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. [5]
and/or
Registration Statement Under the Investment Company Act of 1940 [ ]
Amendment No. 7 [ 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
--------------------------------------------
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on February 28, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
MEMBERS Mutual Funds
February 2000
Cash Reserves Fund
Bond Fund
Balanced Fund
High Income Fund
Growth and Income Fund
Capital Appreciation 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
Emerging Growth Fund 13
International Stock Fund 15
Expenses 17
This section explains how to open, maintain, or close an account with MEMBERS
Mutual Funds.
YOUR ACCOUNT 20
Buying Shares 21
Selling Shares 25
General Policies 27
Distributions and Taxes 28
Additional Investor Services 29
This section gives you some additional information about MEMBERS Mutual Funds.
PORTFOLIO MANAGEMENT 29
FINANCIAL HIGHLIGHTS 32
APPENDIX
Investment Adviser Past Performance 40
Expenses After Waivers and Reimbursements 42
Additional information about each fund's investments is available in the funds'
annual and semiannual reports to shareholders. In particular, the funds' annual
reports will discuss the relevant market conditions and investment strategies
used by the funds' portfolio manager(s) that materially affected the funds'
performance during the prior fiscal year. You may get a copy of any of these
reports at no cost by calling 1-800-877-6089.
Please note that an investment in any of these funds is not a deposit in a
credit union or other financial institution and is neither insured nor endorsed
in any way by any credit union, other financial institution, or government
agency. Such an investment involves certain risks, including loss of principal,
and is not guaranteed to result in positive investment gains. These funds may
not achieve their objectives.
Effective Date February 28, 2000.
<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:
- - require stability of principal
- - are seeking a mutual fund for the cash portion of an asset allocation program
- - need to "park" your money temporarily
- - consider yourself a saver rather than an investor
or
- - are investing emergency reserves
You may want to invest fewer of your assets in this fund if you:
- - want federal deposit insurance
- - are seeking an investment that is likely to outpace inflation
- - are investing for retirement or other goals that are many years in the future
or
- - are investing for growth or maximum current income
Investment Objective
What is this fund's goal?
The Cash Reserves Fund seeks high current income from money market instruments
consistent with the preservation of capital and liquidity. The fund intends to
maintain a stable value of $1.00 per share.
Portfolio Management
Who makes the investment decisions for this fund?
The fund is managed by a team of CIMCO's portfolio managers.
Principal Risks
What are the main risks of investing in this fund?
As with any money market fund, the yield paid by the fund will vary with changes
in interest rates. Generally, if interest rates rise, the market value of
income bearing securities will decline. Also, there is a remote possibility
that the fund's share value could fall below $1.00, which could reduce the value
of your account.
An investment in the Cash Reserves Fund is neither insured nor guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although
the Cash Reserves Fund attempts to maintain a stable price of $1.00 per share,
there is no assurance that it will be able to do so and it is possible to lose
money by investing in the fund.
PRINCIPAL INVESTMENT STRATEGIES
How does this fund pursue its objective?
The Cash Reserves Fund invests exclusively in U.S. dollar-denominated money
market securities maturing in thirteen months or less from the date of purchase.
It includes such securities issued by U.S. and foreign financial institutions,
corporate issuers, the U.S. Government and its agencies and instrumentalities,
municipalities, foreign governments, and multi-national organizations, such as
the World Bank. At least 95% of the fund's assets must be rated in the highest
short-term category (or its unrated equivalent), and 100% of the fund's assets
must be invested in securities rated in the two highest rating categories. A
more detailed description of the rating categories and the types of permissible
issuers is contained in the SAI. The fund maintains a dollar-weighted average
portfolio maturity of 90 days or less. The fund may also:
- - 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;
- - 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
- - 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: Since Inception 4.83%,
1998 4.98%, and 1999 4.67%]
Best Calendar Quarter: 4Q '99 1.26%
Worst Calendar Quarter: 2Q '99 1.09%
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, 1999)
Since
Inception 1 Year
Class A Shares 1.83% -0.87%
Class B Shares 2.32% -0.62%
90-day U.S. Treasury Bill 4.88% 4.73%
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:
- - are seeking a regular stream of income
- - are seeking higher potential returns than money market funds and are willing
to accept moderate risk of volatility
- - want to diversify your investments
- - are seeking a mutual fund for the income portion of an asset allocation
program
or
- - are retired or nearing retirement
You may want to invest fewer of your assets in this fund if you:
- - are investing for maximum return over a long time horizon
or
- - require absolute stability of your principal
Investment Objective
What is this fund's goal?
The Bond Fund seeks to generate a high level of current income, consistent with
the prudent limitation of investment risk, primarily through investment in a
diversified portfolio of income bearing debt securities.
Portfolio Management
Who makes the investment decisions for this fund?
The fund is managed by a team of CIMCO's portfolio managers.
Principal Risks
What are the main risks of investing in this fund?
As with most income funds, the Bond Fund is subject to interest rate risk, the
risk that the value of your investment will fluctuate with changes in interest
rates. Typically, a rise in interest rates causes a decline in the market value
of income bearing securities. Other factors may affect the market price and
yield of the fund's securities, including investor demand and domestic and
worldwide economic conditions. Loss of money is a risk of investing in this
fund.
In addition, the fund is subject to credit risk, the risk that issuers of debt
securities may be unable to meet their interest or principal payment
obligations when due. The ability of the fund to realize interest under
repurchase agreements and pursuant to loans of the fund's securities is
dependent on the ability of the seller or borrower, as the case may be, to
perform its obligation to the fund. There are also prepayment/extension risks,
which is the chance that a fall/rise in interest rates will reduce/extend the
life of a mortgage backed security by increasing/decreasing mortgage
prepayments, typically reducing the return.
To the extent that the fund invests in non-investment grade securities, the fund
is also subject to above-average credit, market and other risks. Issuers of
non-investment grade securities (i.e., "junk" bonds) are typically in weak
financial health and their ability to pay interest and principal is uncertain.
Compared to issuers of investment-grade bonds, they are more likely to encounter
financial difficulties and to be materially affected by these difficulties when
they do encounter them.
PRINCIPAL INVESTMENT STRATEGIES
How does this fund pursue its objective?
To keep current income relatively stable and to limit share price volatility,
the Bond Fund emphasizes investment grade securities and maintains an
intermediate (typically 3-6 year) average portfolio duration. Under normal
circumstances, the fund invests at least 80% of its assets in such securities.
The CIMCO management team utilizes an approach that involves frequent trading of
the securities in the portfolio. The Fund may invest in the following
instruments:
- - 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;
- - U.S. Government debt securities: securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities;
- - 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
- - 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: Since Inception
3.76%, 1998 6.82%, and 1999 0.78%]
Best Calendar Quarter: 3Q '98 3.47%
Worst Calendar Quarter: 2Q '99 -0.44%
Please remember that past performance is no guarantee of the results the Bond
Fund may achieve in the future. Future returns may be higher or lower than the
returns the Fund achieved in the past.
(1) CIMCO waived its management fee for the Bond Fund from June 1, 1998 through
October 31, 1998. If the management fee 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, 1999)
Since
Inception 1 Year
Class A Shares 1.51% -3.55%
Class B Shares 1.30% -4.38%
Lehman Index 4.41% 0.39%
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:
- - are looking for a more conservative option to a growth-oriented fund
- - want a well-diversified and relatively stable investment allocation
- - need a core investment
- - seek above-average total return over the long term irrespective of its form
(i.e., capital gains or ordinary income)
or
- - are retired or nearing retirement
You may want to invest fewer of your assets in this fund if you:
- - are investing for maximum return over a long time horizon
- - want your return to be either ordinary income or capital gains, but not both
or
- - require a high degree of stability of your principal
Investment Objective
What is this fund's goal?
The Balanced Fund seeks a high total return through the combination of income
and capital appreciation.
Portfolio Management
Who makes the investment decisions for this fund?
The fund is managed by a team of CIMCO's portfolio managers.
Principal Risks
What are the main risks of investing in this fund?
The risks of this fund are similar to the risks described for the Bond, Cash
Reserves, Growth and Income and Capital Appreciation Funds because it invests in
the same types of securities. As with any fund that invests in stocks and
bonds, the fund is subject to market and interest rate risks, the risks that the
value of your investment will fluctuate in response to stock and bond market
movements and changes in interest rates. Loss of money is a risk of investing in
this fund.
To the extent that it invests in certain securities, the fund may be affected by
additional risks relating to
- - non-investment grade securities
- - foreign securities
- - 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: Since Inception
14.50%, 1998 14.49%, and 1999 13.28%]
Best Calendar Quarter: 4Q '98 10.56%
Worst Calendar Quarter: 3Q '98 -4.23%
Please remember that past performance is no guarantee of the results the
Balanced Fund may achieve in the future. Future returns may be higher or lower
than the returns the Fund achieved in the past.
How does the performance of the Balanced Fund compare to the balanced market?
The following table compares the performance of each class of shares of the
Balanced Fund with the performance of several market indexes which are measures
of the performance of the relevant market.
Average Annual Total Returns
(As of December 31, 1999)
Since
Inception 1 Year
Class A Shares 11.44% 7.28%
Class B Shares 12.15% 7.93%
Blended Index* 14.10% 10.14%
Lehman Index 4.41% 0.39%
S&P 500 25.81% 21.04%
90-day U.S. Treasury Bill 4.88% 4.73%
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:
- - are seeking a regular stream of income
- - are seeking higher potential returns than most bond funds and are willing to
accept significant risk of volatility
- - want to diversify your investments
- - are seeking a mutual fund for the income portion of an asset allocation
program
or
- - are retired or nearing retirement
You may want to invest fewer of your assets in this fund if you:
- - desire relative stability of your principal
or
- - are investing for maximum return over a long time horizon
Investment Objective
What is this fund's goal?
The High Income Fund seeks high current income by investing primarily in a
diversified portfolio of lower-rated, higher-yielding income bearing securities.
The fund also seeks capital appreciation, but only when consistent with its
primary goal.
Portfolio Management
Who makes the investment decisions for this fund?
The fund is managed by a team of CIMCO's portfolio managers, which may use one
or more subadvisers under a "manager of managers" approach to make investment
decisions for some or all of the assets of this fund. More information about
these subadvisers, their investment styles and the "manager of managers"
approach is provided later in this prospectus. Massachusetts Financial Services
Company ("MFS") is the only subadviser currently used by CIMCO to manage the
assets of the fund.
Principal Risks
What are the main risks of investing in this fund?
This fund is subject to above-average interest rate and credit risks, which are
risks that the value of your investment will fluctuate in response to changes in
interest rates or an issuer will not honor a financial obligation. Investors
should expect greater fluctuations in share price, yield and total return
compared to bond funds holding bonds and other income bearing securities with
higher credit ratings and/or shorter maturities. These fluctuations, whether
positive or negative, may be sharp and unanticipated. Loss of money is a
significant risk of investing in this fund.
Issuers of non-investment grade securities (i.e., "junk" bonds) are typically in
weak financial health and their ability to pay interest and principal is
uncertain. Compared to issuers of investment-grade bonds, they are more likely
to encounter financial difficulties and to be materially affected by these
difficulties when they do encounter them. "Junk" bond markets may react
strongly to adverse news about an issuer or the economy, or to the perception or
expectation of adverse news.
The fund may also invest in mortgage-backed securities that are subject to
prepayment/extension risks described in the Bond Fund Principal Risks.
PRINCIPAL INVESTMENT STRATEGIES
How does this fund pursue its objective?
The High Income Fund invests primarily in lower-rated, higher-yielding income
bearing securities, such as "junk" bonds. Because the performance of these
securities has historically been strongly influenced by economic conditions, the
fund may rotate securities selection by business sector according to the
economic outlook. Under normal market conditions, the fund invests at least 80%
of its assets in bonds rated lower than investment grade (BBB/Baa) and their
unrated equivalents or other high-yielding securities. Types of bonds and other
securities include, but are not limited to, domestic and foreign corporate
bonds, debentures, notes, convertible securities, preferred stocks, municipal
obligations and government obligations. The fund may invest in mortgage-backed
securities.
Up to 25% of its assets may be invested in the securities of issuers in any one
industry.
The fund may also invest up to 50% of its assets in high-yielding foreign
securities, including emerging market securities.
<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: Since Inception
3.20%, 1998 -0.15%, and 1999 5.96%]
Best Calendar Quarter: 1Q '99 4.12%
Worst Calendar Quarter: 3Q '98 -6.77%
Please remember that past performance is no guarantee of the results the High
Income Fund may achieve in the future. Future returns may be higher or lower
than the returns the Fund achieved in the past.
How does the performance of the High Income Fund compare to the high yield
market?
The following table compares the performance of each class of shares of the High
Income Fund with the performance of the Lehman Brothers High Yield Index which
is one measure of the performance of the relevant market.
Average Annual Total Returns
(As of December 31, 1999)
Since
Inception 1 Year
Class A Shares 0.96% 1.40%
Class B Shares 0.79% 0.83%
Lehman Index 2.22% 2.39%
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:
- - are looking for a stock fund that has both growth and income components
- - are looking for a more conservative option to a growth-oriented fund
- - need a core investment
- - seek above-average long-term total return through a combination of capital
gains and ordinary income
or
- - are retired or nearing retirement
You may want to invest fewer of your assets in this fund if you:
- - are investing for maximum return over a long time horizon
- - desire your return to be either ordinary income or capital gains, but not
both
or
- - require a high degree of stability of your principal
Investment Objective
What is this funds goal?
The Growth and Income Fund seeks long-term capital growth, with income as a
secondary consideration.
Portfolio Management
Who makes the investment decisions for this fund?
The fund is managed by a team of CIMCO's portfolio managers.
Principal Risks
What are the main risks of investing in this fund?
As with any fund that invests in stocks and also seeks income, this fund is
subject to market and interest rate risks, meaning the value of your investment
will fluctuate in response to stock market and interest rate movements. Some of
the funds investments may rise and/or fall based upon investor perception and
attitude rather than economic valuations.
Loss of money is a risk of investing in this fund.
The fund primarily invests in "value" orientated stocks which may help limit
downside risk to portfolio returns. However these "value" stocks are subject to
the risk that their intrinsic values may never be realized by the market.
To the extent that it invests in certain securities, the fund may be affected by
additional risks relating to foreign securities. The principal risks of foreign
securities are described in the International Stock Fund page.
PRINCIPAL INVESTMENT STRATEGIES
How does this fund pursue its objective?
The Growth and Income Fund will focus on stocks of companies with financial and
market strength and a long-term record of financial performance, and will, under
normal market conditions, maintain at least 80% of its assets in such stocks.
Primarily through ownership of a diversified portfolio of common stocks and
securities convertible into common stocks, the fund will seek a rate of return
in excess of returns typically available from less variable investment
alternatives. The fund generally follows what is known as a "value" approach
which generally means that the managers seek to invest in stocks at prices below
their intrinsic value as estimated based on fundamental analysis of the issuing
company and its prospects. By investing in value stocks, the fund attempts to
limit the downside risk over time but may also produce smaller gains than other
stock funds if their intrinsic values are not realized by the market.
The fund will typically invest in securities representing every sector of the
S&P 500 in about (+/-50%) the same weightings as such sector has in the S&P 500.
For example, if technology companies represent 10% of the S&P 500, the fund will
typically have between 5% and 15% of its assets invested in securities issued by
technology companies.
The fund may also invest in warrants, preferred stocks and debt securities
(including non-investment grade debt securities). The fund may invest up to 25%
of its assets in foreign securities.
The fund typically sells a stock when the fundamental expectations for buying it
no longer apply, the price exceeds its intrinsic value or other stocks appear
more attractively priced relative to their intrinsic values.
<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: Since Inception
17.89%, 1998 16.74%, and 1999 16.64%]
Best Calendar Quarter: 4Q '98 16.83%
Worst Calendar Quarter: 3Q '98 -10.45%
Please remember that past performance is no guarantee of the results the Growth
and Income Fund may achieve in the future. Future returns may be higher or
lower than the returns the Fund achieved in the past.
How does the performance of the Growth and Income Fund compare to the growth and
income market?
The following table compares the performance of each class of shares of the
Growth and Income Fund with the performance of the S&P 500 which is one measure
of the performance of the relevant market.
Average Annual Total Returns
(As of December 31, 1999)
Since
Inception 1 Year
Class A Shares 14.73% 10.46%
Class B Shares 15.52% 11.26%
S&P 500 25.81% 21.04%
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:
- - have a longer investment time horizon
- - are willing to accept higher on-going short-term risk for the potential of
higher long-term returns
- - want to diversify your investments
- - are seeking a fund for the growth portion of an asset allocation program
or
- - 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:
- - are investing with a shorter investment time horizon in mind
- - are seeking income rather than capital gains
or
- - are uncomfortable with an investment whose value may vary substantially
Investment Objective
What is this fund's goal?
The Capital Appreciation Fund seeks long-term capital appreciation.
Portfolio Management
Who makes the investment decisions for this fund?
The fund is managed by a team of CIMCO's portfolio managers.
Principal Risks
What are the main risks of investing in this fund?
As with any fund that invests in equity securities, this fund is subject to
market risk, the risk that the value of a security may move up and down due to
factors (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: Since Inception
23.36%, 1998 20.19%, and 1999 23.62%]
Best Calendar Quarter: 4Q '98 20.31%
Worst Calendar Quarter: 3Q '98 -11.80%
Please remember that past performance is no guarantee of the results the Capital
Appreciation Fund may achieve in the future. Future returns may be higher or
lower than the returns the Fund achieved in the past.
How does the performance of the Capital Appreciation Fund compare to the capital
appreciation market?
The following table compares the performance of each class of shares of the
Capital Appreciation Fund with the performance of the S&P 400 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, 1999)
Since
Inception 1 Year
Class A Shares 20.06% 17.06%
Class B Shares 21.06% 18.17%
S&P 400 18.33% 14.73%
S&P 1500 24.36% 20.25%
Class A and B Share returns are net of applicable Sales Charges.
<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
- - have a longer investment time horizon
- - are willing to accept higher on-going short-term risk for the potential of
higher long-term returns
- - want to diversify your investments
- - are seeking a fund for the growth portion of an asset allocation program
- - are seeking exposure to smaller companies
or
- - 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:
- - are investing with a shorter investment time horizon in mind
- - are seeking an investment based on income rather than capital gain
or
- - 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 CIMCO's portfolio managers, which may use one
or more subadvisers under a "manager of managers" approach to make investment
decisions for some or all of the assets of this fund. More information about
these subadvisers, their investment styles and the "manager of managers"
approach is provided later in this prospectus. Massachusetts Financial Services
Company ("MFS") is the only subadviser currently used by CIMCO to manage the
assets of the fund.
PRINCIPAL RISKS
What are the main risks of investing in this fund?
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 illiquid 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:
- - relatively small or early in their life cycle, but have the potential to
become much larger enterprises, or
- - 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.
<PAGE>
Principal Investment Strategies (Emerging Growth Fund continued from the
previous page)
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.
*Note: The Emerging Growth Fund is a new fund that does not have historical
investment performance. When it does, its performance will be shown along with
the performance of the S&P 500 Large Cap Index and the Russell 2000 Index, which
are measures of the performance of the relevant market. The following table
shows the historical performance of these indexes.
Average Annual Total Returns
(As of December 31, 1999)
One Year Five Year Ten Year
S&P 500 Index 21.04% 28.55% 18.20%
Russell 2000 Index 21.26% 16.45% 13.28%
<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:
- - are seeking to diversify
your domestic investments
- - are seeking access to markets that can be less accessible to individual
investors in the U.S.
- - are willing to accept high risk to achieve higher long-term growth
- - are seeking funds for the growth portion of an asset allocation program
or
- - 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:
- - are investing with a shorter investment time horizon in mind
- - are uncomfortable with an investment whose value may vary substantially
- - are seeking income rather than capital gains
or
- - want to limit your exposure to foreign markets or currencies or income from
foreign sources
Investment Objective
What is this fund's goal?
The International Stock Fund seeks long-term growth of capital by investing
primarily in foreign equity securities.
Portfolio Management
Who makes the investment decisions for this fund?
The fund is managed by a team of CIMCO's portfolio managers, which may use one
or more subadvisers under a "manager of managers" approach to make investment
decisions for some or all of the assets of this fund. More information about
these subadvisers, their investment styles and the "manager of managers"
approach is provided later in this prospectus.
PRINCIPAL RISKS
What are the main risks of investing in this fund?
As with any fund investing in stocks, the value of your investment will
fluctuate in response to stock market movements as described in the earlier fund
pages. Loss of money is a significant risk of investing in this fund.
Investing in foreign securities involves certain special considerations and
additional risks which are not typically associated with investing in securities
of domestic issuers or U.S. dollar denominated securities. These risks may make
the fund more volatile than a comparable domestic stock fund. For example,
foreign securities are typically subject to:
- - Fluctuations in currency exchange rates.
- - Higher trading and custody charges compared to securities of U.S. companies.
- - 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.
- - Less stringent securities regulation. Securities regulations in many foreign
countries are often more lax than those of the U.S.
- - Potential political instability.
- - 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 the
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
<PAGE>
Principal Investment Strategies (International Stock Fund continued from the
previous page)
foreign government, are principally traded outside of the U.S., or are quoted or
denominated in a foreign currency. Equity securities include common stocks,
securities convertible into common stocks, preferred stocks, and other
securities representing equity interests such as American depository receipts
("ADRs"- receipts typically issued by a U.S. financial institution which
evidence ownership of underlying securities of foreign corporate issuers),
European depository receipts ("EDRs") and Global depository receipts ("GDRs").
EDRs and GDRs are receipts evidencing an arrangement with a non-U.S. financial
institution similar to that for ADRs and are designed for use in non-U.S.
securities markets. The fund may also invest in debt securities, foreign money
market instruments, and other income bearing securities as well as forward
foreign currency exchange contracts and other derivative securities and
contracts. The fund always holds securities of issuers located in at least
three countries other than the U.S.
The fund allocates portions of its assets to one or more subadvisers to achieve
a blend of suitable investments. Approximately two-thirds (66.67%) of the fund's
assets are managed by a subadviser that focuses on acquiring relatively large
capitalization stocks of issuers located or operating in developed countries.
Such securities are those generally representative of the securities comprising
the Morgan Stanley Capital International, Europe, Australia, and Far East
("EAFE") Index. This subadviser typically maintains this segment of the fund's
portfolio in 30 to 45 such stocks which it believes have above average potential
for capital appreciation. It may also invest in foreign debt and other income
bearing securities at times when it believes that income bearing securities have
greater capital appreciation potential than equity securities.
Currently, the fund's remaining assets are managed by a subadviser that focuses
on acquiring small capitalization stocks and stocks principally traded in
emerging securities markets or of issuers located in or having substantial
business operations in emerging economies. The emerging economies in which the
fund invests are located primarily in the Asia-Pacific region, Eastern Europe,
Central and South America, and Africa. In selecting both small capitalization
stocks and emerging market stocks, the subadviser seeks securities that are
undervalued in the markets in which the securities principally trade based on
its analysis of the issuer's future prospects. Such an analysis includes both
quantitative (screening for high financial returns) and qualitative (fundamental
analysis of the business prospects of the issuer) elements. The percentage of
assets allocated to any subadviser will vary depending upon CIMCO's perception
of the relative attractiveness of the type of securities that the subadviser
specializes in under current market conditions.
MEMBERS International Stock Fund Performance
How has the International Stock Fund performed?
The following bar chart provides an illustration of the performance of the Class
A Shares of the International Stock Fund. The bar chart does not reflect the
deduction of the Sales Charges imposed on the Class A Shares and also assumes
the reinvestment of any dividends and distributions. If the Sales Charges were
deducted from the annual total returns shown below, the return would have been
lower.
[GRAPHIC: bar chart showing the following total returns: Since Inception
14.54%, 1998 6.79%, and 1999 19.77%]
Best Calendar Quarter: 4Q '98 14.61%
Worst Calendar Quarter: 3Q '98 -14.41%
Please remember that past performance is no guarantee of the results the
International Stock Fund may achieve in the future. Future returns may be
higher or lower than the returns the Fund achieved in the past. How does the
performance of the International Stock Fund compare to the international market?
The following table compares the performance of each class of shares of the
International Stock Fund with the performance of the MSCIEAFE Index which is one
measure of the performance of the relevant market.
Average Annual Total Returns
(As of December 31, 1999)
Since
Inception 1 Year
Class A Shares 11.53% 13.42%
Class B Shares 12.15% 14.38%
MSCIEAFE 24.16% 27.31%
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
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Capital
CLASS Cash High and Appre- Emerging Int'l
Reserves Bond Balanced Income Income ciation Growth Stock
Maximum sales charge (Load)
on purchases A 5.3% 4.3% 5.3% 4.3% 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%
(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
<S> <C> <C> <C> <C> <C> <C> <C>
Service Expense Net
FUNDS Management 12b-1 Fee Other Total Reimbursement Expenses
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%
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
<S> <C> <C> <C> <C> <C> <C>
Service Expense Net
FUNDS Management 12b-1 Fee Other Total Reimbursement Expenses
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%
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 $500,000 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, CIMCO Inc. (CIMCO), 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 CIMCO 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 42. 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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10 Year 1 Year 3 Year 5 Year 10
Cash Reserves 782 1304 1851 3337 791 1389 1960 3419
Bond 626 1036 1471 2677 730 1209 1664 2836
Balanced 672 1970 1290 2194 675 1044 1390 2276
High Income 621 1022 1447 2627 725 1194 1640 2787
Growth and Income 651 1906 1180 1961 653 1977 1278 2043
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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10 Year 1 Year 3 Year 5 Year 10
Cash Reserves 782 1304 1851 3337 341 1039 1760 3419
Bond 626 1036 1471 2677 280 1859 1464 2836
Balanced 672 1970 1290 2194 225 1694 1190 2276
High Income 621 1022 1447 2627 275 1844 1440 2787
Growth and Income 651 1906 1180 1961 203 1627 1078 2043
Capital Appreciation 695 1040 1409 2442 249 1767 1311 2525
Emerging Growth 704 1069 1458 2544 259 1796 1360 2626
International Stock 739 1176 1638 2910 296 1907 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.
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 o
transfer shares for your account. Regardless of the type of account, however,
the first step to investing with MEMBERS Mutual Funds is to carefully read this
entire prospectus.
Two classes of shares are currently available, Class A and Class B. Other share
classes may be available through other distribution channels. Each Class has
its own cost structure which allows you to choose the one that best meets your
needs. For a description of the changes that are imposed on each class, please
see the expense table earlier in this prospectus. The following pages describe
the differences between the two classes of shares and tell you how you can get
started investing with MEMBERS Mutual Funds.
Opening or Adding to an Account (applicable to all shareholders)
1. Carefully read this prospectus.
2. Determine how much you want to invest. Regardless of which class of shares
you choose, your initial investment in MEMBERS Mutual Funds must meet
certain minimum investment amounts.
The minimum investments are as follows:
Type of Account Initial Minimum Subsequent Minimum
Non-retirement account $1,000 $150
($250 per fund) ($50 per fund)
Retirement account $500 $150
($250 per fund) ($50 per fund)
Systematic investment programs1
Twice Monthly(24 per year) $50 $50
($50 per fund) ($50 per fund)
Monthly $50 $50
($50 per fund) ($50 per fund)
Bimonthly (every other month) $100 $100
($50 per fund) ($50 per fund)
Quarterly $150 $150
($50 per fund) ($50 per fund)
(1) Systematic investment programs may be conducted on a twice monthly, monthly,
bimonthly or quarterly basis, however the total annual deposits, regardless of
frequency, must be at least $600.
3. Complete the appropriate parts of the account application, carefully
following the instructions. If you have questions, please contact your
financial representative or contact 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>
<TABLE>
<CAPTION>
Buying Shares (not applicable to shareholders who have a brokerage account) The
following explains how to buy shares by check, wire, or phone.
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
BY CHECK
- --------------------------------------------------------------------------------
<S> <C>
Make out a check for the investment amount, 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 60569
King of Prussia, PA 19406-0569
- --------------------------------------------------------------------------------
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.
</TABLE>
<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
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
(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.
</TABLE>
Class B Sales Charges
Class B Shares are offered at their net asset value per share, without any
initial sales charge. However, there is a contingent deferred sales charge
(CDSC) on shares you sell within five years of buying them. 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 29.
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:
- - 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, an
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.
- - Registered representatives of CUNA Brokerage.
- - Financial representatives utilizing fund shares in fee-based managed accounts
under agreement with the MEMBERS Mutual Funds (wrap fee investors).
- - Certain credit union system-affiliated institutional investors and other
non-profit organizations as described in section 501(c)(3) of the internal
revenue code.
- - 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.
- - 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.
- - 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.
- - 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:
- - 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.
- - 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 26)
- -----------------------------------------------------------------------------------------------
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 26)
- -----------------------------------------------------------------------------------------------
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 26)
- -----------------------------------------------------------------------------------------------
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 26)
- ------------------------------------------------------------------------------------------------
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 26)
- ------------------------------------------------------------------------------------------------
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 31. 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.
- --------------------------------------------------------------------------------
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
- - 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 $500,000 or more for Class B Shares from a single investor.
- - Valuation of Shares. The net asset value per share (NAV) for each fund and
class is determined each business day at the close of regular trading on the New
York Stock Exchange (typically 3 p.m. central time) by dividing the net assets
of each fund and class by the number of shares outstanding of that fund and
class. Transaction requests received after 3:00 p.m. central time will be
processed using the next day's net asset value.
- - Buy and Sell Prices. When you buy shares, you pay the NAV plus any
applicable sales charges, as described earlier. When you sell shares, you
receive the NAV minus any applicable CDSC. Purchase orders and redemption
requests will be executed at the price next determine after the order or request
is received in good order by MEMBERS Mutual Funds.
- - Execution of Requests. Each fund is open on those days when the New York
Stock Exchange is open, typically Monday through Friday. Buy and sell requests
are executed at the next NAV to be calculated after your request is accepted by
MEMBERS Mutual Funds.
In unusual circumstances, any fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities law.
- - 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.
- - 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 29) 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.
- - Year 2000. The MEMBERS funds, like all funds, could be adversely affected by
computer systems that do not properly process date-related information on and
after January 1, 2000. This is often referred to as "Year 2000" or "Y2K". While
Year 2000 problems could have a negative effect on funds, CIMCO and its
affiliated entities worked to avoid such problems. As a result of these efforts,
it is not anticipated that you will experience negative affects on your
investments from the Year 2000 transition.
- - Euro Conversion. On January 1, 1999, the European Monetary Union ("EMU")
implemented a new currency unit, the Euro. In effect, the Euro will become the
official currency of the EMU and will replace the individual currencies
previously used by countries such as Italy and France. It is expected that
approximately 46% of the stock exchange capitalization of the entire European
market may be reflected in Euros, and participating governments will issue their
bonds in Euros. The implementation of the Euro may adversely affect financial
markets world-wide and may result in changes in the relative strength of other
major currencies, including the U.S. dollar. It is not possible to accurately
predict what effect, if any, the conversion to the Euro by the EMU will have on
the operation of the accounts. However, to the extent that a fund such as the
International Stock Fund invests in securities denominated by the Euro, the fund
may be exposed to certain risks relating to the Euro conversion. For more detail
please refer to the SAI.
<PAGE>
- - Householding. To save time, money and resources, MEMBERS intends to send
only one copy of its reports to a household regardless of the number of
investors at the household or the number of accounts held. However, any
investor can obtain additional reports upon request to MEMBERS.
- - 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.
- - 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.
- - 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.
- - 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
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.
<PAGE>
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.
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.
Payment of Broker Account Fees. CUNA Brokerage charges its non-retirement
account customers certain account fees, including an annual account maintenance
fee. If an investor maintains a non-retirement CUNA Brokerage account with a
$15,000 minimum monthly account balance in MEMBERS funds for each month of the
calendar year, CIMCO agrees to pay the annual account maintenance fee, out of
its management fee, up to a limit of .10% of the amount invested in MEMBERS
funds.
PORTFOLIO MANAGEMENT
The investment adviser for MEMBERS Funds is CIMCO Inc., 5910 Mineral Point Road,
Madison, WI 53701-0391. CIMCO was established on July 6, 1982. It provides
investment advice to the investment portfolios of the CUNA Mutual Group (CUNA
Mutual Insurance Society, its "permanent affiliate" CUNA Mutual Life Insurance
Company and their subsidiaries and affiliates). CIMCO has approximately $8
billion of assets under management.
<PAGE>
CIMCO employs a team approach in the management of all the funds. The Cash
Reserves, Bond, Balanced, Growth and Income, and Capital Appreciation funds are
managed by teams of portfolio managers employed by CIMCO.
As payment for its services as the investment adviser for the MEMBERS Mutual
Funds, CIMCO receives a management fee based upon the assets of each fund. The
management fee paid to CIMCO is computed and accrued daily and paid monthly, at
the following annual rates:
Cash Reserves Fund 0.40%
Bond Fund 0.50%
Balanced Fund 0.65%
High Income Fund 0.55%
Growth and Income Fund 0.55%
Capital Appreciation Fund 0.75%
Emerging Growth Fund 0.75%
International Stock Fund 1.05%
CIMCO manages the assets of the High Income Fund, Emerging Growth Fund and
International Stock Fund using a "manager of managers" approach under which
CIMCO may manage some or all of the funds' assets and may allocate some or all
of the funds' assets among one or more "specialist" subadvisers. CIMCO selects
subadvisers based on a continuing quantitative and qualitative evaluation of
their skills and proven abilities in managing assets pursuant to a particular
investment style. While superior performance is the ultimate goal, short-term
performance by itself will not be a significant factor in selecting or
terminating subadvisers, and CIMCO does not expect frequent changes in
subadvisers.
CIMCO monitors the performance of each subadviser to the extent that it deems it
appropriate to achieve a fund's investment objective, reallocates fund assets
among its own portfolio management team and individual subadvisers or recommends
to the MEMBERS Mutual Funds board that a fund employ or terminate particular
subadvisers. MEMBERS Mutual Funds and CIMCO received an order of the Commission
that permits the MEMBERS Mutual Funds board to employ particular subadvisers
without shareholder approval. If there is a change in subadvisers, you will
receive an "information statement" within 90 days of the change. The statement
will provide you with relevant information about the reason for the change and
information about any new subadvisers.
As of the date of this prospectus, Massachusetts Financial Services Company
("MFS") is the only subadviser managing the assets of the High Income Fund 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 $136.7 billion
on behalf of over 4.2 million investor accounts as of December 31, 1999. MFS is
a subsidiary of Sun Life of Canada (U.S.) which in turn is an indirect wholly
owned subsidiary of Sun Life Assurance Company of Canada.
As of the date of this prospectus, IAI International Limited ("IAI") in part and
Lazard Asset Management ("Lazard") in part manage the assets of the
International Stock Fund.
In addition to the International Stock Fund, IAI furnishes investment advice to
other concerns, including other investment companies, pension and profit sharing
plans, portfolios of foundations, religious, educational and charitable
institutions, trusts, municipalities and individuals, and has total assets under
management in excess of $2.8 billion. The ultimate corporate parent of IAI is
Lloyds TSB Group plc, a publicly held financial services organization
headquartered in London, England. Lloyds TSB Group plc is one of the largest
personal and corporate financial services groups in the United Kingdom and is
engaged in a wide range of activities including commercial and retail banking.
<PAGE>
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
requests to:
MEMBERS Mutual Funds PFPC Global Fund Services
Post Office Box 60569 MEMBERS Mutual Funds
King of Prussia, PA 19406-0569 211 South Gulph Road
King of Prussia, PA 19406
Use of Certain Brokers
CIMCO may use brokerage firms that market the funds' shares or are affiliated
with companies in the CUNA Mutual Group to execute portfolio trades for the
funds, but only when CIMCO believes that no other firm offers a better
combination of quality execution (i.e., timeliness and completeness), favorable
price and value of research services.
Compensation of Brokers and their Representatives
The MEMBERS Mutual Funds pay compensation to CUNA Brokerage for selling the
funds' shares. CUNA Brokerage passes along a portion of this compensation to
your financial representative. Additionally, CIMCO may pay CUNA Brokerage for
certain account fees as described in the "Additional Investor Services" section.
Compensation payments originate from two sources: from sales charges (front-end
sales charges for Class A Shares and CDSCs for Class B Shares) and from 12b-1
fees (for Class B Shares) that are paid by you, the investor, out of the funds'
assets ("12b-1" refers to the federal securities regulation authorizing annual
fees of this type). The sales charges and 12b-1 fees paid by investors are
detailed in the section "Your Account-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, CIMCO, at its discretion, may reallow the
entire sales charge as part of a sales promotion program.
Distribution fees may be used to pay for sales compensation to financial
services firms, marketing and overhead expenses and interest expenses.
<PAGE>
Amount of Type Sales Charge Maximum
Purchase of Paid by Reallowance
Payment Fund Investors or Commission
CLASS A
Equity funds(1) 5.3% 5.0%
$0 to $49,999
Income funds(2) 4.3% 4.0%
Equity funds(1) 4.3% 4.0%
$50,000 to $99,999
Income funds(2) 3.8% 3.5%
$100,000 to $249,999 All funds 3.3% 3.0%
$250,000 to $499,999 All funds 2.3% 2.0%
$500,000 to $999,999 All funds 1.9% 1.7%
More than $1,000,000 All funds 1.0%(3) 0.8%(4)
CLASS B
All amounts All funds 4.5%(5) 4.0%
(1) Cash Reserves Fund, Balanced Fund, Growth and Income Fund, Capital
Appreciation Fund, 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 Emerging Growth Fund does not have a calender 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. The financial highlights for periods ended
October 31, 1998 have been audited by KPMG LLP.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights for a Share of Beneficial Interest Outstanding Throughout each Period
Cash Reserves Fund
Class A Class B Class A Class B
Year Ended Year Ended Inception (a) to Inception (a) to
10/31/1999 10/31/1999 10/31/1998 10/31/1998
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------- ------------ ------------ ------------
Income from Investment Operations:
Net investment income 0.05 0.04 0.04 0.03
------------- ------------ ------------ ------------
Total from investment operations 0.05 0.04 0.04 0.03
------------- ------------ ------------ ------------
Less Distributions:
Distributions from net investment income (0.05) (0.04) (0.04) (0.03)
------------- ------------ ------------ ------------
Total distributions (0.05) (0.04) (0.04) (0.03)
------------- ------------ ------------ ------------
Net increase in net asset value -- -- -- --
------------- ------------ ------------ ------------
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00
============= ============ ============ ============
Total Return+ 4.60% 3.81% 4.21%(2) 3.50%(2)
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 4,481 $ 3,501 $ 4,339 $ 894
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser 2.63% 3.38% 4.76%(1) 5.51% (1)
After reimbursement of expenses by Adviser 0.55% 1.30% 0.55%(1) 1.30% (1)
Ratios of net investment income (loss) to average net assets:
Before reimbursement of expenses by Adviser 2.33% 1.84% 0.67%(1) (0.08)%(1)
After reimbursement of expenses by Adviser 4.41% 3.92% 4.88%(1) 4.13% (1)
</TABLE>
(1) Annualized
(2) Not annualized.
+ Total return without applicable sales charge.
(a) Cash Reserves Fund Class A and Cash Reserves Fund Class B commenced
investment operations on December 29, 1997.
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights for a Share of Beneficial Interest Outstanding Throughout each Period
Bond Fund
Class A Class B Class A Class B
Year Ended Year Ended Inception (a) to Inception (a) to
10/31/1999 10/31/1999 10/31/1998 10/31/1998
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.14 $ 10.14 $ 10.00 $ 10.00
------------- ------------ ------------ ------------
Income from Investment Operations:
Net investment income 0.51 0.44 0.45 0.39
------------- ------------ ------------ ------------
Net realized and unrealized gain(loss)on investments (0.35) (0.35) 0.14 0.14
------------- ------------ ------------ ------------
Total from investment operations 0.16 0.09 0.59 0.53
------------- ------------ ------------ ------------
Less Distributions:
Distributions from net investment income (0.51) (0.44) (0.45) (0.39)
------------- ------------ ------------ ------------
Distributions from capital gains (0.05) (0.04) -- --
------------- ------------ ------------ ------------
Total distributions (0.56) (0.48) (0.45) (0.39)
------------- ------------ ------------ ------------
Net increase (decrease) in net asset value (0.40) (0.39) 0.14 0.14
------------- ------------ ------------ ------------
Net Asset Value, End of Period $ 9.74 $ 9.75 $ 10.14 $ 10.14
============= ============ ============ ============
Total Return+ 1.60% 0.94% 6.08%(2) 5.36%(2)
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 7,991 $ 7,508 $ 4,797 $ 2,225
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser 2.02% 2.77% 4.83%(1) 5.58%(1)
After reimbursement of expenses by Adviser 0.90% 1.65% 0.60%(1) 1.35%(1)
Ratios of net investment income to average net assets:
Before reimbursement of expenses by Adviser 4.06% 3.46% 1.14%(1) 0.39%(1)
After reimbursement of expenses by Adviser 5.18% 4.58% 5.37%(1) 4.62%(1)
Portfolio Turnover 725% 725% 95% 95%
</TABLE>
(1) Annualized.
(2) Not annualized.
+ Total return without applicable sales charge.
(a) Bond Fund Class A and Bond Fund Class B commenced investment operations on
December 29, 1997.
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights for a Share of Beneficial Interest Outstanding Throughout each Period
Balanced Fund
Class A Class B Class A Class B
Year Ended Year Ended Inception (a) to Inception (a) to
10/31/1999 10/31/1999 10/31/1998 10/31/1998
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.68 $ 10.68 $ 10.00 $ 10.00
------------- ------------ ------------ ------------
Income from Investment Operations:
Net investment income 0.27 0.18 0.21 0.14
------------- ------------ ------------ ------------
Net realized and unrealized gain on investments 1.38 1.38 0.68 0.68
------------- ------------ ------------ ------------
Total from investment operations 1.65 1.56 0.89 0.82
------------- ------------ ------------ ------------
Less Distributions:
Distributions from net investment income (0.27) (0.18) (0.21) (0.14)
------------- ------------ ------------ ------------
Distributions from capital gains (0.01) (0.01) -- --
------------- ------------ ------------ ------------
Total distributions (0.28) (0.19) (0.21) (0.14)
------------- ------------ ------------ ------------
Net increase in net asset value 1.37 1.37 0.68 0.68
------------- ------------ ------------ ------------
Net Asset Value, End of Period $ 12.05 $ 12.05 $ 10.68 $ 10.68
============= ============ ============ ============
Total Return+ 15.58% 14.72% 8.92%(2) 8.24% (2)
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 15,297 $ 31,263 $ 15,670 $ 7,440
Ratios of expenses to average net assets:
Before reimbursement of expense by Adviser 1.47% 2.22% 3.40%(1) 4.15% (1)
After reimbursement of expenses by Adviser 1.10% 1.85% 1.10%(1) 1.85% (1)
Ratios of net investment income (loss) to average net assets:
Before reimbursement of expenses by Adviser 1.99% 1.25% 0.23%(1) (0.52)%(1)
After reimbursement of expenses by Adviser 2.36% 1.62% 2.53%(1) 1.78% (1)
Portfolio Turnover 349% 349% 60% 60%
</TABLE>
(1) Annualized.
(2) Not annualized.
+ Total return without applicable sales charge.
(a) Balanced Fund Class A and Balanced Fund Class B commenced investment
operations on December 29, 1997.
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights for a Share of Beneficial Interest Outstanding Throughout each Period
High Income Fund
Class A Class B Class A Class B
Year Ended Year Ended Inception (a) to Inception (a) to
10/31/1999 10/31/1999 10/31/1998 10/31/1998
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 8.85 $ 8.85 $ 10.00 $ 10.00
------------- ------------ ------------ ------------
Income from Investment Operations:
Net investment income 0.80 0.74 0.61 0.55
------------- ------------ ------------ ------------
Net realized and unrealized gain (loss) on investments 0.06 0.06 (1.15) (1.15)
------------- ------------ ------------ ------------
Total from investment operations 0.86 0.80 (0.54) (0.60)
------------- ------------ ------------ ------------
Less Distributions:
Distributions from net investment income (0.80) (0.74) (0.61) (0.55)
------------- ------------ ------------ ------------
Distributions from capital gains (0.03) (0.01) -- --
------------- ------------ ------------ ------------
Total distributions (0.83) (0.75) (0.61) (0.55)
------------- ------------ ------------ ------------
Net increase (decrease) in net asset value 0.03 0.05 (1.15) (1.15)
------------- ------------ ------------ ------------
Net Asset Value, End of Period $ 8.88 $ 8.90 $ 8.85 $ 8.85
============= ============ ============ ============
Total Return+ 9.69% 9.02% (5.78)%(2) (6.39)%(2)
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 7,879 $ 9,399 $ 6,045 $ 3,632
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser 1.97% 2.72% 3.52% (1) 4.27% (1)
After reimbursement of expenses by Adviser 1.00% 1.75% 1.00% (1) 1.75% (1)
Ratios of net investment income to average net assets:
Before reimbursement of expenses by Adviser 7.75% 7.16% 4.95% (1) 4.20% (1)
After reimbursement of expenses by Adviser 8.72% 8.13% 7.47% (1) 6.72% (1)
Portfolio Turnover 48% 48% 56% 56%
</TABLE>
(1) Annualized.
(2) Not annualized.
+ Total return without applicable sales charge.
(a) High Income Fund Class A and High Income Fund Class B commenced investment
operations on December 29, 1997.
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights for a Share of Beneficial Interest Outstanding Throughout each Period
Growth and Income Fund
Class A Class B Class A Class B
Year Ended Year Ended Inception (a) to Inception (a) to
10/31/1999 10/31/1999 10/31/1998 10/31/1998
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.88 $ 10.88 $ 10.00 $ 10.00
------------- ------------ ------------ ------------
Income from Investment Operations:
Net investment income (loss) 0.09 (0.01) 0.07 0.01
------------- ------------ ------------ ------------
Net realized and unrealized gain on investments 2.33 2.33 0.89 0.89
------------- ------------ ------------ ------------
Total from investment operations 2.42 2.32 0.96 0.90
------------- ------------ ------------ ------------
Less Distributions:
Distributions from net investment income (0.09) -- (0.07) (0.01)
------------- ------------ ------------ ------------
Distributions from capital gains -- (0.02) -- --
------------- ------------ ------------ ------------
Distributions in excess of net investment income -- -- (0.01) (0.01)
------------- ------------ ------------ ------------
Total distributions (0.09) (0.02) (0.08) (0.02)
------------- ------------ ------------ ------------
Net increase in net asset value 2.33 2.30 0.88 0.88
------------- ------------ ------------ ------------
Net Asset Value, End of Period $ 13.21 $ 13.18 $ 10.88 $ 10.88
============= ============ ============ ============
Total Return+ 22.33% 21.32% 9.57% (2) 8.97% (2)
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 25,646 $ 55,856 $ 11,169 $ 14,408
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser 1.25% 2.00% 2.41% (1) 3.16% (1)
After reimbursement of expenses by Adviser 1.00% 1.75% 1.00% (1) 1.75% (1)
Ratios of net investment income (loss) to average net assets:
Before reimbursement of expenses by Adviser 0.35% (0.40)% (0.60)%(1) (1.35)%(1)
After reimbursement of expenses by Adviser 0.60% (0.15)% 0.81% (1) 0.06% (1)
Portfolio Turnover 19% 19% 5% 5%
</TABLE>
(1) Annualized.
(2) Not annualized.
+ Total return without applicable sales charge.
(a) Growth and Income Fund Class A and Growth and Income Fund Class B commenced
investment operations on December 29, 1997.
