<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 1998
File Nos. 33-95472 and 811-9082
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 4
AND
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 5
M FUND, INC.
(Exact Name of Registrant as Specified in Charter)
River Park Center
205 S.E. Spokane Street
Portland, Oregon 97202
(Address of Principal Executive Offices)
(Zip Code)
Registrant's Telephone Number, including Area Code: (503) 232-6960
(Name and Address of Agent for Service)
copies to:
Daniel F. Byrne, President Frederick R. Bellamy, Esquire
M Fund, Inc. Sutherland, Asbill & Brennan LLP
River Park Center 1275 Pennsylvania Avenue, N.W.
205 S.E. Spokane Street Washington, D.C. 20004-2404
Portland, Oregon 97202
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] on May 1, 1998 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Common Stock
================================================================================
<PAGE> 2
M FUND, INC.
FORM N-1A
CROSS REFERENCE SHEET
Part A
ITEM NO. HEADINGS IN PROSPECTUS
1. Cover Page . . . . . . . . . . . . . . . . . . .Cover Page
2. Synopsis . . . . . . . . . . . . . . . . . . . .Introduction
3. Condensed Financial Information . . . . . . . . Financial Highlights
4. General Description of Registrant. . . . . . . .Introduction; Investment
Objectives and Policies;
Management; Investment
Methods and Risks
5. Management of the Funds. . . . . . . . . . . . .Management
6. Capital Stock and Other Securities . . . . . . .Introduction; Performance
Information; Determination
of Net Asset Value;
Offering, Purchase and
Redemption of Shares;
Income Dividends and
Capital Gains
Distributions; Taxes;
Other Information
7. Purchase of Securities Being
Offered. . . . . . . . . . . . . . . . . . . . Offering, Purchase and
Redemption of Shares
8. Redemption or Repurchase . . . . . . . . . . . .Offering, Purchase and
Redemption of Shares
9. Pending Legal Proceedings . . . . . . . . . . .Not applicable
Part B HEADINGS IN STATEMENT OF
ITEM NO. 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 Policies . . . . . . .Special Investment Methods
and Risks; Investment
Restrictions
14. Management of the Fund . . . . . . . . . . . . .Investment Adviser;
Portfolio Managers;
Portfolio Transactions and
Brokerage
15. Control Persons and Principal
Holders of Securities . . . . . . . . . . . .Directors and Officers;
Shares of Stock
<PAGE> 3
16. Investment Advisory and Other
Services . . . . . . . . . . . . . . . . . . .Investment Advisor;
Custody of Assets
17. Brokerage Allocation and Other
Practices . . . . . . . . . . . . . . . . . .Portfolio Transactions and
Brokerage
18. Capital Stock and Other Securities . . . . . . .Shares of Stock
19. Purchase, Redemption and Pricing of
Securities Being Offered . . . . . . . . . . .Determination of Net Asset
Value; Performance
Information
20. Tax Status . . . . . . . . . . . . . . . . . . .Tax Information
21. Underwriters . . . . . . . . . . . . . . . . . .Not applicable.
22. Calculations of Performance
Information . . . . . . . . . . . . . . . . . Performance Information
23. Financial Statements . . . . . . . . . . . . . .Financial Statements
PART C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this Registration Statement.
<PAGE> 4
M FUND
PROSPECTUS
MAY 1, 1998
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 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 May 1, 1998 (the "SAI"),
has been filed with the Securities and Exchange Commission (the "SEC") and is
incorporated herein by reference. The SAI 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 (888)
736-2878.
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 OR ANNUITY POLICIES.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION......................................................................... 3
FINANCIAL HIGHLIGHTS................................................................. 4
INVESTMENT OBJECTIVES AND POLICIES................................................... 5
Edinburgh Overseas Equity Fund.................................................. 5
Turner Core Growth Fund......................................................... 6
Frontier Capital Appreciation Fund.............................................. 6
Enhanced U.S. Equity Fund....................................................... 7
INVESTMENT RESTRICTIONS.............................................................. 7
MANAGEMENT........................................................................... 7
Directors and Officers.......................................................... 7
Investment Adviser.............................................................. 8
Portfolio Managers.............................................................. 9
INVESTMENT METHODS AND RISKS......................................................... 11
Foreign Investments............................................................. 11
Investing in Small-Capitalization Companies..................................... 12
Asset Growth.................................................................... 13
Securities Lending.............................................................. 13
Other Investments............................................................... 13
PERFORMANCE INFORMATION.............................................................. 13
M Fund Performance.............................................................. 13
Private Account Performance..................................................... 14
DETERMINATION OF NET ASSET VALUE..................................................... 16
OFFERING, PURCHASE AND REDEMPTION OF SHARES.......................................... 16
INCOME DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS..................................... 17
TAXES................................................................................ 17
OTHER INFORMATION.................................................................... 18
Reports......................................................................... 18
Voting and Other Rights......................................................... 19
Administrative and Other Services............................................... 20
</TABLE>
2
<PAGE> 6
INTRODUCTION
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 (each a "Fund" and, collectively, the "Funds"),
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.
The Funds are available to the public through the purchase of variable life
insurance and variable annuity policies offered by members of M Financial
Holdings Incorporated, which does business under the name M Financial Group ("M
Financial Group") and issued by certain insurance companies ("Participating
Insurance Companies"). M Financial Group is an independent life insurance
producer group, specializing in the distribution of life insurance to persons of
substantial financial means. The Funds can be selected by policyholders in
addition to other portfolios offered by the Participating Insurance Companies.
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 ("Portfolio Managers") to act as
sub-advisers to provide the day-to-day portfolio management for the respective
Funds.
<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.
Enhanced U.S. Equity Fund Franklin Portfolio Associates LLC
</TABLE>
The Funds' Portfolio Managers have been selected, and are reviewed and
monitored, by the Adviser, whose Board of Directors consists of members from M
Financial Group.
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
accounts through which they are funded.
The Funds' 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.
3
<PAGE> 7
FINANCIAL HIGHLIGHTS
The following selected financial highlights are derived from the Company's
audited financial statements included in the Company's Annual Report to
Shareholders. The financial statements and report of Coopers & Lybrand L.L.P.,
independents accountants, included in the Annual Report to Shareholders for the
Company's fiscal year ended December 31, 1997 are incorporated by reference into
the Statement of Additional Information. The following data should be read in
conjunction with such financial statements, related notes, and other financial
information contained in the Annual Report. The Annual Report contains
additional performance information about the Funds and is available without
charge and upon request by calling (888) 736-2878.
M FUND, INC.
FINANCIAL HIGHLIGHTS
FOR THE PERIODS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EDINBURGH OVERSEAS TURNER CORE FRONTIER CAPITAL ENHANCED U.S.
EQUITY FUND GROWTH FUND APPRECIATION FUND EQUITY FUND
-------------------------- -------------------------- -------------------------- ------------------------
YEAR PERIOD YEAR PERIOD YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 3
1997 1996(a) 1997 1996(a) 1997 1996(a) 1997 1996(a)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 9.88 $ 10.00 $ 11.60 $ 10.00 $ 12.52 $ 10.00 $ 11.85 $ 10.00
------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income
(loss)................ 0.07 0.06 0.04 0.06 0.00 0.00 0.08 0.12
Net realized and
unrealized gain
(loss) on
investments.......... 0.15 (0.12) 3.22 1.94 2.76 3.03 3.78 2.25
------- ------- ------- ------- ------- ------- ------- -------
Total from
investment
operations........ 0.22 (0.06) 3.26 2.00 2.76 3.03 3.86 2.37
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income................ (0.07) (0.06) (0.04) (0.06) -- -- (0.09) (0.12)
In excess of net
investment income...... (0.03) -- -- -- -- -- -- --
From net realized
gains................. -- -- (1.22) (0.34) (0.36) (0.51) (0.53) (0.40)
------- ------- ------- ------- ------- ------- ------- -------
In excess of net
realized capital gains.. -- -- (0.10) -- -- -- -- --
Tax return on capital... (0.04) -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total
distributions.... (0.14) (0.06) (1.36) (.40) (0.36) (0.51) (0.62) (0.52)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
END OF PERIOD.......... $ 9.96 $ 9.88 $ 13.50 $ 11.60 $ 14.92 $ 12.52 $ 15.09 $ 11.85
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN ........... 2.26% (0.63)%* 28.32% 19.99%* 22.13% 30.31%* 32.68% 23.67%*
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000's)........ $ 6,034 $ 3,177 $ 3,820 $ 2,003 $16,628 $ 3,006 $ 7,345 $ 1,582
Net expenses to
average daily
net assets before
interest expense**.... 1.30% 1.30% 0.70% 0.70% 1.15% 1.15% 0.80% 0.80%
Net expenses to
average daily
net assets
after interest
expense**............. 1.30% 1.30% 0.70% 0.78% 1.15% 1.20% 0.80% 0.80%
Net investment income
(loss) to average
daily net assets**.... 0.83% 0.67% 0.34% 0.55% (0.13)% (0.30)% 1.17% 1.43%
Portfolio turnover
rate.................. 74% 65% 206% 258% 61% 140% 52% 79%
Average commission
rate paid***.......... $0.0342 $0.0474 $0.0598 $0.0600 $0.0422 $0.0362 $0.0273 $0.0227
Without the
reimbursement of
expenses by the
adviser, the ratio
of net expenses
and net investment
income (loss) to
average net assets
would have been:
Expenses before
interest expense.. 4.94% 7.34% 6.20% 8.51% 2.86% 8.19% 5.42% 12.45%
Net investment
income (loss)..... (2.81)% (5.37)% (5.16)% (7.26)% (1.84)% (7.34)% (3.45)% (10.22)%
</TABLE>
(a) Funds commenced operations on January 4, 1996
* Not annualized.
** Annualized.
*** Average commission rate paid is computed by dividing the total dollar amount
of commissions paid during the period by the total number of shares
purchased and sold during the period for which commissions were charged.
Amount is computed on a non annualized basis.
4
<PAGE> 8
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 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 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).
The Edinburgh Overseas Equity Fund will hold on average 60 to 100 different
stocks. Under normal market conditions, it will have at least 80% 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
but may maintain temporary cash balances pending investment or for liquidity
purposes.
5
<PAGE> 9
TURNER CORE GROWTH FUND
The Turner Core Growth Fund's investment objective is long-term capital
appreciation through investment in 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 10,000 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 current holdings that fall to the 55th
percentile or below generally will be sold sometime thereafter.
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, with an
individual security constituting no more than 2% of the net asset value of the
Fund (except for issues comprising more than 2% of the S&P 500 Index, in which
case the Turner Core Growth Fund may hold up to 120% of the issues' index
weighting), and will generally contain 100 to 120 holdings. The Fund may retain
a portion of assets in cash or cash equivalents pending investment or for
liquidity purposes.
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 capitalized at less than $3 billion). Importance is placed on
an evaluation of earnings per share, growth and price appreciation potential,
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 unexpectedly high or
low earnings.
