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As filed with the Securities and Exchange Commission on December 21, 1995
File No. 33-95472
File No. 8119082
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
Pre-Effective Amendment No. ___1 [x]
Post-Effective Amendment No. ___ [_]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. ___1 [x]
M Fund, Inc.
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(Exact Name of Registrant)
River Park Center
205 S.E. Spokane Street
Portland, Oregon 97202
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(Address of Principal Executive Offices)
Registrant's Telephone Number: (503) 232-6960
Name and Address of Agent for Service of Process: Copy to:
Daniel F. Byrne, President Frederick R. Bellamy, Esquire
M Fund, Inc. Sutherland, Asbill & Brennan
River Park Center 1275 Pennsylvania Avenue, N.W.
205 S.E. Spokane Street Washington, D.C. 20004-2404
Portland, Oregon 97202
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of the registration statement.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has registered an indefinite amount of securities The. A filing fee of $500 was
previously paid with the initial filing of the registration statement.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration shall become effective on such
date as the Commission, acting pursuant to Section 8(a), may determine.
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CROSS REFERENCE SHEET
Pursuant to Rule 481(a) under the Securities Act of 1933
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PART A: INFORMATION REQUIRED IN A PROSPECTUS
1. Cover Page Cover Page
2. Synopsis (Not Applicable)
3. Condensed Financial Information (Not Applicable)
4. General Description of Registrant Introduction; Investment
Objectives and Policies;
Investment Methods and
Risks
5. Management of the Fund Management
5A. Management's Discussion of Fund (Not Applicable)
Performance
6. Capital Stock and Other Other Information
Securities
7. Purchase of Securities Being Offering, Purchase and
Offered Redemption of Shares
8. Redemption or Repurchase Offering, Purchase and
Redemption of Shares
9. Pending Legal Proceedings (Not Applicable)
PART B: INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL
INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Introduction; Shares of
Stock
13. Investment Objectives and Additional Investment
Policies Policy Information;
Special Investment
Methods and Risks;
Investment Restrictions
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14. Management of the Fund Investment Adviser;
Portfolio Managers
15. Control Persons and Principal Shares of Stock
Holders of Securities
16. Investment Advisory and Other Investment Adviser;
Services Portfolio Managers
17. Brokerage Allocation and Other Portfolio Transactions
Practices and Brokerage
18. Capital Stock and Other Shares of Stock
Securities
19. Purchase, Redemption and Pricing Determination of Net
of Securities Being Offered Asset Value
20. Tax Status Tax Information
21. Underwriters (Not Applicable)
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
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PART C: OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
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PART A
INFORMATION REQUIRED IN A PROSPECTUS
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M FUND
PROSPECTUS
JANUARY 1, 1996
M Fund, Inc. (the "Company") is an investment company consisting of four
separate diversified investment portfolios or funds (the "Funds"). These Funds
are available through the purchase of variable life insurance and variable
annuity policies issued by certain insurance companies ("Participating Insurance
Companies"). The Funds are intended to be offered in addition to other
portfolios offered by the Participating Insurance Companies. Shares of the
Funds may also be sold to qualified pension and retirement plans.
Each of the Funds seeks long-term capital appreciation or total return, and
each Fund will invest primarily in stocks and other equity securities. However,
the Funds will use different investment techniques or strategies, and each
Fund's Portfolio Manager has a different investment style.
. EDINBURGH OVERSEAS EQUITY FUND invests outside of the United States,
and when appropriate will focus on small- to medium-capitalization companies and
emerging markets.
. TURNER CORE GROWTH FUND emphasizes common stocks of U.S. companies
that show strong earnings potential and also have reasonable valuations.
. FRONTIER CAPITAL APPRECIATION FUND invests in common stock of U.S.
companies of all sizes, with emphasis on stocks of small- to medium-
capitalization companies.
. ENHANCED U.S. EQUITY FUND invests primarily in common stock of U.S.
companies perceived to provide an opportunity for higher rates of return than
the Standard & Poor's 500 Composite Stock
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Price Index (the "S&P 500" or the "Index") while maintaining risk
characteristics which approximate those of the Index.
This Prospectus briefly describes the information that investors should
know before investing in these Funds, including the risks associated with
investing in each. Investors should read and retain this Prospectus for future
reference. A Statement of Additional Information dated _____________ ___, 1995
(the "SAI"), has been filed with the Securities and Exchange Commission (the
"SEC") and is available without charge, upon request by writing to the Company
at River Park Center, 205 S.E. Spokane Street, Portland, Oregon 97202, Attn: M
Fund Administrator, or by calling (503) 232-6960. The Table of Contents of the
SAI is included at the end of this Prospectus. The SAI, as supplemented from
time to time, is incorporated herein by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE
INSURANCE POLICIES.
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TABLE OF CONTENTS
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INTRODUCTION................................................... 4
INVESTMENT OBJECTIVES AND POLICIES............................. 5
Edinburgh Overseas Equity Fund............................ 6
Turner Core Growth Fund................................... 7
Frontier Capital Appreciation Fund........................ 8
Enhanced U.S. Equity Fund................................. 9
INVESTMENT RESTRICTIONS........................................ 10
PORTFOLIO TURNOVER............................................. 10
MANAGEMENT..................................................... 11
Directors and Officers.................................... 11
Investment Adviser........................................ 12
Portfolio Managers........................................ 14
INVESTMENT METHODS AND RISKS................................... 18
Foreign Investments....................................... 18
Investing in Small-Capitalization Companies............... 20
Start-Up Period........................................... 21
Securities Lending........................................ 21
Other Investments......................................... 22
PERFORMANCE INFORMATION........................................ 22
DETERMINATION OF NET ASSET VALUE............................... 24
OFFERING, PURCHASE AND REDEMPTION OF SHARES.................... 25
INCOME DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............... 26
TAXES.......................................................... 27
OTHER INFORMATION.............................................. 28
Reports................................................... 28
Voting and Other Rights................................... 29
Administrative and Other Services......................... 30
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION... 31
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INTRODUCTION
The M Fund investment portfolios are available to the public through the
purchase of variable life insurance and variable annuity policies offered by
members of M Financial Group and issued by certain life insurance companies
affiliated with M Financial Group. M Financial Group is an independent life
insurance producer group, specializing in the distribution of life insurance to
persons of substantial financial means. The M Fund investment portfolios can be
selected by policyholders in addition to other portfolios offered by the
participating insurance companies. The M Fund portfolio managers have been
selected, and are reviewed and monitored, by M Financial Investment Advisers,
Inc., whose Board of Directors consists of members from M Financial Group.
M Fund, Inc. (the "Company") is an open-end management investment company,
commonly known as a mutual fund. The Company consists of four separate
investment portfolios or funds (the "Funds" or a "Fund"), each of which is, in
effect, a separate mutual fund. (Additional Funds may be created from time to
time.) By investing in a Fund, an investor becomes entitled to a pro rata share
of all dividends and distributions arising from the net income and capital gains
on the investments of that Fund. Likewise, an investor shares pro rata in any
losses of that Fund.
Pursuant to an investment advisory agreement and subject to the authority
of the Company's board of directors (the "Board of Directors"), M Financial
Investment Advisers, Inc. (the "Adviser") serves as the Company's investment
adviser and conducts the business and affairs of the Company. The Adviser has
engaged the following Portfolio Managers to act as sub-advisers to provide the
day-to-day portfolio management for the respective Funds.
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Fund Portfolio Manager
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Edinburgh Overseas Equity Fund Edinburgh Fund Managers plc
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Turner Core Growth Fund Turner Investment Partners, Inc.
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Frontier Capital Appreciation Fund Frontier Capital Management Company, Inc.
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Enhanced U.S. Equity Fund Franklin Portfolio Associates Trust
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The Company currently offers its shares to separate accounts of
Participating Insurance Companies as funding vehicles for certain variable life
insurance or variable annuity policies (the "Policies"). The Company may also
offer its shares to qualified pension and retirement plans. The Company does
not offer its shares directly to the general public. A separate prospectus,
which accompanies this Prospectus, describes the applicable Policies and the
separate account through which they are funded.
The Fund's shares are sold with no sales load, no redemption fees, and no
"12b-1" or other distribution fees. However, various fees and charges (possibly
including sales loads) are imposed with respect to each Policy, as described in
the prospectus for the applicable Policy.
INVESTMENT OBJECTIVES AND POLICIES
Each Fund has an investment objective and related investment policies and
uses various investment techniques to pursue its objective and policies. THERE
CAN BE NO ASSURANCE THAT ANY FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE.
Investors should not consider any one Fund alone to be a complete investment
program. Each of the Funds is subject to the risk of changing economic
conditions, as well as the risk inherent in the ability of the Portfolio Manager
to make changes in the portfolio composition of the Fund in anticipation of
changes in economic, business, and financial conditions. As with any security,
a risk of loss is inherent in an investment in the shares of any of the Funds.
The different types of securities, investments, and investment techniques
used by each Fund all have attendant risks of varying degrees. For example,
with respect to equity securities, there can be no assurance of capital
appreciation and there is a substantial risk of decline. With respect to debt
securities, there exists the risk that the issuer of the security may not be
able to meet its obligations on interest or principal payments at the time
required by the instrument. In addition, the value of debt instruments
generally rises and falls inversely with prevailing current interest rates. As
described below, an investment in certain of the Funds entails
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additional risks as a result of the Funds' ability to invest a substantial
portion of their assets in either foreign investments or small-capitalization
issuers or both. See "Investment Methods and Risks."
Certain types of investments and investment techniques common to one or
more Funds are described in greater detail, including the risks of each, under
"Investment Methods and Risks" below and in the SAI. The Funds are also subject
to certain investment restrictions that are described under the caption
"Investment Restrictions" in either this Prospectus or the SAI.
The investment objective of each Fund, as well as investment policies that
are not fundamental, may be changed by the Board of Directors without
shareholder approval. See "Investment Restrictions."
EDINBURGH OVERSEAS EQUITY FUND
The Edinburgh Overseas Equity Fund's investment objective is long-term
capital appreciation with reasonable investment risk through active management
and investment in common stock and common stock equivalents of foreign issuers.
Current income, if any, is incidental.
The Fund seeks to achieve this objective by focusing on areas of the market
that the Portfolio Manager believes are inefficiently priced. These include
smaller, often emerging markets, and smaller companies.
The investment process utilized by the Portfolio Manager, Edinburgh Fund
Managers plc, combines decisions on country weightings, sector allocations, and
stock selection strategies. Sector weightings are based on research into demand
and supply factors and external independent studies. The stock selection
process is fundamentally driven and focuses on four factors: quality of
management, financial health, long-term industry prospects and valuation
relative to the stock's market price. Research is generally on less-followed
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small- to medium-sized companies and, when economic conditions are deemed
appropriate, the Fund may hold up to 30% of its assets in small-cap stocks
(i.e., stocks of companies capitalized at less than $500 million).
When its assets are at a sufficient level, the Edinburgh Overseas Equity
Fund will have on average 60 to 80 different stocks. Under normal market
conditions, it will have at least 90% of the value of its total assets invested
in at least four different countries outside the United States, but it may
"concentrate" its investments by investing a substantial portion of its assets
(e.g., more than 25%) in only one or a few countries or regions. Securities
issued by U.S. based companies will ordinarily not be purchased by the Fund.
The Fund expects generally to be fully invested with less than 10% cash or cash
equivalents.
TURNER CORE GROWTH FUND
The Turner Core Growth Fund's investment objective is long-term capital
appreciation through a diversified portfolio of common stocks that show strong
earnings potential with reasonable market prices. The Portfolio Manager's style
is core "growth at a reasonable price" and is based on the philosophy that
earnings expectations are the primary determinant of stock prices.
The Portfolio Manager, Turner Investment Partners, Inc., uses a bottom-up
discipline (i.e., an individual stock selection process, rather than a top-down
industry sector selection process) utilizing sophisticated analytical tools to
screen over 3,500 securities for both attractive growth and value
characteristics. Growth factors include increasing earnings estimates and
results, while value measures include price/earnings ratio to growth rate, ratio
of market price to book value, and dividend yield. The first step is a computer
ranking based upon a proprietary model: stocks ranked in the 35th percentile or
above qualify for purchase, while those ranked in the 55th percentile or below
generally will be sold sometime thereafter.
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Stocks eligible for purchase are then subjected to rigorous fundamental and
technical analyses. The fundamental analysis focuses on a company's earnings
prospects relative to analysts' consensus expectations, while the technical
analysis evaluates support for a stock based on price and volume patterns.
The Fund purchases stocks with favorable rankings, earnings prospects, and
positive technical indicators. Conversely, stocks are sold when earnings
prospects are deteriorating, as indicated by a ranking below the 55th percentile
(i.e., below 55% of the stocks screened), deteriorating earnings forecasts, or a
worsening of technical indicators.
Generally, the Turner Core Growth Fund will be fully invested (no more than
3% cash or cash equivalents), with an individual security constituting no more
than 2% of the net asset value of the Fund, and when its assets have reached a
sufficient level will generally contain 130 to 140 holdings.
FRONTIER CAPITAL APPRECIATION FUND
The Frontier Capital Appreciation Fund's investment objective is maximum
capital appreciation through investment in common stock of companies of all
sizes, with emphasis on stocks of small- to medium-capitalization companies
(i.e., companies with market capitalization of less than $3 billion).
Importance is placed on an evaluation of earnings per share growth and
expectations of stock price appreciation, rather than income.
The Portfolio Manager, Frontier Capital Management Company, Inc., seeks to
identify companies with unrecognized earnings potential. The investment process
emphasizes earnings growth potential and valuation of those companies which tend
to be less well followed by Wall Street analysts and have a relatively low level
of ownership by other institutional investors. The process combines traditional
fundamental research with a valuation model that screens dividend valuation,
equity valuation, earnings growth, earnings momentum, and earnings that have the
potential to exceed market expectation.
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The portfolio is not restricted to any one segment of the market; however,
generally a majority of the portfolio will consist of stocks of small- to
medium-capitalization companies. The portfolio will typically consist of 80 to
120 stocks (when its asset size is sufficient) and generally will be fully
invested (no more than 7% cash or cash equivalents).
Stocks are sold if earnings growth potential is realized, when the
fundamental reasons for purchase are no longer valid, or when a more attractive
situation is identified.
ENHANCED U.S. EQUITY FUND
The Enhanced U.S. Equity Fund's investment objective is above-market total
return through investment in common stock of companies perceived to provide a
return higher than that of the S&P 500 at approximately the same level of
investment risk as the S&P 500.
The Portfolio Manager, Franklin Portfolio Associates Trust, uses a
quantitative process that seeks to identify those stocks with the highest
expected returns. The Portfolio Manager, using proprietary software, will
attempt to construct a portfolio having similar risk characteristics as those of
the S&P 500. The S&P 500 represents a sampling of the largest U.S. and some
foreign stocks publicly traded in the United States.
Valuation models used to rank the universe of stocks focus on fundamental
momentum, relative value, future cash flow, and supplementary factors (e.g.,
trading by officers or directors and short-term price momentum). Stocks which
fall below the median ranking in this process are sold. A proprietary optimizer
is used to construct the portfolio. The optimizer is a risk management system
comprised of proprietary software created by Franklin Portfolio Associates. It
categorizes both the portfolio and the S&P 500 into 55 industry groups and 13
general risk categories. Stocks are then selected from the top deciles in
Franklin's ranking pro-
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cess so that the portfolio reflects similar characteristics to those of the
industry groups and risk characteristics of the S&P 500. Thus, industry and
sector allocations are actively neutralized, permitting Franklin's investment
process to remain focused on individual stock selection.
Typically cash is expected to be less than 2% of the Fund's total market
value, and when it reaches a sufficient asset size the Fund will contain
approximately 180 stocks. Under normal market conditions, it will have at least
65% of the value of its total assets invested in equity securities in U.S. based
companies.
INVESTMENT RESTRICTIONS
Each of the Funds is subject to certain investment restrictions which have
been adopted by the Company for each Fund as fundamental policies that cannot be
changed without the approval of a majority of the outstanding votes attributable
to shares of that Fund. Among other restrictions, a Fund may not, with respect
to 75% of the value of its total assets, purchase the securities of any one
issuer (except U.S. Government securities) if more than 5% of the value of the
Fund's assets would be invested in such issuer or if more than 10% of the
outstanding voting securities of that issuer would be owned by the Fund.
Similarly, it is a fundamental investment restriction that none of the Funds may
invest more than 25% of its total assets in securities of issuers in any one
industry, except that this limitation does not apply to U.S. Government
securities. For a more complete description of the investment restrictions to
which each Fund is subject, see the SAI.
PORTFOLIO TURNOVER
The portfolio turnover rate is calculated for each Fund by dividing the
lesser of the dollar amount of sales or purchases of portfolio securities by the
average monthly value of that Fund's portfolio securities,
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excluding securities having a maturity at the date of purchase of one year or
less. The Company anticipates the following annual portfolio turnover rates for
the Funds:
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Fund Anticipated Portfolio Turnover Rate
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Edinburgh Overseas Equity Fund 70%
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Turner Core Growth Fund 125%
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Frontier Capital Appreciation Fund 60-80%
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Enhanced U.S. Equity Fund 70%
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High rates of portfolio turnover involve correspondingly greater expenses
which must be borne by a Fund and may under certain circumstances make it more
difficult for a Fund to qualify as a regulated investment company under the
Internal Revenue Code.
MANAGEMENT
DIRECTORS AND OFFICERS
The Board of Directors is responsible for deciding matters of general
policy and reviewing the actions of the Adviser and the Portfolio Managers, the
custodian, accounting and administrative services provider and other providers
of services to the Company. The officers of the Company supervise the Company's
daily business operations. The SAI contains information as to the identity of,
and other information about, the directors and officers of the Company.
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INVESTMENT ADVISER
M Financial Investment Advisers, Inc. (the "Adviser") is the investment
adviser of the Company and its Funds. The Adviser is an affiliate of M Life
Insurance Company ("M Life"), a Colorado stock insurance company.
M Life is an agent-owned reinsurance company in that its capital stock is
owned primarily by independent insurance agents who are engaged primarily in
selling insurance policies, including variable insurance policies which will be
invested in the Funds. M Life, for a fee paid by the insurance carriers,
reinsures a portion of the mortality risk on insurance policies sold by its
shareholder-agents.
The Adviser and M Life are controlled by Management Partnership, a general
partnership which does business under the name M Financial Group. M Financial
Group is engaged in providing product development and marketing support services
for participating insurance agents, most of which are shareholders of M Life. M
Financial Group receives from insurance carriers compensation based, in part,
upon the volume of insurance premiums generated by its participating agents. A
majority interest in M Financial Group is owned by M Corporation, of which 50%
is owned by each of Ellison C. Morgan and Mark I. Solomon. Messrs. Carl G.
Mammel, Peter W. Mullin, and Thomas N. Spitzer, either directly or through
corporations controlled by them, are also partners in M Financial Group. Mr.
Mullin is a director of the Company.
The Adviser, located at River Park Center, 205 S.E. Spokane Street,
Portland, Oregon 97202, is newly organized and therefore has no previous
experience in providing investment advisory services.
The Adviser has entered into an investment advisory agreement, dated
December 5, 1995, with the Company under which the Adviser assumes overall
responsibility, subject to the ongoing supervision of the Company's Board of
Directors, for administering all operations of the Company and for monitoring
and
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evaluating the management of the assets of each of the Funds by the Portfolio
Manager. The Adviser provides or arranges for the provision of the overall
business management and administrative services necessary for the Company's
operations and furnishes or procures any other services and information
necessary for the proper conduct of the Company's business. The Adviser also
acts as liaison among, and supervisor of, the various service providers to the
Company, including the custodian, transfer agent, administration agent, and
accounting services agent. The Adviser is also responsible for overseeing the
Company's compliance with the requirements of applicable law and with each
Fund's investment objective, policies, and restrictions.
For its services to the Company, the Adviser receives an advisory fee that
is based on the average daily net assets of each of the Funds, deducted daily
from the assets of each of the Funds, and paid to the Adviser monthly.
The following annual rates represent total advisory fees for each Fund:
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Fund Total Advisory Fees
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Edinburgh Overseas Equity Fund 1.05% on the first $10 million
0.90% on the next $15 million
0.75% on the next $75 million
0.60% on amounts above $100 million
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Turner Core Growth Fund 0.45%
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Frontier Capital Appreciation Fund 0.90%
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Enhanced U.S. Equity Fund 0.55% on the first $25 million
0.45% on the next $75 million
0.30% on amounts above $100 million
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The investment advisory agreement does not place limits on the operating
expenses of the Company or of any Fund. However, the Adviser has voluntarily
undertaken to pay any such expenses (but not including brokerage or other
portfolio transaction expenses or expenses of litigation, indemnification, taxes
or other
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extraordinary expenses) to the extent that such expenses, as accrued for each
Fund, through December 31, 1996, exceed 0.25% of that Fund's estimated average
daily net assets on an annualized basis.
PORTFOLIO MANAGERS
EDINBURGH FUND MANAGERS PLC ("Edinburgh") is the Portfolio Manager of the
Edinburgh Overseas Equity Fund. Edinburgh's principal business address is
Donaldson House, 97 Haymarket Terrace, Edinburgh EH12 5HD, Scotland, and
Edinburgh maintains a non-investment branch at 600 Peachtree Street, N.E., Suite
3820, Atlanta, Georgia 30308. Edinburgh was formed in 1969 and registered as an
investment adviser with the Securities and Exchange Commission in 1984. As of
September 30, 1995, Edinburgh managed approximately $5.213 billion of
assets.
Edinburgh manages the Fund on a team basis. The Chief Investment Director
of Edinburgh is Michael Balfour, CA (Chartered Accountant). Mr. Balfour holds a
B.Comm. degree from Edinburgh University. He joined Edinburgh in 1985 and
became Manager of the Pacific Rim Department the following year. He was
involved in the launching of Edinburgh Pacific Fund and the Edinburgh Dragon
Trust in 1987. In 1992, he was appointed a director of Edinburgh responsible
for overseas investment, and in 1995 he became Chief Investment Director
responsible for all investment departments and Chair of the asset allocation
committee. In addition, Mr. Balfour is a director of Edinburgh Java Trust plc
(Indonesia) and Edinburgh Inca Trust plc (Latin America), closed-end investment
trusts managed by Edinburgh. He is also a director of Creditcapital Asset
Management, an investment management company in Bombay, India.
TURNER INVESTMENT PARTNERS, INC. ("Turner") is the Portfolio Manager of the
Turner Core Growth Fund. Turner's principal business address is 1235 Westlakes
Drive, Suite 350, Berwyn, Pennsylvania 19312. Turner is a professional
investment management firm founded in 1990. Robert E. Turner is the controlling
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shareholder of Turner. Turner has provided investment advisory services to
investment companies since 1992. At September 30, 1995, Turner managed
approximately $2.628 billion of assets.
Mr. Turner, CFA (Chartered Financial Analyst), Chairman and Chief
Investment Officer of Turner, is the person primarily responsible for the day-
to-day management of the Fund's investment portfolio. Mr. Turner holds a B.S.
degree in accounting and an M.B.A. degree in finance from Bradley University and
has over 15 years of investment experience. He is a member of the Association
for Investment Management and Research and is active with the following
organizations: Board of Directors - Financial Analysts of Philadelphia; Program
Chairman - Financial Analysts of Philadelphia (Suburban); Advisory Board -
Investment Counseling Inc.; and Technology Council of Greater Philadelphia.
Prior to forming Turner, Mr. Turner was employed as Senior Investment Manager
with Meridian Investment Company (1985 to 1990), Portfolio Manager/Analyst with
Integon Corporation (1983 to 1985), and Analyst with McMillion/Eubanks (1981 to
1983), and he served as a consultant with Andersen Consulting (1979 to 1981).
FRONTIER CAPITAL MANAGEMENT COMPANY, INC. ("Frontier") is the Portfolio
Manager of the Frontier Capital Appreciation Fund. Frontier's principal
business address is 99 Summer Street, Boston, Massachusetts 02110. Frontier's
investment process combines its fundamental in-depth research effort with a
proprietary computer model to identify areas of investment opportunity.
Frontier was founded in 1980. As of September 30, 1995 Frontier managed a
total of $2.242 billion.
Michael A. Cavaretta, CFA, is the person primarily responsible for the day-
to-day management of the Fund's investment portfolio. Mr. Cavaretta holds a
B.S. degree from the University of Maine and an M.B.A. degree from Harvard
Business School. He joined Frontier in 1988 and has served as sole portfolio
manager for Frontier's capital appreciation portfolios for four of the past
seven years. Prior to attending Harvard Business School, Mr. Cavaretta was
employed as a Financial Analyst with General Electric Company (1981-1986).
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FRANKLIN PORTFOLIO ASSOCIATES TRUST ("Franklin") is the Portfolio Manager
of the Enhanced U.S. Equity Fund. Franklin's principal business address is One
Post Office Square, Suite 3660, Boston, Massachusetts 02109. Franklin is a
professional investment counseling firm which specializes in the management of
common stock portfolios through the use of quantitative investment models.
Founded in 1982, Franklin, a Massachusetts business trust, is a wholly-owned
subsidiary of MBC Investments Corporation, which in turn is a wholly-owned
subsidiary of Mellon Bank Corporation. As of September 30, 1995, Franklin
provided investment advisory services with respect to approximately $8.3 billion
of client assets. Franklin employs proprietary computer models in selecting
individual equity securities and in structuring investment portfolios for its
clients, including the Fund.
John J. Nagorniak, CFA, President of Franklin, is the person primarily
responsible for the day-to-day management of the Fund's investment portfolio; he
will oversee the application of Franklin's quantitative techniques to the Fund's
assets. Mr. Nagorniak and the other investment principals of Franklin are
responsible for the ongoing development and enhancement of Franklin's
quantitative investment techniques. Mr. Nagorniak is a graduate of Princeton
University and has received a M.S. degree from the Sloan School at the
Massachusetts Institute of Technology. Prior to joining Franklin, he was
associated with State Street Bank and Trust Company as Chief Investment Officer
(1979 to 1981). Prior to that, he was Director of Investment Management
Technology for John Hancock Mutual Life Insurance Company (1970 to 1979). He is
past President of the Investment Technology Association and has been on the
Council of that organization and the Council of the Quantitative Discussion
Group. Mr. Nagorniak is on the Board of Directors and is past President of the
Boston Security Analysts Society. He has 24 years of investment experience.
INVESTMENT SUB-ADVISORY AGREEMENTS. Each Portfolio Manager has entered
into an investment sub-advisory agreement with the Adviser under which the
Portfolio Manager, subject to the general supervision of the Adviser and the
Company's Board of Directors, manages the investment portfolio of the Fund of
which it is the Portfolio Manager. Under the investment sub-advisory
agreements, the Portfolio Managers are responsible
-16-
<PAGE>
for making investment decisions for the Funds and for placing the purchase and
sale orders for the portfolio transactions of each Fund. In this capacity, the
Portfolio Managers obtain and evaluate appropriate economic, statistical,
timing, and financial information and formulate and implement investment
programs in furtherance of each Fund's investment objective. The Portfolio
Managers may place orders for portfolio transactions with any broker including,
to the extent and in the manner permitted by applicable law, affiliated brokers.
As compensation for their services, each Portfolio Manager receives a fee (paid
by the Adviser) based on the average daily net assets of the applicable Fund.
See the SAI for more detailed information about the investment sub-advisory fees
and agreements.
CHANGE OF PORTFOLIO MANAGERS. The Company and the Adviser plan to apply
for an exemptive order from the SEC that would permit the Adviser, with the
approval of the Company's Board of Directors, to retain a different Portfolio
Manager for a Fund without submitting the investment sub-advisory agreements to
a vote of the Fund's shareholders. The Company will notify shareholders in the
event of any change in the identity of the Portfolio Manager of a Fund. Until
or unless this exemptive order is granted, if a duly appointed Portfolio Manager
is terminated or otherwise ceases to advise a Fund, the Company will propose
that a new Portfolio Manager be engaged to manage the Fund's assets. The
Company would then be required to submit to the vote of the Fund's shareholders
the approval of an investment sub-advisory agreement with the new Portfolio
Manager.
INVESTMENT METHODS AND RISKS
FOREIGN INVESTMENTS
Investments in the securities of companies organized outside the United
States or of companies whose securities are principally traded outside the
United States ("foreign issuers"), or investments in securities denominated or
quoted in a currency other than the U.S. dollar ("non-dollar securities"), may
present potential
-17-
<PAGE>
benefits and risks not available from investments solely in securities of
domestic issuers or U.S. dollar-denominated securities. The Edinburgh Overseas
Equity Fund and the Enhanced U.S. Equity Fund may invest in securities of
foreign issuers. The Edinburgh Overseas Equity Fund also may invest in non-
dollar securities. (However, the Edinburgh Overseas Equity Fund may not invest
in Canadian government securities, and the Enhanced U.S. Equity Fund may not
invest in any foreign government securities.) Benefits of investing in foreign
issuers or non-dollar securities may include the opportunity to invest in
foreign issuers that appear, in the opinion of the Portfolio Manager, 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 United
States, and the opportunity to reduce fluctuations in portfolio value by taking
advantage of foreign securities markets that do not necessarily move in a manner
parallel to U.S. markets.
Investing in non-dollar securities or in the securities of foreign issuers
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 rates, changes in foreign or
U.S. laws or restrictions applicable to such investments and in exchange control
regulations (e.g., currency blockage). For example, a decline in the exchange
rate would reduce the value of certain portfolio investments. In addition, if
the exchange rate for the currency in which a Fund receives dividend or interest
payments declines against the U.S. dollar before such interest is paid as a
dividend to the Fund's shareholders, the Fund may have to sell portfolio
securities to obtain sufficient cash to pay the dividend. The Edinburgh
Overseas Equity Fund may engage in forward foreign currency exchange contracts
to hedge its foreign currency exposure; however, such investments also entail
certain risks (described in the State of Additional Information). 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 United States. In addition, clearance and
-18-
<PAGE>
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. For example, delays in settlement could result in temporary
periods when a portion of the assets of a Fund are uninvested and no return is
earned thereon. The inability of a Fund to make intended investments due to
settlement problems could cause it to miss attractive investment opportunities.
Inability to dispose of portfolio securities or other investments due to
settlement problems could result either in losses to a Fund due to subsequent
declines in value of the portfolio investment or, if the Fund has entered into a
contract to sell the investment, could result in possible liability to the
purchaser.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to domestic
companies. 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 United States. 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 a Fund, or
political or social instability or diplomatic developments which could affect
investments in those countries. Individual foreign economies also may differ
favorably or unfavorably from the United States economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position.
Many securities of foreign issuers are represented by American Depository
Receipts ("ADRs"), which represent the right to receive securities of foreign
issuers deposited in a domestic bank or foreign correspondent bank. Prices of
ADRs are quoted in U.S. dollars. Additional information regarding ADRs and
other aspects of foreign securities is in the Statement of Additional
Information.
INVESTING IN SMALL-CAPITALIZATION COMPANIES
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<PAGE>
All of the Funds may invest in small-capitalization companies (generally
considered to be companies with a capitalization of less than $500 million).
Investing in securities of smaller, lesser-known companies involves greater
risks than investing in larger, more mature, better known issuers, including an
increased possibility of portfolio price volatility. Historically, small-
capitalization stocks and stocks of recently organized companies, in which all
of the Funds may also invest, have been more volatile in price than the larger-
capitalization stocks (such as those included in the S&P 500). Among the reasons
for the greater price volatility of the stocks of these smaller companies are
the less certain growth prospects of smaller firms, the lower degree of
liquidity in the markets for such stocks, and the greater sensitivity of smaller
companies to changing economic conditions. For example, such companies may be
subject to greater business risks resulting from their limited product lines,
markets, distribution channels, and financial and managerial resources.
The stock prices of smaller companies may fluctuate independently of larger
company stock prices. Thus, small company stocks may decline in price as large
company stock prices rise, or rise in price as large company stock prices
decline. Investors should, therefore, expect that to the extent a Fund invests
in stock of small-capitalization companies, the net asset value of that Fund's
shares may be more volatile than, and may fluctuate independently of, broad
stock market indices such as the S&P 500. Furthermore, the securities of
companies with small stock market capitalizations may trade less frequently and
in limited volumes.
START-UP PERIOD
Since the Funds are new, during the start-up period their asset size may
not be sufficient to invest in the number of different stocks indicated above or
to take advantage of certain investment opportunities, and they may not be as
diversified as other mutual fund portfolios. There is no certainty as to how
rapidly a Fund's assets will increase.
SECURITIES LENDING
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<PAGE>
All Funds may seek to increase their income by lending portfolio
securities. Under present regulatory policies, such loans may be made to
institutions, such as certain broker-dealers, and are required to be secured
continuously by collateral in cash, cash equivalents, or U.S. Government
securities maintained on a current basis at an amount at least equal to the
market value of the securities loaned. A Fund may experience a loss or delay in
the recovery of its securities if the institution with which it has engaged in a
portfolio security loan transaction breaches its agreement with the Fund. If the
Portfolio Manager determines to make securities loans, the value of the
securities loaned will not exceed one-third of the value of the total assets of
the Fund making the loan.
OTHER INVESTMENTS
Some or all of the Funds may also utilize the following investment
techniques or make the following types of investments. However, it is
anticipated that no Fund will have more than 5% of its assets invested in any
one of the following:
* Foreign Government Obligations
* Sovereign Debt Obligations (Brady Bonds)
* American Depository Receipts, European Depository Receipts,
International Depository Receipts, and Global Depository Receipts
* Forward Foreign Currency Exchange Contracts
* Short-Term Bank and Corporate Obligations
* Zero Coupon Bonds
* Warrants and Rights
* Convertible Securities
* Repurchase Agreements
* Restricted and Illiquid Securities
* Borrowing
-21-
<PAGE>
The Statement of Additional Information contains descriptions of these
investments and investment techniques.
PERFORMANCE INFORMATION
From time to time, the Company may publish average annual total return
figures for one or more of the Funds in advertisements, communications to
shareholders, and sales literature. Average annual total return is determined
by computing the annual percentage change in value of $1,000 invested for
specified periods ending with the most recent calendar quarter, assuming
reinvestment of all dividends and distributions at net asset value. The average
annual total return calculation assumes a complete redemption of the investment
at the end of the relevant period.