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights for a Share of Beneficial Interest Outstanding Throughout each Period
Capital Appreciation Fund
Class A Class B Class A Class B
Year Ended Year Ended Inception (a) to Inception (a) to
10/31/1999 10/31/1999 10/31/1998 10/31/1998
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 11.04 $ 10.98 $ 10.00 $ 10.00
------------- ------------ ------------ ------------
Income from Investment Operations:
Net investment income (loss) (0.00)* (0.12) 0.01 (0.02)
------------- ------------ ------------ ------------
Net realized and unrealized gain on investments 2.68 2.68 1.04 1.01
------------- ------------ ------------ ------------
Total from investment operations 2.68 2.56 1.05 0.99
------------- ------------ ------------ ------------
Less Distributions:
Distributions from net investment income -- -- -- --
------------- ------------ ------------ ------------
Distributions from capital gains (0.02) -- -- --
------------- ------------ ------------ ------------
Distributions in excess of net investment income -- -- (0.01) (0.01)
------------- ------------ ------------ ------------
Total distributions (0.02) -- (0.01) (0.01)
------------- ------------ ------------ ------------
Net increase in net asset value 2.66 2.56 1.04 0.98
------------- ------------ ------------ ------------
Net Asset Value, End of Period $ 13.70 $ 13.54 $ 11.04 $ 10.98
============= ============ ============ ============
Total Return+ 24.29% 23.32% 10.51% (2) 9.91% (2)
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 13,262 $ 23,563 $ 13,410 $ 7,025
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser 1.71% 2.46% 3.28% (1) 4.03% (1)
After reimbursement of expenses by Adviser 1.20% 1.95% 1.20% (1) 1.95% (1)
Ratios of net investment income (loss) to average net assets:
Before reimbursement of expenses by Adviser (0.68)% (1.46)% (1.97)%(1) (2.72)%(1)
After reimbursement of expenses by Adviser (0.05)% (1.03)% 0.11% (1) (0.64)%(1)
Portfolio Turnover 68% 68% 10% 10%
</TABLE>
(1) Annualized.
(2) Not annualized.
+ Total return without applicable sales charge.
(a) Capital Appreciation Fund Class A and Capital Appreciation Fund Class B
commenced investment operations on December 29, 1997. * Amount represents
less than $(0.01).
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights for a Share of Beneficial Interest Outstanding Throughout each Period
International Stock Fund
Class A Class B Class A Class B
Year Ended Year Ended Inception (a) to Inception (a) to
10/31/1999 10/31/1999 10/31/1998 10/31/1998
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.34 $ 10.28 $ 10.00 $ 10.00
------------- ------------ ------------ ------------
Income from Investment Operations:
Net investment income 0.14 0.05 0.08 0.03
------------- ------------ ------------ ------------
Net realized and unrealized gain on investments 1.56 1.56 0.27 0.26
------------- ------------ ------------ ------------
Total from investment operations 1.70 1.61 0.35 0.29
------------- ------------ ------------ ------------
Less Distributions:
Distributions from net investment income (0.14) (0.05) (0.01) (0.01)
------------- ------------ ------------ ------------
Distributions from capital gains (0.45) (0.46) -- --
------------- ------------ ------------ ------------
Total distributions (0.59) (0.51) (0.01) (0.01)
------------- ------------ ------------ ------------
Net increase in net asset value 1.11 1.10 0.34 0.28
------------- ------------ ------------ ------------
Net Asset Value, End of Period $ 11.45 $ 11.38 $ 10.34 $ 10.28
============= ============ ============ ============
Total Return+ 17.00% 16.09% 3.60% (2) 2.90% (2)
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 33,214 $ 3,326 $ 27,656 $ 1,350
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser 2.18% 2.93% 2.76% (1) 3.51% (1)
After reimbursement of expenses by Adviser 1.60% 2.35% 1.60% (1) 2.35% (1)
Ratios of net investment income (loss) to average net assets:
Before reimbursement of expenses by Adviser 0.72% 0.05% (0.01)%(1) (0.76)%(1)
After reimbursement of expenses by Adviser 1.30% 0.63% 1.15% (1) 0.40% (1)
Portfolio Turnover 57% 57% 60% 60%
</TABLE>
(1) Annualized.
(2) Not annualized.
+ Total return without applicable sales charge.
(a) International Stock Fund Class A and International Stock Fund Class B
commenced investment operations on December 29, 1997.
<PAGE>
APPENDIX A
CHART 1
Investment Adviser Past Performance
The performance data set forth below relates to the historic performance of the
similarly managed funds of the Ultra Series Fund (the "USF Funds") for the
periods indicated. The USF Funds are variable insurance products funds that
have investment objectives, policies, strategies and risks substantially similar
to those of the MEMBERS Funds. They have been managed by members of CIMCO's
portfolio management team who also manage the MEMBERS Funds. Similar performance
data is also set forth below regarding the MFS (R) High Income Fund 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 funds. The performance
data is provided to illustrate the past performance of the investment teams in
managing substantially similar investment portfolios and does not represent the
performance of the MEMBERS Funds. Investors should not consider this
performance data as an indication of future performance of the MEMBERS Funds.
The performance data was calculated after deducting all fees and charges
actually incurred by the USF Funds and MFS (R) 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
Average Annual Total Returns
(As of December 31, 1999)
One-Year Five-Year Ten-Year
USF Money Market Fund 4.69% 4.89% 4.65%
90-day U.S. Treasury Bill 4.73% 5.20% 5.05%
Best Calendar Quarter: 2Q '90 1.92%
Worst Calendar Quarter: 2Q '93 0.60%
Ultra Series Bond Fund Performance
Average Annual Total Returns
(As of December 31, 1999)
One-Year Five-Year Ten-Year
USF Bond Fund 0.73% 6.59% 6.66%
Lehman Bros. Int. Gov./
Corp. Bond Index 0.39% 7.10% 7.26%
Best Calendar Quarter: 2Q '95 5.30%
Worst Calendar Quarter: 1Q '94 -2.50%
<PAGE>
Ultra Series Balanced Fund Performance
Average Annual Total Returns
(As of December 31, 1999)
One-Year Five-Year Ten-Year
USF Balanced Fund 14.49% 15.50% 11.50%
Blended Index* 10.14% 16.27% 11.95%
Best Calendar Quarter: 4Q '98 11.43%
Worst Calendar Quarter: 3Q '90 -5.69%
* 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
Average Annual Total Returns
(As of December 31, 1999)
One-Year Five-Year Ten-Year
MFS (R) High Income
Fund Class A 7.00% 9.98% 10.50%
Lehman Brothers
High Yield Index 2.39% 9.31% 10.72%
Best Calendar Quarter: 1Q '91 20.69%
Worst Calendar Quarter: 3Q '90 -9.21%
Ultra Series Growth and Income Stock Fund Performance
Average Annual Total Returns
(As of December 31, 1999)
One-Year Five-Year Ten-Year
USF Growth and
Income Stock Fund 17.95% 24.06% 16.22%
S&P 500
(Large Cap Index) 21.04% 28.55% 18.20%
Best Calendar Quarter: 4Q '98 17.81%
Worst Calendar Quarter: 3Q '90 -13.69%
Ultra Series Capital Appreciation Stock Fund Performance
Average Annual Total Returns
(As of December 31, 1999)
One-Year Five-Year(1) Ten-Year
USF Capital Appreciation
Stock Fund 25.19% 25.89% N/A
S&P 400 (mid-Cap Index) 14.72% 23.04% 17.29%
S&P 1500 Super-Composite
Index 20.25% 25.62% N/A
Best Calendar Quarter: 4Q '98 20.84%
Worst Calendar Quarter: 3Q '98 -12.04%
(1) The fund began operations on January 3, 1994. 1994 data is for the period
from January 3 through December 31, 1994.
<PAGE>
MFS (R) Emerging Growth Fund Performance
Average Annual Total Returns
(As of December 31, 1999)
One-Year Five-Year Ten-Year
MFS (R) Emerging Growth
Fund Class A 50.08% 29.57% N/A
S&P 500 Index 21.07% 28.55% 18.20%
Russell 2000 Index 21.26% 16.45% 13.28%
Best Calendar Quarter: 4Q '99 35.91%
Worst Calendar Quarter: 3Q '98 -17.91%
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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10 Year 1 Year 3 Year 5 Year 10
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
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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10 Year 1 Year 3 Year 5 Year 10
Cash Reserves 583 697 821 1183 132 412 713 1264
Bond 518 705 907 1490 168 520 897 1661
Balanced 636 861 1104 1799 188 582 1001 1881
High Income 528 735 959 1602 178 551 949 1771
Growth and Income 627 832 1053 1690 178 551 949 1771
Capital Appreciation 646 891 1155 1907 198 612 1052 1989
Emerging Growth 646 891 1155 1907 198 612 1052 1989
International Stock 684 1008 1355 2329 238 733 1255 2412
</TABLE>
<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 60569
King of Prussia, PA 19406-0569
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 Pubic 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
60569, King of Prussia, PA 19406-0569.
February 28, 2000
<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.......................................................28
TEMPORARY DEFENSIVE POSITIONS................................................29
PORTFOLIO TURNOVER...........................................................29
MANAGEMENT OF THE TRUST......................................................30
Trustees and Officers...............................................30
Trustee Compensation................................................31
SALES LOAD WAIVERS FOR CERTAIN AFFILIATED PERSONS OF THE TRUST...............32
CONTROL PERSONS AND PRINCIPAL HOLDERS OF THE TRUST'S SECURITIES..............32
PORTFOLIO MANAGEMENT.........................................................33
The Management Agreement with CIMCO Inc.............................33
CIMCO Inc...........................................................34
The Management Agreements with Subadvisers..........................35
The Subadviser for the High Income Fund.............................35
The Subadvisers for the Emerging Growth Fund........................35
The Subadvisers for the International Stock Fund....................36
DISTRIBUTION (12b-1) PLANS AND AGREEMENT.....................................36
TRANSFER AGENT...............................................................38
CUSTODIAN....................................................................38
INDEPENDENT AUDITORS.........................................................38
BROKERAGE....................................................................38
HOW SECURITIES ARE OFFERED...................................................40
Shares of Beneficial Interest.......................................40
Voting Rights.......................................................40
Limitation of Shareholder Liability.................................41
Limitation of Trustee and Officer Liability.........................41
Limitation of Interseries Liability.................................41
MORE ABOUT PURCHASING AND SELLING SHARES.....................................42
Offering Price......................................................42
Initial Sales Charge on Class A Shares..............................42
Deferred Sales Charge on Class B Shares.............................43
Special Redemptions.................................................46
NET ASSET VALUE OF SHARES....................................................46
Cash Reserves Fund..................................................46
Valuation Procedures................................................47
ADDITIONAL INVESTOR SERVICES AND PROGRAMS....................................48
Systematic Investment Program.......................................48
Systematic Withdrawal Program.......................................48
Exchange Privilege and Systematic Exchange Program..................48
Reinstatement or Reinvestment Privilege.............................49
DIVIDENDS, DISTRIBUTIONS AND TAXES...........................................49
Options and Futures Transactions....................................52
Straddles...........................................................52
Distributor.........................................................54
CALCULATION OF YIELDS AND TOTAL RETURNS......................................54
Cash Reserves Fund Yields...........................................54
Other Fund Yields...................................................56
Average Annual Total Returns........................................56
Other Total Returns.................................................57
LEGAL COUNSEL................................................................57
FINANCIAL STATEMENTS.........................................................57
<PAGE>
GENERAL INFORMATION
The MEMBERS Mutual Funds (the "Trust") is an investment company consisting of
eight 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 eight funds
are: Cash Reserves, Bond, Balanced, High Income, Growth and Income, Capital
Appreciation, 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 eight individual investment portfolio or funds, each with its own
investment objective and policies. The prospectus describes the investment
objective and policies of each of the eight funds. The following information is
provided for those investors wishing to have more comprehensive information than
that contained in the prospectus.
Lending Portfolio Securities
All funds, except the Cash Reserves Fund, may lend portfolio securities. Such
loans will be made only in accordance with guidelines established by the
Trustees and on the request of broker-dealers or institutional investors deemed
qualified, and only when the borrower agrees to maintain cash or other liquid
assets as collateral with the fund equal at all times to at least 100% of the
value of the securities. The fund will continue to receive interest or dividends
on the securities loaned and will, at the same time, earn an agreed-upon amount
of interest on the collateral which will be invested in readily marketable
obligations of high quality. The fund will retain the right to call the loaned
securities and intends to call loaned voting securities if important shareholder
meetings are imminent. Such security loans will not be made if, as a result, the
aggregate of such loans exceeds 30% of the value of the fund's assets. The fund
may terminate such loans at any time. The primary risk involved in lending
securities is that the borrower will fail financially and not return the loaned
securities at a time when the collateral is sufficient to replace the full
amount of the loaned securities. To mitigate this risk, loans will be made only
to firms deemed by the funds' investment adviser, CIMCO Inc. ("CIMCO"), to be
creditworthy and will not be made unless, in CIMCO's judgment, the consideration
to be earned from such loans would justify the risk.
Restricted and Illiquid Securities
Each fund may invest in illiquid securities up to the percentage limits
described on page 24 (Higher risk securities and practice table). CIMCO or the
fund's subadviser (collectively referred to herein as the "Investment Adviser")
is responsible for determining the value and liquidity of investments held by
each fund. Investments may be illiquid because of the absence of a trading
market, making it difficult to value them or dispose of them promptly at an
acceptable price.
Illiquid investments include most repurchase agreements maturing in more than
seven days, currency swaps, time deposits with a notice or demand period of more
than seven days, certain over-the-counter option contracts (and assets used to
cover such options), participation interests in loans, and restricted
securities. A restricted security is one that has a contractual restriction on
resale or cannot be resold publicly until it is registered under the Securities
Act of 1933 (the "1933 Act").
Each fund may invest in restricted securities. Restricted securities are not,
however, considered illiquid if they are eligible for sale to qualified
institutional purchasers in reliance upon Rule 144A under the 1933 Act and that
are determined to be liquid by the Trust's board of trustees or by the
Investment Adviser under board-approved procedures. Such guidelines would take
into account trading activity for such securities and the availability of
reliable pricing information, among other factors. To the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities, a fund's holdings of those securities may become
illiquid. Purchases by the International Stock Fund and the High Income Fund of
securities of foreign issuers offered and sold outside the U.S., in reliance
upon the exemption from registration provided by Regulation S under the 1933
Act, also may be liquid even though they are restricted.
Options on Securities and Securities Indices
Writing Options. All of the funds (except the Cash Reserves Fund) may write
(sell) covered call and put options on any securities in which it may invest. A
call option written by a fund obligates such fund to sell specified securities
to the holder of the option at a specified price if the option is exercised at
any time before the expiration date. All call options written by a fund are
covered, which means that such fund will own the securities subject to the
option so long as the option is outstanding. A fund's purpose in writing covered
call options is to realize greater income than would be realized on portfolio
securities transactions alone. However, a fund may forego the opportunity to
profit from an increase in the market price of the underlying security.
A put option written by a fund would obligate such fund to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time before the expiration date. All put options written by a
fund would be covered, which means that such fund would have deposited with its
custodian cash or liquid high grade debt securities with a value at least equal
to the exercise price of the put option. The purpose of writing such options is
to generate additional income for the fund. However, in return for the option
premium, a fund accepts the risk that it will be required to purchase the
underlying securities at a price in excess of the securities' market value at
the time of purchase.
In addition, a written call option or put option may be covered by maintaining
cash or liquid, high grade debt securities (either of which may be denominated
in any currency) in a segregated account with its custodian, by entering into an
offsetting forward contract and/or by purchasing an offsetting option which, by
virtue of its exercise price or otherwise, reduces a fund's net exposure on its
written option position.
The funds (other than the Cash Reserves Fund) may also write and sell covered
call and put options on any securities index composed of securities in which it
may invest. Options on securities indices are similar to options on securities,
except that the exercise of securities index options requires cash payments and
does not involve the actual purchase or sale of securities. In addition,
securities index options are designed to reflect price fluctuations in a group
of securities or segment of the securities market rather than price fluctuations
in a single security.
A fund may cover call options on a securities index by owning securities whose
price changes are expected to be similar to those of the underlying index, or by
having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities in its portfolio. A fund may cover call and put options on a
securities index by maintaining cash or liquid high-grade debt securities with a
value equal to the exercise price in a segregated account with its custodian.
A fund may terminate its obligations under an exchange-traded call or put option
by purchasing an option identical to the one it has written. Obligations under
over-the-counter options may be terminated only by entering into an offsetting
transaction with the counterparty to such option. Such purchases are referred to
as "closing purchase" transactions.
Purchasing Options. The funds (other than the Cash Reserves Fund) may purchase
put and call options on any securities in which it may invest or options on any
securities index based on securities in which it may invest. A fund would also
be able to enter into closing sale transactions in order to realize gains or
minimize losses on options it had purchased.
A fund would normally purchase call options in anticipation of an increase in
the market value of securities of the type in which it may invest. The purchase
of a call option would entitle a fund, in return for the premium paid, to
purchase specified securities at a specified price during the option period. A
fund would ordinarily realize a gain if, during the option period, the value of
such securities exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise such a fund would realize a loss on the purchase of
the call option.
A fund would normally purchase put options in anticipation of a decline in the
market value of securities in its portfolio ("protective puts") or in securities
in which it may invest. The purchase of a put option would entitle a fund, in
exchange for the premium paid, to sell specified securities at a specified price
during the option period. The purchase of protective puts is designed to offset
or hedge against a decline in the market value of a fund's securities. Put
options may also be purchased by a fund for the purpose of affirmatively
benefiting from a decline in the price of securities which it does not own. A
fund would ordinarily realize a gain if, during the option period, the value of
the underlying securities decreased below the exercise price sufficiently to
cover the premium and transaction costs; otherwise such a fund would realize no
gain or loss on the purchase of the put option. Gains and losses on the purchase
of protective put options would tend to be offset by countervailing changes in
the value of the underlying portfolio securities.
The fund would purchase put and call options on securities indices for the same
purposes as it would purchase options on individual securities.
Yield Curve Options. The Bond, Balanced, and High Income Funds may enter into
options on the yield "spread," or yield differential between two securities.
Such transactions are referred to as "yield curve" options. In contrast to other
types of options, a yield curve option is based on the difference between the
yields of designated securities, rather than the prices of the individual
securities, and is settled through cash payments. Accordingly, a yield curve
option is profitable to the holder if this differential widens (in the case of a
call) or narrows (in the case of a put), regardless of whether the yields of the
underlying securities increase or decrease.
These three funds may purchase or write yield curve options for the same
purposes as other options on securities. For example, the fund may purchase a
call option on the yield spread between two securities if it owns one of the
securities and anticipates purchasing the other security and wants to hedge
against an adverse change in the yield between the two securities. The fund may
also purchase or write yield curve options in an effort to increase its current
income if, in the judgment of the Investment Adviser, the fund will be able to
profit from movements in the spread between the yields of the underlying
securities. The trading of yield curve options is subject to all of the risks
associated with the trading of other types of options. In addition, however,
such options present risk of loss even if the yield of one of the underlying
securities remains constant, if the spread moves in a direction or to an extent
which was not anticipated.
Yield curve options written by the Bond, Balanced, or High Income Funds will be
"covered." A call (or put) option is covered if the fund holds another call (or
put) option on the spread between the same two securities and maintains in a
segregated account with its custodian cash or liquid, high grade debt securities
sufficient to cover the fund's net liability under the two options. Therefore,
the fund's liability for such a covered option is generally limited to the
difference between the amount of the fund's liability under the option written
by the fund less the value of the option held by the fund. Yield curve options
may also be covered in such other manner as may be in accordance with the
requirements of the counterparty with which the option is traded and applicable
laws and regulations. Yield curve options are traded over-the-counter, and
because they have been only recently introduced, established trading markets for
these options have not yet developed.
Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on an options exchange will exist for any particular
exchange-traded option or at any particular time. If a fund is unable to effect
a closing purchase transaction with respect to covered options it has written,
the fund will not be able to sell the underlying securities or dispose of assets
held in a segregated account until the options expire or are exercised.
Similarly, if a fund is unable to effect a closing sale transaction with respect
to options it has purchased, it will have to exercise the options in order to
realize any profit and will incur transaction costs upon the purchase or sale of
underlying securities.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options on that exchange that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
The funds (other than the Cash Reserves Fund) may purchase and sell both options
that are traded on U.S. and foreign exchanges and options traded
over-the-counter with broker-dealers who make markets in these options. The
ability to terminate over-the-counter options is more limited than with
exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. Until
such time as the staff of the Securities and Exchange Commission (the
"Commission") changes its position, the funds will treat purchased over-the
counter options and all assets used to cover written over-the-counter options as
illiquid securities, except that with respect to options written with primary
dealers in U.S. Government securities pursuant to an agreement requiring a
closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to the formula.
Transactions by a fund in options on securities and stock indices will be
subject to limitations established by each of the exchanges, boards of trade or
other trading facilities governing the maximum number of options in each class
which may be written or purchased by a single investor or group of investors
acting in concert. Thus, the number of options which a fund may write or
purchase may be affected by options written or purchased by other investment
advisory clients of the Investment Adviser. An exchange, board of trade or other
trading facility may order the liquidations of positions found to be in excess
of these limits, and it may impose certain other sanctions.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of protective
puts for hedging purposes depends in part on the Investment Adviser's ability to
predict future price fluctuations and the degree of correlation between the
options and securities markets.
Futures Contracts and Options on Futures Contracts
The funds (other than the Cash Reserves Fund) may purchase and sell futures
contracts and purchase and write options on futures contracts. These funds may
purchase and sell futures contracts based on various securities (such as U.S.
Government securities), securities indices, foreign currencies and other
financial instruments and indices. A fund will engage in futures or related
options transactions only for bona fide hedging purposes as defined below or for
purposes of seeking to increase total returns to the extent permitted by
regulations of the Commodity Futures Trading Commission ("CFTC"). All futures
contracts entered into by a fund are traded on U.S. exchanges or boards of trade
that are licensed and regulated by the CFTC or on foreign exchanges.
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments for an
agreed price during a designated month (or to deliver the final cash settlement
price, in the case of a contract relating to an index or otherwise not calling
for physical delivery at the end of trading in the contract).
When interest rates are rising or securities prices are falling, a fund can seek
through the sale of futures contracts to offset a decline in the value of its
current portfolio securities. When rates are falling or prices are rising, a
fund, through the purchase of futures contracts, can attempt to secure better
rates or prices than might later be available in the market when it effects
anticipated purchases. Similarly, a fund (other than the Cash Reserves Fund) can
sell futures contracts on a specified currency to protect against a decline in
the value of such currency and its portfolio securities which are denominated in
such currency. These funds can purchase futures contracts on foreign currency to
fix the price in U.S. dollars of a security denominated in such currency that
such fund has acquired or expects to acquire.
Positions taken in the futures markets are not normally held to maturity, but
are instead liquidated through offsetting transactions which may result in a
profit or a loss. While a fund's futures contracts on securities or currency
will usually be liquidated in this manner, it may instead make or take delivery
of the underlying securities or currency whenever it appears economically
advantageous for the fund to do so. A clearing corporation (associated with the
exchange on which futures on a security or currency are traded) guarantees that,
if still open, the sale or purchase will be performed on the settlement date.
Hedging Strategies. Hedging by use of futures contracts seeks to establish more
certainly than would otherwise be possible the effective price, rate of return
or currency exchange rate on portfolio securities or securities that a fund owns
or proposes to acquire. A fund may, for example, take a "short" position in the
futures market by selling futures contracts in order to hedge against an
anticipated rise in interest rates or a decline in market prices or foreign
currency rates that would adversely affect the U.S. dollar value of the fund's
portfolio securities. Such futures contracts may include contracts for the
future delivery of securities held by the fund or securities with
characteristics similar to those of a fund's portfolio securities. Similarly, a
fund may sell futures contracts on a currency in which its portfolio securities
are denominated or in one currency to hedge against fluctuations in the value of
securities denominated in a different currency if there is an established
historical pattern of correlation between the two currencies.
If, in the opinion of the Investment Adviser, there is a sufficient degree of
correlation between price trends for a fund's portfolio securities and futures
contracts based on other financial instruments, securities indices or other
indices, the fund may also enter into such futures contracts as part of its
hedging strategy. Although under some circumstances prices of securities in a
fund's portfolio may be more or less volatile than prices of such futures
contracts, the Investment Adviser will attempt to estimate the extent of this
difference in volatility based on historical patterns and to compensate for it
by having the fund enter into a greater or lesser number of futures contracts or
by attempting to achieve only a partial hedge against price changes affecting
the fund's securities portfolio. When hedging of this character is successful,
any depreciation in the value of portfolio securities will substantially be
offset by appreciation in the value of the futures position. On the other hand,
any unanticipated appreciation in the value of the fund's portfolio securities
would be substantially offset by a decline in the value of the futures position.
On other occasions, a fund may take a "long" position by purchasing such futures
contracts. This would be done, for example, when a fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates than available in the applicable
market to be less favorable than prices or rates that are currently available.
Options on Futures Contracts. The acquisition of put and call options on futures
contracts will give a fund the right (but not the obligation), for a specified
price, to sell or to purchase, respectively, the underlying futures contract at
any time during the option period. As the purchaser of an option on a futures
contract, a fund obtains the benefit of the futures position if prices move in a
favorable direction but limits its risk of loss in the event of an unfavorable
price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of a fund's assets. By writing a call
option, a fund becomes obligated, in exchange for the premium, to sell a futures
contract which may have a value higher then the exercise price. Conversely, the
writing of a put option on a futures contract generates a premium, which may
partially offset an increase in the price of securities that the fund intends to
purchase. However, a fund becomes obligated to purchase a futures contract,
which may have a value lower than the exercise price. Thus, the loss incurred by
the fund in writing options on futures is potentially unlimited and may exceed
the amount of the premium received. A fund will incur transaction costs in
connection with the writing of options on futures.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same series. There
is no guarantee that such closing transactions can be effected. A fund's ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid market.
Other Considerations. Where permitted a fund will engage in futures transactions
and in related options transactions only for bona fide hedging or to seek to
increase total return to the extent permitted by CFTC regulations. A fund will
determine that the price fluctuations in the futures contracts and options on
futures used for hedging purposes are substantially related to price
fluctuations in securities held by the fund or which it expects to purchase.
Except as stated below, each fund's futures transactions will be entered into
for traditional hedging purposes, i.e., futures contracts will be used to
protect against a decline in the price of securities (or the currency in which
they are denominated) that the fund owns, or futures contracts will be purchased
to protect the fund against an increase in the price of securities (or the
currency in which they are denominated) it intends to purchase. As evidence of
this hedging intent, each fund expects that on 75% or more of the occasions on
which it takes a long futures or option position (involving the purchase of a
futures contract), the fund will have purchased, or will be in the process of
purchasing equivalent amounts of related securities (or assets denominated in
the related currency) in the cash market at the time when the futures or option
position is closed out. However, in particular cases, when it is economically
advantageous for a fund to do so, a long futures position may be terminated or
an option may expire without the corresponding purchase of securities or other
assets.
As an alternative to literal compliance with the bona fide hedging definition, a
CFTC regulation permits a fund to elect to comply with a different test, under
which the aggregate initial margin and premiums required to establish positions
in futures contracts and options on futures for the purpose of seeking to
increase total return will not exceed 5 percent of the net asset value of the
fund's portfolio, after taking into account unrealized profits and losses on any
such positions and excluding the amount by which such options were in-the-money
at the time of purchase. As permitted, each fund will engage in transactions in
futures contracts and in related options transactions only to the extent such
transactions are consistent with the requirements of the Internal Revenue Code
of 1986, as amended (the "Code") for maintaining its qualification as a
regulated investment company for federal income tax purposes (see "Dividends,
Distributions, and Taxes" below).
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating a fund to purchase securities or currencies, require the fund to
segregate with its custodian liquid high grade debt securities in an amount
equal to the underlying value of such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance for a fund than if it had not
entered into any futures contracts or options transactions. In the event of an
imperfect correlation between a futures position and portfolio position which is
intended to be protected, the desired protection may not be obtained and a fund
may be exposed to risk of loss.
Perfect correlation between a fund's futures positions and portfolio positions
may be difficult to achieve because no futures contracts based on individual
equity securities are currently available. The only futures contracts available
to hedge a fund's portfolio are various futures on U.S. Government securities,
securities indices and foreign currencies. In addition, it is not possible for a
fund to hedge fully or perfectly against currency fluctuations affecting the
value of securities denominated in foreign currencies because the value of such
securities is likely to fluctuate as a result of independent factors not related
to currency fluctuations.
Foreign Transactions
Foreign Securities. Each fund may invest in foreign securities (as defined
below), although the Cash Reserves Fund is limited to U.S. dollar-denominated
foreign money market securities (as defined below). The percentage limitations
on each fund's investment on foreign securities is set forth in the prospectus.
Foreign securities means securities that are: (1) issued by companies organized
outside the U.S. or whose principal operations are outside the U.S. ("foreign
issuers"), (2) issued by foreign governments or their agencies or
instrumentalities (also "foreign issuers"), (3) principally traded outside of
the U.S., or (4) quoted or denominated in a foreign currency ("non-dollar
securities"). Foreign securities include ADRs, EDRs, GDRs, and foreign money
market securities.
Foreign securities may offer potential benefits that are not available from
investments exclusively in securities of domestic issuers or dollar denominated
securities. Such benefits may include the opportunity to invest in foreign
issuers that appear to offer better opportunity for long-term capital
appreciation or current earnings than investments in domestic issuers, the
opportunity to invest in foreign countries with economic policies or business
cycles different from those of the U.S. and the opportunity to invest in foreign
securities markets that do not necessarily move in a manner parallel to U.S.
markets.
Investing in foreign securities involves significant risks that are not
typically associated with investing in U.S. dollar denominated securities or in
securities of domestic issuers. Such investments may be affected by changes in
currency exchange rates, changes in foreign or U.S. laws or restrictions
applicable to such investments and in exchange control regulations (e.g.,
currency blockage). Some foreign stock markets may have substantially less
volume than, for example, the New York Stock Exchange and securities of some
foreign issuers may be less liquid than securities of comparable domestic
issuers. Commissions and dealer mark-ups on transactions in foreign investments
may be higher than for similar transactions in the U.S. In addition, clearance
and settlement procedures may be different in foreign countries and, in certain
markets, on certain occasions, such procedures have been unable to keep pace
with the volume of securities transactions, thus making it difficult to conduct
such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. There may be less publicly available information about a foreign
issuer than about a domestic one. In addition, there is generally less
government regulation of stock exchanges, brokers, and listed and unlisted
issuers in foreign countries than in the U.S. Furthermore, with respect to
certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, imposition of withholding taxes on dividend or interest
payments, limitations on the removal of funds or other assets of the fund making
the investment, or political or social instability or diplomatic developments
which could affect investments in those countries.
Investments in short-term debt obligations issued either by foreign issuers or
foreign financial institutions or by foreign branches of U.S. financial
institutions (collectively, "foreign money market securities") present many of
the same risks as other foreign investments. In addition, foreign money market
securities present interest rate risks similar to those attendant to an
investment in domestic money market securities.
Investments in ADRs, EDRs and GDRs. Many securities of foreign issuers are
represented by American depository receipts ("ADRs"), European depository
receipts ("EDRs") and global depository receipts ("GDRs"). Each of the funds may
invest in ADRs, and each of the funds other than the Cash Reserves Fund may
invest in GDRs and EDRs.
ADRs are receipts typically issued by a U.S. financial institution or trust
company which represent the right to receive securities of foreign issuers
deposited in a domestic bank or a foreign correspondent bank. Prices of ADRs are
quoted in U.S. dollars, and ADRs are traded in the U.S. on exchanges or
over-the-counter and are sponsored and issued by domestic banks. In general,
there is a large, liquid market in the U.S. for ADRs quoted on a national
securities exchange or the NASD's national market system. The information
available for ADRs is subject to the accounting, auditing and financial
reporting standards of the domestic market or exchange on which they are traded,
which standards are more uniform and more exacting than those to which many
foreign issuers may be subject.
EDRs and GDRs are receipts evidencing an arrangement with a non-U.S. bank
similar to that for ADRs and are designed for use in non-U.S. securities
markets. EDRs are typically issued in bearer form and are designed for trading
in the European markets. GDRs, issued either in bearer or registered form, are
designed for trading on a global basis. EDRs and GDRs are not necessarily quoted
in the same currency as the underlying security.
Depository receipts do not eliminate all the risk inherent in investing in the
securities of foreign issuers. To the extent that a fund acquires depository
receipts through banks which do not have a contractual relationship with the
foreign issuer of the security underlying the receipt to issue and service such
depository receipts, there may be an increased possibility that the fund would
not become aware of and be able to respond to corporate actions such as stock
splits or rights offerings involving the foreign issuer in a timely manner. The
market value of depository receipts is dependent upon the market value of the
underlying securities and fluctuations in the relative value of the currencies
in which the receipts and the underlying are quoted. In addition, the lack of
information may result in inefficiencies in the valuation of such instruments.
However, by investing in depository receipts rather than directly in the stock
of foreign issuers, a fund will avoid currency risks during the settlement
period for either purchases or sales.
Investments in Emerging Markets. The High Income and International Stock Funds
may invest in securities of issuers located in countries with emerging economies
and/or securities markets. These countries are located in the Asia Pacific
region, Eastern Europe, Central and South America and Africa. Political and
economic structures in many of these countries may be undergoing significant
evolution and rapid development, and such countries may lack the social,
political and economic stability characteristic of more developed countries.
Certain of these countries may have in the past failed to recognize private
property rights and have at times nationalized or expropriated the assets of
private companies. As a result, the risks of foreign investment generally,
including the risks of nationalization or expropriation of assets, may be
heightened. In addition, unanticipated political or social developments may
affect the values of a fund's investments in those countries and the
availability to the fund of additional investments in those countries.
The small size and inexperience of the securities markets in certain of these
countries and the limited volume of trading in securities in those countries may
also make the High Income and International Stock Funds' investments in such
countries illiquid and more volatile than investments in Japan or most Western
European countries, and these funds may be required to establish special custody
or other arrangements before making certain investments in those countries.
There may be little financial or accounting information available with respect
to issuers located in certain of such countries, and it may be difficult as a
result to assess the value or prospects of an investment in such issuers.
A fund's purchase or sale of portfolio securities in certain emerging markets
may be constrained by limitations as to daily changes in the prices of listed
securities, periodic trading or settlement volume and/or limitations on
aggregate holdings of foreign investors. Such limitations may be computed based
on aggregate trading volume by or holdings of a fund, CIMCO and its affiliates,
a subadviser and its affiliates, and each such person's respective clients and
other service providers. A fund may not be able to sell securities in
circumstances where price, trading or settlement volume limitations have been
reached.
Foreign investment in certain emerging securities markets is restricted or
controlled to varying degrees that may limit investment in such countries or
increase the administrative cost of such investments. For example, certain Asian
countries require government approval prior to investments by foreign persons or
limit investment by foreign persons to a specified percentage of an issuer's
outstanding securities or a specific class of securities which may have less
advantageous terms (including price) than securities of such company available
for purchase by nationals. In addition, certain countries may restrict or
prohibit investment opportunities in issuers or industries important to national
interests. Such restrictions may affect the market price, liquidity and rights
of securities that may be purchased by a fund.
Settlement procedures in emerging markets are frequently less developed and
reliable than those in the U.S. and may involve a fund's delivery of securities
before receipt of payment for their sale. In addition, significant delays are
common in certain markets in registering the transfer of securities. Settlement
or registration problems may make it more difficult for a fund to value its
portfolio assets and could cause a fund to miss attractive investment
opportunities, to have its assets uninvested or to incur losses due to the
failure of a counterparty to pay for securities that the fund has delivered or
due to the fund's inability to complete its contractual obligations.
Currently, there is no market or only a limited market for many management
techniques and instruments with respect to the currencies and securities markets
of emerging market countries. Consequently, there can be no assurance that
suitable instruments for hedging currency and market related risks will be
available at the times when the Investment Adviser of the fund wishes to use
them.
Foreign Currency Transactions Generally. Because investment in foreign issuers
will usually involve currencies of foreign countries, and because the High
Income, 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.
These two funds may enter into contracts to purchase foreign currencies to
protect against an anticipated rise in the U.S. dollar price of securities it
intends to purchase. They may enter into contracts to sell foreign currencies to
protect against the decline in value of its foreign currency denominated or
quoted portfolio securities, or a decline in the value of anticipated dividends
from such securities, due to a decline in the value of foreign currencies
against the U.S. dollar. Contracts to sell foreign currency could limit any
potential gain which might be realized by a fund if the value of the hedged
currency increased.
If a fund enters into a forward foreign currency exchange contract to buy
foreign currency for any purpose, the fund will be required to place cash or
liquid high grade debt securities in a segregated account with the fund's
custodian in an amount equal to the value of the fund's total assets committed
to the consummation of the forward contract. If the value of the securities
placed in the segregated account declines, additional cash or securities will be
placed in the segregated account so that the value of the account will equal the
amount of the fund's commitment with respect to the contract.
Forward contracts are subject to the risk that the counterparty to such contract
will default on its obligations. Since a forward foreign currency exchange
contract is not guaranteed by an exchange or clearinghouse, a default on the
contract would deprive a fund of unrealized profits, transaction costs or the
benefits of a currency hedge or force the fund to cover its purchase or sale
commitments, if any, at the current market price. A fund will not enter into
such transactions unless the credit quality of the unsecured senior debt or the
claims-paying ability of the counterparty is considered to be investment grade
by the fund's Investment Adviser.
Options on Foreign Currencies. The High Income and International Stock Funds may
also purchase and sell (write) put and call options on foreign currencies for
the purpose of protecting against declines in the U.S. dollar value of foreign
portfolio securities and anticipated dividends on such securities and against
increases in the U.S. dollar cost of foreign securities to be acquired. These
funds may use options on currency to cross-hedge, which involves writing or
purchasing options on one currency to hedge against changes in exchange rates
for a different currency, if there is a pattern of correlation between the two
currencies. As with other kinds of option transactions, however, the writing of
an option on foreign currency will constitute only a partial hedge, up to the
amount of the premium received. A fund could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movements adverse to a fund's position, the fund may forfeit the entire amount
of the premium plus related transaction costs. In addition, these funds may
purchase call or put options on currency to seek to increase total return when
the fund's Investment Adviser anticipates that the currency will appreciate or
depreciate in value, but the securities quoted or denominated in that currency
do not present attractive investment opportunities and are not held in the
fund's portfolio. When purchased or sold to increase total return, options on
currencies are considered speculative. Options on foreign currencies to be
written or purchased by these funds will be traded on U.S. and foreign exchanges
or over-the-counter. See "Stock Index Futures and Related Options" above for a
discussion of the liquidity risks associated with options transactions.
Special Risks Associated With Options on Currency. An exchange traded options
position may be closed out only on an options exchange which provides a
secondary market for an option of the same series. Although a fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option, or at any particular time. For
some options no secondary market on an exchange may exist. In such event, it
might not be possible to effect closing transactions in particular options, with
the result that a fund would have to exercise its options in order to realize
any profit and would incur transaction costs upon the sale of underlying
securities pursuant to the exercise of put options. If a fund as a covered call
option writer is unable to effect a closing purchase transaction in a secondary
market, it will not be able to see the underlying currency (or security quoted
or denominated in that currency) until the option expires or it delivers the
underlying currency upon exercise.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facilities of the
Options Clearing Corporation inadequate, and thereby result in the institution
by an exchange of special procedures which may interfere with the timely
execution of customers' orders.
The High Income Fund and International Stock Fund may each purchase and write
over-the-counter options to the extent consistent with its limitation on
investments in restricted securities. See the "Higher Risk Securities and
Practices" chart for each fund's limitations on investments in restricted
securities. Trading in over-the-counter options is subject to the risk that the
other party will be unable or unwilling to close-out options purchased or
written by the fund.
The amount of the premiums which a fund may pay or receive may be adversely
affected as new or existing institutions, including other investment companies,
engage in or increase their option purchasing and writing activities.
Interest Rate Swaps, Currency Swaps and Interest Rate Caps, Floors and Collars.
The High Income Fund and International Stock Fund may each enter into interest
rate and currency swaps for hedging purposes and to seek to increase total
return. The High Income Fund may also enter into special interest rate swap
arrangements such as caps, floors and collars for both hedging purposes and to
seek to increase total return. The High Income Fund typically uses interest rate
swaps to shorten the effective duration of its portfolio. Interest rate swaps
involve the exchange by the High Income Fund with another party of their
respective commitments to pay or receive interest, such as an exchange of fixed
rate payments for floating rate payments. Currency swaps involve the exchange by
the funds with another party of their respective rights to make or receive
payments in specified currencies. The purchase of an interest rate cap entitles
the purchaser to receive from the seller of the cap payments of interest on a
notional amount equal to the amount by which a specified index exceeds a stated
interest rate. The purchase of an interest rate floor entitles the purchaser to
receive from the seller of the floor payments of interest on a notional amount
equal to the amount by which a specified index falls below a stated interest
rate. An interest rate collar is the combination of a cap and a floor that
preserves a certain return within a stated range of interest rates. Since
interest rate swaps, currency swaps and interest rate caps, floors and collars
are individually negotiated, these two funds expect to achieve an acceptable
degree of correlation between their portfolio investments and their interest
rate or currency swap positions entered into for hedging purposes.
The High Income Fund only enters into interest rate swaps on a net basis, which
means the two payment streams are netted out, with the fund receiving or paying,
as the case may be, only the net amount of the two payments. Interest rate swaps
do not involve the delivery of securities, or underlying assets or principal.
Accordingly, the risk of loss with respect to interest rate swaps is limited to
the net amount of interest payments that the fund is contractually obligated to
make. If the other party to an interest rate swap defaults, the fund's risk of
loss consists of the net amount of interest payments that the fund is
contractually entitled to receive. In contrast, currency swaps usually involve
the delivery of the entire principal value of one designated currency in
exchange for the other designated currency. Therefore, the entire principal
value of a currency swap is subject to the risk that the other party to the swap
will default on its contractual delivery obligations. The Trust maintains in a
segregated account with its custodian, cash or liquid securities equal to the
net amount, if any, of the excess of each fund's obligations over its
entitlements with respect to swap transactions. Neither fund enters into swap
transactions unless the unsecured commercial paper, senior debt or claims paying
ability of the other party is considered investment grade by such fund's
Investment Adviser.
The use of interest rate and currency swaps (including caps, floors and collars)
is a highly specialized activity which involves investment techniques and risks
different from those associated with traditional portfolio securities
activities. If the fund's Investment Adviser is incorrect in its forecasts of
market values, interest rates and currency exchange rates, the investment
performance of the High Income Fund or International Stock Fund would be less
favorable than it would have been if this investment technique were not used.
Inasmuch as swaps are entered into for good faith hedging purposes or are offset
by a segregated account as described below, neither fund's Investment Adviser
believe that swaps constitute senior securities as defined in the Act and,
accordingly, will not treat swaps as being subject to such fund's borrowing
restrictions. An amount of cash or liquid, high grade debt securities having an
aggregate net asset value at least equal to the entire amount of the payment
stream payable by the fund will be maintained in a sewed account by the fund's
custodian. A fund will not enter into any interest rate swap (including caps,
floors and collars) or currency swap unless the credit quality of the unsecured
senior debt or the claim paying ability of the other party thereto is considered
to be investment grade by the fund's Investment Adviser. If there is a default
by the other party to such a transaction, the fund will have contractual
remedies pursuant to the agreement, related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid comparison with the markets for other similar instruments
which are traded in the interbank market. Nevertheless, the staff of the
Commission takes the position that currency swaps are illiquid investments
subject to these funds' 15% limitation on such investments.
Certain Bond Fund Practices
The Bond, High Income and Balanced Funds (collectively, the "Bond Funds") invest
a significant portion of their assets in debt securities. As stated in the
prospectus, the Bond Fund and Balanced Fund will emphasize investment grade,
primarily intermediate term securities. If an investment grade security is
downgraded by the rating agencies or otherwise falls below the investment
quality standards stated in the prospectus, management will retain that
instrument only if management believes it is in the best interest of the fund.
Management does not currently intend to invest more than ten percent (10%) of
the total assets of either the Bond Fund or Balanced Fund in corporate debt
securities which are not in the four highest ratings by Standard & Poor's Rating
Group ("Standard & Poor's") or by Moody's Investors Service, Inc. ("Moody's")
("non-investment grade" or "junk" securities), but, on occasion, each fund may
do so. The High Income Fund may invest all of its assets in non-investment grade
securities. See "Non-Investment Grade Securities" below for a description of
these securities and their attendant risks and "Ratings" below for a description
of the rating categories.
All three Bond Funds may also invest in debt options, interest rate futures
contracts, and options on interest rate futures contracts, and may utilize
interest rate futures and options to manage the risk of fluctuating interest
rates. These instruments will be used to control risk or obtain additional
income and not with a view toward speculation. The Bond Fund and Balanced Fund
will invest only in futures and options which are traded on U.S. exchanges or
boards of trade. The High Income Fund may invest in non-U.S. futures and
options.
In the debt securities market, purchases of some issues are occasionally made
under firm (forward) commitment agreements. Purchases of securities under such
agreements can involve risk of loss due to changes in the market rate of
interest between the commitment date and the settlement date. As a matter of
operating policy, no Bond Fund will commit itself to forward commitment
agreements in an amount in excess of 25% of total assets and will not engage in
such agreements for leveraging purposes. For purposes of this limitation,
forward commitment agreements are defined as those agreements involving more
than five business days between the commitment date and the settlement date.
Lower-Rated Corporate Debt Securities
As described in the prospectus, each fund, other than the Cash Reserves Fund,
may make certain investments including corporate debt obligations that are
unrated or rated in the lower rating categories (i.e., ratings of BB or lower by
Standard & Poor's or Ba or lower by Moody's). Bonds rated BB or Ba or below by
Standard & Poors or Moody's (or comparable unrated securities) are commonly
referred to as "lower-rated" securities or as "junk bonds" and are considered
speculative and may be questionable as to principal and interest payments. In
some cases, such bonds may be highly speculative, have poor prospects for
reaching investment standing and be in default. As a result, investment in such
bonds will entail greater speculative risks than those associated with
investment in investment-grade bonds (i.e., bonds rated AAA, AA, A or BBB by
Standard & Poor's or Aaa, Aa, A or Baa by Moody's). (See "Ratings" below for a
description of the rating categories.)
An economic downturn could severely affect the ability of highly leveraged
issuers of junk bonds to service their debt obligations or to repay their
obligations upon maturity. Factors having an adverse impact on the market value
of lower rated securities will have an adverse effect on a fund's net asset
value to the extent it invests in such securities. In addition, a fund may incur
additional expenses to the extent it is required to seek recovery upon a default
in payment of principal or interest on its portfolio holdings.
The secondary market for junk bond securities, which is concentrated in
relatively few market makers, may not be as liquid as the secondary market for
more highly rated securities, a factor which may have an adverse effect on a
fund's ability to dispose of a particular security when necessary to meet its
liquidity needs. Under adverse market or economic conditions, the secondary
market for junk bond securities could contract further, independent of any
specific adverse changes in the condition of a particular issuer. As a result,
the Investment Adviser could find it more difficult to sell these securities or
may be able to sell the securities only at prices lower than if such securities
were widely traded. Prices realized upon the sale of such lower rated or unrated
securities, under these circumstances, may be less than the prices used in
calculating a fund's net asset value.