The Fund's portfolio is not restricted to any one segment of the market;
however, generally a majority of its portfolio will consist of stocks of small-
to medium-capitalization companies. The Fund's portfolio will typically consist
of 80 to 120 stocks. The Fund may maintain a portion of assets in cash or cash
equivalents pending investment or for liquidity purposes.
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.
6
<PAGE> 10
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
total return higher than that of the S&P 500 at approximately the same level of
investment risk as the S&P 500.
The Fund's Portfolio Manager, Franklin Portfolio Associates LLC ("Franklin
Associates"), uses a quantitative process that seeks to identify those stocks
with the highest expected returns. The Portfolio Manager uses proprietary
software to construct a portfolio which is intended to have similar risk
characteristics to those of the S&P 500. The S&P 500 represents a sampling of
the stocks of the largest U.S. corporations along with stocks of certain foreign
corporations that are publicly traded in the United States.
Valuation models which the Portfolio Manager uses 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 of the company
being analyzed and short-term price momentum). Stocks which fall below the
median ranking in this process are sell candidates. A proprietary optimizer is
used to construct the portfolio. The optimizer is a risk management system
comprised of proprietary software created by Franklin 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
Associates' ranking process 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 Associates' investment process to remain focused on
individual stock selection.
The Fund will contain approximately 150 stocks. Under normal market
conditions, it will have at least 65% of the value of its total assets invested
in equity securities of U.S. based companies. The Fund may maintain a portion of
assets in cash or cash equivalents pending investment or for liquidity purposes.
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 such fundamental 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.
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.
7
<PAGE> 11
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
indirectly owned, in part, by independent participating 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 M Financial Holdings Incorporated,
which does business under the name M Financial Group ("M Financial Group"). M
Financial Group is engaged in providing product development and marketing
support services for participating insurance agents, who, collectively, own a
majority of the outstanding stock of M Financial Group. M Financial Group
receives from insurance carriers compensation based, in part, upon the volume of
insurance premiums generated by its participating agents.
The Adviser, located at River Park Center, 205 S.E. Spokane Street,
Portland, Oregon 97202, began managing the Company at its commencement of
operations (January 4, 1996) but otherwise has no previous experience in
providing investment advisory services.
The Adviser has entered into an investment advisory agreement 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 evaluating the management of
the assets of each of the Funds by the Portfolio Managers. 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 quarterly.
The following annual rates represent total advisory fees for each Fund:
<TABLE>
<CAPTION>
FUND TOTAL ADVISORY FEES
----------------------------------------------- ------------------------------------
<S> <C>
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
Turner Core Growth Fund........................ 0.45%
Frontier Capital Appreciation Fund............. 0.90%
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
</TABLE>
8
<PAGE> 12
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 the advisory fee,
brokerage or other portfolio transaction expenses or expenses for litigation,
indemnification, taxes or other extraordinary expenses) to the extent that such
expenses, as accrued for each Fund through December 31, 1998, 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
December 31, 1997, Edinburgh managed approximately $11.5 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.
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
shareholder of Turner. Turner has provided investment advisory services to
investment companies since 1992. At December 31, 1997, Turner managed
approximately $2.7 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
Financial Analysts of Philadelphia and the 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 December 31, 1997, Frontier managed a total of $3.3 billion.
Michael A. Cavarretta, CFA, is the person primarily responsible for the
day-to-day management of the Fund's investment portfolio. Mr. Cavarretta 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 the past six years.
Prior to attending Harvard
9
<PAGE> 13
Business School, Mr. Cavarretta was employed as a Financial Analyst with General
Electric Company (1981-1986).
FRANKLIN PORTFOLIO ASSOCIATES LLC ("Franklin") is the Portfolio Manager of
the Enhanced U.S. Equity Fund. Franklin's principal business address is Two
International Place, 22nd Floor, Boston, Massachusetts 02110. 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 Limited Liability Company, is a
wholly-owned indirect subsidiary of Mellon Bank Corporation. As of December 31,
1997, Franklin provided investment advisory services with respect to
approximately $10.2 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 over 25 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 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 have applied 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.
10
<PAGE> 14
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 benefits and risks not associated with investments solely in
securities of domestic issuers or U.S. dollar-denominated securities. Each of
the Funds may invest in securities of foreign issuers. The Frontier Capital
Appreciation Fund and the Turner Core Growth Fund may invest up to 10% of the
value of their total assets in securities of foreign issuers that are listed on
United States exchanges or are represented by American Depository Receipts
("ADRs"). 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, the Turner
Core Growth Fund and the Frontier Capital Appreciation 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 Statement 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 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
11
<PAGE> 15
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 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
can be found in the Statement of Additional Information.
Emerging Market Securities. The Edinburgh Overseas Equity Fund may invest
up to 25% of its assets 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). The risks of investing in foreign securities may be intensified in the
case of investments in emerging markets. Emerging markets securities may be less
liquid and more volatile than securities of comparable domestic issuers and have
different clearance and settlement procedures that may not 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 to dispose of portfolio securities due to settlement problems
could result in losses to the Fund.
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 greater risk of nationalization of businesses, restrictions
on foreign ownership, or prohibitions on repatriation of assets, and may have
less protection of property rights than more developed countries. Also, issuers
located in emerging markets may have limited marketability and may be subject to
more abrupt or erratic price movements. A more detailed discussion of the risks
associated with investing in emerging markets can be found in the Statement of
Additional Information.
INVESTING IN SMALL-CAPITALIZATION COMPANIES
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
12
<PAGE> 16
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.
ASSET GROWTH
The Funds' present 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
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
The Statement of Additional Information contains descriptions of these
investments and investment techniques.
PERFORMANCE INFORMATION
M FUND PERFORMANCE
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
13
<PAGE> 17
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 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.
PRIVATE ACCOUNT PERFORMANCE
The Funds have been in operation since January 4, 1996 and have limited
performance records. However, each of the Funds have investment objectives,
policies and strategies that are substantially similar to those employed by the
Funds' Portfolio Managers with respect to certain Private Accounts which they
manage ("Private Accounts"). The performance information derived from these
Private Accounts may be relevant to prospective investors. The Funds'
performance may vary from the respective Private Account information because its
investments will vary from time to time and will not be identical to the past
portfolio investments of the Private Accounts.
The charts below show actual performance information for M Fund and
performance information derived from historical performance of the Private
Accounts of Edinburgh, Turner, Frontier and Franklin. The performance figures
for the Edinburgh Foreign Equity Composite, the Frontier Capital Appreciation
Composite, the Turner Equity Composite and the Franklin Enhanced S&P Composite
represent the actual calendar year performance results of the comparable Private
Accounts net of M Fund management fees. The performance of these Private
Accounts is not M Fund performance and should not be considered as an indication
of the future performance of the respective Funds.
These figures also do not reflect the deduction of any insurance fees or
charges that are imposed in connection with the sale of variable life insurance
and variable annuity policies by the Participating Insurance Companies.
Investors should refer to the separate account prospectus describing the life
14
<PAGE> 18
insurance policies and variable annuity contracts for information pertaining to
these insurance fees and charges.
<TABLE>
<CAPTION>
M FUND PERFORMANCE 1996# 1997 SINCE INCEPTION
---------------------------------------------------- ----- ----- ---------------
<S> <C> <C> <C>
Edinburgh Overseas Equity Fund...................... (0.63)% 2.26% 0.81%
Turner Core Growth Fund............................. 19.99 28.32 24.20
Frontier Capital Appreciation Fund.................. 30.31 22.13 26.27
Enhanced US Equity Fund............................. 23.67 32.68 28.23
</TABLE>
# Fund inception date was January 4, 1996. Since Inception returns are
average annual total returns.
PRIVATE ACCOUNT PERFORMANCE INFORMATION
<TABLE>
<CAPTION>
10 YR/*
SINCE
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 3 YR* 5 YR* INCEPTION**
---- ---- ----- ---- ----- ---- ----- ---- ---- ---- ----- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Edinburgh Fund
Managers/
Edinburgh Foreign
Equity Composite..... --% 21.5% (13.1)% 13.5% (7.7)% 38.8% 1.3% 12.6% 3.9% 2.0% 5.9 % 10.5 % 6.80%**
EAFE Benchmark......... -- 10.4 (23.6) 12.2 (12.2) 32.7 7.8 11.3 6.1 1.6 6.3 11.4 4.0
Turner Investment
Partners/
Turner Equity
Composite............ -- -- -- 50.4 12.2 15.3 (5.3) 29.6 19.3 32.4 27.0 17.5 20.9**
Wilshire 5000 Stock
Index................ -- -- -- 34.2 9.0 11.3 (0.1) 36.5 21.2 31.3 29.5 19.3 19.8
Frontier Capital
Management/
Frontier Capital
Apprecia-
tion Composite....... 24.3 31.8 0.2 27.9 22.2 27.9 3.3 31.7 30.7 19.2 27.0 22.0 21.4
Russell 2500 Stock
Index................ 22.7 19.4 (14.9) 46.7 16.2 16.5 (1.1) 31.7 19.0 24.4 24.9 17.6 16.9
Franklin Portfolio
Associates/ Franklin
Enhanced S&P
Composite............ 15.4 31.6 (1.9) 30.7 6.7 13.5 (0.8) 35.7 22.5 35.5 31.1 20.5 18.1
S&P 500 Stock Index.... 16.5 31.6 (3.1) 30.4 7.6 10.1 1.3 37.5 22.8 33.5 31.1 20.2 18.0
</TABLE>
* 3yr, 5yr, 10yr and Since Inception returns are average annual total returns.
** Inception dates for the Edinburgh Foreign Equity Composite and the Turner
Equity Composite are 12/31/88 and 3/31/90 respectively.
See accompanying Notes to M Fund and Private Account Performance Information.
NOTES TO M FUND AND PRIVATE ACCOUNT INFORMATION
1. Returns for the M Fund are net of management fees and operating
expenses. Returns for the Edinburgh Foreign Equity Composite, the Turner Equity
Composite, the Frontier Capital Appreciation Composite and the Franklin Enhanced
S&P Composite are net of M Fund management fees: 1.05%, 0.45%, 0.90% and 0.55%
respectively. The operating expenses for all Private Accounts, which may be
different from those of M Fund, have been deducted from the returns of the above
referenced composites.
2. Returns of the Private Accounts are based on accounts managed using
substantially similar investment objectives, policies and strategies and are
based on the following: returns for Edinburgh Fund Managers' Private Accounts
are those of the manager's Foreign Equity Composite; returns for Turner
Investment Partners' Private Accounts are those of the Turner Equity Composite;
returns for Frontier Capital Management's Private Accounts are those of the
manager's Capital Appreciation Composite; returns for Franklin Portfolio
Associates' Private Accounts are those of the manager's Enhanced S&P Composite.
15
<PAGE> 19
3. Returns of the Private Accounts are based on accounts with
substantially higher net assets than that of the Funds. The Funds commenced
operations on January 4, 1996 and, therefore, are smaller than the managers'
established accounts.
4. Returns for the Edinburgh Foreign Equity Composite, the Turner Equity
Composite, the Frontier Capital Appreciation Composite and the Franklin Enhanced
S&P Composite are based on accounts that are not subject to certain investment
limitations, diversification requirements, and other restrictions imposed by the
Investment Company Act of 1940, as amended, (the "1940 Act") and the Internal
Revenue Code of 1986, as amended (the "Code"), which, if applicable, may have
adversely affected the performance results.