The Company also may, from time to time, publish year-by-year total
return, cumulative total return and yield information for the Funds in
advertisements, communications to shareholders, and sales literature. These may
be provided for various specified periods by means of quotations, charts, graphs
or schedules. Year-by-year total return and cumulative total return for a
specified period are each derived by calculating the percentage rate required to
make a $1,000 investment in a Fund (assuming all distributions are reinvested)
at the beginning of such period equal to the actual total value of such
investment at the end of such period.
The Funds also may advertise their yields. Yield is computed by
dividing net investment income earned during a recent 30-day period by the
product of the average daily number of shares outstanding and entitled to
receive dividends during the period and the price per share on the last day of
the relevant period. The results are compounded on a bond-equivalent
(semiannual) basis and then annualized. Net investment income per share is
equal to the dividends and interest earned during the period, reduced by accrued
expenses for the period. The calculation of net investment income for these
purposes may differ from the net investment income determined
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<PAGE>
for accounting purposes. Performance data for the Funds will not reflect
charges deducted under the Policies. If Policy charges were taken into account,
such performance data would reflect lower returns.
In addition, the Company may from time to time publish the performance
of its Funds relative to certain performance rankings and indices.
The investment results of the Funds will fluctuate over time and any
presentation of investment results for any prior period should not be considered
a representation of what an investment may earn or what a Fund's performance may
be in any future period. In addition to information provided in shareholder
reports, the Company may, in its discretion, from time to time make lists of a
Fund's holdings available to investors upon request.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Fund is normally determined once
daily as of the close of regular trading on the New York Stock Exchange,
currently 4:00 p.m. New York time (with exceptions), on each day when the New
York Stock Exchange is open. The New York Stock Exchange is scheduled to be
open Monday through Friday throughout the year, except for certain federal and
other holidays. The net asset value of each Fund is determined by dividing the
value of the Fund's securities, cash, and other assets (including accrued but
uncollected interest and dividends), less all liabilities (including accrued
expenses) by the number of shares of the Fund outstanding.
The value of each Fund's securities and assets, except certain short-
term debt securities, is determined on the basis of their market values. Short-
term debt securities having remaining maturities of 60 days or less held by any
of the Funds are valued by the amortized cost method, which approximates market
value. Investments for which market quotations are not readily available are
valued at their fair value as determined in
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<PAGE>
good faith by, or under authority delegated by, the Board of Directors. See
"Determination of Net Asset Value" in the SAI.
OFFERING, PURCHASE AND REDEMPTION OF SHARES
Shares of the Funds are sold in a continuous offering to separate
accounts of the Participating Insurance Companies to support the insurance and
annuity Policies. Net purchase payments under the Policies are placed in one or
more subaccounts of the Participating Insurance Company's separate account, and
the assets of each such subaccount are invested in the shares of the Fund
corresponding to that subaccount. The separate accounts purchase and redeem
shares of the Funds for their subaccounts at net asset value without sales or
redemption charges.
For each day on which a Fund's net asset value is calculated, the
separate accounts transmit to the Transfer Agent any orders to purchase or
redeem shares of the Fund(s) based on the purchase payments, redemption
(surrender) requests, death benefits, Policy charges, and transfer requests from
Policy owners, annuitants and beneficiaries that have been processed on that
day. The separate accounts purchase and redeem shares of each Fund at the
Fund's net asset value per share calculated as of that same day although such
purchases and redemptions may be executed the next morning.
Please refer to the separate prospectus for the Policies (and the
separate account through which they are funded) for a more detailed description
of the procedures whereby a Policy owner, annuitant, or beneficiary may allocate
his or her interest in the separate account to a subaccount using the shares of
one of the Funds as an underlying investment medium.
The Company may also offer shares of one or more of the Funds
(including new Funds that might be added to the Company) to qualified pension
and retirement plans.
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<PAGE>
A potential for certain conflicts may exist between the interests of
variable annuity contract owners, variable life insurance policy owners and plan
participants. The Company currently does not foresee any disadvantage to owners
of the Policies arising from the fact that shares of any Fund might be held by
such entities. The Board of Directors, however, will monitor the Funds in order
to identify any material irreconcilable conflicts of interest which may possibly
arise, and to determine what action, if any, should be taken in response to any
such conflicts.
INCOME DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Company will pay dividends for each Fund from that Fund's net
investment income and will make distributions from net realized securities
gains, if any, once a year, but may make distributions on a more frequent basis
to comply with the distribution requirements of the Internal Revenue Code of
1986, as amended (the "Code"), in all events in a manner consistent with the
provisions of the Investment Company Act of 1940 (the "1940 Act"). The Company
will not make distributions from net realized securities gains unless capital
loss carryovers, if any, have been utilized or have expired. Dividends are
automatically reinvested in additional Company shares at net asset value unless
payment in cash is selected. All expenses are accrued daily and deducted before
declaration of dividends to investors.
Notice as to the tax status of dividends and distributions will be
mailed to shareholders annually. Dividends from net investment income, together
with distributions of net realized short-term securities gains and gains from
certain market discount bonds, generally are taxable as ordinary income whether
received in cash or reinvested in additional shares. Distributions from net
realized long-term securities gains generally are taxable as long-term capital
gains whether received in cash or reinvested in additional shares. Since the
Company's shareholders are the Participating Insurance Companies and their
separate accounts, no discussion is included herein as to the
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<PAGE>
federal income tax consequences to variable life insurance or annuity policy
holders. For information concerning the federal income tax consequences to such
holders, see the prospectus for such contract or policy.
TAXES
TAX STATUS. The Company believes that each Fund will qualify as a
regulated investment company under Subchapter M, Chapter 1, Subtitle A of the
Code, and each Fund intends to distribute substantially all of its net income
and net capital gain to its shareholders. As a result, under the provisions of
Subchapter M, there should be little or no income or gains taxable to the Fund.
In addition, each Fund intends to comply with certain other distribution rules
specified in the Code so that it will not incur a 4% nondeductible federal
excise tax that otherwise would apply. Under current law, the net income of the
Funds, including net capital gain, is not taxed to Participating Insurance
Companies to the extent that it is applied to increase the reserves held by the
Participating Insurance Company in respect of the Policies.
FOREIGN INVESTMENTS. Funds investing in foreign securities or
currencies may be required to pay withholding or other taxes to foreign
governments. Foreign tax withholding from dividends and interest, if any, is
generally at a rate between 10% and 35%. The investment yield of the Funds that
invest in foreign securities or currencies will be reduced by these foreign
taxes. Shareholders will bear the cost of any foreign tax withholding, but may
not be able to claim a foreign tax credit or deduction for these foreign taxes.
Funds investing in securities of passive foreign investment companies may be
subject to U.S. federal income taxes and interest charges, and the investment
yield of the Funds making such investments will be reduced by these taxes and
interest charges. Shareholders will bear the cost of these taxes and interest
charges, but will not be able to claim a deduction for these amounts.
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<PAGE>
ADDITIONAL TAX CONSIDERATIONS. If a Fund fails to qualify as a
regulated investment company, owners of Policies supported by the Fund (1) might
be taxed currently on the investment earnings under their Policies and thereby
lose the benefit of tax deferral, and (2) the Fund might incur additional taxes.
In addition, if a Fund fails to comply with the diversification requirements of
Section 817(h) of the Code, owners of Policies supported by the Fund would be
taxed on the investment earnings under their Policies and thereby lose the
benefit of tax deferral. Accordingly, compliance with the above rules is
carefully monitored by the Portfolio Managers and the Adviser, and it is
intended that the Funds will comply with these rules as they exist or as they
may be modified from time to time. In order to comply with the diversification
and other requirements of Subchapter M and Section 817(h), a Fund may not be
able to buy or sell certain securities at certain times, so the investments
utilized (and the time at which such investments are purchased and sold) may be
different from that the Portfolio Manager might otherwise believe to be
desirable.
For more information regarding the tax implications for the purchaser
of a Policy who allocates investments to the Funds, please refer to the
prospectus for the Policy.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations currently in effect. It is not
intended to be a complete explanation or a substitute for consultation with
individual tax advisers. For the complete provisions, reference should be made
to the pertinent Code sections and the Treasury Regulations promulgated
thereunder. The Code and Regulations are subject to change.
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<PAGE>
OTHER INFORMATION
REPORTS
Annual Reports containing audited financial statements of the Company
and Semiannual Reports containing unaudited financial statements, as well as
proxy materials, are sent to Policy owners, annuitants or beneficiaries, as
appropriate. Inquiries may be directed to the Company at the telephone number
or address set forth on the cover page of this Prospectus.
VOTING AND OTHER RIGHTS
Each share outstanding is entitled to one vote on all matters
submitted to a vote of shareholders (of a Fund or the Company) and is entitled
to a pro rata share of any distributions made by the applicable Fund and, in the
event of liquidation, of its net assets remaining after satisfaction of
outstanding liabilities. Each share (of each Fund), when issued, is
nonassessable and has no preemptive or conversion rights. The shares have
noncumulative voting rights. The Participating Insurance Companies will vote
shares of a Fund held by their separate accounts which are attributable to
Policies in accordance with instructions received from Policy owners, annuitants
and beneficiaries as provided in the prospectus for the Policies. Fund shares
held by the separate accounts as to which no instructions have been received
will be voted for or against any proposition, or in abstention, in the same
proportion as the shares of that separate account as to which instructions have
been received. Fund shares held by a Participating Insurance Company that are
not attributable to Policies will also be voted for or against any proposition
in the same proportion as the shares for which voting instructions are received
by that company. However, if a Participating Insurance Company determines that
it is permitted to vote any such shares of a Fund in its own right, it may elect
to do so, subject to the then-current interpretation of the 1940 Act and the
rules thereunder.
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<PAGE>
As a Maryland corporation, the Company is not required to, and does
not intend to, hold regular annual shareholder meetings. The Company is,
however, required to hold shareholder meetings for the following purposes: (i)
approving investment advisory and sub-advisory agreements as required by the
1940 Act (unless, with respect to sub-advisory agreements, the Company and the
Adviser obtain the SEC exemptive order); (ii) changing any fundamental
investment policy or restriction of any Fund; and (iii) filling vacancies on the
Board of Directors in the event that less than a majority of the Company's
directors were elected by shareholders. Directors may also be removed by
shareholders by a vote of two-thirds of the outstanding votes attributable to
shares at a meeting called at the request of holders of 10% or more of such
votes. The Company has the obligation to assist in shareholder communications.
At the inception of the Company, M Life owns more than 25% of the
outstanding shares of each Fund, which ownership may result in it being deemed a
controlling person of each of the Funds, as that term is defined in the 1940
Act.
ADMINISTRATIVE AND OTHER SERVICES
Pursuant to a custody agreement with the Company, Investors Bank &
Trust Company ("Investors Bank") serves as the custodian of the Funds' assets.
Investors Bank also performs certain accounting services for the
Company. These services include maintaining and keeping current the Company's
books, accounts, records, journals and other records of original entry related
to the Company's business, performing certain daily functions related thereto,
including calculating each Fund's daily net asset value. Investors Bank is
responsible for providing certain administrative services to the Company, such
as calculating each Fund's standardized performance information, preparing
annual and semiannual reports to shareholders and the SEC, preparing each Fund's
tax returns, monitoring compliance and performing other administrative duties.
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<PAGE>
Pursuant to a Transfer Agency and Service Agreement with the Company,
Investors Bank also acts as a transfer, redemption and dividend disbursing agent
for the Company. Investors Bank's principal business address is 89 South
Street, Boston, Massachusetts 02111.
Investors Bank is not involved in the investment decisions made by the
Portfolio Managers.
The Company was incorporated in Maryland on August 11, 1995. It has no
employees and relies on the Adviser and other service providers for its day-to-
day operations.
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<PAGE>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION............................................................
SPECIAL INVESTMENT METHODS AND RISKS....................................
Foreign Investments................................................
Restricted and Illiquid Securities.................................
Sovereign Debt Obligations - Brady Bonds...........................
Fixed-Income Securities............................................
Convertible Securities.............................................
Warrants and Rights................................................
Repurchase Agreements..............................................
Borrowing..........................................................
Other Investment Companies.........................................
INVESTMENT RESTRICTIONS.................................................
Fundamental Restrictions...........................................
Non-Fundamental Restrictions.......................................
Interpretive Rules.................................................
INVESTMENT ADVISER......................................................
Investment Advisory Agreement......................................
Expenses of the Company............................................
PORTFOLIO MANAGERS......................................................
PORTFOLIO TRANSACTIONS AND BROKERAGE....................................
DETERMINATION OF NET ASSET VALUE........................................
PERFORMANCE INFORMATION.................................................
SHARES OF STOCK.........................................................
CUSTODY OF ASSETS.......................................................
DIRECTORS AND OFFICERS..................................................
TAX INFORMATION.........................................................
OTHER INFORMATION.......................................................
Financial Statements...............................................
Legal Counsel......................................................
Company Name.......................................................
Other Information..................................................
APPENDIX A -- DESCRIPTION OF CORPORATE BOND RATINGS
</TABLE>
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PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
___________________________________
STATEMENT OF ADDITIONAL INFORMATION
___________________________________
M FUND
Edinburgh Overseas Equity Fund
Turner Core Growth Fund
Frontier Capital Appreciation Fund
Enhanced U.S. Equity Fund
January 1, 1996
This Statement of Additional Information ("SAI") is not a prospectus. Much of
the information contained in this SAI expands upon information discussed in the
prospectus for M Fund, Inc. (the "Company") and should, therefore, be read in
conjunction with the prospectus for the Company. To obtain a copy of the
Prospectus with the same date as this SAI, write to the Company at River Park
Center, 205 S.E. Spokane Street, Portland, Oregon 97202, Attn: M Fund
Administration, or call (503) 232-6960.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . 4
SPECIAL INVESTMENT METHODS AND RISKS . . . . . . . . . . . . . 6
Foreign Investments . . . . . . . . . . . . . . . . . . . 6
Restricted and Illiquid Securities. . . . . . . . . . . . 16
Sovereign Debt Obligations - Brady Bonds. . . . . . . . . 17
Fixed-Income Securities . . . . . . . . . . . . . . . . . 19
Convertible Securities. . . . . . . . . . . . . . . . . . 24
Warrants and Rights . . . . . . . . . . . . . . . . . . . 25
Repurchase Agreements . . . . . . . . . . . . . . . . . . 26
Borrowing . . . . . . . . . . . . . . . . . . . . . . . . 27
Other Investment Companies. . . . . . . . . . . . . . . . 27
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . 28
Fundamental Restrictions. . . . . . . . . . . . . . . . . 28
Non-Fundamental Restrictions. . . . . . . . . . . . . . . 31
Interpretive Rules. . . . . . . . . . . . . . . . . . . . 34
INVESTMENT ADVISER . . . . . . . . . . . . . . . . . . . . . . 35
Investment Advisory Agreement . . . . . . . . . . . . . . 35
Expenses of the Company . . . . . . . . . . . . . . . . . 36
PORTFOLIO MANAGERS . . . . . . . . . . . . . . . . . . . . . . 37
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . 38
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . 40
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . 44
SHARES OF STOCK. . . . . . . . . . . . . . . . . . . . . . . . 49
CUSTODY OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . 50
DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . . . . . . 51
TAX INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 53
OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 56
Financial Statements. . . . . . . . . . . . . . . . . . . 56
Legal Counsel . . . . . . . . . . . . . . . . . . . . . . 56
Company Name. . . . . . . . . . . . . . . . . . . . . . . 56
Other Information . . . . . . . . . . . . . . . . . . . . 56
APPENDIX A -- DESCRIPTION OF CORPORATE BOND RATINGS
</TABLE>
<PAGE>
INTRODUCTION
M Fund, Inc. (the "Company") is an open-end management investment company
established as a Maryland corporation on August 11, 1995. The Company consists
of four separate investment portfolios or funds (the "Funds" or a "Fund"), each
of which is, in effect, a separate mutual fund. The Company issues a separate
class of stock for each Fund representing fractional undivided interests in that
Fund. By investing in a Fund, an investor becomes entitled to a pro rata share
of all dividends and distributions arising from the net income and capital gains
on the investments of that Fund. Likewise, an investor shares pro rata in any
losses of that Fund.
Pursuant to an investment advisory agreement and subject to the authority
of the Company's board of directors (the "Board of Directors"), M Financial
Investment Advisers, Inc. (the "Adviser") serves as the Company's investment
adviser and conducts the business and affairs of the Company. The Adviser has
engaged the following sub-advisers to act as Portfolio Managers to provide the
day-to-day portfolio management for the respective Funds:
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Fund Portfolio Manager
================================================================================
<S> <C>
Edinburgh Overseas Equity Fund Edinburgh Fund Managers plc
- --------------------------------------------------------------------------------
Turner Core Growth Fund Turner Investment Partners, Inc.
- --------------------------------------------------------------------------------
Frontier Capital Appreciation Fund Frontier Capital Management Company,
Inc.
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Enhanced U.S. Equity Fund Franklin Portfolio Associates Trust
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The Company currently offers one or more classes of its stock to separate
accounts of certain insurance companies (the "Participating Insurance
Companies") as the underlying funding vehicles for certain variable annuity and
variable life insurance policies (the "Policies") issued by the Participating
Insurance Companies. The Company may also offer its stock to qualified pension
and retirement plans. The Company does not offer its stock directly to the
general public. Each such separate account, like the Company, is registered as
an investment company with the Securities and Exchange Commission (the "SEC"),
and a separate prospectus, which accompanies the prospectus for the Company (the
"Prospectus"), describes that separate account and the Policies. The prospectus
for that separate account and the Policies, which should be read in conjunction
with the Company's prospectus, also has a statement of additional information
similar to this SAI.
Terms appearing in this SAI that are defined in the Prospectus have the
same meaning herein as in the Prospectus.
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SPECIAL INVESTMENT METHODS AND RISKS
Foreign Investments
Because investments in foreign issuers may involve currencies of foreign
countries, because a Fund may temporarily hold funds in bank deposits in foreign
currencies during completion of investment programs, and because a Fund may be
subject to currency exposure independent of its securities positions, the Fund
may be affected favorably or unfavorably by changes in currency rates and in
exchange control regulations and may incur costs in connection with conversions
between various currencies. The Edinburgh Overseas Equity Fund and the Enhanced
U.S. Equity Fund may invest in securities of foreign issuers.
Foreign investment markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of transactions, making it difficult to
conduct such transactions. Mail and courier service and other communications
between the United States and foreign countries may be slower or less reliable
than within the United States, thus increasing the risk of delayed settlements
of portfolio transactions or loss of certificates for portfolio securities.
Investments in ADRs, EDRs, IDRs, and GDRs. Many securities of foreign
issuers are represented by American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), International Depository Receipts ("IDRs"), and
Global Depository Receipts ("GDRs"). The Edinburgh Overseas Equity Fund and the
Enhanced U.S. Equity Fund may invest in ADRs.
ADRs represent the right to receive securities of foreign issuers deposited
in a domestic bank or a foreign correspondent
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bank. Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the
United States on exchanges or over-the-counter and are sponsored and issued by
domestic banks. ADRs do not eliminate all the risk inherent in investing in the
securities of foreign issuers. To the extent that a Fund acquires ADRs through
banks which do not have a contractual relationship with the foreign issuer of
the security underlying the ADR to issue and service such ADRs (i.e.,
unsponsored programs), 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. In
addition, the lack of information may result in inefficiencies in the valuation
of such instruments. However, by investing in ADRs rather than directly in the
stock of foreign issuers, a Fund will avoid currency risks during the settlement
period for purchases and sales. In general, there is a large, liquid market in
the United States for ADRs quoted on a national securities exchange or the
Nasdaq National Market. 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.
The Edinburgh Overseas Equity Fund may also invest in EDRs, IDRs, and GDRs,
which are receipts evidencing an arrangement with a bank similar to that for
ADRs and are designed for use in the foreign securities markets. EDRs, IDRs, and
GDRs are not necessarily quoted in the same currency as the underlying
security.
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Foreign Currency Transactions. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because the Funds may be
exposed to currency exposure independent of their securities positions, the
value of the assets of the Funds invested in foreign issuers as measured in U.S.
dollars will be affected by changes in foreign currency exchange rates. To the
extent that a Fund's assets consist of investments denominated in a particular
currency, the Fund's exposure to adverse developments affecting the value of
such currency will increase.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's net asset value 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. 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 in the currencies of foreign
countries, the Fund will be more susceptible to the risk of adverse economic and
political developments within those countries.
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The Edinburgh Overseas Equity Fund may enter into forward foreign currency
exchange contracts for hedging purposes in order to protect against anticipated
changes in future foreign currency exchange rates or to increase total return. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. The market in forward foreign currency exchange contracts
offers less protection against defaults by the other party to such instruments
than is available for currency instruments traded on an exchange. A forward
contract generally has no deposit requirement, and no commissions are generally
charged at any stage for trades.
At the maturity of a forward contract the Fund may either accept or make
delivery of the currency specified in the contract or, at or prior to maturity,
enter into a closing purchase transaction involving the purchase or sale of an
offsetting contract. Closing purchase transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract.
The Fund may enter into forward foreign currency exchange contracts in
several circumstances. First, when the Fund enters into a contract for the
purchase or sale of a security denominated or noted in a foreign currency, or
when the Fund antici-
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pates the receipt in a foreign currency of dividend or interest payments on such
a security which it holds, the Fund may desire to "lock in" the U.S. dollar
price of the security or the U.S. dollar equivalent of such dividend or interest
payment, as the case may be. By entering into a forward contract for the
purchase or sale, for a fixed amount of dollars, of the amount of foreign
currency involved in the underlying transactions, the Fund will attempt to
protect itself against an adverse change in the relationship between the U.S.
dollar and the subject foreign currency during the period between the date on
which the security is purchased or sold, or on which the dividend or interest
payment is declared, and the date on which such payments are made or received.
Additionally, when the Portfolio Manager believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of some or all
of the Fund's portfolio securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible because the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. Using forward contracts to
protect the value of the Fund's portfolio securities against a decline in the
value of a currency does not eliminate
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fluctuations in the underlying prices of the securities. It simply establishes a
rate of exchange which a Fund can achieve at some future point in time. The
precise projection of short-term currency market movements is not possible, and
short-term hedging provides a means of fixing the dollar value of only a portion
of the Fund's foreign assets.
The Fund may engage in cross-hedging by using forward contracts in one
currency to hedge against fluctuations in the value of securities denominated in
a different currency if the Portfolio Manager determines that there is a pattern
of correlation between the two currencies. The Fund may also purchase and sell
forward contracts for non-hedging purposes when the Portfolio Manager
anticipates that the foreign currency will appreciate or depreciate in value,
but securities denominated in that currency do not present attractive investment
opportunities and are not held in the Fund's portfolio.
The Fund's custodian will place cash or high grade liquid debt securities
(i.e. securities rated in one of the top three ratings categories by Standard &
Poor's or by Moody's or, if unrated, deemed by the Portfolio Manager to be of
comparable credit quality) into a segregated account of the Fund in an amount
equal to the value of the Fund's total assets committed to the consummation of
forward foreign currency exchange contracts requiring the Fund to purchase
foreign currencies or forward contracts entered into for non-hedging purposes.
If the value of the securities placed in the segregated account declines,
additional cash or securities will be placed in the account on a daily basis
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so that the value of the account will equal the amount of the Fund's commitments
with respect to such contracts. The segregated account will be marked-to-market
on a daily basis. Although the contracts are not presently regulated by the
Commodity Futures Trading Commission ("CFTC"), the CFTC may in the future assert
authority to regulate these contracts. In such event, the Fund's ability to
utilize forward foreign currency exchange contracts may be restricted.
While the Fund will enter into forward contracts to reduce currency
exchange rate risks, transactions in such contracts involve certain other risks.
Thus, while the Fund may benefit from such transactions, unanticipated changes
in currency prices may result in a poorer overall performance for the Fund that
if it had not engaged in any such transactions. Moreover, there may be imperfect
correlation between the Fund's portfolio holdings of securities denominated in a
particular currency and forward contracts entered into by the Fund. Such
imperfect correlation may cause the Fund to sustain losses which will prevent
the Fund from achieving a complete hedge or expose the Fund to risk of foreign
exchange loss.
Forward contracts are subject to the risk that the counter-party 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 the Fund of unrealized profits, transaction costs
or expected benefits of a currency hedge or force the Fund to cover its
purchase or sale commitments, if any, at the current market price. The Fund will
not enter into such transactions unless the
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credit quality of the unsecured senior debt or the claims-paying ability of the
counterparty is considered to be investment grade by the Portfolio Manager.
Emerging Market Securities. The Edinburgh Overseas Equity Fund may invest
in countries or regions with relatively low gross national product per capita
compared to the world's major economies, and in countries or regions with the
potential for rapid economic growth (emerging markets). Emerging markets will
include any country: (i) having an "emerging stock market" as defined by the
International Finance Corporation; (ii) with low-to-middle income economies
according to the International Bank for Reconstruction and Development (the
"World Bank"); (iii) listed in World Bank publications as developing; or (iv)
determined by the Adviser to be an emerging market as defined above. The Fund
may invest in securities of: (i) companies the principal securities trading
market for which is an emerging market country; (ii) companies organized under
the laws of, and with a principal office in, an emerging market country; (iii)
companies whose principal activities are located in emerging market countries;
or (iv) companies traded in any market that derives 50% or more of their total
revenue from either goods or services produced in an emerging market or sold in
an emerging market.
The risks of investing in foreign securities may be intensified in the case
of investments in emerging markets. Securities of many issuers in emerging
markets may be less liquid and more volatile than securities of comparable
domestic issuers. Emerging markets also have different clearance and settlement
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procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when a portion of the assets of the Fund is uninvested and no
return is earned thereon. The inability of the Fund to make intended security
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of portfolio securities due to
settlement problems could result either in losses to the Fund due to subsequent
declines in value of the portfolio security or, if the Fund has entered into a
contract to sell the security, in possible liability to the purchaser. Certain
markets may require payment for securities before delivery.
Securities prices in emerging markets can be significantly more volatile
than in the more developed nations of the world, reflecting the greater
uncertainties of investing in less established markets and economies. In
particular, countries with emerging markets may have relatively unstable
governments, present the risk of nationalization of businesses, restrictions on
foreign ownership, or prohibitions of repatriation of assets, and may have less
protection of property rights than more developed countries. The economies of
countries with emerging markets may be predominantly based on only a few
industries, may be highly vulnerable to changes in local or global trade
conditions, and may suffer from extreme and volatile debt burdens or inflation
rates. Local securities markets may trade a small number of securities and may
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be unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of substantial holdings difficult or impossible at
time. Securities of issuers located in countries with emerging markets may have
limited marketability and may be subject to more abrupt or erratic price
movements.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. A Fund could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to the Fund of any restrictions on investments.
Restricted and Illiquid Securities
The Edinburgh Overseas Equity Fund and the Turner Core Growth Fund may
purchase limited amounts of illiquid securities (i.e., securities which may not
be sold or disposed of in the ordinary course of business within seven days at
approximately the value at which the Company has valued the investment). The
Edinburgh Overseas Equity Fund and the Frontier Capital Appreciation Fund may
purchase certain restricted securities (i.e., securities which are not
registered under the Securities Act of 1933 (the "1933 Act")) as "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act.
Investments in illiquid securities and restricted securities are not anticipated
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to exceed 5% of a Fund's assets, but see non-fundamental investment
restrictions 12 and 13, respectively, below.
The Board of Directors has adopted guidelines and delegated to the
Portfolio Managers the daily function of determining and monitoring the
liquidity of restricted securities. The Board, however, will retain oversight
and be ultimately responsible for the determinations. It is not possible to
predict with assurance exactly how the market for restricted securities sold and
offered under Rule 144A will develop. To the extent that qualified in-
stitutional buyers become uninterested in purchasing these restricted
securities, this investment practice could have the effect of decreasing the
level of liquidity in a Fund.
Certain repurchase agreements which provide for settlement in more than
seven days, however, can be liquidated before the nominal fixed term on seven
days' or less notice. The Company will consider such repurchase agreements as
liquid. Likewise, restricted securities (including commercial paper issued
pursuant to Section 4(2) of the 1933 Act) that the Board of Directors of the
Company or a Portfolio Manager has determined to be liquid will be treated as
such.
The SEC staff has taken the position that fixed-time deposits maturing in
more than seven days that cannot be traded on a secondary market and
participation interests in loans are illiquid and not readily marketable. Until
such time (if any) as this position changes, the Company will include such
investments in the percentage limitation on illiquid investments applicable to
each Fund.
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Sovereign Debt Obligations - Brady Bonds
The Edinburgh Overseas Equity Fund may invest in certain Sovereign Debt
Obligations customarily referred to as "Brady Bonds," which are created through
the exchange of existing commercial bank loans to foreign entities for new
obligations in connection with debt restructuring. Brady Bonds have been issued
only recently, and, accordingly, do not have a long payment history. They may be
collateralized or uncollateralized and issued in various currencies (although
most are U.S. dollar-denominated), and they are actively traded in the over-the-
counter secondary market.
U.S. dollar-denominated, collateralized Brady Bonds which may be fixed-rate
par bonds or floating-rate discount bonds, are generally collateralized in full
as to principal due at maturity by U.S. Treasury zero coupon obligations which
have the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed-rate bonds, is equal to at least one year of rolling interest
payments or, in the case of floating-rate bonds, initially is equal to at least
one year's rolling interest payments based on the applicable interest rate at
that time and is adjusted at regular intervals thereafter.
Certain Brady Bonds are entitled to "value recovery payments" in certain
circumstances, which in effect constitute supplemental interest payment but
generally are not collateralized. Brady Bonds are often viewed as having three
or four valuation components: (i) the collateralized repayment of principal
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at final maturity; (ii) the collateralized interest payments; (iii) the
uncollateralized interest payments; and (iv) any uncollateralized repayment of
principal at maturity (these uncollateralized amounts constitute the "residual
risk"). In the event of a default with respect to collateralized Brady Bonds as
a result of which the payment obligations of the issuer are accelerated, the
U.S. Treasury zero coupon obligations held as collateral for the payment of
principal will not be distributed to investors, nor will such obligations be
sold and the proceeds distributed. The collateral will be held by the collateral
agent to the scheduled maturity of the defaulted Brady Bonds, which will
continue to be outstanding, at which time the face amount of the collateral will
equal the principal payments which would have then been due on the Brady Bonds
in the normal course. In view of the residual risk of Brady Bonds and, among
other factors, the history of defaults with respect to commercial bank loans by
the public and private entities of countries issuing Brady Bonds, investments in
Brady Bonds should be viewed as speculative. Investments in Brady Bonds will not
exceed 5% of the Edinburgh Overseas Equity Fund's assets (and will count toward
the Fund's 25% maximum investment in emerging markets).
Fixed-Income Securities
The Edinburgh Overseas Equity Fund and the Enhanced U.S. Equity Fund may
invest in fixed-income securities (the Frontier Capital Appreciation Fund may
invest in convertible securities; see discussion below). Fixed-income securities
tend to decrease in value when prevailing interest rates rise and
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increase in value when prevailing interest rates fall. Because the value of a
Fund's investments in fixed-income securities is interest rate sensitive, its
performance may be affected by the Portfolio Manager's ability to anticipate
and respond to fluctuations in market interest rates. Fixed-income securities
include U.S. Government securities, debt obligations of states or municipalities
or state or municipal government agencies or instrumentalities, corporate debt
obligations, preferred stock, zero coupon bonds and deferred interest bonds.
U.S. Government Securities. The Edinburgh Overseas Equity Fund and Enhanced
U.S. Equity Fund may invest in 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
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to U.S. Government agencies, authorities or instrumentalities in the future.
U.S. Government securities may also include zero coupon bonds.
Securities guaranteed as to principal and interest by the U.S. Government,
its agencies, authorities or instrumentalities are considered to include (a)
securities for which the payment of principal and interest is backed by a
guarantee of or an irrevocable letter of credit issued by the U.S. Government,
its agencies, authorities or instrumentalities and (b) participation in loans
made to foreign governments or their agencies that are so guaranteed. The
secondary market for certain of these participations is limited. Such
participations may therefore be regarded as illiquid.
Corporate Debt Obligations. The Edinburgh Overseas Equity Fund may purchase
corporate debt obligations. The Fund will limit its investment in corporate debt
obligations to 5% of its total assets. Corporate debt securities are subject to
the risk of an issuer's inability to meet principal and interest payments on the
obligations (credit risk) and may also be subject to price volatility due to
such factors as interest rate sensitivity, market perception of the
creditworthiness of the issuer and general market liquidity (market risk). The
Portfolio Manager considers both credit risk and market risk in making
investment decisions as to corporate debt obligations. The Edinburgh Overseas
Equity Fund may only purchase investment-grade bonds (i.e., bonds rated BBB or
higher by Standard & Poor's Corporation ("S&P") or Baa or higher by Moody's
Investors Service, Inc. ("Moody's")). See
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Appendix A for a description of the ratings issued by these investment rating
services.
Short-Term Bank and Corporate Obligations. Commercial paper represents
short-term unsecured promissory notes issued in bearer form by banks or bank
holding companies, corporations, and finance companies. Only the Edinburgh
Overseas Equity Fund may invest in commercial paper. Commercial paper consists
of direct U.S. dollar-denominated obligations of domestic issuers. Bank
obligations include certificates of deposit, bankers' acceptances, fixed-time
deposits and bank notes.
Certificates of deposit are certificates issued against funds deposited in
a commercial bank for a definite period of time and earning a specified return.
Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity. Fixed-time deposits are bank
obligations payable at a stated maturity date and bearing interest at a fixed
rate. Fixed-time deposits may be withdrawn on demand by the investor, but may be
subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation. There are no
contractual restrictions on the right to transfer a beneficial interest in a
fixed-time deposit to a third party, although there is no market for such
deposits. Certain fixed-time deposits maturing in more than seven days may be
deemed to be illiquid securities. Bank notes rank junior to
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deposit liabilities of the bank and pari passu with other senior, unsecured
obligations of the bank. Bank notes are classified as "other borrowings" on a
bank's balance sheet, while deposit notes and certificates of deposit are
classified as deposits. Bank notes are not insured by the Federal Deposit
Insurance Corporation or any other insurer. Deposit notes are insured by the
Federal Deposit Insurance Corporation only to the extent of $100,000 per
depositor per bank.
Zero Coupon Bonds. The Edinburgh Overseas Equity Fund may invest in zero
coupon bonds, which 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 maturity.
