfer Agent" in the prospectus.) The waiver will be granted once BFDS 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.
<PAGE>
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 MEMBERS Capital Advisors. If MEMBERS Capital Advisors
believes that a valuation still does not represent a fair value, it will present
for approval of the Trustees such other valuation as MEMBERS Capital Advisors
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.
MEMBERS Capital Advisors, 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 MEMBERS Capital Advisors' 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.
<PAGE>
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 BFDS.
<PAGE>
Reinstatement or Reinvestment Privilege
If BFDS 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 and Bond Fund have loss
carryovers of $ , and $ , respectively, as of October 31, 2000, which if not
offset by subsequent capital gains, will expire in . Additionally, the High
Income Fund has a loss carryover of $ as of October 31, 2000, which if not
offset by subsequent capital gains, will expire in .
<PAGE>
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.
<PAGE>
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,
Mid-Cap Stock, Emerging Growth 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.
<PAGE>
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.
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.
<PAGE>
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 $ _____ for the fiscal year ending October 31, 2000.
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.
<PAGE>
The current yield based on the 7 days ended on the date of the balance sheet
included in the registration statement is % for Class A and % 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 % for Class A and % 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.
<PAGE>
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 Class A shares net of sales charges 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, 2000 for each of the funds is:
Average Annual Total Returns as of December 31, 2000
Cash Reserves Fund %
Bond Fund %
Balanced Fund %
High Income Fund %
Growth and Income Fund %
Capital Appreciation Fund %
International Stock Fund %
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.
<PAGE>
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>
PART C
OTHER INFORMATION
Item 23. Exhibits
(a)(1) Declaration of Trust incorporated herein by reference to Registration
Statement on Form N-1A (333-29511) filed on June 19, 1997 as exhibit 1.
(a)(2) Resolution amending Declaration of Trust dated February 17, 2000
incorporated herein by reference to Registration Statement on Form N-1A
(333-29511) filed on February 23, 2000.
(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) Amendment No. 1 to Management Agreement with CIMCO Inc. effective
February 1, 2000 incorporated herein by reference to Registration
Statement on Form N-1A (333-29511) filed on February 23, 2000.
(d)(3) Amendment No. 2 to Management Agreement with CIMCO Inc. (n/k/a MEMBERS
Capital Advisors, Inc.) effective February 15, 2001.
(d)(4) 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)(5) Investment Sub-Advisory Agreement with Massachusetts Financial Services
Company for the Emerging Growth Fund effective February 1, 2000
incorporated herein by reference to Registration Statement on Form N-1A
(333-29511) filed on February 23, 2000.
(d)(6) 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)(7) 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).
(d)(8) Investment Sub-Advisory Agreement with Lazard Asset Management
effective October 31, 2000.
(d)(9) Investment Sub-Advisory Agreement with Wellington Management Company,
llp to be filed by post-effective amendment.
(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)(1) 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.
(g)(2) Agreement with State Street Bank and Trust Company to add the Emerging
Growth Fund incorporated herein by reference to Registration Statement
on Form N-1A (333-29511) filed on February 23, 2000.
(g)(3) Amendment No. 2 to Custodian Agreement with State Street Bank and Trust
Company effective February 15, 2001.
(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).
(h)(3) Administration Agreement with State Street Bank and Trust Company, to
be filed by post-effective amendment.
(h)(4) Transfer Agency and Service Agreement with State Street Bank and Trust
Company, to be filed by post-effective amendment.
(h)(5) Investment Accounting Agreement with State Street Bank and Trust
Company effective October 28, 2000.
(i) Opinion and Consent of Sutherland, Asbill & Brennan LLP.
(j)(1) Consent of PricewaterhouseCoopers 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 incorporated herein by reference to
Registration Statement on Form N-1A (333-29511) filed on February 10,
1999.
(l)(4) Subscription Agreement with CUMIS Insurance Society, Inc. dated
February 17, 2000 incorporated herein by reference to Registration
Statement on Form N-1A (333-29511) filed on February 23, 2000.
(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) Supplement No. 1 to Service Plan for Class A Shares dated February 1,
2000 incorporated herein by reference to Registration Statement on Form
N-1A (333-29511) filed on February 23, 2000.
(m)(3) Supplement No. 2 to Service Plan for Class A Shares dated February 15,
2001.
(m)(4) 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)(5) Supplement No. 1 to Distribution Plan for Class B Shares dated February
1, 2000 incorporated herein by reference to Registration Statement on
Form N-1A (333-29511) filed on February 23, 2000.
(m)(6) Supplement No. 2 to Distribution Plan for Class B Shares dated February
15, 2001.
(m)(7) Service Plan for Class D Shares incorporated herein by reference to
Registration Statement on Form N-1A (333-29511) filed on December 11,
1998.
(m)(8) Supplement No. 1 to Service Plan for Class D Shares dated February 1,
2000 incorporated herein by reference to Registration Statement on Form
N-1A (333-29511) filed on February 23, 2000.
(m)(9) Supplement No. 2 to Service Plan for Class D Shares dated February 15,
2001.
(n) Plan of Multiple Classes of Shares incorporated herein by reference to
Registration Statement on Form N-1A (333-29511) filed on December 11,
1998.
(p)(1) Amended and Restated MEMBERS Mutual Funds Code of Ethics dated June 1,
2000, 1997.
(p)(2) Massachusetts Financial Services Company Code of Ethics dated September
1, 2000.
(p)(3) Lazard Asset Management Code of Ethics incorporated herein by reference
to Registration Statement on Form N-1A (333-29511) filed on February
23, 2000.
(p)(4) CUNA Brokerage Services, Inc. Code of Ethics dated September 1, 1997
incorporated herein by reference to Registration Statement on Form N-1A
(333-29511) filed on February 23, 2000.
Other Exhibits
Powers of Attorney
<PAGE>
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 MEMBERS
Capital Advisors, 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 8, 2000
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
October 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
<PAGE>
e. International Commons, Inc.
Business: Special Events
January 13, 1981*
State of domicile: Wisconsin
f. CUNA Mutual Mortgage Corporation
Business: Mortgage Servicing
November 20, 1978* Incorporated
December 1, 1995 Wholly Owned
State of domicile: Wisconsin
g. CUNA Mutual Insurance Agency, Inc.
Business: Leasing/Brokerage
March 1, 1974*
State of domicile: Wisconsin
Formerly CMCI Corporation
h. Stewart Associates Incorporated
Business: Credit Insurance
March 6, 1998
State of domicile: Wisconsin
i. CMG Mortgage Assurance Company
Business: Private Mortgage Insurance
50% ownership by CUNA Mutual Investment Corporation
50% ownership by PMI Mortgage Insurance Company
October 1, 2000
State of domicile: California
j. CUNA Mutual Business Services, Inc.
Business: Financial Services
Incorporated April 22, 1974
Wholly owned March 6, 2000
State of domicile: Wisconsin
k. League Insurance Agency
Business: Insurance Agency
October 1, 2000
State of domicile: Connecticut
League Insurance Agency is the 100% owner of the
following subsidiary:
Member Protection Insurance Plans
Business: Insurance Agency
October 1, 2000
State of domicile: Connecticut
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
4. CUNA Mutual Australia Holding Co. Pty. Ltd.
Business: Holding Company
September 17, 1999*
Country of domicile: Australia
CUNA Mutual Australia Holding Co. Pty. Ltd is the owner of the following
subsidiary:
(1) CUNA Mutual Life Australia, Ltd.
Business: Life insurance
October 15, 1999
Australia
5. CUNA Mutual Group, Limited
Business: Brokerage
May 27, 1998
Country of domicile: U.K.
* 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. The CUMIS Group Limited
63.3% ownership by CUNA Mutual Insurance Society
4. MEMBERS Capital Advisors, Inc. (formerly CIMCO Inc.)
50% ownership by CUNA Mutual Investment Corporation
50% ownership by CUNA Mutual Life Insurance Company
January 1, 1992
5. CUNA Mutual Insurance Agency of Ohio, Inc.
1% of value owned by Boris Natyshak (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
6. CMG Mortgage Insurance Company
50% ownership by CUNA Mutual Investment Corporation 50% ownership by
PMI Mortgage Insurance Co.
April 14, 1994
7. Cooperators Life Assurance Society Limited (Jamaica)
CUNA Mutual Insurance Society owns 122,500 shares
Jamaica Co-op Credit Union League owns 127,500 shares
May 10, 1990
8. CU Interchange Group, Inc.
Owned by CUNA Strategic Services, Inc. and various state league
organizations
December 15, 1993 - CUNA Mutual Investment Corporation purchased 100 shares
stock
10. CMG Mortgage Reinsurance Company
50% ownership by CUNA Mutual Investment Corporation
50% ownership by PMI Insurance Company
July 26, 1999
10. Credit Union Service Corporation
Atlanta, Georgia
Owned by Credit Union National Association, Inc. and 18 state league
organizations
March 29, 1996 - CUNA Mutual Investment Corporation purchased 1,300,000
shares of stock
11. finsure.australia limited
50% ownership by CUNA Mutual Australia Holding Company Pty. Limited
50% ownership by CUSCAL
October 15, 1999
12. CUNA Strategic Services, Inc.
CUNA Mutual Insurance Society owns 200.71 shares
December 31, 1999
13. CUNA Strategic Services Inc.
CUNA Mutual Insurance Society owns 200.71 shares
December 31, 1999
Partnerships
1. 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
3. MEMBERS Development Company LLC
49 % CUNA Mutual Investment Corporation
51% Credit Unions & CUSOs
September 24, 1999
4. The Center for Credit Union Innovation LLC
33.3% ownership by CUNA Mutual Insurance Society 33.3% ownership by
CUNA & Affiliates 33.3% ownership by American Association of Credit
Union Leagues
January 5, 2000
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
<PAGE>
CUNA Mutual Life Insurance Company
ORGANIZATIONAL CHART AS OF September 22, 2000
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. MEMBERS Capital Advisors, Inc. (f/k/a CIMCO Inc. (CIMCO))
An Iowa Business Act Corporation
50% ownership by CUNA Mutual Life Insurance Company
50% ownership by CUNA Mutual Investment Corporation
July 16, 1982
MEMBERS Capital Advisors, Inc. (f/k/a CIMCO Inc. (CIMCO)) is the investment
adviser of:
Ultra Series Fund
MEMBERS Mutual Funds
2. Plan America Program, Inc.
A Maine Business Act Corporation
100% ownership by CUNA Mutual Life Insurance Company
March 9, 1995
3. CMIA Wisconsin Inc.
A Wisconsin Business Act Corporation
100% ownership by CUNA Mutual Life Insurance Company
May 29, 1998
<PAGE>
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 MEMBERS Capital
Advisors, 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 MEMBERS Capital Advisors, 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
Kimberly M. Gant MEMBERS Capital Advisors, Inc.
5910 Mineral Point Rd. Assistant Treasurer
Madison, WI 53705 1999-Present
Tracy K. Gunderson MEMBERS Capital Advisors, Inc.
5910 Mineral Point Rd. Assistant Secretary
Madison, WI 53705 1999-Present
Lawrence R. Halverson MEMBERS Capital Advisors, Inc.
5910 Mineral Point Rd. Senior Vice President
Madison, WI 53705 1996-Present
Vice President
1988-Present
Secretary
1992-1999
CUNA Brokerage Services, Inc.
President
1996-1998
Director
1996-Present
Joyce A. Harris MEMBERS Capital Advisors, 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 MEMBERS Capital Advisors, Inc.
975 University Avenue Director
Madison, WI 53706 1992 - Present
University of Wisconsin
Professor
1972 - Present
Mary E. Hoffmann MEMBERS Capital Advisors, Inc.