5. The annual return figures for the Frontier Capital Management's private
accounts for 1995, and the Edinburgh Fund Managers' private accounts for
1992-1996 have been changed from the May 1, 1997 Prospectus. The correct figures
are also reflected in the 3, 5 and 10 year averages. No changes have been made
with respect to the data for M Fund, Inc.
6. The Morgan Stanley Capital International Europe, Australia, and Far
East Index (EAFE) is the arithmetic, market value-weighted average of the
performance of over 900 securities listed on the stock exchanges of 21
countries. It is a widely accepted benchmark for international stock
performance. The Wilshire 5000 Equity Index is a capitalization weighted stock
index representing all domestic common stocks traded regularly on the organized
exchanges. The index is the broadest measure of the aggregate domestic stock
market. The Russell 2500 Index is a capitalization weighted stock index
representing the bottom 500 stocks in the Russell 1000 Index and all stocks in
the Russell 2000. The S&P 500 Stock Index is a capitalization weighted index of
500 large stocks, representing approximately 70% of the broad U.S. equity
market. The stocks represent the largest companies in 88 industries. The S&P 500
Index is calculated on a total return basis, which includes reinvestment of
gross dividends before deduction of withholding taxes.
7. Performance returns for the Private Accounts have been extracted from
performance information that has been prepared and presented in compliance with
the Association for Investment Management and Research (AIMR) Performance
Presentation Standards. Reports on such preparation and presentation are
available to the investor 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 good faith by, or under authority
delegated by, the Board of Directors. See "Determination of Net Asset Value" in
the SAI.
16
<PAGE> 20
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. The Board of Directors may refuse to sell
shares of any Fund to any person, or suspend or terminate the offering of shares
of any Fund if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Board of Directors
acting in good faith, and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Fund.
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.
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 Code, in all events in a
manner consistent with the provisions of 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.
Notice as to the tax status of dividends and distributions will be given to
shareholders (i.e. Participating Insurance Companies) 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
17
<PAGE> 21
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.
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 what 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.
18
<PAGE> 22
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.
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 referred to above); (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 December 31, 1997, the ownership of each Fund was as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF OWNERSHIP
----------------------------------------------------------
NEW YORK
M LIFE JOHN HANCOCK LIFE
INSURANCE VARIABLE LIFE PACIFIC LIFE INSURANCE
CO. INSURANCE CO. INSURANCE CO. COMPANY
--------- ------------- ------------- --------
<S> <C> <C> <C> <C>
Edinburgh Overseas Equity Fund........... 33.7% 56.7% 9.6% 0.0%
Turner Core Growth Fund.................. 40.3% 37.9% 21.8% 0.0%
Frontier Capital Appreciation Fund....... 9.6% 51.6% 38.6% 0.2%
Enhanced U.S. Equity Fund................ 22.3% 6.8% 70.6% 0.3%
</TABLE>
19
<PAGE> 23
DISTRIBUTOR
M Holdings Securities, Inc. acts as the distributor (the "Distributor") for
each of the Funds. The Distributor is a wholly-owned subsidiary of M Financial
Group. The principal executive offices of the Distributor are located at River
Park Center, 205 SE Spokane Street, Portland, Oregon 97202. The Distributor is
registered with the SEC as a broker-dealer under the Securities Exchange Act of
1934 and is a member of the National Association of Securities Dealers ("NASD").
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.
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 200 Clarendon
Street, Boston, Massachusetts 02116.
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.
20
<PAGE> 24
STATEMENT OF ADDITIONAL INFORMATION
M FUND
Edinburgh Overseas Equity Fund
Turner Core Growth Fund
Frontier Capital Appreciation Fund
Enhanced U.S. Equity Fund
May 1, 1998
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 (888) 736-2878.
1
<PAGE> 25
TABLE OF CONTENTS
Page
INTRODUCTION................................................................ 3
SPECIAL INVESTMENT METHODS AND RISKS........................................ 4
Foreign Investments................................................ 4
Restricted and Illiquid Securities................................. 7
Sovereign Debt Obligations - Brady Bonds........................... 8
Fixed-Income Securities............................................ 9
Convertible Securities............................................. 10
Warrants and Rights................................................ 11
Repurchase Agreements.............................................. 11
Borrowing.......................................................... 11
Other Investment Companies......................................... 12
INVESTMENT RESTRICTIONS..................................................... 12
Fundamental Restrictions........................................... 12
Non-Fundamental Restrictions....................................... 13
Interpretive Rules................................................. 15
INVESTMENT ADVISER.......................................................... 16
Investment Advisory Agreement...................................... 16
Expenses of the Company............................................ 16
PORTFOLIO MANAGERS.......................................................... 17
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................ 17
DETERMINATION OF NET ASSET VALUE............................................ 19
PERFORMANCE INFORMATION..................................................... 20
SHARES OF STOCK............................................................. 22
CUSTODY OF ASSETS........................................................... 23
DIRECTORS AND OFFICERS...................................................... 23
TAX INFORMATION............................................................. 29
OTHER INFORMATION........................................................... 29
Financial Statements............................................... 29
Legal Counsel...................................................... 29
Company Name....................................................... 30
Other Information.................................................. 30
APPENDIX A -- DESCRIPTION OF CORPORATE BOND RATINGS.......................A - 1
APPENDIX B -- DESCRIPTION OF COMMERCIAL PAPER RATINGS.....................A - 4
2
<PAGE> 26
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 (each a "Fund" and,
collectively, the "Funds"), 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:
FUND PORTFOLIO MANAGER
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.
Enhanced U.S. Equity Fund Franklin Portfolio Associates LLC
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 has a separate prospectus, which
accompanies the prospectus for the Company (the "Prospectus"), describing that
separate account and the Policies. The prospectus for that separate account and
the Policies, should be read in conjunction with the Company's prospectus.
Terms appearing in this SAI that are defined in the Prospectus have the
same meaning herein as in the Prospectus.
3
<PAGE> 27
SPECIAL INVESTMENT METHODS AND RISKS
FOREIGN INVESTMENTS
Each of the Funds may invest in securities of foreign issuers. 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.
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"). Each of the Funds may invest in ADRs.
ADRs represent the right to receive securities of foreign issuers
deposited in a domestic bank or a foreign correspondent bank. Prices of ADRs are
quoted in U.S. dollars, and ADRs are traded in the 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.
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
4
<PAGE> 28
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. Currency exchange rates 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.
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 anticipates 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 fluctuations in the underlying prices of
the securities. It simply establishes a rate of exchange which a Fund can
achieve at some
5
<PAGE> 29
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.
Upon instructions from the Portfolio Manager, the Fund's custodian will
place cash or liquid securities 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 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 counterparty to such
contract will default on its obligations. Since a forward foreign currency
exchange contract is not guaranteed by an exchange or clearinghouse, a default
on the contract would deprive 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 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 up to 25% of its total assets 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
6
<PAGE> 30
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
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 on 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
be unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of substantial holdings difficult or impossible at
times. 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 price 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, as amended (the "1933 Act")) but
that can be sold to "qualified institutional buyers" in accordance with the
requirements stated in Rule 144A under the 1933 Act ("Rule 144A Securities"). A
Rule 144A Security may be considered illiquid. Investments in illiquid
securities and restricted securities are not anticipated to exceed, in the
aggregate, 5% of a Fund's assets, but see non-fundamental investment
restrictions 12 and 13, respectively, below.
7
<PAGE> 31
The Board of Directors has adopted guidelines and delegated to the
Portfolio Managers the daily function of determining and monitoring the
liquidity of Rule 144A 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 institutional 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.
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 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
8
<PAGE> 32
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
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 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 Rating Service, a division of McGraw-Hill
Companies ("S&P") or Baa or higher by Moody's Investors Service, Inc.
("Moody's")). See 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
9
<PAGE> 33
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 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 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
10
<PAGE> 34
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 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. The Edinburgh
Overseas Equity Fund may only purchase convertible securities rated investment
grade at the time of purchase by S&P or Moody's or if not so rated, considered
by the Fund's Portfolio Manager to be of equivalent investment quality.
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. Warrants and
rights have no voting rights, receive no dividends and have no rights with
respect to the assets of the issuer.
REPURCHASE AGREEMENTS
Each 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 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
11
<PAGE> 35
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 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 indirectly bear its proportionate share of any advisory
fees paid by investment companies in which it invests 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 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
12
<PAGE> 36
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.
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.
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.
13
<PAGE> 37
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, but excluding convertible securities) 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).
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 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
<PAGE> 38
14.Each of the Frontier Capital Appreciation Fund and the Turner Core
Growth Fund may invest no more than 10% of the value of their total assets in
securities of foreign issuers that are listed on United States exchanges or are
represented by American Depository Receipts.
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 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.
15
<PAGE> 39
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 misfeasance, 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 initially 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 re-approved in connection with a change of
control of the Adviser on October 16, 1997. The current advisory agreement is
dated January 3, 1998. It will remain in effect for two years from its effective
date 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
terminable by the Adviser on 90 days' written notice to the Company. For the
year ended December 31, 1997 and the period January 4, 1996 (commencement of
operations) to December 31, 1996, respectively, the Funds incurred the following
amounts as investment advisory fees payable to the Adviser: Edinburgh Overseas
Equity Fund, $51,064 and $25,922; Turner Core Growth Fund, $13,152 and $8,040;
Frontier Capital Appreciation Fund, $79,263 and $17,411; Enhanced U.S. Equity
Fund, $18,371 and $6,289.
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.
16
<PAGE> 40
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.
The Adviser has voluntarily undertaken to pay any such expenses (but
not including the advisory fee, brokerage or other portfolio transaction
expenses or expenses of litigation, indemnification, taxes or other
extraordinary expenses) to the extent that such expenses, as accrued for each
Fund, exceed 0.25% of the Fund's estimated average daily net assets on an annual
basis. In 1997 and 1996, respectively, the Adviser paid the following amounts on
behalf of each Fund: Edinburgh Overseas Equity Fund $176,933 and $146,502;
Turner Core Growth Fund $160,750 and $137,012; Frontier Capital Appreciation
Fund $150,764 and $133,645; Enhanced U.S. Equity Fund $154,486 and $130,220. The
Adviser has extended this same provision through December 31, 1998.
PORTFOLIO MANAGERS
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 Equity Fund 0.90% on the first $10 million
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. For the year ended December 31, 1997 and the period January 4, 1996
(commencement of operations) to December 31, 1996, respectively, the Adviser
paid the Portfolio Managers the following sub-advisory fees: Edinburgh Overseas
Equity Fund - $43,770 and $22,219, Turner Core Growth Fund - $8,768 and $5,360;
Frontier Capital Appreciation Fund - $66,054 and $14,509, Enhanced U.S. Equity
Fund - $13,361 and $4,573.
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.
17
<PAGE> 41
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.
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.
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.