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 and 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
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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, a 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, a Fund may obtain no return
at all on its investment. In addition, a 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 "Tax
Information" below.
Other Risks Associated with Fixed-Income Securities. The prices of fixed-
income securities fluctuate in response to the general level of interest rates.
Another factor which causes fluctuations in the prices of fixed-income
securities is the supply and demand for similarly rated securities. 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.
Convertible Securities
The Edinburgh Overseas Equity Fund, the Frontier Capital Appreciation Fund,
and the Enhanced U.S. Equity Fund may invest in convertible securities.
Convertible securities may include corporate notes or preferred stock but more
commonly are long-term debt obligations of the issuer convertible at a stated
exchange rate into common stock of the issuer. As with all debt
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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 depreciate to the same extent as the underlying common stock.
Convertible securities generally rank senior to common stock in an issuer's
capital structure and are consequently of higher quality and entail less risk of
declines in market value than the issuer's common stock. However, the extent to
which such common-stock-like risk is reduced for the holder of a convertible
security is inversely related to the amount by which the convertible security's
market price exceeds its value as a fixed-income security.
Warrants and Rights
The Edinburgh Overseas Equity Fund, the Frontier Capital Appreciation Fund,
and the Enhanced U.S. Equity Fund each may invest in warrants or rights which
entitle the holder to buy equity securities at a specific price for a specific
period of time but will do so only if such equity securities are deemed
appropriate by the Portfolio Manager for investment by the Fund.
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Warrants and rights have no voting rights, receive no dividends and have no
rights with respect to the assets of the issuer.
Repurchase Agreements
The Turner Core Growth Fund and the Enhanced U.S. Equity Fund may enter
into repurchase agreements with "primary dealers" in U.S. Government securities
and member banks of the Federal Reserve System which furnish collateral at least
equal in value or market price to the amount of their repurchase obligation. The
collateral must consist of U.S. Government securities or instruments that are
rated in the highest rating category by at least two nationally recognized
statistical rating organizations ("NRSROs") or by a single NRSRO if only one has
assigned a rating. In a repurchase agreement, an investor (e.g., a Fund)
purchases a debt security from a seller which undertakes to repurchase the
security at a specified resale price on an agreed future date (ordinarily a week
or less). The resale price generally exceeds the purchase price by an amount
which reflects an agreed-upon market interest rate for the term of the
repurchase agreement. The primary risk is that, if the seller defaults, a Fund
might suffer a loss to the extent that the proceeds from the sale of the
underlying securities and other collateral held by that Fund in connection with
the related repurchase agreement are less than the repurchase price. In
addition, in the event of bankruptcy of the seller or failure of the seller to
repurchase the securities as agreed, that Fund could suffer losses, including
loss of interest on or principal of the security and costs associated with delay
and enforcement of the repurchase
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agreement. In evaluating whether to enter into a repurchase agreement, the
Portfolio Manager will carefully consider the creditworthiness of the seller
pursuant to procedures established by the Board of Directors.
Borrowing
The Edinburgh Overseas Equity Fund may borrow money but only from banks and
only for temporary or short-term purposes. Temporary or short-term purposes may
include: (i) short-term (i.e., no longer than five business days) credits for
clearance of portfolio transactions; (ii) borrowing in order to meet redemption
requests or to finance failed settlements of portfolio trades without
immediately liquidating portfolio securities or other assets; and (iii)
borrowing in order to fulfill commitments or plans to purchase additional
securities pending the anticipated sale of other portfolio securities or assets
in the near future. The Fund will not borrow for leveraging purposes. The Fund
will maintain continuous asset coverage of at least 300% with respect to all of
its borrowings. Should the value of the Fund's assets decline to below 300% of
borrowings, the Fund may be required to sell portfolio securities within three
days to reduce the Fund's debt and restore 300% asset coverage. Borrowing
involves interest costs.
Other Investment Companies
The Edinburgh Overseas Equity Fund reserves the right to invest up to 10%
of its total assets, calculated at the time of purchase, in the securities of
other investment companies including money market funds, business development
companies, and small
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business investment companies (although it is anticipated that such investments
will not exceed 5% of total assets). The Fund may not invest more than 5% of its
total assets in the securities of any one investment company nor in more than 3%
of the voting securities of any other investment company. The Fund will indi-
rectly bear their proportionate share of any advisory fees paid by investment
companies in which they invest in addition to the management fee paid by the
Fund.
INVESTMENT RESTRICTIONS
Fundamental Restrictions
The following investment restrictions have been adopted by the Company as
fundamental policies for the Funds to which each applies, as shown below. A
fundamental policy is one that cannot be changed without the affirmative vote of
"a majority of the outstanding voting securities" (as defined in the Investment
Company Act of 1940 (the "1940 Act")) attributable to that Fund. The investment
objective of each Fund and all other investment policies or practices of the
Funds are considered by the Company not to be fundamental and accordingly may be
changed by the Board of Directors without shareholder approval. See "Investment
Objectives and Policies" in the Company's Prospectus. For purposes of the 1940
Act, "a majority of the outstanding voting securities" means the lesser of (a)
67% or more of the votes attributable to shares of the Fund present at a
meeting, if the holders of more than 50% of such votes are present or
represented
<PAGE>
by proxy, or (b) more than 50% of the votes attributable to shares of the Fund.
None of the Funds may:
---------------------
1. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings.
2. Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions.
3. Underwrite securities issued by others, except to the extent that the
sale of portfolio securities by a Fund may be deemed to be underwriting.
4. Purchase, hold or deal in real estate (including real estate limited
partnerships) or oil, gas or mineral leases, although a Fund may purchase and
sell securities that are secured by real estate or interests therein and may
purchase mortgage-related securities (unless otherwise prohibited in these
investment restrictions) and securities issued by real estate investment
trusts and may hold and sell real estate acquired for the Fund as a result of
the ownership of securities.
5. Invest in commodities.
6. Lend any money or other assets, except through the purchase of all or
a portion of an issue of securities or obligations of the type in which the
Fund may invest. However, a Fund may lend its portfolio securities in an amount
not to exceed one-third of the value of its total assets, unless otherwise
prohibited in these investment restrictions.
<PAGE>
7. Issue any senior security (as such term is defined in Section 18(f) of
the 1940 Act) except as otherwise permitted under these fundamental investment
restrictions.
8. Alone or together with any other of the Funds, make investments for
the purpose of exercising control over, or management of, any issuer.
9. Borrow money except from banks for temporary or short-term purposes
and then only if the Fund maintains asset coverage of at least 300% for such
borrowings. None of the Funds will purchase securities when such borrowings
exceed 5% of its assets.
10. Sell securities short or maintain a short position including short
sales against the box.
11. Invest more than 25% of the value of its total assets in the
securities of issuers conducting their principal business activities in the same
industry. This limitation does not apply to U.S. Government securities.
12. As to 75% of the value of its total assets, purchase the securities of
any one issuer (except U.S. Government securities) if, as a result thereof,
more than 5% of the value of the Fund's total assets would be invested in
securities of that issuer or if, as a result thereof, more than 10% of the
outstanding voting securities of that issuer would be owned by the Fund.
<PAGE>
Non-Fundamental Restrictions
In addition to the fundamental investment restrictions mentioned above, the
Board of Directors has adopted certain non-fundamental restrictions for each
Fund as shown below. Non-fundamental restrictions represent the current
intentions of the Board of Directors, and they differ from fundamental
investment restrictions in that they may be changed or amended by the Board of
Directors without prior notice to or approval of shareholders.
None of the Funds may:
---------------------
1. Purchase the securities of any one issuer if, by such purchase, the
Fund would own more than 10% of the outstanding voting securities of that
issuer.
2. Write call or put options.
3. Purchase variable-amount master demand notes, which are obligations
that permit the investment of fluctuating amounts at varying rates of interest
pursuant to direct arrangements between the lender and the borrower.
4. Purchase variable- or floating-rate demand instruments, which are debt
securities that include a variable or floating interest rate adjustment feature.
5. Purchase fixed-income investments (e.g., corporate debt obligations,
including commercial paper) that are unrated or rated at the time of purchase in
the lower rating categories by S&P or Moody's (i.e., ratings of BB or lower by
S&P or Ba or lower by Moody's for corporate debt obligations and ratings below
A-3 by S&P or Prime-3 by Moody's for commercial paper).
<PAGE>
6. 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.
7. 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.
8. Invest in options or futures.
9. Invest in when-issued securities (or delayed-delivery or forward
commitment contracts).
10. Invest in interest-only ("IO") or principal only ("PO") securities.
However, this does not preclude investments in zero coupon bonds.
11. Invest more than 25% of its net asset value in emerging markets,
including no more than 5% of net asset value in Brady Bonds.
Fund-specific restrictions:
--------------------------
12. The Edinburgh Overseas Equity Fund and the Turner Core Growth Fund may
not purchase illiquid securities, including certain repurchase agreements or
time deposits maturing in more than seven days, if, as a result thereof, more
than 5% of the value of its total assets would be invested in assets that are
either illiquid or are not readily marketable. The Frontier Capital
<PAGE>
Appreciation Fund and the Enhanced U.S. Equity Fund may not invest in illiquid
securities.
13. The Edinburgh Overseas Equity Fund and the Frontier Capital
Appreciation Fund may not purchase restricted securities (except securities
offered and sold to "qualified institutional buyers" in accordance with Rule
144A under the 1933 Act, and except foreign securities offered and sold outside
the United States) if, as a result thereof, more than 10% of the value of its
total assets would be invested in restricted securities. The Turner Core Growth
Fund and the Enhanced U.S. Equity Fund may not invest in restricted securities.
14. The Edinburgh Overseas Equity Fund and the Enhanced U.S. Equity Fund
may not invest in securities of foreign issuers unless, after such investment,
issuers in at least the following number of different countries are represented
in the Fund's portfolio: if up to 40% of the Fund's total assets are invested in
foreign issuers, two foreign countries; if between 40% and 60% of the Fund's
total assets are invested in foreign issuers, three foreign countries; if
between 60% and 80% of the Fund's total assets are invested in foreign issuers,
four foreign countries; and if over 80% of the Fund's total assets are invested
in foreign issuers, five foreign countries. The Frontier Capital Appreciation
Fund and the Turner Core Equity Fund may not invest in securities of foreign
issuers.
15. The Edinburgh Overseas Equity Fund, the Frontier Capital Appreciation
Fund, and the Enhanced U.S. Equity Fund may not invest in warrants or rights
(other than those
<PAGE>
acquired in units or otherwise attached to other securities) if, as a result
thereof, more than 5% of the value of its total assets would be invested in
warrants or rights, and each may not invest more than 2% of its total assets,
calculated at the time of purchase, in warrants or rights that are not listed on
the New York Stock Exchange or the American Stock Exchange. The Turner Core
Growth Fund may not invest in warrants or rights.
16. The Turner Core Growth Fund, the Frontier Capital Appreciation Fund,
and the Enhanced U.S. Equity Fund will not invest in other investment companies.
17. The Edinburgh Overseas Equity Fund will not engage in forward foreign
currency exchange contracts with respect to more than 5% of its assets. The
other Funds will not enter into such contracts.
Interpretive Rules
For purposes of the foregoing fundamental and non-fundamental limitations,
any limitation which involves a maximum percentage will not be violated unless
an excess over the percentage occurs immediately after, and is caused by, an
acquisition or encumbrance of securities or assets of, or borrowings by, a
Fund. In addition, with regard to exceptions recited in a restriction, a Fund
may only rely on an exception if its investment objective or policies otherwise
permit it to rely on the exception.
<PAGE>
INVESTMENT ADVISER
M Financial Investment Advisers, Inc. (the "Adviser") is the investment
adviser of the Company and its Funds.
The Adviser was organized on September 11, 1995. Although the Adviser is
not primarily responsible for the daily management of the Funds, the Adviser
oversees the management of the assets of the Funds by each of the Portfolio
Managers. In turn, each Portfolio Manager is responsible for the day-to-day
management of a specific Fund.
Investment Advisory Agreement
The investment advisory agreement provides that the Adviser may render
similar services to others (although there is no current intent for the Adviser
to do so) so long as the services that it provides to the Company are not
impaired thereby. The investment advisory agreement also provides that the
Adviser will not be liable for any error of judgment or mistake of law or for
any loss arising out of any investment or for any act or omission in the
management of the Company, except for (i) willful misfeas-
<PAGE>
ance, bad faith or gross negligence in the performance of its duties or by
reason of reckless disregard of its duties or obligations under the investment
advisory agreement, and (ii) 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.
The investment advisory agreement was approved for each Fund by the Board
of Directors, including a majority of the Directors who are not parties to the
investment advisory agreement or "interested persons" (as such term is defined
in the 1940 Act) of any party thereto (the "non-interested Directors"), on
November 20, 1995, and by the sole initial shareholder of the Company on ___,
1996. The investment advisory agreement will remain in effect until __, 1998,
and from year to year thereafter provided such continuance is specifically
approved as to each Fund at least annually by (a) the vote of a majority of the
outstanding voting securities of that Fund or by the Board of Directors, and (b)
the vote of a majority of the non-interested Directors, cast in person at a
meeting called for the purpose of voting on such approval. The investment
advisory agreement will terminate automatically if assigned (as defined in the
1940 Act). The investment advisory agreement is also terminable as to any Fund
at any time by the Board of Directors or by vote of a majority of the votes
attributable to outstanding voting securities of the applicable Fund (a) without
penalty and (b) on 60 days' written notice to the Adviser. The agreement is
also
<PAGE>
terminable by the Adviser on 90 days' written notice to the Company.
Expenses of the Company
The Company incurs certain operating and general administrative expenses
in addition to the Adviser's fee. These expenses, which are accrued daily,
include but are not limited to: taxes; expenses for legal and auditing services;
costs of printing; charges for custody services; transfer agent fees, if any;
expenses of redemption of shares; expense of registering shares under federal
and state securities laws; accounting costs; insurance; dues of trade
associations; interest; brokerage costs; and other expenses properly payable by
the Company.
In general, each Fund is charged for the expenses incurred in its
operations as well as for a portion of the Company's general administrative
expenses, allocated on the basis of the asset size of the respective Funds, or
by the Board of Directors as appropriate. Expenses other than the Adviser's fee
that are borne directly and paid individually by a Fund include, but are not
limited to, brokerage commissions, dealer markups, taxes, custody fees, expenses
of redemption, and other costs properly payable by the Fund. Expenses which are
allocated among the Funds include, but are not limited to, Directors' fees and
expenses, independent accountant fees, transfer agent fees, insurance costs,
legal fees, and all other costs of operation properly payable by the Company.
PORTFOLIO MANAGERS
<PAGE>
As compensation for their services, each Portfolio Manager receives a fee
(paid by the Adviser) based on the average daily net assets of the applicable
Fund at the following annual rates:
<TABLE>
<CAPTION>
================================================================================
Fund Sub-Advisory Fee
================================================================================
<S> <C>
Edinburgh Overseas 0.90% on the first $10 million
Equity Fund 0.75% on the next $15 million
0.60% on the next $75 million
0.45% on amounts above $100 million
- --------------------------------------------------------------------------------
Turner Core Growth Fund 0.30%
- --------------------------------------------------------------------------------
Frontier Capital Appreciation Fund 0.75%
- --------------------------------------------------------------------------------
Enhanced U.S. Equity Fund 0.40% on the first $25 million
0.30% on the next $75 million
0.15% on amounts above $100 million
================================================================================
</TABLE>
Since they are paid by the Adviser, the sub-advisory fees form a portion
of, and are not in addition to, the Advisory fees described in the Prospectus.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Portfolio Managers are responsible for decisions to buy and sell
securities for the Funds, the selection of brokers and dealers to effect the
transactions and the negotiation of brokerage commissions, if any. Purchases
and sales of securities on a securities exchange are effected through brokers
who charge a negotiated commission for their services. Orders may be directed to
any broker including, to the extent and in the manner permitted by applicable
law, affiliates of the Adviser or the Portfolio Managers.
<PAGE>
In placing orders for portfolio securities of a Fund, its Portfolio Manager
is required to give primary consideration to obtaining the most favorable price
and efficient execution. This means that the Portfolio Manager will seek to
execute each transaction at a price and commission, if any, which provide the
most favorable total cost or proceeds reasonably attainable in the
circumstances. While the Portfolio Manager generally seeks reasonably
competitive spreads or commissions, a Fund will not necessarily be paying the
lowest spread or commission available. Within the framework of this policy, the
Portfolio Managers may consider research and investment services provided by
brokers or dealers who effect or are parties to portfolio transactions of the
Funds, the Portfolio Managers and their affiliates, or other clients of the
Portfolio Managers or their affiliates. Such research and investment services
include statistical and economic data and research reports on particular
companies and industries. Such services are used by the Portfolio Managers in
connection with all of their investment activities, and some of such services
obtained in connection with the execution of transactions for the Funds may be
used in managing other investment accounts. Conversely, brokers furnishing such
services may be selected for the execution of transactions of such other
accounts, whose aggregate assets are far larger than those of the Funds, and
the services furnished by such brokers may be used by the Portfolio Managers in
providing investment sub-advisory services to the Funds.
<PAGE>
On occasions when the Portfolio Manager deems the purchase or sale of a
security to be in the best interest of a Fund as well as its other advisory
clients (including any other fund or other investment company or advisory
account for which the Portfolio Manager or an affiliate acts as investment
adviser), the Portfolio Manager, to the extent permitted by applicable laws and
regulations, may aggregate the securities to be sold or purchased for the Fund
with those to be sold or purchased for such other customers in order to obtain
the best net price and most favorable execution. In such event, allocation of
the securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Portfolio Manager in the manner it considers
to be most equitable and consistent with its fiduciary obligations to the Fund
and such other customers. In some instances, this procedure may adversely
affect the price and size of the position obtainable for a Fund.
Commission rates are established pursuant to negotiations with the broker
based on the quality and quantity of execution services provided by the broker
in the light of generally prevailing rates. The allocation of orders among
brokers and the commission rates paid are reviewed periodically by the Board of
Directors.
DETERMINATION OF NET ASSET VALUE
The Board of Directors is responsible for determining in good faith the
fair value of securities of each Fund. The price per share, and therefore the
net asset value per share, was initially established at $10.00 by the Board of
Directors.
<PAGE>
Thereafter, in accordance with procedures adopted by the Board of Directors, the
net asset value per share is calculated by determining the net worth of each
Fund (assets, including securities at market value or amortized cost value,
minus liabilities) divided by the number of that Fund's outstanding shares. All
securities are valued as of the close of regular trading on the New York Stock
Exchange. Each Fund will compute its net asset value once daily at the close of
such trading (normally 4:00 p.m. New York time). In addition, the Funds may
compute their net asset value as of any time permitted pursuant to any
exemption, order or statement of the SEC or its staff.
Portfolio assets of the Funds are valued as follows:
(a) securities and other investments listed on any U.S. or foreign stock
exchange or the National Association of Securities Dealers Automated
Quotation system ("Nasdaq") are valued at the last sale price on that
exchange or Nasdaq on the valuation day; if no sale occurs, securities
traded on a U.S. exchange or Nasdaq are valued at the mean between the
closing bid and closing asked prices and securities traded principally
on a foreign exchange will be valued at the official bid price (the
last sale price and official bid price for securities traded
principally on a foreign exchange will be determined as of the close
of the London Foreign Exchange);
(b) over-the-counter securities not quoted on Nasdaq are valued at the
last sale price on the valuation day or,
<PAGE>
if no sale occurs, at the mean between the last bid and asked prices;
(c) debt securities with a remaining maturity of 61 days or more are
valued on the basis of dealer-supplied quotations or by a pricing
service selected by the Portfolio Manager and approved by the Board of
Directors if those prices are deemed by the Portfolio Manager to be
representative of market values at the close of business of the New
York Stock Exchange;
(d) all other securities and other assets, including those for which a
pricing service supplies no quotations or quotations are not deemed by
the Portfolio Manager to be representative of market values, but
excluding debt securities with remaining maturities of 60 days or
less, are valued at fair value as determined in good faith pursuant to
procedures established by the Board of Directors; and
(e) debt securities with a remaining maturity of 60 days or less will be
valued at their amortized cost which approximates market value.
Portfolio securities traded on more than one U.S. national securities
exchange or foreign securities exchange are valued at the last sale price on
each business day at the close of the exchange representing the principal market
for such securities. The value of all assets and liabilities expressed in
foreign currencies will be converted into U.S. dollar values at the mean between
the buying and selling rates of such currencies against
<PAGE>
U.S. dollars last quoted by any major bank. If such quotations are not
available, the rate of exchange will be determined in good faith by or under
procedures established by the Board of Directors.
Trading in securities on European and Far Eastern securities exchanges and
on over-the-counter markets is normally completed well before the close of
business on each business day. In addition, European or Far Eastern securities
trading generally or in a particular country or countries may not take place on
all business days. Furthermore, trading takes place in Japanese markets on
certain Saturdays and in various foreign markets on days which are not business
days for the Company and days on which a Fund's net asset value is not
calculated. Such calculation does not take place contemporaneously with the
determination of the prices of a majority of the portfolio securities used in
such calculation. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the close of regular
trading on the New York Stock Exchange will not be reflected in a Fund's
calculation of net asset value until the following business day, unless the
Portfolio Manager deems that the particular event would materially affect net
asset value, in which case an adjustment will be made.
Under the amortized cost method of valuation, securities are valued at cost
on the date of their acquisition, and thereafter a constant accretion of any
discount or amortization of any premium to maturity is assumed, regardless of
the impact of fluctuating interest rates on the market value of the security.
While this
<PAGE>
method provides certainty in valuation, it may result in periods in which value
as determined by amortized cost is higher or lower than the price a Fund would
receive if it sold the security. During such periods, the quoted yield to
investors may differ some-what from that obtained by a similar fund or portfolio
which uses available market quotations to value all of its portfolio securities.
PERFORMANCE INFORMATION
The Company may from time to time quote or otherwise use average annual
total return information for the Funds in advertisements, shareholder reports,
and sales literature. Average annual total return values are computed pursuant
to equations specified by the SEC.
Average annual total return for a specified period is derived by
calculating the actual dollar amount of the investment return on a $1,000
investment in a Fund made at the beginning of the period, and then calculating
the annual compounded rate of return which would produce that amount, assuming a
redemption at the end of the period. This calculation assumes a complete
redemption of the investment. It also assumes that all dividends and
distributions are reinvested at net asset value on the reinvestment dates during
the period.
The Company also may from time to time quote or otherwise use year-by-year
total return, cumulative total return and yield information for the Funds in
advertisements, shareholder reports, and sales literature. Year-by-year total
return and cumulative
<PAGE>
total return for a specified period are each derived by calculating the
percentage rate required to make a $1,000 investment in a Fund (assuming all
distributions are reinvested) at the beginning of such period equal to the
actual total value of such investment at the end of such period.
Yield is computed by dividing net investment income earned during a recent
30-day period by the product of the average daily number of shares outstanding
and entitled to receive dividends during the period and the price per share on
the last day of the relevant period. The results are compounded on a bond-
equivalent (semiannual) basis and then annualized. Net investment income per
share is equal to the dividends and interest earned during the period, reduced
by accrued expenses for the period. The calculation of net investment income
for these purposes may differ from the net investment income determined for
accounting purposes.
Any performance data quoted for a Fund will represent historical
performance, and the investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. Performance data for the Funds will not reflect charges
deducted under the Policies. If Policy charges were taken into account, such
performance data would reflect lower returns.
From time to time the Company may publish an indication of the Funds' past
performance as measured by independent sources such as (but not limited to)
Lipper Analytical Services, Weisenberger Investment Companies Service,
Donoghue's Money Fund Report, Barron's, Business Week, Changing Times, Financial
World, Forbes, Fortune, Money, Personal Investor, Sylvia Porter's Personal
Finance and The Wall Street Journal. The Company may also advertise information
which has been provided to the NASD for publication in regional and local
newspapers. In addition, the Company may from time to time advertise its
performance relative to certain indices and benchmark investments, including
(but not limited to): (a) the Lipper Analytical Services, Inc. Mutual Fund
Performance Analysis, Fixed-Income Analysis and Mutual Fund Indices (which
measure total return and average current yield for the mutual fund industry and
rank mutual fund performance); (b) the CDA Mutual Fund Report published by CDA
Investment Technologies, Inc. (which analyzes price, risk and various measures
of return for the mutual fund industry); (c) the Consumer Price Index published
by the U.S. Bureau of Labor Statistics (which measures changes in the price of
goods and services); (d) Stocks, Bonds, Bills and Inflation published by
Ibbotson Associates (which provides historical performance figures for stocks,
government securities and inflation); (e) the Hambrecht & Quist Growth Stock
Index; (f) the Nasdaq OTC Composite Prime Return; (g) the Russell Midcap Index;
(h) the Russell 2000 Index- Total Return; (i) the ValueLine Composite-Price
Return; (j) the Wilshire 4500 Index; (k) the Salomon Brothers' World Bond Index
(which measures the total return in U.S. dollar terms of government bonds,
Eurobonds and foreign bonds of ten countries, with all such bonds having a
minimum maturity of five years); (l) the Shearson Lehman Brothers Aggregate Bond
Index or its component
<PAGE>
indices (the Aggregate Bond Index measures the performance of Treasury, U.S.
Government agencies, mortgage and Yankee bonds); (m) the S&P Bond indices (which
measure yield and price of corporate, municipal and U.S. Government bonds); (n)
the J.P. Morgan Global Government Bond Index; (o) Donoghue's Money Market Fund
Report (which provides industry averages of 7-day annualized and compounded
yields of taxable, tax-free and U.S. Government money market funds); (p) other
taxable investments including certificates of deposit, money market deposit
accounts, checking accounts, savings accounts, money market mutual funds and
repurchase agreements; (q) historical investment data supplied by the research
departments of Goldman Sachs, Lehman Brothers, CS First Boston, Morgan Stanley
(including EAFE), Salomon Brothers, Merrill Lynch, Donaldson Lufkin & Jenrette
or other providers of such data; (r) the FT-Actuaries Europe and Pacific Index;
(s) mutual fund performance indices published by Variable Annuity Research &
Data Service; (t) S&P 500 Index; and (u) mutual fund performance indices
published by Morningstar, Inc. The composition of the investments in such
indices and the characteristics of such benchmark investments are not identical
to, and in some cases are very different from, those of a Fund's portfolio.
These indices and averages are generally unmanaged and the items included in the
calculations of such indices and averages may be different from those of the
equations used by the Company to calculate a Fund's performance figures.
The Company may from time to time summarize the substance of discussions
contained in shareholder reports in advertisements
<PAGE>
and publish the Portfolio Managers' views as to markets, the rationale for a
Fund's investments and discussions of a Fund's current asset allocation.
From time to time, advertisements or information may include a discussion
of certain attributes or benefits to be derived by an investment in a particular
Fund. Such advertisements or information may include symbols, headlines or
other material which highlight or summarize the information discussed in more
detail in the communication.
Such performance data will be based on historical results and will not be
intended to indicate future performance. The total return and yield of a Fund
will vary based on market conditions, portfolio expenses, portfolio
investments, and other factors. The value of a Fund's shares will fluctuate, and
an investor's shares may be worth more or less than the investor's original cost
upon redemption. The Company may also, at its discretion, from time to time make
a list of a Fund's holdings available to investors upon request.
SHARES OF STOCK
The Company issues a separate class of shares for each Fund representing
fractional undivided interests in that Fund. The Board of Directors has
authority to divide or combine the shares of any Fund into greater or lesser
numbers without thereby changing the proportionate beneficial interests in the
Fund.
Each issued and outstanding share is entitled to participate equally in
dividends and distributions declared for the respective class and, upon
liquidation or dissolution, in net assets
<PAGE>
allocated to such class remaining after satisfaction of outstanding
liabilities. The shares of each class, when issued, will be fully paid and
nonassessable and have no preemptive or conversion rights.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted by the provisions of the 1940 Act, applicable state law or otherwise
to the holders of the outstanding voting securities of an investment company
such as the Company shall not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the outstanding shares of each
class or series affected by such matter. Rule 18f-2 further provides that a
class or series shall be deemed to be affected by a matter unless the interests
of each class or series in the matter are substantially identical or the matter
does not affect any interest of such class or series. However, Rule 18f-2
exempts the selection of independent public accountants, the approval of
principal underwriting contracts and the election of Directors from the separate
voting requirements of Rule 18f-2.
Under normal circumstances, subject to the reservation of rights explained
above, the Company will redeem shares of the Funds in cash within seven days.
However, the right of a shareholder to redeem shares and the date of payment by
the Company may be suspended for more than seven days for any period during
which the New York Stock Exchange is closed, other than the customary weekends
or holidays, or when trading on such Exchange is restricted as determined by the
SEC; or during any emergency, as
<PAGE>
determined by the SEC, as a result of which it is not reasonably practicable for
a Fund to dispose of securities owned by it or fairly to determine the value of
its net assets; or for such other period as the SEC may by order permit for the
protection of shareholders.
Under Maryland law, the Company is not required to hold annual shareholder
meetings and does not intend to do so.
CUSTODY OF ASSETS
Pursuant to a custodian agreement with the Company, Investors Bank & Trust
Company ("Investors Bank") holds the cash and portfolio securities of the
Company as custodian.
Investors Bank is responsible for holding all securities and cash of each
Fund, receiving and paying for securities purchased, delivering against payment
securities sold, and receiving and collecting income from investments, making
all payments covering expenses of the Company, all as directed by persons
authorized by the Company. Investors Bank does not exercise any supervisory
function in such matters as the purchase and sale of portfolio securities,
payment of dividends, or payment of expenses of the Funds or the Company.
Portfolio securities of the Funds purchased domestically are maintained in the
custody of Investors Bank and may be entered into the Federal Reserve,
Depository Trust Company, or Participant's Trust Company book entry systems.
Pursuant to the custodian agreement, portfolio securities purchased outside the
United States will be maintained in the custody of various other custodians or
subcustodians, including
<PAGE>
foreign banks and foreign securities depositories, as are approved by the Board
of Directors, in accordance with regulations under the 1940 Act.
DIRECTORS AND OFFICERS
The Directors and officers of the Company are listed below together with
their respective positions with the Company and a brief statement of their
principal occupations during the past five years and any positions held with
affiliates of the Company:
<TABLE>
<CAPTION>
Position(s)
Held with Principal Occupation(s)
Name, Address, and Age the Company During Past 5 Years
- ---------------------- ----------- -----------------------
<S> <C> <C>
Peter W. Mullin* Director Chairman and Chief Executive
(age 55) Officer, Mullin Consulting,
Inc.
David M. Spungen* Director Director of CMS Capital
(age 34) Management, a division of CMS
Investment Resources, Inc.
Gerald Bidwell Director President and Chief Executive
[address] Officer, Bidwell & Co.
(age 52)
Neil E. Goldschmidt Director President, Neil Goldschmidt,
222 SW Columbia Inc.; Formerly, Governor,
Suite 1850 State of Oregon
Portland, OR 97201
(age 56)
Philip Halpern Director Chief Investment Officer,
(age 41) Washington State Investment
Board
Daniel F. Byrne* President Senior Vice President, Product
(age 39) Development and Sales Support,
of M Financial Group, since
1992. Formerly, Director of
Product Development for Sun
Life of Canada.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Position(s)
Held with Principal Occupation(s)
Name, Address, and Age the Company During Past 5 Years
- ---------------------- ----------- -----------------------
<S> <C> <C>
David W. Schutt* Secretary Secretary and Treasurer of M
(age 40) and Life and Director of Finance
Treasurer for M Financial Group, since
1992. Formerly, Controller of
OECO Corporation (electronics
manufacturer).
</TABLE>
* "Interested Person" of the Company for purposes of the 1940 Act. The
address of Interested Persons is M Fund, Inc., River Park Center, 205 S.E.
Spokane Street, Portland, Oregon 97202.
There is no family relationship between any of the Directors or officers
listed above.
<PAGE>
The Directors of the Company are expected to receive the following
compensation from the Company during the current fiscal year:
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits Estimated from the
Aggregate Accrued as Annual Company and
Compensation Part of the Benefits Fund Complex
Name of Person, from the Company's upon Paid to
Position Company** Expenses** Retirement Directors**
- -------------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C>
Peter W. Mullin $ 0 $ 0 $ 0 $ 0
Director
David M. Spungen $ 0 $ 0 $ 0 $ 0
Director
Gerald Bidwell $10,000 $ 0 $ 0 $10,000
Director
Neil Goldschmidt $10,000 $ 0 $ 0 $10,000
Director
Philip Halpern $10,000 $ 0 $ 0 $10,000
Director
</TABLE>
** Each non-interested Director currently receives an annual retainer of
$8,000 plus $500 per meeting of the Board or a committee thereof which he
attends.
TAX INFORMATION
Sources of Gross Income. To qualify for treatment as a regulated investment
company, a Fund must, among other things, derive its income from certain
sources. Specifically, in each taxable year, a Fund must generally derive at
least 90% of its gross income from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of
<PAGE>
securities or foreign currencies, or other income derived with respect to its
business of investing in securities or currencies. A Fund must also generally
derive less than 30% of its gross income from the sale or other disposition of
any of the following which was held for less than three months: (1) stock or
securities, (2) options, futures, or forward contracts (other than options,
futures, or forward contracts on foreign currencies), or (3) foreign currencies
(or options, futures, or forward contracts on foreign currencies) but only if
such currencies (or options, futures, or forward contracts on currencies) are
not directly related to the Fund's principal business of investing in stock or
securities (or options and futures with respect to stock or securities). For
purposes of these tests, gross income generally is determined without regard to
losses from the sale or other disposition of stock or securities or other Fund
assets.
Diversification of Assets. To qualify for treatment as a regulated
investment company, a Fund must also satisfy certain requirements with respect
to the diversification of its assets. A Fund must have, at the close of each
quarter of the taxable year, at least 50% of the value of its total assets
represented by cash, cash items, U.S. Government securities, securities of other
regulated investment companies, and other securities which, in respect of any
one issuer, do not represent more than 5% of the value of the assets of the Fund
nor more than 10% of the voting securities of that issuer. In addition, at those
times, not more than 25% of the value of the Fund's assets may be invested in
securities (other than U.S. Government securities or
<PAGE>
the securities of other regulated investment companies) of any one issuer, or of
two or more issuers which the Fund controls and which are engaged in the same or
similar trades or businesses or related trades or businesses. For purposes of a
Fund's requirements to maintain diversification for tax purposes, the issuer of
a loan participation will generally be the underlying borrower. However, in
cases where the Fund does not have recourse directly against the borrower, both
the borrower and each agent bank and co-lender interposed between the Fund and
the borrower will be deemed issuers of the loan participation for tax
diversification purposes. A Fund's investments in U.S. Government securities are
not subject to these limitations. The foregoing diversification requirements are
in addition to those imposed by the 1940 Act.