5910 Mineral Point Rd. Treasurer
Madison, WI 53705 2000 - Present
Michael B. Kitchen MEMBERS Capital Advisors, Inc.
5910 Mineral Point Rd. Director
Madison, WI 53705 1995 - Present
CUNA Mutual Insurance Society
President and Chief Executive Officer
1995- Present
CUNA Mutual Life Insurance Company
President and Chief Executive Officer
1995 - Present
Daniel J. Larson MEMBERS Capital Advisors, Inc.
5910 Mineral Point Rd. Vice President
Madison, WI 53705 1995 - Present
Thomas J. Merfeld MEMBERS Capital Advisors, Inc.
5910 Mineral Point Rd. Senior Vice President & Secretary
Madison, WI 53705 2000 - Present
Vice President
1994 - 2000
George A. Nelson MEMBERS Capital Advisors, 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 MEMBERS Capital Advisors, Inc.
5910 Mineral Point Rd. Senior Vice President
Madison, WI 53705 1998-Present
<PAGE>
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 Positions and Offices Positions and Offices
Business Address With the Underwriter With Registrant
------------------ -------------------- -----------------
<S> <C> <C>
Joseph L. Bauer* Assistant Treasurer Finance Reporting Operations Manager
Wayne A. Benson* Director & President Chief Officer - Sales
Donna C. Blankenheim* Assistant Secretary Vice President
Corporate Secretary
Timothy L. Carlson** Assistant Treasurer None
Jan C. Doyle* Assistant Secretary Corporate Services Manager
Mark Eisenmann* Associate Compliance Assistant Director - Insurance & Officer Securities Market
David S. Emery* Vice President Division Vice President Credit
9500 Cleveland Ave. #210 Union Services
Rancho Cucamonga, CA 91730
John C. Fritsche Assistant Vice President None
4455 LBJ Freeway
Suite 1108
Dallas, TX 75244
James E. Gowan* Director Vice President Relationship Management Sales
Tracy K. Gunderson* Assistant Secretary Recording Secretary/Technical Writer
Lawrence R. Halverson* Director None
John W. Henry* Director & Vice President Vice President
Michael G. Joneson* Secretary & Treasurer Forecasting & Planning Vice President, Finance
Daniel J. LaRocque* Vice President Vice President & Deputy General
Counsel
Marcia L. Martin** Director & Assistant Vice Assistant Vice President
President Broker/Dealer Ops
Campbell D. McHugh* Compliance Officer Assistant Vice President, Associate General Counsel
Daniel E. Meylink, Sr.* Director Chief Officer - Members Services
Andrew C. Osen* Associate Compliance Assistant Counsel
Officer
Faye A. Patzner* Vice President - General Senior Vice President and General
Counsel Counsel
Brian L. Schroeder* Associate Compliance Assistant Director, Insurance &
Officer Securities Market
Barbara L. Secor** Assistant Secretary None
Helen W. Wagabaza* Assistant Secretary Recording Secretary/Technical Writer
John W. Wiley* Associate Compliance Officer Assistant Director, Insurance Market Conduct
</TABLE>
*The principal business address of these persons is: 5910 Mineral Point Road,
Madison, Wisconsin 53705.
**The principal business address of these persons is: 2000 Heritage Way,
Waverly, Iowa 50677.
c. There have been no commissions or other compensation paid by Registrant to
unaffiliated principal underwriters.
<PAGE>
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. MEMBERS Capital Advisors, Inc.
5910 Mineral Point Road
Madison, Wisconsin 53705
b. CUNA Mutual Insurance Society
5910 Mineral Point Road
Madison, Wisconsin 53705
c. Boston Financial Data Services
66 Brooks Drive
Braintree, MA 02184
d. State Street Bank & Trust Company
225 Franklin Street
Boston, Massachusetts 02110
<PAGE>
Item 29. Management Services
Not applicable.
<PAGE>
Item 30. Undertakings
Not applicable.
<PAGE>
SIGNATURES
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 day of December 14, 2000.
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 dates indicated.
SIGNATURES AND TITLE DATE
/s/ Holly S. Baggot December 14, 2000
Holly S. Baggot, Secretary
/s/ Gwendolyn M. Boeke*
Gwendolyn M. Boeke, Trustee
/s/ Michael S. Daubs December 14, 2000
Michael S. Daubs, Trustee and Chairman
/s/ Alfred L. Disrud*
Alfred L. Disrud, Trustee
/s/ Lawrence R. Halverson December 14, 2000
Lawrence R. Halverson, Trustee, President
and Principal Executive Officer
/s/ Mary E. Hoffmann December 14, 2000
Mary E. Hoffmann, Treasurer
/s/ Kevin S. Thompson December 14, 2000
Kevin S. Thompson, Attorney-in-Fact
/s/ Thomas C. Watt*
Thomas C. Watt, Trustee
*Pursuant to Powers of Attorney
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
(d)(3) Amendment No. 2 to Management Agreement with CIMCO Inc. (n/k/a MEMBERS
Capital Advisors, Inc.) effective February 15, 2001.
(d)(8) Investment Sub-Advisory Agreement with Lazard Asset Management
effective October 31, 2000.
(d)(9) Investment Sub-Advisory Agreement with Wellington Management Company,
llp to be filed by post-effective amendment.
(g)(3) Amendment No. 2 to Custodian Agreement with State Street Bank and Trust
Company effective February 15, 2001.
(h)(3) Administration Agreement with State Street Bank and Trust Company to be
filed by post-effective amendment.
(h)(4) Transfer Agency and Service Agreement with State Street Bank and Trust
Company to be filed by post-effective amendment.
(h)(5) Investment Accounting Agreement with State Street Bank and Trust
Company effective October 28, 2000.
(i) Opinion and Consent of Sutherland, Asbill & Brennan LLP to be filed by
post-effective amendment.
(j)(1) Consent of PricewaterhouseCoopers LLP to be filed by post-effective
amendment.
(m)(3) Supplement No. 2 to Service Plan for Class A Shares dated February 15,
2001.
(m)(6) Supplement No. 2 to Distribution Plan for Class B Shares dated February
15, 2001.
(m)(9) Supplement No. 2 to Service Plan for Class D Shares dated February 15,
2001.
(p)(1) Amended and Restated MEMBERS Mutual Funds Code of Ethics dated June 1,
2000, 1997.
(p)(2) Massachusetts Financial Services Company Code of Ethics dated September
1, 2000.
Other Exhibits
Powers of Attorney
<PAGE>
Exhibit (d)(3)
MEMBERS MUTUAL FUNDS
AMENDMENT NO. 2 TO MANAGEMENT AGREEMENT
Effective February 15, 2001, pursuant to adoption by the Board of
Trustees on December 6, 2000, the following amendments are made to the MEMBERS
Mutual Funds Management Agreement dated October 1, 1997.
1. Paragraph No. 1 of the Recitals section of the Management Agreement is
amended to read as follows:
"1. The Trust is a series-type, open-end management investment company
registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), that currently consists of nine investment portfolios
(each, a "Fund") designated as Cash Reserves Fund, Bond Fund, Balanced
Fund, High Income Fund, Growth and Income Fund, Capital Appreciation
Fund, Mid-Cap Stock Fund, Emerging Growth Fund, and International Stock
Fund, each such Fund having its own investment objective;"
2. Article III entitled Compensation of Manager is amended to add the
following annual rate to the current list of rates:
"Mid-Cap Stock 0.95%"
MEMBERS Mutual Funds
By: /s/ Lawrence R. Halverson
Name: Lawrence R. Halverson
Title: President
ATTEST:
/s/ Renee Benoy
MEMBERS Capital Advisors, Inc.
By: /s/ Michael S. Daubs
Name: Michael S. Daubs
Title: President
ATTEST:
/s/ Candy Davis
<PAGE>
Exhibit (d)(8)
AMENDED
INVESTMENT SUB-ADVISORY AGREEMENT
Lazard Asset Management
THIS INVESTMENT SUB-ADVISORY AGREEMENT ("Agreement"), made this 31st
day of October, 2000, by and between MEMBERS Capital Advisors, Inc., an Iowa
corporation (the "Adviser"), and Lazard Asset Management, a division of Lazard
Freres & Co. LLC, a New York limited liability company (the "Sub-Adviser").
Adviser and Sub-Adviser agree as follows:
1. Adviser hereby engages the services of Sub-Adviser in connection with
Adviser's management of the International Stock Portfolio (the "Portfolio") of
MEMBERS Mutual Funds (the "Fund"). Adviser intends to use a manager of managers
approach to the management of the Portfolio, as well as other portfolios in the
Fund. Therefore, the number of sub-advisers, the named sub-adviser, and the
percentage of assets of the Portfolio managed by each sub-adviser will be
determined by the Fund's Board of Trustees and MEMBERS Capital Advisors from
time to time. Pursuant to this Agreement and subject to the oversight and
supervision by Adviser and the officers and the Board of Trustees of the Fund,
Sub-Adviser shall manage the investment and reinvestment of the assets of the
Portfolio as requested by MEMBERS Capital Advisors. Advisor shall be responsible
for determining the asset allocation of the Portfolio between three classes of
securities: 1) securities contained in the EAFE index, 2) international
small-cap securities, and 3) emerging markets securities. A different
subadvisory fee will be paid for each of the three classes as described in
Section 9.
2. Sub-Adviser hereby accepts employment by Adviser in the foregoing capacity
and agrees, at its own expense, to render the services set forth herein and to
provide the office space, furnishings, equipment and personnel required by it to
perform such services on the terms and for the compensation provided in this
Agreement.
3. In particular, Sub-Adviser shall furnish continuously an investment program
for the Portfolios and shall determine from time to time in its discretion the
securities and other investments to be purchased or sold or exchanged and what
portions of the Portfolios shall be held in various securities, cash or other
investments. Sub-Adviser shall provide Adviser and the officers and Trustees of
the Fund with such reports and documentation as the latter shall reasonably
request regarding Sub-Adviser's management of the Portfolio's assets.
4. Sub-Adviser shall carry out its responsibilities under this Agreement in
compliance with: (a) the Portfolio's investment objective, policies and
restrictions as set forth in the Fund's current registration statement, (b) such
policies or directives as the Fund's Trustees may from time to time establish or
issue, and (c) applicable law and related regulations. Adviser shall promptly
notify Sub-Adviser of changes to (a) or (b) above and shall notify Sub-Adviser
of changes to (c) above promptly after it becomes aware of such changes.
5. Sub-Adviser shall take all actions which it considers necessary to implement
the investment policies of the Portfolio, and in particular, to place all orders
for the purchase or sale of securities or other investments for the Portfolio
with brokers or dealers selected by it, and to that end, Sub-Adviser is
authorized as the agent of the Fund to give instructions to the Fund's custodian
as to deliveries of securities or other investments and payments of cash for the
account of the Portfolio. In connection with the selection of brokers or dealers
and the placing of purchase and sale orders with respect to investments of the
Portfolio, Sub-Adviser is directed at all times to seek to obtain best execution
and price within the policy guidelines determined by the Fund's board of
Trustees and set forth in the Fund's current registration statement.
In addition to seeking the best price and execution, Sub-Adviser may
also take into consideration research and statistical information and wire and
other quotation services provided by brokers and dealers to Sub-Adviser.
Sub-Adviser is also authorized to effect individual securities transactions at
commission rates in excess of the minimum commission rates available, if it
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or
Sub-Adviser's overall responsibilities with respect to the Portfolio. The
policies with respect to brokerage allocation, determined from time to time by
the Fund's board of Trustees are those disclosed in the Fund's currently
effective registration statement. Sub-Adviser will periodically evaluate the
statistical data, research and other investment services provided to it by
brokers and dealers. Such services may be used by Sub-Adviser in connection with
the performance of its obligations under this Agreement or in connection with
other advisory or investment operations including using such information in
managing its own accounts.