The Funds paid the following brokerage commissions for the year ended
December 31, 1997 and the period January 4, 1996 (commencement of operations) to
December 31, 1996, respectively: Edinburgh Overseas Equity Fund - $28,198 and
$26,916; Turner Core Growth Fund - $12,649 and $12,272; Frontier Capital
Appreciation Fund - $31,995 and $12,880; Enhanced U.S. Equity Fund - $4,552 and
$1,461.
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, excluding securities
having a maturity at the date of purchase of one year or less. For the fiscal
year ended December 31, 1997, the portfolio turnover rates for the Funds were as
follows:
<TABLE>
<CAPTION>
FUND PORTFOLIO TURNOVER RATE
<S> <C>
Edinburgh Overseas Equity Fund 74%
Turner Core Growth Fund 206%
Frontier Capital Appreciation Fund 61%
</TABLE>
18
<PAGE> 42
<TABLE>
<CAPTION>
<S> <C>
Enhanced U.S. Equity Fund 52%
</TABLE>
The Turner Growth Fund's portfolio turnover was high for the
year-ended December 31, 1997 due to the fact that the Portfolio Manager focused
on earnings potential and disposed of securities when earnings potential was
diminished. 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.
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, in accordance with procedures adopted by the Board of
Directors, 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
(usually 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, 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 U.S.
19
<PAGE> 43
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 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 somewhat 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 according to the following formula:
P ( 1 + T ) n = ERV
Where P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the stated period
of a hypothetical $1,000 payment made at the beginning
of the stated 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 total return for a specified period are each derived
by calculating the
20
<PAGE> 44
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 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.
21
<PAGE> 45
The Company may from time to time summarize the substance of
discussions contained in shareholder reports in advertisements 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.
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
Edinburgh Overseas Turner Core Growth Frontier Capital Enhanced U.S Equity
Equity Fund Fund Appreciation Fund Fund
<S> <C> <C> <C> <C>
For the one year ended 2.26% 28.32% 22.13% 32.68%
12/31/97
For the Period 1/4/96* 0.81% 24.20% 26.27% 28.23%
to 12/31/97
</TABLE>
*The Funds commenced operations on January 4, 1996.
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 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.
22
<PAGE> 46
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 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 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:
23
<PAGE> 47
<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 Officer, Mullin
(age 57) Consulting, Inc.
David M. Spungen* Director Director of CMS Capital Management, a division of
(age36) CMS Investment Resources, Inc.
Gerald Bidwell Director President and Chief Executive Officer, Bidwell &
209 SW Oak St. Co.
Portland, OR 97204
(age 54)
Neil E. Goldschmidt Director President, Neil Goldschmidt, Inc.
222 SW Columbia
Suite 1850
Portland, OR 97201
(age 58)
Philip W. Halpern Director Treasurer and Chief Investment Officer,
1400 Fones Road S.E. California Institute of Technology, since
Olympia, Washington 98501 September 1996.
(age 43) Chief Investment Officer, Washington State
Investment Board, since 1992.
</TABLE>
24
<PAGE> 48
<TABLE>
<CAPTION>
Position(s)
Held with Principal Occupation(s)
Name, Address, and Age the Company During Past 5 Years
<S> <C> <C>
Daniel F. Byrne* President Senior Vice President, Product Development and
(age 41) Sales Support, of M Financial Group, since 1992.
David W. Schutt* Secretary and Secretary and Treasurer of M Life and Director of
(age 42) Treasurer Finance for M Financial Group, since 1992.
</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.
25
<PAGE> 49
Each non-interested Director receives as compensation an annual
retainer of $10,000 plus $500 per meeting of the Board or a committee thereof
which he attends.
During the year ended December 31, 1997, the Directors of the Company
received the following compensation from the Company:
26
<PAGE> 50
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits Accrued from the Company
Aggregate as Part of the Estimated Annual and Fund Complex
Compensation from Company's Benefits upon Paid to
Name of Person, Position the 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 $ 9,000 $ 0 $ 0 $ 9,000
Director
</TABLE>
27
<PAGE> 51
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Neil E. Goldschmidt $ 9,500 $ 0 $ 0 $ 9,500
Director
Philip W. Halpern $10,000 $ 0 $ 0 $10,000
Director
</TABLE>
28
<PAGE> 52
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 securities or
foreign currencies, or other income derived with respect to its business of
investing in securities or currencies. For purposes of this test, 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 invested in
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 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. 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.
OTHER INFORMATION
FINANCIAL STATEMENTS
29
<PAGE> 53
Coopers & Lybrand LLP acts as the Company's independent public
accountants. The Financial Statements for the Funds, which are contained in the
Company's Annual Report to Shareholders, are incorporated herein by reference.
LEGAL COUNSEL
Sutherland, Asbill & Brennan L.L.P., 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 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.
30
<PAGE> 54
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 edged." 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.
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
3
<PAGE> 55
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.
DESCRIPTION OF STANDARD & POOR'S RATING SERVICE'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.
4
<PAGE> 56
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 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.
- --------------------
(1) 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 Rating Service ("S&P") at the date of this 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.
5
<PAGE> 57
APPENDIX B
DESCRIPTION OF COMMERCIAL PAPER RATINGS
COMMERCIAL PAPER - MOODY'S INVESTORS SERVICE. INC.
"PRIME-1.- Commercial paper issuers related 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 RATINGS SERVICE
"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".
"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.
6
<PAGE> 58
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS INCLUDED IN PART A
FOR THE REGISTRANT:
Financial Highlights
FINANCIAL STATEMENTS INCLUDED IN PART B
FOR THE REGISTRANT:
Statement of Assets and Liabilities, December 31, 1997
Statement of Operations, for the year ended December 31, 1997
Statement of Changes in Net Assets for the years ended
December 31, 1997 and December 31, 1996
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants
(b) EXHIBITS:
(1) Articles of Incorporation of M Fund, Inc. (1)
(2) By-Laws of M Fund, Inc. (1)
(3) Not applicable.
(4) Not applicable.
(5A) Investment Advisory Agreement between M Fund, Inc. and M Financial
Investment Advisers, Inc. (4)
(5B) Investment Sub-Advisory Agreement between M Financial Investment
Advisers, Inc. and each of the following:
(i) Edinburgh Fund Managers plc (4)
(ii) Turner Investment Partners, Inc. (4)
(iii) Frontier Capital Management Company, Inc. (4); and
(iv) Franklin Portfolio Associates LLC (4)
(6) Form of Principal Underwriting Agreement between M Fund, Inc. and M
Holdings Securities, Inc. (4)
(7) Not applicable.
(8) Custodian Agreement between M Fund, Inc. and Investors Bank & Trust
Company. (2)
(9A) Transfer Agency and Service Agreement between M Fund, Inc. and
Investors Bank & Trust Company. (2)
<PAGE> 59
(9B) 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)
(11A) Consent of Sutherland, Asbill & Brennan LLP (4)
(11B) Consent of Coopers & Lybrand L.L.P. (4)
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) Not applicable.
(16) Schedule for Computation of Performance Quotations. (3)
(17) Financial Data Schedules. (4)
(18) Not applicable.
(19) Powers of Attorney. (2)
(1) Incorporated herein by reference to Registrant's initial registration
statement filed with the SEC on August 7, 1995.
(2) Incorporated herein by reference to the Pre-Effective Amendment No. 1
to Registrant's initial registration statement filed with the SEC on
December 21, 1995.
(3) Incorporated herein by reference to Post-Effective Amendment No. 3 to
Registrant's initial registration statement filed with the SEC on
February 26, 1997.
(4) Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE TRUST.
M Fund, Inc. does not concede that it is controlled by its investment
adviser. Nevertheless, in the event of such control, the following would be
under common control.
M Financial Investment Advisers, Inc. (the "Adviser"), M Holding
Securities, Inc. and M Life Insurance Company, each Colorado corporations, are
controlled by M Financial Holdings Incorporated, doing business as "M Financial
Group". See "MANAGEMENT - Investment Adviser" in Part A.
<PAGE> 60
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
NUMBER OF RECORD
TITLE OF CLASS HOLDERS
(as of January 30, 1998)
Edinburgh Overseas Equity Fund 7
Turner Core Equity Fund 8
Frontier Capital Appreciation Fund 8
Enhanced U.S. Equity Fund 5
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 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.
<PAGE> 61
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 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.
A determination pursuant to subparagraph (c) (iii) of this
Article VIII, Section 40 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 determination 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 indemnification
provided by this Article VIII shall not be deemed exclusive of any
rights to which those seeking indemnification 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, Inc. pursuant to the foregoing provisions, or
otherwise, M Fund, Inc. 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, Inc. of expenses incurred or
paid by a Director, officer or controlling person of M Fund, Inc. 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, Inc. 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.
<PAGE> 62
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Any other business, profession, vocation or employment of a substantial
nature in which each investment adviser of M Fund, Inc. 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.
Investment Adviser File No.
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 LLC 801-17057
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) M Holdings Securities, Inc. acts as the distributor (the "Distributor")
for each of the Funds. The Distributor is a wholly-owned subsidiary of
M Financial Group. The principal executive offices of the Distributor
are located at River Park Center, 205 SE Spokane Street, Portfland,
Oregon 97202. The Distributor is registered with the SEC as a
broker-dealer under the Securities Exchange Act of 1934 and is a member
of the National Association of Securities Dealers ("NASD").
(b) Set forth below are the names, principal business addresses and
positions of each director and officer of M Holdings Securities, Inc..
Unless otherwise noted, the principal business address of these
individuals is 205 SE Spokane Street, Portland, Oregon 97202. Unless
otherwise specified, none of the officers and directors of M Holdings
Securities, Inc. serve as officers and Trustees of the Funds.
POSITIONS AND OFFICES
WITH M HOLDINGS POSITION AND OFFICES
NAME SECURITIES, INC. WITH THE REGISTRANT
Bridget McNamara Director and President Not Applicable.
Tom Spitzer Director Not Applicable.
Ron Stockfleth Director Not Applicable.
Connie Elmore Director Not Applicable.
Daniel Byrne Director President.
David Schutt Treasurer Treasurer and Secretary
Anna Nye Secretary/ Compliance Officer Not Applicable.
<PAGE> 63
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, Inc. will be maintained by the following offices of M Fund, Inc. or
Investors Bank & Trust Company:
M Fund, Inc. Investors Bank & Trust Company
River Park Center ATTN: Mutual Fund Administration
205 S.E. Spokane Street 200 Clarendon Street
Portland, Oregon 97202 Boston, Massachusetts 02116
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c) Registrant hereby undertakes to furnish to each person to whom a prospectus
is delivered, a copy of the Registrant's latest annual report to
shareholders, including the information called for in Item 5A of this Part
C, upon request and without charge.
<PAGE> 64
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant has duly caused this amendment
to its Registration Statement (the "Registration Statement") to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Boston and
the Commonwealth of Massachusetts on the 26th day of February, 1998.
M FUND, INC.
By: /s/ Daniel F. Byrne
Daniel F. Byrne,
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on February 26, 1998.