Because the Company is established as an investment medium for variable
annuity contracts and variable life insurance policies, Section 817(h) of the
Code imposes additional diversification requirements on each Fund. These
requirements generally are that no more than 55% of the value of the assets of a
Fund may be represented by any one investment; no more than 70% by any two
investments; no more than 80% by any three investments; and no more than 90% by
any four investments. For these purposes, all securities of the same issuer are
treated as a single investment and each U.S. Government agency or
instrumentality is treated as a separate issuer.
<PAGE>
OTHER INFORMATION
Financial Statements
Coopers & Lybrand, L.L.P., will act as the Company's independent certified
public accountants.
Legal Counsel
Sutherland, Asbill & Brennan, 1275 Pennsylvania Avenue, N.W., Washington,
D.C. 20004-2404, has provided advice to the Company with respect to certain
matters relating to federal securities laws.
Company Name
The Company's Articles of Incorporation acknowledge that the Company
adopted its name through permission of M Life Insurance Company, an affiliate of
the Adviser. Under certain circumstances, the Company has agreed to eliminate
the name "M" from its name upon request of M Life Insurance Company.
Other Information
The Prospectus and this SAI do not contain all the information included in
the registration statement filed with the SEC under the 1933 Act with respect to
the securities offered by the Prospectus. Certain portions of the registration
statement have been omitted from the Prospectus and this SAI pursuant to the
rules and regulations of the SEC. The registration statement including the
exhibits filed therewith may be examined at the office of the SEC in Washington,
D.C.
Statements contained in the Prospectus or in this SAI as to the contents of
any contract or other document referred to are not necessarily complete, and, in
each instance, reference is
<PAGE>
made to the copy of such contract or other document filed as an exhibit to the
registration statement of which the Prospectus and this SAI are parts, each such
statement being qualified in all respects by such reference.
<PAGE>
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS/1/
Description of Moody's Investors Service, Inc.'s
------------------------------------------------
Corporate Bond Ratings
----------------------
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payment and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
A-1
<PAGE>
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Absence of Rating: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonably up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
A-2
<PAGE>
Description of Standard & Poor's Corporation, Inc.'s
----------------------------------------------------
Corporate Bond Ratings
----------------------
Investment Grade
AAA: Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Speculative Grade
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will like impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment
A-3
<PAGE>
of interest and repayment of principal. In the event of adverse business,
financial, or economic conditions, it is not likely to have the capacity to pay
interest and repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or B-
rating.
CC: The rating CC typically is applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
C: The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC-debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI: The rating CI is reserved for income bonds on which no interest
is being paid.
D: Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
N.R.: Not rated.
____________________
A-4
<PAGE>
- ----------------------------- COMPARISON OF NOTES ------------------------------
The rating systems described herein are believed to be the most recent ratings
systems available from Moody's Investors Service, Inc. ("Moody's") and Standard
& Poor's Corporation ("S&P") at the date of the SAI for the securities listed.
Ratings are generally given to securities at the time of issuance. While the
rating agencies may from time to time revise such ratings, they undertake no
obligations to do so, and the ratings indicated do not necessarily represent
ratings which will be given to these securities on the date of the Fund's fiscal
year end.
A - 5
<PAGE>
APPENDIX B
Description of Commercial Paper Ratings
Commercial Paper - Moody's Investors Service, Inc.
- --------------------------------------------------
"PRIME-1" - Commercial paper issuers rated Prime-1 are judged to be one
of the best quality. Their short-term debt obligations carry the smallest
degree of investment risk. Margins of support for current indebtedness are
large or stable with cash flow and asset protection well assured. Current
liquidity provides ample coverage of near-term liabilities and unused
alternative financing arrangements are generally available. While protective
elements may change over the intermediate or longer term, such changes are most
unlikely to impair the fundamentally strong position of short-term obligations.
"PRIME-2" - Issuers in the Commercial Paper market rated Prime-2 are high
quality. Protection for short-term holders is assured with liquidity and value
of current assets as well as cash generation in sound relationship to current
indebtedness. They are rated lower than the best commercial paper issuers
because margins of protection may not be as large or because fluctuations of
protective elements over the near or immediate term may be of greater amplitude.
Temporary increases in relative short and overall debt load may occur.
Alternative means of financing remain assured.
"PRIME-3" - Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Commercial Paper - Standard & Poor's Corporation
- ------------------------------------------------
"A" - Issues assigned this highest rate are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designation 1, 2 and 3 to indicate the relative degree of safety.
"A-1" - This designation indicates that the degree of safety regarding
timely payment is very strong.
"A-2" - Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not overwhelming as for
issues designated "A-1".
<PAGE>
"A-3" - Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designation.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
---------------------------------
(a) Financial Statements
--------------------
The balance sheet of M Fund, Inc. is found in Part
B.
(b) Exhibits
--------
(1) Articles of Incorporation of M Fund, Inc./1/
(2) By-Laws of M Fund, Inc./1/
(3) None.
(4) None.
(5) (A) Investment Advisory Agreement between M Fund, Inc. and M
Financial Investment Advisers,
Inc./1/
(B) Investment Sub-Advisory Agreements between M Financial
Investment Advisers, Inc. and each of the following:
(i) Edinburgh Fund Managers plc;/2/
(ii) Turner Investment Partners, Inc.;/2/
(iii)Frontier Capital Management Company, Inc.;/2/
and
(iv) Franklin Portfolio Associates Trust./2/
(6) Form of Participation Agreement between M Fund, Inc.
and Participating Insurance Companies.1
(7) None.
(8) Custodian Agreement between M Fund, Inc. and Investors
Bank & Trust Company./2/
(9) (A) Transfer Agency and Service Agreement between M
Fund, Inc. and Investors Bank & Trust Company./2/
(B) Administration Agreement between M Fund, Inc. and
Investors Bank & Trust Company./2/
(10) Opinion and Consent of counsel as to the Legality of the
Securities Being Issued./2/
(11) (A) None.
C - 1
<PAGE>
(B) Consent of Sutherland, Asbill & Brennan./2/
(12) None.
(13) None.
(14) None.
(15) None.
(17) Powers of Attorney./2/
____________________
1 Incorporated herein by reference to registrant's initial
registration statement filed with the Securities and Exchange
Commission on August 7, 1995 (File No. 33-95472)
2 Filed herewith.
Item 25. Persons Controlled by or under Common Control with
--------------------------------------------------
Registrant.
----------
M Fund does not concede that it is controlled by its invest-
ment adviser. Nevertheless, in the event of such control, the
following would be under common control.
M Financial Investment Advisers, Inc., a Colorado corporation (the
"Adviser"), is a wholly-owned subsidiary of , by Management Partnership.
Management Partnership is a general partnership, doing business as "M
Financial Group." See "MANAGEMENT - Investment Adviser" in Part A. A majority
interest in Management Partnership is owned by M Corporation, a __________
corporation, of which 50% is owned by each of Ellison C. Morgan and Mark I.
Solomon. The remaining interests in Management Partnership are owned, either
directly or through certain controlled corporations (e.g., PWM Management
Service, Inc. and Summerville Company) by Messrs. Carl G. Mammel (15.82%), Peter
W. Mullin (22.93%), and Thomas N. Spitzer (2.00%). Mr. Mullin serves as a
director of M Fund, Inc.
M Life Insurance Company is controlled by Management Partnership by reason
of the partnership's ownership of all of the outstanding shares of M Life's
Class B Common Stock and by reason of the direct or indirect ownership by
Management Partnership's partners of all of the outstanding shares of certain
series of M Life's Class A Common Stock. (Each partner of
C-2
<PAGE>
Management Partnership disclaims beneficial ownership of the shares of M Life's
Class A Common Stock held by each other partner
Item 26. Number of Holders of Securities.
-------------------------------
<TABLE>
<CAPTION>
Number of Record Holders
Title of Class As of December 11, 1995
-------------- ------------------------
<S> <C>
Edinburgh Overseas Equity Fund 0
Turner Core Equity Fund 0
Frontier Capital Appreciation Fund 0
Enhanced U.S. Equity Fund 0
</TABLE>
Item 27. Indemnification.
---------------
Article X, "Indemnification," of the Articles of Incorporation of M Fund,
Inc. provides as follows:
The Corporation shall indemnify its officers and directors to the
fullest extent permitted by law.
Article VIII, "Indemnification," of the By-Laws of M Fund, Inc. provides as
follows:
Section 1. Every person who is or was a director, officer or employee
of the Corporation or of any other corporation which he or she served
at the request of the Corporation and in which the Corporation owns or
owned shares of capital stock or of which it is or was a creditor shall
have a right to be indemnified by the Corporation to the full extent
permitted by applicable law, against all liability, judgments, fines,
penalties, settlements and reasonable expenses incurred by him in
connection with or resulting from any threatened or actual claim, action,
suit or proceeding, whether criminal, civil, or administrative, in
which he or she may become involved as a party or otherwise by reason of
being or having been a director, officer or employee, except as provided in
Article VIII, Sections 2 and 3 of these By-laws.
Section 2. Disabling Conduct. No such director, officer or employee
-----------------
shall be indemnified for any liabilities or expenses arising by reason of
"disabling conduct," whether or not there is an adjudication of liability.
"Disabling conduct" means willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties involved in the conduct of office.
Whether any such liability arose out of disabling conduct shall be
determined: (a) by a final decision on the merits (including, but not
limited to, a dismissal for
C - 3
<PAGE>
insufficient evidence of any disabling conduct) by a court or other body,
before whom the proceeding was brought that the person to be indemnified
("indemnitee") was not eligible for indemnity because the liability arose
by reason of disabling conduct; or (b) in the absence of such a decision,
by a reasonable determination, based upon a review of the facts, that such
person was not eligible for indemnity because the liability arose by reason
of disabling conduct, (i) by the vote of a majority of a quorum of
directors who are neither interested persons of the Corporation nor parties
to the action, suit, or proceeding in question ("disinterested, non-party
directors"), or (ii) by independent legal counsel in a written opinion if a
quorum of disinterested, non-party directors so directs or if such quorum
is not obtainable, or (iii) by majority vote of the stockholders of the
Corporation, or (iv) by any other reasonable and fair means not
inconsistent with any of the above.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that any liability
or expense arose by reason of disabling conduct.
Section 3. Directors' Standards of Conduct. No person who is or was a
-------------------------------
director shall be indemnified under this Article VIII for any liabilities
or expenses incurred by reason of service in that capacity if an act or
omission of the director was material to the matter giving rise to the
threatened or actual claim, action, suit or proceeding; and such act or
omission constituted disabling conduct.
Section 4. Expenses Prior to Determination. Any liabilities or
-------------------------------
expenses of the type described in Article VIII, Section 1 may be paid by
the Corporation in advance of the final disposition of the claim, action,
suit or proceed-proceeding, as authorized by the directors in the specific
case, (a) upon receipt of a written affirmation by the indemnitee of his or
her good faith belief that his or her conduct met the standard of conduct
necessary for indemnification as authorized by this Article VIII, Section
2; (b) upon receipt of a written undertaking by or on behalf of the
indemnitee to repay the advance, unless it shall be ultimately determined
that such person is entitled to indemnification; and (c) provided that (i)
the indemnitee shall provide security for that undertaking, or (ii) the
Corporation shall be insured against losses arising by reason of any lawful
advances, or (iii) a majority of a quorum of disinterested, non-party
directors, or independent legal counsel in a written opinion, shall
determine, based on a review of readily available facts (as opposed to a
full trial-type inquiry), that there is reason to believe the indemnitee
ultimately will be found entitled to indemnification.
C - 4
<PAGE>
A determination pursuant to subparagraph (c)(iii) of this Article
VIII, Section 4 shall not prevent the recovery from any indemnitee of any
amount advanced to such person as indemnification if such person is
subsequently determined not to be entitled to indemnification; nor shall a
determined-nation pursuant to said subparagraph prevent the payment of
indemnification if such person is subsequently found to be entitled to
indemnification.
Section 5. Provisions Not Exclusive. The indemification provided by
this Article VIII shall not be deemed exclusive of any rights to which
those seeking indemification may be entitled under any law, agreement, vote
of stockholders, or otherwise.
Section 6. General. No indemnification provided by this Article shall
-------
be inconsistent with the 1940 Act or the Securities Act of 1933.
Any indemnification provided by this Article shall continue as to a
person who has ceased to be a director, officer, or employee, and shall
inure to the benefit of the heirs, executors and administrators of such
person. In addition, no amendment, modification or repeal of this Article
shall adversely affect any right or protection of an indemnitee that exists
at the time of such amendment, modification or repeal.
* * *
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "1933 Act") may be permitted to Directors, officers and controlling
persons of M Fund pursuant to the foregoing provisions, or otherwise, M Fund has
been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the 1933 Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by M Fund of expenses incurred or paid by a Director, officer or
controlling person of M Fund in the successful defense of any action, suit or
proceeding) is asserted by such Director, officer or controlling person in
connection with the securities being registered, M Fund 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 1933 Act and
will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of the Investment Adviser.
--------------------------------------------------------
Any other business, profession, vocation or employment of a substantial
nature in which each investment adviser of M Fund,
C - 5
<PAGE>
and each director, officer or partner of any such investment adviser, is or
has been, at any time during the past two fiscal years, engaged for his or her
own account or in the capacity of director, officer, employee, partner or
trustee is described in each investment adviser's Form ADV as currently on file
with the SEC, the text of which is hereby incorporated by reference:
<TABLE>
<CAPTION>
Investment Adviser File No.
------------------ -------
<S> <C>
M Financial Investment Advisers, Inc. 801-50553
Edinburgh Fund Managers plc 801-20791
Turner Investment Partners, Inc. 801-36220
Frontier Capital Management Company, Inc. 801-15724
Franklin Portfolio Associates Trust 801-17057
</TABLE>
Item 29. Principal Underwriters.
----------------------
(Not applicable)
Item 30. Location of Accounts and Records.
--------------------------------
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules thereunder by
M Fund will be maintained at the following offices of M Fund or Investors Bank &
Trust Company:
M Fund, Inc. Investors Bank & Trust Company
River Park Center ATTN: Mutual Fund Administration
205 S.E. Spokane Street 89 South Street
Portland, Oregon 97202 Boston, Massachusetts 02111
Item 31. Management Services.
-------------------
(Not applicable)
Item 32. Undertakings.
------------
(a) (Not applicable)
(b) Registrant hereby undertakes to file a post-effective
amendment, containing financial statements that need not be
certified, within four to six months from the effective date
of this registration statement under the Securities Act of
1933.
(c) (Not applicable).
C - 6
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, M Fund, Inc. has duly caused this Pre-effective
Amendment No. 1 to the registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Portland and State of
Oregon, on the 21th day of December, 1995.
M FUND, INC.
By:/s/ Daniel F. Byrne
-------------------------
Daniel F. Byrne
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<C> <S> <C>
/s/ Daniel F. Byrne
- ----------------------- President (Principal 12/21/95
Daniel F. Byrne Executive Officer)
/s/ David W. Schutt
- ----------------------- Secretary and Treasurer 12/21/95
David W. Schutt (Principal Financial
and Accounting Officer)
* Director /95
- -----------------------
Peter W. Mullin
* Director /95
- -----------------------
David M. Spungen
* Director /95
- -----------------------
Philip Halpern
* Director /95
- -----------------------
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
Neil Goldschmidt
* Director /95
- -----------------------
Gerald Bidwell
</TABLE>
* Executed by /s/ Daniel F. Byrne (Daniel F. Byrne) on behalf of those
_________________________
indicated pursuant to Power of Attorney.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Description of Exhibit No.
- ------- ---------------------- ----
<C> <S> <C>
5(B) Investment Sub-Advisory Agreements between
M Financial Investment Advisers, Inc. and each
of the following:
(i) Edinburgh Fund Managers plc;
(ii) Turner Investment Partners, Inc.;
(iii)Frontier Capital Management Company, Inc.; and
(iv) Franklin Portfolio Associates Trust.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
8 Custodian Agreement between M Fund, Inc. and Investors
Bank & Trust Company.
9(A) Transfer Agency and Service Agreement between M Fund,
Inc. and Investors Bank & Trust Company.
(B) Administration Agreement between M Fund, Inc. and
Investors Bank & Trust Company.
10 Opinion and Consent of Counsel as to the Legality of
the Securities Being Issued.
11(B) Consent of Sutherland, Asbill & Brennan.
17 Powers of Attorney.
</TABLE>
<PAGE>
Exhibit 5(B)(i)
---------------
Investment Sub-Advisory Agreement
between M Financial Investment Advisers, Inc.
and Edinburgh Fund Managers plc.
<PAGE>
M FUND, INC.
------------
INVESTMENT SUB-ADVISORY AGREEMENT
For The
EDINBURGH OVERSEAS EQUITY FUND
THIS AGREEMENT made and entered into this ___ day of __________, 1995, by
and between M Financial Investment Advisers, Inc., a corporation organized and
existing under the laws of the State of Colorado (the "Adviser"), and Edinburgh
Fund Managers plc, a corporation organized and existing under the laws of
Scotland (the "Sub-Adviser").
WHEREAS, M Fund, Inc., a Maryland corporation (the "Fund"), is registered
as an open-end management investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), and is a series fund with a number of
portfolios; and
WHEREAS, the Adviser has entered or will enter into an Investment Advisory
Agreement (the "Advisory Agreement") with the Fund, pursuant to which the
Adviser will act as investment adviser to the Edinburgh Overseas Equity Fund
portfolio of the Fund (the "Portfolio"), which is a series of the Fund; and
WHEREAS, the Adviser, with the approval of the Fund, desires to retain the
Sub-Adviser to provide investment advisory services to the Adviser in connection
with the man-agement of the Portfolio, and the Sub-Adviser is willing to render
such investment advisory services.
NOW, THEREFORE, in consideration of mutual covenants herein contained, the
parties hereto agree as follows:
1. Duties of the Sub-Adviser. Subject to supervision by the Adviser and the
Fund's Board of Directors, the Sub-Adviser shall manage the investment
operations of the Portfolio and the composition of the Portfolio, including
the purchase, retention and disposition of securities and other assets, in
accordance with the Portfolio's investment objectives, policies and
restrictions as stated in the Portfolio's prospectus and statement of
additional information, as currently in effect and as amended or
supplemented from time to time (referred to collectively as the
"Prospectus"), and subject to the following:
(a) The Sub-Adviser shall provide supervision of the Portfolio's
investments and determine from time to time what investments and
securities will be purchased, retained or sold by the Portfolio, and
what portion of the assets will be invested or held uninvested in
cash.
(b) In the performance of its duties and obligations under this Agreement,
the Sub-Adviser shall act in conformity with the Fund's Articles of
Incorporation and Bylaws (as such terms are defined herein) and the
Prospectus and with the instructions and directions of the Adviser and
of the Board of Directors of the
<PAGE>
Fund and will conform to and comply with the requirements of the 1940
Act, the Internal Revenue Code of 1986, and all other applicable
federal and state laws and regulations, as each is amended from time
to time.
(c) The Sub-Adviser shall determine the securities to be purchased or sold
by the Portfolio and will place orders with or through such persons,
brokers or dealers to carry out the policy with respect to brokerage
set forth in the Portfolio's Registration Statement (as defined
herein) and Prospectus or as the Board of Directors or the Adviser may
direct from time to time, in conformity with federal securities laws.
In executing Portfolio transactions and selecting brokers or dealers,
the Sub-Adviser will use its best efforts to seek on behalf of the
Portfolio the best overall terms available. In assessing the best
overall terms available for any transaction, the Sub-Adviser shall
consider all factors that it deems relevant, including the breadth of
the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. In evaluating the best overall
terms available, and in selecting the broker-dealer to execute a
particular transaction, the Sub-Adviser may also consider the
brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) provided to the
Portfolio and/or other accounts over which the Sub-Adviser or an
affiliate of the Sub-Adviser may exercise investment discretion. The
Sub-Adviser is authorized, subject to compliance with said Section
28(e), to pay to a broker or dealer who provides such brokerage and
research services a commission for executing a portfolio transaction
for the Portfolio which is in excess of the amount of commission
another broker or dealer would have charged for effecting that
transaction if, but only if, the Sub-Adviser determines in good faith
that such commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer --
viewed in terms of that particular transaction or in terms of the
overall responsibilities of the Sub-Adviser to the Portfolio. In
addition, the Sub-Adviser is authorized to allocate purchase and sale
orders for the Portfolio's portfolio securities to brokers or dealers
(including brokers and dealers that are affiliated with the Sub-
Adviser) to take into account the sale of variable contracts investing
through separate accounts in the Fund if the Sub-Adviser believes that
the quality of the transactions and the commission are comparable to
what they would be with other qualified firms. In no instance,
however, will any Portfolio's securities be purchased from or sold to
the Sub-Adviser, the Adviser, or any affiliated person of either the
Fund, the Sub-Adviser or the Adviser, acting as principal in the
transaction, except to the extent permitted by the Securities and
Exchange Commission ("SEC") and the 1940 Act.
- 2 -
<PAGE>
(d) The Sub-Adviser shall maintain all books and records with respect to
the Portfolio's portfolio transactions required by subparagraphs
(b)(5), (6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1
under the 1940 Act and shall render to the Adviser or Board of
Directors of the Fund such periodic and special reports as the Adviser
or Board of Directors may reasonably request.
The Sub-Adviser shall keep the Portfolio's books and records required
to be maintained by the Sub-Adviser under this Agreement and shall
timely furnish to the Adviser all information relating to the Sub-
Adviser's services under this Agreement needed by the Adviser to keep
the other books and records of the Portfolio required by Rule 31a-1
under the 1940 Act. The Sub-Adviser shall also furnish to the Adviser
any other information that is required to be filed by the Adviser or
the Fund with the SEC or sent to shareholders under the 1940 Act
(including the rules adopted thereunder) or any exemptive or other
relief that the Adviser or the Fund obtains from the SEC. The Sub-
Adviser agrees that all records that it maintains on behalf of the
Portfolio are the property of the Portfolio and the Sub-Adviser will
surrender promptly to the Portfolio any of such records upon the
Portfolio's request; provided, however, that the Sub-Adviser may
retain a copy of such records. In addition, for the duration of this
Agreement, the Sub-Adviser shall preserve for the periods prescribed
by Rule 31a-2 under the 1940 Act any such records as are required to
be maintained by it pursuant to this Agreement, and shall transfer
said records to any successor Sub-Adviser upon the termination of this
Agreement (or, if there is no successor Sub-Adviser, to the Adviser).
(e) The Sub-Adviser shall provide the Portfolio's custodian on each
business day with information relating to all transactions concerning
the Portfolio's assets and shall provide the Adviser with such
information upon request of the Adviser.
(f) The Sub-Adviser shall cooperate with the Adviser, its representatives,
and any third party retained thereby upon the Adviser's exercise of
its right, granted hereby, to compel an audit of the Portfolio's
financial records, examine records of the Portfolio's portfolio
transactions, and/or make a copy of such records.
(g) The investment management services provided by the Sub-Adviser under
this Agreement are not to be deemed exclusive and the Sub-Adviser
shall be free to render similar services to others, as long as such
services do not impair the services rendered to the Adviser or the
Fund.
(h) The Sub-Adviser shall promptly notify the Adviser of any financial
condition that is likely to impair the Sub-Adviser's ability to
fulfill its commitments under this Agreement.
- 3 -
<PAGE>
Services to be furnished by the Sub-Adviser under this Agreement may be
furnished through the medium of any of the Sub-Adviser's partners, officers
or employees.
2. Duties of the Adviser. The Adviser shall continue to have responsibility
for all services to be provided to the Portfolio pursuant to the Advisory
Agreement and shall oversee and review the Sub-Adviser's performance of its
duties under this Agreement.
3. Delivery of Documents. The Adviser has furnished the Sub-Adviser with
copies properly certified or authenticated of each of the following
documents:
(a) The Fund's Articles of Incorporation, as filed with the Secretary of
State of the State of Maryland (such Articles of Incorporation, as in
effect on the date of this Agreement and as amended from time to time,
are herein called the "Articles of Incorporation");
(b) Bylaws of the Fund (such Bylaws, as in effect on the date of this
Agreement and as amended from time to time, are herein called the
"Bylaws"); and
(c) Current Prospectus of the Portfolio.
4. Compensation of the Sub-Adviser. For the services to be provided by the
Sub-Adviser pursuant to this Agreement, the Adviser shall pay to the Sub-
Adviser, and the Sub-Adviser agrees to accept as full compensation
therefor, a sub-advisory fee at the rates specified in Schedule A, which is
attached hereto and made part of this Agreement. The fee shall be
calculated by applying a daily rate, based on the annual percentage rates
as specified in Schedule A, to the average daily net assets of the
Portfolio and shall be paid to the Sub-Adviser monthly. The Sub-Adviser
may, in its discretion and from time to time, waive all or a portion of its
fee.
5. Limitation of Liability of the Sub-Adviser. The Sub-Adviser shall not be
liable for any error of judgment or for any loss suffered by the Portfolio
or the Adviser in connection with performance of the Sub-Adviser's
obligations under this Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services (in
which case any award of damages shall be limited to the period and the
amount set forth in Section 36(b)(3) of the 1940 Act), or a loss resulting
from willful misfeasance, bad faith or gross negligence on the Sub-
Adviser's part in the performance of its duties or from reckless disregard
of its obligations and duties under this Agreement, except as may otherwise
be provided under provisions of applicable state law which cannot be waived
or modified hereby.
6. Reports. During the term of this Agreement, the Adviser agrees to furnish
the Sub-Adviser at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature or other materials prepared for
distribution to shareholders of the Portfolio, the Fund or the public that
refer to the Sub-Adviser or its clients in any
-4 -
<PAGE>
way prior to the use thereof and not to use such material if the Sub-
Adviser reasonably objects to the use thereof in a writing received by the
Adviser within five business days (or such other period as may be mutually
agreed) after the Sub-Adviser's receipt thereof. The Sub-Adviser's right to
object to such materials is limited to the portions of such materials that
expressly relate to the Sub-Adviser, its services and its clients. The
Adviser agrees to use its reasonable best efforts to ensure that materials
prepared by its employees or agents or its affiliates that refer to the
Sub-Adviser or its clients in any way are consistent with those materials
previously approved by the Sub-Adviser as referenced in the first sentence
of this paragraph. Sales literature may be furnished to the Sub-Adviser by
first class or overnight mail, facsimile transmission equipment or hand
delivery.
During the term of this Agreement, the Sub-Adviser agrees to furnish the
Adviser at its principal office all sales literature or other materials
prepared for distribution to shareholders of the Portfolio, the Fund or the
public that refer to the Adviser, its clients or the Fund in any way prior
to the use thereof and not to use such material if the Adviser reasonably
objects to the use thereof in a writing received by the Sub-Adviser within
five business days (or such other period as may be mutually agreed) after
the Adviser's receipt thereof. The Adviser's right to object to such
materials is limited to the portions of such materials that expressly
relate to the Adviser, its clients or the Fund. The Sub-Adviser agrees to
use its reasonable best efforts to ensure that materials prepared by its
employees or agents or its affiliates that refer to the Adviser or its
clients in any way are consistent with those materials previously approved
by the Adviser as referenced in the first sentence of this paragraph. Sales
literature may be furnished to the Adviser by first class or overnight
mail, facsimile transmission equipment or hand delivery.
7. Indemnification. The Sub-Adviser shall indemnify and hold harmless the
Adviser from and against any and all claims, losses, liabilities or damages
(including reasonable attorney's fees and other related expenses) arising
from or in connection with the performance by the Sub-Adviser of its duties
under this Agreement. This provision shall survive termination of this
Agreement.
8. Duration and Termination. This Agreement shall become effective upon its
approval by the Fund's Board of Directors and by the vote of a majority of
the outstanding voting securities of the Portfolio; provided, however,
that at any time the Adviser shall have obtained exemptive relief from the
SEC permitting it to engage a sub-adviser without first obtaining approval
of the Agreement from a majority of the outstanding voting securities of
the portfolio(s) involved, this Agreement shall become effective upon its
approval by the Fund's Board of Directors. Any sub-adviser so selected and
approved shall be without the protection accorded by shareholder approval
of an investment adviser's receipt of compensation under Section 36(b) of
the 1940 Act.
- 5 -
<PAGE>
This Agreement shall continue in effect for a period of more than two years
from the date hereof only so long as continuance is specifically approved
at least annually in conformance with the 1940 Act; provided, however, that
this Agreement may be terminated (a) by the Portfolio at any time, without
the payment of any penalty, by the vote of a majority of Directors of the
Fund or by the vote of a majority of the outstanding voting securities of
the Portfolio, (b) by the Adviser at any time, without the payment of any
penalty, on not more than 60 days' nor less than 30 days' written notice to
the other party, or (c) the Sub-Adviser at any time, without the payment of
any penalty, on 90 days' written notice to the other party. This Agreement
shall terminate automatically and immediately in the event of its
assignment, or in the event of a termination of the Adviser's agreement
with the Fund. As used in this Section 8, the terms "assignment" and "vote
of a majority of the outstanding voting securities" shall have the
respective meanings set forth in the 1940 Act and the rules and regulations
thereunder, subject to such exceptions as may be granted by the SEC under
the 1940 Act.
9. Governing Law. This Agreement shall be governed by the internal laws of the
State of Maryland, without regard to conflicts of law principles; provided,
however, that nothing herein shall be construed as being inconsistent with
the 1940 Act.
10. Severability. Should any part of this Agreement be held invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall
not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their permitted successors.
11. Notice. Any notice, advice or report to be given pursuant to this Agreement
shall be deemed sufficient if delivered by hand, transmitted by electronic
facsimile, or mailed by registered, certified or overnight United States
mail, postage prepaid, or sent by overnight delivery with a nationally
recognized courier, addressed by the party giving notice to the other party
at the last address furnished by the other party:
To the Adviser at: M Financial Investment Advisers, Inc.
River Park Center
205 S.E. Spokane Street
Portland, OR 97202
Attn: President
To the Sub-Adviser at: Edinburgh Fund Managers plc
NationsBank Plaza
600 Peachtree Street
Suite 3820
Atlanta, GA 30308
Attn: Gloria E. Carlson
- 6 -
<PAGE>
Each such notice, advice or report shall be effective upon receipt or three
days after mailing.
12. Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior
agreements and understandings relating to this Agreement's subject matter.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
13. 1940 Act. Where the effect of a requirement of the 1940 Act reflected in
any provision of this Agreement is altered by a rule, regulation or order
of the SEC, whether of special or general application, such provision shall
be deemed to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first written
above.
M FINANCIAL INVESTMENT EDINBURGH FUND
ADVISERS, INC. MANAGERS PLC
By: By:
-------------------------- --------------------------
Title: Title:
----------------------- -----------------------
Attest: Attest:
---------------------- ----------------------
Title: Title:
----------------------- -----------------------
- 7 -
<PAGE>
Schedule A
to the
Investment Sub-Advisory Agreement
between
M Financial Investment Advisers, Inc.
and
Edinburgh Fund Managers plc
Pursuant to Section 4, the Adviser shall pay the Sub-Adviser compensation at an
effective annual rate as follows:
Name of Portfolio Annual Rate of Compensation
----------------- ---------------------------
Edinburgh Overseas Equity Fund 0.90% on first $ 10 million
0.75% on next $ 15 million
0.60% on next $ 75 million
0.45% on amounts over $100 million
- 8 -
<PAGE>
Exhibit 5 (B)(ii)
-----------------
Investment Sub Advisory Agreement
between M Financial Investment Advisers, Inc.
and Turner Investment Partners, Inc.
<PAGE>
M FUND, INC.
------------
INVESTMENT SUB-ADVISORY AGREEMENT
For The
TURNER CORE GROWTH FUND
THIS AGREEMENT made and entered into this ___ day of __________, 1995, by
and between M Financial Investment Advisers, Inc., a corporation organized and
existing under the laws of the State of Colorado (the "Adviser"), and Turner
Investment Partners, Inc., a corporation organized and existing under the laws
of the Commonwealth of Pennsylvania (the "Sub-Adviser").
WHEREAS, M Fund, Inc., a Maryland corporation (the "Fund"), is registered
as an open-end management investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), and is a series fund with a number of
portfolios; and
WHEREAS, the Adviser has entered or will enter into an Investment Advisory
Agreement (the "Advisory Agreement") with the Fund, pursuant to which the
Adviser will act as investment adviser to the Turner Core Growth Fund portfolio
of the Fund (the "Portfolio"), which is a series of the Fund; and
WHEREAS, the Adviser, with the approval of the Fund, desires to retain the
Sub-Adviser to provide investment advisory services to the Adviser in connection
with the management of the Portfolio, and the Sub-Adviser is willing to render
such investment advisory services.
NOW, THEREFORE, in consideration of mutual covenants herein contained, the
parties hereto agree as follows:
1. Duties of the Sub-Adviser. Subject to supervision by the Adviser and the
Fund's Board of Directors, the Sub-Adviser shall manage the investment
operations of the Portfolio and the composition of the Portfolio, including
the purchase, retention and disposition of securities and other assets, in
accordance with the Portfolio's investment objectives, policies and
restrictions as stated in the Portfolio's prospectus and statement of
additional information, as currently in effect and as amended or
supplemented from time to time (referred to collectively as the
"Prospectus"), and subject to the following:
(a) The Sub-Adviser shall provide supervision of the Portfolio's
investments and determine from time to time what investments and
securities will be purchased, retained or sold by the Portfolio, and
what portion of the assets will be invested or held uninvested in
cash.
(b) In the performance of its duties and obligations under this Agreement,
the Sub-Adviser shall act in conformity with the Fund's Articles of
Incorporation and Bylaws (as such terms are defined herein) and the
Prospectus and with the
<PAGE>
instructions and directions of the Adviser and of the Board of
Directors of the Fund and will conform to and comply with the
requirements of the 1940 Act, the Internal Revenue Code of 1986, and
all other applicable federal and state laws and regulations, as each
is amended from time to time.