6. Sub-Adviser's services under this Agreement are not exclusive. Sub-Adviser
may provide the same or similar services to other clients provided that the
Adviser is not treated less favorably than other clients of Sub-Adviser.
Sub-Adviser shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Adviser, the Fund or the Portfolio or
otherwise be deemed agents of the Adviser, the Fund or the Portfolio.
7. Sub-Adviser is registered with the U.S. Securities and Exchange Commission
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). The
Sub-Adviser shall remain so registered throughout the term of this Agreement and
shall notify Adviser immediately if Sub-Adviser ceases to be so registered as an
investment adviser.
8. Sub-Adviser or an affiliated person of Sub-Adviser may act as broker for the
Portfolio in connection with the purchase or sale of securities or other
investments for the Portfolio, subject to: (a) the requirement that Sub-Adviser
seek to obtain best execution and price within the policy guidelines determined
by the Fund's board of Trustees and set forth in the Fund's current registration
statement; (b) the provisions of the Advisers Act; (c) the provisions of the
Securities Exchange Act of 1934, as amended; and (d) other applicable provisions
of law. Such brokerage services are not within the scope of the duties of
Sub-Adviser under this Agreement. Subject to the requirements of applicable law
and any procedures adopted by Fund's board of Trustees, Sub-Adviser or its
affiliated persons may receive brokerage commissions, fees or other remuneration
from the Portfolio or the Fund for such services in addition to Sub-Adviser's
fees for services under this Agreement.
9. For the services rendered, the facilities furnished and the expenses assumed
by Sub-Adviser, Adviser shall pay Sub-Adviser at the end of each quarter a fee
based on the average daily net assets of the following annual rates:
EAFE Subportfolio:
First $25 million 0.65%
Next $25 million 0.55%
Above $50 million 0.50%
Emerging Markets Subportfolio 0.75%
International Small Cap Subportfolio 0.75%
Sub-Adviser's fee shall be accrued daily at 1/365th of the applicable annual
rate set forth above. For the purpose of accruing compensation, the net assets
of the Portfolio shall be determined in the manner and on the dates set forth in
the current prospectus of the Fund, and, on days on which the net assets are not
so determined, the net asset value computation to be used shall be as determined
on the next day on which the net assets shall have been determined. In the event
of termination of this Agreement, all compensation due through the date of
termination will be calculated on a pro-rated basis through the date of
termination and paid within thirty business days of the date of termination.
During any period when the determination of net asset value is
suspended, the net asset value of the Portfolios as of the last business day
prior to such suspension shall for this purpose be deemed to be the net asset
value at the close of each succeeding business day until it is again determined.
10. Sub-Adviser hereby undertakes and agrees to maintain, in the form and for
the period required by Rule 31a-2 under the Investment Company Act of 1940, as
amended (the "1940 Act"), all records relating to the Portfolio's investments
within the control of Sub-Adviser that are required to be maintained by the Fund
pursuant to the requirements of Rule 31a-1 under the 1940 Act.
Sub-Adviser agrees that all books and records which it maintains for
the Portfolio or the Fund are the property of the Fund and further agrees to
surrender promptly to the Adviser or the Fund any such books, records or
information upon the Adviser's or the Fund's request. All such books and records
shall be made available, within five business days of a written request, to the
Fund's accountants or auditors during regular business hours at Sub-Adviser's
offices. Adviser and the Fund or either of their authorized representative shall
have the right to copy any records in the possession of Sub-Adviser which
pertain to the Portfolio or the Fund. Such books, records, information or
reports shall be made available to properly authorized government
representatives consistent with state and federal law and/or regulations. In the
event of the termination of this Agreement, all such books, records or other
information shall be returned to Adviser or the Fund free from any claim or
assertion of rights by Sub-Adviser.
11. Sub-Adviser agrees that it will not disclose or use any records or
information obtained pursuant to this Agreement in any manner whatsoever except
as authorized in this Agreement and that it will keep confidential any
information obtained pursuant to this Agreement and disclose such information
only if Adviser or the Fund has authorized such disclosure, or if such
disclosure is required by federal or state regulatory authorities provided,
however, the Sub-Adviser may disclose the name of the Fund on any representative
client list and may include the performance of the subportfolios in any
composite of performance.
12. In the absence of willful misfeasance, bad faith or gross negligence on the
part of Sub-Adviser or its officers, Trustees or employees, or reckless
disregard by Sub-Adviser of its duties under this Agreement, Sub-Adviser shall
not be liable to Adviser, the Portfolio, the Fund or to any shareholder of the
Portfolio for any act or omission in the course of, or connected with, rendering
services hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security, except to the extent specified in Section 36(b)
of the 1940 Act concerning loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services. Nothing herein shall be
deemed to waive any right the Adviser of the Fund may have against the
Sub-Adviser under federal or state securities or other laws.
13. This Agreement shall not become effective unless and until it is approved by
the board of Trustees of the Fund, including a majority of Trustees who are not
parties to this Agreement or interested persons of any such party to this
Agreement. This Agreement shall come into full force and effect on the date
which it is so approved. This Agreement shall continue in effect for two years
and shall thereafter continue in effect from year to year so long as such
continuance is specifically approved at least annually by (i) the board of
Trustees of the Fund, or by the vote of a majority of the outstanding votes
attributable to the shares of the class of stock representing an interest in the
Portfolio; and (ii) a majority of those Trustees who are not parties to this
Agreement or interested persons of any such party cast in person at a meeting
called for the purpose of voting on such approval.
14. This Agreement may be terminated at any time without the payment of any
penalty, by the Fund's board of Trustees, or by vote of a majority of the
outstanding votes attributable to the shares of the class of stock representing
an interest in the Portfolio on sixty days written notice to the Adviser and
Sub-Adviser, or by the Adviser, or by the Sub-Adviser, on sixty days written
notice to the other. This Agreement shall automatically terminate in the event
of its assignment or in the event of the termination of the investment advisory
agreement between the Adviser and the Fund regarding the Adviser's management of
the Portfolio.
15. This Agreement may be amended by either party only if such amendment is
specifically approved by a majority of those Trustees who are not parties to
this Agreement or interested persons of any such party cast in person at a
meeting called for the purpose of voting on such approval.
16. The terms "assignment", "affiliated person" and "interested person", when
used in this Agreement, shall have the respective meanings specified in the 1940
Act. The term "majority of the outstanding votes attributable to the shares of
the class" means the lesser of (a) 67% or more of the shares of such class
present at a meeting if more than 50% of such votes attributable to the shares
are present or represented by proxy or (b) more than 50% of the votes
attributable to the shares of such class.
17. This Agreement shall be construed in accordance with laws of the Iowa, and
applicable provisions of the Advisers Act and 1940 Act.
18. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MEMBERS Capital Advisors, Inc.
By: /s/ Michael S. Daubs
Michael S. Daubs, President
ATTEST:
/s/ Kevin Thompson
Lazard Asset Management
a Division of Lazard Freres & Co. LLC
By: /s/ Robert P. Morgenthau
Title: Managing Director
ATTEST:
/s/ Amy M. Stevens
<PAGE>
Exhibit (g)(3)
MEMBERS MUTUAL FUNDS
AMENDMENT NO. 2 TO
CUSTODIAN AGREEMENT
This Amendment No. 2 to Custodian Agreement is made as of February 15,
2001, by and between the MEMBERS MUTUAL FUNDS, a Delaware Business Trust (the
"Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts State
chartered bank trust company ("State Street").
1. The parties entered into a Custodian Agreement dated October 28, 1997.
2. The parties amended the Custodian Agreement by letter on February 4,
2000.
3. The Fund is instituting a new portfolio, to be known as Mid-Cap Stock
Fund.
3. The parties agree to amend Exhibit B of the Custodian Agreement to read
as follows:
EXHIBIT B
Portfolios of the MEMBERS Mutual Funds
Cash Reserves Fund
Bond Fund
Balanced Fund
High Income Fund
Growth and Income Fund
Capital Appreciation Fund
Mid-Cap Stock Fund
Emerging Growth Fund
International Stock Fund
Furthermore, the parties hereby amend the Custodian Agreement by adding the
following to the Agreement:
The Fund may add new portfolios to Exhibit B of the Custodian Agreement
from time to time by written notice, provided that State Street
consents to such addition. Rates or charges for each additional
portfolio shall be as agreed upon by State Street and the Fund in
writing.
The Fund and State Street hereby ratify and confirm the Custodian
Agreement and agree that it remains in full force and effect and is
binding upon the parties in accordance with its terms, as amended
hereby.
In witness whereof, the parties hereto have caused this Amendment to be
executed by their duly authorized representatives designated below as of the day
and year first above written.
MEMBERS MUTUAL FUNDS STATE STREET BANK AND TRUST COMPANY
By: /s/ Lawrence R. Halverson
Lawrence R. Halverson By: _______________________
President
<PAGE>
Exhibit (h)(5)
INVESTMENT ACCOUNTING AGREEMENT
THIS AGREEMENT is made effective the 28th day of October, 2000; by and
between STATE STREET BANK AND TRUST COMPANY, a trust company chartered under the
laws of the Commonwealth of Massachusetts, having its principal office and place
of business at 225 Franklin. Street, Boston, Massachusetts 02110 ("State
Street"), and each registered investment company listed on Schedule A hereto, as
it may be amended from time to time, incorporated herein by reference, each
having its principal office and place of business at MEMBERS Capital Advisors,
Inc., 5910 Mineral Point Road, Madison, Wisconsin (each a "Fund").
WITNESSETH:
WHEREAS, Fund desires to appoint State Street as its agent to perform
certain investment accounting and recordkeeping functions for the assets of the
Fund's investment portfolio or portfolios (each a "Portfolio", and collectively
the "Portfolios"); and
WHEREAS, State Street is willing to accept such appointment on the
terms and conditions hereinafter set forth;
NOW THEREFORE, for and in consideration of the mutual promises
contained herein, the parties hereto, intending to be legally bound, mutually
covenant and agree as follows:
1. APPOINTMENT OF AGENT. Fund hereby constitutes and appoints State Street
as its agent to perform certain accounting and recordkeeping functions
relating to portfolio transactions required of a duly registered
investment company under Rule 31a of the Investment Company Act of
1940, as amended (the "1940 Act") and to calculate the net asset value
of the Portfolios.
2. REPRESENTATIONS AND WARRANTIES.
A. Fund hereby represents, warrants and acknowledges to State
Street:
1. That it is a registered investment company duly
organized and existing and in good standing under the
laws of its state of organization, and that it is
registered under the 1940 Act; and
2. That it has the requisite power and authority under
applicable law, its articles of incorporation and its
bylaws to enter into this Agreement; it has taken all
requisite action necessary to appoint State Street as
investment accounting and recordkeeping agent; this
Agreement has been duly executed and delivered by
Fund; and this Agreement constitutes a legal, valid
and binding obligation of Fund, enforceable in
accordance with its terms.
<PAGE>
B. State Street hereby represents, warrants and acknowledges to
Fund:
1. That it is a trust company duly organized and
existing and in good standing under the laws of the
Commonwealth of Massachusetts; and
2. That it has the requisite power and authority under
applicable law, its charter and its bylaws to enter
into and perform this Agreement; this Agreement has
been duly executed and delivered by State Street; and
this Agreement constitutes a legal, valid and binding
obligation of State Street, enforceable in accordance
with its terms.