Since investors generally perceive that there are greater risks associated with
lower-rated debt securities, the yields and prices of such securities may tend
to fluctuate more than those for higher rated securities. In the lower quality
segments of the fixed-income securities market, changes in perceptions of
issuers' creditworthiness tend to occur more frequently and in a more pronounced
manner than do changes in higher quality segments of the fixed-income securities
market resulting in greater yield and price volatility.
Another factor which causes fluctuations in the prices of fixed-income
securities is the supply and demand for similarly rated securities. In addition,
the prices of fixed-income securities fluctuate in response to the general level
of interest rates. Fluctuations in the prices of portfolio securities subsequent
to their acquisition will not affect cash income from such securities but will
be reflected in a fund's net asset value.
Lower-rated (and comparable non-rated) securities tend to offer higher yields
than higher-rated securities with the same maturities because the historical
financial condition of the issuers of such securities may not have been as
strong as that of other issuers. Since lower rated securities generally involve
greater risks of loss of income and principal than higher-rated securities,
investors should consider carefully the relative risks associated with
investment in securities which carry lower ratings and in comparable non-rated
securities. In addition to the risk of default, there are the related costs of
recovery on defaulted issues. The Investment Adviser will attempt to reduce
these risks through diversification of these funds' portfolios and by analysis
of each issuer and its ability to make timely payments of income and principal,
as well as broad economic trends in corporate developments.
Other Debt Securities
U.S. Government Securities. All of the funds may purchase U.S. Government
Securities. U.S. Government Securities are obligations issued or guaranteed by
the U.S. Government, its agencies, authorities or instrumentalities. Some U.S.
Government Securities, such as Treasury bills, notes and bonds, which differ
only in their interest rates, maturities and times of issuance, are supported by
the full faith and credit of the United States. Others, such as obligations
issued or guaranteed by U.S. Government agencies, authorities or
instrumentalities are supported either by (a) the full faith and credit of the
U.S. Government (such as securities of the Small Business Administration), (b)
the right of the issuer to borrow from the Treasury (such as securities of the
Federal Home Loan Banks), (c) the discretionary authority of the U.S. Government
to purchase the agency's obligations (such as securities of the Federal National
Mortgage Association), or (d) only the credit of the issuer. No assurance can be
given that the U.S. Government will provide financial support to U.S. Government
agencies, authorities or instrumentalities in the future. U.S. Government
Securities may also include zero coupon bonds.
Each fund may also invest in separately traded principal and interest components
of securities guaranteed or issued by the U.S. Treasury if such components are
traded independently under the Separate Trading of Registered Interest and
Principal of Securities program ("STRIPS").
Custody Receipts. All of the funds may also acquire securities issued or
guaranteed as to principal and interest by the U.S. Government, its agencies,
authorities or instrumentalities in the form of custody receipts. Such receipts
evidence ownership of future interest payments, principal payments or both on
certain notes or bonds issued by the U.S. Government, its agencies, authorities
or instrumentalities. For certain securities law purposes, custody receipts are
not considered obligations of the U.S. Government.
Zero Coupon, Deferred Interest, Pay-in-Kind and Capital Appreciation Bonds. The
High Income Fund may invest in zero coupon bonds as well as in deferred
interest, pay-in-kind and capital appreciation bonds. Zero coupon, deferred
interest, pay-in-kind and capital appreciation bonds are debt obligations which
are issued at a significant discount from face value. The original discount
approximates the total amount of interest the bonds will accrue and compound
over the period until maturity or the first interest accrual date at a rate of
interest reflecting the market rate of the security at the time of issuance.
Zero coupon bonds are debt obligations that do not entitle the holder to any
periodic payments of interest prior to maturity or provide for a specified cash
payment date when the bonds begin paying current interest. As a result, zero
coupon bonds are generally issued and traded at a significant discount from
their face value. The discount approximates the present value amount of interest
the bonds would have accrued and compounded over the period until matured.
Zero coupon bonds benefit the issuer by mitigating its initial need for cash to
meet debt service, but generally provide a higher rate of return to compensate
investors for the deferment of cash interest or principal payments. Such
securities are often issued by companies that may not have the capacity to pay
current interest and so may be considered to have more risk than current
interest-bearing securities. In addition, the market price of zero coupon bonds
generally is more volatile than the market prices of securities that provide for
the periodic payment of interest. The market prices of zero coupon bonds are
likely to fluctuate more in response to changes in interest rates than those of
interest-bearing securities having similar maturities and credit quality.
Zero coupon bonds carry the additional risk that, unlike securities that provide
for the periodic payment of interest to maturity, the High Income Fund will
realize no cash until a specified future payment date unless a portion of such
securities is sold. If the issuer of such securities defaults, the fund may
obtain no return at all on their investment. In addition, the fund's investment
in zero coupon bonds may require it to sell certain of its portfolio securities
to generate sufficient cash to satisfy certain income distribution requirements.
See "Taxation" below.
While zero coupon bonds do not require the periodic payment of interest,
deferred interest bonds generally provide for a period of delay before the
regular payment of interest begins. Although this period of delay is different
for each deferred interest bond, a typical period is approximately one-third of
the bond's terms to maturity. Pay-in-kind securities are securities that have
interest payable by the delivery of additional securities. Such investments
benefit the issuer by mitigating its initial need for cash to meet debt service,
but some also provide a higher rate of return to attract investors who are
willing to defer receipt of such cash. Such investments experience greater
volatility in market value due to changes in interest rates than debt
obligations which provide for regular payments of interest. The fund will accrue
income on such investments for tax and accounting purposes, as required, which
is distributable to shareholders and which, because no cash is received at the
time of accrual, may require the liquidation of other portfolio securities to
satisfy the fund's distribution obligations.
Foreign Government Securities. All of the funds may invest in debt obligations
of foreign governments and governmental agencies, including those of emerging
countries. Investment in sovereign debt obligations involves special risks not
present in debt obligations of corporate issuers. The issuer of the debt or the
governmental authorities that control the repayment of the debt may be unable or
unwilling to repay principal or interest when due in accordance with the terms
of such debt, and the funds may have limited recourse in the event of a default.
Periods of economic uncertainty may result in the volatility of market prices of
sovereign debt, and in turn the fund's net asset value, to a greater extent than
the volatility inherent in debt obligations of U.S. issuers. A sovereign
debtor's willingness or ability to repay principal and pay interest in a timely
manner may be affected by, among other factors, its cash flow situation, the
extent of its foreign currency reserves, the availability of sufficient foreign
exchange on the date a payment is due, the relative size of the debt service
burden to the economy as a whole, the sovereign debtor's policy toward principal
international lenders and the political constraints to which a sovereign debtor
may be subject.
Structured Securities. The High Income Fund may invest in structured securities.
The value of the principal of and/or interest on such securities is determined
by reference to changes in the value of specific currencies, interest rates,
commodities, indices or other financial indicators (the "Reference") or the
relative change in two or more References. The interest rate or the principal
amount payable upon maturity or redemption may be increased or decreased
depending upon changes in the applicable Reference. The terms of the structured
securities may provide that in certain circumstances no principal is due at
maturity and, therefore, may result in the loss of the fund's investment.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
interest rates or the value of the security at maturity may be a multiple of
changes in the value of the Reference. Consequently, structured securities may
entail a greater degree of market risk than other types of fixed-income
securities. Structured securities may also be more volatile, less liquid and
more difficult to accurately price than less complex fixed-income investments.
Convertible Securities
The Balanced, High Income, Growth and Income, Capital Appreciation, 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.
Reverse Repurchase Agreements
Each fund may also enter into reverse repurchase agreements which involve the
sale of U.S. Government securities held in its portfolio to a bank with an
agreement that the fund will buy back the securities at a fixed future date at a
fixed price plus an agreed amount of "interest" which may be reflected in the
repurchase price. Reverse repurchase agreements are considered to be borrowings
by the fund entering into them. Reverse repurchase agreements involve the risk
that the market value of securities purchased by the fund with proceeds of the
transaction may decline below the repurchase price of the securities sold by the
fund which it is obligated to repurchase. A fund that has entered into a reverse
repurchase agreement will also continue to be subject to the risk of a decline
in the market value of the securities sold under the agreements because it will
reacquire those securities upon effecting their repurchase. To minimize various
risks associated with reverse repurchase agreements, each fund will establish
and maintain with the Trust's custodian a separate account consisting of liquid
securities, of any type or maturity, in an amount at least equal to the
repurchase prices of the securities (plus any accrued interest thereon) under
such agreements. No fund will enter into reverse repurchase agreements and other
borrowings (except from banks as a temporary measure for extraordinary emergency
purposes) in amounts in excess of 30% of the fund's total assets (including the
amount borrowed) taken at market value. No fund will use leverage to attempt to
increase income. No fund will purchase securities while outstanding borrowings
exceed 5% of the fund's total assets. Each fund will enter into reverse
repurchase agreements only with federally insured banks which are approved in
advance as being creditworthy by the Trustees. Under procedures established by
the Trustees, the Investment Adviser will monitor the creditworthiness of the
banks involved.
Government Securities
Certain U.S. Government securities, including U.S. Treasury bills, notes and
bonds, and Government National Mortgage Association certificates ("Ginnie
Maes"), are supported by the full faith and credit of the U.S. Certain other
U.S. Government securities, issued or guaranteed by Federal agencies or
government sponsored enterprises, are not supported by the full faith and credit
of the U.S., but may be supported by the right of the issuer to borrow from the
U.S. Treasury. These securities include obligations of the Federal Home Loan
Mortgage Corporation ("Freddie Macs"), and obligations supported by the credit
of the instrumentality, such as Federal National Mortgage Association Bonds
("Fannie Maes"). No assurance can be given that the U.S. Government will provide
financial support to such Federal agencies, authorities, instrumentalities and
government sponsored enterprises in the future.
Ginnie Maes, Freddie Macs and Fannie Maes are mortgage-backed securities which
provide monthly payments which are, in effect, a "pass-through" of the monthly
interest and principal payments (including any prepayments) made by individual
borrowers on the pooled mortgage loans. Collateralized mortgage obligations
("CMOs") in which the fund may invest are securities issued by a corporation or
a U.S. Government instrumentality that are collateralized by a portfolio of
mortgages or mortgage-backed securities. Mortgage-backed securities may be less
effective than traditional debt obligations of similar maturity at maintaining
yields during periods of declining interest rates. (See "Mortgage-Backed and
Asset-Backed Securities.")
Forward Commitment and When-Issued Securities
Each fund may purchase securities on a when-issued or forward commitment basis.
"When-issued" refers to securities whose terms are available and for which a
market exists, but which have not been issued. Each fund will engage in
when-issued transactions with respect to securities purchased for its portfolio
in order to obtain what is considered to be an advantageous price and yield at
the time of the transaction. For when-issued transactions, no payment is made
until delivery is due, often a month or more after the purchase. In a forward
commitment transaction, a fund contracts to purchase securities for a fixed
price at a future date beyond customary settlement time.
When a fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date a fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the fund will segregate in a separate
account cash or liquid securities, of any type or maturity, equal in value to
the fund's commitment. These assets will be valued daily at market, and
additional cash or securities will be segregated in a separate account to the
extent that the total value of the assets in the account declines below the
amount of the when-issued commitments. Alternatively, a fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
Mortgage-Backed and Asset-Backed Securities
The Bond, Balanced, High Income and Growth and Income Funds may invest in
mortgage-backed securities, which represent direct or indirect participation in,
or are collateralized by and payable from, mortgage loans secured by real
property. These funds may also invest in asset-backed securities, which
represent participation in, or are secured by and payable from, assets such as
motor vehicle installment sales, installment loan contracts, leases of various
types of real and personal property, receivables from revolving credit (i.e.,
credit card) agreements and other categories of receivables. Such assets are
securitized though the use of trusts and special purpose corporations. Payments
or distributions of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit or a pool insurance
policy issued by a credit union or other financial institution unaffiliated with
the Trust, or other credit enhancements may be present.
Mortgage-backed and asset-backed securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying loans. A fund's
ability to maintain positions in such securities will be affected by reductions
in the principal amount of such securities resulting from prepayments, and its
ability to reinvest the returns of principal at comparable yields is subject to
generally prevailing interest rates at that time. To the extent that a fund
invests in mortgage-backed and asset-backed securities, the values of its
portfolio securities will vary with changes in market interest rates generally
and the differentials in yields among various kinds of U.S. Government
securities and other mortgage-backed and asset-backed securities.
Asset-backed securities present certain additional risks that are not presented
by mortgage backed securities because asset-backed securities generally do not
have the benefit of a security interest in collateral that is comparable to
mortgage assets. Credit card receivables are generally unsecured and the debtors
on such receivables are entitled to the protection of a number of state and
federal consumer credit laws, many of which give such debtors the right to
set-off certain amounts owed on the credit cards, thereby reducing the balance
due. Automobile receivables generally are secured, but by automobiles rather
than residential real property. Most issuers of automobile receivables permit
the loan servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would secure an interest superior to that of the holders of the
asset-backed securities. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of the automobile receivables may not have a proper
security interest in the underlying automobiles. Therefore, there is the
possibility that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.
The Cash Reserves Fund and Bond Fund may invest in mortgage-backed and
asset-backed securities that represent mortgage, commercial or consumer loans
originated by credit unions or other financial institutions. To the extent
permitted by law and available in the market, such investments may constitute a
significant portion of each fund's investments. Subject to the appropriate
regulatory approvals, the Cash Reserves Fund and Bond Fund may purchase
securities issued by pools that are structured, serviced, or otherwise supported
by CIMCO or its affiliates.
Other Securities Related to Mortgages
Mortgage Pass-Through Securities. The High Income Fund may invest in mortgage
pass-through securities. Mortgage pass-through securities are securities
representing interests in "pools" of mortgage loans. Monthly payments of
interest and principal by the individual borrowers on mortgages are passed
through to the holders of the securities (net of fees paid to the issue or
guarantor of the securities) as the mortgages in the underlying mortgage pools
are paid off. The average lives of mortgage pass-through securities are variable
when issued because their average lives depend on prepayment rates. The average
life of these securities is likely to be substantially shorter than their stated
final maturity as a result of unscheduled principal prepayment. Prepayments on
underlying mortgages result in a loss of anticipated interest, and all or part
of a premium if any has been paid, and the actual yield (or total return) to the
holder of a pass-through security may be different than the quoted yield on such
security. Mortgage prepayments generally increase with falling interest rates
and decrease with rising interest rates. Like other fixed income securities,
when interest rates rise the value of a mortgage pass-though security generally
will decline; however, when interest rates are declining, the value of mortgage
pass-through securities with prepayment features may not increase as much as
that of other fixed income securities.
Interests in pools or mortgage-related securities differ from other forms of
debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a "pass-through"
of the monthly payments made by the individual borrowers on their mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by prepayments of principal resulting from the
sale, refinancing or foreclosure of the underlying property, net of fees or
costs which may be incurred. Some mortgage pass-through securities (such as
securities issued by the Government National Mortgage Association ("GNMA"), are
described as "modified pass-through." These securities entitle the holder to
receive all interests and principal payments owned on the mortgages in the
mortgage pool, net of certain fees, at the scheduled payment dates regardless of
whether the mortgagor actually makes the payment.
The principal governmental guarantor of mortgage pass-through securities is
GNMA. GNMA is a wholly owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. Government, the timely payment of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks and mortgage bankers) and backed by
pools of Federal Housing Administration-insured or Veteran's Administration
("VA")-guaranteed mortgages. These guarantees, however, do not apply to the
market value or yield of mortgage pass-through securities. GNMA securities are
often purchased at a premium over the maturity value of the underlying
mortgages. This premium is not guaranteed and will be lost if prepayment occurs.
Government-related guarantors (i.e., whose guarantees are not backed by the full
faith and credit of the U.S. Government) include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
FNMA is a government-sponsored corporation owned entirely by private
stockholders. It is subject to general regulation by the Secretary of Housing
and Urban Development. FNMA purchases conventional residential mortgages (i.e.,
mortgages not insured or guaranteed by any governmental agency) from a list of
approved seller/services which include state and federally-chartered savings and
loan associations, mutual savings banks, commercial banks, credit unions and
mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to
timely payment by FNMA of principal and interest.
FHLMC was created by Congress in 1970 as a corporate instrumentality of the U.S.
Government for the purpose of increasing the availability of mortgage credit for
residential housing. FHLMC issues Participation Certificates ("PCS") which
represent interest in conventional mortgages (i.e., not federally insured or
guaranteed) from FHLMC's national portfolio. FHLMC guarantees timely payment of
interest and ultimate collection of principal regardless of the status of the
underlying mortgage loans.
Credit unions, commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of mortgage loans. Such issuers may also be the
originators and/or servicers of the underlying mortgage-related securities.
Pools created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government or agency guarantees of payments in the former
pools. However, timely payment of interest and principal of mortgage loans in
these pools may be supported by various forms of insurance or guarantees,
including individual loan, title, pool and hazard insurance and letters of
credit. The insurance and guarantees are issued by governmental entities,
private insurers and the mortgage poolers. There can be no assurance that the
private insurers or guarantors can meet their obligations under the insurance
policies or guarantee arrangements. The High Income Fund may also buy
mortgage-related securities without insurance or guarantees.
Collateralized Mortgage Obligations and Multiclass Pass-Through Securities. The
High Income Fund may invest a portion of its assets in collateralized mortgage
obligations or "CMOs", which are debt obligations collateralized by mortgage
loans or mortgage pass-through securities. Typically, CMOs are collateralized by
certificates issued by GNMA, FNMA or FHLMC, but also may be collateralized by
whole loans or private mortgage pass-through securities (such collateral
collectively hereinafter referred to as "Mortgage Assets"). The High Income Fund
may also invest a portion of its assets in multiclass pass-through securities
which are equity interests in a trust composed of Mortgage Assets. Unless the
context indicates otherwise, all references herein to CMOs include multiclass
pass-through securities. Payments of principal of and interest on the Mortgage
Assets, and any reinvestment income thereon, provide the funds to pay debt
service on the CMOs or make scheduled distributions on the multiclass
pass-through securities. CMOs may be issued by agencies or instrumentalities of
the United States government or by private originators of, or investors in,
mortgage loans, including credit unions, savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose subsidiaries of
the foregoing. The issuer of a series of CMOs may elect to be treated as a Real
Estate Mortgage Investment Conduit (a "REMIC").
In a CMO, a series of bonds or certificates are usually issued in multiple
classes with different maturities. Each class of CMOs, often referred to as a
"tranch", is issued at a specific fixed or floating coupon rate and has a stated
maturity or final distribution date. Principal prepayments on the Mortgage
Assets may cause the CMOs to be retired substantially earlier than their stated
maturities or final distribution dates, resulting in a loss of all or a part of
the premium if any has been paid. Interest is paid or accrues on all classes of
the CMOs on a monthly, quarterly or semiannual basis. The principal of and
interest on the Mortgage Assets may be allocated among the several classes of a
series of a CMO in innumerable ways. In a common structure, payments of
principal, including any principal pre-payments, on the Mortgage Assets are
applied to the classes of the series of a CMO in the order of their respective
stated maturities or final distribution dates, so that no payment of principal
will be made on any class of CMOs until all other classes having an earlier
stated maturity or final distribution date have been paid in full. Certain CMOs
may be stripped (securities which provide only the principal or interest factor
of the underlying security). See "Stripped Mortgage-Backed Securities" below for
a discussion of the risks of investing in these stripped securities and of
investing in classes consisting primarily of interest payments or principal
payments.
The High Income Fund may also invest in parallel pay CMOs and Planned
Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class. These
simultaneous payments are taken into account in calculating the stated maturity
date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date, but may be retired earlier. PAC Bonds generally require payments of a
specified amount of principal on each payment date. PAC Bonds are always
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes.
Stripped Mortgage-Backed Securities. The High Income Fund may invest a portion
of its assets in stripped mortgage-backed securities ("SMBS") which are
derivative multiclass mortgage securities issued by agencies or
instrumentalities of the United States government or by private originators of,
or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks and investment banks.
SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions from a pool of Mortgage Assets. A
common type of SMBS will have one class receiving some of the interest and most
of the principal from the Mortgage Assets, while another class receives most of
the interest and the remainder of the principal. In the most extreme case, one
class will receive an "IO" (the right to receive all of the interest) while the
other class will receive a "PO" (the right to receive all of the principal). The
yield to maturity on an IO is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying Mortgage Assets, and
a rapid rate of principal payments may have a material adverse effect on such
security's yield to maturity. If the underlying Mortgage Assets experience
greater than anticipated prepayments of principal, the High Income Fund may fail
to fully recoup its initial investment in these securities. The market value of
the class consisting primarily or entirely of principal payments generally is
unusually volatile in response to changes in interest rates. Because SMBS were
only recently introduced, established trading markets for these securities have
not yet developed, although the securities are traded among institutional
investors and investment banking firms.
Mortgage Dollar Rolls. The High Income Fund may enter into mortgage "dollar
rolls" in which the fund sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase substantially
similar (same type, coupon and maturity) but not identical securities on a
specified future date. During the roll period, the fund loses the right to
receive principal and interest paid on the securities sold. However, the fund
would benefit to the extent of any difference between the price received for the
securities sold and the lower forward price for the future purchase or fee
income plus the interest earned on the cash proceeds of the securities sold
until the settlement date for the forward purchase. Unless such benefits exceed
the income, capital appreciation and gain or loss due to mortgage prepayments
that would have been realized on the securities sold as part of the mortgage
dollar roll, the use of this technique will diminish the investment performance
of the fund. Successful use of mortgage dollar rolls depends upon the Investment
Adviser's ability to predict correctly interest rates and mortgage prepayments.
There is no assurance that mortgage dollar rolls can be successfully employed.
The fund will hold and maintain in a segregated account until the settlement
date cash or liquid assets in an amount equal to the forward purchase price. For
financial reporting and tax purposes, each fund treats mortgage dollar rolls as
two separate transactions; one involving the purchase of a security and a
separate transaction involving a sale. The fund does not currently intend to
enter into mortgage dollar rolls that are accounted for as a financing.
Real Estate Investment Trusts
The Bond, Balanced, High Income, 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. No fund has a current intention of engaging in the
lending of portfolio securities in the foreseeable future. If any fund uses one
of these practices in the foreseeable future, no more than 10% of the fund's
total assets will be at risk thereby.
All of the funds may invest in foreign securities, although only the
International Stock Fund and the High Income Fund are expected to do so with any
regularity. However, all of the funds may, and are expected to, invest in
American Depository Receipts ("ADRs") traded on U.S. exchanges. ADRs represent
shares of foreign issues traded on foreign exchanges and may have many of the
risks associated with foreign securities.
If a fund enters into futures contracts or call options thereon, reverse
repurchase agreements, firm commitment agreements or standby commitment
agreements, the fund will obtain approval from the Board of Trustees to
establish a segregated account with the fund's custodian. The segregated account
will hold liquid assets and the cash value of the segregated account will be not
less than the market value of the futures contracts and call options thereon,
reverse repurchase agreements, firm commitment agreements and standby commitment
agreements.
Types of Investment Risk
Correlation Risk. The risk that changes in the value of a hedging instrument or
hedging technique will not match those of the asset being hedged (hedging is the
use of one investment to offset the possible adverse effects of another
investment).
Credit Risk. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise not honor a financial obligation.
Currency Risk. The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect the U.S. dollar value of an
investment.
Extension Risk. The risk that an unexpected rise in prevailing interest rates
will extend the life of an outstanding mortgage-backed security by reducing the
expected number of mortgage prepayments, typically reducing the security's
value.
Hedging Risk. When a fund hedges an asset it holds (typically by using a
derivative contract or derivative security), any gain or loss generated by the
hedge should be substantially offset by losses or gains on the hedged asset.
Hedging is a useful way to reduce or eliminate risk of loss, but it will also
reduce or eliminate the potential for investment gains.
Information Risk. The risk that key information about a security or market is
inaccurate or unavailable.
Interest Rate Risk. The risk of declines in market value of an income bearing
investment due to changes in prevailing interest rates. With fixed-rate
securities, a rise in interest rates typically causes a decline in market
values, while a fall in interest rates typically causes an increase in market
values.
Leverage Risk. The risks associated with securities or investment practices that
enhance return (or loss) without increasing the amount of investment, such as
buying securities on margin or using certain derivative contracts or derivative
securities. A fund's gain or loss on a leveraged position may be greater than
the actual market gain or loss in the underlying security or instrument. A fund
may also incur additional costs in taking a leveraged position (such as interest
on borrowings) that may not be incurred in taking a non-leveraged position.
Liquidity Risk. The risk that certain securities or other investments may be
difficult or impossible to sell at the time the fund would like to sell them or
at the price the fund values them.
Management Risk. The risk that a strategy used by a fund's investment adviser or
subadviser may fail to produce the intended result. This risk is common to all
mutual funds.
Market Risk. The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably, due to factors that have nothing to do with
the issuer. This risk is common to all stocks and bonds and the mutual funds
that invest in them.
Natural Event Risk. The risk of losses attributable to natural disasters, crop
failures and similar events.
Opportunity Risk. The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments.
Political Risk. The risk of losses directly attributable to government actions
or political events of any sort.
Prepayment Risk. The risk that an unexpected fall in prevailing interest rates
will shorten the life of an outstanding mortgage-backed security by increasing
the expected number of mortgage prepayments, thereby reducing the security's
return.
Speculation Risk. Speculation is the assumption of risk in anticipation of gain
but recognizing a higher than average possibility of loss. To the extent that a
derivative contract or derivative security is used speculatively (i.e., not used
as a hedge), the fund is directly exposed to the risks of that derivative
contract or security. Gains or losses from speculative positions in a derivative
contract or security may be substantially greater than the derivative contract
or security's original cost.
Valuation Risk. The risk that the market value of an investment falls
substantially below the fund's valuation of the investment.
Higher-Risk Securities and Practices
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Security or Practice Description Related Risks
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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.
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
Reserves Bond Balanced Income Income ciation Growth Stock
Investment Practices
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Borrowing; Reverse Repurchase Agreements 30 30 30 30 30 30 30 30
Repurchase Agreements * * * * * * * *
Securities Lending X 30 30 30 30 30 30 30
Short-term Trading * * * * * * * *
When-Issued Securities; Forward Commitments 25 25 25 25 25 25 * 25
Conventional Securities
Shares of Other Investment Companies X 10** 10** 10** 10** 10** 10** 10**
Non-Investment Grade Securities X 20 10 * 5 5 5 5
Foreign Securities 25(1) 20 25 50 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
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
(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%
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 and Balanced 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 and Balanced 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.
MANAGEMENT OF THE TRUST
MEMBERS Funds are governed by a Board of Trustees. The Trustees have the duties
and responsibilities set forth under the applicable laws of the State of
Delaware, including but not limited to the management and supervision of the
funds.
The board, from time to time, may include individuals who may be deemed to be
affiliated persons of CIMCO, the fund's adviser. At all times, however, the
majority of board members will not be affiliated with CIMCO or the funds.
The funds do not hold annual shareholder meetings, but may hold special meetings
for such purposes as electing or removing board members, changing fundamental
policies, approving certain management contracts, approving or amending a 12b-1
plan, or as otherwise required by the 1940 Act.
Trustees and Officers
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation
and Age with the Fund During Past Five Years
<S> <C> <C>
Michael S. Daubs* Trustee (Chairman) CIMCO Inc.
5910 Mineral Point Road 1997 - Present President, 1982 - Present
Madison, WI 53705
Age - 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 CIMCO 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 CIMCO 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 CIMCO 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
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
Keith S. Noah Trustee Noah, Smith, & Schuknecht, L.L.C.
2000 Heritage Way 1997 - Present (Charles City, Iowa)
Waverly, IA 50677 Partner
Age - 79 1948 - 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.
Trustee Compensation
Aggregate Compensation Total Compensation from
Name of Person, Position from Trust(1) Trust and Fund Complex(1)(2)
Michael S. Daubs(3) None None
Lawrence R. Halverson(3) None None
Gwendolyn M. Boeke $4,000 $8,000
Alfred L. Disrud $4,000 $8,000
Keith S. Noah $4,000 $8,000
Thomas C. Watt $4,000 $8,000
(1) Amounts for the fiscal year ending October 31, 1999.
(2) "Fund Complex" includes the Trust and the Ultra Series Fund.
(3) Non-compensated interested trustee.
SALES LOAD WAIVERS FOR CERTAIN AFFILIATED PERSONS OF THE TRUST
Class A shares may be offered without front-end sales charges to
Trustee/directors, officers, and employees of CUNA Mutual Group or any of its
affiliated companies (each a "CUNA Mutual Group employee"), anyone who was a
CUNA Mutual Group employee within the previous twelve months, any immediate
family member of a CUNA Mutual Group employee residing in a CUNA Mutual Group
employee's household and any UGMA/UTMA custodial account sponsored by a CUNA
Mutual Group employee.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF THE TRUST'S SECURITIES
Based upon seed money and other subsequent investments, individually or
combined, CUNA Mutual Insurance Society, CUNA Mutual Life Insurance Company and
CUMIS Insurance Society, Inc. own more than 25% of the shares of 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, 2000. Class B shares did not have any ownership over 5% for
any fund.
<TABLE>
<CAPTION>
Growth Capital Emerging
Cash High and Appre- Growth Int'l
Shareholder Reserves Bond Balanced Income Income* ciation Fund** Stock
<S> <C> <C> <C> <C> <C> <C>
CUNA Mutual Insurance Society 36.750 21.800 18.019
5910 Mineral Point Road
Madison, WI 53705
CUNA Mutual Life Insurance Co. 36.774 21.814 66.088 10.813
5910 Mineral Point Road
Madison, WI 53705
CUMIS Insurance Society, Inc. 100.00 64.374
5910 Mineral Point Road
Madison, WI 53705
CUNA Brokerage Services 7.448
2000 Heritage Way
Waverly, IA 50677
</TABLE>
* As of January 31, 2000, Growth & Income Fund and Capital Appreciation Fund
did not have any ownership over 5%.
** 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, 2000.
PORTFOLIO MANAGEMENT
The Management Agreement with CIMCO Inc.
The Management Agreement ("Agreement") requires that CIMCO Inc. ("CIMCO")
provide continuous professional investment management of the investments of the
Trust, including establishing an investment program complying with the
investment objectives, policies and restrictions of each fund. As compensation
for its services, the Trust pays CIMCO a fee computed at an annualized
percentage rate of the average daily value of the net assets of each fund as
follows:
Total Advisory Fees
Incurred during the Fiscal Year
Fund Management Fee Ended October 31, 1999
Cash Reserves 0.40% $ 24,668
Bond 0.50% 58,724
Balanced 0.65% 235,956
High Income 0.55% 78,156
Growth and Income 0.55% 273,436
Capital Appreciation 0.75% 189,945
Emerging Growth 0.75% --
International Stock 1.05% 350,091
Total $ 1,210,976
CIMCO 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%
Emerging Growth 0.20%
International Stock 0.30%
CIMCO makes the investment decisions and is responsible for the investment and
reinvestment of assets; performs research, statistical analysis, and continuous
supervision of the funds' investment portfolios; furnishes office space for the
Trust; provides the Trust with such accounting data concerning the investment
activities of the Trust as is required to be prepared and files all periodic
financial reports and returns required to be filed with the Commission and any
other regulatory agency; continuously monitors compliance by the Trust in its
investment activities with the requirements of the 1940 Act and the rules
promulgated pursuant thereto; and renders such periodic and special reports to
the Trust as may be reasonably requested with respect to matters relating to
CIMCO's duties.
On September 4, 1997, the Management Agreement was approved by the sole initial
shareholder of the Trust after approval and recommendation by the Trustees of
the Trust, including a majority of Trustees who are not parties to the
Management Agreement or interested persons to any such party as defined in the
1940 Act, on September 4, 1997. The Management Agreement, unless sooner
terminated, shall continue until two years from its effective date and
thereafter shall continue automatically for periods of one calendar year so long
as such continuance is specifically approved at least annually: (a) by the
Trustees or by a vote of a majority of the outstanding votes attributable to the
shares of the class representing an interest in the fund; and (b) by a vote of a
majority of those Trustees who are not parties to the Management Agreement or
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval, provided the Management Agreement may be
terminated as to any fund or to all funds by the Trust at any time, without the
payment of any penalty, by vote of a majority of the Trustees or by a majority
vote of the outstanding votes attributable to the shares of the applicable fund
or by CIMCO on sixty (60) days written notice to the other party. The Management
Agreement will terminate automatically in the event of its assignment.
The Management Agreement provides that CIMCO shall not be liable to the Trust or
any shareholder for anything done or omitted by it, or for any losses that may
be sustained in the purchase, holding or sale of any security, except for an act
or omission involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by the Management Agreement.
CUNA Brokerage Services, Inc. 5910 Mineral Point Road, Madison, WI 53705 is the
Trust's principal underwriter.
CIMCO Inc.
CUNA Mutual Life Insurance Company and CUNA Mutual Investment Corporation each
own a one-half interest in CIMCO. CUNA Mutual Insurance Society is the sole
owner of CUNA Mutual Investment Corporation. CUNA Mutual Investment Corporation
is the sole owner of CUNA Brokerage Services, Inc. ("CUNA Brokerage"), the
Trust's principal underwriter. CIMCO has servicing agreements with CUNA Mutual
Insurance Society and with CUNA Mutual Life Insurance Company. CUNA Mutual
Insurance Society and CUNA Mutual Life Insurance Company entered into a
permanent affiliation July 1, 1990. At the current time, all of the directors of
CUNA Mutual Insurance Society are also directors of CUNA Mutual Life Insurance
Company and the two companies are managed by the same group of senior executive
officers.
CIMCO's directors and principal officers are as follows:
Joyce A. Harris Director and Chair
James C. Hickman Director
Michael B. Kitchen Director
Michael S. Daubs Director and President
George A. Nelson Director and Vice Chair
Lawrence R. Halverson Senior Vice President
Jeffrey B. Pantages Senior Vice President
Thomas J. Merfeld Vice President and Secretary - Treasurer
Daniel J. Larson Vice President
Kimberly M. Gant Assistant Treasurer
Janice C. Doyle Assistant Secretary
Tracy K. Gunderson Assistant Secretary
Helen M. Wagabaza Assistant Secretary
The Management Agreements with Subadvisers
As described in the prospectus, CIMCO manages the assets of the High Income,
Emerging Growth and International Stock Funds using a "manager of managers"
approach under which CIMCO allocates each fund's assets among one or more
"specialist" subadvisers (each, a "Subadviser"). The Trust and CIMCO have
received an order from the Commission that permits the hiring of Subadvisers
without shareholder approval. If CIMCO hires a new Subadviser pursuant to the
order shareholders will receive an "information statement" within 90 days of a
change in Subadvisers that will provide relevant information about the reasons
for the change and any new Subadviser(s).
Even though Subadvisers have day-to-day responsibility over the management of
High Income, Emerging Growth and International Stock Funds, CIMCO retains the
ultimate responsibility for the performance of these funds and will oversee the
Subadvisers and recommend their hiring, termination, and replacement.
CIMCO may, at some future time, employ a subadvisory or "manager of managers"
approach to other new or existing funds in addition to the High Income, Emerging
Growth and International Stock Funds.
The Subadviser for the High Income Fund
As of the date of the prospectus, Massachusetts Financial Services Company (MFS)
is the only subadviser managing the assets of the High Income Fund. For its
services to the fund, MFS receives a management fee from CIMCO, computed and
accrued daily and paid monthly, at the following annual rates:
Percentage Net Assets Managed by MFS
---------- -------------------------
0.400% First $10,000,000
0.375% Next $90,000,000
0.350% Next $150,000,000
0.325% Next $250,000,000
0.300% Over $500,000,000
Pursuant to the above formula, CIMCO paid a management fee to MFS in the amount
of $55,788 for the fiscal year ending October 31, 1999.
The Subadvisers 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 CIMCO, 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
The Subadvisers for the International Stock Fund
As of the date of the prospectus, the assets of the International Stock Fund are
managed in part by IAI International Limited ("IAI") and in part by Lazard Asset
Management ("Lazard").
For its services to the fund, IAI receives a management fee from CIMCO, computed
and accrued daily and paid monthly, at the following annual rates:
Percentage Net Assets Managed by IAI
---------- -------------------------
0.75% First $25,000,000
0.60% Next $25,000,000
0.50% Over $50,000,000
Pursuant to the above formula, CIMCO paid a management fee to IAI in the amount
of $171,932 for the fiscal year ending October 31, 1999.
For its services to the fund, Lazard receives a management fee from CIMCO,
computed and accrued daily and paid monthly, equal on an annual basis to 1.05%
of net assets managed by Lazard and invested in emerging markets securities and
0.75% of net assets managed by Lazard and invested in international small
capitalization securities. Pursuant to the above formula, CIMCO paid a
management fee to Lazard in the amount of $94,602 for the fiscal year ending
October 31, 1999.
DISTRIBUTION (12b-1) PLANS AND AGREEMENT
The Trust has entered into a Distribution Agreement with CUNA Brokerage. Under
the Distribution Agreement, CUNA Brokerage is obligated to use its best efforts
to sell shares of the Trust. Shares of the Trust may be sold by selected
broker-dealers (the "Selling Brokers") which have entered into selling agency
agreements with CUNA Brokerage. CUNA Brokerage accepts orders for the purchase
of the shares of the Trust at NAV next determined plus any applicable sales
charge. In connection with the sale of Class A or Class B shares of the Trust,
CUNA Brokerage and Selling Brokers receive compensation from a sales charge
imposed, in the case of Class A shares, at the time of sale or, in the case of
Class B shares, on a deferred basis. The sales charges are discussed further in
the prospectus.
The Trust's Board of Trustees also adopted Distribution Plans with respect to
the Trust's Class A and Class B shares (the "Plans") pursuant to Rule 12b-1
under the 1940 Act. Under the Plans, the Trust will pay service fees for Class A
and Class B shares at an aggregate annual rate of 0.25% of each fund's daily net
assets attributable to the respective class of shares. The Trust will also pay
distribution fees for Class B shares at an aggregate annual rate of 0.75% of
each fund's daily net assets attributable to Class B. The distribution fees will
be used to reimburse CUNA Brokerage for its distribution expenses with respect
to Class B shares only, including but not limited to: (i) initial and ongoing
sales compensation to Selling Brokers and others engaged in the sale of fund
shares, (ii) marketing, promotional and overhead expenses incurred in connection
with the distribution of fund shares, and (iii) interest expenses on
unreimbursed distribution expenses. The service fees will be used to compensate
Selling Brokers and others for providing personal and account maintenance
services to shareholders. In the event that CUNA Brokerage is not fully
reimbursed for expenses it incurs under the Class B Plan in any fiscal year,
CUNA Brokerage may carry these expenses forward, provided, however, that the
Trustees may terminate the Class B Plan and thus the Trust's obligation to make
further payments at any time. Accordingly, the Trust does not treat unreimbursed
expenses relating to the Class B shares as a liability.
The Plans were approved by the initial shareholder of the Trust. The Plans have
also been approved by a majority of the Trustees, including a majority of the
Trustees who are not interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plan (the "Independent
Trustees"), by votes cast in person at meetings called for the purpose of voting
on such Plans.
Pursuant to the Plans, at least quarterly, CUNA Brokerage provides the Trust
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on a
quarterly basis to determine their continued appropriateness.
The Plans provide that they continue in effect only so long as their continuance
is approved at least annually by a majority of both the Trustees and the
Independent Trustees. Each Plan provides that it may be terminated without
penalty: (a) by vote of a majority of the Independent Trustees; (b) by a vote of
a majority of the votes attributable to the fund's outstanding shares of the
applicable class in each case upon 60 days' written notice to CUNA Brokerage;
and (c) automatically in the event of assignment. Each of the Plans further
provides that it may not be amended to increase the maximum amount of the fees
for the services described therein without the approval of a majority of the
votes attributable to the outstanding shares of the class of the Trust which has
voting rights with respect to the Plan. And finally, each of the Plans provides
that no material amendment to the Plan will, in any event, be effective unless
it is approved by a majority vote of both the Trustees and the Independent
Trustees of the Trust. The holders of Class A shares and Class B shares have
exclusive voting rights with respect to the Plan applicable to their respective
class of shares. In adopting the Plans, the Trustees concluded that, in their
judgment, there is a reasonable likelihood that each Plan will benefit the
holders of the applicable class of shares of the fund.
Amounts paid to CUNA Brokerage by any class of shares of the Trust will not be
used to pay the expenses incurred with respect to any other class of shares of
the Trust; provided, however, that expenses attributable to the Trust as a whole
will be allocated, to the extent permitted by law, according to a formula based
upon gross sales dollars and/or average daily net assets of each such class, as
may be approved from time to time.
The table below shows the dollar amount spent by the fund for the fiscal year
ending October 31, 1999 for each of the following items:
1) Advertising; $0
2) Printing and mailing of prospectuses to other than current $0
shareholder;
3) Compensation to underwriters; $0
4) Compensation to broker-dealers; $0
5) Compensation to sales personnel; $143,957
6) Interest, carrying, or other financing charges; and $0
7) Other (specify) Expense Reimbursements to other companies that $893,641
are paying distributor expenses on behalf of CUNA Brokerage
Services, Inc. (the distributor)
TRANSFER AGENT
PFPC Global Fund Services ("PFPC"), formerly First Data Investor Services Group,
Inc., 221 South Gulph Road, King of Prussia, Pennsylvania 19406, is the funds'
transfer agent. Shareholders can reach a MEMBERS Mutual Funds representative at
PFPC at 1-800-877-6089. Shareholder inquiries and transaction requests should be
sent to:
MEMBERS Mutual Funds
Post Office Box 60569
King of Prussia, Pennsylvania 19406-0569
Certain overnight delivery services do not deliver to post office boxes.
Shareholders using such a service should send inquiries and transaction requests
to:
PFPC Global Fund Services
MEMBERS Mutual Funds
211 South Gulph Road
King of Prussia, Pennsylvania 19406
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110 is the current custodian for the securities and cash of each fund. The
custodian holds all securities and cash owned by each fund and receives all
payments of income, payments of principal or capital distributions with respect
to such securities for each fund. Also, the custodian receives payment for the
shares issued by the Trust. The custodian releases and delivers securities and
cash upon proper instructions from the Trust. Pursuant to and in furtherance of
a Custody Agreement with the custodian, the custodian uses automated
instructions and a cash data entry system to transfer monies to and from each
fund's account at the custodian.
INDEPENDENT AUDITORS
The financial statements for fiscal year ended October 31, 1999 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
CIMCO chooses brokers based on among other factors commission rates, efficiency,
availability to execute difficult transactions in the future, financial strength
and stability of the brokerage firm, research services available, integrity, and
areas of a firm's expertise.
While transaction execution at the most favorable price is a primary criteria, a
broker whose commissions exceed those charged by another broker may be chosen
if, in CIMCO's opinion, the value of brokerage and research services warrants
it. Research provided by a broker may be made available without charge to other
clients of CIMCO, and may benefit all clients, including the client for whom the
transactions are executed.
In addition to the general research services described above, CIMCO receives
various specific research products and services under "soft dollar"
arrangements. These services are paid for by directing that a portion of
commissions on specified transactions up to a specified amount for each service
be paid by the brokers handling the transactions to the vendors of the products.
The commission rates on such transactions are sometimes higher than on "non-soft
dollar" transactions. These services generally benefit all accounts and involve
trades for all accounts.
Where advantageous for all affected accounts, CIMCO may employ "bunching of
trades" wherein one transaction representing several different client accounts
is placed with a broker. CIMCO has established various policies and procedures
that assure equitable treatment of all accounts.
It is the Trust's policy, in effecting transactions in portfolio securities, to
seek best execution of orders at the most favorable prices. The determination of
what may constitute best execution and price in the execution of a securities
transaction by a broker involves a number of considerations, including without
limitation, the overall direct net economic result (involving both price paid or
received and any commissions and other costs paid), the efficiency with which
the transaction is effected, the ability to effect the transaction at all where
a large block is involved, the availability of the broker to stand ready to
execute potentially difficult transactions in the future and the financial
strength and stability of the broker. Such considerations are judgmental and are
weighed by the Investment Adviser in determining the overall reasonableness of
brokerage commissions paid.
Subject to the foregoing, a factor in the selection of brokers is the receipt of
research services, analyses and reports concerning issuers, industries,
securities, economic factors and trends and other statistical and factual
information. Any such research and other statistical and factual information
provided by brokers to the Trust or CIMCO is considered to be in addition to and
not in lieu of services required to be performed by CIMCO under its contract
with the Trust. Research obtained on behalf of the Trust may be used by CIMCO in
connection with CIMCO's other clients. Conversely, research received from
placement of brokerage for other accounts may be used by CIMCO in managing
investments of the Trust. Therefore, the correlation of the cost of research to
CIMCO's individual clients, including the Trust, is indeterminable and cannot
practically be allocated among the Trust and CIMCO's other clients. Consistent
with the above, the Trust may effect principal transactions with a broker-dealer
that furnishes brokerage and/or research services, or designate any such
broker-dealer to receive selling commissions, discounts or other allowances, or
otherwise deal with any broker-dealer, in connection with the acquisition of
securities in underwritings. Accordingly, the net prices or commission rates
charged by any such broker-dealer may be greater than the amount another firm
might charge if the Investment Adviser determines in good faith that the amount
of such net prices and commissions is reasonable in relation to the value of the
services and research information provided by such broker-dealer to the Trust.
The Trust expects that purchases and sales of money market instruments usually
will be principal transactions. Money market instruments are normally purchased
directly from the issuer or from an underwriter or market maker for the
securities. There usually will be no brokerage commissions paid for such
purchases. Purchases from underwriters will include the underwriting commission
or concession and purchases from dealers serving as market makers will include
the spread between the bid and asked price. Where transactions are made in the
over-the-counter market, the Trust will deal with the primary market makers
unless equal or more favorable prices are otherwise obtainable.
Where advantageous, the Trust may participate with CIMCO's other clients in
"bunching of trades" wherein one purchase or sale transaction representing
several different client accounts is placed with a broker. CIMCO has established
various policies and procedures that assure equitable treatment of all accounts.
The policy with respect to brokerage is and will be reviewed by the Trustees
from time to time. Because of the possibility of further regulatory developments
affecting the securities exchanges and brokerage practices generally, the
foregoing practices may be changed, modified or eliminated.
The fund paid $218,258 for brokerage commission for the fiscal year ending
October 31, 1999.
HOW SECURITIES ARE OFFERED
Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest of the Trust without par
value. Under the Declaration of Trust, the Trustees have the authority to create
and classify shares of beneficial interest in separate series, without further
action by shareholders. As of the date of this SAI, the Trustees have authorized
shares of the seven funds described in the prospectus. Additional series and/or
classes may be added in the future. The Declaration of Trust also authorizes the
Trustees to classify and reclassify the shares of the Trust, or new series of
the Trust, into one or more classes. As of the date of this SAI, the Trustees
have authorized the issuance of two classes of shares of the fund, designated as
Class A and Class B. Additional classes of shares may be offered in the future.
The shares of each class of each fund represent an equal proportionate interest
in the aggregate net assets attributable to that class of that fund. Holders of
Class A shares and Class B shares have certain exclusive voting rights on
matters relating to their respective distribution plans. The different classes
of a fund may bear different expenses relating to the cost of holding
shareholder meetings necessitated by the exclusive voting rights of any class of
shares.
Dividends paid by each fund, if any, with respect to each class of shares will
be calculated in the same manner, at the same time and on the same day and will
be in the same amount, except for differences resulting from the fact that: (i)
the distribution and service fees relating to Class A and Class B shares will be
borne exclusively by that class; (ii) Class B shares will pay higher
distribution and service fees than Class A shares; and (iii) each of Class A
shares and Class B shares will bear any other class expenses properly allocable
to such class of shares, subject to the requirements imposed by the Internal
Revenue Service on funds having a multiple-class structure. Similarly, the NAV
per share may vary depending on whether Class A shares or Class B shares are
purchased.