(c) The Sub-Adviser shall determine the securities to be purchased or sold
by the Portfolio and will place orders with or through such persons,
brokers or dealers to carry out the policy with respect to brokerage
set forth in the Portfolio's Registration Statement (as defined
herein) and Prospectus or as the Board of Directors or the Adviser may
direct from time to time, in conformity with federal securities laws.
In executing Portfolio transactions and selecting brokers or dealers,
the Sub-Adviser will use its best efforts to seek on behalf of the
Portfolio the best overall terms available. In assessing the best
overall terms available for any transaction, the Sub-Adviser shall
consider all factors that it deems relevant, including the breadth of
the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. In evaluating the best overall
terms available, and in selecting the broker-dealer to execute a
particular transaction, the Sub-Adviser may also consider the
brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) provided to the
Portfolio and/or other accounts over which the Sub-Adviser or an
affiliate of the Sub-Adviser may exercise investment discretion. The
Sub-Adviser is authorized, subject to compliance with said Section
28(e), to pay to a broker or dealer who provides such brokerage and
research services a commission for executing a portfolio transaction
for the Portfolio which is in excess of the amount of commission
another broker or dealer would have charged for effecting that
transaction if, but only if, the Sub-Adviser determines in good faith
that such commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer --
viewed in terms of that particular transaction or in terms of the
overall responsibilities of the Sub-Adviser to the Portfolio. In
addition, the Sub-Adviser is authorized to allocate purchase and sale
orders for the Portfolio's portfolio securities to brokers or dealers
(including brokers and dealers that are affiliated with the Sub-
Adviser) to take into account the sale of variable contracts investing
through separate accounts in the Fund if the Sub-Adviser believes that
the quality of the transactions and the commission are comparable to
what they would be with other qualified firms. In no instance,
however, will any Portfolio's securities be purchased from or sold to
the Sub-Adviser, the Adviser, or any affiliated person of either the
Fund, the Sub-Adviser or the Adviser, acting as principal in the
transaction, except to the extent permitted by the Securities and
Exchange Commission ("SEC") and the 1940 Act.
- 2 -
<PAGE>
(d) The Sub-Adviser shall maintain all books and records with respect to
the Portfolio's portfolio transactions required by subparagraphs
(b)(5), (6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1
under the 1940 Act and shall render to the Adviser or Board of
Directors of the Fund such periodic and special reports as the Adviser
or Board of Directors may reasonably request.
The Sub-Adviser shall keep the Portfolio's books and records required
to be maintained by the Sub-Adviser under this Agreement and shall
timely furnish to the Adviser all information relating to the Sub-
Adviser's services under this Agreement needed by the Adviser to keep
the other books and records of the Portfolio required by Rule 31a-1
under the 1940 Act. The Sub-Adviser shall also furnish to the Adviser
any other information that is required to be filed by the Adviser or
the Fund with the SEC or sent to shareholders under the 1940 Act
(including the rules adopted thereunder) or any exemptive or other
relief that the Adviser or the Fund obtains from the SEC. The Sub-
Adviser agrees that all records that it maintains on behalf of the
Portfolio are the property of the Portfolio and the Sub-Adviser will
surrender promptly to the Portfolio any of such records upon the
Portfolio's request; provided, however, that the Sub-Adviser may
retain a copy of such records. In addition, for the duration of this
Agreement, the Sub-Adviser shall preserve for the periods prescribed
by Rule 31a-2 under the 1940 Act any such records as are required to
be maintained by it pursuant to this Agreement, and shall transfer
said records to any successor Sub-Adviser upon the termination of this
Agreement (or, if there is no successor Sub-Adviser, to the Adviser).
(e) The Sub-Adviser shall provide the Portfolio's custodian on each
business day with information relating to all transactions concerning
the Portfolio's assets and shall provide the Adviser with such
information upon request of the Adviser.
(f) The Sub-Adviser shall cooperate with the Adviser, its representatives,
and any third party retained thereby upon the Adviser's exercise of
its right, granted hereby, to compel an audit of the Portfolio's
financial records, examine records of the Portfolio's portfolio
transactions, and/or make a copy of such records.
(g) The investment management services provided by the Sub-Adviser under
this Agreement are not to be deemed exclusive and the Sub-Adviser
shall be free to render similar services to others, as long as such
services do not impair the services rendered to the Adviser or the
Fund.
(h) The Sub-Adviser shall promptly notify the Adviser of any financial
condition that is likely to impair the Sub-Adviser's ability to
fulfill its commitments under this Agreement.
- 3 -
<PAGE>
Services to be furnished by the Sub-Adviser under this Agreement may be
furnished through the medium of any of the Sub-Adviser's partners, officers
or employees.
2. Duties of the Adviser. The Adviser shall continue to have responsibility
for all services to be provided to the Portfolio pursuant to the Advisory
Agreement and shall oversee and review the Sub-Adviser's performance of its
duties under this Agreement.
3. Delivery of Documents. The Adviser has furnished the Sub-Adviser with
copies properly certified or authenticated of each of the following
documents:
(a) The Fund's Articles of Incorporation, as filed with the Secretary of
State of the State of Maryland (such Articles of Incorporation, as in
effect on the date of this Agreement and as amended from time to time,
are herein called the "Articles of Incorporation");
(b) Bylaws of the Fund (such Bylaws, as in effect on the date of this
Agreement and as amended from time to time, are herein called the
"Bylaws"); and
(c) Current Prospectus of the Portfolio.
4. Compensation of the Sub-Adviser. For the services to be provided by the
Sub-Adviser pursuant to this Agreement, the Adviser shall pay to the Sub-
Adviser, and the Sub-Adviser agrees to accept as full compensation
therefor, a sub-advisory fee at the rates specified in Schedule A, which is
attached hereto and made part of this Agreement. The fee shall be
calculated by applying a daily rate, based on the annual percentage rates
as specified in Schedule A, to the average daily net assets of the
Portfolio and shall be paid to the Sub-Adviser monthly. The Sub-Adviser
may, in its discretion and from time to time, waive all or a portion of its
fee.
5. Limitation of Liability of the Sub-Adviser. The Sub-Adviser shall not be
liable for any error of judgment or for any loss suffered by the Portfolio
or the Adviser in connection with performance of the Sub-Adviser's
obligations under this Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services (in
which case any award of damages shall be limited to the period and the
amount set forth in Section 36(b)(3) of the 1940 Act), or a loss resulting
from willful misfeasance, bad faith or gross negligence on the Sub-
Adviser's part in the performance of its duties or from reckless disregard
of its obligations and duties under this Agreement, except as may otherwise
be provided under provisions of applicable state law which cannot be waived
or modified hereby.
6. Reports. During the term of this Agreement, the Adviser agrees to furnish
the Sub-Adviser at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature or other materials prepared for
distribution to shareholders of the Portfolio, the Fund or the public that
refer to the Sub-Adviser or its clients in any
- 4-
<PAGE>
way prior to the use thereof and not to use such material if the Sub-
Adviser reasonably objects to the use thereof in a writing received by the
Adviser within five business days (or such other period as may be mutually
agreed) after the Sub-Adviser's receipt thereof. The Sub-Adviser's right to
object to such materials is limited to the portions of such materials that
expressly relate to the Sub-Adviser, its services and its clients. The
Adviser agrees to use its reasonable best efforts to ensure that materials
prepared by its employees or agents or its affiliates that refer to the
Sub-Adviser or its clients in any way are consistent with those materials
previously approved by the Sub-Adviser as referenced in the first sentence
of this paragraph. Sales literature may be furnished to the Sub-Adviser by
first class or overnight mail, facsimile transmission equipment or hand
delivery.
During the term of this Agreement, the Sub-Adviser agrees to furnish the
Adviser at its principal office all sales literature or other materials
prepared for distribution to shareholders of the Portfolio, the Fund or the
public that refer to the Adviser, its clients or the Fund in any way prior
to the use thereof and not to use such material if the Adviser reasonably
objects to the use thereof in a writing received by the Sub-Adviser within
five business days (or such other period as may be mutually agreed) after
the Adviser's receipt thereof. The Adviser's right to object to such
materials is limited to the portions of such materials that expressly
relate to the Adviser, its clients or the Fund. The Sub-Adviser agrees to
use its reasonable best efforts to ensure that materials prepared by its
employees or agents or its affiliates that refer to the Adviser or its
clients in any way are consistent with those materials previously approved
by the Adviser as referenced in the first sentence of this paragraph. Sales
literature may be furnished to the Adviser by first class or overnight
mail, facsimile transmission equipment or hand delivery.
7. Indemnification. The Sub-Adviser shall indemnify and hold harmless the
Adviser from and against any and all claims, losses, liabilities or damages
(including reasonable attorney's fees and other related expenses) arising
from or in connection with the performance by the Sub-Adviser of its duties
under this Agreement. This provision shall survive termination of this
Agreement.
8. Duration and Termination. This Agreement shall become effective upon its
approval by the Fund's Board of Directors and by the vote of a majority of
the outstanding voting securities of the Portfolio; provided, however,
that at any time the Adviser shall have obtained exemptive relief from the
SEC permitting it to engage a sub-adviser without first obtaining approval
of the Agreement from a majority of the outstanding voting securities of
the portfolio(s) involved, this Agreement shall become effective upon its
approval by the Fund's Board of Directors. Any sub-adviser so selected and
approved shall be without the protection accorded by shareholder approval
of an investment adviser's receipt of compensation under Section 36(b) of
the 1940 Act.
- 5 -
<PAGE>
This Agreement shall continue in effect for a period of more than two years
from the date hereof only so long as continuance is specifically approved
at least annually in conformance with the 1940 Act; provided, however, that
this Agreement may be terminated (a) by the Portfolio at any time, without
the payment of any penalty, by the vote of a majority of Directors of the
Fund or by the vote of a majority of the outstanding voting securities of
the Portfolio, (b) by the Adviser at any time, without the payment of any
penalty, on not more than 60 days' nor less than 30 days' written notice to
the other party, or (c) the Sub-Adviser at any time, without the payment of
any penalty, on 90 days' written notice to the other party. This Agreement
shall terminate automatically and immediately in the event of its
assignment, or in the event of a termination of the Adviser's agreement
with the Fund. As used in this Section 8, the terms "assignment" and "vote
of a majority of the outstanding voting securities" shall have the
respective meanings set forth in the 1940 Act and the rules and regulations
thereunder, subject to such exceptions as may be granted by the SEC under
the 1940 Act.
9. Governing Law. This Agreement shall be governed by the internal laws of the
State of Maryland, without regard to conflicts of law principles; provided,
however, that nothing herein shall be construed as being inconsistent with
the 1940 Act.
10. Severability. Should any part of this Agreement be held invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall
not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their permitted successors.
11. Notice. Any notice, advice or report to be given pursuant to this Agreement
shall be deemed sufficient if delivered by hand, transmitted by electronic
facsimile, or mailed by registered, certified or overnight United States
mail, postage prepaid, or sent by overnight delivery with a nationally
recognized courier, addressed by the party giving notice to the other party
at the last address furnished by the other party:
To the Adviser at: M Financial Investment Advisers, Inc.
River Park Center
205 S.E. Spokane Street
Portland, OR 97202
Attn: President
To the Sub-Adviser at: Turner Investment Partners, Inc.
1235 Westlakes Drive
Suite 350
Berwyn, PA 19312
Attn: _______________
- 6 -
<PAGE>
Each such notice, advice or report shall be effective upon receipt or three
days after mailing.
12. Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior
agreements and understandings relating to this Agreement's subject matter.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
13. 1940 Act. Where the effect of a requirement of the 1940 Act reflected in
any provision of this Agreement is altered by a rule, regulation or order
of the SEC, whether of special or general application, such provision shall
be deemed to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first written
above.
M FINANCIAL INVESTMENT TURNER INVESTMENT
ADVISERS, INC. PARTNERS, INC.
By: By:
------------------------- --------------------------
Title: Title:
---------------------- ------------------------
Attest: Attest:
--------------------- -----------------------
Title: Title:
---------------------- ------------------------
- 7 -
<PAGE>
Schedule A
to the
Investment Sub-Advisory Agreement
between
M Financial Investment Advisers, Inc.
and
Turner Investment Partners, Inc.
Pursuant to Section 4, the Adviser shall pay the Sub-Adviser compensation at an
effective annual rate as follows:
Name of Portfolio Annual Rate of Compensation
----------------- ---------------------------
Turner Core Growth Fund 0.30%
- 8 -
<PAGE>
Exhibit 5(B)(iii)
-----------------
Investment Sub-Advisory Agreement
between M Financial Investment Advisers, Inc.
and Frontier Capital Management Company, Inc.
<PAGE>
M FUND, INC.
------------
INVESTMENT SUB-ADVISORY AGREEMENT
For The
FRONTIER CAPITAL APPRECIATION FUND
THIS AGREEMENT made and entered into this ___ day of __________, 1995, by
and between M Financial Investment Advisers, Inc., a corporation organized and
existing under the laws of the State of Colorado (the "Adviser"), and Frontier
Capital Management Company, Inc., a corporation organized and existing under the
laws of the Commonwealth of Massachusetts (the "Sub-Adviser").
WHEREAS, M Fund, Inc., a Maryland corporation (the "Fund"), is registered
as an open-end management investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), and is a series fund with a number of
portfolios; and
WHEREAS, the Adviser has entered or will enter into an Investment Advisory
Agreement (the "Advisory Agreement") with the Fund, pursuant to which the
Adviser will act as investment adviser to the Frontier Capital Appreciation Fund
portfolio of the Fund (the "Portfolio"), which is a series of the Fund; and
WHEREAS, the Adviser, with the approval of the Fund, desires to retain the
Sub-Adviser to provide investment advisory services to the Adviser in connection
with the man-agement of the Portfolio, and the Sub-Adviser is willing to render
such investment advisory services.
NOW, THEREFORE, in consideration of mutual covenants herein contained, the
parties hereto agree as follows:
1. Duties of the Sub-Adviser. Subject to supervision by the Adviser and the
Fund's Board of Directors, the Sub-Adviser shall manage the investment
operations of the Portfolio and the composition of the Portfolio, including
the purchase, retention and disposition of securities and other assets, in
accordance with the Portfolio's investment objectives, policies and
restrictions as stated in the Portfolio's prospectus and statement of
additional information, as currently in effect and as amended or
supplemented from time to time (referred to collectively as the
"Prospectus"), and subject to the following:
(a) The Sub-Adviser shall provide supervision of the Portfolio's
investments and determine from time to time what investments and
securities will be purchased, retained or sold by the Portfolio, and
what portion of the assets will be invested or held uninvested in
cash.
(b) In the performance of its duties and obligations under this Agreement,
the Sub-Adviser shall act in conformity with the Fund's Articles of
Incorporation and Bylaws (as such terms are defined herein) and the
Prospectus and with the
<PAGE>
instructions and directions of the Adviser and of the Board of
Directors of the Fund and will conform to and comply with the
requirements of the 1940 Act, the Internal Revenue Code of 1986, and
all other applicable federal and state laws and regulations, as each
is amended from time to time.
(c) The Sub-Adviser shall determine the securities to be purchased or sold
by the Portfolio and will place orders with or through such persons,
brokers or dealers to carry out the policy with respect to brokerage
set forth in the Portfolio's Registration Statement (as defined
herein) and Prospectus or as the Board of Directors or the Adviser may
direct from time to time, in conformity with federal securities laws.
In executing Portfolio transactions and selecting brokers or dealers,
the Sub-Adviser will use its best efforts to seek on behalf of the
Portfolio the best overall terms available. In assessing the best
overall terms available for any transaction, the Sub-Adviser shall
consider all factors that it deems relevant, including the breadth of
the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. In evaluating the best overall
terms available, and in selecting the broker-dealer to execute a
particular transaction, the Sub-Adviser may also consider the
brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) provided to the
Portfolio and/or other accounts over which the Sub-Adviser or an
affiliate of the Sub-Adviser may exercise investment discretion. The
Sub-Adviser is authorized, subject to compliance with said Section
28(e), to pay to a broker or dealer who provides such brokerage and
research services a commission for executing a portfolio transaction
for the Portfolio which is in excess of the amount of commission
another broker or dealer would have charged for effecting that
transaction if, but only if, the Sub-Adviser determines in good faith
that such commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer --
viewed in terms of that particular transaction or in terms of the
overall responsibilities of the Sub-Adviser to the Portfolio. In
addition, the Sub-Adviser is authorized to allocate purchase and sale
orders for the Portfolio's portfolio securities to brokers or dealers
(including brokers and dealers that are affiliated with the Sub-
Adviser) to take into account the sale of variable contracts investing
through separate accounts in the Fund if the Sub-Adviser believes that
the quality of the transactions and the commission are comparable to
what they would be with other qualified firms. In no instance,
however, will any Portfolio's securities be purchased from or sold to
the Sub-Adviser, the Adviser, or any affiliated person of either the
Fund, the Sub-Adviser or the Adviser, acting as principal in the
transaction, except to the extent permitted by the Securities and
Exchange Commission ("SEC") and the 1940 Act.
- 2 -
<PAGE>
(d) The Sub-Adviser shall maintain all books and records with respect to
the Portfolio's portfolio transactions required by subparagraphs
(b)(5), (6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1
under the 1940 Act and shall render to the Adviser or Board of
Directors of the Fund such periodic and special reports as the Adviser
or Board of Directors may reasonably request.
The Sub-Adviser shall keep the Portfolio's books and records required
to be maintained by the Sub-Adviser under this Agreement and shall
timely furnish to the Adviser all information relating to the Sub-
Adviser's services under this Agreement needed by the Adviser to keep
the other books and records of the Portfolio required by Rule 31a-1
under the 1940 Act. The Sub-Adviser shall also furnish to the Adviser
any other information that is required to be filed by the Adviser or
the Fund with the SEC or sent to shareholders under the 1940 Act
(including the rules adopted thereunder) or any exemptive or other
relief that the Adviser or the Fund obtains from the SEC. The Sub-
Adviser agrees that all records that it maintains on behalf of the
Portfolio are the property of the Portfolio and the Sub-Adviser will
surrender promptly to the Portfolio any of such records upon the
Portfolio's request; provided, however, that the Sub-Adviser may
retain a copy of such records. In addition, for the duration of this
Agreement, the Sub-Adviser shall preserve for the periods prescribed
by Rule 31a-2 under the 1940 Act any such records as are required to
be maintained by it pursuant to this Agreement, and shall transfer
said records to any successor Sub-Adviser upon the termination of this
Agreement (or, if there is no successor Sub-Adviser, to the Adviser).
(e) The Sub-Adviser shall provide the Portfolio's custodian on each
business day with information relating to all transactions concerning
the Portfolio's assets and shall provide the Adviser with such
information upon request of the Adviser.
(f) The Sub-Adviser shall cooperate with the Adviser, its representatives,
and any third party retained thereby upon the Adviser's exercise of
its right, granted hereby, to compel an audit of the Portfolio's
financial records, examine records of the Portfolio's portfolio
transactions, and/or make a copy of such records.
(g) The investment management services provided by the Sub-Adviser under
this Agreement are not to be deemed exclusive and the Sub-Adviser
shall be free to render similar services to others, as long as such
services do not impair the services rendered to the Adviser or the
Fund.
(h) The Sub-Adviser shall promptly notify the Adviser of any financial
condition that is likely to impair the Sub-Adviser's ability to
fulfill its commitments under this Agreement.
- 3 -
<PAGE>
Services to be furnished by the Sub-Adviser under this Agreement may be
furnished through the medium of any of the Sub-Adviser's partners, officers
or employees.
2. Duties of the Adviser. The Adviser shall continue to have responsibility
for all services to be provided to the Portfolio pursuant to the Advisory
Agreement and shall oversee and review the Sub-Adviser's performance of its
duties under this Agreement.
3. Delivery of Documents. The Adviser has furnished the Sub-Adviser with
copies properly certified or authenticated of each of the following
documents:
(a) The Fund's Articles of Incorporation, as filed with the Secretary of
State of the State of Maryland (such Articles of Incorporation, as in
effect on the date of this Agreement and as amended from time to time,
are herein called the "Articles of Incorporation");
(b) Bylaws of the Fund (such Bylaws, as in effect on the date of this
Agreement and as amended from time to time, are herein called the
"Bylaws"); and
(c) Current Prospectus of the Portfolio.
4. Compensation of the Sub-Adviser. For the services to be provided by the
Sub-Adviser pursuant to this Agreement, the Adviser shall pay to the Sub-
Adviser, and the Sub-Adviser agrees to accept as full compensation
therefor, a sub-advisory fee at the rates specified in Schedule A, which is
attached hereto and made part of this Agreement. The fee shall be
calculated by applying a daily rate, based on the annual percentage rates
as specified in Schedule A, to the average daily net assets of the
Portfolio and shall be paid to the Sub-Adviser monthly. The Sub-Adviser
may, in its discretion and from time to time, waive all or a portion of its
fee.
5. Limitation of Liability of the Sub-Adviser. The Sub-Adviser shall not be
liable for any error of judgment or for any loss suffered by the Portfolio
or the Adviser in connection with performance of the Sub-Adviser's
obligations under this Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services (in
which case any award of damages shall be limited to the period and the
amount set forth in Section 36(b)(3) of the 1940 Act), or a loss resulting
from willful misfeasance, bad faith or gross negligence on the Sub-
Adviser's part in the performance of its duties or from reckless disregard
of its obligations and duties under this Agreement, except as may otherwise
be provided under provisions of applicable state law which cannot be waived
or modified hereby.
6. Reports. During the term of this Agreement, the Adviser agrees to furnish
the Sub-Adviser at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature or other materials prepared for
distribution to shareholders of the Portfolio, the Fund or the public that
refer to the Sub-Adviser or its clients in any
- 4 -
<PAGE>
way prior to the use thereof and not to use such material if the Sub-
Adviser reasonably objects to the use thereof in a writing received by the
Adviser within five business days (or such other period as may be mutually
agreed) after the Sub-Adviser's receipt thereof. The Sub-Adviser's right to
object to such materials is limited to the portions of such materials that
expressly relate to the Sub-Adviser, its services and its clients. The
Adviser agrees to use its reasonable best efforts to ensure that materials
prepared by its employees or agents or its affiliates that refer to the
Sub-Adviser or its clients in any way are consistent with those materials
previously approved by the Sub-Adviser as referenced in the first sentence
of this paragraph. Sales literature may be furnished to the Sub-Adviser by
first class or overnight mail, facsimile transmission equipment or hand
delivery.
During the term of this Agreement, the Sub-Adviser agrees to furnish the
Adviser at its principal office all sales literature or other materials
prepared for distribution to shareholders of the Portfolio, the Fund or the
public that refer to the Adviser, its clients or the Fund in any way prior
to the use thereof and not to use such material if the Adviser reasonably
objects to the use thereof in a writing received by the Sub-Adviser within
five business days (or such other period as may be mutually agreed) after
the Adviser's receipt thereof. The Adviser's right to object to such
materials is limited to the portions of such materials that expressly
relate to the Adviser, its clients or the Fund. The Sub-Adviser agrees to
use its reasonable best efforts to ensure that materials prepared by its
employees or agents or its affiliates that refer to the Adviser or its
clients in any way are consistent with those materials previously approved
by the Adviser as referenced in the first sentence of this paragraph. Sales
literature may be furnished to the Adviser by first class or overnight
mail, facsimile transmission equipment or hand delivery.
7. Indemnification. The Sub-Adviser shall indemnify and hold harmless the
Adviser from and against any and all claims, losses, liabilities or damages
(including reason-able attorney's fees and other related expenses) arising
from or in connection with the performance by the Sub-Adviser of its duties
under this Agreement. This provision shall survive termination of this
Agreement.
8. Duration and Termination. This Agreement shall become effective upon its
approval by the Fund's Board of Directors and by the vote of a majority of
the out-standing voting securities of the Portfolio; provided, however,
that at any time the Adviser shall have obtained exemptive relief from the
SEC permitting it to engage a sub-adviser without first obtaining approval
of the Agreement from a majority of the outstanding voting securities of
the portfolio(s) involved, this Agreement shall become effective upon its
approval by the Fund's Board of Directors. Any sub-adviser so selected and
approved shall be without the protection accorded by shareholder approval
of an investment adviser's receipt of compensation under Section 36(b) of
the 1940 Act.
- 5 -
<PAGE>
This Agreement shall continue in effect for a period of more than two years
from the date hereof only so long as continuance is specifically approved
at least annually in conformance with the 1940 Act; provided, however, that
this Agreement may be terminated (a) by the Portfolio at any time, without
the payment of any penalty, by the vote of a majority of Directors of the
Fund or by the vote of a majority of the outstanding voting securities of
the Portfolio, (b) by the Adviser at any time, without the payment of any
penalty, on not more than 60 days' nor less than 30 days' written notice to
the other party, or (c) the Sub-Adviser at any time, without the payment of
any penalty, on 90 days' written notice to the other party. This Agreement
shall terminate automatically and immediately in the event of its
assignment, or in the event of a termination of the Adviser's agreement
with the Fund. As used in this Section 8, the terms "assignment" and "vote
of a majority of the outstanding voting securities" shall have the
respective meanings set forth in the 1940 Act and the rules and regulations
thereunder, subject to such exceptions as may be granted by the SEC under
the 1940 Act.
9. Governing Law. This Agreement shall be governed by the internal laws of the
State of Maryland, without regard to conflicts of law principles; provided,
however, that nothing herein shall be construed as being inconsistent with
the 1940 Act.
10. Severability. Should any part of this Agreement be held invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall
not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their permitted successors.
11. Notice. Any notice, advice or report to be given pursuant to this Agreement
shall be deemed sufficient if delivered by hand, transmitted by electronic
facsimile, or mailed by registered, certified or overnight United States
mail, postage prepaid, or sent by overnight delivery with a nationally
recognized courier, addressed by the party giving notice to the other party
at the last address furnished by the other party:
To the Adviser at: M Financial Investment Advisers, Inc.
River Park Center
205 S.E. Spokane Street
Portland, OR 97202
Attn: President
To the Sub-Adviser at: Frontier Capital Management Company, Inc.
99 Summer Street
Boston, MA 02110
Attn: J. Kirk Smith, CFA
Each such notice, advice or report shall be effective upon receipt or three
days after mailing.
- 6 -
<PAGE>
12. Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior
agreements and understandings relating to this Agreement's subject matter.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
13. 1940 Act. Where the effect of a requirement of the 1940 Act reflected in
any provision of this Agreement is altered by a rule, regulation or order
of the SEC, whether of special or general application, such provision shall
be deemed to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first written
above.
M FINANCIAL INVESTMENT FRONTIER CAPITAL
ADVISERS, INC. MANAGEMENT COMPANY
INC.
By: By:
-------------------------- --------------------------
Title: Title:
----------------------- -----------------------
Attest: Attest:
---------------------- ----------------------
Title: Title:
----------------------- -----------------------
- 7 -
<PAGE>
Schedule A
to the
Investment Sub-Advisory Agreement
between
M Financial Investment Advisers, Inc.
and
Frontier Capital Management Company, Inc.
Pursuant to Section 4, the Adviser shall pay the Sub-Adviser compensation at an
effective annual rate as follows:
Name of Portfolio Annual Rate of Compensation
----------------- ---------------------------
Frontier Capital Appreciation Fund 0.75%
- 8 -
<PAGE>
Exhibit 5(B)(iv)
----------------
Investment Sub-Advisory Agreement
between M Financial Investment Advisers, Inc.
and Franklin Portfolio Associates Trust
<PAGE>
M FUND, INC.
------------
INVESTMENT SUB-ADVISORY AGREEMENT
For The
ENHANCED U.S. EQUITY FUND
THIS AGREEMENT made and entered into this ___ day of __________, 1995, by
and between M Financial Investment Advisers, Inc., a corporation organized and
existing under the laws of the State of Colorado (the "Adviser"), and Franklin
Portfolio Associates Trust, a business trust organized and existing under the
laws of the Commonwealth of Pennsylvania (the "Sub-Adviser").
WHEREAS, M Fund, Inc., a Maryland corporation (the "Fund"), is registered
as an open-end management investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), and is a series fund with a number of
portfolios; and
WHEREAS, the Adviser has entered or will enter into an Investment Advisory
Agreement (the "Advisory Agreement") with the Fund, pursuant to which the
Adviser will act as investment adviser to the Enhanced U.S. Equity Fund
portfolio of the Fund (the "Portfolio"), which is a series of the Fund; and
WHEREAS, the Adviser, with the approval of the Fund, desires to retain the
Sub-Adviser to provide investment advisory services to the Adviser in connection
with the man-agement of the Portfolio, and the Sub-Adviser is willing to render
such investment advisory services.
NOW, THEREFORE, in consideration of mutual covenants herein contained, the
parties hereto agree as follows:
1. Duties of the Sub-Adviser. Subject to supervision by the Adviser and the
Fund's Board of Directors, the Sub-Adviser shall manage the investment
operations of the Portfolio and the composition of the Portfolio, including
the purchase, retention and disposition of securities and other assets, in
accordance with the Portfolio's investment objectives, policies and
restrictions as stated in the Portfolio's prospectus and statement of
additional information, as currently in effect and as amended or
supplemented from time to time (referred to collectively as the
"Prospectus"), and subject to the following:
(a) The Sub-Adviser shall provide supervision of the Portfolio's
investments and determine from time to time what investments and
securities will be purchased, retained or sold by the Portfolio, and
what portion of the assets will be invested or held uninvested in
cash.
(b) In the performance of its duties and obligations under this Agreement,
the Sub-Adviser shall act in conformity with the Fund's Articles of
Incorporation and Bylaws (as such terms are defined herein) and the
Prospectus and with the
<PAGE>
instructions and directions of the Adviser and of the Board of
Directors of the Fund and will conform to and comply with the
requirements of the 1940 Act, the Internal Revenue Code of 1986, and
all other applicable federal and state laws and regulations, as each
is amended from time to time.
(c) The Sub-Adviser shall determine the securities to be purchased or sold
by the Portfolio and will place orders with or through such persons,
brokers or dealers to carry out the policy with respect to brokerage
set forth in the Portfolio's Registration Statement (as defined
herein) and Prospectus or as the Board of Directors or the Adviser may
direct from time to time, in conformity with federal securities laws.
In executing Portfolio transactions and selecting brokers or dealers,
the Sub-Adviser will use its best efforts to seek on behalf of the
Portfolio the best overall terms available. In assessing the best
overall terms available for any transaction, the Sub-Adviser shall
consider all factors that it deems relevant, including the breadth of
the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. In evaluating the best overall
terms available, and in selecting the broker-dealer to execute a
particular transaction, the Sub-Adviser may also consider the
brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) provided to the
Portfolio and/or other accounts over which the Sub-Adviser or an
affiliate of the Sub-Adviser may exercise investment discretion. The
Sub-Adviser is authorized, subject to compliance with said Section
28(e), to pay to a broker or dealer who provides such brokerage and
research services a commission for executing a portfolio transaction
for the Portfolio which is in excess of the amount of commission
another broker or dealer would have charged for effecting that
transaction if, but only if, the Sub-Adviser determines in good faith
that such commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer --
viewed in terms of that particular transaction or in terms of the
overall responsibilities of the Sub-Adviser to the Portfolio. In
addition, the Sub-Adviser is authorized to allocate purchase and sale
orders for the Portfolio's portfolio securities to brokers or dealers
(including brokers and dealers that are affiliated with the Sub-
Adviser) to take into account the sale of variable contracts investing
through separate accounts in the Fund if the Sub-Adviser believes that
the quality of the transactions and the commission are comparable to
what they would be with other qualified firms. In no instance,
however, will any Portfolio's securities be purchased from or sold to
the Sub-Adviser, the Adviser, or any affiliated person of either the
Fund, the Sub-Adviser or the Adviser, acting as principal in the
transaction, except to the extent permitted by the Securities and
Exchange Commission ("SEC") and the 1940 Act.
- 2 -
<PAGE>
(d) The Sub-Adviser shall maintain all books and records with respect to
the Portfolio's portfolio transactions required by subparagraphs
(b)(5), (6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1
under the 1940 Act and shall render to the Adviser or Board of
Directors of the Fund such periodic and special reports as the Adviser
or Board of Directors may reasonably request.
The Sub-Adviser shall keep the Portfolio's books and records required
to be maintained by the Sub-Adviser under this Agreement and shall
timely furnish to the Adviser all information relating to the Sub-
Adviser's services under this Agreement needed by the Adviser to keep
the other books and records of the Portfolio required by Rule 31a-1
under the 1940 Act. The Sub-Adviser shall also furnish to the Adviser
any other information that is required to be filed by the Adviser or
the Fund with the SEC or sent to shareholders under the 1940 Act
(including the rules adopted thereunder) or any exemptive or other
relief that the Adviser or the Fund obtains from the SEC. The Sub-
Adviser agrees that all records that it maintains on behalf of the
Portfolio are the property of the Portfolio and the Sub-Adviser will
surrender promptly to the Portfolio any of such records upon the
Portfolio's request; provided, however, that the Sub-Adviser may
retain a copy of such records. In addition, for the duration of this
Agreement, the Sub-Adviser shall preserve for the periods prescribed
by Rule 31a-2 under the 1940 Act any such records as are required to
be maintained by it pursuant to this Agreement, and shall transfer
said records to any successor Sub-Adviser upon the termination of this
Agreement (or, if there is no successor Sub-Adviser, to the Adviser).
(e) The Sub-Adviser shall provide the Portfolio's custodian on each
business day with information relating to all transactions concerning
the Portfolio's assets and shall provide the Adviser with such
information upon request of the Adviser.
(f) The Sub-Adviser shall cooperate with the Adviser, its representatives,
and any third party retained thereby upon the Adviser's exercise of
its right, granted hereby, to compel an audit of the Portfolio's
financial records, examine records of the Portfolio's portfolio
transactions, and/or make a copy of such records.
(g) The investment management services provided by the Sub-Adviser under
this Agreement are not to be deemed exclusive and the Sub-Adviser
shall be free to render similar services to others, as long as such
services do not impair the services rendered to the Adviser or the
Fund.
(h) The Sub-Adviser shall promptly notify the Adviser of any financial
condition that is likely to impair the Sub-Adviser's ability to
fulfill its commitments under this Agreement.