3. DUTIES AND RESPONSIBILITIES OF THE PARTIES.
A. Delivery of Accounts and Records. Fund will turn over or cause
to be turned over to State Street all accounts and records
needed by State Street to perform its duties and
responsibilities hereunder fully and properly. State Street
may rely conclusively on the completeness and correctness of
such accounts and records.
B. Accounts and Records. State Street will prepare and maintain,
under the direction of and as interpreted by Fund, Fund's or
Portfolio's accountants and/or other advisors, in complete,
accurate and current form such accounts and records: (1)
required to be maintained by Fund with respect to portfolio
transactions under Section 31(a) of the 1940 Act and the rules
and regulations from time to time adopted thereunder; (2)
required as a basis for calculation of each Portfolio's net
asset value; and (3) as otherwise agreed upon by the parties.
Fund will advise State Street in writing of all applicable
record retention requirements, other than those set forth in
the 1940 Act. State Street will preserve such accounts and
records in the manner and for the periods prescribed in the
1940 Act or for such longer period as is agreed upon by the
parties. Fund will furnish, in writing or its electronic or
digital equivalent, accurate and timely information needed by
State Street to complete such accounts and records when such
information is not readily available from generally accepted
securities industry services or publications.
C. Accounts and Records Property of Fund. State Street
acknowledges that all of the accounts and records maintained
by State Street pursuant hereto are the property of Fund, and
will be made available to Fund for inspection or reproduction
within a reasonable period of time, upon demand. State Street
will assist Fund's independent auditors, or upon the prior
written approval of Fund, or upon demand, any regulatory body,
in any requested review of Fund's accounts and records but
Fund will reimburse State Street for all expenses and employee
time invested in any such review outside of routine and normal
periodic reviews. Upon receipt from Fund of the necessary
information or instructions, State Street will supply
information from the books and records it maintains for Fund
that Fund may reasonably request for tax returns,
questionnaires, periodic reports to shareholders and such
other reports and information requests as Fund and State
Street may agree upon from time to time.
<PAGE>
D. Adoption of Procedures. State Street and Fund may from time to
time adopt such procedures as they agree upon, and State
Street may conclusively assume that no procedure approved or
directed by Fund, Fund's or Portfolio's accountants or other
advisors conflicts with or violates any requirements of the
prospectus, articles of incorporation, bylaws, any applicable
law, rule or regulation, or any order, decree or agreement by
which Fund may be bound. Fund will be responsible for
notifying State Street of any changes in statutes,
regulations, rules, requirements or policies which may impact
State Street responsibilities or procedures under this
Agreement.
E. Valuation of Assets. State Street will value the assets of
each Portfolio in accordance with Fund's Instructions
utilizing the pricing sources designated by Fund ("Pricing
Sources") on Exhibit A hereto. In the event that Fund
specifies Reuters America, Inc., it will enter into the
Agreement attached hereto as Exhibit B. State Street will
calculate each Portfolio's net asset value in accordance with
the Portfolio's registration statement and the Investment
Company Act of 1940.
F. Service Level Agreement. State Street and Fund will agree,
from time to time, upon the terms of a separate Service Level
Agreement.
4. INSTRUCTIONS.
A. The term "Instructions", as used herein, means written
(including telecopied, telexed, or electronically transmitted)
or oral instructions which State Street reasonably believes
were given by a designated representative of Fund. Fund will
deliver to State Street, on or prior to the date hereof and
thereafter from time to time as changes therein are necessary,
written Instructions naming one or more designated
representatives to give Instructions in the name and on behalf
of Fund, which Instructions may be received and accepted by
State Street as conclusive evidence of the authority of any
designated representative to act for Fund and may be
considered to be in full force and effect until receipt by
State Street of notice to the contrary. Unless such written
Instructions delegating authority to any person to give
Instructions specifically limit such authority to specific
matters or require that the approval of anyone else will first
have been obtained, State Street will be under no obligation
to inquire into the right of such person, acting alone, to
give any Instructions whatsoever. If Fund fails to provide
State Street any such Instructions naming designated
representatives, any Instructions received by State Street
from a person reasonably believed to be an appropriate
representative of Fund will constitute valid and proper
Instructions hereunder. The term "designated representative"
may include Fund's or a Portfolio's employees and agents,
including investment managers and their employees.
B. No later than the next business day immediately following each
oral Instruction, Fund will send State Street written
confirmation of such oral Instruction. At State Street's sole
discretion, State Street may record on tape, or otherwise, any
oral Instruction whether given in person or via telephone,
each such recording identifying the date and the time of the
beginning and ending of such oral Instruction.
<PAGE>
Fund will provide upon State Street's request a certificate
signed by an officer or designated representative of Fund, as
conclusive proof of any fact or matter required to be
ascertained from Fund hereunder. Fund will also provide State
Street Instructions with respect to any matter concerning this
Agreement requested by State Street. If State Street
reasonably believes that it could not prudently act according
to the Instructions, or the instruction or advice of Fund's or
a Portfolio's accountants or counsel, it may in its
discretion, with notice to Fund, not act according to such
Instructions.
5. LIMITATION OF LIABILITY OF STATE STREET. State Street is not
responsible or liable for, and Fund will indemnify and hold State
Street harmless from and against, any and all costs, expenses, losses,
damages, charges, counsel fees (including, without limitation,
disbursements and the allocable cost of in-house counsel), payments and
liabilities which may be asserted against or incurred by State Street
or for which State Street may be held to be liable, arising out of or
attributable to:
A. State Street's action or failure to act pursuant hereto;
provided that State Street has acted in good faith and with
reasonable care; and provided further, that in no event is
State Street liable for consequential, special, or punitive
damages;
B. State Street's payment of money as requested by Fund, or the
taking of any action which might make it or its nominee liable
for payment of monies or in any other way; provided, however,
that nothing herein obligates State Street to take any such
action or expend its own monies except in its sole discretion;
C. State Street's action hereunder upon any Instruction, advice,
notice, request, consent, certificate or other instrument or
paper appearing to it to be genuine and to have been properly
executed, including any Instructions, communications, data or
other information received by State Street by means of the
Systems, as hereinafter defined, or any electronic system of
communication;
D. State Street's action or failure to act in good faith reliance
on the advice or opinion of counsel for Fund or of its own
counsel with respect to questions or matters of law, or on the
Instruction, advice or statements of any officer or employee
of Fund, or Fund's accountants or other authorized
individuals, and other persons believed by it in good faith to
be expert in matters upon which they are consulted;
E. Any error, omission, inaccuracy or other deficiency in any
Portfolio's accounts and records or other information provided
to State Street by or on behalf of a Portfolio, including the
accuracy of the prices quoted by the Pricing Sources or for
the information supplied by Fund to value the assets, or the
failure of Fund to provide, or provide in a timely manner, any
accounts, records, or information needed by State Street to
perform its duties hereunder;
F. Fund's refusal or failure to comply with the terms hereof
(including without limitation Fund's failure to pay or
reimburse State Street under Section 5 hereof), Fund's
negligence or willful misconduct, or the failure of any
representation or warranty of Fund hereunder to be and remain
true and correct in all respects at all times;
<PAGE>
G. The use or misuse, whether authorized or unauthorized, of the
Systems or any electronic system of communication used
hereunder, by Fund or by any person who acquires access to the
Systems or such other systems through the terminal device,
passwords, access instructions or other means of access to such
Systems or such other system which are utilized by, assigned to
or otherwise made available to Fund, except to the extent
attributable to any negligence or willful misconduct by State
Street;
H. Loss occasioned by the acts, omissions, defaults or insolvency
of any broker, bank, trust company, securities system or any
other person with whom State Street may deal; and
I. The failure or delay in performance of its obligations
hereunder, or those of any entity for which it is responsible
hereunder, arising out of or caused, directly or indirectly,
by circumstances beyond the affected entity's reasonable
control, including, without limitation: any interruption, loss
or malfunction of any utility, transportation, computer
(hardware or software) or communication service; inability to
obtain labor, material, equipment or transportation, or a
delay in mails; governmental or exchange action, statute,
ordinance, rulings, regulations or direction; wax, strike,
riot, emergency, civil disturbance, terrorism, vandalism,
explosions, labor disputes, freezes, floods, fires, tornadoes,
acts of God or public enemy, revolutions, or insurrection.
6. COMPENSATION. In consideration for its services hereunder, Fund will
pay to State Street the compensation set forth in a separate fee
schedule, incorporated herein by reference, to be agreed to by Fund and
State Street from time to time, and, upon demand, reimbursement for
State Street's cash disbursements and reasonable out-of-pocket costs
and expenses, including attorney's fees and disbursements, incurred by
State Street in connection with the performance of services hereunder.
7. TERM AND TERMINATION. The initial term of this Agreement is for a
period of three (3) years. Either Fund or State Street may terminate
this Agreement by notice in writing, delivered or mailed, postage
prepaid, to the other party and received not less than ninety (90) days
prior to the date upon which such termination will take effect. Upon
termination hereof
A. Fund will pay State Street its fees and compensation due
hereunder and its reimbursable disbursements, costs and
expenses paid or incurred to such date;
B. Fund will designate a successor which may be Fund by
Instruction to State Street; and
C. State Street will, upon payment of all sums due to State
Street from Fund hereunder or otherwise, deliver all accounts
and records and other properties of Fund to the successor, or,
if none, to Fund, at State Street's office.
In the event that accounts, records or other properties remain in the
possession of State Street after the date of termination hereof for any
reason other than State Street's failure to deliver the same, State
Street is entitled to compensation as provided in the then-current fee
schedule for its services during such period, and the provisions hereof
relating to the duties and obligations of State Street will remain in
full force and effect.
<PAGE>
8. NOTICES. Notices, requests, instructions and other writings addressed
to Fund at the address set forth above, or at such other address as
Fund may have designated to State Street in writing, will be deemed to
have been properly given to Fund hereunder. Notices, requests,
Instructions and other writings addressed to State Street at the
address set forth above, Attention: Investment Accounting Department,
or to such other address as it may have designated to Fund in writing,
will be deemed to have been properly given to State Street hereunder.
9. THE SYSTEMS; CONFIDENTIALITY.
A. If State Street provides Fund direct access to the
computerized investment portfolio recordkeeping and accounting
systems used by State Street ("Systems") or if State Street
and Fund agree to utilize any electronic system of
communication, Fund agrees to implement and enforce
appropriate security policies and procedures to prevent
unauthorized or improper access to or use of the Systems or
such other system.
B. Fund will preserve the confidentiality of the Systems and the
tapes, books, reference manuals, instructions, records,
programs, documentation and information of, and other
materials relevant to, the Systems and the business of State
Street or its affiliates ("Confidential Information"). Fund
agrees that it will not voluntarily disclose any such
Confidential Information to any other person other than its
own employees who reasonably have a need to know such
information pursuant hereto. Fund will return all such
Confidential Information to State Street upon termination or
expiration hereof.
C. Fund has been informed that the Systems are owned by State
Street or licensed for use by State Street and its affiliates
from one or more third parties ("Licensors"), and Fund
acknowledges that State Street and Licensors have proprietary
rights in and to the Systems and all other State Street or
Licensor programs, code, techniques, know how, data bases,
supporting documentation, data formats, and procedures,
including without limitation any changes or modifications made
at the request or expense or both of Fund (collectively, the
"Protected Information"). Fund acknowledges that the Protected
Information constitutes confidential material and trade
secrets of State Street and Licensors. Fund will preserve the
confidentiality of the Protected Information, and Fund hereby
acknowledges that any unauthorized use, misuse, disclosure or
taking of Protected Information, residing or existing internal
or external to a computer, computer system, or computer
network, or the knowing and unauthorized accessing or causing
to be accessed of any computer, computer system, or computer
network, may be subject to civil liabilities and criminal
penalties under applicable law: Fund will so inform directors,
officers, employees, representatives, advisors and agents who
have access to the Protected Information or to any computer
equipment capable of accessing the same. Licensors are
intended to be and are third party beneficiaries of Fund's
obligations and undertakings contained in this Section.