In the event of liquidation, shareholders of each class of each fund are
entitled to share pro rata in the net assets of the class of the fund available
for distribution to these shareholders. Shares entitle their holders to one vote
per dollar value of shares, are freely transferable and have no preemptive,
subscription or conversion rights. When issued, shares are fully paid and
non-assessable, except as set forth below.
Share certificates will not be issued.
Voting Rights
Unless otherwise required by the 1940 Act or the Declaration of Trust, the Trust
has no intention of holding annual meetings of shareholders. Fund shareholders
may remove a Trustee by the affirmative vote of at least two-thirds of the
Trust's votes attributable to the outstanding shares and the Trustees shall
promptly call a meeting for such purpose when requested to do so in writing by
the record holders of not less than 10% of the votes attributable to the
outstanding shares of the Trust. Shareholders may, under certain circumstances,
communicate with other shareholders in connection with requesting a special
meeting of shareholders. However, at any time that less than a majority of the
Trustees holding office were elected by the shareholders, the Trustees will call
a special meeting of shareholders for the purpose of electing Trustees.
Limitation of Shareholder Liability
Generally, Delaware business trust shareholders are not personally liable for
obligations of the Delaware business trust under Delaware law. The Delaware
Business Trust Act ("DBTA") provides that a shareholder of a Delaware business
trust shall be entitled to the same limitation of liability extended to
shareholders of private for-profit corporations. The Declaration expressly
provides that the Trust has been organized under the DBTA and that the
Declaration is to be governed by and interpreted in accordance with Delaware
law. It is nevertheless possible that a Delaware business trust, such as the
Trust, might become a party to an action in another state whose courts refuse to
apply Delaware law, in which case the Trust's shareholders could possibly be
subject to personal liability.
To guard against this risk, the Declaration: (i) contains an express disclaimer
of shareholder liability for acts or obligations of the Trust and provides that
notice of such disclaimer may be given in each agreement, obligation and
instrument entered into or executed by the Trust or its Trustees, (ii) provides
for the indemnification out of Trust property of any shareholders held
personally liable for any obligations of the Trust or any fund, and (iii)
provides that the Trust shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the Trust and satisfy
any judgment thereon. Thus, the risk of a shareholder incurring financial loss
beyond his or her investment because of shareholder liability is limited to
circumstances in which all of the following factors are present: (1) a court
refuses to apply Delaware law; (2) the liability arose under tort law or, if
not, no contractual limitation of liability was in effect; and (3) the Trust
itself would be unable to meet its obligations. In the light of DBTA, the nature
of the Trust's business, and the nature of its assets, the risk of personal
liability to a shareholder is remote.
Limitation of Trustee and Officer Liability
The Declaration further provides that the Trust shall indemnify each of its
Trustees and officers against liabilities and expenses reasonably incurred by
them, in connection with, or arising out of, any action, suit or proceeding,
threatened against or otherwise involving such Trustee or officer, directly or
indirectly, by reason of being or having been a Trustee or officer of the Trust.
The Declaration does not authorize the Trust to indemnify any Trustee or officer
against any liability to which he or she would otherwise be subject by reason of
or for willful misfeasance, bad faith, gross negligence or reckless disregard of
such person's duties.
Limitation of Interseries Liability
All persons dealing with a fund must look solely to the property of that
particular fund for the enforcement of any claims against that fund, as neither
the Trustees, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of a fund or the Trust. No fund is liable for
the obligations of any other fund. Since the funds use a combined prospectus,
however, it is possible that one fund might become liable for a misstatement or
omission in the prospectus regarding another fund with which its disclosure is
combined. The Trustees have considered this factor in approving the use of the
combined prospectus.
MORE ABOUT PURCHASING AND SELLING SHARES
The following discussion expands upon the section entitled "Your Account" in the
prospectus.
Offering Price
Shares of each fund are offered at a price equal to their NAV next determined
after receipt of the purchase order for such shares (see "Net Asset Value of
Shares" below) plus a sales charge which, depending upon the class of shares
purchased, may be imposed either at the time of purchase (Class A shares) or on
a contingent deferred basis (Class B shares). The Trustees reserve the right to
change or waive the fund's minimum investment requirements and to reject any
order to purchase shares (including purchase by exchange) when in the judgment
of the Investment Adviser such rejection is in the fund's best interest.
Initial Sales Charge on Class A Shares
The sales charges applicable to purchases of Class A shares of the Trust are
described in the prospectus. In calculating the sales charge applicable to
current purchases of Class A shares of the Trust, the investor is entitled to
accumulate current purchases with the greater of the current value (at offering
price) of the Class A shares of the Trust, or if CUNA Brokerage is notified by
the investor's dealer or the investor at the time of the purchase, the cost of
the Class A shares owned.
In addition to the methods of obtaining a reduced Class A sales charge described
in the prospectus, Class A shares of a fund may also be purchased without an
initial sales charge in connection with certain liquidation, merger or
acquisition transactions involving other investment companies or personal
holding companies.
Class A shares may be offered without front-end sales charges to various
individuals and institutions, including:
o Employees of credit unions designated by CIMCO Inc., when purchasing
MEMBERS Funds directly.
o Employees, clients or direct referrals of the investment adviser, CIMCO
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 certain 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.
The LOI authorizes CUNA Brokerage to hold in escrow sufficient Class A shares
(approximately 5% of the aggregate) to make up any difference in sales charges
on the amount intended to be invested and the amount actually invested, until
such investment is completed within the specified period, at which time the
escrow shares will be released. If the total investment specified in the LOI is
not completed, the Class A shares held in escrow may be redeemed and the
proceeds used as required to pay such sales charge as may be due. By signing the
LOI, the investor authorizes CUNA Brokerage to act as the investor's
attorney-in-fact to redeem any escrowed shares and adjust the sales charge, if
necessary. A LOI does not constitute a binding commitment by an investor to
purchase, or by the Trust to sell, any additional shares and may be terminated
at any time.
Deferred Sales Charge on Class B Shares
Investments in Class B shares are purchased at NAV per share without the
imposition of an initial sales charge so the fund will receive the full amount
of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within five
years of purchase will be subject to a contingent deferred sales charge ("CDSC")
at the rates set forth in the prospectus as a percentage of the dollar amount
subject to the CDSC. The charge will be assessed on an amount equal to the
lesser of the current market value or the original purchase cost of the Class B
shares being redeemed. No CDSC will be imposed on increases in account value
above the initial purchase prices, including Class B shares derived from
reinvestment of dividends or capital gains distributions.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of shares, all payments
during a month will be aggregated and deemed to have been made on the first day
of the month.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that a redemption comes first from any increases in the
redeeming shareholder's shares' value above their initial purchase prices, then
from shares the shareholder acquired through dividend and capital gain
reinvestment, then from shares the shareholder has held beyond the five-year
CDSC redemption period ("aged shares"). Such aged shares will be redeemed in
order from the shares which have been held the longest during the five-year
period.
Unless otherwise requested, redemption requests will be "grossed up" by the
amount of any applicable CDSC charge and/or transaction charges such that the
investor will receive the net amount requested.
Proceeds from the CDSC are paid to CUNA Brokerage and are used in whole or in
part by CUNA Brokerage to defray its expenses related to providing
distribution-related services to the Trust in connection with the sale of the
Class B shares, such as the payment of compensation to select Selling Brokers
for selling Class B shares. The combination of the CDSC and the distribution and
service fees facilitates the ability of the Trust to sell the Class B shares
without a sales charge being deducted at the time of the purchase.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares, unless indicated otherwise, in these
circumstances:
For all account types:
o Redemptions made pursuant to the Trust's right to liquidate small accounts
(see "General Policy -- Small Accounts" in the prospectus).
o Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
o Redemptions due to death or disability.
o Redemptions made under the Reinstatement Privilege, as described in
"Reinstatement or Reinvestment Privilege" below.
o Redemptions of Class B shares made under the Systematic Withdrawal Program,
as long as annual redemptions do not exceed (on an annualized basis) 12% of
the redeeming shareholder's account value at the time of the withdrawal.
For Retirement Accounts (such as IRA, Rollover IRA, TSA, 457, 403(b), 401(k)
plans) and other qualified plans as described in the Code, unless otherwise
noted.
o Redemptions made to effect mandatory or life expectancy distributions under
the Code.
o Returns of excess contributions made to these plans.
o Redemptions made to effect distributions to participants or beneficiaries
from employer sponsored retirement under section 401(a) of the Code (such
as 401(k) plans).
Please see the chart following for more information on Class B CDSC waivers.
Class B CDSC Waiver Chart
<TABLE>
<CAPTION>
ERISA Plans Non-ERISA Plans
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>
Any shareholder who qualifies for a CDSC waiver under one of these situations
must notify the funds' transfer agent, PFPC Global Fund Services ("PFPC"),
formerly First Data Investor Services Group, Inc., at the time such shareholder
requests a redemption. (See "Contacting the Funds' Transfer Agent" in the
prospectus.) The waiver will be granted once PFPC has confirmed that the
shareholder is entitled to the waiver.
Special Redemptions
Although no fund would normally do so, each fund has the right to pay the
redemption price of shares of the fund in whole or in part in portfolio
securities held by the fund as prescribed by the Trustees. When the shareholder
were to sell portfolio securities received in this fashion the shareholder would
incur a brokerage charge. Any such securities would be valued for the purposes
of making such payment at the same value as used in determining NAV. The Trust
has, however, elected to be governed by Rule 18f-1 under the 1940 Act. Under
that rule, each fund must redeem its shares for cash except to the extent that
the redemption payments to any shareholder during any 90-day period would exceed
the lesser of $250,000 or 1% of the fund's NAV at the beginning of such period.
NET ASSET VALUE OF SHARES
The NAV per share is calculated as of 3:00 p.m. central time on each day on
which the New York Stock Exchange is open for business. NAV per share is
determined by dividing each fund's total net assets by the number of shares of
such fund outstanding at the time of calculation. Total net assets are
determined by adding the total current value of portfolio securities, cash,
receivables, and other assets and subtracting liabilities. Shares will be sold
and redeemed at the NAV per share next determined after receipt of the purchase
order or request for redemption.
The NAV per share was initially set at $10.00 per share for each fund other than
the Cash Reserves Fund.
The NAV per share was initially set at $1.00 per share for the Cash Reserves
Fund (see below).
Cash Reserves Fund
The Trustees have determined that the best method currently available for
determining the NAV for the Cash Reserves Fund is the amortized cost method. The
Trustees will utilize this method pursuant to Rule 2a-7 of the 1940 Act. The use
of this valuation method will be continuously reviewed and the Trustees will
make such changes as may be necessary to assure that assets are valued fairly as
determined by the Trustees in good faith. Rule 2a-7 obligates the Trustees, as
part of their responsibility within the overall duty of care owed to the
shareholders, to establish procedures reasonably designed, taking into account
current market conditions and the investment objectives, to stabilize the NAV
per share as computed for the purpose of distribution and redemption at $1.00
per share. The Trustees' procedures include periodically monitoring, as they
deem appropriate and at such intervals as are reasonable in light of current
market conditions, the relationship between the amortized cost value per share
and the NAV per share based upon available market quotations. The Trustees will
consider what steps should be taken, if any, in the event of a difference of
more than 1/2 of one percent (0.5%) between the two. The Trustees will take such
steps as they consider appropriate, (e.g., redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other unfair
results which might arise from differences between the two. The Rule requires
that the Cash Reserves Fund limit its investments to instruments which the
Trustees determine will present minimal credit risks and which are of high
quality as determined by a major rating agency, or, in the case of any
instrument that is not so rated, of comparable quality as determined by the
Trustees. It also calls for the Cash Reserves Fund to maintain a dollar weighted
average portfolio maturity (not more than 90 days) appropriate to its objective
of maintaining a stable NAV of $1.00 per share and precludes the purchase of any
instrument with a remaining maturity of more than 397 days. Should the
disposition of a portfolio security result in a dollar weighted average
portfolio maturity of more than 90 days, the Cash Reserves Fund will invest its
available cash in such manner as to reduce such maturity to 90 days or less as
soon as reasonably practicable.
It is the normal practice of the Cash Reserves Fund to hold portfolio securities
to maturity. Therefore, unless a sale or other disposition of a security is
mandated by redemption requirements or other extraordinary circumstances, the
Cash Reserves Fund will realize the par value of the security. Under the
amortized cost method of valuation traditionally employed by institutions for
valuation of money market instruments, neither the amount of daily income nor
the NAV is affected by any unrealized appreciation or depreciation. In periods
of declining interest rates, the indicated daily yield on shares the Cash
Reserves Fund has computed by dividing the annualized daily income by the NAV
will tend to be higher than if the valuation were based upon market prices and
estimates. In periods of rising interest rates, the indicated daily yield on
shares the Cash Reserves Fund has computed by dividing the annualized daily
income by the NAV will tend to be lower than if the valuation were based upon
market prices and estimates.
Valuation Procedures
Common stocks that are traded on an established exchange or over-the-counter are
valued on the basis of market price as of the end of the valuation period,
provided that a market quotation is readily available. Otherwise, they are
valued at fair value as determined in good faith by or at the direction of the
Trustees.
Stripped treasury securities, long-term straight debt obligations, and
non-convertible preferred stocks are valued using readily available market
quotations, if available. When exchange quotations are used, the latest quoted
sale price is used. If an over-the-counter quotation is used, the last bid price
will normally be used. If readily available market quotations are not available,
these securities are valued at market value as determined in good faith by or at
the direction of the Trustees. Readily available market quotations will not be
deemed available if an exchange quotation exists for a debt security, preferred
stock, or security convertible into common stock, but it does not reflect the
true value of the fund's holdings because sales have occurred infrequently, the
market for the security is thin, or the size of the reported trade is considered
not comparable to the fund's institutional size holdings. When readily available
market quotations are not available, the fund will use an independent pricing
service which provides valuations for normal institutional size trading units of
such securities. Such a service may utilize a matrix system which takes into
account appropriate factors such as institutional size trading in similar groups
of securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data in determining valuations. These
valuations are reviewed by CIMCO. If CIMCO believes that a valuation still does
not represent a fair value, it will present for approval of the Trustees such
other valuation as CIMCO considers to represent a fair value. The specific
pricing service or services to be used will be presented for approval of the
Trustees.
Short-term instruments having maturities of sixty (60) days or less will be
valued at amortized cost. Short-term instruments having maturities of more than
sixty (60) days will be valued at market values or values based on current
interest rates.
Options, stock index futures, interest rate futures, and related options which
are traded on U.S. exchanges or boards of trade are valued at the closing price
as of the close of the New York Stock Exchange.
CIMCO, at the direction of the Trustees, values the following at prices it deems
in good faith to be fair:
1. Securities (including restricted securities) for which complete
quotations are not readily available;
2. Listed securities if, in CIMCO's opinion, the last sale price does not
reflect the current market value or if no sale occurred; and
3. Other assets.
ADDITIONAL INVESTOR SERVICES AND PROGRAMS
The following discussion expands upon the section entitled "Additional Investor
Services" in the prospectus.
Systematic Investment Program
As explained in the prospectus, the Trust has established a Systematic
Investment Program. The program is subject to the following conditions:
o The investments will be drawn on or about the day of the month indicated.
o Any shareholder's privilege of making investments through the Systematic
Investment Program may be revoked by the Trust without prior notice if any
investment by the shareholder is not honored by the shareholder's credit
union or other financial institution.
o The program may be discontinued by the shareholder either by calling
MEMBERS Mutual Funds or upon written notice to MEMBERS Mutual Funds which
is received at least five (5) business days prior to the due date of any
investment.
Systematic Withdrawal Program
As explained in the prospectus, the Trust has established a Systematic
Withdrawal Program. Payments under this program represent proceeds arising from
the redemption of fund shares. The maintenance of a Systematic Withdrawal
Program concurrently with purchases of additional shares of the fund could be
disadvantageous to a shareholder because of the sales charges that may be
imposed on new purchases. Therefore, a shareholder should not purchase shares of
a fund at the same time as a Systematic Withdrawal Program is in effect for such
shareholder with respect to that fund. The Trust reserves the right to modify or
discontinue the Systematic Withdrawal Program for any shareholder on 30 days'
prior written notice to such shareholder, or to discontinue the availability of
such plan to all shareholders in the future. Any shareholder may terminate the
program at any time by giving proper notice.
Exchange Privilege and Systematic Exchange Program
Shares of a fund which are subject to a CDSC may be exchanged into shares of any
of other fund that are subject to a CDSC without incurring the CDSC; however,
the shares acquired in the exchange will be subject to the CDSC schedule of the
shares acquired if and when such shares are redeemed. For purposes of computing
the CDSC payable upon redemption of shares acquired in an exchange, the holding
period of the original shares is added to the holding period of the shares
acquired in an exchange.
The Trust reserves the right to require that previously exchanged shares (and
reinvested dividends) be in a fund for 90 days before a shareholder is permitted
a new exchange. The Trust may refuse any exchange order. The Trust may change or
cancel its exchange policies at any time, upon 60 days' notice to its
shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for federal income tax purposes. An exchange may
result in a taxable gain or loss. (See "Dividends, Distributions and Taxes.")
As explained in the prospectus, the Trust has established a Systematic Exchange
Program. The Trust reserves the right to modify or discontinue the Systematic
Exchange Program for any shareholder on 30 days' prior written notice to such
shareholder, or to discontinue the availability of such plan to all shareholders
in the future. Any shareholder may terminate the program at any time by giving
proper notice to PFPC.
Reinstatement or Reinvestment Privilege
If PFPC 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 $328,128, and $349,486, respectively, as of October 31, 1999,
which if not offset by subsequent capital gains, will expire in 2007.
Additionally, the High Income Fund has a loss carryover of $66,186 as of October
31, 1999, which if not offset by subsequent capital gains, will expire in 2006.
Dividends and interest received by a fund may be subject to income, withholding
or other taxes imposed by foreign countries and U.S. possessions that would
reduce the yield on its securities. Tax conventions between certain countries
and the U.S. may reduce or eliminate these foreign taxes, however, and foreign
countries generally do not impose taxes on capital gains in respect of
investments by foreign investors. If more than 50% of the value of the
International Stock Fund's total assets at the close of its taxable year
consists of securities of foreign corporations, it will be eligible to, and may,
file an election with the Internal Revenue Service that will enable its
shareholders, in effect, to receive the benefit of the foreign tax credit with
respect to any foreign and U.S. possessions income taxes paid by it. Pursuant to
the election, a fund will treat those taxes as dividends paid to its
shareholders and each shareholder will be required to (1) include in gross
income, and treat as paid by him, his proportionate share of those taxes, (2)
treat his share of those taxes and of any dividend paid by the fund that
represents income from foreign or U.S. possessions sources as his own income
from those sources, and (3) either deduct the taxes deemed paid by him in
computing his taxable income or, alternatively, use the foregoing information in
calculating the foreign tax credit against his federal income tax. The
International Stock Fund will report to its shareholders shortly after each
taxable year their respective shares of the income from sources within, and
taxes paid to, foreign countries and U.S. possessions if it makes this election.
Each fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of the
following tests: (1) at least 75% of its gross income is passive or (2) an
average of at least 50% of its assets produce, or are held for the production
of, passive income. Under certain circumstances, a fund will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock of a PFIC or of any gain on disposition of that stock (collectively "PFIC
income"), plus interest thereon, even if the fund distributes the PFIC income as
a taxable dividend to its shareholders. The balance of the PFIC income will be
included in the fund's investment company taxable income and, accordingly, will
not be taxable to it to the extent that income is distributed to its
shareholders. If a fund invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund," then in lieu of the foregoing tax and interest
obligation, the fund will be required to include in income each year its pro
rata share of the qualified electing fund's annual ordinary earnings and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss), even if they are not distributed to the fund; those amounts would
be subject to the distribution requirements described above. In most instances
it will be very difficult, if not impossible, to make this election because of
certain requirements thereof.
The use of hedging strategies, such as writing (selling) and purchasing options
and futures contracts and entering into forward contracts, involves complex
rules that will determine for income tax purposes the character and timing of
recognition of the income received in connection therewith by a fund. Income
from foreign currencies (except certain gains therefrom that may be excluded by
future regulations), and income from transactions in options, futures and
forward contracts derived by a fund with respect to its business of investing in
securities or foreign currencies, will qualify as permissible income under the
income requirement. However, income from the disposition of foreign currencies
that are not directly related to the fund's principal business of investing in
securities (or options and futures with respect thereto) also will be subject to
the Short-Short Limitation if the securities are held for less than three
months.
If a fund satisfies certain requirements, any increase in value on a position
that is part of a "designated hedge" will be offset by any decrease in value
(whether realized or not) of the offsetting hedging position during the period
of the hedge for purposes of determining whether the fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. Each
fund intends that, when it engages in hedging transactions, they will qualify
for this treatment, but at the present time it is not clear whether this
treatment will be available for all of the fund's hedging transactions. To the
extent this treatment is not available, a fund may be forced to defer the
closing out of certain options and futures contracts beyond the time when it
otherwise would be advantageous to do so, in order for the fund to continue to
qualify as a RIC.
The treatment of income dividends and capital gain distributions by a fund to
shareholders under the various state income tax laws may not parallel that under
the federal law. Qualification as a regulated investment company does not
involve supervision of a fund's Investment Adviser or of its investment policies
and practices by any governmental authority.
Shareholders are urged to consult their own tax advisers with specific reference
to their own tax situations, including their state and local tax liabilities.
It is the intention of the Trust to distribute substantially all of the net
investment income, if any, of each fund thereby avoiding the imposition of any
fund-level income or excise tax as follows:
(i) Dividends on the Cash Reserves, Bond, and High Income Funds will be
declared daily and reinvested monthly in additional full and fractional
shares of the respective fund;
(ii)Dividends of ordinary income from the Balanced Fund will be declared
and reinvested monthly in additional full and fractional shares of the
Balanced Fund;
(iii)Dividends of ordinary income, if any, from the Growth and Income Fund
will be declared and reinvested quarterly in additional full and
fractional shares of the Growth and Income Fund;
(iv) Dividends of ordinary income, if any, from the Capital Appreciation,
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.
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
<PAGE>
futures contract, would be treated as "offsetting" another investment also held
by the fund, such as the underlying security (or vice versa) and, therefore,
whether the fund would be treated as having entered into a straddle. In general,
investment positions may be "offsetting" if there is a substantial diminution in
the risk of loss from holding one position by reason of holding one or more
other positions (although certain "qualified" covered call stock options written
by a fund may be treated as not creating a straddle).
To the extent that the straddle rules apply to positions established by a fund,
losses realized by the fund may be either deferred or recharacterized as
long-term losses, and long-term gains realized by the fund may be converted to
short-term gains.
Each fund may make one or more of the elections available under the Code which
are applicable to straddles. If a fund makes any of the elections, the amount,
character, and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections operate to
accelerate the recognition of gains or losses from the affected straddle
positions.
Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to a fund that did not engage in such hedging transactions.
Distributor
Shares of the Trust are offered continuously. The shares are currently issued
and redeemed through the distributor, CUNA Brokerage, pursuant to a Distribution
Agreement between the Trust and CUNA Brokerage. The principal place of business
of CUNA Brokerage is 5910 Mineral Point Road, Madison, Wisconsin 53705. CUNA
Brokerage is owned by CUNA Mutual Investment Corporation which in turn is owned
by CUNA Mutual Insurance Society. Shares of the Trust are purchased and redeemed
at NAV (see "Net Asset Value of Shares" below). The Distribution Agreement
provides that CUNA Brokerage will use its best efforts to render services to the
Trust, but in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations, it will not be liable to the Trust or any
shareholder for any error of judgment or mistake of law or any act or omission
or for any losses sustained by the Trust or its shareholders.
The aggregate dollar amount of underwriting commission paid to and retained by
the underwriter was $108,709 for the fiscal year ending October 31, 1999.
CALCULATION OF YIELDS AND TOTAL RETURNS
From time to time, the Trust may disclose yields, total returns, and other
performance data. Such performance data will be computed, or accompanied by
performance data computed in accordance with the standards defined by the
Commission.
Cash Reserves Fund Yields
From time to time, sales literature may quote the current annualized yield of
the Cash Reserves Fund for a seven-day period in a manner which does not take
into consideration any realized or unrealized gains or losses on portfolio
securities.
This current annualized yield is computed by determining the net change
(exclusive of realized gains and losses on the sale of securities and unrealized
appreciation and depreciation) at the end of the seven-day period in the value
of a hypothetical account having a balance of one share at the beginning of the
period, dividing such net change in account value by the value of the
hypothetical account at the beginning of the period to determine the base period
return, and annualizing this quotient on a 365-day basis. The net change in
value reflects net income from the fund attributable to the hypothetical
account. Current yield is calculated according to the following formula:
Current Yield = ((NCS - ES)/UV) x (365/7)
Where:
NCS = the net change in the value of the Cash Reserves Fund (exclusive of
realized gains or losses on the sale of securities and unrealized
appreciation and depreciation) for the seven-day period attributable
to a hypothetical account having a balance of one share.
ES = per share expenses attributable to the hypothetical account for the
seven-day period.
UV = the share value for the first day of the seven-day period.
The current yield based on the 7 days ended on the date of the balance sheet
included in the registration statement is 4.91% for Class A and 4.15% 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 5.03% for Class A and
4.23% for Class B.
Effective yield is calculated according to the following formula:
Effective yield = (1 + ((NCS-ES)/UV))365/7 - 1
Where:
NCS = the net change in the value of the Cash Reserves Fund (exclusive of
realized gains or losses on the sale of securities and unrealized
appreciation and depreciation) for the seven-day period attributable
to a hypothetical account having a balance of one share.
ES = per share expenses attributable to the hypothetical account for the
seven-day period.
UV = the share value for the first day of the seven-day period.
The current and effective yields on amounts held in the Cash Reserves Fund
normally fluctuate on a daily basis. Therefore, the disclosed yield for any
given past period is not an indication or representation of future yields or
rates of return. The Cash Reserves Fund's actual yield is affected by changes in
interest rates on money market securities, average portfolio maturity, the types
and quality of portfolio securities held and operating expenses. Yields on
amounts held in the Cash Reserves Fund may also be presented for periods other
than a seven-day period.
Other Fund Yields
From time to time, sales literature may quote the current annualized yield of
one or more of the funds (other than the Cash Reserves Fund) for 30-day or
one-month periods. The annualized yield of a fund refers to income generated by
the fund during a 30-day or one-month period and is assumed to be generated each
period over a 12-month period.
The yield is computed by: 1) dividing the net investment income of the fund for
the period; by 2) the maximum offering price per share on the last day of the
period times the daily average number of shares outstanding for the period; by
3) compounding that yield for a six-month period; and by 4) multiplying that
result by 2. The 30-day or one-month yield is calculated according to the
following formula:
Yield = 2 x (((NI - ES)/(U x UV)) + 1)6 - 1)
Where:
NI = net income of the fund for the 30-day or one-month period
attributable to the fund's shares.
ES = expenses of the fund for the 30-day or one-month period.
U = the average number of shares outstanding.
UV = the share value at the close (highest) of the last day in the 30-day
or one-month period.
The yield normally fluctuates over time. Therefore, the disclosed yield for any
given past period is not an indication or representation of future yields or
rates of return. A fund's actual yield is affected by the types and quality of
portfolio securities held and operating expenses.
Average Annual Total Returns
From time to time, sales literature may also quote average annual total returns
for 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, 1999 for each of the funds is:
Average Annual Total Returns as of December 31, 1999
Cash Reserves Fund -0.87%
Bond Fund -3.55%
Balanced Fund 7.28%
High Income Fund 1.40%
Growth and Income Fund 10.46%
Capital Appreciation Fund 17.06%
International Stock Fund 13.42%
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.
<PAGE>
Standard average annual total returns represent the average annual compounded
rates of return that would equate an initial investment of $1,000 to the
redemption value of that investment as of the last day of each of the periods.
The ending date for each period for which total return quotations are provided
will be for the most recent month or calendar quarter-end practicable,
considering the type of the communication and the media through which it is
communicated.
The total return is calculated according to the following formula:
TR = ((ERV/P)1/N) - 1
Where:
TR = the average annual total return net of any fund recurring charges.
ERV = the ending redeemable value of the hypothetical account at the end
of the period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
Other Total Returns
From time to time, sales literature may also disclose cumulative total returns
in conjunction with the standard formats described above. The cumulative total
returns will be calculated using the following formula:
CTR = (ERV/P) - 1
Where:
CTR = The cumulative total return net of any fund recurring charges for
the period.
ERV = The ending redeemable value of the hypothetical investment at the
end of the period.
P = A hypothetical single payment of $1,000.
LEGAL COUNSEL
Sutherland, Asbill & Brennan LLP, 1275 Pennsylvania Avenue, N.W., Washington,
D.C. 20004, serves as counsel to the Trust and certain of its affiliates.
FINANCIAL STATEMENTS
Data from the most recent annual report begins on the next page.
<PAGE>
CASH RESERVES FUND -- Portfolio of Investments
Value
Par Value (Note 2)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (A) - 48.95%
Federal Home Loan Mortgage Corp. - 20.04%
$ 350,000 5.335%, due 11/15/99 $ 349,292
200,000 5.391%, due 11/24/99 199,329
360,000 5.381%, due 12/15/99 357,696
300,000 5.168%, due 01/03/00 297,359
400,000 5.700%, due 01/10/00 395,707
1,599,383
Federal Home Loan Bank - 17.14%
300,000 5.073%, due 12/08/99 298,495
180,000 5.303%, due 12/10/99 179,002
100,000 5.413%, due 12/17/99 99,329
400,000 5.716%, due 02/15/00 393,481
300,000 5.040%, due 03/29/00 299,939
100,000 4.997%, due 03/31/00 98,025
1,368,271
Federal Farm Credit Bank - 8.64%
400,000 5.283%, due 11/08/99 399,600
291,000 5.384%, due 11/29/99 289,814
689,414
Federal National Mortgage Association - 3.13%
250,000 5.167%, due 11/04/99 249,896
Total U.S. Government and Agency Obligations 3,906,964
( Cost $3,906,964 )
COMMERCIAL PAPER (A) - 47.54%
Finance - 13.19%
300,000 American General Finance Co.
6.132%, due 02/07/00 295,157
200,000 General Electric Capital Corp.
5.161%, due 01/21/00 197,790
367,000 Goldman Sachs Group LP
6.028%, due 02/22/00 360,307
200,000 Merrill Lynch & Co., Inc.
5.418%, due 11/02/99 199,970
1,053,224
Communication - 8.04%
350,000 AT&T Corp.
5.802%, due 02/02/00 344,937
300,000 Bellsouth Telecommunications, Inc.
5.548%, due 01/18/00 296,535
641,472
Media - 7.46%
300,000 Disney (Walt) Co
6.055%, due 02/09/00 295,108
300,000 McGraw Hill Companies
5.304%, due 11/02/99 299,957
595,065
Technology - 5.94%
300,000 Emerson Electric Co.
6.131%, due 01/31/00 295,488
180,000 General Electric Co.
5.480%, due 12/20/99 178,692
474,180
Consumer Staples - 3.74%
300,000 Procter & Gamble Co.
5.443%, due 12/03/99 298,587
Energy - 3.71%
300,000 Consolidated Natural Gas Corp.
5.680%, due 01/25/00 296,140
Chemicals - 3.71%
300,000 du Pont (E.I.) de Nemours & Co.
5.996%, due 01/27/00 295,781
Utilities - 1.75%
140,000 MDU Resources Group
5.406%, due 11/10/99 139,814
Total Commercial Paper 3,794,263
( Cost $3,794,263 )
CERTIFICATE OF DEPOSIT - 2.71%
216,740 State Street Eurodollar
4.500%, due 11/01/99 216,740
Total Certificate of Deposit 216,740
( Cost $216,740 )
TOTAL INVESTMENTS - 99.20%. 7,917,967
( Cost $7,917,967** )
NET OTHER ASSETS AND LIABILITIES - 0.80% 63,984
TOTAL NET ASSETS - 100.00%. $ 7,981,951
** Aggregate cost for Federal tax purposes.
(A) Rate noted represents annualized yield at time of purchase.
See accompanying Notes to Financial Statements.
<PAGE>
BOND FUND -- Portfolio of Investments
Value
Par Value (Note 2)
CORPORATE NOTES AND BONDS - 52.97%
Finance - 9.64%
$ 500,000 Capital One Bank
6.760%, due 07/23/02 $ 492,657
500,000 Ford Motor Credit Co.
7.375%, due 10/28/09 504,520
500,000 Pemex Finance, Ltd., 144A (C)
9.690%, due 08/15/09 497,385
1,494,562
Energy - 8.92%
525,000 Occidental Petroleum Co., Senior Note
10.125%, due 11/15/01 557,004
500,000 Tosco Corp.
8.250%, due 05/15/03 515,932
300,000 YPF Sociedad Anonima, Yankee
9.125%, due 02/24/09 309,495
1,382,431
Basic Materials - 6.46%
500,000 du Pont (E.I.) de Nemours &Co.
6.750%, due 10/15/04 502,311
500,000 Rohm & Haas Co., 144A (C)
6.950%, due 07/15/04 499,032
1,001,343
Capital Goods - 6.25%
500,000 Crown Cork & Seal Co., Inc.
7.125%, due 09/01/02 498,564
500,000 Owens-Illinois, Inc., Senior Note
7.150%, due 05/15/05 470,053
968,617
Retail - 6.08%
500,000 Autozone, Inc.
6.000%, due 11/01/03 473,049
500,000 Great Atlantic & Pacific Tea Co.
7.750%, due 04/15/07 469,581
942,630
Industrials - 4.64%
290,000 Foster Wheeler Corp.
6.750%, due 11/15/05 247,500
500,000 Temple-Inland, Inc., MTN
6.750%, due 03/01/09 471,290
718,790
Communication - 3.04%
500,000 Teleglobe, Inc., Yankee
7.200%, due 07/20/09 470,641
Business Services - 2.60%
415,000 Comdisco, Inc., Senior Note
6.000%, due 01/30/02 403,356
Durable Goods - 1.61%
250,000 Borg-Warner Automotive, Senior Note
8.000%, due 10/01/19 249,522
Waste Management - 1.51%
250,000 Waste Management, Inc., Step Coupon (F)
7.700%, due 10/01/02 234,325
Asset-Backed Securities - 1.28%
200,000 Residential Funding Mortgage Securities II,
Series 1998-HI2, Step Coupon, Class A2, ABS (F)
6.290%, due 07/25/13 198,314
Health Services - 0.94%
150,000 Columbia/HCA Healthcare Corp.
6.125%, due 12/15/00 146,342
Total Corporate Notes and Bonds 8,210,873
( Cost $8,256,478 )
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 42.99%
U.S. Treasury Notes - 21.68%
500,000 10.750%, due 02/15/03 569,375
500,000 7.875%, due 11/15/04 538,438
500,000 6.500%, due 08/15/05 508,906
500,000 7.000%, due 07/15/06 522,188
500,000 8.875%, due 02/15/19 628,594
500,000 8.125%, due 08/15/21 593,125
3,360,626
Government National Mortgage Association - 11.06%
390,426 6.250%, due 07/20/21 380,673
858,463 6.500%, due 04/15/26 823,673
499,359 8.000%, due 09/20/29 508,835
1,713,181
Federal Home Loan Mortgage Corp. - 6.36%
500,000 6.250%, due 10/15/02 499,410
500,000 6.010%, due 04/26/04 486,548
985,958
Federal National Mortgage Association - 3.89%
375,000 6.520%, due 03/05/08 359,147
250,000 7.000%, due 08/27/12 243,381
602,528
Total U.S. Government and Agency Obligations 6,662,293
( Cost $6,643,995 )
Value
Shares (Note 2)
INVESTMENT COMPANY - 4.96%
768,477 State Street Prime Money Market
4.830% 768,477
Total Investment Company 768,477
( Cost $768,477 )
Value
Par Value (Note 2)
CERTIFICATE OF DEPOSIT - 0.12%
18,693 State Street Eurodollar
4.50%, due 11/01/99 18,693
Total Certificate of Deposit 18,693
( Cost $18,693 )
TOTAL INVESTMENTS - 101.04% 15,660,336
( Cost $15,687,643** )
NET OTHER ASSETS AND LIABILITIES - (1.04)% (161,411)
TOTAL NET ASSETS - 100.00%. $ 15,498,925
** Aggregate cost for Federal tax purposes.
(C) Security sold within the terms of a private placement memorandum
exempt from registration under section 144A of the Securities Act of
1933, as amended, and may be sold only to dealers in that program or
other "qualified institutional investors." These securities have been
determined to be liquid under guidelines established by the Board of
Trustees.
(F) Represents a security whose interest rate increases at predetermined
dates. The rate disclosed is the rate currently in effect.
MTN Medium Term Note
ABS Asset Backed Security
See accompanying Notes to Financial Statements.
<PAGE>
BALANCED FUND -- Portfolio of Investments
Value
Shares (Note 2)
COMMON STOCKS - 53.78%
Technology - 13.79%
11,000 3Com Corp.* $ 319,000
6,700 ADC Telecommunications, Inc.* 319,506
4,700 Conexant Systems, Inc.* 438,863
13,800 EMC Corp.* 1,007,400
833 Gartner Group, Inc., Class B* 7,809
10,700 Gateway 2000, Inc.* 706,869
5,000 Hewlett-Packard Co. 370,312
11,500 Interim Services, Inc.* 189,031
6,000 International Business Machines Corp. 590,250
14,200 Keane, Inc.* 333,700
3,292 Koninklijke (Royal) Philips Electronics N.V. 342,162
4,000 Micron Technology, Inc.* 285,250
4,800 Motorola, Inc. 467,700
11,600 Seagate Technology, Inc.* 341,475
7,800 Texas Instruments, Inc. 700,050
6,419,377
Financial Services - 7.64%
12,000 Allstate Corp. 345,000
8,196 Bank of America Corp. 527,617
8,090 Bank One Corp. 303,881
10,500 Citigroup, Inc. 568,312
8,200 Countrywide Credit Industries, Inc. 278,288
9,400 Household International, Inc. 419,475
5,900 MBIA, Inc. 336,669
2,800 Morgan Stanley Dean Witter & Co. 308,875
9,800 Wells Fargo Co. 469,175
3,557,292
Consumer Staples - 6.94%
8,800 Cox Communications, Inc., Class A* 399,850
10,300 CVS Corp. 447,406
3,000 General Mills, Inc. 261,563
7,900 Kimberly-Clark Corp. 498,687
7,800 MediaOne Group, Inc.* 554,288
9,100 Nabisco Holdings Corp., Class A 340,113
7,500 Safeway, Inc.* 264,844
10,900 Sara Lee Corp. 294,981
11,100 Tyson Foods, Inc., Class A 169,275
3,231,007
Healthcare - 5.49%
6,400 Aetna, Inc. 321,600
6,700 ALZA Corp.* 286,844
11,700 American Home Products Corp. 611,325
7,300 Bristol-Myers Squibb Co. 560,731
3,900 Glaxo Wellcome PLC, ADR 233,513
2,492 Johnson & Johnson 261,037
5,200 Pharmacia & Upjohn, Inc. 280,475
2,555,525
Consumer Cyclical - 4.52%
10,800 Dayton Hudson Corp. 697,950
7,100 IMS Health, Inc. 205,900
16,800 PRIMEDIA, Inc.* 187,950
7,500 Sears, Roebuck & Co. 211,406
9,000 Tiffany & Co. 535,500
4,700 Wal-Mart Stores, Inc. 266,431
2,105,137
Energy - 3.72%
5,164 BP Amoco PLC, ADR 298,221
3,700 Exxon Corp. 274,031
4,500 Kerr-McGee Corp. 241,875
6,300 Schlumberger, Ltd. 381,544
8,000 Unocal Corp. 276,000
8,900 USX-Marathon Group 259,213
1,730,884
Communication Services - 3.43%
4,500 AT&T Corp. 210,375
4,600 GTE Corp. 345,000
5,922 SBC Communications, Inc. 301,652
3,200 Telefonos de Mexico SA, Class L, ADR 273,600
9,750 Vodafone AirTouch, PLC, ADR 467,391
1,598,018
Capital Goods - 3.40%
2,600 Honeywell, Inc. 274,138
3,300 Illinois Tool Works, Inc. 241,725
10,700 Owens-Illinois, Inc.* 256,131
10,700 Pall Corp. 234,731
4,300 Rockwell International Corp. 208,281
3,800 United Technologies Corp. 229,900
7,642 Waste Management, Inc. 140,422
1,585,328
Basic Materials - 2.35%
2,900 Dow Chemical Co. 342,925
5,300 Praxair, Inc. 247,775
7,300 Rohm and Haas Co. 279,225
5,400 Willamette Industries, Inc. 224,437
1,094,362
Transportation - 1.26%
3,500 Delta Air Lines, Inc. 190,531
6,300 FDX Corp.* 271,294
5,100 Norfolk Southern Corp. 124,631
586,456
Utilities - 1.24%
10,000 PG & E Corp. 229,375
9,300 Williams Cos., Inc. 348,750
578,125
Total Common Stocks 25,041,511
( Cost $21,058,472 )
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 20.75%
U.S. Treasury Notes - 11.42%
1,500,000 5.500%, due 08/31/01 1,491,563
500,000 5.625%, due 09/30/01 498,281
500,000 6.375%, due 08/15/02 506,094
500,000 10.750%, due 02/15/03 569,375
500,000 6.500%, due 08/15/05 508,906
500,000 7.000%, due 07/15/06 522,188
500,000 8.875%, due 02/15/19 628,594
500,000 8.125%, due 08/15/21 593,125
5,318,126
Federal National Mortgage Association - 5.37%
1,000,000 6.520%, due 03/05/08 957,726
410,000 6.320%, due 03/16/09 390,530
500,000 7.000%, due 08/27/12 486,762
655,543 8.000%, due 09/01/29 667,107
2,502,125
Government National Mortgage Association - 2.91%
390,426 6.250%, due 07/20/21 380,673
463,852 7.500%, due 07/15/26 465,428
500,000 8.000%, due 09/20/29 509,488
1,355,589
Federal Home Loan Mortgage Corp. - 1.05%
500,000 6.010%, due 04/26/04 486,548
Total U.S. Government and Agency Obligations 9,662,388
( Cost $9,670,755 )
CORPORATE NOTES AND BONDS - 18.34%
Finance - 3.21%
500,000 Capital One Bank
6.760%, due 07/23/02 492,656
500,000 Ford Motor Credit Co.
7.375%, due 10/28/09 504,520
500,000 Pemex Finance, Ltd., 144A (C)
9.690%, due 08/15/09 497,385
1,494,561
Industrials - 2.97%
250,000 Foster Wheeler Corp.
6.750%, due 11/15/05 213,362
715,000 Temple-Inland, Inc., MTN
6.750%, due 03/01/09 673,945
500,000 Tyco International Group SA, 144A (C)
6.875%, due 09/05/02 497,239
1,384,546
Retail - 2.85%
500,000 Autozone, Inc.
6.000%, due 11/01/03 473,049
500,000 Great Atlantic & Pacific Tea Co.
7.750%, due 04/15/07 469,581
575,000 Rite Aid Corp.
7.125%, due 01/15/07 385,250
1,327,880
Energy - 2.25%
500,000 Occidental Petroleum Co., Senior Note
10.125%, due 11/15/01 530,480
500,000 Tosco Corp.
8.250%, due 05/15/03 515,932
1,046,412
Capital Goods - 1.88%
500,000 Crown Cork & Seal Co., Inc.
7.125%, due 09/01/02 498,564
400,000 Owens-Illinois, Inc., Senior Note
7.150%, due 05/15/05 376,043
874,607
Business Services - 1.42%
680,000 Comdisco, Inc., Senior Note
6.000%, due 01/30/02 660,920
Basic Materials - 1.18%
550,000 Rohm & Haas Co., 144A (C)
6.950%, due 07/15/04 548,936
Communication - 1.01%
500,000 Teleglobe, Inc., Yankee
7.200%, due 07/20/09 470,641
Durable Goods - 0.54%
250,000 Borg-Warner Automotive, Senior Note
8.000%, due 10/01/19 249,522
Waste Management - 0.50%
250,000 Waste Management, Inc., Step Coupon (F)
7.700%, due 10/01/02 234,325
Asset-Backed Securities - 0.43%
200,000 Residential Funding Mortgage Securities II,
Series 1998-HI2, Step Coupon, Class A2, ABS (F)
6.290%, due 07/25/13 198,314
Health Services - 0.10%
50,000 Columbia/HCA Healthcare Corp.
6.125%, due 12/15/00 48,781
Total Corporate Notes and Bonds 8,539,445
( Cost $8,594,284 )
Value
Shares (Note 2)
INVESTMENT COMPANY - 4.94%
2,297,570 State Street Prime Money Market
4.830% $ 2,297,570
Total Investment Company 2,297,570
( Cost $2,297,570 )
Value
Par Value (Note 2)
CERTIFICATE OF DEPOSIT - 1.50%
$ 696,709 State Street Eurodollar
4.830%, due 11/01/99 696,709
Total Certificate of Deposit 696,709
( Cost $696,709 )
TOTAL INVESTMENTS - 99.31%. $ 46,237,623
(Cost $42,317,790**)
NET OTHER ASSETS AND LIABILITIES - 0.69% 322,495
TOTAL NET ASSETS - 100.00% $ 46,560,118
* Non-income producing security.
** Aggregate cost for Federal tax purposes was $42,533,160.
(C) Security sold within the terms of a private placement memorandum
exempt from registration under section 144A of the Securities Act of
1933, as amended, and may be sold only to dealers in that program or
other "qualified institutional investors." These securities have been
determined to be liquid under guidelines established by the Board of
Trustees.
(F) Represents a security whose interest rate increases at predetermined
dates. The rate disclosed is the rate currently in effect.
ADR American Depository Receipt
MTN Medium Term Note
ABS Asset Backed Security
See accompanying Notes to Financial Statements.
<PAGE>
HIGH INCOME FUND -- Portfolio of Investments
Value
Par Value (Note 2)
CORPORATE NOTES AND BONDS - 91.50%
Communications - 18.28%
$ 185,000 Allegiance Telecom, Inc., Step Coupon (B)
11.750%, due 02/15/08 $ 125,800
75,000 Allegiance Telecom, Inc.
Senior Note
12.875%, due 05/15/08 81,937
25,000 American Cellular Corp.
Senior Note
10.500%, due 05/15/08 26,938
130,000 Centennial Cellular Corp.
Senior Subordinate Note
10.750%, due 12/15/08 135,525
100,000 Charter Commercial Holdings LLC
Senior Note
8.250%, due 04/01/07 94,500
260,000 Charter Commercial Holdings LLC, Step Coupon
Senior Discount Note (B)
9.920%, due 04/01/11 154,700
50,000 Crown Castle International Corp.
Senior Note
9.000%, due 05/15/11 47,500
130,000 Dolphin Telecom PLC, Step Coupon, Yankee
Senior Discount Note (B)(D)
11.500%, due 06/01/08 55,900
25,000 Dolphin Telecom PLC, 144A, Step Coupon
Senior Discount Note (B)(C)(D)
14.000%, due 05/15/09 9,875
60,000 Esprit Telecom Group PLC, Yankee
Senior Note (D)
10.875%, due 06/15/08 58,800
90,000 Exodus Communications, Inc.