- 3 -
<PAGE>
Services to be furnished by the Sub-Adviser under this Agreement may be
furnished through the medium of any of the Sub-Adviser's partners, officers
or employees.
2. Duties of the Adviser. The Adviser shall continue to have responsibility
for all services to be provided to the Portfolio pursuant to the Advisory
Agreement and shall oversee and review the Sub-Adviser's performance of its
duties under this Agreement.
3. Delivery of Documents. The Adviser has furnished the Sub-Adviser with
copies properly certified or authenticated of each of the following
documents:
(a) The Fund's Articles of Incorporation, as filed with the Secretary of
State of the State of Maryland (such Articles of Incorporation, as in
effect on the date of this Agreement and as amended from time to time,
are herein called the "Articles of Incorporation");
(b) Bylaws of the Fund (such Bylaws, as in effect on the date of this
Agreement and as amended from time to time, are herein called the
"Bylaws"); and
(c) Current Prospectus of the Portfolio.
4. Compensation of the Sub-Adviser. For the services to be provided by the
Sub-Adviser pursuant to this Agreement, the Adviser shall pay to the Sub-
Adviser, and the Sub-Adviser agrees to accept as full compensation
therefor, a sub-advisory fee at the rates specified in Schedule A, which is
attached hereto and made part of this Agreement. The fee shall be
calculated by applying a daily rate, based on the annual percentage rates
as specified in Schedule A, to the average daily net assets of the
Portfolio and shall be paid to the Sub-Adviser monthly. The Sub-Adviser
may, in its discretion and from time to time, waive all or a portion of its
fee.
5. Limitation of Liability of the Sub-Adviser. The Sub-Adviser shall not be
liable for any error of judgment or for any loss suffered by the Portfolio
or the Adviser in connection with performance of the Sub-Adviser's
obligations under this Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services (in
which case any award of damages shall be limited to the period and the
amount set forth in Section 36(b)(3) of the 1940 Act), or a loss resulting
from willful misfeasance, bad faith or gross negligence on the Sub-
Adviser's part in the performance of its duties or from reckless disregard
of its obligations and duties under this Agreement, except as may otherwise
be provided under provisions of applicable state law which cannot be waived
or modified hereby.
Adviser shall reimburse, indemnify, and hold harmless Sub-Adviser,
individually and as sub-adviser, of and from any and all expenses, losses,
damages, liabilities, demands, charges, and claims of any kind or nature
(including attorneys' fees) whatsoever, arising from the operations and
management of the Portfolio except where such
- 4 -
<PAGE>
expense, loss, damage, liability, demand, charge, or claim is the result of
an occurrence described in the foregoing paragraph for which the Sub-
Adviser is determined to be liable.
6. Reports. During the term of this Agreement, the Adviser agrees to furnish
the Sub-Adviser at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature or other materials prepared for
distribution to shareholders of the Portfolio, the Fund or the public that
refer to the Sub-Adviser or its clients in any way prior to the use thereof
and not to use such material if the Sub-Adviser reasonably objects to the
use thereof in a writing received by the Adviser within five business days
(or such other period as may be mutually agreed) after the Sub-Adviser's
receipt thereof. The Sub-Adviser's right to object to such materials is
limited to the portions of such materials that expressly relate to the Sub-
Adviser, its services and its clients. The Adviser agrees to use its
reasonable best efforts to ensure that materials prepared by its employees
or agents or its affiliates that refer to the Sub-Adviser or its clients in
any way are consistent with those materials previously approved by the Sub-
Adviser as referenced in the first sentence of this paragraph. Sales
literature may be furnished to the Sub-Adviser by first class or overnight
mail, facsimile transmission equipment or hand delivery.
During the term of this Agreement, the Sub-Adviser agrees to furnish the
Adviser at its principal office all sales literature or other materials
prepared for distribution to shareholders of the Portfolio, the Fund or the
public that refer to the Adviser, its clients or the Fund in any way prior
to the use thereof and not to use such material if the Adviser reasonably
objects to the use thereof in a writing received by the Sub-Adviser within
five business days (or such other period as may be mutually agreed) after
the Adviser's receipt thereof. The Adviser's right to object to such
materials is limited to the portions of such materials that expressly
relate to the Adviser, its clients or the Fund. The Sub-Adviser agrees to
use its reasonable best efforts to ensure that materials prepared by its
employees or agents or its affiliates that refer to the Adviser or its
clients in any way are consistent with those materials previously approved
by the Adviser as referenced in the first sentence of this paragraph. Sales
literature may be furnished to the Adviser by first class or overnight
mail, facsimile transmission equipment or hand delivery.
7. Indemnification. Subject to the provisions of Section 5 hereof, the Sub-
Adviser shall indemnify and hold harmless the Adviser from and against any
and all claims, losses, liabilities or damages (including reasonable
attorney's fees and other related expenses) arising from or in connection
with the performance by the Sub-Adviser of its duties under this Agreement.
This provision shall survive termination of this Agreement.
8. Duration and Termination. This Agreement shall become effective upon its
approval by the Fund's Board of Directors and by the vote of a majority of
the outstanding voting securities of the Portfolio; provided, however,
that at any time the
-5 -
<PAGE>
Adviser shall have obtained exemptive relief from the SEC permitting it to
engage a sub-adviser without first obtaining approval of the Agreement from
a majority of the outstanding voting securities of the portfolio(s)
involved, this Agreement shall become effective upon its approval by the
Fund's Board of Directors. Any sub-adviser so selected and approved shall
be without the protection accorded by shareholder approval of an investment
adviser's receipt of compensation under Section 36(b) of the 1940 Act.
This Agreement shall continue in effect for a period of more than two years
from the date hereof only so long as continuance is specifically approved
at least annually in conformance with the 1940 Act; provided, however, that
this Agreement may be terminated (a) by the Portfolio at any time, without
the payment of any penalty, by the vote of a majority of Directors of the
Fund or by the vote of a majority of the outstanding voting securities of
the Portfolio, (b) by the Adviser at any time, without the payment of any
penalty, on not more than 60 days' nor less than 30 days' written notice to
the other party, or (c) the Sub-Adviser at any time, without the payment of
any penalty, on 90 days' written notice to the other party. This Agreement
shall terminate automatically and immediately in the event of its
assignment, or in the event of a termination of the Adviser's agreement
with the Fund. As used in this Section 8, the terms "assignment" and "vote
of a majority of the outstanding voting securities" shall have the
respective meanings set forth in the 1940 Act and the rules and regulations
thereunder, subject to such exceptions as may be granted by the SEC under
the 1940 Act.
9. Governing Law. This Agreement shall be governed by the internal laws of the
State of Maryland, without regard to conflicts of law principles; provided,
however, that nothing herein shall be construed as being inconsistent with
the 1940 Act.
10. Severability. Should any part of this Agreement be held invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall
not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their permitted successors.
11. Notice. Any notice, advice or report to be given pursuant to this Agreement
shall be deemed sufficient if delivered by hand, transmitted by electronic
facsimile, or mailed by registered, certified or overnight United States
mail, postage prepaid, or sent by overnight delivery with a nationally
recognized courier, addressed by the party giving notice to the other party
at the last address furnished by the other party:
To the Adviser at: M Financial Investment Advisers, Inc.
River Park Center
205 S.E. Spokane Street
Portland, OR 97202
Attn: President
- 6 -
<PAGE>
To the Sub-Adviser at: Franklin Portfolio Associates Trust
One Post Office Square
Boston, MA 02109
Attn: Hank Murphy
Each such notice, advice or report shall be effective upon receipt or three
days after mailing.
12. Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior
agreements and understandings relating to this Agreement's subject matter.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
13. 1940 Act. Where the effect of a requirement of the 1940 Act reflected in
any provision of this Agreement is altered by a rule, regulation or order
of the SEC, whether of special or general application, such provision shall
be deemed to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first written
above.
M FINANCIAL INVESTMENT FRANKLIN PORTFOLIO
ADVISERS, INC. ASSOCIATES TRUST
By: By:
------------------------- -------------------------
Title: Title:
---------------------- ----------------------
Attest: Attest:
--------------------- ---------------------
Title: Title:
---------------------- ----------------------
- 7 -
<PAGE>
Schedule A
to the
Investment Sub-Advisory Agreement
between
M Financial Investment Advisers, Inc.
and
Franklin Portfolio Associates Trust
Pursuant to Section 4, the Adviser shall pay the Sub-Adviser compensation at an
effective annual rate as follows:
Name of Portfolio Annual Rate of Compensation
----------------- ---------------------------
Enhanced U.S. Equity 0.40% on first $ 25 million
Fund 0.30% on next $ 75 million
0.15% on amounts over $100 million
- 8 -
<PAGE>
Exhibit 8
---------
Custodian Agreement between M Fund, Inc.
and Investors Bank & Trust Company
<PAGE>
CUSTODIAN AGREEMENT
Between
M FUND, INC.
and
INVESTORS BANK & TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
----
1. Bank Appointed Custodian.................................. 1
2. Definitions............................................... 1
2.1 Authorized Person.............................. 1
2.2 Security....................................... 1
2.3 Portfolio Security............................. 1
2.4 Officers' Certificate.......................... 2
2.5 Book-Entry System.............................. 2
2.6 Depository..................................... 2
2.7 Proper Instructions............................ 2
3. Separate Accounts......................................... 2
4. Certification as to Authorized Persons.................... 3
5. Custody of Cash........................................... 3
5.1 Purchase of Securities......................... 3
5.2 Redemptions.................................... 3
5.3 Distributions and Expenses of Fund............. 4
5.4 Payment in Respect of Securities............... 4
5.5 Repayment of Loans............................. 4
5.6 Repayment of Cash.............................. 4
5.7 Foreign Exchange Transactions.................. 4
5.8 Other Authorized Payments...................... 4
5.9 Termination.................................... 4
6. Securities................................................ 4
6.1 Segregation and Registration................... 4
6.2 Voting and Proxies............................. 5
6.3 Book-Entry System.............................. 5
6.4 Use of a Depository............................ 6
6.5 Use of Book-Entry System for Commercial Paper.. 7
6.6 Use of Immobilization Programs................. 8
6.7 Eurodollar CDs................................. 8
6.8 Options and Futures Transactions............... 9
(a) Puts and Calls Traded on Securities
Exchanges, NASDAQ or Over-the-Counter..... 9
<PAGE>
Page
----
(b) Puts, Calls, and Futures Traded
on Commodities Exchanges............... 9
6.9 Segregated Account.......................... 10
6.10 Interest Bearing Call or Time Deposits...... 11
6.11 Transfer of Securities...................... 11
7. Redemptions............................................... 13
8. Merger, Dissolution, etc. of Fund......................... 13
9. Actions of Bank Without Prior Authorization............... 13
10. Collections and Defaults.................................. 14
11. Maintenance of Records and Accounting Services............ 14
12. Fund Valuation............................................ 15
13. Concerning the Bank....................................... 15
13.1 Performance of Duties and Standard of Care.. 15
13.2 Agents and Subcustodians with Respect to
Property of the Fund Held in the United
States..................................... 16
13.3 Duties of the Bank with Respect to Property
Held Outside of the United States.......... 16
13.4 Insurance................................... 20
13.5 Fees and Expenses of Bank................... 20
13.6 Advances by Bank............................ 20
14. Termination............................................... 20
15. Confidentiality........................................... 21
16. Notices................................................... 21
17. Amendments................................................ 22
18. Parties................................................... 22
19. Governing Law............................................. 22
20. Counterparts.............................................. 22
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of this ____ day of ___________, 1995, between M FUND, INC.,
a Maryland corporation (the "Fund") and INVESTORS BANK & TRUST COMPANY (the
"Bank").
The Fund, an open-end management investment company, desires to place and
maintain all of its portfolio securities and cash in the custody of the Bank.
The Bank has at least the minimum qualifications required by Section 17(f)(1) of
the Investment Company Act of 1940 (the "1940 Act") to act as custodian of the
portfolio securities and cash of the Fund, and has indicated its willingness to
so act, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual agreements
contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Fund hereby appoints the Bank as
---------------------------
custodian of its portfolio securities and cash delivered to the Bank as
hereinafter described and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth.
2. Definitions. Whenever used herein, the terms listed below will have the
-----------
following meaning:
2.1 Authorized Person. Authorized Person will mean any of the persons duly
-----------------
authorized to give Proper Instructions or otherwise act on behalf of the Fund by
appropriate resolution of its Board of Directors ("the Board"), and set forth in
a certificate as required by Section 4 hereof.
2.2 Security. The term security as used herein will have the same meaning
--------
as when such term is used in the Securities Act of 1933, as amended, including,
without limitation, any note, stock, treasury stock, bond, debenture, evidence
of indebtedness, certificate of interest or participation in any profit sharing
agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, 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 national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to, or option contract to purchase or sell any of the foregoing, and
futures, forward contracts and options thereon.
<PAGE>
2
2.3 Portfolio Security. Portfolio Security will mean any Security owned by
------------------
the Fund.
<PAGE>
3
2.4 Officers' Certificate. Officers' Certificate will mean, unless
---------------------
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.
2.5 Book-Entry System. Book-Entry System shall mean the Federal Reserve-
-----------------
Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.
2.6 Depository. Depository shall mean The Depository Trust Company
-----------
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 ("Exchange
Act"), its successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person authorized to act
as a depository under the 1940 Act, its successor or successors and its nominee
or nominees, specifically identified in a certified copy of a resolution of the
Board.
2.7 Proper Instructions. Proper Instructions shall mean (i) instructions
-------------------
(which may be continuing instructions) regarding the purchase or sale of
Portfolio Securities, and payments and deliveries in connection therewith, given
by an Authorized Person as shall have been designated in an Officers'
Certificate, such instructions to be given in such form and manner as the Bank
and the Fund shall agree upon from time to time, and (ii) instructions (which
may be continuing instructions) regarding other matters signed or initialed by
such one or more persons from time to time designated in an Officers'
Certificate as having been authorized by the Board. Oral instructions will be
considered Proper Instructions if the Bank reasonably believes them to have been
given by a person authorized to give such instructions with respect to the
transaction involved. The Fund shall cause all oral instructions to be promptly
confirmed in writing. The Bank shall act upon and comply with any subsequent
Proper Instruction which modifies a prior instruction and shall make reasonable
efforts to detect any discrepancy between the original instruction and such
confirmation and to report such discrepancy to the Fund. The Fund shall be
responsible, at the Fund's expense, for taking any action, including any
reprocessing, necessary to correct any such discrepancy or error, and to the
extent such action requires the Bank to act the Fund shall give the Bank
specific Proper Instructions as to the action required. Upon receipt of an
Officers' Certificate as to the authorization by the Board accompanied by a
detailed description of procedures approved by the Fund, Proper Instructions may
include communication effected directly between electro-mechanical or electronic
devices provided that the Board and the Bank are satisfied that such procedures
afford adequate safeguards for the Fund's assets.
3. Separate Accounts. If the Fund has more than one series or portfolio, the
-----------------
Bank will segregate the assets of each series or portfolio to which this
Agreement relates into a separate account for each such series or portfolio
containing the assets of such series or portfolio (and all investment earnings
thereon). Unless the context otherwise requires, any reference in this
Agreement to any actions to be taken by the Fund shall be deemed to refer to the
Fund acting on behalf of one or more of its series, any reference in this
Agreement to any assets of the Fund, including, without limitation, any
Portfolio
<PAGE>
4
Securities and cash and earnings thereon, shall be deemed to refer only to
assets of the applicable series, any duty or obligation of the Bank hereunder to
the Fund shall be deemed to refer to duties and obligations with respect to the
individual series, and any obligation or liability of the Fund hereunder shall
be binding only with respect to the individual series, and shall be discharged
only out of the assets of such series.
4. Certification as to Authorized Persons. The Secretary or Assistant
---------------------------------------
Secretary of the Fund will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
members of the Board, it being understood that upon the occurrence of any change
in the information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund, will sign a new or amended certification setting forth
the change and the new, additional or omitted names or signatures. The Bank will
be entitled to rely and act upon any Officers' Certificate given to it by the
Fund which has been signed by Authorized Persons named in the most recent
certification.
5. Custody of Cash. As custodian for the Fund, the Bank will open and
----------------
maintain a separate account or accounts in the name of the Fund or in the name
of the Bank, as Custodian of the Fund, and will deposit to the account of the
Fund all of the cash of the Fund, except for cash held by a subcustodian
appointed pursuant to Section 13.2 or Section 13.3 hereof, including borrowed
funds, delivered to the Bank, subject only to draft or order by the Bank acting
pursuant to the terms of this Agreement. Upon receipt by the Bank of Proper
Instructions (which may be continuing instructions) or in the case of payments
for redemptions and repurchases of outstanding shares of common stock of the
Fund, notification from the Fund's transfer agent as provided in Section 7,
requesting such payment, designating the payee or the account or accounts to
which the Bank will release funds for deposit, and stating that it is for a
purpose permitted under the terms of this Section 5, specifying the applicable
subsection, the Bank will make payments of cash held for the accounts of the
Fund, insofar as funds are available for that purpose, only as permitted in
subsections 5.1-5.9 below.
5.1 Purchase of Securities. Upon the purchase of securities for the Fund,
-----------------------
against contemporaneous receipt of such securities by the Bank or, against
delivery of such securities to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs, registered in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or receipt for the account of the Bank pursuant to the provisions of
Section 6 below, each such payment to be made at the purchase price shown on a
broker's confirmation (or transaction report in the case of Book Entry Paper as
defined in Section 6.5 below) of purchase of the securities received by the Bank
before such payment is made, as confirmed in the Proper Instructions received by
the Bank before such payment is made.
<PAGE>
5
5.2 Redemptions. In such amount as may be necessary for the repurchase or
------------
redemption of common shares of the Fund offered for repurchase or redemption in
accordance with Section 7 of this Agreement.
5.3 Distributions and Expenses of Fund. For the payment on the account of
------------------------------------
the Fund of dividends or other distributions to shareholders as may from time to
time be declared by the Board, interest, taxes, management or supervisory fees,
distribution fees, fees of the Bank for its services hereunder and reimbursement
of the expenses and liabilities of the Bank as provided hereunder, fees of any
transfer agent, fees for legal, accounting, and auditing services, or other
operating expenses of the Fund.
5.4 Payment in Respect of Securities. For payments in connection with the
---------------------------------
conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Fund held by or to be delivered to the Bank.
5.5 Repayment of Loans. To repay loans of money made to the Fund, but, in
-------------------
the case of final payment, only upon redelivery to the Bank of any Portfolio
Securities pledged or hypothecated therefor and upon surrender of documents
evidencing the loan;
5.6 Repayment of Cash. To repay the cash delivered to the Fund for the
------------------
purpose of collateralizing the obligation to return to the Fund certificates
borrowed from the Fund representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed certificates.
5.7 Foreign Exchange Transactions. For payments in connection with
-------------------------------
foreign exchange contracts or options to purchase and sell foreign currencies
for spot and future delivery which may be entered into by the Bank on behalf of
the Fund upon the receipt of Proper Instructions, such Proper Instructions to
specify the currency broker or banking institution (which may be the Bank, or
any other subcustodian or agent hereunder, acting as principal) with which the
contract or option is made, and the Bank shall have no duty with respect to the
selection of such currency brokers or banking institutions with which the Fund
deals or for their failure to comply with the terms of any contract or option.
5.8 Other Authorized Payments. For other authorized transactions of the
--------------------------
Fund, or other obligations of the Fund incurred for proper Fund purposes;
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person
(other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for which payment
is to be made and declaring it to be an authorized transaction of the Fund, or
specifying the amount of the obligation for which payment is to be made, setting
forth the purpose for which such obligation was incurred and declaring such
purpose to be a proper corporate purpose.
5.9 Termination: Upon the termination of this Agreement as hereinafter set
-----------
forth pursuant to Section 8 and Section 14 of this Agreement.
<PAGE>
6
6. Securities.
----------
6.1 Segregation and Registration. Except as otherwise provided herein, and
----------------------------
except for securities to be delivered to any subcustodian appointed pursuant to
Section 13.2 hereof, the Bank as custodian, will receive and hold pursuant to
the provisions hereof, in a separate account or accounts and physically
segregated at all times from those of other persons, any and all Portfolio
Securities which may now or hereafter be delivered to it by or for the account
of the Fund. All such Portfolio Securities will be held or disposed of by the
Bank for, and subject at all times to, the instructions of the Fund pursuant to
the terms of this Agreement. Subject to the specific provisions herein relating
to Portfolio Securities that are not physically held by the Bank, the Bank will
register all Portfolio Securities (unless otherwise directed by Proper
Instructions or an Officers' Certificate), in the name of a registered nominee
of the Bank as defined in the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, and will execute and deliver all such
certificates in connection therewith as may be required by such laws or
Regulations or under the laws of any state.
The Fund will from time to time furnish to the Bank appropriate instruments
to enable it to hold or deliver in proper form for transfer, or to register in
the name of its registered nominee, any Portfolio Securities which may from time
to time be registered in the name of the Fund.
6.2 Voting and Proxies. Neither the Bank nor any nominee of the Bank will
------------------
vote any of the Portfolio Securities held hereunder, except in accordance with
Proper Instructions or an Officers' Certificate. The Bank will execute and
deliver, or cause to be executed and delivered, to the Fund all notices, proxies
and proxy soliciting materials with respect to such Securities, such proxies to
be executed by the registered holder of such Securities (if registered otherwise
than in the name of the Fund), but without indicating the manner in which such
proxies are to be voted.
6.3 Book-Entry System. Provided (i) the Bank has received a certified copy
-----------------
of a resolution of the Board specifically approving deposits of Fund assets in
the Book-Entry System, and (ii) for any subsequent changes to such arrangements
following such approval, the Board has reviewed and approved the arrangement and
has not delivered an Officer's Certificate to the Bank indicating that the Board
has withdrawn its approval:
(a) The Bank may keep Portfolio Securities in the Book-Entry System
provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or its agent) in such System which shall not include
any assets of the Bank (or such agent) other than assets held as a fiduciary,
custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with respect to the
Fund's participation in the Book-Entry System through the Bank (or any such
agent) will identify by book entry Portfolio Securities which are included with
other securities deposited in the Account and shall at all times during the
regular business hours of the Bank (or such agent) be open for inspection by
duly authorized officers, employees or agents of the Fund. Where securities are
transferred to the Fund's account, the Bank shall also, by book
<PAGE>
7
entry or otherwise, identify as belonging to the Fund a quantity of securities
in fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for Portfolio Securities
purchased for the account of the Fund or shall pay cash collateral against the
return of Portfolio Securities loaned by the Fund upon (i) receipt of advice
from the Book-Entry System that such Portfolio Securities have been transferred
to the Account, and (ii) the making of an entry on the records of the Bank (or
its agent) to reflect such payment and transfer for the account of the Fund. The
Bank (or its agent) shall transfer securities sold or loaned for the account of
the Fund upon
(i) receipt of advice from the Book-Entry System that payment for
securities sold or payment of the initial cash collateral against the delivery
of Portfolio Securities loaned by the Fund has been transferred to the Account;
and
(ii) the making of an entry on the records of the Bank (or its
agent) to reflect such transfer and payment for the account of the Fund. Copies
of all advices from the Book-Entry System of transfers of securities for the
account of the Fund shall identify the Fund, be maintained for the Fund by the
Bank and shall be provided to the Fund at its request. The Bank shall send the
Fund a confirmation, as defined by Rule 17f-4 under the 1940 Act, of any
transfers to or from the account of the Fund;
(d) The Bank will promptly provide the Fund with any report obtained by
the Bank or its agent on the Book-Entry System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in the
Book-Entry System; and
(e) The Bank shall be liable to the Fund for any loss or damage to the
Fund resulting from use of the Book-Entry System by reason of any negligence,
willful misfeasance or bad faith of the Bank or any of its agents or of any of
its or their employees or from any reckless disregard by the Bank or any such
agent of its duty to use its best efforts to enforce such rights as it may have
against the Book-Entry System; at the election of the Fund, it shall be entitled
to be substituted for the Bank in any claim against the Book-Entry System or any
other person which the Bank or its agent may have as a consequence of any such
loss or damage if and to the extent that the Fund has not been made whole for
any loss or damage;
6.4 Use of a Depository. Provided (i) the Bank has received a certified
---------------------
copy of a resolution of the Board specifically approving deposits in DTC or
other such Depository and (ii) for any subsequent changes to such arrangements
following such approval, the Board has reviewed and approved the arrangement and
has not delivered an Officer's Certificate to the Bank indicating that the Board
has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive, exchange, release,
lend, deliver and otherwise deal with Portfolio Securities including stock
dividends, rights and other items of like nature, and to receive and remit to
the Bank on behalf of the Fund all
<PAGE>
8
income and other payments thereon and to take all steps necessary and proper in
connection with the collection thereof;
(b) Registration of Portfolio Securities may be made in the name of any
nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be made through the
clearing medium employed by such Depository for transactions of participants
acting through it. Upon any purchase of Portfolio Securities, payment will be
made only upon delivery of the securities to or for the account of the Fund and
the Fund shall pay cash collateral against the return of Portfolio Securities
loaned by the Fund only upon delivery of the Portfolio Securities to or for the
account of the Fund; and upon any sale of Portfolio Securities, delivery of the
Securities will be made only against payment therefor or, in the event Portfolio
Securities are loaned, delivery of Portfolio Securities will be made only
against receipt of the initial cash collateral to or for the account of the
Fund; and
(d) The Bank shall be liable to the Fund for any loss or damage to the
Fund resulting from use of a Depository by reason of any negligence, willful
misfeasance or bad faith of the Bank or its employees or from any reckless
disregard by the Bank of its duty to use its best efforts to enforce such rights
as it may have against a Depository. In this connection, the Bank shall use its
best efforts to ensure that:
(i) The Depository obtains replacement of any certificated Portfolio
Security deposited with it in the event such Security is lost, destroyed,
wrongfully taken or otherwise not available to be returned to the Bank upon its
request;
(ii) Any proxy materials received by a Depository with respect to
Portfolio Securities deposited with such Depository are forwarded immediately to
the Bank for prompt transmittal to the Fund;
(iii) Such Depository immediately forwards to the Bank confirmation of
any purchase or sale of Portfolio Securities and of the appropriate book entry
made by such Depository to the Fund's account;
(iv) Such Depository prepares and delivers to the Bank such records
with respect to the performance of the Bank's obligations and duties hereunder
as may be necessary for the Fund to comply with the recordkeeping requirements
of Section 31(a) of the 1940 Act and Rule 31a-1 thereunder; and
(v) Such Depository delivers to the Bank and the Fund all internal
accounting control reports, whether or not audited by an independent public
accountant, as well as such other reports as the Fund may reasonably request in
order to verify the Portfolio Securities held by such Depository.
6.5 Use of Book-Entry System for Commercial Paper. Provided (i) the Bank
---------------------------------------------
has received a certified copy of a resolution of the Board specifically
approving participation
<PAGE>
9
in a system maintained by the Bank for the holding of commercial paper in book-
entry form ("Book-Entry Paper") and (ii) for each year following such approval
the Board has received and approved the arrangements, upon receipt of Proper
Instructions and upon receipt of confirmation from an Issuer (as defined below)
that the Fund has purchased such Issuer's Book-entry Paper, the Bank shall issue
and hold in book-entry form, on behalf of the Fund, commercial paper issued by
issuers with whom the Bank has entered into a book-entry agreement (the
"Issuers"). In maintaining its Book-entry Paper System, the Bank agrees that:
(a) the Bank will maintain all Book-Entry Paper held by the Fund in an
account of the Bank that includes only assets held by it for customers;
(b) the records of the Bank with respect to the Fund's purchase of Book-
entry Paper through the Bank will identify, by book-entry, Commercial Paper
belonging to the Fund which is included in the Book-entry Paper System and shall
at all times during the regular business hours of the Bank be open for
inspection by duly authorized officers, employees or agents of the Fund;
(c) the Bank shall pay for Book-Entry Paper purchased for the account of
the Fund upon contemporaneous (i) receipt of advice from the Issuer that such
sale of Book-Entry Paper has been effected, and (ii) the making of an entry on
the records of the Bank to reflect such payment and transfer for the account of
the Fund;
(d) the Bank shall cancel such Book-Entry Paper obligation upon the
maturity thereof upon contemporaneous (i) receipt of advice that payment for
such Book-Entry Paper has been transferred to the Fund, and (ii) the making of
an entry on the records of the Bank to reflect such payment for the account of
the Fund;
(e) the Bank shall transmit to the Fund a transaction journal confirming
each transaction in Book-Entry Paper for the account of the Fund on the next
business day following the transaction; and
(f) the Bank will send to the Fund such reports on its system of internal
accounting control with respect to the Book-Entry Paper System as the Fund may
reasonably request from time to time.
6.6 Use of Immobilization Programs. Provided (i) the Bank has received a
-------------------------------
certified copy of a resolution of the Board specifically approving the
maintenance of Portfolio Securities in an immobilization program operated by a
bank which meets the requirements of Section 26(a)(1) of the 1940 Act, and (ii)
for each year following such approval the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval, the Bank shall enter into
such immobilization program with such bank acting as a subcustodian hereunder.
6.7 Eurodollar CDs. Any Portfolio Securities which are Eurodollar CDs
---------------
may be physically held by the European branch of the U.S. banking institution
that is the
<PAGE>
10
issuer of such Eurodollar CD (a "European Branch"), provided that such
Securities are identified on the books of the Bank as belonging to the Fund and
that the books of the Bank identify the European Branch holding such Securities.
Notwithstanding any other provision of this Agreement to the contrary, except as
stated in the first sentence of this subsection 6.7, the Bank shall be under no
other duty with respect to such Eurodollar CDs belonging to the Fund, and shall
have no liability to the Fund or its shareholders with respect to the actions,
inactions, whether negligent or otherwise of such European Branch in connection
with such Eurodollar CDs, except for any loss or damage to the Fund resulting
from the Bank's own gross negligence, willful misfeasance or bad faith in the
performance of its duties hereunder.
6.8 Options and Futures Transactions.
--------------------------------
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the-Counter.
1. The Bank shall take action as to put options ("puts") and call
options ("calls") purchased or sold (written) by the Fund regarding escrow or
other arrangements (i) in accordance with the provisions of any agreement
entered into upon receipt of Proper Instructions between the Bank, any broker-
dealer registered under the Exchange Act and a member of the National
Association of Securities Dealers, Inc. (the "NASD"), and, if necessary, the
Fund relating to the compliance with the rules of the Options Clearing
Corporation and of any registered national securities exchange, or of any
similar organization or organizations.
2. Unless another agreement requires it to do so, the Bank shall be
under no duty or obligation to see that the Fund has deposited or is maintaining
adequate margin, if required, with any broker in connection with any option, nor
shall the Bank be under duty or obligation to present such option to the broker
for exercise unless it receives Proper Instructions from the Fund. The Bank
shall have no responsibility for the legality of any put or call purchased or
sold on behalf of the Fund, the propriety of any such purchase or sale, or the
adequacy of any collateral delivered to a broker in connection with an option or
deposited to or withdrawn from a Segregated Account (as defined in subsection
6.9 below). The Bank specifically, but not by way of limitation, shall not be
under any duty or obligation to: (i) periodically check or notify the Fund that
the amount of such collateral held by a broker or held in a Segregated Account
is sufficient to protect such broker of the Fund against any loss; (ii) effect
the return of any collateral delivered to a broker; or (iii) advise the Fund
that any option it holds, has or is about to expire. Such duties or obligations
shall be the sole responsibility of the Fund.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
1. The Bank shall take action as to puts, calls and futures
contracts ("Futures") purchased or sold by the Fund in accordance with the
provisions of any agreement among the Fund, the Bank and a Futures Commission
Merchant registered under the Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading Commission and/or any Contract
Market, or any similar
<PAGE>
11
organization or organizations, regarding account deposits in connection with
transactions by the Fund.
2. The responsibilities and liabilities of the Bank as to futures,
puts and calls traded on commodities exchanges, any Futures Commission Merchant
account and the Segregated Account shall be limited as set forth in subparagraph
(a)(2) of this Section 6.8 as if such subparagraph referred to Futures
Commission Merchants rather than brokers, and Futures and puts and calls thereon
instead of options.
6.9 Segregated Account. The Bank shall upon receipt of Proper Instructions
---------- -------
establish and maintain a Segregated Account or Accounts for and on behalf of the
Fund.
1. Upon receipt of Proper Instructions, cash and/or Portfolio Securities
may be transferred into the Segregated Account or Accounts:
(a) in accordance with the provisions of any agreement among the Fund,
the Bank and a broker-dealer registered under the Exchange Act and a member of
the NASD or any Futures Commission Merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of the Options Clearing
Corporation and of any registered national securities exchange or the Commodity
Futures Trading Commission or any registered Contract Market, or of any similar
organizations regarding escrow or other arrangements in connection with
transactions by the Fund;
(b) for the purpose of segregating cash or securities in connection
with options purchased or written by the Fund or commodity futures purchased or
written by the Fund;
(c) for the deposit of liquid assets, such as cash, U.S. Government
securities or other high grade debt obligations, having a market value (marked
to market on a daily basis) at all times equal to not less than the aggregate
purchase price due on the settlement dates of all the Fund's then outstanding
forward commitment or "when-issued" agreements relating to the purchase of
Portfolio Securities and all the Fund's then outstanding commitments under
reverse repurchase agreements entered into with broker-dealer firms;
(d) for the deposit of any Portfolio Securities which the Fund has
agreed to sell on a forward commitment basis, all in accordance with Investment
Company Act Release No. 10666;
(e) for the purposes of compliance by the Fund with the procedures
required by Investment Company Act Release No. 10666, or any subsequent release
or releases of the Securities and Exchange Commission relating to the
maintenance of Segregated Accounts by registered investment companies; or
(f) for other proper corporate purposes, but only, in the case of this
--- ----
clause (f), upon receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board, or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant Secretary,
setting forth the purpose or purposes of such Segregated Account and declaring
such purposes to be proper corporate purposes.
<PAGE>
12
2. Upon receipt of Proper Instructions, cash and/or Portfolio Securities
may be withdrawn from the Segregated Account or Accounts:
(a) in accordance with the provisions of any agreements referenced
in (a) above;
(b) for sale or delivery to meet the Fund's obligations under
outstanding firm commitment or when-issued agreements for the purchase of
Portfolio Securities and under reverse repurchase agreements;
(c) for exchange for other liquid assets of equal or greater value
deposited in the Segregated Account;
(d) to the extent that the Fund's outstanding forward commitment or
when-issued agreements for the purchase of portfolio securities or
reverse repurchase agreements are sold to other parties or the Fund's
obligations thereunder are met from assets of the Fund other than those
in the Segregated Account; or
(e) for delivery upon settlement of a forward commitment agreement
for the sale of Portfolio Securities.