D. Fund hereby represents and warrants to State Street that it has
determined to its satisfaction that the Systems are appropriate
and suitable for its use. THE SYSTEMS ARE PROVIDED ON AN AS IS,
AS AVAILABLE BASIS. STATE STREET EXPRESSLY DISCLAIMS ALL
WARRANTIES INCLUDING, BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE, EXCEPT THOSE WARRANTIES EXPRESSLY STATED HEREIN.
<PAGE>
10. MULTIPLE PORTFOLIOS. If Fund is comprised of more than one Portfolio,
the following provisions apply:
A. Each Portfolio will be regarded for all purposes hereunder as
a separate party apart from each other Portfolio. Unless the
context otherwise requires, with respect to every transaction
covered hereby, every reference herein to Fund is deemed to
relate solely to the particular Portfolio to which such
transaction relates. Under no circumstances will the rights,
obligations or remedies with respect to a particular Portfolio
constitute a right, obligation or remedy applicable to any
other Portfolio. The use of this single document to
memorialize the separate agreement as to each Portfolio is
understood to be for clerical convenience only and will not
constitute any basis for joining the Portfolios for any
reason.
B. Fund may appoint State Street as its investment accounting and
recordkeeping agent for additional Portfolios from time to
time by written notice, provided that State Street consents to
such addition. Rates or charges for each additional Portfolio
will be as agreed upon by State Street and Fund in writing.
11. MISCELLANEOUS.
A. This Agreement will be construed according to, and the rights
and liabilities of the parties hereto will be governed by, the
laws of the Commonwealth of Massachusetts, without reference
to the choice of laws principles thereof.
B. All terms and provisions hereof will be binding upon, inure to
the benefit of and be enforceable by the parties hereto and
their respective successors and permitted assigns.
C. The representations and warranties, the indemnifications
extended hereunder, and the provisions of Section 9 hereof are
intended to and will continue after and survive the
expiration, termination or cancellation hereof.
D. No provisions hereof may be amended or modified in any manner
except by a written agreement properly authorized and executed
by each party hereto.
E. The failure of either party to insist upon the performance of
any terms or conditions hereof or to enforce any rights
resulting from any breach of any of the terms or conditions
hereof, including the payment of damages, will not be
construed as a continuing or permanent waiver of any such
terms, conditions, rights or privileges, but the same will
continue and remain in full force and effect as if no such
forbearance or waiver had occurred. No waiver, release or
discharge of any party's rights hereunder will be effective
unless contained in a written instrument signed by the party
sought to be charged.
F. The captions herein are included for convenience of reference
only, and in no way define or limit any of the provisions
hereof or otherwise affect their construction or effect.
G. This Agreement may be executed in two or more counterparts,
each of which is deemed an original but all of which together
constitute one and the same instrument.
<PAGE>
H. If any provision hereof is determined to be invalid, illegal,
in conflict with any law or otherwise unenforceable, the
remaining provisions hereof will be considered severable and
will not be affected thereby, and every remaining provision
hereof will remain in full force and effect and will remain
enforceable to the fullest extent permitted by applicable law.
I. The benefits of this Agreement may not be assigned by either
party nor may either party delegate all or a portion of its
duties hereunder without the prior written consent of the
other party. Notwithstanding the foregoing, Fund agrees that
State Street may delegate all or a portion of its duties to an
affiliate of State Street, provided that such delegation will
not reduce the obligations of State Street under this
Agreement.
J. Neither the execution nor performance hereof will be deemed to
create a partnership or joint venture by and between State
Street and Fund or any Portfolio.
K. Except as specifically provided herein, this Agreement does
not in any way affect any other agreements entered into among
the parties hereto and any actions taken or omitted by either
party hereunder will not affect any rights or obligations of
the other party hereunder.
L. Notice is hereby given that a copy of Fund's Trust Agreement
and all amendments thereto is on file with the Secretary of
State of the state of its organization; that this Agreement
has been executed on behalf of Fund by the undersigned duly
authorized representative of Fund in his/her capacity as such
and not individually; and that the obligations of this
Agreement are binding only upon the assets and property of
Fund and not upon any trustee, officer of shareholder of Fund
individually.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officers.
STATE STREET BANK AND TRUST MEMBERS MUTUAL FUNDS
COMPANY
By: /s/ Ken Bergeron By: /s/ Mary Hoffmann
Title: Sr. Vice President Title: Treasurer
<PAGE>
EXHIBIT B--REUTERS DATA SERVICE AGREEMENT
The undersigned acknowledges and agrees that some of the data being provided in
the service by State Street to Fund contains information supplied to State
Street by Reuters America Inc. ("Reuters") (the "Data"). Fund agrees that:
(i) although Reuters makes every effort to ensure the accuracy and
reliability of the Data, Fund acknowledges that Reuters, its
employees, agents, contractors, subcontractors, contributors
and third party providers will not be liable for any loss,
cost or damage suffered or incurred by Fund arising out of any
fault, interruption or delays in the Data or out of any
inaccuracies, errors or omissions in the Data however such
faults, interruptions, delays, inaccuracies, errors or
omissions arise, unless due to the gross negligence or willful
misconduct of Reuters;
(ii) it will not transfer, transmit, recirculate by digital or
analogue means, republish or resell all or part of the Data;
and
(iii) certain parts of the Data are proprietary and unique to
Reuters.
The undersigned further agrees that the benefit of this clause will inure to the
benefit of Reuters.
MEMBERS Mutual Funds
By: /s/ Mary Hoffmann
Title: Treasurer
Date: October 27, 2000
<PAGE>
SCHEDULE A
MEMBERS Mutual Funds
<PAGE>
Exhibit (m)(3)
MEMBERS MUTUAL FUNDS
SUPPLEMENT NO. 2 TO
SERVICE PLAN
CLASS A SHARES
A. MEMBERS Mutual Funds (the "Fund") is a diversified, open-end management
investment company registered with the Securities and Exchange Commission under
the Investment Company Act of 1940, as amended (the "1940 Act").
B. Paragraph B of the Service Plan (the "Plan") states that the Plan shall also
apply to the Class A Shares of any other Fund as shall be designated from time
to time by the board of trustees of the Trust (the "Board") in any supplement to
the Plan.
C. At its December 6, 2000 meeting, the Board of Trustees approved supplementing
the Plan to include the Mid-Cap Stock Fund as part of the Plan.
D. The Service Plan is hereby supplemented to include the Mid-Cap Stock Fund.
IN WITNESS WHEREOF, MEMBERS Mutual Funds has adopted this Supplement to
the Service Plan as of February 15, 2001.
MEMBERS MUTUAL FUNDS
By: /s/ Lawrence R. Halverson
Lawrence R. Halverson
President
<PAGE>
Exhibit (m)(6)
MEMBERS MUTUAL FUNDS
SUPPLEMENT NO. 2 TO
DISTRIBUTION PLAN
CLASS B SHARES
A. MEMBERS Mutual Funds (the "Fund") is a diversified, open-end management
investment company registered with the Securities and Exchange Commission under
the Investment Company Act of 1940, as amended (the "1940 Act").
B. Paragraph B of the Distribution Plan (the "Plan") states that the Plan shall
also apply to the Class B Shares of any other Fund as shall be designated from
time to time by the board of trustees of the Trust (the "Board") in any
supplement to the Plan.
C. At its December 6, 2000 meeting, the Board of Trustees approved supplementing
the Plan to include the Mid-Cap Stock Fund as part of the Plan.
D. The Distribution Plan is hereby supplemented to include the Mid-Cap Stock
Fund.
IN WITNESS WHEREOF, MEMBERS Mutual Funds has adopted this Supplement to
the Distribution Plan as of February 15, 2001.
MEMBERS MUTUAL FUNDS
By: /s/ Lawrence R. Halverson
Lawrence R. Halverson
President
<PAGE>
Exhibit (m)(9)
MEMBERS MUTUAL FUNDS
SUPPLEMENT NO. 2 TO
SERVICE PLAN
CLASS D SHARES
A. MEMBERS Mutual Funds (the "Fund") is a diversified, open-end management
investment company registered with the Securities and Exchange Commission under
the Investment Company Act of 1940, as amended (the "1940 Act").
B. Paragraph B of the Service Plan (the "Plan") states that the Plan shall also
apply to the Class D Shares of any other Fund as shall be designated from time
to time by the board of trustees of the Trust (the "Board") in any supplement to
the Plan.
C. At its December 6, 2000 meeting, the Board of Trustees approved supplementing
the Plan to include the Mid-Cap Stock Fund as part of the Plan.
D. The Service Plan is hereby supplemented to include the Mid-Cap Stock Fund.
IN WITNESS WHEREOF, MEMBERS Mutual Funds has adopted this Supplement to
the Service Plan as of February 15, 2001.
MEMBERS MUTUAL FUNDS
By: /s/ Lawrence R. Halverson
Lawrence R. Halverson
President
<PAGE>
Exhibit (p)(1)
MEMBERS MUTUAL FUND
CODE OF ETHICS
June 1, 2000
I. INTRODUCTION
MMF is a registered investment company. The investment adviser for the
Fund is CIMCO Inc. The Investment Company Act of 1940 ("Act") requires
the Fund to adopt a written code of ethics that governs the Fund's
"access persons" as defined by the Act. This code is intended to meet
this requirement. All Fund access persons are held to high ethical
standards. These high ethical standard include the following
principles:
A. At all times to place the interest of clients first;
B. All personal securities transactions be conducted consistent
with this Code of Ethics and in such a manner as to avoid any
actual or potential conflict of interest or any abuse of an
individual's position of trust and responsibility;
C. Never take inappropriate advantage of their positions;
D. To act with integrity, competence, dignity and in an ethical
manner when dealing with the public, clients, prospects,
employers, employees;
E. Strive to maintain and improve competence in the profession;
and
F. Use of reasonable care and exercise independent and
professional judgment.
II. PERSONAL TRADING
In addition to the general principles stated above, federal securities
laws impose certain standards on the personal trading activities of all
market participants. In particular, all investors are precluded from
engaging in insider trading or tipping. Additionally, mutual fund and
investment advisor employees and/or access persons are subject to
additional regulations that address potential conflicts arising from
their personal investment activities. This Code of Ethics describes
these standards and regulations. If you have any questions about this
Code of Ethics or a specific transaction please contact a member of the
Compliance Committee.
A. Persons covered.
The "access persons" of the Fund as defined by the Act are
covered by this Code. "Access persons" will be identified by
the Compliance Committee and informed of their obligations
under this Code.
B. Prohibitions.
Access Persons are prohibited from doing the following for any
transaction or account in which they have, or may acquire, any
direct or indirect beneficial ownership interest and over
which transaction the Access Person has direct or indirect
control:
1. Purchasing any securities in an initial public
offering;
2. Purchasing any securities on the Restricted List (the
Restricted List is described later in this policy);
3. Profiting in the purchase and sale or sale and
purchase of the same security within 60 calendar
days;
4. Receiving any gift or other thing of more than de
minimis value from any person or entity that does
business with or on behalf of the Funds and no gifts
should be received at a person's residence;
5. Serving on the board of directors of a publicly
traded company;
6. Acquiring any security in a private placement
transaction;
7. Trading on material, nonpublic information (If you
have any questions whether information is material or
nonpublic, we strongly recommend that you do not
trade. If for some reason you still believe it is
appropriate to trade, we require that you discuss
this matter with the Compliance Committee.); and
8. Tipping - communicating nonpublic material
information to others.