SIGNATURE TITLE
/s/ David W. Schutt Secretary and Treasurer
- ------------------- (Principal Financial and Accounting Officer)
David W. Schutt
*
- -------------------
Peter W. Mullin Director
*
- -------------------
David M. Spungen Director
*
- -------------------
Philip Halpern Director
*
- -------------------
Neil Goldschmidt Director
*
- -------------------
Gerald Bidwell Director
* Executed by /s/ Daniel F. Byrne
Daniel F. Byrne
on behalf of those indicated pursuant
to Powers of Attorney.
<PAGE> 65
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
(5A) Investment Advisory Agreement between M Fund, Inc. and M
Financial Investment Advisers, Inc.
(5B) Investment Sub-Advisory Agreement 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 LLC
(6) Form of Underwriting Agreement between M Fund, Inc. and M
Holdings Securities, Inc.
(11A) Consent of Sutherland, Asbill & Brennan LLP
(11B) Consent of Coopers & Lybrand L.L.P.
(17) Financial Data Schedules.
<PAGE> 1
M FUND, INC.
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT, made and entered into this 1st day of January, 1998, by
and between M Fund, Inc., a corporation organized and existing under the laws of
the State of Maryland (the "Fund"), and M Financial Investment Advisers, Inc., a
corporation organized and existing under the laws of the State of Colorado (the
"Adviser").
WHEREAS, the Fund is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), consisting of several portfolios of shares, each having its own
investment policies; and
WHEREAS, the Adviser is duly registered as an investment adviser
pursuant to the Investment Adviser Act of 1940; and
WHEREAS, the Fund desires to retain the Adviser to render investment
management services with respect to its Edinburgh Overseas Equity Fund, Turner
Core Growth Fund, Frontier Capital Appreciation Fund, and Enhanced U.S. Equity
Fund, and such other portfolios as the Fund and the Adviser may agree upon (the
"Portfolios"), and the Adviser is willing to render such services.
NOW, THEREFORE, in consideration of mutual covenants herein contained,
the parties hereto agree as follows:
1. DUTIES OF THE ADVISER. The Fund employs the Adviser:
(a) to manage the investment and reinvestment of the assets;
(b) to hire, and thereafter supervise the investment activities
of, one or more sub-advisers deemed necessary to carry out the
investment program of any Portfolios of the Fund, pursuant to
a written sub-advisory agreement and subject to approval by:
(i) the Fund's Board of Directors;
(ii) the vote of a majority of Directors, who are not
parties to such sub-advisory agreement or
interested persons of any such party, cast in
person at a meeting called for the purpose of
voting on such approval; and
(iii) except as otherwise permitted under the terms of
any exemptive relief obtained from the Securities
and Exchange Commission (the "SEC"), or by rule or
regulation, a majority of the outstanding voting
securities of any affected Portfolio(s);
<PAGE> 2
(c) to continuously review, supervise and (except where delegated
to a sub-adviser) administer the investment program of the
Portfolios;
(d) to determine in its discretion (except where delegated to a
sub-adviser) the securities to be purchased or sold;
(e) to provide the administrator of the Fund (the "Administrator")
and the Fund with records concerning the Adviser's activities
which the Fund is required to maintain; and
(f) to render regular reports to the Administrator and to the
Fund's officers and Directors concerning the Adviser's
discharge of the foregoing responsibilities. The retention of
a sub-adviser by the Adviser shall not relieve the Adviser of
its responsibilities under this Agreement.
The Adviser shall discharge the foregoing responsibilities subject to
the control of the Board of Directors of the Fund and in compliance
with such policies as the Directors may from time to time establish,
and in compliance with the objectives, policies, and restrictions for
each such Portfolio set forth in the Fund's prospectus and statement of
additional information, as amended from time to time (referred to
collectively as the "Prospectus"), and applicable laws and regulations.
The Fund will furnish the Adviser from time to time with copies of all
amendments or supplements to the Prospectus, if any.
The Adviser accepts such employment and agrees, at its own expense, to
render the investment advisory services and to furnish, for the use of
the Fund, office space and all necessary office facilities, equipment
and personnel (including any sub-advisers) for servicing the
investments of the Fund, maintaining its organization and assisting in
providing shareholder communications and information services and to
permit any of its officers and employees to serve, without
compensation, as Directors or officers of the Fund if elected to such
positions.
2. FEES AND EXPENSES.
(a) PAYABLE BY THE FUND. The Fund shall pay all of its expenses
other than those expressly stated to be payable by the
Adviser. The expenses payable by the Fund shall include,
without limitation:
(i) interest and taxes;
(ii) brokerage commissions and other costs in connection
with the purchase or sale of securities, commodities,
and other investments for the Fund;
(iii) fees and expenses of its Directors (other than those
who are "interested persons" of the Fund or the
Adviser);
(iv) legal and audit expenses;
(v) transfer agent expenses and expenses for servicing
shareholder accounts;
-2-
<PAGE> 3
(vi) expenses of computing the net asset value of the
shares of the Fund and the amount of its dividends;
(vii) custodian fees and expenses;
(viii) fees and expenses related to the registration and
qualification of the Fund and its shares for
distribution under state and federal securities laws;
(ix) expenses of printing and mailing reports, notices and
proxy materials to shareholders of the Fund;
(x) the cost of share certificates, if any;
(xi) reports, membership and dues in the Investment
Company Institute or any similar organization;
(xii) expenses of preparing and typesetting prospectuses;
(xiii) expenses of printing and mailing prospectuses sent to
existing shareholders;
(xiv) such nonrecurring expenses as may arise, including
expenses incurred in actions, suits or proceedings to
which the Fund is a party and the legal obligation
which the Fund may have to indemnify its officers and
Directors in respect thereto; and
(xv) such other expenses as the Directors may, from time
to time, determine to be properly payable by the
Fund.
(b) PAYABLE BY THE ADVISER. The Adviser shall pay the following:
(i) salaries and fees, if any, of all officers of the
Fund and of all Directors of the Fund who are
"interested persons" (as defined in the 1940 Act) of
the Fund or of the Adviser and of all personnel of
the Fund or Adviser performing services relating to
research, statistical and investment activities;
(ii) expenses of printing and distributing any
prospectuses or reports prepared for its use or the
use of the Fund in connection with the offering of
the shares of the Fund's common stock for sale to the
public;
(iii) expenses of preparing and typesetting any other
literature used by the Adviser in connection with
such offering;
(iv) the cost of any advertising employed in such
offering; and
(v) fees of any sub-adviser.
-3-
<PAGE> 4
3. DELIVERY OF DOCUMENTS. The Fund has furnished Adviser with copies
properly certified or authenticated of each of the following:
(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");
(c) Current Prospectus(es) of the Portfolios.
4. OTHER COVENANTS. The Adviser agrees that it will:
(a) comply with all applicable rules and regulations of the SEC
and will in addition conduct its activities under this
Agreement in accordance with other applicable law; and
(b) (directly or indirectly through one or more sub-advisers)
place orders pursuant to its investment determinations for the
Portfolios either directly with the issuer of the security or
with any broker or dealer. In executing Portfolio transactions
and selecting brokers or dealers, the Adviser (directly or
indirectly through one or more sub-advisers) 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 Adviser, and any sub-advisers, 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 Adviser and any 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 Adviser or sub-adviser or their affiliates may
exercise investment discretion. The Adviser is authorized (and
may authorize a sub-adviser), subject to the prior approval of
the Fund's Board of Directors, to pay to a broker or dealer
who provides such brokerage and research services a commission
for executing a portfolio transaction for any of the
Portfolios 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 Adviser or 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 Adviser or sub-adviser to the
Portfolio. In addition, the Adviser is authorized (and may so
authorize any sub-adviser) to allocate purchase and sale
orders for Portfolio securities to brokers or dealers
(including brokers and dealers that are affiliated with the
Adviser or sub-adviser) to take into account the sale of
variable contracts investing through separate accounts in the
Fund if the Adviser or sub-adviser believes that the quality
of the transaction 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
-4-
<PAGE> 5
to the Adviser, any sub-adviser engaged with respect to that
Portfolio, or any affiliated person of the Fund, the Adviser,
or that Portfolio's sub-adviser, acting as principal in the
transaction, except to the extent permitted by the SEC and the
1940 Act.
5. COMPENSATION OF THE ADVISER. For the services to be rendered by the
Adviser pursuant to this Agreement, the Fund shall pay to the Adviser,
and the Adviser agrees to accept as full compensation therefor, an
advisory fee for each Portfolio at the rates specified in Schedule A,
which is attached hereto and made a 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 each Portfolio and shall be paid to the Adviser monthly. The
Adviser may, in its discretion and from time to time, waive all or a
portion of its fee.
No Portfolio of the Fund shall be liable for the obligations of any
other Portfolio of the Fund. Without limiting the generality of the
foregoing, the Adviser shall look only to the assets of a particular
Portfolio for payment of fees for services rendered to that Portfolio.
All rights of compensation under this Agreement for services performed
as of the termination date shall survive the termination of this
Agreement.
6. EXCESS EXPENSES. If the expenses for any Portfolio for any fiscal year
(including fees and other amounts payable to the Adviser, but excluding
interest, taxes, brokerage costs, litigation, and other extraordinary
costs) as calculated every business day would exceed the expense
limitations imposed on investment companies by an applicable statute or
regulatory authority of any jurisdiction in which Shares are qualified
for offer and sale, the Adviser shall bear such excess cost.
However, the Adviser will not bear expenses of the Fund or any
Portfolio which would result in the Fund's inability to qualify as a
regulated investment company under provisions of the Internal Revenue
Code. Payment of expenses by the Adviser pursuant to this Section 6
shall be settled on a monthly basis (subject to fiscal year-end
reconciliation, resulting perhaps in the Adviser's recovery of some
fees waived earlier in the fiscal year) by a waiver of the Adviser's
fees provided for hereunder, and such waiver shall be treated as a
reduction in the purchase price of the Adviser's services.
7. REPORTS. The Fund and the Adviser agree to furnish to each other, if
applicable, current prospectuses, proxy statements, reports to
shareholders, certified copies of their financial statements, and such
other information with regard to their affairs as each may reasonably
request. The Adviser further agrees to furnish to the Fund, if
applicable, the same such documents and information pertaining to any
sub-adviser as the Fund may reasonably request.
8. STATUS OF THE ADVISER. The services of the Adviser to the Fund are not
to be deemed exclusive, and the Adviser shall be free to render similar
services to others so long as its services to the Fund are not impaired
thereby. The Adviser shall be deemed to be an independent contractor
and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Fund in any way or otherwise be
deemed an agent of the Fund. To the extent that the purchase or sale of
securities or other investments of any issuer may be deemed by the
Adviser to be suitable for two or more accounts managed by the Adviser,
the available securities or investments may be allocated in a manner
believed by the Adviser to be equitable to each account. It is
recognized that in
-5-
<PAGE> 6
some cases this may adversely affect the price paid or received by the
Fund or the size or position obtainable for or disposed of by the Fund
or any Portfolio.