6.10 Interest Bearing Call or Time Deposits. The Bank shall, upon receipt
--------------------------------------
of Proper Instructions relating to the purchase by the Fund of interest-bearing
fixed-term and call deposits, transfer cash, by wire or otherwise, in such
amounts and to such bank or banks as shall be indicated in such Proper
Instructions. The Bank shall include in its records with respect to the assets
of the Fund appropriate notation as to the amount of each such deposit, the
banking institution with which such deposit is made (the "Deposit Bank"), and
shall retain such forms of advice or receipt evidencing the deposit, if any, as
may be forwarded to the Bank by the Deposit Bank. Such deposits shall be deemed
Portfolio Securities of the Fund and the responsibility of the Bank therefore
shall be the same as and no greater than the Bank's responsibility in respect of
other Portfolio Securities of the Fund.
6.11 Transfer of Securities. The Bank will transfer, exchange, deliver or
-----------------------
release Portfolio Securities held by it hereunder, insofar as such Securities
are available for such purpose, provided that before making any transfer,
exchange, delivery or release under this Section the Bank will receive Proper
Instructions requesting such transfer, exchange or delivery stating that it is
for a purpose permitted under the terms of this Section 6.11, specifying the
applicable subsection, or describing the purpose of the transaction with
sufficient particularity to permit the Bank to ascertain the applicable
subsection, only
(a) upon sales of Portfolio Securities for the account of the Fund,
against contemporaneous receipt by the Bank of payment therefor in full, or,
against payment to the Bank in accordance with generally accepted settlement
practices and customs in the jurisdiction or market in which the transaction
occurs, each such payment to be in the
<PAGE>
13
amount of the sale price shown in a broker's confirmation of sale of the
Portfolio Securities received by the Bank before such transfer is made, as
confirmed in the Proper Instructions received by the Bank before such transfer
is made;
(b) in exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan of merger, consolidation,
reorganization, share split-up, change in par value, recapitalization or
readjustment or otherwise, upon exercise of subscription, purchase or sale or
other similar rights represented by such Portfolio Securities, or for the
purpose of tendering shares in the event of a tender offer therefor, provided
however that in the event of an offer of exchange, tender offer, or other
exercise of rights requiring the physical tender or delivery of Portfolio
Securities, the Bank shall have no liability for failure to so tender in a
timely manner unless such Proper Instructions are received by the Bank at least
two business days prior to the date required for tender, and unless the Bank (or
its agent or subcustodian hereunder) has actual possession of such Security at
least two business days prior to the date of tender;
(c) upon conversion of Portfolio Securities pursuant to their terms into
other securities;
(d) for the purpose of redeeming in kind shares of the Fund upon
authorization from the Fund;
(e) in the case of option contracts owned by the Fund, for presentation
to the endorsing broker;
(f) when such Portfolio Securities are called, redeemed or retired or
otherwise become payable;
(g) for the purpose of effectuating the pledge of Portfolio Securities
held by the Bank in order to collateralize loans made to the Fund by any bank,
including the Bank; provided, however, that such Portfolio Securities will be
released only upon payment to the Bank for the account of the Fund of the moneys
borrowed, except that in cases where additional collateral is required to secure
a borrowing already made, and such fact is made to appear in the Proper
Instructions, further Portfolio Securities may be released for that purpose
without any such payment. In the event that any such pledged Portfolio
Securities are held by the Bank, they will be so held for the account of the
lender, and after notice to the Fund from the lender in accordance with the
normal procedures of the lender, that an event of deficiency or default on the
loan has occurred, the Bank may deliver such pledged Portfolio Securities to or
for the account of the lender;
(h) for the purpose of releasing certificates representing Portfolio
Securities, against contemporaneous receipt by the Bank of the fair market value
of such security, as set forth in the Proper Instructions received by the Bank
before such payment is made;
(i) for the purpose of delivering securities lent by the Fund to a bank
or broker dealer, but only against receipt in accordance with street delivery
custom except as otherwise provided herein, of adequate collateral as agreed
upon from time to time by the
<PAGE>
14
Fund and the Bank, and upon receipt of payment in connection with any repurchase
agreement relating to such securities entered into by the Fund;
(j) for other authorized transactions of the Fund or for other proper
corporate purposes; provided that before making such transfer, the Bank will
also receive a certified copy of resolutions of the Board, signed by an
authorized officer of the Fund (other than the officer certifying such
resolution) and certified by its Secretary or Assistant Secretary, specifying
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made; and
(k) upon termination of this Agreement as hereinafter set forth pursuant
to Section 8 and Section 14 of this Agreement.
As to any deliveries made by the Bank pursuant to subsections (a), (b), (c),
(e), (f), (g), (h) and (i) securities or cash receivable in exchange therefor
shall be delivered to the Bank.
7. Redemptions. In the case of payment of assets of the Fund held by the
-----------
Bank in connection with redemptions and repurchases by the Fund of outstanding
common shares, the Bank will rely on notification by the Fund's transfer agent
of receipt of a request for redemption and certificates, if issued, in proper
form for redemption before such payment is made. Payment shall be made in
accordance with the Articles and By-laws of the Fund, from assets available for
said purpose.
8. Merger, Dissolution, etc. of Fund. In the case of the following
----------------------------------
transactions, not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with another investment company where
the Fund is not the surviving entity, the sale by the Fund of all, or
substantially all, of its assets to another investment company, or the
liquidation or dissolution of the Fund and distribution of its assets, the Bank
will deliver the Portfolio Securities held by it under this Agreement and
disburse cash only upon the order of the Fund set forth in an Officers'
Certificate, accompanied by a certified copy of a resolution of the Board
authorizing any of the foregoing transactions. Upon completion of such delivery
and disbursement and the payment of the fees, disbursements and expenses of the
Bank, this Agreement will terminate.
9. Actions of Bank Without Prior Authorization. Notwithstanding anything
-------------------------------------------
herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, it will without prior authorization or instruction
of the Fund or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name of
the Fund all checks, drafts, or other negotiable or transferable instruments or
other orders for the payment of money received by it for the account of the Fund
and hold for the account
<PAGE>
15
of the Fund all income, dividends, interest and other payments or distribution
of cash with respect to the Portfolio Securities held thereunder;
9.2 Present for payment all coupons and other income items held by it for
the account of the Fund which call for payment upon presentation and hold the
cash received by it upon such payment for the account of the Fund;
9.3 Receive and hold for the account of the Fund all securities received
as a distribution on Portfolio Securities as a result of a stock dividend, share
split-up, reorganization, recapitalization, merger, consolidation, readjustment,
distribution of rights and similar securities issued with respect to any
Portfolio Securities held by it hereunder;
9.4 Execute as agent on behalf of the Fund all necessary ownership and
other certificates and affidavits required by the Internal Revenue Code or the
Regulations of the Treasury Department issued thereunder, or by the laws of any
state, now or hereafter in effect, inserting the Fund's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so and as may be required to obtain payment in respect thereof.
The Bank will execute and deliver such certificates in connection with Portfolio
Securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any state;
9.5 Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it upon
payment for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for definitive
securities.
10. Collections and Defaults. The Bank will use its best efforts to collect
------------------------
any funds which may to its knowledge become collectible arising from Portfolio
Securities, including dividends, interest and other income, and to transmit to
the Fund notice actually received by it of any call for redemption, offer of
exchange, right of subscription, reorganization or other proceedings affecting
such Securities. If Portfolio Securities upon which such income is payable are
in default or payment is refused after due demand or presentation, the Bank will
notify the Fund in writing of any default or refusal to pay within two business
days from the day on which it receives knowledge of such default or refusal. In
addition, the Bank will send the Fund a written report once each month showing
any income on any Portfolio Security held by it which is more than ten days
overdue on the date of such report and which has not previously been reported.
11. Maintenance of Records and Accounting Services. The Bank will maintain
-----------------------------------------------
records with respect to transactions for which the Bank is responsible pursuant
to the terms and conditions of this Agreement, and in compliance with the
applicable rules and regulations of the 1940 Act and will furnish the Fund daily
with a statement of condition of the Fund. The Bank will furnish to the Fund at
the end of every month, and at the close of each quarter of the Fund's fiscal
year, a list of the Portfolio Securities and the
<PAGE>
16
aggregate amount of cash held by it for the Fund. The books and records of the
Bank pertaining to its actions under this Agreement and reports by the Bank or
its independent accountants concerning its accounting system, procedures for
safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Fund and will be preserved by the Bank in the manner and in accordance with
the applicable rules and regulations under the 1940 Act.
The Bank shall keep the books of account and render statements or copies from
time to time as reasonably requested by the Treasurer or any executive officer
of the Fund.
The Bank shall assist generally in the preparation of reports to shareholders
and others, audits of accounts, and other ministerial matters of like nature.
The books and records maintained by the Bank on behalf of the Fund are the
property of the Fund and will be surrendered upon request in accordance with
Section 14.
12. Fund Valuation. The Bank shall compute and, unless otherwise directed by
--------------
the Board, determine as of the close of business on the New York Stock Exchange
on each day on which said Exchange is open for unrestricted trading and as of
such other hours, if any, as may be authorized by the Board the net asset value
and the public offering price of a share of capital stock of each series of the
Fund, such determination to be made in accordance with the provisions of the
Articles and By-laws of the Fund and Prospectus and Statement of Additional
Information relating to the Fund, as they may from time to time be amended, and
any applicable resolutions of the Board at the time in force; and promptly to
notify the Fund, the proper exchange and the NASD or such other persons as the
Fund may request of the results of such computation and determination. In
computing the net asset value hereunder, the Bank may rely in good faith upon
information furnished to it by any Authorized Person in respect of (i) the
manner of accrual of the liabilities of the Fund and in respect of liabilities
of the Fund not appearing on its books of account kept by the Bank, (ii)
reserves, if any, authorized by the Board or that no such reserves have been
authorized, (iii) the source of the quotations to be used in computing the net
asset value, (iv) the value to be assigned to any security for which no price
quotations are available, and (v) the method of computation of the public
offering price on the basis of the net asset value of the shares, and the Bank
shall not be responsible for any loss occasioned by such reliance or for any
good faith reliance on any quotations received from a source pursuant to (iii)
above.
13. Concerning the Bank.
--------------------
13.1 Performance of Duties and Standard of Care.
------------------------------------------
In performing its duties hereunder and any other duties listed on any
Schedule hereto, if any, the Bank will be entitled to receive and act upon the
advice of Fund counsel or independent counsel of its own selection and approved
by the Fund, which approval will not be unreasonably withheld, and will be
without liability for any action taken or thing done or omitted to be done in
accordance with this Agreement in good faith in conformity with such advice. In
the performance of its duties hereunder, the Bank will be protected and not be
liable, and will be indemnified and held harmless for any
<PAGE>
17
action taken or omitted to be taken by it in good faith reliance upon the terms
of this Agreement, any Officers' Certificate, Proper Instructions, resolution of
the Board, telegram, notice, request, certificate or other instrument reasonably
believed by the Bank to be genuine and for any other loss to the Fund except in
the case of its negligence, willful misfeasance or bad faith in the performance
of its duties or reckless disregard of its obligations and duties hereunder.
The Bank will be under no duty or obligation to inquire into and will not be
liable for:
(a) the validity of the issue of any Portfolio Securities purchased by or
for the Fund, the legality of the purchases thereof or the propriety of the
price incurred therefor;
(b) the legality of any sale of any Portfolio Securities by or for the
Fund or the propriety of the amount for which the same are sold;
(c) the legality of an issue or sale of any common shares of the Fund or
the sufficiency of the amount to be received therefor;
(d) the legality of the repurchase of any common shares of the Fund or
the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by the Fund or the
legality of the distribution of any Portfolio Securities as payment in kind of
such dividend; and
(f) any property or moneys of the Fund unless and until received by it,
and any such property or moneys delivered or paid by it pursuant to the terms
hereof.
Moreover, the Bank will not be under any duty or obligation to ascertain
whether any Portfolio Securities at any time delivered to or held by it for the
account of the Fund are such as may properly be held by the Fund under the
provisions of its Articles, By-laws, any federal or state statutes or any rule
or regulation of any governmental agency.
Notwithstanding anything in this Agreement to the contrary, in no event shall
the Bank be liable hereunder or to any third party:
(a) for any losses or damages of any kind resulting from acts of God,
earthquakes, fires, floods, storms or other disturbances of nature, epidemics,
strikes, riots, nationalization, expropriation, currency restrictions, acts of
war, civil war or terrorism, insurrection, nuclear fusion, fission or radiation,
the interruption, loss or malfunction of utilities or transportation, the
unavailability of energy sources and other similar happenings or events except
as results from the Bank's own gross negligence; or
(b) for special, punitive or consequential damages arising from the
provision of services hereunder, even if the Bank has been advised of the
possibility of such damages.
13.2 Agents and Subcustodians with Respect to Property of the Fund Held
-------------------------------------------------------------------
in the United States. The Bank may employ agents in the performance of its
- ---------------------
duties hereunder
<PAGE>
18
and shall be responsible for the acts and omissions of such agents as if
performed by the Bank hereunder.
Upon receipt of Proper Instructions, the Bank may employ certain subcustodians
selected by the Fund, provided that any such subcustodian meets at least the
minimum qualifications required by Section 17(f)(1) of the 1940 Act to act as a
custodian of the Fund's assets with respect to property of the Fund held in the
United States. The Bank shall have no liability to the Fund or any other person
by reason of any act or omission of such subcustodian and the Fund shall
indemnify the Bank and hold it harmless from and against any and all actions,
suits and claims, arising directly or indirectly out of the performance of such
subcustodian. Upon request of the Bank, the Fund shall assume the entire defense
of any action, suit, or claim subject to the foregoing indemnity. The Fund shall
pay all reasonable and proper fees and expenses of such subcustodian.
13.3 Duties of the Bank with Respect to Property of the Fund Held
------------------------------------------------------------
Outside of the United States.
- -----------------------------
(a) Appointment of Foreign Sub-Custodians. The Fund hereby authorizes
-------------------------------------
and instructs the Bank to employ as sub-custodians for the Fund's Portfolio
Securities and other assets maintained outside the United States the foreign
banking institutions and foreign securities depositories designated on the
Schedule attached hereto (each, a "Selected Foreign Sub-Custodian"). Upon
receipt of Proper Instructions, together with a certified resolution of the
Board, the Bank and the Fund may agree to designate additional foreign banking
institutions and foreign securities depositories to act as Selected Foreign Sub-
Custodians hereunder. Upon receipt of Proper Instructions, the Fund may
instruct the Bank to cease the employment of any one or more such Selected
Foreign Sub-Custodians for maintaining custody of the Fund's assets, and the
Bank shall so cease to employ such sub-custodian as soon as alternate custodial
arrangements have been implemented.
(b) Foreign Securities Depositories. Except as may otherwise be agreed
-------------------------------
upon in writing by the Bank and the Fund, assets of the Fund shall be maintained
in foreign securities depositories only through arrangements implemented by the
foreign banking institutions serving as Selected Foreign Sub-Custodians pursuant
to the terms hereof. Such arrangements shall include entry into agreements
containing the provisions set forth in subparagraph (d) hereof. Notwithstanding
the foregoing, except as may otherwise be agreed upon in writing by the Bank and
the Fund, the Fund authorizes the deposit in Euro-clear, the securities
clearance and depository facilities operated by Morgan Guaranty Trust
Company of New York in Brussels, Belgium, of Foreign Portfolio Securities
eligible for deposit therein and to utilize such securities depository in
connection with settlements of purchases and sales of securities and deliveries
and returns of securities, until notified to the contrary pursuant to
subparagraph (a) hereunder.
(c) Segregation of Securities. The Bank shall identify on its books as
-------------------------
belonging to the Fund the Foreign Portfolio Securities held by each Selected
Foreign Sub-Custodian. Each agreement pursuant to which the Bank employs a
foreign banking institution shall require that such institution establish a
custody account for the Bank and
<PAGE>
19
hold in that account, Foreign Portfolio Securities and other assets of the Fund,
and, in the event that such institution deposits Foreign Portfolio Securities in
a foreign securities depository, that it shall identify on its books as
belonging to the Bank the securities so deposited.
(d) Agreements with Foreign Banking Institutions. Each of the agreements
--------------------------------------------
pursuant to which a foreign banking institution holds assets of the Fund (each,
a "Foreign Sub-Custodian Agreement") shall be substantially in the form
previously made available to the Fund and shall provide that: (a) the Fund's
assets will not be subject to any right, charge, security interest, lien or
claim of any kind in favor of the foreign banking institution or its creditors
or agent, except a claim of payment for their safe custody or administration
(including, without limitation, any fees or taxes payable upon transfers or
reregistration of securities); (b) beneficial ownership of the Fund's assets
will be freely transferable without the payment of money or value other than for
safe custody or administration (including, without limitation, any fees or taxes
payable upon transfers or reregistration of securities); (c) adequate records
will be maintained identifying the assets as belonging to Fund; (d) officers of
or auditors employed by, or other representatives of the Bank, including the
independent public accountants for the Fund, will be given access to the books
and records of the foreign banking institution relating to its actions under its
agreement with the Bank; and (e) assets of the Fund held by the Selected Foreign
Sub-Custodian will be subject only to the instructions of the Fund, the Bank or
its agents.
(e) Access of Independent Accountants of the Fund. Upon request of the
---------------------------------------------
Fund, the Bank will arrange for the independent accountants of the Fund to be
afforded access to the books and records of any foreign banking institution
employed as a Selected Foreign Sub-Custodian insofar as such books and records
relate to the performance of such foreign banking institution under its Foreign
Sub-Custodian Agreement.
(f) Reports by Bank. The Bank will supply to the Fund from time to time,
---------------
as mutually agreed upon, statements in respect of the securities and other
assets of the Fund held by Selected Foreign Sub-Custodians, including but not
limited to an identification of entities having possession of the Foreign
Portfolio Securities and other assets of the Fund.
(g) Transactions in Foreign Custody Account. Transactions with respect
---------------------------------------
to the assets of the Fund held by a Selected Foreign Sub-Custodian shall be
effected pursuant to Proper Instructions from the Fund to the Bank and shall be
effected in accordance with the applicable Foreign Sub-Custodian Agreement. If
at any time any Foreign Portfolio Securities shall be registered in the name of
the nominee of the Selected Foreign Sub-Custodian, the Fund agrees to hold any
such nominee harmless from any liability by reason of the registration of such
securities in the name of such nominee.
Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for Foreign Portfolio Securities received for the account
of the Fund and delivery of Foreign Portfolio Securities maintained for the
account of the Fund may be effected in accordance with the customary established
securities trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including, without
limitation, delivering securities to the purchaser thereof or to a
<PAGE>
20
dealer therefor (or an agent for such purchaser or dealer) against a receipt
with the expectation of receiving later payment for such securities from such
purchaser or dealer.
In connection with any action to be taken with respect to the Foreign
Portfolio Securities held hereunder, including, without limitation, the exercise
of any voting rights, subscription rights, redemption rights, exchange rights,
conversion rights or tender rights, or any other action in connection with any
other right, interest or privilege with respect to such Securities
(collectively, the "Rights"), the Bank shall promptly transmit to the Fund such
information in connection therewith as is made available to the Bank by the
Foreign Sub-Custodian, and shall promptly forward to the applicable Foreign Sub-
Custodian any instructions, forms or certifications with respect to such Rights,
and any instructions relating to the actions to be taken in connection
therewith, as the Bank shall receive from the Fund pursuant to Proper
Instructions. Notwithstanding the foregoing, the Bank shall have no further
duty or obligation with respect to such Rights, including, without limitation,
the determination of whether the Fund is entitled to participate in such Rights
under applicable U.S. and foreign laws, or the determination of whether any
action proposed to be taken with respect to such Rights by the Fund or by the
applicable Foreign Sub-Custodian will comply with all applicable terms and
conditions of any such Rights or any applicable laws or regulations, or market
practices within the market in which such action is to be taken or omitted.
(h) Liability of Selected Foreign Sub-Custodians. Each Foreign Sub-
--------------------------------------------
Custodian Agreement with a foreign banking institution shall require the
institution to exercise reasonable care in the performance of its duties and to
indemnify, and hold harmless, the Bank and each Fund from and against certain
losses, damages, costs, expenses, liabilities or claims arising out of or in
connection with the institution's performance of such obligations, all as set
forth in the applicable Foreign Sub-Custodian Agreement. The Fund acknowledges
that the Bank, as a participant in Euro-clear, is subject to the Terms and
Conditions Governing the Euro-Clear System, a copy of which has been made
available to the Fund. The Fund acknowledges that pursuant to such Terms and
Conditions, Morgan Guaranty Brussels shall have the sole right to exercise or
assert any and all rights or claims in respect of actions or omissions of, or
the bankruptcy or insolvency of, any other depository, clearance system or
custodian utilized by Euro-clear in connection with the Fund's securities and
other assets.
(i) Liability of Bank. The Bank shall have no more or less
-----------------
responsibility or liability on account of the acts or omissions of any Selected
Foreign Sub-Custodian employed hereunder than any such Selected Foreign Sub-
Custodian has to the Bank and, without limiting the foregoing, the Bank shall
not be liable for any loss, damage, cost, expense, liability or claim resulting
from nationalization, expropriation, currency restrictions, or acts of war or
terrorism, political risk (including, but not limited to, exchange control
restrictions, confiscation, insurrection, civil strife or armed hostilities)
other losses due to Acts of God, nuclear incident or any loss where the Selected
Foreign Sub-Custodian has otherwise exercised reasonable care.
(j) Monitoring Responsibilities. The Bank shall furnish annually to the
---------------------------
Fund, information concerning the Selected Foreign Sub-Custodians employed
hereunder for use
<PAGE>
21
by the Fund in evaluating such Selected Foreign Sub-Custodians to ensure
compliance with the requirements of Rule 17f-5 of the 1940 Act. In addition, the
Bank will promptly inform the Fund in the event that the Bank is notified by a
Selected Foreign Sub-Custodian that there appears to be a substantial likelihood
that its shareholders' equity will decline below $200 million (U.S. dollars or
the equivalent thereof) or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally accepted U.S.
accounting principles) or any other capital adequacy test applicable to it by
exemptive order, or if the Bank has actual knowledge of any material loss of the
assets of the Fund held by a Foreign Sub-Custodian.
(k) Tax Law. The Bank shall have no responsibility or liability for any
-------
obligations now or hereafter imposed on the Fund or the Bank as custodian of the
Fund by the tax laws of any jurisdiction, and it shall be the responsibility of
the Fund to notify the Bank of the obligations imposed on the Fund and to assist
the Bank in identifying any obligations imposed on the Bank as a Custodian by
the tax law of any non-U.S. jurisdiction, including responsibility for
withholding and other taxes, assessments or other governmental charges,
certifications and governmental reporting. The sole responsibility of the
Custodian with regard to such tax law shall be to use reasonable efforts to
assist the Fund with respect to any claim for exemption or refund under the tax
law of jurisdictions for which the Fund has provided such information.
13.4 Insurance. The Bank shall use the same care with respect to the
----------
safekeeping of Portfolio Securities and cash of the Fund held by it as it uses
in respect of its own similar property but it need not maintain any special
insurance for the benefit of the Fund.
13.5. Fees and Expenses of Bank. The Fund will pay or reimburse the Bank
-------------------------
from time to time for any transfer taxes payable upon transfer of Portfolio
Securities made hereunder, and for all necessary proper disbursements, expenses
and charges made or incurred by the Bank in the performance of this Agreement
(including any duties listed on any Schedule hereto, if any) including any
indemnities for any loss, liabilities or expense to the Bank as provided above.
For the services rendered by the Bank hereunder, the Fund will pay to the Bank
such compensation or fees at such rate and at such times as shall be agreed upon
in writing by the parties from time to time. The Bank will also be entitled to
reimbursement by the Fund for all reasonable expenses incurred in conjunction
with termination of this Agreement by the Fund.
13.6 Advances by Bank. The Bank may, in its sole discretion, advance funds
-----------------
on behalf of the Fund to make any payment permitted by this Agreement upon
receipt of any Proper Instructions required by this Agreement for such payments
by the Fund. Should such a payment or payments, with advanced funds, result in
an overdraft (due to insufficiencies of the Fund's account with the Bank, or for
any other reason) this Agreement deems any such overdraft or related
indebtedness, a loan made by the Bank to the Fund payable on demand and bearing
interest at the current rate charged by the Bank for such loans unless the Fund
shall provide the Bank with agreed upon compensating balances. The Fund agrees
that the Bank shall have a continuing lien and security interest to the extent
of any overdraft or indebtedness, in and to any property at any time held by it
for the Fund's benefit or in which the Fund has an interest and which is then in
the
<PAGE>
22
Bank's possession or control (or in the possession or control of any third
party acting on the Bank's behalf). The Fund authorizes the Bank, in its sole
discretion, at any time to charge any overdraft or indebtedness, together with
interest due thereon against any balance of account standing to the credit of
the Fund on the Bank's books.
14. Termination.
-----------
14.1 This Agreement may be terminated at any time without penalty upon
sixty days written notice delivered by either party to the other by means of
registered mail, and upon the expiration of such sixty days this Agreement will
terminate; provided, however, that the effective date of such termination may be
postponed to a date not more than ninety days from the date of delivery of such
notice (i) by the Bank in order to prepare for the transfer by the Bank of all
of the assets of the Fund held hereunder, and (ii) by the Fund in order to give
the Fund an opportunity to make suitable arrangements for a successor custodian.
At any time after the termination of this Agreement, the Fund will, at its
request, have access to the records of the Bank relating to the performance of
its duties as custodian.
14.2 In the event of the termination of this Agreement, the Bank will
immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Fund. The obligation of the Bank to deliver and transfer over the assets of the
Fund held by it directly to such successor custodian will commence as soon as
such successor is appointed and will continue until completed as aforesaid. If
the Fund does not select a successor custodian within ninety (90) days from the
date of delivery of notice of termination the Bank may, subject to the
provisions of subsection 14.3, deliver the Portfolio Securities and cash of the
Fund held by the Bank to a bank or trust company of its own selection which
meets the requirements of Section 17(f)(1) of the 1940 Act and has a reported
capital, surplus and undivided profits aggregating not less than $2,000,000, to
be held as the property of the Fund under terms similar to those on which they
were held by the Bank, whereupon such bank or trust company so selected by the
Bank will become the successor custodian of such assets of the Fund with the
same effect as though selected by the Board.
14.3 Prior to the expiration of ninety (90) days after notice of
termination has been given, the Fund may furnish the Bank with an order of the
Fund advising that a successor custodian cannot be found willing and able to act
upon reasonable and customary terms and that there has been submitted to the
shareholders of the Fund the question of whether the Fund will be liquidated or
will function without a custodian for the assets of the Fund held by the Bank.
In that event the Bank will deliver the Portfolio Securities and cash of the
Fund held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Fund's Secretary and an opinion of
counsel to the Fund in form and content reasonably satisfactory to the Bank.
<PAGE>
23
15. Confidentiality. Both parties hereto agree that any non-public
---------------
information obtained hereunder concerning the other party is confidential and
may not be disclosed to any other person without the consent of the other party,
except as may be required by applicable law or at the request of a governmental
agency. The parties further agree that a breach of this provision would
irreparably damage the other party and accordingly agree that each of them is
entitled, without bond or other security, to an injunction or injunctions to
prevent breaches of this provision.
16. Notices. Any notice or other instrument in writing authorized or required
-------
by this Agreement to be given to either party hereto will be sufficiently given
if addressed to such party and mailed or delivered to it at its office at the
address set forth below; namely:
(a) In the case of notices sent to the Fund to:
M Fund, Inc.
River Park Center
205 S. E. Spokane Street
Portland, Oregon 97202
Attention: President
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
Attention: Counsel
or at such other place as such party may from time to time designate in
writing.
17. Amendments. This Agreement may not be altered or amended, except by an
----------
instrument in writing, executed by both parties, and in the case of the Fund,
such alteration or amendment must be authorized and approved by its Board.
18. Parties. This Agreement will be binding upon and shall inure to the
-------
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of the Bank or by the Bank without the written
consent of the Fund, authorized and approved by its Board; and provided further
that termination proceedings pursuant to Section 14 hereof will not be deemed to
be an assignment within the meaning of this provision.
19. Governing Law. This Agreement and all performance hereunder will be
-------------
governed by the laws of the Commonwealth of Massachusetts.
20. Counterparts. This Agreement may be executed in any number of
-------------
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
<PAGE>
24
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
M Fund, Inc.
By:
------------------------
Name:
Title:
ATTEST:
- ------------------
Investors Bank & Trust Company
By:
------------------------
Name:
Title:
ATTEST:
- ------------------
DATE:
-------------
<PAGE>
Exhibit 9(A)
Transfer Agency and Service Agreement between
M Fund, Inc. and investors Bank & Trust Company
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
Between
M FUND, INC.
and
INVESTORS BANK & TRUST COMPANY
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT effective as of the ___ day of ________, 1995 by and between M FUND,
INC., a corporation organized under the laws of Maryland (the "Company"), and
INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company (the "Bank").
WITNESSETH:
-----------
WHEREAS, the Company desires to appoint the Bank as its transfer agent,
dividend disbursing agent and agent in connection with certain other activities,
and the Bank desires to accept such appointment;
WHEREAS, the Bank is duly registered as a transfer agent as provided in
Section 17A(c) of the Securities Exchange Act of 1934, as amended, (the "1934
Act");
WHEREAS, the Company is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets;
WHEREAS, the Company intends to initially offer shares in four series, (such
series, together with all other series subsequently established by the Company
and made subject to this Agreement in accordance with Article 17, being herein
referred to as the "Fund(s)");
NOW, THEREFORE, in consideration of the mutual covenants herein set forth, the
Company and the Bank agree as follows:
ARTICLE 1. Terms of Appointment; Duties of the Bank
- ---------- ----------------------------------------
1.01 Subject to the terms and conditions set forth in this Agreement, the
Company hereby employs and appoints the Bank to act as, and the Bank agrees to
act as, transfer agent for each of the Fund(s)' authorized and issued shares of
beneficial interest ("Shares"), dividend disbursing agent and agent in
connection with certain other activities.
1.02 The Bank agrees that it will perform the following services:
(a) In connection with procedures established from time to time by
agreement between the Company and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation therefor to the
custodian of the Company appointed by the Board of Directors of the
Company (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of Shares
and hold such Shares in the appropriate Shareholder account;
2
<PAGE>
(iii) Receive for acceptance, redemption requests and redemption
directions and deliver the appropriate documentation therefor to the
Custodian;
(iv) At the appropriate time as and when it receives monies paid to it
by the Custodian with respect to any redemption, pay over or cause to be
paid over in the appropriate manner such monies as instructed by the
redeeming Shareholders;
(v) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and distributions
declared by the Company on behalf of a Fund; and
(vii) Create and maintain all necessary records including those
specified in Article 10 hereof, in accordance with all applicable laws,
rules and regulations, including but not limited to records required by
Section 31(a) of the Investment Company Act of 1940, as amended (the
"1940 Act"), and those records pertaining to the various functions
performed by it hereunder. All records shall be available for inspection
and use by the Company. Where applicable, such records shall be
maintained by the Bank for the periods and in the places required by Rule
31a-2 under the 1940 Act.
(viii) Make available during regular business hours all records and
other data created and maintained pursuant to this Agreement for
reasonable audit and inspection by the Company, or any person retained by
the Company. Upon reasonable notice by the Company, the Bank shall make
available during regular business hours its facilities and premises
employed in connection with its performance of this Agreement for
reasonable visitation by the Company, or any person retained by the
Company, or by regulatory authorities.
(ix) At the expense of and at the request of the Company, the Bank shall
maintain an adequate supply of blank share certificates for each Fund
providing for the issuance of certificates to meet the Bank's
requirements therefor. Such share certificates shall be properly signed
by facsimile. The Company agrees that, notwithstanding the death,
resignation, or removal of any officer of the Company whose signature
appears on such certificates, the Bank may continue to countersign
certificates which bear such signatures until otherwise directed by the
Company. Share certificates may be issued and accounted for entirely by
the Bank and do not require any third party registrar or other endorsing
party.
(x) Issue replacement share certificates in lieu of certificates which
have been lost, stolen, mutilated or destroyed, without any further
action by the Board of Directors or any officer of the Company, upon
receipt by the Bank of properly executed affidavits and lost certificate
bonds, in form satisfactory to the Bank with the Company and the Bank as
obligees under the bond. At the discretion of the Bank, and at its sole
risk, the Bank may issue replacement certificates without requiring the
affidavits and
3
<PAGE>
lost certificate bonds described above and the Bank agrees to indemnify
the Company against any and all losses or claims which may arise by
reason of the issuance of such new certificates in the place of the ones
allegedly lost, stolen or destroyed.
(xi) Record the issuance of Shares of the Company and maintain, pursuant
to Rule 17Ad-10(e) under the 1934 Act, a record of the total number of
Shares of the Company which are authorized, based upon data provided to
it by the Company or its agents, and issued and outstanding. The Bank
shall also provide the Company on a regular basis with the total number
of Shares which are authorized and issued and outstanding and shall have
no obligation, when recording the issuance of Shares, to monitor the
issuance of such Shares or to take cognizance of any laws relating to the
issue or sale of such Shares, which functions shall be the sole
responsibility of the Company.
(b) In addition to and not in lieu of the services set forth in the above
paragraph (a) or in any Schedule hereto, the Bank shall: (i) perform all of
the customary services of a transfer agent, dividend disbursing agent and, as
relevant, agent in connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or periodic
withdrawal program); including but not limited to maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, receiving and
tabulating proxies, mailing Shareholder reports and prospectuses to current
Shareholders, preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions by
federal authorities for all Shareholders, preparing and transmitting
confirmation forms and statements of account to Shareholders for all purchases
and redemptions of Shares and other confirmable transactions in Shareholder
accounts (in accordance with the Purchase and Redemption Procedures set forth in
Appendix I attached hereto), responding to Shareholder telephone calls and
Shareholder correspondence, preparing and mailing activity statements for
Shareholders, and providing Shareholder account information; and (ii) provide a
system which will enable the Company to monitor the total number of shares sold
in each State. The Company shall (i) identify to the Bank in writing those
transactions and assets to be treated as exempt from blue sky reporting for
each State and (ii) verify the establishment of transactions for each State on
the system prior to activation and thereafter monitor the daily activity for
each State. The responsibility of the Bank for a Fund's blue sky state
registration status is solely limited to the initial establishment of
transactions subject to blue sky compliance by such Fund(s) and the reporting of
such transactions to the Fund(s) as provided above.