C. Procedures.
Access Persons must do the following:
1. Complete quarterly personal securities transaction
reports. The Legal Department will distribute the
reports quarterly. The reports must be completed and
returned to the Legal Department within ten days
after the end of each quarter.
2. Acknowledge in writing your receipt, review and
understanding of this Code of Ethics.
3. Certify annually that you have complied with the
requirements of this Code of Ethics and have
disclosed all personal security transactions.
<PAGE>
4. Obtain preclearance from a member of the Compliance
Committee of all personal security transactions
before making the transaction on the form attached as
Exhibit A. The Compliance Committee will issue a
response within one business day. The clearance will
be effective for five business days.
5. Disclose all personal security holdings upon
commencement of employment and thereafter on an
annual basis.
6. Provide duplicate brokerage confirmation statements
to the Compliance Committee.
D. Exemptions.
1. The following investments are not subject to the
prohibitions set forth in Section II(B)and (C):
a. Securities issued by the government of the
United States or its agencies;
b. Bank certificates of deposit;
c. Shares of registered open-end investment
companies;
2. The independent Trustees of the mutual funds and the
independent directors of CIMCO are not subject to the
preclearance procedure described in section II. C. 4.
3. Purchases or sales of securities for an account over
which an Access Person has no direct control and does
not exercise indirect control are not subject to
sections II.B.2., II.B.3., and II.C.4. The Committee
may require additional documentation in connection
with this exemption.
4. Any other transaction specifically approved in
writing by the Compliance Committee.
<PAGE>
III. Miscellaneous.
A. Restricted List.
A designated CIMCO employee will maintain the restricted list.
The restricted list will include all stocks for which CIMCO
has a pending buy or sell order (excepted as described below).
A stock will remain on the restricted list for seven calendar
days after the trade is executed or withdrawn. Anyone who
purchases a stock while it is on the restricted list will be
directed to sell the stock and disgorge any profits to the
United Way of Dane County. Additionally, all portfolio
managers are prohibited from buying or selling stock within
seven (7) days before a portfolio he/she manages trades in
that stock. Issues of stocks with a market capitalization of
more than $50 billion will not be included on the restricted
list. However, if there is any question as to an issuer's
market capitalization exceeding $50 billion, the designated
employee is directed to include it on the list.
B. Private Placement Information.
A watch list will be maintained by a designated CIMCO
employee. The Watch List will include companies for which the
private placement section has current material, nonpublic
information. A company will be removed from the Watch List
when the designated employee determines the information is no
longer material, nonpublic information. The designated
employee will also maintain a locked file system to house the
material, nonpublic information. The designated employee will
control access to the locked filing system.
C. The Compliance Committee.
The Compliance Committee shall consist of three members. One
member shall be appointed by the President of CIMCO; one
member shall be appointed by the head of internal auditing;
and one member shall be appointed by the general counsel.
D. Incorporation of Sub-Adviser's Code of Ethics.
The provisions of each investment sub-adviser's code of ethics
(i.e., the code of ethics of Investment Advisers, Inc., Lazard
Asset Management, and Massachusetts Financial Services Company
(collectively, "sub-advisers")), which are attached as
Appendices A, B and C, are incorporated by reference as the
Fund's Code applicable to the sub-adviser's employees that are
access persons of the Fund.
<PAGE>
E. Quarterly Audits.
A person designated by the head of internal auditing shall
conduct an audit within the month following the end of each
quarter to review compliance with this Code of Ethics. The
audit will review quarterly reports of personal securities
transactions and compare personal trades to the restricted
list. The results of the audit will be presented to the
members of the Compliance Committee.
F. Sanctions.
Any violation of this Code of Ethics may subject the person to
a recommendation by the Compliance Committee which calls for
disciplinary action, dismissal, disgorgement of profits,
divestiture of stock, or other appropriate sanctions as
determined by the Compliance Committee.
G. Reports.
The Compliance Committee will report to the Boards of
Directors of the Fund. The reports will include any violations
of this policy which required significant remedial action and
will contain recommendations for changes, if any, in this
policy.
H. Amendment.
The Board of Directors may materially amend this policy from
time to time. Non-material amendments may be made by written
notice of the Compliance Committee.
<PAGE>
Exhibit (p)(2)
MASSACHUSETTS FINANCIAL SERVICES COMPANY
MFS FUNDS
STATEMENT OF POLICY ON
PERSONAL SECURITIES TRANSACTIONS
(Code of Ethics)
As Adopted by the MFS Audit Committee
and the Boards of Trustees/Managers of the MFS Funds
Effective as of September 1, 2000
As an investment advisory organization with substantial
responsibilities to clients, Massachusetts Financial Services Company ("MFS")
has an obligation to implement and maintain a meaningful policy governing the
securities transactions of its Directors, officers and employees ("MFS
representatives")1. In addition, each of the investment companies registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), with
respect to which MFS, or a subsidiary of MFS, acts as investment adviser
(collectively, the "MFS Funds") is required to adopt such a policy governing the
securities transactions of its Trustees and officers ("Fund representatives").
Accordingly, this policy has been adopted by the MFS Audit Committee and by each
of the MFS Funds. This policy is intended to minimize conflicts of interest, and
even the appearance of conflicts of interest, between members of the MFS
organization and its clients in the securities markets as well as to effect
compliance with the 1940 Act, the Investment Advisers Act of 1940, as amended,
and the Securities Exchange Act of 1934, as amended. This policy inevitably will
restrict MFS representatives in their securities transactions, but this is the
necessary consequence of undertaking to furnish investment advice to clients or
serving as a Fund representative. In addition to complying with the specific
rules, all MFS representatives and Fund representatives must be sensitive to the
need to recognize any conflict, or the appearance of conflict, of interest
whether or not covered by the rules. When such situations occur, the interests
of the MFS Funds and MFS' other clients must supersede the interest of MFS
representatives and Fund representatives.
1. General Fiduciary Principles. All personal investment activities
conducted by MFS representatives and Fund representatives are subject to
compliance with the following principles: (i) the duty at all times to place the
interests of MFS' clients first; (ii) the requirement that all personal
securities transactions be conducted consistent with this Code of Ethics and in
such a manner as to avoid any actual or potential conflict of interest or any
abuse of an individual's position of trust and responsibility; and (iii) the
fundamental standard that MFS representatives and Fund representatives should
not take inappropriate advantage of their positions.
2. Applicability of Restrictions and Procedures.
Categories of Personnel. In recognition of the different circumstances
surrounding each MFS representative's employment, various categories of
representatives are subject to different restrictions under this Code
of Ethics. For purposes of applying this Code of Ethics, MFS
representatives and Fund representatives are divided into the general
categories of Portfolio Managers, Investment Personnel, Access Persons2
and Non-Access Persons, as each such term is defined in Appendix A to
this Code of Ethics, as amended from time to time by the MFS Audit
Committee and the MFS Funds. Any Fund representative who is also an MFS
representative shall be subject to all requirements applicable to MFS
representatives.
Note: Any Non-Access Person who receives any information about
any particular investment recommendation or executed or proposed
transaction for any MFS client is required to comply with all
preclearance and other requirements of this Code of Ethics applicable
to Access Persons.
Beneficial Ownership. The requirements of this Code of Ethics apply to
any account in which an MFS representative or Fund representative has (i)
"direct or indirect beneficial ownership" or (ii) any "direct or indirect
influence or control." Under applicable SEC interpretations, such "beneficial
ownership" includes accounts of a spouse, minor children and dependent relatives
resident in the MFS representative's or Fund representative's house, as well as
any other contract, relationship or other arrangement which results in an
opportunity for an MFS representative or Fund representative to profit or share
profits from a transaction in securities.3
Securities. As used in this Code of Ethics, the term "securities"
includes not only publicly traded equity securities, but also privately issued
equity securities, limited partnership interests, shares of closed-end funds,
fixed income securities (including municipal bonds and many types of U.S.
Government securities), futures, options, warrants, rights, swaps, commodities
and other similar instruments. Moreover, the restrictions of this Code of Ethics
apply to transactions by Access Persons involving securities and other
instruments related to, but not necessarily the same as, securities held or to
be acquired on behalf of an MFS client. (See Section 7 for certain exceptions)
3. Restrictions on Personal Securities Transactions.
All Access Persons. No Access Person shall trade in any
security which is subject to a pending "buy" or "sell" order, or is
being considered for purchase or sale4, for a client of MFS until the
second business day after such order is executed or withdrawn or such a
transaction is no longer being considered. In addition, no Access
Person shall trade in any security until the third business day after a
research note with respect to such security has been issued or revised.
Investment Personnel. In addition, no Investment Personnel
shall trade in any security after an MFS client trades in such security
or such security has been considered for purchase or sale on behalf of
an MFS client until: (i) the second business day following such trade
or consideration (in the case of a proposed trade by an Investment
Personnel in the same direction as the MFS client); or (ii) the eighth
calendar day thereafter (in the case of a proposed trade by an
Investment Personnel in the opposite direction from the MFS client's
trade).
Portfolio Managers. No Portfolio Manager shall trade in any
security within at least seven calendar days before or after an MFS
client whose account he or she manages trades in such security or such
security has been considered for purchase or sale on behalf of such an
MFS client. Portfolio Managers shall not be permitted to sell for their
own account securities that are held in an MFS client account that he
or she manages. Any Portfolio Manager who feels inequitably burdened by
this restriction may present a written request for an exemption from
the MFS Equity Management Committee.5 The Committee may, in its sole
discretion, grant appropriate exceptions where warranted by special
facts and circumstances (e.g. selling securities to settle an estate or
to acquire a residence).
Disgorgement of Profits; Confidentiality. Any profits realized
on trades within these proscribed periods must be disgorged to the
affected MFS client or, in the event that the amount to be disgorged is
relatively minor or difficult to allocate, to charity. In addition, no
MFS representative shall provide any information about such transaction
or recommendation to any person other than in connection with the
proper execution of such purchase or sale for an MFS client's account.
Short Sales. No Access Person shall effect a short sale in any
securities held in a portfolio managed by MFS.
Options and Futures Transactions. Access Persons may purchase
(to open) and sell (to close) call and put options and futures
contracts on securities, subject to the preclearance and other
requirements of this Code of Ethics; however, an Access Person
may neither buy a put option nor write (sell to open) options
and futures contracts, in each case on any security held in a
portfolio managed by MFS. In the case of purchased put and
call options, the preclearance of the exercise of such options
as well s their purchase and sale, is required. Preclearance
of the exercise of purchased put and call options shall be
requested on the date before the proposed exercise or, if
notice to the writer of such options is required before the
proposed exercise date, the date before notice is proposed to
be given, setting forth the proposed exercise date as well as
the proposed notice date.6 Purchases and sales of options or
futures contracts to "close out" existing options or futures
contracts must be precleared.7
Initial Public Offerings. The purchase by Access Persons of
securities (other than securities of registered open-end
investment companies) offered at fixed public offering price
by underwriters or a selling group is prohibited8. Rights
(including rights purchased to acquire an additional full
share) issued in respect of securities any Access Persons owns
may be exercised, subject to preclearance; the decision
whether or not to grant preclearance shall take into account,
among other factors, whether the investment opportunity should
be reserved for an MFS client and whether the investment
opportunity is being or was offered to the individual by
virtue of his or her position with MFS.