9. CERTAIN RECORDS. The Adviser shall keep and maintain, or shall arrange
for the sub-adviser of a Portfolio to keep and maintain, all books and
records with respect to each Portfolio's portfolio transactions
required by Rule 31a-1 under the 1940 Act and shall render to the Board
of Directors of the Fund such periodic and special reports as the Board
of Directors may reasonably request. The Adviser shall also furnish to
the Fund any other information that is required to be filed by 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 Adviser agrees that all
records that it (or any sub-adviser) maintains on behalf of the Fund
are the property of the Fund and the Adviser will surrender promptly to
the Fund any of such records upon the Fund's request; provided,
however, that the Adviser may retain a copy of such records. In
addition, for the duration of this Agreement, the 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
Adviser upon the termination of this Agreement (or, if there is no
successor Adviser, to the Fund).
10. LIMITATION OF LIABILITY OF THE ADVISER. The duties of the Adviser shall
be confined to those expressly set forth herein, and no implied duties
are assumed by or may be asserted against the Adviser hereunder. The
Adviser shall 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 carrying out its duties hereunder, except a loss resulting
from willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of reckless disregard of its
obligations and duties hereunder, except as may otherwise be provided
under provisions of applicable state law which cannot be waived or
modified hereby. (As used in this Section 10, the term "Adviser" shall
include not only the Adviser itself but also shareholders, directors,
officers, employees and other corporate agents of the Adviser).
11. PERMISSIBLE INTERESTS. Directors, agents, and shareholders of the Fund
are or may be interested in the Adviser (or any successor thereof) as
directors, partners, officers, or shareholders, or otherwise;
directors, partners, officers, agents, and shareholders of the Adviser
are or may be interested in the Fund as Directors, officers,
shareholders or otherwise; and the Adviser (or any successor) is or may
be interested in the Fund as a shareholder or otherwise subject to the
provisions of applicable law. All such interests shall be fully
disclosed between the parties on an ongoing basis and in the Fund's
Prospectus as required by law. In addition, brokerage transactions for
the Fund may be effected through affiliates of the Adviser or any
sub-adviser if approved by the Board of Directors, subject to the rules
and regulations of the SEC.
12. DURATION AND TERMINATION. This Agreement, unless sooner terminated as
provided herein, shall remain in effect until one year from the date of
execution, and thereafter, for periods of one year so long as such
continuance thereafter is specifically approved at least annually (a)
by the vote of a majority of those Directors of the Fund who are not
parties to this Agreement or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on such
approval, and (b) by the Board of Directors of the Fund or by vote of a
majority of the outstanding voting securities of each Portfolio;
provided, however, that if the shareholders of any Portfolio fail to
approve the Agreement
-7-
<PAGE> 7
as provided herein, the Adviser may continue to serve hereunder in the
manner and to the extent permitted by the 1940 Act and rules and
regulations thereunder.
This Agreement may be terminated as to any Portfolio at any time,
without the payment of any penalty by vote of a majority of the
Directors of the Fund or by vote of a majority of the outstanding
voting securities of the Portfolio on not less than 30 days' nor more
than 60 days' written notice to the Adviser, or by the Adviser at any
time without the payment of any penalty, on 90 days' written notice to
the Fund. This Agreement will automatically and immediately terminate
in the event of its assignment.
As used in this Section 12, the terms "assignment," "interested
persons," and a "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
exemptions as may be granted by the SEC.
13. 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.
14. 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 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 Fund at: M Fund, Inc.
River Park Center
205 S.E. Spokane Street
Portland, OR 97202
Attn: President
Each such notice, advice or report shall be effective upon receipt or
three days after mailing.
15. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby.
16. 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.
-7-
<PAGE> 8
17. 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
M FUND, INC. ADVISERS, INC.
By: /s/ Daniel F. Byrne By: /s/ Daniel F. Byrne
--------------------------------- -------------------------------------
Title: President Title: President
------------------------------ ----------------------------------
Attest: /s/ Anna Nye Attest: /s/ Anna Nye
----------------------------- ---------------------------------
Title: Administrator Title: Administrator
------------------------------ ---------------------------------
-8-
<PAGE> 9
SCHEDULE A
TO THE
INVESTMENT ADVISORY AGREEMENT
BETWEEN
M FUND, INC.
AND
M FINANCIAL INVESTMENT ADVISERS, INC.
Pursuant to Section 5, the Fund shall pay the Adviser compensation at an
effective annual rate as follows:
<TABLE>
<CAPTION>
<S> <C>
Name of Portfolio Annual Rate of Compensation
Edinburgh Overseas Equity Fund 1.05% of first $ 10 million
0.90% of next $ 15 million
0.75% of next $ 75 million
0.60% on amounts above
$100 million
Turner Core Growth Fund 0.45%
Frontier Capital Appreciation Fund 0.90%
Enhanced U.S. Equity Fund 0.55% of first $ 25 million
0.45% of next $ 75 million
0.30% on amounts above
$100 million
</TABLE>
-9-
<PAGE> 1
M FUND, INC.
INVESTMENT SUB-ADVISORY AGREEMENT
FOR THE
EDINBURGH OVERSEAS EQUITY FUND
THIS AGREEMENT made and entered into this 1st day of January, 1998, 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 the
United Kingdom (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 management of the Portfolio, and the Sub-Adviser is willing
to render such investment advisory services.
WHEREAS, the Sub-Adviser is registered as an investment adviser
pursuant to the Investment Adviser Act of 1940.
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 Fund and will conform to and comply with the requirements
of the 1940 Act, the
<PAGE> 2
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.
(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
-2-
<PAGE> 3
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.
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
-3-
<PAGE> 4
(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 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.
-4-
<PAGE> 5
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.
This Agreement shall continue in effect for a period of one year 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:
-5-
<PAGE> 6
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
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: /s/ Daniel F. Byrne By: /s/ Cathie Miller
---------------------------------- -------------------------------------
Title: President Title: Director
------------------------------- ---------------------------------
Attest: /s/ Anna Nye Attest: /s/ Nigel Anderson
------------------------------ --------------------------------
Title: Administrator Title: Compliance Manager
------------------------------- ---------------------------------
-6-
<PAGE> 7
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
-7-
<PAGE> 8
M FUND, INC.
INVESTMENT SUB-ADVISORY AGREEMENT
FOR THE
TURNER CORE GROWTH FUND
THIS AGREEMENT made and entered into this 1st day of January, 1998, 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.
WHEREAS, the Sub-Adviser is registered as an investment adviser
pursuant to the Investment Adviser Act of 1940.
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> 9
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.
(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
-2-
<PAGE> 10
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.
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");
-3-
<PAGE> 11
(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 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
-4-
<PAGE> 12
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.
This Agreement shall continue in effect for a period of one year 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:
-5-
<PAGE> 13
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:
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:/s/ Daniel F. Byrne By: /s/ Michael Thompson
---------------------------------- -------------------------------------
Title: President Title: Assistant Secretary & Principal
------------------------------- ---------------------------------
Attest: /s/ Anna Nye Attest:
------------------------------ ---------------------------------
Title: Administrator Title:
------------------------------- ----------------------------------
-6-
<PAGE> 14
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%
-7-
<PAGE> 15
M FUND, INC.
INVESTMENT SUB-ADVISORY AGREEMENT
FOR THE
FRONTIER CAPITAL APPRECIATION FUND
THIS AGREEMENT made and entered into this 1st day of January, 1998, 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 management of the Portfolio, and the Sub-Adviser is willing
to render such investment advisory services.
WHEREAS, the Sub-Adviser is registered as an investment adviser
pursuant to the Investment Adviser Act of 1940.
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> 16
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.
(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
-2-
<PAGE> 17
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.
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");
-3-
<PAGE> 18
(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 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
-4-
<PAGE> 19
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.
This Agreement shall continue in effect for a period of one year 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:
-5-
<PAGE> 20
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.
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: /s/ Daniel F. Byrne By: /s/ Kirk Smith
--------------------------------- -------------------------------------
Title: President Title: Senior Vice President
------------------------------ ----------------------------------
Attest: /s/ Anna Nye Attest: /s/ Sarah Jankowski
----------------------------- ---------------------------------
Title: Administrator Title: Assistant Vice President
------------------------------ ----------------------------------
-6-
<PAGE> 21
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%
-7-
<PAGE> 22
M FUND, INC.
INVESTMENT SUB-ADVISORY AGREEMENT
FOR THE
ENHANCED U.S. EQUITY FUND
THIS AGREEMENT made and entered into this 1st day of January, 1998, 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 LLC, a Massachusetts business trust 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 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 management of the Portfolio, and the Sub-Adviser is willing
to render such investment advisory services.
WHEREAS, the Sub-Adviser is registered as an investment adviser
pursuant to the Investment Adviser Act of 1940.
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 Fund and will conform to and comply with the requirements
of the 1940 Act, the
<PAGE> 23
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.
(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
-2-
<PAGE> 24
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.
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");
-3-
<PAGE> 25
(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.
(d) The Statement of Additional Information shall be provided to
FPA by the Adviser
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 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
-4-
<PAGE> 26
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 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 one year 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.
-5-
<PAGE> 27
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: FRANKLIN PORTFOLIO ASSOCIATES LLC
Two International Place, 22nd Floor
Boston, MA 02110
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 LLC
By: /s/ Daniel F. Byrne By: /s/ John Nagorniak
--------------------------------- -------------------------------------
Title: President Title: President
------------------------------ ----------------------------------
Attest: /s/ Anna Nye Attest: /s/ Gregg Pendergast
----------------------------- ---------------------------------
Title: Administrator Title: Vice President
------------------------------ ----------------------------------
-6-
<PAGE> 28
SCHEDULE A
TO THE
INVESTMENT SUB-ADVISORY AGREEMENT
BETWEEN
M FINANCIAL INVESTMENT ADVISERS, INC.
AND
FRANKLIN PORTFOLIO ASSOCIATES LLC
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. 0.40% on first $ 25 million
Equity Fund 0.30% on next $ 75 million
0.15% on amounts over $100 million
-7-
<PAGE> 1
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
ATLANTA * AUSTIN * NEW YORK * WASHINGTON
1275 Pennsylvania Avenue, N.W. TEL: (202)383-0100
Washington, D.C. 20004-2404 FAX: (202)637-3593
Frederick R. Bellamy
Direct Line: (202) 383-0120 February 26, 1998
VIA EDGARLINK
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
Post-Effective Amendment No. 4 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> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the registration
statement of M Fund, Inc. on Form N-1A (File No. 33-95472/811-9082)
Post-Effective Amendment No. 4, of our report dated February 11, 1998, on our
audits of the financial statements and financial highlights included in the
December 31, 1997 Annual Report of Edinburgh Overseas Equity Fund, Turner Core
Growth Fund, Frontier Capital Appreciation Fund and Enhanced U.S. Equity Fund
(four series of M Fund, Inc.).
We further consent to the references to our Firm under the headings "Financial
Highlights" in the Prospectus and "Other Information" in the statement of
Additional Information.
/s/ Coopers & Lybrand LLP
----------------------------------------
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 26, 1998
<PAGE> 1
M FUND, INC
PRINCIPAL UNDERWRITING AGREEMENT
_________ __, 1998
THIS AGREEMENT is made and entered into this ____ day of ___________,
1998, by and between M Fund, Inc., a corporation organized and existing under
the laws of the state of Maryland (the "Company"), and M Holdings Securities,
Inc., a corporation organized and existing under the laws of the State of Oregon
(the "Distributor").