(c) Additionally, the Bank shall utilize a system to identify all share
transactions which involve purchase and redemption orders that are processed at
a time other than the time of the computation of net asset value per share next
computed after receipt of such orders, and shall compute the net effect upon the
Fund(s) of such transactions so identified on a daily and cumulative basis.
(d) The Bank shall perform its services hereunder in accordance with the
Purchase and Redemption Procedures set forth in Appendix I attached hereto.
4
<PAGE>
ARTICLE 2. Sale of Company Shares
- ---------- ----------------------
2.01 Whenever the Company shall sell or cause to be sold any Shares of a Fund,
the Company or its agents, or the shareholder or its agent shall deliver or
cause to be delivered to the Bank a document duly specifying: (i) the name of
the Fund whose Shares were sold; (ii) the number of Shares sold, trade date,
and price; (iii) the amount of money to be delivered to the Custodian for the
sale of such Shares and specifically allocated to such Fund; and (iv) in the
case of a new account, a new account application or sufficient information to
establish an account.
2.02 The Bank will, upon receipt by it of a check or other payment identified
by it as an investment in Shares of one of the Funds and drawn or endorsed to
the Bank as agent for, or identified as being for the account of, one of the
Funds, promptly deposit such check or other payment to the appropriate account
postings necessary to reflect the investment. The Bank will notify the Company,
or its designee, and the Custodian of all purchases and related account
adjustments.
2.03 Under procedures as established by mutual agreement between the Company
and the Bank, the Bank shall issue to the purchaser or his authorized agent such
Shares, computed to the nearest three decimal points, as he is entitled to
receive, based on the appropriate net asset value of the Funds' Shares,
determined in accordance with the prospectus and applicable Federal law or
regulation. In issuing Shares to a purchaser or his authorized agent, the Bank
shall be entitled to rely upon the latest directions, if any, previously
received by the Bank from the purchaser or his authorized agent concerning the
delivery of such Shares.
2.04 The Bank shall not be required to issue any Shares of the Company where
it has received a written instruction from the Company or written notification
from any appropriate Federal or State authority that the sale of the Shares of
the Fund(s) in question has been suspended or discontinued, and the Bank shall
be entitled to rely upon such written instructions or written notification.
2.05 Upon the issuance of any Shares of any Fund(s) in accordance with
foregoing provisions of this Section, the Bank shall not be responsible for the
payment of any original issue or other taxes, if any, required to be paid by the
Company in connection with such issuance.
2.06 The Bank may establish such additional rules and regulations governing
the transfer or registration of Shares as it may deem advisable and consistent
with such rules and regulations generally adopted by transfer agents, or with
the written consent of the Company, any other rules and regulations.
ARTICLE 3. Returned Checks
- ----------- ---------------
3.01 In the event that any check or other order for the transfer of money is
returned unpaid for any reason, the Bank will take such steps as the Bank may,
in its discretion, deem appropriate to protect the Company from financial loss
or as the Company or its designee may instruct. Provided that the standard
procedures, as agreed upon from time to time, between the Company and the Bank,
regarding purchases and redemptions of Shares, are adhered to by the Bank, the
5
<PAGE>
Bank shall not be liable for any loss suffered by a Fund as a result of returned
or unpaid purchase or redemption transactions. Legal or other expenses incurred
to collect amounts owed to a Fund as a consequence of returned or unpaid
purchase or redemption transactions shall be an expense of the Company.
ARTICLE 4. Redemptions
- ----------- -----------
4.01 Shares of any Fund may be redeemed in accordance with the procedures set
forth in Appendix I attached hereto and the Bank will duly process all
redemption requests.
ARTICLE 5. Transfers and Exchanges
- ----------- -----------------------
5.01 The Bank is authorized to review and process transfers of Shares of each
Fund, exchanges between Funds on the records of the Funds maintained by the
Bank, and exchanges between the Company and any other entity as may be permitted
by the Prospectus of the Company. If Shares to be transferred are represented
by outstanding certificates, the Bank will, upon surrender to it of the
certificates in proper form for transfer, and upon cancellation thereof,
countersign and issue new certificates for a like number of Shares and deliver
the same. If the Shares to be transferred are not represented by outstanding
certificates, the Bank will, upon an order therefor by or on behalf of the
registered holder thereof in proper form, credit the same to the transferee on
its books. If Shares are to be exchanged for Shares of another Fund, the Bank
will process such exchange in the same manner as a redemption and sale of
Shares, except that it may in its discretion waive requirements for information
and documentation.
ARTICLE 6. Right to Seek Assurances
- ----------- ------------------------
6.01 Subject to compliance with the 1940 Act, the Bank reserves the right to
refuse to transfer or redeem Shares until it is satisfied that the requested
transfer or redemption is legally authorized, and it shall incur no liability
for the refusal, in good faith, to make transfers or redemptions which the
Bank, in its judgment, deems improper or unauthorized, or until it is satisfied
that there is no basis for any claims adverse to such transfer or redemption.
The Bank may, in effecting transfers, rely upon the provisions of the Uniform
Act for the Simplification of Fiduciary Security Transfers or the Uniform
Commercial Code, as the same may be amended from time to time, which in the
opinion of Company legal counsel or of its own legal counsel approved by the
Company which approval will not be unreasonably withheld, protect it in not
requiring certain documents in connection with the transfer or redemption of
Shares of any Fund, and the Company shall indemnify the Bank for any act done
or omitted by it in reliance upon such laws or opinions of Company counsel or
its own counsel.
ARTICLE 7. Distributions
- ----------- -------------
7.01 The Company or its agent will promptly notify the Bank of the
declaration of any dividend or distribution. The Company shall furnish to the
Bank a resolution of the Board of Directors of the Company certified by an
officer of the Company (a "Certificate"): (i) authorizing the declaration of
dividends on a specified periodic basis and authorizing the Bank to rely on a
6
<PAGE>
Certificate specifying the date of the declaration of such dividend or
distribution, the date of payment thereof, the record date as of which
Shareholders entitled to payment shall be determined and the amount payable per
share to Shareholders of record as of the date and the total amount payable to
the Bank on the payment date; or (ii) setting forth the date of the declaration
of any dividend or distribution by a Fund, the date of payment thereof, the
record date as of which Shareholders entitled to payment shall be determined,
and the amount payable per share to the Shareholders of record as of that date
and the total amount payable to the Bank on the payment date.
7.02 The Bank, on behalf of the Company, shall instruct the Custodian to
place in a dividend disbursing account funds equal to the cash amount of any
dividend or distribution to be paid out. The Bank will calculate, prepare and
credit such dividend or distribution to the account of, Fund Shareholders, and
maintain and safeguard all underlying records.
7.03 The Bank will replace lost checks at its discretion and in conformity
with regular business practices.
7.04 The Bank will maintain all records necessary to reflect the crediting of
dividends which are reinvested in Shares of the Company, including without
limitation daily dividends.
7.05 The Bank shall not be liable for any improper payments made in
accordance with a resolution of the Board of Directors of the Company.
7.06 If the Bank shall not receive from the Custodian sufficient cash to make
payment to all Shareholders of the Company as of the record date, the Bank
shall, upon notifying the Company, withhold payment to all Shareholders of
record as of the record date until such sufficient cash is provided to the Bank.
ARTICLE 8. Other Duties
- ----------- ------------
8.01 In addition to the duties expressly provided for herein, the Bank shall
perform such other duties and functions and shall be paid such amounts therefor
as may from time to time be agreed to in writing.
ARTICLE 9. Taxes
- ----------- -----
9.01 It is understood that the Bank shall file such appropriate information
returns concerning the payment of dividends and capital gain distributions and
tax withholding with the proper Federal, State and local authorities as are
required by law to be filed by the Company and shall withhold such sums as are
required to be withheld by applicable law.
ARTICLE 10. Books and Records
- ---------- -----------------
10.01 The Bank shall maintain confidential records showing for each
Shareholder's account the following: (i) names, addresses and tax identification
numbers; (ii) numbers of Shares held;
7
<PAGE>
(iii) historical information (as available from prior transfer agents) regarding
the account of each Shareholder, including dividends paid and date and price of
all transactions on a Shareholder's account; (iv) any stop or restraining order
placed against a Shareholder's account; (v) information with respect to
withholdings; (vi) any capital gain or dividend reinvestment order, plan
application, dividend address and correspondence relating to the current
maintenance of a Shareholder's account; (vii) certificate numbers and
denominations for any Shareholders holding certificates; (viii) any information
required in order for the Bank to perform the calculations contemplated or
required by this Agreement; and (ix) such other information and data as may be
required by applicable law.
10.02 Any records required to be maintained by Rule 31a-1 under the 1940 Act
will be preserved for the periods prescribed in Rule 31a-2 under the 1940 Act.
Such records may be inspected by the Company at reasonable times and shall be
the property of the Company. The Bank may, at its option at any time, and shall
forthwith upon the Company's demand, turn over to the Company and cease to
retain in the Bank's files, records and documents created and maintained by the
Bank in performance of its service or for its protection. At the end of the
six-year retention period, such periods and documents will either be turned over
to the Company, or destroyed in accordance with the Company's authorization.
10.03 Procedures applicable to the services to be performed hereunder may be
established from time to time by agreement between the Company and the Bank.
The Bank shall have the right to utilize any shareholder accounting and
recordkeeping systems which, in its opinion, qualifies to perform any services
to be performed hereunder. The Bank shall keep records relating to the services
performed hereunder, in the form and manner as it may deem advisable.
ARTICLE 11. Fees and Expenses.
- ------------ -----------------
11.01 For performance by the Bank pursuant to this Agreement, the Company
agrees to pay the Bank an annual maintenance fee for each Shareholder account as
set out in the initial fee schedule attached hereto. Such fees and out-of-
pocket expenses and advances identified under Section 11.02 below may be changed
from time to time subject to mutual written agreement between the Company and
the Bank.
11.02 In addition to the fee paid under Section 11.01 above, the Company
agrees to reimburse the Bank for out-of-pocket expenses or advances incurred by
the Bank for the items set out in the fee schedule attached hereto. In
addition, any other expenses incurred by the Bank at the request or with the
consent of the Company including, without limitation, any equipment or supplies
specifically ordered by the Company or required to be purchased by the Company,
will be reimbursed by the Company.
11.03 The Company agrees to pay all fees and reimbursable expenses within
thirty days following the mailing of the respective billing notice. Postage for
mailing of dividends, proxies, Fund reports and other mailings to all
shareholder accounts shall be advanced to the Bank by the Company at least seven
(7) days prior to the mailing date of such material.
8
<PAGE>
ARTICLE 12. Representations and Warranties of the Bank
- ------------ ------------------------------------------
The Bank represents and warrants to the Company that:
12.01 It is a trust company duly organized and existing and in good standing
under the laws of the Commonwealth of Massachusetts.
12.02 It is empowered under applicable laws and by its charter and by-laws to
enter into and perform this Agreement.
12.03 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
12.04 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
ARTICLE 13. Representations and Warranties of the Company
- ----------- ---------------------------------------------
The Company represents and warrants to the Bank that:
13.01 It is a corporation duly organized and existing and in good standing
under the laws of the State of its incorporation as set forth in the preamble
hereto.
13.02 It is empowered under applicable laws and by its charter documents and
by-laws to enter into and perform this Agreement.
13.03 All proceedings required by said charter documents and by-laws have
been taken to authorize it to enter into and perform this Agreement.
13.04 It is an open-end investment company registered under the 1940 Act.
13.05 A registration statement on Form N-1A (including a prospectus and
statement of additional information) under the Securities Act of 1933 and the
1940 Act is or will be effective and will remain effective, with respect to all
Shares of the Company being offered for sale.
13.06 When Shares are hereafter issued in accordance with the terms of the
Prospectus, such Shares shall be validly issued, fully paid and nonassessable by
the Company.
ARTICLE 14. Indemnification
- ----------- ---------------
14.01 Except as set forth in subparagraph (f) hereof, the Bank shall not be
responsible for, and the Company shall indemnify and hold the Bank harmless from
and against, any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or attributable to:
9
<PAGE>
(a) All actions taken or omitted to be taken by the Bank or its agent or
subcontractors in good faith in reliance on or use by the Bank or its agents or
subcontractors of information, records and documents which (i) are received by
the Bank or its agents or subcontractors and furnished to it by or on behalf of
the Fund(s), (ii) have been prepared and/or maintained by the Company or any
other person or firm on behalf of the Fund(s), and (iii) were received by the
Bank or its agents or subcontractors from a prior transfer agent.
(b) Any action taken or omitted to be taken by the Bank in connection with
its appointment in good faith in reliance upon any law, act, regulation or
interpretation of the same even though the same may thereafter have been
altered, changed, amended or repealed.
(c) The Company's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Company's lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Company hereunder.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests, whether written or oral, of the
Company.
(e) The offer or sale of Shares by the Company in violation of any
requirement under the federal securities laws or regulations or the securities
laws or regulations of any State that such Shares be registered in such State or
in violation of any stop order or other determination or ruling by any federal
agency or any State with respect to the offer or sale of such Shares in such
state.
(f) In addition to any other limitation provided herein, or by law,
indemnification under this Agreement shall not apply to actions or omissions of
the Bank or its directors, officers, employees, agents or subcontractors in
cases of its own gross negligence, willful misconduct, bad faith, reckless
disregard of its duties or their own duties hereunder, knowing violation of law
or fraud.
14.02 The Bank shall indemnify and hold the Fund(s) harmless from and against
any and all losses, damages, costs, charges, counsel fees, payments, expenses
and liability arising out of or attributed to any action or failure or omission
to act by the Bank as a result of the Bank's lack of good faith, negligence,
willful misconduct, knowing violation of law or fraud.
14.03 At any time the Bank may apply to any officer of the Company for
instructions, or to act upon the advice of Fund counsel or independent counsel
of its own selection and approved by the Fund which approval will not be
unreasonably withheld, with respect to any matter arising in connection with the
services to be performed by the Bank under this Agreement, and the Bank and its
agents or subcontractors shall not be liable and shall be indemnified by the
Company for any action taken or omitted by it in reliance upon such
instructions or upon opinion of such counsel except for a knowing violation of
law. The Bank shall be protected and indemnified in acting upon any paper or
document furnished by or on behalf of the Fund(s), reasonably believed to be
genuine and to have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided the Bank or its
agents or subcontractors by
10
<PAGE>
machine readable input, telex, CRT data entry or other similar means authorized
by the Fund(s), and shall not be held to have notice of any change of authority
of any person, until receipt of written notice thereof from the Fund(s). The
Bank shall also be protected and indemnified in recognizing stock certificates
which are reasonably believed to bear the proper manual or facsimile signatures
of an officer of the Company, and one proper countersignature of any former
transfer agent or registrar, or of a co-transfer agent or co-registrar.
14.04 In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, interruption of
electrical power or other utilities, equipment or transmission failure or damage
reasonably beyond its control, or other causes reasonably beyond its control,
such party shall not be liable to the other for any damages resulting from such
failure to perform or otherwise from such causes.
14.05 Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any act or
failure to act hereunder as contemplated by this Agreement.
14.06 In order that the indemnification provisions contained in this Article
14 shall apply, upon the assertion of a claim for which either party may be
required to indemnify the other, the party seeking the indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent, which consent shall not be unreasonably
withheld.
ARTICLE 15. Covenants of the Company and the Bank
- ---------- -------------------------------------
15.01 The Company shall promptly furnish to the Bank the following:
(a) A certified copy of the resolution of the Directors of the Company
authorizing the appointment of the Bank and the execution and delivery of this
Agreement.
(b) A copy of the charter documents and by-laws of the Company and all
amendments thereto.
(c) Copies of each vote of the Directors designating authorized persons to
give instructions to the Bank, and a Certificate providing specimen signatures
for such authorized persons.
(d) Certificates as to any change in any officer or Director of the
Company.
(e) If applicable a specimen of the certificate of Shares in each Fund of
the Company in the form approved by the Directors, with a Certificate as to
such approval.
11
<PAGE>
(f) Specimens of all new certificates for Shares, accompanied by the
Directors' resolutions approving such forms.
(g) All Participation Agreements or account application forms and other
documents relating to shareholder accounts or relating to any plan, program or
service offered by the Company.
(h) A list of all Shareholders of the Fund(s) with the name, address and
tax identification number of each Shareholder, and the number of Shares of the
Fund(s) held by each, certificate numbers and denominations ( if any
certificates have been issued), lists of any account against which stops have
been placed, together with the reasons for said stops, and the number of Shares
redeemed by the Fund(s).
(i) An opinion of counsel for the Company with respect to the validity of
the Shares and the status of such Shares under the Securities Act of 1933.
(j) Copies of the Fund(s) registration statement on Form N-1A as amended
and declared effective by the Securities and Exchange Commission and all post-
effective amendments thereto.
(k) Such other certificates, documents or opinions as may mutually be
deemed necessary or appropriate for the Bank in the proper performance of its
duties.
15.02 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Company for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
15.03 The Bank shall keep records relating to the services to be performed
hereunder, as required by the 1940 Act and in the form and manner as it may deem
advisable. To the extent required by Section 31 of the 1940 Act and the Rules
thereunder, the Bank agrees that all such records prepared or maintained by the
Bank relating to the services to be performed by the Bank hereunder are the
confidential property of the Company and will be preserved, maintained and made
available in accordance with such Section and Rules, and will be surrendered to
the Company on and in accordance with its request.
15.04 The Bank and the Company agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except as may be required by law.
15.05 In case of any requests or demands for the inspection of the
Shareholder records of the Company, the Bank will endeavor to notify the Company
and to secure instructions from an authorized officer of the Company as to such
instruction. The Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
12
<PAGE>
ARTICLE 16. Term of Agreement
- ------------ -----------------
16.01 This Agreement shall become effective on the date hereof (the "
Effective Date") and shall continue in effect for twelve months from the
Effective Date ( the "Initial Term") and from year to year thereafter with
respect to each Fund, provided that subsequent to the Initial Term, this
Agreement may be terminated by either party at any time without payment of any
penalty upon ninety (90) days written notice to the other.
16.02 Should the Company exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne by
the Company. Additionally, the Bank reserves the right to charge for any other
reasonable expenses associated with such termination.
ARTICLE 17. Additional Funds
- ------------ ----------------
17.01 In the event that the Company establishes one or more series of Shares
in addition to the initial series with respect to which it desires to have the
Bank render services as transfer agent under the terms hereof, it shall so
notify the Bank in writing, and if the Bank agrees in writing to provide such
services, such series of Shares shall become a Fund hereunder.
ARTICLE 18. Assignment
- ------------ ----------
18.01 Except as provided in Section 18.03 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party without the
written consent of the other party.
18.02 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
18.03 The Bank, may without further consent on the part of the Company,
subcontract for the performance of any of the services to be provided hereunder
to third parties, including any affiliate of the Bank, provided that the Bank
shall remain liable hereunder for any acts or omissions of any subcontractor as
if performed by the Bank.
ARTICLE 19. Amendment
- ------------ ---------
19.01 This Agreement may be amended or modified by a written agreement
executed by both parties.
ARTICLE 20. Massachusetts Law to Apply
- ------------ --------------------------
20.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
13
<PAGE>
ARTICLE 21. Merger of Agreement and Severability
- ------------ ------------------------------------
21.01 This Agreement, including all exhibits or appendices thereto,
constitutes the entire agreement between the parties hereto and supersedes any
prior agreement with respect to the subject hereof whether oral or written.
21.02 In the event any provision of this Agreement shall be held
unenforceable or invalid for any reason, the remainder of the Agreement shall
remain in full force and effect.
21.03 This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original; but such counterparts shall together,
constitute only one instrument.
ARTICLE 22. Notices
- ----------- -------
22. 01 Any notice or other instrument in writing authorized or required by
this Agreement to be given to either party hereto will be sufficiently given if
addressed to such party and mailed or delivered to it at its office at the
address set forth below:
For the Fund(s): M Fund, Inc.
River Park Center
205 S. E. Spokane Street
Portland, Oregon 97202
Attention: President
For the Bank: Investors Bank & Trust Company
P.O. Box 1537
Boston, Massachusetts 02205-1537
Attention: Counsel
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and the year first above written.
M Fund, Inc.
_____________________________________
Name:
Title:
ATTEST:
________________________
Investors Bank & Trust Company
_____________________________________
Name:
Title:
ATTEST:
_______________________
DATE: _________________
15
<PAGE>
Exhibit 9(B)
------------
Administration Agreement between M Fund, Inc. and
Investors Bank & Trust Company
<PAGE>
ADMINISTRATION AGREEMENT
Between
M FUND, INC.
and
INVESTORS BANK & TRUST COMPANY
<PAGE>
ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT is made as of ____________, 1995 by and
between M FUND, INC., a corporation organized under the laws of Maryland (the
"Fund"), and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company
("Investors Bank").
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act")
currently consisting of four separate portfolios; and
WHEREAS, the Fund desires to retain Investors Bank to render certain
administrative services to the Fund and Investors Bank is willing to render such
services;
WITNESSETH:
NOW, THEREFORE, in consideration of the mutual covenants herein set forth,
it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints Investors Bank to act as
------------
Administrator of the Fund on the terms set forth in this Agreement. Investors
Bank accepts such appointment and agrees to render the services herein set forth
for the compensation herein provided.
2. Delivery of Documents. The Fund has furnished or will furnish
----------------------
Investors Bank with copies properly certified or authenticated of each of the
following:
(a) Resolutions of the Fund's Board of Directors authorizing the
appointment of Investors Bank to provide certain administrative services to the
Fund and approving this Agreement;
(b) The Fund's incorporating documents as filed with the state of Maryland
all amendments thereto (the "Articles");
(c) The Fund's by-laws and all amendments thereto (the "By-Laws");
(d) The Fund's agreements with all service providers which include any
investment advisory agreements, sub-investment advisory agreements, custody
agreements, distribution agreements and transfer agency agreements
(collectively, the "Agreements");
(e) The Fund's most recent Registration Statement on Form N-1A (the
"Registration Statement") under the Securities Act of 1933 and under the 1940
Act and all amendments thereto; and
<PAGE>
2
(f) The Fund's most recent prospectus and statement of additional
information (the "Prospectus");
(g) Participation Agreements entered into by the Fund; and
(h) Such other certificates, documents or opinions as may mutually be
deemed necessary or appropriate for Investors Bank in the proper performance of
its duties hereunder.
The Fund will immediately furnish Investors Bank with copies, properly
certified or authenticated, of all amendments of or supplements to the
foregoing. Furthermore, the Fund will notify Investors Bank as soon as possible
of any matter materially affecting the performance of Investors Bank of its
services under this Agreement.
3. Duties of Administrator. Subject to the supervision and direction of
------------------------
the Board of Directors of the Fund, Investors Bank, as Administrator, will
assist in supervising various aspects of the Fund's administrative operations
and undertakes to perform the following specific services:
(a) Maintaining office facilities (which may be in the offices of
Investors Bank or a corporate affiliate);
(b) Furnishing internal executive and administrative services and clerical
services;
(c) Furnishing corporate secretarial services including preparation and
distribution of materials for Board of Directors meetings;
(d) Accumulating information for and, subject to approval by the Fund's
treasurer and legal counsel, coordination of the preparation, filing, printing
and dissemination of reports to the Fund's shareholders of record and the SEC
including, but not necessarily limited to, post-effective amendments to the
Fund's registration statement, annual reports, semiannual reports, Form N-SAR,
24f-2 notices and proxy material;
(e) Participating in the preparation and filing of various reports or
other documents required by federal, state and other applicable laws and
regulations, other than those filed or required to be filed by the Fund's
investment adviser or transfer agent;
(f) Coordinating the preparation and filing of the Fund's tax returns;
(g) Other services as may be detailed as an appendix to this Agreement.
In performing all services under this Agreement, Investors Bank shall act
in conformity with the Fund's Articles and By-Laws and the 1940 Act, as the same
may be amended from time to time; and the investment objectives, investment
policies and other practices and policies set forth in the Fund's Registration
Statement, and in conformity with the Purchase and Redemption Procedures set
forth in Appendix I attached hereto, as the same may be amended from time to
time. Notwithstanding any item discussed herein, Investors Bank has no
discretion over the
<PAGE>
3
Fund's assets or choice of investments and cannot be held liable for any problem
relating to such investments.
4. Fees and Expenses.
------------------
(a) For the services to be rendered and the facilities to be furnished by
Investors Bank, as provided for in this Agreement, the Fund will compensate
Investors Bank in accordance with the fee schedule attached hereto. Such fees
do not include out-of-pocket disbursements (as delineated on the fee schedule or
other expenses with the prior approval of the Fund's management) of the
Administrator for which the Administrator shall be entitled to bill separately.
(b) Investors Bank shall not be required to pay any expenses incurred by
the Fund.
5. Limitation of Liability.
------------------------
(a) Investors Bank, its directors, officers, employees and agents shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the performance of its obligations and
duties under this Agreement, except a loss resulting from willful misfeasance,
bad faith or gross negligence in the performance of such obligations and duties,
or by reason of its reckless disregard thereof. The Fund will indemnify
Investors Bank, its directors, officers, employees and agents against and hold
it and them harmless from any and all losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) resulting from any
claim, demand, action or suit arising out of this Agreement and not resulting
from the willful misfeasance, bad faith or gross negligence of Investors Bank in
the performance of such obligations or duties or by reason of its reckless
disregard thereof.
(b) Investors Bank may apply to the Fund at any time for instructions and
may consult counsel for the Fund, or counsel of its own selection and approved
by the Fund which approval may not be unreasonably withheld, and with
accountants with respect to any matter arising in connection with its duties
hereunder, and Investors Bank shall not be liable or accountable for any action
taken or omitted by it in good faith in accordance with such instruction, or
with the opinion of such counsel or accountants. Investors Bank shall be
protected in acting upon any document, certificate or instrument which it
reasonably believes to be genuine and to be signed or presented by the proper
person or persons. Investors Bank shall not be held to have notice of any
change of authority of any officers, employees, or agents of the Fund until
receipt of written notice thereof has been received from the Fund.
6. Termination of Agreement.
------------------------
(a) This Agreement shall become effective on the date hereof and shall
remain in force unless terminated pursuant to the provisions of subsection (b)
of this Section 6, provided however that Section 5 shall survive the
termination of the Agreement.
(b) This Agreement may be terminated at any time without payment of any
penalty, upon 60 days written notice, by the Fund, or by Investors Bank.
<PAGE>
4
7. Miscellaneous.
--------------
(a) Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Fund or Investors Bank shall be sufficiently given
if addressed to that party and received by it at its office set forth below or
at such other place as it may from time to time designate in writing.
To the Fund: M Fund, Inc.
River Park Center
205 S. E. Spokane Street
Portland, Oregon 97202
Attention: President
To Investors Bank: Investors Bank & Trust Company
89 South Street
Boston, MA 02111
Attention: Counsel
(b) This Agreement shall extend to and shall be binding upon the parties
hereto and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable without the written consent of the other
party.
(c) This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts.
(d) This Agreement may be executed in any number of counterparts each
of which shall be deemed to be an original and which collectively shall be
deemed to constitute only one instrument.
(e) The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
8. Confidentiality. All books, records, information and data pertaining
----------------
to the business of the other party which are exchanged or received pursuant to
the negotiation or the carrying out of this Agreement shall remain
confidential, and shall not be voluntarily disclosed to any other person, except
as may be required in the performance of duties hereunder or as otherwise
required by law.
9. Use of Name. The Fund shall not use the name of Investors Bank or any
-----------
of its affiliates in any prospectus, sales literature or other material relating
to the Fund in a manner not approved by the Bank prior thereto in writing;
provided however, that the approval of the Bank shall not be required for any
use of its name which merely refers in accurate and factual terms to its
appointment hereunder or which is required by the Securities and Exchange
Commission or any
<PAGE>
5
state securities authority or any other appropriate regulatory, governmental or
judicial authority; provided further, that in no event shall such approval be
----------------
unreasonably withheld or delayed.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed and delivered by their duly authorized officers as of the date
first written above.
M Fund, Inc.
By:
-----------------------------
Name:
Title:
ATTEST:
- -----------------------------
Investors Bank & Trust Company
By:
-----------------------------
Name:
Title:
ATTEST:
- -----------------------------
Date:
-------------
<PAGE>
Exhibit 10
----------
Opinion and Consent of Counsel as to the
Legality of the Securities Being Issued
<PAGE>
December 15, 1995
Board of Directors
M Fund, Inc.
River Park Center
205 S.E. Spokane Street
Portland, OR 97202
Ladies and Gentlemen:
We have served as counsel to M Fund, Inc. (the "Corporation") in
connection with the registration of an indefinite number of shares of its common
stock, $0.001 per share par value, in four classes, the Edinburgh Overseas
Equity Fund, Turner Core Growth Fund, Frontier Capital Appreciation Fund and the
Enhanced U.S. Equity Fund (the "Shares") on Form N-1A under the Securities Act
of 1933 and pursuant to Rule 24f-2 under the Investment Company Act of 1940. In
so acting we have made such examination of the law and examined such records and
documents, including the materials relating to the foregoing registration
statement, as we have deemed appropriate to render the opinion expressed below.
Based on our review of the relevant materials, it is our opinion that
the Shares, when issued by the Corporation in accordance with the prospectus
contained in the registration statement, will be legally issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
registration statement and to the use of our name under the caption "Legal
Matters" in the Statement of Additional Information contained in the
registration statement.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN
By /s/Frederick R. Bellamy
---------------------------
Frederick R. Bellamy
<PAGE>
Exhibit 11(B)
-------------
Consent of Sutherland, Asbill & Brennan
<PAGE>
December 15, 1995
Board of Directors
M Fund, Inc.
River Park Center
205 S.E. Spokane Street
Portland, Oregon 97202
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Statement of Additional Information filed as part of Pre-
Effective Amendment No. 1 to the registration statement on Form N-1A for the M
Fund, Inc. (File No. 33-95472). 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
Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL &
BRENNAN
By: /s/ Frederick R. Bellamy
------------------------
Frederick R. Bellamy
<PAGE>
Exhibit 17
----------
Powers of Attorney
<PAGE>
TAB Q
LIMITED POWER OF ATTORNEY
WITH RESPECT TO M FUND, INC.
Know all men by these presents that Neil Goldschmidt, whose signature
appears below, hereby constitutes and appoints Daniel F. Byrne and David W.
Schutt, and each of them, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any registration
statements and amendments thereto for M Fund, Inc., and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitutes, may do or cause to be done
by virtue hereof.
/s/ Neil Goldschmidt
-----------------------------------
Neil Goldschmidt
Director
M Fund, Inc.
November 20, 1995
<PAGE>
TAB Q
LIMITED POWER OF ATTORNEY
WITH RESPECT TO M FUND, INC.
Know all men by these presents that Jerry Bidwell, whose signature
appears below, hereby constitutes and appoints Daniel F. Byrne and David W.
Schutt, and each of them, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any registration
statements and amendments thereto for M Fund, Inc., and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitutes, may do or cause to be done
by virtue hereof.
/s/ Jerry Bidwell
-----------------------------
Jerry Bidwell
Director
M Fund, Inc.
November 20, 1995
<PAGE>
TAB Q
LIMITED POWER OF ATTORNEY
WITH RESPECT TO M FUND, INC.
Know all men by these presents that Philip Halpern, whose signature
appears below, hereby constitutes and appoints Daniel F. Byrne and David W.
Schutt, and each of them, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any registration
statements and amendments thereto for M Fund, Inc., and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitutes, may do or cause to be done
by virtue hereof.
/s/ Philip Halpern
--------------------------------
Philip Halpern
Director
M Fund, Inc.
November 20, 1995
<PAGE>
TAB Q
LIMITED POWER OF ATTORNEY
WITH RESPECT TO M FUND, INC.
Know all men by these presents that David Spungen, whose signature
appears below, hereby constitutes and appoints Daniel F. Byrne and David W.
Schutt, and each of them, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any registration
statements and amendments thereto for M Fund, Inc., and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitutes, may do or cause to be done
by virtue hereof.
/s/ David Spungen
-------------------------------
David Spungen
Director
M Fund, Inc.
November 20, 1995
<PAGE>
TAB Q
LIMITED POWER OF ATTORNEY
WITH RESPECT TO M FUND, INC.
Know all men by these presents that Peter Mullin, whose signature
appears below, hereby constitutes and appoints Daniel F. Byrne, and David W.
Schutt, and each of them, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any registration
statements and amendments thereto for M Fund, Inc., and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitutes, may do or cause to be done
by virtue hereof.
/s/ Peter Mullin
------------------------------
Peter Mullin
Director
M Fund, Inc.
November 20, 1995
<PAGE>
TAB Q
LIMITED POWER OF ATTORNEY
WITH RESPECT TO M FUND, INC.
Know all men by these presents that Daniel F. Byrne, whose signature
appears below, hereby constitutes and appoints David W. Schutt, his attorney-in-
fact, with the power of substitution, for him in any and all capacities, to sign
any registration statements and amendments thereto for M Fund, Inc., and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all
that said attorney-in-fact, or his substitutes, may do or cause to be done by
virtue hereof.
/s/ Daniel F. Byrne
--------------------------------
Daniel F. Byrne
President
M Fund, Inc.
November 20, 1995
<PAGE>
TAB Q
LIMITED POWER OF ATTORNEY
WITH RESPECT TO M FUND, INC.
Know all men by these presents that David W. Schutt, whose signature
appears below, hereby constitutes and appoints Daniel F. Byrne, his attorney-in-
fact, with the power of substitution, for him in any and all capacities, to sign
any registration statements and amendments thereto for M Fund, Inc., and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all
that said attorney-in-fact, or his substitutes, may do or cause to be done by
virtue hereof.
/s/ David W. Schutt
------------------------------
David W. Schutt
Secretary/Treasurer
M Fund, Inc.
November 20, 1995