Senior Note
11.250%, due 07/01/08 92,025
100,000 Hermes Europe Railtel B.V., Yankee
Senior Note (D)
10.375%, due 01/15/09 94,500
160,000 ICG Holdings, Inc.
Step Coupon (B)
12.500%, due 05/01/06 120,800
90,000 Intermedia Communication, Series B
Senior Note
8.875%, due 11/01/07 81,000
25,000 ITC Deltacom, Inc.
Senior Note
11.000%, due 06/01/07 26,250
40,000 ITC Deltacom, Inc.
Senior Note
9.750%, due 11/15/08 40,500
10,000 Lenfest Communications
Senior Note
8.375%, due 11/01/05 10,250
35,000 Lenfest Communications
Senior Subordinate Note
10.500%, due 06/15/06 39,725
50,000 Lenfest Communications
Senior Subordinate Note
8.250%, due 02/15/08 50,250
80,000 MCI Worldcom, Inc.
Senior Note
13.500%, due 12/15/02 90,600
175,000 Metronet Communications, Yankee, Step Coupon
Senior Discount Note (B)(D)
9.950%, due 06/15/08 136,063
105,000 Millicom International Cellular, Yankee, Step Coupon
Senior Discount Note (B)(D)
13.500%, due 06/01/06 75,863
55,000 MJD Communications, Inc., Series B
Senior Subordinate Note
9.500%, due 05/01/08 49,500
100,000 Nextel Communications, Step Coupon
Senior Discount Note (B)
9.750%, due 10/31/07 72,000
215,000 Nextel Communications, Step Coupon
Senior Discount Note (B)
9.950%, due 02/15/08 152,650
45,000 Nextel International, Inc., Step Coupon
Senior Discount Note (B)
12.125%, due 04/15/08 22,950
25,000 Nextlink Communications
Senior Note
9.625%, due 10/01/07 24,000
190,000 Nextlink Communications
Senior Note
10.750%, due 06/01/09 193,800
30,000 Pagemart Wireless, Inc., Step Coupon
Senior Discount Note (B)
11.250%, due 02/01/08 9,000
140,000 PSINET, Inc., 144A
Senior Note (C)
11.000%, due 08/01/09 143,850
65,000 Rural Cellular Corp., Series B
Senior Subordinate Note
9.625%, due 05/15/08 66,625
31,984 Rural Cellular Corp., Series B, PIK
11.375%, due 05/15/10 31,984
30,000 Telesystem International Wireless, Yankee, Step Coupon
Senior Discount Note (B)(D)
13.250%, due 06/30/07 14,400
110,000 Telewest Communications PLC, Yankee
Debenture (D)
9.625%, due 10/01/06 111,650
115,000 Triton PCS, Inc., Step Coupon (B)
11.000%, due 05/01/08 78,775
220,000 United International Holdings, Series B, Step Coupon
Senior Discount Note (B)
10.750%, due 02/15/08 124,850
35,000 U.S. Unwired, Inc., 144A, Step Coupon
Senior Discount Note (B)(C)
13.375%, due 11/01/09 18,725
175,000 Versatel Telecom BV
Senior Note (D)
13.250%, due 05/15/08 175,875
15,000 Viatel, Inc., Senior Note
11.250%, due 04/15/08 14,100
160,000 Viatel, Inc., Step Coupon
Senior Discount Note (B)
12.500%, due 04/15/08 88,800
110,000 Western Wireless
Senior Subordinate Note
10.500%, due 02/01/07 115,500
3,158,335
Telecommunications - 17.38%
125,000 Adelphia Business Solutions
Senior Subordinate Note
12.000%, due 11/01/07 129,375
75,000 Adelphia Communications, Series B
Senior Note
8.375%, due 02/01/08 70,500
45,000 AT&T Canada, Inc., Step Coupon
Senior Discount Note (B)
10.750%, due 11/01/07 36,900
25,000 Avalon Cable Holdings LLC, Step Coupon
Senior Discount Note (B)
11.875%, due 12/01/08 15,875
75,000 Avalon Cable of Michigan
Senior Subordinate Note
9.375%, due 12/01/08 75,281
25,000 Bresnan Communications, Series B, Step Coupon
Senior Discount Note (B)
9.250%, due 02/01/09 16,969
65,000 Bresnan Communications, Series B
Senior Note
8.000%, due 02/01/09 64,756
110,000 Chancellor Media Corp., Series B
8.750%, due 06/15/07 109,450
90,000 Classic Cable, Inc., 144A
Senior Subordinate Note (C)
9.875%, due 08/01/08 90,000
125,000 Colt Telecom Group PLC, Yankee, Step Coupon
Senior Discount Note (B)(D)
12.000%, due 12/15/06 103,750
100,000 CSC Holdings, Inc.
Senior Subordinate Note
9.250%, due 11/01/05 101,250
85,000 Cumulus Media, Inc.
10.375%, due 07/01/08 87,656
175,000 Echostar DBS Corp.
Senior Note
9.375%, due 02/01/09 173,469
150,000 Energis PLC, 144A (C)
9.750%, due 06/15/09 153,000
165,000 Esat Telecom Group PLC, Series B, Yankee
Senior Note (D)
11.875%, due 12/01/08 169,125
100,000 Fox Sports Networks LLC
Senior Note
8.875%, due 08/15/07 101,500
75,000 Frontiervision LP/Capital
Senior Subordinate Note
11.000%, due 10/15/06 79,125
40,000 Frontiervision Holdings LP, Step Coupon
Senior Discount Note (B)
11.875%, due 09/15/07 34,600
60,000 Globenet Communication Group, Ltd. 144A
Senior Note (C)
13.000%, due 07/15/07 60,000
90,000 Granite Broadcasting Corp.
Senior Subordinate Note
10.375%, due 05/15/05 91,800
100,000 Insight Midwest/Insight Capital, Inc., 144A
Senior Note (C)
9.750%, due 10/01/09 102,750
125,000 Jazztel PLC, 144A
Senior Note (C)
14.000%, due 04/01/09 125,000
60,000 LIN Holdings Corp., Step Coupon
Senior Discount Note (B)
10.000%, due 03/01/08 39,000
40,000 Northeast Optic Network
Senior Note
12.750%, due 08/15/08 40,900
150,000 NTL Communications Corp., Series B, Step Coupon
Senior Note (B)
12.375%, due 10/01/08 99,750
80,000 NTL, Inc., Series B, Step Coupon
Senior Note (B)
9.750%, due 04/01/08 53,000
50,000 NTL, Inc., Series B, Step Coupon
Senior Note (B)
9.750%, due 04/15/09 46,168
65,000 Spectrasite Holdings, Inc.
Senior Discount Note
12.000%, due 07/15/08 36,563
175,000 Spectrasite Holdings, Inc., Step Coupon
Senior Discount Note (B)
11.250%, due 04/15/09 91,000
150,000 Telemundo Holdings, Inc., Series B, Step Coupon
Senior Discount Note (B)
11.500%, due 08/15/08 85,500
60,000 Telewest Communication PLC, 144A, Step Coupon
Senior Discount Note (B)(C)
9.250%, due 04/15/09 36,900
110,000 Time Warner Telecom LLC
Senior Note
9.750%, due 07/15/08 112,750
190,000 United Pan-Europ Communications N.V., 144A
Senior Note (C)(D)
10.875%, due 08/01/09 185,725
25,000 Verio, Inc.
Senior Note
10.375%, due 04/01/05 25,125
100,000 Worldwide Fiber, Inc., 144A
Senior Note (C)
12.000%, due 08/01/09 100,000
60,000 Young Broadcasting, Inc., Series B
8.750%, due 06/15/07 58,800
3,003,312
Finance - 5.76%
25,000 AMSC Acquisition Co., Inc., Series B
12.250%, due 04/01/08 14,000
82,406 Crown Castle International Corp., PIK
12.750%, due 12/15/10 83,230
65,000 DTI Holdings, Inc., Series B, Step Coupon
Senior Discount Note (B)
12.500%, due 03/01/08 22,750
150,000 Global Crossing Holding LTD
9.625%, due 05/15/08 152,250
150,000 Ono Finance PLC, Series A, 144A (C)(D)
13.000%, due 05/01/09 147,000
150 Ono Finance PLC, Series A, 144A,
Zero Coupon (B)(C)(D)
0.000%, due 05/31/09 7,500
200,000 P & L Coal Holdings Corp., Series B
9.625%, due 05/15/08 192,500
90,000 Silgan Holdings, Inc.
Senior Subordinate Note
9.000%, due 06/01/09 85,500
80,000 Thermadyne Manufacturing Corp.
9.875%, due 06/01/08 65,600
160,000 Thermadyne Holdings Corp., Step Coupon
Debenture (B)
12.500%, due 06/01/08 70,400
175,000 Willis Corroon Corp.
9.000%, due 02/01/09 154,875
995,605
Technology - 5.13%
110,000 Argo-Tech Corp.
8.625%, due 10/01/07 93,087
50,000 Argo-Tech Corp., Series D
8.625%, due 10/01/07 42,313
95,000 Be Aerospace, Inc., Series B
Senior Subordinate Note
8.000%, due 03/01/08 82,175
25,000 Be Aerospace, Inc.
Senior Subordinate Note
9.500%, due 11/01/08 23,625
75,000 Completel Europe N.V., 144A, Step Coupon
Senior Discount Note (B)(C)(D)
14.000%, due 02/15/09 37,687
175,000 K & F Industries, Series B
Senior Subordinate Note
9.250%, due 10/15/07 166,688
225,000 Level 3 Communications, Inc.
Senior Note
9.125%, due 05/01/08 209,813
115,000 Metromedia Fiber Network, Series B
Senior Note
10.000%, due 11/15/08 112,988
80,000 Unisys Corp., Series B
Senior Note
12.000%, due 04/15/03 85,400
35,000 Unisys Corp.
Senior Note
7.875%, due 04/01/08 33,250
887,026
Energy - 3.94%
110,000 Anacomp, Inc., Series B
Senior Subordinate Note
10.875%, due 04/01/04 107,800
130,000 Chesapeake Energy Corp., Series B
9.625%, due 05/01/05 122,850
75,000 Clark R&M, Inc.
Senior Note
8.625%, due 08/15/08 63,750
45,000 Continental Resources
10.250%, due 08/01/08 37,575
100,000 Forest Oil Corp.
10.500%, due 01/15/06 102,000
100,000 HS Resources, Inc.
9.250%, due 11/15/06 97,750
125,000 Ocean Energy, Inc., Series B
8.875%, due 07/15/07 124,062
10,000 Pool Energy Services Co., Series B
8.625%, due 04/01/08 9,900
15,000 Pride International, Inc.
Senior Note
10.000%, due 06/01/09 15,000
680,687
Retail - 3.74%
45,000 Cole National Group, Inc.
Senior Subordinate Note
8.625%, due 08/15/07 33,300
75,000 Duane Reade, Inc.
9.250%, due 02/15/08 73,125
15,000 J Crew Group, Series B, Step Coupon
Debenture (B)
13.125%, due 10/15/08 7,050
85,000 J Crew Operating Corp.
Senior Subordinate Note
10.375%, due 10/15/07 73,950
40,000 Jitney-Jungle Stores (E)
12.000%, due 03/01/06 11,200
10,000 Jitney-Jungle Stores (E)
10.375%, due 09/15/07 100
100,000 Musicland Group, Inc., Series B
9.875%, due 03/15/08 83,500
50,000 Pathmark Stores
Subordinate Note
11.625%, due 06/15/02 48,500
35,000 Pathmark Stores
Senior Subordinate Note
9.625%, due 05/01/03 33,950
100,000 Red Roof Inns, Senior Note
9.625%, due 12/15/03 102,250
75,000 Southland Corp.
Senior Subordinate Debenture
5.000%, due 12/15/03 63,562
125,000 Williams Scotsman, Inc.
9.875%, due 06/01/07 116,250
646,737
Metals and Mining - 3.72%
70,000 AK Steel Corp., Senior Note
9.125%, due 12/15/06 69,475
65,000 Algoma Steel, Inc., Yankee (D)
12.375%, due 07/15/05 55,900
100,000 Commonwealth Industries
Senior Subordinate Note
10.750%, due 10/01/06 99,500
60,000 Doe Run Resources Corp., Series B
11.250%, due 03/15/05 55,200
75,000 Fairfield Manufacturing Co., Inc.
Senior Subordinate Note
9.625%, due 10/15/08 72,094
60,000 Kaiser Aluminum & Chemical Co.
Senior Note
9.875%, due 02/15/02 60,000
50,000 Metal Management, Inc.
10.000%, due 05/15/08 32,500
50,000 Russel Metals, Inc., Yankee (D)
10.000%, due 06/01/09 50,938
150,000 WCI Steel, Inc., Series B
Senior Note
10.000%, due 12/01/04 146,625
642,232
Building and Construction - 3.64%
100,000 American Standard, Inc.
7.375%, due 02/01/08 89,250
25,000 American Standard, Inc.
7.625%, due 02/15/10 22,250
50,000 Building Materials Corp., Series B
Senior Note
7.750%, due 07/15/05 45,375
150,000 Building Materials Corp., Series B
Senior Note
8.625%, due 12/15/06 141,375
50,000 Building Materials Corp., Series B
Senior Note
8.000%, due 10/15/07 45,375
125,000 Formica Corp., Series B
Senior Subordinate Note
10.875%, due 03/01/09 112,500
65,000 MMI Products, Inc., Series B
Senior Subordinate Note
11.250%, due 04/15/07 65,975
110,000 Nortek, Inc., Series B
Senior Note
9.250%, due 03/15/07 106,425
628,525
Containers / Packaging - 3.60%
65,000 Ball Corp.
8.250%, due 08/01/08 62,725
105,000 Gaylord Container Corp.
Senior Note
9.750%, due 06/15/07 97,912
135,000 Gaylord Container Corp., Series B
Senior Subordinate Note
9.875%, due 02/15/08 116,775
50,000 Graham Packaging/GPC Capital, Series B
8.750%, due 01/15/08 46,000
220,000 Packaging Corp. of America
9.625%, due 04/01/09 220,000
80,000 Riverwood International
10.250%, due 04/01/06 79,200
622,612
Consumer Staples - 3.46%
90,000 Finlay Enterprises, Inc.
9.000%, due 05/01/08 79,200
50,000 International Utility Structures, Yankee
Senior Subordinate Note (D)
10.750%, due 02/01/08 44,500
115,000 Pierce Leahy Corp.
Senior Subordinate Note
11.125%, due 07/15/06 121,900
30,000 Remington Products Co. LLC, Series B
Senior Subordinate Note
11.000%, due 05/15/06 22,500
115,000 Revlon Consumer Products
Senior Note
8.125%, due 02/01/06 89,987
115,000 Samsonite Corp.
Senior Subordinate Note
10.750%, due 06/15/08 95,450
100,000 Simmons Co., Series B
Senior Subordinate Note
10.250%, due 03/15/09 98,250
50,000 Vlasic Foods International, Inc., Series B
Senior Subordinate Note
10.250%, due 07/01/09 47,000
598,787
Recreation - 3.26%
150,000 Boyd Gaming Corp.
Senior Subordinate Note
9.500%, due 07/15/07 145,312
160,000 Coast Hotels & Casino
9.500%, due 04/01/09 149,000
50,000 Hollywood Park, Inc., Series B
9.250%, due 02/15/07 48,375
75,000 Isle of Capri Casinos
8.750%, due 04/15/09 67,687
80,000 Lady Luck Gaming, Series QTR
11.875%, due 03/01/01 80,000
75,000 Station Casinos
Senior Subordinate Note
8.875%, due 12/01/08 72,375
562,749
Basic Materials - 3.05%
100,000 Applied Extrusion Technology, Series B
Senior Note
11.500%, due 04/01/02 102,500
90,000 Buckeye Technologies, Inc.
Senior Subordinate Note
9.250%, due 09/15/08 88,425
20,000 Keystone Consolidated Industries
Senior Note
9.625%, due 08/01/07 18,500
50,000 Fibermark, Inc.
Senior Note
9.375%, due 10/15/06 50,125
5,000 Galey & Lord, Inc.
9.125%, due 03/01/08 1,225
100,000 Polymer Group, Inc., Series B
9.000%, due 07/01/07 96,000
35,000 Repap New Brunswick, Yankee
Senior Note (D)
9.000%, due 06/01/04 33,250
50,000 Synthetic Industries, Inc., Series B
Senior Subordinate Note
9.250%, due 02/15/07 49,500
95,000 US Timberlands Klam/Fin
Senior Note
9.625%, due 11/15/07 87,400
526,925
Durable Goods - 2.44%
50,000 Dura Operating Corp., Series B
9.000%, due 05/01/09 46,125
110,000 Hayes Lemmerz International, Inc.
11.000%, due 07/15/06 113,850
50,000 International Knife & Saw, Inc.
Senior Subordinate Note
11.375%, due 11/15/06 37,500
85,000 Motors and Gears, Inc., Series D
Senior Note
10.750%, due 11/15/06 79,900
100,000 Oxford Automotive, Inc., Series D
10.125%, due 06/15/07 90,000
65,000 Simonds Industries
10.250%, due 07/01/08 50,700
5,000 Talon Automotive Group, Series B
Senior Subordinate Note
9.625%, due 05/01/08 4,050
422,125
Chemicals and Drugs - 2.43%
75,000 Huntsman ICI Chemicals, 144A
Senior Subordinate Note (C)
10.125%, due 07/01/09 74,625
55,000 Lyondell Chemical Co., Series A
9.625%, due 05/01/07 54,450
90,000 Lyondell Chemical Co., Series B
9.875%, due 05/01/07 89,550
75,000 NL Industries
Senior Note
11.750%, due 10/15/03 77,250
25,000 PCI Chemicals Canada, Inc., Yankee (D)
9.250%, due 10/15/07 19,000
90,000 Sterling Chemicals, Inc., Series A
Senior Subordinate Note
11.250%, due 04/01/07 55,800
50,000 Sterling Chemicals, Inc., 144A (C)
12.375%, due 07/15/06 50,000
420,675
Printing - 2.37%
110,000 Big Flower Press, Inc.
Senior Subordinate Note
8.875%, due 07/01/07 110,275
150,000 Hollinger International Publishing
9.250%, due 03/15/07 147,000
75,000 Mail-Well I Corp., Series B
8.750%, due 12/15/08 70,313
35,000 Quebecor World (USA), Inc.
Senior Subordinate Note
7.750%, due 02/15/09 33,206
50,000 World Color Press, Inc.
Senior Subordinate Note
8.375%, due 11/15/08 48,750
409,544
Industrial - 2.02%
100,000 Blount, Inc., 144A
Senior Subordinate Note (C)
13.000%, due 08/01/09 102,250
65,000 GCI, Inc., Senior Note
9.750%, due 08/01/07 62,075
50,000 General Binding Corp.
9.375%, due 06/01/08 40,000
100,000 Moog, Inc., Series B
Senior Subordinate Note
10.000%, due 05/01/06 101,694
55,000 Numatics, Inc., Series B
Senior Subordinate Note
9.625%, due 04/01/08 42,350
348,369
Media - 1.69%
50,000 Albritton Communications, Series B
Senior Subordinate Debenture
9.750%, due 11/30/07 50,000
50,000 AMC Entertainment, Inc.
Senior Subordinate Note
9.500%, due 03/15/09 44,000
50,000 AMFM, Inc.
8.000%, due 11/01/08 49,375
75,000 Cinemark USA, Inc., Series B
Senior Subordinate Note
9.625%, due 08/01/08 66,750
50,000 Regal Cinemas, Inc.
Senior Subordinate Note
9.500%, due 06/01/08 37,500
60,000 Satelites Mexicanos SA, Series B (D)
10.125%, due 11/01/04 43,875
291,500
Consumer Services - 1.54%
75,000 Eldorado Resorts LLC, 144A
Senior Subordinate Note (C)
10.500%, due 08/15/06 76,500
40,000 Iron Mountain, Inc.
10.125%, due 10/01/06 41,000
85,000 Iron Mountain, Inc.
8.750%, due 09/30/09 80,113
75,000 Prime Hospitality Corp., Series B
Senior Subordinate Note
9.750%, due 04/01/07 68,250
265,863
Capital Goods - 0.79%
65,000 Transportation Tech Industries, Series C
11.750%, due 08/15/05 66,137
20,000 Transportation Tech Industries
Senior Subordinate Note
11.750%, due 08/15/05 20,350
90,000 Newcor, Inc., Series B
Senior Subordinate Note
9.875%, due 03/01/08 49,500
135,987
Defense Electronics - 0.75%
125,000 L-3 Communications Corp., Series B
Senior Subordinate Note
10.375%, due 05/01/07 129,063
Waste Disposal - 0.61%
125,000 Allied Waste North America, 144A
Senior Subordinate Note (C)
10.000%, due 08/01/09 105,781
Schools - 0.59%
110,000 Kindercare Learning Centers, Series B
Senior Subordinate Note
9.500%, due 02/15/09 102,850
Transportation - 0.57%
110,000 Mark IV Industries, Inc.
Senior Subordinate Note
7.500%, due 09/01/07 98,406
Machinery - 0.49%
100,000 Columbus McKinnon Corp.
8.500%, due 04/01/08 84,000
Health Care Services - 0.25%
35,000 Alaris Medical, Inc., Step Coupon
Senior Discount Note (B)
11.125%, due 08/01/08 14,875
30,000 Prime Medical Services, Inc.
8.750%, due 04/01/08 28,200
43,075
Total Corporate Notes and Bonds 15,810,770
( Cost $16,904,821 )
COMMON STOCK - 0.14%
Technology - 0.00%
750 Completel Holdings LLC, 144A (C)* $ 0
Communication - 0.14%
719 Viatel, Inc.* 23,997
Total Common Stock 23,997
( Cost $0 )
WARRANTS AND RIGHTS - 0.13%
Communication - 0.13%
185 Allegiance Telecom, Inc. 42
25 American Mobile SAT 450
25 Convergent Communications, Inc., 144A (C) 225
375 Jazztel PLC, 144A (C) 15,000
50 Versatel Telecom BV 7,481
23,198
Finance - 0.00%#
325 DTI Holdings, Inc., 144A (C) 3
Total Warrants and Rights 23,201
( Cost $0 )
PREFERRED STOCK - 0.13%
Media - 0.13%
250 Primedia, Inc., Series H 21,875
Total Preferred Stock 21,875
( Cost $24,850 )
CERTIFICATE OF DEPOSIT - 6.23%
$ 1,076,025 State Street Eurodollar
4.500%, due 11/01/99 $ 1,076,025
Total Certificate of Deposit 1,076,025
( Cost $1,076,025 )
TOTAL INVESTMENTS - 98.13%. 16,955,868
( Cost $18,005,696** )
NET OTHER ASSETS AND LIABILITIES - 1.87% 322,441
TOTAL NET ASSETS 100.00% $ 17,278,309
* Non income producing.
** Aggregate cost for Federal tax purposes was $18,006,581.
# Amount represents less than 0.01%
PIK Payment-In-Kind
(B) Represents securities that remain zero coupon until predetermined
date, at which time the stated coupon rate becomes the effective rate.
(C) Security sold within the terms of a private placement memorandum
exempt from registration under section 144A of the Securities Act of
1933, as amended, and may be sold only to dealers in that program or
other "qualified institutional investors." These securities have been
determined to be liquid under guidelines established by the Board of
Directors.
(D) Notes and bonds, issued by foreign entities, denominated in U.S.
dollars. The aggregate of these securities are 9.44% of total net
assets.
(E) In default.
See accompanying Notes to Financial Statements.
<PAGE>
GROWTH AND INCOME FUND -- Portfolio of Investments
Value
Shares (Note 2)
COMMON STOCKS - 96.54%
Technology - 22.03%
34,300 Computer Associates International, Inc. $ 1,937,950
14,800 Computer Sciences Corp.* 1,016,575
30,600 EMC Corp.* 2,233,800
26,600 Harris Corp. 596,837
18,400 Hewlett-Packard Co. 1,362,750
20,200 International Business Machines Corp. 1,987,175
13,844 Koninklijke (Royal) Philips Electronics N.V. 1,438,911
19,100 Motorola, Inc. 1,861,056
34,900 Nortel Networks Corp. 2,161,619
29,600 Texas Instruments, Inc. 2,656,600
25,200 Xerox Corp. 705,600
17,958,873
Consumer Staples - 15.75%
30,700 ConAgra, Inc. 800,119
30,100 CVS Corp. 1,307,469
57,800 Disney (Walt) Co. 1,524,475
9,400 General Mills, Inc. 819,563
32,500 Kimberly-Clark Corp. 2,051,562
75,300 Kroger Co.* 1,567,181
23,500 MediaOne Group, Inc.* 1,669,969
27,100 Nabisco Holdings Corp., Class A 1,012,862
30,800 PepsiCo, Inc. 1,068,375
37,600 Sara Lee Corp. 1,017,550
12,839,125
Financial Services - 13.42%
56,000 Allstate Corp. 1,610,000
26,092 Bank of America Corp. 1,679,672
31,870 Bank One Corp. 1,197,117
34,500 Citigroup, Inc. 1,867,313
18,400 First Union Corp. 785,450
41,000 Household International, Inc. 1,829,625
9,000 Morgan Stanley Dean Witter & Co. 992,813
11,300 Wachovia Corp. 974,625
10,936,615
Healthcare - 10.42%
19,100 Aetna, Inc. 959,775
22,900 ALZA Corp.* 980,406
41,900 American Home Products Corp. 2,189,275
26,800 Bristol-Myers Squibb Co. 2,058,575
16,200 Glaxo Wellcome PLC, ADR 969,975
12,700 Johnson & Johnson 1,330,325
8,488,331
Communication Services - 7.65%
13,978 AT&T Corp. 653,471
19,300 GTE Corp. 1,447,500
33,042 SBC Communications, Inc. 1,683,077
33,000 Sprint Corp. (FON Group) 2,452,312
6,236,360
Energy - 7.01%
19,206 BP Amoco PLC, ADR 1,109,146
11,800 Exxon Corp. 873,938
19,800 Schlumberger, Ltd. 1,199,138
14,300 Texaco, Inc. 877,663
21,100 Unocal Corp. 727,950
31,900 USX-Marathon Group 929,088
5,716,923
Capital Goods - 5.72%
14,000 Emerson Electric Co. 840,875
10,000 Honeywell, Inc. 1,054,375
15,000 Rockwell International Corp. 726,563
22,000 United Technologies Corp. 1,331,000
38,662 Waste Management, Inc. 710,414
4,663,227
Basic Materials - 3.49%
8,700 Dow Chemical Co. 1,028,775
18,000 Georgia-Pacific Group 714,375
18,100 PPG Industries, Inc. 1,097,312
2,840,462
Consumer Cyclical - 3.43%
22,338 Dana Corp. 660,367
23,500 Sears, Roebuck & Co. 662,406
26,000 Wal-Mart Stores, Inc. 1,473,875
2,796,648
Utilities - 3.38%.
14,500 Duke Energy Corp. 819,250
28,500 PG & E Corp. 653,719
34,100 Williams Cos., Inc. 1,278,750
2,751,719
Miscellaneous - 2.34%
16,500 AlliedSignal, Inc. 939,469
10,200 Minnesota Mining and Manufacturing Co. 969,637
1,909,106
Transportation - 1.90%
16,200 Burlington Northern Santa Fe Corp. 516,375
11,900 Delta Air Lines, Inc. 647,806
15,600 Norfolk Southern Corp. 381,225
1,545,406
Total Common Stocks 78,682,795
( Cost $72,774,850 )
INVESTMENT COMPANY - 4.08%
3,325,870 State Street Prime Money Market
4.830% $ 3,325,870
Total Investment Company 3,325,870
(Cost $3,325,870)
TOTAL INVESTMENTS - 100.62% $ 82,008,665
( Cost $76,100,720** )
NET OTHER ASSETS AND LIABILITIES - (0.62)% (506,668)
TOTAL NET ASSETS - 100.00% $ 81,501,997
* Non-income producing security.
** Aggregate cost for Federal tax purposes was $76,413,632.
ADR American Depository Receipt
See accompanying Notes to Financial Statements.
<PAGE>
CAPITAL APPRECIATION FUND -- Portfolio of Investments
Value
Shares (Note 2)
COMMON STOCKS - 96.81%
Technology - 23.19%
18,000 3Com Corp.* $ 522,000
18,700 Autodesk, Inc. 350,625
29,000 Cadence Design Systems, Inc.* 440,437
6,700 Conexant Systems, Inc.* 625,612
12,300 Dallas Semiconductor Corp. 724,163
19,500 EMC Corp.* 1,423,500
1,406 Gartner Group, Inc., Class B* 13,181
20,600 Gateway, Inc.* 1,360,888
28,000 Keane, Inc.* 658,000
5,700 Micron Technology, Inc.* 406,481
33,700 PeopleSoft, Inc.* 505,500
20,800 Seagate Technology, Inc.* 612,300
10,000 Texas Instruments, Inc. 897,500
8,540,187
Financial Services - 14.40%
29,000 Ace, Ltd. 563,687
17,600 Associates First Capital Corp., Class A 642,400
23,850 Citigroup, Inc. 1,290,881
12,000 Countrywide Credit Industries, Inc. 407,250
17,300 First Security Corp. 443,313
8,500 MBIA, Inc. 485,031
9,600 SunTrust Banks, Inc. 702,600
16,000 Wells Fargo Co.* 766,000
5,301,162
Consumer Cyclical - 11.77%
19,300 Dayton Hudson Corp. 1,247,263
14,800 IMS Health, Inc. 429,200
10,600 Lowe's Cos., Inc. 583,000
40,400 PRIMEDIA, Inc.* 451,975
22,000 Sherwin-Williams Co. 492,250
9,600 Tiffany & Co. 571,200
20,600 TJX Cos., Inc. 558,775
4,333,663
Consumer Staples - 10.03%
18,100 Cox Communications, Inc., Class A* 822,419
13,900 MediaOne Group, Inc.* 987,769
12,700 Nabisco Holdings Corp., Class A 474,662
18,900 Safeway, Inc.* 667,406
12,800 Sara Lee Corp. 346,400
25,900 Tyson Foods, Inc., Class A 394,975
3,693,631
Communication Services - 8.40%
12,100 ADC Telecommunications, Inc.* 577,019
10,200 CenturyTel, Inc. 412,462
3,500 Sprint Corp. (PCS Group) 290,281
10,000 Telefonos de Mexico SA, Class L, ADR 855,000
20,000 Vodafone AirTouch, PLC, ADR 958,750
3,093,512
Capital Goods - 6.46%
8,700 Grainger (W.W.), Inc. 368,663
11,500 Illinois Tool Works, Inc. 842,375
30,000 Owens-Illinois, Inc.* 718,125
20,500 Pall Corp. 449,719
2,378,882
Energy - 6.26%
5,600 El Paso Energy Corp. 229,600
7,500 Kerr-McGee Corp. 403,125
14,800 Unocal Corp. 510,600
18,900 USX-Marathon Group 550,462
18,000 Weatherford International, Inc.* 609,750
2,303,537
Healthcare - 5.70%
10,300 Aetna, Inc. 517,575
20,800 Boston Scientific Corp.* 418,600
22,800 Elan Corp., PLC, ADR* 587,100
10,700 Pharmacia & Upjohn, Inc. 577,131
2,100,406
Basic Materials - 4.35%
3,300 Dexter Corp. 115,706
11,300 Praxair, Inc. 528,275
14,300 Rohm and Haas Co. 546,975
9,900 Willamette Industries, Inc. 411,469
1,602,425
Utilities - 2.73%
13,600 MidAmerican Energy Holdings Co.* 457,300
14,600 Williams Cos., Inc. 547,500
1,004,800
Transportation - 2.23%
12,900 FDX Corp.* 555,506
9,000 Midwest Express Holdings, Inc.* 263,813
819,319
Miscellaneous - 1.29%
29,000 Interim Services, Inc.* 476,688
Total Common Stocks 35,648,212
( Cost $30,364,823 )
INVESTMENT COMPANY - 3.24%
1,192,798 State Street Prime Money Market
4.830% $ 1,192,798
Total Investment Company 1,192,798
( Cost $1,192,798 )
TOTAL INVESTMENTS - 100.05% $ 36,841,010
( Cost $31,557,621** )
NET OTHER ASSETS AND LIABILITIES - (0.05)% (16,516)
TOTAL NET ASSETS - 100.00% $ 36,824,494
* Non-income producing security.
** Aggregate cost for Federal tax purposes was $32,143,993.
ADR American Depository Receipt
See accompanying Notes to Financial Statements.
<PAGE>
INTERNATIONAL STOCK FUND -- Portfolio of Investments
Value
Shares (Note 2)
COMMON STOCKS - 92.35%
Argentina - 0.45%
11,100 Quilmes Industrial, S.A., ADR $ 115,856
1,900 Telefonica de Argentina, S.A., ADR 48,687
164,543
Australia - 4.07%
36,590 Australia & New Zealand Banking Group, Ltd. 241,516
280,110 Boral, Ltd. 421,624
62,851 Broken Hill Proprietary Co., Ltd. 649,680
16,100 Cochlear, Ltd. 175,593
1,488,413
Austria - 2.10%
405 Best Water Tech AG 73,180
748,980 Goodman Fielder, Ltd. 692,664
765,844
Belgium - 1.69%
25,730 Agfa Gevaert N.V.* 515,252
2,020 Compagnie Maritime Belge, S.A. 104,102
619,354
Brazil - 1.72%
5,200 Companhia Brasileira de Distribuicao
Grupo Pao de Acucar, GDR 113,750
9,100 Companhia Cervejaria Brahma, ADR 113,750
3,358 Companhia Energetica de Minas Gerais,
S.A., ADR 47,995
10,000 Companhia Paranaense de Energia-Copel,
ADR* 66,250
3,300 Embratel Participacoes, S.A. 42,487
13,300 Souza Cruz, S.A.* 75,971
3,800 Tele Norte Leste Participacoes, S.A., ADR 64,125
3,900 Telesp Participacoes, S.A., ADR* 63,131
2,100 Tele Sudeste Celular Participacoes, S.A.,
ADR* 42,000
629,459
Chile - 0.58%
6,400 Administradora de Fondos de Pensiones
Provida, ADR 110,400
7,500 Quinenco, S.A., ADR 69,844
3,900 Santa Isabel, S.A., ADR* 31,200
211,444
China - 0.22%
1,343 China Steel Corp., GDR 22,865
156,000 Jiangsu Expressway Co., Ltd., Class H 23,896
220,000 Shenzhen Expressway Co., Ltd., Class H 32,850
79,611
Denmark - 0.38%
4,100 Carli Gry International A/S 74,841
700 Falck A/S 64,384
139,225
Finland - 4.57%
7,700 Amer Group, Ltd. 146,582
101,150 Fortum Corp., IVO - Neste Group* 489,369
17,020 Orion-Yhtyma Oyj, Class B 404,558
2,400 Sampo Insurance Co., Class A* 83,299
15,860 UPM-Kymmene Oyj 500,423
600 Vaisala Oyj 44,174
1,668,405
France - 9.70%
1,600 Carbone-Lorraine, S.A. 68,843
21,897 CNP Assurances 644,845
2,750 Credit Lyonnais, S.A.* 83,154
4,567 Dexia France 643,648
4,569 Eridania Beghin-Say, S.A. 518,988
2,552 Groupe Danone 650,886
470 Havas Advertising, S.A. 131,737
3,800 Neopost, S.A.* 131,490
900 Scor, ADR 44,325
3,873 Suez Lyonnaise des Eaux, S.A. 625,271
3,543,187
Germany - 4.59%
8,130 BASF AG 365,544
11,387 Bayer AG 465,877
6,152 Deutsche Bank AG 441,279
600 Hawesko Holding AG 18,932
1,900 Marseille-Kliniken AG 24,679
6,645 Veba AG 359,228
1,675,539
Greece - 0.24%
3,811 Hellenic Telecommunications Organization,
S.A. 80,734
500 Hellenic Telecommunications Organization,
S.A., ADR 5,313
86,047
Hong Kong - 3.12%
6,000 77 Bank, Ltd. 71,238
358,000 Axa China Region, Ltd. 308,752
132,000 CDL Hotels International, Ltd. 44,602
1,500 China Telecom (Hong Kong), Ltd., ADR* 101,250
345,081 Dairy Farm International Holdings, Ltd. 270,888
154,000 Esprit Holdings, Ltd.* 145,700
5,300 Guangshen Railway Co., Ltd., ADR 30,475
2,000 Hachijuni Bank, Ltd. 14,597
30,000 Shaw Brothers (Hong Kong), Ltd. 27,032
49,000 Yue Yuen Industrial Holdings 124,255
1,138,789
Hungary - 0.40%
2,500 Magyar Tavkozlesi Rt., ADR, Class B 72,031
3,700 MOL Magyar Olaj-es Gazipari Rt. 74,545
146,576
India - 1.47%
4,609 Bharat Heavy Electricals, Ltd. 28,455
4,400 Hindalco Industries, Ltd., GDR 92,950
3,250 Hindalco Industries, Ltd. 54,129
4,300 Larsen & Toubro, Ltd., GDR, 144A (C) 78,904
11,200 Mahanagar Telephone Nigam, Ltd., GDR,
144A* (C) 92,400
27,500 PT Hanjaya Mandala Sampoerna Tbk* 63,786
9,400 State Bank of India, GDR, 144A (C) 125,114
535,738
Indonesia - 0.18%
150,000 PT Indah Kiat Pulp & Paper Corp. Tbk* 64,551
Ireland - 0.50%
19,100 Anglo Irish Bank Corp. PLC 44,797
130,900 Waterford Wedgwood PLC 139,052
183,849
Israel - 0.88%
25,500 Bank Hapoalim, Ltd. 60,641
3,700 ECI Telecom, Ltd.* 107,763
4,100 Partner Communications Co., Ltd, ADR* 64,575
6,200 Supersol, Ltd., ADR* 87,575
320,554
Italy - 3.24%
3,000 Bipop SpA* 126,999
43,000 ENI SpA*. 251,452
5,300 Industrie Natuzzi SpA, ADR 96,725
14,700 Interpump Group SpA 71,738
14,100 Manuli Rubber Industries SpA 33,812
123,011 Telecom Italia SpA 604,190
1,184,916
Japan - 16.34%
1,200 ADERANS Co., Ltd. 60,075
34,000 Eisai Co., Ltd. 934,209
2,990 H.I.S. Co., Ltd. 119,004
48,000 Hitachi, Ltd. 518,807
6,000 Hitachi Medical Corp. 73,770
700 Hokuto Corp. 41,287
3,400 IMPACT 21 Co., Ltd. 71,574
201,000 Japan Airlines Co., Ltd. 674,691
1,000 Kawasumi Laboratories, Inc. 15,153
4,000 Maruichi Steel Tube, Ltd. 55,126
1,500 Meitec Corp. 56,248
93,000 Minolta Co., Ltd. 380,848
162,000 Mitsubishi Heavy Industries, Ltd. 635,446
113,000 Nippon Mitsubishi Oil Corp. 498,513
187,000 Nippon Yusen Kabushiki Kaisha 807,039
191,360 Sekisui Chemical Co., Ltd. 941,476
2,900 Torii Pharmaceutical Co., Ltd. 88,722
5,971,988
Korea - 2.50%
7,200 Hanvit Bank, GDR* 54,000
6,200 Kookmin Bank 96,657
4,300 Korea Electric Power Corp. 125,827
1,800 Korea Telecom Corp., ADR* 63,450
600 Pohang Iron & Steel Co., Ltd. 72,030
900 Pohang Iron & Steel Co., Ltd., ADR 30,038
3,162 Samsung Electronics, GDR, 144A (C) 268,770
15,639 SK Telecom Co., Ltd., ADR* 204,284
915,056
Malaysia - 0.15%
31,000 Jaya Tiasa Holdings Berhad 56,697
Mexico - 2.75%
17,000 Carso Global Telecom* 113,192
5,776 Cemex S.A. de C.V., ADR* 129,960
3,020 Fomento Economico Mexicano,
S.A. de C.V., ADR 99,094
56,000 Grupo Financiero Banamex Accival,
S.A. de C.V., Class O* 140,117
33,000 Grupo Financiero Banorte, S.A. de
C.V., Class O* 41,199
10,600 Grupo Industrial Maseca, S.A., de C.V., ADR 72,875
3,300 Grupo Televisa, S.A., GDR* 140,250
12,800 Kimberly-Clark de Mexico, S.A. de C.V.,
Class A 41,015
5,900 Nuevo Grupo Iusacell, S.A. de C.V.,
Series L* 61,950
3,200 Panamerican Beverages, Inc., Class A 51,400
8,500 Pepsi-Gemex, S.A., GDR* 39,312
6,700 Tubos de Acero de Mexico, S.A., ADR 73,281
1,003,645
Netherlands - 2.28%
2,000 Avalix Groep N.V.* 10,517
2,800 Beter Bed Holding N.V. 80,101
2,600 Fugro N.V. 87,506
2,000 Hunter Douglas N.V. 54,165
18,975 Koninklijke Luchtvaart Maatschappij N.V. 516,885
3,000 N.V. Holdingmaatschappij De Telegraaf 55,217
1,100 PinkRoccade N.V.* 27,766
832,157
New Zealand - 1.37%
394,167 Carter Holt Harvey, Ltd. 499,508
Norway - 0.56%
6,300 Ekornes ASA 46,545
7,800 Merkantildata ASA 66,072
19,000 P4 Radio Hele Norge ASA 91,364
203,981
Peru - 0.24%
3,000 Credicorp, Ltd. 31,875
4,700 Telefonica del Peru S.A.A., ADR 54,344
86,219
Philippines - 0.62%
596,000 Benpres Holdings Corp.* 104,040
16,600 Manila Electric Co., Class B 45,536
3,800 Philippine Long Distance Telephone Co.,
ADR 78,138
227,714
Poland - 0.26%
6,600 Bank Handlowy W. Warszawie, GDR,
144A (C) 93,390
Portugal - 4.33%
33,132 Banco Pinto & Sotto Mayor, S.A. 689,963
4 Banco Totta & Acores, S.A., Registered 91
1,278 Brisa-Auto Estradas de Portugal, S.A.,
Registered 48,819
18,060 Brisa-Auto Estradas de Portugal,
S.A., Private Placement 711,348
2,900 Companhia de Seguros Mundial Confianca,
S.A.* 130,848
1,581,069
Singapore - 1.26%
280,000 Neptune Orient Lines, Ltd. 405,846
41,000 Want Want Holdings, Ltd. 54,940
460,786
South Africa - 1.96%
17,600 ABSA Group, Ltd. 71,775
7,971 Barlow, Ltd. 38,866
3,100 Impala Platinum Holdings, Ltd 107,396
9,834 JD Group, Ltd. 63,078
3,800 Liberty Life Association of Africa, Ltd. 35,263
12,300 Naspers, Ltd., Class N 76,593
12,200 Rembrandt Group, Ltd. 91,264
57,100 Sanlam, Ltd.* 65,536
4,000 Sasol, Ltd. 27,350
3,100 South African Breweries PLC 27,432
11,200 South African Breweries PLC* 98,097
4,457 Standard Bank Investment Corp. Ltd.* 15,236
717,886
Spain - 2.19%
1,400 Banco Pastor, S.A. 60,267
19,316 Endesa, S.A.* 386,615
24,278 Iberdrola, S.A. 353,907
800,789
Sweden - 0.83%
5,400 Celsius AB, Class B 84,693
3,100 Elanders AB, Class B 55,593
3,600 Getinge Industrier AB, Class B 39,392
6,200 Industrial & Financial Systems, IFS AB,
Class B* 72,742
3,700 Nobel Biocare AB 51,283
303,703
Switzerland - 1.05%
65 Bank Sarasin & Cie, Registered, Class B 120,710
340 Edipresse, S.A. 139,891
980 Gretag Imaging Group, Registered* 124,116
384,717
Thailand - 0.05%
43,000 Bangkok Expressway Public Co., Ltd.,
Foreign Registered* 20,049
United Kingdom - 13.32%
28,200 AMEC PLC. 99,170
38,100 Ashtead Group PLC 108,628
14,540 Britannic PLC 259,245
78,200 Corporate Services Group PLC 134,931
1,947 Euromoney Institutional Investor PLC 52,392
3,700 Games Workshop Group PLC 28,273
57,674 Greenalls Group PLC 291,434
20,600 Hogg Robinson PLC 94,278
48,430 Hyder PLC 434,534
24,100 Man (E D & F) Group PLC 140,196
12,500 Northgate PLC 106,609
31,400 Old Mutual PLC* 66,370
155,205 Rank Group PLC 483,316
175,322 Rolls-Royce PLC* 623,030
66,020 Royal & Sun Alliance Insurance Group PLC 449,694
145,180 Safeway PLC 456,869
5,700 Signet Group PLC, ADR 144,637
13,088 SSL International PLC 139,261
142,682 Tomkins PLC 480,076
66,795 United Biscuits (Holdings) PLC 234,895
15,900 Victrex PLC 40,107
4,867,945
Venezuela - 0.19%
1,600 Compania Anonima Nacional Telefonos
de Venezuela, ADR 41,300
9,200 Mavesa, S.A., ADR 29,325
70,625
Total Common Stocks 33,743,968
(Cost $32,587,913)
PREFERRED STOCKS - 2.05%
Brazil - 0.28%
1,800,000 Banco Itau, S.A. 103,279
Columbia - 0.11%
5,900 Banco Ganadero, S.A., ADR 38,567
Germany - 1.66%
1,700 Fielmann AG 64,367
13,235 ProSieben Media AG 542,877
607,244
Total Preferred Stocks 749,090
(Cost $833,091)
WARRANTS AND RIGHTS - 0.00%#
Korea - 0.00%#
370 Kookmin Bank 2,252
Singapore - 0.00%#
41,000 Want Want Holdings, Ltd. 0
Total Warrants and Rights 2,252
(Cost $0)
CERTIFICATE OF DEPOSIT - 6.10%
$ 2,227,081 State Street Eurodollar
4.500%, due 11/01/99 $ 2,227,081
Total Certificate of Deposit 2,227,081
(Cost $2,227,081)
TOTAL INVESTMENTS - 100.50% $ 36,722,391
(Cost $35,648,085**)
NET OTHER ASSETS AND LIABILITIES - (0.50)% (182,299)
TOTAL NET ASSETS - 100.00% $ 36,540,092
* Non-income producing security.
** Aggregate cost for Federal tax purposes was $35,838,633.
# Amount represents less than 0.01%.
(C) Security sold within the terms of a private placement memorandum
exempt from registration under section 144A of the Securities Act of
1933, as amended, and may be sold only to dealers in that program or
other "qualified institutional investors." These securities have been
determined to be liquid under guidelines established by the Board of
Trustees.
ADR American Depository Receipt
GDR Global Depository Receipt
OTHER INFORMATION (UNAUDITED):
Industry Concentration as a Percentage of Net Assets: % of Net Assets
Finance 15.74%
Transportation 10.43%
Chemicals & Drugs 8.87%
Industrial 7.69%
Energy 7.46%
Communication 7.36%
Consumer Staples 6.26%
Technology 6.19%
Certificate of Deposit 6.10%
Retail 4.42%
Business Services 3.20%
Metals & Mining 3.17%
Basic Materials 3.12%
Consumer Cyclical 3.02%
Building & Construction 2.22%
Agriculture 1.73%
Health 1.42%
Media 1.36%
Consumer Services 0.74%
Net Other Assets and Liabilities -0.50%
100.00%
See accompanying Notes to Financial Statements.
<PAGE>
This page intentionally left blank.