WHEREAS, the Company consists of several portfolios of shares and is
registered as an open-end management series investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Company has registered the shares of its several classes
of stock ("Shares") for offer and sale in four portfolios, each as set forth on
Schedule A hereto under the Securities Act of 1933, as amended (the "1933 Act"),
and the Company may offer Shares of one or more additional portfolios in the
future (such existing and future portfolios are collectively referred to herein
as the "Funds"); and
WHEREAS, the Company was organized to serve as the funding vehicle for
certain individual and group variable life insurance policies and variable
annuity contracts offered by certain life insurance companies ("Participating
Insurance Companies") through their segregated asset accounts (the "Accounts"),
and may also offer its Shares directly to qualified pension and retirement plans
(the "Qualified Plans"); and
WHEREAS, the Distributor is a broker-dealer registered with the
Securities and Exchange Commission (the "Commission") under the Securities
Exchange Act of 1934, as amended (the "1934 Act") and is a member of the
National Association of Securities Dealers, Inc. (the "NASD");
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties hereto agree as follows:
I. APPOINTMENT OF THE DISTRIBUTOR
A. The Company hereby appoints the Distributor as its exclusive agent
for the distribution of the Shares of each Fund to the Accounts of Participating
Insurance Companies and to the Qualified Plans as may be permitted by applicable
law and subject to the Company's obtaining any necessary regulatory approvals,
subject to the terms of this Agreement and the policies and control of the
Company's Board of Directors (the "Board"). The Distributor hereby accepts such
appointment.
B. In the event that the Company from time to time creates one or more
additional Funds, it shall notify the Distributor. If the Distributor is willing
to perform services hereunder to the additional Fund(s), it shall so notify the
Company. Thereafter, the Company and the
<PAGE> 2
Distributor shall mutually agree to amend Schedule A to this Agreement in
writing to add the additional Fund(s) and the additional Fund(s) shall be
subject to this Agreement, subject to the approval of the Board as set forth in
Paragraph XII below.
C. The Distributor is an independent contractor. The Distributor is
responsible for its own conduct, for the employment, control and conduct of its
agents and employees and for injury to such agents or employees or to others
through its agents or employees. The Distributor assumes full responsibility for
its agents and employees under applicable laws and agrees to pay all employer
taxes relating thereto.
II. DUTIES OF THE DISTRIBUTOR AND THE COMPANY
A. THE COMPANY EMPLOYS THE DISTRIBUTOR:
1. to sell the Shares of each Fund at net asset value
upon the terms described in (a) the then effective
registration statement of the Company, under the 1933
Act and the 1940 Act (the "Registration Statement")
and (b) the then current prospectus and statement of
additional information and any supplements thereto
(collectively, the "Prospectus"). The Distributor
agrees that the Company shall receive 100% of such
net asset value;
2. to sell the Shares of each Fund in accordance with
any participation agreements between the Company and
the Participating Insurance Companies and, where
applicable, the Company and Qualified Plans;
3. to submit to the NASD for review and approval, as
required, all sales literature and advertisements to
be used in connection with the sale of the Shares and
to take any and all action necessary and appropriate
to ensure the approval of such material within a
reasonable time period. All sales literature and
advertisements used by the Distributor in connection
with the sale of Shares shall be subject to approval
by the Company or its delegatee. The Company
authorizes the Distributor, in connection with the
sales or arranging for the sale of Shares, to provide
only such information and to make only such
statements or representations as are contained in the
Company's Registration Statement or Prospectus or in
sales literature or advertisements approved by the
Company or in such financial or other statements or
reports which are furnished to the Distributor
pursuant to the next paragraph. The Company shall not
be responsible in any way for any information
provided or statements and representations made by
the Distributor or its representatives or agents
other than the information, statements, and
representations described in the preceding sentence.
The Distributor shall review all materials submitted
to it by Participating Insurance Companies and
Qualified Plans that describe the Company, the
Shares, or the Company's investment adviser. The
Distributor shall not be responsible for any
information provided or
2
<PAGE> 3
statements or representations made by Participating
Insurance Companies or Qualified Plans,
representatives or agents of Participating Insurance
Companies or Qualified Plans, or any other persons or
entities other than the Distributor's representatives
or agents.
B. THE COMPANY AGREES:
1. to make available to the Distributor copies of all
information, financial statements and auditor's
reports thereon and other papers which the
Distributor may reasonably request for use in
connection with the distribution of Shares, including
such reasonable number of copies of the most current
prospectus, statement of additional information, and
annual and interim reports of a Fund as the
Distributor may request;
2. to cooperate fully in the efforts of the Distributor
to sell and arrange for the sale of the Shares and in
the performance of the Distributor of its duties
under this Agreement; and
3. to register or cause to be registered all Shares sold
by the Distributor pursuant to the provisions of this
Agreement.
C. The Company reserves the right at any time to withdraw all
offerings of the Shares of any or all Funds by written notice
to the Distributor at its principal office.
D. The Company and the Distributor hereby agree that all
advertisements and sales literature issued by either of them
referring directly or indirectly to the Company or to the
Distributor will be submitted to and receive the approval of
the Company and the Distributor before it may be used by
either party.
III. REPRESENTATIONS AND WARRANTIES
A. REPRESENTATIONS AND WARRANTIES OF THE DISTRIBUTOR. The
Distributor hereby represents and warrants to the Company as
follows:
1. Due Incorporation and Organization. The Distributor
is duly organized and is in good standing under the
laws of the State of Oregon and is fully authorized
to enter into this Agreement and carry out its terms.
2. Registration. The Distributor is a broker-dealer
registered with the Commission under the 1934 Act, is
a member of the NASD, and is registered or licensed
under the laws of all jurisdictions in which its
activities require it to be so registered or
licensed. The Distributor shall maintain such
registration or license in effect at all times during
the term of this Agreement and will immediately
notify the Company of the
3
<PAGE> 4
occurrence of any event that would disqualify the
Distributor from serving as a Distributor by
operation of Section 9(a) of the 1940 Act or
otherwise.
3. Code of Ethics. The Distributor has adopted and
implemented a written code of ethics that complies
with the requirements of Rule 17j-1 under the 1940
Act and will provide the Company with a copy of such
code of ethics and all subsequent modifications,
together with evidence of its adoption and
implementation. At least annually the Distributor
will provide the Company with a report describing the
implementation of the code of ethics during the
immediately preceding twelve (12) month period.
B. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company, on behalf
of the Funds, hereby represents and warrants to the Distributor as
follows:
1. Due Incorporation and Organization. The Company is
duly organized under the laws of the State of
Maryland and is fully authorized to enter into this
Agreement and carry out its terms.
2. Registration. The Company is registered as an
investment company with the Commission under the 1940
Act and Shares of the Company are and will be
registered under the 1933 Act for offer and sale to
the Accounts of Participating Insurance Companies and
to Qualified Plans. Such registration shall be kept
in effect during the term of this Agreement.
IV. COMPLIANCE WITH APPLICABLE REQUIREMENTS
In carrying out its obligations under this Agreement, the Distributor
shall at all times conform to:
A. all applicable provisions of the 1934 Act and the 1940 Act and
the rules and regulations thereunder;
B. the provisions of the Registration Statement of the Company as
the same may be amended from time to time, under the 1933 Act
and the 1940 Act;
C. the provisions of the Company's Articles of Incorporation, as
amended;
D. the provisions of the By-Laws of the Company, as amended; and
E. any other applicable provisions of state and federal law.
V. EXPENSES
The expenses in connection with the distribution of the Shares shall be
allocable as follows:
A. EXPENSES OF THE COMPANY
4
<PAGE> 5
The Company will pay or cause to be paid:
1. registration fees for registering its Shares under
the 1933 Act;
2. expenses incident to preparing and filing amendments
to the Registration Statement of the Company under
the 1933 Act and the 1940 Act;
3. expenses for preparing and setting in type all
prospectuses and the expense of printing and
supplying them to the then existing shareholders or
beneficial owners of Shares (including, but not
limited to, owners of individual and group variable
life insurance policies and variable annuity
contracts that use one or more Funds as their funding
vehicle);
4. expenses incident to the issuance of its Shares such
as the cost of stock certificates, if any, taxes, and
fees for establishing shareholder record accounts;
and
5. expenses for administrative and transfer agency
services.
B. EXPENSES OF THE DISTRIBUTOR
1. The Distributor shall pay all of its own costs and
expenses connected with the offer and sale of Shares.
VI. REPORTS
The Distributor shall prepare reports for the Board on a quarterly
basis showing such information concerning services provided and expenses
incurred related to this Agreement, and such other information, as from time to
time may be reasonably requested by the Board.
VII. INDEMNIFICATION BY THE COMPANY
The Company agrees to indemnify, defend and hold the Distributor, each
person who has been, is, or may hereafter be an officer, director, employee or
agent of the Distributor, and any person who controls the Distributor within the
meaning of Section 15 of the 1933 Act, free and harmless against any loss,
damage or expense reasonably incurred by any of them in connection with any
claim or in connection with any action, suit, or proceeding to which any of them
may be a party, which arises out of or is alleged to arise out of or is based
upon a violation of any of the Company's covenants herein contained, or any
alleged untrue statement of a material fact, or the alleged omission to state a
material fact necessary to make the statements made not misleading, in the
Registration Statement or prospectus of the Company, or any amendment or
supplement thereto, unless such statement or omission was made in reliance upon
information furnished by the Distributor. The foregoing rights of
indemnification shall be in addition to any other rights to which any of the
foregoing indemnified parties may be entitled as a matter of law. Nothing
contained herein shall relieve the Distributor of any liability to the Company
or its shareholders
6
<PAGE> 6
to which the Distributor would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties or
reckless disregard of its obligations and duties under this Agreement.
VIII. INDEMNIFICATION BY THE DISTRIBUTOR
The Distributor agrees to indemnify, defend and hold the Company, each
person who has been, is, or may hereafter be an officer, director, employee or
agent of the Company, and any person who controls the Company within the meaning
of Section 15 of the 1933 Act, free and harmless against any loss, damage or
expense reasonably incurred by any of them in connection with any claim or in
connection with any action, suit, or proceeding to which any of them may be a
party, which arises out of or is alleged to arise out of or is based upon a
violation of any of the Distributor's covenants herein contained, or any alleged
untrue statement of a material fact, or the alleged omission to state a material
fact necessary to make the statements made not misleading, on the part of the
Distributor or any agent or employee of the Distributor, whether made orally or
in writing, unless such statement or omission was made in reliance upon written
information furnished by the Company. The foregoing rights of indemnification
shall be in addition to any other rights to which any of the foregoing
indemnified parties may be entitled as a matter of law.
IX. NON-EXCLUSIVITY
The services of the Distributor to the Company under this Agreement are
not to be deemed exclusive, and the Distributor shall be free to render similar
services to others (including other investment companies) so long as its
services to the Company are not impaired thereby. It is understood and agreed
that officers and directors of the Distributor may serve as officers or
directors of the Company, and that officers or directors of the Company may
serve as officers or directors of the Distributor to the extent permitted by
law. The officers and directors of the Distributor are not prohibited by this
Agreement from engaging in any other business activity or from rendering
services to any other person, or from serving as partners, officers, directors
or trustees of any other firm, corporation or trust, including other investment
companies.