Private Placements. Any acquisition by Access Persons of
securities issued in a private placement is subject to prior
approval with the Compliance Department in consultation with
the Legal Department and other appropriate parties. The
decision whether or not to grant approval shall take into
account, among other factors, whether the investment
opportunity should be reserved for an MFS client and whether
the investment opportunity is being offered to the individual
by virtue of his or her position with MFS. Investment
Personnel who have been approved to acquire securities in a
private placement are required to disclose that investment
when they play a part in any subsequent consideration of an
investment in the issuer for an MFS client. In such
circumstances, the decision to purchase securities of the
issuer for the MFS client shall be subject to an independent
review by Investment Personnel with no personal interest in
the issuer.
Note: Acquisitions of securities in private placements by country
clubs, yacht clubs, restaurants and other similar entities need not be
pre-approved, but are subject to the reporting, disclosure and
independent review requirements.
Prohibition on Short-Term Trading Profits. All Investment Personnel are
prohibited from profiting in the purchase and sale, or sale and
purchase, of the same (or equivalent) securities within 60 calendar
days. Any profits realized on such short-term trades must be disgorged
to the affected MFS client (if any) or, in the event that the amount to
be disgorged is relatively minor or difficult to allocate, to charity.
This restriction on short-term trading profits shall not apply to
transactions exempt from preclearance requirements, as described in
Section 7 below.
It is expected that all MFS representatives will follow these
restrictions in good faith and conduct their personal trading in keeping with
the intended purpose of this Code of Ethics. Any individual should feel free to
take up with the MFS Audit Committee any case in which he or she feels
inequitably burdened by these policies.9 The MFS Audit Committee may, in its
sole discretion, grant appropriate exceptions from the requirements of this Code
of Ethics where warranted by applicable facts and circumstances.
4. Preclearance Requirements. In order to facilitate compliance with
this Code of Ethics, preclearance requests must be made and approved before any
transaction may be made by an Access Person or for any other account
beneficially owned by an Access Person. A preclearance request in the form set
forth in MFS' automated Code of Ethics system, as amended from time to time,
should be completed and submitted electronically for any order for an Access
Person's own account or one described in Section 2 above, or, in the case of an
Access Person who wishes to preclear while outside of the Boston area, should
either: (i) be completed in the form attached hereto, as amended from time to
time, signed and submitted by facsimile machine, to the Compliance Department;
or (ii) be submitted by telephone call to the Compliance Department. Any
preclearance request received before 3:00 p.m. on a business day will be
responded to as soon as available on the following business day. Preclearance
requests will be reviewed by Equity and Fixed Income Department personnel who
will be kept apprised of recommendations and orders to purchase and sell
securities on behalf of MFS clients, the completion or cancellation of such
orders and the securities currently held in portfolios managed by MFS. Their
advice will be forwarded to the Compliance Department.
Maximum Number of Preclearance Requests. The preclearance process
imposes significant burdens on the investment and administrative departments
within MFS. Accordingly, no Access Person may submit more than twenty (20)
preclearance requests in any calendar quarter. In special circumstances the MFS
Audit Committee may, in its sole discretion, grant temporary exceptions from
this restriction where warranted by applicable facts and circumstances.10
An Access Person who obtains electronic or written notice from the
Compliance Department indicating consent to an order which the Access Person
proposes to enter for his or her own account or one described in Section 2 above
may execute that order only on the day when such notice is received unless
otherwise stated on the notice. Such notices will always be electronic or in
writing; however, in the case of an Access Person who wishes to preclear a
transaction while outside the Boston area, the Compliance Department will also
provide oral confirmation of the content of the written notice.
Preclearance requests may be denied for any number of appropriate
reasons, most of which are confidential. For example, a preclearance request for
a security that is being considered for purchase or sale on behalf of an MFS
client may be denied for an extended period. Accordingly, an Access Person is
not entitled to receive any explanation or reason if his or her preclearance
request is denied, and repetitive requests for an explanation by an Access
Person will be deemed a violation of this Code of Ethics.
Securities Subject to Automatic Purchases and Sales for MFS Clients.
Certain MFS funds and institutional accounts are managed such that the
securities held in such portfolios are regularly purchased or sold on
an equal proportionate basis so as to preserve specified percentage
weightings of such securities across such portfolios. Requests to
preclear purchases of securities held in such portfolios will be
denied. Requests to sell such securities may be granted, subject to the
standard preclearance requirements.
Gifts and Transfers. A gift or transfer shall be excluded from the
preclearance requirements provided that the recipient represents in
writing that he, she, they or it has no present intention of selling
the donated security.
MFS Closed-End Funds. All transactions effected by any MFS
representative in shares of any closed-end fund for which MFS or one of
its affiliates acts as investment adviser shall be subject to
preclearance and reporting in accordance with this Code of Ethics.
Non-Access Persons are exempt from the preclearance and reporting
requirements set forth in this Code of Ethics with respect to
transactions in any other type of securities, so long as they have not
received any information about any particular investment recommendation
or executed or proposed transaction for any MFS client with respect to
such security.
5. Duplicate Confirmation Statement Requirement. In order to implement
and enforce the above policies, every Access Person shall arrange for his or her
broker to send MFS duplicate copies of all confirmation statements issued with
respect to the Access Person's transactions and all periodic statements for such
Access Person's securities accounts (or other accounts beneficially owned by
such Access Person). The Compliance Department will coordinate with brokerage
firms in order to assist Access Persons in complying with this requirement.
6. Reporting Requirement. Each Access Person shall report on or before
the tenth day of each calendar quarter any securities transactions during the
prior quarter in accounts covered by Section 2 above. Employees who fail to
complete and file such quarterly reports on a timely basis will be reported to
the MFS Audit Committee and will be subject to sanctions. Reports shall be
reviewed by the Compliance Department.
Any reports filed by a "Disinterested Trustee" (as such term is defined
in Section 12 below) shall be reviewed by the Secretary of the Fund. If the
Secretary of the Fund determines that a violation of this Code of Ethics may
have occurred, he shall submit the pertinent information to counsel for the
Disinterested Trustees. Such counsel shall determine whether a material
violation of this Code of Ethics may have occurred, after considering all
available exemptions and providing the Disinterested Trustee involved with an
opportunity to supply additional information regarding the transaction in
question. If such counsel determines that a material violation of this Code of
Ethics has occurred, they shall so advise the Chairman or President of the Fund
and an ad hoc committee consisting of the Disinterested Trustees of the Fund,
other than the involved Disinterested Trustee, and shall provide the committee
with a report of the matter, including any additional information supplied by
the involved Disinterested Trustee. The committee may impose such sanctions as
it deems appropriate.
In filing the reports for accounts within these rules, please note:
(i) Each Access Person must file a report for every calendar
quarter even if he or she had no reportable transactions in
that quarter; all such reports shall be completed and
submitted in the form set forth in MFS' automated Code of
Ethics system.
(ii) Reports must show any sales, purchases or other acquisitions
or dispositions, including gifts, exercises of conversion
rights and exercises or sales of subscription rights. See
Section 7 below for certain exceptions to this requirement.
(iii Reports will be treated confidentially unless a review of
particular reports with the representative is required by the
MFS Audit Committee or for legal or compliance purposes.
(v) Reports are made available for review by the Board of
Trustees/Managers of the MFS Funds company clients upon their request.
Note: Any Access Person who maintains all of his or her personal
securities accounts with one or more broker-dealer firms that send
confirmation and periodic account statements in an electronic format
approved by the Compliance Department, and who arranges for such firms
to send such statements (no less frequently than quarterly) required by
Section 5 above, shall not be required to prepare and file the
quarterly reports required by this Section 6. However, each such Access
Person shall be required to verify the accuracy and completeness of all
such statements on at least an annual basis.
7. Certain Exceptions.
Mutual Funds. Transaction in shares of any of the open-end investment
companies, including funds for which the MFS organization is investment adviser,
need not be precleared or reported.
Closed-End Funds. Automatic reinvestments of distributions of
closed-end funds advised by MFS pursuant to dividend reinvestment plans of such
funds need only be reported. All other closed-end fund transactions must be
precleared and reported.
MFS and Sun Life Common Stock. Transactions in shares of stock of MFS
need not be precleared or reported. Note, however, that transactions in shares
of stock of Sun Life Financial Services of Canada Inc. are subject to
preclearance with the Compliance Department.
Large Capitalization Stocks. Transactions in securities issued by companies with
market capitalizations of at least $5 billion generally will be eligible for
automatic preclearance (subject to certain exceptions), but must be reported and
are subject to post-trade monitoring. The Compliance Department will maintain a
list of issuers that meet this market capitalization requirement. A preclearance
request for a large capitalization company will be denied whenever deemed
appropriate.
U.S. Government Securities. Transactions in U.S. Treasury securities and other
U.S. Government obligations (including options and futures contracts and other
derivatives with respect to such securities) need not be precleared or reported.
Dividend Reinvestment Plans. Automatic reinvestments of dividends in shares of
common stock of public companies often are eligible for an exemption from
preclearance. Any requests for exemptions should be directed to the Compliance
Department.
Other Exceptions. Transaction in money market instruments and in
options on broad-based indices need not be precleared, although such
transactions must be reported. The types of instruments and indices that are
eligible for this exception are constantly developing; the Compliance Department
maintains the definitive list of eligible instruments and indices. In addition,
the following types of transactions need not be precleared or reported: (i)
stock dividends and stock splits; (ii) foreign currency transactions; and (iii)
transactions in real estate limited partnership interests. For other exceptions
from preclearance or reporting, an MFS representative may contract the
Compliance Department.
8. Disclosure of Personal Securities Holdings. All Access Persons are
required to disclose all personal securities holdings within 10 days after
becoming an Access Person (i.e. upon commencement of employment with MFS or
transfer within MFS to an Access Person position) and thereafter on an annual
basis. Reports shall be reviewed by the Compliance Department.
9. Gifts, Entertainment and Favors. MFS representatives must not make
business decisions that are influenced or appear to be influenced by giving or
accepting gifts, entertainment or favors. Investment Personnel are prohibited
from receiving any gift or other thing of more than de minimis value from any
person or entity that does business with or on behalf of MFS or its clients.
Invitations to an occasional meal, sporting event or other similar activity will
not be deemed to violate this restriction unless the occurrence of such events
is so frequent or lavish as to suggest an impropriety.
10. Service as a Director. All MFS representatives are prohibited from
serving on the boards of directors of commercial business enterprises, absent
prior authorization by the Management Committee based upon a determination that
the board service would be consistent with the interests of MFS' clients. In the
relatively small number of instances in which board service is authorized, MFS
representatives serving as directors may be isolated from other MFS
representatives through "Chinese Wall" or other appropriate procedures.
11. Certification of Compliance with Code of Ethics. All MFS
representatives and Fund representatives (including Non-Access Persons) shall be
required to certify annually that (i) they have read and understand this Code of
Ethics and recognize that they are subject to its requirements applicable to
them and (ii) they have complied with all requirements of this Code of Ethics
applicable to them, and (in the case of Access Persons) have reported all
personal securities transactions (whether pursuant to quarterly reports from the
representative or duplicate confirmation statements and periodic reports from
the representative's broker-dealer) required to be reported pursuant to this
Code of Ethics. This certification shall apply to all accounts beneficially
owned by an MFS representative or Fund representative.
12. Boards of Trustees/Managers of MFS Funds. Any material amendment to
this Code of Ethics shall be subject to the approval of each of the Boards of
Trustees/Managers (including a majority of the Disinterested Trustees/Managers
on each such Board) of each of the MFS Funds. In addition, on at least an annual
basis, MFS shall provide each such Board with a written report that: (i)
describes issues that arose during the preceding year under this Code of Ethics,
including without limitation information about any material violations of this
Code of Ethics and any sanctions imposed with respect to such violations; and
(ii) certifies to each such Board that MFS has adopted procedures reasonably
necessary to prevent Access Persons from violating this Code of Ethics.