<PAGE>
<TABLE>
<CAPTION>
Statements of Assets and Liabilities
Cash Reserves Bond
Fund Fund
<S> <C> <C>
ASSETS:
Investments (Note 2):
Investments at cost $ 7,917,967 $ 15,687,643
Net unrealized appreciation (depreciation) -- (27,307)
----------- ------------
Total investments at value 7,917,967 15,660,336
Cash 29,929 32,258
Foreign currency (Cost $2)(Note 2) -- --
Receivables:
Investments sold -- 406,087
Fund shares sold 39,793 30,125
Dividends and interest 1,371 244,451
Due from Adviser, net 31,826 16,000
Deferred organization and offering costs 26,567 26,567
Prepaid insurance 381 551
Other assets 237 1,635
----------- ------------
Total Assets 8,048,071 16,418,010
----------- ------------
LIABILITIES:
Payable to custodian -- --
Payables:
Investments purchased -- 819,332
Due to Adviser, net -- --
Fund shares repurchased 768 39,296
Administration and transfer agent fees 7,730 8,455
Trustees' fees 143 286
Distribution fees - Class B 2,055 4,603
Shareholder servicing fees -- 3,203
Accrued expenses and other payables 55,424 43,910
----------- ------------
Total Liabilities 66,120 919,085
----------- ------------
NET ASSETS $ 7,981,951 $ 15,498,925
=========== ============
NET ASSETS consist of:
Paid-in capital $ 7,952,187 $ 15,863,363
Accumulated undistributed net investment income 29,722 12,355
Accumulated net realized gain (loss) on investments sold
and foreign currency related transactions 42 (349,486)
Net unrealized appreciation (depreciation) of investments
(including depreciation of foreign currency related
transactions of $2,133 in the International Stock Fund) -- (27,307)
----------- ------------
TOTAL NET ASSETS $ 7,981,951 $ 15,498,925
=========== ============
Class A Shares:
Net Assets $ 4,481,207 $ 7,990,871
Shares of beneficial interest outstanding 4,481,245 820,259
NET ASSET VALUE and redemption price per share $ 1.00 $ 9.74
Sales charge of offering price* 0.06 0.44
----------- ------------
Maximum offering price per share $ 1.06 $ 10.18
=========== ============
Class B Shares:
Net Assets $ 3,500,744 $ 7,508,054
Shares of beneficial interest outstanding 3,500,744 770,447
NET ASSET VALUE and offering price per share** $ 1.00 $ 9.75
=========== ============
</TABLE>
* Sales charge of offering price is 5.3% for the Cash Reserves Fund,
4.3% for the Bond Fund, 5.3% for the Balanced Fund, 4.3% for the High
Income Fund and 5.3% for the Growth and Income Fund, Capital
Appreciation Fund and International Stock Fund.
** Redemption price per share is equal to the Net Asset Value per share
less any applicable deferred sales charge.
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Balanced High Income Growth and Income Capital Appreciation International Stock
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
$ 42,317,790 $ 18,005,696 $ 76,100,720 $ 31,557,621 $ 35,648,085
3,919,833 (1,049,828) 5,907,945 5,283,389 1,074,306
------------ ------------ ------------ ------------ ------------
46,237,623 16,955,868 82,008,665 36,841,010 36,722,391
62,339 -- 115,242 75,312 15,319
-- -- -- -- 2
1,116,739 1,450 -- -- 423,952
198,808 53,588 395,383 143,202 47,269
295,278 410,456 47,040 24,378 118,667
-- 20,938 -- -- --
26,567 26,567 26,567 26,567 26,567
2,391 762 2,035 1,616 2,225
-- 7,967 25,387 18,233 2,005
------------ ------------ ------------ ------------ ------------
47,939,745 17,477,596 82,620,319 37,130,318 37,358,397
------------ ------------ ------------ ------------ ------------
-- 8,385 -- -- --
1,243,468 101,624 944,537 218,270 702,365
41,410 -- 63,400 19,491 37,633
45,410 14,590 41,293 7,984 180
10,914 9,458 13,915 10,341 10,578
841 326 1,428 652 701
18,801 5,937 33,080 14,049 2,045
9,548 3,641 16,185 7,351 7,772
9,235 55,326 4,484 27,686 57,031
------------ ------------ ------------ ------------ ------------
1,379,627 199,287 1,118,322 305,824 818,305
------------ ------------ ------------ ------------ ------------
$ 46,560,118 $ 17,278,309 $ 81,501,997 $ 36,824,494 $ 36,540,092
============ ============ ============ ============ ============
$ 42,509,207 $ 18,684,149 $ 75,778,037 $ 32,086,676 $ 32,566,323
1,966 39,187 1 35 267,089
129,112 (395,199) (183,986) (545,606) 2,634,507
3,919,833 (1,049,828) 5,907,945 5,283,389 1,072,173
------------ ------------ ------------ ------------ ------------
$ 46,560,118 $ 17,278,309 $ 81,501,997 $ 36,824,494 $ 36,540,092
============ ============ ============ ============ ============
$ 15,297,134 $ 7,879,164 $ 25,645,501 $ 13,261,505 $ 33,214,095
1,269,936 887,219 1,941,134 967,933 2,900,940
$ 12.05 $ 8.88 $ 13.21 $ 13.70 $ 11.45
0.67 0.40 0.74 0.77 0.64
------------ ------------ ------------ ------------ ------------
$ 12.72 $ 9.28 $ 13.95 $ 14.47 $ 12.09
============ ============ ============ ============ ============
$ 31,262,984 $ 9,399,145 $ 55,856,496 $ 23,562,989 $ 3,325,997
2,593,958 1,055,517 4,236,737 1,739,637 292,287
$ 12.05 $ 8.90 $ 13.18 $ 13.54 $ 11.38
============ ============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Cash Reserves Bond
Fund Fund
INVESTMENT INCOME:
<S> <C> <C>
Dividends $ -- $ --
Interest 310,554 721,978
Less: Foreign taxes withheld -- --
----------- ------------
Total investment income 310,554 721,978
----------- ------------
EXPENSES:
Management fees (Note 3) 24,668 58,724
Administration and transfer agent fees (Note 3) 89,911 94,948
Registration expenses 10,945 13,205
Custodian fees 12,224 9,594
Professional fees 9,630 10,661
Reports to shareholder expense 982 2,200
Trustees' fees (Note 3) 753 1,481
Distribution fees - Class B (Note 3) 13,919 38,119
Shareholder servicing fees - Class A (Note 3) -- 16,655
Shareholder servicing fees - Class B (Note 3) -- 12,706
Amortization of organization and offering costs (Note 2) 12,493 12,493
Other expenses 325 4,442
----------- ------------
Total expenses before reimbursement 175,850 275,228
Less reimbursement (Note 3) (128,007) (131,403)
----------- ------------
Total expenses net of reimbursement 47,843 143,825
----------- ------------
Net Investment Income (Loss) 262,711 578,153
----------- ------------
Net Realized and Unrealized Gain (Loss) on Investments (Note 2):
Net realized gain (loss) on investments (including a net
realized loss on foreign currency transactions of $15,076 in
the International Stock Fund) 42 (341,357)
Net change in unrealized appreciation (depreciation) on
investments (including a net unrealized depreciation on
foreign currency related transactions of $33,634 in the
International Stock Fund) -- (89,553)
----------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 42 (430,910)
----------- ------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 262,753 $ 147,243
=========== ============
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Balanced High Income Growth and Income Capital Appreciation International Stock
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
$ 239,701 $ 2,248 $ 678,893 $ 202,879 $ 993,102
1,017,001 1,389,325 117,043 54,341 66,910
-- -- -- -- (92,387)
------------ ------------ ------------ ------------ ------------
1,256,702 1,391,573 795,936 257,220 967,625
------------ ------------ ------------ ------------ ------------
235,956 78,156 273,436 189,945 350,091
117,206 97,634 128,260 106,012 114,161
22,124 12,550 35,687 20,851 16,072
17,031 14,402 13,126 13,762 97,394
17,426 11,291 17,668 13,648 16,112
8,037 2,496 9,676 4,380 5,572
4,086 1,647 5,558 3,109 3,830
135,123 51,591 242,696 112,363 17,191
45,712 18,328 43,391 25,861 77,626
45,041 17,196 80,898 37,454 5,730
12,493 12,493 12,493 12,493 12,493
7,209 13,764 1,660 5,761 28,495
------------ ------------ ------------ ------------ ------------
667,444 331,548 864,549 545,639 744,767
(133,221) (138,215) (124,700) (129,364) (193,962)
------------ ------------ ------------ ------------ ------------
534,223 193,333 739,849 416,275 550,805
------------ ------------ ------------ ------------ ------------
722,479 1,198,240 56,087 (159,055) 416,820
------------ ------------ ------------ ------------ ------------
129,310 (327,673) (118,122) (390,468) 2,602,484
3,512,277 38,689 5,867,753 4,901,372 1,996,743
------------ ------------ ------------ ------------ ------------
3,641,587 (288,984) 5,749,631 4,510,904 4,599,227
------------ ------------ ------------ ------------ ------------
$ 4,364,066 $ 909,256 $ 5,805,718 $ 4,351,849 $ 5,016,047
============ ============ ============ ============ ============
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets For the Year Ended October 31, 1999
Cash Reserves Bond
Fund Fund
<S> <C> <C>
NET ASSETS at beginning period $ 5,233,081 $ 7,022,297
----------- ------------
Increase in net assets from operations:
Net investment income (loss) 262,711 578,153
Net realized gain (loss) 42 (341,357)
Net change in unrealized appreciation (depreciation) -- (89,553)
----------- ------------
Net increase in net assets from operations 262,753 147,243
----------- ------------
Distributions to shareholders from:
Net investment income
Class A (193,602) (345,079)
Class B (69,068) (233,074)
Net realized gains
Class A -- (28,262)
Class B -- (9,835)
----------- ------------
Total distributions (262,670) (616,250)
----------- ------------
Capital Stock Transactions:
Class A Shares
Shares sold 1,463,270 3,599,208
Issued to shareholders in reinvestment of distributions 192,249 372,980
Shares redeemed (1,513,071) (514,328)
----------- ------------
Net increase (decrease) from capital stock transactions 142,448 3,457,860
----------- ------------
Class B Shares
Shares sold 4,494,991 6,343,163
Issued to shareholders in reinvestment of distributions 68,769 228,798
Shares redeemed (1,957,421) (1,084,186)
----------- ------------
Net increase from capital stock transactions 2,606,339 5,487,775
----------- ------------
Total increase in net assets 2,748,870 8,476,628
----------- ------------
NET ASSETS at end of period (including line A) $ 7,981,951 $ 15,498,925
=========== ============
(A) Undistributed net investment income $ 29,722 $ 12,355
=========== ============
OTHER INFORMATION:
Capital Share Transactions:
Class A Shares
Shares sold 1,467,709 361,356
Issued to shareholders in reinvestment of distributions 193,165 37,674
Shares redeemed (1,517,727) (51,766)
----------- ------------
Net increase (decrease) in shares outstanding 143,147 347,264
----------- ------------
Class B Shares
Shares sold 4,542,489 637,845
Issued to shareholders in reinvestment of distributions 68,511 23,198
Shares redeemed (2,004,599) (109,947)
----------- ------------
Net increase in shares outstanding 2,606,401 551,096
----------- ------------
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Balanced High Income Growth and Income Capital Appreciation International Stock
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
$ 23,109,847 $ 9,677,254 $ 25,577,029 $ 20,435,388 $ 29,005,768
------------ ------------ ------------ ------------ ------------
722,479 1,198,240 56,087 (159,055) 416,820
129,310 (327,673) (118,122) (390,468) 2,602,484
3,512,277 38,689 5,867,753 4,901,372 1,996,743
------------ ------------ ------------ ------------ ------------
4,364,066 909,256 5,805,718 4,351,849 5,016,047
------------ ------------ ------------ ------------ ------------
(431,006) (639,267) (104,915) -- (402,357)
(291,473) (558,973) -- -- (10,711)
(11,733) (18,678) (10,773) (10,034) (1,172,577)
(20,814) (6,615) (29,659) -- (66,391)
------------ ------------ ------------ ------------ ------------
(755,026) (1,223,533) (145,347) (10,034) (1,652,036)
------------ ------------ ------------ ------------ ------------
22,621,347 2,118,956 17,647,334 8,326,212 1,024,723
439,832 645,554 114,550 10,009 1,575,095
(25,576,825) (871,164) (5,460,361) (10,439,625) (192,494)
------------ ------------ ------------ ------------ ------------
(2,515,646) 1,893,346 12,301,523 (2,103,404) 2,407,324
------------ ------------ ------------ ------------ ------------
23,989,683 7,053,287 40,923,793 15,597,190 1,965,892
304,240 462,448 29,580 -- 76,883
(1,937,046) (1,493,749) (2,990,299) (1,446,495) (279,786)
------------ ------------ ------------ ------------ ------------
22,356,877 6,021,986 37,963,074 14,150,695 1,762,989
------------ ------------ ------------ ------------ ------------
23,450,271 7,601,055 55,924,968 16,389,106 7,534,324
------------ ------------ ------------ ------------ ------------
$ 46,560,118 $ 17,278,309 $ 81,501,997 $ 36,824,494 $ 36,540,092
============ ============ ============ ============ ============
$ 1,966 $ 39,187 $ 1 $ 35 $ 267,089
============ ============ ============ ============ ============
2,004,630 227,759 1,367,430 645,448 93,829
38,008 69,992 9,102 815 151,888
(2,240,465) (93,192) (461,584) (893,051) (18,840)
------------ ------------ ------------ ------------ ------------
(197,827) 204,559 914,948 (246,788) 226,877
------------ ------------ ------------ ------------ ------------
2,031,097 753,638 3,142,758 1,219,845 180,336
25,453 50,649 2,458 -- 7,421
(159,197) (159,042) (233,327) (120,110) (26,738)
------------ ------------ ------------ ------------ ------------
1,897,353 645,245 2,911,889 1,099,735 161,019
------------ ------------ ------------ ------------ ------------
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets For the Period Ended October 31, 1998
Cash Reserves Bond
Fund (1) Fund (1)
<S> <C> <C>
NET ASSETS at beginning period(1) $ 50,000 $ 50,000
----------- ------------
Increase in net assets from operations:
Net investment income (loss) 167,773 194,052
Net realized gain (loss) 420 10,498
Net change in unrealized appreciation (depreciation) -- 62,246
----------- ------------
Net increase (decrease) in net assets from operations 168,193 266,796
----------- ------------
Distributions to shareholders from:
Net investment income
Class A (157,807) (163,646)
Class B (9,966) (30,406)
Distribution in excess of net investment income
Class A -- --
Class B -- --
----------- ------------
Total distributions (167,773) (194,052)
----------- ------------
Capital Stock Transactions:
Class A Shares
Shares sold 5,496,824 4,702,204
Issued to shareholders in reinvestment of distributions 157,329 163,461
Shares redeemed (1,364,778) (174,114)
----------- ------------
Net increase from capital stock transactions 4,289,375 4,691,551
----------- ------------
Class B Shares
Shares sold 1,315,996 2,223,002
Issued to shareholders in reinvestment of distributions 9,489 28,634
Shares redeemed (432,199) (43,634)
----------- ------------
Net increase from capital stock transactions 893,286 2,208,002
----------- ------------
Total increase in net assets 5,183,081 6,972,297
----------- ------------
NET ASSETS at end of period (including line A) $ 5,233,081 $ 7,022,297
=========== ============
(A) Undistributed net investment income $ 23,338 $ 23,446
=========== ============
OTHER INFORMATION:
Capital Share Transactions:
Class A Shares
Shares sold 5,496,384 469,093
Issued to shareholders in reinvestment of distributions 157,376 16,269
Shares redeemed (1,364,662) (17,267)
----------- ------------
Net increase in shares outstanding 4,289,098 468,095
----------- ------------
Class B Shares
Shares sold 1,314,093 220,718
Issued to shareholders in reinvestment of distributions 9,643 2,834
Shares redeemed (430,393) (4,301)
----------- ------------
Net increase in shares outstanding 893,343 219,251
----------- ------------
(1) Fund commenced investment operations on December 29, 1997.
(2) Represents less than 1/2 of a share.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Balanced High Income Growth and Income Capital Appreciation International Stock
Fund(1) Fund(1) Fund(1) Fund(1) Fund(1)
<S> <C> <C> <C> <C> <C>
$ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
------------ ------------ ------------ ------------ ------------
151,971 457,306 51,697 (10,945) 218,074
2,595 (67,321) (1,828) (2,007) 1,306,953
407,556 (1,088,517) 40,191 382,017 (924,570)
------------ ------------ ------------ ------------ ------------
562,122 (698,532) 90,060 369,065 600,457
------------ ------------ ------------ ------------ ------------
(114,070) (352,444) (48,609) -- (19,999)
(37,901) (104,862) (3,088) -- (1)
(590) -- (3,054) (2,999) --
(306) -- (2,653) (1) --
------------ ------------ ------------ ------------ ------------
(152,867) (457,306) (57,404) (3,000) (20,000)
------------ ------------ ------------ ------------ ------------
15,586,877 6,528,079 11,287,655 13,061,416 26,957,663
114,515 350,011 51,706 2,999 19,999
(458,280) (149,760) (439,612) (198,712) (66,752)
------------ ------------ ------------ ------------ ------------
15,243,112 6,728,330 10,899,749 12,865,703 26,910,910
------------ ------------ ------------ ------------ ------------
7,559,659 4,060,617 15,004,465 7,326,656 1,487,111
37,560 92,006 5,698 1 1
(189,739) (97,861) (415,539) (173,037) (22,711)
------------ ------------ ------------ ------------ ------------
7,407,480 4,054,762 14,594,624 7,153,620 1,464,401
------------ ------------ ------------ ------------ ------------
23,059,847 9,627,254 25,527,029 20,385,388 28,955,768
------------ ------------ ------------ ------------ ------------
$ 23,109,847 $ 9,677,254 $ 25,577,029 $ 20,435,388 $ 29,005,768
============ ============ ============ ============ ============
$ 22,711 $ 23,986 $ 19,303 $ 10,070 $ 321,481
============ ============ ============ ============ ============
1,494,109 657,540 1,057,206 1,227,548 2,672,922
10,884 36,216 4,825 293 1,949
(42,130) (15,996) (40,745) (18,020) (5,708)
------------ ------------ ------------ ------------ ------------
1,462,863 677,760 1,021,286 1,209,821 2,669,163
------------ ------------ ------------ ------------ ------------
710,854 410,828 1,363,973 656,474 133,396
3,588 9,755 557 --(2) --(2)
(17,937) (10,411) (39,782) (16,672) (2,228)
------------ ------------ ------------ ------------ ------------
696,505 410,172 1,324,728 639,802 131,168
------------ ------------ ------------ ------------ ------------
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights for a Share of Beneficial Interest Outstanding Throughout each Period
Cash Reserves Fund
Class A Class B Class A Class B
Year Ended Year Ended Inception (a) to Inception (a) to
10/31/1999 10/31/1999 10/31/1998 10/31/1998
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------- ------------ ------------ ------------
Income from Investment Operations:
Net investment income 0.05 0.04 0.04 0.03
------------- ------------ ------------ ------------
Total from investment operations 0.05 0.04 0.04 0.03
------------- ------------ ------------ ------------
Less Distributions:
Distributions from net investment income (0.05) (0.04) (0.04) (0.03)
------------- ------------ ------------ ------------
Total distributions (0.05) (0.04) (0.04) (0.03)
------------- ------------ ------------ ------------
Net increase in net asset value -- -- -- --
------------- ------------ ------------ ------------
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00
============= ============ ============ ============
Total Return+ 4.60% 3.81% 4.21%(2) 3.50%(2)
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 4,481 $ 3,501 $ 4,339 $ 894
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser 2.63% 3.38% 4.76%(1) 5.51% (1)
After reimbursement of expenses by Adviser 0.55% 1.30% 0.55%(1) 1.30% (1)
Ratios of net investment income (loss) to average net assets:
Before reimbursement of expenses by Adviser 2.33% 1.84% 0.67%(1) (0.08)%(1)
After reimbursement of expenses by Adviser 4.41% 3.92% 4.88%(1) 4.13% (1)
</TABLE>
(1) Annualized
(2) Not annualized.
+ Total return without applicable sales charge.
(a) Cash Reserves Fund Class A and Cash Reserves Fund Class B commenced
investment operations on December 29, 1997.
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights for a Share of Beneficial Interest Outstanding Throughout each Period
Bond Fund
Class A Class B Class A Class B
Year Ended Year Ended Inception (a) to Inception (a) to
10/31/1999 10/31/1999 10/31/1998 10/31/1998
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.14 $ 10.14 $ 10.00 $ 10.00
------------- ------------ ------------ ------------
Income from Investment Operations:
Net investment income 0.51 0.44 0.45 0.39
------------- ------------ ------------ ------------
Net realized and unrealized gain(loss)on investments (0.35) (0.35) 0.14 0.14
------------- ------------ ------------ ------------
Total from investment operations 0.16 0.09 0.59 0.53
------------- ------------ ------------ ------------
Less Distributions:
Distributions from net investment income (0.51) (0.44) (0.45) (0.39)
------------- ------------ ------------ ------------
Distributions from capital gains (0.05) (0.04) -- --
------------- ------------ ------------ ------------
Total distributions (0.56) (0.48) (0.45) (0.39)
------------- ------------ ------------ ------------
Net increase (decrease) in net asset value (0.40) (0.39) 0.14 0.14
------------- ------------ ------------ ------------
Net Asset Value, End of Period $ 9.74 $ 9.75 $ 10.14 $ 10.14
============= ============ ============ ============
Total Return+ 1.60% 0.94% 6.08%(2) 5.36%(2)
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 7,991 $ 7,508 $ 4,797 $ 2,225
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser 2.02% 2.77% 4.83%(1) 5.58%(1)
After reimbursement of expenses by Adviser 0.90% 1.65% 0.60%(1) 1.35%(1)
Ratios of net investment income to average net assets:
Before reimbursement of expenses by Adviser 4.06% 3.46% 1.14%(1) 0.39%(1)
After reimbursement of expenses by Adviser 5.18% 4.58% 5.37%(1) 4.62%(1)
Portfolio Turnover . 725% 725% 95% 95%
</TABLE>
(1) Annualized.
(2) Not annualized.
+ Total return without applicable sales charge.
(a) Bond Fund Class A and Bond Fund Class B commenced investment operations on
December 29, 1997.
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights for a Share of Beneficial Interest Outstanding Throughout each Period
Balanced Fund
Class A Class B Class A Class B
Year Ended Year Ended Inception (a) to Inception (a) to
10/31/1999 10/31/1999 10/31/1998 10/31/1998
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.68 $ 10.68 $ 10.00 $ 10.00
------------- ------------ ------------ ------------
Income from Investment Operations:
Net investment income 0.27 0.18 0.21 0.14
------------- ------------ ------------ ------------
Net realized and unrealized gain on investments 1.38 1.38 0.68 0.68
------------- ------------ ------------ ------------
Total from investment operations 1.65 1.56 0.89 0.82
------------- ------------ ------------ ------------
Less Distributions:
Distributions from net investment income (0.27) (0.18) (0.21) (0.14)
------------- ------------ ------------ ------------
Distributions from capital gains (0.01) (0.01) -- --
------------- ------------ ------------ ------------
Total distributions (0.28) (0.19) (0.21) (0.14)
------------- ------------ ------------ ------------
Net increase in net asset value 1.37 1.37 0.68 0.68
------------- ------------ ------------ ------------
Net Asset Value, End of Period $ 12.05 $ 12.05 $ 10.68 $ 10.68
============= ============ ============ ============
Total Return+ 15.58% 14.72% 8.92%(2) 8.24% (2)
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 15,297 $ 31,263 $ 15,670 $ 7,440
Ratios of expenses to average net assets:
Before reimbursement of expense by Adviser 1.47% 2.22% 3.40%(1) 4.15% (1)
After reimbursement of expenses by Adviser 1.10% 1.85% 1.10%(1) 1.85% (1)
Ratios of net investment income (loss) to average net assets:
Before reimbursement of expenses by Adviser 1.99% 1.25% 0.23%(1) (0.52)%(1)
After reimbursement of expenses by Adviser 2.36% 1.62% 2.53%(1) 1.78% (1)
Portfolio Turnover 349% 349% 60% 60%
</TABLE>
(1) Annualized.
(2) Not annualized.
+ Total return without applicable sales charge.
(a) Balanced Fund Class A and Balanced Fund Class B commenced investment
operations on December 29, 1997.
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights for a Share of Beneficial Interest Outstanding Throughout each Period
High Income Fund
Class A Class B Class A Class B
Year Ended Year Ended Inception (a) to Inception (a) to
10/31/1999 10/31/1999 10/31/1998 10/31/1998
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 8.85 $ 8.85 $ 10.00 $ 10.00
------------- ------------ ------------ ------------
Income from Investment Operations:
Net investment income 0.80 0.74 0.61 0.55
------------- ------------ ------------ ------------
Net realized and unrealized gain (loss) on investments 0.06 0.06 (1.15) (1.15)
------------- ------------ ------------ ------------
Total from investment operations 0.86 0.80 (0.54) (0.60)
------------- ------------ ------------ ------------
Less Distributions:
Distributions from net investment income (0.80) (0.74) (0.61) (0.55)
------------- ------------ ------------ ------------
Distributions from capital gains (0.03) (0.01) -- --
------------- ------------ ------------ ------------
Total distributions (0.83) (0.75) (0.61) (0.55)
------------- ------------ ------------ ------------
Net increase (decrease) in net asset value 0.03 0.05 (1.15) (1.15)
------------- ------------ ------------ ------------
Net Asset Value, End of Period $ 8.88 $ 8.90 $ 8.85 $ 8.85
============= ============ ============ ============
Total Return+ 9.69% 9.02% (5.78)%(2) (6.39)%(2)
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 7,879 $ 9,399 $ 6,045 $ 3,632
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser 1.97% 2.72% 3.52% (1) 4.27% (1)
After reimbursement of expenses by Adviser 1.00% 1.75% 1.00% (1) 1.75% (1)
Ratios of net investment income to average net assets:
Before reimbursement of expenses by Adviser 7.75% 7.16% 4.95% (1) 4.20% (1)
After reimbursement of expenses by Adviser 8.72% 8.13% 7.47% (1) 6.72% (1)
Portfolio Turnover 48% 48% 56% 56%
</TABLE>
(1) Annualized.
(2) Not annualized.
+ Total return without applicable sales charge.
(a) High Income Fund Class A and High Income Fund Class B commenced investment
operations on December 29, 1997.
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights for a Share of Beneficial Interest Outstanding Throughout each Period
Growth and Income Fund
Class A Class B Class A Class B
Year Ended Year Ended Inception (a) to Inception (a) to
10/31/1999 10/31/1999 10/31/1998 10/31/1998
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.88 $ 10.88 $ 10.00 $ 10.00
------------- ------------ ------------ ------------
Income from Investment Operations:
Net investment income (loss) 0.09 (0.01) 0.07 0.01
------------- ------------ ------------ ------------
Net realized and unrealized gain on investments 2.33 2.33 0.89 0.89
------------- ------------ ------------ ------------
Total from investment operations 2.42 2.32 0.96 0.90
------------- ------------ ------------ ------------
Less Distributions:
Distributions from net investment income (0.09) -- (0.07) (0.01)
------------- ------------ ------------ ------------
Distributions from capital gains -- (0.02) -- --
------------- ------------ ------------ ------------
Distributions in excess of net investment income -- -- (0.01) (0.01)
------------- ------------ ------------ ------------
Total distributions (0.09) (0.02) (0.08) (0.02)
------------- ------------ ------------ ------------
Net increase in net asset value 2.33 2.30 0.88 0.88
------------- ------------ ------------ ------------
Net Asset Value, End of Period $ 13.21 $ 13.18 $ 10.88 $ 10.88
============= ============ ============ ============
Total Return+ 22.33% 21.32% 9.57% (2) 8.97% (2)
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 25,646 $ 55,856 $ 11,169 $ 14,408
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser 1.25% 2.00% 2.41% (1) 3.16% (1)
After reimbursement of expenses by Adviser 1.00% 1.75% 1.00% (1) 1.75% (1)
Ratios of net investment income (loss) to average net assets:
Before reimbursement of expenses by Adviser 0.35% (0.40)% (0.60)%(1) (1.35)%(1)
After reimbursement of expenses by Adviser 0.60% (0.15)% 0.81% (1) 0.06% (1)
Portfolio Turnover 19% 19% 5% 5%
</TABLE>
(1) Annualized.
(2) Not annualized.
+ Total return without applicable sales charge.
(a) Growth and Income Fund Class A and Growth and Income Fund Class B commenced
investment operations on December 29, 1997.
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights for a Share of Beneficial Interest Outstanding Throughout each Period
Capital Appreciation Fund
Class A Class B Class A Class B
Year Ended Year Ended Inception (a) to Inception (a) to
10/31/1999 10/31/1999 10/31/1998 10/31/1998
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 11.04 $ 10.98 $ 10.00 $ 10.00
------------- ------------ ------------ ------------
Income from Investment Operations:
Net investment income (loss) (0.00)* (0.12) 0.01 (0.02)
------------- ------------ ------------ ------------
Net realized and unrealized gain on investments 2.68 2.68 1.04 1.01
------------- ------------ ------------ ------------
Total from investment operations 2.68 2.56 1.05 0.99
------------- ------------ ------------ ------------
Less Distributions:
Distributions from net investment income -- -- -- --
------------- ------------ ------------ ------------
Distributions from capital gains (0.02) -- -- --
------------- ------------ ------------ ------------
Distributions in excess of net investment income -- -- (0.01) (0.01)
------------- ------------ ------------ ------------
Total distributions (0.02) -- (0.01) (0.01)
------------- ------------ ------------ ------------
Net increase in net asset value 2.66 2.56 1.04 0.98
------------- ------------ ------------ ------------
Net Asset Value, End of Period $ 13.70 $ 13.54 $ 11.04 $ 10.98
============= ============ ============ ============
Total Return+ 24.29% 23.32% 10.51% (2) 9.91% (2)
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 13,262 $ 23,563 $ 13,410 $ 7,025
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser 1.71% 2.46% 3.28% (1) 4.03% (1)
After reimbursement of expenses by Adviser 1.20% 1.95% 1.20% (1) 1.95% (1)
Ratios of net investment income (loss) to average net assets:
Before reimbursement of expenses by Adviser (0.68)% (1.46)% (1.97)%(1) (2.72)%(1)
After reimbursement of expenses by Adviser (0.05)% (1.03)% 0.11% (1) (0.64)%(1)
Portfolio Turnover 68% 68% 10% 10%
</TABLE>
(1) Annualized.
(2) Not annualized.
+ Total return without applicable sales charge.
(a) Capital Appreciation Fund Class A and Capital Appreciation Fund Class B
commenced investment operations on December 29, 1997. * Amount represents
less than $(0.01).
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights for a Share of Beneficial Interest Outstanding Throughout each Period
International Stock Fund
Class A Class B Class A Class B
Year Ended Year Ended Inception (a) to Inception (a) to
10/31/1999 10/31/1999 10/31/1998 10/31/1998
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.34 $ 10.28 $ 10.00 $ 10.00
------------- ------------ ------------ ------------
Income from Investment Operations:
Net investment income 0.14 0.05 0.08 0.03
------------- ------------ ------------ ------------
Net realized and unrealized gain on investments 1.56 1.56 0.27 0.26
------------- ------------ ------------ ------------
Total from investment operations 1.70 1.61 0.35 0.29
------------- ------------ ------------ ------------
Less Distributions:
Distributions from net investment income (0.14) (0.05) (0.01) (0.01)
------------- ------------ ------------ ------------
Distributions from capital gains (0.45) (0.46) -- --
------------- ------------ ------------ ------------
Total distributions (0.59) (0.51) (0.01) (0.01)
------------- ------------ ------------ ------------
Net increase in net asset value 1.11 1.10 0.34 0.28
------------- ------------ ------------ ------------
Net Asset Value, End of Period $ 11.45 $ 11.38 $ 10.34 $ 10.28
============= ============ ============ ============
Total Return+ 17.00% 16.09% 3.60% (2) 2.90% (2)
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) $ 33,214 $ 3,326 $ 27,656 $ 1,350
Ratios of expenses to average net assets:
Before reimbursement of expenses by Adviser 2.18% 2.93% 2.76% (1) 3.51% (1)
After reimbursement of expenses by Adviser 1.60% 2.35% 1.60% (1) 2.35% (1)
Ratios of net investment income (loss) to average net assets:
Before reimbursement of expenses by Adviser 0.72% 0.05% (0.01)%(1) (0.76)%(1)
After reimbursement of expenses by Adviser 1.30% 0.63% 1.15% (1) 0.40% (1)
Portfolio Turnover 57% 57% 60% 60%
</TABLE>
(1) Annualized.
(2) Not annualized.
+ Total return without applicable sales charge.
(a) International Stock Fund Class A and International Stock Fund Class B
commenced investment operations on December 29, 1997.
See accompanying Notes to Financial Statements.
<PAGE>
Notes to Financial Statements
1. Organization
MEMBERS Mutual Funds, a Delaware Business Trust (the "Trust"), is registered
under the Investment Company Act of 1940, as amended (the "1940 Act") as an
open-end, management investment company. As of the date of this report, the
Trust offers seven Funds (individually, a "Fund," collectively, the "Funds")
each with two classes of shares: Class A and Class B. Each class of shares
represents an interest in the assets of the respective Fund and has identical
voting, dividend, liquidation and other rights, except that each class of shares
bears its own distribution fees and its proportional share of fund level
expenses, is subject to its own sales charges, if any, and has exclusive voting
rights on matters pertaining to the Rule 12b-1 plan as it relates to that class.
The accompanying financial statements include the Cash Reserves Fund, Bond Fund,
Balanced Fund, High Income Fund, Growth and Income Fund, Capital Appreciation
Fund and International Stock Fund, each commencing operations on December 29,
1997.
The only transactions of the Funds prior to commencement of operations were the
sale of 49,000 Class A shares and 1,000 Class B shares of Cash Reserves Fund at
$1 per share and the sale of 4,900 Class A shares and 100 Class B shares of Bond
Fund, Balanced Fund, High Income Fund, Growth and Income Fund, Capital
Appreciation Fund and International Stock Fund at $10 per share on November 10,
1997.
2. Significant Accounting Policies
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by each Fund in the
preparation of its financial statements.
Portfolio Valuation: Investments in securities which are traded on a recognized
stock exchange or for which price quotations are available will normally be
valued on the basis of market quotations furnished by a pricing service which
has been approved by the Board of Trustees. Short-term obligations that mature
in sixty days or less are valued at amortized cost, which constitutes fair
value. All other securities and other assets are appraised at their fair values
as determined in good faith by and under the general supervision of the Board of
Trustees.
Security Transactions and Investment Income: Security transactions are accounted
for on a trade date basis. Net realized gains or losses on sales are determined
by the identified cost method. Interest income is recorded on the accrual basis.
Dividend income is recorded on ex-dividend date.
Federal Income Taxes: It is each Fund's intention to qualify as a regulated
investment company for federal income tax purposes by complying with the
appropriate provisions of the Internal Revenue Code of 1986, as amended.
Accordingly, no provisions for federal income taxes are required in the
accompanying financial statements.
Classes: Class-specific expenses are borne by that class. Income, non-class
specific expenses, and realized and unrealized gains/losses are allocated to the
respective classes on the basis of relative net assets or settled shares, as
appropriate.
Expenses: Expenses that are directly related to one of the Funds are charged
directly to that Fund. Other operating expenses of the Fund are prorated to the
Funds on the basis of relative net assets.
Organization and Offering Costs: Each Fund bears all costs in connection with
its organization, including registration and notification fees and expenses with
respect to the sale of their shares under federal and state securities
regulation. These organization and offering costs are being amortized on a
straight-line basis over five years and one year, respectively. In the event any
of the initial shares of a Fund are redeemed by any holder thereof during the
amortization period, the proceeds of such redemptions will be reduced by an
amount equal to the pro-rata portion of unamortized deferred organizational
expenses in the same proportion as the number of shares being redeemed bears to
the number of initial shares of such Fund outstanding at the time of such
redemption. To the extent that proceeds of the redemptions are less than such
pro-rata portion of any unamortized organizational expenses, CIMCO has agreed to
reimburse the Fund promptly.
Repurchase Agreements: Each Fund may engage in repurchase agreements. In a
repurchase agreement, a security is purchased for a relatively short period
(usually not more than 7 days) subject to the obligation to sell it back to the
issuer at a fixed time and price plus accrued interest. The Funds will enter
into repurchase agreements only with member banks of the Federal Reserve System
and with "primary dealers" in U.S. Government securities.
Foreign Currency Transactions: The books and records are maintained in U.S.
dollars. Foreign currency amounts are translated into U.S. dollars on the
following basis:
(1) market value of investment securities, assets and liabilities at the
current rate of exchange; and
(2) purchases and sales of investment securities, income, and expenses at the
relevant rates of exchange prevailing on the respective dates of such
transactions.
The High Income and International Stock Funds report certain foreign
currency-related transactions as components of realized gains or losses for
financial reporting purposes, whereas such components are treated as ordinary
income for federal income tax purposes.
The Funds do not isolate the portion of gains and losses on investments in
securities that is due to changes in the foreign exchange rates from that which
is due to change in market prices of securities. Such amounts are categorized as
gain or loss on investments for financial reporting purposes.
Forward Foreign Currency Exchange Contracts: The High Income and International
Stock Funds may each purchase or sell forward foreign currency contracts for
defensive or hedging purposes when the Fund's Investment Adviser anticipates
that the foreign currency will appreciate or depreciate in value. The Funds
realize a gain or a loss at the time the forward contracts are closed out or
offset by a matching contract.
Futures Contracts: The Funds (other than the Cash Reserves Fund) may purchase
and sell futures contracts and purchase and write options on futures contracts.
Cash or securities are deposited with brokers in order to establish and maintain
a position. Subsequent payments made or received by the Fund based on the daily
change in the market value of the position are recorded as unrealized gains or
losses until the contract is closed out, at which time the gains or losses are
realized.
Reclassification Adjustments: Paid in Capital, undistributed net investment
income, and accumulated net realized gain (loss) have been adjusted in the
Statement of Assets and Liabilities for permanent book-tax differences for all
Funds.
3. ADVISORY, ADMINISTRATION AND DISTRIBUTION AGREEMENTS
The Trust has entered into an Investment Advisory Agreement with CIMCO Inc. (the
"Investment Adviser"). For its investment advisory services to the Portfolios,
CIMCO is entitled to receive a fee, which is calculated daily and paid monthly,
at an annual rate based upon the following percentages of average daily net
assets: 0.40% for the Cash Reserves Fund; 0.50% for the Bond Fund; 0.65% for the
Balanced Fund; 0.55% for the High Income Fund and Growth and Income Fund; 0.75%
for the Capital Appreciation Fund and 1.05% for the International Stock Fund.
The Investment Adviser, has entered into Subadviser Agreements for the
management of the investments of the High Income Fund and the International
Stock Fund. The Investment Adviser is solely responsible for the payment of all
fees to the Subadvisers. The Subadvisers for these funds are Massachusetts
Financial Services Company for the High Income Fund and IAI International
Limited and Lazard Asset Management for the International Stock Fund. The
Investment Adviser voluntarily agrees to waive a portion of its fees and to
reimburse the Funds for certain expenses so that total expenses will not exceed
certain expense limitations. The Investment Adviser, at its discretion, may
revise or discontinue the voluntary fee waivers and expense reimbursements at
any time. The Investment Adviser has agreed to waive fees and/or reimburse
expenses with respect to the Funds in order that total expenses will not exceed
the following amounts:
Fund Class A Class B
Cash Reserves Fund 0.55% 1.30%
Bond Fund 0.90% 1.65%
Balanced Fund 1.10% 1.85%
High Income Fund 1.00% 1.75%
Growth and Income Fund 1.00% 1.75%
Capital Appreciation Fund 1.20% 1.95%
International Stock Fund 1.60% 2.35%
For the year ended October 31, 1999, the Investment Adviser reimbursed expenses
of $128,007 for the Cash Reserves Fund, $131,403 for the Bond Fund, $133,221 for
the Balanced Fund, $138,215 for the High Income Fund, $124,700 for the Growth
and Income Fund, $129,364 for the Capital Appreciation Fund, and $193,962 for
the International Stock Fund.
Any reimbursements or fee reductions made by the Investment Adviser to a Fund
are subject to repayment by the Fund within the subsequent eighteen months, to
the extent that the Fund is able to make the repayment within its expense cap.
Since December 29, 1997 through October 31,1999, the Investment Adviser
reimbursed expenses of $274,295 for the Cash Reserves Fund, $288,176 for the
Bond Fund, $287,184 for the Balanced Fund, $296,526 for the High Income Fund,
$281,186 for the Growth and Income Fund, $280,691 for the Capital Appreciation
Fund, and $417,687 for the International Stock Fund.
The Trust and First Data Investor Services Group, Inc., which is a wholly-owned
subsidiary of First Data Corporation, now known as PFPC Global Fund Services
("PFPC"), are parties to an agreement under which PFPC provides administration
services for a fee calculated daily and paid monthly, at the annual rate of
0.15% of the first $500 million of the combined average daily net assets and
0.12% of the next $500 million of the combined average daily net assets and
0.09% of the combined average daily net assets over $1 billion. Currently, at
October 31, 1999, the Funds are at the minimum of $3,500 per Fund, per Class,
per month until aggregate net assets reach $392 million.
In addition, PFPC also provides certain fund accounting, custody administration
and transfer agency services pursuant to certain fee arrangements. Pursuant to
such fee arrangements, PFPC compensates the Trust's custodian bank, State Street
Bank and Trust, for its services in addition to the fees First Data receives.
CUNA Brokerage Services, Inc. (CUNA Brokerage) serves as distributor of the
Funds. The Trust adopted Distribution Plans (the "Plans") with respect to the
Trust's Class A and Class B shares pursuant to Rule 12b-1 under the 1940 Act.
Under the Plans, the Trust will pay service fees for Class A and Class B shares
at an aggregate annual rate of 0.25% of each Fund's daily net assets
attributable to the respective class of shares for all Funds except the Cash
Reserves Fund. The Trust will also pay distribution fees for Class B shares at
an aggregate annual rate of 0.75% of each Fund's daily net assets attributable
to Class B. The distribution fees are used to reimburse CUNA Brokerage for its
distribution expenses with respect to Class B shares only, including but not
limited to: (1) initial and ongoing sales compensation to selling brokers and
others engaged in the sale of Fund shares, (2) marketing, promotional and
overhead expenses incurred in connection with the distribution of Fund shares,
and (3) interest expenses on unreimbursed distribution expenses. The service
fees will be used to compensate selling brokers and others for providing
personal and account maintenance services to shareholders.
In addition to distribution fees, CUNA Brokerage received sales charges paid by
the purchasers or redeemers of the Funds' shares. For the year ended October 31,
1999, sales charges received by CUNA Brokerage were as follows:
Cash Reserves $ 187,750
Bond 357,271
Balanced 1,375,103
High Income 352,685
Growth and Income 2,346,872
Capital Appreciation 939,589
International Stock 119,846
Certain officers and trustees of the Funds are also officers of the Trust. The
Funds do not compensate its officers or affiliated trustees. Effective September
4, 1997, the Trust pays each unaffiliated trustee $1,000 per Board of Trustees
meeting attended.
4. Dividends from Net Investment Income and Distributions of Capital Gains
With respect to the Cash Reserves Fund, Bond Fund, and High Income Fund,
dividends from net investment income are declared daily. The Balanced Fund
declares dividends from net investment income monthly. The Growth and Income
Fund declares dividends from net investment income quarterly. The Capital
Appreciation Fund and the International Stock Fund declare dividends from net
investment income annually. Each fund distributes net realized gains from
investment transactions, if any, to shareholders annually.
5. Securities Transactions
For the year ended October 31, 1999, aggregate cost of purchases and proceeds
from sales of securities, other than short-term investments, were as follows:
U.S. GOVERNMENT OTHER INVESTMENT
SECURITIES SECURITIES
Fund Purchases Sales Purchases Sales
Bond $ 57,092,486 $ 52,174,182 $ 32,302,833 $ 28,384,111
Balanced 74,502,120 69,110,789 62,308,404 49,604,889
High Income -- -- 13,498,216 6,366,046
Growth and Income -- -- 57,896,368 9,050,087
Capital Appreciation -- -- 28,056,052 16,583,066
International Stock -- -- 21,113,848 17,551,889
At October 31, 1999, the aggregate gross unrealized appreciation (depreciation)
and net unrealized appreciation (depreciation) for all securities as computed on
a federal income tax basis for each Fund were as follows:
Fund Appreciation (Depreciation) Net
Bond $ 63,532 $ (90,839) $ (27,307)
Balanced 4,892,041 (1,187,578) 3,704,463
High Income 108,803 (1,159,516) (1,050,713)
Growth and Income 10,864,467 (5,269,434) 5,595,033
Capital Appreciation 6,238,980 (1,541,963) 4,697,017
International Stock 3,769,381 (2,885,623) 883,758
For federal income tax purposes, the Bond Fund and the High Income Fund have
capital loss carryovers as of October 31, 1999, which are available to offset
future capital gains, if any:
Losses Deferred Losses Deferred
Fund Expiring in 2006 Expiring in 2007
Bond Fund -- $ 349,486
High Income Fund $ 66,186 328,128
6. Foreign Securities
Each Fund may invest in foreign securities, although only the High Income Fund
and International Stock Fund anticipate having significant investments in such
securities. The International Stock Fund may invest all of its assets in foreign
securities and the High Income Fund may invest up to half of its assets in
foreign securities. No Fund will concentrate its investments in any particular
foreign country.
Foreign securities means securities that are: (1) issued by companies organized
outside the U.S. or whose principal operations are outside the U.S. ("foreign
issuers"), (2) issued by foreign governments or their agencies or
instrumentalities (also "foreign issuers"), (3) principally traded outside the
U.S., or (4) quoted or denominated in a foreign currency ("non-dollar
securities"). Foreign securities include ADR's, EDR's, GDR's, and foreign money
market securities.
7. Financial Instruments
Investing in certain financial instruments including forward foreign currency
contracts and futures contracts involves risks other than that reflected in the
Statement of Assets and Liabilities. Risks associated with these instruments
include potential for an imperfect correlation between the movements in the
prices of instruments and the prices of the underlying securities and interest
rates, an illiquid secondary market for the instruments or inability of
counterparties to perform under the terms of the contracts, and changes in the
value of foreign currency relative to the U.S. dollar. The High Income Fund and
International Stock Fund enter into these contracts primarily to protect these
Funds from adverse currency movements.
8. Concentration of Risk
The High Income Fund invests in securities offering high current income which
generally will be in the lower rating categories of recognized ratings agencies
(so-called "junk bonds"). These securities generally involve more credit risk
than securities in the higher rating categories. In addition, the trading market
for high yield securities may be relatively less liquid than the market for
higher-rated securities. The Fund generally invests at least 80% of its assets
in high yield securities.
9. Capital shares and affiliated Ownership
Each fund is authorized to issue an unlimited number of shares of beneficial
interest with no par value. Each Fund currently offers two classes of shares,
Class A and Class B. At October 31, 1999, investments in the Funds by affiliates
were as follows:
CUNA MUTUAL CUNA MUTUAL CUMIS
LIFE INSURANCE INSURANCE INSURANCE
FUND CLASS COMPANY SOCIETY SOCIETY, INC.