X. TERM
This Agreement shall become effective as of the date on which this
Agreement is executed, provided this Agreement is approved by both (a) the vote
of a majority of the Board and (b) the vote of a majority of those members of
the Board who are not parties to this Agreement or interested persons of any
such party, and who have no direct or indirect financial interest in this
Agreement, cast in person at a meeting called for such purposes.
Unless terminated as herein provided, this Agreement shall remain in
full force and effect for two years from the date of execution of this Agreement
and shall continue in effect from year to year thereafter, only so long as such
continuance is approved at least annually:
6
<PAGE> 7
A. by the vote of a majority of those members of the Board who
are not parties to this Agreement or interested persons of any
such party, and who have no direct or indirect financial
interest in this Agreement, cast in person at a meeting called
for the purpose of voting on such renewal; and
B. by either the vote of a majority of the Board or the vote of a
majority of the outstanding voting securities of the Company.
XI. TERMINATION AND ASSIGNMENT
A. This Agreement may be terminated at any time, without the
payment of any penalty,
1. by (a) the Company, (b) the vote of a majority of the
Board, (c) the vote of a majority of those members of
the Board who are not parties to this Agreement or
interested persons of any such party, and who have no
direct or indirect financial interest in this
Agreement, or (d) the vote of a majority of the
outstanding voting securities of the Company, or
2. by the Distributor.
3. In the event of termination of this Agreement, the
Company and the Distributor agree to provide the
non-terminating party at least sixty (60) days' prior
written notice of such termination. In the case of
termination under paragraph 1. of this subsection,
only the Distributor will be deemed the
non-terminating party.
B. This Distribution Agreement may not be assigned by the Distributor
and will automatically and immediately terminate in the event of its assignment.
XII. AMENDMENTS
This Agreement may be amended in writing, by an instrument signed by a
duly authorized officer of the Company and by the Distributor, but no amendment
to this Agreement shall be effective until such amendment is approved:
A. by the vote of a majority of those members of the Board who
are not parties to this Agreement or interested persons of any
such party, and who have no direct or indirect financial
interest in this Agreement, cast in person at a meeting called
for the purpose of voting on such approval; and
B. by the vote of a majority of the Board.
XIII. GOVERNING LAW
7
<PAGE> 8
This Agreement shall be governed by the laws of the State of Oregon,
without regard to conflicts of law principles; provided, however, that nothing
herein shall be construed as being inconsistent with 1933 Act, the 1934 Act or
the 1940 Act.
XIV. DEFINITIONS
As used in this Agreement, the terms "majority of outstanding voting
securities," "interested persons," and "assignment" shall have the same meaning
as those terms have in the 1940 Act.
XV. NOTICE
Any notice, advice or report to be given pursuant to this Agreement
shall be deemed sufficient if delivered by hand or first class mail, or
transmitted by electronic facsimile, or mailed by registered, certified or
overnight United States mail, postage prepaid, or sent by overnight delivery
with a recognized courier, addressed by the party giving notice to the other
party at the last address furnished by the other party:
To the Distributor at: M Holdings Securities, Inc.
River Park Center
205 S.E. Spokane Street
Portland, Oregon 97202
Attn: Corporate Secretary
To the Company at: M Fund, Inc.
River Park Center
205 S.E. Spokane Street
Portland, Oregon 97202
Attn: Corporate Secretary
Each such notice, advice or report shall be effective upon receipt or
three days after mailing, whichever is first.
XVI. SEVERABILITY
If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
XVII. 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
8
<PAGE> 9
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.
XVIII. 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
Commission, whether of special or general application, such provision shall be
deemed to incorporate the effect of such rule, regulation or order.
XIX. COOPERATION WITH AUTHORITIES
Each party hereto shall cooperate with the other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
XX. CUMULATIVE RIGHTS
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
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 FUND, INC.
Attest: By:
----------------------------- -------------------------------------
Title:
----------------------------------
M HOLDINGS SECURITIES, INC.
Attest: By:
----------------------------- -------------------------------------
Title:
----------------------------------
9
<PAGE> 10
SCHEDULE A
FUNDS OF M FUND, INC.
Edinburgh Overseas Equity Fund
Turner Core Growth Fund
Frontier Capital Appreciation Fund
Enhanced U. S. Equity Fund
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from M Fund Inc.
financial statements at December 31, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> EDINBURGH OVERSEAS EQUITY FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 5,269,896
<INVESTMENTS-AT-VALUE> 5,511,009
<RECEIVABLES> 512,534
<ASSETS-OTHER> 60,811
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,084,354
<PAYABLE-FOR-SECURITIES> 19,503
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 30,866
<TOTAL-LIABILITIES> 50,369
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,061,551
<SHARES-COMMON-STOCK> 605,730
<SHARES-COMMON-PRIOR> 321,541
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 7,124
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 261,247
<ACCUM-APPREC-OR-DEPREC> 240,805
<NET-ASSETS> 6,033,985
<DIVIDEND-INCOME> 82,383
<INTEREST-INCOME> 21,172
<OTHER-INCOME> 0
<EXPENSES-NET> 63,223
<NET-INVESTMENT-INCOME> 40,332
<REALIZED-GAINS-CURRENT> (148,305)
<APPREC-INCREASE-CURRENT> 165,207
<NET-CHANGE-FROM-OPS> 57,234
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 59,442
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 25,490
<NUMBER-OF-SHARES-SOLD> 400,630
<NUMBER-OF-SHARES-REDEEMED> 126,803
<SHARES-REINVESTED> 10,362
<NET-CHANGE-IN-ASSETS> 2,856,788
<ACCUMULATED-NII-PRIOR> 2,033
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 117,784
<GROSS-ADVISORY-FEES> 51,064
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 240,156
<AVERAGE-NET-ASSETS> 4,863,311
<PER-SHARE-NAV-BEGIN> 9.88
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> 0.15
<PER-SHARE-DIVIDEND> 0.10
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.04
<PER-SHARE-NAV-END> 9.96
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from M Fund Inc.
financial statements at December 31, 1997 and is qualified by reference to such
financial statements.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> TURNER CORE GROWTH FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 3,160,186
<INVESTMENTS-AT-VALUE> 3,659,114
<RECEIVABLES> 127,876
<ASSETS-OTHER> 60,811
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,847,801
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27,659
<TOTAL-LIABILITIES> 27,659
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,345,905
<SHARES-COMMON-STOCK> 282,925
<SHARES-COMMON-PRIOR> 172,614
<ACCUMULATED-NII-CURRENT> 903
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 25,594
<ACCUM-APPREC-OR-DEPREC> 498,928
<NET-ASSETS> 3,820,142
<DIVIDEND-INCOME> 25,296
<INTEREST-INCOME> 5,189
<OTHER-INCOME> 0
<EXPENSES-NET> 20,459
<NET-INVESTMENT-INCOME> 10,026
<REALIZED-GAINS-CURRENT> 310,733
<APPREC-INCREASE-CURRENT> 418,627
<NET-CHANGE-FROM-OPS> 739,386
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,958
<DISTRIBUTIONS-OF-GAINS> 337,908
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 146,803
<NUMBER-OF-SHARES-REDEEMED> 68,463
<SHARES-REINVESTED> 31,971
<NET-CHANGE-IN-ASSETS> 1,817,211
<ACCUMULATED-NII-PRIOR> 930
<ACCUMULATED-GAINS-PRIOR> 1,581
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 13,152
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 181,209
<AVERAGE-NET-ASSETS> 2,922,723
<PER-SHARE-NAV-BEGIN> 11.60
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 3.22
<PER-SHARE-DIVIDEND> 0.04
<PER-SHARE-DISTRIBUTIONS> 1.32
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.50
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from M Fund Inc.
financial statements at December 31, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> FRONTIER CAPITAL APPRECIATION FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 13,522,084
<INVESTMENTS-AT-VALUE> 14,015,352
<RECEIVABLES> 2,709,544
<ASSETS-OTHER> 60,811
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 16,785,707
<PAYABLE-FOR-SECURITIES> 126,358
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 30,901
<TOTAL-LIABILITIES> 157,259
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,067,147
<SHARES-COMMON-STOCK> 1,114,444
<SHARES-COMMON-PRIOR> 239,998
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 68,033
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 493,268
<NET-ASSETS> 16,628,448
<DIVIDEND-INCOME> 27,626
<INTEREST-INCOME> 62,401
<OTHER-INCOME> 0
<EXPENSES-NET> 101,281
<NET-INVESTMENT-INCOME> (11,254)
<REALIZED-GAINS-CURRENT> 521,608
<APPREC-INCREASE-CURRENT> 328,082
<NET-CHANGE-FROM-OPS> 838,436
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 391,663
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,325,768
<NUMBER-OF-SHARES-REDEEMED> 487,715
<SHARES-REINVESTED> 36,393
<NET-CHANGE-IN-ASSETS> 13,622,505
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 51,513
<GROSS-ADVISORY-FEES> 79,263
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 252,045
<AVERAGE-NET-ASSETS> 8,807,186
<PER-SHARE-NAV-BEGIN> 12.52
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 2.76
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.36
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.92
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from M Fund Inc.
financial statements at December 31, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> ENHANCED U.S. EQUITY FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 6,503,077
<INVESTMENTS-AT-VALUE> 7,106,289
<RECEIVABLES> 209,883
<ASSETS-OTHER> 60,811
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,376,983
<PAYABLE-FOR-SECURITIES> 5,124
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27,047
<TOTAL-LIABILITIES> 32,171
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,712,187
<SHARES-COMMON-STOCK> 486,792
<SHARES-COMMON-PRIOR> 133,525
<ACCUMULATED-NII-CURRENT> 882
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 28,531
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 603,212
<NET-ASSETS> 7,344,812
<DIVIDEND-INCOME> 58,235
<INTEREST-INCOME> 7,637
<OTHER-INCOME> 0
<EXPENSES-NET> 26,722
<NET-INVESTMENT-INCOME> 39,150
<REALIZED-GAINS-CURRENT> 201,780
<APPREC-INCREASE-CURRENT> 467,676
<NET-CHANGE-FROM-OPS> 708,606
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 39,983
<DISTRIBUTIONS-OF-GAINS> 204,015
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 369,645
<NUMBER-OF-SHARES-REDEEMED> 38,550
<SHARES-REINVESTED> 22,172
<NET-CHANGE-IN-ASSETS> 5,762,671
<ACCUMULATED-NII-PRIOR> 810
<ACCUMULATED-GAINS-PRIOR> 30,766
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18,371
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 181,208
<AVERAGE-NET-ASSETS> 3,340,278
<PER-SHARE-NAV-BEGIN> 11.85
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 3.78
<PER-SHARE-DIVIDEND> 0.09
<PER-SHARE-DISTRIBUTIONS> 0.53
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.09
<EXPENSE-RATIO> 0.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