Notwithstanding any provision to the contract in this Code of Ethics,
any Trustee/Manager of an MFS Fund who is not an "interested person" of such
fund within the meaning of Section 2(a)(19) of the Investment Company Act (each
a "Disinterested Trustee") shall not be subject to any of the requirements set
forth in Sections 3, 4, 5, 8, 9, 10 or 11 of this Code of Ethics. In addition,
any Disinterested Trustee shall not be subject to the reporting requirements set
forth in Section 6 of this Code of Ethics, except with respect to securities
transactions with respect to which such Disinterested Trustee knew or, in the
ordinary course of fulfilling his or her official duties as a Trustee, should
have known that during the 15-day period immediately before or after the
Trustee's transaction in such security, such security was purchased or sold, or
considered for purchase or sale, for an MFS Fund.
13. Sanctions. Any trading for an MFS representative's or Fund
representative's account which does not evidence a good faith effort to comply
with these rules will be subject to review by the MFS Audit Committee or, in the
case of Disinterested Trustees, by an ad hoc committee in the manner described
in Section 6 above. If the Audit Committee or such ad hoc committee, as
applicable, determines that a violation of this Code of Ethics or its intent has
occurred, it may impose such sanctions as it deems appropriate including
forfeiture of any profit from a transaction and/or termination of employment.
Any violations resulting in sanctions will be reported to the Boards of
Trustees/Managers of the MFS Funds and will be reflected in the MFS' compliance
files.
<PAGE>
APPENDIX A
CERTAIN DEFINED TERMS
As used in this Code of Ethics, the following shall terms shall have
the meanings set forth below, subject to revision from time to time by the MFS
Audit Committee and MFS Funds:
Portfolio Managers -- employees who are authorized to make investment
decisions for a mutual fund or client portfolio. Note: research
analysts are deemed to be Portfolio Managers with respect to the entire
portfolio of any fund managed collectively by a committee of research
analysts (e.g. MFS Research Fund) except that, for purposes of the
restriction on sales of securities held in a managed client account set
forth in Section 3, analysts are deemed to be Portfolio Managers only
with respect to portfolio securities within the industry they cover.
Investment Personnel -- all Portfolio Managers as well as research
analysts, traders and other members of the Equity Trading, Fixed Income
and Equity Research Departments, and other MFS representatives who have
access to confidential portfolio information.
Access Persons - all Fund representatives (see Section 12 for certain
exceptions), Portfolio Managers, Investment Personnel and other members
of the following departments or groups: Institutional Advisors;
Compliance; Internal Audit; Fund Treasury; Investment Operations;
Investment Communications; and Technology Services & Solutions ("TS&S")
(excluding, however, certain TS&S employees who are employed at
Lafayette Corporate Center and certain TS&S employees who may be
specifically excluded by the Compliance or Legal Departments); also
included are members of the MFS Management Group, the MFS
Administrative Committee and the MFS Operations Committee. In certain
instances, other MFS employees, non-employee consultants and other
independent contractors may be deemed Access Persons and therefore be
subject to some or all of the requirements set forth in this Code of
Ethics.
Non-Access Persons -- all employees of the following departments or
groups: Corporate Communications; Corporate Finance; Facilities
Management; Human Resources; Legal; MFS Service Center, Inc. (other
than TS&S employees who are employed at 500 Boylston Street); Retired
Partners; Travel and Conference Services; the International Division;
MFS International Ltd.; MFS Fund Distributors, Inc.; and MFS Retirement
Services, Inc. Note: Any Non-Access Person who receives any information
about any particular investment recommendation or executed or proposed
transaction for any MFS client is required to comply with all
preclearance and other requirements of this Code of Ethics applicable
to Access Persons. Any Non-Access Person who regularly receives such
information will be reclassified as an Access Person. In addition,
transactions in shares of the MFS closed-end funds by all MFS
representatives are subject to all such preclearance and reporting
requirements (see Section 4 of this Code of Ethics).
<PAGE>
PERSONAL SECURITIES TRASACTION
PRECLEARANCE REQUEST
[Only For Use by MFS Employees
Not Located In Boston]
Date: ,
All transactions must be precleared, regardless of their size, except those in
certain specific categories of securities that are exempted under the MFS Code
of Ethics. If necessary, continue on the reverse side. Please note that special
rules apply to the preclearance of option and futures transactions. If the
transaction is to be other than a straightforward sale or purchase of
securities, mark it with an asterisk and explain the nature of the transaction
on the reverse side. Describe the nature of each account in which the
transaction is to take place, i.e., personal, spouse, children, charitable
trust, etc.
SALES
CUSIP/TICKER AMOUNT OR BROKER NATURE* OF
SECURITY NO. OF SHARES ACCOUNT
PURCHASES
I represent that I am not in possession of material non-public information
concerning the securities listed above or their issuer. If I am an MFS access
person charged with making recommendations to MFS with respect to any of the
securities listed above, I represent that I have not determined or been
requested to make a recommendation in that security except as permitted by the
MFS Code of Ethics.
Signature and Date
Name of MFS Access Person
(please print)
* Check if you wish to claim that the reporting of the account or the securities
transaction shall not be construed as an admission that you have any direct or
indirect beneficial ownership in such account or securities.
Explanatory Notes: This form must be filed by 3:00 p.m. on the business day
prior to the business day on which you wish to trade and covers all accounts in
which you have an interest, direct or indirect. This includes any account in
which you have "beneficial ownership" (unless you have no influence or control
over it) and non-client accounts over which you act in an advisory or
supervisory capacity. No trade can be effected until approval from the
Compliance Department has been obtained.
1 Employees of MFS Institutional Advisors, Inc., MFS Fund Distributors,
Inc., MFS Retirement Services, Inc., MFS International Ltd., MFS International
(U.K.) Ltd., MFS Service Center, Inc., Vertex Investment Management Inc. and MFS
Heritage Trust Company also are covered by this Code of Ethics.
2 Note that all Portfolio Managers also are Investment Personnel and
Access Persons, and that all Investment Personnel also are Access Persons.
3 NOTE: The exception for accounts with respect to which an MFS
representative or Fund representative lacks "direct or indirect influence or
control" is extremely narrow, and should only be relied upon in cases which have
been pre-approved in writing by Stephen E. Cavan or Robert T. Burns of the Legal
Department. Certain "blind trust" arrangements approved by the Legal Department
may be excluded from the preclearance (but not the quarterly reporting)
requirements of this Code of Ethics. Requests for pre-approval of "blind trusts"
should be reviewed first with the Compliance Department.
4 A security is deemed to have been "considered for purchase or sale"
when a recommendation to purchase or sell such security has been made and
communicated to a portfolio manager and, with respect to the person making the
recommendation, when such person seriously considers making such a
recommendation.
5 Any request for an exemption should be reviewed first with the
Compliance or Legal Department.
6 Access Persons not that this requirement may result in their not
being allowed to exercise an option purchased by them on the exercise date they
desire, and in the case of a "European" option on the only date on which
exercise is permitted by the terms of the option.
7 Access Persons should note that as a result of this requirement, they
may not be able to obtain preclearance consent to close out an option or futures
contract before the settlement date. If such an option or futures contract is
automatically closed out, the gain, if any, on such transaction will be
disgorged in the manner described above.
8 The reason for this rule is that it precludes any possibility that
Access Persons might use MFS' clients' market stature as a means of obtaining
for themselves "hot" issues which otherwise might not be offered to them. In
addition, this rule eliminates the possibility that underwriters and selling
group members might seek by this means to gain favor with individuals in order
to obtain preferences from MFS.
9 Any request for an exemption should be reviewed first with the
Compliance or Legal Department. 10 Any request for an exception should be
reviewed first with the Compliance or Legal Department.
<PAGE>
Exhibit - Powers of Attorney
LIMITED POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a Trustee of the
MEMBERS Mutual Funds (the "Fund"), a business trust duly organized under the
laws of the State of Delaware, do hereby appoint, authorize, and empower Kevin
S. Thompson, Steve R. Suleski, or Faye A. Patzner, severally, as my attorney and
agent, for me and in my name as a Trustee of the Fund on behalf of the Fund or
otherwise with full power to review, execute, deliver and file with the
Securities and Exchange Commission all necessary post-effective amendments to
Form N-1A filed by the Fund, File No. 333-29511 and 811-08261, as may be
required under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, and to do and perform each and every act that
said attorney may deem necessary or advisable to comply with the intent of the
aforesaid Acts.
WITNESS my hand and seal this 6th day of December, 2000.
/s/ Gwendolyn M. Boeke
Gwendolyn M. Boeke
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a Trustee of the
MEMBERS Mutual Funds (the "Fund"), a business trust duly organized under the
laws of the State of Delaware, do hereby appoint, authorize, and empower Kevin
S. Thompson, Steve R. Suleski, or Faye A. Patzner severally, as my attorney and
agent, for me and in my name as a Trustee of the Fund on behalf of the Fund or
otherwise with full power to review, execute, deliver and file with the
Securities and Exchange Commission all necessary post-effective amendments to
Form N-1A filed by the Fund, File No. 333-29511 and 811-08261, as may be
required under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, and to do and perform each and every act that
said attorney may deem necessary or advisable to comply with the intent of the
aforesaid Acts.
WITNESS my hand and seal this 6th day of December, 2000.
/s/ Alfred L. Disrud
Alfred L. Disrud
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a Trustee of the
MEMBERS Mutual Funds (the "Fund"), a business trust duly organized under the
laws of the State of Delaware, do hereby appoint, authorize, and empower Kevin
S. Thompson, Steve R. Suleski, or Faye A. Patzner, severally, as my attorney and
agent, for me and in my name as a Trustee of the Fund on behalf of the Fund or
otherwise with full power to review, execute, deliver and file with the
Securities and Exchange Commission all necessary post-effective amendments to
Form N-1A filed by the Fund, File No. 333-29511 and 811-08261, as may be
required under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, and to do and perform each and every act that
said attorney may deem necessary or advisable to comply with the intent of the
aforesaid Acts.
WITNESS my hand and seal this 6th day of December, 2000.
/s/ Thomas C. Watt
Thomas C. Watt
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a Trustee of the
MEMBERS Mutual Funds (the "Fund"), a business trust duly organized under the
laws of the State of Delaware, do hereby appoint, authorize, and empower Kevin
S. Thompson, Steve R. Suleski, or Faye A. Patzner, severally, as my attorney and
agent, for me and in my name as a Trustee of the Fund on behalf of the Fund or
otherwise with full power to review, execute, deliver and file with the
Securities and Exchange Commission all necessary post-effective amendments to
Form N-1A filed by the Fund, File No. 333-29511 and 811-08261, as may be
required under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, and to do and perform each and every act that
said attorney may deem necessary or advisable to comply with the intent of the
aforesaid Acts.
WITNESS my hand and seal this 6th day of December, 2000.
/s/ Michael S. Daubs
Michael S. Daubs
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a Trustee of the
MEMBERS Mutual Funds (the "Fund"), a business trust duly organized under the
laws of the State of Delaware, do hereby appoint, authorize, and empower Kevin
S. Thompson, Steve R. Suleski, or Faye A. Patzner, severally, as my attorney and
agent, for me and in my name as a Trustee of the Fund on behalf of the Fund or
otherwise with full power to review, execute, deliver and file with the
Securities and Exchange Commission all necessary post-effective amendments to
Form N-1A filed by the Fund, File No. 333-29511 and 811-08261, as may be
required under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, and to do and perform each and every act that
said attorney may deem necessary or advisable to comply with the intent of the
aforesaid Acts.
WITNESS my hand and seal this 6th day of December, 2000.
/s/ Lawrence R. Halverson
Lawrence R. Halverson