CASH RESERVES A $1,635,342 $1,634,252 $ --
BOND A 1,617,059 1,615,982 --
HIGH INCOME A 5,169,216 -- --
INTERNATIONAL STOCK A 3,632,779 6,053,420 21,626,406
<PAGE>
Report of Independent Accountants
To the Board of Trustees and Shareholders
of MEMBERS Mutual Funds
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MEMBERSCash Reserves Fund,
MEMBERSBond Fund, MEMBERSBalanced Fund, MEMBERSHigh Income Fund, MEMBERSGrowth
and Income Fund, MEMBERSCapital Appreciation Fund and MEMBERSInternational Stock
Fund (constituting MEMBERSMutual Funds, hereafter referred to as the "Funds") at
October 31, 1999, the results of each of their operations for the year then
ended, the changes in each of their net assets and the financial highlights for
the year then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Funds'
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1999 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above. The financial statements of the Funds as of October 31, 1998 and for the
period then ended were audited by other independent accountants whose report
dated December 11, 1998 expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
December 10, 1999
<PAGE>
Report of Independent Accountants
The Board of Trustees and Shareholders
MEMBERS Mutual Funds:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Cash Reserves Fund, Bond Fund, Balanced Fund,
High Income Fund, Growth and Income Fund, Capital Appreciation Fund and
International Stock Fund (funds within MEMBERS Mutual Funds) as of October 31,
1998, and the related statements of operations and changes in net assets and the
financial highlights for the period from December 29, 1997 (commencement of
operations) to October 31, 1998. These financial statements and the financial
highlights are the responsibility of the funds' management. Our responsibility
is to express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased and sold, but not received or delivered,
we request confirmations from brokers and, where replies are not received, we
carry out other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
Cash Reserves Fund, Bond Fund, Balanced Fund, High Income Fund, Growth and
Income Fund, Capital Appreciation Fund and International Stock Fund as of
October 31, 1998, and the results of their operations, the changes in their net
assets and the financial highlights for the period stated in the first paragraph
above, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
December 11, 1998
<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.
(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.
(d)(3) 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)(4) Investment Sub-Advisory Agreement with Massachusetts Financial Services
Company for the Emerging Growth Fund effective February 1, 2000.
(d)(5) 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)(6) Investment Sub-Advisory Agreement with Lazard Asset Management
incorporated herein by reference to Registration Statement on Form N-1A
(333-29511)filed on September 17, 1997 as exhibit 5(d).
(e) Distribution Agreement with CUNA Brokerage Services, Inc.
incorporated herein by reference to Registration Statement on Form N-1A
(333-29511) filed on September 17, 1997 as exhibit 6.
(f) N/A
(g)(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.
(h)(1) Administration Agreement with First Data Investors Services Group, Inc.
incorporated herein by reference to Registration Statement on Form N-1A
(333-29511) filed on November 12, 1997 as exhibit 9(a).
(h)(2) Transfer Agency and Services Agreement with First Data Investors
Services Group, Inc. incorporated herein by reference to Registration
Statement on Form N-1A (333-29511) filed on November 12, 1997 as
exhibit 9(b).
(i) Opinion and Consent of Sutherland, Asbill & Brennan LLP.
(j)(1) Consent of PricewaterhouseCoopers LLP
(j)(2) Consent of KPMG 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.
(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.
(m)(3) Distribution Plan for Class B Shares incorporate herein by reference t
Registration Statement on Form N-1A (333-29511) filed on September 17,
1997 as exhibit 15(b).
(m)(4) Supplement No. 1 to Service Plan for Class B Shares dated
February 1, 2000.
(m)(5) 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)(6) Supplement No. 1 to Service Plan for Class D Shares dated
February 1, 2000.
(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) MEMBERS Mutual Funds Code of Ethics dated October 28, 1997.
(p)(2) Massachusetts Financial Services Company Code of Ethics dated September
1, 1997.
(p)(3) Lazard Asset Management Code of Ethics.
(p)(4) Investment Advisers, Inc. Code of Ethics dated May 10, 1995, as
amended.
(p)(5) CUNA Brokerage Services, Inc. Code of Ethics dated September 1, 1997.
(p)(6) Statement regarding CIMCO Inc. Code of Ethics.
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 CIMCO Inc.,
the investment adviser to the MEMBERS Mutual Funds, each of the entities set
forth below could be considered affiliated persons of the MEMBERS Mutual Funds
or affiliated persons of such affiliated persons.
<PAGE>
CUNA Mutual Insurance Society
ORGANIZATIONAL CHART AS OF FEBRUARY 10, 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
September 15, 1972*
State of domicile: Wisconsin
CUNA Mutual Investment Corporation is the owner of the following subsidiaries:
a. CUMIS Insurance Society, Inc.
Business: Corporate Property/Casualty Insurance
May 23, 1960*
State of domicile: Wisconsin
CUMIS Insurance Society, Inc. is the 100% owner of the
following subsidiary:
(1) Credit Union Mutual Insurance Society New
Zealand Ltd.
Business: Fidelity Bond Coverage
November l, 1990*
State of domicile: Wisconsin
b. CUNA Brokerage Services, Inc.
Business: Brokerage
July 19, 1985*
State of domicile: Wisconsin
c. CUNA Mutual General Agency of Texas, Inc.
Business: Managing General Agent
August 14, 1991*
State of domicile: Texas
d. MEMBERS Life Insurance Company
Business: Credit Disability/Life/Health
February 27, 1976*
State of domicile: Wisconsin
Formerly CUMIS Life & CUDIS
e. International Commons, Inc.
Business: Special Events
January 13, 1981*
State of domicile: Wisconsin
f. CUNA Mortgage Corporation
Business: Mortgage Servicing
November 20, 1978*
State of domicile: Wisconsin
(1) CU Mortgage Corporation Inc.
Business: Mortgage Servicing
May 28, 1987*
State of domicile: California
g. Investors Equity Insurance Company, Inc.
Business: Private Mortgage Insurance
April 14, 1994*
State of Domicile: California
h. CUNA Mutual Insurance Agency, Inc.
Business: Leasing/Brokerage
March 1, 1974*
State of domicile: Wisconsin
Formerly CMCI Corporation
i. Stewart Associates Incorporated
Business: Credit Insurance
March 6, 1998
State of domicile: Wisconsin
CUNA Mutual Insurance Agency, Inc. is the 100% owner of the following
subsidiaries:
(1) CM Field Services, Inc.
Business: Serves Agency Field Staff
January 26,1994*
State of domicile: Wisconsin
(2) CUNA Mutual Insurance Agency of Alabama, Inc.
Business: Property & Casualty Agency
May 27, 1993*
State of domicile: Alabama
(3) CUNA Mutual Insurance Agency of New Mexico, Inc.
Business: Brokerage of Corporate & Personal Lines
June 10, 1993*
State of domicile: New Mexico
(4) CUNA Mutual Insurance Agency of Hawaii, Inc.
Business: Property & Casualty Agency
June 10, 1993*
State of domicile: Hawaii
(5) CUNA Mutual Casualty Insurance Agency of Mississippi, Inc.
Business: Property & Casualty Agency
June 24, 1993 *
State of domicile: Mississippi
(6) CUNA Mutual Insurance Agency of Kentucky, Inc.
Business: Brokerage of Corporate & Personal Lines
October 5, 1994*
State of domicile: Kentucky
(7) CUNA Mutual Insurance Agency of Massachusetts, Inc.
Business: Brokerage of Corporate & Personal Lines
January 27, 1995*
State of domicile: Massachusetts
2. C.U.I.B.S. Pty. Ltd.
Business: Brokerage
February 18,1981*
Country of domicile: Australia
3. CUNA Caribbean Insurance Society Limited
Business: Life and Health
July 4, 1985*
Country of domicile: Trinidad and Tobago
4. CUNA Mutual Group, Limited
Business: Brokerage
May 27, 1998
Country of domicile: United Kingdom
* 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 (as of 12-31 -96)
4. CIMCO Inc. (CIMCO)
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 Michael Corcoran (CUNA Mutual Employee) subject to
a voting trust agreement, Michael B. Kitchen as Voting Trustee. 99% of
value-owned by CUNA Mutual Insurance Agency, Inc. Due to Ohio
regulations,CUNA Mutual Insurance Agency, Inc. holds no voting stock in
this corporation.
June 14, 1993
6. SECURITY Management Company, Ltd. (Hungary)
90% ownership by CUNA Mutual Insurance Society
10% ownership by: Federation of Savings Cooperatives
Savings Cooperative of Szoreg
Savings Cooperative of Szekkutas
(collectively called Hungarian Associates)
September 5, 1992
7. CMG Mortgage Insurance Company
50% ownership by CUNA Mutual Investment Corporation
50% ownership by PMI Mortgage Insurance Co.
April 14, 1994
8. Cooperators Life Assurance Society Limited (Jamaica)
CUNA Mutual Insurance Society owns 122,500 shares
Jamaica Co-op Credit Union League owns 127,500 shares
(NOTE: Awaiting authority to write business)
May 10, 1990
9. CU Interchange Group, Inc.
Owned by CUNA Mutual Investment Corporation, CUNA Service Group and
various state league organizations December 15, 1993 - CUNA Mutual
Investment Corporation purchased 100 shares stock
10. CUNA Service Group, Inc.
April 22, 1974 - CUNA Mutual Insurance Society purchased 200.71 shares
11. CUNA Mutual business Services, Inc.
Owned by CUNA Mutual Investment Corporation, Credit Union National
Association, Inc. and 18 state league organizations March 29, 1996 -
CUNA Mutual Investment Corporation purchased 1,300,000 shares of stock
Partnerships
1. LeaSo Partners, a California partnership
CUNA Mutual Insurance Society - 50% Partner
California Credit Union League - 50% Partner
December 29, 1981
2. CM CUSO Limited Partnership, a Washington Partnership
CUMIS Insurance Society, Inc. - General Partner
Credit Unions in Washington - Limited Partners
June 14, 1993
Limited Liability Companies
1. "Sofia LTD." (Ukraine)
99.96% CUNA Mutual Insurance Society
.04% CUMIS Insurance Society, Inc.
March 6, 1996
2. 'FORTRESS' (Ukraine)
80% "Sofia LTD."
19% The Ukrainian National Association of Savings and Credit Unions
1% Service Center by UNASCU
September 25, 1996
Affiliated (Nonstock)
1. MEMBERS Prime Club, Inc.
August 8, 1978
2. CUNA Mutual Group Foundation, Inc.
July 5, 1967
3. CUNA Mutual Life Insurance Company
July 1, 1990
CUNA Mutual Life Insurance Company
ORGANIZATIONAL CHART AS OF FEBRUARY 10, 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. Red Fox Motor Hotel Corporation
An Iowa Business Act Corporation.
100% ownership by CUNA Mutual Life Insurance Company
2. CIMCO Inc.
An Iowa Business Act Corporation
50% ownership by CUNA Mutual Life Insurance Company
50% ownership by CUNA Mutual Investment Corporation
CIMCO Inc. is the investment adviser of:
Ultra Series Fund
MEMBERS Mutual Funds
3. Plan America Program, Inc.
A Maine Business Act Corporation
100% ownership by CUNA Mutual Life Insurance Company
4. CMIA Wisconsin Inc.
A Wisconsin Business Act Corporation
100% ownership by CUNA Mutual Life Insurance Company
<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 persona
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.
<PAGE>
Item 26. Business and Other Connections of Investment Adviser
The Investment Adviser for the MEMBERS Mutual Fund is CIMCO Inc. See
the caption in Part A entitled "Portfolio Management" for a more complete
description.
The officers and directors of the Investment Adviser are as follows:
NAME/ADDRESS POSITION HELD
Michael S. Daubs CIMCO Inc.
5910 Mineral Point Rd. President
Madison, WI 53705 1982-Present
Director
1995-Present
CUNA Mutual Insurance Society
Chief Officer - Investment
1990-Present
CUNA Mutual Life Insurance Company
Chief Officer - Investment
1989-Present
Lawrence R. Halverson CIMCO Inc.
5910 Mineral Point Rd. Senior Vice President
Madison, WI 53705 1996-Present
Vice President and Secretary
1992-1996
CUNA Brokerage Services, Inc.
President
1996-1998
Joyce A. Harris CIMCO Inc.
PO Box 7130 Director and Chair
Madison, WI 53707 1992 - Present
Telco Community Credit Union
President, Chief Executive Officer
1978- Present
James C. Hickman CIMCO Inc.
975 University Avenue Director
Madison, WI 53706 1992 - Present
University of Wisconsin
Professor
1972 - Present
Michael B. Kitchen CIMCO Inc.
5910 Mineral Point Rd. Director
Madison, WI 53705 1995 - Present
CUNA Mutual Insurance Society
President & Chief Executive Officer
1995- Present
CUNA Mutual Life Insurance Company
President & Chief Executive Officer
1995 - Present
George A. Nelson CIMCO Inc.
PO Box 44965 Director and Vice Chair
Madison, WI 53744 1992 - Present
Evening Telegram Co. - WISC-TV
Vice President
1982 - Present
Jeffrey B. Pantages CIMCO Inc.
5910 Mineral Point Road Senior Vice President
Madison, WI 53705 1998-Present
Aquila Energy
Vice President
1997-1998
Security Benefit
Senior Vice President
1991-1997
Thomas J. Merfeld CIMCO Inc.
5910 Mineral Point Road Secretary - Treasurer
Madison, WI 53705 1999 - 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 Position with Positions and Offices
Business Address Distributor with Registrant
<S> <C> <C>
Wayne A. Benson Director None
5910 Mineral Point Road President
Madison, WI 53705
Lawrence R. Halverson Director Trustee and
5910 Mineral Point Road President & Principal
Madison, WI 53705 Executive Officer
John W. Henry Director None
5910 Mineral Point Road Vice President
Madison, WI 53705
Michael G. Joneson Secretary and Treasurer None
2000 Heritage Way
Waverly, IA 50677
Campbell D. McHugh Compliance Officer None
5910 Mineral Point Road
Madison, WI 53705
Dan E. Meylink Sr. Director None
5910 Mineral Point Road
Madison, WI 53705
Faye A. Patzner Vice President None
5910 Mineral Point Road
Madison, WI 53705
Scott Vignovich Director None
2000 Heritage Way Vice President
Waverly, IA 50677
</TABLE>
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. CIMCO Inc.
5910 Mineral Point Road
Madison, Wisconsin 53705
b. CUNA Mutual Insurance Society
5910 Mineral Point Road
Madison, Wisconsin 53705
c. PFPC Global Fund Services
211 South Gulph Road
King of Prussia, PA 19406
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 February 21, 1999.
MEMBERS Mutual Funds
By: /s/ Lawrence R. Halverson
Lawrence R. Halverson
Trustee, President and Principal Executive Officer
<PAGE>
Pursuant to the requirements of the Securities Act and Investment Company Act,
the Fund certifies that it meets all of the requirement for effectiveness of
this registration statement under rule 485(b) under the Securities Act and has
duly caused this registration statement to be signed on its behalf by the
undersigned, duly authorized, in the City of Madison, and State of Wisconsin on
the dates indicated.
SIGNATURES AND TITLE DATE
/s/ Michael S. Daubs February 21, 2000
Michael S. Daubs, Trustee and Chairman
/s/ Lawrence R. Halverson February 21, 2000
Lawrence R. Halverson, Trustee, President
and Principal Executive Officer
Gwendolyn M. Boeke*
Gwendolyn M. Boeke, Trustee
Alfred L. Disrud*
Alfred L. Disrud, Trustee
Keith S. Noah*
Keith S. Noah, Trustee
Thomas C. Watt*
Thomas C. Watt, Trustee
/s/ Kevin S. Thompson February 21, 2000
Kevin S. Thompson, Power of Attorney
*Pursuant to Powers of Attorney
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
(a)(2) Resolution amending Declaration of Trust dated February 17, 2000.
(d)(2) Amendment No. 1 to Management Agreement with CIMCO Inc. effective
February 1, 2000.
(d)(4) Investment Sub-Advisory Agreement with Massachusetts Financial Services
Company for the Emerging Growth Fund effective February 1, 2000.
(g)(2) Agreement with State Street Bank and Trust Company to add the Emerging
Growth Fund.
(i) Opinion and Consent of Sutherland, Asbill & Brennan LLP.
(j)(1) Consent of PricewaterhouseCoopers LLP
(j)(2) Consent of KPMG LLP
(l)(4) Subscription Agreement with CUMIS Insurance Society, Inc. dated
February 17, 2000.
(m)(2) Supplement No. 1 to Service Plan for Class A Shares dated February 1,
2000.
(m)(4) Supplement No. 1 to Service Plan for Class B Shares dated February 1,
2000.
(m)(6) Supplement No. 1 to Service Plan for Class D Shares dated February 1,
2000.
(p)(1) MEMBERS Mutual Funds Code of Ethics dated October 28, 1997.
(p)(2) Massachusetts Financial Services Company Code of Ethics dated September
1, 1997.
(p)(3) Lazard Asset Management Code of Ethics.
(p)(4) Investment Advisers, Inc. Code of Ethics dated May 10, 1995, as
amended.
(p)(5) CUNA Brokerage Services, Inc. Code of Ethics dated September 1, 1997.
(p)(6) Statement regarding CIMCO Inc. Code of Ethics.
Other Exhibits
Powers of Attorney
<PAGE>
Exhibit (a)(2)
MEMBERS MUTUAL FUNDS
BOARD OF TRUSTEES RESOLUTION
ESTABLISHING THE EMERGING GROWTH FUND
FEBRUARY 17, 2000
Whereas, The MEMBERS Mutual Funds "Trust") is a series-type, open-end
investment management company registered under the Investment Company Act of
1940, as amended, that currently consists of seven investment portfolios, each
of which is a Series having its own investment objective;
Whereas, Section 4.9.2 of the MEMBERS Mutual Funds Declaration of Trust
provides that any additional Series of the Trust shall be established by
adoption of a resolution by the Board of Trustees, it is hereby
Resolved, That the Emerging Growth Fund is established as Series of the
Trust; and
Resolved, That the Emerging Growth Fund shall be divided into three
initial classes designated as "A" Shares, "B" Shares, and "D" Shares. The "A",
"B", and "D" Shares shall be subject to all of the resolutions, agreements,
plans, and documents currently effective for the Trust.
Resolved, That the Emerging Growth Fund shall have the attributes and
investment objectives as described in the registration statement. (A draft of
the "fund page" describing the Emerging Growth Fund is attached.)
<PAGE>
Exhibit (d)(2)
AMENDMENT NO. 1 TO MANAGEMENT AGREEMENT
FEBRUARY 17, 2000
Effective February 1, 2000, pursuant to adoption by the Board of
Trustees on February 17, 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 eight investment portfolios (each, a
"Fund") designated as Cash Reserves Fund, Bond Fund, Balanced Fund, High Income
Fund, Growth and Income Fund, Capital Appreciation 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:
"Emerging Growth 0.75%"
MEMBERS Mutual Funds
By: /s/ Lawrence R. Halverson
Name: Lawrence R. Halverson
Title: President
ATTEST:
/s/ Kevin S. Thompson, Esq.
CIMCO Inc.
By: /s/ Michael S. Daubs
Name: Michael S. Daubs
Title: President
ATTEST:
/s/ Kevin S. Thompson, Esq.
<PAGE>
Exhibit (d)(4)
INVESTMENT SUB-ADVISORY AGREEMENT
THIS INVESTMENT SUB-ADVISORY AGREEMENT ("Agreement"), effective as of
the 1st day of February, 2000, by and between CIMCO Inc., an Iowa corporation
(the "Adviser"), and Massachusetts Financial Services Company, a Delaware
corporation (the "Sub-Adviser").
Adviser and Sub-Adviser agree as follows:
1. Adviser hereby engages the services of Sub-Adviser in connection wit
Adviser's management of a portion of the assets (which could be up to 100%) of
the Emerging Growth Fund (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 and the percentage of assets of the Portfolio managed by each
sub-adviser will be determined by the Fund's Board of Trustees and CIMCO from
time to time. Sub-Adviser will be given thirty (30) days' written notice of all
changes effecting this Agreement or the Sub-Adviser's role hereunder. 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
CIMCO.
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 Portfolio 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 Portfolio shall be held in various
securities, cash or other investments. In this connection, 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. The Sub-Adviser and Adviser acknowledge that the Sub-Adviser is not the
compliance agent for the Fund or for the Adviser, and does not have access to
all of the Fund's or the Portfolio's books and records necessary to perform
certain compliance testing. To the extent that the Sub-Adviser has agreed to
perform the services specified in this Agreement in accordance with the Fund's
registration statement, the Fund's Declaration of Trust, the Portfolio's
prospectus and any policies adopted by the Fund's Board of Trustees applicable
to the Portfolio, and in accordance with applicable law, the Sub-Adviser shall
perform such services based upon its books and records with respect to the
Portfolio, which comprise a portion the Portfolio's books and records, and upon
information and written instructions received from the Fund or the Adviser, and
shall not be held responsible under this Agreement so long as it performs such
services in accordance with this Agreement, the policies of the Fund's Board of
Trustees and applicable law based upon such books and records and such
information and instructions provided by the Fund or the Adviser. The Adviser
shall promptly provide the Sub-Adviser with copies of the Fund's registration
statement, the Fund's Declaration of Trust, the Portfolio's currently effective
prospectus and any written policies or procedures adopted by the Fund's Board of
Trustees applicable to the Portfolio and any amendments or revisions thereto.
6. 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.
On occasions when Sub-Adviser deems the purchase or sale of a security
to be in the best interest of the Portfolio as well as other clients of the
Sub-Adviser, the Sub-Adviser to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be purchased or sold to attempt to obtain a more favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transactions, will be made by the Sub-Adviser in the manner the Sub-Adviser
considers to be the most equitable and consistent with its fiduciary obligations
to the Portfolio and to its other clients.
7. Unless the Adviser gives the Sub-Adviser written instructions to the
contrary, the Sub-Adviser shall use its good faith judgment in a manner which it
reasonably believes best serves the interests of the Portfolio's shareholders to
vote or abstain from voting all proxies solicited by or with respect to the
issuers of securities in which assets of the Portfolio may be invested.
8. Sub-Adviser's services under this Agreement are not exclusive.
Sub-Adviser may provide the same or similar services to other clients.
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.
9. 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 determine
by the Fund's Board of Trustees and set forth in the Fund's current registration
statement; (b) the provisions of the Investment Advisers Act of 1940 (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.
10. For the services rendered, the facilities furnished and the expenses
assumed by Sub-Adviser, Adviser shall pay Sub-Adviser at the end of each month,
a fee based on the average daily net assets of each Portfolio at the following
annual rates:
First $200 million 0.450%
Above $200 million 0.400%
A minimum of $20 million will be obtained and used to seed the Portfolio.
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 Portfolio 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.
11. 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
that are generated in connection with the Sub-Adviser's provision of services
hereunder and 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.
12. The Adviser and Sub-Adviser shall cooperate with each other in
providing information, reports and other materials to regulatory and
administrative bodies having proper jurisdiction over the Portfolio, the Adviser
and the Sub-Adviser in connection with the services provided pursuant to this
Agreement; provided, however, that this agreement to cooperate does not apply to
the provision of information, reports and other materials which either the
Adviser or the Sub-Adviser reasonably believes the regulatory or administrative
body does not have the authority to request or is the privileged or confidential
information of the Adviser or Sub-Adviser.
13. 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
non-public 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.
14. 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.
15. Representations and Warranties.
a. Adviser represents and warrants that:
(1) Adviser is registered with the U.S. Securities and
Exchange Commission under the Advisers Act. The Adviser shall remain so
registered throughout the term of this Agreement and shall notify Sub-Adviser
immediately if Adviser ceases to be so registered as an investment adviser;
(2) The Adviser is a corporation duly organized and
validly existing under the laws of the State of Iowa with the power to own and
possess its assets and carry on its business as it is now being conducted;
(3) The execution, delivery and performance by the
Adviser of this Agreement are within the Adviser's powers and have been duly
authorized by all necessary action on the part of its directors, and no action
by or in respect of, or filing with, any governmental body, agency or official
is required on the part of the Adviser for the execution, delivery and
performance of this Agreement by the parties hereto, and the execution, delivery
and performance of this Agreement by the parties hereto does not contravene or
constitute a default under: (a) any provision of applicable law, rule or
regulation; (b) the Advisers Articles of Incorporation or Bylaws; or (c) any
agreement, judgment, injunction, order, decree or other instruments binding upon
the Adviser;
(4) This Agreement is a valid and binding Agreement of
the Adviser;
(5) The Adviser has provided the Sub-Adviser with a copy
of its Form ADV as most recently filed with the Securities and Exchange
Commission ("SEC") and the Adviser further represents that it will, within a
reasonable time after filing any amendment to its Form ADV with the SEC furnish
a copy of such amendments to the Sub-Adviser. The information contained in the
Adviser's Form ADV is accurate and complete in all material respects and does
not omit to state any material fact necessary in order to make the statements
made, in light of the circumstances under which they are made, not misleading;
and
(6) The Adviser acknowledges that it received a copy of
the Sub-Adviser's current Form ADV, at least 48 hours prior to the execution of
this Agreement and has delivered a copy of the same to the Fund.
b. Sub-Adviser represents and warrants that:
(1) Sub-Adviser is registered with the U.S. Securities
and Exchange Commission under 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;
(2) The Sub-Adviser is a corporation duly organized and
validly existing under the laws of the State of Delaware with the power to own
and possess its assets and carry on its business as it is now being conducted;
(3) The execution, delivery and performance by the
Sub-Adviser of this Agreement are within the Sub-Adviser's powers and have been
duly authorized by all necessary action on the part of its directors, and no
action by or in respect of, or filing with, any governmental body, agency or
official is required on the part of the Sub-Adviser for the execution, delivery
and performance of this Agreement by the parties hereto, and the execution,
delivery and performance of this Agreement by the parties hereto does not
contravene or constitute a default under: (a) any provision of applicable law,
rule or regulation; (b) the Sub-Advisers Articles of Incorporation or Bylaws; or
(c) any agreement, judgment, injunction, order, decree or other instruments
binding upon the Sub-Adviser;
(4) This Agreement is a valid and binding Agreement of
the Sub-Adviser;
(5) The Sub-Adviser has provided the Adviser with a copy
of its Form ADV as most recently filed with the SEC and the Sub-Adviser further
represents that it will, within a reasonable time after filing any amendment to
its Form ADV with the SEC furnish a copy of such amendments to the Adviser.
The information contained in the Sub-Adviser's Form ADV is accurate and complete
in all material respects and does not omit to state any material fact necessary
in order to make the statements made, in light of the circumstances under which
they are made, not misleading; and
(6) The Sub-Adviser acknowledges that it received a copy
of the Adviser's current Form ADV, at least 48 hours prior to the execution of
this Agreement and has delivered a copy of the same to the Fund.
16. The Adviser will not use, and will not permit the Fund to use, the
Sub-Adviser's name (or that of any affiliate) or any derivative thereof or logo
associated therewith in Fund literature without prior review and approval by the
Sub-Adviser.
17. 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 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.
18. 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 shares of the class of stock representing an
interest in the Portfolio on sixty (60) days written notice to the Adviser and
Sub-Adviser, or by the Adviser, or by the Sub-Adviser, on sixty (60) 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.
19. 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.
20. 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 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 shares are present or represented
by proxy or (b) more than 50% of the votes attributable to the shares of such
class.
21. This Agreement shall be construed in accordance with laws of the Delaware,
and applicable provisions of the Advisers Act.
22. 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.
CIMCO Inc.
By: /s/ Michael S. Daubs
Michael S. Daubs, President
ATTEST:
/s/ Kevin S. Thompson, Esq.
Massachusetts Financial Services Company
By: /s/ Jeffery L. Shames
Title: Chairman
ATTEST:
/s/ James F. DesMarais, Esq.
<PAGE>
Exhibit (g)(2)
Kevin S. Thompson
Associate Counsel
Office of General Counsel
Phone: 608.231.8588
Fax: 608.238.2472
E-mail: kevin.thompson@cunamutual
January 18, 2000
Via Overnight Mail
Ms. Beverly Edwards
State Street Bank
801 Pennsylvania
Kansas City, MO 64105
Re: MEMBERS Mutual Funds Custody Agreement
Dear Ms. Edwards:
As you know, MEMBERS Mutual Funds entered into a Custody Agreement with State
Street Bank by agreement dated October 28, 1997. This letter is to notify you
that MEMBERS Mutual Funds is adding a new portfolio called the "Emerging Growth
Fund" to the MEMBERS Mutual Funds Series. MEMBERS Mutual Funds desires to have
State Street Bank (Custodian) render services for the Emerging Growth Fund under
the terms of the October 28, 1997 Custody Agreement. Please sign below to
indicate your agreement to add the Emerging Growth Fund as a portfolio pursuant
to section 18 of the October, 1997 Agreement. Thank you.
Very truly yours,
/s/ Kevin S. Thompson
Kevin S. Thompson
Associate Counsel
KST/gl
State Street Bank and Trust
By: /s/ Kenneth A. Bergeron
Name: Kenneth A. Bergeron
Title: Vice President
Date: February 4, 2000
<PAGE>
Exhibit (I)
[SUTHERLAND ASBILL & BRENNAN LLP LETTERHEAD]
February 17, 2000
Board of Trustees
MEMBERS Mutual Funds
5910 Mineral Point Road
Madison, Wisconsin 53705
Re: MEMBERS Mutual Funds
Form N-1A Registration Statement
Post-Effective Amendment for Emerging Growth Fund
(File No. 333-29511)
Trustees:
We have acted as counsel to MEMBERS Mutual Funds (the "Trust"), a business
trust organized under the laws of the State of Delaware, in connection with its
registration of an indefinite number of shares of beneficial interest in the
Emerging Growth Fund of the Trust (the "Shares") under the Securities Act of
1933, as amended (the "1933 Act"). In this connection, we have reviewed
post-effective amendment number 5 to the registration statement to be filed by
you with the Securities and Exchange Commission on Form N-1A (File No.
333-29511) (the "registration statement"). We also are familiar with the actions
taken by you at the board of trustees meeting on February 17, 2000 in connection
with the authorization, issuance and sale of the Shares.
We have examined such Trust records, certificates and other documents and
reviewed such questions of law as we have considered necessary or appropriate
for purposes of this opinion. In our examination of such materials, we have
assumed the genuineness of all signatures and the conformity to the original
documents of all copies submitted to us. As to certain questions of fact
material to our opinion, we have relied upon statements of officers of the Trust
and upon representations of the Trust made in the registration statement.
Based upon the foregoing, we are of the opinion that the Shares, when
issued and sold in the manner described in the registration statement, will be
legally issued, fully paid and non-assessable.
We are attorneys licensed to practice only in the States of Florida,
Georgia, Texas and the District of Columbia.
<PAGE>
Board of Trustees
February 17, 2000
Page 2
We hereby consent to the reference to the inclusion of this opinion as an
exhibit to the registration statement. In giving this consent, we do not admit
that we are in the category of persons whose consent is required under Section 7
of the 1933 Act.
Very truly yours,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ David S. Goldstein
David S. Goldstein
<PAGE>
Exhibit (j)(1)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form N-1A of our
report dated December 10, 1999, relating to the financial statements and
financial highlights of MEMBERS Cash Reserves Fund, MEMBERS Bond Fund, MEMBERS
Balanced Fund, MEMBERS High Income Fund, MEMBERS Growth and Income Fund, MEMBERS
Capital Appreciation Fund and MEMBERS International Stock Fund (constituting
MEMBERS Mutual Funds), which appears in such Registration Statement. We also
consent to the references to us under the headings "Financial Highlights" and
"Independent Auditors" in such Registration Statement.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
February 18, 2000
<PAGE>
Exhibit (j(1)
Independent Auditors' Consent
The Board of Trustees
MEMBERS Mutual Funds:
We consent to the use of our report dated December 11, 1998 included herein.
/s/ KPMG LLP
KPMG LLP
Minneapolis, Minnesota
February 18, 2000
<PAGE>
Exhibit (l)(4)
MEMBERS MUTUAL FUNDS
SUBSCRIPTION AGREEMENT
MEMBERS Mutual Funds, a business trust organized under the laws of the
State of Delaware (the "Trust"), and CUMIS Insurance Society, Inc. ("CUMIS"),
an insurance company organized under the laws of the State of Wisconsin, agree
as follows:
1. Offer and Purchase.
The Trust offers to CUMIS, and CUMIS agrees to purchase 10 Class A
shares (the "Shares") of Emerging Growth Fund, a series of the Trust. CUMIS
acknowledges receipt from the Trust of the Shares and the Trust acknowledges
receipt from CUMIS of an aggregate of $100 in full payment for the Shares.
2. Representation by CUMIS.
CUMIS represents and warrants to the Trust that the Shares are being
acquired for investment purposes and not with a view to resale or further
distribution.
3. Filing of Certificate of Trust.
The Trust represents that a copy of its Certificate of Trust dated May
16, 1997, as amended from time to time, is on file with the Secretary of State
of the State of Delaware. The Trust represents that a copy of its Declaration
of Trust dated May 16, 1997, as amended from time to time, is maintained by the
Trust
4. Limitation of Liability.
The Trust and CUMIS agree that the obligations of the Trust under this
Agreement will not be binding upon any of the Trustees, shareholders, nominees,
officers, employees or agents, whether past, present or future, of the Trust,
individually, but are binding only upon the assets and property of the Trust.
The execution and delivery of this Agreement has been authorized by the Trustees
of the Trust, and signed by an authorized officer of the Trust, acting as such,
and neither the authorization by the Trustees nor the execution and delivery by
the officer will be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but will bind only the trust
property of the Trust. No series of the Trust will be liable for any claims
against any other series.
5. No Right of Assignment.
CUMIS's right under this Agreement to purchase the Shares is not
assignable.
6. Dates.
This Agreement will become effective as of the date the Trust's next
post-effective amendment filed with the Securities Exchange Commission ("SEC").
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Agreement as of the 17th day of February, 2000.
MEMBERS MUTUAL FUNDS
By: /s/ Lawrence R. Halverson
Name: Lawrence R. Halverson
Title: President
ATTEST:
/s/ Kevin S. Thompson, Esq.
CUMIS Insurance Society, Inc.
By: /s/ Michael B. Kitchen
Name: Michael B. Kitchen
Title: President & Chief Executive Officer
ATTEST:
/s/ Kevin S. Thompson, Esq.
<PAGE>
Exhibit (m)(2)
MEMBERS MUTUAL FUNDS
SUPPLEMENT NO. 1 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 February 17, 2000 meeting, the Board of Trustees approved
supplementing the Plan to include the Emerging Growth Fund as part of the Plan.
D. The Service Plan is hereby supplemented to include the Emerging Growth
Fund.
IN WITNESS WHEREOF, MEMBERS Mutual Funds has adopted this Supplement to
the Service Plan as of February 1, 2000.
MEMBERS MUTUAL FUNDS
By: /s/ Lawrence R. Halverson
Lawrence R. Halverson
President
<PAGE>
Exhibit (m)(4)
MEMBERS MUTUAL FUNDS
SUPPLEMENT NO. 1 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 February 17, 2000 meeting, the Board of Trustees approved
supplementing the Plan to include the Emerging Growth Fund as part of the Plan.
D. The Distribution Plan is hereby supplemented to include the Emerging
Growth Fund.
IN WITNESS WHEREOF, MEMBERS Mutual Funds has adopted this Supplement to
the Distribution Plan as of February 1, 2000.
MEMBERS MUTUAL FUNDS
By: /s/ Lawrence R. Halverson
Lawrence R. Halverson
President
<PAGE>
Exhibit (m)(6)
MEMBERS MUTUAL FUNDS
SUPPLEMENT NO. 1 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 February 17, 2000 meeting, the Board of Trustees approved
supplementing the Plan to include the Emerging Growth Fund as part of the Plan.
D. The Service Plan is hereby supplemented to include the Emerging Growth
Fund.
IN WITNESS WHEREOF, MEMBERS Mutual Funds has adopted this Supplement to
the Service Plan as of February 1, 2000.
MEMBERS MUTUAL FUNDS
By: /s/ Lawrence R. Halverson
Lawrence R. Halverson
President
<PAGE>
Exhibit (p)(1)
MEMBERS Mutual Funds
Code of Ethics
Adopted October 28, 1997
Introductory Statement
On October 28, 1997, the Board of Trustees of the MEMBERS Mutual Funds (the
"Fund") adopted a Code of Ethics (the "Code"). The goal of this Code is to
safeguard the interests of the Fund shareholders, without incurring unnecessary
administrative duplication of existing procedures. Therefore, this Code
incorporates sections 4.l, 4.2, and 5.4 of the Policy Against Insider Trading
(Policy) adopted October 14, 1994, as amended March 19, 1997, by the Board of
the Investment Adviser to the Fund, CIMCO Inc. (CIMCO).
Statement of General Principles
All persons associated with the Fund shall place the interests of the
shareholders of the Fund before their own personal interests. All personal
securities transactions shall be conducted in such a manner as to avoid any
actual or potential conflict of interest or any abuse of any person's position
of trust and responsibility to the Fund. No person associate with the Fund
shall take inappropriate advantage of the person's association with the Fund.
Quarterly reports of personal securities transactions shall be completed by each
person subject to section 17(j)of the Investment Company Act, for example, a
person who:
"makes any recommendation, participates in the determination of which
recommendation shall be made, or whose principal function or duties
relate to the determination of which recommendation shall be made to
any registered investment company; or who, in connection with his
duties, obtains any information concerning securities recommendations
being made by such investment adviser to any registered investment
company."
Certification of Compliance
Each person who completes a quarterly report of personal securities transactions
shall certify annually that:
~ The person has read and understood this Code and recognizes
that the person is subject to it.
~ The person has complied with the requirements of this Code
and has reported all personal securities transactions
required to be reported.
Incorporation of a 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 respectively as Appendices A, B, and C, are incorporated herein by
reference as the Fund's Code applicable to persons described below. Those
provisions of an investment sub-adviser's code of ethics applicable to persons
who, in connection with their regular functions or duties, make, participate in,
or obtain information regarding the purchase or sale of a security, or whose
functions relate to the making of any recommendation with respect to such
purchase or sale by registered investment companies sponsored, managed, or
advised by such investment sub-adviser are hereby incorporated herein by
reference as additional provisions of the Fund's Code applicable to those
persons subject to Section 17(j) of the Investment Company Act who are partners,
directors, or employees of such sub-adviser and who have direct responsibility
for investments of the Fund.
A violation of an investment sub-adviser's code of ethics by persons subject to
Section 17(j) of the Investment Company Act who are partners, directors, or
employees of such investment sub-adviser shall constitute a violation of this
Code.
In connection with "certification of compliance" above, provided that an
investment sub-adviser reports any violations of the Code that it uncovers from
its review of personal securities transaction reports made to it by those
persons subject to Section 17(j) of the Investment Company Act who are partners,
directors, or employees of such sub-adviser and who have direct responsibility
for investments of the Fund, and certifies in writing at the end of each
calendar quarter of the Fund to the compliance officer of the Fund that no
violation of the Code occurred during that quarter other than those violations
reported, then reporting of such security transactions by partners, directors,
or employees of an investment sub-adviser in compliance with procedures
established pursuant to the investment sub-adviser's code of ethics shall
constitute the reporting required under the Fund's Code.
Prohibitions
No person who completes a quarterly report of personal securities transactions
may:
~ Acquire any securities of an initial public offering for the
person's own account until the seventh calendar day after the
offering date and then only at the prevailing market price for
bonafide long-term investment in accordance with the person's
normal investment practice.
~ Acquire any securities through a private placement for the
person's own account without the prior written approval of the
majority of the noninterested trustees of the Fund.
~ Accept any gift or other thing of more than de minimus value
from any person or entity that does business with or on behalf
of the Fund.
~ Serve as a director of a publicly traded company without the
prior written approval of the majority of the noninterested
trustees of the Fund.
Restricted List
This Code incorporates the provisions of the CIMCO Policy reproduced below:
"4.1 The Restricted List is the responsibility of the Vice
President-Investments. The Restricted List shall include two
categories of securities. The first category includes any
equity security which CIMCO, on behalf of clients, intends to
trade or is trading. The second category includes any
security of any company moved from the Watch List to the
Restricted List. CIMCO is prohibited from trading in any
security in the second category. The list will be kept in a
nonpublic place in the custody of a person designated by the
Vice President-Investments. The Restricted List will show:
~ the date and time the security was added to the list,
~ the name of the person who added it,
~ the date and time a security was deleted,
~ the name of the person who deleted it,
~ whether the security is in category one, that is,
CIMCO is trading or intending to trade the security,
or is in category two, that is, CIMCO is prohibited
from trading the security.
4.2 Do not make any trade or recommendation involving any security
or any option on a security on the Restricted List for
yourself, any member of your family, or any other person,
except that you may trade securities in category one for
clients of CIMCO. Personal trading is prohibited during the
entire time a security is on the Restricted List and for seven
calendar days after the security has been removed from the
Restricted List. In addition, the quarterly audit will review
personal trading within seven days before a security is added
to the Restricted List. The Compliance Committee [as defined
in the CIMCO Policy] shall determine whether any abuse has
occurred. If an abuse has occurred, any profit resulting from
the abuse shall be disgorged and any other appropriate action
taken. To facilitate review of personal trades, any of which
may prove to have been made within seven days before a
security is added to the Restricted List, all personnel with
authority to make trading decisions on behalf of CIMCO and
clients of CIMCO shall document in writing all personal
trades, at the time of the trade, indicating why the trade
would not be appropriate for CIMCO and its clients. The
written documentation shall be filed within 24 hours after
making the trade in the Restricted List File."
Quarterly Audits
This Code incorporates the provisions of the CIMCO Policy reproduced below:
"5.4 A person designated by the head of Internal Auditing shall
conduct an audit within the month following the end of each
quarter. Notwithstanding the provisions of section 3.2, the
names of companies on the Watch List shall be made available
to the auditor for purposes of the quarterly audit. The audit
will review quarterly reports of personal securities
transactions and compare personal trades to the Restricted
List. Any personal trades involving securities restricted at
the time of the trade or within the seven calendar days
preceding the date a security was added to the Restricted List
will be noted. The audit will also review whether securities
of companies on the Watch List were traded during the quarter.
The results of the audit will be presented to the members of
the Compliance Committee."
Board Review
As soon as necessary, but in no event later than the board meeting following the
second quarter of 2000, the Board shall review any difficulties encountered in
administering this Code, any material violations of this Code, and any changes
in applicable laws and regulations. At the time of such review, the Board
shall consider the interests of shareholders and shall make any changes
necessary to comply with statutory and regulatory changes.
Sanctions
Violation of this Code may subject any person who completes quarterly reports to
disciplinary action. The Compliance Committee will report material violations
to the Board of Trustees and to regulatory authorities.
<PAGE>
Exhibit (p)(2)
COMPLIANCE
Policies and Procedures
Portfolio
MASSACHUSETTS FINANCIAL SERVICES COMPANY
STATEMENT OF POLICY ON
PERSONAL SECURITIES TRANSACTIONS
(Code of Ethics)
As Adopted by the Executive Committee
Effective September 1, 1997
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"). 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 Investment Company
Act, the Investment Advisers Act and the Securities Exchange Act. 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. In addition to complying with the specific rules, we all 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 our clients must supersede the interest of MFS
representatives.
1. General Fiduciary Principles. All personal investment activities conducted by
MFS 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
should not take inappropriate advantage of their positions.
2. Applicability of Restrictions and Procedures. In recognition of the different
circumstances surrounding each MFS representative's employment, various
categories of MFS employees are subject to different restrictions under this
Code of Ethics. For purposes of applying this Code of Ethics, MFS employees are
divided into the general categories of Portfolio Managers, Investment Personnel,
Access Persons 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 Executive
Committee.
As used in this Code of Ethics, the term "securities" includes not only publicly
traded equity securities, but also privately issued equity securities, 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.
3. Restrictions on Personal Securities Transactions. No Access Person shall deal
in any security which is subject to a pending "buy" or "sell" order for a client
of MFS until such order is executed or withdrawn. In addition, no Investment
Personnel shall deal in any security within at least seven calendar days 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 the next 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 until 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). No Portfolio
Manager shall deal 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. 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 Access Person shall transmit any knowledge of 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.
Securities transactions being executed for the personal account of a Portfolio
Manager may, in certain instances, be subject to the written approval of a
Preclearance Authority in addition to standard preclearance as described below.
The Preclearance Authorities are: Jeffrey L. Shames, Arnold D. Scott, Leslie J.
Nanberg and John W. Ballen.
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.
Short Sales. No Access Person shall effect a short sale in any security
held in a portfolio managed by MFS. Access Persons may engage in
transactions in options and futures, subject to special preclearance
rules applicable to certain of those transactions. See Section 5 below.
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 prohibited. An exception will be allowed in the event an issue
is available on the day following an underwriting, an underwriter or
selling group member, where there is no premium in the open market
quotation. Rights including rights purchased to acquire an additional
full share) issued in respect of securities any Access owns may be
exercised, subject to preclearance; the decision whether or not to
grant preclearance take into account, among other factors, whether the
investment opportunity should be reserved for an client and whether the
investment opportunity is being or was offered to the individual by
virtue of his or position with MFS.
Private Placements. Any acquisition by Access Persons of securities
issued in a private placement is to preclearance; the decision whether
or not to grant preclearance shall take into account, among other,
whether the investment opportunity should be reserved for an MFS client
and whether the investment is being offered to the individual by virtue
of his or her position with MFS. Investment Personnel who been
precleared to acquire securities in a private placement are required to
disclose that investment when play a part in any subsequent
consideration of an investment in the issuer for an MFS client; in
such, the decision to purchase securities of the issuer for the MFS
client shall be subject to an review by Investment Personnel with no
personal interest in the issuer.
Note: Acquisitions of securities in private placements by the following
types of issuers need not be precleared, but are subject to the
reporting, disclosure and independent review requirements: family
businesses; country, yacht clubs and other similar entities; and small
issuers (i.e., those with fewer than $5,000,000 in outstanding).
Prohibition on Short-Term Trading Profits. All Investment Personnel are
prohibited from profiting in the and sale, or sale and purchase, of the
same (or equivalent) securities within 60 calendar days. Any realized
on such short-term trades must be disgorged to the affected MFS client
(if any) or, in the event the amount to be disgorged is relatively
minor or difficult to allocate, to charity. This restriction on-term
trading profits shall not apply to transactions exempt from
preclearance requirements. See Section below.
It is expected that all MFS representatives will follow these restrictions in
good faith and conduct their personal trading in with the intended purpose of
this Code of Ethics. Note: Any Non-Access Person who receives any information
any particular investment recommendation or executed or proposed transaction for
any MFS client is to comply with all preclearance and other requirements of
this Code of Ethics applicable to Access. Any individual should feel free to
take up with the Executive Committee any case in which he or she feels burdened
by these policies; the Executive Committee may, in its sole discretion, grant
appropriate exceptions the requirements of this Code of Ethics where warranted
by applicable facts and circumstances.
4. Beneficial Ownership. The prohibitions of this policy apply to any account in
which an Access Person has "direct or beneficial ownership", or over which he or
she has any "direct or indirect influence or control." Under presently SEC
interpretations such "beneficial ownership" includes accounts of a spouse, minor
children and relatives in the Access Person's house, as well as any other
contract, relationship, understanding or other arrangement which an opportunity
for the Access Person to profit or share profits from a transaction in
securities results.
NOTE: The exception for accounts with respect to which an Access Person lacks
"direct or indirect influence control" is extremely narrow, and should only be
relied upon in cases which have been pre-approved in by Stephen E. Cavan or
Robert T. Burns of the Legal Department. Certain "blind trust" approved by the
Legal Department may be excluded from the preclearance (but not the reporting)
requirements of this Code of Ethics.
5. Preclearance Requirements. In order to facilitate compliance with this Code
of Ethics, preclearance requests must be and approved before any transaction may
be made by an Access Person. A preclearance request in the form attached, as
amended from time to time, should be completed for any order for an Access
Person's own account or one in Section 4 above and should be signed and
presented, or, in the case of an Access Person who wishes to while outside of
the Boston area, sent by facsimile machine, to the Preclearance Administrators
or their designated. Any preclearance request received before 3:00 p.m. on a
business day normally will be responded to by 10:30.m. on the following business
day. Preclearance requests will be reviewed by Equity and Fixed Income
Department who will be kept apprised of recommendations and orders to purchase
and sell securities on behalf of MFS clients, completion or cancellation of such
orders and the securities currently held in portfolios managed by MFS. Their
advice be forwarded to a Preclearance Authority.
An Access Person who obtains the written notice of a Preclearance Authority
indicating consent to an order which the Person proposes to enter for his or her
own account or one described in Section 4 above may only must execute that on
the day when such notice is received unless otherwise stated on the notice. Such
notices will always be in writing; however, in the case of an Access Person who
wishes to preclear a transaction while outside the Boston area, a Preclearance
Administrator will also provide oral confirmation of the content of the written
notice.
Preclearance requests may be denied for any number of appropriate reasons, some
of which are highly confidential. Accordingly, an Access Person is not entitled
to receive any explanation or reason if his or her preclearance request is
denied.
Significant Ownership by MFS Clients. In cases where MFS clients own,
in the aggregate, 8% or more of the outstanding equity securities of an
issuer, requests by Access Persons to purchase the securities of such
issuer will be denied. Requests to preclear sales of such securities
may be granted, subject to the standard requirements set forth in
Section 3 above.
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 set forth in Section 3 above.
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 not buy a put option on
any security held in a portfolio managed by MFS or write (sell to open)
options and futures contracts. In the case of purchased put and call
options, the preclearance of the exercise of such options as well as
their purchase and sale, is required. Preclearance of the exercise of
purchased put and call options shall be requested on the day 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. Purchases and sales of options or futures
contracts to "close out" existing options or futures contracts must be
precleared.
MFS Closed-End Funds. All transactions effected by any Non-Access
Person or Access Person 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.
6. Duplicate Confirmation Statement Requirement. In order to implement and
enforce the above policies, every MFS representative (excluding Retired Partners
and employees of the Transfer Agent Division of MFS Service Center, Inc.
employees) shall arrange for his or her broker to send MFS duplicate copies o
all confirmation statements issued with respect to the representative's
transactions and all periodic statements for such representative's securities
accounts. The Preclearance Administrators will assist MFS representatives in
complying with this requirement.
7. Reporting Requirement. Each MFS representative (excluding Retired Partners
and employees of the Transfer Agent Division of MFS Service Center, Inc.
employees) shall report on or before the seventh business day of each calendar
quarter any securities transactions during the prior quarter in accounts covered
by Section 4 above. Reports shall designate the Preclearance Authority who
cleared the transaction, if preclearance was required, and shall be in the for
attached hereto, as amended from time to time. Reports shall be reviewed by MFS
personnel designated by the Executive Committee.
In filing the reports for accounts within these rules, please note:
(i) You must file a report for every calendar quarter even if you had
no reportable transactions in that quarter; all reportable transactions
should be listed, if possible, on a single form.
(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 8 below for
certain exceptions to this requirement.
(iii) Copies of bank statements or broker's advice may be attached to
your report in lieu of listing the transactions.
(iv) Reports will be treated confidentially unless a review of
particular reports with the representative is required by the Executive
Committee.
(v) Reports are made available for review by the Trustees of MFS
investment company clients at their regular meetings.
Note: Any MFS representative who maintains all of his or her personal
securities accounts with one or more of the following broker-dealer
firms reasonably acceptable to the Compliance Department(or other firms
designated from time to time by the Executive Committee), and arranges
for such firms to send the confirmation statements and periodic account
statements (no less frequently than quarterly) required by Section 6
above, shall not be required to prepare and file the quarterly reports
required by this Section 7. However, each such MFS representative shall
be required to verify the accuracy and completeness of all such
statements on at least an annual basis. Spartan (Fidelity) Brokerage
Merrill Lynch, Pierce, Fenner & Smith;
PaineWebber/Kidder Peabody; or Oppenheimer.
8. Certain Exceptions. Transaction in shares of any of the open-end investment
companies for which the MFS organization is investment adviser and transfer
agent, including the reinvestment of distributions, need not be precleared or
reported. Such information will be obtained from the investment company's
transfer agent on at least a quarterly basis and reviewed by MFS personnel
designed by the Executive Committee. Transactions in shares of other
non-affiliated open-end mutual funds need not be reported or precleared.
Transaction in shares of any of the open-end investment companies for which MFS
organization is investment adviser, but not transfer agent, need not be
precleared but (except for the reinvestment of distributions and automatic bank
draft investments) must be reported.
Automatic reinvestment 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.
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.
Transactions in U.S. Treasury securities (including options and futures
contracts and other derivatives with respect to such securities) need not be
precleared or reported. Option and futures contracts on U.S. Government
obligations (other than U.S. Treasury securities) and securities indices need
not be precleared but must be reported.
Transactions in U.S. Government securities offered on the basis on
"non-competitive tender" need not be precleared or reported. However, U.S.
Government obligations (other than U.S. Treasury securities) offered by
"subscription" must be precleared and reported. Transactions in money market
instruments need not be precleared, although such transactions must be reported.
Receipts of stock dividends and stock splits need not be reported.
Foreign currency transactions need not be precleared or reported.
Transactions in real estate limited partnership interests need not be precleared
or reported.
9. Disclosure of Personal Securities Holdings. All Investment Personnel (other
than certain clerical and administrative personnel specifically excluded by the
Compliance or Legal Department) are required to disclose all personal securities
holdings upon commencement of employment with MFS and thereafter on an annual
basis.
10. 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.
11. 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 Executive 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.
12. Certification of Compliance with Code of Ethics. All MFS 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 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.
13. Sanctions. Any trading for an MFS representative's account which does not
evidence a good faith effort to comply with these rules will be subject to
Executive Committee review. If the Executive Committee 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 of MFS investment company
clients and will be reflected in the employee's personnel file.
<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 Executive
Committee:
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).
Investment Personnel -- all Portfolio Managers as well as securities
analysts, traders and other members of the Equity Trading, Fixed Income
and Research Departments.
Access Persons -- all Portfolio Managers, Investment Personnel and
other members of the following departments or groups: Institutional
Advisors; Compliance; Fund Accounting; and Investment Communications;
and Technology Services & Solutions ("TS&S") (excluding, however,
certain TS&S employees who may be specifically excluded by the
Compliance or Legal Departments); also included are members of the MFS
Executive Committee and the MFS Advisory Board. In certain instances,
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 Treasury; Information
Technology Services; Facilities Management; Human Resources; Internal
Audit (unless undergoing an audit of an access area); Legal; MFS
Service Center, Inc. (other than TS&S employees); 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. In addition, transactions in shares of the MFS
closed-end funds are subject to all such preclearance and reporting
requirements (see Section 6 of this Code of Ethics).
<PAGE>
Exhibit (p)(3)
Set forth below is Lazard's policy on personal securities transactions. As a
general rule, Lazard personnel are reminded that the interests of Lazard's
clients take priority over the investment desires of Lazard personnel. All
Lazard personnel must conduct themselves in a manner consistent with Lazard's
requirements as set forth in this Code of Ethics and the respective Codes of
Ethics of The Lazard Funds, Inc. and Lazard Retirement Series, Inc. as well as
the Compliance Manual of Lazard Freres & Co. LLC ("LF&Co" or the "Firm") then in
effect. Please review this Code of Ethics carefully and contact the Compliance
Department if there are any questions.
Personal Securities Accounts Covered
The restrictions set forth below apply to trading for all "Personal
Securities Accounts." These include:
o Accounts in the Managing Director's or employee's name or accounts in
which the Managing Director or employee or any Related Person has a direct
or indirect beneficial interest other than an account which is managed by
another manager, or by other Lazard portfolio managers, for a fee;
o Accounts in the name of the Managing Director's or employee's spouse;
o Accounts in the name of children under the age of 21, whether or not living
with the Managing Director or employee, and relatives or other individuals
living with the Managing Director or employee or for whose support the
Managing Director or employee is wholly or partially responsible (together
with the Managing Director's or employee's spouse, "Related Persons");
o Accounts in which the Managing Director or employee or any Related Person
directly or indirectly controls, participates in, or has the right to
control or participate in, investment decisions, except for trades where
the Managing Director or employee or Related Person does not provide input.
Restrictions
The following restrictions apply to trading for Personal Securities Accounts of
Lazard personnel, all of which are subject to certain de minimus provisions and
may be waived upon consent of Lazard's or; to the extent applicable, LF&Co's,
compliance personnel:
1. No transactions for a Personal Securities Account may be made in a
security that is on the Restricted List;
2. No security may be purchased or sold for a Personal Securities Account:
(a) if the security is currently being considered for purchase or sale for
a Lazard client; or
(b) if the security is being purchased or sold for a Lazard client on that
day or has been purchased or sold for a Lazard client within the
immediately preceding 7 calendar day period;
3. No purchase and sale, or sale and purchase, of a security for a
Personal Securities Account may occur within any 60-day period without
prior approval of Norman Eig, Herb Gullquist or Bill Butterly;
4. No transaction for a Personal Securities Account may be made in
securities offered pursuant to a public offering. Securities offered
pursuant to a private placement may not be purchased for Personal
Securities Accounts without the approval of Norman Eig, Herb Gullquist
or Bill Butterly;
5. No transaction for a Personal Securities Account may be made in "deal"
or "rumor" securities, which are defined as securities of companies
that are the subject of reports or rumors of actual or anticipated
extraordinary corporate transactions or other corporate events;
6. Absent approval from the appropriate compliance personnel, Managing
Directors and employees are prohibited from engaging in the trading of
options or futures and from engaging in speculative trading as opposed
to investment activity. When such approval is given and Managing
Directors and employees effect opening transactions in options, the
resulting closing transaction will be considered effected on the day
that the opening transaction was effected for compliance purposes. The
Managing Director or employee must wait 60 days from the date of the
opening transaction before effecting the closing transaction.
Managing Directors and employees are prohibited from engaging in short
sales of any security.
7. No transaction may be made in violation of the Material Non-Public
Information Policies and Procedures as outlined in Chapter X of LF&Co's
Compliance Manual; and
8. All transactions for Personal Securities Accounts must be approved by a
Managing Director of Lazard, preferably the Managing Director to whom
the employee reports, and pre-cleared by Don Klein and Bill Butterly,
or their respective representatives. These approvals should be written
on the trade ticket. In addition, each Managing Director or employee
should complete and deliver to Bill Butterly, prior to the transaction,
the attached personal securities transaction form. The procedure for
pre-clearing a personnel trade is explained in greater detail below.
Exemptions
The restrictions and prohibitions contained in this Code shall not apply to:
(a) Purchases or sales of securities which receive the prior approval
of either Norman Eig or Herbert W. Gullquist and Bill Butterly (the
approving officer having no personal interest in such purchases or
sales) because such purchases or sales are not likely to have any
economic impact on any client account managed or advised by Lazard
(b) Any securities transaction, or series of related transactions during any
30-day period, involving 500 shares or less in the aggregate of any
security, if the issuer has a market capitalization (outstanding shares
multiplied by the current price per share) greater than US $1 billion
("de minimus exemption"). This provision does not provide an exemption
from the 60-day holding period.
Other Items
1. Lazard personnel may not serve on the board of directors of any
corporation (other than a not-for-profit corporation or a related Lazard
entity) without the prior approval of Norman Eig or Herb Gullquist;
2. All Lazard personnel must complete quarterly Personal Security Account
transaction reports. By law, these reports must be returned to
Compliance by the tenth day following the end of the quarter. To ensure
strict compliance with these requirements, the forms should be
returned by the seventh day following the end of the quarter; and
3. Each Lazard Managing Director and employee must annually certify
compliance with the Lazard Code of Ethics with respect to all Personal
Securities Accounts.
Securities Covered
Lazard's policies and procedures regarding personal securities trading set forth
herein apply to transactions involving all equity and debt securities, including
common and preferred stock, investment and non-investment grade debt securities,
investments convertible into or exchangeable for stock or debt securities, or
any derivative instrument relating to any such security or securities index,
including options, warrants and futures, or any interest in a partnership or
other entity that invests in any of the foregoing. Investments in mutual funds,
certificates of deposit and federal government obligations are not covered by
these policies and procedures. Any other exception to personal securities
trading policies and procedures must be approved.
Transaction Approval Procedures
Internal Accounts
To pre-clear a transaction being made in a Personal Securities Account held at
the Firm (an "Internal Account"), Lazard personnel must:
1. Complete and sign a trade ticket and have it signed by their
supervising Managing Director* or, in the absence of their supervising
Managing Director, another Lazard Managing Director;
2. Complete and sign a Lazard Personal Securities Transaction Approval
Request, a copy of which is attached hereto as Exhibit A; and
3. Give both the Transaction Approval Request Form and the trade ticket to
Bill Butterly or David Osunkwo for approval; the Compliance Department
will process the ticket and forward it to the trading room for execution.
Both the Transaction Approval Request Form and the trade ticket, duly completed
and signed as required, must be received by Bill Butterly or David Osunkwo no
later than 9:30 a.m. each day. The Compliance Department will process and
submit the tickets for execution. Trade tickets received by the Compliance
Department after 9:30 a.m. will be processed on the next business day.
Outside Accounts
Lazard personnel may not maintain a securities or commodities account (including
a foreign securities account) at any other broker or dealer or bank (an "Outside
Account") without the prior written consent of the Firm. Where such consent is
given, employees must provide the Firm with the name of the broker-dealer firm
with whom they carry their personal accounts and must request that the
broker-dealer send to Lazard, to the attention of both Donald Klein and Bill
Butterly, copies of monthly account statements and all trade confirmations.
These same principles apply to establishing an account at another brokerage\
house where the employee has control over the trading in that account (such as a
discretionary account, a nominee account, an account for a general or limited
partnership, a trust account), or an account of a corporation where trading is
controlled or influenced by the Lazard employee. If you already have an Outside
Account, please notify Bill Butterly as soon as possible to facilitate the
distribution and review of your monthly account statements and trade
confirmations.
Managing Directors and employees are required to report promptly to Donald
Klein and Bill Butterly any change in status or location of any account in
which they have a beneficial interest as defined above. With respect to a
trust account of which a Managing Director or employee or member of his
immediate family is a beneficiary, the Firm policy requires that the Firm
receive duplicate confirmations and monthly account statements for each such
account. Similarly, Managing Directors and employees are required to report
private securities and commodities transactions effected by or for (i)
themselves, (ii) spouses and unemancipated family members, (iii) accounts over
which the employee has control as described above, or (iv) accounts of which
the employee or a member of his family is a beneficiary, or (v) accounts of
family members including
Accounts of in-laws where introduced or carried by an employee or Managing
Director's member organization. Deviations from the foregoing policies will be
permitted only with the prior written approval of an appropriate individual with
compliance responsibilities.
To pre-clear a transaction being made in an outside account, Lazard personnel
must
1. Complete and sign a Transaction Approval Request Form from Don Klein's
office, a copy of which is attached hereto as Exhibit B, and have the
form signed by a Managing Director*, preferably to whom the employee
reports,;
2. Complete and sign a Lazard Personal Securities Transaction Approval
Request, a copy of which is attached hereto as Exhibit A; and
3. Give both Transaction Approval Request Forms to Bill Butterly or David
Osunkwo for approval. The Transaction Approval Request Forms duly
completed and signed as required, must be received by Bill Butterly or
David Osunkwo no later than 9:30 a.m. each day. Trade requests received
by the Compliance Department later than 9:30 a.m. will be processed on
the next business day. The Compliance Department will process the
requested trade and notify the Managing Director or employee of the
approval status.
Once a Managing Director or employee receives approval, the Lazard personnel
must transmit appropriate trade instructions to their outside broker within two
days, or the approval will become null and void.
- --------
* Gerald Mazzari has been designated the authorized signatory for employees in
the following departments: Administration, Account Services, New Accounts,
Database/Proxies/Billing, Accounting, Client Reporting, Portia A.P.O.,
Production Center, Account Services, Billing and Client Reporting. In his
absence, a Managing Director's signature will continue to be required.
<PAGE>
LAZARD FRERES & CO. LLC
INTEROFFICE MEMORANDUM
TO: Donald Klein _____________________, 1998
RE: Transaction Approval Request
================================================================================
As required by Lazard Freres & Co. LLC (the "Firm"), I hereby request the Firm's
approval for the proposed securities transaction described below. (Firm
approval is not required for investments in mutual funds, certificates of
deposit, or federal government obligations.)
EMPLOYEE NAME: (Please Print) __________________________________________________
Account No. _________________ Brokerage Firm: _________________________
Account Name: (If different than Employee) ____________________________________
Relationship to Employee (e.g., spouse, child, dependent or other Related
Persons):
1. Date: _________________________
If transaction is a SELL, date securities purchased __________
2. Security Description: ___Common or Preferred ___Bond ___Other
3. Security Name: ____________________ _____BUY or _____SELL
4. Size of Proposed Transaction: Number of Shares, Bonds or Other ___
5. Reason for purchase/sale: ________________________________________
Managing Director/Employee by his/her signature affixed below declares that the
Managing Director/Employee, and if applicable, the Related Person on whose
behalf approval is sought, has no inside information or other knowledge
pertaining to this proposed transaction that constitutes a violation of any Firm
policy or securities law, rule or regulation.
__________________________ __ ________________________________
Compliance Approval Managing Director/Employee Signature
_____ Approve _____ Disapprove ________________________________
Supervising Managing Director
THIS APPROVAL ONLY APPLIED TO THE TRANSACTION DESCRIBED ABOVE AND ONLY IF
EXECUTED WITHIN TWO BUSINESS DAYS FROM THE DATE OF APPROVAL. ANY ADDITIONAL OR
LATER TRANSACTIONS REQUIRE SEPARATE APPROVAL.
cc: Employee
As of _____________________.
<PAGE>
LAZARD PERSONAL SECURITIES TRANSACTION APPROVAL REQUEST
- --------------------------------------------------------------------------------
This section must be completed and signed by the Managing Director/Employee
making the trade. Please attach the trade ticket signed by a Managing Director
before giving this approval request form to the appropriate compliance
personnel.
- ------------------------------------- -------------------------------------
NAME OF Managing Director OR EMPLOYEE DATE
- ------------------------------------- ------------
ACCOUNT NAME (IF DIFFERENT FROM ACCOUNT #
MANAGING DIRECTOR OR EMPLOYEE NAME)
- ------------------------------------- -------------------------------------
SECURITY NAME AND SYMBOL SIZE OF TRANSACTION (NUMBER OF
SHARES OR BONDS)
- -------------------------------------
SECURITY DESCRIPTION
Have you purchased or sold this security within the past 60 days?___ Yes ___ No
Managing Director or employee relationship to issuer: __________________________
Managing Director/Employee by his/her signature below declares that the
information given above is correct to the best of his/her knowledge and that the
Managing Director/Employee, and if applicable, the Related Person on whose
behalf approval is sought, has no inside information or other knowledge
pertaining to this proposed transaction that constitutes a violation of any
policy of Lazard Freres & Co.LLC or securities law, rule or regulation.
_______________________________________
Managing Director or Employee Signature
- --------------------------------------------------------------------------------
================================================================================
This section for completion by Lazard compliance personnel.
Approved by Managing Director? ___ Yes ___ No Public Offering? ___ Yes ___ No
Copy of Trade Ticket Attached? ___ Yes ___ No Private Placement? ___ Yes ___ No
Security contemplated for trading by Lazard clients? ___ Yes ___ No
================================================================================
_________________________________________
Confirmed by (Managing Director)
Security traded by Lazard clients within past seven days?
_____ Yes _____ No
Security purchased or sold by Managing Director or employee within past 60 days
_____ Yes _____ No
_________________________________________
William G. Butterly, III
<PAGE>
Exhibit (p)(4)
Code of Ethics
Adopted May 10, 1995
Revised January 20, 1999
CODE OF ETHICS
1. Purposes
This Code of Ethics is adopted by and on behalf of Investment Advisers,
Inc., IAI International Limited, IAI Securities, Inc. and each of the
registered investment companies within the IAI Family of Funds in an
effort to prevent violations of the 1940 Act and the Rules and
Regulations thereunder and to codify the written policies and
procedures designed to prevent the misuse of Material nonpublic
information in violation of the 1934 Act or the Advisers Act, or the
Rules and Regulations thereunder, or ensure IAI International's
compliance with the Investment Management Regulatory Organisation and
the Rules and Regulations thereunder.
Rule 17j-1(b)(1) of the 1940 Act requires registered investment
companies and each investment adviser of or principal underwriter for
such investment companies to adopt a written code of ethics containing
provisions reasonably necessary to prevent access persons from engaging
in certain activities prohibited by Rule 17j-1 and to use reasonable
diligence, and institute procedures reasonably necessary, to prevent
violations of such code.
Section 204A of the Advisers Act requires investment advisers to
establish, maintain, and enforce written policies and procedures
reasonably designed to prevent the misuse of Material nonpublic
information by such investment adviser or any person associated with
such investment adviser.
The purpose of this Code is to establish policies consistent with Rule
17j-1 of the 1940 Act, Section 204A of the Advisers Act and with the
following general principals:
All employees have the duty at all times to place the
interests of clients and shareholders ahead of their
own personal interests in any decision relating to
their personal investments.
All personal securities transactions shall be
conducted consistent with this Code 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.
Employees shall not take inappropriate advantage of
their position and must avoid any situation that
might compromise, or call into question, their
exercise of fully independent judgment in the
interest of shareholders and clients.
2. Scope and Applicability
The prohibitions and the preclearance and reporting requirements set
forth in this Code apply to all transactions in a Security which the
Access Person has, or by reason of such transaction acquires, any
direct or indirect Beneficial Ownership unless that Security or
transaction has been specifically exempted by this Code. An Access
Person may be an Access Person with respect to one or more of the
individual companies described collectively herein as Adviser.
3. Definitions
Unless the context clearly indicates otherwise, capitalized terms have
the meanings set forth in Section 15 hereto.
4. Exempted Securities
Sections 6, 7 and 9 of this Code shall not apply to:
(a) shares of unaffiliated registered open-end investment
companies (mutual funds, european funds and unit trusts);
(b) securities issued by the United States government, the UK
government, or any EU government;
(c) short-term debt securities which are "government securities"
within the meaning of Section 2(a)(16) of the 1940 Act;
(d) bankers' acceptances, bank certificates of deposit, commercial
paper and such other money market instruments as may be
designated by Adviser or the Board of Directors of a Fund; and
(e) foreign currencies.
5. Exempted Transactions
A. Sections 6, 7 and 9 of this Code shall not apply to:
(1) purchases or sales of securities which are not
eligible for purchase or sale by any Fund or other
client of Adviser;
(2) purchases or sales which are non-volitional on the
part of either the Access Person or a Fund or other
client of Adviser, including PEP and ISA products for
IAI International employees;
(3) purchases which are part of an automatic dividend
reinvestment plan; and
(4) purchases effected upon the exercise of rights issued
by an issuer pro rata to all holders of a class of
its securities, to the extent such rights were
acquired from such issuer, and sales of such rights
so acquired.
B. Sections 6 and 7 of this Code shall not apply to:
(1) purchases or sales effected in any account over which
the Access Person has no direct or indirect influence
or control; and
(2) purchases and sales of corporate bonds, municipal
bonds, or UK and EU local authority securities in the
secondary market; provided, however such transactions
shall remain subject to the prohibitions of Section
7.D.
6. Preclearance
Except as set forth in Sections 4 and 5 of this Code, Access Persons,
other than Disinterested Directors and Non-Executive Directors, must
preclear all personal transactions in a Security as set forth below.
The preclearance requirements of this Section 6 are in addition to, and
not in limitation of, the prohibitions of Sections 7 and 8 and the
reporting requirements of Section 9 of this Code.
A. Publicly Traded Securities
Preclearance is required for any purchase or sale of a
publicly traded Security. Such transactions must be
precleared pursuant to such procedures as may be established
by Adviser from time to time. If clearance is granted for a
transaction, the transaction must be executed by the close of
business on the day such clearance is granted.
B. Private Placements
Prior approval is required for any purchase of a nonpublicly
traded security. Such approval will take into account, among
other factors, whether the investment opportunity should be
reserved for a Fund or other client of Adviser and whether the
opportunity is being offered to the Access Person by virtue of
his or her position with Adviser.
7. Prohibited Purchases and Sales
A. Equity Initial Public Offerings
No Investment Personnel or Senior Management shall acquire any
equity Security in an initial public offering. Privatisations
in which a traunch has been reserved for retail investors and
which no IAI or IAII clients have access, are premitted.
B. Debt New Issue Offerings
No Investment Personnel or Senior Management shall acquire in
a new issue offering any municipal or corporate debt security
in which a Fund or other client of Adviser is also acquiring
an interest. Staff in IAI International Ltd. may invest in
initial public offerings under the existing preclearance
procedures but must be aware that any stock allocated may not
be sold for 60 days.
C. Blackout Periods
(1) Access Persons. Except as provided in Sections 4 and
5 of this Code, Access Persons are prohibited from
executing a personal transaction in a Security at any
time during which (1) such Security is listed on a
restricted security list or other such list as may be
maintained by Adviser; or (2) such Access Person has
actual knowledge that such Security is being
considered for purchase or sale by Adviser.
(2) Portfolio Managers. In addition to the prohibitions
set forth in Section 7.C.(1) above, Portfolio
Managers are prohibited from executing a personal
transaction in a Security within seven days before
purchasing or selling such Security for a Fund or
other client account for which such Portfolio Manager
has management or advisory responsibility.
D. Short-Term Trading
Except as provided in Section 4 and Sections 5.A. and 5.B.(1)
of this Code, Investment Personnel are prohibited from
profiting from a purchase and sale, or sale and purchase, of
the same Security within 60 calendar days. The following
additional securities are exempt from this restriction:
- Stock Index Options and Futures
- Hard Commodity Options and Futures
- Options and Futures on U.S. Government Securities
- Options and Futures on Foreign Currencies
- Options and Futures on Corporate or Municipal Bond Indices
E. Transactions by Disinterested and Non-Executive Directors
(1) Disinterested and Non-Executive Directors are
prohibited from executing transactions in a Security
if such director, at the time of the transaction,
knew, or in the ordinary course of fulfilling his or
her official duties as a director of a Fund or
Adviser should have known, that during the fifteen
day period immediately preceding or after the date of
the transaction in such a Security by the director,
such Security is or was purchased or sold by Adviser
or is or was being considered for purchase or sale by
Adviser.
(2) With respect to securities transactions by a Fund,
Disinterested Directors in their capacity as such
have responsibility for reviewing such transactions
at regular quarterly meetings. Such meetings
typically are held 30 to 45 days after each calendar
quarter. Schedules of securities transactions during
the most recent prior calendar quarter are mailed to
Disinterested Directors approximately one week before
the meeting at which they will be reviewed. Such
schedules do not include transactions in any security
which have occurred, or with respect to which the
transaction order has not been completed, within
fifteen days prior to the mailing. Consequently,
Disinterested Directors in the ordinary course of
fulfilling their official duties to a Fund shall be
deemed to have no duty, and would have no reason to
know of, or inquire about, a transaction in a
security by a Fund during the fifteen day period
immediately preceding or after such Disinterested
Director's transaction in that security.
8. Insider Trading Restrictions
(a) Employees shall use due care to ensure that Material nonpublic
information remains secure and shall not divulge to any person
any Material nonpublic information, except in the performance
of his or her duties. For example, files containing Material
nonpublic information should be sealed, and access to computer
files containing Material nonpublic information should be
restricted.
(b) If an Employee learns of any Material nonpublic information,
such information shall not be divulged to any other person
except such information shall be promptly disclosed to the
Director of Compliance of Adviser.
(c) Upon receipt of such Material nonpublic information, the
Director of Compliance of Adviser shall promptly notify
appropriate personnel of Adviser to abstain from all trading
in the appropriate Security until such information becomes
public. Orders already sent for execution may not be halted
or changed upon receipt of material insider information.
(d) No Insider shall engage in Insider Trading, on behalf of
himself or others.
(e) Absent extraordinary circumstances, no Insider shall be deemed
to have violated this Code for effecting a Securities
transaction, if such Insider has been advised by the Director
of Compliance that the transaction would be consistent with
this Code.
(f) Adviser shall make written records of actions under this
Section 8.
9. Reporting
A. Access Persons
(1) Access Persons (other than Disinterested Directors
and Non-Executive Directors) shall direct their
brokers to supply to the Director of Compliance or
other designated compliance officer of the Adviser,
on a timely basis, duplicate copies of confirmations
of all personal securities transactions and copies of
periodic statements for all securities accounts in
which such Access Persons have Beneficial Ownership.
Compliance with this requirement will be deemed to
satisfy the reporting requirements imposed on Access
Persons under Rule 17j-1(c).
(2) Upon commencement of employment and monthly
thereafter, Access Persons (other than Disinterested
Directors and Non-Executive Directors) shall disclose
all personal securities holdings. Compliance with the
ongoing reporting requirement will be satisfied by
providing monthly statements of brokerage accounts.
Securities not included in such brokerage statements
must be reported annually.
(3) Investment Personnel and Senior Management who own
securities acquired in a private placement shall
disclose such ownership to the Chief Investment
Officer of Adviser if such person is involved in any
subsequent consideration of an investment in the
issuer by Adviser. In such circumstances, Adviser's
decision to purchase securities of the issuer will be
subject to an independent review by Investment
Personnel with no personal interest in the issuer.
B. Disinterested Directors and Non-Executive Directors
(1) Disinterested Directors and Non-Executive Directors
need only report a transaction in a Security if such
director, at the time of that transaction, knew, or
in the ordinary course of fulfilling his or her
official duties as a director should have known, that
during the fifteen day period immediately preceding
or subsequent to the date of the transaction by the
director, such security was purchased or sold by a
Fund or Adviser or was being considered for purchase
or sale by a Fund or Adviser.
(2) Any report required by this Section 9.B shall be made
not later than 10 days after the end of the calendar
quarter in which the transaction to which the report
relates was effected and shall contain the following
information:
(i) the date of the transaction, the title and
the number of shares, and the principal
amount of each security involved;
(ii) the nature of the transaction (i.e.,
purchase, sale or any other type of
acquisition or disposition);
(iii) the price at which the transaction was
effected; and
(iv) the name of the broker, dealer or bank with
or through whom the transaction was
effected.
10. Post-Trade Monitoring
Adviser shall implement appropriate procedures to monitor personal
investment activity by Access Persons.
11. Annual Reporting
The Director of Compliance will annually prepare a report to the
Board of Directors of the Adviser and to the Board of Directors of
the Funds that summarizes existing procedures concerning personal
investing and any changes in the procedures made during the past year,
identifies any violations requiring significant remedial action and
identifies any recommended changes in existing restrictions.
12. Gifts
Employees of Adviser are prohibited from receiving any gift or
combination of gifts within a 12-month period of more than $100 or $100
for staff of IAI International Ltd. in value from any person or entity
that does business with Adviser or a Fund. Occasional business meals
or entertainment (theatrical or sporting events, etc.) are not
considered as gifts and are permitted so long as they are not excessive
in number or cost. Employees must maintain a log of gifts and
occassional business meals/entertainment and report such gifts in
accordance with procedures adopted by Adviser from time to time.
13. Service as a Director
Employees of Adviser are prohibited from serving as a member of the
Board of Directors of publicly traded companies absent prior
authorization by the Board of Directors of the Fund based upon a
determination that such service is consistent with the interests of the
Fund and its shareholders.
14. Sanctions
A. General
Upon discovering a violation of this Code of Ethics, Adviser
may impose such sanctions as it deems appropriate, including
inter alia, disgorgement of profits realized, a fine, letter
of censure, or suspension or termination of the employment of
the violator. A violator shall be obligated to pay any sums
due pursuant to this paragraph due to a violation by a member
of the immediate family of such violator. Any profits realized
on trades in violation of the prohibitions set forth in
Sections 7 and 8 must be immediately disgorged except those
violations described in Section 14.C. In determining any
further sanctions to be imposed for violations of this Code,
irrespective of whether profits were realized by the violator
as a result of trading within the proscribed period or
otherwise, Adviser may consider any factors deemed relevant,
including without limitation:
1. the degree of willfulness of the violation;
2. the severity of the violation;
3. the extent, if any, to which the violator
profited or benefited from the violation;
4. the adverse effect, if any, of the violation
on a Fund or other of Adviser's clients;
5. the market value and liquidity of the class
of securities involved in the violation;
6. the prior violations of the Code, if any, by
the violator; and
7. the circumstances of discovery of the
violation.
B. Non-Exclusivity of Sanctions
The imposition of sanctions hereunder by the Board of
Directors of Adviser shall not preclude the imposition of
additional sanctions by the Board of Directors of a Fund and
shall not be deemed a waiver of any rights by a Fund. In
addition to sanctions which may be imposed by the Boards of
Directors of Adviser and a Fund, persons who violate this
Code may be subject to various penalties and sanctions
including, for example, (i) injunctions; (ii) treble damages;
(iii) disgorgement of profits; (iv) fines to the person who
committed the violation of up to three times the profit gained
or loss avoided, whether or not the person actually benefited;
and (v) jail sentences.
C. Inadvertent Violations
A transaction by Access Persons inadvertently effected in
violation of the prohibitions set forth in Section 7.C., will
not be considered a violation of this Code and disgorgement
(or liquidation) will not be required so long as the
transaction was effected in accordance with the preclearance
procedures described in Section 6 above and without actual
knowledge that such Security was being considered for purchase
or sale, a pending buy or sell order existed, or the security
was otherwise subject to restriction.
15. Definitions
(a) "Access Person" means any director, officer, general partner,
or employee of Adviser, or any natural person in a control
relationship to Adviser who obtains information concerning
recommendations made by Adviser with regard to the purchase or
sale of a Security.
(b) "Adviser" means Investment Advisers, Inc., IAI International
Limited and IAI Securities, Inc.
(c) "Advisers Act" means the Investment Advisers Act of 1940, as
amended.
(d) "Affiliated Person" of another person means:
1. Any person directly or indirectly owning,
controlling, or holding with power to vote, five
percent (5%) or more of the outstanding voting
securities of such other person;
2. Any person, five percent (5%) or more of whose
outstanding voting securities are directly or
indirectly owned, controlled, or held with power to
vote, by such other person;
3. Any person directly or indirectly controlling,
controlled by, or under common control with, such
other person;
4. Any officer, director, partner, co-partner, or
employee of such other person;
5. If such other person is an investment company, any
investment adviser thereof or any member of an
advisory board thereof; and
6. If such other person is an unincorporated investment
company not having a board of directors, the
depositor thereof.
(e) "Associated Person" means any partner, officer or director of
Adviser (or any person performing similar functions), or any
person directly or indirectly controlling or controlled by
Adviser, or any employee of Adviser.
(f) "Beneficial Ownership" shall be interpreted in the same
manner as it would be in determining whether a person is
subject to the provisions of Section 16 of the Securities
Exchange Act of 1934 and the rules and regulations thereunder,
except that the determination of direct or indirect beneficial
ownership shall apply to all securities which an Access Person
has or acquires. To have beneficial ownership, a person must
have a direct or indirect pecuniary interest, which is the
opportunity to profit directly or indirectly from a
transaction in securities. Thus, a person may be deemed to
have beneficial ownership of securities held by members of his
or her immediate family sharing the same household, or by
certain partnerships, trust, corporations or other
arrangements. For additional information, see Appendix A.
(g) "Code" means this Code of Ethics, as amended from time to
time.
(h) "Control" shall have the meaning as that set forth in Section
2(a)(9) of the Investment Company Act of 1940, as amended. For
example, "control" means the power to exercise a controlling
influence over the management or policies of a company.
Beneficial ownership of more than 25% of the voting securities
of a company is presumed to be "control" of such company.
(i) "Disinterested Director" means a director of a Fund who is not
an "interested person" of the Fund within the meaning of
Section 2(a)(19) of the Act.
(j) "Fund" means each of the registered investment companies
within the IAI Family of Funds.
(k) "Insider" means Adviser or an Associated Person of Adviser, or
any Affiliated Person thereof, or any member of the immediate
family. Additionally, a person is deemed an "Insider" if such
person enters into a special confidential relationship in the
conduct of the affairs of Adviser, or any Affiliated Person
thereof, and as a result is given access to Material nonpublic
information. Examples of such Insiders include accountants,
consultants, advisers, attorneys, bank lending officers, and
the employees of such organizations.
(l) "Insider Trading" means the use of Material nonpublic
information to trade in a Security (whether or not one is an
Insider) or the communication of Material nonpublic
information to others. While the meaning of the term is not
static, "Insider Trading" generally includes:
1. trading in a Security by an Insider, while in
possession of Material nonpublic information;
2. trading in a Security by a person who is not an
Insider, while in possession of Material nonpublic
information, where the information either was
disclosed to such person in violation of an Insider's
duty to keep it confidential or was misappropriated;
and
3. communicating Material nonpublic information to any
person, who then trades in a Security while in
possession of such information.
(m) "Investment Personnel" means any Portfolio Manager or employee
who provides investment-related information or advice to a
Portfolio Manager or helps execute a Portfolio Manager's
decisions, including securities analysts and traders.
(n) "Material non-public information" means information that has
not been effectively communicated to the marketplace, and for
which there is a substantial likelihood that a reasonable
investor would consider it important in making investment
decisions, or information that is reasonably certain to have a
substantial effect on the price of a company's securities.
Examples of material information include information regarding
dividend changes, earnings estimates, changes in previously
released earnings estimates, significant merger or acquisition
proposals or agreements, major litigation, liquidation
problems, and extraordinary management developments.
(o) "Member of immediate family" of a person includes such
person's spouse, children under the age of twenty-five years
residing with such person, and any trust or estate in which
such person or any other member of his immediate family has a
substantial beneficial interest, unless neither such person
nor any other member of his immediate family is able to
control or participate in the investment decisions of such
trust or estate.
(p) "Non-Executive Director" means a director of Adviser who is
not an employee and who does not have timely access to
purchases and sales of securities by Adviser or the making of
recommendations with respect to such purchases and sales.
(q) "Portfolio Manager" means any employee who has direct
responsibility and authority to make investment decisions for
a Fund or other client of Adviser.
(r) "Security" shall have the meaning set forth in Section
2(a)(36) of the 1940 Act. For example, "security" includes any
note, stock, bond, debenture, certificate of interest or
participation in any profit sharing agreement, any put, call,
straddle, option, or privilege on any security, certificate
of deposit, or group or index of securities (including any
interest therein or based on the value thereof), or any put,
call, straddle, option, or privilege entered into on a
securities exchange relating to foreign currency.
(s) "Senior Management" means any officer of Adviser with the
title of Senior Vice President or greater for Investment
Advisers, Inc. and IAI Securities and Director or greater for
IAI International, Inc. and such other persons as may be so
notified in writing by the Director of Compliance. Such term
shall not include Non-Executive Directors.
(t) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(u) "1940 Act" means the Investment Company Act of 1940, as
amended.
<PAGE>
APPENDIX A
Definition of Beneficial Ownership
The term "beneficial ownership" of securities would include
not only ownership of securities held by an Access Person for his or
her own benefit. Whether in bearer form or registered in his or her
own name or otherwise, but also ownership of securities held for his or
her benefit by others (regardless of whether or how they are
registered) such as custodians, brokers, executors, administrators, or
trustees (including trusts in which he or she has only a remainder
interest), and securities held for his or her account by pledges,
securities owned by a partnership in which he or she should regard as a
personal holding corporation. Correspondingly, this term would exclude
securities held by an Access Person for the benefit of someone else.
Ordinarily, this term would not include securities held by
executors or administrators in estates in which an Access Person is a
legatee or beneficiary unless there is a specific legacy to such person
of such securities or such person is the sole legatee or beneficiary
and there are other assets in the estate sufficient to pay debts
ranking ahead of such legacy, or the securities are held in the estate
more than a year after the decedent's death.
Securities held in the name of another should be considered as
"beneficially" owned by an Access Person where such person enjoys
"benefits substantially equivalent to ownership". The SEC has said that
although the final determination of beneficial ownership is a question
to be determined in the light of the facts of the particular case,
generally a person is regarded as the beneficial owner of securities
held in the name of his or her spouse and their minor children. Absent
special circumstances such relationship ordinarily results in such
person obtaining benefits substantially equivalent to ownership, e.g.,
application of the income derived from such securities to maintain a
common home, to meet expenses which such person otherwise would meet
from other sources, or the ability to exercise a controlling influence
over the purchase, sale or voting of such securities.
An Access Person also may be regarded as the beneficial owner
of securities held in the name of another person, if by reason of any
contract, understanding, relationship, agreement or other arrangement,
he obtains therefrom benefits substantially equivalent to those of
ownership. Moreover, the fact that the holder is a relative or relative
of a spouse and sharing the same home as an Access Person may in itself
indicate that the Access Person would obtain benefits substantially
equivalent to those of ownership from securities held in the name of
such relative. Thus, absent countervailing facts, it is expected that
securities held by relatives who share the same home as an Access
Person will be treated as being beneficially owned by the Access
Person.
An Access Person also is regarded as the beneficial owner o
securities held in the name of a spouse, minor children or other
person, even though he does not obtain therefrom the aforementioned
benefits of ownership, if he can vest or revest title in himself at
once or at some future time.
<PAGE>
Exhibit (p)(5)
CUNA BROKERAGE SERVICES, INC.
Code of Ethics
Adopted September 1, 1997
Introductory Statement
CUNA Brokerage is adopting this Code of Ethics to safeguard the interests of
CUNA Brokerage's customers, without incurring unnecessary administrative
duplication of existing procedures.
CUNA Brokerage is an affiliated company of CIMCO, a registered investment
advisor. CIMCO is sponsoring an Investment Company for which CUNA Brokerage is
acting as principal underwriter. This Code of Ethics is adopted to address the
requirements of Section 17(j) of the Investment Company Act of 1940, and Rule
17j-1 promulgated in accordance with the Investment Company Act.
Statement of General Policy
All persons associated with CUNA Brokerage shall place the interests of
customers before their own personal interests. All personal securities
transactions shall be conducted in such a manner as to avoid any actual or
potential conflict of interest or any abuse of any person's position of trust
and responsibility to CBS or its affiliated organizations. No person associated
with CBS shall take inappropriate advantage of the person's association with
CBS.
Quarterly reports of personal securities transactions shall be completed by each
person subject to section 17(j) of the Investment Company Act, for example, a
person who:
"makes any recommendation, participates in the determination of which
recommendation shall be made, or whose principal function or duties
relate to the determination of which recommendation shall be made to
any registered investment company; or who, in connection with his
duties, obtains any information concerning securities recommendations
being made by such investment adviser to any registered investment
company."
Certification of Compliance
Each person who completes a quarterly report of personal securities transactions
shall certify annually that:
~ The person has read and understands this Code and recognize
that the person is subject to it.
~ The person has complied with the requirements of this Code an
has reported all personal securities transactions required to
be reported.
Prohibitions
No person who completes a quarterly report of personal securities transactions
may:
~ Acquire any securities of an initial public offering for the
person's own account until the seventh calendar day after the
offering date and then only at the prevailing market price for
bonafide long-term investment in accordance with the person's
normal investment practice.
~ Acquire any securities through a private placement for the
person's own account without the prior written approval of
CBS.
~ Accept any gift or other thing of more than de minimus value
from any person or entity that does business with or on behalf
of CBS.
~ Serve as a director of a publicly traded company without the
prior written approval of CBS.
Restricted List
This Code incorporates the provisions of the CIMCO Policy reproduced below:
"4.1 The Restricted List is the responsibility of the Senior Vice
President. The Restricted List shall include two categories
of securities. The first category includes any equity security
which CIMCO, on behalf of clients, intends to trade or is
trading. The second category includes any security of any
company moved from the Watch List [as defined in the CIMCO
policy] to the Restricted List. CIMCO is prohibited from
rading in any security in the second category. The list will
be kept in a nonpublic place in the custody of a person
designated by the Senior Vice President. The Restricted List
will show:
~ the date and time the security was added to the list,
~ the name of the person who added it,
~ the date and time a security was deleted,
~ the name of the person who deleted it,
~ whether the security is in category one, that is,
CIMCO is trading or intending to trade the security,
or is in category two, that is, CIMCO is prohibited
from trading the security.
4.2 Do not make any trade or recommendation involving any security
or any option on a security on the Restricted List for
yourself, any member of your family, or any other person,
except that you may trade securities in category one [as
defined in the CIMCO policy] for clients of CIMCO. Personal
trading is prohibited during the entire time a security is on
the Restricted List and for seven calendar days after the
security has been removed from the Restricted List. In
addition, the quarterly audit will review personal trading
within seven days before a security is added to the Restricted
List. The Compliance Committee [as defined in the CIMCO
Policy] shall determine whether any abuse has occurred. If an
abuse has occurred, any profit resulting from the abuse shall
be disgorged and any other appropriate action taken. To
facilitate review of personal trades, any of which may prove
to have been made within seven days before a security is added
to the Restricted List, all personnel with authority to make
trading decisions on behalf of CIMCO and clients of CIMCO
shall document in writing all personal trades, at the time of
the trade, indicating why the trade would not be appropriate
for CIMCO and its clients. The written documentation shall be
filed within 24 hours after making the trade in the Restricted
List File."
Quarterly Audits
This Code incorporates the provisions of the CIMCO Policy reproduced below:
"5.4 A person designated by the head of Internal Auditing shall
conduct an audit within the month following the end of each
quarter. Notwithstanding the provisions of section 3.2, the
names of companies on the Watch List shall be made available
to the auditor for purposes of the quarterly audit. The
audit will review quarterly reports of personal securities
transactions and compare personal trades to the Restricted
List. Any personal trades involving securities restricted at
the time of the trade or within the seven calendar days
preceding the date a security was added to the Restricted List
will be noted. The audit will also review whether securities
of companies on the Watch List were traded during the quarter.
The results of the audit will be presented to the members of
the Compliance Committee."
Board Review
The Board shall review any difficulties encountered in administering this Code
any material violations of this Code, and any changes in applicable laws and
regulations. At the time of such review, the Board shall consider the interests
of customers and shall make any changes necessary to comply with statutory and
regulatory changes.
Exceptions
All Directors, Officers and Advisory Persons, as defined in Rule 17j-1, who are
subject to a similar Code of Ethics and reporting requirement, are not required
to make quarterly reports to CUNA Brokerage. This exception specifically applies
to Directors, Officers and Advisory Persons of CUNA Brokerage Services subject
to the Code of Ethics adopted by CIMCO and/or Ultra Series Fund.
Sanctions
Violation of this Code may subject any person who completes quarterly reports to
disciplinary action. The Compliance Officer will report material violations to
the Board and to regulatory authorities.
<PAGE>
Exhibit (p)(6)
CIMCO Inc. has adopted the Code of Ethics of the Association for Investment
Management and Research (AIMR) as its own Code of Ethics.
<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 2nd day of September, 1999.
/s/ Gwendolyn M. Boeke
Gwendolyn M. Boeke
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 2nd day of September, 1999.
/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 2nd day of September, 1999.
/s/ Keith S. Noah
Keith S. Noah
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 2nd day of September, 1999.
/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 2nd day of September, 1999.
/s/ Michael S. Daubs
Michael S. Daubs
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 2nd day of September, 1999.
/s/ Lawrence R. Halverson
Lawrence R. Halverson
